UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Exact name of registrant as specified in its charter,
State or other jurisdiction of incorporation or
organization, Address of principal executive offices
Commission and Registrant's Telephone Number, including area IRS Employer
File Number area code Identification No.
- ----------- ----------------------------------------------- ------------------
1-12927 NEW CENTURY ENERGIES, INC. 84-1334327
(a Delaware Corporation)
1225 17th Street
Denver, Colorado 80202
Telephone (303) 571-7511
1-3280 PUBLIC SERVICE COMPANY OF COLORADO 84-0296600
(a Colorado Corporation)
1225 17th Street
Denver, Colorado 80202
Telephone (303) 571-7511
1-3789 SOUTHWESTERN PUBLIC SERVICE COMPANY 75-0575400
(a New Mexico Corporation)
Tyler at Sixth
Amarillo, Texas 79101
Telephone (303) 571-7511
-------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
On August 12, 1998, 111,500,430 shares of the Registrant's Common Stock
were outstanding. The aggregate market value of this common stock held by
nonaffiliates based on the closing price on the New York Stock Exchange was
approximately $4,829,362,374.
Public Service Company of Colorado and Southwestern Public Service Company meet
the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and
is therefore filing this Form 10-Q with the reduced disclosure format specified
in General Instruction H (2) to such Form 10-Q.
<PAGE>
Table of Contents
PART I - FINANCIAL INFORMATION
Item l.Financial Statements............................................... 1
Item 2.Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................... 33
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................. 52
Item 4. Submission of Matters to a Vote of Security Holders .............. 52
Item 5. Other Information ................................................ 52
Item 6. Exhibits and Reports on Form 8-K.................................. 55
This combined Form 10-Q is separately filed by New Century Energies, Inc.,
Public Service Company of Colorado and Southwestern Public Service Company.
Information contained herein relating to any individual company is filed by such
company on its own behalf. Each registrant makes representations only as to
itself and makes no other representations whatsoever as to information relating
to the other registrants.
This report should be read in its entirety. No one section of the report deals
with all aspects of the subject matter.
FORWARD-LOOKING INFORMATION
The following discussions include "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Investors and prospective investors are
cautioned that the forward-looking statements contained herein with respect to
the revenues, earnings, capital expenditures, resolution and impact of
litigation, competitive performance, or other prospects for the business of New
Century Energies, Inc., Public Service Company of Colorado and/or Southwestern
Public Service Company or their affiliated companies, including any and all
underlying assumptions and other statements that are other than statements of
historical fact, may be influenced by factors that could cause actual outcomes
and results to be materially different than projected. Such factors include, but
are not limited to, the effects of weather, future economic conditions, the
performance of generating units, fuel prices and availability, regulatory
decisions and the effects of changes in state and federal laws, the pace of
deregulation of domestic retail natural gas and electricity markets, the timing
and extent of change in commodity prices for all forms of energy, capital
spending requirements, the evolution of competition, earnings retention and
dividend payout policies, changes in accounting standards, and other factors.
From time to time, New Century Energies, Inc., Public Service Company of
Colorado and Southwestern Public Service Company may publish or otherwise make
available forward-looking statements. All such subsequent forward-looking
statements, whether written or oral and whether made by or on behalf of each
company, are also expressly qualified by these cautionary statements.
i
<PAGE>
TERMS
The abbreviations or acronyms used in the text and notes are defined below:
Abbreviation or Acronym Term
- -------------------------------------------------------------------------------
AEP.....................................................American Electric Power
CDPHE......................................Colorado Department of Public Health
and Environment
Cheyenne.................................Cheyenne Light, Fuel and Power Company
CPUC...................The Public Utilities Commission of the State of Colorado
Denver District Court....District Court in and for the City and County of Denver
DOE.........................................................Department of Energy
DSM.......................................................Demand Side Management
DSMCA.....................................Demand Side Management Cost Adjustment
Dth....................................................................Dekatherm
e prime...........................................e prime, inc. and subsidiaries
ECA.......................................................Energy Cost Adjustment
FERC........................................Federal Energy Regulatory Commission
Fort St. Vrain.......................Fort St. Vrain Electric Generating Station,
formerly a nuclear generating station
Fuelco..........Fuel Resources Development Co., a dissolved Colorado Corporation
GCA..........................................................Gas Cost Adjustment
ICA....................................................Incentive Cost Adjustment
Kwh................................................................kilowatt-hour
Merger.............................the business combination between PSCo and SPS
Natural Fuels..........................................Natural Fuels Corporation
NCE or Company........................................New Century Energies, Inc.
NC Enterprises..............................................NC Enterprises, Inc.
NCI..............................................New Century International, Inc.
NMPUC.......................................New Mexico Public Utility Commission
NOx...............................................................Nitrogen Oxide
PSCo..........................................Public Service Company of Colorado
PUHCA.................................Public Utility Holding Company Act of 1935
PSCCC.............................................PS Colorado Credit Corporation
PUCT..........................................Public Utility Commission of Texas
QF...........................................................Qualifying Facility
Quixx.........................................Quixx Corporation and subsidiaries
SEC...........................................Securities and Exchange Commission
SO2...............................................................Sulfur Dioxide
SPS..........................................Southwestern Public Service Company
SFAS 71.....................Statement of Financial Accounting Standards No. 71 -
"Accounting for the Effects of Certain Types of Regulation"
SFAS 112...................Statement of Financial Accounting Standards No. 112 -
"Employers' Accounting for Postemployment Benefits"
SFAS 121..................Statement of Financial Accounting Standards No. 121 -
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to Be Disposed Of"
Thunder Basin.........................................Thunder Basin Coal Company
TNP...............................................Texas-New Mexico Power Company
UE.............................Utility Engineering Corporation and subsidiaries
WGI....................................................WestGas InterState, Inc.
WPSC..........................................Wyoming Public Service Commission
Yorkshire Electricity...........................Yorkshire Electricity Group plc
Yorkshire Power.......................................Yorkshire Power Group Ltd.
ii
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars)
ASSETS
June 30, December 31,
1998 1997
---- ----
Property, plant and equipment, at cost:
Electric .......................................... $6,877,629 $ 6,703,863
Gas................................................ 1,170,404 1,136,231
Steam and other.................................... 118,697 120,322
Common to all departments.......................... 465,460 437,636
Construction in progress........................... 335,550 318,124
------- -------
8,967,740 8,716,176
Less: accumulated depreciation .................... 3,295,264 3,182,800
--------- ---------
Total property, plant and equipment.............. 5,672,476 5,533,376
--------- ---------
Investments, at cost:
Investment in Yorkshire Power and other
unconsolidated subsidiaries (Note 2)........... 291,546 295,316
Other.............................................. 66,159 71,411
------- ------
Total investments................................. 357,705 366,727
------- -------
Current assets:
Cash and temporary cash investments................ 107,581 72,623
Accounts receivable, less reserve for uncollectible
accounts ($5,623 at June 30, 1998; $5,355 at
December 31, 1997) .............................. 308,325 315,539
Accrued unbilled revenues.......................... 100,000 110,877
Recoverable purchased gas and electric energy costs
- net ........................................... 77,604 129,292
Materials and supplies, at average cost............ 70,098 68,411
Fuel inventory, at average cost.................... 25,194 23,162
Gas in underground storage, at cost (LIFO)......... 24,613 47,394
Prepaid expenses and other......................... 67,024 56,868
------- ------
Total current assets.............................. 780,439 824,166
------- -------
Deferred charges:
Regulatory assets (Note 1)......................... 404,081 430,475
Unamortized debt expense .......................... 21,354 20,833
Other.............................................. 134,348 134,704
------- -------
Total deferred charges............................ 559,783 586,012
------- -------
$7,370,403 $7,310,281
========== ==========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
1
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars)
CAPITAL AND LIABILITIES
June 30, December 31,
1998 1997
---- ----
Common stock ......................................... $1,727,281 $1,694,195
Retained earnings..................................... 672,718 659,050
------- -------
Total common equity............................... 2,399,999 2,353,245
Preferred stock of subsidiaries:
Not subject to mandatory redemption................ - 140,002
Subject to mandatory redemption at par............. - 39,253
PSCo and SPS obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely
subordinated debentures of PSCo and SPS (Note 6).... 294,000 100,000
Long-term debt of subsidiaries ....................... 2,228,128 1,987,955
--------- ---------
4,922,127 4,620,455
--------- ---------
Noncurrent liabilities:
Employees' postretirement benefits other than
pensions ........................................ 68,809 62,716
Employees' postemployment benefits ................ 26,819 27,953
------ ------
Total noncurrent liabilities...................... 95,628 90,669
------ ------
Current liabilities:
Notes payable and commercial paper ................ 454,063 588,343
Long-term debt due within one year................. 190,983 257,469
Preferred stock subject to mandatory redemption
within one year ................................. - 2,576
Accounts payable................................... 239,942 298,469
Dividends payable.................................. 67,536 68,296
Customers' deposits................................ 29,678 27,993
Accrued taxes...................................... 48,968 66,587
Accrued interest................................... 54,092 52,615
Current portion of accumulated deferred income taxes 24,142 27,391
Other.............................................. 92,526 87,380
------- ------
Total current liabilities......................... 1,201,930 1,477,119
--------- ---------
Deferred credits:
Customers' advances for construction............... 52,441 53,041
Unamortized investment tax credits ................ 103,589 106,147
Accumulated deferred income taxes.................. 930,021 922,341
Other.............................................. 64,667 40,509
------- ------
Total deferred credits............................ 1,150,718 1,122,038
--------- ---------
Commitments and contingencies (Notes 4 and 5).........
$7,370,403 $7,310,281
========== ==========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
2
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars)
Three Months Ended
June 30,
1998 1997
---- ----
Operating revenues:
Electric........................................... $659,765 $594,665
Gas................................................ 178,130 170,824
Other.............................................. 21,726 11,253
------- ------
859,621 776,742
Operating expenses:
Fuel used in generation............................ 171,280 165,178
Purchased power.................................... 154,193 124,029
Cost of gas sold................................... 124,398 115,106
Other operating and maintenance expenses........... 162,967 149,152
Depreciation and amortization...................... 67,074 60,378
Taxes (other than income taxes) ................... 33,043 32,563
------- ------
712,955 646,406
------- -------
Operating income..................................... 146,666 130,336
Other income and deductions:
Merger expenses.................................... (5) (10,430)
Write-off of investment in Carolina Energy Project
(Note 3) ....................................... - (16,052)
Equity in earnings (losses) of Yorkshire Power and
other unconsolidated subsidiaries (Note 2)..... (7,569) 4,006
Miscellaneous income and deductions - net.......... 1,028 (6,597)
------- -------
(6,546) (29,073)
Interest charges and preferred dividends of subsidiaries:
Interest on long-term debt......................... 42,718 42,657
Other interest..................................... 8,958 6,785
Allowance for borrowed funds used during construction (4,415) (2,449)
Dividends on PSCo and SPS obligated mandatorily
redeemable preferred securities of subsidiary
trusts holding solely subordinated debentures
of PSCo and SPS (Note 6).......................... 4,073 1,962
Dividend requirements on preferred stock of
subsidiaries ...................................... 2,403 2,942
----- -----
53,737 51,897
Income before income taxes............................ 86,383 49,366
Income taxes.......................................... 29,790 15,321
------- ------
Net income............................................ $56,593 $34,045
======= =======
Weighted average common shares outstanding............ 111,372 104,267
======= =======
Basic and diluted earnings per share of common stock
outstanding ........................................ $ 0.50 $ 0.33
====== =======
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
3
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars)
Six Months Ended
June 30,
1998 1997
---- ----
Operating revenues:
Electric........................................... $1,259,753 $1,183,022
Gas................................................ 497,837 462,448
Other.............................................. 41,535 21,283
------- ------
1,799,125 1,666,753
Operating expenses:
Fuel used in generation............................ 312,199 314,057
Purchased power.................................... 303,057 251,862
Cost of gas sold................................... 349,310 322,095
Other operating and maintenance expenses........... 310,648 284,273
Depreciation and amortization...................... 129,492 121,545
Taxes (other than income taxes) ................... 65,916 66,585
------ ------
1,470,622 1,360,417
--------- ---------
Operating income..................................... 328,503 306,336
Other income and deductions:
Merger expenses.................................... (790) (14,488)
Write-off of investment in Carolina Energy Project
(Note 3) ....................................... - (16,052)
Equity in earnings (losses) of Yorkshire Power and
other unconsolidated subsidiaries (Note 2)..... (3,817) 4,259
Miscellaneous income and deductions - net.......... (1,155) (8,131)
------- -------
(5,762) (34,412)
Interest charges and preferred dividends of subsidiaries:
Interest on long-term debt......................... 83,191 82,078
Other interest..................................... 17,452 11,702
Allowance for borrowed funds used during construction (8,921) (4,750)
Dividends on PSCo and SPS obligated mandatorily
redeemable preferred securities of subsidiary
trusts holding solely subordinated debentures of
PSCo and SPS (Note 6)............................. 6,036 3,925
Dividend requirements on preferred stock of
subsidiaries ..................................... 5,332 5,885
----- -----
103,090 98,840
------- ------
Income before income taxes............................ 219,651 173,084
Income taxes.......................................... 76,909 60,883
------- -------
Net income............................................ $142,742 $112,201
======== ========
Weighted average common shares outstanding............ 111,174 103,994
======= =======
Basic and diluted earnings per share of common stock
outstanding $ 1.28 $ 1.08
====== ======
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
4
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of Dollars)
Six Months Ended
June 30,
1998 1997
---- ----
Operating activities:
Net income......................................... $142,742 $112,201
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................... 134,512 125,576
Amortization of investment tax credits........... (2,558) (2,629)
Deferred income taxes............................ 4,598 23,273
Equity in (earnings) losses of Yorkshire Power
and other unconsolidated subsidiaries, net...... 3,817 (3,565)
Allowance for funds used during construction..... - (4)
Write-off of investment in Carolina Energy Project - 16,052
Change in accounts receivable.................... 12,845 17,742
Change in inventories............................ 19,184 14,053
Change in other current assets................... 52,508 (19,941)
Change in accounts payable....................... (58,842) (90,956)
Change in other current liabilities.............. (4,727) (35,574)
Change in deferred amounts....................... 53,688 (27,207)
Change in noncurrent liabilities................. 4,959 7,702
Other............................................ 45 (327)
------- --------
Net cash provided by operating activities...... 362,771 136,396
Investing activities:
Construction expenditures.......................... (261,302) (201,538)
Allowance for equity funds used during construction - 4
Proceeds from disposition of property, plant
and equipment 2,848 2,325
Investment in Yorkshire Power...................... - (362,387)
Acquisition of subsidiary, net of cash acquired
(Note 3) ......................................... (13,725) -
Purchase of other investments...................... (2,014) (9,862)
Sale of other investments.......................... 3,426 2,376
------- -------
Net cash used in investing activities.......... (270,767) (569,082)
Financing activities:
Proceeds from sale of common stock................. 23,976 14,777
Proceeds from sale of PSCo obligated mandatorily
redeemable preferred securities ................. 194,000 -
Proceeds from sale of long-term debt............... 248,380 333,435
Redemption of long-term notes and bonds............ (80,392) (38,031)
Short-term borrowings - net........................ (134,281) 228,369
Redemption of preferred stock...................... (181,824) -
Dividends on common stock.......................... (126,905) (113,308)
------- -------
Net cash provided by (used in) financing activities (57,046) 425,242
------- -------
Net increase (decrease) in cash and temporary cash
investments................................. 34,958 (7,444)
Cash and temporary cash investments at beginning
of period .................................. 72,623 50,016
------ ------
Cash and temporary cash investments at end of
period ..................................... $ 107,581 $ 42,572
========= ========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements
5
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars)
ASSETS
June 30, December 31,
1998 1997
---- ----
Property, plant and equipment, at cost:
Electric .......................................... $4,168,343 $4,088,447
Gas................................................ 1,131,081 1,100,003
Steam and other.................................... 78,846 78,740
Common to all departments.......................... 457,957 432,840
Construction in progress........................... 238,582 170,503
------- -------
6,074,809 5,870,533
Less: accumulated depreciation .................... 2,223,787 2,145,673
--------- ---------
Total property, plant and equipment.............. 3,851,022 3,724,860
--------- ---------
Investments, at cost:
Investment in Yorkshire Power (Note 2)............. - 286,703
Note receivable from affiliate (Note 2)............ 292,620 -
Other.............................................. 24,446 43,311
------- ------
Total investments................................. 317,066 330,014
------- -------
Current assets:
Cash and temporary cash investments................ 21,732 18,909
Accounts receivable, less reserve for uncollectible
accounts ($2,547 at June 30, 1998; $2,272 at
December 31, 1997) .............................. 147,281 191,155
Accrued unbilled revenues ......................... 76,770 94,284
Recoverable purchased gas and electric energy costs
- net ........................................... 59,180 103,197
Materials and supplies, at average cost............ 48,315 48,030
Fuel inventory, at average cost.................... 22,895 20,862
Gas in underground storage, at cost (LIFO)......... 24,118 46,576
Prepaid expenses and other......................... 42,843 39,594
------- ------
Total current assets.............................. 443,134 562,607
------- -------
Deferred charges:
Regulatory assets (Note 1)......................... 288,460 310,658
Unamortized debt expense .......................... 11,507 10,800
Other.............................................. 78,825 55,794
------- ------
Total deferred charges............................ 378,792 377,252
------- -------
$4,990,014 $4,994,733
========== ==========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
6
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars)
CAPITAL AND LIABILITIES
June 30, December 31,
1998 1997
---- ----
Common stock.......................................... $1,302,119 $1,302,119
Retained earnings..................................... 330,018 319,280
------- -------
Total common equity............................... 1,632,137 1,621,399
Preferred stock:
Not subject to mandatory redemption................ - 140,002
Subject to mandatory redemption at par............. - 39,253
PSCo obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
subordinated debentures of PSCo (Note 6)........... 194,000 -
Long-term debt........................................ 1,574,705 1,338,138
--------- ---------
3,400,842 3,138,792
--------- ---------
Noncurrent liabilities:
Employees' postretirement benefits other than pensions 60,963 58,695
Employees' postemployment benefits................. 25,031 25,031
------- -------
Total noncurrent liabilities...................... 85,994 83,726
------- -------
Current liabilities:
Notes payable and commercial paper................. 234,531 348,555
Long-term debt due within one year................. 190,302 257,160
Preferred stock subject to mandatory redemption
within one year ................................. - 2,576
Accounts payable................................... 164,481 218,773
Dividends payable.................................. 40,830 40,975
Customers' deposits................................ 23,467 21,888
Accrued taxes...................................... 13,008 42,549
Accrued interest................................... 40,984 39,177
Current portion of accumulated deferred income taxes 19,446 19,872
Other.............................................. 68,149 59,880
------- -------
Total current liabilities......................... 795,198 1,051,405
------- ---------
Deferred credits:
Customers' advances for construction............... 51,233 51,830
Unamortized investment tax credits ................ 96,961 99,355
Accumulated deferred income taxes.................. 527,521 534,246
Other.............................................. 32,265 35,379
------- -------
Total deferred credits............................ 707,980 720,810
------- -------
Commitments and contingencies (Notes 4 and 5).........
$4,990,014 $4,994,733
========== ==========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
7
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars)
Three Months Ended
June 30,
1998 1997
---- ----
Operating revenues:
Electric........................................... $369,940 $360,234
Gas................................................ 133,170 170,824
Other.............................................. 1,488 2,462
------- -------
504,598 533,520
Operating expenses:
Fuel used in generation............................ 49,554 47,482
Purchased power.................................... 123,874 121,105
Gas purchased for resale........................... 84,058 115,106
Other operating and maintenance expenses........... 102,564 101,548
Depreciation and amortization...................... 46,795 42,163
Taxes (other than income taxes) ................... 20,937 21,239
Income taxes ..................................... 13,550 11,606
------- -------
441,332 460,249
------- -------
Operating income...................................... 63,266 73,271
Other income and deductions:
Merger expenses.................................... - (5,169)
Equity earnings in Yorkshire Power (Note 2)........ - 4,113
Miscellaneous income and deductions - net.......... 1,968 (6,897)
------- -------
1,968 (7,953)
Interest charges:
Interest on long-term debt......................... 29,671 30,048
Amortization of debt discount and expense less premium 1,017 1,017
Other interest..................................... 4,498 5,017
Allowance for borrowed funds used during construction (2,971) (1,371)
Dividends on PSCo obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely subordinated debentures of PSCo (Note 6).... 2,111 -
----- -----
34,326 34,711
------ ------
Net income............................................ 30,908 30,607
Dividend requirements and redemption premium on
preferred stock ................................... 2,403 2,942
----- -----
Earnings available for common stock................... $28,505 $27,665
======= =======
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
8
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars)
Six Months Ended
June 30,
1998 1997
---- ----
Operating revenues:
Electric........................................... $745,386 $734,097
Gas................................................ 398,653 462,448
Other.............................................. 5,201 5,692
------- -------
1,149,240 1,202,237
Operating expenses:
Fuel used in generation............................ 100,183 91,743
Purchased power.................................... 247,931 243,731
Gas purchased for resale........................... 260,540 322,095
Other operating and maintenance expenses........... 196,509 199,705
Depreciation and amortization...................... 89,691 85,100
Taxes (other than income taxes) ................... 40,906 43,735
Income taxes ..................................... 50,368 46,876
------- -------
986,128 1,032,985
------- ---------
Operating income...................................... 163,112 169,252
Other income and deductions:
Merger expenses.................................... 418 (6,449)
Equity earnings in Yorkshire Power (Note 2)........ 3,446 4,113
Miscellaneous income and deductions - net.......... (1,335) (8,405)
------- -------
2,529 (10,741)
Interest charges:
Interest on long-term debt......................... 57,271 56,954
Amortization of debt discount and expense less premium 1,995 1,945
Other interest..................................... 10,151 8,956
Allowance for borrowed funds used during construction (5,692) (2,832)
Dividends on PSCo obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely subordinated debentures of PSCo (Note 6)... 2,111 -
----- ------
65,836 65,023
Net income............................................. 99,805 93,488
Dividend requirements and redemption premium on
preferred stock ..................................... 5,332 5,885
----- -----
Earnings available for common stock................... $94,473 $87,603
======= =======
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
9
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of Dollars)
Six Months Ended
June 30,
1998 1997
---- ----
Operating activities:
Net income......................................... $99,805 $93,488
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................... 92,182 87,211
Amortization of investment tax credits........... (2,394) (2,504)
Deferred income taxes............................ (63) 30,978
Equity in earnings of Yorkshire Power............ (3,446) (4,113)
Allowance for equity funds used during construction - 1
Change in accounts receivable.................... 46,847 20,985
Change in inventories............................ 20,140 14,335
Change in other current assets................... 58,282 (3,256)
Change in accounts payable....................... (53,082) (83,380)
Change in other current liabilities.............. (18,643) (37,334)
Change in deferred amounts....................... (20,083) 573
Change in noncurrent liabilities................. 2,268 2,892
Other............................................ - 548
------- -------
Net cash provided by operating activities...... 221,813 120,424
Investing activities:
Construction expenditures.......................... (213,677) (135,650)
Allowance for equity funds used during construction - (1)
Proceeds from disposition of property, plant
and equipment ................................... 4,808 1,956
Investment in Yorkshire Power (Note 2)............. - (362,387)
Purchase of other investments...................... (2,172) (5,996)
Sale of other investments.......................... 3,145 2,376
------- -------
Net cash used in investing activities.......... (207,896) (499,702)
Financing activities:
Proceeds from sale of common stock................. - 14,777
Proceeds from sale of PSCo obligated mandatorily
redeemable preferred securities ................. 194,000 -
Proceeds from sale of long-term debt .............. 248,130 333,435
Redemption of long-term notes and bonds............ (80,111) (23,021)
Short-term borrowings - net........................ (102,069) 137,875
Dividends on common stock.......................... (80,959) (68,298)
Redemption of preferred stock (Note 6)............. (181,824) -
Dividends and redemption premium on preferred stock
(Note 6) ....................................... (8,261) (5,885)
------ ------
Net cash provided by (used in) financing
activities ................................... (11,094) 388,883
------- -------
Net increase in cash and temporary cash
investments .................................. 2,823 9,605
Cash and temporary cash investments at
beginning of period .......................... 18,909 9,406
------ -----
Cash and temporary cash investments at end
of period .................................... $21,732 $19,011
======= =======
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
10
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars)
ASSETS
June 30, December 31,
1998 1997
---- ----
Property, plant and equipment, at cost:
Electric .......................................... $2,649,120 $2,557,579
Construction in progress........................... 93,257 144,452
------ -------
2,742,377 2,702,031
Less: accumulated depreciation .................... 1,019,161 987,487
--------- -------
Total property, plant and equipment............... 1,723,216 1,714,544
--------- ---------
Investments, at cost:
Notes receivable from affiliate ................... 119,036 119,036
Other.............................................. 5,958 5,832
------- -------
Total investments................................. 124,994 124,868
------- -------
Current assets:
Cash and temporary cash investments................ 6,432 986
Accounts receivable, less reserve for uncollectible
accounts ($2,162 at June 30, 1998; $2,442 at
December 31, 1997) .............................. 104,578 96,548
Accrued unbilled revenues ......................... 22,407 15,468
Recoverable electric energy costs - net............ 16,540 23,086
Materials and supplies, at average cost............ 17,034 16,337
Fuel inventory, at average cost.................... 2,299 2,301
Prepaid expenses and other......................... 3,708 3,367
------- -------
Total current assets.............................. 172,998 158,093
------- -------
Deferred charges:
Regulatory assets (Note 1)......................... 115,105 119,244
Unamortized debt expense .......................... 9,063 9,395
Other.............................................. 12,095 55,349
------- -------
Total deferred charges............................ 136,263 183,988
------- -------
$2,157,471 $2,181,493
========= ==========
The accompanying notes to condensed financial statements are an
integral part of these financial statements.
11
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars)
CAPITAL AND LIABILITIES
June 30, December 31,
1998 1997
---- ----
Common stock.......................................... $348,402 $348,402
Retained earnings..................................... 356,062 349,988
------- -------
Total common equity............................... 704,464 698,390
SPS obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
subordinated debentures of SPS ..................... 100,000 100,000
Long-term debt........................................ 620,621 620,598
------- -------
1,425,085 1,418,988
--------- ---------
Noncurrent liabilities:
Employees' postretirement benefits other than pensions 4,079 3,800
Employees' postemployment benefits................. 1,312 2,446
------- -------
Total noncurrent liabilities...................... 5,391 6,246
------- -------
Current liabilities:
Notes payable and commercial paper................. 169,532 154,244
Notes payable to affiliates........................ - 25,160
Long-term debt due within one year................. 114 173
Accounts payable................................... 73,008 107,465
Dividends payable.................................. 23,980 22,546
Customers' deposits................................ 5,556 5,471
Accrued taxes...................................... 22,099 28,051
Accrued interest................................... 12,631 12,715
Current portion of accumulated deferred income taxes 4,371 10,740
Other.............................................. 2,177 7,415
------- -------
Total current liabilities......................... 313,468 373,980
------- -------
Deferred credits:
Unamortized investment tax credits ................ 5,344 5,469
Accumulated deferred income taxes ................. 379,037 372,447
Other.............................................. 29,146 4,363
------- -------
Total deferred credits............................ 413,527 382,279
------- -------
Commitments and contingencies (Notes 4 and 5)......... ---------- ----------
$2,157,471 $2,181,493
========== ==========
The accompanying notes to condensed financial statements are an
integral part of these financial statements.
12
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars)
Three Months Ended
June 30,
1998 1997
---- ----
Operating revenues:
Electric........................................... $264,006 $234,430
Other.............................................. - 8,791
------- -------
264,006 243,221
Operating expenses:
Fuel used in generation............................ 121,725 117,696
Purchased power.................................... 7,079 2,924
Other operating & maintenance expenses............. 35,065 47,604
Depreciation and amortization...................... 17,761 18,215
Taxes (other than income taxes) ................... 11,328 11,324
Income taxes ...................................... 21,729 3,714
------- -------
214,687 201,477
------- -------
Operating income...................................... 49,319 41,744
Other income and deductions:
Merger expenses.................................... (5) (5,261)
Write-off of investment in Carolina Energy Project
(Note 3) ........................................ - (16,052)
Miscellaneous income and deductions - net ......... 2,268 147
------- -------
2,263 (21,166)
Interest charges:
Interest on long-term debt......................... 11,037 11,032
Amortization of debt discount and expense less premium 560 561
Other interest..................................... 2,533 1,721
Allowance for borrowed funds used during construction (1,427) (1,078)
Dividends on SPS obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely subordinated debentures of SPS ............ 1,962 1,962
----- -----
14,665 14,198
------ ------
Net income............................................ $36,917 $ 6,380
======= =======
The accompanying notes to condensed financial statements are an
integral part of these financial statements.
13
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars)
Six Months Ended
June 30,
1998 1997
---- ----
Operating revenues:
Electric........................................... $463,738 $448,925
Other.............................................. - 15,591
------- -------
463,738 464,516
Operating expenses:
Fuel used in generation............................ 212,015 222,314
Purchased power.................................... 9,720 8,131
Other operating & maintenance expenses............. 69,461 84,568
Depreciation and amortization...................... 35,537 36,445
Taxes (other than income taxes) ................... 23,393 22,850
Income taxes ...................................... 32,954 14,006
------- -------
383,080 388,314
------- -------
Operating income...................................... 80,658 76,202
Other income and deductions:
Merger expenses.................................... (1,208) (8,039)
Write-off of investment in Carolina Energy
Project (Note 3) ................................ - (16,052)
Miscellaneous income and deductions - net ......... 4,546 421
------- -------
3,338 (23,670)
Interest charges:
Interest on long-term debt......................... 21,980 22,057
Amortization of debt discount and expense less premium 1,121 1,123
Other interest..................................... 5,112 2,747
Allowance for borrowed funds used during construction (3,198) (1,918)
Dividends on SPS obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely subordinated debentures of SPS ........... 3,925 3,925
----- -----
28,940 27,934
------ ------
Net income............................................ $55,056 $24,598
======= =======
The accompanying notes to condensed financial statements are an
integral part of these financial statements.
14
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of Dollars)
Six Months Ended
June 30,
1998 1997
---- ----
Operating activities:
Net income......................................... $55,056 $24,598
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................... 37,703 38,365
Amortization of investment tax credits........... (125) (125)
Deferred income taxes............................ 1,384 (7,705)
Allowance for funds used during construction..... - (5)
Write-off of investment in Carolina Energy Project - 16,052
Change in accounts receivable.................... (8,030) (3,243)
Change in inventories............................ (695) (282)
Change in other current assets................... (734) (16,685)
Change in accounts payable....................... (34,457) (7,576)
Change in other current liabilities.............. (11,189) 1,760
Change in deferred amounts....................... 70,005 (27,780)
Change in noncurrent liabilities................. (855) 4,810
Other............................................ - (327)
------- -------
Net cash provided by operating activities...... 108,063 21,857
Investing activities:
Construction expenditures.......................... (43,184) (65,888)
Allowance for equity funds used during construction - 5
Proceeds from (cost of) disposition of property,
plant and equipment.............................. (1,830) 369
Purchase of other investments...................... (126) (3,866)
------- --------
Net cash used in investing activities.......... (45,140) (69,380)
Financing activities:
Redemption of long-term debt....................... (57) (15,010)
Short-term borrowings - net........................ (9,872) 90,494
Dividends on common stock.......................... (47,548) (45,010)
------- -------
Net cash (used in) provided by financing
activities ................................. (57,477) 30,474
------- ------
Net increase (decrease) in cash and temporary
cash investments ........................... 5,446 (17,049)
Cash and temporary cash investments at beginning
of period ................................. 986 40,610
---- ------
Cash and temporary cash investments at end
of period .................................. $ 6,432 $ 23,561
======= ========
The accompanying notes to condensed financial statements
are an integral part of these financial statements
15
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies (NCE, PSCo and SPS)
Effective August 1, 1997, following the receipt of all required state and
Federal regulatory approvals, PSCo and SPS merged in a tax-free "merger of
equals" transaction and became wholly-owned subsidiaries of NCE. Each
outstanding share of PSCo common stock was canceled and converted into the right
to receive one share of NCE common stock, and each outstanding share of SPS
common stock was canceled and converted into the right to receive 0.95 of one
share of NCE common stock. Effective with the Merger, certain utility and
non-utility subsidiaries were transferred within NCE's common controlled
subsidiaries. The common stock of Quixx and UE, former SPS subsidiaries, was
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. Subsequent to the Merger and effective March 31,
1998, PSCo sold its investment in NCI to NC Enterprises (see Note 2).
The NCE consolidated condensed financial statements reflect the accounting
for the Merger as a pooling of interests. The Company's 1997 consolidated
condensed statements of income and cash flows include the consolidated financial
statements for both PSCo and SPS for the three months ended March 31, 1997 and
the six months ended June 30, 1997.
Business, Utility Operations and Regulation
NCE is a registered holding company under the PUHCA and its utility
subsidiaries (PSCo, SPS and Cheyenne) are engaged principally in the generation,
purchase, transmission, distribution and sale of electricity and in the
purchase, transmission, distribution, sale and transportation of natural gas.
Both the Company and its subsidiaries are subject to the regulatory provisions
of the PUHCA. The utility subsidiaries are subject to regulation by the FERC and
state utility commissions in Colorado, Texas, New Mexico, Wyoming, Kansas and
Oklahoma. Over 90% of the Company's revenues are derived from its regulated
utility operations.
Regulatory Assets and Liabilities
The Company's regulated subsidiaries prepare their financial statements in
accordance with the provisions of SFAS 71, as amended. SFAS 71 recognizes that
accounting for rate regulated enterprises should reflect the relationship of
costs and revenues introduced by rate regulation. A regulated utility may defer
recognition of a cost (a regulatory asset) or recognize an obligation (a
regulatory liability) if it is probable that, through the ratemaking process,
there will be a corresponding increase or decrease in revenues.
16
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
The following regulatory assets are reflected in the accompanying
consolidated condensed balance sheets (in thousands):
June 30, 1998 NCE PSCo SPS
------ ------ -----
Income taxes ....................... $154,734 $77,268 $77,997
Nuclear decommissioning costs....... 73,718 73,718 -
Employees' postretirement benefits
other than pensions .............. 60,192 57,233 2,959
Early retirement costs.............. 3,397 2,215 1,182
Employees' postemployment benefits
(Note 4) ......................... 24,213 23,739 -
Demand-side management costs........ 40,448 35,764 4,684
Unamortized debt reacquisition costs 34,928 16,780 17,575
Thunder Basin judgment (Note 4)..... 3,716 - 3,716
Other............................... 8,735 1,743 6,992
------ ------ ------
Total............................. $404,081 $288,460 $115,105
======== ======== ========
December 31, 1997 NCE PSCo SPS
------ ------ -----
Income taxes........................ $162,985 $84,356 $79,161
Nuclear decommissioning costs....... 76,881 76,881 -
Employees' postretirement benefits
other than pensions............... 63,023 59,995 3,028
Early retirement costs.............. 8,008 6,645 1,363
Employees' postemployment benefits
(Note 4) ......................... 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 4)..... 5,912 - 5,912
Other............................... 9,991 2,540 7,451
------ ------ ------
Total............................. $430,475 $310,658 $119,244
======== ======== ========
The regulatory assets of the Company's regulated subsidiaries that are
currently being recovered as of June 30, 1998 and December 31, 1997 are
reflected in rates charged to customers over periods ranging from two to thirty
years. The recovery of regulatory assets over the next five years is estimated
to exceed $200 million. For further discussion, see the NCE, PSCo and SPS 1997
Annual Report on Form 10-K. 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 and cash flows.
On January 27, 1997, the CPUC issued its order on PSCo's 1996 gas rate
case. The CPUC allowed recovery of postemployment benefit costs on an accrual
basis under SFAS 112 and denied amortization of the approximately $8.9 million
regulatory asset recognized upon the adoption of SFAS 112. PSCo has appealed in
the Denver District Court the decision related to this issue. PSCo believes that
it will be successful on appeal and that the associated regulatory asset is
realizable. On April 1, 1998, in connection with PSCo's annual earnings test
filing, PSCo requested approval to recover its electric jurisdictional portion
of the postemployment benefits cost regulatory asset totaling approximately $15
million over three years. The CPUC staff and Colorado Office of Consumer Counsel
are proposing to exclude these costs from the earnings test. PSCo believes that
it will be allowed recovery of SFAS 112 costs on an accrual basis. If PSCo is
ultimately unsuccessful in its appeal of the gas rate case decision and/or in
its request to recover its electric jurisdictional regulatory asset, all
unrecoverable
17
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
amounts will be written-off (see Note 4. Regulatory Matters Electric Department
Earnings Test and Quality of Service Plan).
As of June 30, 1998, SPS has approximately $3.7 million in regulatory
assets associated with the Thunder Basin judgment. The judgment amount
previously paid by SPS is recoverable from customers, subject to review by
various regulatory agencies (see Note 4. Regulatory Matters - Electric and Gas
Cost Adjustment Mechanisms).
Non-utility Subsidiaries and International Investments
The Company's non-utility subsidiaries are principally involved in
engineering, design and construction management, non-regulated energy services,
including gas and power marketing, the management of real estate and certain
life insurance policies, the financing of certain current assets of PSCo and
investments in cogeneration facilities, electric wholesale generators and a
foreign utility company. The Company's international investments are subject to
regulation in the countries in which such investments are made (see Note 2.
Investment in Yorkshire Power). Financial statements of foreign subsidiaries are
translated into U.S. dollars at current exchange rates, except for revenues,
costs and expenses which are translated at average current exchange rates during
each reporting period.
Statements of Cash Flows - Non-cash Transactions:
Effective February 26, 1998, the Company issued 222,362 shares of its
common stock, valued at the market price on date of issuance of approximately
$10 million to the Employees' Savings and Stock Ownership Plan of Public Service
Company of Colorado and Participating Subsidiary Companies. Prior to the Merger,
during 1997, PSCo issued 250,058 shares of its common stock to the Employees'
Savings and Stock Ownership Plan of Public Service Company of Colorado and
Participating Subsidiary Companies valued at the market price on date of
issuance of approximately $10 million. The estimated issuance values were
recognized in other operating expenses during the respective preceding years.
Comprehensive Income
The Company and its subsidiaries adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," effective January 1, 1998.
The individual and cumulative components of other comprehensive income are not
material to the Company and its subsidiaries.
General
See Note 1. of the Notes to Consolidated Financial Statements in NCE's,
PSCo's and SPS' 1997 Annual Report on Form 10-K for a summary of the companies
and their subsidiaries significant accounting policies. Certain prior year
amounts have been reclassified to conform to the current year's classification.
2. Investment in Yorkshire Power (NCE and PSCo)
During the second quarter of 1997, Yorkshire Power, a subsidiary equally
owned by PSCo, through NCI, and AEP, acquired indirectly all of the outstanding
ordinary shares of Yorkshire Electricity, a United Kingdom regional electricity
company. NCI accounts for its investment in Yorkshire Power using the equity
method. Yorkshire Power's results of operations include 100% of Yorkshire
Electricity's results since the April 1, 1997 acquisition date. NCI's equity in
earnings of 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
18
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
acquisition were obtained from PSCo's and AEP's investment in Yorkshire Power of
approximately $360 million (220 million pounds sterling) each, with the
remainder obtained by Yorkshire Power through the issuance of non-recourse debt.
PSCo funded its entire equity investment in Yorkshire Power through $250 million
of publicly issued secured medium-term notes with varying maturities and
drawings of approximately $110 million on its short-term lines of credit
pursuant to its short-term credit agreement with Bank of America, as agent.
As approved by the SEC on May 14, 1998, under the PUHCA, effective March
31, 1998, PSCo sold its common stock investment in NCI to NC Enterprises, an NCE
subsidiary. NCI's primary investment is Yorkshire Power. PSCo received as
consideration a 20 year promissory note from NC Enterprises in the amount of
approximately $292.6 million. Annual interest payments are required for the
first three years followed by principal and interest payments for the remaining
seventeen years. The interest rate on the note is 7.02%. NCE intends to make
additional capital contributions to NC Enterprises to provide the necessary cash
flow requirements to make payments on the promissory note to PSCo.
In 1998, Yorkshire Power recognized a $54.7 million after-tax impairment
of its investment in Ionica, a wireless telecommunications company, upon the May
22, 1998, announcement by Ionica that negotiations for release of lines of
credit from existing providers of bank finance had been unsuccessful. The
impairment, reflecting a write down to fair market value, was offset, in part,
by an unrelated tax adjustment of approximately $21.5 million. Summarized income
statement information for the six months ended June 30, 1998, and from the date
of acquisition, April 1, 1997 to June 30, 1997, are presented below (in
millions):
1998 1997
---- ----
Yorkshire Power:
Operating revenues....................... $1,167.1 $438.5
-------- ------
Operating income......................... 182.2 52.1
-------- ------
Net income (loss) (1).................... $ (7.9) $ 8.2
========= =====
NCI's equity in earnings (losses) of
Yorkshire Power ....................... $ (4.0) $ 4.1
======== =====
(1)Includes a penalty, which was applicable to all United Kingdom regional
electricity utilities, designed to recognize the effects of the delay in
implementation of full competition for the period April 1998 to September
1998 (Yorkshire Power's portion was $8.3 million).
The unaudited pro forma financial information presented below for NCE
assumes that Yorkshire Power was acquired on January 1, 1997. The pro forma
adjustments include recognition of equity in the estimated earnings of Yorkshire
Power, an adjustment for interest expense on debt associated with the investment
in Yorkshire Power and related income taxes. The estimated earnings of Yorkshire
Power were based on historical earnings of Yorkshire Electricity, prior to its
acquisition by Yorkshire Power, adjusted for the estimated effects of purchase
accounting (including the amortization of goodwill), conversion to United States
generally accepted accounting principles, interest expense on debt issued by
Yorkshire Power associated with the acquisition and related income taxes. Sales
of electricity are affected by seasonal weather patterns and, therefore, the
results of Yorkshire Power/Yorkshire Electricity will not be distributed evenly
during the year. Equity in earnings (losses) of Yorkshire Power has been
converted at the average exchange rates for the six months ended June 30, 1998
and June 30, 1997, of $1.653/pound and $1.634/pound, respectively.
19
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Based on the above assumptions, shown below is unaudited pro forma
financial information for the six months ended June 30, 1998 and 1997 (in
millions, except per share amounts):
NCE Earnings
------------
Available for
common stock Per share (1)
------------ -------------
1998 1997 1998 1997
---- ---- ---- ----
Net income............................. $142.7 $112.2 $1.28 $1.08
===== =====
Pro forma adjustments:
Equity in earnings of
Yorkshire Power, net of
U.S. tax benefits (2)............... - (10.1)
Interest expense, net of tax......... - (3.5)
----- ------
Pro forma result....................... $142.7 $ 98.6 $1.28 $0.95
====== ====== ===== =====
(1) Based on the weighted average number of common shares outstanding for the
period.
(2) The six months ended June 30, 1997 amount includes $24.0 million ($17.9
million after-tax) of write-offs related to certain computer
development costs, acquisition expenses and costs incurred for the
preparation for deregulation.
The unaudited pro forma financial information presented below for PSCo
assumes that NCI (primarily representing Yorkshire Power) was sold to NC
Enterprises effective January 1, 1997. NCI was formed in connection with the
investment in Yorkshire Power and had no operations during the first three
months of 1997. The pro forma adjustments represent the removal of NCI's net
income from PSCo and the inclusion of interest income, net of tax, from the
promissory note to PSCo from NC Enterprises.
Based upon the above assumptions, shown below is unaudited pro forma
financial information for the six months ended June 30, 1998 and 1997 (in
millions):
PSCo
Earnings
1998 1997
---- ----
Net income............................................... $99.8 $93.5
Pro forma adjustments:
NCI's net income....................................... (2.8) (4.8)
Interest income from promissory note, net of tax....... 3.3 3.3
----- -----
Pro forma result......................................... $100.3 $92.0
====== =====
20
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
3. Acquisition and Divestiture of Investments
Acquisition of the Planergy Group (NCE)
Effective April 1, 1998, the Company acquired all of the outstanding common
stock of Falcon Seaboard Energy Services, Inc. ("the Planergy Group") and
assumed other outstanding debt. The Planergy Group includes Planergy, Inc. and
Planergy Services. Such acquisition was 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. The Planergy Group has been
consolidated as a subsidiary of NC Enterprises in the Company's consolidated
financial statements. The Planergy Group is primarily engaged in energy
consulting, energy efficiency management, conservation programs and mass market
services.
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. As a consequence, 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.
4. 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.
Subsequent to the CPUC's decision approving the Merger, the CPUC approved
the recovery of merger costs, amortized from the effective date of the Merger
through December 31, 2001. PSCo has expensed merger costs as
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
incurred and recovery of such costs will be reflected in the electric department
earnings test, discussed below in Electric Department Earnings Test and Quality
of Service Plan. Merger costs attributable to Colorado gas retail customers were
included in the gas rate case approved by the CPUC, discussed below in Rate
Cases- PSCo Retail Gas.
SPS
Under the various regulatory commission approvals, SPS is required to
provide credits to customers over five years for one-half of the measured
non-fuel operation and maintenance expense savings associated with the Merger.
SPS will provide guaranteed minimum annual credits to retail customers of $3
million in Texas, $1.2 million in New Mexico, $100,000 in Oklahoma and $10,000
in Kansas and $1.5 million to wholesale customers.
Cheyenne
The WPSC approved the Merger on August 16, 1996. Cheyenne agreed not to
file a retail electric rate case for two years after August 1, 1997, the
effective date of the Merger. Cheyenne expects to file a combined gas and
electric rate case with the WPSC in 1999, following the expiration of the two
year moratorium.
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 latter half of 1998.
SPS
New Mexico
On November 17, 1997, the NMPUC issued an order investigating SPS's rates.
In the order, the NMPUC determined that because of the rapid changes occurring
in the electric industry the NMPUC would require rate case filings by the major
electricity suppliers who have not adopted a plan to provide retail open access
and customer choice of suppliers. SPS made a compliance filing on May 5, 1998,
which proposed a $1.7 million annual rate reduction for certain retail customers
in New Mexico, and incorporates the $1.2 million guaranteed minimum annual
credits, discussed above. This case has been set for hearing in October 1998.
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
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
22
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
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, were not achieved.
On May 5, 1998, the FERC issued its opinion substantially modifying the ALJ's
initial decision. The net positive impact from this decision, which was recorded
in June 1998, was approximately $7.7 million ($4.9 million after tax).
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. Management does not believe the cost adjustment mechanism will
have a significant impact on the Company's results of operations, financial
position or cash flows.
The CPUC had a docket to review and prescribe a standardized GCA process
to determine the prudence of gas commodity and pipeline delivery service costs
incurred by gas utilities. Other issues addressed in this docket included
whether the GCA should be maintained in its present form, altered or eliminated.
The CPUC issued an order on May 7, 1997, which provides for the current GCA to
be maintained and the adoption of certain standardized filing and gas purchase
reporting requirements. In early 1998, the CPUC issued another Notice of
Proposed Rulemaking seeking comments on various customer notice and reporting
requirements related to changes in gas costs. On March 25, 1998, the CPUC
decision was issued with no material changes to the GCA.
SPS
Texas
A PUCT substantive rule requires periodic examination of SPS's fuel and
purchased power costs, the efficiency of the use of such fuel and purchased
power, fuel acquisition and management policies and purchase power commitments.
Under the PUCT's regulations, SPS is required to file an application for the
Commission to retrospectively review, at least every three years, the operations
of a utility's electricity generation and fuel management activities. In June
1998, SPS filed its reconciliation for the generation and fuel management
activities totaling approximately $690 million, for the period from January 1995
through December 1997. For this same period, SPS had approximately $21.4 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. The Company has also requested the
prospective sharing of margins from wholesale non-firm sales. The outcome of
this proceeding is pending.
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 and the expense
recorded in April 1996. Additionally, the order required SPS to pass through to
customers 100% of margins from wholesale non-firm sales as of January 1995.
Prior PUCT
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
rulings had allowed SPS to retain 25% of these margins. The 100% flow through is
required by PUCT rules, absent a waiver. A motion for rehearing on the fuel
disallowance (which was adjusted to $1.9 million) was subsequently denied by the
PUCT and SPS was ordered to flow through 100% of the non-firm off-system sales
margin effective with the first billing cycle after the date of the order. Upon
appeal by SPS to the Travis County District Court in May 1996, the PUCT's
decision on the disallowed fuel costs was upheld. SPS appealed the decision and,
on January 29, 1998, the Texas Court of Appeals upheld the PUCT decision to
disallow fuel costs. On March 16, 1998, SPS filed an appeal to the Supreme Court
of Texas. This appeal is pending.
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 were 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 pending fuel reconciliation proceeding.
SPS believes that recovery of the Thunder Basin costs for the Texas retail
jurisdiction will be approved in the pending fuel reconciliation proceeding.
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 approximately $8.5 million, with
approximately $4.6 million net savings attributable to Texas retail
jurisdictional customers.
Electric Department Earnings Test and Quality of Service Plan
PSCo
The CPUC's decision on the Merger implemented an electric department
earnings test with the sharing of earnings in excess of an 11% return on equity
for the calendar years 1997-2001 as follows:
Electric Department Sharing of Excess Earnings
Return on Equity Customers Shareholders
---------------- --------- ------------
11-12% 65% 35%
12-14% 50% 50%
14-15% 35% 65%
over 15% 100% 0%
The CPUC's decision on the Merger also implemented a QSP which provides
for bill credits totaling up to $5 million in year one and increasing to $11
million in year five, if PSCo does not achieve certain performance measures
relating to electric reliability, customer complaints and telephone response to
inquiries. On October 15, 1997, the CPUC issued an order addressing the
implementation of a reward mechanism in the QSP which provides up to $3 million
of annual rewards if PSCo achieves certain performance measures relating to
electric reliability.
24
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
On April 1, 1998, PSCo filed with the CPUC its proposed Performanced-Based
Regulatory Plan adjustment for calendar year 1997. This adjustment will provide
the means for implementing the sharing mechanism for the customers' portion of
earnings over PSCo's authorized return on equity threshold resulting from the
1997 electric department earnings test, net of QSP reward earned revenue. As of
December 31, 1997, PSCo recorded an estimated customer refund obligation of
approximately $16.4 million related to the 1997 electric department earnings
test, net of QSP rewards. A final refund obligation has not been determined.
PSCo believes that it's accrued obligation will be adequate. During 1998, PSCo
has recorded a liability of approximately $5.6 million for the 1998 electric
department earnings test.
5. 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
certain policies. Previously, PSCo had received certain insurance settlement
proceeds from other insurance providers for Barter and other contaminated sites
and a portion of those funds remains to be allocated to this site by the trial
court. In addition, in August 1996, PSCo filed a lawsuit against four PRPs
seeking recovery of certain Barter related costs. Settlement has been achieved
with two smaller PRP's. On December 16, 1997, the U. S. District Court awarded
summary judgment in favor of the remaining PRPs, on the basis PSCo failed to
follow CERCLA guidelines in the cleanup. On January 15, 1998, PSCo appealed the
summary judgment to the U.S. Court of Appeals. In March 1998, PSCo sold the
remaining Barter properties, and the total proceeds were $1.2 million.
PCB presence was identified in the basement of an historic office building
located in downtown Denver. The Company was negotiating the future cleanup with
the current owners; however, in October 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. In August, 1994, the Denver District Court entered a
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
judgment approving a $5.3 million offer of settlement between PSCo and the
building owners resolving all claims. In December 1995, complaints were filed by
PSCo against all applicable insurance carriers in the Denver District Court. In
June 1997, the Court ruled in favor of the carriers on summary judgment motions
addressing late notice and other issues. In August 1997, PSCo filed an appeal of
the decision with the Colorado Court of Appeals. Two carriers were excluded from
this proceeding; subsequently, one carrier received approval to be dismissed on
the same basis as the other carriers. In March 1998, PSCo reached a settlement
with the remaining carrier. The Company is pursuing the recovery of $3.3 million
net costs in the electric department earnings test over a three year period.
In addition to these sites, PSCo has identified several other sites where
clean up of hazardous substances may be required. While potential liability and
settlement costs are still under investigation and negotiation, PSCo believes
that the resolution of these matters will not have a material adverse effect on
PSCo's financial position, results of operations or cash flows. PSCo fully
intends to pursue the recovery of all significant costs incurred for such
projects through insurance claims and/or the rate regulatory process.
Other Environmental Matters
Under the Clean Air Act Amendments of 1990 ("CAAA"), coal fueled power
plants are required to reduce SO2 and NOx emissions to specified levels through
a phased approach. PSCo's and SPS's facilities must comply with the Phase II
requirements, which will be effective in the year 2000. Currently, these
regulations permit compliance with SO2 emission limitations by using SO2
allowances allocated to plants by the EPA, using allowances generated by
reducing emissions at existing plants and by using allowances purchased from
other companies. The Company expects to meet the Phase II emission standards
placed on SO2 through the combination of: a) use of low sulfur coal, b) the
operation of air quality control equipment on certain generation facilities, and
c) allowances issued by the EPA and purchased from other companies. PSCo and SPS
will be required to modify certain boilers by the year 2000 to reduce the NOx
emissions in order to comply with Phase II requirements. The estimated Phase II
costs for future plant modifications to meet NOx requirements is approximately
$14.4 million for PSCo's Cherokee Unit 1 and 2 and Arapahoe Unit 3.
SPS installed two new gas turbines at its Cunningham Station in 1997. The
two gas turbine units have undergone performance testing to meet the
requirements of the air quality permit. The test results have indicated that the
units are in compliance. Data is now being compiled into a formalized test
report to the State of New Mexico. SPS is working with the vendor and the New
Mexico Environmental Department to ensure compliance with all permit limits.
PSCo has announced its intention to spend approximately $211 million on
its Denver and Boulder Metro area coal-fueled power plants to further reduce
such emissions below the required regulatory levels discussed above, but will
only do so if the following three conditions are met: 1) the Colorado General
Assembly and the CPUC approve recovery of these costs, 2) PSCo obtains
flexibility in operating the plants and 3) PSCo is assured the emission
reduction plan is sufficient to meet future state requirements for 15 years.
Legislation was passed and signed into law during the second quarter of 1998.
Hayden Steam Electric Generating Station
In May 1996, PSCo and the other joint owners of Hayden Station reached an
agreement resolving violations alleged in complaints filed by a conservation
organization, the CDPHE and the EPA against the joint owners. PSCo is the
operator and owns an average undivided interest of approximately 53% of the
station's two generating units. In connection with the settlement, the joint
owners of the Hayden station were required to install emission control equipment
of approximately $130 million (PSCo's portion is approximately $70 million). The
settlement included stipulated future penalties for failure to comply with the
terms of the agreement, including specific provisions related to meeting
construction deadlines associated with the installation of additional emission
control equipment and complying with particulate, SO2 and NOx emissions
limitations. In August 1996, the U.S. District Court for the District of
Colorado entered the settlement agreement which effectively resolved this
litigation. The Company is completing the installation of the emission control
equipment.
26
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Craig Steam Electric Generating Station
In October 1996, a conservation organization filed a complaint in the U.S.
District Court pursuant to provisions of the Federal Clean Air Act (the "Act")
against the joint owners of the Craig Steam Electric Generating Station located
in western Colorado. Tri-State Generation and Transmission Association, Inc. is
the operator of the Craig station and PSCo owns an undivided interest (acquired
in April 1992) in each of two units at the station totaling approximately 9.7%.
The plaintiff alleged that: 1) the station exceeded the 20% opacity limitations
in excess of 14,000 six minute intervals during the period extending from the
first quarter of 1991 through the second quarter of 1996, and 2) the owners
failed to operate the station in a manner consistent with good air pollution
control practices. The complaint seeks, among other things, civil monetary
penalties and injunctive relief. The Act provides for penalties of up to $25,000
per day per violation, but the level of penalties imposed in any particular
instance is discretionary. A settlement conference was held in February 1998,
although no settlement was achieved. Resolution of this matter may require
installation of emission control equipment. Management does not believe that
this potential liability, the future impact of this litigation on plant
operations, or any related cost will have a material adverse impact on PSCo's
financial position, results of operations or cash flows.
Pepsi Center
Hazardous substances resulting from manufactured gas plant operations have
been identified at the site of the Pepsi Center, a sports arena under
construction in lower downtown Denver. A settlement, in principle, with the site
owners has been achieved which is not expected to have a material adverse impact
on PSCo's financial position, results of operations or cash flows.
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.
Under the Price-Anderson Act, PSCo remains subject to potential
assessments levied in response to any nuclear incidents prior to early 1994.
PSCo continues to maintain primary commercial nuclear liability insurance of
$100 million for the Fort St. Vrain site and the adjoining ISFSI. PSCo also
maintains coverage of $20.4 million to provide property damage and
decontamination protection in the event of an accident involving the ISFSI.
Employee Matters
Several employee lawsuits have been filed against PSCo involving alleged
discrimination or workers' compensation issues which have arisen during the
normal course of business. Also, lawsuits have been filed against
27
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
PSCo alleging breach of certain fiduciary duties to employees. The plaintiffs
lawsuits are in various stages of litigation and/or appeal (s), including
settlement discussions, with the appropriate state and federal judicial courts.
PSCo intends to contest, or is actively contesting, all such lawsuits, and
believes the ultimate outcome will not have a material adverse impact on PSCo's
financial position, results of operations or cash flows.
During 1996, ninety former Information Technology and Systems ("IT&S")
employees filed a lawsuit against the Company. The complaint alleged that PSCo
unfairly amended its severance plan in connection with a restructuring in late
1994 to exclude the IT&S function/positions that were outsourced to a subsidiary
of IBM, effective February 1, 1995. On June 16, 1997, the Denver District Court
issued a decision in favor of the former IT&S employees and awarded
approximately $1.6 million in severance costs and, in a judgment on October 10,
1997, the former IT&S employees were awarded interest and attorney fees as well,
making the total judgment against PSCo $2.1 million. An additional case with 153
former IT&S employees was filed asserting identical claims. Settlement on both
cases was achieved in early 1998. During 1997, PSCo accrued related costs,
including estimated interest and attorney fees. In early 1998, two additional
lawsuits, asserting identical claims, were filed on behalf of a total of 26
former IT&S employees, which were settled in May 1998.
Year 2000 Costs
The Company has further refined its initial estimates and now expects to
incur costs of approximately $30 million through 1999 to modify its computer
software, hardware and other automated systems used in operations enabling
proper data processing relating to the year 2000 and beyond. The majority of
these costs will be incurred by or allocated to the Company's operating
utilities, primarily PSCo and SPS. The Company continues to evaluate appropriate
courses of corrective action, including the replacement of certain systems. A
significant portion of these costs will represent the redeployment of existing
information technology resources. If such modifications and conversions are not
completed on a timely basis, the year 2000 problem may have a material impact on
the operations of the Company. Management does not anticipate these activities
will have a material adverse impact on the financial position, results of
operations or cash flows of the Company or its subsidiaries.
6. Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trusts Holding Solely Subordinated Debentures (NCE, PSCo and SPS)
In May 1998, PSCo Capital Trust I, a wholly-owned trust of PSCo, issued
7,760,000 shares of its 7.60% Trust Originated Preferred Securities for $194
million. The sole asset of the trust is $200 million principal amount of PSCo's
7.60% Deferrable Interest Subordinated Debentures due June 30, 2038. Holders of
the securities are entitled to receive quarterly dividends at an annual rate of
7.60% of the liquidation preference value of $25. The securities are redeemable
at the option of PSCo on and after May 11, 2003 at 100% of the principal amount
outstanding plus accrued interest. In addition to PSCo's obligation under the
Subordinate Debentures, PSCo has agreed, pursuant to a guarantee issued to the
trust and the provisions of the trust agreement establishing the trust, on a
subordinated basis, payment of distributions on the preferred securities (but
not if the trust does not have sufficient funds to pay such distributions) and
to pay all of the expenses of the trust (collectively, the "Back-up
Undertakings"). Considered together, the Back-up Undertakings constitute a full
and unconditional guarantee by the Company of the trust obligations under the
preferred securities. The proceeds from the sale of the 7.60% Trust Originated
Preferred Securities were used to redeem all $181.8 million of PSCo's
outstanding preferred stock on June 10, 1998 and for general corporate purposes.
In October 1996, Southwestern Public Service Capital I, a wholly-owned
trust of SPS, issued in a public offering $100 million of its 7.85% Trust
Preferred Securities, Series A. The sole asset of the trust is $103 million
principal amount of the Company's 7.85% Deferrable Interest Subordinated
Debentures, Series A due September 1, 2036. The securities are redeemable at the
option of SPS on and after October 21, 2001 at 100% of the principal amount plus
accrued interest. In addition to SPS's obligations under the Subordinated
Debentures, SPS has agreed, pursuant to a guarantee issued to the trust, the
provisions of the trust agreement establishing the trust and a related expense
agreement to guarantee, on a subordinated basis, payment of distributions on
the preferred securities (but not if the trust does not have sufficient funds to
pay such distributions) and to pay all of the guarantee by the Company of the
trust obligations under the preferred securities.
28
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
7. Management's Representations (NCE, PSCo and SPS)
In the opinion of the registrants, the accompanying unaudited consolidated
condensed financial statements for NCE, PSCo and SPS include all adjustments
necessary for the fair presentation of the financial position of the Company and
its subsidiaries at June 30, 1998 and December 31, 1997 and the results of
operations for the three and six months ended June 30, 1998 and 1997 and cash
flows for the six months ended June 30, 1998 and 1997. The consolidated
condensed financial information and notes thereto should be read in conjunction
with the consolidated financial statements and notes included in the combined
1997 Form 10-K for NCE, PSCo and SPS.
Because of seasonal and other factors, the results of operations for the
three and six months ended June 30, 1998 should not be taken as an indication of
earnings for all or any part of the balance of the year.
29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO NEW CENTURY ENERGIES, INC.:
We have reviewed the accompanying consolidated condensed balance sheet of New
Century Energies, Inc. (a Delaware corporation) and subsidiaries as of June 30,
1998, and the related condensed statements of income for the three and six-month
periods ended June 30, 1998 and 1997 and the condensed statements of cash flows
for the six-month periods ended June 30, 1998 and 1997. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of New Century Energies, Inc. and
subsidiaries as of December 31, 1997 (not presented herein), and, in our report
dated February 13, 1998, we expressed an unqualified opinion on that statement.
In our opinion, the information set forth in the accompanying consolidated
condensed balance sheet as of December 31, 1997, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
ARTHUR ANDERSEN LLP
Denver, Colorado,
August 10, 1998
30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO PUBLIC SERVICE COMPANY OF COLORADO:
We have reviewed the accompanying consolidated condensed balance sheet of Public
Service Company of Colorado (a Colorado corporation) and subsidiaries as of June
30, 1998, and the related consolidated condensed statements of income for the
three and six-month periods ended June 30, 1998 and 1997 and the consolidated
condensed statements of cash flows for the six-month periods ended June 30, 1998
and 1997. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Public Service Company of Colorado
and subsidiaries as of December 31, 1997 (not presented herein), and, in our
report dated February 13, 1998, we expressed an unqualified opinion on that
statement. In our opinion, the information set forth in the accompanying
consolidated condensed balance sheet as of December 31, 1997, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
ARTHUR ANDERSEN LLP
Denver, Colorado,
August 10, 1998
31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO SOUTHWESTERN PUBLIC SERVICE COMPANY:
We have reviewed the accompanying condensed balance sheet of Southwestern Public
Service Company (a New Mexico corporation) as of June 30, 1998, and the related
condensed statements of income for the three and six-month periods ended June
30, 1998 and 1997 and the condensed statements of cash flows for the six-month
periods ended June 30, 1998 and 1997. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Southwestern Public Service Company as of
December 31, 1997 (not presented herein), and, in our report dated February 13,
1998, we expressed an unqualified opinion on that statement. In our opinion, the
information set forth in the accompanying condensed balance sheet as of December
31, 1997, is fairly stated, in all material respects, in relation to the balance
sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Denver, Colorado,
August 10, 1998
32
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (NCE, PSCo and SPS)
NCE's Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended June 30, 1998 Compared to the Three Months Ended June 30,
1997
Earnings
Earnings per share were $0.50 for the second quarter of 1998 as compared
to $0.33 for the second quarter of 1997. The higher earnings were primarily
attributable to strong retail and wholesale electric sales. Customer growth and
hotter than normal weather contributed to the increased sales during the period,
with a significant increase in the irrigation load in Texas and New Mexico.
Non-recurring items impacted the Company's quarterly earnings in both 1998
and 1997. In the second quarter of 1998, Yorkshire Power recognized an
impairment of its investment in a U.K. telecommunications company. This
investment impairment, in conjunction with the recognition of a non-recurring
positive tax adjustment at Yorkshire Power, reduced earnings approximately 15
cents per share (see Note 2. Investment in Yorkshire Power in Item 1. FINANCIAL
STATEMENTS). Earnings for the second quarter of 1997 were reduced approximately
17 cents per share due to the recognition of merger costs and the write-off of a
subsidiary investment in a waste-to-energy cogeneration project.
Electric Operations
The following table details the change in electric operating revenues and
energy costs for the second quarter of 1998 as compared to the same period in
1997.
Increase (Decrease)
-------------------
(Thousands of Dollars)
Electric operating revenues:
Retail............................................... $ 19,920
Wholesale............................................ 32,542
Non-regulated power marketing........................ 14,198
Other (including unbilled revenues and provision for
rate refunds) ..................................... (1,560)
Total revenues...................................... 65,100
Fuel used in generation............................... 6,102
Purchased power....................................... 30,164
-------
Net increase in electric margin..................... $28,834
=======
The following table compares electric Kwh sales by major customer classes
for the second quarter of 1998 and 1997.
Millions of Kwh Sales
---------------------
1998 1997 % Change *
---- ---- ----------
Residential ............................... 2,215 2,116 4.7%
Commercial and Industrial ................ 6,686 6,534 2.3
Public Authority .......................... 197 180 9.3
----- -----
Total Retail............................. 9,098 8,830 3.0
Wholesale.................................. 3,698 2,671 38.5
Non-regulated power marketing.............. 781 213 **
----- -----
Total ..................................... 13,577 11,714 15.9
====== ======
* Percentages are calculated using unrounded amounts
** Percentage change is significant, but presentation of the amount is not
meaningful
33
<PAGE>
Electric margin increased in the second quarter of 1998, when compared to
the second quarter of 1997, due primarily to a 3.0% increase in total retail
sales and a 15.9% increase in total sales resulting from customer growth and
hotter than normal weather. PSCo's higher non-firm wholesale electric sales
contributed to increased revenues, but had little impact on electric margin.
SPS's higher retail and wholesale sales were particularly impacted by the hotter
than normal weather during the second quarter of 1998 and a resulting increase
in the irrigation load in Texas and New Mexico. Also contributing to the higher
margin was the favorable $7.7 million impact of a FERC decision in a 1985
wholesale rate case proceeding at SPS (see Note 4. Regulatory Matters in Item 1.
FINANCIAL STATEMENTS).
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. PSCo's
ICA, which allows for a 50%/50% sharing of certain fuel and energy cost
increases and decreases among customers and shareholders, did not significantly
impact electric margin for the second quarter of 1998 or 1997 (see Note 4.
Regulatory Matters in Item 1. FINANCIAL STATEMENTS).
Fuel used in generation expense increased approximately $6.1 million
during the second quarter of 1998 as compared to the same quarter in 1997 due
primarily to increased generation levels.
Purchased power expense increased $30.2 million during the second quarter
of 1998, as compared to the same quarter in 1997, primarily due to an increase
in power marketing activities at the Company's non-regulated subsidiaries ($14.0
million) and purchases to meet wholesale requirements and other customer demands
at PSCo ($12.4 million). Purchased power at SPS increased $4.2 million due to a
78% increase in wholesale purchases, higher spot market prices and increased
purchased capacity costs. SPS generates substantially all of its power for sale
to its firm retail and wholesale customers and sells non-firm energy as the
market demands. Similarly, SPS purchases low-cost non-firm energy when
available.
Gas Operations
The following table details the change in revenues from gas sales and gas
purchased for resale for the second quarter of 1998 as compared to the same
period in 1997.
Increase (Decrease)
-------------------
(Thousands of Dollars)
Revenues from gas sales (including unbilled revenues). $ 6,630
Gas purchased for resale.............................. 9,292
-------
Net decrease in gas sales margin..................... $(2,662)
========
The following table compares gas Dth deliveries by major customer classes
for the second quarter of 1998 and 1997.
Millions of Dth Deliveries
--------------------------
1998 1997 % Change *
---- ---- ----------
Residential................................ 18.6 18.5 0.4%
Commercial................................. 9.4 9.8 (4.4)
Non-regulated gas marketing................ 15.5 15.0 3.2
----- ----
Total Sales.............................. 43.5 43.3 0.3
Transportation............................. 27.3 22.3 22.4
----- ----
Total.................................... 70.8 65.6 7.8
===== ====
* Percentages are calculated using unrounded amounts
Gas sales margin decreased during the second quarter of 1998, when compared
to the second quarter of 1997, primarily due to a $5.2 million decrease in
PSCo's unbilled revenues. Unbilled revenues consist of gas that has been
delivered to customers who's meters have not been read and therefore not billed.
Retail gas sales increased 0.3%
34
<PAGE>
overall during the second quarter of 1998 as compared with the prior year
primarily as a result of non-regulated sales. PSCo's gas sales decreased 1.6% as
a result of warmer weather, despite a 2.7% increase in customers.
Gas transportation, gathering and processing revenues increased
approximately $0.7 million during the second quarter of 1998, when compared to
the second quarter of 1997, primarily due to higher deliveries. The volume of
transported gas increased approximately 22% although the average price decreased
approximately 12%. The increase in transport deliveries is a result of
commercial customers shifting to transport customers.
PSCo and Cheyenne have in place a GCA mechanism for natural gas sales,
which recognizes the majority of the effects of changes in the cost of gas
purchased for resale and adjusts revenues to reflect such changes in cost on a
timely basis. As a result, the changes in revenues associated with these
mechanisms during the second quarter of 1998, as compared to the second quarter
of 1997, had little impact on net income. However, the fluctuations in gas sales
impact the amount of gas the Company's gas utilities must purchase and,
therefore, along with the increases and decreases in the per-unit cost of gas,
affect total gas purchased for resale. The higher per-unit average cost of gas
during the second quarter of 1998, along with an increase in the quantity of gas
purchased, contributed to the increase in cost of gas purchased for resale.
Non-Fuel Operating Expenses and Other Income and Deductions
Other operating and maintenance expenses increased $13.8 million during
the second quarter of 1998, as compared to the same period in 1997, primarily
due to higher operating costs from non-regulated operations ($13.2 million).
Depreciation and amortization expense increased $6.7 million primarily due to an
increase in electric property, plant and equipment at PSCo and SPS.
Other income and deductions increased approximately $22.5 million during
the second quarter of 1998, when compared to the second quarter of 1997,
primarily due to the write-off of the investment in the Carolina Energy Project
in 1997 (see Note 3. Acquisition and Divestiture of Investments in Item 1.
FINANCIAL STATEMENTS), a decrease in merger expenses and accruals for estimated
legal and other costs associated with various employee lawsuits in 1997 offset
by lower earnings at Yorkshire Power as discussed above.
Interest charges and preferred dividends of subsidiaries increased $1.8
million during the second quarter of 1998, when compared to the same quarter in
1997, primarily due to interest on borrowings to finance capital expenditures
and dividends on the PSCo Trust Originated Preferred Securities.
Six Months Ended June 30, 1998 Compared to the Six Months Ended June 30, 1997
Earnings
Earnings per share were $1.28 for the first six months of 1998 as compared
to $1.08 for the first six months of 1997. The higher earnings were primarily
attributable to increases in electric and gas sales resulting from continued
customer growth, hotter than normal weather during the second quarter of 1998,
the absence of merger costs in 1998, and a the write-off of the Carolina Energy
Project in 1997. Earnings for the six months ended June 30, 1998 also included
the investment impairment and a non-recurring tax adjustment by Yorkshire Power,
which reduced earnings by approximately 15 cents per share.
35
<PAGE>
Electric Operations
The following table details the change in electric operating revenues and
energy costs for the first six months of 1998 as compared to the same period in
1997.
Increase (Decrease)
-------------------
(Thousands of Dollars)
Electric operating revenues:
Retail............................................... $24,140
Wholesale............................................ 33,014
Non-regulated power marketing........................ 23,913
Other (including unbilled revenues and provision for
rate refunds) ..................................... (4,336)
Total revenues...................................... 76,731
Fuel used in generation............................... (1,859)
Purchased power....................................... 51,195
-------
Net increase in electric margin..................... $27,395
=======
The following table compares electric Kwh sales by major customer classes
for the first six months of 1998 and 1997.
Millions of Kwh Sales
---------------------
1998 1997 % Change *
---- ---- ----------
Residential ............................... 4,896 4,736 3.4%
Commercial and Industrial ................ 13,277 13,036 1.8
Public Authority .......................... 378 359 5.1
----- -----
Total Retail............................. 18,551 18,131 2.3
Wholesale.................................. 6,434 4,962 29.7
Non-regulated power marketing.............. 1,603 579 **
----- -----
Total ..................................... 26,588 23,672 12.3
====== ======
* Percentages are calculated using unrounded amounts
** Percentage change is significant, but presentation of the amount is not
meaningful
Electric margin increased in the first six months of 1998, when compared to
the prior year primarily due to higher retail sales resulting from hotter than
normal weather during the second quarter of 1998. Also contributing to the
higher margin was the favorable $7.7 million impact of a FERC decision in a 1985
wholesale rate case proceeding at SPS (see Note 4. Regulatory Matters in Item 1.
FINANCIAL STATEMENTS). This increase was offset, in part, by recognition of an
estimated customer refund obligation (approximately $5.6 million in the first
six months 1998, while no obligation was recorded in the first six months 1997)
in connection with the earnings sharing in excess of 11% return on equity which
resulted for the settlement of the Merger proceedings in Colorado (see Note 4.
Regulatory Matters in Item 1. FINANCIAL STATEMENTS). Higher wholesale electric
sales contributed to increased 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. PSCo's
ICA, which allows for a 50%/50% sharing of certain fuel and energy cost
increases and decreases among customers and shareholders, did not significantly
impact electric margin for the first six months of 1998 or 1997 (see Note 4.
Regulatory Matters in Item 1. FINANCIAL STATEMENTS).
Fuel used in generation expense decreased approximately $1.9 million
during the first six months of 1998 as compared to the same period in 1997.
Lower per unit cost of coal and natural gas were offset by increased generation
levels.
Purchased power expense increased during the first six months of 1998, as
compared to the same period in 1997, primarily due to an increase in power
marketing activities at the Company's non-regulated subsidiaries.
36
<PAGE>
Gas Operations
The following table details the change in revenues from gas sales and gas
purchased for resale for the first six months of 1998 as compared to the same
period in 1997.
Increase (Decrease)
-------------------
(Thousands of Dollars)
Revenues from gas sales (including unbilled revenues). $33,436
Gas purchased for resale.............................. 27,215
-------
Net increase in gas sales margin..................... $ 6,221
=======
The following table compares gas Dth deliveries by major customer classes
for the first six months of 1998 and 1997.
Millions of Dth Deliveries
--------------------------
1998 1997 % Change *
---- ---- ----------
Residential................................ 58.5 58.1 0.8%
Commercial................................. 28.7 31.2 (7.9)
Non-regulated gas marketing................ 31.9 30.6 4.0
----- -----
Total Sales.............................. 119.1 119.9 (0.7)
Transportation............................. 54.9 47.5 15.6
----- -----
Total.................................... 174.0 167.4 3.9
===== =====
* Percentages are calculated using unrounded amounts
Gas sales margin increased during the first six months of 1998, when
compared to the first six months of 1997, primarily due to an increase in PSCo's
base revenues associated with the higher rates effective February 1, 1997,
resulting from the 1996 rate case (see Note 4. Regulatory Matters in Item 1.
FINANCIAL STATEMENTS).
Gas transportation, gathering and processing revenues increased $2.0
million during the first six months of 1998, when compared to the first six
months of 1997, primarily due to higher volume of gas transported offset, in
part, by a decrease in the average price. The volume of transported gas
increased approximately 16% although the average per unit cost decreased
approximately 3%. The increase in transport deliveries is a result of commercial
customers shifting to transport customers.
PSCo and Cheyenne have in place a GCA mechanism for natural gas sales,
which recognizes the majority of the effects of changes in the cost of gas
purchased for resale and adjusts revenues to reflect such changes in cost on a
timely basis. As a result, the changes in revenues associated with these
mechanisms during the first six months of 1998, as compared to the first six
months of 1997, had little impact on net income. However, the fluctuations in
gas sales impact the amount of gas the Company's gas utilities must purchase
and, therefore, along with the increases and decreases in the per-unit cost of
gas, affect total gas purchased for resale. The higher per-unit average cost of
gas during the first six months of 1998, along with an increase in the quantity
of gas purchased, contributed to the increase in cost of gas purchased for
resale.
Non-Fuel Operating Expenses and Other Income and Deductions
Other operating and maintenance expenses increased $26.4 million during
the first six months of 1998, as compared to the same period in 1997, primarily
due to higher operating costs from non-regulated operations ($23.4 million).
Other income and deductions increased approximately $28.7 million during
the first six months of 1998, when compared to the first six months of 1997,
primarily due to the write-off of the investment in the Carolina
37
<PAGE>
Energy Project in 1997 ($16.1 million), a decrease in merger expenses ($13.7
million) offset, in part, by lower earnings at Yorkshire Power as discussed
above.
Interest charges and preferred dividends of subsidiaries increased $4.3
million during the first six months of 1998, when compared to the same quarter
in 1997, primarily due to interest on borrowings utilized to finance capital
expenditures and the April 1997 investment in Yorkshire Power (see Note 2.
Investment in Yorkshire Power in Item 1. FINANCIAL STATEMENTS), and dividends on
the PSCo Trust Originated Preferred Securities.
Commitments and Contingencies
Issues relating to regulatory matters, environmental issues, employee
lawsuits and Year 2000 costs are discussed in Notes 4 and 5 in Item 1. FINANCIAL
STATEMENTS. These matters and the future resolution thereof may impact the
Company's future financial position, results of operations or cash flows.
Based on a preliminary analysis, the Company expects to incur costs of
approximately $30 million over the next two years to modify its computer
software, hardware and other automated systems used in operations enabling
proper data processing relating to the year 2000 and beyond. The majority of
these costs will be incurred by or allocated to the Company's operating
utilities, primarily PSCo and SPS. The Company continues to evaluate appropriate
courses of corrective action, including the replacement of certain systems. A
significant portion of these costs will represent the redeployment of existing
information technology resources. If such modifications and conversions are not
completed on a timely basis, the year 2000 problem may have a material impact on
the operations of the Company. Management does not anticipate these activities
will have a material adverse impact on the financial position, results of
operations or cash flows of the Company or its subsidiaries.
Common Stock Dividend
The Board of Directors approved a $0.58 per share dividend payable to
shareholders of the Company for the second quarter of 1998 and $1.16 for the
year-to-date. The Company's common stock dividend level is dependent upon the
Company's financial position, results of operations, cash flows and other
factors. The Board of Directors of the Company will continue to evaluate the
common stock dividend on a quarterly basis.
Liquidity and Capital Resources
Cash Flows - Six Months Ended June 30
1998 1997 Increase
---- ---- --------
Net cash provided by operating
activities (in millions)................ $362.8 $136.4 $226.4
Cash provided by operating activities increased during the first six
months of 1998, when compared to the first six months of 1997, primarily due to
the decrease in payments to gas suppliers resulting from lower gas costs during
the first six months of 1998 as compared to the first six months of 1997. A
portion of these lower gas costs have been deferred through the GCA and have
reduced the amount to be recovered from customers in the future. Also
contributing to the increase were higher electric sales at SPS and PSCo
resulting from hotter than normal weather. SPS and a non-regulated subsidiary of
NCE recorded combined cash proceeds of approximately $67 million for the
recovery of deferred costs and income from the investment in a non-regulated
energy development project.
1998 1997 Decrease
---- ---- --------
Net cash used in investing
activities (in millions) .............. $(270.8) $(569.1) $(298.3)
38
<PAGE>
Cash used in investing activities decreased during 1998, when compared to
1997, primarily due to the acquisition of Yorkshire Electricity in 1997
partially offset by higher 1998 construction expenditures and payment for the
purchase of a company in 1998.
1998 1997 Decrease
---- ---- --------
Net cash provided by (used in) financing
activities (in millions) .............. $(57.0) $425.2 $(482.2)
Cash provided by financing activities decreased during 1998, when compared
to 1997, primarily due to PSCo's issuance of medium-term notes in January and
March 1997. The proceeds from the $75 million financing by PSCo in January 1997
and the $250 million financing by PSCo in March 1997 were used to fund
construction expenditures and the investment in Yorkshire POWER. See Note 2.
Investment in Yorkshire Power in Item 1. FINANCIAL STATEMENTS. The debt
issuances in 1997 were offset by proceeds from PSCo's issuance of $250 million
of long-term debt in April 1998 which was used to repay short-term and other
debt. In May 1998, PSCo issued $194 million of Trust Originated Preferred
Securities the proceeds of which were used to redeem all of PSCo's outstanding
preferred stock (totaling $181.8 million) on June 10, 1998 (see Note 6.
Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust
Holding Soley Subordinated Debentures in Item 1. FINANCIAL STATEMENTS).
Financing Activities
Long-Term Debt
On April 20, 1998, PSCo issued $250 million of 6% First Collateral Trust
Bonds due April 15, 2003, which are not redeemable prior to maturity. The
principal and accrued interest on the bonds are secured by PSCo's First Mortgage
Bonds. Substantially all properties of PSCo are subject to the liens securing
its First Mortgage Bonds. The proceeds from the issuance will be used for
general corporate purposes and to repay short-term and other debt incurred for
such purposes.
PSCo Obligated Mandatorily Redeemable Preferred Securities
In May 1998, PSCo Capital Trust I, a wholly-owned trust of PSCo, issued in
a public offering $194 million of its 7.60% Trust Originated Preferred
Securities. The sole asset of the trust is $200 million principal amount of
PSCo's 7.60% Deferrable Interest Subordinated Debentures due June 30, 2038. The
proceeds from the sale of the 7.60% Trust Originated Preferred Securities were
used to redeem all of PSCo's outstanding preferred stock totaling $181.8 million
on June 10, 1998 and for general corporate purposes.
Bank Lines of Credit and Compensating Bank Balances
In August of 1997, NCE entered into a $225 million credit facility with
several banks. Originally, the credit facility provided for $100 million of
direct borrowings by NCE until the outstanding common stock of PSCCC, a wholly
owned subsidiary of PSCo, was transferred to NCE. On June 30, 1998, the credit
facility was amended to eliminate the PSCCC common stock restriction and to
provide for $200 million of direct borrowings by NCE. In addition, Cheyenne was
added as a borrower of up to $25 million with an NCE guaranty. The credit
facility expires August 11, 2002.
During the second quarter of 1998, PSCo entered into a credit facility,
which provides for $150 million in committed lines of credit, replacing an
existing $125 million credit facility. During the first quarter of 1998, SPS
entered into a credit facility which provides for $200 million in committed
lines of credit, replacing the two existing credit facilities totaling $180
million.
39
<PAGE>
Electric Utility Industry
Electric utilities have historically operated in a highly regulated
environment in which they have an obligation to provide electric service to
their customers in return for an exclusive franchise within their service
territory with an opportunity to earn a regulated rate of return. This
regulatory environment is changing. The generation sector has experienced
competition from nonutility power producers and the FERC is requiring utilities,
including the Company's subsidiaries, to provide wholesale transmission service
to others and may order electric utilities to enlarge their transmission systems
to facilitate transmission services without impairing reliability. State
regulatory authorities are in the process of changing utility regulations in
response to federal and state statutory changes and evolving markets, including
consideration of providing open access to retail customers. All of the Company's
jurisdictions continue to evaluate utility regulations with respect to
competition. The Company is unable to predict what financial impact or effect
the adoption of these proposals would have on its operations.
New Accounting Standards
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed for Internal Use". This statement requires companies expense
costs as incurred in the preliminary project stage, training, data conversion,
internal maintenance and other indirect payroll related costs. This statement is
not expected to have a material impact on the Company's consolidated financial
statements. This Statement is effective for fiscal years beginning after
December 15, 1998, with earlier adoption encouraged. The Company will adopt this
accounting standard as required by January 1, 1999.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This Statement requires companies to record derivatives
on the balance sheet as assets and liabilities, measured at fair value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. The Company is currently evaluating the potential impact
of this new accounting standard. This Statement is effective for fiscal years
beginning after June 15, 1999, with earlier adoption encouraged. The Company
will adopt this accounting standard as required by January 1, 2000.
40
<PAGE>
PSCo's Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three Months Ended June 30, 1998 Compared to the Three Months Ended June 30,
1997
Merger
Effective August 1, 1997, following receipt of all required state and
Federal regulatory approvals, PSCo and SPS merged in a tax-free "merger of
equals" transaction and became wholly-owned subsidiaries of NCE, which is a
registered holding company under PUHCA. This transaction was accounted for as a
pooling of interests for accounting purposes. Effective with the Merger,
Cheyenne, WGI, e prime and Natural Fuels were transferred by a declaration of a
dividend of the subsidiaries' stock, at net book value, aggregating
approximately $49.9 million, to NCE. NCE subsequently made a capital
contribution of the e prime and Natural Fuels common stock, at net book value,
aggregating approximately $29.5 million, to NC Enterprises. See Note 1. Summary
of Significant Accounting Policies in Item 1. FINANCIAL STATEMENTS for
additional discussion regarding PSCo, the Merger and the transfer of Cheyenne,
WGI, e prime and Natural Fuels. The consolidated condensed statements of income
for the three and six months ended June 30, 1997 and statement of cash flows for
the six months ended June 30, 1997, reflect the results of operations of
Cheyenne, WGI, e prime and Natural Fuels. Where relevant, additional information
has been presented to discuss the impact of the transfer of these subsidiaries.
Earnings Available for Common Stock
Earnings increased approximately 3% to $28.5 million for the second
quarter of 1998, as compared to $27.7 million for the second quarter of 1997.
The increase was primarily attributable to the absence of accruals for estimated
legal costs associated with various employee lawsuits recognized in 1997, higher
merger and business integration costs in 1997 and an increase in the electric
margin resulting from an increase in sales in 1998.
Electric Operations
The following table details the change in electric operating revenues and
energy costs for the three months ended June 30, 1998, as compared to the same
period in 1997 (in thousands of dollars).
Increase (Decrease)
-------------------
Cheyenne
PSCo Only & e prime Consolidated
--------- --------- ------------
Electric operating revenues:
Retail....................................... $10,804 $ (8,936) $ 1,868
Wholesale - regulated........................ 10,197 - 10,197
Non-regulated power marketing................ - (3,085) (3,085)
Other (including unbilled revenues and
provision for rate refunds) ............... 722 4 726
--- ---- ---
Total revenues.............................. 21,723 (12,017) 9,706
Fuel used in generation....................... 2,072 - 2,072
Purchased power............................... 12,399 (9,630) 2,769
------- --------- -------
Net increase (decrease) in electric margin.. $ 7,252 $ (2,387) $ 4,865
======= ========= =======
41
<PAGE>
The following table compares electric Kwh sales by major customer classes
for the three months ended June 30, 1998 and 1997.
Millions of Kwh Sales % Change *
--------------------- ----------
1998 1997 Consolidated PSCo Only
---- ---- ---------------------
Residential ..................... 1,501 1,509 (0.6)% 2.7%
Commercial and Industrial ...... 3,721 3,844 (3.2) 1.0
Public Authority ................ 39 41 (4.2) (2.2)
------ ------
Total Retail................... 5,261 5,394 (2.4) 1.4
Wholesale - Regulated............ 1,409 1,028 37.1 37.1
Non-regulated Power Marketing.... - 212 ** -
------ ------
Total............................ 6,670 6,634 0.6 7.3
====== ======
* Percentages are calculated using unrounded amounts
** Percentage change is significant, but presentation of the amount is not
meaningful
Electric margin increased in the second quarter of 1998, when compared to
the second quarter of 1997, primarily due to an overall increase in PSCo's
retail sales of 1.4% resulting primarily from customer growth of approximately
1.8%. Higher wholesale electric sales contributed to increased operating
revenues, however, the margin on such sales is minimal.
PSCo has cost adjustment mechanisms which recognize the majority of the
effects of changes in fuel used in generation and purchased power costs and
allow recovery of such costs on a timely basis. PSCo's ICA, which allows for a
50%/50% sharing of certain fuel and energy cost increases and decreases among
customers and shareholders, did not significantly impact the electric margin for
the second quarter of 1998 or 1997 (see Note 4. Regulatory Matters in Item 1.
FINANCIAL STATEMENTS).
Fuel used in generation expense increased approximately $2.1 million
during the second quarter of 1998, as compared to the same quarter in 1997,
primarily due to increased generation levels at PSCo's power plants.
Purchased power expense increased $2.8 million during the second quarter
of 1998, as compared to the same quarter in 1997, primarily due to purchases to
meet increased wholesale requirements and other customer demands.
Gas Operations
The following table details the change in revenues from gas sales and gas
purchased for resale for the second quarter of 1998, as compared to the same
period in 1997 (in thousands of dollars).
Increase (Decrease)
-------------------
Cheyenne
Natural
Fuels
WGI &
PSCo Only e prime Consolidated
--------- ------- ------------
Revenues from gas sales (including
unbilled revenues)............................ $ 3,480 $(41,655) $(38,175)
Gas purchased for resale........................ 7,189 (38,236) (31,047)
------ -------- --------
Net decrease in gas sales margin.............. $(3,709) $(3,419) $ (7,128)
======= ======= ========
42
<PAGE>
The following table compares gas Dth deliveries by major customer classes
for the second quarter of 1998 and 1997.
Millions of Dth Deliveries % Change *
-------------------------- ----------
1998 1997 Consolidated PSCo Only
---- ---- ------------ ----------
Residential.................. 18.0 18.5 (2.7)% 0.3%
Commercial................... 8.9 9.8 (9.9) (5.3)
Non-regulated gas marketing.. - 15.1 ** -
---- ----
Total sales................ 26.9 43.4 (38.0) (1.6)
Transportation, gathering and
processing ................ 22.8 22.3 1.9 23.1
---- ----
Total...................... 49.7 65.7 (24.5) 8.4
==== =====
* Percentages are calculated using unrounded amounts
** Percentage change is significant, but presentation of the amount is not
meaningful
Gas sales margin decreased during the second quarter of 1998, when compared
to the second quarter of 1997, primarily due to a $5.2 million decrease in
PSCo's unbilled revenues, which is gas delivered to customers that has not been
billed. Gas sales decreased 1.6% as a result of warmer weather during the second
quarter of 1998, despite a 2.7% increase in customers.
PSCo has in place a GCA mechanism for natural gas sales, which recognizes
the majority of the effects of changes in the cost of gas purchased for resale
and adjusts revenues to reflect such changes in cost on a timely basis. As a
result, the changes in revenues associated with these mechanisms during the
second quarter of 1998, as compared to the second quarter of 1997, had little
impact on net income. However, the fluctuations in gas sales impact the amount
of gas PSCo must purchase and, therefore, along with the increases and decreases
in the per-unit cost of gas, affect total gas purchased for resale. The lower
per-unit average cost of gas during the second quarter of 1998, along with a
decrease in the quantity of gas purchased, contributed to the decrease in cost
of gas purchased for resale.
Gas transportation, gathering and processing revenues increase $0.5
million during the second quarter of 1998, compared to the second quarter of
1997, primarily due to higher deliveries. The increase in transport deliveries
continues to be impacted by the shifting of various commercial customers to
transport customers.
Non-Fuel Operating Expenses and Other Income and Deductions
Depreciation and amortization increased $4.6 million during the second
quarter of 1998, as compared to the second quarter of 1997, primarily due to the
depreciation of property additions and the higher amortization of software
costs.
Income taxes increased approximately $1.9 million during the second
quarter of 1998, as compared to the second quarter of 1997, primarily due to
higher pre-tax income.
Other income and deductions increased $9.9 million primarily due to the
accruals for estimated legal and other costs associated with various employee
lawsuits and the recognition of merger and business integration costs in 1997.
The decrease in expenditures was offset, in part, by the recognition of equity
earnings associated with the Company's investment in Yorkshire Power in the
second quarter of 1997. On March 31, 1998, NCI and its subsidiaries were
transferred through the sale by PSCo of all the outstanding common stock at net
book value (approximately $292.6 million), to NC Enterprises, an intermediate
holding company for NCE, and received as consideration a promissory note from NC
Enterprises. See Note 2. Investment in Yorkshire Power in Item 1. FINANCIAL
STATEMENTS.
Interest charges decreased slightly during the second quarter of 1998, as
compared to the second quarter of 1997. The increase in allowance for funds used
during construction were offset, in part, by dividends on the
43
<PAGE>
PSCo obligated mandatorily redeemable preferred securities of subsidiary trust
holding solely subordinated debentures of PSCo which were issued in May 1998.
See Note 6. PSCo Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust Holding Solely Subordinated Debentures in Item 1. FINANCIAL
STATEMENTS.
Six Months Ended June 30, 1998 Compared to the Six Months Ended June 30, 1997
Earnings Available for Common Stock
Earnings increased approximately 8% to $94.5 million for the first six
months of 1998, as compared to $87.6 million for the first six months of 1997.
The increase was primarily attributable to accruals for estimated legal costs
associated with various employee lawsuits recognized in 1997 and higher merger
and business integration costs in 1997.
Electric Operations
The following table details the change in electric operating revenues and
energy costs for the six months ended June 30, 1998, as compared to the same
period in 1997 (in thousands of dollars).
Increase (Decrease)
-------------------
Cheyenne
PSCo Only & e prime Consolidated
--------- --------- ------------
Electric operating revenues:
Retail...................................... $18,760 $(18,548) $ 212
Wholesale - regulated....................... 21,916 - 21,916
Non-regulated power marketing............... - (8,733) (8,733)
Other (including unbilled revenues and
provision for rate refunds) .............. (2,205) 99 (2,106)
------ --- ------
Total revenues............................. 38,471 (27,182) 11,289
Fuel used in generation...................... 8,440 - 8,440
Purchased power.............................. 26,514 (22,314) 4,200
------- --------- -------
Net increase (decrease) in electric margin $ 3,517 $ (4,868) $(1,351)
======= ======== =======
The following table compares electric Kwh sales by major customer classes
for the six months ended June 30, 1998 and 1997.
Millions of Kwh Sales % Change *
--------------------- ----------
1998 1997 Consolidated PSCo Only
---- ---- ------------ ---------
Residential ..................... 3,356 3,376 (0.6)% 2.7%
Commercial and Industrial ...... 7,476 7,686 (2.7) 1.4
Public Authority ................ 87 89 (2.8) (0.6)
------ ------
Total Retail................... 10,919 11,151 (2.1) 1.8
Wholesale - Regulated............ 2,903 1,878 54.5 54.5
Non-regulated Power Marketing.... - 579 ** -
------ ------
Total............................ 13,822 13,608 1.6 9.7
====== ======
* Percentages are calculated using unrounded amounts
** Percentage change is significant, but presentation of the amount is not
meaningful
Electric margin increased (excluding the results of Cheyenne and e prime)
in the first six months of 1998, when compared to the first six months of 1997,
primarily due to an overall increase in PSCo's retail sales of 1.8% resulting
from customer growth of approximately 1.8%. The increase was offset, in part, by
the recognition of an estimated customer refund obligation (approximately $5.6
million in the first six months of 1998 while no obligation was recognized in
the first six months of 1997) in connection with the earnings sharing in excess
of 11% return on equity which resulted from the settlement of the Merger
proceedings in Colorado
44
<PAGE>
(see Note 4. Regulatory Matters in Item 1. FINANCIAL STATEMENTS). Higher
wholesale electric sales contributed to increased operating revenues, however,
the margin on such sales is minimal.
PSCo has cost adjustment mechanisms which recognize the majority of the
effects of changes in fuel used in generation and purchased power costs and
allow recovery of such costs on a timely basis. PSCo's ICA, which allows for a
50%/50% sharing of certain fuel and energy cost increases and decreases among
customers and shareholders, did not significantly impact the electric margin for
the first six months of 1998 or 1997 (see Note 4. Regulatory Matters in Item 1.
FINANCIAL STATEMENTS).
Fuel used in generation expense increased approximately $8.4 million
during the first six months of 1998, as compared to the same period in 1997 due
to increased generation levels at PSCo's power plants.
Purchased power expense increased approximately $4.2 million during the
first six months of 1998, as compared to the same period in 1997, primarily due
to purchases to meet increased wholesale requirements and other customer
demands.
Gas Operations
The following table details the change in revenues from gas sales and gas
purchased for resale for the first six months of 1998, as compared to the same
period in 1997 (in thousands of dollars).
Increase (Decrease)
-------------------
Cheyenne
Natural
Fuels
WGI &
PSCo Only e prime Consolidated
--------- ------- -----------
Revenues from gas sales (including
unbilled revenues)...................... $32,240 $(97,710) $(65,470)
Gas purchased for resale........................ 29,114 (90,669) ( 61,555)
------ -------- --------
Net increase (decrease) in gas sales margin... $3,126 $(7,041) $(3,915)
====== ======= ========
The following table compares gas Dth deliveries by major customer classes
for the first six months of 1998 and 1997.
Millions of Dth Deliveries % Change *
-------------------------- ----------
1998 1997 Consolidated PSCo Only
---- ---- ------------ ---------
Residential................... 56.9 58.1 (2.1)% 0.7%
Commercial.................... 27.3 31.2 (12.5) (8.8)
Non-regulated gas marketing... - 30.6 ** -
------ --------
Total sales................. 84.2 119.9 (29.8) (2.6)
Transportation, gathering and
processing ................. 46.0 47.5 (3.1) 18.0
---- ---- ---- ----
Total....................... 130.2 167.4 (22.3) 3.8
======= ========
* Percentages are calculated using unrounded amounts
** Percentage change is significant, but presentation of the amount is not
meaningful
Gas sales margin increased (excluding the results of Cheyenne, WGI,
Natural Fuels and e prime) during the first six months of 1998, when compared to
the first six months of 1997, primarily due to an increase in PSCo's base
revenues associated with the higher rates effective February 1, 1997, resulting
from the 1996 rate case. This increase was offset, in part, by a 2.6% decrease
in PSCo's sales which resulted from warmer weather during the first six months
of 1998 despite a 2.8% increase in customers.
Gas transportation, gathering and processing revenues increased
approximately $1.7 million during the first six months of 1998, when compared to
the first six months of 1997, primarily due to higher transportation
45
<PAGE>
rates effective February 1, 1997, resulting from PSCo's 1996 rate case and an
increase in transport deliveries. The increase in transport deliveries continues
to be impacted by the shifting of various commercial customers to transport
customers.
PSCo has in place a GCA mechanism for natural gas sales, which recognizes
the majority of the effects of changes in the cost of gas purchased for resale
and adjusts revenues to reflect such changes in costs on a timely basis. As a
result, the changes in revenues associated with these mechanisms during the
first six months of 1998, as compared to the first six months of 1997, had
little impact on net income. However, the fluctuations in gas sales impact the
amount of gas PSCo must purchase and, therefore, along with the increases and
decreases in the per-unit cost of gas, affect total gas purchased for resale.
The lower per-unit average cost of gas during the first six months of 1998,
along with a decrease in the quantity of gas purchased, contributed to the
decrease in cost of gas purchased for resale.
Non-Fuel Operating Expenses and Other Income and Deductions
Other operating and maintenance expenses decreased approximately $3.2
million primarily due to lower labor and employee benefit costs and other
general cost reductions in connection with the Merger.
Depreciation and amortization expense increased $4.6 million in the first
six months of 1998, as compared to the same period in 1997, primarily due to the
depreciation of property additions and the higher amortization of software
costs.
Taxes other than income taxes decreased approximately $2.8 million during
the first six months of 1998, as compared to the first six months of 1997.
Excluding the effects of the sale of Cheyenne, WGI, e prime and Natural Fuels
taxes other than income taxes decreased approximately $1.8 million primarily due
to lower property tax accruals.
Income taxes increased approximately $3.5 million during the first six
months of 1998, as compared to the first six months of 1997, primarily due to
higher pre-tax income.
Other income and deductions increased approximately $13.3 million during
the first six months of 1998, when compared to the first six months of 1997,
primarily due to the recognition of merger and business integration costs in
1997 and accruals for estimated legal and other costs associated with various
employee lawsuits in 1997. The recognition of equity earnings in Yorkshire Power
($3.4 million) during the first quarter of 1998 offset, in part, equity earnings
of Yorkshire Power during the second quarter of 1997 ($4.1 million). On March
31, 1998, NCI and its subsidiaries, including Yorkshire Power, were transferred
through the sale by PSCo of all the outstanding common stock at net book value
(approximately $292.6 million), to NC Enterprises, an intermediate holding
company for NCE, and received as consideration a promissory note from NC
Enterprises. See Note 2. Investment in Yorkshire Power in Item 1. FINANCIAL
STATEMENTS.
Interest charges increased slightly during the first six months of 1998,
as compared to the first six months of 1997. Dividends on PSCo obligated
mandatorily redeemable preferred securities of subsidiary trust holding solely
subordinated debentures of PSCo which were issued in May 1998 (See Note 6.
Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust
Holding Solely Subordinated Debentures in Item 1. FINANCIAL STATEMENTS) were
offset, in part, by allowance for funds used during construction.
Commitments and Contingencies
See Note 5. Commitments and Contingencies in Item 1. FINANCIAL
STATEMENTS.
46
<PAGE>
Liquidity and Capital Resources
Cash Flows - Six Months Ended June 30
1998 1997 Increase
---- ---- --------
Net cash provided by operating
activities (in millions)............... $221.8 $ 120.4 $101.4
Cash provided by operating activities increased during the first six
months of 1998, when compared to the first six months of 1997, primarily due to
the decrease in payments to gas suppliers resulting from lower gas costs during
the first six months of 1998 as compared to the first six months of 1997. A
portion of these lower gas costs have been deferred through the GCA and have
reduced the amount to be recovered from customers in the future.
1998 1997 Decrease
---- ---- --------
Net cash used in investing
activities (in millions)............... $(207.9) $(499.7) $291.8
Cash used in investing activities decreased during the first six months of
1998, when compared to the first six months of 1997, primarily due to PSCo's
acquisition of Yorkshire Electricity in April 1997 for approximately $360
million offset, in part by higher construction expenditures and the purchase of
certain leased assets in 1998.
1998 1997 Decrease
---- ---- --------
Net cash provided by (used in) financing
activities (in millions)................. $(11.1) $388.9 $(400.0)
Cash provided by financing activities decreased during the first six
months of 1998, when compared to the first six months of 1997, primarily due to
the issuance of $75 million and $250 million of medium-term notes in January and
March 1997, respectively. The proceeds from these financings were used to fund
PSCo's construction program and the investment in Yorkshire Power. See Note 2.
Investment in Yorkshire Power in Item 1. FINANCIAL STATEMENTS. In April 1998,
$250 million of 5 year 6% First Collateral Trust Bonds were issued. The proceeds
were used for general corporate purposes. Additionally, in May 1998, $194
million of Trust Originated Preferred Securities were issued. The proceeds were
used to redeem all of PSCo's outstanding preferred stock (totaling $181.8
million) on June 10, 1998. See Note 6. Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trust Holding Solely Subordinated Debentures
in Item 1. FINANCIAL STATEMENTS.
Financing Activities
Discussion relating to PSCo's financing activities is covered under
"Financing Activities" in NCE's Management's Discussion and Analysis of
Financial Condition and Results of Operations.
47
<PAGE>
SPS's Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended June 30, 1997 Compared to the Three Months Ended June 30,
1997
Merger
Effective August 1, 1997, following receipt of all required state and
Federal regulatory approvals, SPS and PSCo merged in a tax-free "merger of
equals" transaction and became wholly-owned subsidiaries of NCE, which is a
registered holding company under PUHCA. This transaction was accounted for as a
pooling of interests for accounting purposes. Effective with the Merger, Quixx
and UE, previously wholly-owned subsidiaries, were transferred through the sale
by SPS of all of the outstanding common stock of such subsidiaries at net book
value, to NC Enterprises, an intermediate holding company of NCE. The statements
of income for the three and six months ended June 30, 1997 and the statement of
cash flows for the six months ended June 30, 1997 reflect the results of
operations of Quixx and UE.
Earnings Available for Common Stock
Earnings available for common stock increased $30.5 million during the
second quarter of 1998 compared to the same quarter in 1997. Operating income
increased primarily due to a 16.6% increase in electric sales and lower
operating and maintenance expenses. The 1997 write-off of the investment in the
Carolina Energy Project and lower merger related costs also favorably impacted
net income.
Operating Revenues
Electric Operations
Substantially all of SPS's operating revenues result from the sale of
electric energy. The principal factors impacting revenues are the amount and
price of energy sold. The following table details the change in electric
operating revenues and energy costs for the three months ended June 30, 1998, as
compared to the same period in 1997 (thousands of dollars).
Increase (Decrease)
-------------------
Electric operating revenues:
Retail.............................. $ 9,069
Wholesale........................... 22,346
Other (including unbilled revenues). (1,839)
-------
Total revenues.................... 29,576
Fuel used in generation.............. 4,029
Purchased power...................... 4,155
-------
Net increase in electric margin... $21,392
=======
The following table compares electric Kwh sales by major customer classes
for the three months ended June 30, 1998 and 1997.
Millions of Kwh Sales
---------------------
1998 1997 % Change*
---------------------- ---------
Residential ............ 667 607 9.9%
Commercial ............ 712 682 4.4
Industrial ............ 2,098 2,008 4.5
Public Authority ....... 156 139 12.7
----- -----
Total Retail.......... 3,633 3,436 5.7
Wholesale............... 2,289 1,643 39.3
----- -----
Total................... 5,922 5,079 16.6
===== =====
* Percentages are calculated using unrounded amounts.
48
<PAGE>
Electric operating revenues increased $29.6 million or 12.6% during the
second quarter in 1998, when compared to the same period in 1997, primarily due
to higher retail and wholesale electric sales offset, in part by $1.1 million of
merger savings passed on to customers. The hotter than normal weather
contributed to the increased sales, with a significant increase in the
irrigation load in Texas and New Mexico. Other electric operating revenues
decreased $1.8 million primarily due to the recognition in 1997 of higher
deferred fuel revenues related to the recovery of the Texas jurisdictional
portion of the Thunder Basin judgment offset, in part, by $7.7 million of
additional revenue recognized in 1998 from the resolution of a 1985 FERC rate
case. Under the various state regulatory approvals, SPS is required to provide
credits to retail customers over five years for one-half of the measured
non-fuel operation and maintenance expense savings associated with the Merger.
SPS will provide a guaranteed minimum annual savings to retail customers of $3.0
million in Texas, $1.2 million in New Mexico, $100,000 in Oklahoma, $10,000 in
Kansas and $1.5 million to wholesale customers.
Fuel used in generation expense increased $4.0 million or 3.4% during the
second quarter of 1998, when compared to the same period in 1997, primarily due
to increased generation levels to serve retail and wholesale customers. This
increase was mitigated, in part, by the recognition of the Thunder Basin
judgment costs in 1997. Lower coal expense for the quarter was offset by higher
gas expense. The decrease in coal expense is primarily due to the expiration of
a coal supply contract in 1997 and negotiation with a new supplier in 1998 for
consumption at the Harrington generating station. SPS coal generation levels for
1998 and 1997 were comparable. Cost of natural gas used in generation increased
due to a 52% increase in generation from gas fired plants primarily due to
generation at the new Cunningham Station combustion turbine unit.
SPS has fuel cost adjustment mechanisms which recognize the majority of
the effects of changes in fuel used in generation and purchased power costs and
allow recovery of such costs on a timely basis. As a result, the changes in
revenues associated with these mechanisms during the second quarter of 1998,
when compared to the second quarter of 1997, had little impact on net income.
Purchased power increased $4.2 million during the second quarter of 1998,
when compared to the same period in 1997, due to a 78% increase in wholesale
purchases, higher spot market prices and increased purchased capacity costs. SPS
generates substantially all of its power for sale to its firm retail and
wholesale customers and sells non-firm energy as the market demands. Similarly,
SPS purchases low-cost non-firm energy when available.
Other Operating Revenues
Other operating revenues decreased $8.8 million during the second quarter
of 1998, when compared to the same period in 1997, primarily due to the sale of
Quixx and UE in connection with the Merger as discussed above.
Non-Fuel Operating Expenses
Other operating and maintenance expenses decreased $12.5 million or 26.3%
during the second quarter of 1998 as compared to the same period in 1997.
Excluding the effects of the sale of Quixx and UE, other operating and
maintenance expenses decreased $6.0 million, primarily due to lower pension and
benefit costs.
Income taxes increased $18.0 million during the second quarter of 1998,
compared to the same period in 1997, primarily due to higher pre-tax income.
Additional income tax expense was recognized in 1997 for non-deductible merger
costs. The effective income tax rate for the second quarter was 37.1% in 1998
and 36.8% in 1997.
Other Income and Deductions
Other income and deductions increased $23.4 million during the second
quarter of 1998, as compared to the same period in 1997, primarily due to the
1997 write-off of the investment in the Carolina Energy Project
49
<PAGE>
($16.1 million), the absence of merger and business integration expenses in 1998
and higher interest income in 1998 related to the note receivable from NC
Enterprises for the sale of Quixx and UE.
Six Months Ended June 30, 1998 Compared to the Six Months Ended June 30, 1997
Earnings Available for Common Stock
Earnings available for common stock were $55.1 million and $24.6 million
during the first six months of 1998 and 1997, respectively. Operating income
increased due to the increase in electric margin and lower operating and
maintenance expense. The 1997 write-off of the investment in the Carolina Energy
Project and lower merger related costs in 1998 also favorably impacted net
income.
Operating Revenues
Electric Operations
Substantially all of SPS's operating revenues result from the sale of
electric energy. The principal factors impacting revenues are the amount and
price of energy sold. The following table details the change in electric
operating revenues and energy costs for the six months ended June 30, 1998 as
compared to the same period in 1997 (thousands of dollars).
Increase (Decrease)
-------------------
Electric operating revenues:
Retail.............................. $ 5,185
Wholesale........................... 11,098
Other (including unbilled revenues). (1,470)
--------
Total revenues.................... 14,813
Fuel used in generation.............. (10,299)
Purchased power...................... 1,589
-------
Net increase in electric margin... $23,523
=======
The following table compares electric Kwh sales by major customer classes
for the six months ended June 30, 1998 and 1997.
Millions of Kwh Sales
---------------------
1998 1997 % Change*
----- ---- ---------
Residential ............ 1,431 1,360 5.2%
Commercial ............ 1,375 1,364 0.8
Industrial ............ 4,112 3,986 3.2
Public Authority ....... 289 270 7.0
----- -----
Total Retail.......... 7,207 6,980 3.2
Wholesale............... 3,532 3,084 14.5
----- -----
Total................... 10,739 10,064 6.7
====== ======
* Percentages are calculated using unrounded amounts.
Electric operating revenues increased $14.8 million or 3.3% during the
first six months of 1998, when compared to the same period in 1997, primarily
due to higher retail and wholesale electric sales. The increase in revenues is
substantially attributable to the effects of hotter than normal weather during
the second quarter of 1998 with a significant increase in the irrigation load in
Texas and New Mexico. The decrease in other electric operating revenues was
primarily due to the recognition in 1997 of higher deferred fuel revenues
related to the recovery of the Texas jurisdictional portion of the Thunder Basin
judgment offset, in part, by $7.7 million of additional revenue recognized in
1998 from the resolution of a 1985 FERC rate case. Under the various state
50
<PAGE>
regulatory approvals, SPS is required to provide credits to retail customers
over five years for one-half of the measured non-fuel operation and maintenance
expense savings associated with the Merger. SPS will provide a guaranteed
minimum annual savings to retail customers of $3.0 million in Texas, $1.2
million in New Mexico, $100,000 in Oklahoma, $10,000 in Kansas and $1.5 million
to wholesale customers.
Fuel used in generation expense decreased $10.3 million or 4.6% during the
first six months of 1998, when compared to the same period in 1997, primarily
due to lower prices of coal and natural gas. The decrease in coal costs was
primarily due to the expiration of a coal supply contract in 1997 and
negotiation with a new supplier in 1998 for consumption at the Harrington
generating station. SPS coal generation levels for 1998 and 1997 were
comparable. Cost of natural gas used in generation increased primarily due to
generation at the new Cunningham Station combustion turbine unit.
SPS has fuel cost adjustment mechanisms which recognize the majority of
the effects of changes in fuel used in generation and purchased power costs and
allow recovery of such costs on a timely basis. As a result, the changes in
revenues associated with these mechanisms during the first six months of 1998,
when compared to the first six months of 1997, had little impact on net income.
Purchased power increased $1.6 million or 19.5% during the first six
months of 1998, when compared to the same period in 1997, primarily due to an
increase in spot market prices and higher purchased capacity costs. SPS
generates substantially all of its power for sale to its firm retail and
wholesale customers and sells non-firm energy as the market demands. Similarly,
SPS purchases low-cost non-firm energy when available.
Other Operating Revenues
Other operating revenues decreased $15.6 million during the first six
months of 1998, when compared to the same period in 1997, primarily due to the
sale of Quixx and UE in connection with the Merger as discussed above.
Non-Fuel Operating Expenses
Other operating and maintenance expenses decreased $15.1 million or 17.9%
during the first six months of 1998, as compared to the same period in 1997.
Excluding the effects of the sale of Quixx and UE, other operating and
maintenance expenses decreased $4.2 million, primarily due to lower pension and
benefit costs.
Income taxes increased $18.9 million during the first six months of 1998,
when compared to the same period in 1997, primarily due to higher pre-tax
income. Additional income tax expense was recognized in 1997 for non-deductible
merger costs. The effective income tax rate for the first six months was 37.4%
in 1998 and 36.2% in 1997.
Other Income and Deductions
Other income and deductions increased $27.0 million during the first six
months of 1998, as compared to the same period in 1997, primarily due to the
1997 write-off of the investment in the Carolina Energy Project ($16.1 million),
the absence of merger and business integration expenses in 1998 and higher
interest income in 1998 related to the note receivable from NC Enterprises for
the sale of Quixx and UE.
51
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Part 1. See Note 5. Commitments and Contingencies in Item 1, Part 1.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 1998 Annual Meeting of Shareholders of the Company was held on May 12,
1998.
(b) Six matters were voted upon at the above meeting: 1) the election of
five class I directors; 2) the approval of the New Century Energies,
Inc. Omnibus Incentive Plan; 3) the approval of the New Century
Energies, Inc. Outside Directors' Compensation Plan; 4) the
appointment of Arthur Andersen LLP as the Company's independent public
accountants for the 1998 calendar year; 5) a shareholder proposal to
provide for cumulative voting in the election of directors, and 6) a
shareholder proposal to provide for the elimination of a classified
Board of Directors.
With respect to the election of directors, the votes were as follows:
Wayne H. Brunetti 95,410,211 shares for 2,324,750 shares withheld
C. Coney Burgess 95,693,535 shares for 2,041,426 shares withheld
Danny H. Conklin 95,752,783 shares for 1,982,178 shares withheld
Gayle L. Greer 95,629,565 shares for 2,105,396 shares withheld
A. Barry Hirschfeld 95,660,670 shares for 2,074,291 shares withheld
With respect to the adoption of the New Century Energies, Inc. Omnibus
Incentive Plan, the vote was: 62,621,872 shares for; 31,757,730 shares
against; 3,355,359 shares abstain. The proposal and plan was approved.
With respect to the adoption of the New Century Energies, Inc. Outside
Directors' Compensation Plan, the vote was: 85,659,804 shares for;
9,177,983 shares against; 2,897,174 shares abstain. The proposal and plan
was approved.
With respect to the appointment of Arthur Andersen LLP as the Company's
independent public accountants, the vote was: 94,951,892 shares for;
1,618,683 shares against; 1,164,386 shares abstain. The proposal passed.
With respect to the shareholder proposal regarding cumulative voting, the
vote was: 28,147,497 shares for; 52,971,870 shares against; 4,044,414
shares abstain. The proposal did not pass.
With respect to the shareholder proposal regarding the elimination of a
classified Board of Directors, the vote was: 35,515,796 shares for;
45,700,987 shares against; 3,946,999 shares abstain. The proposal did not
pass.
There were zero broker non-votes with respect to the election of
directors, the adoption of the New Century Energies, Inc. Omnibus
Incentive Plan, the adoption of the New Century Energies, Inc. Outside
Directors' Compensation Plan, and the appointment of Arthur Andersen LLP.
Broker non-votes had no effect on the outcome of the two shareholder
proposals.
Item 5. Other Information
Rule 14a-4 of the Securities and Exchange Commission's proxy rules allows
the Company to use discretionary voting authority to vote on matters coming
before an annual meeting of stockholders, if the Company does not have notice of
the matter at least 45 days before the date corresponding to the date on which
the Company first mailed its proxy materials for the prior year's annual meeting
of stockholders or the date specified by an overriding advance notice
52
<PAGE>
provision in the Company's Certificate of Incorporation or Bylaws. The Company's
Certificate of Incorporation contains such an advance notice provision.
Under the Company's Restated Certificate of Incorporation, no business
maybe brought before an Annual Meeting of Stockholders except as specified in
the notice of the meeting or as otherwise properly brought before the meeting by
or at the direction of the Board or by a stockholder from whom the Secretary of
the Company has received written notice (containing certain information
specified in the Restated Certificate of Incorporation) not less than 60 days
nor more than 90 days prior to the first anniversary of the preceeding year's
Annual Meeting; provided that in the event that the date of the Annual Meeting
is advanced by more than 30 days or delayed by more than 60 days from such
anniversary, notice by the stockholder to be timely must be received not earlier
than the 90th day prior to such Annual Meeting and not later than the close of
business on a later of (a) the 60th day prior to such Annual Meeting or (b) the
10th day following the date on which notice of the Annual Meeting was mailed or
public disclosure thereof was made, whichever first occurs. the Restate Articles
of Incorporation also provide that nominations for Director at an Annual Meeting
may be made only by the Board or the Nominating and Civic Responsibility
Committee, or by a stockholder entitled to vote in the election of directors
generally from whom the Secretary of the Company has received written notice
(containing certain information specified in the Restated Certificate of
Incorporation) in accordance with the timetable set forth above. For the
Company's 1999 Annual Meeting of Stockholders, which is not expected to be
advanced or delayed, the Secretary of the Company must have received notice from
any stockholder who intends to bring business before the meeting or who wishes
to nominate a person or persons for election as directors no earlier than
February 11, 1999 and no later than the close of business on March 13, 1999.
This requirement is separate and apart from the Securities and Exchange
Commission's requirements that a stockholder must meet in order to have a
stockholder proposal included in the company's proxy statement under Rule 14a-8.
For the Company's Annual Meeting of Stockholders, any stockholder who wishes to
submit a proposal for inclusion in the Company's proxy materials pursuant to
Rule14a-8 must submit such proposal to the Secretary of the Company on or before
November 29, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12(a) Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges for PSCo is set forth at page 57 herein.
12(b) Computation of Ratio of Consolidated Earnings to Consolidated
Combined Fixed Charges and Preferred Stock Dividends for PSCo is
set forth at page 58 herein.
12(c) Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges for SPS is set forth at page 59 herein.
15(a) Letter from Arthur Andersen LLP regarding unaudited interim
information is set forth at page 60 herein for NCE.
15(b) Letter from Arthur Andersen LLP regarding unaudited interim
information is set forth at page 61 herein for PSCo.
15(c) Letter from Arthur Andersen LLP regarding unaudited interim
information is set forth at page 62 herein for SPS.
27(a) Financial Data Schedule for NCE as of June 30, 1998.
27(b) Financial Data Schedule for PSCo as of June 30, 1998.
27(c) Financial Data Schedule for SPS as of June 30, 1998.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed by PSCo since the beginning of the
second quarter of 1998.
53
<PAGE>
- A report on Form 8-K dated April 28, 1998, was filed by PSCo on April
28, 1998.
The item reported was Item 5. Other Events: Filing of Bond Purchase
Contract, dated as of April 15, 1998.
- A report on Form 8-K dated April 30, 1998, was filed by PSCo on April 30,
1998.
The item reported was Item 5. Other Events: Selected consolidated
financial information for PSCo was presented for the three months ended March
31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995.
- A report on Form 8-K/A dated April 30, 1998, was filed by PSCo on May 1,
1998.
The item reported was Item 5. Other Events: Selected consolidated
financial information for PSCo was presented for the three months ended March
31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995.
- A report on Form 8-K dated May 6, 1998 was filed by PSCo on May 14,
1998.
The item reported was Item 5.Other Events: Filing of an Underwriting
Agreement and other documents in connection with a financing.
54
<PAGE>
NEW CENTURY ENERGIES, INC.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, New Century Energies, Inc. has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized on the
13th day of August, 1998.
NEW CENTURY ENERGIES, INC.
By /s/ R. C. Kelly
---------------------------------
R. C. KELLY
Executive Vice President and
Chief Financial Officer
PUBLIC SERVICE COMPANY OF COLORADO
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Public Service Company of Colorado has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized
on the 13th day of August, 1998.
PUBLIC SERVICE COMPANY OF COLORADO
By /s/Brian P. Jackson
---------------------------------
Brian P. Jackson
Senior Vice President, Finance and
Administrative Services and
Chief Financial Officer
SOUTHWESTERN PUBLIC SERVICE COMPANY
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Southwestern Public Service Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized
on the 13th day of August, 1998.
SOUTHWESTERN PUBLIC SERVICE COMPANY
By /s/Brian P. Jackson
---------------------------------
Brian P. Jackson
Senior Vice President, Finance and
Administrative Services and
Chief Financial Officer
55
<PAGE>
EXHIBIT INDEX
12(a) Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges for PSCo is set forth at page 57 herein.
12(b) Computation of Ratio of Consolidated Earnings to Consolidated Combined
Fixed Charges and Preferred Stock Dividends for PSCo is set forth at page
58 herein.
12(c) Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges for SPS is set forth at page 59 herein.
15(a) Letter from Arthur Andersen LLP regarding unaudited interim information is
set forth at page 60 herein for NCE.
15(b) Letter from Arthur Andersen LLP regarding unaudited interim information is
set forth at page 61 herein for PSCo.
15(c) Letter from Arthur Andersen LLP regarding unaudited interim information is
set forth at page 62 herein for SPS.
27(a) Financial Data Schedule for NCE as of June 30, 1998.
27(b) Financial Data Schedule for PSCo as of June 30, 1998.
27(c) Financial Data Schedule UT for SPS as of June 30, 1998.
56
<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)
Six Months Ended
June 30,
1998 1997
---- ----
(Thousands of Dollars, except ratios)
Fixed charges:
Interest on long-term debt................... $ 57,271 $ 56,953
Interest on borrowings against corporate-owned
life insurance contracts.................... 24,605 22,238
Other interest............................... 10,152 8,954
Amortization of debt discount and expense less
premium ................................... 1,995 1,945
Interest component of rental expense......... 4,139 4,938
Dividends on PSCo obligated mandatorily
redeemable preferred securities............ 2,111 -
------ -------
Total ..................................... $100,273 $ 95,028
======== ========
Earnings (before fixed charges and taxes on income):
Net income................................... $ 99,805 $ 93,488
Fixed charges as above....................... 100,273 95,028
Provisions for Federal and state taxes on income,
net of investment tax credit amortization.... 50,368 46,944
-------- -------
Total...................................... $250,446 $235,460
======== ========
Ratio of earnings to fixed charges.............. 2.50 2.48
====== ======
57
<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)
Six Months Ended
June 30,
1998 1997
---- ----
(Thousands of Dollars, except ratios)
Fixed charges and preferred stock dividends:
Interest on long-term debt.................. $ 57,271 $ 56,953
Interest on borrowings against corporate
-owned life insurance contracts............ 24,605 22,238
Other interest.............................. 10,152 8,954
Amortization of debt discount and expense
less premium .............................. 1,995 1,945
Interest component of rental expense........ 4,139 4,938
Dividends on PSCo obligated mandatorily
redeemable preferred securities........... 2,111 -
Preferred stock dividend requirement........ 5,332 5,885
Additional preferred stock dividend requirement 2,691 2,955
----- ------
Total .................................... $108,296 $103,868
======== ========
Earnings (before fixed charges and taxes on income):
Net income.................................. $ 99,805 $ 93,488
Interest on long-term debt.................. 57,271 56,953
Interest on borrowings against corporate
-owned life insurance contracts............ 24,605 22,238
Other interest.............................. 10,152 8,954
Amortization of debt discount and expense
less premium .............................. 1,995 1,945
Interest component of rental expense........ 4,139 4,938
Dividends on PSCo obligated mandatorily
redeemable preferred securities........... 2,111 -
Provisions for Federal and state taxes on
income, net of investment tax credit
amortization .............................. 50,368 46,944
------ -------
Total..................................... $250,446 $235,460
======== ========
Ratio of earnings to fixed charges
and preferred stock dividends................ 2.31 2.27
====== =======
58
<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)
Six Months Ended
June 30,
1998 1997
---- ----
(Thousands of Dollars, except ratios)
Fixed charges:
Interest on long-term debt................... $21,980 $22,057
Dividends on SPS obligated mandatorily
redeemable preferred securities............ 3,925 3,925
Other interest............................... 5,112 2,747
Amortization of debt discount and expense less
premium ................................... 1,121 1,123
Interest component of rental expense......... 404 623
------ ------
Total ..................................... $32,542 $30,475
======= =======
Earnings (before fixed charges and taxes on income):
Net income................................... $ 55,056 $ 24,598
Fixed charges as above....................... 32,542 30,475
Provisions for Federal and state taxes on income,
net of investment tax credit amortization.... 32,954 16,078
-------- --------
Total...................................... $120,552 $ 71,151
======== ========
Ratio of earnings to fixed charges.............. 3.70 2.33
====== ======
59
<PAGE>
EXHIBIT 15(a)
August 10, 1998
New Century Energies, Inc.:
We are aware that New Century Energies, Inc. has incorporated by reference
in its Registration Statement (Form S-8, File No. 333-28639) pertaining to the
Omnibus Incentive Plan; its Registration Statement (Form S-3, File No.
333-28637) pertaining to the Dividend Reinvestment and Cash Payment Plan and its
Registration Statement (Form S-3, File No. 333-40361) pertaining to the
registration of NCE Common Stock; its Registration Statement (Form S-8, File No.
333-58117) pertaining to the NCE Employee Investment Plan and NCE Employees'
Savings and Stock Ownership Plan and its Form 10-Q for the quarter ended June
30, 1998, which includes our report dated August 10, 1998, covering the
unaudited consolidated condensed financial statements contained therein.
Pursuant to Regulation C of the Securities Act of 1933, that report is not
considered a part of the registration statement prepared or certified by our
Firm or a report prepared or certified by our Firm within the meaning of
Sections 7 and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
60
<PAGE>
EXHIBIT 15(b)
August 10, 1998
Public Service Company of Colorado:
We are aware that Public Service Company of Colorado has incorporated by
reference in its Registration Statement (Form S-3, File No. 33-62233) pertaining
to the Automatic Dividend Reinvestment and Common Stock Purchase Plan; its
Registration Statement (Form S-3, File No. 33-37431) as amended on December 4,
1990, pertaining to the shelf registration of Public Service Company of
Colorado's First Mortgage Bonds; its Registration Statement (Form S-8, File No.
33-55432) pertaining to the Omnibus Incentive Plan; its Registration Statement
(Form S-3, File No. 33-51167) pertaining to the shelf registration of Public
Service Company of Colorado's First Collateral Trust Bonds; its Registration
Statement (Form S-3, File No. 33-54877) pertaining to the shelf registration of
Public Service Company of Colorado's First Collateral Trust Bonds and Cumulative
Preferred Stock and its Form 10-Q for the quarter ended June 30, 1998, which
includes our report dated August 10, 1998, covering the unaudited consolidated
condensed financial statements contained therein. Pursuant to Regulation C of
the Securities Act of 1933, that report is not considered a part of the
registration statement prepared or certified by our Firm or a report prepared or
certified by our Firm within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
61
<PAGE>
EXHIBIT 15(c)
August 10, 1998
Southwestern Public Service Company:
We are aware that Southwestern Public Service Company has incorporated by
reference in its Registration Statement (Form S-3, File No. 333-05199)
pertaining to Southwestern Public Service Company's Preferred Stock and Debt
Securities; its Registration Statement (Form S-8, File No. 33-27452) pertaining
to Southwestern Public Service Company's 1989 Stock Incentive Plan and its
Registration Statement (Form S-8, File No. 33-57869) pertaining to Southwestern
Public Service Company's Employee Investment Plan and Non-Qualified Salary
Deferral Plan and its Form 10-Q for the quarter ended June 30, 1998, which
includes our report dated August 10, 1998, covering the unaudited condensed
financial statements contained therein. Pursuant to Regulation C of the
Securities Act of 1933, that report is not considered a part of the registration
statement prepared or certified by our Firm or a report prepared or certified by
our Firm within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<LEGEND>
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294,000
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<LONG-TERM-DEBT-NET> 2,190,893
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<COMMERCIAL-PAPER-OBLIGATIONS> 454,063
<LONG-TERM-DEBT-CURRENT-PORT> 186,007
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<CAPITAL-LEASE-OBLIGATIONS> 37,235
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<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,803,230
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<OTHER-OPERATING-EXPENSES> 1,470,622
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<OPERATING-INCOME-LOSS> 328,503
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<INCOME-BEFORE-INTEREST-EXPEN> 322,741
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0
<EARNINGS-AVAILABLE-FOR-COMM> 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PUBLIC
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<PERIOD-END> JUN-30-1998
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<TOTAL-DEFERRED-CHARGES> 378,792
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 4,990,014
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 1,302,119
<RETAINED-EARNINGS> 330,018
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,632,137
194,000
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<LONG-TERM-DEBT-NET> 1,537,605
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 234,531
<LONG-TERM-DEBT-CURRENT-PORT> 185,428
0
<CAPITAL-LEASE-OBLIGATIONS> 37,100
<LEASES-CURRENT> 4,874
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,164,339
<TOT-CAPITALIZATION-AND-LIAB> 4,990,014
<GROSS-OPERATING-REVENUE> 1,149,240
<INCOME-TAX-EXPENSE> 50,368
<OTHER-OPERATING-EXPENSES> 935,760
<TOTAL-OPERATING-EXPENSES> 986,128
<OPERATING-INCOME-LOSS> 163,112
<OTHER-INCOME-NET> 2,529
<INCOME-BEFORE-INTEREST-EXPEN> 165,641
<TOTAL-INTEREST-EXPENSE> 65,836
<NET-INCOME> 99,805
5,332
<EARNINGS-AVAILABLE-FOR-COMM> 94,473
<COMMON-STOCK-DIVIDENDS> 83,743,171
<TOTAL-INTEREST-ON-BONDS> 57,271
<CASH-FLOW-OPERATIONS> 221,813
<EPS-PRIMARY> 0.000
<EPS-DILUTED> 0.000
</TABLE>
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<LEGEND>
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