UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Exact name of registrant as specified in its charter, State or
other jurisdiction of incorporation or organization, Address of
principal executive offices and Registrant's Telephone Number,
Commission including area code IRS Employer
File Number Identification No.
- ----------- -----------------
1-12927 NEW CENTURY ENERGIES, INC. 84-1334327
(a Delaware Corporation)
1225 17th Street
Denver, Colorado 80202
Telephone (303) 571-7511
1-3280 PUBLIC SERVICE COMPANY OF COLORADO 84-0296600
(a Colorado Corporation)
1225 17th Street
Denver, Colorado 80202
Telephone (303) 571-7511
1-3789 SOUTHWESTERN PUBLIC SERVICE COMPANY 75-0575400
(a New Mexico Corporation)
Tyler at Sixth
Amarillo, Texas 79101
Telephone (303) 571-7511
____________________
Southwestern Public Service Company meets the conditions set forth in General
Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form
10-K with the reduced disclosure format specified in General Instruction I
(2) to such Form 10-K.
<PAGE>
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Registrant Title of Each Class on Which Registered
- ---------- ------------------- -------------------
New Century Energies, Inc. Common Stock, $1 par value
per share New York
Public Service Company
of Colorado Cumulative Preferred Stock,
par value $100 per share
4 1/4% Series American
7.15% Series New York
Cumulative Preferred Stock ($25),
par value per share
8.40% Series New York
Southwestern Public
Service Company 7.85% Trust Preferred Securities,
Series A New York
Securities registered pursuant to Section 12(g) of the Act:
Registrant Title of Class
- ---------- --------------
Public Service Company
of Colorado Cumulative Preferred Stock par value
$100 per share
4.20% series
4 1/2% series
4.64% series
4.90% series
4.90% 2nd series
7.50% series
8.40% series
Indicate by check mark whether the registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrants were required to file such reports), and (2) have
been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrants' knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ X ]
As of February 19, 1998, 110,997,546 shares of New Century Energies,
Inc. Common Stock were outstanding. The aggregate market value of New
Century Energies, Inc. Common Stock, $1.00 par value (the only class of
voting stock), held by non-affiliates was $5,050,388,343 based on the last
sale price of such stock on the New York Stock Exchange on February 19,
1998. New Century Energies, Inc. is the sole holder of the Common Stock of
PSCo and SPS.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of New Century Energies, Inc. to be
filed in connection with its Annual Meeting of Shareholders, to be held May
12, 1998, are incorporated by reference into Part III hereof.
<PAGE>
TABLE OF CONTENTS
Page
Definitions Number
Part I
Item 1. Business.............................................. 1
Item 2. Properties............................................ 23
Item 3. Legal Proceedings..................................... 27
Item 4. Submission of Matters to a Vote of Securities Holders. 27
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ................................ 27
Item 6. Selected Financial Data............................... 29
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 31
Item 7A Quantitative and Qualitative Disclosures About Market
Risk ............................................... NA
Item 8. Financial Statements and Supplementary Data........... 39
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. 120
Part III
Item 10.Directors and Executive Officers of the Registrants... 120
Item 11.Executive Compensation ............................... 124
Item 12.Security Ownership of Certain Beneficial Owners
and Management ..................................... 130
Item 13.Certain Relationships and Related Transactions ....... 132
Part IV
Item 14.Exhibits, Financial Statement Schedules and Reports
on Form 8-K ........................................ 132
Experts ...................................................... 133
Consents of Independent Public Accountants.......................... 134
Signatures ...................................................... 136
Exhibit Index ...................................................... 143
This combined Form 10-K is separately filed by New Century Energies, Inc.,
Public Service Company of Colorado and Southwestern Public Service Company.
Information contained herein relating to any individual company is filed by
such company on its own behalf. Each registrant makes representations only
as to itself and makes no other representations whatsoever as to information
relating to the other registrants.
This report should be read in its entirety. No one section of the report
deals with all aspects of the subject matter.
FORWARD LOOKING INFORMATION
The following discussions include "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Investors and prospective investors are
cautioned that the forward-looking statements contained herein with respect
to the revenues, earnings, capital expenditures, resolution and impact of
litigation, competitive performance, or other prospects for the business of
New Century Energies, Inc., Public Service Company of Colorado and/or
Southwestern Public Service Company or their affiliated companies, including
any and all underlying assumptions and other statements that are other than
statements of historical fact, may be influenced by factors that could cause
actual outcomes and results to be materially different than projected. Such
factors include, but are not limited to, the effects of weather, future
economic conditions, the performance of generating units, fuel prices and
availability, regulatory decisions and the effects of changes in state and
federal laws, the pace of deregulation of domestic retail natural gas and
electricity markets, the timing and extent of change in commodity prices for
all forms of energy, capital spending requirements, the evolution of
competition, earnings retention and dividend payout policies, changes in
accounting standards, and other factors. From time to time, New Century
Energies, Inc., Public Service Company of Colorado and Southwestern Public
Service Company may publish or otherwise make available forward-looking
statements. All such subsequent forward-looking statements, whether written
or oral and whether made by or on behalf of each company, are also expressly
qualified by these cautionary statements.
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DEFINITIONS
The abbreviations or acronyms used in the text and notes are defined below:
Abbreviation or Acronym Term
- ----------------------- ----
AEP............................................American Electric Power Company
AFDC..............................Allowance for Funds Used During Construction
Arapahoe............................Arapahoe Steam Electric Generating Station
BLM .................................................Bureau of Land Management
Cameo .................................Cameo Steam Electric Generating Station
CCT3 ................................................Clean Coal Technology III
CERCLA ...Comprehensive Environmental Response, Compensation and Liability Act
Cherokee........................... Cherokee Steam Electric Generating Station
Cheyenne ...............................Cheyenne Light, Fuel and Power Company
CIG ...........................................Colorado Interstate Gas Company
Colorado Supreme Court..................Supreme Court of the State of Colorado
Comanche ...........................Comanche Steam Electric Generating Station
Company or NCE........................New Century Energies, Inc., a registrant
CPCN...........................Certificate of Public Convenience and Necessity
CPUC .....................Public Utilities Commission of the State of Colorado
Craig..................................Craig Steam Electric Generating Station
CWIP.............................................Construction Work in Progress
CWQCD..................................Colorado Water Quality Control Division
Cyprus/Amax...........................................Cyprus/Amax Coal Company
Denver District Court..District Court in and for the City and County of Denver
DOE..................................................U.S. Department of Energy
DSM.....................................................Demand Side Management
DSMCA...................................Demand Side Management Cost Adjustment
Dth..................................................................Dekatherm
e prime.........................................e prime, inc. and subsidiaries
ECA.....................................................Energy Cost Adjustment
EIS.............................................Environmental Impact Statement
EPA.......................................U.S. Environmental Protection Agency
EPAct.......................................National Energy Policy Act of 1992
EWG.................................................Exempt Wholesale Generator
FASB......................................Financial Accounting Standards Board
FERC......................................Federal Energy Regulatory Commission
FERC Order 636.................................FERC Order Nos. 636-A and 636-B
Fort St. Vrain ...........Fort St. Vrain Electric Generating Station, formerly
a nuclear generating station
Fuelco .......Fuel Resources Development Co., a dissolved Colorado corporation
GCA .......................................................Gas Cost Adjustment
Hayden ...............................Hayden Steam Electric Generating Station
IBM .......................................................IBM Global Services
ICA..................................................Incentive Cost Adjustment
IPPF ....................................Independent Power Production Facility
IRP ..................................................Integrated Resource Plan
IRS...................................................Internal Revenue Service
ISFSI..............................Independent Spent Fuel Storage Installation
KN Energy......................................................KN Energy, Inc.
Kwh..............................................................kilowatt-hour
Merger...................... the business combination between the PSCo and SPS
Merger Agreement.............Agreement and Plan of Reorganization by and among
PSCo, SPS and NCE, as amended
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Mw....................................................................Megawatt
NMPUC.....................................New Mexico Public Utility Commission
Natural Fuels .......................................Natural Fuels Corporation
NC Enterprises............................................NC Enterprises, Inc.
NCI............................................New Century International, Inc.
NCS.................................................New Century Services, Inc.
New Century Cadence..................................New Century Cadence, Inc.
NOPR.............................................Notice of Proposed Rulemaking
NOx.............................................................Nitrogen Oxide
NRC .............................................Nuclear Regulatory Commission
OCC .......................................Colorado Office of Consumer Counsel
OPEB ...................................Other Postretirement Employee Benefits
PCB...................................................Polychlorinated biphenyl
Pawnee ...............................Pawnee Steam Electric Generating Station
Pawnee 2...........Pawnee Steam Electric Generating Station, Unit 2 (proposed)
Pool ........................................................Inland Power Pool
PRPs ..........................................Potentially Responsible Parties
PSCCC...........................................PS Colorado Credit Corporation
PSCo..........................Public Service Company of Colorado, a registrant
PSRI ....................................................PSR Investments, Inc.
PUHCA ..............................Public Utility Holding Company Act of 1935
PUCT........................................Public Utility Commission of Texas
QF.........................................................Qualifying Facility
QFCCA...........................Qualifying Facilities Capacity Cost Adjustment
QSP....................................................Quality of Service Plan
Quixx.......................................Quixx Corporation and subsidiaries
SEC.........................................Securities and Exchange Commission
SFAS...............................Statement of Financial Accounting Standards
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 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 123................Statement of Financial Accounting Standards No. 123 -
"Accounting for Stock-Based Compensation"
SO2.............................................................Sulfur Dioxide
SPP.......................................................Southwest Power Pool
SPS..........................Southwestern Public Service Company, a registrant
TNP.............................................Texas-New Mexico Power Company
TOG.......................................................Texas-Ohio Gas, Inc.
TOP..................................................Texas-Ohio Pipeline, Inc.
Transition PeriodFour month period September 1, 1996 through December 31, 1996
Tri-State..............Tri-State Generation and Transmission Association, Inc.
TUCO................................................................TUCO, Inc.
UE............................Utility Engineering Corporation and subsidiaries
U.K. ...........................................................United Kingdom
Valmont .............................Valmont Steam Electric Generating Station
WGI ..................................................WestGas InterState, Inc.
WPSC......................................Public Service Commission of Wyoming
WSCC......................................Western Systems Coordinating Council
WSPP................................................Western Systems Power Pool
iii
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Young Storage..................................Young Gas Storage Company, Ltd.
YGSC.................................................Young Gas Storage Company
Yorkshire Electricity..........................Yorkshire Electricity Group plc
Yorkshire Power.....................................Yorkshire Power Group Ltd.
Zuni ...................................Zuni Steam Electric Generating Station
iv
<PAGE>
PART I
Item l. Business
The Company
NCE, incorporated under the laws of Delaware in 1995, is a public
utility holding company registered under 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 of one share, respectively, of NCE common stock, par value $1.00 per
share, and became common shareholders of NCE. The Merger was accounted for
as a pooling-of-interests, and the Consolidated Financial Statements and
statistical data in this Form 10-K are presented as if the Merger were
consummated as of the beginning of the earliest period presented.
The Company has no significant assets other than the stock of its
subsidiaries. The revenues of NCE and its subsidiaries are derived
substantially from the generation, purchase, transmission, distribution and
sale of electricity and from the purchase, transmission, distribution, sale
and transportation of natural gas. The utility subsidiaries serve
approximately 1.6 million electric customers and approximately 1.0 million
gas customers in their service territories which include portions of the
states of Colorado, Texas, New Mexico, Wyoming, Kansas and Oklahoma.
The Company owns all the outstanding common stock of PSCo, SPS,
Cheyenne, WGI, NCS, and NC Enterprises. PSCo owns certain subsidiaries as
described below. NC Enterprises, an intermediate holding company, owns the
following subsidiaries: Quixx, e prime, UE, Natural Fuels Corporation
(83.63% ownership) and NC Cadence. Refer to the non-utility section below for
further discussion regarding the Company's non-utility operations.
On April 22, 1997, SPS changed its fiscal year from a twelve-month
period ending August 31 to a twelve-month period ending December 31. The 1995
financial and statistical data presented in Item 1. Business combines the
historical financial and statistical data of PSCo as of and for the year
ended December 31, 1995 with the historical financial and statistical data of
SPS as of and for the year ended August 31, 1995 (See Note 1. Summary of
Significant Accounting Policies in Item 8. Financial Statements And
Supplementary Data).
Information regarding industry segments is set forth in Note 14.
Segments of Business in Item 8. Financial Statements And Supplementary Data.
Utility Operations
PSCo was incorporated through merger of predecessors under the laws of
the State of Colorado in 1924. PSCo is an operating utility engaged
principally in the generation, purchase, transmission, distribution and sale
of electricity and in the purchase, transmission, distribution, sale and
transportation of natural gas. PSCo serves approximately 1.2 million
electric customers and approximately 1.0 million gas customers in the state
of Colorado. PSCo owns the following direct subsidiaries: 1480 Welton,
Inc., a real estate company which owns certain real estate interests of PSCo;
PSRI which owns and manages permanent life insurance policies on certain past
and present employees, the benefits from which are to provide future funding
for general corporate purposes; PSCCC, a finance company that finances
certain of PSCo's current assets; Green and Clear Lakes Company which owns
water rights and storage facilities for water used at PSCo's Georgetown
Hydroelectric station; and Fuelco, a dissolved Colorado corporation, which
was primarily involved in the exploration and production of oil and natural
gas. On July 1, 1996, Fuelco sold its remaining properties, the San Juan
Basin Coal Bed Methane properties, at approximately book value and, effective
October 31, 1996, Fuelco was dissolved. PSCo also holds a controlling
interest in several other relatively small ditch and water companies whose
capital requirements are not significant.
1
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PSCo also owns all of the outstanding common stock of NCI. NCI was
formed to hold PSCo's 50% interest in Yorkshire Electricity which was
purchased in April 1997 by Yorkshire Power (a joint venture between PSCo and
AEP) through Yorkshire Holdings plc. For a more detailed discussion
regarding the acquisition of Yorkshire Electricity, refer to "Foreign
Investments" below and Note 2. Acquisition of Yorkshire Electricity and U.K.
Windfall Tax in Item 8. Financial Statements And Supplementary Data.
SPS was incorporated in 1921 under the laws of the State of New
Mexico. SPS is an operating utility engaged primarily in the generation,
transmission, distribution and sale of electricity. SPS serves approximately
380,000 electric customers in portions of the states of Texas, New Mexico,
Oklahoma and Kansas.
Cheyenne was incorporated in 1900 under the laws of the State of
Wyoming. Cheyenne is an operating utility engaged in the purchase,
distribution and sale of electricity and natural gas primarily serving
customers in Cheyenne, Wyoming. Cheyenne serves approximately 35,000
electric customers and 28,000 gas customers in the state of Wyoming.
WGI was incorporated in 1990 under the laws of the State of Colorado.
WGI is a natural gas transmission company engaged in transporting gas to
Cheyenne, Wyoming via a thirteen mile connecting pipeline between Chalk
Bluffs, Colorado and Cheyenne, Wyoming.
Electric Utility Operations
The Company's utility subsidiaries propose to use the following
resources to meet their net dependable system capacity requirements: 1) the
Company's electric generating stations (see Electric Generation Property in
Item 2. Properties); 2) purchases from other utilities and from QFs and
IPPFs; 3) renewables and demand-side management options and 4) new generation
alternatives, including the phased repowering of Fort St. Vrain.
Peak Load
During 1998, net firm system peak demand and the net dependable system
capacity for the Company's electric utility subsidiaries is projected to be
as follows:
1998 Projected
1998 Projected Net Dependable System Reserve
Operating company Net Firm System Peak Capacity* Margin
- ----------------- -------------------- --------- ------
PSCo 4,401 Mw 4,960 Mw 13%
SPS 4,058 Mw 4,595 Mw 13%
Cheyenne 132 Mw 149 Mw **
- --------------
* Net dependable system capacity is the maximum net capacity available
from both owned generating units and purchased power contracts to
meet the net firm system peak demand.
** Reserve margin for Cheyenne is held by PacifiCorp.
The net firm system peak demand for each of the last three years was
as follows:
Net Firm System Peak Demand (Mw)
1995 1996 1997
---- ---- ----
PSCo*...................... 4,248 4,397 4,487
SPS........................ 3,952 3,694 3,715
Cheyenne **................ - - 132
- --------------
* Excludes station housepower, nonfirm electric furnace load and
controlled interruptible loads (of which approximately 148 Mw, 122
Mw and 116 Mw in the years 1995-1997, respectively, was not
interrupted at the time of the system peak).
** Prior to the Merger, Cheyenne was a subsidiary of PSCo; therefore,
Cheyenne's coincidental peak demand is included with PSCo in 1995
and 1996.
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The net firm system peak demand for PSCo for the years 1995-1997
occurred in the summer. The net firm system peak demand for 1997, which
occurred on July 23, 1997, was 4,487 Mw. At that time, the net dependable
system capacity totaled 5,001 Mw (generating capacity of 3,319 Mw, together
with firm purchases of 1,682 Mw), which represented a reserve margin of
approximately 12%).
The net firm system peak demand for SPS for the years 1995 - 1997 also
occurred in the summer. The net firm system peak demand for 1997, which
occurred on July 28, 1997, was 3,715 Mw. At that time, the net dependable
system capacity totaled approximately 4,443 Mw (including firm purchases),
which represented a reserve margin of approximately 20%.
Purchased Power
The Company's electric utility subsidiaries have contractual
arrangements with regional utilities as well as QFs and an IPPF in order to
meet the energy needs of their customers. Capacity, typically measured in
Kilowatts or Megawatts, is the measure of the rate at which a particular
generating source produces electricity. Energy, typically measured in
Kilowatt-hours or Megawatt-hours, is a measure of the amount of electricity
produced from a particular generating source over a period of time. Purchase
power contracts typically provide for a charge for the capacity from a
particular generating source, together with a charge for the associated
energy actually purchased from such generating source.
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The Company's electric utility subsidiaries have contracted with the
following sources for the firm purchase of capacity and energy at the time of
the anticipated summer 1998 net firm system peak demand through the
expiration of the contracts:
Mw Contracted
For at the Time
of the Anticipated
Generating Summer 1998 Net Firm Contract
Company Source System Peak Demand Expiration
- ------- ------ ------------------ ----------
PSCo Contracts:
Basin Electric Power Coopera- Laramie River Station
tive, Agreements 1 and 2(a)(b) Units 2 and 3 175 2016
PacifiCorp (c) PacifiCorp Resource Pool 176 2011
Platte River Power
Authority (a) (f) Craig Units 1 and 2; 142 2004
Rawhide Unit 1
Tri-State 525 (f)
Agreements 1, 2, 3 and 4 (a)(e)Laramie River Station
Units 2 and 3;
Craig Units 1, 2 and 3
Agreement 5 (a) (e) Laramie River Station
Units 2 and 3;
Craig Units 1, 2 and 3;
Nucla Units 1, 2, 3 and 4
Various Owners (a) QFs & IPPF 623 Various dates
---
Subtotal - PSCo 1,641
SPS Contract:
Borger Energy Associates (g) QF 192 2023
Cheyenne Contract:
PacifiCorp (d) PacifiCorp System 149 2000
---
1,982
=====
____________
(a) These contracts are contingent upon the availability of the units
listed as the generating source. These contracts are take and pay
contracts. Based upon the terms of these agreements, if the capacity is
available from these units, then PSCo is obligated to pay for capacity
whether or not it takes any energy. However, PSCo has historically
satisfied the minimum energy requirements associated with these agreements
and anticipates doing so in the future. Additionally, if these units are
unavailable, the supplying company has no obligation to furnish capacity
or energy and the capacity charge to PSCo is reduced accordingly.
(b) PSCo has entered into two agreements with Basin Electric Power
Cooperative. The first agreement is for 100 Mw of capacity through March
31, 2016. The second agreement is for 75 Mw of summer season capacity
through March 31, 2016 and 25 Mw of winter season capacity through March
31, 2010.
(c) The current agreement with PacifiCorp expires October 31, 2022.
However, the agreement provides PSCo the opportunity to exercise an
irrevocable option to terminate the agreement on December 31, 2011,
provided PSCo gives notice to PacifiCorp no later than March 1, 2002.
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(d) This contract, which expires in 2000, calls for PacifiCorp to sell to
Cheyenne the total electric capacity and energy requirements associated
with the operation of Cheyenne's service area.
(e) PSCo has entered into five agreements with Tri-State. Agreements 1, 2
and 5 are contracts for 100 Mw each of capacity and expire in 2001, 2017
and 2011, respectively. Agreement 3 is a contract for 25 Mw of summer
season capacity and 75 Mw of winter season capacity and expires in 2016.
Agreement 4 expires in 2018 and the related capacity is for the following
amounts: 1998 through 2000 - 200 Mw and 2001 through 2018 - 250 Mw;
however, either party may elect to reduce the Agreement 4 capacity by up
to 50 Mw each year, except for 2001, effective in the year 1999. If the
full 50 Mw reduction is taken each year, the capacity associated with
Agreement 4 from 1999 on would be as follows: 1999 - 150 Mw, 2000 through
2001 - 100 Mw, 2002 - 50 Mw with no commitments thereafter. PSCo has
notified Tri-State of its intent to reduce the capacity associated with
Agreement 4 to 150 Mw for 1999.
(f) The amount of capacity to be made available for each summer and winter
season is agreed upon prior to such season to the extent that Platte River
Power Authority has excess capacity for such season.
(g) SPS entered into an agreement with Borger Energy Associates in May 1997
for the purchase of capacity and energy. Power deliveries are expected to
begin on or before September 15, 1998. Power purchases from Borger Energy
Associates will be up to 192 MW of capacity for the 1998 summer season and
230 MW beginning October 1, 1998 through the remaining contract term. SPS
has an option to extend the term of the agreement for an additional 10
years.
See Note 10. Commitments and Contingencies - Purchase Requirements in
Item 8. Financial Statements And Supplementary Data for information
regarding the Company's financial commitments under these contracts. See
Interconnections in Item 2. Properties for a discussion of the Company's
interconnections with these sources.
Based on present estimates, PSCo will purchase approximately 32% of the
total electric system energy input for 1998. In addition, based on the
capacity associated with the purchase power contracts described above,
approximately 33% of the total net dependable system capacity for the
estimated summer 1998 net firm system peak demand for PSCo will be provided
by purchased power.
All of the QF capacity purchased by PSCo, including approximately 4 Mw
of additional capacity scheduled to come on line in the future, is being
purchased under contracts entered into prior to January 1, 1988. The
purchases of additional QF and IPPF capacity are currently based on a
competitive bidding process. In 1997, approximately 14% of PSCo's summer
net firm system peak demand was provided by QFs.
In addition to long-term and QF and IPPF purchases, PSCo also made
short-term and non-firm purchases throughout the year to replace generation
from PSCo-owned units which were unavailable due to maintenance and unplanned
outages, to provide PSCo's reserve obligation to the Pool, to obtain energy
at a lower cost than that which could be produced by other resource options,
including PSCo-owned generation and/or long-term purchase power contracts,
and for various other operating requirements. Short-term and non-firm
purchases accounted for approximately 3% of PSCo's total energy requirement
in 1997.
Based on current projections, PSCo expects that purchased capacity will
continue to meet a significant portion of system requirements at least for
the remainder of the 1990s. Such purchases neither require PSCo to make an
investment nor afford PSCo an opportunity to earn a return. Further
discussion related to recovery of purchased capacity costs can be found in
"Regulations and Rates - Cost Recovery Mechanisms." SPS arranged seasonal
short-term purchases for the summer of 1997 and may make additional
short-term purchases for the 1998 summer season.
PSCo is a member of the Pool which is composed of members each of which
owns and/or operates electric generation and/or transmission systems which
are interconnected to one or more other member systems. The objective of the
Pool is to provide capacity which is categorized as: 1) immediately
accessible; 2) accessible within ten minutes; and 3) accessible within twelve
hours, as required. As a result of membership in the Pool, PSCo can supply
and protect its electric system with less aggregate operating reserve
capacity than otherwise would be necessary; emergency conditions can be met
with less likelihood of curtailment or impairment of electric
5
<PAGE>
service; and generation and transmission facilities and interconnections can be
used more efficiently and economically. PSCo is in discussion with regional
utilities to create a new reserve sharing arrangement that better meets the new
FERC and WSCC requirements. This new sharing arrangement, when finalized, will
replace the current Pool arrangement.
Refer to Item 2. Properties-Electric Transmission Property for a
discussion of SPS's activities with the SPP and the WSPP.
Construction Program
At December 31, 1997, the Company's subsidiaries estimated the cost of
their total construction program, including AFDC, to be approximately $530
million in 1998, approximately $541 million in 1999, and approximately $450
million in 2000 (see Item 7. Management's Discussion And Analysis Of
Financial Condition And Results Of Operations).
Electric Fuel Supply
The following tables present the delivered cost per million Btu of each
category of fuel consumed by the system for electric generation during the
years indicated, the percentage of total fuel requirements represented by
each category of fuel and the weighted average cost of all fuels during such
years:
PSCo generating plants: Weighted
Average
Coal* Gas All Fuels**
Cost $ % Cost $ % Cost $
----------------------------------------
1997............... 0.99 98 3.03 2 1.03
1996............... 1.03 98 2.42 2 1.05
1995............... 0.99 99 1.52 1 1.00
* The average cost per ton of coal, including freight, for years 1995
through 1997 shown above was $19.06, $20.17 and $18.96,
respectively.
** Insignificant purchases of oil are included.
SPS generating plants: Weighted
Average
Coal Gas All Fuels**
Cost $ % Cost $ % Cost $
----------------------------------------
1997............... 1.84 69 2.55 31 2.06
1996............... 1.93 69 2.38 31 2.06
1995............... 1.81 64 1.63 36 1.75
* The average cost per ton of coal, including freight and other
components, for years 1995 through 1997 shown above was $31.37,
$33.26 and $31.97, respectively.
** Insignificant purchases of oil, steam and hot nitrogen are included.
Coal
PSCo's primary fuel for its steam electric generating stations is
low-sulfur western coal. PSCo's coal requirements are purchased primarily
under eight long-term contracts with suppliers operating in Colorado
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<PAGE>
and Wyoming. The largest contract tonnage is supplied by Cyprus/Amax Coal, which
operates the Belle Ayr and Eagle Butte Mines near Gillette, Wyoming and the
Foidel Creek mine in northwestern Colorado.
Long-term contracts presently in existence provide for approximately
88% of 1998 coal requirements and more than 80% of future annual coal
requirements through 2000. Any shortfall for 1998 will be provided by
purchases on the spot market. During the year ended December 31, 1997,
PSCo's coal requirements for existing plants were approximately 9,451,759
tons, a substantial portion of which was supplied pursuant to long-term
supply contracts. Coal supply inventories at December 31, 1997 were
approximately 40 days usage, based on the average burn rate for all of PSCo's
coal-fired plants.
The following table provides a summary of the basic supply provisions
of PSCo's existing long-term contracts, which provide for a minimum delivery
of approximately 78 million tons of low-sulfur coal over their remaining life
(see Note 10. Commitments and Contingencies - Purchase Requirements in Item
8. Financial Statements And Supplementary Data ).
1998 1998 Contract
Minimum Maximum maximum
delivery delivery sulfur
Coal Supplier and Delivery Year in tons in tons content
- ------------------------------- ------- ------- -------
Cyprus/Amax (1)..................... 3,960,000 (2) (3) 0.50%
Colowyo Coal Company................ 88,571 (4) 88,571 0.70%
Twentymile Coal Company (10)........ 1,170,000 1,430,000 0.55
Mountain Coal Company............... 600,000 (5) 800,000 0.67%
Powderhorn Coal Company............. 150,000 350,000 0.69%
Seneca Coals, Ltd (6) .............. 439,800 (7) 1.00%
Trapper Mining, Inc................. 179,427 (8) 179,427 (9)
Kennecott Energy Company (10)....... 450,000 500,000 0.55
(1) The contract term is completed upon delivery of a fixed quantity
regardless of the year in which delivery is completed. From January 1,
1976 through December 31, 1997, approximately 57.6% of the obligation
has been delivered.
(2) Coal requirements of Comanche and Pawnee.
(3) Coal requirements of Pawnee and Pawnee 2 upon completion of Pawnee 2
through 2013.
(4) The contract minimum quantity varies by year during the agreement.
(5) The contract term is completed upon delivery of a fixed quantity. As
of December 31, 1997, approximately 62.7% of the obligation has been
delivered.
(6) The contract term is completed upon total delivery of a fixed quantity
to Hayden from and after January 1, 1983. As of December 31, 1997,
approximately 71.1% of the obligation has been delivered. Delivery is
expected to be completed in the year 2004.
(7) Coal requirements of Hayden.
(8) The contract minimum quantity varies by year during the agreement.
(9) Not specified in the contract.
(10) The contract maximum sulfur content as presented in the table is stated
in pounds of sulfur per million Btu.
Each coal contract contains adjustment clauses which permit periodic
price increases or decreases. Powder River Basin coal supplies for PSCo's
Arapahoe, Pawnee and Comanche stations are transported by the Burlington
Northern Sante Fe Railway Company under two contracts which have remaining
terms of one year for Arapahoe and three years for Pawnee and Comanche.
Colorado origin coal supplies for PSCo's Cherokee and
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Valmont stations are anticipated to be transported by the Union Pacific Railroad
Company to Cherokee and by a joint haul of the Union Pacific Railroad Company
and Burlington Northern Sante Fe Railway Company to Valmont under two contracts
with remaining terms of five and two years, respectively.
SPS purchases all of its coal requirements for Harrington and Tolk
Stations from TUCO, in the form of crushed, ready-to-burn coal delivered by
coal-handling facilities owned by Wheelabrator Coal Services Co. to the SPS's
boiler bunkers located within SPS's coal-fueled stations where it is
processed for burning. The contract for the Harrington station expires in
2016 and the contract for the Tolk station expires in 2017. The coal is
transported for TUCO by rail, primarily from mines located in Wyoming, to
TUCO's stockpiles which are adjacent to SPS's coal-burning generation
stations. At December 31, 1997, TUCO's coal inventories at the Harrington
and Tolk sites were approximately 41 days usage. TUCO has executed a
long-term coal supply agreement with Kennecott Energy Company affiliated
companies to supply approximately 55% of Harrington's projected requirements
through 2001 from Cordero, Caballo Rojo and Antelope mines located in the
Powder River Basin. In addition, TUCO has contracted for approximately 33%
of Harrington's 1998 projected requirements with Kennecott's affiliate,
Colowyo Coal Company, from its Colowyo mine located in western Colorado. The
Colowyo agreement provides for delivery to Harrington station via the Union
Pacific Railroad. TUCO has long term contracts with ARCO for supply of coal
in sufficient quantities to meet all of SPS's needs for Tolk Station.
Specific coal reserves in the Powder River Basin in Wyoming have been
dedicated by ARCO to meet the contract quantities. The Powder River Basin
coal supplies for both stations are currently transported for TUCO by the
Burlington Northern Sante Fe Railway Company to Harrington Station near
Amarillo, Texas and to Tolk Station near Muleshoe, Texas. Transportation
charges for these Powder River Basin coal supplies make up more than 50% of
the total cost of the coal delivered to the boiler.
See Note 10. Commitments and Contingencies - Purchase Requirements in
Item 8. Financial Statements And Supplementary Data for information
regarding financial commitments under the coal supply contracts, as well as
the coal transportation contracts.
Natural Gas and Fuel Oil
PSCo uses both firm and interruptible natural gas and standby oil in
combustion turbines and certain boilers. Natural gas supplies for PSCo's
power plants are procured under short- and intermediate-term contracts on a
competitive basis to provide an adequate supply of fuel. SPS has a number of
contracts of short and intermediate terms with natural gas suppliers
operating in gas fields with long life expectancies in or near its service
area. SPS also utilizes firm and interruptible transportation to minimize
fuel costs during volatile market conditions and provide reliability of
supply. To increase competition for natural gas supply, SPS attained three
new interconnections between interstate and intrastate pipelines and various
power plant supply headers during 1997. SPS maintains sufficient gas
supplies under short and intermediate term contracts to meet all power plant
requirements; however, due to flexible contract terms, approximately 40% of
SPS's gas requirements were purchased under spot agreements.
Natural Gas Utility Operations
During the period 1993-1997, PSCo and Cheyenne have experienced growth
in the number of residential and commercial customers ranging from 2.7% to
3.2% annually. Since 1993, residential and commercial gas volumes sold have
averaged 132.9 million dekatherms ("MMDth") annually. The growth of
residential and commercial sales has steadily improved due primarily to
stronger economic conditions in Colorado and Wyoming. PSCo and Cheyenne
offer transportation services to their large commercial and industrial
customers, allowing these customers to purchase gas directly from their
suppliers. The per-unit fee charged for transportation services, while
significantly less than the per-unit fee charged for the sale of gas to a
similar customer, provides an operating margin approximately equivalent to
the margin earned on gas sold. Therefore, increases in such activities will
not have as great an impact on gas revenues as increases in deliveries from
the sale of gas, but will have a positive impact on operating margin. During
1997, transportation services generated revenues of $32.7 million compared to
$28.5 million in 1996 and $23.8 million in 1995.
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Natural Gas Supply and Storage
PSCo and Cheyenne have attempted to maintain low cost, reliable natural
gas supplies by optimizing a balance of long- and short-term gas purchase,
firm transportation and gas storage contracts. During 1997, PSCo and
Cheyenne purchased 151.0 MMDth from approximately 72 suppliers, including the
following major suppliers: CIG (32.0 MMDth); Western Gas Resources (14.0
MMDth); Amoco Energy Trading Co. (11.6 MMDth); Barrett Resources (11.4
MMDth); and Duke Energy Trading & Marketing (6.1 MMDth). In 1997, the
average delivered cost per one thousand dekatherms ("MDth") for PSCo and
Cheyenne was $2.92 compared to $2.58 per MDth in 1996 and $2.22 per MDth in
1995 (see Item 7. Management's Discussion And Analysis Of Financial Condition
And Results Of Operations). Purchased gas costs are recovered from customers
through the GCA (see Note 9. Regulatory Matters in Item 8. Financial
Statements And Supplementary Data).
PSCo and Cheyenne have completed substantially all of their obligations
related to gas supply transportation and storage contracts which resulted
from FERC Order 636. During 1996, PSCo and Cheyenne entered into new
contracts with CIG and others for firm transportation and gas storage
services with terms of 5-10 years. Adequate supplies of natural gas are
currently available for delivery within the Rocky Mountain region. PSCo and
Cheyenne continually evaluate the natural gas markets and procure supplies,
as needed, to meet current and anticipated customer demand.
Regulation and Rates
Regulation
General
The NCE system is subject to the jurisdiction of the SEC under the
PUHCA. The PUHCA generally limits the operations of a registered holding
company to a single integrated public utility system, plus such additional
businesses as are functionally related to such system. PUHCA rules require
that transactions between associated companies in a registered holding
company system be performed at cost, with limited exceptions.
PSCo
PSCo is subject to the jurisdiction of the CPUC with respect to its
facilities, rates, accounts, services and issuance of securities. The CPUC
consists of three full-time members appointed by the Governor and approved by
the Colorado Senate. Only two members may be from the same political party.
PSCo is subject to the jurisdiction of the DOE through the FERC with
respect to its wholesale electric operations and accounting practices and
policies. PSCo is also subject to the jurisdiction of the NRC in connection
with its ownership, decommissioning and defueling of Fort St. Vrain, which
has been repowered as a gas fired combined cycle steam plant.
PSCo holds a FERC certificate which allows it to transport natural gas
in interstate commerce pursuant to the provisions of the Natural Gas Act, the
Natural Gas Policy Act of 1978 and FERC Order Nos. 436 and 500 without PSCo
becoming subject to full FERC jurisdiction.
SPS
The PUCT has jurisdiction over SPS's Texas operations as an electric
utility, and original and appellate jurisdiction over its retail rates and
services. The Texas municipalities exercise original jurisdiction over rates
within their respective city limits. The NMPUC, the Oklahoma Corporation
Commission and the Kansas Corporation Commission have jurisdiction with
respect to retail rates and services in their respective states. The FERC
has jurisdiction over SPS's rates for sales of electricity for resale.
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Other
Cheyenne is subject to the jurisdiction of the WPSC. WGI and TOP are
subject to FERC jurisdiction. WGI and TOP each hold a FERC certificate
which allows them to transport natural gas in interstate commerce pursuant to
the provisions of the Natural Gas Act. e prime and TOG have authorization
from FERC to act as power marketers.
Cost Recovery Mechanisms
PSCo
At December 31, 1997, PSCo has four adjustment clauses: the ICA (which
replaced the ECA in 1996), GCA, DSMCA and QFCCA. These adjustment clauses
allow certain costs to be passed through to retail customers. PSCo is
required to file applications with the CPUC for approval of adjustment
mechanisms in advance of the proposed effective date. The applications must
be acted upon before becoming effective.
The CPUC decision on the Merger modified and replaced the ECA with the
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. PSCo, through its GCA, is allowed to recover the
difference between its actual costs of purchased gas and the amount of these
costs recovered under its base rates. The GCA rate is revised annually on
October 1 and otherwise as needed, to coincide with changes in purchased gas
costs. Purchased gas costs and revenues received to recover such gas costs
are compared on a monthly basis and differences, including interest, are
deferred. The QFCCA was implemented on December 1, 1993. Under the QFCCA,
all purchased capacity costs from new QF projects, not otherwise reflected in
base electric rates, are recoverable.
PSCo, in a collaborative process with public interest groups, consumers
and industry, has developed DSM programs (programs designed to reduce peak
electricity demand, shift on-peak demand to off-peak hours and provide for
more efficient operation of the electric generation system), including
incentive and cost recovery mechanisms. The CPUC approved the programs in
1993 along with a schedule to be implemented over a three-year period.
Effective July 1, 1993, PSCo implemented a DSMCA clause which permits it to
recover deferred DSM costs over seven years while non-labor incremental
expenses, carrying costs associated with deferred DSM costs and certain
incentives associated with the approved DSM programs are recovered on an
annual basis.
The CPUC subsequently opened a separate docket to investigate issues
involving alternative annual revenue reconciliation mechanisms and incentive
mechanisms related to PSCo's DSM programs. The investigation was completed
in 1995 and a final order was issued. The major provisions of the final
order, effective December 27, 1995, included: 1) not to proceed with any of
the proposed mechanisms; 2) to reduce the recovery period for certain costs
of PSCo's DSM programs from seven to five years for expenditures made on or
after January 1, 1995; 3) not to establish DSM targets for 1997 and 1998; 4)
not to adopt a penalty for failure to achieve DSM targets; and 5) to approve
PSCo's proposal to forego incentive payments for DSM programs.
Under a separate CPUC order issued in December 1992, PSCo has
implemented a Low-Income Energy Assistance Program. The costs of this energy
conservation and weatherization program for low-income customers are
recoverable through the DSMCA.
SPS
Fuel and purchased power costs are recoverable in Texas through a fixed
fuel factor which is part of SPS's rates. If it appears that the factor will
materially over-recover or under-recover these costs, the factor may be
revised upon application by SPS or action by the PUCT. The rule requires
refunding and surcharging under/over-recovery amounts including interest when
they exceed 4% of the utility's annual fuel and purchased power costs, as
allowed by the PUCT, if this condition is expected to continue. Under the
PUCT's regulations, SPS is required to file an application for the PUCT to
retrospectively review at least every three years the operations of SPS's
electricity generation and fuel management activities. SPS will file a
reconciliation in 1998
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for the generation and fuel management activities of approximately $690 million
for the three year period ended December 31, 1997.
On October 24, 1997, the NMPUC approved a fixed fuel factor for SPS's
New Mexico retail jurisdiction, effective January 1998. This will employ an
over/under fuel collection calculation made on a monthly basis. SPS will
petition for a change in the fixed fuel factor if the over/under recovery
balance reaches $5 million. In addition, on an annual basis SPS will file
the utility's electric generation and fuel management activities. The
methodology of the over/under calculation, plus interest, is similar to the
Texas fixed fuel factor calculation discussed above.
In all other jurisdictions, SPS currently recovers substantially all
increases and refunds substantially all decreases in fuel and purchased power
costs pursuant to monthly adjustment and clauses.
Cheyenne
Purchased power and gas costs are recoverable in Wyoming. Cheyenne is
required to file applications with the WPSC for approval of adjustment
mechanisms in advance of the proposed effective date.
See Note 9. Regulatory Matters in Item 8. Financial Statements And
Supplementary Data for additional discussion.
Environmental Matters
Certain of the Company's subsidiary facilities are regulated by federal
and state environmental agencies. These agencies have jurisdiction over air
emissions, water quality, wastewater discharges, solid wastes and hazardous
substances. Various Company activities require registrations, permits,
licenses, inspections and approvals from these agencies. The Company has
received all necessary authorizations for the construction and continued
operation of its generation, transmission and distribution systems. Company
facilities have been designed and constructed to operate in compliance with
the environmental standards. During 1997, the EPA issued new regulations
regarding particulate emissions. The Company is currently evaluating the
impact of these new regulations on its operations.
The Company's utility subsidiaries have applied for an early election
of annual NOx emission limits for eleven units including six PSCo units:
Cherokee Units 3 and 4, Valmont Unit 5, Pawnee Unit 1, and Comanche Units 1
and 2 and five SPS units: Harrington Station Units 1, 2 and 3 and Tolk
Station Units 1 and 2. In 1997, the Company met early emission limits for
these eleven units. Early election limit is applicable until the year 2008.
The Company and its subsidiaries continue to strive to achieve
compliance with all environmental regulations currently applicable to its
operations. However, it is not possible at this time to determine when or to
what extent additional facilities or modifications of existing or planned
facilities will be required as a result of changes to environmental
regulations, interpretations or enforcement policies or, generally, what
effect future laws or regulations may have upon the Company's operations.
See Note 10. Commitments and Contingencies - Environmental Issues in Item 8.
Financial Statements And Supplementary Data for additional discussion. At
December 31, 1997, the estimated 1998, 1999 and 2000 expenditures for
environmental air and water emission control facilities were $57.9 million,
$24.3 million and $14.7 million, respectively (see Item 7. Management's
Discussion and analysis of Financial Condition and Results of Operations).
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Competition
Industry Outlook
Unprecedented change is continuing to occur 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. Such alternatives will likely
serve to lower customer prices, particularly in areas where only higher cost
energy is currently provided. 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. A number of states have recently adopted or are
pursuing plans for competition in the electric utility industry.
Legislative and regulatory initiatives are likely to result in even greater
competition at both the wholesale and retail level in the future.
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.
PUHCA
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 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. In early 1997, legislation was introduced in
Congress that would have repealed PUHCA and transferred certain federal
authority to the FERC as recommended in the SEC report as part of broader
legislation regarding changes in the electric industry. This legislation is
likely to be debated on the Senate floor in April 1998. This legislation was
not passed; however, the Company expects that a number of bills regarding the
restructuring of the electric utility industry will continue to be considered
in the current Congress.
Retail Electric Business
Today, the retail electric business faces increasing competition from
industrial and large commercial customers who have the ability to own or
operate facilities to generate their own electric energy requirements. In
addition, customers may have the option of substituting fuels, such as
natural gas for heating, cooling and manufacturing purposes rather than
electric energy, or the option of relocating their facilities to a lower cost
environment. While each of the Company's utility subsidiaries face these
challenges, these subsidiaries believe their rates are competitive with
currently available alternatives. The Company's utility subsidiaries are
taking actions to lower operating costs and are working with their customers
to analyze the feasibility of various options, including energy efficiency,
load management and cogeneration in order to better position the Company's
utility subsidiaries to more effectively operate in a competitive environment.
State Regulatory and Legislative Environments - Electric Business
Below is a discussion on the regulatory and legislative initiatives
currently being addressed in each of the Company's retail jurisdictions
related to the electric business.
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Colorado - Colorado law permits the CPUC to authorize rates negotiated
with individual electric and gas customers who have threatened to discontinue
using the services of PSCo, so long as the CPUC finds that such
authorization: 1) in the case of electric rates, will not adversely affect
PSCo's remaining customers and 2) in the case of gas rates, will not affect
PSCo's remaining customers as adversely as would the alternative. In response
to the increasingly competitive operating environment for utilities, the
regulatory climate is also changing. In 1996, the CPUC opened an inquiry
docket related to electric utility restructuring. PSCo submitted a response
to a CPUC sponsored restructuring questionnaire which was followed by the
CPUC issuing a report on a comprehensive survey on electric industry
restructuring. The CPUC is currently working with the Colorado General
Assembly in its investigation and implementation of public policy. The CPUC
has no electric restructuring authority without legislative mandate.
During December 1997, PSCo submitted a draft bill relating to electric
utility industry restructuring and customer choice. The principles of the
proposed bill include: all customers must have the opportunity to benefit;
the reliability of electric service must be maintained; all energy suppliers
must be subject to the same laws and regulations; the price of electric
energy and electric generation capacity must be determined solely by market
forces; generation, transmission and distribution may be functionally
separated and the transmission and distribution functions will remain subject
to regulation; and each electric utility must have a good reasonable
opportunity to recover its stranded costs. PSCo will continue to participate
in regulatory proceedings which could change or impact current regulation.
PSCo believes it will continue to be subject to Colorado rate regulation that
will allow for the recovery of all of its deferred costs (see Note 1. Summary
of Significant Accounting Policies - Business, Utility Operation and
Regulation - Regulatory Assets and Liabilities and Note 9. Regulatory Matters
in Item 8. Financial Statements And Supplementary Data).
Texas - Texas legislation enacted in 1995 recognizes the movement to a
more competitive market-place by requiring the PUCT to issue new regulations
relating to, among other things, allowance of less than fully costed rates in
wholesale and retail markets; recognition of and essentially waiving all
Texas utility regulation of EWGs and power marketers; and implementation of
transmission access comparable to the owning utility's use of its
transmission system for non-FERC regulated utilities.
In the 1997 session, Texas introduced legislative proposals relating to
retail wheeling; however, the Texas legislature adjourned without adopting
any legislation on this issue. There will be no general session in 1998 in
Texas. A Senate Interim Committee on Electric Utility Restructuring began a
series of statewide hearings in late 1997. The hearings will continue in
1998 in order to solicit public input on a series of statewide issues
relating to retail competition in Texas. This information will be used by
the Committee to make recommendations on restructuring legislation for the
1999 session. SPS believes it will continue to be subject to rate regulation
that will allow for recovery of all of its deferred costs (see Note 1.
Summary of Significant Accounting Policies - Business, Utility Operations and
Regulation - Regulatory Assets and Liabilities and Note 9. Regulatory Matters
in Item 8. Financial Statements And Supplementary Data).
New Mexico - In 1997 the NMPUC approved Case 2718, "Texas-New Mexico
Power Company's TNP's Community Choice Plan." The plan calls for all TNP
customers to be able to choose their energy supplier by April 1, 2003.
The New Mexico legislature rejected all retail wheeling proposals in
1997. Following the 1997 session, the NMPUC initiated Case 2681, the
"Investigation of Electric Utility Restructuring", which called for a
"collaborative process" that involved utilities, consumer groups,
environmental groups, and other interested stakeholders. The NMPUC
encouraged the parties to attempt to reach a consensus on a retail choice
plan for New Mexico, but the effort was unsuccessful. On January 28, 1998,
the NMPUC issued its final report in case 2681. The NMPUC found that it is
in the public interest for the State of New Mexico to advance changes in the
structure and regulation of the electric industry, and recommends that
restructuring proposals should continue to be brought before the
legislature. The New Mexico legislature has a 30 day budget session in 1998.
Wyoming - In January 1998, the Joint Minerals, Business and Economic
Development Interim Committee voted against moving forward with draft
legislation entitled the "Wyoming Electric Restructuring
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Act." The 9-5 vote inhibits the progress of the draft during the brief 1998
legislative session of 20 days, unless further acted upon by individual
legislators. The draft was a collaborative effort which included the Legislative
Subcommittee on Electric Industry Re-regulation, the WPSC, utilities and
consumer interest groups. The 1998 legislative session began in February.
A joint committee of the Wyoming legislature began a series of hearings
on restructuring in June of 1997. On September 15, 1997, a report entitled
the "Study of the Potential Economic Impacts of Electric Restructuring on the
State of Wyoming," which was prepared for the WPSC by an external consultant,
was made public. The report analyzed four different restructuring scenarios
and concluded overall that restructuring would have only a small impact on
rates.
Kansas -- In December 1997, the Task Force On Retail Wheeling presented
its final report to the 1998 Kansas Legislature. The report culminated a
study that was authorized by House Bill 2600 which was signed by the Governor
on April 26, 1996. Additionally, this legislation imposed a three-year
freeze on retail electric wheeling. The task force, which consisted of
lawmakers and utility industry representatives, studied numerous issues,
including the actions of the FERC; the obligation of electric utilities to
serve customers; the recovery of stranded costs; the unbundling of
generation, transmission, and distribution services. The report concluded
with draft legislation entitled the "Electric Utility Restructuring Act." A
90-day legislative work session, which began January 12, 1998, will also be
looking at three other comprehensive electric restructuring bills, along with
two other related measures, which were held over from the 1997 session.
Oklahoma - The Electric Restructuring Act of 1997 was signed by the
Governor of Oklahoma on April 25, 1997. This legislation directs a series of
studies which will define the orderly transition to consumer choice of
electric energy supplier by July 1, 2002. The studies include: Taxation
Issues, Independent System Operator ("ISO"), Technical Issues, Financial
Issues, and Consumer Issues. The Joint Electric Utility Force, a legislative
entity, is in place to oversee the actions of the Oklahoma Corporation
Commission, which is the state's regulatory agency. The Oklahoma Corporation
Commission has been granted the authority to work alongside electric
utilities and other industry interests and consumer groups in order to
examine several key concerns. Unbundling of Rates and Services; Ceiling for
Rates; Stranded Cost Recovery; Reliability and Safety; Transition Costs are
included in the focus. Results and recommendations derived from the studies
will direct any further legislative action that may be necessary in order for
the Electric Restructuring Act of 1997 to be fully implemented. The ISO study
report was presented on January 27, 1998. It is expected that the Taxation
Issues study, which began in April 1997, and the Technical Issues study will
conclude by December 31, 1998.
Wholesale Electric
The wholesale electric business faces increasing competition in the
supply of bulk power due to provisions of the EPAct and Federal and state
initiatives with respect to providing open access to utility transmission
systems. Under the FERC rules issued in early 1996, utilities are required
to provide wholesale open-access transmission services consistent with what
is provided for in their own operations. The Company's utility subsidiaries
are operating with the tariffs approved by the FERC under these rules. To
date, these provisions have not had a material impact on the Company's
utility subsidiaries operations. For 1997, the Company's consolidated
wholesale revenues totaled approximately 15% of total electric revenues. A
substantial portion of these revenues related to firm sales contracts, which
are expected to continue at current levels for a minimum of 10 years.
Natural Gas
Changes in regulatory policies and market forces have begun to shift
the industry from traditional cost-based regulation involving gas sales,
transportation, storage and other related services on a bundled basis toward
market-based sales on an unbundled basis. In 1993, the FERC accelerated the
process of unbundling the commodity supply component from the physical
delivery component of natural gas retail sales service. In recent years,
numerous state initiatives have been developed to continue this unbundling
process down to the residential and small commercial customers. The goal of
unbundling is to offer customers choice of gas suppliers. In 1996,
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the CPUC opened an investigatory docket concerning the issue of unbundling
natural gas services. At this time, no formal action is expected from the CPUC
mandating the unbundling of gas utilities. PSCo expects that a gas unbundling
bill will be proposed in the Colorado Legislature in 1998 providing the CPUC the
authority to allow for full unbundling at the retail level. PSCo plans to
participate fully in any such legislative efforts and in any other regulatory
proceedings which could change or impact current regulation.
The natural gas delivery or transportation business has remained
competitive as industrial and large commercial customers have the ability to
"by-pass" the local gas utility through the construction of interconnections
directly with, and the purchase of gas directly from, interstate pipelines,
thereby avoiding the delivery charges added by the local gas utility. PSCo
and Cheyenne have and will continue to aggressively pursue the retention of
all of these customers on their systems.
PSCo and Cheyenne extend and operate their distribution system
primarily by virtue of non-exclusive franchises granted by the various cities
and towns. Such franchise agreements are approved by their respective state
commissions. Because the franchises are non-exclusive, PSCo and Cheyenne can
be faced with the threat of intrusion into their gas territory by third
parties. PSCo and Cheyenne hold territorial certificates for a portion of
their gas service territory giving them the exclusive right to extend their
distribution system and provide natural gas sales and transportation
service. However, for the majority of their gas service territory, no such
territorial certificates exist.
Franchises
PSCo held nonexclusive franchises to provide electric or gas service or
both services in approximately 121 incorporated cities and towns at December
31, 1997. These franchises consist of 69 combined gas and electric service
franchises, 28 electric service franchises and 24 gas service franchises. In
1998, PSCo expects to re-negotiate three of the franchise agreements which
will be expiring. PSCo's franchise with the City of Denver will expire in
2006. PSCo supplies electric or gas service or both services in about 114
unincorporated communities.
SPS held franchises to provide electric service in approximately 104
cities and towns at December 31, 1997.
Foreign Investments
Yorkshire Electricity
On April 1, 1997, Yorkshire Power, a subsidiary equally owned by PSCo
and AEP, indirectly acquired substantially all of the outstanding ordinary
shares of Yorkshire Electricity, a United Kingdom regional electricity
company. PSCo holds its investment in Yorkshire Power through its
wholly-owned subsidiary, NCI. The total consideration paid by Yorkshire
Power was approximately $2.4 billion (1.5 billion pounds sterling).
Yorkshire Electricity's main businesses are the distribution and supply of
electricity and the supply of gas and its service territory is one of the
region's largest with approximately 2.1 million customers.
In July 1997, the U.K. government enacted a windfall tax on certain
privatized business entities which is payable in two installments. The
windfall tax was a retroactive adjustment to the privatization value based on
post-privatization profits during the 1992 - 1995 period. During the third
quarter of 1997, Yorkshire Power recorded an extraordinary charge of
approximately $221 million (135 million pounds sterling) for this windfall
tax. PSCo's share of this tax is approximately $110.6 million. See Note 2.
Acquisition of Yorkshire Electricity and U.K. Windfall Tax in Item 8.
Financial Statements and Supplementary Data for summary financial information
on Yorkshire Power.
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<PAGE>
Other foreign investments
The Company owns other foreign investments through various
non-regulated subsidiaries; however, at this time, these investments are not
significant to the Company's consolidated assets. See Non-Utility Operations
below for a more detailed discussion on the Company's non-utility
subsidiaries.
Service Company
NCS, a wholly-owned subsidiary of NCE, was incorporated in 1997 under
the laws of the State of Delaware. NCS is the service company for the NCE
system and provides a variety of administrative, management, engineering,
construction, environmental and support services. NCS provides its services
to the NCE system generally at cost, pursuant to service agreements approved
by the SEC under PUHCA.
Non-Utility Operations
NC Enterprises, a wholly-owned subsidiary of NCE, was incorporated in
1997 under the laws of the State of Delaware. NC Enterprises was
incorporated to serve as a holding company for non-utility subsidiaries of
NCE. NC Enterprises currently has the following five subsidiaries: Quixx,
UE, e prime, Natural Fuels and New Century Cadence. The table presented
below provides certain financial information regarding each subsidiary of NC
Enterprises, followed by a discussion of the operations of the subsidiaries.
New
Natural Century
Quixx UE e prime Fuels Cadence
----- -- ------- ----- -------
(Millions of Dollars)
Operating revenues $ 14.8 $ 52.3 $196.7 $ 6.9 $ -
Total assets 79.8 55.5 73.5 10.2 2.2
NC Enterprise's Net
investment at 12/31/97 77.1 42.0 21.1 4.8 1.9
Quixx: Quixx was incorporated in 1985 under the laws of the State of
Texas. Quixx's primary business is investing in and developing cogeneration
and energy-related projects. Quixx also holds water rights and certain
other nonutility assets. Quixx operates, as a division, Amarillo Railcar
Services, a railcar maintenance facility that provides inspection, light and
heavy maintenance, and storage for unit trains. A majority of these services
are provided for railcars that transport coal for use by SPS. Quixx also
finances sales of heat pumps and markets other non-utility goods and
services. Quixx currently has the following wholly-owned subsidiaries, most
of which hold partnership interests in various energy-related limited
partnerships:
Quixx Jamaica, Inc., a wholly-owned subsidiary of Quixx, holds a 99%
limited partnership interest in KES Jamaica, L.P. which owns a facility
consisting of two-oil fired combustion turbines located in Montego Bay,
Jamaica, W.I. The remaining 1% general partnership interest is owned by KES
Montego, Inc. a wholly-owned subsidiary of Quixx. As of December 31, 1997,
Quixx is in the process of winding up operations of this subsidiary.
Quixx Jamaica Power, Inc., a wholly-owned subsidiary of Quixx, is
currently inactive.
Quixx Mustang Station, Inc., a wholly-owned subsidiary of Quixx, was
created to hold Quixx's 0.5% interest in Denver City Energy Associates, L.P.,
a partnership which owns a 50% interest in Mustang Station, a 488 MW
combined cycle generating facility which is scheduled for completion in
1998. Quixx will also hold a 49.5% interest in Denver City Energy
Associates, LP through Quixx Resources, Inc. a wholly-owned subsidiary of
Quixx.
16
<PAGE>
Quixxlin Corp, a wholly-owned subsidiary of Quixx, was created to hold
a 0.5% general partnership interest in Quixx Linden, L.P., which will
construct a 23 MW natural gas fired cogeneration facility located in Linden,
New Jersey. It is estimated that this facility will be completed in
mid-1998. Quixx also directly holds a 49.5% limited partnership interest in
Quixx Linden, L.P.
Quixx Borger Cogen, Inc., a wholly-owned subsidiary of Quixx, will hold
a 0.5% general partnership interest in Borger Energy Associates, L.P., which
will own a cogeneration plant that will be located at the Phillips Petroleum
Refinery Complex near Borger, Texas. Quixx Resources, Inc., a wholly-owned
subsidiary of Quixx, will hold a 49.5% limited partnership interest in this
same partnership.
Quixx WPP94, Inc., a wholly-owned subsidiary of Quixx, holds a 0.33%
general partnership interest in Windpower Partners, 1994 L.P. Windpower
Partners, 1994 L.P. owns a 35 MW wind generation facility in Culberson
County, Texas. Quixx also directly holds a 24.67% limited partnership
interest in Windpower Partners, 1994 L.P.
Quixx Louisville, L.L.C., a wholly-owned subsidiary of Quixx, owns a
facility consisting of two gas-fired boilers providing steam to a DuPont
plant in Louisville, Kentucky.
Quixx Power Services, Inc., a wholly-owned subsidiary of Quixx,
operates and maintains certain cogeneration facilities.
Quixx WRR, L.P., a wholly-owned subsidiary of Quixx, holds Quixx's
water rights located in Roberts, Gray, Hutchinson and Carson Counties,
Texas. Quixx holds a 1% general partnership interest and through Quixx
Resources, Inc. a 99% limited partnership interest in Quixx WRR, L.P.
Quixx holds a 50% interest in Mosbacher Power Group and Mosbacher Power
International, which are independent power development companies with
interests in the development stage in Cambodia and Colombia.
Quixx Carolina, Inc., a wholly-owned subsidiary of Quixx, holds a 1%
general partnership interest in Carolina Energy Limited Partnership, a
waste-to-energy cogeneration facility. Quixx also holds a 32.33% limited
partnership interest in this same partnership. In June 1997, Quixx wrote off
its investment of approximately $13.64 million in the Carolina Energy Limited
Partnership (see Note 3. Acquisition and Divestiture of Investments in Item
8. Financial Statements And Supplementary Data).
Quixx holds a 49% limited partnership interest in BCH Energy Limited
Partnership, a waste-to-energy facility located near Fayetteville, North
Carolina. In December 1996, Quixx wrote off its entire investment in this
project of approximately $16 million (See Note 3. Acquisition and Divestiture
of Investments in Item 8. Financial Statements And Supplementary Data).
UE: UE was incorporated in 1985 under the laws of the State of
Texas. UE is engaged in engineering, design, construction management and
other miscellaneous services. UE currently has two wholly-owned subsidiaries
- - Universal Utility Services Company and Precision Resource Company.
Universal Utility Services Company provides cooling tower maintenance and
repair, certain other industrial plant improvement services, and engineered
maintenance of high voltage plant electric equipment. Precision Resource
Company provides contract professional and technical resources for customers
in the energy industrial sectors. UE also owns a 49% interest in Vista
Environmental Services, LLC, which performs environmental consulting for
energy and industrial customers in both the private and government sectors,
primarily in the southwestern United States.
e prime: e prime was incorporated in 1995 under the laws of the state
of Colorado. e prime provides energy related products and services which
include, but are not limited to, electric and gas brokering, marketing and
trading, and energy consulting. e prime has also pursued international
energy investment opportunities. In March of 1996, e prime received
authorization from the FERC to act as a power marketer. In September of
1996, e prime acquired TOG, a gas marketing company, with headquarters in
Houston and an office in Boston. e prime and TOG have merged operations and
together they provide value-added energy related products and services to
17
<PAGE>
over 2,200 end use customers and utilities nationwide. Additionally, e prime
currently owns the following subsidiaries (subsidiaries formed, but inactive
have been excluded):
TOP is a small pipeline company which connects two major interstate
pipelines.
YGSC owns a 47.5% general partnership interest in Young Storage which
owns and operates an underground gas storage facility in northeastern
Colorado.
e prime Projects International, Inc. and e prime Operating, Inc. were
formed to hold and operate investments in EWG's and foreign utility
companies, which in 1997 included the purchase and subsequent sale of a 25%
interest in a 608 mw coal-fired electric power plant near Topar, Karaganda,
the Republic of Kazakstan.
e prime also holds a 50% ownership interest in Johnstown Cogeneration,
a limited liability company.
Natural Fuels: Natural Fuels was incorporated in 1990 under the laws
of the State of Colorado. Natural Fuels sells compressed natural gas as a
transportation fuel to retail markets, converts vehicles for natural gas
usage, constructs fueling facilities, and sells miscellaneous fueling
facility equipment. Natural Fuels has a 50% ownership interest in
Natural/Total Limited Liability Company, which owns and operates natural gas
fueling stations located at Total Petroleum Gas Stations in Colorado.
Natural Fuels has a 25% ownership interest in Natural/Peoples Limited
Liability Company which owns and operates one natural gas fueling station
located in Castle Rock, Colorado. Additionally, Natural Fuels has a 67%
ownership interest through Natural/Total in Natural/Total/KN Limited
Partnership, a partnership which owns the profits interest in the natural gas
fueling stations located at Total Petroleum sites in the Colorado towns of
Grand Junction and Glenwood Springs.
New Century Cadence: New Century Cadence was incorporated in 1997
under the laws of the State of Colorado. New Century Cadence was created to
hold a 1/3 interest in Cadence Network LLC, an energy-related company which
provides energy management and consulting services, as well as brokering and
marketing of energy commodities. Specifically, Cadence Network LLC will
provide a single source for both energy management services and products
designed to lower energy costs for national companies that operate at
multiple locations. Cadence Network LLC is equally owned by New Century
Cadence, Cinergy-Cadence, Inc. (a subsidiary of Cinergy, Inc.) and Progress
Holdings, Inc. (a subsidiary of Florida Progress Holdings, Inc.)
Employees
The number of employees in the NCE system at December 31, 1997 is
presented in the table below. Of the employees listed below, approximately
2,938, or 47%, are covered under collective bargaining agreements. For
further information, see Note 10. Commitments and Contingencies - Union
Contracts in Item 8. Financial Statements and Supplementary Data.
NCE System Employees
--------------------
PSCo 3,160
SPS 1,332
NCS 1,325
Cheyenne 100
NC Enterprises 373
---
Total 6,290
=====
18
<PAGE>
Consolidated Electric Operating Statistics (NCE)
Year Ended December 31,
-----------------------
1997 1996 1995(2)
---- ---- -------
Energy Generated, Received & Sold
(Thousands of Kwh):
Net Generated:
Steam, Fossil.................. 33,278,721 32,116,961 37,067,838
Combustion Turbine............. 6,595,055 6,351,117 151,294
Pumped Storage................. 193,834 178,205 68,400
Hydro.......................... 224,898 197,660 208,104
------- ------- -------
Total Net Generation......... 40,292,508 38,843,943 37,495,636
Energy Used for Pumping........ 300,649 276,983 109,632
------- ------- -------
Total Net System Input....... 39,991,859 38,566,960 37,386,004
Purchased Power and Net Interchange 11,985,546 10,295,074 10,145,620
---------- ---------- ----------
Total System Input........... 51,977,405 48,862,034 47,531,624
Used by Company................ 77,734 88,304 1,239,914
Other (1)...................... 1,677,085 1,352,843 1,526,358
--------- --------- ---------
Total Energy Sold............ 50,222,586 47,420,887 44,765,352
========== ========== ==========
Electric Sales (Thousands of Kwh):
Residential.................... 9,730,390 9,530,275 8,991,000
Commercial..................... 13,223,936 12,832,091 12,094,269
Industrial..................... 13,789,814 13,729,777 13,433,472
Public Authorities............. 773,656 780,251 736,375
Wholesale - Regulated ......... 11,494,742 10,129,788 9,510,236
Wholesale Energy Services -
Non-Regulated .............. 1,210,048 418,705 -
--------- ------- ----
Total Energy Sold............ 50,222,586 47,420,887 44,765,352
========== ========== ==========
Number of Customers at End of Period:
Residential.................... 1,285,307 1,269,322 1,237,218
Commercial..................... 185,911 183,928 177,607
Industrial..................... 12,888 12,830 12,274
Public Authorities............. 81,994 80,486 79,819
Wholesale - Regulated ......... 279 235 191
Wholesale Energy Services -
Non-Regulated .............. 12 6 -
-- ---- ----
Total Customers ........... 1,566,391 1,546,807 1,507,109
========= ========= =========
Electric Revenues (Thousands of Dollars):
Residential.................... $ 692,886 $ 682,966 $ 638,972
Commercial..................... 735,636 738,266 701,135
Industrial..................... 532,276 521,843 526,349
Public Authorities............. 58,235 55,608 50,441
Wholesale - Regulated.......... 412,088 376,315 341,265
Wholesale Energy Services -
Non-Regulated .............. 22,861 7,806 -
Other Electric Revenues........ 19,377 33,735 25,017
------ ------ ------
Total Electric Revenues...... $2,473,359 $2,416,539 $2,283,179
========== ========== ==========
Average Annual Kwh Sales per
Residential Customer 7,570 7,508 7,267
Average Annual Revenue per
Residential Customer $539.08 $538.06 $516.46
Average Residential Revenue per Kwh .0712 .0717 .0711
Average Commercial Revenue per Kwh .0556 .0575 .0580
Average Industrial Revenue per Kwh .0386 .0380 .0392
Average Wholesale - Regulated
Revenue per Kwh .0359 .0371 .0359
_________________________
(1) Primarily includes net distribution and transmission line losses.
(2) Reflects the combined historical information of PSCo as of and for the
year ended December 31, 1995 with the historical information of SPS as of
and for the year ended August 31, 1995.
19
<PAGE>
Consolidated Electric Operating Statistics (PSCo) (1)
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
Energy Generated, Received & Sold
(Thousands of Kwh):
Net Generated:
Steam, Fossil.................. 17,586,343 17,099,890 16,053,928
Combustion Turbine............. 154,019 121,079 5,251
Pumped Storage................. 193,834 178,205 68,400
Hydro.......................... 224,898 197,660 208,104
------- ------- -------
Total Net Generation......... 18,159,094 17,596,834 16,335,683
Energy Used for Pumping........ 300,649 276,983 109,632
------- ------- -------
Total Net System Input....... 17,858,445 17,319,851 16,226,051
Purchased Power and Net Interchange 11,470,535 10,349,298 9,794,968
---------- ---------- ---------
Total System Input........... 29,328,980 27,669,149 26,021,019
Used by Company................ 45,492 57,603 64,885
Other (2)...................... 1,659,347 1,352,843 1,526,358
--------- --------- ---------
Total Energy Sold............ 27,624,141 26,258,703 24,429,776
========== ========== ==========
Electric Sales (Thousands of Kwh):
Residential.................... 6,662,679 6,606,601 6,281,911
Commercial..................... 10,109,615 9,880,502 9,284,577
Industrial..................... 5,511,722 5,791,608 5,747,534
Public Authorities............. 189,141 200,070 188,363
Wholesale - Regulated ......... 4,490,895 3,361,217 2,927,391
Wholesale Energy Services -
Non-Regulated .............. 660,089 418,705 -
------- ------- ----
Total Energy Sold............ 27,624,141 26,258,703 24,429,776
========== ========== ==========
Number of Customers at End of Period:
Residential.................... 976,629 959,249 936,759
Commercial..................... 128,593 126,426 123,277
Industrial..................... 339 380 378
Public Authorities............. 81,209 79,725 79,154
Wholesale - Regulated ......... 33 26 17
Wholesale Energy Services -
Non-Regulated .............. 12 6 -
---- ---- ----
Total Customers ........... 1,186,815 1,165,812 1,139,585
========= ========= =========
Electric Revenues (Thousands of Dollars):
Residential.................... $ 503,727 $ 507,233 $ 477,740
Commercial..................... 563,439 571,536 552,905
Industrial..................... 228,925 249,774 257,189
Public Authorities............. 26,778 25,798 23,029
Wholesale - Regulated.......... 145,561 120,478 114,514
Wholesale Energy Services -
Non-Regulated .............. 10,448 7,806 -
Other Electric Revenues........ 6,318 6,365 23,719
----- ----- ------
Total Electric Revenues...... $1,485,196 $1,488,990 $1,449,096
========== ========== ==========
Average Annual Kwh Sales per
Residential Customer 6,822 6,965 6,794
Average Annual Revenue per
Residential Customer $515.78 $534.79 $516.70
Average Residential Revenue per Kwh .0756 .0768 .0761
Average Commercial Revenue per Kwh .0557 .0578 .0596
Average Industrial Revenue per Kwh .0415 .0431 .0447
Average Wholesale - Regulated
Revenue per Kwh .0324 .0358 .0391
_________________________
(1) Includes year-to-date amounts through July 31, 1997 for the subsidiaries
transferred in connection with the Merger.
(2) Primarily includes net distribution and transmission line losses.
20
<PAGE>
<TABLE>
<CAPTION>
Consolidated Electric Operating Statistics (SPS)
Year ended September 1 -
December 31 December 31 Year ended August 31
----------------------- --------------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Energy Generated, Received & Sold
(Thousands of Kwh):
Net Generated:
Steam, Fossil.................. 15,692,378 4,994,294 14,895,995 21,013,910
Combustion Turbine............. 6,441,036 1,747,556 6,186,155 146,043
--------- --------- --------- -------
Total Net Generation......... 22,133,414 6,741,850 21,082,150 21,159,953
Purchased Power and Net Interchange (402,504) 332,644 1,226,976 350,652
-------- ------- --------- -------
Total System Input........... 21,730,910 7,074,494 22,309,126 21,510,605
Used by Company, Other......... 31,862 438,190 1,420,687 1,175,029
------ ------- --------- ---------
Total Energy Sold.............. 21,699,048 6,636,304 20,888,439 20,335,576
========== ========= ========== ==========
Electric Sales (Thousands of Kwh) (1):
Residential.................... 2,986,815 891,695 2,868,982 2,709,089
Commercial..................... 2,990,488 989,580 2,886,807 2,809,692
Industrial..................... 8,135,280 2,661,642 7,813,433 7,685,938
Public Authorities............. 582,618 190,439 571,579 548,012
Wholesale - Regulated ......... 7,003,847 1,902,948 6,747,638 6,582,845
--------- --------- --------- ---------
Total Energy Sold............ 21,699,048 6,636,304 20,888,439 20,335,576
========== ========= ========== ==========
Number of Customers at End of Period(1):
Residential.................... 308,439 310,073 308,554 300,459
Commercial..................... 57,298 57,502 57,204 54,330
Industrial..................... 12,549 12,450 12,418 11,896
Public Authorities............. 785 761 750 665
Wholesale - Regulated ......... 246 209 197 174
--- --- --- ---
Total Customers ........... 379,317 380,995 379,123 367,524
======= ======= ======= =======
Electric Revenues (Thousands of Dollars)(1):
Residential.................... $ 184,372 $ 54,109 $ 172,214 $ 161,231
Commercial..................... 166,572 54,033 154,653 148,231
Industrial..................... 298,754 95,494 274,117 269,160
Public Authorities............. 31,249 10,090 29,220 27,412
Wholesale - Regulated.......... 266,527 71,663 252,145 226,751
Other Electric Revenues........ 12,881 10,190 17,048 1,298
------ ------ ------ -----
Total Electric Revenues...... $ 960,355 $ 295,579 $ 899,397 $ 834,083
========== ========= ========== ============
Average Kwh Sales per Residential
Customer 9,684 2,876 9,298 9,017
Average Revenue per Residential
Customer $597.76 $174.50 $558.13 $536.62
Average Residential Revenue per Kwh .0617 .0607 .0600 .0595
Average Commercial Revenue per Kwh .0557 .0546 .0536 .0528
Average Industrial Revenue per Kwh .0367 .0359 .0351 .0350
Average Wholesale - Regulated Revenue
per Kwh .0381 .0377 .0374 .0344
_________________________
(1) Presentation of electric revenues by class has been changed to include
unbilled revenue in other electric revenue to conform with the current
year presentation.
21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Gas Operating Statistics (NCE and PSCo)
Year Ended December 31,
NCE PSCo NCE and PSCo
1997 1997 (3) 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Natural Gas Purchased and Sold
(Thousands of Dth):
Purchased from CIG............. 32,035 32,035 39,924 38,687
Purchased from Others.......... 119,652 118,128 107,374 101,259
Purchased for Non-regulated
Gas Marketing (1) ........... 61,248 35,189 22,807 237
------ ------ ------ ---
Total Purchased............ 212,935 185,352 170,105 140,183
Company Use.................... 1,213 1,211 520 1,330
Other (2)...................... 17,236 15,461 10,000 5,657
------ ------ ------ -----
Total Gas Sold............... 194,486 168,680 159,585 133,196
======= ======= ======= =======
Gas Deliveries (Thousands of Dth):
Residential.................... 87,386 86,634 86,102 82,188
Commercial .................... 47,471 46,857 51,655 50,771
Non-regulated Gas Marketing (1) 59,629 35,189 21,828 237
------ ------ ------ ---
Total Gas Sold............. 194,486 168,680 159,585 133,196
Transportation................. 93,271 86,831 90,304 75,704
Other Gas Deliveries........... 73 73 1,141 1,391
-- -- ----- -----
Total Deliveries............. 287,830 255,584 251,030 210,291
======= ======= ======= =======
Number of Customers at End of Period:
Residential.................... 928,134 902,759 902,078 872,777
Commercial..................... 91,937 89,229 90,761 89,034
Non-regulated Gas Marketing (1) 2,190 - 1,255 2
----- --- ----- ---
Total........................ 1,022,261 991,988 994,094 961,813
Transportation and Other....... 2,215 2,205 1,794 952
----- ----- ----- ---
Total Customers.............. 1,024,476 994,193 995,888 962,765
========= ======= ======= =======
Gas Revenues (Thousands of Dollars):
Residential.................... $410,406 $407,004 $362,481 $383,719
Commercial..................... 186,248 184,192 176,328 205,275
Non-regulated Gas Marketing (1) 172,524 99,273 64,389 399
Transportation................. 32,646 32,465 28,549 23,769
Other Gas Revenues............. 14,772 10,157 8,750 11,423
------ ------ ----- ------
Total Gas Revenues......... $816,596 $733,091 $640,497 $624,585
======== ======== ======== ========
Average Annual Dth Sales per
Residential Customer .......... 94.15 95.97 97.14 95.65
Average Annual Revenue per
Residential Customer .......... $442.18 $450.85 $408.93 $446.58
Average Revenue per Dekatherm:
Residential ................... $4.697 $4.698 $4.210 $4.669
Commercial .................... $3.923 $3.931 $3.459 $3.970
Transportation ................ $0.352 $0.375 $0.316 $0.314
_________________________
</TABLE>
(1) Includes purchases and sales by e prime and TOG.
(2) Primarily includes distribution and transmission line losses and net
changes to gas in storage.
(3) Includes year-to-date amounts through July 31, 1997 for the subsidiaries
transferred in connection with the Merger.
22
<PAGE>
Item 2. Properties
PSCo Electric Generation Property
The PSCo electric generating stations expected to be available at the
time of the anticipated 1998 net firm system peak demand during the summer
season are as follows:
<TABLE>
<CAPTION>
Net Dependable
Capacity
Installed (Mw)
Gross at Time of Anticipated Major
Name of Station Capacity 1998 Net Firm System Fuel
and Location (Mw) Peak Demand* Source
------------ ---- ------------ ------
<S> <C> <C> <C>
Steam:
Arapahoe-Denver.................... 262.00 246.00 Coal
Cameo-near Grand Junction ......... 77.00 72.70 Coal
Cherokee-Denver.................... 784.00 723.00 Coal
Comanche-near Pueblo............... 725.00 660.00 Coal
Craig-near Craig................... 86.90 (a) 83.20 Coal
Hayden-near Hayden................. 259.00 (b) 237.00 Coal
Pawnee-near Brush.................. 530.00 511.00 Coal
Valmont-near Boulder (Unit 5)...... 188.00 178.00 Coal
Zuni-Denver........................ 115.00 107.00 Gas/Oil
------ ------
Total............................ 3,026.90 2,817.90
Fort St. Vrain Combustion Turbine - near
Platteville ......................... 141.45 126.75 Gas
Combustion turbines (6 units-various
locations) .......................... 209.00 171.00 Gas
Hydro (14 units-various locations) (c). 53.35 36.55 (d) Hydro
Cabin Creek Pumped Storage-near Georgetown 324.00 (e) 162.00 Hydro
Cherokee Diesel generators (2 units)... 5.50 5.50 Oil
---- ----
Total............................ 3,760.20 3,319.70
======== ========
________________
* A measure of the unit capability planned to be available at the time of
the system peak load net of seasonal reductions in unit capability due to
weather, stream flow, fuel availability and station housepower, including
requirements for air and water quality control equipment.
(a) The gross maximum capability of Craig Units No. 1 and No. 2 is 894 Mw,
of which the Company has a 9.72% undivided ownership interest.
(b) The gross maximum capability of Hayden Units No. 1 and No. 2 is 202.01
Mw and 285.96 Mw, respectively, of which the Company has a 75.5% and 37.4%
undivided ownership interest, respectively.
(c) Includes one station (two units) not owned by the Company but operated
under contract.
(d) Seasonal Hydro Plant net dependable capabilities are based upon average
water conditions and limitations for each particular season. The
individual plant seasonal capabilities are sometimes limited by less than
design water flow.
(e) Capability at maximum load.
</TABLE>
23
<PAGE>
SPS Electric Generation Property
The SPS electric generating stations expected to be available at the
time of the anticipated 1998 net firm system peak demand during the summer
season are as follows:
<TABLE>
<CAPTION>
Net Dependable
Capacity
Installed (Mw)
Gross at Time of Anticipated Major
Name of Station Capacity 1998 Net Firm System Fuel
and Location (Mw) Peak Demand* Source
------------ ---- ------------ ------
<S> <C> <C> <C>
Steam:
Harrington- near Amarillo, TX...... 1,137.00 1,066.00 Coal
Tolk - near Muleshoe, TX .......... 1,130.00 1,080.00 Coal
Jones - near Lubbock, TX........... 512.00 486.00 Gas
Plant X - near Earth, TX........... 465.00 444.00 Gas
Nichols - near Amarillo, TX........ 479.00 457.00 Gas
Cunningham - near Hobbs, NM........ 489.00 475.00 Gas
Maddox - near Hobbs, NM............ 123.00 118.00 Gas
CZ-2 - near Pampa, TX.............. 26.00 26.00 Purch. steam
Moore County - near Sunray, TX..... 51.00 48.00 Gas
----- -----
Total............................ 4,412.00 4,200.00
Gas Turbine:
Carlsbad - near Carlsbad, NM....... 16.00 16.00 Gas
CZ-1 - near Pampa, TX.............. 13.00 13.00 Hot nitrogen
Maddox - near Hobbs, NM............ 76.00 76.00 Gas
Riverview - near Borger, TX........ 25.00 25.00 Gas
Diesel Engine (1 unit) - Tucumcari, NM. 13.00 13.00 Diesel
----- -----
Total............................ 4,555.00 4,343.00
======== ========
________________
* A measure of the unit capability planned to be available at the time of
the system peak load net of seasonal reductions in unit capability due to
weather, stream flow, fuel availability and station housepower, including
requirements for air and water quality control equipment.
</TABLE>
Nuclear Generation Property
Fort St. Vrain, near Platteville, PSCo's only former nuclear generating
station, ceased operations on August 29, 1989 and on March 22, 1996 the
physical decommissioning of the station was completed. The initial phase of
the repowered gas fired combined cycle steam electric generating station
began commercial operations on May 1, 1996 (see Note 10. Commitments and
Contingencies in Item 8. Financial Statements And Supplementary Data).
Electric Transmission Property
PSCo: On December 31, 1997, PSCo's transmission system consisted of
approximately 112 circuit miles of 345 Kv overhead lines; 1,942 circuit miles
of 230 Kv overhead lines; 15 circuit miles of 230 Kv underground lines; 65
circuit miles of 138 Kv overhead lines; 999 circuit miles of 115 Kv overhead
lines; 22 circuit miles of 115 Kv underground lines; 331 circuit miles of 69
Kv overhead lines; 139 circuit miles of 44 Kv overhead lines; and 1 circuit
mile of 44 Kv underground lines. PSCo jointly owns with another utility
approximately 342 circuit miles of 345 Kv overhead lines and 360 miles of 230
Kv overhead lines, of which PSCo's share is 112 miles and 147 miles,
respectively, which shares are included in the amounts listed above.
SPS: On December 31, 1997, SPS's transmission system consisted of
approximately 319 circuit miles of 345 Kv overhead lines; 1,598 circuit miles
of 230 Kv overhead lines; 2,540 circuit miles of 115 Kv overhead lines; 1,755
circuit miles of 69 Kv overhead lines; 1 circuit mile of 115 Kv underground
line; and 5 circuit miles of 69 Kv underground lines.
24
<PAGE>
Interconnections
PSCo: PSCo's transmission facilities are located wholly within
Colorado. The system is interconnected with the systems of the following
utilities with which PSCo has major firm purchase power contracts; capacity
and energy are provided primarily by generating sources in the locations
indicated:
Utility Location
------- --------
Basin Electric Power Cooperative................ Southeast Wyoming
PacifiCorp ..................................... West & Northwest U.S.
Northwest Colorado
Platte River Power Authority.................... Northcentral Colorado
Tri-State....................................... Southeast Wyoming and
Northwest Colorado
PSCo has wheeling agreements with the above, and with other utilities
and public power agencies, which are utilized to provide capacity and energy
to PSCo's system from time to time.
PSCo is a member of the WSCC, an interstate network of transmission
facilities which are owned by public entities and investor-owned utilities.
WSCC is the regional reliability coordinating organization for member
electric power systems in the western United States. PSCo is also a member
of the Western Systems Power Pool which is an economic power pool that
operates an electronic bulletin board and acts as a clearinghouse for bulk
power transactions among over 90 member utilities and marketers.
SPS: SPS's transmission system is located in parts of Texas, New
Mexico, Oklahoma and Kansas. SPS is connected with utilities west of its
service territory through two HVDC interconnections in New Mexico and has
four interconnecting transmission lines with utilities of the SPP. These
interconnections are described in the following table:
Utility Location
------- --------
El Paso Electric Company and Texas-New Mexico
Power Company .................................Near Artesia, NM
Public Service Company of New Mexico .............Near Clovis, NM
Public Service Company of Oklahoma................Near Oklaunion, TX
and near Elk City, OK
West Texas Utilities..............................Near Shamrock, TX
and near Groom TX
WestPlains Energy.................................Near Guymon, OK
SPS is a member of the SPP. Transactions with the SPP are handled
through interties near Elk City and Guymon, Oklahoma, and Shamrock and
Oklaunion, Texas. These interties allow the Company to sell or to purchase
energy from the eastern electrical grid. HVDC interconnections link SPS with
the western electrical grid of the United States. SPS purchases and sells
energy through HVDC interties near Artesia and Clovis, New Mexico.
SPS is a participant in the FERC approved WSPP bulk power market. This
arrangement provides for short-term energy and capacity exchanges,
transmission services, flexible pricing, and electronic bulletin board
posting of available power and energy.
It is presently anticipated that a tie line between Amarillo, Texas and
southeastern Colorado will be constructed by the year 2001. The tie line
would be approximately 300 miles and the voltage would be 345 Kv. PSCo and
SPS have agreed with other utilities to comprehensive procedures for regional
planning of the new transmission interconnection. Following the completion
of the line, the PSCo and SPS systems will be operated as a single
interconnected system.
25
<PAGE>
Electric Distribution Property
The distribution system of the Company's electric subsidiaries consists
of both overhead lines and underground distribution systems. PSCo owns
approximately 220 substations (30 of which are jointly owned) having an
aggregate transformer capacity of 19,167,000 Kva, of which 4,145,827 Kva is
step-up transformer capacity at generating stations. SPS owns approximately
348 substations having an aggregate transformer capacity of 19,277,000 Kva,
of which 5,951,000 Kva is step-up transformer capacity.
Gas Property
The gas property of PSCo at December 31, 1997 consisted chiefly of
approximately 15,362 miles of distribution mains ranging in size from 0.50 to
30 inches and related equipment. The Denver distribution system consisted of
8,888 miles of mains. Pressures in the system are varied to meet load
requirements and individual house regulators are installed on each customer's
premises to provide uniform flow of gas to appliances. PSCo also owns and
operates four gas storage facilities.
Other Property
PSCo's steam heating property at December 31, 1997 consisted of 10.5
miles of transmission, distribution and service lines in the central business
district of Denver, including a steam transmission line connecting the steam
heating system with Zuni. Steam is supplied from boilers installed at PSCo's
Denver Steam Plant which has a capability of 295,000 pounds of steam per hour
under sustained load and an additional 300,000 pounds of steam per hour is
available from Zuni on a peak demand basis. An additional 80,000 pounds per
hour can be supplied as emergency backup through operation of a leased steam
heat boiler housed at the State of Colorado. PSCo also owns service and
office facilities in Denver and other communities strategically located
throughout its service territory.
Property of Subsidiaries
Unregulated subsidiary property is approximately 1% of the total net
book value of the properties of the Company and consolidated subsidiaries
combined. 1480 Welton, Inc. owns two buildings that are used by PSCo.
Character of Ownership
The steam electric generating stations, the majority of major electric
substations owned by the Company and its subsidiaries are on land owned in
fee. Approximately half of the compressor stations and a limited number of
town border and meter stations are also on land owned in fee. The remaining
major electric substations, compressor stations and the majority of gas
regulator stations and town border and meter stations are wholly or partially
on land leased from others or on or along public highways or on streets or
public places within incorporated towns and cities (under franchises or other
rights). PSCo's Cabin Creek Pumped Storage Hydroelectric Generating Station,
its Shoshone Hydroelectric Generating Station and a portion of the related
intake tunnel are located on public lands of the United States. As to
substantially all property on or across public lands of the United States,
the Company or its subsidiaries hold licenses or permits issued by
appropriate Federal agencies or departments. The Leyden gas storage facility
is located largely on leased property under leases expiring December 31,
2040. The Company and its utility subsidiaries have the power of eminent
domain pursuant to State law to acquire property for their electric and gas
facilities. The electric and gas transmission and distribution facilities
are for the most part located on land owned by the Company or its
subsidiaries pursuant to easements obtained from the record holders of title
or are over or under streets, public highways or other public places and on
public lands under franchises or other rights. The water rights of the
Company and its subsidiaries are owned subject to divestment to the extent of
any abandonment thereof.
Substantially all of the utility plant and other physical property
owned by the Company's utility subsidiaries is subject to the liens of the
respective indentures securing the mortgage bonds of the Company's utility
subsidiaries.
26
<PAGE>
Item 3. Legal Proceedings
See Note 9. Regulatory Matters and Note 10. Commitments and
Contingencies in Item 8. Financial Statements And Supplementary Data.
Item 4. Submission of Matters to a Vote of Security Holders
NCE: None.
PSCo: None.
SPS: Omitted pursuant to General Instruction I(2)(c).
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is listed on the New York stock exchange.
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. Prior to the Merger, PSCo and SPS common stock was listed on
the New York, Chicago and Pacific Stock Exchanges. The following table sets
forth for the periods indicated the dividends declared per share of common
stock and the high and low sale prices of the common stock on the
consolidated tape as reported by The Wall Street Journal for NCE, PSCo and
SPS in 1997 and by the National Quotations Bureau, Inc. for SPS in 1996.
Dividends Price Range
NCE Year and Quarter Declared High Low
-------------------- -------- ---- ---
1997
Third Quarter (from August 1, 1997).......... $ .58 $43 3/16 $ 39
Fourth Quarter............................... .58 49 5/8 40 1/4
---
$ 1.16
PSCo Year and Quarter
---------------------
1997
First Quarter................................ $ .525 $40 1/8 $38 1/4
Second Quarter............................... .525 41 3/4 37 3/4
Third Quarter (to August 1, 1997) (1)........ .115 42 3/16 40 1/8
----
$1.165
1996
First Quarter................................ $ .525 $36 1/2 $33 3/4
Second Quarter............................... .525 36 3/4 32 3/8
Third Quarter................................ .525 36 7/8 34 3/4
Fourth Quarter............................... .525 39 1/2 35 1/4
----
$ 2.10
SPS Year and Quarter
--------------------
1997
First Quarter................................ $ .55 $37 1/8 $35 3/4
Second Quarter............................... .55 39 1/2 37 3/8
Third Quarter (to August 1, 1997) (2)........ .46 40 1/8 37 5/8
---
$ 1.56
1996 - Transition Period
Fiscal Quarter ended November 30, 1996....... $ .55 $36 3/4 $31 3/4
Month ended December 31, 1996................ - 35 7/8 34 3/8
---
$ .55
27
<PAGE>
Dividends Price Range
SPS Year and Quarter Declared High Low
-------------------- -------- ---- ---
1996 - Fiscal Year
Fiscal Quarter ended November 30, 1995....... $ .55 $33 7/8 $ 30
Fiscal Quarter ended February 29, 1996....... .55 33 7/8 32 18
Fiscal Quarter ended May 31, 1996............ .55 34 1/8 30 5/8
Fiscal Quarter ended August 31, 1996......... .55 33 3/8 30 1/4
---
$ 2.20
(1) A partial dividend payable to shareholders covering the period July
12, 1997 through July 31, 1997, the day prior to the Merger effective
date, based on the quarterly dividend rate of $0.525, but prorated for the
number of days in the interim period.
(2) A partial dividend payable to shareholders covering the period May 16,
1997 through July 31, 1997, the day prior to the Merger effective date,
based on the quarterly dividend rate of $0.55, but prorated for the number
of days in the interim period.
At December 31, 1997, the book value of the Company's common equity was
$21.25 per share. At February 19, 1998, there were 83,124 holders of record
of the Company's common stock and the market price of the stock was $45.50.
In November 1997, the Company filed a Registration Statement on Form S-3 to
sell 9 million shares of common stock. In December 1997, the Company sold
5.9 million shares of common stock. See Note 4. Capital Stock for a
discussion of the shareholders' rights plan.
The Company anticipates declaring quarterly dividends at an annualized
rate of $2.32 per share. However, the dividend level is dependent upon the
Company's results of operations, financial position and other factors and is
evaluated quarterly by the Board of Directors. See Item 7. Management's
Discussion And Analysis Of Financial Condition And Results Of Operations
(NCE).
28
<PAGE>
Item 6. Selected Financial Data (NCE)
The NCE selected financial data for 1997 and 1996 has been prepared
from the combination of the historical information of PSCo and SPS as of and
for the years ended December 31, 1997 and 1996. The 1995, 1994, and 1993
selected financial data has been prepared from the combination of PSCo
information as of and for the years ended December 31, 1995, 1994 and 1993
with the SPS information as of and for the years ending August 31, 1995, 1994
and 1993. Income statement and cash flow information for SPS for the four
months ended December 31, 1995 is presented in SPS's Transition Period
statements in Item 8. Financial Statements and Supplementary Data. This
following selected consolidated financial data should be read in conjunction
with the consolidated financial statements and the management's discussion
and analysis of financial condition and results of operations appearing
elsewhere herein.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
NCE (In Thousands, except per share data & ratio)
- ---
<S> <C> <C> <C> <C> <C>
Operating revenues:
Electric.................. $2,473,359 $2,416,539 $2,283,179 $2,243,284 $2,146,806
Gas....................... 816,596 640,497 624,585 624,922 628,324
Other..................... 52,570 39,998 54,444 42,092 27,975
------ ------ ------ ------ ------
Total.................. 3,342,525 3,097,034 2,962,208 2,910,298 2,803,105
Total operating expenses..... 2,713,300 2,461,451 2,345,264 2,413,704 2,282,714
Operating income............. 629,225 635,583 616,944 496,594 520,391
Income before extraordinary item 261,487 272,341 281,492 255,545 244,574
Extraordinary item - U.K.
windfall tax (110,565) - - - -
Net income................... 150,922 272,341 281,492 255,545 244,574
Per share data applicable to
common stock (a):
Basic and diluted earnings
per share (c) ........... $2.50 $2.64 $2.77 $2.54 $2.48
Dividends declared (b).... $2.53 $2.18 $2.15 $2.13 $2.13
Rate of return earned on average
common equity (income before
extraordinary item to common) 11.6% 12.8% 14.0% 13.3% 13.4%
Total assets................. $7,310,281 $6,617,442 $6,260,794 $6,027,106 $5,775,110
Total construction expenditures 475,497 454,968 380,407 409,485 385,830
Total common equity.......... 2,353,245 2,170,040 2,064,397 1,963,654 1,873,085
Preferred stock of subsidiaries:
Not subject to mandatory
redemption ............... 140,002 140,008 212,688 212,688 212,688
Subject to mandatory
redemption at par(including
amounts due within one year) 39,253 39,913 41,289 42,665 45,454
SPS obligated mandatorily
redeemable preferred securities 100,000 100,000 - - -
Long-term debt of subsidiaries
(including amounts due within
one year) 2,245,424 2,050,189 1,854,737 1,703,808 1,742,440
Notes payable & commercial paper 588,343 298,561 288,050 339,794 276,875
_________________
(a) Earnings per share are based on the weighted average number of shares
of common stock outstanding.
(b) The 1997 amount includes dividends declared by PSCo and SPS for the
period January 1, 1997 through July 31, 1997 and dividends declared by NCE
for the period August 1, 1997 through December 31, 1997. The Company is
currently declaring quarterly dividends at an annualized rate of $2.32 per
share. See Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters.
(c) The 1997 amount is before the $1.06 extraordinary loss per share
related to the U.K. windfall tax.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1997(a) 1996 1995 1994 1993
------- ---- ---- ---- ----
PSCo (In Thousands, except per share data & ratio)
- ----
<S> <C> <C> <C> <C> <C>
Operating revenues:
Electric.................. $1,485,196 $1,488,990 $1,449,096 $1,399,836 $1,337,053
Gas....................... 733,091 640,497 624,585 624,922 628,324
Other..................... 11,356 7,951 7,010 7,517 11,548
------ ----- ----- ----- ------
Total.................. 2,229,643 2,137,438 2,080,691 2,032,275 1,976,925
Operating income............. 337,353 324,536 295,907 245,683 259,173
Income before extraordinary item 204,042 190,346 178,856 170,269 157,360
Extraordinary item - U.K.
windfall tax .............. (110,565) - - - -
Dividend requirements on
preferred stock ........... 11,752 11,848 11,963 12,014 12,031
Earnings available for common
stock ..................... 81,725 178,498 166,893 158,255 145,329
Net income................... 93,477 190,346 178,856 170,269 157,360
Total assets................. 4,994,733 4,572,648 4,351,789 4,207,832 4,057,600
Total common equity.......... 1,621,399 1,438,288 1,343,645 1,267,482 1,184,183
Preferred stock:
Not subject to mandatory
redemption ............. 140,002 140,008 140,008 140,008 140,008
Subject to mandatory
redemption at par (including
amounts due within one year) 39,253 42,489 43,865 45,241 45,454
Long-term debt
(including amounts due
within one year) ...... 1,595,298 1,414,558 1,278,389 1,180,580 1,193,668
Notes payable & commercial paper 348,555 244,725 288,050 324,800 276,875
______________
(a) The 1997 information includes Cheyenne, WGI, e prime and Natural Fuels
through July 31, 1997. These subsidiaries were transferred to NCE in
connection with the Merger.
</TABLE>
SPS Selected financial data omitted pursuant to General Instruction I(2)(a).
30
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (NCE,PSCo and SPS)
Competition and Industry Outlook
Electric utilities in the U. S. have historically operated in a highly
regulated environment in which they have an obligation to provide electric
service to their customers in return for an exclusive franchise within their
service territories with an opportunity to earn a regulated rate of return.
This regulatory environment is changing. Retail competition for electric
service is now a reality in a few states and many other states have either
passed or proposed legislation that will allow all customers to choose their
energy supplier in the future. Competition within the wholesale electric
energy market has intensified with open-access transmission and an increase
in marketing and trading activities by utilities and power marketers.
Convergence, consolidation and globalization of the gas and electric
industries is continuing as companies position themselves for deregulation
and competition in an unbundled energy industry with energy supply,
transmission, distribution and energy services business segments.
Electric prices in the Company's service territories are relatively low
in comparison to other parts of the U.S., lessening the need for immediate
legislative and regulatory change. State legislatures and state utility
commissions in the retail jurisdictions served by the Company's utility
subsidiaries have begun to address the restructuring of the electric utility
industry, but so far no actions have been taken that are expected to
significantly impact the Company. Overall, the Company believes that the
prices its utility subsidiaries charge for electricity and the quality and
reliability of their service currently place them in a position to compete
effectively in the energy market. Accomplishing a smooth transition to a
competitive electric utility industry requires the resolution of several
important and complex issues, including, but not limited to: 1) what segments
of the business will be open to competition and what will the rules of
competition be; 2) how to transition from traditional cost-of-service
regulation to performance-based regulation or market-based pricing; 3) who
will pay for the costs of prudent utility investments or past commitments
(i.e. stranded costs) that will be uneconomic in a competitive environment;
4) what environmental impacts will result from deregulation and 5) how to
ensure safe and reliable electric service. The resolution of these and other
issues will likely impact the Company and its utility subsidiaries in the
future. The potential negative financial impacts could include an impairment
of assets, a loss of retail customers, lower profit margins and increased
costs of capital (see Note 1. Summary of Significant Accounting Policies in
Item 8. Financial Statements and Supplementary Data). At this time, the
Company and its utility subsidiaries cannot predict when they will be subject
to changes in legislation or regulation, nor can they predict the impacts of
such changes on their financial position, results of operations or cash
flows. The Company agrees with the need for change in the industry and will
proactively support legislation and participate in regulatory proceedings to
protect the interests of its shareholders and its customers.
Corporate Overview - 1997
After two years of work, the merger of PSCo and SPS was completed
effective August 1, 1997, creating a larger and more geographically diverse
combined service territory and reducing business risks related to changes in
economic, competitive and/or climatic conditions. The Company can now begin
to derive benefits from the more efficient and economic utilization of
combined facilities and personnel. Obtaining all of the regulatory approvals
to effect the Merger and transitioning NCE into a post-merger organization
took longer than anticipated and, accordingly, the Company did not realize
the synergy savings that it had initially hoped to achieve in 1997. The
Company has organized into business units as part of its strategy for future
growth. The business units, structured to focus on specific customer
markets, consist of: Commodity Services, Retail Services, Delivery Services,
including transmission and distribution and International Investments. The
Company intends to build upon the core competencies brought together with the
Merger.
NCE expanded its international presence with its 50% investment in
Yorkshire Power, which acquired Yorkshire Electricity, a United Kingdom
regional electricity company whose service territory is one of the region's
largest with approximately 2.1 million customers. Domestically, the Company
has invested in Cadence Network LLC, an energy-related company which will
provide a single source for both energy management
31
<PAGE>
services and products designed to lower energy costs for national companies that
operate at multiple locations. The Company has continued to develop and expand
its gas and power marketing activities to serve customers within and outside of
markets served by its utility subsidiaries. The Company's operating priorities
in 1997 continued to focus on maintaining quality and reliable service, while
reducing costs and business risks. This approach resulted in positive earnings
for the Company and a customer refund obligation to PSCo customers in connection
with the sharing of electric department earnings in excess of 11% return on
equity.
Earnings
Earnings per share were $1.44 ($2.50 before the extraordinary item),
$2.64 and $2.77 during 1997, 1996 and 1995, respectively. Earnings for 1995
include the results of SPS for its fiscal year ending August 31. The
significant decrease in 1997 was primarily attributable to the recognition of
an extraordinary item related to the one-time U.K. windfall tax of
approximately $110.6 million, or $1.06 per share, for its 50% ownership in
Yorkshire Power. However, ongoing operations of Yorkshire Power positively
impacted the Company's 1997 earnings by approximately $25.4 million net of
borrowing costs and income taxes, or $0.24 per share. Earnings during 1997
and 1996 were negatively impacted by the write-offs of certain investments in
waste-to-energy cogeneration facilities, higher merger and business
integration costs resulting from the August 1, 1997 closing of the Merger and
electric rate decreases instituted in 1996 and 1997. Management anticipates
that future operating results will benefit from the synergies from the Merger
and other growth initiatives discussed above. See Forward Looking
Information.
Electric Operations
The following table details the annual change in electric operating
revenues and energy costs as compared to the preceding year (in thousands of
dollars).
Increase (Decrease)
From Prior Year
---------------
1997 1996
---- ----
Electric operating revenues:
Retail .................................... $ 20,350 $ 81,786
Wholesale.................................. 35,773 35,050
Non-regulated power marketing.............. 15,055 7,806
Other (including unbilled revenues)........ (14,358) 8,718
------- -----
Total revenues............................ 56,820 133,360
Fuel used in generation..................... 36,525 83,233
Purchased power............................. 20,905 23,383
------ ------
Net increase (decrease) in electric margin $ (610) $ 26,744
======== ========
The following table summarizes electric Kwh sales by major customer
classes.
% Change *
Millions of Kwh Sales From Prior Year
-------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
Residential ............................... 9,730 9,530 2.1% 6.0%
Commercial and Industrial ................ 27,014 26,562 1.7 4.1
Public Authority .......................... 774 780 (0.8) 6.0
--- ---
Total Retail............................. 37,518 36,872 1.8 4.6
Wholesale.................................. 11,495 10,130 13.5 6.5
Non-regulated Power Marketing.............. 1,210 419 ** **
----- ---
Total...................................... 50,223 47,421 5.9 5.9
====== ======
* Percentages are calculated using unrounded amounts
** Percentage change is significant, but presentation of the amount is not
meaningful
32
<PAGE>
Electric margin decreased slightly during 1997, when compared to 1996.
PSCo's retail rate reductions (approximately $15.4 million) implemented in
October 1996 and February 1997 and the recognition at PSCo of an estimated
customer refund obligation (approximately $16.4 million) in connection with
the earnings sharing in excess of 11% return on equity which resulted from
the settlement of the Merger proceedings in Colorado (see Note 9. Regulatory
Matters in Item 8. Financial Statements and supplementary data) were primary
contributors to the decrease. Electric margin was also negatively impacted
by the recognition at SPS of an estimated customer refund obligation
(approximately $1.8 million) related to the guaranteed merger savings, as
well as interruptible rates available to certain classes of retail and
wholesale customers. An overall increase of approximately 1.8% in electric
Kwh sales to retail customers resulting from customer growth of 1.3%
minimized the impact of these rate reductions. Higher wholesale electric
sales and power marketing activities by non-regulated subsidiaries also
contributed to increased operating revenues, however, the margin on such
sales is minimal. Electric margin increased in 1996, when compared to 1995,
primarily due to an overall 4.6% increase in retail sales resulting primarily
from customer growth of 2.6%. The hotter than normal late spring and early
summer 1996 in the SPS territory also favorably impacted retail and firm
wholesale sales. Customer growth and higher economy sales by the Company's
utility subsidiaries and power marketing activities of non-regulated
subsidiaries contributed to increased wholesales revenues, but had little
impact on electric margin.
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 in 1997 and 1996, when compared to the respective preceding year,
had little impact on net income. 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. For 1997, the ICA did not significantly
impact electric margin (see Note 9. Regulatory Matters in Item 8. Financial
Statements and Supplementary data).
Fuel used in generation expense increased approximately 5.8% during
1997, as compared to 1996, primarily due to increased generation levels at
PSCo and SPS power plants and higher natural gas costs at SPS. Fuel used in
generation expense increased 15.1% during 1996, as compared to the prior
year, primarily due to the increased natural gas and coal costs.
Purchased power expense increased 4.1% and 4.8% during 1997 and 1996,
respectively, as compared to the previous year. These increases are
primarily due to the amount of power purchased by PSCo to meet increased
wholesale requirements and other customer demands, as well as an increase in
power marketing activities, which were initiated in the third quarter of 1996.
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 (in
thousands of dollars).
Increase (Decrease)
From Prior Year
---------------
1997 1996
---- ----
Revenues from gas sales (including unbilled revenues) $172,340 $ 11,211
Gas purchased for resale.................... 150,128 483
------- ---
Net increase in gas sales margin........... $ 22,212 $ 10,728
======== ========
33
<PAGE>
The following table compares gas dekatherm (Dth) deliveries by major
customer classes.
Millions of % Change *
Dth Deliveries From Prior Year
-------------- ---------------
1997 1996 1997 1996
---- ---- ---- ----
Residential............................ 87.4 86.1 1.5% 4.8%
Commercial............................. 47.5 51.7 (8.1) (1.7)
Non-regulated gas marketing............ 59.6 21.8 ** **
---- ----
Total Sales.......................... 194.5 159.6 21.9 19.8
Transportation, gathering and processing 93.3 91.4 2.1 18.6
---- ----
Total................................ 287.8 251.0 14.7 19.4
===== =====
* Percentages are calculated using unrounded amounts
** Percentage change is significant, but presentation of the amount is not
meaningful
Gas sales margin increased in 1997, when compared to 1996, primarily
due to an increase in PSCo's base revenues associated with the higher rates
effective February 1, 1997, resulting from the 1996 rate case and an increase
in gas marketing activities by non-regulated subsidiaries. Gas costs were
higher during 1997, as compared to 1996, as a result of higher per-unit gas
prices throughout the year. 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.
Gas transportation, gathering and processing revenues increased $3.8
million during 1997, when compared to 1996, primarily due to an increase in
deliveries and higher transportation rates effective February 1, 1997,
resulting from PSCo's 1996 rate case. In addition, the shifting of various
commercial customers to firm transport customers of PSCo, some of which
became retail customers of the Company's non-regulated subsidiaries,
contributed to the increase in 1997 and 1996, when compared to the preceding
year.
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 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 and Other Income and Deductions
Other operating and maintenance expenses increased $25.8 million during
1997, as compared to 1996, primarily due the favorable impact on 1996
earnings of the settlement agreement with the DOE resolving all spent nuclear
fuel storage and disposal issues at Fort St. Vrain (approximately $16
million) and the recognition in operating and maintenance expenses of the
Texas jurisdictional portion of the Thunder Basin judgment (approximately $12
million) in accordance with the PUCT order received by SPS in December 1997.
The recognition of the Thunder Basin judgment did not impact earnings as the
costs were included in the calculation of deferred revenue. The Company
expects to recover these costs through SPS's fixed fuel factor (see Note 9.
Regulatory Matters in Item 8 Financial Statements and Supplementary data).
Higher operating costs from non-regulated operations were offset, in part, by
lower labor and employee benefit costs and other general decreases
attributable to the Merger and the Company's overall cost containment
efforts. Other operating and maintenance expenses decreased $14.0 million in
1996, primarily due to the settlement with the DOE, lower labor and employee
benefit costs resulting from the hiring freeze instituted in late 1995 and
other general cost reductions, offset, in part by higher operating costs from
certain non-regulated operations that were, for the most part, initiated
during 1996.
Depreciation and amortization expense increased $18.2 million in 1997
and $19.3 million in 1996 primarily due to the higher depreciation expenses
from property additions and amortization of software costs.
34
<PAGE>
Other income and deductions increased $7.3 million in 1997 and
decreased $30.5 million in 1996, when compared to the preceding year. Other
income and deductions was favorably impacted in 1997 by the recognition of
equity earnings in Yorkshire Power ($34.9 million), of which approximately
$10 million related to the change in the U.K. corporate income tax rate from
33% to 31% (see Note 2. Acquisition of Yorkshire Power and U.K. Windfall Tax
in Item 8. Financial Statements and supplementary data). Other income and
deductions was negatively impacted by the write-offs in June 1997 and
December 1996 of certain investments in waste-to-energy cogeneration
facilities and the recognition of merger and business integration costs
incurred over the past two years. Additionally in 1996, the Company
recognized a gain on the sale by Quixx of certain water rights (see Note 3.
Acquisition and Divestiture of Investments in Item 8. Financial Statements
and supplementary data).
Interest charges and preferred dividends increased $31.5 million during
1997, as compared to 1996, primarily due to interest on borrowings utilized
to finance capital expenditures and the April 1997 investment in Yorkshire
Power. These financings included PSCo's issuance of medium-term notes and an
increased level of short-term borrowings by NCE and its subsidiaries.
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. An increase in long-term debt used to finance capital
expenditures and other corporate cash requirements served to increase
interest charges and preferred dividends during 1996, when compared to 1995.
Commitments and Contingencies
Issues relating to regulatory and environmental matters are discussed
in Notes 9 and 10 in Item 8. Financial Statements and Supplementary Data.
These matters and the future resolution thereof may impact the Company's
future results of operations, financial position or cash flows.
Based on a preliminary analysis, the Company expects to incur costs of
approximately $50-65 million over the next two years to modify its computer
software, hardware and other automated systems used in operations enabling
proper data processing relating to the year 2000 and beyond. The majority of
these costs will be incurred by or allocated to the Company's operating
utilities. The costs recognized by PSCo and SPS are anticipated to be
slightly less than two-thirds and one-third, respectively, of the total
estimated costs. The Company continues to evaluate appropriate courses of
corrective action, including the replacement of certain systems. A
significant portion of these costs will represent the redeployment of
existing information technology resources. If such modifications and
conversions are not completed timely, the year 2000 problem may have a
material impact on the operations of the Company. Management does not
anticipate these activities will have a material adverse impact on the
financial position, results of operations or cash flows of the Company or its
subsidiaries.
Common Stock Dividend
During 1997, the Company and its subsidiaries declared four full
quarterly dividends (two by NCE and two by PSCo and SPS prior to the Merger)
and a partial dividend by PSCo and SPS covering the stub period up through
the day prior to the Merger effective date. The partial dividends declared
by PSCo, covering the period July 12, 1997 through July 31, 1997, and SPS,
covering the period May 16, 1997 through July 31, 1997, were based on the
respective quarterly dividend rate, but prorated for the number of days in
the interim period. It is currently anticipated that the Company will 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 flows and other factors. The Board of
Directors of the Company will continue to evaluate the common stock dividend
on a quarterly basis.
35
<PAGE>
Liquidity and Capital Resources
Cash Flows
1997 1996 1995
---- ---- ----
Net cash provided by operating activities
(in millions) $344.4 $481.2 $558.4
Cash provided by operating activities decreased in 1997, when compared
to 1996, primarily due to the SPS payment in April 1997 of the Thunder Basin
judgment and an 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 PSCo's GCA and will be recovered from
customers in the future. 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 PSCo gas refund that was applied directly to customers' accounts in late
1995.
1997 1996 1995
---- ---- ----
Net cash used in investing activities
(in millions) $856.4 $443.2 $407.5
Cash used in investing activities increased during 1997, when compared
to 1996, primarily due to the acquisition of a 50% equity interest in
Yorkshire Power for approximately $360 million and the 1996 sale by Quixx of
certain water rights. Construction expenditures also increased in 1997 and
1996, when compared to the preceding year.
1997 1996 1995
---- ---- ----
Net cash provided by (used in)
financing activities (in millions) $534.6 $(16.3) $(126.0)
Cash provided by financing activities increased during 1997, when
compared to 1996, primarily due to NCE's issuance of common stock in December
1997 and PSCo's issuance of medium-term notes. The proceeds from the $75
million financing by PSCo in January 1997 were used to fund its construction
program. The proceeds from the issuance of $250 million medium-term notes by
PSCo in March 1997, together with additional borrowings of approximately $110
million on its short-term lines of credit, were used to fund the investment
in Yorkshire Power. As a result of the increase in recoverable purchased gas
and electric energy costs and reduced cash flows resulting from lower
electric rates, coupled with increased merger and business integration costs,
PSCo has utilized the proceeds from additional short-term borrowings to
finance ongoing construction expenditures. With the consummation of the
Merger effective August 1, 1997, management anticipates that future operating
results and related cash flows will benefit from synergies resulting from the
Merger. Cash used in financing activities decreased in 1996, as compared to
1995, 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.
36
<PAGE>
Prospective Capital Requirements
The estimated cost as of December 31, 1997 of the construction programs
of the Company and its subsidiaries and other capital requirements for the
years 1998, 1999 and 2000 are shown in the table below (in millions of
dollars):
1998 1999 2000
---- ---- ----
Electric
Production *........................ $ 192 $ 128 $ 71
Transmission........................ 56 107 137
Distribution........................ 130 166 138
Gas .................................... 84 73 70
General................................. 68 67 34
-- -- --
Total construction expenditures... 530 541 450
Less: AFDC.............................. 15 13 10
Add: Sinking funds and debt maturities
and refinancings .................. 252 131 131
--- --- ---
Total capital requirements.............. $ 767 $ 659 $ 571
======= ====== ======
* Capital requirements for 1998 Electric Production include approximately
$59 million for Fort St. Vrain repowering and approximately $58 million
for emission control equipment and environmental projects.
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 and future requirements to install emission control equipment may
impact actual capital requirements (see Note 10. Commitments and
Contingencies - Environmental Issues in Item 8. Financial Statements and
Supplementary data).
Capital Sources
At December 31, 1997, the Company and its subsidiaries estimate that
their 1998-2000 capital requirements will be met with a combination of funds
from external sources and funds from operations. The Company and its
subsidiaries may meet their external capital requirements through the sale of
common stock by NCE, the sale of utility obligated mandatorily redeemable
preferred securities, the issuance of secured and unsecured long-term debt,
including first mortgage bonds of NCE subsidiaries, and the issuance of
short-term debt by NCE and its subsidiaries. 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
The Company has an effective registration statement covering 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.
NCE also has an effective registration statement covering the issuance
of 9 million shares of Common Stock ($1 par value). On December 10, 1997,
NCE sold 5.9 million shares under this registration statement. The net
proceeds from this sale were approximately $251.4 million. The Company
expects to issue the remaining 3.1 million shares in late 1998.
37
<PAGE>
Subsidiary Registration Statements
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-Term 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,
a portion of which is still subject to state utility commission approval.
Short-Term Borrowing Arrangements
NCE has a $225 million credit facility with several banks that provides
for $100 million of direct borrowings by NCE until the outstanding stock of
PSCCC, a wholly-owned subsidiary of PSCo, is transferred to NCE. After the
transfer NCE will have access to $225 million of direct borrowings under the
credit facility.
PSCo and its subsidiaries have available committed and uncommitted
lines of credit to meet their short-term cash requirements. PSCo and its
subsidiaries 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, 1997, $13.4 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 its
subsidiaries from performing their obligation under the credit facility.
This facility expires on November 17, 2000. PSCo also has available a $125
million line of credit which expires on April 30, 1998. At December 31,
1997, the entire amount of the facility remained unused. In addition, PSCo
has individual arrangements for uncommitted bank lines of credit which
totaled $50 million, and all were used at December 31, 1997. These individual
arrangements expire on December 31, 1998. PSCo may borrow under uncommitted
preapproved lines of credit upon request; however, the banks have no firm
commitment to make such loans. PSCo's charter allows for unsecured
borrowings without the consent of the holders of preferred stock to the
extent the total of such borrowings does not exceed 15% of total
capitalization (as defined therein) except in the case of certain
refinancings (see Note 7. Short-term Borrowing Arrangements in Item 8.
Financial Statements and Supplementary Data).
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, 1997, 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.
Arrangements by SPS for committed lines of credit, which provide $180
million, are maintained by a combination of fee payments and compensating
balances. At December 31, 1997, $171 million of such balances were maintained
through a fee and $9 million required account deposits of 1 1/2% of the unused
portion of the loan commitment. At December 31, 1997, $24 million remained
unused under these lines of credit.
Accounting Pronouncements Issued But Not Yet Effective
SFAS No. 130, Reporting Comprehensive Income ("SFAS 130"), and SFAS No.
131, Disclosure about Segments of an Enterprise and Related Information
("SFAS 131"), address disclosure issues and were issued during 1997. They
are effective for fiscal years beginning after December 15, 1997. SFAS 130
requires disclosure of all changes in equity that result from transactions
and other economic events of the period other than transactions with owners.
SFAS 131 requires a public company to report selected information about its
reportable operating segments. Operating segments are components of an
enterprise for which discrete financial information is available, that is
evaluated regularly by the chief operating decision-maker within a company
for making operating decisions and assessing performance. The Company
adopted these standards effective January 1, 1998.
38
<PAGE>
Item 8. Financial Statements and Supplementary Data
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Board of Directors of the Company addresses its oversight responsibility
for the consolidated financial statements through its Audit Committee. The
Audit Committee meets regularly with the independent public accountants and
the internal auditor to discuss results of their audit work and their
evaluation of the adequacy of the internal controls and the quality of
financial reporting.
In fulfilling its responsibilities in 1997, the Audit Committee recommended
to the Board of Directors, subject to shareholder approval, the selection of
the Company's independent public accountants. The Audit Committee reviewed
the overall scope and specific plans of the independent public accountants'
and internal auditor's respective audit plans, and discussed the independent
public accountants' management letter recommendations, approved their general
audit fees, and reviewed their non-audit services to the Company.
The committee meetings are designed to facilitate open communications among
Company management, internal auditing, independent public accountants, and
the Audit Committee. To ensure auditor independence, both the independent
public accountants and internal auditor have full and free access to the
Audit Committee.
/s/ Danny H. Conklin
Danny H. Conklin, Chairman
Audit Committee
February 24, 1998
39
<PAGE>
REPORT OF MANAGEMENT
The accompanying financial statements of New Century Energies, Inc. and
subsidiaries have been prepared by Company personnel in conformity with
generally accepted accounting principles consistent with the Uniform System
of Accounts of the Federal Energy Regulatory Commission. The integrity and
objectivity of the data in these financial statements are the responsibility
of management. Financial information contained elsewhere in this Annual
Report on Form 10-K is consistent with that in the financial statements.
The accompanying financial statements have been audited by independent public
accountants. Management has made available to its independent public
accountants all the Company's and its subsidiaries' financial records and
related data and has provided to them representations we believe to be valid
and appropriate.
The Company maintains a system of internal control over financial reporting,
including the safeguarding of assets against unauthorized acquisition, use or
disposition, which is designed to provide reasonable assurance to the
Company's management and Board of Directors regarding the preparation of
reliable published financial statements and such asset safeguarding. The
system includes a documented organizational structure and division of
responsibility, established policies and procedures including a code of
conduct to foster a strong ethical climate, which are communicated throughout
the Company, and the careful selection, training and development of our
people. Internal auditors monitor the operation of the internal control
system and report findings and recommendations to management and the Audit
Committee of the Board of Directors, and corrective actions are taken to
address control deficiencies and other opportunities for improving the system
as they are identified. The board, operating through its Audit Committee,
which is composed entirely of directors who are not officers or employees of
the Company, provides oversight to the financial reporting process.
There are inherent limitations in the effectiveness of any system of internal
control, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even an effective internal control
system can provide only reasonable assurance with respect to financial
statement preparation. Further, because of changes in conditions, internal
control system effectiveness may vary over time.
The Company assessed its internal control system as of December 31, 1997 in
relation to criteria for effective internal control over financial reporting
described in "Internal Control - Integrated Framework" issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on
the results of its assessment, the Company believes that, as of December 31,
1997, the Company's system of internal control over external financial
reporting, including the safeguarding of assets against unauthorized
acquisition, use or disposition, met those criteria.
/s/ Teresa S. Madden /s/ Bill D. Helton
Teresa S. Madden Bill D. Helton
Principal Accounting Officer Chief Executive Officer
February 13, 1998
40
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO NEW CENTURY ENERGIES, INC.:
We have audited the consolidated balance sheets of New Century Energies, Inc.
(a Delaware corporation) and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended December 31,
1997. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule 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,
included in the consolidated financial statements of New Century Energies,
Inc., which statements reflect total assets constituting 31% in 1996 and
total revenues constituting 31% and 30% in 1996 and 1995, respectively, of
the related consolidated totals. Those 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 audits and the report of other auditors, the
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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 13, 1998
41
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
December 31, 1997 and 1996
ASSETS
1997 1996
---- ----
Property, plant and equipment, at cost:
Electric .......................................... $6,703,863 $6,448,993
Gas................................................ 1,136,231 1,035,394
Steam and other.................................... 120,322 115,766
Common to all departments.......................... 437,636 418,262
Construction in progress........................... 318,124 260,943
------- -------
8,716,176 8,279,358
Less: accumulated depreciation .................... 3,182,800 2,990,275
--------- ---------
Total property, plant and equipment.............. 5,533,376 5,289,083
--------- ---------
Investments, at cost:
Investment in Yorkshire Power and other
unconsolidated subsidiaries (Note 2) ............ 295,316 29,672
Other.............................................. 71,411 51,324
------ ------
Total investments................................. 366,727 80,996
------- ------
Current assets:
Cash and temporary cash investments................ 72,623 50,015
Accounts receivable, less reserve for uncollectible
accounts ($5,355 at December 31, 1997; $6,623 at
December 31, 1996) . ............................ 315,539 285,912
Accrued unbilled revenues.......................... 110,877 106,198
Recoverable purchased gas and electric energy costs
- net .......................................... 129,292 47,003
Materials and supplies, at average cost............ 68,411 66,748
Fuel inventory, at average cost.................... 23,162 27,059
Gas in underground storage, at cost (LIFO)......... 47,394 42,826
Prepaid expenses and other......................... 56,868 46,773
------ ------
Total current assets.............................. 824,166 672,534
------- -------
Deferred charges:
Regulatory assets (Note 1)......................... 430,475 466,111
Unamortized debt expense .......................... 20,833 20,839
Other.............................................. 134,704 87,879
------- ------
Total deferred charges............................ 586,012 574,829
------- -------
$7,310,281 $6,617,442
========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
42
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
December 31, 1997 and 1996
CAPITAL AND LIABILITIES
1997 1996
---- ----
Common stock (Note 4)................................. $1,694,195 $1,396,849
Retained earnings..................................... 659,050 773,191
------- -------
Total common equity............................... 2,353,245 2,170,040
Preferred stock of subsidiaries (Note 4):
Not subject to mandatory redemption................ 140,002 140,008
Subject to mandatory redemption at par............. 39,253 39,913
SPS obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
subordinated debentures of SPS (Note 5) ........... 100,000 100,000
Long-term debt of subsidiaries (Note 6)............... 1,987,955 1,879,928
- --------- ---------
4,620,455 4,329,889
--------- ---------
Noncurrent liabilities:
Employees' postretirement benefits other than
pensions (Note 12) ................................ 62,716 58,551
Employees' postemployment benefits (Note 12)....... 27,953 27,551
------ ------
Total noncurrent liabilities...................... 90,669 86,102
------ ------
Current liabilities:
Notes payable and commercial paper (Note 7)........ 588,343 298,561
Long-term debt due within one year................. 257,469 170,261
Preferred stock subject to mandatory redemption
within one year ................................... 2,576 2,576
Accounts payable................................... 298,469 317,260
Dividends payable.................................. 68,296 36,973
Customers' deposits................................ 27,993 27,283
Accrued taxes...................................... 66,587 78,989
Accrued interest................................... 52,615 46,948
Current portion of accumulated deferred income taxes
(Note 13) ....................................... 27,391 8,143
Other.............................................. 87,380 106,464
------ -------
Total current liabilities......................... 1,477,119 1,093,458
--------- ---------
Deferred credits:
Customers' advances for construction............... 53,041 50,635
Unamortized investment tax credits ................ 106,147 111,647
Accumulated deferred income taxes (Note 13)........ 922,341 906,354
Other.............................................. 40,509 39,357
------ ------
Total deferred credits............................ 1,122,038 1,107,993
--------- ---------
Commitments and contingencies (Notes 9 and 10)........ --------- ----------
$7,310,281 $6,617,442
========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
43
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars, Except per Share Data)
Years ended December 31, 1997, 1996 and 1995 (Note 1)
1997 1996 1995
Operating revenues:
Electric................................... $2,473,359 $2,416,539 $2,283,179
Gas........................................ 816,596 640,497 624,585
Other...................................... 52,570 39,998 54,444
------ ------ ------
3,342,525 3,097,034 2,962,208
Operating expenses:
Fuel used in generation.................... 671,805 635,280 552,047
Purchased power............................ 531,487 510,582 487,199
Cost of gas sold........................... 543,291 393,163 392,680
Other operating and maintenance expenses... 594,359 568,581 582,608
Depreciation and amortization.............. 243,078 224,865 205,584
Taxes (other than income taxes) ........... 129,280 128,980 125,146
------- ------- -------
2,713,300 2,461,451 2,345,264
--------- --------- ---------
Operating income............................. 629,225 635,583 616,944
Other income and deductions:
Merger expenses............................ (34,088) (21,107) (4,827)
Write-off of investments in cogeneration
projects (Note 3) ....................... (16,052) (15,546) -
Equity in earnings of Yorkshire Power and
other unconsolidated subsidiaries (Note 2) 34,166 389 (47)
Miscellaneous income and deductions - net.. (11,215) 1,771 930
------- ----- ---
(27,189) (34,493) (3,944)
Interest charges and preferred dividends
of subsidiaries:
Interest on long-term debt................. 165,560 144,067 132,331
Other interest............................. 32,389 23,479 25,107
Allowance for borrowed funds used during
construction ............................ (10,921) (5,945) (5,776)
Dividends on SPS obligated mandatorily
redeemable preferred securities of
subsidiary trust holding solely
subordinated debentures of SPS .......... 7,850 1,526 -
Dividend requirements on preferred stock of
subsidiaries ............................ 11,752 11,969 16,841
------ ------ ------
206,630 175,096 168,503
------- ------- -------
Income before income taxes and extraordinary
item ....................................... 395,406 425,994 444,497
Income taxes (Note 13)........................ 133,919 153,653 163,005
------- ------- -------
Income before extraordinary item.............. 261,487 272,341 281,492
Extraordinary item -U.K. windfall tax (Note 2) (110,565) - -
-------- --- ----
Net income.................................... $150,922 $272,341 $281,492
======== ======== ========
Weighted average common shares outstanding.... 104,805 103,059 101,804
Basic and diluted earnings per share of common
stock outstanding:
Income before extraordinary item........... $ 2.50 $ 2.64 $ 2.77
Extraordinary item......................... (1.06) - -
----- --- ---
Net income................................. $ 1.44 $ 2.64 $ 2.77
======= ======= =======
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
44
<PAGE>
<TABLE>
<CAPTION>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Thousands of Dollars, Except Share Information)
Years ended December 31, 1997, 1996 and 1995 (Note 1)
Common Stock, $1 par value Paid in Retained
Shares Amount Capital Earnings Total
------ ------ ---------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995.. 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
Management Incentive Plans 3,657 4 107 - 111
Other....................... - - - 19 19
SPS transitional period to
calendar year-end (Note 1)
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
Management Incentive Plans 58,346 58 1,661 - 1,719
Acquisitions (Note 3)..... 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
Net income.................. - - - 150,922 150,922
Dividends declared on common
stock .................... - - - (264,957) (264,957)
Issuance of common stock
Employees' Savings Plan... 250,058 250 9,518 - 9,768
Dividend Reinvestment Plan 818,783 819 32,512 - 33,331
Management Incentive Plans 89,688 89 2,765 - 2,854
Stock offering proceeds,
net (Note 4) ............ 5,900,000 5,900 245,493 - 251,393
Other....................... - - - (106) (106)
--- --- --- ---- ----
Balance at December 31, 1997 110,749,301 $ 110,749 $1,583,446 $ 659,050 $2,353,245
=========== ========= ========== ========= ==========
Authorized shares of common stock were 260 million at December 31, 1997, 1996
and 1995.
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
45
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Years ended December 31, 1997, 1996 and 1995 (Note 1)
1997 1996 1995
---- ---- ----
Operating activities:
Net income................................... $150,922 $272,341 $281,492
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary item - U.K. windfall tax
(Note 2) ................................. 110,565 - -
Depreciation and amortization.............. 253,263 225,264 206,439
Amortization of investment tax credits..... (5,501) (7,506) (5,598)
Deferred income taxes...................... 52,211 78,962 48,887
Write-off of investments in cogeneration
projects (Note 3) ........................ 16,052 15,546 -
Equity in earnings of Yorkshire Power and
other unconsolidated subsidiaries, net.... (31,168) (389) 47
Allowance for equity funds used during
construction ............................. 1 (936) (4,011)
Change in accounts receivable.............. (29,627) (92,600) 34,829
Change in inventories...................... (2,334) 23,479 837
Change in other current assets............. (97,063) (47,226) 2,475
Change in accounts payable................. (18,791) 141,771 (21,756)
Change in other current liabilities........ (15,356) (85,321) 33,628
Change in deferred amounts................. (46,134) (34,617) (20,385)
Change in noncurrent liabilities........... 4,567 (9,725) (5,367)
Other...................................... 2,832 2,139 6,858
----- ----- -----
Net cash provided by operating activities 344,439 481,182 558,375
Investing activities:
Construction expenditures.................... (475,497) (454,968)(380,407)
Allowance for equity funds used during
construction .............................. (1) 936 4,011
Proceeds from disposition of property, plant
and equipment ............................. 2,117 24,292 2,470
Payment for purchase of companies, net of cash
acquired (Note 3) ......................... - 3,649 -
Investment in Yorkshire Power (Note 2)....... (362,342) - -
Purchase of other investments................ (32,560) (17,790) (38,468)
Sale of other investments.................... 11,844 664 4,898
------ --- -----
Net cash used in investing activities.... (856,439) (443,217)(407,496)
Financing activities:
Proceeds from sale of common stock (Note 4).. 286,869 30,115 28,030
Proceeds from sale of long-term notes and
bonds (Note 6) ............................ 419,819 359,715 178,064
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...... (227,577) (175,298) (61,593)
Short-term borrowings - net.................. 289,782 (105,739) (51,744)
Retirement of preferred stock of subsidiaries (665) (1,636) (1,376)
Dividends on common stock.................... (233,620) (223,413)(217,372)
-------- -------- --------
Net cash provided by (used in) financing
activities ............................. 534,608 (16,256)(125,991)
------- ------- --------
Net increase in cash and temporary cash
investments ............................ 22,608 21,709 24,888
Cash and temporary cash investments at
beginning of year ...................... 50,015 51,553 26,665
Net decrease in cash and temporary cash
investments for SPS for the transition
period (Note 1)......................... - (23,247) -
--- ------- ---
Cash and temporary cash investments at
end of year ............................ $ 72,623 $ 50,015 $ 51,553
======== ======== ========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
46
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (PSCo)
Discussion related to PSCo's Commitments and Contingencies is covered
within NCE's Management's Discussion and Analysis of Financial Condition and
Results of Operations. See Forward Looking Information.
Merger
Effective August 1, 1997, following receipt of all required state and
Federal regulatory approvals, PSCo and SPS merged in a tax-free "merger of
equals" transaction and became wholly-owned subsidiaries of NCE, which is a
registered holding company under PUHCA. This transaction was accounted for
as a pooling of interests for accounting purposes. Effective with the
Merger, Cheyenne, WGI, e prime and Natural Fuels were transferred by a
declaration of a dividend of the subsidiaries' stock, at net book value,
aggregating approximately $49.9 million, to NCE. NCE subsequently made a
capital contribution of the e prime and Natural Fuels common stock, at net
book value, aggregating approximately $29.5 million, to NC Enterprises. See
Note 1. Summary of Significant Accounting Policies in Item 8. Financial
Statements and supplementary data for additional discussion regarding PSCo,
the Merger and the transfer of Cheyenne, WGI, e prime and Natural Fuels.
The consolidated statements of income and cash flows reflect the
results of operations of Cheyenne, WGI, e prime and Natural Fuels through
July 31, 1997. Where relevant, additional information has been presented to
discuss the impact of the transfer of these subsidiaries.
Earnings Available for Common Stock
Earnings were $81.7 million, $178.5 million and $166.9 million during
1997, 1996 and 1995, respectively. The significant decrease in 1997 was
primarily attributable to the recognition of an extraordinary item related to
the one-time U.K. windfall tax of approximately $110.6 million for its 50%
ownership in Yorkshire Power. Income before the extraordinary item increased
$13.7 million as a result of continued customer growth contributing to
increased electric and gas sales, lower operating and maintenance expenses
resulting from the Merger and cost containment efforts, as well as the equity
earnings in ongoing operations at Yorkshire Power. Earnings in 1996 were
favorably impacted by the effects 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 10. Commitments and Contingencies - Fort
St. Vrain in Item 8. Financial Statements and Supplementary Data), increased
electric and gas sales and lower operating and maintenance expenses resulting
from PSCo's cost containment efforts.
Electric Operations
The following table details the annual change in electric operating
revenues and energy costs as compared to the preceding year (in thousands of
dollars).
Increase (Decrease) From Prior Year
1997 1996
---- ----
Cheyenne
PSCo & e prime Total
---- --------- -----
Electric operating revenues:
Retail........................... $(15,167) $(16,305) $(31,472) $ 43,478
Wholesale - regulated............ 25,083 - 25,083 5,964
Non-regulated power marketing.... - 2,642 2,642 7,806
Other (including unbilled revenues) (25) (22) (47) (17,354)
--- --- --- -------
Total revenues.................. 9,891 (13,685) (3,794) 39,894
Fuel used in generation........... 3,264 - 3,264 13,447
Purchased power................... 13,340 (9,866) 3,474 8,470
------ ------ ----- -----
Net increase (decrease)in electric
margin ....................... $(6,713) $ (3,819) $(10,532) $ 17,977
======= ======== ======== ========
47
<PAGE>
The following table compares electric Kwh sales by major customer classes.
Millions of Kwh Sales % Change From Prior Year *
--------------------- --------------------------
1997 1996
---- ----
1997 1996 Consolidated PSCo Only
---- ---- ------------ ---------
Residential .............. 6,663 6,607 0.8% 2.1% 5.2%
Commercial and Industrial 15,621 15,672 (0.3) 1.3 4.3
Public Authority ......... 189 200 (5.5) (4.6) 6.2
--- ---
Total Retail............ 22,473 22,479 - 1.5 4.5
Wholesale - Regulated..... 4,491 3,361 33.6 33.6 14.8
Non-regulated Power
Marketing ............... 660 419 57.7 - -
--- ---
Total..................... 27,624 26,259 5.2 5.8 7.5
====== ======
* Percentages are calculated using unrounded amounts
Electric margin decreased in 1997, when compared to 1996, primarily due
to the retail rate reductions (approximately $15.4 million) implemented in
October 1996 and February 1997 and the recognition of an estimated customer
refund obligation (approximately $16.4 million) in connection with the
earnings sharing in excess of 11% return on equity, which resulted from the
settlement of the Merger proceedings in Colorado (see Note 9. Regulatory
Matters in Item 8. Financial Statements and Supplementary Data). Electric
margin, however, was favorably impacted by an overall increase in PSCo's
retail sales of 1.5% resulting primarily from customer growth of 1.8%.
Higher wholesale electric sales also contributed to increased operating
revenues, however, the margin on such sales is minimal. 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 2.3%. Higher economy sales by PSCo and power marketing activities
of non-regulated subsidiaries contributed to the increase in wholesale
revenues but had little impact on electric margin.
PSCo has cost adjustment mechanisms which recognize the majority of the
effects of changes in fuel used in generation and purchased power costs and
allow recovery of such costs on a timely basis. 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. For 1997, the ICA did not
significantly impact electric margin (see Note 9. Regulatory Matters in Item
8. Financial Statements and Supplementary Data).
Fuel used in generation expense increased slightly during 1997, as
compared to 1996, due to increased generation levels at PSCo's power plants
offset, in part, by lower coal supply costs. Fuel used in generation expense
increased $13.4 million during 1996, as compared to the prior year, primarily
due to higher generation levels.
Purchased power expense increased slightly during 1997 and 1996, when
compared to the respective preceding year, primarily due to purchases to meet
increased wholesale requirements, other customer demands and non-regulated
power marketing sales commitments. The increase in 1997 was, offset, in
part, by the recognition of only seven months of Cheyenne and e prime costs
in 1997.
48
<PAGE>
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 (in
thousands of dollars).
Increase (Decrease) From Prior Year
-----------------------------------
1997 1996
---- ----
Cheyenne
Natural Fuels
WGI &
PSCo e prime Total
---- ------- -----
Revenues from gas sales
(including unbilled revenues) ........ $62,504 $26,538 $89,042 $11,211
Gas purchased for resale............... 44,500 30,082 74,582 483
------ ------ ------ ---
Net increase (decrease) in gas sales
margin ............................. $18,004 $(3,544) $14,460 $10,728
======= ======= ======= =======
The following table compares gas dekatherm (Dth) deliveries by major
customer classes.
Millions of % Change From Prior Year*
-------------------------
Dth Deliveries 1997 1996
-------------- ---- ----
1997 1996 Consolidated PSCo Only
---- ---- ----------------------
Residential................... 86.6 86.1 0.6% 1.5% 4.8%
Commercial.................... 46.9 51.7 (9.3) (7.1) 1.7
Non-regulated gas marketing... 35.2 21.8 61.2 - **
---- ----
Total sales................. 168.7 159.6 5.7 (1.7) 19.8
Transportation, gathering and
processing ................. 86.9 91.4 (5.0) 3.1 18.6
---- ----
Total....................... 255.6 251.0 1.8 - 19.4
===== =====
* Percentages are calculated using unrounded amounts
** Percentage change is significant, but presentation of the amount is not
meaningful
Gas sales margin increased in 1997, when compared to 1996, primarily
due to an increase in PSCo's base revenues associated with the higher rates
effective February 1, 1997, resulting from the 1996 rate case. Gas marketing
activities by non-regulated subsidiaries favorably contributed to the
increase in gas sales margin. Gas sales margin increased during 1996, as
compared to the prior year, 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 also
favorably impacted gas sales margin.
Gas transportation, gathering and processing revenues increased $3.6
million during 1997, when compared to 1996, primarily due to an increase in
transport deliveries and higher transportation rates effective February 1,
1997, resulting from the Company's 1996 rate case. Transportation, gathering
and processing revenues increased $4.7 million in 1996 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 the new gas rates.
PSCo has in place a GCA mechanism for natural gas sales, which
recognizes the majority of the effects of changes in the cost of gas
purchased for resale and adjusts revenues to reflect such changes in cost on
a timely basis. As a result, the changes in revenues associated with these
mechanisms in 1997 and 1996, when compared to the respective preceding year,
had little impact on net income. However, the fluctuations in gas sales
impact the amount of gas PSCo must purchase and, therefore, along with the
increases and decreases in the per-unit cost of gas, affect total gas
purchased for resale. The higher per-unit average cost of gas throughout
1997, along with an increase in the quantity of gas purchased, contributed to
the increase in cost of 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.
49
<PAGE>
Non-Fuel Operating Expenses and Other Income and Deductions
Other operating and maintenance expenses decreased $8.8 million during
1997 as compared to 1996, primarily due to lower labor and employee benefit
costs, the recognition in 1997 of only seven months of costs from the
subsidiaries that were transferred to NCE effective with the Merger and other
general reductions resulting from the Merger and cost containment efforts.
These decreases were offset, in part, by 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 10. Commitments and
Contingencies - Fort St. Vrain in Item 8. Financial Statements and
Supplementary Data). In addition to the settlement, other operating and
maintenance expenses for 1996 were favorably impacted by lower labor and
employee benefit costs resulting from the hiring freeze instituted in August
1995 and other general cost reductions offset, in part, by higher operating
costs from non-regulated operations that were, for the most part, initiated
during 1996.
Depreciation and amortization expense increased $13.8 million in 1997
and $13.3 million in 1996 primarily due to the depreciation of property
additions and the higher amortization of software costs.
Income taxes decreased $5.5 million in 1997, as compared to 1996,
primarily due to lower pre-tax income. Additional income tax expense was
recognized in 1997 due to higher non-deductible merger and executive
severance costs. The increase in income taxes in 1996, as compared to 1995,
was primarily due to higher pre-tax income, offset, in part, by the write-off
of additional investment tax credits for retired property and additional tax
benefits at PSRI.
Other income and deductions increased $27.4 million during 1997, when
compared to 1996, primarily due to the recognition of equity earnings in
Yorkshire Power ($34.9 million), of which approximately $10 million is
related to the change in the U.K. corporate income tax rate from 33% to 31%.
See Note 2. Acquisition of Yorkshire Electricity and U.K. Windfall Tax in
Item 8. Financial Statements and Supplementary Data. Merger and business
integration costs increased in 1997 and 1996 $7.5 million and $7.1 million,
respectively, when compared to the preceding year. The 1997 amount included
executive severance costs and other costs which resulted from the closing of
the Merger effective August 1, 1997. While costs associated with the Merger,
transition planning and implementation have negatively impacted earnings
during 1997 and 1996, management anticipates that future operating results
will benefit from synergies resulting from the Merger.
Interest charges increased $26.5 million during 1997, when compared to
1996, primarily due to interest on borrowings utilized to finance capital
expenditures and the April 1997 investment in Yorkshire Power. These
financings included the issuance of medium-term notes and an increased level
of short-term borrowings.
Liquidity and Capital Resources
Cash Flows
1997 1996 1995
---- ---- ----
Net cash provided by operating activities
(in millions) ........................... $263.9 $327.6 $385.7
Cash provided by operating activities decreased in 1997, when compared
to 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. Cash provided by operating activities
decreased $58.1 million in 1996 primarily due to the undercollection of
purchased gas and electric energy costs ($40.8 million) and lower cash
receipts because of a gas refund that was applied directly to customers'
accounts in late 1995.
1997 1996 1995
---- ---- ----
Net cash used in investing activities
(in millions) ........................... $721.7 $307.1 $284.6
Cash used in investing activities increased during 1997, when compared
to 1996, primarily due to the acquisition of a 50% equity interest in
Yorkshire Power for approximately $360 million. Construction
50
<PAGE>
expenditures also increased in 1997 and 1996, when compared to the preceding
year. Proceeds from the sale of certain Fuelco properties in 1996 reduced the
net cash used in investing activities.
1997 1996 1995
---- ---- ----
Net cash provided by (used in)
financing activities (in millions) $467.3 $(25.8) $(92.3)
Cash provided by financing activities increased during 1997, when
compared to 1996, primarily due to PSCo's issuance of medium term notes and
capital contributions by NCE. The proceeds from the $75 million financing in
January 1997 were used to fund its construction program. The proceeds from
the issuance of $250 million medium term notes in March 1997, together with
additional borrowings of approximately $110 million on its short-term lines
of credit, were used to fund the acquisition of Yorkshire Power. As a result
of the increase in recoverable purchased gas and electric energy costs and
reduced cash flows resulting from lower electric rates, coupled with
increased merger and business integration costs, PSCo has utilized the
proceeds from additional short-term borrowings to finance ongoing
construction expenditures. With the consummation of the Merger effective
August 1, 1997, management anticipates that future operating results and
related cash flows will benefit from synergies resulting from the Merger.
Cash used in financing activities decreased in 1996, as compared to 1995,
primarily due to the issuance of additional long-term debt. These combined
proceeds were used to fund PSCo's construction program, for other general
corporate purposes and to repay short-term indebtedness incurred for such
purposes.
Prospective Capital Requirements
The estimated cost as of December 31, 1997 of the construction programs
of PSCo and its subsidiaries and other capital requirements for the years
1998, 1999 and 2000 are shown in the table below (in millions of dollars):
1998 1999 2000
---- ---- ----
Electric
Production *........................ $ 162 $ 107 $ 61
Transmission........................ 26 23 20
Distribution........................ 96 125 100
Gas .................................... 80 70 67
General................................. 60 60 29
-- -- --
Total construction expenditures... 424 385 277
Less: AFDC.............................. 12 11 7
Add: Sinking funds and debt maturities
and refinancings .................. 252 41 131
--- -- ---
Total capital requirements.............. $ 664 $ 415 $ 401
======= ====== ======
* Capital requirements for 1998 Electric Production include approximately
$59 million for Fort St. Vrain repowering and approximately $52 million
for emission control equipment and environmental projects.
The construction programs of PSCo and its 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 PSCo's long-term
energy needs. In addition, PSCo's ongoing evaluation of merger, acquisition
and divestiture opportunities to support corporate strategies and future
requirements to install emission control equipment may impact actual capital
requirements (see Note 10. Commitments and Contingencies - Environmental
Issues in Item 8. Financial Statements and Supplementary Data).
51
<PAGE>
Capital Sources
At December 31, 1997, PSCo and its subsidiaries estimate that their
1998-2000 capital requirements will be met with a combination of funds from
external sources and funds from operations. PSCo and its subsidiaries may
meet their external capital requirements through the sale of utility
obligated mandatorily redeemable preferred securities, the issuance of
secured or unsecured long-term debt, including first collateral trust bonds,
and the issuance of short-term debt by PSCo and its subsidiaries. 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 PSCo and its subsidiaries.
Registration Statements
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-Term Note Programs have been issued.
Indentures
PSCo's Indenture dated as of December 1, 1939 (the "1939 Indenture"),
which is a mortgage on its electric and gas properties, permits the issuance
of additional first mortgage bonds to the extent of 60% of the value of net
additions to PSCo's utility property, provided net earnings before
depreciation, taxes on income and interest expense for a recent twelve month
period are at least 2.5 times the annual interest requirements on all bonds
to be outstanding. The 1939 Indenture also permits the issuance of
additional bonds on the basis of retired first mortgage bonds, in some cases
with no requirement to satisfy such net earnings test. At December 31, 1997,
the amount of net additions would permit (and the net earnings test would not
prohibit) the issuance of approximately $455 million of new bonds at an
assumed annual interest rate of 6.70%. At December 31, 1997, the amount of
retired bonds would permit the issuance of $669.5 million of new bonds.
PSCo's Indenture dated as of October 1, 1993 (the "1993 Indenture") is
a second mortgage on its electric properties. Generally, so long as PSCo's
1939 Indenture remains in effect, first collateral trust bonds will be issued
under the 1993 Indenture on the basis of the deposit with the trustee of an
equal principal amount of first mortgage bonds issued under the 1939
Indenture. If the bonds issued under the 1939 Indenture are to be issued on
the basis of property additions, first collateral trust bonds may be issued
under the 1993 Indenture only if net earnings before depreciation, taxes on
income, interest expenses and non-recurring charges for a recent twelve-month
period are at least 2 times annual interest requirements on all first
mortgage bonds (other than bonds held by the trustee under the 1993
Indenture) and all first collateral trust bonds to be outstanding. As of
December 31, 1997, coverage under the net earnings test was 4.9 times such
annual interest requirements.
Restated Articles of Incorporation
PSCo's Restated Articles of Incorporation prohibit the issuance of
additional preferred stock without preferred shareholder approval, unless the
gross income available for the payment of interest charges for a recent
twelve month period is at least 1.5 times the total of: 1) the annual
interest requirements on all indebtedness to be outstanding for more than one
year; and 2) the annual dividend requirements on all preferred stock to be
outstanding. At December 31, 1997, gross income available under this
requirement would permit PSCo, if allowed under provisions of its Restated
Articles of Incorporation, to issue approximately $2.6 billion of additional
preferred stock at an assumed annual dividend rate of 6.00%. Coverage of
gross income to interest charges was 5.38 at December 31, 1997.
PSCo's Restated Articles of Incorporation also prohibit, without
preferred shareholder approval, the issuance or assumption of unsecured
indebtedness, other than for refunding purposes, greater than 15% of the
aggregate of: 1) the total principal amount of all bonds or other securities
representing secured indebtedness of PSCo, then outstanding; and 2) the total
of the capital and surplus of PSCo, as then recorded on its books. At
52
<PAGE>
December 31, 1997, PSCo had outstanding unsecured indebtedness, including
subsidiary indebtedness with the credit support of PSCo, in the amount of
$261.6 million. The maximum amount permitted under this limitation was
approximately $483.6 million at December 31, 1997.
Short-Term Borrowing Arrangements
PSCo and its subsidiaries have available committed and uncommitted
lines of credit to meet their short-term cash requirements. PSCo and its
subsidiaries 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, 1997, $13.4 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 its
subsidiaries from performing their obligation under the credit facility.
This facility expires on November 17, 2000. PSCo also has available a $125
million line of credit which expires on April 30, 1998. At December 31,
1997, the entire amount of the facility remained unused. In addition, PSCo
has individual arrangements for uncommitted bank lines of credit which
totaled $50 million, and all were used at December 31, 1997. These individual
arrangements expire on December 31, 1998. PSCo may borrow under uncommitted
preapproved lines of credit upon request; however, the banks have no firm
commitment to make such loans. PSCo's charter allows for short-term
borrowings to the extent the total of such borrowings does not exceed 15% of
total capitalization. (see Note 7. Short-term Borrowing Arrangements in Item
8. Financial Statements and Supplementary Data).
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, 1997, 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.
53
<PAGE>
Item 8. Financial Statements and Supplementary Data (PSCo)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO PUBLIC SERVICE COMPANY OF COLORADO:
We have audited the accompanying consolidated balance sheets and statements
of capitalization of Public Service Company of Colorado (a Colorado
corporation) and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholder's equity and cash
flows for each of the three years in the period ended December 31, 1997.
These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Public Service Company of
Colorado and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 13, 1998
54
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
December 31, 1997 and 1996
ASSETS
1997 1996
---- ----
Property, plant and equipment, at cost:
Electric .......................................... $4,088,447 $3,931,413
Gas................................................ 1,100,003 1,035,394
Steam and other.................................... 78,740 78,225
Common to all departments.......................... 432,840 418,262
Construction in progress........................... 170,503 181,597
------- -------
5,870,533 5,644,891
Less: accumulated depreciation .................... 2,145,673 2,045,996
--------- ---------
Total property, plant and equipment.............. 3,724,860 3,598,895
--------- ---------
Investments, at cost:
Investment in Yorkshire Power (Note 2)............. 286,703 -
Other.............................................. 43,311 46,550
------ ------
Total investments................................. 330,014 46,550
------- ------
Current assets:
Cash and temporary cash investments................ 18,909 9,406
Accounts receivable, less reserve for uncollectible
accounts ($2,272 at December 31, 1997; $4,049 at
December 31, 1996) ............................... 183,063 218,132
Accrued unbilled revenues ......................... 94,284 85,894
Recoverable purchased gas and electric energy costs
- net ........................................... 103,197 31,288
Materials and supplies, at average cost............ 48,030 48,972
Fuel inventory, at average cost.................... 20,862 24,739
Gas in underground storage, at cost (LIFO)......... 46,576 42,826
Prepaid expenses and other......................... 47,686 41,790
------ ------
Total current assets.............................. 562,607 503,047
------- -------
Deferred charges:
Regulatory assets (Note 1)......................... 310,658 348,566
Unamortized debt expense .......................... 10,800 10,975
Other.............................................. 55,794 64,615
------ ------
Total deferred charges............................ 377,252 424,156
------- -------
$4,994,733 $4,572,648
========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
55
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
December 31, 1997 and 1996
CAPITAL AND LIABILITIES
1997 1996
---- ----
Common stock (Notes 1 and 4).......................... $1,302,119 $1,048,447
Retained earnings..................................... 319,280 389,841
------- -------
Total common equity............................... 1,621,399 1,438,288
Preferred stock (Note 4):
Not subject to mandatory redemption................ 140,002 140,008
Subject to mandatory redemption at par............. 39,253 39,913
Long-term debt (Note 6)............................... 1,338,138 1,259,528
--------- ---------
3,138,792 2,877,737
--------- ---------
Noncurrent liabilities:
Employees' postretirement benefits other than
pensions (Note 12) ............................... 58,695 55,677
Employees' postemployment benefits (Note 12)....... 25,031 25,182
------ ------
Total noncurrent liabilities...................... 83,726 80,859
------ ------
Current liabilities:
Notes payable and commercial paper (Note 7)........ 348,555 244,725
Long-term debt due within one year................. 257,160 155,030
Preferred stock subject to mandatory redemption
within one year ................................. 2,576 2,576
Accounts payable................................... 189,998 254,256
Dividends payable.................................. 40,975 36,973
Customers' deposits................................ 21,888 21,441
Accrued taxes...................................... 42,549 58,990
Accrued interest................................... 39,177 33,797
Current portion of accumulated deferred income taxes
(Note 13) ....................................... 19,872 4,560
Other.............................................. 88,655 77,868
------ ------
Total current liabilities......................... 1,051,405 890,216
--------- -------
Deferred credits:
Customers' advances for construction............... 51,830 50,269
Unamortized investment tax credits ................ 99,355 105,928
Accumulated deferred income taxes (Note 13)........ 534,246 539,082
Other.............................................. 35,379 28,557
------ ------
Total deferred credits............................ 720,810 723,836
------- -------
Commitments and contingencies (Notes 9 and 10)........
---------- ----------
$4,994,733 $4,572,648
========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
56
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPTALIZATION
(Thousands of Dollars, Except Share Information)
December 31, 1997 and 1996
1997 1996
---- ----
Common shareholder's equity:
Common stock, $5 par value, authorized 100 shares
in 1997 and 160,000,000 shares in 1996,
outstanding 100 shares in 1997 and 64,818,759
shares in 1996 (Note 1) ......................... $ 1 $ 324,094
Paid in capital.................................... 1,302,118 724,353
Retained earnings.................................. 319,280 389,841
------- -------
Total common shareholder's equity................. 1,621,399 1,438,288
--------- ---------
Preferred stock (Note 4):
Shares Issued and Outstanding
-----------------------------
1997 1996
---- ----
$100 Par Value, Authorized
3,000,000 Shares
Not subject to mandatory
redemption
4.20% series 100,000 100,000 10,000 10,000
4.25% series(includes
$7,500 premium) 174,997 175,000 17,507 17,508
4.50% series 65,000 65,000 6,500 6,500
4.64% series 159,950 160,000 15,995 16,000
4.90% series 150,000 150,000 15,000 15,000
4.90% 2nd series 150,000 150,000 15,000 15,000
7.15% series 250,000 250,000 25,000 25,000
------- ------- ------ ------
1,049,947 1,050,000 105,002 105,008
--------- --------- ------- -------
Subject to mandatory redemption
7.50% series 216,000 216,000 21,600 21,600
8.40% series 202,294 208,892 20,229 20,889
------- ------- ------ ------
418,294 424,892 41,829 42,489
Less: Preferred stock
subject to mandatory
redemption within one year (25,760) (25,760) (2,576) (2,576)
------- ------- ------ ------
392,534 399,132 39,253 39,913
------- ------- ------ ------
$25 Par Value, Authorized
4,000,000 Shares
Not subject to mandatory
redemption
8.40% series 1,400,000 1,400,000 35,000 35,000
--------- --------- ------ ------
Total preferred stock 2,842,481 2,849,132 179,255 179,921
--------- --------- ------- -------
Long-term debt (Note 6):
Public Service Company of Colorado:
First Mortgage Bonds
5-7/8% retired July 1, 1997....................... - 35,000
6-3/4% due July 1, 1998........................... 25,000 25,000
6% due January 1, 2001............................ 102,667 102,667
8-1/8% due March 1, 2004.......................... 100,000 100,000
Pollution Control Series A and B, 5-7/8% due
March 1, 2004 ................................... 22,000 22,500
6-3/8% due November 1, 2005....................... 134,500 134,500
7-1/8% due June 1, 2006........................... 125,000 125,000
Pollution Control Series G, 5-5/8% due April 1, 2008 18,000 18,000
Pollution Control Series F, 7-3/8% due November
1, 2009 27,250 27,250
Pollution Control Series G, 5-1/2% due June 1, 2012 50,000 50,000
Pollution Control Series G, 5-7/8% due April 1, 2014 61,500 61,500
9-7/8% due July 1, 2020........................... 75,000 75,000
8-3/4% due March 1, 2022.......................... 150,000 150,000
7-1/4% due January 1, 2024........................ 110,000 110,000
Secured Medium-Term Notes, Series A and B, 6.02% -
9.25%, due August 1, 1997 - March 5, 2007 ........ 423,500 183,500
Unamortized premium................................ 4 13
Unamortized discount............................... (4,670) (5,032)
Capital lease obligations, 6.68% - 11.21% due in
installments through May 31, 2025............... 44,392 49,070
------ ------
$1,464,143 $1,263,968
---------- ----------
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
57
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPTALIZATION (continued)
(Thousands of Dollars, Except Share Information)
December 31, 1997 and 1996
1997 1996
---- ----
Long-term debt (continued)
Cheyenne Light, Fuel and Power Company (Note 1):
First Mortgage Bonds
7-7/8% due April 1, 2003........................... $ - $ 4,000
7-1/2% due January 1, 2024......................... - 8,000
Industrial Development Revenue Bonds, 7-1/4% due
September 1, 2021 ............................... - 7,000
PS Colorado Credit Corporation, Inc.:
Unsecured Medium-Term Notes, Series A
5.91% - 6.14%% due November 24, 1997 - December
15, 1998 ........................................ 100,000 100,000
1480 Welton, Inc.:
13.25% secured promissory note, due in installments
through October 1, 2016 .......................... 31,155 31,506
Natural Fuels Corporation (Note 1):
Capital lease obligations, 4.21% - 11.11% due in
installments through November 5, 2000............. - 84
--- --
1,595,298 1,414,558
Less: maturities due within one year................. 257,160 155,030
------- -------
Total long-term debt.............................. 1,338,138 1,259,528
--------- ---------
Total capitalization.................................. $3,138,792 $2,877,737
========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
58
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars)
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Operating revenues:
Electric.................................. $1,485,196 $1,488,990 $1,449,096
Gas........................................ 733,091 640,497 624,585
Other...................................... 11,356 7,951 7,010
------ ----- -----
2,229,643 2,137,438 2,080,691
Operating expenses:
Fuel used in generation.................... 198,706 195,442 181,995
Purchased power............................ 493,902 490,428 481,958
Gas purchased for resale................... 467,745 393,163 392,680
Other operating and maintenance expenses... 391,177 400,008 410,095
Depreciation and amortization.............. 168,451 154,631 141,380
Taxes (other than income taxes) ........... 81,496 82,899 81,319
Income taxes (Note 13) .................... 90,813 96,331 95,357
------ ------ ------
1,892,290 1,812,902 1,784,784
--------- --------- ---------
Operating income.............................. 337,353 324,536 295,907
Other income and deductions:
Merger expenses............................ (18,661) (11,210) (4,067)
Equity earnings in Yorkshire Power (Note 2) 34,926 - -
Miscellaneous income and deductions - net.. (13,374) (13,260) (3,794)
------- ------- ------
2,891 (24,470) (7,861)
Interest charges:
Interest on long-term debt................. 118,438 95,826 89,110
Other interest............................. 24,117 17,238 23,393
Allowance for borrowed funds used during
construction ............................ (6,353) (3,344) (3,313)
------ ------ ------
136,202 109,720 109,190
------- ------- -------
Income before extraordinary item.............. 204,042 190,346 178,856
Extraordinary item -U.K. windfall tax (Note 2) (110,565) - -
-------- --- ---
Net income.................................... 93,477 190,346 178,856
Dividend requirements on preferred stock...... 11,752 11,848 11,963
------ ------ ------
Earnings available for common stock........... $ 81,725 $ 178,498 $ 166,893
========== ========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
59
<PAGE>
<TABLE>
<CAPTION>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(Thousands of Dollars, Except Share Information)
Years ended December 31, 1997, 1996 and 1995
Common Stock, $5 par value Paid in Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995.. 62,154,594 $310,772 $648,496 $308,214 $1,267,482
Net income.................. - - - 178,856 178,856
Dividends declared
Common stock.............. - - - (128,587) (128,587)
Preferred stock, $100 par
value .................... - - - (9,004) (9,004)
Preferred stock, $25 par
value .................... - - - (2,940) (2,940)
Issuance of common stock
Employees' Savings Plan... 310,546 1,553 8,152 - 9,705
Dividend Reinvestment Plan 889,331 4,447 23,575 - 28,022
Management Incentive Plan. 3,657 19 92 - 111
----- -- -- --- ---
Balance at December 31, 1995 63,358,128 316,791 680,315 346,539 1,343,645
Net income.................. - - - 190,346 190,346
Dividends declared
Common stock.............. - - - (135,111) (135,111)
Preferred stock, $100 par
value .................... - - - (8,889) (8,889)
Preferred stock, $25 par
value .................... - - - (2,940) (2,940)
Issuance of common stock
Employees' Savings Plan... 274,934 1,374 8,420 - 9,794
Dividend Reinvestment Plan 809,603 4,048 24,580 - 28,628
Management Incentive Plan. 58,346 292 1,427 - 1,719
Acquisitions (Note 4)..... 317,748 1,589 9,611 - 11,200
Other....................... - - - (104) (104)
--- --- --- ---- ----
Balance at December 31, 1996 64,818,759 324,094 724,353 389,841 1,438,288
Net income.................. - - - 93,477 93,477
Dividends declared
Common stock, prior to
August 1, 1997 Merger .... - - - (76,202) (76,202)
Common stock, to NCE...... - - - (76,093) (76,093)
Preferred stock, $100 par
value .................... - - - (8,803) (8,803)
Preferred stock, $25 par
value .................... - - - (2,940) (2,940)
Issuance of common stock
Employees' Savings Plan... 250,058 1,250 8,518 - 9,768
Dividend Reinvestment Plan 488,224 2,441 16,899 - 19,340
Management Incentive Plan. 40,404 202 993 - 1,195
Merger with SPS
Exchange of common stock
for NCE stock ........... (65,597,345) (327,986) 327,986 - -
Dividend of subsidiaries'
stock to NCE ............ - - (49,912) - (49,912)
Contribution of capital by
NCE (Note 4) ............. - - 273,300 - 273,300
Other....................... - - (19) - (19)
--- --- --- --- ---
Balance at December 31, 1997 100 $ 1 $ 1,302,118 $ 319,280 $1,621,399
=== ========== ============= ========== ==========
Authorized shares of common stock were 100 at December 31, 1997 and 160
million at December 31, 1996 and 1995.
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
60
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Operating activities:
Net income................................... $ 93,477 $190,346 $ 178,856
Adjustments to reconcile net income to net
cash provided by operating activities (Note 1):
Extraordinary item - U.K. windfall tax (Note 2) 110,565 - -
Depreciation and amortization.............. 173,047 159,400 145,370
Amortization of investment tax credits..... (5,219) (7,256) (5,348)
Deferred income taxes...................... 37,390 60,899 39,170
Equity in earnings in Yorkshire Power...... (34,926) - -
Allowance for equity funds used during
construction ............................. 6 (757) (3,782)
Change in accounts receivable.............. (15,378) (88,680) 38,734
Change in inventories...................... (2,163) 20,542 4,246
Change in other current assets............. (52,914) (31,169) 7,618
Change in accounts payable................. (5,413) 88,473 (20,922)
Change in other current liabilities........ (15,870) (36,615) 24,230
Change in deferred amounts................. (21,913) (19,550) (20,385)
Change in noncurrent liabilities........... 3,367 (9,779) (5,367)
Other...................................... (144) 1,760 3,279
---- ----- -----
Net cash provided by operating activities 263,912 327,614 385,699
Investing activities:
Construction expenditures.................... (352,273) (321,162) (285,516)
Allowance for equity funds used during
construction .............................. (6) 757 3,782
Proceeds from disposition of property, plant
and equipment ............................. 3,187 20,454 2,470
Investment in Yorkshire Power (Note 2)....... (362,342) - -
Payment for purchase of companies, net of cash
acquired (Note 3) ......................... - 3,649 -
Transfer of subsidiaries to NCE (Note 1)..... (2,229) - -
Purchase of other investments................ (19,224) (11,485) (10,249)
Sale of other investments.................... 11,162 664 4,898
------ --- -----
Net cash used in investing activities.... (721,725) (307,123) (284,615)
Financing activities:
Proceeds from sale of common stock (Note 4).. 20,517 30,115 28,030
Contribution of capital by NCE............... 273,300 - -
Proceeds from sale of long-term notes and
bonds (Note 6) ............................ 412,220 217,415 101,860
Redemption of long-term notes and bonds...... (205,550) (83,356) (44,713)
Short-term borrowings - net.................. 127,530 (43,325) (36,750)
Redemption of preferred stock................ (665) (1,376) (1,376)
Dividends on common stock (Notes 4 and 15)... (148,279) (133,394) (127,352)
Dividends on preferred stock................. (11,757) (11,857) (11,973)
------- ------- -------
Net cash provided by (used in) financing
activities 467,316 (25,778) (92,274)
------- ------- -------
Net increase (decrease) in cash and
temporary cash investments .............. 9,503 (5,287) 8,810
Cash and temporary cash investments at
beginning of year ....................... 9,406 14,693 5,883
----- ------ -----
Cash and temporary cash investments at
end of year ............................ $18,909 $ 9,406 $ 14,693
======= ======= =========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
61
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (SPS)
The following narrative analysis discusses SPS's results of operations
comparing the most recent fiscal year ending December 31, 1997 to the
immediately preceding fiscal year ending August 31, 1996. SPS changed its
fiscal year in early 1997 and then filed a Transition Report on Form 10-K for
the period September 1, 1996 to December 31, 1996. Additional information
has been presented where meaningful, however, certain information has been
omitted pursuant to General Instructions I(2)(a). Discussion related to
Commitments and Contingencies and Liquidity and Capital Resources is
discussed in NCE's Management's Discussion and Analysis of Financial
Condition and Results of Operations. See Forward Looking Information.
Merger
Effective August 1, 1997, following receipt of all required state and
Federal regulatory approvals, SPS and PSCo merged in a tax-free "merger of
equals" transaction and became wholly-owned subsidiaries of NCE, which is a
registered holding company under PUHCA. This transaction was accounted for
as a pooling of interests for accounting purposes. Effective with the
Merger, Quixx and UE, previously wholly-owned subsidiaries, were transferred
through the sale by SPS of all of the outstanding common stock of such
subsidiaries at net book value, to NC Enterprises, an intermediate holding
company of NCE. See Note 1 in Item 8. Financial Statements and Supplementary
Data for additional discussion of SPS, the Merger and the sale of UE and
Quixx. The statements of income and cash flows reflect the results of
operations of Quixx and UE through July 31, 1997.
Earnings Available for Common Stock
Earnings available for common stock were $75.6 million, $103.3 million
and $114.6 million during 1997, 1996 and 1995, respectively. The significant
decrease in 1997 was primarily due to the recognition of higher merger and
business integration costs, the June 1997 write-off of Quixx's and UE's
investments in the Carolina Energy Project and the recognition of a $11.7
million gain on the sale of certain water rights by Quixx in 1996 (see Note
3. Acquisition and Divestiture of Investments in Item 8. Financial Statements
and Supplementary Data). While costs associated with the Merger, transition
planning and implementation have negatively impacted earnings during 1997 and
1996, management anticipates that future operating results will benefit from
synergies resulting from the Merger.
The lower earnings during the Transition Period, as compared to the
same period in 1995, was primarily due to the write-off of the BCH project in
December 1996 (see Note 3. Acquisition and Divestiture of Investments in Item
8. Financial Statements and Supplementary Data). Earnings applicable to
common stock decreased $11.3 million in 1996, compared to 1995, primarily due
to the recognition of merger and business integration costs and higher
operating and maintenance expenses related to utility operations.
Operating Revenues
Electric Operations
Substantially all of SPS's operating revenues result from the sale of
electric energy. The principal factors impacting revenues are the amount and
price of energy sold. The following table details the annual change in
electric operating revenues and energy costs as compared to the preceding
fiscal year (thousands of dollars).
62
<PAGE>
Increase (Decrease) From Prior Year
-----------------------------------
1997 1996
---- ----
Electric operating revenues:
Retail........................... $50,743 $24,170
Wholesale........................ 14,382 25,394
Other (including unbilled revenues) (4,167) 15,750
------ ------
Total revenues.................. 60,958 65,314
Fuel used in generation........... 56,076 46,971
Purchased power................... (3,509) 12,769
------ ------
Net increase in electric margin. $ 8,391 $ 5,574
======= =======
The following table compares electric Kwh sales by major customer classes.
Millions of Kwh Sales % Change From Prior Year*
--------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
Residential .............. 2,987 2,869 4.1% 5.9%
Commercial .............. 2,990 2,887 3.6 2.7
Industrial .............. 8,135 7,813 4.1 1.7
Public Authority ......... 583 571 2.1 4.2
--- ---
Total Retail............ 14,695 14,140 3.9 2.8
Wholesale................. 7,004 6,748 3.8 2.5
----- -----
Total..................... 21,699 20,888 3.9 2.7
====== ======
* Percentages are calculated using unrounded amounts.
Electric operating revenues increased $61.0 million or 6.8% in 1997,
when compared to 1996, primarily due to the pass through to customers of
higher fuel costs and the costs related to the Thunder Basin judgment, a
portion of which were recorded as an operating expense and increased electric
sales. However, under the various state regulatory approvals, SPS is
required to provide credits to retail customers over five years for one-half
of the measured non-fuel operation and maintenance expense savings associated
with the Merger. SPS will provide a guaranteed minimum annual savings to
retail customers of $3.0 million in Texas, $1.2 million in New Mexico,
$100,000 in Oklahoma and $10,000 in Kansas. Electric operating revenues
increased 7.8% in 1996, when compared to 1995, primarily due to higher fuel
used in generation and increased retail and wholesale sales, which resulted
from a hotter than normal late spring and early summer. Annual customer
growth over the past three years was approximately 1%.
Fuel used in generation expense increased $56.1 million or 13.4% in
1997, when compared to 1996, primarily due to increased generation levels at
SPS's power plants and higher prices of natural gas as SPS purchased
approximately 40% of its gas supply requirements on the spot market during
1997. Fuel used in generation expense increased $47.0 million or 12.7% in
1996, when compared to 1995, due to increases in natural gas and coal costs
and higher electric sales.
SPS has fuel cost adjustment mechanisms which recognize the majority of
the effects of changes in fuel used in generation and purchased power costs
and allow recovery of such costs on a timely basis. As a result, the changes
in revenues associated with these mechanisms in 1997 and 1996, when compared
to the respective preceding year, had little impact on net income. However,
in 1996, SPS was ordered by the PUCT to refund back to customers $1.9 million
of disallowed fuel costs and $5.4 million of margin credits on non-firm sales
(see Note 9. Regulatory Matters in Item 8. Financial Statements and
Supplementary Data).
Purchased power decreased $3.5 million in 1997, when compared to 1996,
primarily due to the increased availability and efficiency of SPS's power
plants. Purchased power increased $12.8 million in 1996, when compared to
1995, to meet the demands of its customers. SPS generates substantially all
of its power for sale to
63
<PAGE>
its firm retail and wholesale customers and sells non-firm energy as the market
demands. Similarly, SPS purchases low-cost non-firm energy when available.
Other Operating Revenues
Other operating revenues decreased $13.5 million or 41.6% in 1997, when
compared to 1996, with the sale of Quixx and UE in connection with the
Merger as discussed above. Other operating revenues in 1997 include only
seven months of Quixx and UE operations compared to twelve months in 1996.
Other operating revenues decreased $15.0 million in 1996, when compared to
1995, primarily due to UE's lower revenues for engineering and other
services.
Non-Fuel Operating Expenses
Other operating and maintenance expenses increased $1.6 million in 1997
as compared to the prior year. This increase includes the $12.1 million of
Thunder Basin judgment costs, which SPS expects to recover through its fixed
fuel factor, net of lower labor and employee benefit costs attributable to
staffing reductions in connection with the Merger and SPS's cost containment
efforts. Other operating and maintenance expenses decreased $7.4 million,
when compared to 1995, primarily due to UE's lower cost of revenues offset,
in part, by higher steam production maintenance expenses associated with the
acquisition of TNP electric properties.
Depreciation and amortization expense increased $0.6 million in 1997
and $5.6 million in 1996, primarily due to the depreciation of property
additions. The sale of Quixx and UE in connection with the Merger, resulted
in lower depreciation for those subsidiaries in 1997. The 1996 increase in
depreciation was attributable to depreciation of construction completed not
classified, amortization of the TNP acquisition adjustment and increased
depreciation for Quixx property additions.
Income taxes decreased $16.5 million in 1997 and $2.4 million in 1996,
primarily due to lower pre-tax income. Additional income tax expense was
recognized in both years for non-deductible merger and executive severance
costs resulting in an effective income tax of 39.2% in 1997 and 38.2% in
1996.
Other Income and Deductions
Other income and deductions decreased $31.9 million in 1997, as
compared to 1996, primarily due to the write-off of investments in the
Carolina Energy Project by Quixx and UE totaling approximately $16.1 million,
the recognition of the $11.7 million gain on the sale of certain water rights
by Quixx in 1996 and higher merger and business integration expenses. (see
Note 3. Acquisition and Divestiture of Investments in Item 8. Financial
Statements and Supplementary Data).
Other income and deductions decreased $14.4 million in the Transition
Period in 1996, as compared to the same period in 1995, primarily due to the
December 1996 write-off of Quixx's investment in the BCH Project of
approximately $15.5 million. Other income and deductions increased $1.4
million in 1996, as compared to 1995, primarily due to the gain on the sale
of water rights by Quixx in 1996, reduced by the recognition of merger and
business integration expenses.
Interest Charges
Interest charges increased $6.5 million in 1997 and $8.1 million in
1996, primarily due to interest on borrowings used to finance capital
expenditures. In October 1996, Southwestern Public Service Capital I, a
wholly owned trust, issued $100 million of 7.85% Trust Preferred Securities,
Series A, due September 1, 2036. The expense for these securities is shown
as Dividends on SPS obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely subordinated debentures of SPS. The funds
from this financing were used to reduce short-term debt.
64
<PAGE>
Item 8. Financial Statements and Supplementary Data (SPS)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO SOUTHWESTERN PUBLIC SERVICE COMPANY:
We have audited the accompanying consolidated balance sheet and statement of
capitalization of Southwestern Public Service Company (a New Mexico
corporation) as of December 31, 1997, and the related consolidated statement
of income, shareholder's equity and cash flows for the period ended December
31, 1997. These financial statements and the schedule referred to below are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Southwestern Public Service
Company as of December 31, 1997, and the results of their operations and
their cash flows for the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required
to be set forth therein in relation to the basic financial statements taken
as a whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 13, 1998
65
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Southwestern Public Service Company:
We have audited the consolidated balance sheet and statement of capitalization
of Southwestern Public Service Company and subsidiaries as of December 31, 1996
and the related consolidated statements of income, shareholder's equity and cash
flows for the four months ended December 31, 1996 and the years ended August 31,
1996 and 1995. 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 the results of their
operations and their cash flows for the above stated periods, 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 in Note 3)
66
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
December 31, 1997 and 1996
ASSETS
1997 1996
---- ----
Property, plant and equipment, at cost:
Electric .......................................... $2,557,579 $2,517,579
Other (Note 1)..................................... - 37,542
Construction in progress........................... 144,452 79,346
------- ------
2,702,031 2,634,467
Less: accumulated depreciation .................... 987,487 944,279
------- -------
Total property, plant and equipment............... 1,714,544 1,690,188
--------- ---------
Investments, at cost:
Notes receivable from affiliate (Note 1)........... 119,036 -
Other.............................................. 5,832 34,446
----- ------
Total investments................................. 124,868 34,446
------- ------
Current assets:
Cash and temporary cash investments................ 986 40,610
Accounts receivable, less reserve for uncollectible
accounts ($2,442 at December 31, 1997; $2,574 at
December 31, 1996) ............................... 96,548 67,779
Accrued unbilled revenues ......................... 15,468 20,304
Recoverable electric energy costs - net............ 23,086 15,715
Materials and supplies, at average cost............ 16,337 17,776
Fuel inventory, at average cost.................... 2,301 2,320
Prepaid expenses and other......................... 3,367 4,984
----- -----
Total current assets.............................. 158,093 169,488
------- -------
Deferred charges:
Regulatory assets (Note 1)......................... 119,244 117,546
Unamortized debt expense .......................... 9,395 9,864
Other.............................................. 55,349 23,262
------ ------
Total deferred charges............................ 183,988 150,672
------- -------
$2,181,493 $2,044,794
========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
67
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
December 31, 1997 and 1996
CAPITAL AND LIABILITIES
1997 1996
---- ----
Common stock (Notes 1 and 4).......................... $ 348,402 $ 348,402
Retained earnings..................................... 349,988 383,350
------- -------
Total common equity............................... 698,390 731,752
SPS obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
subordinated debentures of SPS (Note 5) ............ 100,000 100,000
Long-term debt (Note 6)............................... 620,598 620,400
------- -------
1,418,988 1,452,152
--------- ---------
Noncurrent liabilities:
Employees' postretirement benefits other than
pensions (Note 12) ................................ 3,800 2,874
Employees' postemployment benefits (Note 12)....... 2,446 2,369
----- -----
Total noncurrent liabilities...................... 6,246 5,243
----- -----
Current liabilities:
Notes payable and commercial paper (Note 7)........ 154,244 53,836
Notes payable to affiliates (Note 7)............... 25,160 -
Long-term debt due within one year................. 173 15,231
Accounts payable................................... 107,465 63,004
Dividends payable.................................. 22,546 -
Customers' deposits................................ 5,471 5,842
Accrued taxes...................................... 28,051 19,999
Accrued interest................................... 12,715 13,151
Current portion of accumulated deferred income
taxes (Note 13) .................................. 10,740 3,583
Other.............................................. 7,415 28,596
----- ------
Total current liabilities......................... 373,980 203,242
------- -------
Deferred credits:
Unamortized investment tax credits ................ 5,469 5,719
Accumulated deferred income taxes (Note 13)........ 372,447 367,272
Other.............................................. 4,363 11,166
----- ------
Total deferred credits............................ 382,279 384,157
------- -------
Commitments and contingencies (Notes 9 and 10)........
---------- ----------
$2,181,493 $2,044,794
========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
68
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(Thousands of Dollars, Except Per Share Information)
December 31, 1997 and 1996
1997 1996
---- ----
Common shareholder's equity:
Common stock,$1 par value, authorized 200 shares
in 1997 and 100,000,000 shares in 1996,
outstanding 100 shares in 1997 and 40,917,908
shares in 1996 .................................... $ - $ 40,918
Paid in capital.................................... 348,402 307,484
Retained earnings.................................. 349,988 383,350
------- -------
Total common shareholders equity.................. 698,390 731,752
------- -------
Preferred stock (Note 4):
$1 par value, 10 million shares authorized; no
shares outstanding ............................... - -
--- ---
SPS obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
subordinated debentures of SPS, 4 million shares
outstanding, 7.85% (Note 5)......................... 100,000 100,000
------- -------
Long-term debt (Note 6):
First Mortgage Bonds:
5.70% retired February 1, 1997..................... - 15,000
6-7/8% due December 1, 1999........................ 90,000 90,000
7-1/4% due July 15, 2004........................... 135,000 135,000
6-1/2% due March 1, 2006........................... 60,000 60,000
8-1/4% due July 15, 2022........................... 40,000 40,000
8-1/5% due December 1, 2022........................ 100,000 100,000
8-1/2% due February 15, 2025....................... 70,000 70,000
Pollution control obligations, securing pollution
control revenue bonds:
Not collateralized by First Mortgage Bonds:
variable rate (4.30% and 3.95% at December 31, 1997
and 1996, respectively) due July 1, 2011.......... 44,500 44,500
variable rate (6.435% effective December 31, 1997
and 1996, respectively)due July 1, 2016.......... 25,000 25,000
5-3/4% series, due September 1, 2016.............. 57,300 57,300
Less funds held by Trustee......................... (161) (417)
Other................................................. 286 527
Unamortized discount and premium-net.................. (1,154) (1,279)
------ ------
620,771 635,631
Less: maturities due within one year.................. 173 15,231
--- ------
Total long-term debt.............................. 620,598 620,400
------- -------
Total capitalization.................................. $1,418,988 $1,452,152
========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
69
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars)
Years ended December 31, 1997 and August 31, 1996 and 1995 (Note 1)
1997 1996 1995
---- ---- ----
Operating revenues:
Electric.................................... $ 960,355 $ 899,397 $ 834,083
Other....................................... 18,928 32,403 47,434
------ ------ ------
979,283 931,800 881,517
Operating expenses:
Fuel used in generation..................... 473,099 417,023 370,052
Purchased power............................. 14,501 18,010 5,241
Other operating & maintenance expenses...... 166,761 165,129 172,513
Depreciation and amortization............... 70,331 69,781 64,204
Taxes (other than income taxes) ............ 46,515 45,518 43,827
Income taxes (Note 13) ..................... 48,795 65,297 67,648
------ ------ ------
820,002 780,758 723,485
------- ------- -------
Operating income............................... 159,281 151,042 158,032
Other income and deductions:
Merger expenses............................. (15,427) (7,878) -
Write-off of investment in Carolina Energy
Project (Note 3) ........................... (16,052) - -
Miscellaneous income and deductions
- net (Note 3) ............................. 4,877 13,226 3,917
----- ------ -----
(26,602) 5,348 3,917
Interest charges:
Interest on long-term debt.................. 46,356 47,045 43,221
Other interest.............................. 7,444 6,088 1,714
Allowance for borrowed funds used during
construction .............................. (4,546) (2,516) (2,463)
Dividends on SPS obligated mandatorily
redeemable preferred securities of
subsidiary trust holding solely subordinated
debentures of SPS .......................... 7,850 - -
----- --- ---
57,104 50,617 42,472
------ ------ ------
Net income..................................... 75,575 105,773 119,477
Dividend requirements on preferred stock....... - 2,494 4,878
--- ----- -----
Earnings available for common stock............ $ 75,575 $103,279 $114,599
======== ======== ========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
70
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars)
For the four months ended December 31, 1996 and 1995 (Note 1)
1996 1995
---- ----
(Unaudited)
Operating revenues:
Electric.......................................... $295,579 $267,427
Other............................................. 10,701 11,055
------ ------
306,280 278,482
Operating expenses:
Fuel used in generation........................... 141,896 119,081
Purchased power................................... 4,900 2,756
Other operating & maintenance expenses............ 55,582 52,134
Depreciation and amortization..................... 23,782 23,329
Taxes (other than income taxes)................... 15,152 14,590
Income taxes (Note 13)............................ 10,987 18,963
------ ------
252,299 230,853
------- -------
Operating income..................................... 53,981 47,629
Other income and deductions, net:
Merger expenses................................... (2,019) (2,171)
Write-off of investment in BCH project (Note 3)... (15,546) -
Miscellaneous income and deductions - net......... 759 737
--- ---
(16,806) (1,434)
Interest charges:
Interest on long-term debt........................ 16,302 15,106
Other interest.................................... 1,102 950
Allowance for borrowed funds used during construction (892) (807)
Dividends on SPS obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely subordinated debentures of SPS ............ 1,526 -
----- ---
18,038 15,249
------ ------
Net income........................................... 19,137 30,946
Dividend requirements on preferred stock............. - 2,373
--- -----
Earnings available for common stock.................. $ 19,137 $28,573
======== =======
The accompanying notes to consolidated financial statements
are an integral part of these financial statements
71
<PAGE>
<TABLE>
<CAPTION>
SOUTHWESTERN PUBLIC SERVICE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(Thousands of Dollars, Except Share Information)
Year ended December 31, 1997, four months ended December 31, 1996 and
years ended August 31, 1996 and 1995 (Note 1)
Common Stock, $1 par value Paid in Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at September 1, 1994 40,917,908 $ 40,918 $ 306,376 $ 348,878 $ 696,172
Net income.................. - - - 119,477 119,477
Dividends declared
Common stock.............. - - - (90,019) (90,019)
Cumulative preferred stock - - - (4,878) (4,878)
--- --- --- ------ ------
Balance at August 31, 1995.. 40,918,908 40,918 306,376 373,458 720,752
Net income.................. - - - 105,773 105,773
Retirements of cumulative
preferred stock ........... - - 1,108 (921) 187
Dividends declared
Common stock.............. - - - (90,020) (90,020)
Cumulative preferred stock - - - (1,573) (1,573)
--- --- --- ------ ------
Balance at August 31, 1996.. 40,917,908 40,918 307,484 386,717 735,119
Net income ................. - - - 19,137 19,137
Dividends declared on common
stock ..................... - - - (22,504) (22,504)
--- --- --- ------- -------
Balance at December 31, 1996 40,917,908 40,918 307,484 383,350 731,752
Net income.................. - - - 75,575 75,575
Dividends declared
Common stock prior to August
1, 1997 Merger ........... - - - (63,845) (63,845)
Common stock, to NCE...... - - - (45,092) (45,092)
Merger with PSCo
Exchange of common shares
for NCE stock ........... (40,917,808) (40,918) 40,918 - -
----------- ------- ------ --- ---
Balance at December 31, 1997 100 $ - $ 348,402 $ 349,988 $ 698,390
=== ========== ========== ============= =========
Authorized shares of common stock were 200 at December 31, 1997 and 100
million at December 31, 1996, August 31, 1996 and 1995.
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
72
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars, Except Share Information)
Years ended December 31, 1997, and August 31, 1996 and 1995 (Note 1)
1997 1996 1995
---- ---- ----
Operating activities:
Net income................................... $75,575 $105,773 $119,477
Adjustments to reconcile net income to net
cash provided by operating activities (Note 1):
Depreciation and amortization.............. 76,929 65,448 61,069
Write off of investment in Carolina Energy
Project (Note 3) .......................... 16,052 - -
Amortization of investment tax credits..... (250) (250) (250)
Deferred income taxes...................... 3,587 16,423 9,717
Allowance for equity funds used during
construction ............................. (5) (60) (229)
Change in accounts receivable.............. (39,842) (4,697) (3,905)
Change in inventories...................... 301 134 (3,409)
Change in other current assets............. (3,061) (7,688) (5,143)
Change in accounts payable................. 45,683 10,024 (834)
Change in other current liabilities........ (10,000) (7,271) 9,398
Change in deferred amounts................. (48,934) (11,381) 8,160
Other...................................... 276 13,571 (4,753)
--- ------ ------
Net cash provided by operating activities 116,311 180,026 189,298
Investing activities:
Construction expenditures.................... (118,550) (111,986) (94,662)
Allowance for equity funds used during
construction ............................... 5 60 229
Proceeds from disposition of property, plant
and equipment .............................. (2,371) - -
Proceeds from the sale of Quixx and UE, net
of cash disposed (Note 1) .................. (29,567) - -
Purchase of other investments................ (4,639) (1,768) (28,219)
Acquisition of TNP properties (Note 3)....... - (29,200) -
--- ------- ---
Net cash used in investing activities.... (155,122) (142,894)(122,652)
Financing activities:
Proceeds from sale of long-term notes and bonds - 60,000 76,204
Redemption of long-term notes and bonds...... (14,986) (4,445) (16,880)
Short-term borrowings - net.................. 100,564 69,624 (14,994)
Retirement of preferred stock................ - (75,434) -
Dividends on common stock (Notes 4 and 15)... (86,391) (90,020) (90,020)
Dividends on preferred stock................. - (2,494) (4,878)
--- ------ ------
Net cash used in financing activities.... (813) (42,769) (50,568)
---- ------- -------
Net (decrease) increase in cash and
temporary cash investments ............. (39,624) (5,637) 16,078
Cash and temporary cash investments at
beginning of year ...................... 40,610 36,860 20,782
------ ------ ------
Cash and temporary cash investments at
end of year ............................ $ 986 $ 31,223 $ 36,860
======== ========= ========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
73
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Four months ended December 31, 1996 and 1995 (Note 1)
1996 1995
---- ----
(Unaudited)
Operating activities:
Net income......................................... $19,137 $30,946
Adjustments to reconcile net income to net
cash provided by operating activities (Note 1):
Depreciation and amortization.................... 22,289 21,873
Write-off of investment in BCH Project (Note 3).. 15,546 -
Deferred income taxes and investment tax credits 4,806 3,166
Allowance for equity funds used during construction (179) (60)
Change in accounts receivable.................... 10,180 9,402
Change in inventories............................ 1,417 928
Change in other current assets................... (5,674) 9,977
Change in accounts payable....................... 628 (10,673)
Change in other current liabilities.............. (12,487) (11,021)
Other............................................ (14,674) 7,627
------- -----
Net cash provided by operating activities...... 40,989 62,165
Investing activities:
Construction expenditures.......................... (66,031) (44,950)
Purchase of other investments...................... (2,297) (3,741)
Acquisition of TNP properties (Note 3)............. - (29,200)
--- -------
Net cash used in investing activities.......... (68,328) (77,891)
Financing activities:
Proceeds from sale of long-term notes and bonds
(Note 6) ........................................ 82,300 -
Proceeds from sale of SPS obligated mandatorily
redeemable preferred securities of subsidiary
trust holding solely subordinated debentures
of SPS .......................................... 100,000 -
Retirement of long-term notes and bonds............ (84,776) (1,717)
Short-term borrowings - net........................ (15,788) 116,250
Retirement of preferred stock...................... - (74,672)
Dividends on common stock.......................... (45,010) (45,010)
Dividends on preferred stock....................... - (2,373)
--- ------
Net cash provided by (used in) financing
activities ................................... 36,726 (7,522)
------ ------
Net increase (decrease) in cash and temporary
cash investments ............................. 9,387 (23,248)
Cash and temporary cash investments at beginning
of period .................................... 31,223 36,860
------ ------
Cash and temporary cash investments at end of
period ....................................... $ 40,610 $ 13,612
========= ========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
74
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
1. Summary of Significant Accounting Policies (NCE, PSCo and SPS)
Effective August 1, 1997, following the receipt of all required state
and Federal regulatory approvals, PSCo and SPS merged in a tax-free "merger
of equals" transaction and became wholly-owned subsidiaries of NCE. Each
outstanding share of PSCo common stock was canceled and converted into the
right to receive one share of NCE common stock, and each outstanding share of
SPS common stock was canceled and converted into the right to receive 0.95 of
one share of NCE common stock. Effective with the Merger, certain utility
and non-utility subsidiaries were transferred within NCE's common controlled
subsidiaries. The common stock of Quixx and UE, former SPS subsidiaries,
were transferred through the sale by SPS of the common stock of such
subsidiaries at net book value, aggregating approximately $119.0 million, to
NC Enterprises in exchange for notes payable of NC Enterprises. Subsidiaries
of PSCo (Cheyenne, WGI, e prime and Natural Fuels) were transferred by a
declaration of a dividend of the subsidiaries' stock, at net book value,
aggregating approximately $49.9 million, to NCE. NCE subsequently made a
capital contribution of the e prime and Natural Fuels common stock, at net
book value, aggregating approximately $29.5 million, to NC Enterprises.
The NCE consolidated financial statements reflect the accounting for
the Merger as a pooling of interests. The Company's consolidated financial
statements include the consolidated financial statements for both PSCo and
SPS as of and for the years ended December 31, 1997 and 1996. The Company's
1995 consolidated statement of income combines the consolidated statement of
income for PSCo for the year ended December 31, 1995 with the consolidated
statement of income for SPS for the year ended August 31, 1995. Certain
items have been reclassified in the consolidated financial statements to
conform to the presentation used by the Company.
On April 22, 1997, SPS changed its fiscal year from a twelve-month
period ending August 31 to a twelve-month period ending December 31. SPS
filed a Transition report on Form 10-K for the period September 1, to
December 31, 1996 (the transition period). The fiscal year periods presented
in SPS's consolidated statements of income and cash flows are for the
twelve-months ending December 31, 1997, August 31, 1996 and August 31, 1995.
Business, Utility Operations and Regulation
NCE is a registered holding company under the PUHCA and its utility
subsidiaries (PSCo, SPS and Cheyenne) are engaged principally in the
generation, purchase, transmission, distribution and sale of electricity and
in the purchase, transmission, distribution, sale and transportation of
natural gas. Both the Company and its subsidiaries are subject to the
regulatory provisions of the PUHCA. The utility subsidiaries are subject to
regulation by the FERC and state utility commissions in Colorado, Texas, New
Mexico, Wyoming, Kansas and Oklahoma. Over 90% of the Company's revenues are
derived from its regulated utility operations.
Regulatory Assets and Liabilities
The Company's regulated subsidiaries prepare their financial statements
in accordance with the provisions of SFAS 71, as amended. SFAS 71 recognizes
that accounting for rate regulated enterprises should reflect the
relationship of costs and revenues introduced by rate regulation. A
regulated utility may defer recognition of a cost (a regulatory asset) or
recognize an obligation (a regulatory liability) if it is probable that,
through the ratemaking process, there will be a corresponding increase or
decrease in revenues. During 1996, NCE's subsidiaries adopted SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed Of, which imposed stricter criteria for the continued recognition
of regulatory assets
75
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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
consolidated balance sheets (in thousands):
1997 NCE PSCo SPS
--- ---- ---
Income taxes (Note 13).............. $162,985 $ 84,356 $ 79,161
Nuclear decommissioning costs....... 76,881 76,881 -
Employees' postretirement benefits
other than pensions (Note 12)..... 63,023 59,995 3,028
Early retirement costs.............. 8,008 6,645 1,363
Employees' postemployment benefits
(Note 12) ......................... 24,455 23,932 -
Demand-side management costs........ 42,503 38,518 3,985
Unamortized debt reacquisition costs 36,717 17,791 18,344
Thunder Basin judgment (Note 9)..... 5,912 - 5,912
Other............................... 9,991 2,540 7,451
----- ----- -----
Total............................. $430,475 $310,658 $119,244
======== ======== ========
1996 NCE PSCo SPS
--- ---- ---
Income taxes (Note 13).............. $179,757 $ 98,355 $ 81,403
Nuclear decommissioning costs....... 89,731 89,731 -
Employees' postretirement benefits
other than pensions (Note 12)..... 57,641 54,449 3,192
Early retirement costs.............. 17,232 15,505 1,727
Employees' postemployment benefits
(Note 12) ......................... 24,797 24,797 -
Demand-side management costs........ 43,779 41,462 2,317
Unamortized debt reacquisition costs 39,794 19,914 19,880
Other............................... 13,380 4,353 9,027
------ ----- -----
Total............................. $466,111 $348,566 $117,546
======== ======== ========
The regulatory assets of the Company's regulated subsidiaries as of
December 31, 1997 and 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 Consolidated Financial Statements as identified 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 their regulatory assets, determine any impairment to
other assets resulting from deregulation and write-down any impaired assets
to their estimated fair value, which could have a material adverse effect on
NCE's, PSCo's and SPS's financial position, results of operations or cash
flows.
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.
Approximately 550 employees elected to participate in PSCo's early
retirement enhancement program, of which approximately 370 employees elected
the early retirement benefit. The total cost of the program was
76
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
On January 27, 1997, the CPUC issued its order on PSCo's 1996 gas rate
case. The CPUC allowed recovery of postemployment benefit costs on an
accrual basis under SFAS 112 and denied amortization of the approximately
$8.9 million regulatory asset recognized upon the adoption of SFAS 112 (see
Note 12. Employee Benefits - Postemployment Benefits). PSCo has appealed in
the Denver 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
$14.6 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.
As of December 31, 1997, SPS has approximately $5.9 million in
regulatory assets associated with the Thunder Basin judgment. The judgment
amount paid is recoverable from customers subject to review by various
regulatory agencies (see Note 9. Regulatory Matters - Electric and Gas Cost
Adjustments).
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 9.
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 and International Investments
The Company's non-utility subsidiaries are principally involved in
engineering, design and construction management, non-regulated energy
services, including gas and power marketing, the management of real estate
and certain life insurance policies, the financing of certain current assets
of PSCo and investments in cogeneration facilities, electric wholesale
generators and a foreign utility company. The Company's international
investments are subject to regulation in the countries in which such
investments are made (see Note 2. Acquisition of Yorkshire Electricity and
U.K. Windfall Tax). Financial statements of foreign subsidiaries are
translated into U.S. dollars at current rates, except for revenues, costs and
expenses which are translated at average current rates during each reporting
period.
77
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
Basic and Diluted Earnings Per Share
Effective for periods ending after December 15, 1997, the FASB issued
SFAS No. 128 "Earnings per Share" which changed the methodology for
calculating and reporting earnings per share ("EPS"), and required
restatement of all prior-period EPS data. Basic and Diluted EPS of common
stock is computed and presented for each year based upon the weighted average
number of common shares outstanding on the consolidated income statements.
The dilutive effect of NCE stock options, the only dilutive securities and
applicable only to NCE, was immaterial and, accordingly, the computed Basic
and Diluted EPS result in the same EPS.
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 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 (in
thousands):
NCE 1997 1996 1995
---- ---- ----
Income taxes ............................... $ 99,938 $117,121 $108,750
Interest.................................... $230,507 $197,073 $182,913
PSCo 1997 1996 1995
---- ---- ----
Income taxes, including amounts paid to NCE $ 75,439 $ 66,871 $ 58,662
Interest.................................... $172,470 $144,533 $140,823
SPS 1997 1996 1995
---- ---- ----
Income taxes, including amounts paid to NCE $ 37,752 $ 50,250 $ 50,088
Interest.................................... $ 56,486 $ 52,540 $ 42,090
78
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Non-cash Transactions:
Prior to the Merger, shares of PSCo's common stock (250,058 in 1997,
274,934 in 1996 and 310,546 in 1995), 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.
Stock issuances and the dividend of subsidiaries' stock in connection
with the Merger discussed above were non-cash financing and investing
activities and are not reflected in the consolidated statements of cash flows.
During 1996, PSCo exchanged shares of its common stock in connection
with the acquisition of TOG and TOP (see Note 3. Acquisition and Divestiture
of Investments). During 1995, a $40.5 million PSCo capital lease obligation
was recognized in connection with a 30-year gas storage facility agreement.
Property and Depreciation
Property, plant and equipment is stated at original cost. Replacements
and capital improvements, 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 expense. The cost of units of property retired, together with
cost of removal, less salvage, is charged to accumulated depreciation.
Depreciation expense, for financial accounting purposes, is computed on
the straight-line basis based on the estimated service lives and costs of
removal of the various classes of property. Depreciation expense, expressed
as a percentage of average depreciable property, for NCE, PSCo and SPS ranged
from approximately 2.6%-2.9% for the years ended December 31, 1997, 1996 and
1995. For income tax purposes, the Company and its subsidiaries use
accelerated depreciation and other elections provided by the tax laws.
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.
Income Taxes
The Company and its subsidiaries file consolidated Federal and
consolidated and separate 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 13. Income Taxes).
Stock-based Compensation
The Company uses the intrinsic value based method of accounting for its
stock-based compensation plan (see Note 12. Employee Benefits - Incentive
Compensation).
79
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Gas in Underground Storage (NCE and PSCo)
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, 1997 and 1996 exceeded the LIFO cost by
approximately $36.0 million and $52.2 million, respectively.
Cash Surrender Value of Life Insurance Policies (NCE and PSCo)
The following amounts related to corporate-owned life insurance
("COLI") contracts, issued by one major insurance company, are recorded as a
component of Investments, at cost, on the consolidated balance sheets:
1997 1996
---- ----
(Thousands of Dollars)
Cash surrender value of contracts..................... $408,425 $359,136
Borrowings against contracts.......................... 405,285 356,421
------- -------
Net investment in life insurance contracts......... $ 3,140 $ 2,715
======== =======
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 were entered into prior
to July 1, 1986 and were grandfathered under the legislation.
2. Acquisition of Yorkshire Electricity and U.K. Windfall Tax (NCE and PSCo)
During the second quarter of 1997, Yorkshire Power, a subsidiary
equally owned by PSCo and AEP, acquired indirectly all of the outstanding
ordinary shares of Yorkshire Electricity, a United Kingdom regional
electricity company. PSCo accounts for its investment in Yorkshire Power
using the equity method. Yorkshire Power's results of operations include 100%
of Yorkshire Electricity's results since April 1, 1997. PSCo's equity
earnings in Yorkshire Power is 50%, the same as its ownership share.
The total consideration paid by Yorkshire Power was approximately $2.4
billion (1.5 billion pounds sterling). The acquisition was financed by
Yorkshire Power through a combination of approximately 25% equity and 75%
debt, including the assumption of the existing debt of Yorkshire
Electricity. The funds for the acquisition were obtained from PSCo's and
AEP's investment in Yorkshire Power of approximately $360 million (220
million pounds sterling) each, with the remainder obtained by Yorkshire Power
through the issuance of non-recourse debt. PSCo funded its entire equity
investment in Yorkshire Power through $250 million of publicly issued secured
medium-term notes with varying maturities and drawings of approximately $110
million on its short-term lines of credit pursuant to its short-term credit
agreement with Bank of America, as agent.
In July 1997, the U.K. government enacted a windfall tax on certain
privatized business entities payable in two installments with the first
payment in December 1997 and the second installment a year later. The
windfall tax was a retroactive adjustment to the privatization value based on
post-privatization profits during the 1992 to 1995 period. During the third
quarter of 1997, Yorkshire Power recorded an extraordinary charge of
approximately $221 million (135 million pounds sterling) for this windfall
tax. PSCo's share of this tax is approximately $110.6 million.
80
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Summarized income statement information for the period April 1, 1997
(date of acquisition) to December 31, 1997 is presented below (in millions):
Yorkshire Power:
Operating revenues....................... $1,492.9
--------
Operating income......................... 202.3
-----
Income before extraordinary item......... 69.8
Extraordinary item - U.K. windfall tax... (221.1)
------
Net loss................................. $ (151.3)
========
PSCo's equity in the earnings (losses):
Extraordinary item - U.K. windfall tax.. $ (110.6)
Equity in earnings of Yorkshire Power (1) 34.9
----
$ (75.7)
========
(1) Includes the impact of approximately $10 million related to the change
in the U.K. corporate income tax rate from 33% to 31%.
PSCo's investment in Yorkshire Power at December 31, 1997 is
approximately $287 million. Summarized balance sheet information for
Yorkshire Power as of December 31, 1997 is presented below (in millions):
Assets:
Property, plant and equipment............ $1,644.6
Current assets........................... 602.2
Other assets............................. 1,895.4
-------
$4,142.2
========
Capitalization and Liabilities:
Common shareholders' equity.............. $ 542.1
Long-term debt........................... 704.3
Other non-current liabilities............ 488.7
Current liabilities...................... 2,407.1
-------
$4,142.2
========
The unaudited pro forma financial information presented below assumes
that the investment in Yorkshire Power was acquired on the first day of each
respective period. The pro forma adjustments include recognition of equity
in the estimated earnings of Yorkshire Power, an adjustment for interest
expense on debt associated with PSCo's investment in Yorkshire Power and
related income taxes. The estimated earnings of Yorkshire Power were based
on historical earnings of Yorkshire Electricity, prior to its acquisition by
Yorkshire Power, adjusted for the estimated effects of purchase accounting
(including the amortization of goodwill), conversion to United States
generally accepted accounting principles, interest expense on debt issued by
Yorkshire Power associated with the acquisition and related income taxes.
Sales of electricity are affected by seasonal weather patterns and,
therefore, the results of Yorkshire Power/Yorkshire Electricity will not be
distributed evenly during the year. Equity in earnings of Yorkshire Power
has been converted at the average exchange rates for the year ended December
31, 1997 and December 31, 1996, of $1.639/pound and $1.561/pound,
respectively.
81
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Based on the above assumptions, shown below is unaudited pro forma
financial information for the years ended December 31, 1997 and 1996 (in
millions, except per share amounts):
NCE
Earnings before Earnings before
Extraordinary Item Extraordinary Item
1997 1996 per share (1)
---- ---- -------------
NCE PSCo NCE PSCo 1997 1996
--- ---- --- ---- ---- ----
Income before
extraordinary item.......... $261.5 $204.0 $272.3 $190.3 $2.50 $2.64
===== =====
Pro forma adjustments:
Equity in earnings of
Yorkshire Power, net of
U.S. tax benefits (2)...... (10.1) (10.1) 19.3 19.3
Interest expense, net of tax (3.5) (3.5) (13.8) (13.8)
---- ---- ----- -----
Pro forma result.............. $247.9 $190.4 $277.8 $195.8 $2.37 $2.70
====== ====== ====== ====== ===== =====
(1) Based on the weighted average number of common shares outstanding for
the period.
(2) The years ending December 31, 1997 and 1996 amounts include $24.0
million and $18.9 million ($17.9 million and $11.7 million after-tax),
respectively, of write-offs related to certain computer development
costs, acquisition expenses and costs incurred for the preparation for
deregulation.
3. Acquisition and Divestiture of Investments
Carolina Energy Limited Partnership Investment (NCE and SPS)
The Carolina Energy Partnership, a waste-to-energy cogeneration
facility, was originally scheduled to be completed in 1997, but was halted
pending an independent analysis of the project's engineering and financial
viability. The banks providing debt financing to the project withheld funds
for continued construction. Quixx, UE, other equity owners, senior creditors
and the construction contractor were unable to restructure the project on
mutually agreeable terms and the senior creditors took possession of the
assets of the facility. In June 1997, Quixx wrote-off its investment of
approximately $13.6 million in the Carolina Energy Partnership.
Additionally, UE wrote-off its net investment of approximately $2.4 million
in this same partnership. Quixx holds 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.
BCH Energy Limited Partnership Investment (NCE and SPS)
Quixx holds a 49% limited partnership interest in BCH Energy Limited
Partnership which owned 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. In late 1996, senior creditors took possession of the assets
of the facility. In December 1996, Quixx wrote-off its investment of
approximately $16 million in this project.
82
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Quixx Underground Water Rights (NCE and SPS)
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 $11.7 million which is reflected in
miscellaneous income and deductions - net for the year ended December 31,
1996.
Acquisition of Texas-Ohio Gas, Inc. and Texas-Ohio Pipeline, Inc. (NCE and
PSCo)
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 (NCE and SPS)
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 (NCE and PSCo)
On June 25, 1995, PSCo acquired all of the outstanding stock of 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 Storage, which owns and operates
an underground gas storage facility in northeastern Colorado.
4. Capital Stock (NCE, PSCo and SPS)
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 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 or 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.
83
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Common Stock Issuance
In December 1997, 5.9 million common shares were issued, resulting in
net proceeds (after deducting issuance costs) of $251.4 million. The
proceeds from the sale of stock were used for general corporate purposes,
including retirement of short-term debt and a capital contribution to PSCo.
PSCo used such proceeds to retire debt and for general corporate purposes.
Preferred Stock of NCE
NCE has 20 million shares of preferred stock authorized. At December
31, 1997, the Company has not registered or issued any of the preferred stock.
Preferred Stock of Subsidiaries
1997 1996
---- ----
Shares Amount Shares Amount
------ ------ ------ ------
(Thousands (Thousands
of Dollars) of Dollars)
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) ............... 174,997 17,507 175,000 17,508
4 1/2% series.................. 65,000 6,500 65,000 6,500
4.64% series................... 159,950 15,995 160,000 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.......................... 1,049,947 $105,002 1,050,000 $105,008
========= ======== ========= ========
Subject to mandatory redemption (2):
7.50% series .................. 216,000 $ 21,600 216,000 $ 21,600
8.40% series................... 202,294 20,229 208,892 20,889
------- ------ ------- ------
418,294 41,829 424,892 42,489
Less: Preferred stock subject to
mandatory redemption within
one year...................... (25,760) (2,576) (25,760) (2,576)
------- ------ ------- ------
Total........................ 392,534 $ 39,253 399,132 $ 39,913
======= ======== ======= ========
PSCo cumulative preferred stock, $25
par value, 4 million shares
authorized:
Issued and outstanding:
Not subject to mandatory
redemption (1):
8.40% series................... 1,400,000 $ 35,000 1,400,000 $ 35,000
==== ========= ======== ========= ========
SPS cumulative preferred stock, $1
par value, 10 million shares
authorized with no shares
outstanding (3) ................. - - - -
=== === === ===
(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.
(2) Mandatory redemption for 7.50% series: $101.50 per share on or prior to
August 31, 1998, 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: $101.75 per share on or prior to July
31, 1998, and reducing each year thereafter by $0.25 per share until July 31,
2004, after which the redemption price is $100 per share. In 1998 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 1997, PSCo
repurchased 6,598 shares of the 8.40% cumulative preferred series subject to
mandatory redemption. In 1996 and 1995, PSCo repurchased 13,760 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.
84
<PAGE>
5. SPS Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trust Holding Solely
Subordinated Debentures of SPS (NCE and 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 consolidated balance sheets. The net proceeds were
used to reduce short-term debt.
6. Long-Term Debt of Subsidiaries (NCE, PSCo and SPS)
1997 1996
---- ----
(Thousands of Dollars)
First Mortgage Bonds:
5-70% retired February 1, 1997..................... $ - $ 15,000
5-7/8% retired July 1, 1997........................ - 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........................... 22,000 22,500
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 60,000
7 1/8% due June 1, 2006............................ 125,000 125,000
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
Variable rate (3.80% and 7-1/4% at December 31, 1997
and 1996) 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
Variable rate (3.80% at December 31, 1997)due
March 1, 2027 .................................... 10,000 -
6.02% - 9.25% secured medium-term notes, due August
1, 1997 - March 5, 2007........................... 423,500 183,500
Other secured long-term debt 13.25%, due in
installments through October 1, 2016............. 31,155 31,506
Pollution control obligations, securing pollution
control revenue bonds:
Not collateralized by First Mortgage Bonds:
Variable rate (4.30% and 3.95% at December 31, 1997
and 1996), due July 1, 2011...................... 44,500 44,500
Variable rate (6.435% effective at December 31,
1997 and 1996), due July 1, 2016................ 25,000 25,000
5-3/4% series, due September 1, 2016............. 57,300 57,300
Less funds held by Trustee:........................ (161) (417)
Unsecured Medium-Term Notes:
5.91% - 6.14%, due November 24, 1997 - December
15, 1998 ....................................... 100,000 100,000
Capital lease obligations, 4.21% - 11.21% due in
installments through May 31, 2025.................. 44,747 49,154
Other................................................ 286 527
Unamortized discount and premium-net................. (5,820) (6,298)
------ ------
2,245,424 2,050,189
Less: maturities due within one year.................... 257,469 170,261
------- -------
$1,987,955 $1,879,928
========== ==========
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
85
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 annual maturities and sinking fund requirements during the five
years subsequent to December 31, 1997 are (in thousands):
Year Maturities Sinking Fund Requirements Total
---- ---------- ------------------------- -----
NCE 1998 $257,469 $ 560 $258,029
1999 134,454 560 135,014
2000 31,725 1,310 33,035
2001 140,969 1,310 142,279
2002 16,806 2,810 19,616
PSCo 1998 $257,160 $ 500 $257,660
1999 44,191 500 44,691
2000 31,656 1,250 32,906
2001 140,969 1,250 142,219
2002 16,806 2,750 19,556
SPS 1998 $ 173 $ - $ 173
1999 90,113 - 90,113
2000 - - -
2001 - - -
2002 - - -
The sinking fund requirements relate to PSCo and Cheyenne and they
expect to satisfy substantially all of their sinking fund obligations in
accordance with the terms of their respective indentures through the
application of property additions. SPS has no significant sinking fund
requirements.
7. Short-term Borrowing Arrangements (NCE, PSCo and SPS)
Notes Payable and Commercial Paper
Information regarding notes payable and commercial paper for the years
ended December 31, 1997 and 1996 is as follows (in thousands of dollars, except
interest rates):
1997 1996
---- ----
NCE
Notes payable to banks .............................. $147,500 $ 18,478
Commercial paper .................................... 440,843 280,083
------- -------
$588,343 $298,561
======== ========
Weighted average interest rate at year end.............. 5.74% 5.94%
PSCo
Notes payable to banks .............................. $ 50,000 $ 18,375
Commercial paper .................................... 286,599 226,350
Note payable to affiliates (by NCI to Quixx) ........ 11,956 -
------ ---
$348,555 $244,725
======== ========
Weighted average interest rate at year end.............. 5.78% 5.63%
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1997 1996
---- ----
SPS
Commercial paper .................................... $154,244 $53,836
Note payable to affiliates (UE) ..................... 9,000 -
Note payable to affiliates (Quixx) .................. 16,160 -
------ ---
$179,404 $53,836
======== =======
Weighted average interest rate at year end.............. 5.60% 5.65%
Bank Lines of Credit and Compensating Bank Balances
In August 1997, NCE entered into a $225 million credit facility with
several banks. The credit facility provides for $100 million of direct
borrowings by NCE until the outstanding common stock of PSCCC, a wholly-owned
subsidiary of PSCo, is transferred to NCE. The credit facility expires
August 11, 2002. After the transfer, NCE will have access to $225 million of
direct borrowings under the credit facility.
PSCo and its subsidiaries have entered into a credit facility with
several banks providing $300 million in committed bank lines of credit. The
credit facility, which is used primarily to support the issuance of
commercial paper by PSCo and PSCCC, alternatively provides for direct
borrowings thereunder. 1480 Welton, Inc. and PSRI are provided access to the
credit facility with direct borrowings guaranteed by PSCo. The facility
expires November 17, 2000. Additionally, PSCo has a credit facility which
provides $125 million in committed lines of credit and expires on April 30,
1998. SPS has two credit facilities which provide $180 million in committed
bank lines of credit and expire February 27 and 28, 1998. It is planned that
at maturity these lines of credit will be replaced with a $200 million line
of credit.
Borrowings permitted under the committed bank lines of credit totaled
$705 million at December 31, 1997, of which $9 million of SPS's committed
bank lines of credit required account deposits of 1 1/2% of the unused portion
of the loan commitment.
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.
Individual PSCo arrangements for uncommitted bank lines of credit
totaled $50 million at December 31, 1997, of which all were used. PSCo and
SPS may borrow under uncommitted preapproved lines of credit upon request;
however, the banks have no firm commitment to make such loans.
8. Financial Instruments (NCE, PSCo and SPS)
Fair Value of Financial Instruments
The following tables present the carrying amounts and fair values of
the Company's and subsidiaries' significant financial instruments at December
31, 1997 and 1996. The carrying amount of all other financial instruments
approximates fair value. SFAS No. 107, Disclosures about Fair Value of
Financial Instruments, 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1997 1996
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
NCE (Thousands of dollars)
Investments, at cost................ $36,010 $36,072 $30,249 $ 30,416
Preferred stock of subsidiaries
subject to mandatory redemption .. 41,829 42,893 42,489 43,685
SPS obligated mandatorily redeemable
preferred securities of subsidiary
trust holding solely subordinated
debentures of SPS ................. 100,000 104,752 100,000 99,520
Long-term debt of subsidiaries...... 2,206,372 2,251,523 2,001,035 2,059,972
PSCo
Investments, at cost................ $36,010 $36,072 $30,249 $30,416
Preferred stock subject to mandatory
redemption ........................ 41,829 42,893 42,489 43,685
Long-term debt...................... 1,555,572 1,604,160 1,370,423 1,404,972
SPS
SPS obligated mandatorily redeemable
preferred securities of subsidiary
trust holding solely subordinated
debentures of SPS ................ $100,000 $ 104,752 $ 100,000 $ 99,520
Long-term debt...................... 621,800 625,348 630,612 655,000
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, the SPS obligated mandatorily redeemable preferred securities 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, 1997 and 1996. 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
NCE and YGSC have guaranteed 50% of amounts financed under a $32
million Credit Agreement among Young Storage 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 3. 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 rate risk in the event of nonperformance
by counterparties; however, SPS does not anticipate such nonperformance.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
9. Regulatory Matters (NCE, PSCo and SPS)
Merger Rate Filings
The discussion below summarizes the significant conditions imposed by
the state utility regulatory commissions in Colorado, Texas, New Mexico,
Wyoming, Oklahoma and Kansas in their respective approvals of the Merger.
PSCo
The CPUC decision approving the Merger established a five-year
performance based regulatory plan and acknowledged that the Merger was in the
public interest. The major provisions of the decision include the following,
some of which are discussed in other sections of this note:
- a $6 million annual electric rate reduction, which was instituted
October 1, 1996, followed by an additional $12 million annual electric
rate reduction effective with the implementation of new gas rates on
February 1, 1997;
- an annual electric department earnings test with the sharing of
earnings in excess of an 11% return on equity for the calendar years
1997-2001 and the implementation of a Quality of Service Plan;
- a freeze in base electric rates for the period through December 31,
2001 with the flexibility to make certain other rate changes, including
those necessary to allow for the recovery of DSM, QF capacity and
decommissioning costs. The freeze in base electric rates does not
prohibit PSCo from filing a general rate case or deny any party the
opportunity to initiate a complaint or show cause proceeding; and
- the replacement of the ECA with an ICA.
On January 20, 1998, the CPUC approved the recovery of $16 million in
merger costs incurred through May 31, 1997, the allocation methodologies of
merger costs and the recovery of payments associated with a transmission
agreement with a wholesale customer. PSCo will request approval from the
CPUC for the merger costs incurred subsequent to May 31, 1997 as part of the
electric department earnings test expected to be filed in mid-1998. Merger
costs attributable to Colorado electric retail customers will be amortized
monthly through December 31, 2001 as part of the electric department earnings
test. Merger costs attributable to Colorado gas retail customers were
included in the gas rate case approved by the CPUC, discussed below.
SPS
Under the various regulatory commission approvals, SPS is required to
provide credits to customers over five years for one-half of the measured
non-fuel operation and maintenance expense savings associated with the
Merger. SPS will provide guaranteed minimum annual credits to retail
customers of $3 million in Texas, $1.2 million in New Mexico, $100,000 in
Oklahoma and $10,000 in Kansas and $1.5 million to wholesale customers.
Cheyenne
The WPSC approved the merger on August 16, 1996. Cheyenne agreed not
to file a retail electric rate case for two years after the merger is
consummated. Cheyenne expects to file a combined gas and electric rate case
with the WPSC in 1999 after the two year moratorium expires.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Rate Cases
PSCo
Retail - Gas
On June 5, 1996, PSCo filed a retail rate case with the CPUC requesting
an annual increase in its jurisdictional gas department revenues of
approximately $34 million. In early 1997, the CPUC approved an overall
increase of approximately $18 million with an 11.25% return on equity,
effective February 1, 1997 and as modified on May 15, 1997. The CPUC
disallowed the recovery of certain postemployment benefit costs under SFAS
112 and imputed anticipated merger related savings net of costs related to
the gas business (see Note 1. Summary of Significant Accounting Policies).
PSCo filed a petition with the Denver District Court appealing the CPUC's
decision. A decision from the Denver District Court is expected in the last
half of 1998.
Wholesale - FERC
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, results in a slight
decrease in rates overall. A final order accepting the settlement
agreements, subject to PSCo making certain compliance filings, was received
in June 1997. On October 3, 1997, PSCo filed the required compliance filing
with the FERC to unbundle the wholesale generation, transmission and
ancillary services prices in the wholesale power agreements.
SPS
New Mexico
On November 17, 1997, the NMPUC issued an order investigating SPS's
rates. SPS is required to file a rate case by May 5, 1998. In the order,
the NMPUC determined that because of the rapid changes occurring in the
electric industry there is a need for the NMPUC to require rate case filings
by the major electricity suppliers who have not adopted a plan to provide
retail open access and customer choice of suppliers.
Wholesale - FERC
On December 19, 1989, the FERC issued its final order regarding a 1985
wholesale rate case. SPS appealed certain portions of the order that related
to recognition in rates of the reduction of the federal income tax rate from
46% to 34%. The United States Court of Appeals for the District of Columbia
Circuit remanded the case directing the FERC to reconsider SPS's claim of an
offsetting cost and limiting the FERC's actions. The FERC issued its Order
on Remand in July 1992, the required filings were made and a hearing was
completed in February 1994. In October 1994, the administrative law judge
("ALJ") issued a favorable initial decision that, if approved by the FERC,
would result in a substantial revenue recovery for SPS. Negotiated
settlements with SPS's partial requirements customers and TNP were approved
by the FERC in July 1993 and September 1993, respectively, and SPS received
approximately $2.8 million, including interest. In a settlement with SPS's
New Mexico rural electric cooperative customers, SPS received approximately
$7.0 million, including interest. The FERC approved this settlement in July
1995. Resolutions of these matters with the remaining wholesale customers,
the Golden Spread member cooperatives and Lyntegar Electric Cooperative, have
not been achieved. SPS is awaiting a final order from the FERC. SPS cannot
reasonably estimate the remaining amount recoverable from these proceedings;
however, a favorable resolution could materially improve its earnings in the
period in which it is resolved.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Cheyenne
On May 12, 1997, Cheyenne filed an application with the WPSC for an
overall annual increase in retail gas revenues of approximately $1.25
million. On September 23, 1997, the WPSC approved an increase in retail gas
revenues of approximately $1.19 million with an 11.71% return on equity,
effective October 1, 1997.
Electric and Gas Cost Adjustment Mechanisms
PSCo
During 1994 and 1995, the CPUC conducted several proceedings to review
issues related to the ECA. The CPUC opened a docket to review whether the ECA
should be maintained in its then present form, altered or eliminated, and on
January 8, 1996, combined this docket with the merger docket discussed
above. The CPUC decision on the Merger modified and replaced the ECA with an
ICA. The ICA, which became effective October 1, 1996, allows for a 50%/50%
sharing of certain fuel and energy cost increases and decreases among
customers and shareholders. As of December 31, 1997, PSCo has deferred
approximately $0.7 million, as recoverable fuel and energy costs. Management
does not believe the cost adjustment mechanism will have a significant impact
on the Company's results of operations, financial position or cash flows.
The CPUC had a docket to review and prescribe a standardized GCA
process to determine the prudence of gas commodity and pipeline delivery
service costs incurred by gas utilities. Other issues addressed in this
docket included whether the GCA should be maintained in its present form,
altered or eliminated. The CPUC issued an order on May 7, 1997, which
provides for the current GCA to be maintained and the adoption of certain
standardized filing and gas purchase reporting requirements. On January 30,
1998, the CPUC issued another Notice of Proposed Rulemaking seeking comments
on various customer notice and reporting requirements related to changes in
gas costs.
SPS
Texas
A PUCT substantive rule requires periodic examination of SPS's fuel and
purchased power costs, the efficiency of the use of such fuel and purchased
power, fuel acquisition and management policies and purchase power
commitments. Under the PUCT's regulations, SPS is required to file an
application for the Commission to retrospectively review, at least every
three years, the operations of a utility's electricity generation and fuel
management activities. SPS will file a reconciliation in 1998 for the
generation and fuel management activities of approximately $690 million, for
the period from January 1995 through December 1997. At December 31, 1997,
SPS had approximately $22.9 million in underrecovered fuel costs associated
with the Texas retail jurisdiction. Currently, Texas retail customers are
being surcharged for approximately $6.4 million of such underrecovered fuel
costs. This surcharge does not include the Thunder Basin judgment discussed
below.
On May 1, 1995, SPS filed with the PUCT a petition for a fuel
reconciliation for the months of January 1992 through December 1994. The
PUCT issued an order in January 1996 requiring SPS to make a $3.9 million
fuel refund consisting of $2.1 million of overrecovered fuel costs and $1.8
million of disallowed fuel costs for the period. This refund was made in
April 1996. Additionally, the order required SPS to pass through to
customers 100% of margins from non-firm off-system opportunity sales as of
January 1995. Prior PUCT rulings had allowed SPS to retain 25% of these
margins. The 100% flow through is required by PUCT rules, absent of waiver.
A motion for rehearing on the fuel disallowance (which was adjusted to $1.9
million) was subsequently denied by the PUCT and SPS was ordered to flow
through 100% of the non-firm off-system sales margin effective with the first
billing cycle after the date of the order. Upon appeal by SPS to the Travis
County District Court in May 1996, the PUCT's decision on the disallowed fuel
costs was upheld. SPS appealed the decision and on January 29, 1998 the Texas
Court of Appeals upheld the PUCT decision to disallow fuel costs. SPS is
evaluating its alternatives, including filing an appeal to the Supreme Court
of Texas.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SPS was named as a defendant in a case entitled Thunder Basin Coal Co.
vs. Southwestern Public Service Co., No. 93-CV304B (D. Wyo.). On November 1,
1994, the jury returned a verdict in favor of Thunder Basin and awarded
damages of approximately $18.8 million. SPS appealed the judgment to the
Tenth Circuit Court of Appeals and, on January 7, 1997, that Court found in
favor of Thunder Basin and upheld the judgment. SPS filed a motion for
rehearing which was denied. In February 1997, SPS recorded the liability for
the judgment including interest and court costs. The amount of approximately
$22.3 million was paid in April 1997.
On September 17, 1996, the FERC issued an order granting SPS
conditional approval to collect the FERC jurisdictional portion of the
Thunder Basin judgment from wholesale customers. On October 24, 1997, the
NMPUC issued an order granting recovery of the New Mexico retail
jurisdictional portion of the judgment. On May 1, 1997, SPS filed a request
with the PUCT to surcharge undercollected fuel and purchased power expenses,
which included $9.1 million of the Thunder Basin judgment. In November 1997,
the PUCT issued a decision which denied recovery of the judgment through a
surcharge, on the grounds that the costs are not classified as fuel costs.
In 1997, SPS expensed approximately $12.1 million of the Texas retail
jurisdictional portion of the Thunder Basin judgment and recognized an equal
amount as deferred revenue in anticipation of future recovery through the
fuel reconciliation proceeding.
SPS believes that recovery of the Thunder Basin costs for the Texas
retail jurisdiction will be approved in a fuel reconciliation proceeding in
1998, but cannot predict the ultimate outcome. Under the PUCT regulations, a
utility may recover eligible fuel expenses or fuel-related expenses, which
result in benefits to customers that exceed the costs that customers would
otherwise have to pay. The Thunder Basin costs resulted in total net savings
to customers of $8.9 million, of which $4.8 million net savings is
attributable to Texas retail jurisdictional customers.
New Mexico
On October 24, 1997, the NMPUC approved a fixed fuel factor for SPS's
New Mexico retail jurisdiction, effective January 1998. This will employ an
over/under fuel collection calculation made on a monthly basis. SPS will
petition for a change in the fixed fuel factor if the over/under recovery
balance reaches $5 million. In addition, on an annual basis SPS files with
the NMPUC a report of SPS's fuel and purchase power costs, which will include
the current over/under recovery balance and will refund or surcharge the
balance. The methodology of the over/under calculation, plus interest, is
similar to the Texas fixed fuel factor calculation. Previously, New Mexico's
retail jurisdictional electric rates applied a monthly fuel factor.
Electric Department Earnings Test and Quality of Service Plan
PSCo
The CPUC's decision on the Merger implemented an electric department
earnings test with the sharing of earnings in excess of an 11% return on
equity for the calendar years 1997-2001 as follows:
Electric Department Sharing of Excess Earnings
Return on Equity Customers Shareholders
---------------- --------- ------------
11-12% 65% 35%
12-14% 50% 50%
14-15% 35% 65%
over 15% 100% 0%
The CPUC's decision on the Merger also implemented a QSP which provides
for bill credits totaling up to $5 million in year one and increasing to $11
million in year five, if PSCo does not achieve certain performance measures
relating to electric reliability, customer complaints and telephone response
to inquiries. On October 15, 1997, the CPUC issued an order addressing the
implementation of a reward mechanism in the QSP which
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
provides up to $3 million of annual rewards if PSCo achieves certain performance
measures relating to electric reliability.
As of December 31, 1997, PSCo recorded an estimated customer refund
obligation of approximately $16.4 million related to the electric department
earnings test, net of QSP rewards.
10. Commitments and Contingencies (NCE, PSCo and SPS)
Environmental Issues
The Company and its subsidiaries are subject to various environmental
laws, including regulations governing air and water quality and the storage
and disposal of hazardous or toxic wastes. The Company and its subsidiaries
assess, on an ongoing basis, measures to ensure compliance with laws and
regulations related to air and water quality, hazardous materials and
hazardous waste compliance and remediation activities.
Environmental Site Cleanup
As described below, PSCo has been or is currently involved with the
clean up of contamination from certain hazardous substances. In all
situations, PSCo is pursuing or intends to pursue insurance claims and
believes it will recover some portion of these costs through such claims.
Additionally, where applicable, PSCo intends to pursue recovery from other
Potentially Responsible Parties ("PRPs"). To the extent such costs are not
recovered, PSCo currently believes it is probable that such costs will be
recovered through the rate regulatory process. To the extent any costs are
not recovered through the options listed above, PSCo would be required to
recognize an expense for such unrecoverable amounts.
Under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), the U.S. Environmental Protection Agency ("EPA")
identified, and a Phase II environmental assessment revealed, low level,
widespread contamination from hazardous substances at the Barter Metals
Company ("Barter") properties located in central Denver. For an estimated 30
years, PSCo sold scrap metal and electrical equipment to Barter for
reprocessing. PSCo has completed the cleanup of this site at a cost of
approximately $9 million and has received responses from the Colorado
Department of Public Health and Environment ("CDPHE") indicating that no
further action is required related to these properties. On January 3,
1996, in a lawsuit by PSCo against its insurance providers, the Denver
District Court entered final judgment in favor of PSCo in the amount of $5.6
million for certain cleanup costs at Barter. Several appeals and cross
appeals have been filed by one of the insurance providers and PSCo in the
Colorado Court of Appeals. The insurance provider has posted supersedeas
bonds in the amount of $9.7 million ($7.7 million attributable to the Barter
judgment). On July 10, 1997, the Colorado Court of Appeals overturned the
previously awarded $7.7 million judgment on the basis that the jury had not
been properly instructed by the Judge regarding a narrow issue associated
with some of the policies. PSCo plans to appeal the Colorado Court of Appeals
decision to the Colorado Supreme Court. Previously, PSCo had received
certain insurance settlement proceeds from other insurance providers for
Barter and other contaminated sites and a portion of those funds remains to
be allocated to this site by the trial court. In addition, in August 1996,
PSCo filed a lawsuit against four PRPs seeking recovery of certain Barter
related costs. Settlement has been achieved with two smaller PRP's. On
December 16, 1997, the U. S. District Court awarded summary judgment in favor
of the remaining PRPs, on the basis PSCo failed to follow CERCLA guidelines
in the cleanup. On January 15, 1998, PSCo appealed the summary judgment to
the U.S. Court of Appeals. Furthermore, PSCo expects to recover additional
expenditures through the sale of the Barter property.
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
93
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
District Court. On June 30, 1997, the Court ruled in favor of the carriers on
summary judgment motions addressing late notice and other issues. On August 27,
1997, PSCo filed an appeal of the decision with the Colorado Court of Appeals.
Two carriers were excluded from this proceeding; subsequently, one carrier
received approval to be dismissed on the same basis as the other carriers. PSCo
intends to pursue recovery from the remaining carrier.
In addition to these sites, PSCo has identified several other sites
where clean up of hazardous substances may be required. While potential
liability and settlement costs are still under investigation and negotiation,
PSCo believes that the resolution of these matters will not have a material
adverse effect on PSCo's financial position, results of operations or cash
flows. PSCo fully intends to pursue the recovery of all significant costs
incurred for such projects through insurance claims and/or the rate
regulatory process.
Other Environmental Matters
Under the Clean Air Act Amendments of 1990 ("CAAA"), coal fueled power
plants are required to reduce SO2 and NOx emissions to specified levels
through a phased approach. PSCo's and SPS's facilities must comply with the
Phase II requirements, which will be effective in the year 2000. Currently,
these regulations permit compliance with SO2 emission limitations by using
SO2 allowances allocated to plants by the EPA, using allowances generated by
reducing emissions at existing plants and by using allowances purchased from
other companies. The Company expects to meet the Phase II emission standards
placed on SO2 through the combination of: a) use of low sulfur coal, b) the
operation of air quality control equipment on certain generation facilities,
and c) allowances issued by the EPA and purchased from other companies. PSCo
and SPS will be required to modify certain boilers by the year 2000 to reduce
the NOx emissions in order to comply with Phase II requirements. The
estimated Phase II costs for future plant modifications to meet NOx
requirements is approximately $14.4 million for PSCo's Cherokee Unit 1 and 2
and Arapahoe Unit 3. SPS installed two new gas turbines at its Cunningham
Station in 1997. The two gas turbine units have undergone performance
testing to meet the requirements of the air quality permit. The test results
indicated the units may not be in compliance with certain emission
limitations. SPS is working with the vendor and the New Mexico Environmental
Department to insure compliance with all permit limits.
PSCo has announced its intention to spend approximately $211 million on
its Denver and Boulder Metro area coal-fueled power plants to further reduce
such emissions below the required regulatory levels discussed above, but will
only do so if the following three conditions are met: 1) the Colorado
General Assembly and the CPUC approve recovery of these costs, 2) PSCo
obtains flexibility in operating the plants and 3) PSCo is assured the
emission reduction plan is sufficient to meet future state requirements for
15 years.
Hayden Steam Electric Generating Station
On May 21, 1996, PSCo and the other joint owners of Hayden Station
reached an agreement resolving violations alleged in complaints filed by a
conservation organization, the CDPHE and the EPA against the joint owners.
PSCo is the operator and owns an average undivided interest of approximately
53% of the station's two generating units. In connection with the
settlement, the joint owners of the Hayden station were required to make
certain payments totaling $4.25 million to the U.S. Treasury and other
organizations (PSCo's portion was approximately $2.3 million) and install
emission control equipment of approximately $130 million (PSCo's portion is
approximately $70 million). The settlement included stipulated future
penalties for failure to comply with the terms of the agreement, including
specific provisions related to meeting construction deadlines associated with
the installation of additional emission control equipment and complying with
particulate, SO2 and NOx emissions limitations. In August 1996, the U.S.
District Court for the District of Colorado entered the settlement agreement
which effectively resolved this litigation.
Craig Steam Electric Generating Station
On October 9, 1996, a conservation organization filed a complaint in
the U.S. District Court pursuant to provisions of the Federal Clean Air Act
(the "Act") against the joint owners of the Craig Steam Electric Generating
Station located in western Colorado. Tri-State Generation and Transmission
Association, Inc. is the operator of the
94
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Craig station and PSCo owns an undivided interest (acquired in April 1992) in
each of two units at the station totaling approximately 9.7%. The plaintiff
alleged that: 1) the station exceeded the 20% opacity limitations in excess of
14,000 six minute intervals during the period extending from the first quarter
of 1991 through the second quarter of 1996, and 2) the owners failed to operate
the station in a manner consistent with good air pollution control practices.
The complaint seeks, among other things, civil monetary penalties and injunctive
relief. The Act provides for penalties of up to $25,000 per day per violation,
but the level of penalties imposed in any particular instance is discretionary.
A settlement conference was held in February 1998. Resolution of this matter may
require installation of emission control equipment. Management does not believe
that this potential liability, the future impact of this litigation on plant
operations, or any related cost will have a material adverse impact on PSCo's
financial position, results of operations, or cash flows.
Pepsi Center
Hazardous substances resulting from manufactured gas plant operations
have been identified at the future site of the proposed Pepsi Center, a
sports arena to be located in lower downtown Denver. The site owners have
approached PSCo, seeking recovery of most of the costs of cleanup of the
site. Total estimated soil cleanup costs range from $1-2 million. The
estimate does not include potential costs to clean up affected ground water
contamination, if any exists. PSCo's insurance carriers have been notified.
Fort St. Vrain
In 1989, PSCo announced its decision to end nuclear operations at Fort
St. Vrain. Defueling of the reactor to the Independent Spent Fuel Storage
Installation ("ISFSI") was completed in June 1992. In March 1996, PSCo and
the decommissioning contractors announced that the physical decommissioning
activities at the facility had been completed. The final site survey was
completed in late October 1996. On August 5, 1997, the NRC approved PSCo's
request to terminate the Part 50 license. This concluded the decommissioning
activities as the facilities and site were released for unrestricted use.
On February 9, 1996, PSCo and the DOE entered into an agreement
resolving all the defueling issues. As part of this agreement, PSCo has
agreed to the following: 1) the DOE assumed title to the fuel currently
stored in the ISFSI, 2) the DOE will assume title to the ISFSI and will be
responsible for the future defueling and decommissioning of the facility, 3)
the DOE agreed to pay PSCo $16 million for the settlement of claims
associated with the ISFSI, 4) ISFSI operating and maintenance costs,
including licensing fees and other regulatory costs, will be the
responsibility of the DOE, and 5) PSCo provided to the DOE a full and
complete release of claims against the DOE resolving all contractual disputes
related to storage/disposal of Fort St. Vrain spent nuclear fuel. On
December 17, 1996, the DOE submitted a request to the NRC to transfer the
title of the ISFSI. This request is being reviewed by the NRC and PSCo
anticipates approval in late-1998.
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. At December 31,
1997, a $5.3 million refund to customers has been recorded on the
consolidated balance sheet.
Under the Price-Anderson Act, PSCo remains subject to potential
assessments levied in response to any nuclear incidents prior to early 1994.
PSCo continues to maintain primary commercial nuclear liability insurance of
$100 million for the Fort St. Vrain site and the adjoining ISFSI. PSCo also
maintains coverage of $20.4 million to provide property damage and
decontamination protection in the event of an accident involving the ISFSI.
95
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 1997, the total estimated obligations, based on 1997 prices, for
PSCo were approximately $849 million, and for SPS were approximately $1.3
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
the majority of these contracts 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, 1997, PSCo has minimum annual obligations
under such contracts of approximately $213 million in 1998 declining
thereafter for a total estimated commitment of approximately $409 million.
The combined PSCo and Cheyenne minimum annual obligation at December 31,
1997, under such contracts is approximately $216 million in 1998 declining
thereafter for a total estimated commitment of approximately $415 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 and SPS have 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 for NCE
were $477 million, $473 million, and $451 million; for PSCo such payments
were $452 million, $453 million and $445 million; and, for SPS such payments
were $15 million, $20 million and $6 million in 1997, 1996 and 1995,
respectively.
At December 31, 1997, the estimated future payments for capacity that
NCE, PSCo and SPS are obligated to purchase, subject to availability, are as
follows (in thousands):
Regional
QFs Utilities Total
--- --------- -----
NCE
1998.............................. $ 144,973 $ 184,772 $ 329,745
1999.............................. 157,741 175,046 332,787
2000.............................. 156,106 163,989 320,095
2001.............................. 154,926 142,302 297,228
2002.............................. 142,629 130,534 273,163
2003 and thereafter............... 1,248,877 1,137,900 2,386,777
--------- --------- ---------
Total............................ $2,005,252 $1,934,543 $3,939,795
========== ========== ==========
96
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Regional
QFs Utilities Total
--- --------- -----
PSCo
1998.............................. $ 140,466 $ 176,757 $ 317,223
1999.............................. 140,852 166,620 307,472
2000.............................. 138,937 155,226 294,163
2001.............................. 137,480 142,301 279,781
2002.............................. 124,878 130,534 255,412
2003 and thereafter............... 864,510 1,137,901 2,002,411
------- --------- ---------
Total............................ $1,547,123 $1,909,339 $3,456,462
========== ========== ==========
SPS
1998.............................. $ 4,507 $ - $ 4,507
1999.............................. 16,889 - 16,889
2000.............................. 17,169 - 17,169
2001.............................. 17,446 - 17,446
2002.............................. 17,751 - 17,751
2003 and thereafter............... 384,367 - 384,367
------- -------
Total............................ $458,129 $ - $458,129
======== ====== ========
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 a 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 was conducted in Case 2651 in July 1997. Post hearing briefs were
filed. The hearing examiner's recommendation is expected during 1998.
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 the 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, 1997. 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
97
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 and federal
judicial courts. PSCo intends to contest, or is actively contesting, all
such lawsuits, and believes the ultimate outcome will not have a material
adverse impact on the Company's results of operations, financial position or
cash flow.
During 1996, ninety former Information Technology and Systems ("IT&S")
employees filed a lawsuit against the Company. The complaint alleged that
PSCo unfairly amended its severance plan in connection with a restructuring
in late 1994 to exclude the IT&S function/positions that were outsourced to a
subsidiary of IBM, effective February 1, 1995. On June 16, 1997, the Denver
District Court issued a decision in favor of the former IT&S employees and
awarded approximately $1.6 million in severance costs and, in a judgment on
October 10, 1997, the former IT&S employees were awarded interest and
attorney fees as well, making the total judgment against PSCo $2.1 million.
An additional case with 153 former IT&S employees was filed asserting
identical claims. Settlement on both cases was achieved in early 1998.
During 1997, PSCo accrued related costs, including estimated interest and
attorney fees. In early 1998, an additional lawsuit, asserting identical
claims, was filed on behalf of 18 former IT&S employees.
Certain employees terminated as part of PSCo's 1991/1992 organizational
analysis asserted breach of contract and promissory estoppel with respect to
job security and breach of the covenant of good faith and fair dealing. Of
the 21 actions filed, the trial court directed verdicts in favor of PSCo in
19 cases. A jury entered verdicts adverse to PSCo in two cases which were
subsequently appealed by PSCo. On February 6, 1997, the Colorado Court of
Appeals issued a decision on all issues in favor of PSCo and on April 3,
1997, the employees appealed the decision of the Colorado Court of Appeals to
the Colorado Supreme Court. In October 1997, the Colorado Supreme Court
denied the petition for appeal, effectively ending this lawsuit.
During 1996, complaints were filed by seventeen plaintiffs, allegedly
on behalf of all non-managerial, non-clerical women in the Company's regional
facilities. The complaints assert that the Company has engaged in a
company-wide pattern and practice of sexual discrimination, including sexual
harassment and retaliation. During July 1997, the Company resolved all
issues related to this matter and accrued all related estimated costs.
Union Contracts
PSCo
The current Collective Bargaining Agreement is a three year agreement
extending from June 1, 1997 through May 31, 2000, with wage increases of 3%,
3% and 3.25% beginning in each year of the agreement 1997, 1998 and 1999
respectively. Approximately 1,082 employees, or 47% of PSCo's total
workforce, are represented by the International Brotherhood of Electrical
Workers, ("IBEW"), Local 111.
During 1996, the IBEW, Local 111 filed several grievances before the
National Labor Relations Board relating to the employment of certain
non-union personnel to perform services for PSCo. A decision has been
entered on three of the multiple grievances, with two of those decisions
requiring that PSCo pay union wage rates on new construction jobs performed
by outside vendors. PSCo had filed suit seeking to reverse one of these
decisions and challenging the subcontracting provision of the labor
agreement, all of the outstanding subcontracting grievances and both of the
existing adverse decisions, as violations of federal law. During 1997, PSCo
and the union reached a settlement resolving all issues and PSCo withdrew its
previously filed lawsuit.
98
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SPS
The current Collective Bargaining Agreement is a three-year agreement
extending from November 1, 1996 through November 1, 1999, with wage increases
of 3% in each year of the agreement. Approximately 850 employees, or 55% of
SPS's total workforce, are represented by the IBEW, Local 602.
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 $44.7 million and $44.4
million for NCE and PSCo, respectively at December 31, 1997, and $49.2
million for NCE and PSCo at December 31, 1996. 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 1997, 1996 and 1995
was $36.2 million, $26.9 million and $25.4 million, respectively, for NCE;
$31.1 million, $25.0 million and $23.5 million, respectively, for PSCo; and
$4.3 million, $3.7 million and $3.9 million, respectively, for SPS. SPS's
rental expense for the Transition Period was $1.2 million.
Estimated future minimum lease payments at December 31, 1997 are as
follows (thousands of dollars):
Capital Leases
NCE PSCo
--- ----
1998 .............................................. $ 9,505 $ 9,346
1999............................................... 8,050 7,890
2000............................................... 5,137 5,092
2001............................................... 5,035 5,035
2002............................................... 4,820 4,820
All years thereafter............................... 76,358 76,358
------ ------
Total future minimum lease payments 108,905 108,541
Less amounts representing interest............. 64,158 64,149
------ ------
Present value of net minimum lease payments.... $44,747 $44,392
======= =======
Operating Leases
NCE PSCo SPS
--- ---- ---
1998 ................................. $23,036 $19,841 $ 2,426
1999.................................. 19,143 16,176 2,389
2000.................................. 15,767 13,227 2,284
2001.................................. 9,631 7,567 1,944
2002.................................. 4,408 4,058 235
All years thereafter................. 18,392 17,899 -
------ ------ ---
Total future minimum lease payments $90,377 $78,768 $ 9,278
======= ======= =======
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.
99
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Year 2000 Costs
Based on a preliminary analysis, the Company expects to incur costs of
approximately $50-65 million over the next two years to modify its computer
software, hardware and other automated systems used in operations enabling
proper data processing relating to the year 2000 and beyond. The majority of
these costs will be incurred by or allocated to the Company's operating
utilities. The costs recognized by PSCo and SPS are anticipated to be
slightly less than two-thirds and one-third, respectively, of the total
estimated costs. The Company continues to evaluate appropriate courses of
corrective action, including the replacement of certain systems. A
significant portion of these costs will represent the redeployment of
existing information technology resources. If such modifications and
conversions are not completed timely, the year 2000 problem may have a
material impact on the operations of the Company. Management does not
anticipate these activities will have a material adverse impact on the
financial position, results of operations or cash flows of the Company or its
subsidiaries.
11. Jointly-Owned Electric Utility Plants (NCE and PSCo)
The Company's investments in jointly-owned plants (PSCo participation)
and its ownership percentages as of December 31, 1997 are:
Plant Construction
in Accumulated Work in
Service Depreciation Progress Ownership %
------- ------------ -------- -----------
(Thousands of Dollars)
Hayden Unit 1................ $38,452 $30,735 $ 10,867 75.50
Hayden Unit 2................ 58,356 34,204 1,846 37.40
Hayden Common Facilities..... 4,002 453 7,520 53.10
Craig Units 1 & 2............ 57,662 24,665 47 9.72
Craig Common Facilities Units
1 & 2 .................... 10,181 3,164 28 9.72
Craig Common Facilities Units
1,2 & 3 .................. 8,780 3,503 19 6.47
Transmission Facilities,
Including Substations 79,330 23,402 84 42.0-73.0
------ ------ --
$256,763 $120,126 $ 20,411
======== ======== ========
These assets include approximately 320 Mw of net dependable generating
capacity. PSCo is responsible for its proportionate share of operating
expenses (reflected in PSCo's and the Company's consolidated statements of
income) and construction expenditures. The construction work in progress
amounts for Hayden Unit 1, Hayden Unit 2 and Hayden Common Facilities include
construction expenditures for installing emission control equipment for these
facilities as discussed in Note 10.
100
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. Employee Benefits (NCE, PSCo and SPS)
Pensions
The Company and its subsidiaries maintain noncontributory defined
benefit pension plans which cover substantially all employees. As of
December 31, 1997, PSCo and SPS have separate employee pension plans. NCS
and other NCE affiliates participated in these plans during 1997. Certain
new NCE pension plans will be established in 1998.
The net pension expense for these plans in 1997, 1996, 1995 and SPS's
transition period was comprised of:
1997 NCE PSCo SPS
- ---- --- ---- ---
(Thousands of Dollars)
Service cost....................... $ 18,418 $ 13,360 $ 5,058
Interest cost on projected benefit
obligation ...................... 68,327 48,245 20,082
Actual return on plan assets....... (189,597) (102,719) (86,878)
Amortization of net transition assets
over 15-17 year periods* ......... (7,238) (3,674) (3,564)
Deferral and other items........... 100,192 47,535 52,657
------- ------ ------
Net pension expense (benefit)... $ (9,898) $ 2,747 $(12,645)
======== ======= ========
SPS
Transition
1996 NCE PSCo SPS Period
- ---- --- ---- --- ------
(Thousands of Dollars)
Service cost....................... $ 21,226 $14,317 $ 6,846 $ 2,390
Interest cost on projected benefit
obligation ....................... 66,503 46,497 20,266 7,066
Actual return on plan assets....... (133,301) (74,646) (53,666) (22,878)
Amortization of net transition assets
over 15-17 year periods* ......... (7,238) (3,674) (3,564) (1,188)
Deferral and other items........... 59,217 24,362 30,973 14,601
------ ------ ------ ------
Net pension expense (benefit)... $ 6,407 $ 6,856 $ 855 $ (9)
======== ======= ======== =======
1995 NCE PSCo SPS
- ---- --- ---- ---
(Thousands of Dollars)
Service cost....................... $ 18,203 $11,659 $ 6,606
Interest cost on projected benefit
obligation ....................... 65,574 46,570 19,563
Actual return on plan assets....... (161,443) (123,531) (37,912)
Amortization of net transition assets
over 15-17 year periods* ......... (7,238) (3,674) (3,564)
Deferral and other items........... 91,455 75,521 16,404
------ ------ ------
Net pension expense............. $ 6,551 $6,545 $1,097
======== ====== ======
* PSCo is amortizing its net transition assets over 17 years and SPS is
amortizing its net transition assets over 15 years.
1997 1996 1995
---- ---- ----
PSCo SPS** PSCo SPS* PSCo SPS
---- ----- ---- ---- ---- ---
Significant assumptions:
Discount rate 7.75% 7.5/8.0% 7.25% 8.0% 8.75% 8.0%
Expected long-term increase
in compensation level 4.25% 6.0/4.5% 4.00% 6.0% 5.00% 6.0%
Expected weighted average
long-term rate of return
on assets 9.75% 9.75% 9.75% 8.0% 9.75% 8.0%
* The assumptions used in 1996 for SPS were the same assumptions used for the
SPS transition period.
** Assumptions used for January to April/May to December 1997 periods.
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.
101
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A comparison of the actuarially computed benefit obligations and plan
assets at December 31, 1997 and 1996, 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 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.
1997 NCE PSCo SPS
- ---- --- ---- ---
(Thousands of Dollars)
Actuarial present value of benefit obligations:
Vested.................................. $ 853,533 $596,379 $257,154
Nonvested............................... 14,924 6,155 8,769
------ ----- -----
.................................... 868,457 602,534 265,923
Effect of projected future salary increases 123,516 91,220 32,296
------- ------ ------
Projected benefit obligation............... 991,973 693,754 298,219
Plan assets at fair value.................. (1,131,270) (699,241) (432,029)
---------- -------- --------
Excess of plan assets over projected benefit
obligation ............................... 139,297 5,487 133,810
Unrecognized net gain...................... (111,191) (2,195) (108,996)
Prior service costs not yet recognized in net
periodic pension cost .................... 26,476 25,455 1,021
Unrecognized net transition assets being
recognized over 15-17 year periods ....... (38,108) (18,369) (19,739)
------- ------- -------
Prepaid pension asset...................... $ 16,474 $ 10,378 $ 6,096
========== ======== ========
1996 NCE PSCo SPS
- ---- --- ---- ---
(Thousands of Dollars)
Actuarial present value of benefit obligations:
Vested.................................. $ 734,168 $514,762 $ 219,406
Nonvested............................... 39,557 28,689 10,868
------ ------ ------
.................................... 773,725 543,451 230,274
Effect of projected future salary increases 145,727 85,216 60,511
------- ------ ------
Projected benefit obligation............... 919,452 628,667 290,785
Plan assets at fair value.................. (996,085) (634,967) (361,118)
-------- -------- --------
Excess of plan assets over projected benefit
obligation ............................... 76,633 6,300 70,333
Unrecognized net loss (gain)............... (57,154) 1,110 (58,264)
Prior service costs not yet recognized in net
periodic pension cost .................... 28,897 27,758 1,139
Unrecognized net transition assets being
recognized over 15-17 year periods ....... (41,798) (22,042) (19,756)
------- ------- -------
Prepaid pension asset...................... $ 6,578 $ 13,126 $ (6,548)
========= ======== =========
1997 1996
---- ----
PSCo & SPS PSCo SPS
---------- ---- ---
Significant assumptions:
Discount rate 7.0% 7.75% 7.5%
Expected long-term increase in
compensation level 4.0% 4.25% 6.0%
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 and its subsidiaries maintain defined contribution plans
which cover substantially all employees. Total contributions to these plans
by the Company and its subsidiaries for both 1997 and 1996 totaled
approximately $12 million. The contribution for 1995 was approximately $11
million.
102
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Postretirement Benefits Other Than Pensions
The Company and its subsidiaries provide 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. The Company's subsidiaries 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 has been 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 collected in 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.
The net periodic postretirement benefit cost in 1997, 1996 and 1995
under SFAS 106 was comprised of:
NCE PSCo SPS
--- ---- ---
1997 (Thousands of Dollars)
Service cost............................. $ 6,121 $ 4,999 $ 1,030
Interest cost............................ 26,537 21,254 4,782
Return on plan assets.................... (9,240) (6,376) (2,572)
Curtailment expense...................... 3,323 - 3,323
Amortization of net transition obligation
over a 20 year amortization period and
deferrals............................... 14,992 12,399 2,283
------ ------ -----
Net postretirement benefit cost required
by SFAS 106............................. 41,733 32,276 8,846
OPEB expense recognized in accordance with
current regulation...................... (36,351) (26,730) (9,010)
------- ------- ------
Increase (decrease) in regulatory asset
(Note 1)................................ 5,382 5,546 (164)
Regulatory asset at beginning of period.. 57,641 54,449 3,192
------ ------ -----
Regulatory asset at end of period........ $ 63,023 $59,995 $ 3,028
======== ======= =======
SPS
Transition
NCE PSCo SPS Period
--- ---- --- ------
1996 (Thousands of Dollars)
Service cost............................. $ 8,191 $ 6,928 $ 1,266 $ 419
Interest cost............................ 27,998 22,982 5,109 1,608
Return on plan assets.................... (5,710) (4,500) (1,964) 100
Amortization of net transition obligation
over a 20 year amortization period and
deferrals............................... 14,775 12,710 3,049 31
------ ------ ----- --
Net postretirement benefit cost required
by SFAS 106 ............................ 45,254 38,120 7,460 2,158
OPEB expense recognized in accordance with
current regulation ..................... (37,981) (31,271) (6,715) (2,230)
------- ------- ------ ------
Increase (decrease) in regulatory asset
(Note 1)................................ 7,273 6,849 745 (72)
Regulatory asset at beginning of period.. 50,368 47,600 2,519 3,264
------ ------ ----- -----
Regulatory asset at end of period........ $57,641 $54,449 $ 3,264 $3,192
======= ======= ======= ======
103
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NCE PSCo SPS
--- ---- ---
1995 (Thousands of Dollars)
Service cost.............................. $ 7,240 $ 6,027 $ 1,213
Interest cost............................. 29,604 24,761 4,843
Return on plan assets..................... (3,301) (2,578) (723)
Amortization of net transition obligation
over a 20 year amortization period and
deferrals................................ 15,186 12,710 2,476
------ ------ -----
Net postretirement benefit cost required
by SFAS 106.............................. 48,729 40,920 7,809
OPEB expense recognized in accordance with
current regulation ...................... (37,933) (30,893) (7,040)
------- ------- ------
Increase in regulatory asset (Note 1)..... 10,796 10,027 769
Regulatory asset at beginning of period... 39,323 37,573 1,750
------ ------ -----
Regulatory asset at end of period......... $50,119 $47,600 $2,519
======= ======= ======
1997 1996 1995
---- ---- ----
PSCo SPS** PSCo SPS* PSCo SPS
---- ----- ---- ---- ---- ---
Significant assumptions:
Discount rate 7.75% 7.5/8.0% 7.25% 8.0% 8.75% 8.0%
Expected long-term increase
in compensation level 4.00% 6.0/4.5% 4.00% 6.0% 5.00% 6.0%
Expected weighted average
long-term rate of return
on assets 9.75% 9.75% 9.75% 8.0% 9.75% 8.0%
* The assumptions used in 1996 for SPS were the same assumptions used for the
SPS transition period.
** Assumptions used for January to April/May to December 1997 periods.
A comparison of the actuarially computed benefit obligations and plan
assets for 1997 and 1996 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.
NCE PSCo SPS
--- ---- ---
1997 (Thousands of Dollars)
Accumulated postretirement benefit obligation:
Retirees and eligible beneficiaries. $ 163,730 $ 122,945 $ 37,066
Other fully eligible plan participants 103,593 100,371 458
Other active plan participants...... 109,362 88,761 17,934
------- ------ ------
Total........................... 376,685 312,077 55,458
Plan assets at fair value ............. (112,324) (80,480) (27,517)
-------- ------- -------
Accumulated benefit obligation in excess
of plan assets ....................... 264,361 231,597 27,941
Unrecognized net gain.................. 26,079 13,087 12,457
Unrecognized transition obligations over
a 20 year amortization period ....... (227,724) (185,989) (36,598)
-------- -------- -------
Accrued postretirement benefit obligation $ 62,716 $ 58,695 $ 3,800
========== ========= ========
NCE PSCo SPS
--- ---- ---
1996 (Thousands of Dollars)
Accumulated postretirement benefit obligation:
Retirees and eligible beneficiaries. $148,460 $ 110,692 $ 37,768
Other fully eligible plan participants 84,439 81,676 2,763
Other active plan participants...... 117,456 90,559 26,897
------- ------ ------
Total........................... 350,355 282,927 67,428
Plan assets at fair value ............. (88,673) (63,744) (24,929)
------- ------- -------
Accumulated benefit obligation in excess
of plan assets ....................... 261,682 219,183 42,499
Unrecognized net gain ................. 44,794 39,847 4,947
Unrecognized transition obligations over
a 20 year amortization period ........ (247,925) (203,353) (44,572)
-------- -------- -------
Accrued postretirement benefit obligation $ 58,551 $ 55,677 $ 2,874
========= ========= ========
1997 1996
---- ----
PSCo & SPS PSCo SPS
---------- ---- ---
Significant assumptions:
Discount rate 7.0% 7.75% 7.5%
Expected long-term increase in
compensation level 4.0% 4.0% 6.0%
104
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The assumed health care cost trend rate for 1998 is 8.5%, decreasing to
4.5% in 2006 in 0.5% annual increments. A 1% increase in the assumed health
care cost trend rate will increase the estimated total accumulated benefit
obligation for PSCo by $37.0 million and for SPS by $7.1 million, and the
service and interest cost components of net periodic postretirement benefit
costs for PSCo by $5.0 million and SPS by $0.8 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, 1997, the Company has recorded
a $28.0 million liability on the consolidated balance sheet, using an assumed
discount rate of 7.0%. 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. 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. In the 1996 PSCo gas rate case, the
CPUC denied PSCo's request to amortize the approximately $8.9 million
regulatory asset (gas jurisdictional portion) recognized upon the adoption of
SFAS 112. PSCo has appealed to the Denver District Court the decision
related to this issue and is assessing the impact of this decision on the
future recovery of PSCo's electric jurisdictional portion (see Note 1.
Summary of Significant Accounting Policies - Regulatory Assets and
Liabilities). 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 5 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 1997, 1996 and 1995.
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 equals
the fair-market value of the Company's common stock at the date of grant.
Assuming compensation cost for the Company, PSCo and SPS had been determined
consistent with SFAS 123 using the fair-value based method, the Company's net
income would have been reduced by approximately $2.8 million in 1997, which
would have reduced earnings per share by approximately $0.03. The 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, 1997,
1996 and 1995 and changes during the years then ended is presented in the
table below:
105
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
NCE* PSCo SPS
---- ---- ---
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
1997
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 477,783 $31.46 441,227 $31.38 38,480 $30.80
Granted 1,690,147 43.32 62,100 39.00 2,147 37.24
Exercised 78,647 30.34 40,404 29.57 3,666 30.81
Forfeited 3,651 33.41 3,651 33.41 - -
Converted to NCE options at
Merger date - - 459,272 32.56 36,961 32.70
--- ------- ------
Outstanding at end of year 2,085,632 41.10 - - - -
========= === ===
Exercisable at end of year 431,071 32.66 - - - -
========= === ===
Weighted-average fair value
of options granted $ 5.45 $ 4.23 $ 3.70
1996
Outstanding at beginning of year 407,117 $29.78 347,931 $29.33 62,301 $30.78
Granted 158,270 35.13 158,270 35.13 - -
Exercised 74,303 30.87 51,673 30.21 21,647 30.76
Forfeited 13,301 32.48 13,301 32.84 - -
------ ------ ---
Outstanding at year of year 477,783 31.46 441,227 31.38 40,654 30.79
======= ======= ======
Exercisable at end of year 158,970 29.05 158,970 29.05 - -
======= ======= ===
Weighted-average fair value
of options granted $ 4.31 $4.31 $ -
1995
Outstanding at beginning of year 262,932 $29.52 195,744 $28.53 70,724 $30.79
Granted 161,000 30.29 161,000 30.29 - -
Exercised 5,685 32.38 267 29.00 5,703 30.92
Forfeited 11,130 29.93 8,546 29.17 2,720 30.81
------ ----- -----
Outstanding at year of year 407,117 29.78 347,931 29.33 62,301 30.78
======= ======= ======
Exercisable at end of year 134,809 28.88 125,931 28.52 9,345 32.34
======= ======= =====
Weighted-average fair value
of options granted $ 5.39 $ 5.39 $ -
SPS Transition Period
Outstanding at beginning of year 40,654 $30.79
Granted - -
Exercised 2,174 30.69
Forfeited - -
---
Outstanding at year of year 38,480 30.80
======
Exercisable at end of year -
---
* Amounts reflect the conversion of SPS and PSCo stock options to NCE stock
options.
</TABLE>
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:
1997 1996
---- ----
Expected option life.................................. 10 years 10 years
Stock volatility....................................... 13.3% 11.95%
Risk-free interest rate................................ 6.15% 6.21%
Dividend yield......................................... 5.4% 5.8%
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 goals
were met in each of the last three years. The expenses
106
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
accrued under the incentive programs totaled approximately $4.2 million in 1997,
$10.9 million in 1996 and $9.1 million in 1995.
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.
13. Income Taxes (NCE, PSCo and SPS)
The provisions for income taxes for NCE and PSCo for the years ended
December 31, 1997, 1996 and 1995, and for SPS for the years ended December
31, 1997, August 31, 1996 and 1995 and for the four months ended December 31,
1996 and 1995 consist of the following (in thousands):
1997 NCE PSCo SPS
--- ---- ---
Current income taxes:
Federal.......................... $ 82,337 $55,041 $43,401
State............................ 4,872 3,601 2,057
----- ----- -----
Total current income taxes.......... 87,209 58,642 45,458
------ ------ ------
Deferred income taxes:
Federal.......................... 45,537 31,548 3,045
State............................ 6,674 5,842 542
----- ----- ---
Total deferred income taxes...... 52,211 37,390 3,587
------ ------ -----
Investment tax credits - net........ (5,501) (5,219) (250)
------ ------ ----
Total provision for income taxes.... $133,919 $90,813 $48,795
======== ======= =======
1996 NCE PSCo SPS
--- ---- ---
Current income taxes:
Federal.......................... $ 79,365 $41,737 $46,435
State............................ 2,832 951 2,689
----- --- -----
Total current income taxes..... 82,197 42,688 49,124
------ ------ ------
Deferred income taxes:
Federal.......................... 70,964 53,612 15,776
State............................ 7,998 7,287 647
----- ----- ---
Total deferred income taxes...... 78,962 60,899 16,423
------ ------ ------
Investment tax credits - net........ (7,506) (7,256) (250)
------ ------ ----
Total provision for income taxes.... $153,653 $96,331 $65,297
======== ======= =======
107
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1995 NCE PSCo SPS
--- ---- ---
Current income taxes:
Federal.......................... $115,025 $58,728 $56,297
State............................ 4,691 2,807 1,884
----- ----- -----
Total current income taxes..... 119,716 61,535 58,181
------- ------ ------
Deferred income taxes:
Federal.......................... 47,327 38,006 9,321
State............................ 1,560 1,164 396
----- ----- ---
Total deferred income taxes...... 48,887 39,170 9,717
------ ------ -----
Investment tax credits - net........ (5,598) (5,348) (250)
------ ------ ----
Total provision for income taxes.... $163,005 $95,357 $67,648
======== ======= =======
Four Months Ending December 31,
-------------------------------
SPS - Transition Period 1996 1995
---- ----
(unaudited)
Current income taxes:
Federal.......................... $ 5,991 $14,799
State............................ 190 998
--- ---
Total current income taxes..... 6,181 15,797
----- ------
Deferred income taxes:
Federal.......................... 4,697 3,117
State............................ 192 132
--- ---
Total deferred income taxes...... 4,889 3,249
----- -----
Investment tax credits - net........ (83) (83)
--- ---
Total provision for income taxes.... $ 10,987 $18,963
======== =======
108
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A reconciliation of the statutory U.S. income tax rates and the
effective tax rates follows (in thousands):
<TABLE>
<CAPTION>
1997
NCE PSCo SPS
--- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Tax computed at U.S. statutory rate on
pre-tax accounting income... $142,506 35.0% $103,199 35.0% $43,529 35.0%
Increase (decrease) in tax from:
Allowance for funds used
during construction......... (2,220) (0.6) (2,222) (0.8) (2) -
Amortization of investment tax
credits .................... (5,501) (1.4) (5,219) (1.8) (250) (0.2)
State income taxes, net of
Federal income tax benefit 6,617 1.6 5,250 1.8 1,689 1.4
Cash surrender value of life
insurance policies.......... (12,952) (3.2) (12,876) (4.4) (76) (0.1)
Amortization of prior flow-
through amounts ............ 10,509 2.6 10,483 3.6 - -
Merger related costs -
non-deductible ............. 8,274 2.0 4,921 1.7 3,352 2.7
Foreign tax credit........... (7,043) (1.7) (7,043) (2.4) - -
Other-net.................... (6,271) (1.4) (5,680) (1.9) 553 0.4
------ ---- ------ ---- --- ---
Total income taxes.......... $133,919 32.9% $ 90,813 30.8% $48,795 39.2%
======== ==== ======== ==== ======= ====
1996
NCE PSCo SPS
--- ---- ---
Tax computed at U.S. statutory
rate on pre-tax accounting
income ....................... $153,287 35.0% $100,337 35.0% $59,874 35.0%
Increase (decrease) in tax from:
Allowance for funds used
during construction......... (1,685) (0.3) (1,438) (0.5) (248) (0.1)
Amortization of investment tax
credits ..................... (7,506) (1.7) (7,256) (2.5) (250) (0.1)
State income taxes, net of
Federal income tax benefit 6,579 1.5 5,356 1.9 1,748 0.9
Cash surrender value of life
insurance policies.......... (11,265) (2.6) (11,265) (3.9) (76) -
Amortization of prior flow-
through amounts ............ 10,509 2.4 10,509 3.6 - -
Merger related costs -
non-deductible ............. 4,258 1.0 2,574 0.9 2,006 1.2
Other-net.................... (524) (0.2) (2,486) (0.9) 2,243 1.3
---- ---- ------ ---- ----- ---
Total income taxes.......... $153,653 35.1% $ 96,331 33.6% $65,297 38.2%
======== ==== ======== ==== ======= ====
1995
NCE PSCo SPS
Tax computed at U.S. statutory
rate on pre-tax accounting
income ...................... $161,469 35.0% $ 95,975 35.0% $65,494 35.0%
Increase (decrease) in tax from:
Allowance for funds used
during construction......... (2,817) (0.6) (2,495) (0.9) (322) (0.2)
Amortization of investment tax
credits .................... (5,598) (1.2) (5,348) (1.9) (250) (0.1)
State income taxes, net of
Federal income tax benefit .. 3,806 0.8 2,581 0.9 1,225 0.7
Cash surrender value of life
insurance policies.......... (9,546) (2.1) (9,546) (3.5) (76) -
Amortization of prior flow-
through amounts ............ 10,509 2.3 10,509 3.8 - -
Merger related costs -
non-deductible ............. 2,225 0.5 1,414 0.5 170 0.1
Other-net.................... 2,957 0.7 2,267 0.9 1,407 0.7
----- --- ----- --- ----- ---
Total income taxes.......... $163,005 35.4% $ 95,357 34.8% $67,648 36.2%
======== ==== ======== ==== ======= ====
</TABLE>
SPS Transition Period Four Months Ending December 31,
-------------------------------
1996 1995
---- ----
(unaudited)
Tax computed at U.S. statutory rate on
pre-tax accounting income... $10,544 35.0% $17,468 35.0%
Increase (decrease) in tax from:
Allowance for funds used
during construction......... (144) (0.5) (180) (0.4)
Amortization of investment tax
credits .................... (83) (0.3) (83) (0.2)
State income taxes, net of
Federal income tax benefit 123 0.4 649 1.3
Merger related costs -
non-deductible ............. 488 1.6 620 1.2
Other-net.................... 59 0.3 489 1.1
-- --- --- ---
Total income taxes.......... $10,987 36.5% $18,963 38.0%
======= ==== ======= ====
109
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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,
1997, 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).
The tax effects of significant temporary differences representing
deferred tax liabilities and assets as of December 31, 1997 and 1996 are as
follows (in thousands):
1997 NCE PSCo SPS
--- ---- ---
Deferred income tax liabilities:
Accelerated depreciation and amortization $ 724,879 $432,453 $278,566
Plant basis differences (prior
flow-through) .................. 173,523 118,332 54,384
Allowance for equity funds used
during construction ............ 77,925 46,715 31,103
Pensions.......................... 31,832 33,105 (1,693)
Other............................. 116,912 75,143 39,424
------- ------ ------
Total............................ 1,125,071 705,748 401,784
Deferred income tax assets:
Investment tax credits............ 65,111 61,333 3,065
Contributions in aid of construction 72,424 69,560 2,172
Other............................. 37,804 20,737 13,360
------ ------ ------
Total............................ 175,339 151,630 18,597
------- ------- ------
Net deferred income tax liability... $ 949,732 $554,118 $383,187
========= ======== ========
1996 NCE PSCo SPS
--- ---- ---
Deferred income tax liabilities:
Accelerated depreciation and
amortization ................... $ 685,244 $412,047 $273,197
Plant basis differences (prior
flow-through) .................. 188,120 132,149 55,971
Allowance for equity funds used
during construction ............ 81,559 48,952 32,607
Pensions.......................... 40,075 38,790 1,285
Other............................. 99,164 68,940 30,224
------ ------ ------
Total............................ 1,094,162 700,878 393,284
Deferred income tax assets:
Investment tax credits............ 68,484 65,278 3,206
Contributions in aid of construction 65,489 63,317 2,172
Other............................. 45,692 28,641 17,051
------ ------ ------
Total............................ 179,665 157,236 22,429
------- ------- ------
Net deferred income tax liability... $914,497 $543,642 $370,855
======== ======== ========
As of December 31, 1997, the consolidated group does not have any
cumulative Federal or state tax credits which have not been realized. A
valuation allowance has not been recorded as the Company expects that all
deferred income tax assets will be realized in the future.
110
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. Segments of Business (NCE and PSCo)
NCE
1997 Electric Gas Other Total
-------- --- ----- -----
(Thousands of Dollars)
Operating revenues.................. $2,473,359 $ 816,596 $ 52,570 $3,342,525
---------- --------- -------- ----------
Operating expenses, excluding
depreciation and amortization..... 1,740,338 705,984 23,900 2,470,222
Depreciation and amortization....... 193,970 42,760 6,348 243,078
------- ------ ----- -------
Total operating expenses.......... 1,934,308 748,744 30,248 2,713,300
--------- ------- ------ ---------
Operating income.................... 539,051 67,852 22,322 629,225
======= ====== ====== =======
Plant construction expenditures*.... 365,366 107,008 3,123 475,497
======= ======= ===== =======
Identifiable assets:
Property, plant and equipment*.... 4,585,582 872,056 75,738 5,533,376
Materials and supplies............ 61,950 5,129 1,332 68,411
Fuel inventory.................... 23,017 - 145 23,162
Gas in underground storage........ - 47,394 - 47,394
Other corporate assets............ 1,637,938
---------
$7,310,281
==========
1996
Operating revenues.................. $2,416,539 $640,497 $ 39,998 $3,097,034
---------- -------- -------- ----------
Operating expenses, excluding
depreciation and amortization...... 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 (loss)............. 581,914 55,539 (1,870) 635,583
======= ====== ====== =======
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 $54,444 $2,962,208
---------- -------- ------- ----------
Operating expenses, excluding
depreciation and amortization ..... 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 (loss)............. 564,032 56,064 (3,152) 616,944
======= ====== ====== =======
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
==========
* Net of accumulated depreciation and includes allocation of common utility
property.
111
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. Segments of Business (continued)
PSCo
1997 Electric Gas Other Total
-------- --- ----- -----
(Thousands of Dollars)
Operating revenues.................. $1,485,196 $ 733,091 $ 11,356 $2,229,643
---------- --------- -------- ----------
Operating expenses, excluding
depreciation and amortization
and income taxes.................. 1,017,108 609,004 6,914 1,633,026
Depreciation and amortization....... 125,456 40,929 2,066 168,451
------- ------ ----- -------
Total operating expenses*......... 1,142,564 649,933 8,980 1,801,477
--------- ------- ----- ---------
Operating income*................... 342,632 83,158 2,376 428,166
======= ====== ===== =======
Plant construction expenditures**... 246,072 104,876 1,325 352,273
======= ======= ===== =======
Identifiable assets:
Property, plant and equipment**... 2,828,792 841,238 54,830 3,724,860
Materials and supplies............ 44,937 3,089 4 48,030
Fuel inventory.................... 20,717 - 145 20,862
Gas in underground storage........ - 46,576 - 46,576
Other corporate assets............ 1,154,405
---------
$4,994,733
==========
1996
Operating revenues.................. $1,488,990 $640,497 $ 7,951 $2,137,438
---------- -------- ------- ----------
Operating expenses, excluding
depreciation and amortization
and income taxes.................. 1,006,904 549,223 5,813 1,561,940
Depreciation and amortization....... 116,801 35,735 2,095 154,631
------- ------ ----- -------
Total operating expenses*......... 1,123,705 584,958 7,908 1,716,571
--------- ------- ----- ---------
Operating income*................... 365,285 55,539 43 420,867
======= ====== == =======
Plant construction expenditures**... 223,395 96,842 925 321,162
======= ====== === =======
Identifiable assets:
Property, plant and equipment**... 2,733,699 805,372 59,824 3,598,895
Materials and supplies............ 41,418 7,325 229 48,972
Fuel inventory.................... 24,594 - 145 24,739
Gas in underground storage........ - 42,826 - 42,826
Other corporate assets............ 857,216
-------
$4,572,648
==========
1995
Operating revenues.................. $1,449,096 $624,585 $ 7,010 $2,080,691
---------- -------- ------- ----------
Operating expenses, excluding
depreciation and amortization
and income tax.................... 1,002,381 538,620 7,046 1,548,047
Depreciation and amortization....... 109,498 29,901 1,981 141,380
------- ------ ----- -------
Total operating expenses*......... 1,111,879 568,521 9,027 1,689,427
--------- ------- ----- ---------
Operating income*................... 337,217 56,064 (2,017) 391,264
======= ====== ====== =======
Plant construction expenditures**... 198,341 86,482 693 285,516
======= ====== === =======
Identifiable assets:
Property, plant and equipment**.... 2,645,045 777,420 58,247 3,480,712
Materials and supplies............ 47,636 8,886 3 56,525
Fuel inventory.................... 35,509 - 145 35,654
Gas in underground storage........ - 44,900 - 44,900
Other corporate assets............ 733,998
-------
$4,351,789
==========
* Before income taxes.
** Net of accumulated depreciation and includes allocation of common utility
property.
112
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
15. Transactions With Affiliates (PSCo and SPS)
PSCo and SPS receive various administrative, management, environmental
and other support services from NCS, which began operations on May 1, 1997
and construction services from UE. In addition, PSCo and SPS pay interest
expense on any short-term borrowings from NCE. Dividends on common stock
declared by PSCo and SPS are paid to NCE. SPS receives interest income from
NC Enterprises on the note receivable related to the sale of Quixx and UE as
part of the Merger. The table below contains the various significant
affiliate transactions among the companies and related parties (in thousands
of dollars).
PSCo SPS
---- ---
1997
Operating expenses $125,030 $40,149
Interest income - 3,618
Dividends paid to NCE 76,093 45,092
Interest expenses 156 747
There were no significant related party transactions for the years ended
December 31, 1996 and 1995.
16. Quarterly Financial Data (Unaudited) (NCE, PSCo and SPS)
The following summarized quarterly information for 1997 and 1996 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 (in thousands, except
per share data).
<TABLE>
<CAPTION>
NCE Three Months ended
------------------
1997 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Operating revenues.................... $898,955 $784,658 $ 804,154 $854,758
Operating income ..................... 139,289 124,750 130,135 235,051
Net income (loss)..................... 78,156 34,045 (47,225) 85,946
Basic and diluted earnings per share of
common stock outstanding:
Income before extraordinary
item (loss) ....................... $0.75 $0.32 $ 0.61 $0.82
Extraordinary item.................. - - (1.06) -
Net income (loss)................... $0.75 $0.32 $(0.45) $0.82
1996
----
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
Basic and diluted earnings per share of
common stock outstanding:
Net income.......................... $0.74 $0.58 $0.74 $0.58
PSCo Three Months ended
1997 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
Operating revenues.................... $677,660 $542,677 $ 477,264 $532,042
Operating income ..................... 104,818 83,022 81,054 68,459
Net income (loss)..................... 62,881 30,607 (73,085) 73,074
1996
----
Operating revenues.................... $622,917 $484,787 $ 476,861 $586,821
Operating income...................... 104,846 73,286 88,222 92,130
Net income............................ 64,429 34,537 39,256 52,124
</TABLE>
113
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
SPS Three Months ended
1997 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Operating revenues.................. $221,295 $243,221 $ 284,156 $230,611
Operating income ................... 34,471 39,656 53,051 32,103
Net income.......................... 18,218 6,380 (2) 31,111 19,866
Three Month
Months Ended Ended
1996 Transition Period Nov. 30 Dec. 31
---------------------- ------- -------
Operating revenues.................. $214,381 $ 81,198
Operating income.................... 34,711 12,481
Net income (loss)................... 21,470 (2,332)(3)
Three Months ended
1996 Nov. 31, 95 Feb. 29, 96 May 31, 96 Aug. 31, 96
---- ----------- ----------- ---------- -----------
Operating revenues.................. $200,957 $203,785 $225,029 $269,626
Operating income.................... 33,238 28,801 31,980 56,647
Net income.......................... 23,168 18,081 19,878 44,646 (4)
(1) Includes the effect of the UK Windfall Tax recognized in the third quarter 1997.
(2) Includes the write-off of Quixx's & UE's investment in the Carolina Energy Project.
(3) Includes the write-off of Quixx's investment in the BCH Energy Project.
(4) Includes the sale of water rights by Quixx.
</TABLE>
114
<PAGE>
SCHEDULE II
NEW CENTURY ENERGIES, INC.
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additions
---------
Balance at Charged Charged to Deductions Balance
beginning to other from at end
of period income accounts(1) reserves(2) of year
--------- ------ ----------- ----------- -------
NCE (Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Reserve deducted from related
assets:
Provision for uncollectible
accounts:
1997....................... $6,623 $5,854 $ 79 $ 7,201 $5,355
====== ====== ===== ======= ======
1996....................... $6,218 $7,283 $ 453 $ 7,331 $6,623
====== ====== ===== ======= ======
1995 (3)................... $5,381 $8,431 $ (40) $ 7,648 $6,124
====== ====== ===== ======= ======
PSCo
Reserve deducted from related assets:
Provision for uncollectible accounts:
1997....................... $4,049 $5,193 $(500) $ 6,470 $2,272
====== ====== ===== ======= ======
1996....................... $3,630 $6,741 $ 477 $ 6,799 $4,049
====== ====== ===== ======= ======
1995....................... $3,173 $7,815 $ 4 $ 7,362 $3,630
====== ====== ===== ======= ======
SPS
Reserve deducted from related assets:
Provision for uncollectible accounts:
1997....................... $2,574 $ 661 $ (62) $ 731 $2,442
====== ====== ===== ======= ======
1996 (September 1996 through
December 1996) ...... $2,669 $ 223 $ (13) $ 305 $2,574
====== ====== ===== ======= ======
1996 (4)................... $2,494 $ 535 $ (9) $ 351 $2,669
====== ====== ===== ======= ======
1995 (4)................... $2,208 $ 616 $ (44) $ 286 $2,494
====== ====== ===== ======= ======
---------------------------------------
(1) Uncollectible accounts subsequently recovered, transfers from customers' deposits,
etc., and the transfer of certain subsidiaries' balances of $571,620 for
PSCo and $69,320 for SPS in 1997.
(2) Uncollectible accounts written off or transferred to other parties.
(3) Information for PSCo includes January 1995 through December 1995 and for SPS includes
September 1994 through August 1995.
(4) Information reflects fiscal years ended August 31, 1996 and 1995.
</TABLE>
115
<PAGE>
EXHIBIT 12(a)
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
TO CONSOLIDATED FIXED CHARGES
(not covered by Report of Independent Public Accountants)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Thousands of Dollars, except ratios)
Fixed charges:
<S> <C> <C> <C> <C> <C>
Interest on long-term debt....... $ 114,460 $ 92,205 $ 85,832 $ 89,005 $ 98,089
Interest on borrowings against
COLI contracts ................ 46,082 40,160 34,717 29,786 25,333
Other interest................... 24,117 17,238 23,392 14,235 9,445
Amortization of debt discount and
expense less premium .......... 3,987 3,621 3,278 3,126 2,018
Interest component of rental expense 9,012 10,649 6,729 6,888 6,824
----- ------ ----- ----- -----
Total ......................... $ 197,658 $ 163,873 $153,948 $143,040 $141,709
========= ========= ======== ======== ========
Earnings (before fixed charges and
taxes on income):
Net income....................... $ 204,042 $ 190,346 $178,856 $170,269 $157,360
Fixed charges as above........... 197,658 163,873 153,948 143,040 141,709
Provisions for Federal and state
taxes on income, net of investment
tax credit amortization ........ 90,813 96,331 95,357 48,500 60,994
------ ------ ------ ------ ------
Total.......................... $ 492,513 $ 450,550 $428,161 $361,809 $360,063
========= =========== ======== ======== ========
Ratio of earnings to fixed charges.. 2.49 2.75 2.78 2.53 2.54
==== ==== ==== ==== ====
</TABLE>
116
<PAGE>
EXHIBIT 12(b)
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
TO CONSOLIDATED COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(not covered by Report of Independent Public Accountants)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Thousands of Dollars, except ratios)
Fixed charges and preferred stock dividends:
<S> <C> <C> <C> <C> <C>
Interest on long-term debt....... $114,460 $ 92,205 $ 85,832 $ 89,005 $ 98,089
Interest on borrowings against
COLI contracts ................. 46,082 40,160 34,717 29,786 25,333
Other interest................... 24,117 17,238 23,392 14,235 9,445
Amortization of debt discount and
expense less premium ........... 3,987 3,621 3,278 3,126 2,018
Interest component of rental expense 9,012 10,649 6,729 6,888 6,824
Preferred stock dividend requirement 11,752 11,848 11,963 12,014 12,031
Additional preferred stock dividend
requirement .................... 5,231 5,995 6,377 3,422 4,662
----- ----- ----- ----- -----
Total ......................... $214,641 $181,716 $172,288 $158,476 $158,402
======== ======== ======== ======== ========
Earnings (before fixed charges and
taxes on income):
Net income....................... $204,042 $190,346 $178,856 $170,269 $157,360
Interest on long-term debt....... 114,460 92,205 85,832 89,005 98,089
Interest on borrowings against
COLI contracts ................ 46,082 40,160 34,717 29,786 25,333
Other interest................... 24,117 17,238 23,392 14,235 9,445
Amortization of debt discount and
expense less premium .......... 3,987 3,621 3,278 3,126 2,018
Interest component of rental expense 9,012 10,649 6,729 6,888 6,824
Provisions for Federal and state taxes
on income, net of investment tax
credit amortization ............ 90,813 96,331 95,357 48,500 60,994
------ ------ ------ ------ ------
Total.......................... $492,513 $450,550 $428,161 $361,809 $360,063
======== ======== ======== ======== ========
Ratio of earnings to fixed charges
and preferred stock dividends..... 2.29 2.48 2.49 2.28 2.27
==== ==== ==== ==== ====
</TABLE>
117
<PAGE>
EXHIBIT 12(c)
SOUTHWESTERN PUBLIC SERVICE COMPANY
AND SUBSIDIARIES
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
TO CONSOLIDATED FIXED CHARGES
(not covered by Report of Independent Public Accountants)
<TABLE>
<CAPTION>
Year Trans- Year-Ended
Ended ition August 31,
Dec. 31, 1997 Period 1996 1995 1994 1993
------------- ------ ---- ---- ---- ----
(Thousands of Dollars, except ratios)
Fixed charges:
<S> <C> <C> <C> <C> <C> <C>
Interest on long-term debt....... $ 44,112 $ 15,556 $ 44,964 $ 40,645 $ 37,881 $ 38,992
Dividends on SPS obligated
mandatorily redeemable
preferred securities............ 7,850 1,526 - - - -
Other interest................... 7,444 1,612 6,561 3,219 3,068 2,047
Amortization of debt discount and
expense less premium .......... 2,244 235 577 534 518 498
Interest component of rental expense 1,425 415 1,245 1,292 1,184 1,094
----- --- ----- ----- ----- -----
Total ......................... $ 63,075 $ 19,344 $ 53,347 $ 45,690 $ 42,651 $ 42,631
======== ======== ======== ======== ======== ========
Earnings (before fixed charges and
taxes on income):
Net income....................... $ 75,575 $ 19,137 $105,773 $119,477 $102,168 $105,254
Fixed charges as above........... 63,075 19,344 53,347 45,690 42,651 42,631
Provisions for Federal and state
taxes on income, net of investment
tax credit amortization ........ 48,795 10,987 65,297 67,649 58,388 57,668
------ ------ ------ ------ ------ ------
Total.......................... $187,445 $ 49,468 $224,417 $232,816 $203,207 $205,553
======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges.. 2.97 2.56 4.21 5.10 4.76 4.82
==== ==== ==== ==== ==== ====
</TABLE>
118
<PAGE>
EXHIBIT 12(d)
SOUTHWESTERN PUBLIC SERVICE COMPANY
AND SUBSIDIARIES
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
TO CONSOLIDATED COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(not covered by Report of Independent Public Accountants)
<TABLE>
<CAPTION>
Year Trans- Year-Ended
Ended ition August 31,
Dec. 31, 1997 Period 1996 1995 1994 1993
------------- ------ ---- ---- ---- ----
(Thousands of Dollars, except ratios)
Fixed charges and preferred stock dividends:
<S> <C> <C> <C> <C> <C> <C>
Interest on long-term debt....... $ 44,112 $ 15,556 $ 44,964 $ 40,645 $ 37,881 $ 38,992
Dividends on SPS obligated
mandatorily redeemable
preferred securities............ 7,850 1,526 - - - -
Other interest................... 7,444 1,612 6,561 3,219 3,068 2,047
Amortization of debt discount and
expense less premium .......... 2,244 235 577 534 518 498
Interest component of rental expense 1,425 415 1,245 1,292 1,184 1,094
Preferred stock dividend requirement - - 2,494 4,878 4,878 5,626
Additional preferred stock
dividend requirement ........... - - 1,522 2,715 2,742 3,037
--- --- ----- ----- ----- -----
Total ......................... $ 63,075 $ 19,344 $ 57,363 $ 53,283 $ 50,271 $ 51,294
======== ======== ======== ======== ======== ========
Earnings (before fixed charges and
taxes on income):
Net income....................... $ 75,575 $ 19,137 $105,773 $119,477 $102,168 $105,254
Interest on long-term debt....... 44,112 15,556 44,964 40,645 37,881 38,992
Dividends on SPS obligated
manditorily redeemable
preferred securities............ 7,850 1,526 - - - -
Other interest................... 7,444 1,612 6,561 3,219 3,068 2,047
Amortization of debt discount and
expense less premium ........... 2,244 235 577 534 518 498
Interest component of rental expense 1,425 415 1,245 1,292 1,184 1,094
Provisions for Federal and state
taxes on income, net of investment
tax credit amortization ....... 48,795 10,987 65,297 67,649 58,388 57,668
------ ------ ------ ------ ------ ------
Total.......................... $187,445 $ 49,468 $224,417 $232,816 $203,207 $205,553
======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges
and preferred stock dividends..... 2.97 2.56 3.91 4.37 4.04 4.01
==== ==== ==== ==== ==== ====
</TABLE>
119
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Does not apply.
PART III
Item 10. Directors and Executive Officers of the Registrant (New Century
Energies, Inc., Public Service Company of Colorado, and Southwestern Public
Service Company)
Biographies concerning the directors of NCE are contained under
ELECTION OF DIRECTORS in NCE's 1998 Proxy Statement, which is incorporated
herein by reference. The following tables set forth certain information
concerning the directors and executive officers of each of the registrants as
of December 31, 1997.
<TABLE>
<CAPTION>
NEW CENTURY ENERGIES, INC.
Name Age Occupation/Title Period
- ---- --- ---------------- ------
<S> <C> <C> <C>
Officers
Bill D. Helton 59 Chairman of the Board, CEO and Director 1997-Present
Chairman of the Board and Director 1997-Present
Public Service Company of Colorado,
Cheyenne Light, Fuel and Power Company,
NC Enterprises, Inc., New Century
Services, Inc., New Century-Cadence, Inc.,
and e prime, inc.
Director, Southwestern Public Service Company 1990-Present
CEO, Southwestern Public Service Company 1990-1997
Chairman of the Board, Southwestern Public Service, 1991-Present
Quixx Corporation and Utility Engineering
Corporation
Director, Natural Fuels Corporation 1997-Present
Director, Quixx Corporation 1990-Present
Chairman of the Board and Director, Quixx Power
Services, Inc. 1993-Present
Director, Utility Engineering Corporation 1989-Present
Wayne H. Brunetti (a) 55 Vice Chairman, President, COO, and Director 1997-Present
Vice Chairman and CEO, Public Service Company of 1997-Present
Colorado and Cheyenne Light, Fuel and Power Company
President and Director, PSCo 1994-Present
Vice Chairman, President, CEO, and Director, 1997-Present
NC Enterprises, Inc., New Century Services, Inc.
and New Century Cadence, Inc.
Chairman, 1480 Welton, Inc., Green and Clear Lakes 1997-Present
Company, PSR Investments, Inc., PS Colorado
Credit Corporation, and WestGas InterState, Inc.
President and Director, 1480 Welton, Inc. and
Natural Fuels Corporation 1996-Present
Vice Chairman, CEO, and Director, Southwestern Public
Service Company 1997-Present
Director, Cheyenne Light, Fuel and Power Co., Green 1994-Present
and Clear Lakes Company, PSR Investments, Inc., PS
Colorado Credit Corporation and WestGas InterState,
Inc.
Director, Young Gas Storage Company and e prime, inc. 1995-Present
President and Director, Fuel Resources Development Co. 1995-Present
President, Green and Clear Lakes Company and WestGas 1995-Present
InterState Inc.
</TABLE>
120
<PAGE>
<TABLE>
<S> <C> <C> <C>
President and Director, New Century International, Inc. 1997-Present
President, PSR Investments, Inc., PS Colorado Credit 1996-Present
Corporation
Director, Yorkshire Power Group Limited 1997-Present
Chairman of the Board, Cheyenne Light, Fuel and Power 1997-1997
Company and e prime, inc.
Vice Chairman and Director, Quixx Corporation, 1997-Present
Yorkshire Holdings plc
Vice Chairman, Yorkshire Electricity Group plc and 1997-Present
e prime, inc.
Richard C. Kelly 51 Executive Vice President and Chief Financial Officer 1997-Present
President, Treasurer, and Director 1995-1997
Executive Vice President, CFO, and Director, Public 1997-Present
Service Company of Colorado and Southwestern Public
Service Company
Senior Vice President, PSCo 1990-1997
Treasurer, PSCo 1986-1997
Executive Vice President and Director, NC 1997-Present
Enterprises, Inc. and New Century Service, Inc.
Treasurer, 1480 Welton, Inc., Cheyenne Light, Fuel and 1994-Present
Power Company, Fuel Resources Development Co., Green
and Clear Lakes Company, WestGas InterState, Inc.
Director, Texas-Ohio Gas, Inc., Texas-Ohio Pipeline, 1996-Present
Inc., e prime Networks, Inc., and e prime Telecom, Inc.
Director, Quixx Corporation, Utility Engineering, 1997-Present
Yorkshire Electricity Group plc, Yorkshire Holdings
plc, Yorkshire Power Group Limited, e prime
operating, inc., e prime projects international, inc.
Director, 1480 Welton, Inc. 1989-Present
Director, Cheyenne Light, Fuel and Power Company 1990-Present
Vice President, Fuel Resources Development Co. 1990-Present
Director, Fuel Resources Development Co. 1991-Present
Director, Green and Clear Lakes Company, and Natural 1990-Present
Fuels Corporation
Director and Secretary, New Century International, Inc.1997-Present
Director and Treasurer, New Century-Cadence, Inc. 1997-Present
Vice President and Director, PSR Investments, Inc. 1986-Present
Vice President and Director, PS Colorado Credit 1987-Present
Corporation
Director, WestGas InterState, Inc. 1993-Present
Vice President, Treasurer and Director, Young Gas 1995-Present
Storage Company
Secretary, Treasurer and Director, e prime Energy 1997-Present
Marketing, Inc.
Director, e prime inc. 1995-Present
President and CEO, e prime inc. 1997-Present
Vice President and Treasurer, e prime, inc. 1995-1997
Paul J. Bonavia (b) 46 Senior Vice President and General Counsel 1997-Present
Brian P. Jackson (c) 39 Senior Vice President Finance and Administrative
Services 1997-Present
Teresa S. Madden (d) 41 Controller and Secretary 1997-Present
Controller and Secretary, Public Service Company 1997-Present
of Colorado and New Century Services, Inc.
Controller and Assistant Secretary, Southwestern 1997-Present
Public Service Company
</TABLE>
121
<PAGE>
<TABLE>
<S> <C> <C> <C>
Director, Yorkshire Power Group Limited, Yorkshire 1997-Present
Holdings plc and Yorkshire Electricity Group plc
Secretary, NC Enterprises, WestGas InterState, 1997-Present
e prime, inc. Cheyenne Light, Fuel and Power
Company and New Century-Cadence, Inc., Texas-Ohio
Pipeline, Inc., Texas-Ohio Gas, Inc., Fuel
Resources Development Co.
Manager of Corporate Accounting, Public Service 1990-1997
Company of Colorado
Assistant Secretary, PSCo and e prime, inc. 1995-1997
Assistant Secretary, 1480 Welton, Inc., PSR 1991-Present
Investments, Inc., PS Colorado Credit Corporation,
Assistant Secretary, Cheyenne Light, Fuel and Power 1991-1997
Company and Fuel Resources Development Co.
James D. Steinhilper 48 Treasurer, 1997-Present
Assistant Treasurer, Cheyenne Light, Fuel and Power 1997-1997
Company, New Century-Cadence, Inc. and WestGas
InterState, Inc.
Treasurer, NC Enterprises, Inc., Public Service 1997-Present
Company of Colorado, Southwestern Public Service
Company and e prime, inc.
Director Finance and Treasurer, New Century 1997-Present
Services, Inc.
Group Manager, Finance, Southwestern Public Service 1989-1997
Company
PUBLIC SERVICE COMPANY OF COLORADO
Directors
Wayne H. Brunetti See information under NCE Officers Section above.
Doyle R. Bunch II 51 Senior Vice President, New Century Services, Inc. 1997-Present
Director, e prime, inc., NC Enterprises, Inc., PSCo 1997-Present
Chairman of the Board, Secretary, and Director New 1995-1997
Century Energies, Inc.
Director, Quixx Corporation 1985-1997
Executive Vice President, Southwestern Public Service 1992-1997
Company
Henry H. Hamilton 59 Executive Vice President and Director, Southwestern 1997-Present
Public Service Company, Public Service Company of
Colorado and New Century Services, Inc.
Director, Quixx Power Services, Inc. 1993-Present
Vice President, Southwestern Public Service Company 1987-1997
Bill D. Helton See information under NCE Officers Section above.
Richard C. Kelly See information under NCE Officers Section above.
David M. Wilks 51 Executive Vice President and Director, Public Service 1997-Present
Company of Colorado, New Century Services, Inc.
and New Century-Cadence, Inc.
Director, Cheyenne Light Fuel and Power Company, 1997-Present
Director, Southwestern Public Service Company, Quixx 1995-Present
Power Services and Utility Engineering Corporation
Quixx Corporation
President and Chief Operating Officer, Southwestern 1995-Present
Public Service Company
Senior Vice President, Southwestern Public Service 1991-1995
Company
</TABLE>
122
<PAGE>
<TABLE>
<S> <C> <C> <C>
Officers
Bill D. Helton See information under NCE Officers Section above.
Wayne H. Brunetti See information under NCE Officers Section above.
Henry H. Hamilton See information under PSCo Directors Section above.
Richard C. Kelly See information under NCE Officers Section above.
David M. Wilks See information under PSCo Directors Section above.
Teresa S. Madden See information under NCE Officers Section above.
SOUTHWESTERN PUBLIC SERVICE COMPANY
Directors
Bill D. Helton See information under NCE Officers Section above.
Wayne H. Brunetti See information under NCE Officers Section above.
David M. Wilks See information under NCE Officers Section above.
Henry H. Hamilton See information under PSCo Directors Section above.
Richard C. Kelly See information under NCE Officers Section above.
Officers
Bill D. Helton See information under NCE Officers Section above.
Wayne H. Brunetti See information under NCE Officers Section above.
David M. Wilks See information under NCE Officers Section above.
Henry H. Hamilton See information under PSCo Directors Section above.
Richard C. Kelly See information under NCE Officers Section above.
Teresa S. Madden See information under NCE Officers Section above.
Mary Pullum 55 Secretary, SPS, Utility Engineering Corporation, 1997-Present
Quixx Corporation
Assistant Secretary, New Century Energies, Inc. 1997-Present
New Century Services, Inc., KES Montego, Inc.,
Quixx Borger Cogen,Inc.,Quixx Jamaica Power, Inc.,
Quixx Mustang Station, Inc., and Quixxlinn Corporation
Manager, Compliance/Document Services, New Century 1997-Present
Services, Inc.,
Assistant Secretary, Quixx Jamaica, Inc. and Quixx 1996-Present
WPP94
Assistant Secretary, Quixx Carolina, Inc. 1995-Present
Assistant Secretary, Quixx Power Services, Inc. 1993-Present
Assistant Secretary, Utility Engineering Corporation 1989-1997
and Quixx Corporation
Assistant Secretary, Southwestern Public Service 1981-1997
Company
</TABLE>
There are no family relationships between executive officers or
directors of the registrants. There are no arrangements or understandings
between the executive officers individually and any other person with
reference to their being selected as officers of each registrant. All
executive officers of each registrant are elected annually by the respective
Board of Directors.
(a) Mr.Brunetti was President and Chief Executive Officer of Management Systems
International from June 1991 through July 1994 and Executive Vice
President of Florida Power & Light Company from 1987 through May 1991.
(b) Mr. Bonavia was Of Counsel at LeBoeuf, Lamb, Greene & MacRae, LLP from March
1997 through December 1997 and Senior Vice President at Dominion
Resources, Inc. from 1991 through February 1997.
123
<PAGE>
(c) Mr. Jackson was employed by Arthur Andersen LLP from 1980 through November
1997. He was a partner with the firm from 1994 through 1997. Effective
February 17, 1998, Mr. Jackson was elected Chief Financial Officer of
Public Service Company of Colorado and Southwestern Public Service Company.
(d) Ms. Madden is a member of the audit committee and finance committee for
Yorkshire Electricity Group plc. Mr. Kelly is Chairman of the audit
committee and a member of the finance committee of Yorkshire Electricity
Group plc.
Item 11. Executive Compensation
Information concerning executive compensation for NCE is contained
under Compensation Of Executive Officers And Directors in the NCE 1998 Proxy
Statement, which information is incorporated herein by reference.
Information concerning executive compensation for SPS has been omitted
pursuant to General Instruction I(2)(c). Information concerning executive
compensation for PSCo is presented herein.
The following tables set forth information concerning the total
compensation paid or awarded in 1997 to PSCo's Chief Executive Officer and
each of the four most highly compensated officers serving as such on December
31, 1997, and one additional executive officer who was among the most highly
compensated officers in 1997, but who had resigned her position prior to
December 31, 1997 (collective the PSCo Named Executive Officers). In 1997,
in connection with the Merger, the salaries of these executives were paid by
NCS and a portion of their compensation has been allocated and charged to
PSCo. Information for calendar years 1996 and 1995 is presented for the
executive officers who were executive officers of PSCo prior to the Merger.
<TABLE>
<CAPTION>
========================================================================================
Summary Compensation Table
========================================================================================
Annual Compensation Long-Term Compensation (c) All Other
Name and Principal Compen-
Position sation
($)(d)(e)
-----------------------------------------------
Year Awards Payouts
-------------------------------
Salary Bonus Other Restricted Securities LTIP
($) ($) Annual Stock Underlying Payouts
(a) Compen- Awards Options/ ($)
sation($) ($) SAR's(#)
(b)
===================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bill D. Helton 1997 455,833 78,363 271,092 0 300,000 0 27,524
Chairman of the Board
===================================================================================================
Wayne H. Brunetti 1997 435,853 104,994 3,750 0 314,400 231,722 27,304
Vice Chairman and 1996 400,018 256,820 0 16,800 30,129 20,001
Chief Executive 1995 330,838 150,448 74,992 14,700 0 6,917
Officer
===================================================================================================
Richard C. Kelly 1997 254,382 48,997 3,750 0 107,100 120,484 16,089
Executive Vice 1996 227,503 100,457 0 10,950 29,388 11,917
President 1995 215,005 49,970 49,983 9,600 15,619 11,375
and Chief Financial
Officer
===================================================================================================
Patricia T. Smith 1997 216,559 39,723 2,250 0 6,700 84,593 2,394,914
Sr. V.P. and General 1996 225,842 94,944 0 9,300 0 11,292
Counsel 1995 220,018 49,782 24,658 8,150 0 0
===================================================================================================
Henry H. Hamilton 1997 174,583 35,673 49,125 0 66,000 0 11,139
Executive Vice
President
===================================================================================================
David M. Wilks 1997 238,958 41,285 24,809 0 87,000 0 9,618
Executive Vice
President
===================================================================================================
</TABLE>
(a) The amounts shown in the "Bonus" column for 1997 are related to payments
made to the Named Executives Officers by PSCo or SPS in connection with the
Merger. The amounts paid to Messrs. Helton, Wilks, and Hamilton were based
on the average of their two highest bonuses paid by SPS in fiscal years 1993,
1994 and 1995, in accordance with their employment agreements. The amounts
paid to Messrs. Brunetti and Kelly and Ms. Smith
124
<PAGE>
represent 7/12 of the target award earned under the PSCo Omnibus Incentive Plan
which were paid in accordance with their Change in Control agreements.
(b) The amounts shown in this column include relocation benefits of
$238,125 for Mr. Helton and the reimbursement of certain taxes related to the
exercise of SPS stock options of $24,639, $16,042 and $41,785 for Messrs.
Helton, Wilks and Hamilton, respectively. Also, the amounts shown in this
column for Messrs. Helton, Brunetti, Kelly, Wilks and Hamilton and Ms. Smith
include flexible perquisite or automobile allowance benefits ($8,328, $3,750,
$3,750, $8,767, $7,340 and $2,250, respectively).
(c) There were no restricted stock awards granted in 1997 and no Named
Executive Officer held any restricted stock at December 31, 1997. In
accordance with the terms of the PSCo Omnibus Incentive Plan, Mr. Brunetti,
Mr. Kelly and Ms. Smith received certain stock option awards (14,400, 7,100
and 6,700 options, respectively) and dividend equivalents payments ($231,726,
$120,484 and $84,593, respectively) which vested in connection with the
Merger.
(d) The amounts represented in the "All Other Compensation" column, except
for the additional compensation to Ms. Smith as disclosed in footnote (e),
reflect the total of matching contributions made under the PSCo and SPS
employee savings plans, the PSCo and SPS non-qualified savings plans (the
"Executive Savings Plan" and the "Non-Qualified Salary Deferral Plan",
respectively) and insurance premiums paid by PSCo and SPS. These amounts are
summarized below:
- --------------------------------------------------------------------------------
Name Contributions to Contributions to Insurance
Employee Savings the Non-Qualified Premiums ($)
Plan ($) Savings Plans ($)
- --------------------------------------------------------------------------------
Bill D. Helton 9,330 17,069 1,125
- --------------------------------------------------------------------------------
Wayne H.Brunetti 7,150 15,767 4,387
- --------------------------------------------------------------------------------
Richard C. Kelly 7,150 6,204 2,735
- --------------------------------------------------------------------------------
Patricia T. Smith 7,150 1,554 1,939
- --------------------------------------------------------------------------------
Henry H. Hamilton 5,655 4,909 575
- --------------------------------------------------------------------------------
David M. Wilks 4,773 4,235 610
- --------------------------------------------------------------------------------
(e) Ms. Smith resigned and was paid $2,384,271 on October 31, 1997. Under
the terms of the severance and employment agreements in effect, she received
a severance benefit equal to three years compensation including base salary
and annual incentive paid at target, reimbursement of certain taxes,
immediate vesting of all outstanding incentive awards and the economic
equivalent of any long-term awards she would have received during the
upcoming three year term. Also, Ms. Smith received additional credit under
the then existing PSCo Supplemental Employment Retirement Plan for the
upcoming three year term, additional contributions under the Executive
Savings Plan that she would have received during the upcoming three years,
continued welfare benefits for three years and a payment equal to the present
value of the benefits Ms. Smith would have received under all then existing
qualified retirement plans had she received credit for three additional years
of service.
125
<PAGE>
=============================================================================
Option/SAR Grants in Last Fiscal Year
=============================================================================
Name Individual Grants
----------------------------------------------------------
Number
of
Securities % of Total
Underlying Options/SARs Exercise
Options/ Granted to or Base Grant Date
SARs Employees in Price Expiration Present Value
Granted Fiscal ($/Share) Date ($)(c)
(#)(a) year(b)
- --------------------------------------------------------------------------------
Bill D. Helton 300,000 18.45% 41.625 8/3/07 1,068,000
- --------------------------------------------------------------------------------
Wayne H. Brunetti 300,000 18.45% 41.625 8/3/07 1,068,000
14,400 23.19% 39.000 2/18/07 61,344
- --------------------------------------------------------------------------------
Richard C. Kelly 100,000 6.15% 41.625 8/3/07 356,000
7,100 11.43% 39.000 2/18/07 30,246
- --------------------------------------------------------------------------------
David M. Wilks 87,000 5.35% 41.625 8/3/07 309,720
- --------------------------------------------------------------------------------
Patricia T. Smith 6,700 10.79% 39.000 10/31/00 22,378
- --------------------------------------------------------------------------------
Henry H. Hamilton 66,000 4.06% 41.625 8/3/07 234,960
- --------------------------------------------------------------------------------
(a) The options with an exercise price of $39.00 were grants of PSCo common
stock granted by the Compensation Committee of the PSCo Board on February 18,
1997. The options were intended to vest and be exercisable only to the
extent of 33 1/3% on the first anniversary date of the grant and to the same
extent on the second anniversary and third anniversary. All rights to
exercise were intended to be cumulative to the extent not exercised. All
options expire 10 years from the date of grant. Effective August 1, 1997,
with the completion of the Merger, all PSCo options converted to NCE options
based on the one for one conversion ratio used in the Merger and were
immediately vested and exercisable with the $39.00 price and 10 year term
carried forward, except for Ms. Smith. In accordance with the terms of Ms.
Smith's PSCo Severance Agreement, her options will expire three years after
her date of resignation. The $39.00 exercise price equals the Fair Market
Value of PSCo Common Stock on February 18, 1997.
The options with an exercise price of $41.625 were granted by the NCE
Compensation Committee with an exercise price equal to the opening trade
price on the New York Stock Exchange (NYSE) of NCE Common Stock on August 4,
1997. The options vest and may be fully exercisable on the first anniversary
date of the grant. All options expire 10 years from the date of the grant.
(b) % of Total Options/SARs Granted to Employees in Fiscal Year apply to
shares of PSCo common stock granted prior to the completion of the Merger
with respect to all $39.00 options and to shares of NCE Common Stock granted
following the completion of the Merger with respect to all $41.625 options.
(c) These amounts represent a theoretical present valuation based on the
Black-Scholes Option Pricing Model as adjusted for dividends. The values in
the column are estimates based upon an option value of $4.26 for the $39.00
options granted to Messrs. Brunetti and Kelly and $3.34 for the options
granted to Ms. Smith. The options granted at the $41.625 exercise price are
estimate based upon an option price of $3.56. The option values were
derived using the following assumptions:
1. the time to exercise is the option life of ten years (except for Ms.
Smith option life is 3.7 years);
2. the risk free rate is 6.45% for the $39.00 PSCo options granted to
Messrs. Brunetti and Kelly; 5.89% for the options granted to Ms.
Smith and 6.38% for the $41.625 NCE options. These rates represent
126
<PAGE>
the interest rate on 10-year, 4-year and 10-year treasury strips as
quoted in the Federal Reserve Statistical Release for February 1997,
February 1997 and August 1997, respectively;
3. the option strike prices are $39.00 for the PSCo options and
$41.625 for the NCE options;
4. the stock prices at grant date were $39.00 for the PSCo options
and $41.625 for the NCE options;
5. the standard deviation of PSCo and NCE common stock, which is a
measure of the volatility of the stock, is 14.15% for the $39.00 PSCo
options and 9.16% for the $41.625 NCE options and
6. a dividend yield for the $39.00 PSCo options is 5.94% and for
the $41.625 NCE options is 5.57%.
Executives may not sell or assign these options, which have value only to the
extent of the future stock price appreciation. These amounts or any of the
assumptions should not be used to predict future performance of the stock
price or dividends.
================================================================================
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
================================================================================
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options/SARs
Options/SARs at FY-End
at FY-End ($) (a)
(#)
------------- -------------
Name Shares Value Exercisable/ Exercisable/
Acquired Realized Unexercisable Unexercisable
on ($)
Exercise
(#)
--------------------- ------------ ------------ ------------- -------------
Bill D. Helton 890 7,512 0/ 0/
303,561 1,948,957
- --------------------------------------------------------------------------------
Wayne H. Brunetti 0 0 52,334/ 758,843/
300,000 1,893,750
- --------------------------------------------------------------------------------
Richard C. Kelly 0 0 41,050/ 631,866/
100,000 631,250
- --------------------------------------------------------------------------------
Patricia T. Smith 0 0 24,150/ 323,191/
0 0
- --------------------------------------------------------------------------------
Henry H. Hamilton 454 3,832 77/ 1,194/
67,817 444,794
- --------------------------------------------------------------------------------
David M. Wilks 409 3,452 67/ 1,039/
88,905 578,721
================================================================================
(a) Option values were calculated based on a $47.9375 closing price of NCE
Common Stock, as listed on the NYSE at December 31, 1997.
127
<PAGE>
================================================================================
Long-Term Incentive Plans - Awards in Last Fiscal Year
================================================================================
Name Number Performance Estimated Future Payouts Under
of or Other Non-Stock Price-Based Plans
Shares, Period
Units Until
or Maturation
Other or Payout
Rights
(a)(#)
---------- ----------- ----------
Threshold Target Maximum
($ or #) ($ or #) ($ or #)
- --------------------------------------------------------------------------------
Bill D. Helton N/A N/A
- --------------------------------------------------------------------------------
Wayne H. Brunetti 47,480 1/1/97
thru 99,708
12/31/99
- --------------------------------------------------------------------------------
Richard C. Kelly 17,600 1/1/97
thru 36,960
12/31/99
- --------------------------------------------------------------------------------
Patricia T. Smith 15,616 1/1/97
thru 32,794
12/31/99
- --------------------------------------------------------------------------------
Henry H. Hamilton N/A N/A
- --------------------------------------------------------------------------------
David M. Wilks N/A N/A
- --------------------------------------------------------------------------------
(a) Dividend equivalents are granted under the PSCo Omnibus Incentive Plan.
Dividend equivalents entitle the recipient to a cash amount equal to the
average of the dividends paid over the performance cycle at the then
current dividend rate multiplied by the number of units granted. Dividend
equivalents are earned, if at all, at the end of a three-year performance
period depending upon the achievement of Earnings Per Share goals over the
performance period. The Target represents the amount to be awarded if
100% of the goal is achieved. Threshold represents the amount to be
awarded if 90% of the goal is achieved, and Maximum represents the amount
to be awarded if 110% of the goal is achieved. Additional dividend
equivalents may be granted each year by the Compensation Committee. In
accordance with the terms of the PSCo Omnibus Incentive Plan, dividend
equivalents for all open performance periods vested at the target level
immediately upon the effective date of the Merger and, accordingly,
Threshold and Maximum award amounts for 1997 were not established.
128
<PAGE>
The following table shows estimated aggregate pension benefits payable
to a covered participant from the qualified defined benefit plans maintained
by NCE and its subsidiaries and the NCE Supplemental Executive Retirement
Plan (the "SERP").
================================================================================
Pension Plan Table
================================================================================
Remuneration Years of Service
15 20 25 or more years
- --------------------------------------------------------------------------------
$150,000 $ 61,875 $ 82,500 $ 82,500
175,000 72,188 96,250 96,250
200,000 82,500 110,000 110,000
225,000 92,813 123,750 123,750
250,000 103,125 137,500 137,500
300,000 123,750 165,000 165,000
350,000 144,375 192,500 192,500
400,000 165,000 220,000 220,000
450,000 185,625 247,500 247,500
500,000 206,250 275,000 275,000
600,000 247,500 330,000 330,000
700,000 288,750 385,000 385,000
================================================================================
The benefits listed in the Pension Plan Table are not subject to any
deduction or offset. The compensation used to calculate SERP benefits is
base salary plus short-term incentive. Such covered compensation is
reflected in the Salary and Bonus columns of the Summary Compensation Table
for 1997. Current annual covered compensation for Mr. Helton equals
$635,000.
The SERP benefit accrues over 20 years and is equal to (a) 55% of the
highest three years covered compensation of the five years preceding
retirement or termination minus (b) the qualified plan benefit. The SERP
benefit is payable as an annuity for 20 years, or as a single lump-sum amount
equal to the actuarial equivalent present value of the 20 year annuity.
Benefits are payable at age 62, or as early as age 55 reduced 5% for each
year that the benefit commencement date proceeds age 62.
The estimated credited years of service under the SERP as of December
31, 1997 were as follows:
Mr. Helton 33
Mr. Brunetti 10
Mr. Kelly 30
Mr. Wilks 20
Mr. Hamilton 34
129
<PAGE>
The Company has granted additional credited years of service to Mr.
Brunetti for purposes of SERP accrual. The additional credited years of
service (approximately seven) are included in the above table. Additionally,
the Company has agreed to grant full accrual of SERP benefits to Mr. Brunetti
at age 62 in the event he continues to be employed by the Company until such
age.
The Board of Directors of NCE approved the SERP in December 1997. The
above Named Executive Officers are all participants of the SERP, and
participate in qualified defined benefit plans sponsored by the Company or
its subsidiaries.
Prior to the Merger, PSCo and SPS, each sponsored one defined benefit
plan covering substantially all represented and non-represented employees of
the respective company. Employees who participated in the Employees'
Retirement Plan of Public Service Company of Colorado and Participating
Subsidiary Companies (the "Public Service Company retirement plan") prior to
the Merger continue to participate in this plan. Employees who participated
in the Retirement Plan for Employees of Southwestern Public Service Company
(the "Southwestern Public Service Company retirement plan") prior to the
Merger continue to participate in this plan. Effective July 1, 1998, the
assets and liabilities associated with the non-represented employees
participating in the Public Service Company retirement plan and the assets
and liabilities associated with the non-represented employees participating
in the Southwestern Public Service Company retirement plan will be spun-off
from the respective plans and merged to form the New Century Energies
retirement plan for non-represented employees.
Mr. Brunetti and Mr. Kelly participate in the Employees' Retirement
Plan of Public Service Company of Colorado and Participating Subsidiary
Companies. Messrs. Helton, Hamilton and Wilks participate in the Retirement
Plan for Employees of Southwestern Public Service Company. Effective July 1,
1998, all such executives will participate in the NCE retirement plan for
non-represented employees.
Ms. Smith resigned effective October 31, 1997, prior to the effective
date of the SERP benefits illustrated above. Pension benefits were paid to
Ms. Smith under the terms of the plans and employment agreement in effect at
her date of termination.
Compensation of Directors
All Directors of PSCo are employees of NCS. They receive no additional
compensation for their role as members of the Board of Directors. Former
directors of PSCo and SPS receive and are paid retirement and other certain
benefits, as defined by the terms of the agreements/policies of these
subsidiaries, in effect prior to the Merger.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning the security ownership of the directors and
officers of NCE is contained under Election Of Directors in NCE's 1998 Proxy
Statement, which information is incorporated herein by reference.
Information concerning the security ownership of the directors and officers
of SPS is omitted pursuant to General Instruction I(2)(c). Information
concerning the security ownership of the directors and officers of PSCo is
presented herein.
All 100 shares of PSCo Common Stock, $5 par value, are directly and
beneficially held by NCE. Holders of the PSCo Cumulative Preferred Stock,
$100 par value and $25 par value generally have no voting rights, except with
respect to certain corporate actions and in the event of certain defaults in
the payment of dividends on such shares.
The table below shows the number of shares of NCE Common Stock that
were beneficially owned directly or indirectly as of January 29, 1998 by each
director of PSCo and each of the executive officers of PSCo named in the
summary compensation table, and by all directors and executive officers of
PSCo as a group. No such person owns any shares of any series of the PSCo
Cumulative Preferred Stock.
130
<PAGE>
Security Ownership of Management and Directors
as of January 29, 1998 (a)
- --------------------------------------------------------------------------------
Title of Class Name of Beneficial Owner Amount and % of
(b) nature of Class
beneficial (d)
ownership (c)
- --------------------------------------------------------------------------------
Common Stock Bill D. Helton (1) 24,158 (e)
- --------------------------------------------------------------------------------
Common Stock Wayne H. Brunetti 71,097 (e)
- --------------------------------------------------------------------------------
Common Stock Richard C. Kelly (2) 46,321 (e)
- --------------------------------------------------------------------------------
Common Stock Henry H. Hamilton 14,442 (e)
- --------------------------------------------------------------------------------
Common Stock David M. Wilks 12,451 (e)
- --------------------------------------------------------------------------------
Common Stock All the above and other 183,466 (e)
Executive Officers as a
Group (7 persons)
================================================================================
Notes
(a) As of January 29, 1998, the Company is not aware of any persons who
beneficially own more than 5% of the Company's Common Stock.
(b) Common Stock listed in the table represents NCE Common Stock, $1 par value.
(c) The common shares represented above include those shares, if any, held
under the PSCo Employees' Savings and Stock Ownership Plan (the "ESOP")
and the SPS Employee Investment Plan (the "EIP").
(d) As of January 29, 1998, the percentage of shares beneficially owned by
any Director or named Executive Officer, or by all Directors and
Executive Officers as a group, does not exceed one percent of the class
of securities described above.
(e) The number of shares includes those which the following have the right
to acquire as of January 29, 1998, through the exercise of vested
options granted under the NCE Omnibus Incentive Plan and the predecessor
PSCo Omnibus Incentive Plan and the SPS 1989 Incentive Plan (the "1989
Plan"): Mr. Brunetti, 52,334 shares; Mr. Kelly, 41,050 shares; Mr.
Hamilton, 77 shares; Mr. Wilks, 67 shares; and all Executive Officers as
a group, 2,717 shares.
Unless otherwise specified, each Director and named Executive Officer has
sole voting and sole investment power with respect to the shares
indicated.
(1) Includes 716 shares held in trusts for the benefit of Mr. Helton's
grandchildren. Mr. Helton's wife retains the right to the corpus of the
trusts upon their termination. Mr. Helton disclaims beneficial
ownership of the shares held in the trusts.
(2) Mr. Kelly's wife owns 263 of these shares; Mr. Kelly disclaims
beneficial ownership of those shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3, 4 and 5 and written
representations furnished to PSCo prior to the Merger effective August 1,
1997, PSCo believes that all Directors and Officers filed in a timely manner
their reports required under Section 16(a) of the Securities Exchange Act of
1934, as amended.
131
<PAGE>
Item 13. Certain Relationships and Related Transactions
Information concerning relationships and related transactions of the
directors and officers of NCE is contained under Certain Relationships And
Related Transactions in NCE's 1998 Proxy Statement, which information is
incorporated herein by reference. PSCo and SPS have no information
concerning relationships and related transactions required to be disclosed.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements, Financial Statement Schedules, and Exhibits:
(1)Financial Statements and Reports of Independent Public Accountants on
the financial statements for NCE, PSCo and SPS are listed under Item 8
herein.
(2)Financial Statement Schedules.
Reports of Independent Public Accountants as to Schedules for NCE, PSCo
and SPS are included in the Reports of Independent Public Accountants
for each registrant.
(3)Exhibits.
Exhibits for NCE, PSCo and SPS are listed in Index to Exhibits below.
(b) Reports on Form 8-K:
NCE, PSCo and SPS: No reports were filed on Form 8-K during the quarter
ended December 31, 1997.
132
<PAGE>
EXPERTS
The consolidated balance sheets of New Century Energies, Inc. and its
subsidiaries as of December 31, 1997 and 1996, the related consolidated
statements of income, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1997, and the related financial
statement schedule, appearing in this Annual Report on Form 10-K, have been
audited by Arthur Andersen LLP, independent public accountants, as set forth
in their report appearing elsewhere herein. The consolidated financial
statements and the related financial statement schedule, which are included
in this Annual Report on Form 10-K, are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
The consolidated balance sheets and statements of capitalization of
Public Service Company of Colorado. and its subsidiaries as of December 31,
1997 and 1996, the related consolidated statements of income, shareholder's
equity and cash flows for each of the three years in the period ended
December 31, 1997, and the related financial statement schedule, appearing in
this Annual Report on Form 10-K, have been audited by Arthur Andersen LLP,
independent public accountants, as set forth in their report appearing
elsewhere herein. The consolidated financial statements and the related
financial statement schedule, which are included in this Annual Report on
Form 10-K, are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report.
The balance sheet and statement of capitalization of Southwestern
Public Service Company as of December 31, 1997, the related statement of
income, shareholder's equity and cash flows for the year ended December 31,
1997, and the related financial statement schedule, appearing in this Annual
Report on Form 10-K, have been audited by Arthur Andersen LLP, independent
public accountants, as set forth in their report appearing elsewhere herein.
The financial statements and the related financial statement schedule, which
are included in this Annual Report on Form 10-K, are included herein in
reliance upon the authority of said firm as experts in accounting and
auditing in giving said report.
133
<PAGE>
EXHIBIT 23 (a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our report included in this Form 10-K, into New
Century Energies, Inc.' previously filed Registration Statement (Form S-8,
File No. 333-28639) pertaining to the Omnibus Incentive Plan; New Century
Energies, Inc.'s Registration Statement (Form S-3, File No. 333-28637)
pertaining to the Dividend Reinvestment and Cash Payment Plan and New Century
Energies, Inc.'s Registration Statement (Form S-3, File No. 333-40361)
pertaining to the registration of NCE Common Stock and to all references to
our Firm included in this Form 10-K.
As independent public accountants, we hereby consent to the
incorporation by reference of our report included in this Form 10-K, into
Public Service Company of Colorado's previously filed Registration Statement
(Form S-3, File No. 33-62233) pertaining to the Automatic Dividend
Reinvestment and Common Stock Purchase Plan; Public Service Company of
Colorado's Registration Statement (Form S-3, File No. 33-37431) as amended on
December 4, 1990, pertaining to the shelf registration of Public Service
Company of Colorado's First Mortgage Bonds; Public Service Company of
Colorado's Registration Statement (Form S-8, File No. 33-55432) pertaining to
the Omnibus Incentive Plan; Public Service Company of Colorado's Registration
Statement (Form S-3, File No. 33-51167) pertaining to the shelf registration
of Public Service Company of Colorado's First Collateral Trust Bonds and
Public Service Company of Colorado's Registration Statement (Form S-3, File
No. 33-54877) pertaining to the shelf registration of Public Service Company
of Colorado's First Collateral Trust Bonds and Cumulative Preferred Stock and
to all references to our Firm included in this Form 10-K.
As independent public accountants, we hereby consent to the
incorporation by reference of our report included in this Form 10-K, into
Southwestern Public Service Company's previously filed Registration Statement
(Form S-3, File No. 333-05199) pertaining to Southwestern Public Service
Company's Preferred Stock and Debt Securities; Southwestern Public Service
Company's Registration Statement (Form S-8, File No. 33-27452) pertaining to
Southwestern Public Service Company's 1989 Stock Incentive Plan and
Southwestern Public Service Company's Registration Statement (Form S-8, File
No. 33-57869) pertaining to Southwestern Public Service Company's Employee
Investment Plan and Southwestern Public Service Company's Non-Qualified
Salary Deferral Plan and to all references to our Firm included in this Form
10-K.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 26, 1998
134
<PAGE>
EXHIBIT 23 (b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in Registration Statement No.
333-05199 on Form S-3 and Registration Statements No. 33-27452 and 33-57869
on Form S-8 of Southwestern Public Service Company and Registration Statement
No. 333-28637 and 333-40361 on Form S-3 and Registration Statement No.
333-28639 on Form S-8 of New Century Energies, Inc. of our report dated
February 28, 1997 (June 19, 1997, as to the Carolina Energy Limited
Partnership in Note 3) on Southwestern Public Service Company, appearing in
the Annual Report on Form 10-K of New Century Energies, Inc. for the year
ended December 31, 1997.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 26, 1998
EXHIBIT 24
POWER OF ATTORNEY
Each director and/or officer of New Century Energies, Inc., whose signature
appears herein hereby appoints B. D. Helton and R. C. Kelly, and each of them
severally, and each director and/or officer of Public Service Company of
Colorado and Southwestern Public Service Company, whose signature appears herein
hereby appoints W. H. Brunetti and B. P. Jackson, and each of them severally, as
his or her attorney-in-fact to sign in his or her name and behalf, in any and
all capacities stated herein, and to file with the Securities and Exchange
Commission, any and all amendments to this Annual Report on Form 10-K.
135
<PAGE>
NEW CENTURY ENERGIES, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, New Century Energies, Inc. has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized on
the 24th day of February, 1998.
NEW CENTURY ENERGIES, INC.
By /s/R. C. Kelly
_________________________________
R. C. KELLY
Executive Vice President, and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of New
Century Energies, Inc. and in the capacities and on the date indicated.
Signature Title Date
________________________________________________________________________________
/s/B. D. Helton
_____________________________ Principal Executive February 24, 1998
B. D. Helton Officer and Director
Chairman of the Board and
Chief Executive Officer
/s/R. C. Kelly
_____________________________ Principal Financial Officer February 24, 1998
R. C. Kelly
Executive Vice President,
Chief Financial Officer
/s/Teresa S. Madden
_____________________________ Principal Accounting Officer February 24, 1998
Teresa S. Madden
Controller and Secretary
136
<PAGE>
Signature Title Date
_______________________________________________________________________________
/s/Bill D. Helton
__________________________________ Chairman of the Board February 24, 1998
Bill D. Helton and Director
/s/ W. H. Brunetti
__________________________________ Vice Chairman and
W. H. Brunetti Director February 24, 1998
/s/C. Coney Burgess
__________________________________ Director February 24, 1998
C. Coney Burgess
/s/ Danny H. Conklin
__________________________________ Director February 24, 1998
Danny H. Conklin
/s/Giles M. Forbess
__________________________________ Director February 24, 1998
Giles M. Forbess
/s/Gayle L. Greer
__________________________________ Director February 24, 1998
Gayle L. Greer
/s/R. R. Hemminghaus
__________________________________ Director February 24, 1998
R. R. Hemminghaus
/s/A. Barry Hirschfeld
__________________________________ Director February 24, 1998
A. Barry Hirschfeld
/s/ J. Howard Mock
__________________________________ Director February 24, 1998
J. Howard Mock
/s/ Will F. Nicholson, Jr.
__________________________________ Director February 24, 1998
Will F. Nicholson, Jr.
/s/J. Michael Powers
__________________________________ Director February 24, 1998
J. Michael Powers
/s/Rodney E. Slifer
__________________________________ Director February 24, 1998
Rodney E. Slifer
137
<PAGE>
Signature Title Date
________________________________________________________________________________
/s/W. Thomas Stephens
__________________________________ Director February 24, 1998
W. Thomas Stephens
/s/Robert G. Tointon
__________________________________ Director February 24, 1998
Robert G. Tointon
138
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Public Service Company of Colorado has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized
on the 24th day of February, 1998.
PUBLIC SERVICE COMPANY OF COLORADO
By /s/Brian P. Jackson
_________________________________
Brian P. Jackson
Senior Vice President, Finance and
Administrative Services
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Public
Service Company of Colorado and in the capacities and on the date indicated.
Signature Title Date
________________________________________________________________________________
/s/Wayne H. Brunetti
___________________________ Principal Executive February 24, 1998
Wayne H. Brunetti Officer and Director
Vice Chairman, President and
Chief Executive Officer
/s/Brian P. Jackson
___________________________ Principal Financial Officer February 24, 1998
Brian P. Jackson and Director
Senior Vice President, Finance
and Administrative Services
/s/Teresa S. Madden
___________________________ Principal Accounting Officer February 24, 1998
Teresa S. Madden
Controller and Corporate Secretary
139
<PAGE>
Signature Title Date
________________________________________________________________________________
/s/ Bill. D. Helton
____________________________ Director February 24, 1998
Bill. D. Helton
/s/Doyle R. Bunch II
____________________________ Director February 24, 1998
Doyle R. Bunch II
/s/Henry H. Hamilton
____________________________ Director February 24, 1998
Henry H. Hamilton
/s/ Richard C. Kelly
_____________________________ Director February 24, 1998
Richard C. Kelly
/s/David M. Wilks
_____________________________ Director February 24, 1998
David M. Wilks
140
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Southwestern Public Service Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized
on the 24th day of February, 1998.
SOUTHWESTERN PUBLIC SERVICE COMPANY
By /s/Brian P. Jackson
_________________________________
Brian P. Jackson
Senior Vice President, Finance and
Administrative Services
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Southwestern
Public Service Company and in the capacities and on the date indicated.
Signature Title Date
________________________________________________________________________________
/s/Wayne H. Brunetti
__________________________ Principal Executive February 24, 1998
Wayne H. Brunetti Officer and Director
Vice Chairman and
Chief Executive Officer
/s/Brian P. Jackson
__________________________ Principal Financial Officer February 24, 1998
Brian P. Jackson
Senior Vice President, Finance
and Administrative Services
/s/Teresa S. Madden
__________________________ Principal Accounting Officer February 24, 1998
Teresa S. Madden
Controller and Corporate
Secretary
141
<PAGE>
Signature Title Date
________________________________________________________________________________
/s/Bill. D. Helton
__________________________________ Director February 24, 1998
Bill. D. Helton
/s/Henry H. Hamilton
__________________________________ Director February 24, 1998
Henry H. Hamilton
/s/ Richard C. Kelly
__________________________________ Director February 24, 1998
Richard C. Kelly
/s/David M. Wilks
__________________________________ Director February 24, 1998
David M. Wilks
142
<PAGE>
EXHIBIT INDEX
2 Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
NCE
2(a) 1* Merger Agreement and Plan of Reorganization dated August 22, 1995
(Form S-4, Annex I, File No. 33-64951).
PSCo
2(b) 1* Merger Agreement and Plan of Reorganization dated August 22, 1995
(Form 8-K, dated August 22, 1995, File No. 1-3280 - Exhibit 2).
SPS
2(c) 1* Agreement and Plan of Reorganization dated August 22, 1995 (Form 8-K,
Exhibit 2, dated August 22, 1995).
3 (i) Articles of Incorporation
NCE
3(a) 1* Restated Articles of Incorporation date December 8, 1995 (Form S-4,
Exhibit 3(a)).
PSCo
3(a) 1 Amended and Restated Articles of Incorporation dated September 19, 1997
SPS
3(a) 2 Amended and Restated Articles of Incorporation dated September 30, 1997.
3 (ii) By-Laws
NCE
3(b) 1* Restated Bylaws of New Century Energies, Inc. (Form S-4, Exhibit 3(b)).
PSCo
3(b) 1 By-laws dated November 20, 1997.
SPS
3(b) 2 By-laws dated September 29, 1997.
4 Instruments Defining the Rights of Security Holders, Including Indentures
NCE
4(a)1* Rights Agreement, dated as of August 1, 1997, between New Century
Energies, Inc. and the Bank of New York, as Rights Agent (Form 8-K,
August 1, 1997-Exhibit 1).
PSCo
4(a) 1* Indenture, dated as of December 1, 1939, providing for the issuance of
First Mortgage Bonds (Form 10 for 1946- Exhibit (B-1)).
4(a) 2* Indentures supplemental to Indenture dated as of December 1, 1939:
<TABLE>
<CAPTION>
Previous Filing: Previous Filing:
Form; Date or Exhibit Form; Date or Exhibit
Dated as of File No. No. Dated as of File No. No.
----------- -------- --- ----------- -------- ---
<S> <C> <C> <C> <C> <C>
Mar. 14, 1941 10, 1946 B-2 Apr. 21, 1970 8-K, Apr. 1970 1
May 14, 1941 10, 1946 B-3 Sept. 1, 1970 8-K, Sept. 1970 2
Apr. 28, 1942 10, 1946 B-4 Feb. 1, 1971 8-K, Feb. 1971 2
Apr. 14, 1943 10, 1946 B-5 Aug. 1, 1972 8-K, Aug. 1972 2
Apr. 27, 1944 10, 1946 B-6 June 1, 1973 8-K, June 1973 1
Apr. 18, 1945 10, 1946 B-7 Mar. 1, 1974 8-K, Apr. 1974 2
</TABLE>
143
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Apr. 23, 1946 10-K, 1946 B-8 Dec. 1, 1974 8-K, Dec. 1974 1
Apr. 9, 1947 10-K, 1946 B-9 Oct. 1, 1975 S-7, (2-60082) 2(b)(3)
June 1, 1947 S-1, (2-7075) 7(b) Apr. 28, 1976 S-7, (2-60082) 2(b)(4)
Apr. 1, 1948 S-1, (2-7671) 7(b)(1) Apr. 28, 1977 S-7, (2-60082) 2(b)(5)
May 20, 1948 S-1, (2-7671) 7(b)(2) Nov. 1, 1977 S-7, (2-62415) 2(b)(3)
Oct. 1, 1948 10-K, 1948 4 Apr. 28, 1978 S-7, (2-62415) 2(b)(4)
Apr. 20, 1949 10-K, 1949 1 Oct. 1, 1978 10-K, 1978 D(1)
Apr. 24, 1950 8-K, Apr. 1950 1 Oct. 1, 1979 S-7, (2-66484) 2(b)(3)
Apr. 18, 1951 8-K, Apr. 1951 1 Mar. 1, 1980 10-K, 1980 4(c)
Oct. 1, 1951 8-K, Nov. 1951 1 Apr. 28, 1981 S-16, (2-74923) 4(c)
Apr. 21, 1952 8-K, Apr. 1952 1 Nov. 1, 1981 S-16, (2-74923) 4(d)
Dec. 1, 1952 S-9, (2-11120) 2(b)(9) Dec. 1, 1981 10-K, 1981 4(c)
Apr. 15, 1953 8-K, Apr. 1953 2 Apr. 29, 1982 10-K, 1982 4(c)
Apr. 19, 1954 8-K, Apr. 1954 1 May 1, 1983 10-K, 1983 4(c)
Oct. 1, 1954 8-K, Oct. 1954 1 Apr. 30, 1984 S-3, (2-95814) 4(c)
Apr. 18, 1955 8-K, Apr. 1955 1 Mar. 1, 1985 10-K, 1985 4(c)
Apr. 24, 1956 10-K, 1956 1 Nov. 1, 1986 10-K, 1986 4(c)
May 1, 1957 S-9, (2-13260) 2(b)(15) May 1, 1987 10-K, 1987 4(c)
Apr. 10, 1958 8-K, Apr. 1958 1 July 1, 1990 S-3, (33-37431) 4(c)
May 1, 1959 8-K, May 1959 2 Dec. 1, 1990 10-K, 1990 4(c)
Apr. 18, 1960 8-K, Apr. 1960 1 Mar. 1, 1992 10-K, 1992 4(d)
Apr. 19, 1961 8-K, Apr. 1961 1 Apr. 1, 1993 10-Q, June 30, 1993 4(a)
Oct. 1, 1961 8-K, Oct. 1961 2 June 1, 1993 10-Q, June 30, 1993 4(b)
Mar. 1, 1962 8-K, Mar. 1962 3(a) Nov. 1, 1993 S-3, (33-51167) 4(a)(3)
June 1, 1964 8-K, June 1964 1 Jan. 1, 1994 10-K, 1993 4(a)(3)
May 1, 1966 8-K, May 1966 2 Sept. 2, 1994 8-K, Sept. 1994 4(a)
July 1, 1967 8-K, July 1967 2 May 1, 1996 10Q, June 30, 1996 4(a)
July 1, 1968 8-K, July 1968 2 Nov. 1, 1996 10-K, 1996 4(a)(3)
Apr. 25, 1969 8-K, Apr. 1969 1 Feb. 1, 1997 10-Q, Mar. 31, 1997 4(a)
</TABLE>
4(b) 1* Indenture, dated as of October 1, 1993, providing for the issuance of
First Collateral Trust Bonds (Form 10-Q, September 30, 1993 -
Exhibit 4(a)).
4(b) 2* Indentures supplemental to Indenture dated as of October 1, 1993:
Previous Filing:
Form; Date or Exhibit
Dated as of File No. No.
----------- -------- ---
November 1, 1993 S-3, (33-51167) 4(b)(2)
January 1, 1994 10-K, 1993 4(b)(3)
September 2, 1994 8-K, Sept. 1994 4(b)
May 1, 1996 10-Q, June 30, 1996 4(b)
November 1, 1996 10-K, 1996 4(b)(3)
February 1, 1997 10-Q, Mar. 31, 1997 4(b)
SPS
4(a) 1* Indenture, dated as of August 1, 1946, providing for the issuance of
First Mortgage Bonds (Registration No. 2-6910, Exhibit 7-A).
144
<PAGE>
4(b) 1* Indentures supplemental to Indenture dated as of August 1, 1946:
Previous Filing:
Form; Date or Exhibit
Dated as of File No. No.
----------- -------- ---
February 1, 1967 2-25983 2-S
October 1, 1970 2-38566 2-T
February 9, 1977 2-58209 2-Y
March 1, 1979 2-64022 b(28)
April 1, 1983 (two) 10-Q, May 1983 4(a)
February 1, 1985 10-K, Aug. 1985 4(c)
July 15, 1992 (two) 10-K, Aug. 1992 4(a)
December 1, 1992 (two) 10-Q, Feb. 1993 4
February 15, 1995 10-Q, May 1995 4
March 1, 1996 333-05199 4(c)
4(c) 1* Standby Credit Agreement with Union Bank of Switzerland (Houston Agency)
dated July 1, 1991 (Form 10-K, August 31, 1991 - Exhibit 4(a)).
4(d) 1* Red River Authority for Texas Indenture of Trust dated July 1, 1991
(Form 10-K, August 31, 1991 - Exhibit 4(b)).
4(e) 1* Indenture dated October 21, 1996, between SPS and Wilmington Trust
Company, (Form 10-Q, November 30, 1996 - Exhibit 4(a)).
4(f) 1* Supplemental Indenture dated October 21,1996, between SPS and Wilmington
Trust Company, (Form 10-Q, November 30, 1996 - Exhibit 4(b)).
4(g) 1* Guarantee Agreement dated October 21, 1996, between SPS and Wilmington
Trust Company, (Form 10-Q, November 30, 1996 - Exhibit 4(c)).
4(h) 1* Amended and Restated Trust Agreement dated October 21, 1996, among
SPS, David M. Wilks, as initial depositor, Wilmington Trust Company and
the administrative trustees named therein (Form 10-Q, November 30, 1996
- Exhibit 4(d)).
4(i) 1* Agreement as to Expenses dated October 21, 1996, between SPS and
Southwestern Public Service Capital I,(Form 10-K, December 31, 1996
- Exhibit F).
Material Contracts
NCE
10(a) 1 Form of Key Executive Change in Control Agreement.
10(b) 2*+ Employment Agreement, effective August 1, 1997, between the Company
and Mr. Bill D. Helton (Form S-4, Annex I, File No. 33-64951).
10(b) 3*+ Employment Agreement, effective August 1, 1997, between the Company
and Mr. Wayne H. Brunetti (Form S-4, Annex I, File No. 33-64951).
PSCo
10(a) 1* Settlement Agreement dated February 9, 1996 between the Company and
the United States Department of Energy (Form 10-K, December 31, 1995
- Exhibit 10(a)(1)).
145
<PAGE>
10(a) 2* Settlement Agreement dated June 27, 1979 between the Registrant
and General Atomic Company(Form S-7, File No. 2-66484-Exhibit 5(a)(1)).
10(a) 3* Services Agreement executed June 27, 1979 and effective as of January
1, 1979 between the Registrant and General Atomic Company (Form S-7,
File No. 2-66484 - Exhibit 5(a)(3)).
10(c)1* Amended and Restated Coal Supply Agreement entered into October 1, 1984
but made effective as of January 1, 1976 between the Registrant and Amax
Inc. on behalf of its division, Amax Coal Company (Form 10-K, December
31, 1984 - Exhibit 10(c)(1)).
10(c)2* First Amendment to Amended and Restated Coal Supply Agreement entered
into May 27, 1988 but made effective January 1, 1988 between the
Registrant and Amax Coal Company (Form 10-K, December 31, 1988 -Exhibit
10(c)(2).**
10(e)1*+ Supplemental Executive Retirement Plan for Key Management Employees,
as amended and restated March 26, 1991 (Form 10-K, December 31,
1991 - Exhibit 10(e)(2)).
10(e)3*+ Executive Savings Plan (Form 10-K, December 31, 1991 - Exhibit
10(e)(5)).
10(e) 4*+ Form of Key Executive Severance Agreement, as amended on August 22,
and November 27, 1995. (Form 10-K, December 31, 1995 - Exhibit 10(3)
(4)).
SPS
10(a) 1* Coal Supply Agreement (Harrington Station) between SPS and TUCO, dated
May 1, 1979 (Form 8-K, May 14, 1979 - Exhibit 3).
10(b) 1* Master Coal Service Agreement between Swindell-Dressler Energy Supply
Company and TUCO, dated July 1, 1978 (Form 8-K, May 14, 1979 - Exhibit
5(A)).
10(c) 1* Guaranty of Master Coal Service Agreement between Swindell-Dressler
Energy Supply Company and TUCO (Form 8-K, May 14, 1979 - Exhibit 5(B)).
10(d) 1* Coal Supply Agreement (Tolk Station) between SPS and TUCO dated April
30, 1979, as amended November 1, 1979 and December 30, 1981 (Form 10-Q,
February 28, 1982 - Exhibit 10(b)).
10(e) 1*+Master Coal Service Agreement between Wheelabrator Coal Services Co.
and TUCO dated December 30, 1981, as amended November 1, 1979 and
December 30, 1981 (Form 10-Q, February 28, 1982 - Exhibit 10(c)).
10(f) 1*+Incentive Compensation Plan (an Executive Management Plan) as amended
July 23, 1996 (Form 10-K, August 31, 1996 - Exhibit 10(a)).
10(g) 1*+ 1989 Stock Incentive Plan as amended April 23, 1996 (Form 10-K, August
31, 1996 - Exhibit 10(b)).
10(h) 1*+ Director's Deferred Compensation Plan as amended January 10, 1990
(Form 10-K, August 31, 1996 - Exhibit 10(c)).
10(i) 1*+ Supplemental Retirement Income Plan as amended July 23, 1991 (Form
10-K, August 31, 1996 - Exhibit 10(e)).
10(j) 1*+ EPS Performance Unit Plan dated October 27, 1992 (Form 10-K,
August 31, 1996 - Exhibit 10(a)).
146
<PAGE>
12 Statement Re Computation of Ratios
12(a) PSCo Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges is set forth at page 116 herein.
12(b) PSCo Computation of Ratio of Consolidated Earnings to Consolidated
Combined Fixed Charges and Preferred Stock Dividends is set forth at page
117 herein.
12(c) SPS Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges is set forth at page 118 herein.
12(d) SPS Computation of Ratio of Consolidated Earnings to ConsolidatedCombined
Fixed Charges and Preferred Stock Dividends is set forth at page 119
herein.
21 Subsidiaries of the Registrant
23(a) Consent of Arthur Andersen LLP is set forth at page 134 herein.
23(b) Consent of Deloitte & Touche LLP is set forth at page 135 herein.
24 Power of Attorney is set forth at page 135 herein.
27 Financial Data Schedule UT
27 (a) Financial Data Schedule for NCE as of December 31, 1997
27 (b) Financial Data Schedule for PSCo as of December 31, 1997
27 (c) Financial Data Schedule for SPS as of December 31, 1997
- --------------
* Previously filed as indicated and incorporated herein by reference.
+ Management contracts of compensatory plans or arrangements.
147
Exhibit 3(a)1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PUBLIC SERVICE COMPANY OF COLORADO
Public Service Company of Colorado, a Colorado corporation (the
"Corporation"), pursuant to Section 7-110-106 and 107 of the Colorado Business
Corporation Act (the "Act"), hereby adopts the following amended and restated
Articles of Incorporation.
I. NAME
The name of the Corporation is: Public Service Company of Colorado.
II. PURPOSES AND POWERS
The objects for which the Corporation is formed and incorporated are as
follows:
1. To manufacture, generate, produce, supply, distribute,
transmit and sell gas (natural or artificial), electricity, steam, steam heat
and other substances, forces and energies, for the purpose of light, heat,
fuel, power or for any other purpose to which the same are now or may
hereafter, in the course of new discoveries, improvements or inventions,
properly be put.
2. To construct, purchase, condemn, lease or otherwise acquire,
maintain and operate plants and works for manufacturing, generating,
producing, supplying and distributing gas, electricity, steam and other
substances, forces and energies, and to construct, purchase, condemn, lease or
otherwise acquire, maintain and operate lines of mains and other pipes and
conductors, and lines of poles, wires and other conductors and appliances, and
lands and rights of way for the purpose of conveying, supplying and
distributing gas (natural or artificial), electricity, steam and other
substances, forces and energies, through highways, streets, alleys and public
and private lands and places as the interests of the Corporation may require;
and to make excavations and constructions for the purpose of constructing,
repairing and making connections with the same.
3. To apply for, take out, purchase or otherwise acquire, use
or enjoy, and to sell, assign, license and otherwise dispose of any and all
inventions, improvements, processes, formulae, letters patent, copyrights,
trade-marks, trade names and incorporeal rights of any and every kind
whatsoever.
4. To purchase, lease, acquire by merger, consolidation, or
otherwise own, manage, control, maintain and operate the properties, rights,
franchises and immunities of any gas, electric, or steam heating company or
companies now or hereafter organized.
5. To manufacture, purchase, lease, sell, or otherwise dispose
of electric, gas, steam heating and refrigerating apparatus, appliances and
supplies of every kind and nature.
1
<PAGE>
6. To purchase or otherwise acquire, own, hold, mortgage,
pledge, sell or otherwise dispose of, bonds, debentures, notes, shares of
stock or other securities and evidences of indebtedness of any company or
companies, without limit in amount, and to issue and exchange for such bonds,
debentures, notes, stocks and other securities, its own shares of stock,
bonds, debentures, notes or other obligations, to have and exercise in respect
thereto all the rights, powers and privileges of individual owners thereof,
and to exercise all voting power thereon in furtherance of the objects and
purposes of this Corporation.
7. To purchase, condemn, lease or otherwise acquire, take,
hold, operate, or otherwise enjoy, sell, convey, lease or otherwise dispose of
any real or personal property, rights, rights of way, ditch rights, water
appropriations, easements and franchises, in furtherance of the objects and
purposes of this Corporation.
8. To purchase, lease, or otherwise acquire coal lands and to
mine, manage and operate the same for the purpose of supplying its works,
plants and others with coal; to sell, lease or otherwise dispose of the same
or any part thereof, at pleasure; and to sell or dispose of coal, coke, and
any and all of the products of its works and plants.
9. To construct, purchase, lease, acquire, operate and maintain
lines of electric railway and all equipments, buildings, plants,
constructions, machinery and appurtenances necessary therefor, and to obtain
all requisite easements by condemnation or otherwise.
10. To borrow money, without limit as to amount, and execute,
issue, negotiate and deliver its notes, bonds, debentures or other obligations
therefor, and without action of its stockholders to mortgage or pledge any or
all of its property, rights, interests and franchises, owned or to be
acquired, as security for such notes, bonds or other obligations; and to
guarantee or become surety in respect of bonds, notes or other evidences of
indebtedness or other obligations of any individual or entity.
11. To lease, sell, or otherwise dispose of any or all of its
properties, rights, interests, franchises and immunities, to any other persons
or entities, and to merge or consolidate therewith or to arrange with any
entities or persons by contract, lease or otherwise, for the operation and
maintenance of the mains, lines, wires, poles, conductors, apparatus,
appliances, works, plants or coal mines of this Corporation, or any of them.
12. To purchase, hold, pledge, sell, or otherwise dispose of its
own capital stock, provided that as to any such purchase thereof no funds may
be used therefor which would cause an impairment of the capital of the
Corporation.
13. To develop, acquire, own, operate and dispose of any and all
other lawful businesses.
14. To have and exercise any or all such incidental powers, in
addition to those hereinabove enumerated, as shall be requisite, proper or
convenient to accomplish the objects and powers aforesaid.
2
<PAGE>
III. TERM
The Corporation shall have perpetual existence.
IV. BOARD OF DIRECTORS
A. Bylaws; Officers. The Board of Directors of this Corporation
shall have power to make from time to time such prudential bylaws for the
government of the corporation as they may deem proper, and to amend, repeal
and revise the same. The Board of Directors shall also have power to designate
such officers and agents as may be necessary or expedient and to appoint and
remove the same at pleasure and to fix the salaries of such officers and
agents.
B. Number. The number of directors of the Corporation shall be fixed
by the Bylaws or, if the Bylaws fail to fix such number, then by resolution
adopted from time to time by the board of directors.
C. Conflicting Interest Transactions. As used in this paragraph,
"conflicting interest transaction" means any of the following: (i) a loan or
other assistance by the Corporation to a director of the Corporation or to an
entity in which a director of the Corporation is a director or officer or has
a financial interest; (ii) a guaranty by the Corporation of an obligation of a
director of the Corporation or of an obligation of an entity in which a
director of the Corporation is a director or officer or has a financial
interest; or (iii) a contract or transaction between the Corporation and a
director of the Corporation or between the Corporation and an entity in which
a director of the Corporation is a director or officer or has a financial
interest. No conflicting interest transaction shall be void or voidable, be
enjoined, be set aside, or give rise to an award of damages or other sanctions
in a proceeding by a shareholder or by or in the right of the Corporation,
solely because the conflicting interest transaction involves a director of the
Corporation or an entity in which a director of the Corporation is a director
or officer or has a financial interest, or solely because the director is
present at or participates in the meeting of the Corporation's board of
directors or of the committee of the board of directors which authorizes,
approves or ratifies a conflicting interest transaction, or solely because the
director's vote is counted for such purpose, if: (A) the material facts as to
the director's relationship or interest and as to the conflicting interest
transaction are disclosed or are known to the board of directors or the
committee, and the board of directors or committee in good faith authorizes,
approves or ratifies the conflicting interest transaction by the affirmative
vote of a majority of the disinterested directors, even though the
disinterested directors are less than a quorum; or (B) the material facts as
to the director's relationship or interest and as to the conflicting interest
transaction are disclosed or are known to the shareholders entitled to vote
thereon, and the conflicting interest transaction is specifically authorized,
approved or ratified in good faith by a vote of the shareholders; or (C) a
conflicting interest transaction is fair as to the Corporation of the time it
is authorized, approved or ratified by the board of directors, a committee
thereof, or the shareholders. Common or interested directors may be counted
in determining the presence of a quorum at a meeting of the board of directors
or of a committee which authorizes, approves or ratifies the conflicting
interest transaction.
D. Loans and Guaranties for the Benefit of Directors. Neither the
board of directors nor any committee thereof shall authorize a loan by the
Corporation to a director of the Corporation or to an entity in which a
director of the Corporation is a director or officer or has a financial
interest, or a
3
<PAGE>
guaranty by the Corporation of an obligation of a director of the Corporation
or of an obligation of an entity in which a director of the Corporation is a
director or officer or has a financial interest, until at least ten days after
written notice of the proposed authorization of the loan or guaranty has been
given to the shareholders who would be entitled to vote thereon if the issue
of the loan or guaranty were submitted to a vote of the shareholders. The
requirements of this Section D are in addition to, and not in substitution
for, the provisions of Section C of this Article IV.
V. LIMITATION OF LIABILITY
To the maximum extent permitted by "7-108-402 of the Act (or any
successor to such section), a director of the Corporation shall not be liable
to the Corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director. Neither the amendment, nor the repeal of this
Article, nor the adoption of any provision of the Articles of Incorporation
inconsistent with this Article, shall eliminate or reduce the protection
afforded by this Article to a director of the Corporation with respect to any
matter which occurred, or any cause of action, suit or claim which but for
this Article would have accrued or arisen, prior to such amendment, repeal or
adoption.
VI. INDEMNIFICATION
To the maximum extent permitted by law, the Corporation shall indemnify
any person who is or was a director, officer, agent, fiduciary or employee of
the Corporation against any claim, liability, loss or expense arising against
or incurred by such person as a result of circumstances, events, actions and
omissions occurring in such capacity. The Corporation further shall have the
authority to maintain insurance at the Corporation's expense providing for
such indemnification, including insurance with respect to claims, liabilities,
losses and expenses against which the Corporation would not otherwise have the
power to indemnify such persons.
VII. CAPITAL STOCK
A. Authorized Capital. The authorized capital stock of the
Corporation shall consist of the following three classes of capital stock:
1. Three million (3,000,000) shares of preferred stock with a
par value of One Hundred Dollars ($100) per share ("Cumulative Preferred
Stock");
2. Four million (4,000,000) shares of preferred stock with a
par value of Twenty-Five Dollars ($25) per share ("Cumulative Preferred Stock
($25)"); and
3. One Hundred (100) shares of common stock with a par value of
One Cent ($.01) per share ("Common Stock").
Whenever hereafter the words "Cumulative Preferred Stock" shall be used,
they shall refer to all series or kinds of Cumulative Preferred Stock.
Whenever hereafter the words "Cumulative Preferred Stock ($25)" shall be used,
they shall refer to all series or kinds of Cumulative Preferred Stock ($25).
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The two authorized classes of preferred stock -- the Cumulative Preferred
Stock and the Cumulative Preferred Stock ($25) -- are sometimes referred to
hereinafter together as the "Preferred Stock".
B. Nonassessable. All shares of capital stock of the Corporation
shall be nonassessable
C. Cumulative Voting. Cumulative voting shall not be permitted in
any case.
D. Preemptive Rights. No holder of shares of capital stock of the
Corporation, of any class, shall be entitled as a matter of right, on the
basis of preemptive rights or otherwise, to subscribe for, purchase or receive
any shares of stock, any warrants, rights or options for the purchase or
acquisition of shares of stock, or any bonds, debentures or other obligations
which shall be convertible into or exchangeable for stock or to which shall be
attached or appertain any warrants, instruments or other rights to purchase or
acquire stock, which the Corporation may determine to issue or sell from time
to time. All such additional issues of stock, rights, options, or of bonds,
debentures or other obligations convertible into or exchangeable for stock, or
to which such warrants shall be attached or appertain, may be issued and
disposed of as determined by the Board of Directors to such persons and upon
such terms as in their absolute discretion they may deem advisable.
E. Changes in Capital Stock. The Corporation reserves the right to
increase or decrease its authorized capital stock, or any class or series
thereof, or to reclassify the same and to amend, alter, change or repeal any
provision contained in these Articles of Incorporation or in any amendment
hereto, in the manner now or hereafter prescribed by law, but subject to such
conditions and limitations as are herein prescribed, and all rights conferred
upon shareholders in these Articles of Incorporation, or any amendment hereto,
are granted subject to this reservation.
F. "Outstanding". No share of stock or evidence of indebtedness
shall be deemed to be "outstanding", as that term is used in these Articles of
Incorporation, if, prior to or concurrently with the event in reference to
which a determination as to the amount thereof outstanding is to be made, the
requisite funds for the redemption thereof shall be deposited in trust for
that purpose and the requisite notice for the redemption thereof shall be
given or the depositary of such funds shall be irrevocably authorized and
directed to give or complete such notice or redemption.
G. Negation of Equitable Interests in Shares or Rights. Unless a
person is recognized as a shareholder through procedures established by the
Corporation pursuant to "7-107-204 of the Act or any similar law, the
Corporation shall be entitled to treat the registered holder of any shares of
the Corporation as the owner thereof for all purposes permitted by the Act,
including without limitation all rights deriving from such shares, and the
Corporation shall not be bound to recognize any equitable or other claim to,
or interest in, such shares or rights deriving from such shares on the part of
any other person, including without limitation, a purchaser, assignee or
pledgee of such shares or of rights deriving from such shares, unless and
until such purchaser, assignee, pledgee or other person becomes the registered
holder of such shares or is recognized as such, whether or not the Corporation
shall have either actual or constructive notice of the interest of such
purchaser, assignee, pledgee or other person. By way of example and not of
limitation, no such purchaser, assignee, pledgee or other person shall be
entitled to receive notice of any meetings of shareholders, to vote at such
meetings, to examine a list of shareholders, to be paid dividends or other
sums payable to shareholders, or to own, enjoy and exercise any
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other rights deriving from such shares, until such purchaser, assignee,
pledgee or other person has become the registered holder of such shares or is
recognized as such.
VIII. PREFERRED STOCK-GENERAL
A. Designation by Board. The Board of Directors of the Corporation,
without action by the holders of shares of stock of the Corporation of any
class, is hereby authorized, in the appropriate manner required by the Act,
subject to the specific provisions set forth in these Articles below, to fix
the distinctive designation of any series of the Corporation's authorized
Preferred Stock proposed to be issued and to fix, in respect to each such
series:
1. the annual dividend rate or rates thereof, and the date or
dates from which dividends thereon shall be cumulative;
2. the amount or amounts payable to the holders thereof on any
voluntary liquidation, dissolution or winding up of the Corporation;
3. the amount or amounts payable upon redemption thereof;
4. the provisions of the sinking funds, if any, with respect
thereto;
5. the number of shares to constitute each new series;
6. the conversion rights, if any, with respect thereto; and
7. such other provisions relating to the shares of each new
series, not inconsistent with the provisions of these Articles of
Incorporation, as the Board of Directors may by law be permitted to fix.
B. Dividends. The holders of the Preferred Stock, in preference to
the holders of any stock ranking junior to the Preferred Stock, shall be
entitled to receive cash dividends, at such rate as may be fixed by the Board
of Directors and no more, payable quarter-yearly on March first, June first,
September first and December first in each year, when and as declared by the
Board of Directors, out of any funds of the Corporation legally available
therefor. Such dividends shall be cumulative from the date provided therefor
in the instrument creating such series of Preferred Stock and shall be paid,
or declared and set apart for payment, before any dividends shall be declared
or paid on or set apart for the Common Stock or any other class of stock
ranking junior to the Preferred Stock as to dividends or assets, so that if
for any past dividend period or the current dividend period dividends on the
Preferred Stock shall not have been paid, or declared and set apart for
payment, the deficiency shall be fully paid or declared and funds set apart
for the payment thereof before any dividends shall be declared or paid on or
set apart for any class of stock ranking junior to the Preferred Stock as to
dividends or assets. No dividends shall at any time be paid on or set apart
for any share of Preferred Stock unless at the same time there shall be paid
on or set apart for all shares of Preferred Stock then outstanding dividends
in such amount that the holders of all shares of Preferred Stock shall receive
or have set apart for them a uniform percentage of the full annual dividend to
which they are respectively entitled. The term "dividend period", as used
herein, refers to each period of three consecutive calendar months ending on
the day
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next preceding each date on which dividends, if declared, shall be
payable. All shares of Cumulative Preferred Stock, regardless of designation,
shall constitute one class of stock and, excepting only as to the rates of
dividends payable thereon, the premiums payable on voluntary liquidation,
dissolution or winding up, the redemption prices thereof, the provisions of
the sinking fund, if any, conversion rights, if any, and other provisions not
inconsistent with the provisions of this Article, with respect thereto, shall
be of equal rank and confer equal rights upon the holders thereof. All shares
of Cumulative Preferred Stock bearing the same dividend rate and being
otherwise alike in all respects (except as to the date from which dividends
thereon shall be cumulative) shall constitute one series of Cumulative
Preferred Stock. All shares of Cumulative Preferred Stock ($25), regardless of
designation, shall constitute one class of stock and, excepting only as to the
rates of dividends payable thereon, the premiums payable on voluntary
liquidation, dissolution or winding up, the redemption prices thereof, the
provisions of the sinking fund, if any, conversion rights, if any, and other
provisions not inconsistent with the provisions of this Article, with respect
thereto, shall be of equal rank and confer equal rights upon the holders
thereof. All shares of Cumulative Preferred Stock ($25) bearing the same
dividend rate and being otherwise alike in all respects (except as to the date
from which dividends thereon shall be cumulative) shall constitute one series
of Cumulative Preferred Stock ($25). The Cumulative Preferred Stock and the
Cumulative Preferred Stock ($25) shall be of equal rank and, excepting only as
to matters relating to the par values thereof, the voting rights with respect
thereto and the variations between the respective series thereof, all shares
of Preferred Stock shall confer equal rights upon the holders thereof. Unless
and until full cumulative dividends as aforesaid upon the Preferred Stock of
all series then outstanding for all past dividend periods and for the current
dividend period shall have been paid or declared and set apart for payment, no
dividend whatsoever (other than a dividend payable in shares of any class of
stock ranking junior to the Preferred Stock as to dividends and assets) shall
be paid or declared on, and no distribution shall be made or ordered in
respect of, any class of stock ranking junior to the Preferred Stock as to
dividends or assets, and no money (other than the net proceeds received from
the sale of stock ranking junior to the Preferred Stock as to dividends or
assets) shall be set aside or applied to the purchase or redemption (through a
sinking fund or otherwise) of any class of stock ranking junior to the
Preferred Stock as to dividends or assets.
The term "accrued dividends" shall be deemed to mean, in respect of any
share of Preferred Stock as of any given date, the amount of dividends payable
on such share, computed, at the annual dividend rate fixed for such share,
from the date on which dividends thereon became cumulative to and including
such given date, less the aggregate amount of all dividends which have been
paid or which have been declared and set apart for payment on such share.
Accumulations of dividends shall not bear interest.
C. Liquidation. In the event of the liquidation, dissolution or
winding up, whether voluntary or involuntary, of the Corporation, the holders
of shares of Preferred Stock shall be entitled, in preference to any class of
stock ranking junior to the Preferred Stock as to dividends or assets, to be
paid in full, out of the net assets of the Corporation, the par value of their
shares plus an amount equal to the accrued dividends on such shares to the
date of distribution. In the event such liquidation, dissolution or winding up
of the Corporation is voluntary, the holders of any series of Preferred Stock
shall also be entitled to receive for each share, in preference to any class
of stock ranking junior to the Preferred Stock as to dividends or assets, such
premium or premiums as may be fixed for shares of such series by the Board of
Directors. Unless and until such payment in full is made to the holders of
shares of Preferred Stock, no distribution shall be made to any class of stock
ranking junior to the Preferred Stock as to dividends or assets. If upon any
liquidation, dissolution or winding
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up, the assets distributable among the holders of the Preferred Stock of
all series shall be insufficient to permit the payment of the full
preferential amounts to which they shall be entitled then the entire assets of
the Corporation to be distributed shall be distributed among the holders of
the Preferred Stock of all series then outstanding ratably in proportion to
the full preferential amounts to which they are respectively entitled. A
statutory consolidation or merger of the Corporation shall not be deemed to be
a liquidation, dissolution or winding up of the Corporation within the meaning
of this Section C.
D. Redemption. The Board of Directors of the Corporation shall have
the right at any time or from time to time to redeem all or any part of the
Preferred Stock or all or any part of the shares of one or more series thereof
upon and by paying the holders of the shares to be redeemed the redemption
price or prices of said shares, which shall include, in each case, an amount
equal to the accrued dividends on said shares to the date fixed for
redemption. The redemption price or prices shall be fixed by the Board of
Directors. Not less than thirty (30) nor more than sixty (60) days prior to
the date fixed for redemption of any shares of Preferred Stock, notice of the
intention of the Corporation to redeem such shares, specifying the date and
place of redemption, shall be deposited in a United States post office or mail
box at any place in the United States addressed to each holder of record of
the shares to be redeemed at his address as the same appears upon the records
of the Corporation and the time of such mailing shall be deemed to be the time
of the giving of such notice. In every case of redemption of fewer than all
the outstanding shares of any one series of Preferred Stock, the shares of
such series to be redeemed shall be chosen by lot in such manner as may be
prescribed by resolution of the Board of Directors. The Corporation may
deposit with a bank or trust company, which shall be named in the notice of
redemption and shall be located in Denver, Colorado, or in the City of New
York, New York, and which bank or trust company shall have capital, surplus
and undivided profits aggregating at least $10,000,000, the aggregate
redemption price of the shares to be redeemed, in trust for the payment
thereof on or before the redemption date to the holders of such shares, upon
surrender of the certificates for such shares. Such deposit in trust may, at
the option of the Corporation, be upon terms whereby in case the holder of any
shares of Preferred Stock called for redemption shall not, within six (6)
years after the date fixed for redemption of such shares, claim the amount on
deposit with any bank or trust company for the payment of the redemption price
of said shares, such bank or trust company shall on demand pay to or upon the
written order of the Corporation or its successor such amount and thereupon
such bank or trust company shall be released from any and all further
liability with respect to the payment of such redemption price and the holder
of said shares shall be entitled to look only to the Corporation or its
successor for the payment thereof. Upon the giving of notice of redemption and
upon the deposit of the redemption price, as aforesaid (subject, as to shares
of any series, to such conversion rights, if any, pertaining to such series as
may be fixed for the shares thereof), or, if no such deposit is made, upon the
redemption date (unless the Corporation defaults in making payment of the
redemption price as set forth in such notice), such holders shall cease to be
shareholders with respect to said shares, and from and after the making of
said deposit and the giving of said notice (subject, as to shares of any
series, to such conversion rights, if any, pertaining to such series as may be
fixed for the shares thereof), or, if no such deposit is made, after the
redemption date (the Corporation not having defaulted in making payment of the
redemption price as set forth in such notice), said shares shall no longer be
transferable on the books of the Corporation, and the said holders shall have
no interest in or claim against the Corporation with respect to said shares,
but shall be entitled only to receive the redemption price on the date fixed
for redemption as aforesaid from said bank or trust company, or from the
Corporation, without interest thereon, upon surrender of the certificates as
aforesaid.
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Nothing herein contained shall limit any legal rights of the Corporation
to purchase any shares of the Preferred Stock.
E. Voting.
1. So long as any shares of Preferred Stock of any series are
outstanding the Corporation shall not, without the affirmative vote of the
holders of at least two-thirds of the outstanding shares of Cumulative
Preferred Stock of all series, voting as one class, and the affirmative vote
of the holders of at least two-thirds of the outstanding shares of Cumulative
Preferred Stock ($25) of all series, voting as one class:
(a) Amend the provisions of these Articles of
Incorporation so as to create or authorize any stock ranking prior in
any respect to the Preferred Stock or issue any such stock; or
(b) Change, by amendment to these Articles of
Incorporation or otherwise, the terms and provisions of the Preferred
Stock so as to affect adversely the rights and preferences of the
holders thereof; provided, however, that if any such change will affect
adversely the holders of shares of either the Cumulative Preferred Stock
or the Cumulative Preferred Stock ($25) at the time outstanding, but not
both, the consent only of the holders of at least two-thirds of the
outstanding shares of the class of Preferred Stock so adversely affected
shall be required; and provided, further, that if any such change will
affect adversely the holders of one or more, but less than all, of the
series of either class of Preferred Stock at the time outstanding, the
consent only of the holders of at least two-thirds of the total number
of shares of the series so adversely affected shall be required.
No consent of the holders of Preferred Stock shall be required in
respect of any transaction enumerated in this subparagraph ( 1) if at or prior
to the time when such transaction is to take effect provision is made for the
redemption or other retirement of all shares of Preferred Stock at the time
outstanding, the consent of which would otherwise be required hereunder.
2. So long as any shares of Preferred Stock of any series are
outstanding the Corporation shall not, without the affirmative vote of at
least two-thirds of the voting power of the outstanding shares of Preferred
Stock of all series, voting for such purpose as a single class in such manner
that the holders of the Cumulative Preferred Stock shall have four (4) votes
per share and the holders of the Cumulative Preferred Stock ($25) shall have
one (1) vote per share, issue any shares of Preferred Stock or shares of any
stock ranking on a parity with the Preferred Stock, other than in exchange
for, or for the purpose of effecting the redemption or other retirement of
outstanding shares of Preferred Stock, or shares of any stock ranking on a
parity therewith, having no less than the same aggregate par value, unless
(a) The gross income (determined in accordance with
generally accepted accounting principles) of the Corporation available
for the payment of interest charges shall, for a period of twelve
consecutive calendar months within the fifteen calendar months next
preceding the issue of such shares, have been at least one and one-half
(1-1/2) times the sum of (i) the interest for one year on all funded
indebtedness and notes payable of the Corporation maturing more than
twelve
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months after, and outstanding at, the date of issue of such
shares, and (ii) an amount equal to the dividend requirement for one
year on all shares of the Preferred Stock of all series and on all other
shares of stock, if any, ranking prior to or on a parity with the
Preferred Stock, which shall be outstanding after the issue of the
shares proposed to be issued; and
(b) The capital represented by the Common Stock and the
surplus accounts of the Corporation shall be not less than the aggregate
amount payable on the involuntary dissolution, liquidation or winding up
of the Corporation, in respect of all shares of Preferred Stock and all
shares of stock, if any, ranking prior thereto, or on a parity
therewith, which shall be outstanding after the issue of the shares
proposed to be issued.
No consent of the holders of Cumulative Preferred Stock shall be
required in respect of any transaction described in this subparagraph (2) if
at or prior to the time when such transaction is to take effect provision is
made for the redemption or other retirement of all shares of Cumulative
Preferred Stock at the time outstanding, and no consent of the holders of
Cumulative Preferred Stock ($25) shall be required in respect of any
transaction described in this subparagraph (2) if at or prior to the time when
such transaction is to take effect provision is made for the redemption or
other retirement of all shares of Cumulative Preferred Stock ($25) at the time
outstanding.
3. So long as any shares of Preferred Stock of any series are
outstanding, the Corporation shall not, without the affirmative vote of more
than one-half of the voting power of the outstanding shares of Preferred Stock
of all series, voting as one class for such purpose in such manner that the
holders of the Cumulative Preferred Stock shall have four (4) votes per share
and the holders of the Cumulative Preferred Stock ($25) shall have one (1)
vote per share:
(a) Issue or assume any unsecured notes, debentures or
other securities representing unsecured indebtedness for any purpose
other than the refunding of secured or unsecured indebtedness
theretofore created or assumed by the Corporation and then outstanding
or the retiring, by redemption or otherwise, of shares of the Preferred
Stock or shares of any stock ranking prior thereto or on a parity
therewith, if immediately after such issue or assumption the total
principal amount of all unsecured notes, debentures or other securities
representing unsecured indebtedness issued or assumed by the Corporation
and then outstanding would exceed fifteen per centum (15%) of the
aggregate of (i) the total principal amount of all bonds or other
securities representing secured indebtedness issued or assumed by the
Corporation and then outstanding, and (ii) the total of the capital and
surplus of the Corporation, as then recorded on its books; or
(b) Merge or consolidate with any other corporation or
corporations or sell the property of the Corporation as or substantially
as an entirety unless such merger, consolidation or sale or the issue or
assumption of all securities to be issued or assumed in connection
therewith shall have been ordered, approved or permitted by any
regulatory authority then having jurisdiction in the premises; provided
that the provisions of this clause (b) shall not apply to any mortgage
of all or substantially all the property of the Corporation, or to a
purchase or other acquisition by the Corporation of the assets or
franchises of another corporation, or to any other transaction which does
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not include such a merger, consolidation or sale of property, or to any
merger or consolidation with or sale to a subsidiary or subsidiaries
of the Corporation.
No consent of the holders of the Cumulative Preferred Stock shall be
required by reason of the provisions of this subparagraph (3) if, at or prior
to the issue of any such securities representing unsecured indebtedness, or
such consolidation, merger or sale, provision is made for the redemption or
other retirement of all shares of Cumulative Preferred Stock then outstanding
and no consent of the holders of the Cumulative Preferred Stock ($25) shall be
required by reason of the provisions of this subparagraph (3) if, at or prior
to the issue of any such securities representing unsecured indebtedness, or
such consolidation, merger or sale, provision is made for the redemption or
other retirement of all shares of Cumulative Preferred Stock ($25) then
outstanding.
4. No provision contained in subparagraphs 1, 2 or 3 of this
Section E is intended or shall be construed to relieve the Corporation from
compliance with any applicable statutory provision requiring the vote or
consent of a greater number of the outstanding shares of the Cumulative
Preferred Stock or the Cumulative Preferred Stock ($25).
F. Divided Arrearages. No holder of the Preferred Stock shall be
entitled to vote for the election of directors or in respect of any matter,
except as provided in subparagraph 1, 2 and 3 of paragraph E of this Article
VIII, or as hereinafter provided in this Section, or as may be required by
law. If, however, dividends payable on the outstanding Preferred Stock shall
be accumulated and unpaid in an amount equivalent to four (4) quarter-yearly
dividends, the holders of such Preferred Stock shall be entitled thereafter
and until, but only until, all such accumulated and unpaid dividends shall
have been fully paid or declared and funds set apart for the payment thereof
(a) voting for such purpose as a single class in such manner that the holders
of the Cumulative Preferred Stock shall have four (4) votes per share and the
holders of the Cumulative Preferred Stock ($25) shall have one (1) vote per
share, at each succeeding annual meeting of shareholders, to elect the
smallest number of directors necessary to constitute a majority of the Board
of Directors, the remaining directors to be elected as usual by the holders of
the Common Stock; and (b) to vote on all questions other than for the election
of directors in such manner that the holders of the Cumulative Preferred Stock
shall have twenty (20) votes per share and the holders of the Cumulative
Preferred Stock ($25) shall have five (5) votes per share; provided that if
and when profits available for dividends are in excess of such accumulated and
unpaid dividends, then the declaration and payment of such dividends shall not
be unreasonably withheld.
In consideration of the issue by the Corporation, and the purchase by
the holders thereof, of shares of the capital stock of the Corporation, each
and every present and future holder of shares of the capital stock of the
Corporation shall be conclusively deemed, by acquiring or holding such shares,
to have expressly consented to all and singular the terms and provisions of
this Section F and to have agreed that the voting rights of such holder and
the restrictions and qualifications thereof shall be as set forth in this
Section.
IX. COMMON STOCK
A. Dividends. Subject to the limitations set forth in these Articles
of Incorporation, dividends may be paid on shares of the Common Stock, out of
any funds legally available for the purpose, when and as declared by the Board
of Directors.
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B. Liquidation. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, after there
shall have been paid to or set apart for the holders of shares of all classes
of stock ranking prior to the Common Stock, the full preferential amounts to
which they are respectively entitled under the foregoing provisions of these
Articles of Incorporation, the remaining assets of the Corporation available
for payment and distribution to shareholders shall be distributed ratably in
accordance with their holdings to the holders of shares of the Common Stock.
C. Voting. All voting power shall vest exclusively in the holders of
shares of the Common Stock and such holders shall constitute the sole voting
group of the Corporation, except as the Act shall expressly provide to the
contrary, and except as and to the extent hereinbefore in these Articles of
Incorporation otherwise provided. Each holder of Common Stock shall, in the
election of directors and upon each other matter coming before any meeting of
shareholders, be entitled to one vote for each share of such stock standing in
the name of such holder on the books of the Corporation.
X. PREFERRED STOCK-BY SERIES
A. 4-1/4% Cumulative Preferred Stock. There is hereby established by
the Board of Directors a series of Cumulative Preferred Stock designated and
to be known as the "4-1/4% Cumulative Preferred Stock" of the Corporation.
The shares of such series shall have, in addition to the general terms and
characteristics of all the authorized shares of Cumulative Preferred Stock set
forth above, the following distinctive terms and characteristics:
1. the annual dividend rate for the shares of such series shall
be four and one-quarter percent (4.25%);
2. the premium payable to the holders of the shares of such
series, in the event of any voluntary liquidation, dissolution or winding up
of the Corporation, shall be one percent (1%) of the par value thereof;
3. the redemption price payable to the holders of the shares of
such series shall be $101 per share plus an amount equal to the accrued
dividends to the date fixed for redemption; and
4. the number of authorized shares of such series shall be One
Hundred Seventy Five Thousand (175,000).
B. 4.20% Cumulative Preferred Stock. There is hereby established by
the Board of Directors a series of Cumulative Preferred Stock which shall be
designated and known as the "4.20% Cumulative Preferred Stock" of the
Corporation. The shares of such series shall have, in addition to the general
terms and characteristics of all the authorized shares of Cumulative Preferred
Stock set forth above, the following distinctive terms and characteristics:
1. the annual dividend rate for the shares of such series shall
be four and two-tenths percent (4.20%);
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2. the premium payable to holders of the shares of such series
in the event of any voluntary liquidation, dissolution or winding up of the
Corporation shall be one percent (1%) of the par value thereof;
3. the redemption price payable to the holders of the shares of
such series upon the redemption of all or any part of the shares of such
series shall be $101 per share plus an amount equal to accrued dividends to
the date fixed for redemption; and
4. the number of shares constituting such series shall be
100,000.
C. 4-1/2% Cumulative Preferred Stock. There is hereby established by
the Board of Directors a series of Cumulative Preferred Stock which shall be
designated and known as the "4-1/2% Cumulative Preferred Stock" of the
Corporation. The shares of such series shall have, in addition to the general
terms and characteristics of all the authorized shares of Cumulative Preferred
Stock set forth above, the following distinctive terms and characteristics:
1. the annual dividend rate for the shares of such series shall
be four and one-half percent (4-1/2%);
2. the premium payable to holders of the shares of such series
in the event of any voluntary liquidation, dissolution or winding up of the
Corporation shall be one percent (1 %) of the par value thereof;
3. the redemption price payable to the holders of the shares of
such series upon the redemption of all or any part of the shares of such
series shall be $101 per share plus an amount equal to accrued dividends to
the date fixed for redemption; and
4. the number of shares constituting such series shall be
65,000.
D. 4.64% Cumulative Preferred Stock. There is hereby established by
the Board of Directors a series of Cumulative Preferred Stock which shall be
designated and known as the "4.64% Cumulative Preferred Stock" of the
Corporation. The shares of such series shall have, in addition to the general
terms and characteristics of all the authorized shares of Cumulative Preferred
Stock set forth above, the following distinctive terms and characteristics:
1. the annual dividend rate for the shares of such series shall
be four and sixty-four hundredths percent (4.64%);
2. the premium payable to holders of the shares of such series
in the event of any voluntary liquidation, dissolution or winding up of the
Corporation shall be one percent (1%) of the par value thereof;
3. the redemption price payable to the holders of the shares of
such series upon the redemption of all or any part of the shares of such
series shall be $101 per share plus an amount equal to accrued dividends to
the date fixed for redemption; and
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4. the number of shares constituting such series shall be
160,000.
E. 4.90% Cumulative Preferred Stock. There is hereby established by
the Board of Directors a series of Cumulative Preferred Stock which shall be
designated and known as the "4.90% Cumulative Preferred Stock" of the
Corporation. The shares of such series shall have, in addition to the general
terms and characteristics of all the authorized shares of Cumulative Preferred
Stock set forth above, the following distinctive terms and characteristics:
1. the annual dividend rate for the shares of such series shall
be four and nine-tenths percent (4.90%);
2. the premium payable to holders of the shares of such series
in the event of any voluntary liquidation, dissolution or winding up of the
Corporation shall be one percent (1%) of the par value thereof;
3. the redemption price payable to the holders of the shares of
such series upon the redemption of all or any part of the shares of such
series shall be $101 per share plus an amount equal to accrued dividends to
the date fixed for redemption; and
4. the number of shares constituting such series shall be
150,000.
F. 4.90% Cumulative Preferred Stock, 2nd Series. There is hereby
established by the Board of Directors a series of Cumulative Preferred Stock
which shall be designated and known as the "4.90% Cumulative Preferred Stock,
2nd Series" of the Corporation. The shares of such series shall have, in
addition to the general terms and characteristics of all the authorized shares
of Cumulative Preferred Stock set forth above, the following distinctive terms
and characteristics:
1. the annual dividend rate for the shares of such series shall
be four and nine-tenths percent (4.90%);
2. the premium payable to holders of the shares of such series
in the event of any voluntary liquidation, dissolution or winding up of the
Corporation shall be one percent (1 %) of the par value thereof;
3. the redemption price payable to the holders of the shares of
such series upon the redemption of all or any part of the shares of such
series shall be $101 per share plus an amount equal to accrued dividends to
the date fixed for redemption; and
4. the number of shares constituting such series shall be
150,000.
G. 7.15% Cumulative Preferred Stock. There is hereby established by
the Board of Directors a series of Cumulative Preferred Stock which shall be
designated and known as the "7.15% Cumulative Preferred Stock" of the
Corporation. The shares of such series shall have, in addition to the general
terms and characteristics of all the authorized shares of Cumulative Preferred
Stock set forth above, the following distinctive terms and characteristics:
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<PAGE>
1. the annual dividend rate for the shares of such series shall
be seven and fifteen-hundredths percent (7.15%);
2. the premium payable to holders of the shares of such series
in the event of any voluntary liquidation, dissolution or winding up of the
Corporation shall be one percent (1%) of the par value thereof;
3. the redemption price payable to the holders of the shares of
such series upon the redemption of all or any part of the shares of such
series shall be $100 per share plus an amount equal to accrued dividends to
the date fixed for redemption; and
4. the number of shares constituting such series shall be
250,000.
H. 7.50% Cumulative Preferred Stock. There is hereby established by
the Board of Directors a series of Cumulative Preferred Stock which shall be
designated and known as the "7.50% Cumulative Preferred Stock" of the
Corporation. The shares of such series shall have, in addition to the general
terms and characteristics of all the authorized shares of Cumulative Preferred
Stock set forth above, the following distinctive terms and characteristics:
1. The annual dividend rate of the shares of such series shall
be seven and one-half percent (7.50%) (computed on the basis of a 360-day
year, 30-day month) and such dividend shall be cumulative from the date on
which the shares of such series are originally issued.
2. The liquidation price payable to holders of the shares of
such series in the event of any voluntary liquidation, dissolution or winding
up of the Corporation shall be the following percentages of the par value
thereof if such event shall occur during the twelve-month period ending on the
last day of August of the indicated year:
Year Percentage of Par Value
1997 101.75%
1998 101.50%
1999 101.25%
2000 101.00%
2001 100.75%
2002 100.50%
2003 100.25%
and 100% of the par value thereof if such event shall occur at any time after
August 31, 2003, plus, in each case, an amount equal to accrued and unpaid
dividends to the date of such payment.
15
<PAGE>
3. The redemption prices payable to the holders of the shares
of such series upon the redemption of all or any part of the shares of such
series shall be the following redemption prices per share if redeemed during
the twelve-month period ending on the last day of August of the indicated year:
Year Redemption Price
1997 $101.75
1998 $101.50
1999 $101.25
2000 $101.00
2001 $100.75
2002 $100.50
2003 $100.25
and $100 per share if redeemed at any time after August 31, 2003, plus, in
each case, an amount equal to accrued and unpaid dividends to the date fixed
for redemption.
4.
(a) On July 1, 1984, and on each July 1 thereafter (so
long as any shares of the 7.50% Cumulative Preferred Stock are
outstanding), the Corporation shall set aside in a sinking fund for the
purchase of shares of the 7.50% Cumulative Preferred Stock an amount
from the legally available funds of the Corporation sufficient to
purchase 12,000 of such shares (or the number of such shares then
outstanding if less than 12,000) at a purchase price equal to the total
of $100 per share plus, in each case, an amount equal to the accrued and
unpaid dividends thereon to the date of purchase. The funds so set aside
in the sinking fund pursuant to this subparagraph (a) or any of the
following subparagraphs of this paragraph 4, shall be deposited in a
separate sinking fund account.
(b) Concurrently with setting aside funds in the sinking
fund for the 7.50% Cumulative Preferred Stock, the corporation shall
offer to purchase 12,000 shares of the 7.50% Cumulative Preferred Stock
(or the number of such shares then outstanding if fewer than 12,000) at
the purchase price specified in subparagraph (a) above. No redemption of
shares of the 7.50% Cumulative Preferred Stock pursuant to paragraph 3
above nor any purchase or other acquisition [other than pursuant to this
paragraph 4] of such shares by the Corporation shall constitute a credit
against the number of shares which the Corporation is required to offer
to purchase pursuant to this paragraph 4.
(c) The annual obligation of the Corporation to set aside
funds in the sinking fund for the 7.50% Cumulative Preferred Stock and
to make the offer to purchase shares thereof as required by
subparagraphs (a) and (b) above shall be a cumulative obligation and
shall continue in
16
<PAGE>
effect until fully satisfied, whether any failure of the Corporation to
fulfill such obligation is due to insufficiency of legally available funds
or otherwise. To the extent that the Corporation shall not have, on any
date on which the setting aside of funds in the sinking fund is required
pursuant to subparagraph (a) above, funds legally available for such
purpose in the full amount required to be set aside pursuant thereto, it
shall set aside in the sinking fund on such date such funds,if any, as are
then legally available, and as soon thereafter as any funds or any
additional funds become legally available,it shall set aside such funds in
the sinking fund in an amount not in excess of the amount necessary to
fulfill such cumulative obligation. Notwithstanding the foregoing, if at
any time the Corporation shall have outstanding any Parity Sinking Fund
Preferred Stock other than the 7.50% Cumulative Preferred Stock, shall be
obligated to set aside legally available funds in the sinking fund for the
7.50% Cumulative Preferred Stock and the sinking fund or funds for such
other Parity Sinking Fund Preferred Stock, and shall not have sufficient
funds legally available to so set aside the full amount required for all
such sinking funds, such legally available funds as the Corporation then
has shall be distributed among all such sinking funds in proportion to the
amounts which the Corporation is then obligated to set aside in each such
sinking fund. At any time following the setting aside of funds in the
sinking fund for the 7.50% Cumulative Preferred Stock pursuant to this
subparagraph (c) when the amount available in such sinking fund is
sufficient to purchase at least 2,000 shares thereof at the pricespecified
in subparagraph (a), the Corporation shall promptly offer to purchase such
number of whole shares of 7.50% Cumulative Preferred Stock as may be
purchased with such amount available at the purchase price specified in
subparagraph (a) above.
(d) Any offer to purchase shares of the 7.50% Cumulative
Preferred Stock pursuant to this paragraph 4 shall be made by mailing a
notice thereof by first class mail, postage prepaid, to each holder of
shares of the 7.50% Cumulative Preferred Stock at the address to which
such holder shall have requested that notices be sent, or if such holder
shall have made no such request, to such holder's address as the same
shall appear on the stock register of the Corporation. Such notice shall
specify the number of such shares which the Corporation is offering to
purchase hereunder and the date of purchase, which shall be 60 days
after the date of any such notice. Each holder wishing to accept such
offer shall notify the Corporation not later than 30 days prior to the
date of purchase of the number of such shares which such holder proposes
to sell in response to such offer.
(e) If the total number of shares of the 7.50% Cumulative
Preferred Stock which all holders accepting such offer propose to sell
is fewer than or equal to the total number of such shares which the
Corporation has offered to buy, the Corporation shall apply the sinking
fund so established to purchase all such shares so offered.
(f) If the total number of shares of the 7.50% Cumulative
Preferred Stock which all holders accepting such offer propose to sell
exceeds the total number of such shares which the Corporation has
offered to purchase, the number of such shares to be purchased from each
such holder shall be determined in the following manner:
(i) The number of shares of the 7.50% Cumulative
Preferred Stock to be purchased from each such holder shall be
equivalent to the lesser of (A) the total number of such shares
tendered to the Corporation by such holder, and (B) the number of
such shares
17
<PAGE>
which bears the same proportion to the total number of
such shares to be purchased by the Corporation pursuant to such
offer as the total number of such shares held by such holder bears
to the total number of such shares held by all holders accepting
such offer;
(ii) If the total number of shares of the 7.50%
Cumulative Preferred Stock to be purchased from all such holders
determined in accordance with clause (i) above shall be fewer than
the total number of such shares which the Corporation has offered
to purchase, then the number of such shares to be purchased from
each such holder whose number of shares was determined pursuant to
subclause (B) of clause (i) above shall be redetermined and shall
be equivalent to the lesser of (A) the total number of such shares
tendered to the Corporation by such holder, and (B) the number of
such shares which bears the same proportion to a number equal to
the difference between (x) the total number of such shares to be
purchased by the Corporation pursuant to such offer and (y) the
total number of such shares to be purchased by it from all holders
whose number of shares was determined pursuant to subclause (A) of
clause (i) above, as the total number of such shares held by such
holder whose number of shares was determined pursuant to subclause
(B) of clause (i) above bears to the total number of such shares
held by all holders whose number of shares was determined pursuant
to subclause (B) of clause (i) above; and
(iii) If the total number of shares of the 7.50%
Cumulative Preferred Stock to be purchased from all such holders
in accordance with clauses (i) and (ii) above shall be fewer than
the total number of such shares which the Corporation has offered
to purchase, then the number of such shares to be purchased from
each such holder whose number of shares was determined pursuant to
subclause (B) of clause (ii) above shall be redetermined in the
same manner as provided in clause (ii), until the total number of
such shares to be purchased from all holders proposing to sell in
response to such offer shall be equivalent to the total number of
such shares which the Corporation has offered to purchase.
If the number of shares of the 7.50% Cumulative Preferred Stock to
be purchased from each holder shall be determined in accordance with
clause (i), (ii) or (iii) above, the Corporation shall notify each such
holder of the number of such shares to be purchased from such holder not
later than 15 days prior to the date of purchase, and the Corporation
shall apply the sinking fund to the purchase of such shares.
(g) On each purchase of shares of the 7.50% Cumulative
Preferred Stock pursuant to this paragraph 4, the Corporation shall pay
any transfer or other taxes to which any holder selling shares to the
Corporation may be subject, other than income taxes on any dividend or
gain received by the holder as a result of such sale.
(h) Five days after the expiration date of the 60-day
period referred to in subparagraph (d) above, the balance, if any, of
the sinking fund not expended for the purchase and retirement of shares,
after deducting any amounts required for the payment of shares purchased
but not delivered to the Corporation prior to such date, shall be
restored to the general funds of the
18
<PAGE>
Corporation, free from the sinking fund requirement for the
then calendar year, but only if the Corporation shall have satisfied in
full its cumulative obligation under this paragraph 4.
(i) If at any time the Corporation shall not have
satisfied in full its cumulative obligation under this paragraph 4, the
Corporation will not
(i) declare, pay, or set aside any amount for the
payment of any dividends, or make any distribution, on its Common
Stock or any class of stock ranking as to dividends or other
distributions junior to shares of the 7.50% Cumulative Preferred
Stock, or
(ii) redeem, purchase or otherwise acquire, or permit
any Subsidiary to purchase or otherwise acquire, any shares of
Common Stock or any class of stock or series thereof ranking as to
dividends or other distributions junior or equal to the shares of
the 7.50% Cumulative Preferred Stock (including any other series
of Cumulative Preferred Stock), except that if the Corporation
shall set aside funds in the sinking fund or funds for any other
Parity Sinking Fund Preferred Stock in accordance with the third
sentence of subparagraph (c) above, it may redeem or purchase
shares of such other Parity Sinking Fund Preferred Stock in
partial fulfillment of its sinking fund obligations with respect
thereto.
(j) For purposes of this paragraph 4,
(i) the term "Parity Sinking Fund Preferred Stock"
shall mean any series of Preferred Stock (including the 7.50%
Cumulative Preferred Stock) or any other class or series of stock
of the Corporation ranking on a parity with the Cumulative
Preferred Stock as to the payment of dividends and the
distribution of assets, and the terms of which shall (A) obligate
the Corporation to provide a sinking fund for the redemption or
purchase of shares thereof, and (B) require the Corporation, if it
shall not have sufficient funds legally available to set aside and
deposit the full amount for all such sinking funds, to distribute
such funds as are then available among all such sinking funds in
proportion to the amounts which the Corporation is then obligated
to deposit in each such sinking fund, and to apply the funds so
distributed to the redemption or purchase of shares in partial
fulfillment of its obligation with respect to such sinking fund;
and
(ii) the term "Subsidiary" shall mean any corporation
at least the majority of the stock of which having general voting
rights is, at the time as of which any determination is being
made, owned by the Corporation either directly or through
Subsidiaries.
5. All shares of the 7.50% Cumulative Preferred Stock redeemed,
purchased (including, without limitation, pursuant to paragraph 4 above) or
otherwise acquired by the Corporation shall be canceled. Such shares shall be
restored to the status of authorized but unissued shares of Cumulative
Preferred Stock, but
19
<PAGE>
shall not be reissued as shares of the 7.50% Cumulative Preferred
Stock.
6. The number of shares constituting such series shall be
300,000.
I. 8.40% Cumulative Preferred Stock. There is hereby established by
the Board of Directors a series of Cumulative Preferred Stock which shall be
designated and known as the "8.40% Cumulative Preferred Stock" of the
Corporation. The shares of such series shall have, in addition to the general
terms and characteristics of all the authorized shares of Cumulative Preferred
Stock set forth above, the following distinctive terms and characteristics:
1. The annual dividend rate of the shares of such series shall
be eight and four-tenths percent (8.40%) (computed on the basis of a 360 day
year, 30-day month) and such dividends shall be cumulative from the date on
which the shares of such series are originally issued.
2. The liquidation price payable to holders of the shares of
such series in the event of any voluntary liquidation, dissolution or winding
up of the Corporation shall be the following percentages of the par value
thereof if such event shall occur during the twelve-month period ending on the
last day of July of the indicated year:
Year Percentage of Par Value
1997 102.00%
1998 101.75%
1999 101.50%
2000 101.25%
2001 101.00%
2002 100.75%
2003 100.50%
2004 100.25%
and 100% of the par value thereof if such event shall occur at any time after
July 31, 2004, plus, in each case, an amount equal to accrued and unpaid
dividends to the date of such payment.
3. The redemption prices payable to the holders of the shares
of such series upon the redemption of all or any part of the shares of such
series shall be the following redemption prices per share if redeemed during
the twelve-month period ending on the last day of July of the indicated year:
Year Redemption Price
1997 $102.00
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<PAGE>
1998 $101.75
1999 $101.50
2000 $101.25
2001 $101.00
2002 $100.75
2003 $100.50
2004 $100.25
and $100 per share if redeemed at any time after July 31, 2004, plus, in each
case, an amount equal to accrued and unpaid dividends to the date fixed for
redemption.
4.
(a) On July 1, 1985, and on each July 1 thereafter (so
long as any shares of the 8.40% Cumulative Preferred Stock are
outstanding), the Corporation shall set aside in a sinking fund for the
purchase of shares of the 8.40% Cumulative Preferred Stock an amount
from the legally available funds of the corporation sufficient to
purchase 13,760 of such shares (or the number of such shares then
outstanding if less than 13,760) at a purchase price equal to the total
of $100 per share plus, in each case, an amount equal to the accrued and
unpaid dividends thereon to the date of purchase. The funds so set aside
in the sinking fund pursuant to this subparagraph (a) or any of the
following subparagraphs of this paragraph 4 shall be deposited in a
separate sinking fund account.
(b) Concurrently with setting aside funds in the sinking
fund for the 8.40% Cumulative Preferred Stock, the Corporation shall
offer to purchase 13,760 shares of the 8.40% Cumulative Preferred Stock
(or the number of such shares then outstanding if fewer than 13,760) at
the purchase price specified in subparagraph (a) above. No redemption of
shares of the 8.40% Cumulative Preferred Stock pursuant to paragraph 3
above nor any purchase or other acquisition (other than pursuant to this
paragraph 4) of such shares by the corporation shall constitute a credit
against the number of shares which the Corporation is required to offer
to purchase pursuant to this paragraph 4.
(c) The annual obligation of the Corporation to set aside
funds in the sinking fund for the 8.40% Cumulative Preferred Stock and
to make the offer to purchase shares thereof as required by
subparagraphs (a) and (b) above shall be a cumulative obligation and
shall continue in effect until fully satisfied, whether any failure of
the Corporation to fulfill such obligation is due to insufficiency of
legally available funds or otherwise. To the extent that the Corporation
shall not have, on any date on which the setting aside of funds in the
sinking fund is required pursuant to subparagraph (a) above, funds
legally available for such purpose in the full amount required to be set
aside pursuant thereto, it shall set aside in the sinking fund on such
date such funds, if any, as are then legally available, and as soon
thereafter as any funds or any additional funds become legally
available, it shall
21
<PAGE>
set aside such funds in the sinking fund in an amount not in excess of the
amount necessary to fulfill such cumulative obligation. Notwithstanding the
foregoing, if at any time the Corporation shall have outstanding any Parity
Sinking Fund Preferred Stock other than the 8.40% Cumulative Preferred
Stock, shall be obligated to set aside legally available funds in the
sinking fund for the 8.40% Cumulative Preferred Stock and the sinking fund
or funds for such other Parity Sinking Fund Preferred Stock, and shall not
have sufficient funds legally available to so set aside the full amount
required for all such sinking funds, such legally available funds as the
Corporation then has shall be distributed among all such sinking funds in
proportion to the amounts which the Corporation is then obligated to set
aside in each such sinking fund. At any time following the setting aside of
funds in the sinking fund for the 8.40% Cumulative Preferred Stock pursuant
to this subparagraph (c), when the amount available in such sinking fund is
sufficient to purchase at least 2,000 shares thereof at the price specified
in subparagraph (a), the Corporation shall promptly offer to purchase such
number of whole shares of 8.40% Cumulative Preferred Stock as may be
purchased with such amount available at the purchase price specified in
subparagraph (a) above.
(d) Any offer to purchase shares of the 8.40% Cumulative
Preferred Stock pursuant to this paragraph 4 shall be made by mailing a
notice thereof by first class mail, postage prepaid, to each holder of
shares of the 8.40% Cumulative Preferred Stock at the address to which
such holder shall have requested that notices be sent, or if such holder
shall have made no such request, to such holder's address as the same
shall appear on the stock register of the Corporation. Such notice shall
specify the number of such shares which the Corporation is offering to
purchase hereunder and the date of purchase, which shall be 60 days
after the date of any such notice. Each holder wishing to accept such
offer shall notify the Corporation not later than 30 days prior to the
date of purchase of the number of such shares which such holder proposes
to sell in response to such offer.
(e) If the total number of shares of 8.40% Cumulative
Preferred Stock which all holders accepting such offer propose to sell
is fewer than or equal to the total number of such shares which the
Corporation has offered to buy, the Corporation shall apply the sinking
fund so established to purchase all such shares so offered.
(f) If the total number of shares of 8.40% Cumulative
Preferred Stock which all holders accepting such offer propose to sell
exceeds the total number of such shares which the Corporation has
offered to purchase, the number of such shares to be purchased from each
such holder shall be determined in the following manner:
(i) The number of shares of the 8.40% Cumulative
Preferred Stock to be purchased from each such holder shall be
equivalent to the lesser of (A) the total number of such shares
tendered to the Corporation by such holder, and (B) the number of
such shares which bears the same proportion to the total number of
such shares to be purchased by the Corporation pursuant to such
offer as the total number of such shares held by such holder bears
to the total number of such shares held by all holders accepting
such offer;
22
<PAGE>
(ii) If the total number of shares of the 8.40%
Cumulative Preferred Stock to be purchased from all such holders
determined in accordance with clause (i) above shall be fewer than
the total number of such shares which the Corporation has offered
to purchase, then the number of such shares to be purchased from
each such holder whose number of shares was determined pursuant to
subclause (B) of clause (i) above shall be redetermined and shall
be equivalent to the lesser of (A) the total number of such shares
tendered to the Corporation by such holder, and (B) the number of
such shares which bears the same proportion to a number equal to
the difference between (x) the total number of such shares to be
purchased by the Corporation pursuant to such offer and (y) the
total number of such shares to be purchased by it from all holders
whose number of shares was determined pursuant to subclause (A) of
clause (i) above, as the total number of such shares held by such
holder whose number of shares was determined pursuant to subclause
(B) of clause (i) above bears to the total number of such shares
held by all holders whose number of shares was determined pursuant
to subclause (B) of clause (i) above; and
(iii) If the total number of shares of the 8.40%
Cumulative Preferred Stock to be purchased from all such holders
in accordance with clauses (i) and (ii) above shall be fewer than
the total number of such shares which the Corporation has offered
to purchase, then the number of such shares to be purchased from
each such holder whose number of shares was determined pursuant to
subclause (B) of clause (ii) above shall be redetermined in the
same manner as provided in clause (ii), until the total number of
such shares to be purchased from all holders proposing to sell in
response to such offer shall be equivalent to the total number of
such shares which the Corporation has offered to purchase.
If the number of shares of the 8.40% Cumulative Preferred Stock to
be purchased from each holder shall be determined in accordance with
clause (i), (ii) or (iii) above, the Corporation shall notify each such
holder of the number of such shares to be purchased from such holder not
later than 15 days prior to the date of purchase, and the Corporation
shall apply the sinking fund to the purchase of such shares.
(g) On each purchase of shares of the 8.40% Cumulative
Preferred Stock pursuant to this paragraph 4, the Corporation shall pay
any transfer or other taxes to which any holder selling shares to the
Corporation may be subject, other than income taxes on any dividend or
gain received by the holder as a result of such sale.
(h) Five days after the expiration date of the 60-day
period referred to in subparagraph (d) above, the balance, if any, of
the sinking fund not expended for the purchase and retirement of shares,
after deducting any amounts required for the payment of shares purchased
but not delivered to the retirement of shares purchased but not
delivered to the Corporation prior to such date, shall be restored to
the general funds of the Corporation, free from the sinking fund
requirement for the then calendar year, but only if the Corporation
shall have satisfied in full its cumulative obligation under this
paragraph 4.
23
<PAGE>
(i) If at any time the Corporation shall not have
satisfied in full its cumulative obligation under this paragraph 4, the
Corporation will not
(i) declare, pay, or set aside any amount for the
payment of any dividends, or make any distribution, on its Common
Stock or any class of stock ranking as to dividends or other
distributions junior to shares of the 8.40% Cumulative Preferred
Stock, or
(ii) redeem, purchase or otherwise acquire, or permit
any Subsidiary to purchase or otherwise acquire, any shares of
Common Stock or any class of stock or series thereof ranking as to
dividends or other distributions junior or equal to the shares of
the 8.40% Cumulative Preferred Stock (including any other series
of Cumulative Preferred Stock), except that if the Corporation
shall set aside funds in the sinking fund or funds for any other
Parity Sinking Fund Preferred Stock in accordance with the third
sentence of subparagraph (c) above, it may redeem or purchase
shares of such other Parity Sinking Fund Preferred Stock in
partial fulfillment of its sinking fund obligations with respect
thereto.
(j) For purposes of this paragraph 4,
(i) the term "Parity Sinking Fund Preferred Stock"
shall mean any series of Preferred Stock (including the 8.40%
Cumulative Preferred Stock) or any other class or series of stock
of the Corporation ranking on a parity with the Cumulative
Preferred Stock as to the payment of dividends and the
distribution of assets, and the terms of which shall (A) obligate
the Corporation to provide a sinking fund for the redemption or
purchase of shares thereof, and (B) require the Corporation, if it
shall not have sufficient funds legally available to set aside and
deposit the full amount for all such sinking funds, to distribute
such funds as are then available among all such sinking funds in
proportion to the amounts which the Corporation is then obligated
to deposit in each such sinking fund, and to apply the funds so
distributed to the redemption or purchase of shares in partial
fulfillment of its obligation with respect to such sinking fund;
and
(ii) the term "Subsidiary" shall mean any corporation
at least the majority of the stock of which having general voting
rights is, at the time as of which any determination is being
made, owned by the Corporation either directly or through
Subsidiaries.
5. All shares of the 8.40% Cumulative Preferred Stock redeemed,
purchased (including, without limitation, pursuant to paragraph 4 above) or
otherwise acquired by the Corporation shall be canceled. Such shares shall be
restored to the status of authorized but unissued shares of Cumulative
Preferred Stock, but shall not be reissued as shares of the 8.40% Cumulative
Preferred Stock.
6. The number of shares constituting such series shall be
344,000.
J. 8.40% Cumulative Preferred Stock ($25). There is hereby
established by the Board of Directors a series of Cumulative Preferred Stock
($25) which shall be designated and known as the "8.40% Cumulative Preferred
Stock ($25)" of the Corporation. The shares of such series shall have, in
addition to the general terms and characteristics of all the authorized shares
of Cumulative Preferred Stock ($25) set forth above, the following distinctive
terms and characteristics:
24
<PAGE>
1. the annual dividend rate for the shares of such series shall
be eight and four-tenths percent (8.40%), and such dividends shall be
cumulative from the date on which the shares of such series are originally
issued;
2. the premium payable to holders of the shares of such series
in the event of any voluntary liquidation, dissolution or winding up of the
Corporation shall be one percent (1%) of the par value thereof;
3. the redemption price payable to the holders of the shares of
such series upon the redemption of all or any part of the shares of such
series shall be $25.25 plus an amount equal to accrued dividends to the date
fixed for redemption; and
4. the number of shares constituting such series shall be
1,400,000.
* * * * *
These amended and restated Articles of Incorporation were adopted by
unanimous written consent of the directors of the Corporation and by written
consent of the sole shareholder of the Corporation. The number of votes cast
for each amendment by each voting group entitled to vote separately on the
amendment was sufficient for approval by that voting group.
IN WITNESS WHEREOF, the Corporation has set its hand and seal effective
as of September 19, 1997.
PUBLIC SERVICE COMPANY OF COLORADO
/s/ Wayne H. Brunetti
By:
Wayne H. Brunetti, Chief Executive Officer
Attest:
/s/ Teresa S. Madden
_____________________________
Teresa S. Madden, Corporate Secretary
25
Exhibit 3(a)2
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SOUTHWESTERN PUBLIC SERVICE COMPANY
Pursuant to Sections 53-13-4 and -7, New Mexico Statutes Annotated,
Southwestern Public Service Company, a New Mexico corporation (the
"Corporation"), hereby amends and restates its Articles of Incorporation, as
previously amended and restated, as follows:
FIRST: Name. The name of the Corporation is Southwestern Public
Service Company.
SECOND: Principal New Mexico Office. The location of the principal
office of the Corporation in New Mexico shall be at 111 East Fifth, Roswell,
New Mexico.
THIRD: Purpose. The purpose for which the Corporation is organized is
to transact any and all lawful business for which corporations may be
incorporated under the New Mexico Business Corporation Act (the "NMBCA").
FOURTH: Capital Stock. The total number of authorized shares of the
Corporation shall be 10,000,200, divided into 10,000,000 preferred shares
having a par value of $1 per share (the "Preferred Stock") and 200 common
shares having a par value of $1 per share (the "Common Stock").
The designations, voting powers, preferences, and relative,
participating, optional, or other special rights, and qualifications,
limitations, or restrictions of the above classes of stock are as follows:
(A) Preferred Stock
(1) Issuance in Series. Shares of Preferred Stock may be
issued in one or more series when and for such consideration or
considerations as the Board of Directors determines. All series will
rank equally and be identical in all respects, except as permitted by
the following provisions of paragraph 2 of this Article Fourth (A).
(2) Authority of the Board with Respect to Series. The Board
of Directors is authorized, at any time, to provide for the issuance of
the shares of Preferred Stock in one or more series with the
designations, voting powers, preferences, and relative, participating,
optional, or other special rights, and qualifications, limitations, or
restrictions thereof as are stated in the resolution or resolutions
providing for the issue thereof adopted by the Board of Directors, and
as are not stated in these Amended and Restated Articles of
Incorporation or any amendment hereto or not otherwise prescribed by
law including, but not limited to, determination of any of the
following:
<PAGE>
(i) The maximum number of shares to constitute the series,
which may subsequently be increased or decreased (but not below
the number of shares of such series then outstanding) by
resolution of the Board of Directors and the distinctive
designation thereof;
(ii) Whether the shares of the series shall have any
voting powers, in addition to the voting powers provided by law,
and, if any, the terms of the voting powers;
(iii) The dividend rate or rates, if any, on the shares of
the series or the manner in which such rate or rates shall be
determined, the conditions and dates upon which the dividends
shall be payable, and the preference or relation which the
dividends shall bear to the dividends payable on any other class
or classes or on any other series of capital stock, and whether
the dividends shall be cumulative or noncumulative;
(iv) Whether the shares of the series shall be subject to
redemption by the Corporation, and, if made subject to
redemption, the times, prices, and other terms, limitations,
restrictions, or conditions of the redemption;
(v) The relative amounts, and the relative rights or
preferences, if any, of payment in respect of shares of the
series, which the holders of shares of the series shall be
entitled to receive upon the liquidation, dissolution, or winding
up of the Corporation;
(vi) Whether the shares of the series shall be subject to
the operation of a retirement or sinking fund and, if so, the
extent to which and the manner in which any retirement or sinking
fund shall be applied to the purchase or redemption of the shares
of the series for retirement or for other corporate purposes, and
the terms and provisions relative to the operation of the
retirement or sinking fund;
(vii) Whether the shares of the series shall be
convertible into, or exchangeable for, shares of any other class,
classes, or series, or other securities, whether or not issued by
the Corporation, and if so convertible or exchangeable, the price
or prices or the rate or rates of conversion or exchange and the
method, if any, of adjusting them;
(viii) The limitations and restrictions, if any, to be
effective while any shares of the series are outstanding upon the
payment of dividends or the making of other distributions on, and
upon the purchase, redemption, or other acquisition by the
Corporation of, the Common Stock or any other class or classes of
stock of the Corporation ranking junior to the shares of the
series either as to dividends or upon liquidation, dissolution,
or winding up of the Corporation;
2
<PAGE>
(ix) The conditions or restrictions, if any, upon the
creation of indebtedness of the Corporation or upon the issuance
of any additional stock (including additional shares of such
series or of any other class) ranking on a parity with or prior
to the shares of the series as to dividends or distribution of
assets upon liquidation, dissolution, or winding up of the
Corporation; and
(x) Any other preference, relative, participating,
optional, or other special rights, and the qualifications,
limitations, or restrictions thereof, not inconsistent with law,
this Article Fourth, or any resolution of the Board of Directors
pursuant hereto.
(3) Preemptive Rights. The holders of the Preferred Stock
shall have no preemptive rights to subscribe to any issue of shares or
other securities of any class of the Corporation.
(B) Common Stock
(1) Dividends. Subject to the preferential rights of holders
of the Preferred Stock, dividends may be paid or declared and set apart
for payment upon the Common Stock out of any funds legally available
for the declaration of dividends, but only when and as determined by
the Board of Directors.
(2) Liquidation, Dissolution, or Winding Up. Subject to the
preferential rights of holders of the Preferred Stock in the event of
any voluntary or involuntary liquidation, dissolution, or winding up of
the Corporation, the holders of shares of the Common Stock shall be
entitled to receive all of the assets of the Corporation available for
distribution to its shareholders ratably in proportion to the number of
shares of the Common Stock they hold.
(3) Voting Rights. Except as may be otherwise required by the
NMBCA or these Amended and Restated Articles of Incorporation, each
holder of Common Stock has one vote for each share of stock he or she
holds of record on the books of the Corporation on all matters voted
upon by the shareholders. Cumulative voting for the election of
directors shall not be permitted.
(4) Preemptive Rights. The holders of the Common Stock shall
have no preemptive rights to subscribe to any issue of shares or other
securities of any class of the Corporation.
FIFTH: Duration. The duration of the Corporation shall be perpetual.
SIXTH: Number of Directors. The number of directors shall be fixed as
provided in the Bylaws of the Corporation (the "Bylaws") or, if the Bylaws
fail to fix the number, by resolution adopted from time to time by the Board
of Directors.
3
<PAGE>
SEVENTH: Limitations of Liability; Indemnification. A director of the
Corporation shall not be personally liable to the Corporation or to its
shareholders for monetary damages for a breach of fiduciary duty as a
director unless (a) he or she has breached or failed to perform the duties of
his or her office in accordance with the NMBCA, and (b) the breach or failure
to perform constitutes negligence, willful misconduct, or recklessness. If
the NMBCA is amended to permit the further elimination or limitation of the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the NMBCA, as amended.
To the maximum extent permitted by law, the Corporation shall indemnify
any person who is or was a director, officer, agent, fiduciary, or employee
of the Corporation against any claim, liability, loss, or expense arising
against or incurred by such person as a result of circumstances, events,
actions, and omissions occurring in such capacity. The Corporation further
shall have the authority to maintain insurance at the Corporation's expense
providing for such indemnification, including insurance with respect to
claims, liabilities, losses, and expenses against which the Corporation would
not otherwise have the power to indemnify such persons.
Any repeal or modification of this Article Seventh by the shareholders
of the Corporation shall not adversely affect any right or protection of a
director, officer, agent, fiduciary, or employee of the Corporation in
respect of any act or omission occurring prior to the time of the repeal or
modification.
EIGHTH: Bylaws. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is authorized to make and alter
the Bylaws, subject to the power of the shareholders to alter and repeal the
Bylaws made by the Board of Directors.
* * * * *
The foregoing Amended and Restated Articles of Incorporation include
amendments to the Corporation's previous Articles of Incorporation, as
amended. These amendments were duly approved and adopted by the Board of
Directors of the Corporation effective August 26, 1997.
The sole shareholder of the Corporation, owning 100 shares of common
stock of the Corporation, duly approved the foregoing Amended and Restated
Articles of Incorporation (including the amendments reflected therein) by
written consent effective August 26, 1997. All such shares were eligible to
vote on the amendment as a single class, and all such shares were voted for
and none against such amendments. No other shares of capital stock of the
Corporation were or are outstanding.
4
<PAGE>
These Amended and Restated Articles of Incorporation correctly set
forth the corresponding provisions of the Articles of Incorporation as
amended and supersede the original Articles of Incorporation and all prior
amendments thereto.
Dated: September 30, 1997.
SOUTHWESTERN PUBLIC SERVICE COMPANY
By /s/ David M. Wilks
David M. Wilks, President
By /s/ Mary Pullum
Mary Pullum, Secretary
STATE OF TEXAS )
) ss.
COUNTY OF POTTER )
David M. Wilks, being first duly sworn, states that he is President of
Southwestern Public Service Company, that he has read and signed the
foregoing document, and that every statement in the document is true and
correct to the best of his information and belief.
/s/ David M. Wilks
David M. Wilks
SWORN AND SUBSCRIBED TO BEFORE ME BY David M. Wilks, as President of
Southwestern Public Service Company, on this 30th day of September 1997.
/s/ Teresa Joan Parker
Teresa Joan Parker
Notary Public, State of Texas
My commission expires: May 19, 2001
[NOTARIAL SEAL]
[Filed in the office of the State
Corporation Commission of
New Mexico and made effective
on October 1, 1997.]
5
Exhibit 3(b)1
PUBLIC SERVICE COMPANY OF COLORADO
BYLAWS
adopted November 20, 1997
ARTICLE I
Shareholders
Section 1. Annual Meeting. The annual meeting of the shareholders of
the Company for the election of directors and for the transaction of any other
business that may be properly brought before the meeting shall be held at a
place, date, and hour designated by resolution of the Board of Directors.
Section 2. Special Meetings. Special meetings of the shareholders for
any purpose or purposes shall be called by the Secretary upon receipt of a
written request from either the Chairman of the Board or the President, a
majority of the directors, or any person or persons authorized by the Colorado
Business Corporation Act (the "Act') to request such a meeting. Special
meetings of the shareholders shall be held at a place, date, and hour
designated by either the Chairman of the Board or the President or by
resolution of the Board of Directors.
Section 3. Procedure. At each meeting, of the shareholders, the
Chairman of the Board or, in his or her absence, the President shall act as
chairman of the meeting. The chairman of the meeting shall determine the
order of business and all other matters of procedure. The chairman of the
meeting may establish rules to maintain order and to conduct the meeting. The
chairman of the meeting shall act in his or her absolute discretion, and his
or her rulings are not subject to appeal.
ARTICLE II
Directors
Section 1. Board of Directors. The business of the Company shall be
managed by a Board of Directors. The number of directors constituting the
Board of Directors shall be established from time to time by resolution of the
Board of Directors, subject to any limitations set forth in the Articles of
Incorporation. A Chairman of the Board may be chosen from among the directors.
No person who has attained the age of sixty-five shall be eligible for
election as a director of the Company unless he or she is already a member of
the Board of Directors. No director who has attained the age of seventy-two
shall serve as a director, effective with the next annual meeting of the
shareholders. No director who was also an officer of the Company at the time
he or she was last elected as a director shall serve as a director, effective
with the next annual meeting of the shareholders, after ceasing to be an
officer.
<PAGE>
Section 2. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at times and places determined by the
Board of Directors.
Section 3. Special Meetings. Special meetings of the Board of
Directors shall be called by the Secretary upon the receipt of a request from
the Chairman of the Board, the President, or any two directors. Notice of
special meetings shall be given to each director at any time before the
special meeting either personally or by telephone (including by message or
recording device) or telegraph or facsimile not less than two hours before the
meeting or by mail not less than three days before the meeting. Any notice
shall be directed to the address or telephone number of each director as
furnished to the Secretary for that purpose
Section 4. Adjournment of Meetings. The directors may adjourn from time
to time any regular or special meeting at which a quorum is present, without
notice other than announcement at the meeting. The adjourned meeting may be
called to order at any time without further notice, and any business may be
transacted which might have been transacted at the original meeting.
Section 5. Compensation of Directors. The Board of Directors may by
resolution provide for payment of fees for attendance at meetings of the Board
of Directors and the reimbursement of expenses of directors in attending
meetings. The Board of Directors may also by resolution provide for the
payment of other fees or compensation to members of the Board of Directors.
Section 6. Authority to Appoint Committees and Delegate Authority. The
Board of Directors, by resolution adopted by a majority of the full Board of
Directors, may designate from among its members one or more committees each of
which, except to the extent limited by law, the Articles of Incorporation,
these Bylaws, and the resolution establishing the committee, shall have and
may exercise all of the authority of the Board of Directors, and may also
prescribe rules of operation of the committee. Regular meetings of any
committee may be held without notice at times and places determined by the
Board of Directors or the committee. Special meetings of any committee shall
be called by the Secretary upon the receipt of a request from the Chairman of
the Board, the President, the chairman of the committee, or any member of the
committee. Notice of special meetings shall be given in the same manner as
provided in Section 3 of this Article II.
ARTICLE III
Officers
Section 1. Number. The officers of the Company shall be a President, a
Secretary, and a Treasurer, and may include a chief executive officer, a chief
operating officer, a chief financial officer, one or more Vice Presidents (one
or more of whom may be designated Executive Vice President or Senior Vice
President), a Controller, and/or a chief accounting officer.
Section 2. Election and Term of Office. Each officer shall be elected
by the Board of Directors and shall hold office until the meeting of the Board
of Directors following the next annual
2
<PAGE>
meeting of the shareholders and until his or her successor has been elected
and qualified or until his or her earlier retirement, disability, death,
resignation, or removal.
Section 3. Removal and Vacancies. Any officer may be removed at any
time with or without cause by the Board of Directors. A vacancy in any office
may be filled for the unexpired portion of the term in the same manner as
provided for election to the office.
Section 4. Assistant Officers. The Company may have such assistant
officers as the Board of Directors may elect. Each assistant officer shall
hold office at the pleasure of, and may be removed at any time with or without
cause by, the Board of Directors. Assistant officers may include one or more
Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers, and
Assistant Controllers.
Section 5. Duties. Each officer shall have the authority and shall
perform the duties as may be assigned by the Board of Directors, the Chairman
of the Board, or the President, or as shall be conferred or required by law or
these Bylaws, or as shall be normally incidental to the office. The
President, the chief executive officer, the chief operating officer, the chief
financial officer and any Vice President of the Corporation (including Senior
Vice Presidents, Executive Vice Presidents and Assistant Vice Presidents) may
execute and deliver instruments and contracts on behalf of the Corporation and
otherwise may bind the Corporation. In addition, any of the foregoing
officer-signatories, and the board of directors of the Corporation, may
delegate to any other person, in writing, the authority to execute and deliver
instruments and contracts on behalf of the Corporation and otherwise to bind
the Corporation.
ARTICLE IV
Indemnification of Directors, Officers, Employees, and Agents
Section 1. Mandatory Indemnification. Each person who is a party or is
threatened to be made a party, either as plaintiff, defendant, respondent, or
otherwise, to any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (a "Proceeding"), based upon, arising from,
relating to, or by reason of the fact that such person, or a person of whom
such person is the legal representative, is or was a director or officer of
the Company, or is or was serving at the request of the Company as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation or non-profit corporation, cooperative, partnership, joint
venture, trust, or other incorporated or unincorporated enterprise, or any
employee benefit plan or trust (each, a "Company Affiliate"), shall be
indemnified and held harmless by the Company to the fullest extent authorized
by the Act, as the same exists on the date of the adoption of these Bylaws or
as may hereafter be amended (but, in the case of any such amendment only to
the extent that such amendment permits the Company to provide broader
indemnification rights than permitted by the Act prior to such amendment),
against any and all expenses, liability, and loss (including, without
limitation, investigation expenses and expert witnesses' and attorneys' fees
and expenses, judgments, penalties, fines, and amounts paid or to be paid in
settlement) actually incurred by such person in connection therewith. The
right to indemnification conferred in this Article IV shall be a contract
right and shall include the right to be
3
<PAGE>
paid by the Company for expenses incurred in defending or prosecuting any
Proceeding in advance of its final disposition.
For purposes of this Article IV, references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan or
trust; and references to "serving at the request of the Company" shall include
any service as a director, officer, employee, or agent of the Company which
imposes duties on, or involves services by, such director, officer, employee,
or agent with respect to an employee benefit plan or trust, its participants,
or beneficiaries; and a person who acted in good faith and in a manner such
person reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan or trust shall be deemed to have
acted in a manner "not opposed to the best interests of the Company."
The Company's indemnity of any person who was or is serving at its
request as a director, officer, partner, trustee, employee, or agent of a
Company Affiliate shall be reduced by any amounts such person may collect as
indemnification from such Company Affiliate.
Section 2. Recovery Against the Company. If a claim under Section I of
this Article IV is not paid in full by the Company within thirty days after a
written claim has been received by the Company, except in the case of a claim
for expenses to be incurred in defending a Proceeding in advance of its final
disposition (in which case the applicable period shall be ten days), the
claimant may at any time thereafter bring suit against the Company to recover
the unpaid amount of the claim and, if successful in whole or in any material
part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. The claimant shall be presumed to be entitled to
indemnification under this Article IV upon submission of a written claim (and
any required undertaking and/or affirmations required by the Act) and
thereafter the Company shall have the burden of proof to overcome the
presumption that the claimant is not so entitled. Neither the failure of the
Company (including its Board of Directors, independent legal counsel, or its
shareholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
the Act, nor an actual determination by the Company (including its Board of
Directors, independent legal counsel, or its shareholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the applicable
standard of conduct.
Section 3. Non-Exclusive Right. The right to indemnification and the
payment of expenses incurred in defending a Proceeding in advance of its final
disposition conferred in this Article IV shall not be exclusive of any other
right which any person may be entitled under any statute, provision of the
Articles of Incorporation, or Bylaw, any agreement, a resolution of
shareholders or directors, or otherwise both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
Section 4. Insurance. The Company may purchase and maintain insurance
or furnish similar protection, including, but not limited to, providing a
trust fund, letter of credit, or
4
<PAGE>
self-insurance, on behalf of any person who is a director, officer, employee,
or agent of the Company or who, while a director, officer, employee, or agent
of the Company, is serving at the request of the Company as a director,
officer, partner, trustee, employee, or agent of a Company Affiliate, against
any liability asserted against and incurred by such director, officer,
employee, or agent in such capacity or arising out of such director's,
officer's, employee's, or agent's status as such, whether or not the Company
would have the power to indemnify such director, officer, employee, or agent
against such liability under the Act.
Section 5. Delegation of Authority. The Company may, by action of its
Board of Directors, authorize one or more officers to grant rights to
indemnification and advancement of expenses to employees or agents of the
Company on such terms and conditions as such officer or officers deem
appropriate under the circumstances.
Section 6. Continuing Effect. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article IV shall, unless
otherwise provided when authorized, continue as to a person who has ceased to
be a director, officer, employee, or agent and shall inure to the benefit of
the heirs, executors, and administrators of such persons. Anything in this
Article IV to the contrary notwithstanding, no elimination or amendment of
this Bylaw adversely affecting the right of any person to indemnification or
advancement of expenses hereunder shall be effective until the sixtieth day
following notice to such indemnified person of such action, and no elimination
or amendment of these Bylaws shall deprive any such person of such person's
rights hereunder arising out of alleged or actual occurrences, acts, or
failures to act which had their origin prior to such sixtieth day.
Section 7. Severability. In case any provision in this Article IV
shall be determined at any time to be unenforceable in any respect, the other
provisions shall not in any way be affected or impaired thereby, and the
affected provision shall be given the fullest possible enforcement in the
circumstances, it being the intention of the Company to afford indemnification
and advancement of expenses to the persons indemnified hereby to the fullest
extent permitted by law.
Section 8. Notice to Shareholders. Submission of these Bylaws to the
shareholders of the Company for ratification shall constitute notice to the
shareholders of the Company and shall be the only notice which the Company
shall be required to give the shareholders of the Company with respect to any
of the matters covered hereby, including, without limitation, the Company's
entering into any agreement or making other arrangements providing for the
indemnification of or the advancement of expenses to a director, officer,
employee, or agent, the actual advancement of expenses to a director, officer,
employee, or agent of the Company, or the payment of any other liability or
indemnification to or on behalf of a director, officer, employee, or agent.
5
<PAGE>
ARTICLE V
Share Certificates and Transfer of Shares
Section 1. Share Certificates. Shares of stock of the Company may, at
the discretion of the Board of Directors, be represented by certificates or
may be uncertificated. Any share certificates of the Company shall be in the
form and contain the provisions determined by the Board of Directors and
required by the Act.
Section 2. Transfer Rules. The Board of Directors, the Chairman of the
Board, the President, or the Secretary may from time to time promulgate rules
or regulations as it or such officer may deem advisable concerning the issue,
transfer, registration, or replacement of share certificates of the Company.
Section 3. Registered Shareholders. The Company shall be entitled to
treat the holder of record of any share or shares as the holder in fact of
those shares. The Company shall not be bound to recognize any equitable or
other claim to or interest in any shares on the part of any other person,
regardless of whether the Company has actual or imputed knowledge of a claim
of interest, except as otherwise required by the Act.
ARTICLE VI
Fiscal Year and Seal
Section 1. Fiscal Year. The fiscal year of the Company shall begin on
the first day of January and end on the last day of December each year.
Section 2. Seal. The Company may have a corporate seal if the Chairman
of the Board, the Board of Directors, the President or the Secretary so
desires. The seal of the Company shall be circular in form. Around the
margin of the seal shall be placed the name of the Company.
ARTICLE VII
Amendments
These Bylaws may be altered, amended, or repealed by the affirmative
vote of a majority of the Board of Directors then in office at any regular
meeting or, if notice of intention to amend, alter, or repeal the Bylaws is
given in the notice of the meeting, at any special meeting of the Board of
Directors. These Bylaws may also be altered, amended, or repealed by the
shareholders by the affirmative vote of the holders of a majority in interest
of the shares issued and outstanding and entitled to vote.
6
Exhibit 3(b)2
SOUTHWESTERN PUBLIC SERVICE COMPANY
BYLAWS
(as amended through September 29, 1997)
ARTICLE I
Shareholders
Section 1. Annual Meeting. The annual meeting of the shareholders of
the Company for the election of directors and for the transaction of any
other business that may be properly brought before the meeting shall be held
at a place, date, and hour designated by resolution of the Board of Directors.
Section 2. Special Meetings. Special meetings of the shareholders for
any purpose or purposes shall be called by the Secretary upon receipt of a
written request from the Chairman of the Board, the Vice Chairman of the
Board, the President, a majority of the directors, or any person or persons
authorized by the New Mexico Business Corporation Act (the "Act") to request
such a meeting. Special meetings of the shareholders shall be held at a
place, date, and hour designated by the Chairman of the Board, the Vice
Chairman of the Board, the President, or by resolution of the Board of
Directors.
Section 3. Procedure. At each meeting of the shareholders, the
Chairman of the Board or, in his or her absence, the Vice Chairman of the
Board or the President shall act as chairman of the meeting. The chairman of
the meeting shall determine the order of business and all other matters of
procedure. The chairman of the meeting may establish rules to maintain order
and to conduct the meeting. The chairman of the meeting shall act in his or
her absolute discretion, and his or her rulings are not subject to appeal.
ARTICLE II
Directors
Section 1. Board of Directors. The business of the Company shall be
managed by a Board of Directors. The number of directors constituting the
Board of Directors shall be established from time to time by resolution of
the Board of Directors, subject to any limitations set forth in the Amended
and Restated Articles of Incorporation. A Chairman of the Board and/or a
Vice Chairman of the Board may be chosen from among the directors.
No person who has attained the age of 65 shall be eligible for election
as a director of the Company unless he or she is a non-employee member of the
Board of Directors. No non-employee director who has attained the age of 70
shall serve as a director effective with the next annual meeting of the
shareholders. No director who was also an officer of the Company or any
affiliate of the Company when he or she ceased being an officer or attained
the age of 65 shall serve as a director effective with the first day of the
following month after ceasing to be an officer or attaining the age of 65.
<PAGE>
Section 2. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at times and places determined by the
Board of Directors.
Section 3. Special Meetings. Special meetings of the Board of
Directors shall be called by the Secretary upon the receipt of a request from
the Chairman of the Board, the Vice Chairman of the Board, the President, or
any two directors. Notice of special meetings shall be given to each director
at any time before the special meeting either personally or by telephone
(including by message or recording device) or telegraph or facsimile not less
than two hours before the meeting or by mail not less than three days before
the meeting. Any notice shall be directed to the address or telephone number
of each director as furnished to the Secretary for that purpose.
Section 4. Adjournment of Meetings. The directors may adjourn from
time to time any regular or special meeting at which a quorum is present,
without notice other than announcement at the meeting. The adjourned meeting
may be called to order at any time without further notice, and any business
may be transacted which might have been transacted at the original meeting.
Section 5. Compensation of Directors. The Board of Directors may by
resolution provide for payment of fees for attendance at meetings of the
Board of Directors and the reimbursement of expenses of directors in
attending meetings. The Board of Directors may also by resolution provide for
the payment of other fees or compensation to members of the Board of
Directors.
Section 6. Authority to Appoint Committees and Delegate Authority. The
Board of Directors, by resolution adopted by a majority of the full Board of
Directors, may designate from among its members one or more committees, each
of which, except to the extent limited by law, the Amended and Restated
Articles of Incorporation, these Bylaws, and the resolution establishing the
committee, shall have and may exercise all of the authority of the Board of
Directors, and may also prescribe rules of operation of the committee.
Regular meetings of any committee may be held without notice at times and
places determined by the Board of Directors or the committee. Special
meetings of any committee shall be called by the Secretary upon the receipt
of a request from the Chairman of the Board, the Vice Chairman of the Board,
the President, the chairman of the committee, or any member of the committee.
Notice of special meetings shall be given in the same manner as provided in
Section 3 of this Article II.
ARTICLE III
Officers
Section 1. Number. The officers of the Company shall be a President, a
Secretary, and a Treasurer, and may include a Chairman of the Board, a Vice
Chairman of the Board, a chief executive officer, a chief operating officer,
a chief financial officer, one or more Vice Presidents (one or more of whom
may be designated Executive Vice President or Senior Vice President), a
Controller, and/or a chief accounting officer.
2
<PAGE>
Section 2. Election and Term of Office. Each officer shall be elected
by the Board of Directors and shall hold office until the meeting of the
Board of Directors following the next annual meeting of the shareholders and
until his or her successor has been elected and qualified or until his or her
earlier retirement, disability, death, resignation, or removal.
Section 3. Removal and Vacancies. Any officer may be removed at any
time with or without cause by the Board of Directors. A vacancy in any office
may be filled for the unexpired portion of the term in the same manner as
provided for election to the office.
Section 4. Assistant Officers. The Company may have such assistant
officers as the Board of Directors may elect. Each assistant officer shall
hold office at the pleasure of, and may be removed at any time with or
without cause by, the Board of Directors. Assistant officers may include one
or more Assistant Vice Presidents, Assistant Secretaries, Assistant
Treasurers, and Assistant Controllers.
Section 5. Duties. Each officer shall have the authority and shall
perform the duties as may be assigned by the Board of Directors, the Chairman
of the Board, the Vice Chairman of the Board, or the President, or as shall
be conferred or required by law or these Bylaws, or as shall be normally
incidental to the office. Unless otherwise restricted by the Board of
Directors from time to time, (i) the Chairman of the Board, the Vice Chairman
of the Board, the President, the chief executive officer, the chief operating
officer, the chief financial officer, and any Vice President of the Company
(including Executive Vice Presidents, Senior Vice Presidents, and Assistant
Vice Presidents) may execute and deliver instruments and contracts on behalf
of the Company and otherwise may bind the Company, and (ii) any of the
foregoing officer-signatories and the Board of Directors may delegate to any
other person, in writing, the authority to execute and deliver instruments
and contracts on behalf of the Company and otherwise bind the Company.
ARTICLE IV
Indemnification of Directors, Officers, Employees, and Agents
Section 1. Mandatory Indemnification. Each person who is a party or
is threatened to be made a party, either as plaintiff, defendant, respondent,
or otherwise, to any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (a "Proceeding"), based upon, arising from,
relating to, or by reason of the fact that such person, or a person of whom
such person is the legal representative, is or was a director or officer of
the Company, or is or was serving at the request of the Company as a
director, officer, partner, trustee, employee, or agent of another foreign or
domestic corporation or non-profit corporation, cooperative, partnership,
joint venture, trust, or other incorporated or unincorporated enterprise, or
any employee benefit plan or trust (each, a "Company Affiliate"), shall be
indemnified and held harmless by the Company to the fullest extent authorized
by the Act, as the same exists on the date of the adoption of these Bylaws or
as may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Company to provide broader
indemnification rights than permitted by the Act prior to such amendment),
against any and all expenses, liability, and loss (including, without
limitation, investigation expenses and expert witnesses' and attorneys' fees
and expenses, judgments, penalties, fines, and amounts paid or to be paid
3
<PAGE>
in settlement) actually incurred by such person in connection therewith. The
right to indemnification conferred in this Article IV shall be a contract right
and shall include the right to be paid by the Company for expenses incurred in
defending or prosecuting any Proceeding in advance of its final disposition.
For purposes of this Article IV, references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit
plan or trust; and references to "serving at the request of the Company"
shall include any service as a director, officer, employee, or agent of the
Company which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan or
trust, its participants, or beneficiaries; and a person who acted in good
faith and in a manner such person reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan or trust
shall be deemed to have acted in a manner "not opposed to the best interests
of the Company."
The Company's indemnity of any person who was or is serving at its
request as a director, officer, partner, trustee, employee, or agent of a
Company Affiliate shall be reduced by any amounts such person may collect as
indemnification from such Company Affiliate.
Section 2. Recovery Against the Company. If a claim under Section 1
of this Article IV is not paid in full by the Company within thirty days
after a written claim has been received by the Company, except in the case of
a claim for expenses to be incurred in defending a Proceeding in advance of
its final disposition (in which case the applicable period shall be ten
days), the claimant may at any time thereafter bring suit against the Company
to recover the unpaid amount of the claim and, if successful in whole or in
part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. The claimant shall be presumed to be entitled to
indemnification under this Article IV upon submission of a written claim (and
any required undertaking and/or affirmations required by the Act) and
thereafter the Company shall have the burden of proof to overcome the
presumption that the claimant is not so entitled. Neither the failure of the
Company (including its Board of Directors, independent legal counsel, or its
shareholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
the Act, nor an actual determination by the Company (including its Board of
Directors, independent legal counsel, or its shareholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the applicable
standard of conduct.
Section 3. Non-Exclusive Right. The right to indemnification and the
payment of expenses incurred in defending a Proceeding in advance of its
final disposition conferred in this Article IV shall not be exclusive of any
other right to which any person may be entitled under any statute, provision
of the Amended and Restated Articles of Incorporation, or Bylaw, any
agreement, a resolution of shareholders or directors, or otherwise both as to
action in such person's official capacity and as to action in another
capacity while holding such office.
4
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Section 4. Insurance. The Company may purchase and maintain insurance
or furnish similar protection, including, but not limited to, providing a
trust fund, letter of credit, or self-insurance, on behalf of any person who
is a director, officer, employee, or agent of the Company or who, while a
director, officer, employee, or agent of the Company, is serving at the
request of the Company as a director, officer, partner, trustee, employee, or
agent of a Company Affiliate, against any liability asserted against and
incurred by such director, officer, employee, or agent in such capacity or
arising out of such director's, officer's, employee's, or agent's status as
such, whether or not the Company would have the power to indemnify such
director, officer, employee, or agent against such liability under the Act.
Section 5. Delegation of Authority. The Company may, by action of its
Board of Directors, authorize one or more officers to grant rights to
indemnification and advancement of expenses to employees or agents of the
Company on such terms and conditions as such officer or officers deem
appropriate under the circumstances.
Section 6. Continuing Effect. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article IV shall, unless
otherwise provided when authorized, continue as to a person who has ceased to
be a director, officer, employee, or agent and shall inure to the benefit of
the heirs, executors, and administrators of such persons. Anything in this
Article IV to the contrary notwithstanding, no elimination or amendment of
this Bylaw adversely affecting the right of any person to indemnification or
advancement of expenses hereunder shall be effective until the sixtieth day
following notice to such indemnified person of such action, and no
elimination or amendment of these Bylaws shall deprive any such person of
such person's rights hereunder arising out of alleged or actual occurrences,
acts, or failures to act which had their origin prior to such sixtieth day.
Section 7. Severability. In case any provision in this Article IV
shall be determined at any time to be unenforceable in any respect, the other
provisions shall not in any way be affected or impaired thereby, and the
affected provision shall be given the fullest possible enforcement in the
circumstances, it being the intention of the Company to afford
indemnification and advancement of expenses to the persons indemnified hereby
to the fullest extent permitted by law.
Section 8. Notice to Shareholders. Submission of these Bylaws to the
shareholders of the Company for ratification shall constitute notice to the
shareholders of the Company and shall be the only notice which the Company
shall be required to give the shareholders of the Company with respect to any
of the matters covered hereby, including, without limitation, the Company's
entering into any agreement or making other arrangements providing for the
indemnification of or the advancement of expenses to a director, officer,
employee, or agent, the actual advancement of expenses to a director,
officer, employee, or agent of the Company, or the payment of any other
liability or indemnification to or on behalf of a director, officer,
employee, or agent.
5
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ARTICLE V
Share Certificates and Transfer of Shares
Section 1. Share Certificates. Shares of stock of the Company may, at
the discretion of the Board of Directors, be represented by certificates or
may be uncertificated. Any share certificates of the Company shall be in the
form and contain the provisions determined by the Board of Directors and
required by the Act.
Section 2. Transfer Rules. The Board of Directors, the Chairman of
the Board, the Vice Chairman of the Board, the President, or the Secretary
may from time to time promulgate rules or regulations as it or such officer
may deem advisable concerning the issue, transfer, registration, or
replacement of share certificates of the Company.
Section 3. Registered Shareholders. The Company shall be entitled to
treat the holder of record of any share or shares as the holder in fact of
those shares. The Company shall not be bound to recognize any equitable or
other claim to or interest in any shares on the part of any other person,
regardless of whether the Company has actual or imputed knowledge of a claim
of interest, except as otherwise required by the Act.
ARTICLE VI
Fiscal Year and Seal
Section 1. Fiscal Year. The fiscal year of the Company shall begin on
the first day of January and end on the last day of December each year.
Section 2. Seal. The seal of the Company shall be circular in form.
Around the margin of the seal shall be placed the words "Southwestern Public
Service Company" and in the center the words "Corporate Seal Incorporated
1921 New Mexico."
ARTICLE VII
Amendments
These Bylaws may be altered, amended, or repealed by the affirmative
vote of a majority of the Board of Directors at any regular meeting or, if
notice of intention to amend, alter, or repeal the Bylaws is given in the
notice of the meeting, at any special meeting of the Board of Directors.
These Bylaws may also be altered, amended, or repealed by the shareholders by
the affirmative vote of the holders of a majority in interest of the shares
issued and outstanding and entitled to vote.
* * * * *
6
Exhibit 10(a) 1
Form of Change in Control Agreement
Between
New Century Energies, Inc.
and
(Executive Name)
THIS AGREEMENT is made and entered into effective as of the 1st day
of August, 1997 by and between NEW CENTURY ENERGIES, INC., a Delaware
corporation (hereinafter "NCE") and (Executive Name) (hereinafter, the
"Executive").
WHEREAS Executive is a valuable employee of NCE and an integral
part of its management; and
WHEREAS NCE wishes to encourage Executive to continue Executive's
career with and services to NCE for the period during and after an actual or
threatened Change In Control; and
WHEREAS the Board of Directors of NCE has determined that it
would be in the best interests of NCE and its shareholders to assure
continuity in the management of NCE in the event of a Change In Control by
entering into this Agreement with Executive;
NOW, THEREFORE, in consideration of the services to be performed
by Executive for NCE in the future, as well as the promises and covenants
contained in this Agreement, the parties agree as follows:
Sec. 1. DEFINITIONS. For purposes of this Agreement, the
following capitalized terms shall have the meanings prescribed below:
Sec. 1.1 Board. "Board" means the Board of Directors of NCE.
Except where this Agreement requires that action be taken by a specified
percentage or number of the members of the Board, action on behalf of the
Board may be taken by its Executive Committee, or by any other committee or
individual specifically authorized to act on behalf of the Board by
resolution of the Board.
Sec. 1.2 Change In Control. A "Change In Control" is the
occurrence of any of the events described in subsections (a) through (d)
below:
(a) Either (i) receipt by NCE of a report on Schedule 13D, or an
amendment to such a report, filed with the Securities and Exchange
Commission pursuant to Section 13(d) of the Securities Exchange Act
of 1934 (the "1934 Act") disclosing that any person (as such term is
used in Section 13(d) of the 1934 Act) ("Person"), is the beneficial
owner, directly or indirectly, of twenty percent or more of the
combined voting power of the outstanding stock of NCE, or (ii) actual
knowledge by the Board of facts on the basis of which any Person is
required to file such a report on Schedule 13D, or to make an
amendment to such a report, with the SEC (or would be required to
file such a report or amendment upon the lapse of the applicable
period of time specified in Section 13(d) of the 1934 Act) disclosing
that such Person is the beneficial owner, directly or indirectly, of
twenty percent or more of the combined voting power of the
outstanding stock of NCE.
<PAGE>
(b) Purchase by any Person other than NCE or a wholly-owned subsidiary
of NCE, of shares pursuant to a tender or exchange offer to acquire
any stock of NCE (or securities convertible into stock) for cash,
securities or any other consideration provided that, after
consummation of the offer, such Person is the beneficial owner (as
defined in Rule 13d-3 under the 1934 Act), directly or indirectly,
of twenty percent or more of the combined voting power of the
outstanding stock of NCE (calculated as provided in paragraph (d) of
Rule 13d-3 under the 1934 Act in the case of rights to acquire
stock).
(c) Approval by the shareholders of NCE of a transaction described in
any of the following paragraphs:
(1) Any consolidation or merger of NCE in which NCE is not the
continuing or surviving corporation or pursuant to which shares
of stock of NCE would be converted into cash, securities or
other property, other than a consolidation or merger of NCE in
which holders of its stock immediately prior to the
consolidation or merger own at least a majority of the combined
voting power of the outstanding stock of the surviving
corporation immediately after the consolidation or merger (or
at least a majority of the combined voting power of the
outstanding stock of a corporation which owns directly or
indirectly all of the voting stock of the surviving
corporation).
(2) Any consolidation or merger in which NCE is the continuing or
surviving corporation but in which the shareholders of NCE
immediately prior to the consolidation or merger do not hold at
least a majority of the combined voting power of the
outstanding stock of the continuing or surviving corporation
(except where such holders of stock hold at least a majority of
the combined voting power of the outstanding stock of the
corporation which owns directly or indirectly all of the voting
stock of NCE).
(3) Any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all or substantially
all the assets of NCE (except such a transfer to a corporation
which is wholly owned, directly or indirectly, by NCE), or any
complete liquidation of NCE.
(4) Any merger or consolidation of NCE where, after the merger or
consolidation, one Person owns 100% of the shares of stock of
NCE (except where the holders of NCE's voting stock immediately
prior to such merger or consolidation own at least a majority
of the combined voting power of the outstanding stock of such
Person immediately after such merger or consolidation).
(d) A change in the majority of the members of the Board within a
24-month period unless the election or nomination for election by
NCE's shareholders of each new director was approved by the vote of
at least two-thirds of the directors then still in office who were
in office at the beginning of the 24-month period.
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<PAGE>
A Change In Control occurs on the date that an event described in subsection
(a), (b) or (d) occurs. In the case of a transaction described in subsection
(c) which is subject to approval by the shareholders, the Change In Control
occurs on the date the transaction is completed.
Sec. 1.3 Code. "Code" means the Internal Revenue Code of 1986,
as amended.
Sec. 1.4 Disability. "Disability" or "Disabled" means the
inability of Executive as a result of physiological or psychological
condition to perform the essential functions of any position held by
Executive on or after the date a Change In Control occurred.
Sec. 1.5 Discharge for Cause. Solely for purposes of this
Agreement, "Discharge for Cause" means a termination of Executive's
employment by NCE because of Executive's fraud or dishonesty which has
resulted, or is likely to result, in material economic damage to NCE, as
determined in good faith by a vote of two-thirds of the non-employee
directors at a meeting of the Board at which Executive has been afforded an
opportunity to be heard.
Sec. 1.6 Good Reason. "Good Reason" means the occurrence, on or
after the date of a Change In Control and without Executive's written
consent, of any of the following events or circumstances, as determined in
good faith by Executive:
(a) A reduction in Executive's base salary in effect immediately prior
to the Change In Control.
(b) A material reduction in Executive's target opportunity, measured as
a percentage of base salary, to earn annual or long-term incentives
or bonuses.
(c) A failure to provide to Executive employee benefits and perquisites
(other than amounts described in subsections (a) and (b)) which are
reasonably equivalent in the aggregate to those provided to
Executive immediately prior to the Change In Control.
(d) A material reduction by NCE of Executive's job duties and
responsibilities that existed immediately prior to the Change In
Control, including but not limited to the assignment to Executive of
duties and responsibilities which are materially inconsistent with
those of Executive's position immediately prior to the Change In
Control.
(e) Assignment or reassignment of Executive to another place of
employment that is more than 50 miles (measured by the shortest
paved highway route) from Executive's place of employment
immediately prior to the Change In Control.
(f) A failure by NCE to pay to Executive when due any deferred
compensation that was deferred by Executive prior to the Change in
Control.
(g) A failure by NCE to comply with the terms and conditions of this
Agreement.
Notwithstanding the foregoing:
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(aa)An event or circumstance shall not constitute Good Reason unless
Executive provides written notice to NCE specifying the basis for
Executive's determination that Good Reason exists within six months
after the first day on which such Good Reason existed. If NCE cures
the event or circumstance within 30 days of receiving such written
notice (including retroactive restoration of any lost compensation
or benefits, where reasonably possible), Good Reason shall be deemed
never to have existed.
(bb)NCE and Executive may, upon mutual written agreement, waive any
provision of this Section which would otherwise constitute Good
Reason.
Sec. 2. TERM OF AGREEMENT. This Agreement shall become
effective as of the date written in the first paragraph of this Agreement and
shall be for an initial term ending on December 31, 1999. The term of this
Agreement shall be automatically extended on each December 31 for one
additional calendar year, unless NCE provides written notice to Executive
prior to a December 31 that this sentence shall cease to apply on that
December 31. (For example, on December 31, 1997, the term will be
automatically extended to December 31, 2000 unless NCE gives written notice
to Executive prior to December 31, 1997.) This Agreement will apply to any
Change in Control that occurs during the term of this Agreement.
Sec. 3. ELIGIBILITY FOR BENEFITS. Except as provided in
Sec. 3.1, if Executive is a full-time employee of NCE on the date a Change In
Control occurs, Executive shall be entitled to the benefits provided under
Sec. 4 following the occurrence of either of the following events:
(a) Executive's employment is involuntarily terminated by NCE during the
36-month period following the Change In Control.
(b) Executive terminates employment with NCE for Good Reason during the
36-month period following the Change In Control; provided that the
period in which NCE could correct the Good Reason has expired.
Sec. 3.1 Disqualification from Benefits. Notwithstanding
Sec. 3, Executive shall not be eligible for any benefits under this Agreement
under any of the following circumstances:
(a) NCE terminates Executive's employment due to Discharge for Cause.
(b) Executive's employment with NCE terminates due to Disability or
Executive's death.
(c) Executive voluntarily terminates employment without Good Reason.
For purposes of this Agreement, a voluntary termination of
employment includes any termination that qualifies as a form of
"retirement" under any employee pension benefit plan maintained by
NCE that covers Executive; provided that Good Reason does not exist
at the time of such retirement.
(d) Executive's employment is terminated pursuant to any policy of NCE
that requires or permits mandatory retirement of Executive upon
attainment of a specified age and that complies with applicable laws
and regulations.
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<PAGE>
If this Sec. 3.1 applies, Executive shall be subject to the normal policies
of NCE regarding such events and shall be eligible for only such compensation
and benefits as would apply if this Agreement did not exist.
Sec. 3.2 Anticipation of Change In Control. If (i) Executive's
employment is involuntarily terminated by NCE, or Executive terminates such
employment with NCE for Good Reason, on or after the date on which a public
announcement is made by NCE of its intention to participate in a transaction
which would constitute a Change In Control, (ii) Executive would be eligible
under Sec. 3 if the Change In Control had already occurred, (iii) Sec. 3.1
does not apply, and (iv) the Change In Control actually occurs, then
Executive's employment shall be deemed solely for purposes of this Agreement
to have terminated under Sec. 3 on the date the Change In Control occurred
and Executive shall be entitled to the benefits provided under Sec. 4.
Sec. 4. BENEFITS. If Executive is eligible under Sec. 3,
Executive will receive the benefits provided under Sec. 4.1 through Sec. 4.5.
Sec. 4.1 Severance Payment. Within five business days after
Executive's termination of employment under Sec. 3 occurs, NCE will pay to
Executive a lump sum equal to two and one-half times the sum of the amounts
determined under subsections (a) and (b):
(a) Executive's annual base salary immediately prior to the Change In
Control.
(b) The average of the short- and long-term bonuses that Executive
received for the two calendar years immediately preceding the date
Executive's employment terminated. For purposes of this subsection:
(1) If Executive's employment terminates during 1997, the amount
under this subsection (b) shall be equal to the target award
payable by NCE for 1997.
(2) If Executive's employment terminates during 1998, the amount
under this subsection (b) shall be equal to the target award
for 1998.
(3) If Executive's employment terminates during 1999, the amount
under this subsection (b) shall be the average of the actual
bonus for 1998 and the target award for 1999.
(4) Any portion of a bonus that was paid or awarded in the form of
NCE stock will be valued for purposes of this subsection (b) at
the closing price for such stock on the New York Stock Exchange
on the most recent business day preceding the date the cash
portion of the award became payable to Executive (disregarding
any election to defer said payment).
The payment under this Sec. 4.1 shall also include any accrued but unpaid
salary and pay for any accrued but unused vacation under NCE's policies which
is outstanding on the date Executive's employment terminates.
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Sec. 4.2 Stock Options and Restricted Stock. All stock options
granted to Executive which are outstanding on the date of Executive's
termination of employment under Sec. 3 shall become vested, and all
restrictions on restricted shares of NCE stock granted to Executive shall
lapse on that date. All of Executive' outstanding stock options shall be
exercisable as if Executive had remained an employee of NCE during the two
and one-half year period following the termination of Executive's employment.
Sec. 4.3 Continuation of Welfare Benefits. During the 30 month
period following Executive's termination of employment under Sec. 3,
Executive will be eligible for continuation of coverage for Executive and
Executive's eligible dependents under all life insurance, disability,
accident and health insurance coverage in effect at the time Executive's
employment terminated, subject to the following:
(a) Such coverage shall be provided under the same terms and conditions
as apply to similarly situated active employees of NCE during such
period. Executive shall pay to NCE the contribution, if any,
required to be paid for such coverage by similarly situated active
employees of NCE during such period.
(b) If a group insurance carrier refuses to provide the coverage
described in this Sec. 4.3 under its contract issued to NCE, or if
NCE reasonably determines that the coverage required under this Sec.
4.3 would cause a welfare plan sponsored by NCE to violate any
provision of the Code prohibiting discrimination in favor of highly
compensated employees or key employees, NCE will use its best
efforts to obtain for Executive an individual insurance policy
providing comparable coverage. However, if NCE determines in good
faith that comparable coverage cannot be obtained for less than two
times the premium or premium equivalent for such coverage under
NCE's welfare plan or plans, NCE's sole obligation under this Sec.
4.3 with respect to that coverage will be limited to paying to
Executive a monthly amount equal to two times the monthly premium or
premium equivalent for that coverage under NCE's plans.
(c) Benefits provided to Executive or Executive's dependents under this
section will be secondary to any comparable benefits provided by
another employer to the extent permitted by applicable law.
Sec. 4.4 Retirement Benefits. Within five business days after
Executive's employment terminates under Sec. 3 (or as soon thereafter as the
amount payable under this section can reasonably be determined), NCE will pay
Executive a lump sum equal to the sum of the following amounts:
(a) Retirement Plans. The present value of the additional benefit to
which Executive would be entitled under the qualified defined
benefit pension plan and non-qualified supplemental executive
retirement plan, if any, that covered Executive on the date the
termination of employment occurred, determined by assuming that
Executive's employment had continued for an additional 30 months and
that Executive's rate of compensation being recognized by each such
plan immediately prior to the termination of employment had
continued in effect during such period. The "present value" for
purposes of this subsection (a) shall be determined by using the
actuarial equivalent
6
<PAGE>
factors specified in the qualified defined benefit pension plan for
determining lump sum distributions (disregarding any restriction on
the size of lump sum distributions allowed).
(b) Savings Plans. The sum of the additional contributions (other than
pre-tax salary deferral contributions by Executive) that would have
been made or credited by NCE to Executive's accounts under each
qualified defined contribution plan and non-qualified supplemental
executive savings plan, if any, that covered Executive on the date
the termination of employment occurred, determined by assuming that:
(1) Executive's employment had continued for an additional 30
months.
(2) Executive's rate of compensation being recognized by each plan
immediately prior to the termination of employment had
continued in effect during such period.
(3) In the case of matching contributions, Executive's rate of
pre-tax salary deferral contributions in effect immediately
prior to the termination of employment had remained in effect
throughout such period.
(4) In the case of discretionary contributions by NCE, NCE
continued to make such contributions during such period at the
rate that applied to the most recent plan year that ended prior
to the termination of employment.
Sec. 4.5 Excise Tax Gross-Up. If Independent Tax Counsel
determines that the aggregate payments made to Executive under this Agreement
and any other payments to Executive from NCE which constitute "parachute
payments" as defined in Code Section 280G, or any successor provision thereto
("Parachute Payments") would be subject to the excise tax imposed by Code
Section 4999 (the "Excise Tax"), then Executive will receive an additional
payment (a "Gross-Up Payment") in an amount determined by Independent Tax
Counsel such that after payment by Executive of all federal and state income
and excise taxes (including any Excise Tax) imposed on the Gross-Up Payment
and any interest or penalties imposed with respect to such taxes, Executive
retains from the Gross-Up Payment an amount equal to the Excise Tax imposed
on the payments.
(a) If Independent Tax Counsel determines that no Excise Tax is payable
by Executive, it shall furnish Executive with a written opinion that
Executive has substantial authority not to report any Excise Tax on
Executive's federal income tax return. If Executive is subsequently
required to make a payment of any Excise Tax, then Independent Tax
Counsel shall determine the grossed-up amount of such payment using
the same principles as applied to calculation of the Gross-Up
Payment (referred to herein as a "Gross-Up Underpayment") and any
such Gross-Up Underpayment shall be promptly paid by NCE to or for
the benefit of Executive.
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<PAGE>
(b) Executive shall notify NCE in writing within 15 days of any claim by
the Internal Revenue Service that, if successful, would require the
payment by NCE of a Gross-Up Payment. If NCE notifies Executive in
writing that it desires to contest such claim and that it will bear
the costs and provide the indemnification as required by this
subsection, Executive shall:
(1) Give NCE any information reasonably requested by NCE relating
to such claim.
(2) Take such action in connection with contesting such claim as
NCE shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected
by NCE.
(3) Cooperate with NCE in good faith in order to effectively
contest such claim.
(4) Permit NCE to participate in any proceedings relating to such
claim.
NCE shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such
contest and shall indemnify and hold Executive harmless, on an
after-tax basis, for any Excise Tax or income tax, including
interest and penalties with respect thereto, imposed as a result of
such representation and payment of costs and expenses. NCE shall
control all proceedings taken in connection with such contest. If
NCE directs Executive to pay such claim and sue for a refund, NCE
shall advance the amount of such payment to Executive, on an
interest-free basis and shall indemnify and hold Executive harmless,
on an after-tax basis, from any Excise Tax or income tax, including
interest or penalties with respect thereto, imposed with respect to
such advance or with respect to any imputed income with respect to
such advance.
(c) If, after the receipt by Executive of an amount paid or advanced by
NCE pursuant to this Section, Executive becomes entitled to receive
any refund with respect to such Excise Tax, Executive shall within
10 days pay to NCE the Gross-Up Payment or Gross-Up Underpayment
related to the amount of such refund (together with any interest
paid or credited thereon, after adjustment for any taxes applicable
to such interest or repayment).
(d) For purposes of this Sec. 4.5, "Independent Tax Counsel" means a
lawyer, a certified public accountant with a nationally recognized
accounting firm, or a compensation consultant with a nationally
recognized actuarial and benefits consulting firm, with expertise in
the area of executive compensation tax law, who shall be selected by
Executive and shall be reasonably acceptable to NCE. The fees and
disbursements of Independent Tax Counsel shall be paid by NCE.
Sec. 4.6 No Offsets. Executive shall be under no obligation to
seek other employment or otherwise mitigate the amounts payable by NCE under
Sec. 4. There will be no offset against the amounts payable under Sec. 4 on
account of any compensation or earnings from any subsequent employment or
self-employment of Executive, except as provided in Sec. 4.3(c). NCE's
obligations to make the payments provided for this Agreement and otherwise to
perform its
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obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which NCE may have
against Executive or others, unless Executive has given written consent to
such as set-off or is subject to a final judgment in favor of NCE.
Sec. 5 SOURCE OF PAYMENTS. Except as otherwise provided in this
section, all payments provided in Sec. 4 shall be paid from the general funds
of NCE, and NCE shall not be required to establish a special or separate fund
or otherwise segregate assets to assure payments will be made under this
Agreement.
(a) On or before the date a Change In Control occurs (or as soon as
reasonably possible following a Change In Control for which NCE has
no advance warning), NCE will establish a trust in the form
generally known as a "rabbi trust", and will immediately deposit
into that trust an amount equal to the total of the estimated
amounts to which Executive would become entitled under Sections 4.1,
4.4 and 4.5 in the event the requirements of Sec. 3 are satisfied.
(1) The trustee shall be a national bank or trust company selected
by NCE and reasonably acceptable to Executive.
(2) The amount to be deposited in the trust shall be determined by
an actuary employed by a nationally recognized actuarial and
benefits consulting firm selected by NCE which shall be
reasonably acceptable to Executive.
(b) In the event Executive satisfies the requirements of Sec. 3 and
becomes entitled to payments under Sec. 4, those payments shall be
made from the assets of the trust to the extent those assets are
sufficient. NCE's obligations under this Agreement shall be reduced
to the extent of the payments made from the trust.
(c) If Executive does not become eligible under Sec. 3 within 36 months
after the date a Change In Control occurs, or if an event described
in Sec. 3.1 occurs that makes Executive ineligible for benefits, the
trust shall terminate and its assets shall be returned to NCE.
Notwithstanding the foregoing provisions of this section, it is expressly
understood and agreed that Executive (and any dependent, beneficiary or
estate of Executive who becomes entitled to payments hereunder) shall at all
times be an unsecured creditor of NCE, and shall have no rights to assets of
NCE (including assets held in any trust) that are superior to other unsecured
creditors of NCE. Nothing in this Agreement shall be interpreted as creating
a constructive trust over any assets of NCE or creating a fiduciary
relationship between NCE and Executive or any other person.
Sec. 6 ENFORCEMENT. The rights and obligations created under
this Agreement shall be enforced as follows:
(a) Arbitration. In the event of any dispute or difference between NCE
and Executive with respect to the subject matter or interpretation
of this Agreement or the enforcement of rights hereunder, such
dispute or difference shall be submitted to arbitration. The
arbitrator or arbitrators shall be selected by agreement of the
parties or, if they cannot
9
<PAGE>
agree on an arbitrator or arbitrators within 30 days after the date one
party notified the other of the desire to have the question settled
by arbitration, then the arbitrator or arbitrators shall be selected
by the American Arbitration Association (the "AAA") in Denver,
Colorado upon the application of either party. The determination
reached in such arbitration shall be final and binding on both
parties without any right of appeal or further dispute. Execution
of the determination by such arbitrator may be sought in any court
of competent jurisdiction. In any such arbitration or subsequent
proceeding, Executive shall be entitled to seek both legal and
equitable relief and remedies, including but not limited to specific
performance of NCE's obligations under this Agreement. The
arbitrators shall not be bound by judicial formalities and may
abstain from following the strict rules of evidence and shall
interpret this Agreement as an honorable engagement and not merely
as a legal obligation. Unless otherwise agreed by the parties, any
such arbitration shall take place in Denver, Colorado, and shall be
conducted in accordance with the Rules of the AAA.
(b) Costs and Expenses. NCE will pay all fees of the arbitrators,
whether the arbitration is initiated by NCE or Executive. In
addition, NCE will pay, upon written demand from Executive, all
legal fees and expenses which Executive may reasonably incur in
connection with the arbitration or subsequent judicial proceedings
to enforce this Agreement, plus interest on any award at the
applicable federal rate, under Code Section 7872(f)(2); provided,
however, that this sentence shall not apply unless Executive
recovers through such action some amount or benefit (regardless of
size or value) in excess of the amount NCE had offered prior to
commencement of the action.
(c) Survival. The obligations under this Sec. 6 shall survive the
termination of this Agreement for any reason, whether such
termination is by NCE, by Executive, upon the expiration of this
Agreement, or otherwise.
Sec. 7 SUCCESSOR EMPLOYER. If Executive becomes an employee of
another entity as a result of a transaction in which NCE consolidates or
merges into or with such entity or transfers all or substantially all of its
assets to such entity (whether or not the transaction constitutes a Change In
Control), the term "NCE" in this Agreement shall mean such other entity and
this Agreement shall continue in full force and effect. If Executive becomes
an employee of a wholly-owned subsidiary of NCE (or of a successor entity
described in the previous sentence), Executive shall be deemed for purposes
of this Agreement to continue as an employee of NCE (or the successor entity)
while employed by such subsidiary.
Sec. 8 MISCELLANEOUS PROVISIONS.
Sec. 8.1 Amendment. This Agreement may be amended or modified
only in writing, signed by both parties.
Sec. 8.2 Tax Withholding. NCE may withhold from any payments
made under this Agreement all federal, state or other taxes which it
determines to be required pursuant to any law or governmental regulation or
ruling.
10
<PAGE>
Sec. 8.3 Death of Executive Following Entitlement to Payments.
If Executive dies after becoming eligible under Sec. 3, but before all
payments provided under Sec. 4 have been made, the remaining payments shall
be made to the beneficiary designated by Executive in the most recent written
instrument filed with NCE prior to Executive's death which specifically
refers to this Agreement. Executive may revoke such a beneficiary
designation at any time, without consent of any beneficiary, and file a new
designation. If no effective beneficiary designation is on file with NCE at
the time of Executive's death, the remaining payments shall be paid to
Executive's estate.
Sec. 8.4 Entire Agreement. This Agreement contains the entire
understanding of the parties with regard to all matters contained herein.
There are no other agreements, conditions or representations, oral or
written, expressed or implied, with regard thereto. This Agreement
supersedes all prior agreements relating to separation payments following a
Change In Control between Executive and NCE or any predecessor to NCE.
However, this Agreement shall not operate to reduce any benefit or
compensation to which Executive is entitled under any plan, policy or program
maintained by NCE that does not specifically relate to payments following a
Change In Control, including but not limited to benefits or compensation
under incentive plans, qualified retirement plans, or nonqualified
supplemental or excess pension or savings plans.
Sec. 8.5 Assignment. NCE may in its sole discretion assign this
Agreement to any entity which succeeds to the business of NCE through merger,
consolidation, a sale of all or substantially all of the assets of NCE, or
any similar transaction. Executive acknowledges that the services to be
rendered by Executive are unique and personal. Accordingly, Executive may
not assign any of Executive's rights or obligations under this Agreement.
Sec. 8.6 Successors. Subject to Sec. 8.5, the provisions of
this Agreement shall be binding upon the parties hereto, upon any successor
to or assign of NCE, and upon Executive's heirs and the personal
representative of Executive or Executive's estate.
Sec. 8.7 No Attachment. Except as required by law, no right to
receive payments under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge or
hypothecation or to execution, attachment, levy or similar process or
assignment by operation of law, and any attempt, voluntary or involuntary, to
effect any such action shall be null, void and of no effect.
Sec. 8.8 Notices. Any notice required to be given under this
Agreement shall be in writing and shall be delivered either in person or by
certified or registered mail, return receipt requested. Any notice by mail
shall be addressed as follows:
If to NCE, to:
New Century Energies, Inc.
1225 17th Street
Denver, Colorado 80202
Attention: Marilyn E. Taylor, Vice President/Human Resources
11
<PAGE>
If to Executive, to:
_"Address"___________________
____________________________
____________________________
or to such other addresses as either party may designate in writing to the
other party from time to time.
Sec. 8.9 Waiver of Breach. Any waiver by either party of
compliance with any provision of this Agreement by the other party shall not
operate or be construed as a waiver of any other provision of this Agreement,
or of any subsequent breach by such party of a provision of this Agreement,
unless the waiver specifically states that it is a continuing waiver or that
it applies to other provisions. No waiver by NCE shall be valid unless in
writing and signed by the chief executive officer of NCE. No waiver by
Executive shall be valid unless in writing and signed by Executive.
Sec. 8.10 Severability. If any one or more of the provisions
(or portions thereof) of this Agreement shall for any reason be held by a
final determination of a court of competent jurisdiction to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision (or portions of the
provisions) of this Agreement, and the invalid, illegal or unenforceable
provisions shall be deemed replaced by a provision that is valid, legal and
enforceable and that comes closest to expressing the intention of the parties
hereto.
Sec. 8.11 Governing Law. This Agreement shall be interpreted
and enforced in accordance with the laws of the State of Colorado, without
giving effect to conflict of law principles.
Sec. 8.12 Headings. The headings of sections herein are
included solely for convenience of reference and shall not control the
meaning or interpretation of any of the provisions of this Agreement.
Sec. 8.13 Counterparts. This Agreement may be executed by
either of the parties hereto in counterparts, each of which shall be deemed
to be an original, but all such counterparts shall constitute a single
instrument.
Sec. 9 WAIVER OF SEPARATION AGREEMENT (Applicable to former
Public Service Company of Colorado Executives). Executive is currently a
party to a Separation Agreement with Public Service Company of Colorado
("PSC"), which was originally effective August 22, 1995, and which has been
amended several times prior to the date of this Agreement. (That Separation
Agreement, including all subsequent amendments of it executed prior to August
1, 1997, is hereinafter called the "Separation Agreement".)
Executive is entitled to certain severance payments and other
benefits under the Separation Agreement if Executive's employment terminates
under certain conditions, or if Executive has a "constructive discharge",
following a "change in control" of PSC. Executive understands that the
merger of PSC and Southwestern Public Service Co. to form NCE is a "change in
control" under the Separation Agreement. Paragraph 13 of the Separation
Agreement allows Executive to waive all rights under the Separation Agreement
by executing a written instrument.
In consideration of the benefits described in this Agreement,
Executive hereby waives and surrenders all rights that Executive or any of
Executive's beneficiaries, survivors, heirs, successors
12
<PAGE>
or assigns may have under the Separation Agreement against NCE, PSC, or any of
their predecessors, successors or affiliates, either now or at any time in the
future. The waiver includes, but is not limited to, all rights under the
Separation Agreement to severance benefits, continuation of employee benefits,
or increases in benefits provided under employee benefit plans (including
nonqualified supplemental plans). For purposes of Paragraph 13 of the Separation
Agreement, Executive's signature below constitutes a complete, continuing and
irrevocable waiver of all the terms and conditions of the Separation Agreement,
both at the present time and at all times in the future.
IN WITNESS WHEREOF, NCE has caused this Agreement to be executed
by its duly authorized officer, and Executive has executed this Agreement,
all effective as of the date first above written.
EXECUTIVE NEW CENTURY ENERGIES, INC.
__________________________________ By:
__________________________________
(Executive Name) Chairman and Chief Executive Officer
or Vice Chairman of the Board
13
<PAGE>
Schedule to Form of Change in Control Agreement
Effective
Executive Date
Bill D. Helton August 1, 1997
Wayne H. Brunetti August 1, 1997
Marilyn E.Taylor August 1, 1997
Richard C. Kelly August 1, 1997
Doyle R. Bunch II August 1, 1997
Ross C. King August 1, 1997
David M. Wilks August 1, 1997
Henry Hamilton August 1, 1997
Gary L. Gibson August 1, 1997
Teresa S. Madden August 1, 1997
James D. Steinhilper August 1, 1997
John McAfee August 1, 1997
Paul J. Bonavia December 1, 1997
Brian P. Jackson December 1, 1997
EXHIBIT 21
SUBSIDIARIES OF
NEW CENTURY ENERGIES, INC
As of December 31, 1997
Subsidiary State of Incorporation
1. Public Service Company of Colorado Colorado
2. Southwestern Public Service Company New Mexico
3. Cheyenne Light, Fuel and Power Company Wyoming
4. WestGas InterState, Inc. Colorado
5. New Century Services, Inc. Delaware
6. NC Enterprises, Inc. Delaware
SUBSIDIARIES OF
PUBLIC SERVICE COMPANY OF COLORADO
As of December 31, 1997
Subsidiary State of Incorporation
1. 1480 Welton, Inc. Colorado
2. PSR Investments, Inc. Colorado
3. PS Colorado Credit Corporation Colorado
4. Green and Clear Lakes Company New York
5. Fuel Resources Development Co.
(a dissolved Colorado corporation) Colorado
6. New Century International, Inc. Delaware
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW CENTURY
ENERGIES, INC. CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND
CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE YEAR ENDED DECEMBER 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 5,533,376
<OTHER-PROPERTY-AND-INVEST> 366,727
<TOTAL-CURRENT-ASSETS> 824,166
<TOTAL-DEFERRED-CHARGES> 586,012
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 7,310,281
<COMMON> 110,749
<CAPITAL-SURPLUS-PAID-IN> 1,583,446
<RETAINED-EARNINGS> 659,050
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,353,245
139,253
140,002
<LONG-TERM-DEBT-NET> 1,948,136
<SHORT-TERM-NOTES> 301,743
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 286,600
<LONG-TERM-DEBT-CURRENT-PORT> 252,542
2,576
<CAPITAL-LEASE-OBLIGATIONS> 39,819
<LEASES-CURRENT> 4,927
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,841,438
<TOT-CAPITALIZATION-AND-LIAB> 7,310,281
<GROSS-OPERATING-REVENUE> 3,342,525
<INCOME-TAX-EXPENSE> 133,919
<OTHER-OPERATING-EXPENSES> 2,713,300
<TOTAL-OPERATING-EXPENSES> 2,713,300
<OPERATING-INCOME-LOSS> 629,225
<OTHER-INCOME-NET> (27,189)
<INCOME-BEFORE-INTEREST-EXPEN> 602,036
<TOTAL-INTEREST-EXPENSE> 206,630
<NET-INCOME> 150,922
0
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 264,957
<TOTAL-INTEREST-ON-BONDS> 165,560
<CASH-FLOW-OPERATIONS> 344,439
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.44
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PUBLIC
SERVICE COMPANY OF COLORADO AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 1997 AND CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE
YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,724,860
<OTHER-PROPERTY-AND-INVEST> 330,014
<TOTAL-CURRENT-ASSETS> 562,607
<TOTAL-DEFERRED-CHARGES> 377,252
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 4,994,733
<COMMON> 1
<CAPITAL-SURPLUS-PAID-IN> 1,302,118
<RETAINED-EARNINGS> 319,280
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,621,399
39,253
140,002
<LONG-TERM-DEBT-NET> 1,298,538
<SHORT-TERM-NOTES> 50,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 298,555
<LONG-TERM-DEBT-CURRENT-PORT> 252,369
2,576
<CAPITAL-LEASE-OBLIGATIONS> 39,600
<LEASES-CURRENT> 4,791
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,247,650
<TOT-CAPITALIZATION-AND-LIAB> 4,994,733
<GROSS-OPERATING-REVENUE> 2,229,643
<INCOME-TAX-EXPENSE> 90,813
<OTHER-OPERATING-EXPENSES> 1,801,477
<TOTAL-OPERATING-EXPENSES> 1,892,290
<OPERATING-INCOME-LOSS> 337,353
<OTHER-INCOME-NET> 2,891
<INCOME-BEFORE-INTEREST-EXPEN> 340,244
<TOTAL-INTEREST-EXPENSE> 136,202
<NET-INCOME> 93,477
11,752
<EARNINGS-AVAILABLE-FOR-COMM> 81,725
<COMMON-STOCK-DIVIDENDS> 152,295
<TOTAL-INTEREST-ON-BONDS> 118,438
<CASH-FLOW-OPERATIONS> 263,912
<EPS-PRIMARY> 0.000
<EPS-DILUTED> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOUTHWESTERN
PUBLIC SERVICE COMPANY BALANCE SHEET AS OF DECEMBER 31, 1997 AND STATEMENTS OF
INCOME AND CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,714,544
<OTHER-PROPERTY-AND-INVEST> 124,868
<TOTAL-CURRENT-ASSETS> 158,093
<TOTAL-DEFERRED-CHARGES> 183,988
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,181,493
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 348,402
<RETAINED-EARNINGS> 349,988
<TOTAL-COMMON-STOCKHOLDERS-EQ> 698,390
100,000
0
<LONG-TERM-DEBT-NET> 620,598
<SHORT-TERM-NOTES> 25,160
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 154,244
<LONG-TERM-DEBT-CURRENT-PORT> 173
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 582,928
<TOT-CAPITALIZATION-AND-LIAB> 2,181,493
<GROSS-OPERATING-REVENUE> 979,283
<INCOME-TAX-EXPENSE> 48,795
<OTHER-OPERATING-EXPENSES> 771,207
<TOTAL-OPERATING-EXPENSES> 820,002
<OPERATING-INCOME-LOSS> 159,281
<OTHER-INCOME-NET> (26,602)
<INCOME-BEFORE-INTEREST-EXPEN> 132,679
<TOTAL-INTEREST-EXPENSE> 57,104
<NET-INCOME> 75,575
0
<EARNINGS-AVAILABLE-FOR-COMM> 75,575
<COMMON-STOCK-DIVIDENDS> 108,937
<TOTAL-INTEREST-ON-BONDS> 46,356
<CASH-FLOW-OPERATIONS> 116,311
<EPS-PRIMARY> 0.000
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</TABLE>
