UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 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, IRS Employer
File Number including area code Identification No.
- ----------- ------------------- ------------------
1-12927 NEW CENTURY ENERGIES, INC. 84-1334327
(a Delaware Corporation)
1225 17th Street
Denver, Colorado 80202
Telephone (303) 571-7511
1-3280 PUBLIC SERVICE COMPANY OF COLORADO 84-0296600
(a Colorado Corporation)
1225 17th Street
Denver, Colorado 80202
Telephone (303) 571-7511
1-3789 SOUTHWESTERN PUBLIC SERVICE COMPANY 75-0575400
(a New Mexico Corporation)
Tyler at Sixth
Amarillo, Texas 79101
Telephone (303) 571-7511
--------------------
Public Service Company of Colorado and Southwestern Public Service Company meet
the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and
are therefore filing this Form 10-K with the reduced disclosure format specified
in General Instruction I (2) to such Form 10-K.
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Registrant Title of Each Class on Which Registered
- ---------- ------------------- -------------------
New Century Energies, Inc. Common Stock, $1 par
value per share New York
Public Service Company
of Colorado 7.60% Trust Originated
Preferred Securities New York
Southwestern Public
Service Company 7.85% Trust Preferred
Securities, Series A New York
Securities registered pursuant to Section 12(g) of Act: None
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of March 24, 1999, 114,924,982 shares of New Century Energies, Inc.
Common Stock were outstanding. The aggregate market value of New Century
Energies, Inc. Common Stock, $1.00 par value (the only class of voting stock),
held by non-affiliates was $4,446,160,241 based on the last sale price of such
stock on the New York Stock Exchange on March 24, 1999. New Century Energies,
Inc. is the sole holder of the Common Stock of PSCo and SPS.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of New Century Energies, Inc. to be filed
in connection with its Annual Meeting of Shareholders, to be held May 11, 1999,
are incorporated by reference into Part III hereof.
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TABLE OF CONTENTS
Page
Definitions Number
- ----------- ------
Part I
Item 1. Business.............................................. 1
Item 2. Properties............................................ 23
Item 3. Legal Proceedings..................................... 27
Item 4. Submission of Matters to a Vote of Securities Holders. 27
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters................................. 27
Item 6. Selected Financial Data............................... 29
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 31
Item 7A Quantitative and Qualitative Disclosures About
Market Risk ......................................... 42
Item 8. Financial Statements and Supplementary Data........... 43
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................. 127
Part III
Item 10. Directors and Executive Officers of the Registrants.. 127
Item 11. Executive Compensation .............................. 133
Item 12. Security Ownership of Certain Beneficial Owners
and Management ...................................... 133
Item 13. Certain Relationships and Related Transactions....... 133
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K ........................................ 133
Experts ........................................................... 135
Consents of Independent Public Accountants.......................... 136
Signatures ...................................................... 138
Exhibit Index ...................................................... 145
This combined Form 10-K is separately filed by New Century Energies, Inc.,
Public Service Company of Colorado and Southwestern Public Service Company.
Information contained herein relating to any individual company is filed by such
company on its own behalf. Each registrant makes representations only as to
itself and makes no other representations whatsoever as to information relating
to the other registrants.
This report should be read in its entirety. No one section of the report deals
with all aspects of the subject matter.
FORWARD LOOKING INFORMATION
The following discussions include "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Investors and prospective investors are
cautioned that the forward-looking statements contained herein with respect to
the revenues, earnings, capital expenditures, resolution and impact of
litigation, competitive performance, or other prospects for the business of New
Century Energies, Inc., Public Service Company of Colorado and/or Southwestern
Public Service Company or their affiliated companies, including any and all
underlying assumptions and other statements that are other than statements of
historical fact, may be influenced by factors that could cause actual outcomes
and results to be materially different than projected. Such factors include, but
are not limited to, the effects of weather, future economic conditions, the
performance of generating units, fuel prices and availability, regulatory
decisions and the effects of changes in state and federal laws, the pace of
deregulation of domestic retail natural gas and electricity markets, the timing
and extent of change in commodity prices for all forms of energy, capital
spending requirements, the evolution of competition, earnings retention and
dividend payout policies, changes in accounting standards, and other factors.
From time to time, New Century Energies, Inc., Public Service Company of
Colorado and Southwestern Public Service Company may publish or otherwise make
available forward-looking statements. All such subsequent forward-looking
statements, whether written or oral and whether made by or on behalf of each
company, are also expressly qualified by these cautionary statements.
i
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DEFINITIONS
The abbreviations or acronyms used in the text and notes are defined below:
Abbreviation or Acronym Term
- ----------------------- ----
AEP............................................American Electric Power Company
AFDC..............................Allowance for Funds Used During Construction
Arapahoe............................Arapahoe Steam Electric Generating Station
BLM .................................................Bureau of Land Management
Cameo .................................Cameo Steam Electric Generating Station
CERCLA ...Comprehensive Environmental Response, Compensation and Liability Act
Cherokee........................... Cherokee Steam Electric Generating Station
Cheyenne ...............................Cheyenne Light, Fuel and Power Company
CIG ...........................................Colorado Interstate Gas Company
Comanche ...........................Comanche Steam Electric Generating Station
Company or NCE........................New Century Energies, Inc., a registrant
CPUC .....................Public Utilities Commission of the State of Colorado
Craig..................................Craig Steam Electric Generating Station
Denver District Court..District Court in and for the City and County of Denver
DOE..................................................U.S. Department of Energy
DSM.....................................................Demand Side Management
DSMCA...................................Demand Side Management Cost Adjustment
Dth..................................................................Dekatherm
e prime.........................................e prime, inc. and subsidiaries
ECA.....................................................Energy Cost Adjustment
EIS.............................................Environmental Impact Statement
EPA.......................................U.S. Environmental Protection Agency
EPAct.......................................National Energy Policy Act of 1992
EWG.................................................Exempt Wholesale Generator
FASB......................................Financial Accounting Standards Board
FERC......................................Federal Energy Regulatory Commission
FERC Order 636.................................FERC Order Nos. 636-A and 636-B
Fort St. Vrain ....................Fort St. Vrain Electric Generating Station,
formerly a nuclear generating station
Fuelco .......Fuel Resources Development Co., a dissolved Colorado corporation
GCA .......................................................Gas Cost Adjustment
Hayden ...............................Hayden Steam Electric Generating Station
IBM .......................................................IBM Global Services
ICA..................................................Incentive Cost Adjustment
IRP ..................................................Integrated Resource Plan
IRS...................................................Internal Revenue Service
KN Energy......................................................KN Energy, Inc.
Kwh..............................................................kilowatt-hour
Merger...................... the business combination between the PSCo and SPS
Merger Agreement.............Agreement and Plan of Reorganization by and among
PSCo, SPS and NCE, as amended
Mw....................................................................Megawatt
NMPRC........................New Mexico Public Regulation Commission formerly,
the New Mexico Public Utility Commission
Natural Fuels .......................................Natural Fuels Corporation
NC Enterprises............................................NC Enterprises, Inc.
NCI............................................New Century International, Inc.
NCS.................................................New Century Services, Inc.
New Century Cadence..................................New Century Cadence, Inc.
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New Century Centrus..................................New Century Centrus, Inc.
NOx.............................................................Nitrogen Oxide
OCC .......................................Colorado Office of Consumer Counsel
OPEB ...................................Other Postretirement Employee Benefits
PCB...................................................Polychlorinated biphenyl
Pawnee ...............................Pawnee Steam Electric Generating Station
Pawnee 2...........Pawnee Steam Electric Generating Station, Unit 2 (proposed)
Planergy..............................................The Planergy Group, Inc.
Pool ........................................................Inland Power Pool
PRPs ..........................................Potentially Responsible Parties
PSCCC...........................................PS Colorado Credit Corporation
PSCo..........................Public Service Company of Colorado, a registrant
PSRI ....................................................PSR Investments, Inc.
PUHCA ..............................Public Utility Holding Company Act of 1935
PUCT........................................Public Utility Commission of Texas
QF.........................................................Qualifying Facility
QFCCA...........................Qualifying Facilities Capacity Cost Adjustment
QSP....................................................Quality of Service Plan
Quixx.......................................Quixx Corporation and subsidiaries
SEC.........................................Securities and Exchange Commission
SFAS...............................Statement of Financial Accounting Standards
SFAS 106................Statement of Financial Accounting Standards No. 106 -
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
SFAS 112................Statement of Financial Accounting Standards No. 112 -
"Employers' Accounting for Postemployment Benefits"
SFAS 123................Statement of Financial Accounting Standards No. 123 -
"Accounting for Stock-Based Compensation"
SO2.............................................................Sulfur Dioxide
SPP.......................................................Southwest Power Pool
SPS..........................Southwestern Public Service Company, a registrant
TNP.............................................Texas-New Mexico Power Company
TOG.......................................................Texas-Ohio Gas, Inc.
TOP..................................................Texas-Ohio Pipeline, Inc.
Transition Period .................Four month period September 1, 1996 through
December 31, 1996
Tri-State..............Tri-State Generation and Transmission Association, Inc.
TUCO................................................................TUCO, Inc.
UE............................Utility Engineering Corporation and subsidiaries
U.K. ...........................................................United Kingdom
Valmont .............................Valmont Steam Electric Generating Station
WGI ..................................................WestGas InterState, Inc.
WPSC......................................Public Service Commission of Wyoming
WSCC......................................Western Systems Coordinating Council
WSPP................................................Western Systems Power Pool
Young Storage..................................Young Gas Storage Company, Ltd.
YGSC.................................................Young Gas Storage Company
Yorkshire Electricity..........................Yorkshire Electricity Group plc
Yorkshire Power.....................................Yorkshire Power Group Ltd.
Zuni ...................................Zuni Steam Electric Generating Station
iii
<PAGE>
PART I
Item l. Business
The Company
NCE, incorporated under the laws of Delaware in 1995, is a public utility
holding company registered under PUHCA. On August 1, 1997, PSCo and SPS combined
to form NCE, with PSCo and SPS becoming wholly-owned subsidiaries of NCE. The
common shareholders of PSCo and SPS received one and 0.95 of one share,
respectively, of NCE common stock, par value $1.00 per share, and became common
shareholders of NCE. The Merger was accounted for as a pooling-of-interests, and
the Consolidated Financial Statements and statistical data in this Form 10-K are
presented as if the Merger were consummated as of the beginning of the earliest
period presented.
The Company has no significant assets other than the stock of its
subsidiaries. The revenues of NCE and its subsidiaries are derived substantially
from the generation, purchase, transmission, distribution and sale of
electricity and from the purchase, transportation, distribution and sale of
natural gas. The utility subsidiaries serve approximately 1.6 million electric
customers and approximately 1.1 million gas customers in their service
territories which include portions of the states of Colorado, Texas, New Mexico,
Wyoming, Kansas and Oklahoma.
The Company owns all the outstanding common stock of PSCo, SPS, Cheyenne,
WGI, NCS, and NC Enterprises. PSCo owns certain subsidiaries as described below.
NC Enterprises, an intermediate holding company, owns the following
subsidiaries: Quixx, e prime, UE, Natural Fuels (83.63% ownership), New Century
Cadence, Planergy, New Century Centrus and, effective March 31, 1998, NCI. Refer
to the non-utility operations and foreign investments sections below for further
discussion.
Disclosure about business segments of NCE, PSCo and SPS and related
information are set forth in Note 14. Business Segment Information in Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Recent Events - Proposed Merger
On March 24, 1999, NCE and Northern States Power Company, a Minnesota
corporation ("NSP"), entered into an Agreement and Plan of Merger (the "Merger
Agreement") providing for a strategic business combination of NCE and NSP.
Pursuant to the Merger Agreement, NCE will be merged with and into NSP with NSP
as the surviving corporation in the Merger (the "Merger"). Subject to the terms
of the Merger Agreement, at the time of the Merger, each share of NCE common
stock, par value $1.00 per share ("NCE Common Stock"), (other than certain
shares to be canceled) together with any associated purchase rights, will be
converted into the right to receive 1.55 shares of NSP common stock, par value
$2.50 per share ("NSP Common Stock"). Cash will be paid in lieu of any
fractional shares of NSP Common Stock which holders of NCE Common Stock would
otherwise receive. The Merger is expected to be a tax-free stock-for-stock
exchange for shareholders of both companies and to be accounted for as a pooling
of interests.
Consummation of the Merger is subject to certain closing conditions,
including, among others, approval by the shareholders of NCE and NSP, approval
of regulatory review by certain state utilities regulators, the SEC under the
PUHCA, as amended, the FERC, the Nuclear Regulatory Commission, the Federal
Communications Commission and expiration or termination of the waiting period
applicable to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended. Each of NCE and NSP have agreed to certain undertakings and
limitations regarding the conduct of their businesses prior to the closing of
the transaction. The Merger is expected to take from 12 to 18 months to
complete.
Pursuant to employment agreements, Mr. James J. Howard, Chairman and Chief
Executive Officer of NSP will serve as Chairman of the combined company for one
year following the Merger and Mr. Wayne H.
1
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Brunetti, Vice Chairman, President and Chief Operating Officer of NCE, will
President and Chief Executive Officer following the Merger and will assume the
responsibilities of Chairman when Mr. Howard retires.
NCE expects to hold a special shareholders' meeting later this year to vote
on the Merger. all shareholders will receive a detailed proxy statement prior to
the meeting, which will explain in detail the terms of the Merger, membership on
the Board of Directors, employment arrangements and other matters related to the
Merger
Utility Operations
PSCo was incorporated through merger of predecessors under the laws of the
State of Colorado in 1924. PSCo is an operating utility engaged principally in
the generation, purchase, transmission, distribution and sale of electricity and
in the purchase, transportation, distribution and sale of natural gas. PSCo
serves approximately 1.2 million electric customers and approximately 1.0
million gas customers in the state of Colorado. PSCo owns the following direct
subsidiaries: 1480 Welton, Inc., a real estate company which owns certain real
estate interests of PSCo; PSRI which owns and manages permanent life insurance
policies on certain past and present employees, the benefits from which are to
provide future funding for general corporate purposes; PSCCC, a finance company
that finances certain of PSCo's current assets; Green and Clear Lakes Company
which owns water rights and storage facilities for water used at PSCo's
Georgetown Hydroelectric station; and Fuelco, a dissolved Colorado corporation,
which was primarily involved in the exploration and production of oil and
natural gas. On July 1, 1996, Fuelco sold its remaining properties, the San Juan
Basin Coal Bed Methane properties, at approximately book value and, effective
October 31, 1996, Fuelco was dissolved. PSCo also holds a controlling interest
in several other relatively small ditch and water companies whose capital
requirements are not significant.
PSCo also owned all of the outstanding common stock of NCI. NCI was formed
to hold PSCo's 50% interest in Yorkshire Power (a joint venture initially
between PSCo and AEP) which purchased Yorkshire Electricity in April 1997
through Yorkshire Holdings plc. Effective March 31, 1998, PSCo sold its common
stock investment in NCI to NC Enterprises in exchange for a 20-year promissory
note. For a more detailed discussion refer to "Foreign Investments" below and
Note 2. Investment in Yorkshire Power and U.K. Windfall Tax in Item 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
SPS was incorporated in 1921 under the laws of the State of New Mexico.
SPS is an operating utility engaged primarily in the generation, transmission,
distribution and sale of electricity. SPS serves approximately 385,000 electric
customers in portions of the states of Texas, New Mexico, Oklahoma and Kansas.
The 267 wholesale customers served by SPS comprise approximately 35% of total
Kwh sales.
Cheyenne was incorporated in 1900 under the laws of the State of Wyoming.
Cheyenne is an operating utility engaged in the purchase, distribution and sale
of electricity and natural gas primarily serving approximately 35,000 electric
customers and 28,000 gas customers in Cheyenne, Wyoming.
WGI was incorporated in 1990 under the laws of the State of Colorado. WGI
is a natural gas transmission company engaged in transporting gas to Cheyenne,
Wyoming via a thirteen mile connecting pipeline between Chalk Bluffs, Colorado
and Cheyenne, Wyoming.
Electric Utility Operations
The Company's utility subsidiaries expect to use the following
resources to meet their net dependable system capacity requirements: 1) the
Company's electric generating stations (see Electric Generation Property in
Item 2. PROPERTIES); 2) purchases from other utilities and from QFs, EWGs,
IPPFs and power marketers; 3) renewables and demand-side management options
and 4) new generation alternatives, including the phased expansion at of Fort
St. Vrain.
2
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Peak Load
During 1999, net firm system peak demand and the net dependable system
capacity for the Company's electric utility subsidiaries is projected to be as
follows:
1999 Projected 1999 Projected Reserve
Operating company Net Firm System Peak Net Dependable System Capacity* Margin
- ----------------- -------------------- ------------------------------- ------
PSCo 4,894 Mw 5,171 Mw 6%
SPS 4,043 Mw 4,850 Mw 17%
Cheyenne 136 Mw 152 Mw **
- --------------
* Net dependable system capacity is the maximum net capacity available
from both owned generating units and purchased power contracts to meet
the net firm system peak demand.
** Reserve margin for Cheyenne is held by PacifiCorp.
The net firm system peak demand for each of the last three years was as
follows:
Net Firm System Peak Demand (Mw)
1996 1997 1998
---- ---- ----
PSCo*...................... 4,397 4,487 4,771
SPS........................ 3,694 3,715 3,933
Cheyenne **................ - 132 140
- --------------
* Excludes station housepower, nonfirm electric furnace load and
controlled interruptible loads. In 1998, approximately 138 Mw of
controlled interruptible loads were interrupted at the time of the
system peak. Approximately 122 Mw and 116 Mw in the years 1996 and
1997, respectively, was not interrupted at the time of the system peak.
** Prior to the Merger, Cheyenne was a subsidiary of PSCo; therefore,
Cheyenne's coincidental peak demand is included with PSCo in 1996.
The net firm system peak demand for PSCo for the years 1996-1998 occurred
in the summer. The net firm system peak demand for 1998, which occurred on July
13, 1998, was 4,771 Mw. At that time, the net dependable system capacity totaled
5,034 Mw (generating capacity of 3,392 Mw, together with firm purchases of 1,642
Mw), which represented a reserve margin of approximately 6%). With higher than
expected demand in summer 1998, PSCo revised its demand forecast, and found it
needed resources two years earlier than previously believed. The approximate 250
Mw resource need for the summer of 1999 will be filled through a solicitation
for short-term resources. The approximate 520 Mw resource need for 2000 and 2001
will be filled through a separate solicitation allowing contract terms up to 7
years.
The net firm system peak demand for SPS for the years 1996-1998 occurred
in the summer. The net firm system peak demand for 1998, which occurred on June
30, 1998, was 3,933 Mw. At that time, the net dependable system capacity totaled
approximately 4,443 Mw (including firm purchases), which represented a reserve
margin of approximately 13%.
Purchased Power
The Company's electric utility subsidiaries have contractual arrangements
with regional utilities as well as QFs, and EWGs, in order to meet the energy
needs of their customers. Capacity, typically measured in Kilowatts or
Megawatts, is the measure of the rate at which a particular generating source
produces electricity. Energy, typically measured in Kilowatt-hours or
Megawatt-hours, is a measure of the amount of electricity produced from a
particular generating source over a period of time. Purchase power contracts
typically provide for a charge for the capacity from a particular generating
source, together with a charge for the associated energy actually purchased from
such generating source.
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The Company's electric utility subsidiaries have contracted with the
following sources for the firm purchase of capacity and energy at the time of
the anticipated summer 1999 net firm system peak demand through the expiration
of the contracts:
Mw Contracted
For at the Time
of the Anticipated
Generating Summer 1999 Net Firm Contract
Company Source System Peak Demand Expiration
- ------- ------ ------------------ ----------
PSCo Contracts:
Basin Electric Power
Cooperative: Laramie River Station 175 2016
Agreements 1 and 2(a)(b)
Agreement 3 (a)(b) Laramie River Station 125 2004
Colorado Energy
Management (a)(c) Brush 4 Facility 50 2000
CL Six Power Sales
Agreement (a)(d) CL 6 Resource Portfolio 80 2002
El Paso Electric Power
Services (a)(e) Brush 1 & 3 Facility 75 2005
PacifiCorp (f) PacifiCorp Resource Pool 176 2011
Platte River Power
Authority (a)(g) Craig Units 1 and 2; 116 2004
Rawhide Unit 1
Tri-State: 475 (i)
Agreements 1, 2,
3 and 4 (a)(h) Laramie River Station
Craig Station
Agreement 5 (a)(h) Laramie River Station
Craig Station
Nucla Station
Other contracts
individually less
than 50Mw (a) QFs & IPPF 496 Various dates
---------
Subtotal - PSCo 1,768
SPS Contracts:
Borger Energy
Associates (i) Blackhawk Station 230 2024
Golden Spread Electric
Cooperative (a)(j) Mustang Station 278 1999
---
Subtotal - SPS 508
Cheyenne Contract:
PacifiCorp (k) PacifiCorp System 152 2000
------
2,428
=====
- ------------
(a)These contracts are contingent upon the availability of the units listed as
the generating source. These contracts are take and pay contracts. Based upon
the terms of these agreements, if the capacity is available from these units,
then PSCo is obligated to pay for capacity whether or not it takes any
energy. However, PSCo has historically satisfied the minimum energy
requirements associated with these agreements and anticipates doing so in the
future. Additionally, if these units are unavailable, the supplying company
has no obligation to furnish capacity or energy and the capacity charge to
PSCo is reduced accordingly.
(b)Agreement 1 is for 100 Mw of capacity through March 31, 2016. Agreement 2 is
for 75 Mw of summer season capacity through March 31, 2016 and 25 Mw of
winter season capacity through March 31, 2010. Agreement 3, dated December
14, 1998 is for 125 Mw of capacity beginning April 1, 1999 and continuing for
five years.
(c)Agreement dated November 24, 1998 is for 50 Mw of peaking capacity. The term
of the agreement is for 11 months beginning June 1, 1999.
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(d)The Agreement between PSCo and CL Six Power Sales is for 80 Mw of capacity
during the summer season and 85 Mw during the winter season. The agreement
became effective April 2, 1998, and it terminates on August 10, 2002. This
agreement replaced an 81 Mw QF purchased power contract.
(e)Effective October 30, 1998, PSCo agreed to purchase 50 Mw of capacity from
El Paso Power Services. The term of the agreement is for 7 years beginning
January 1, 1999. This agreement replaced a 50 Mw QF purchased power contract
which was terminated in 1998.
(f)The current agreement with PacifiCorp expires October 31, 2022. However, the
agreement provides PSCo the opportunity to exercise an irrevocable option to
terminate the agreement on December 31, 2011, provided PSCo gives notice to
PacifiCorp no later than March 1, 2002.
(g)The amount of capacity to be made available from Platte River Power
Authority during the term of the agreement for each summer and winter season,
is established in the Agreement.
(h)PSCo has entered into five agreements with Tri-State. Agreements 1, 2 and 5
are contracts for 100 Mw each of capacity and expire in 2001, 2017 and 2011,
respectively. Agreement 3 is a contract for 25 Mw of summer season capacity
and 75 Mw of winter season capacity and expires in 2016. Agreement 4 expires
in 2018 and the related capacity is for the following amounts: 1999 through
2000 - 200 Mw and 2001 through 2018 - 250 Mw; however, either party may elect
to reduce the Agreement 4 capacity by up to 50 Mw each year, except for 2001,
effective in the year 1999. If the full 50 Mw reduction is taken each year,
the capacity associated with Agreement 4 from 1999 on would be as follows:
1999 - 150 Mw, 2000 through 2001 - 100 Mw, 2002 - 50 Mw with no commitments
thereafter. PSCo has notified Tri-State of its intent not to purchase any
capacity under Agreement 4 for the contract period 2003 through 2018.
(i)SPS entered into a 25 year agreement with Borger Energy Associates
L.P.("BEA"), an affilliate of Quixx holding a 45% ownership interest, for
the purchase of capacity and energy. Effective October 1, 1998, BEA began
providing SPS with up to 205 Mw of capacity. On or about May 1, 1999, BEA
will provide SPS with up to 230 Mw of capacity through the remaining
contract term. SPS has an option to extend the term of the agreement for an
additional 10 years.
(j)SPS and Golden Spread Electric Cooperative ("Golden Spread") entered into a
Power Sales Agreement on November 16, 1998. Under the terms of the Agreement,
SPS will purchase up to 278 Mw of capacity during the simple cycle operation
of the Mustang Station, estimated to cover the period from May 1, 1999
through the end of 1999.
(k)This contract, which expires on December 31, 2000, provides for PacifiCorp
to sell to Cheyenne the total electric capacity and energy requirements
associated with the operation of Cheyenne's service area.
See Note 10. Commitments and Contingencies - Purchase Requirements in
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA for information
regarding the Company's financial commitments under these contracts. See
Interconnections in Item 2. PROPERTIES for a discussion of the Company's
interconnections with these sources.
Based on present estimates, PSCo will purchase approximately 31% of the
total electric system energy input for 1999. In addition, based on the capacity
associated with the purchase power contracts described above, approximately 34%
of the total net dependable system capacity for the estimated summer 1999 net
firm system peak demand for PSCo will be provided by purchased power.
All of the QF capacity purchased by PSCo, including approximately 4 Mw of
additional capacity scheduled to come on line in the future, is being purchased
under contracts entered into prior to January 1, 1988. Subject to certain
exceptions or a waiver permitted by the CPUC, PSCo is to use a complete bidding
process to make any additional purchases of QF and IPPF capacity. In 1998,
approximately 13% of PSCo's summer net firm system peak demand was provided by
QFs.
In addition to the long-term purchases of capacity and energy discussed
above PSCo made short-term and non-firm purchases throughout the year to replace
generation from PSCo-owned units which were unavailable due to maintenance and
unplanned outages, to provide PSCo's reserve obligation to the Pool, to obtain
energy at a lower cost than that which could be produced by other resource
options, including PSCo-owned generation and/or long-term purchase power
contracts, and for various other operating requirements. Short-term and non-firm
purchases represented approximately 6% of PSCo's total energy requirement in
1998.
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Based on current projections, PSCo expects that purchased capacity will
continue to meet a significant portion of system requirements. Such purchases
neither require PSCo to make an investment nor afford PSCo an opportunity to
earn a return. Further discussion related to recovery of purchased capacity
costs can be found in "Regulations and Rates - Cost Recovery Mechanisms." SPS
arranged seasonal short-term purchases for the summer of 1998 and may make
additional short-term purchases for the 1999 summer season.
PSCo is a member of the Rocky Mountain Reserve Group ("Reserve Group"), a
new reserve sharing group. The Reserve Group is composed of members in the Rocky
Mountain area, each of which owns and/or operates electric generation and/or
transmission systems and are interconnected to one or more other member systems.
The Reserve Group was granted final acceptance by the FERC in January 1999. The
objective of the Reserve Group is to provide capacity which is categorized as
either immediately accessible or accessible within ten minutes. The capacity
used by the Reserve Group members is to cover unanticipated loss of generation
as well as to provide a source of emergency assistance when there is a risk of
not meeting firm load. As a result of its membership in the Reserve Group, PSCo
can supply and protect its electric system with less aggregate operating reserve
capacity than otherwise would be necessary. Additionally, emergency conditions
can be met with less likelihood of curtailment or impairment of electric service
and generation and transmission facilities and interconnections can be used more
efficiently and economically.
Refer to Item 2. Properties - Electric Transmission Property for a
discussion of SPS's activities with the SPP and the WSPP.
Electric Fuel Supply
The following tables present the delivered cost per million Btu of each
category of fuel consumed by the system for electric generation during the years
indicated, the percentage of total fuel requirements represented by each
category of fuel and the weighted average cost of all fuels during such years:
PSCo generating plants: Weighted
Average
Coal* Gas All Fuels**
Cost $ % Cost $ % Cost $
---------- ---------- ------
1998............... 0.93 95 2.46 5 1.00
1997............... 0.99 98 3.03 2 1.03
1996............... 1.03 98 2.42 2 1.05
* The average cost per ton of coal for years 1996 through 1998, including
freight, shown above was $20.17, $18.96, and $17.41, respectively.
** Insignificant purchases of oil are included.
SPS generating plants: Weighted
Average
Coal Gas All Fuels**
Cost $ % Cost $ % Cost $
---------- ---------- ------
1998............... 1.60 67 2.19 33 1.80
1997............... 1.84 69 2.55 31 2.06
1996............... 1.93 69 2.38 31 2.06
* The average cost per ton of coal for years 1996 through 1998, including
freight and other components, shown above was $33.26, $31.97, and
$28.57 respectively.
**Insignificant purchases of oil, steam and hot nitrogen are included.
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Coal
PSCo's primary fuel for its steam electric generating stations is
low-sulfur western coal. PSCo's coal requirements are purchased primarily under
eight long-term contracts with suppliers operating in Colorado and Wyoming. The
percentage of PSCo's 1999 coal requirements supplied under these long-term
contracts varies from plant to plant as detailed herein. During the year ended
December 31, 1998, PSCo's coal requirements for existing plants were
approximately 9,780,000 tons. A substantial portion of which was supplied
pursuant to long-term supply contracts. Coal supply inventories at December 31,
1998, were approximately 40 days usage, based on the average burn rate for all
of PSCo's coal-fired plants.
Ending Inventory
Tons Days
---- ----
Arapahoe 68,092 28
Cameo 6,815 8
Cherokee 229,737 36
Comanche 394,094 40
Craig-PSCo 151,069 22
Hayden-PSCo 21,534 59
Pawnee 332,702 48
Valmont 70,490 42
PSCo operates two mine-mouth generating stations: the Cameo and Hayden
Stations and has partial ownership in a third mine-mouth generating station, the
Craig Station located in Colorado. PSCo has secured over 90% of Cameo Station's
coal requirements through 1999 via a contract with the nearby Powderhorn Coal
Company's Roadside mine ("Powderhorn"). Any remaining requirements may be
purchased from either the spot market or Powderhorn. PSCo is the operating agent
at the Hayden Station and all coal requirements are supplied under a long-term
agreement from the nearby Peabody-affiliated Seneca mine. Over 75% of PSCo's
Craig Station coal requirements are supplied under two long-term agreements with
Colowyo Coal Company and the nearby Trapper Mining, Inc. mine. Any remaining
Craig Station requirements for PSCo are supplied via spot market coal purchases.
PSCo has contracted for long-term coal supplies with Twentymile Coal
Company's Foidel Creek Mine and Mountain Coal Company's West Elk Mines located
in Colorado to supply approximately 70% of the Cherokee and Valmont Station's
projected requirements through 2000. PSCo has long-term coal supply agreements
with Cyprus' affiliate, Amax Coal West, Inc., for Pawnee and Comanche Station's
projected requirements from the Belle Ayr and Eagle Butte mines located in the
Powder River Basin in Wyoming. Under the long-term agreements, specific coal
reserves at the contractually defined mine(s) have been dedicated by the
respective supplier to meet the contract quantity obligations. In addition, PSCo
has a coal supply agreement with Kennecott Energy's Antelope Coal Company to
supply approximately 66% of Arapahoe Station's projected requirements through
1999. Any remaining Arapahoe Station requirements will be obtained through spot
market purchases.
Coal is transported by rail, primarily from mines located in Colorado for
PSCo's Cherokee and Valmont Stations, and from mines located in Wyoming for
PSCo's Arapahoe, Pawnee and Comanche Stations, to stockpiles adjacent to the
Company's coal-burning generating stations. Powder River Basin coal supplies are
transported by the Burlington Northern Santa Fe Railway Company over distances
ranging from 368-575 miles. Transportation charges for these Powder River Basin
coal supplies comprise more than 55% of the total cost of the coal delivered to
the Arapahoe, Pawnee and Comanche stations. Colorado origin coal supplies are
transported by the Union Pacific Railroad Company and the Burlington Northern
Santa Fe Railway Company over a combined distance ranging approximately 250 to
300 miles. Transportation charges for these Colorado origin coal supplies make
up more than 32% of the total delivered cost of the coal to the Cherokee and
Valmont stations.
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SPS purchases all of its coal requirements for Harrington and Tolk
electric generating stations from TUCO, in the form of crushed, ready-to-burn
coal delivered by coal-handling facilities owned by Wheelabrator Coal Services
Co. to the SPS's boiler bunkers located within SPS's coal-fueled stations where
it is processed for burning. The coal is transported for TUCO by rail, primarily
from mines located in Wyoming, to TUCO's stockpiles, which are adjacent to SPS's
coal-burning generation stations. At December 31, 1998, TUCO's coal inventories
at the Harrington and Tolk sites were 438,129 tons and 421,719 tons,
respectively, (approximately 34 and 36 days supply, respectively). TUCO has
executed a long-term coal supply agreement with a subsidiary of Kennecott Energy
Company to supply approximately 55% of Harrington's projected requirements
through 2001 from Cordero, Caballo Rojo and Antelope mines located in the Powder
River Basin. In addition, TUCO has contracted for approximately 16% of
Harrington's 1999 projected requirements with Kennecott's affiliate, Colowyo
Coal Company, from its Colowyo mine located in western Colorado and transported
by the Union Pacific Railroad. TUCO has long term contracts with Thunder Basin
Coal Company, an affiliate of Arch Coal Company, for supply of coal in
sufficient quantities to meet the Company's Tolk Station. Specific coal reserves
in the Powder River Basin have been dedicated by Thunder Basin to meet the
contract quantities. The Powder River Basin coal supplies for both stations are
transported for TUCO by the Burlington Northern Santa Fe Railway Company over
distances ranging from 900-1,032 miles. Transportation charges for these Powder
River Basin Coal supplies make up more than 40% of the total cost of the coal
delivered to the boiler.
See Note 10. Commitments and Contingencies - Purchase Requirements in Item
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA for information regarding
financial commitments under the coal supply contracts, as well as the coal
transportation contracts.
Natural Gas and Fuel Oil
PSCo uses both firm and interruptible natural gas and standby oil in
combustion turbines and certain boilers. Natural gas supplies for PSCo's power
plants are procured under short and intermediate term contracts on a competitive
basis to provide an adequate supply of fuel. SPS has a number of short and
intermediate contracts with natural gas suppliers operating in gas fields with
long life expectancies in or near its service area. SPS also utilizes firm and
interruptible transportation to minimize fuel costs during volatile market
conditions and to provide reliability of supply. SPS maintains sufficient gas
supplies under short and intermediate term contracts to meet all power plant
requirements; however, due to flexible contract terms, approximately 40% of
SPS's gas requirements were purchased under spot agreements.
Natural Gas Utility Operations
During the period 1994-1998, PSCo and Cheyenne have experienced growth in
the number of residential and commercial customers ranging from 2.7% to 3.2%
annually. Since 1994, residential and commercial gas volumes sold have averaged
131.5 million dekatherms ("MMDth") annually. The growth of residential and
commercial sales has been strong due to favorable economic conditions in
Colorado and Wyoming. PSCo and Cheyenne offer transportation services to their
large commercial and industrial customers, allowing these customers to purchase
gas directly from their suppliers. The per-unit fee charged for transportation
services, while significantly less than the per-unit fee charged for the sale of
gas to a similar customer, provides an operating margin approximately equivalent
to the margin earned on gas sold. Therefore, increases in such activities will
not have as great an impact on gas revenues as increases in deliveries from the
sale of gas, but will have a positive impact on operating margin. During 1998,
transportation services revenues were of $35.0 million compared to $32.7 million
in 1997 and $28.5 million in 1996.
Natural Gas Supply and Storage
PSCo and Cheyenne have attempted to maintain low cost, reliable natural
gas supplies by optimizing a balance of long - and short-term gas purchase, firm
transportation and gas storage contracts. During 1998, PSCo and Cheyenne
purchased 140.1 MMDth from approximately 59 suppliers. In 1998, the average
delivered cost per one thousand dekatherms ("MDth") for PSCo and Cheyenne was
$1.89 compared to $2.92 per MDth in 1997 and $2.58 per MDth in 1996 (see Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
8
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AND RESULTS OF OPERATIONS). Purchased gas costs are recovered from customers
through the gas cost adjustment mechanisms.
PSCo and Cheyenne have completed substantially all of their obligations
related to gas supply transportation and storage contracts which resulted from
FERC Order 636. During 1996, PSCo and Cheyenne entered into new contracts with
CIG and others for firm transportation and gas storage services with terms of
5-10 years. Adequate supplies of natural gas are currently available for
delivery within the Rocky Mountain region. PSCo and Cheyenne continually
evaluate the natural gas markets and procure supplies, as needed, to meet
current and anticipated customer demand.
Regulation and Rates
Regulation
General
The NCE system is subject to the jurisdiction of the SEC under PUHCA. The
rules and regulations under PUHCA generally limit the operations of a registered
holding company to a single integrated public utility system, plus additional
energy-related businesses. PUHCA rules require that transactions between
affiliated companies in a registered holding company system be performed at
cost, with limited exceptions.
PSCo
PSCo is subject to the jurisdiction of the CPUC with respect to its
facilities, rates, accounts, services and issuance of securities. The CPUC
consists of three full-time members appointed by the Governor and approved by
the Colorado Senate. Only two members may be from the same political party.
PSCo is subject to the jurisdiction of the DOE through the FERC with
respect to its wholesale electric operations and accounting practices and
policies. PSCo has received authorization from the FERC to act as a power
marketer. PSCo is also subject to the jurisdiction of the NRC in connection with
the pending transfer of the title of Independent Spent Fuel Storage Installation
facility at Fort St. Vrain.
PSCo holds a FERC certificate which allows it to transport natural gas in
interstate commerce pursuant to the provisions of the Natural Gas Act, the
Natural Gas Policy Act of 1978 and FERC Order Nos. 436 and 500 without PSCo
becoming subject to full FERC jurisdiction.
SPS
The PUCT has jurisdiction over SPS's Texas operations as an electric
utility and original and appellate jurisdiction over its retail rates and
services. The Texas municipalities exercise original jurisdiction over rates
within their respective city limits. The NMPRC, the Oklahoma Corporation
Commission and the Kansas Corporation Commission have jurisdiction with respect
to retail rates and services in their respective states. The FERC has
jurisdiction over SPS's rates for sales of electricity for resale. SPS has
received authorization from the FERC to act as a power marketer.
Other
Cheyenne is subject to the jurisdiction of the WPSC. WGI and TOP are
subject to FERC jurisdiction. WGI and TOP each hold a FERC certificate which
allows them to transport natural gas in interstate commerce pursuant to the
provisions of the Natural Gas Act. e prime and TOG have authorization from the
FERC to act as power marketers.
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Cost Recovery Mechanisms
PSCo
At December 31, 1998, PSCo had four adjustment clauses: the ICA (which
replaced the ECA in 1996), the GCA, the DSMCA and the QFCCA. These adjustment
clauses allow certain costs to be passed through to retail customers. PSCo is
required to file applications with the CPUC for approval of adjustment
mechanisms in advance of the proposed effective dates. The applications must be
acted upon before becoming effective.
The ICA, which became effective October 1, 1996, allows for a 50%/50%
sharing of certain fuel and energy cost increases and decreases among customers
and shareholders. PSCo, through its GCA, is allowed to recover the difference
between its actual costs of purchased gas and the amount of these costs
recovered under its base rates. The GCA rate is revised annually on October 1
and otherwise as needed, to coincide with changes in purchased gas costs.
Purchased gas costs and revenues received to recover such gas costs are compared
on a monthly basis and differences, including interest, are deferred. The QFCCA
provides for recovery of purchased capacity costs from certain QF projects, not
otherwise reflected in base electric rates.
PSCo, in a collaborative process with public interest groups, consumers
and industry has developed DSM programs (programs designed to reduce peak
electricity demand, shift on-peak demand to off-peak hours and provide for more
efficient operation of the electric generation system), including incentive and
cost recovery mechanisms. The DSMCA clause permits PSCo to recover DSM costs
over five to seven years while non-labor incremental expenses, and carrying
costs associated with deferred DSM costs are recovered on an annual basis. PSCo
also has implemented a Low-Income Energy Assistance Program. The costs of this
energy conservation and weatherization program for low-income customers are
recoverable through the DSMCA.
SPS
Fuel and purchased power costs are recoverable in Texas through a fixed
fuel factor which is part of SPS's rates. If it appears that the factor will
materially over-recover or under-recover these costs, the factor may be revised
upon application by SPS or action by the PUCT. The rule requires refunding and
surcharging under/over-recovery amounts, including interest, when they exceed 4%
of the utility's annual fuel and purchased power costs, as allowed by the PUCT,
if this condition is expected to continue. Under the PUCT's regulations, SPS is
required to file an application for the PUCT to retrospectively review at least
every three years the operations of SPS's electricity generation and fuel
management activities. In June 1998, SPS filed its reconciliation for the
generation and fuel management activities totaling approximately $690 million
for the three year period ended December 31, 1997.
On October 24, 1997, the NMPRC approved a fixed fuel factor for SPS's New
Mexico retail jurisdiction, effective in January 1998. This employs an
over/under fuel collection calculation determined on a monthly basis. SPS will
petition for a change in the fixed fuel factor if the over/under recovery
balance reaches $5 million. In addition, on an annual basis SPS files an
application for the NMPRC to review the utility's electric generation and fuel
management activities. The methodology of the over/under calculation, plus
interest, is similar to the Texas fixed fuel factor calculation discussed above.
In all other jurisdictions, SPS currently recovers substantially all
increases and refunds substantially all decreases in fuel and purchased power
costs pursuant to monthly adjustment and clauses.
Cheyenne
Purchased power and gas costs are recoverable in Wyoming. Cheyenne is
required to file applications with the WPSC for approval of adjustment
mechanisms in advance of the proposed effective date. Cheyenne filed for an
increase in its ECA rates of approximately $3 million which became effective on
January 1, 1999. The increase, however, is being contested and hearings are
scheduled for March 1999.
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See Note 9. Regulatory Matters in Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA for additional discussion.
Environmental Matters
Certain of the Company's subsidiary facilities are regulated by federal
and state environmental agencies. These agencies have jurisdiction over air
emissions, water quality, wastewater discharges, solid wastes and hazardous
substances. Various Company activities require registrations, permits, licenses,
inspections and approvals from these agencies. The Company has received all
necessary authorizations for the construction and continued operation of its
generation, transmission and distribution systems. Company facilities have been
designed and constructed to operate in compliance with applicable environmental
standards.
The Company and its subsidiaries continue to strive to achieve compliance
with all environmental regulations currently applicable to its operations.
However, it is not possible at this time to determine when or to what extent
additional facilities or modifications of existing or planned facilities will be
required as a result of changes to environmental regulations, interpretations or
enforcement policies or, generally, what effect future laws or regulations may
have upon the Company's operations. See Note 10. Commitments and Contingencies -
Environmental Issues in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA for
additional discussion. At December 31, 1998, the estimated 1999, 2000 and 2001
expenditures for environmental air and water emission control facilities were
$19.1 million, $14.1 million and $38.6 million, respectively (see Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS).
Construction Program
Discussion of the construction programs for each registrant is provided
within their respective Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Competition
Industry Outlook
The business and regulatory environment in the utility industry that has
existed for decades is continuing to change. Competition is increasing,
particularly in energy supply and retail energy services. Several states in the
U.S. have either passed or proposed legislation that provides for retail
electric competition and price deregulation of energy supply. The wholesale
electric energy market has expanded and geographic boundaries are no longer
present barriers. Increased activity by power marketers and traders has added
new dimensions of complexity and risk. A significant amount of electric
generation assets have been purchased, sold or traded in the U.S. during 1998
and this trend is expected to continue. Consolidation and globalization is a
continuing trend as businesses position themselves for competition in an
unbundled energy industry. The Company continues to look for opportunities to
expand its customer base as an energy service provider, and on an ongoing basis,
evaluates merger, acquisition and divestiture opportunities.
Electric prices in the Company's service territories are low in comparison
to other parts of the U.S. State legislatures and state utility commissions in
the retail jurisdictions served by the Company's utility subsidiaries are
focusing on the restructuring and deregulation of the electric utility industry;
however, no significant progress was achieved during 1998. The Company supports
a fair and orderly transition to a competitive environment and believes that any
restructuring plans should provide the Company with an opportunity to recover
its costs for prudently incurred utility investments and contractual commitments
that may be uneconomic in the future. Overall, the Company believes that the
prices its utility subsidiaries charge for electricity and the quality and
reliability of their service currently place them in a position to compete
effectively in the energy market. The potential negative financial impacts of
deregulation, however, could include an impairment of assets, a loss of retail
customers, lower profit margins and increased costs of capital (see Note 1.
Summary of Significant Accounting Policies in Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA). At this time, the Company and its utility subsidiaries
cannot predict when they will be subject to changes in legislation or
11
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regulation, nor can they predict the impacts of such changes on their financial
position, results of operations or cash flows.
Retail Electric Business
Today, the retail electric business faces increasing competition as
industrial and large commercial customers who have the ability to own or operate
facilities to generate their own electric energy requirements. In addition,
customers may have the option of substituting fuels, such as natural gas for
heating, cooling and manufacturing purposes rather than electric energy, or the
option of relocating their facilities to a lower cost environment. While each of
the Company's utility subsidiaries face these challenges, these subsidiaries
believe their rates are competitive with currently available alternatives. The
Company's utility subsidiaries are taking actions to lower operating costs and
are working with their customers to analyze the feasibility of various options,
including energy efficiency, load management and cogeneration in order to better
position the Company's utility subsidiaries to more effectively operate in a
competitive environment.
State Regulatory and Legislative Environments - Electric Business
Below is a discussion on the regulatory and legislative initiatives
currently being addressed in each of the Company's retail jurisdictions related
to the electric business.
Colorado - Colorado law permits the CPUC to authorize rates negotiated
with individual electric and gas customers who have threatened to discontinue
using the services of PSCo, so long as the CPUC finds that such authorization:
1) in the case of electric rates, will not adversely affect PSCo's remaining
customers and 2) in the case of gas rates, will not affect PSCo's remaining
customers as adversely as would the alternative. The CPUC is continuing to work
with the Colorado General Assembly in its investigation and implementation of
public policy. The CPUC has no electric restructuring authority without
legislative mandate.
During 1998, an electric restructuring bill was passed which established a
30 member advisory panel to conduct an evaluation of the potential benefits and
possible regulatory structure of the retail electric industry. This panel is to
finalize and report its findings to the General Assembly and the Governor by
November 1, 1999. NCE has one representative appointed to this panel.
Texas - In the 1997 session, Texas introduced legislative proposals
relating to retail wheeling; however, the Texas legislature adjourned without
adopting any legislation on this issue. The Governor submitted a proposal for
retail competition by September 2001. This and all other deregulation
legislation failed to gain the necessary support for enactment. There was no
general session in 1998 in Texas. The PUCT initiated several rulemakings which
prepare for eventual electric industry restructuring, however, it has not yet
issued a final order with respect to any of them. The PUCT granted approval of
one utility company's voluntary plan to transition to retail competition. This
program provides for immediate rate reductions which will result in refunds for
all residential and commercial customers. A five-year transition plan begins
with a pilot program that evolves to customer choice for all of that utility's
customers by 2003.
A Senate Interim Committee on Electric Utility Restructuring began a
series of statewide hearings in late 1997, which continued throughout 1998, in
order to solicit public input on a series of statewide issues relating to retail
competition in Texas. This information will be used by the Committee to make
recommendations on restructuring legislation for the 1999 session. In January
1999, three different electric restructuring bills were introduced in the Texas
legislative. At this time, it is impossible to determine which, if any, of the
proposals will pass. SPS believes it will continue to be subject to rate
regulation that will allow for recovery of its deferred costs (see Note 1.
Summary of Significant Accounting Policies - Business, Utility Operations and
Regulation - Regulatory Assets and Liabilities and Note 9. Regulatory Matters in
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).
New Mexico - In 1998, the NMPRC allowed an electric utility to begin
offering a two-year transition test program for customer choice. A total of 425
residential and small commercial customers and one large
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industrial customer may participate. A second pilot program, which was ordered
by the NMPRC, was halted by a stay order issued by the New Mexico Supreme Court.
Following the 1997 session, the NMPRC initiated Case 2681, the
"Investigation of Electric Utility Restructuring", which called for a
"collaborative process" that involved utilities, consumer groups, environmental
groups, and other interested stakeholders. The NMPRC encouraged the parties to
attempt to reach a consensus on a retail choice plan for New Mexico, but the
effort was unsuccessful. On January 28, 1998, the NMPRC issued its final report
and found that it is in the public interest for the State of New Mexico to
advance changes in the structure and regulation of the electric industry and
recommended that restructuring proposals should continue to be brought before
the legislature. The New Mexico legislature tabled consideration of the single
electric utility restructuring bill presented during 1998. A similar proposal
has been introduced in the 1999 session. At this time, no final action has been
taken on this proposal.
Wyoming - There were no electric industry restructuring legislation
proposals introduced in the Legislature during 1998. A joint committee of the
Wyoming legislature held a series of hearings on restructuring in June of 1997.
On September 15, 1997, a report entitled the "Study of the Potential Economic
Impacts of Electric Restructuring on the State of Wyoming," prepared for the
WPSC by an external consultant was made public. The report analyzed four
different restructuring scenarios and concluded overall that restructuring would
have only a small impact on rates. No action with respect to electric
restructuring is anticipated in 1999.
Kansas - In December 1997, the Task Force On Retail Wheeling presented its
final report to the 1998 Kansas Legislature. The report culminated a study that
was authorized by House Bill 2600 and was signed by the Governor on April 26,
1996. In general, this legislation imposed a three-year freeze on retail
electric wheeling. During 1998, several restructuring measures were introduced
in the Legislature, but subsequently failed.
Oklahoma - The Electric Restructuring Act of 1997 was signed by the
Governor of Oklahoma on April 25, 1997. This legislation directs a series of
studies which will define the orderly transition to consumer choice of electric
energy supplier by July 1, 2002. During 1998, the Oklahoma Corporation
Commission began such studies and held research meetings focusing on several
restructuring issues. Results and recommendations derived from the studies and
meetings will direct further legislative action that may be necessary in order
for the Electric Restructuring Act of 1997 to be fully implemented. An
independent system operator ("ISO") study report, prepared by the Oklahoma
Corporation Commission, was issued in January 1998. The Oklahoma Corporation
Commission Taxation Issues study and a Technical Issues study on the effects of
an ISO were concluded on December 31, 1998. The Electric Restructuring Act was
modified during 1998 to clarify terms used in the original bill, as well as
advancing timelines for studies of the Joint Electric Utility Task Force in
order to meet the stated implementation date. In December 1998, this Task Force
began the formation of groups which will examine numerous restructuring issues.
It is expected to issue a report on its findings in October 1999.
Wholesale Electric
The wholesale electric business faces increasing competition in the supply
of bulk power due to provisions of the EPAct and Federal and state initiatives
with respect to providing open access to utility transmission systems. Under
applicable FERC rules, utilities are required to provide wholesale open-access
transmission services consistent with what is provided for in their own
operations and to unbundle wholesale merchant and transmission operations. The
Company's utility subsidiaries are operating under a joint tariff in compliance
with these rules. To date, these provisions have not had a material impact on
the operations of the Company's utility subsidiaries. For 1998, the Company's
consolidated wholesale revenues totaled approximately $607 million or 22% of
total electric revenues, an increase from approximately $435 million or 18% in
1997. Non-firm sales, including economy sales, off-system sales and
non-regulated power marketing activities have grown significantly in 1998. As a
result, only 56.3% of the Kwh sold related to firm sales contracts in 1998, as
compared with 80.9% in 1997, despite the fact that Kwh sales under firm
contracts increased 14% in 1998 as compared with 1997.
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Natural Gas
Changes in regulatory policies and market forces have begun to shift the
industry from traditional bundled gas sales service to an unbundled
transportation and market based commodity service. Following the unbundling of
interstate pipeline delivery services by the FERC in 1993, PSCo has participated
fully in state regulatory and legislative efforts to develop a framework for
extending unbundling down to the residential and small commercial level. The
goal of unbundling is to offer customers choice of gas suppliers. PSCo is
currently supporting a gas unbundling bill, introduced to the Colorado
legislature in January 1999, that will grant to the CPUC the authority and
responsibility to approve voluntary unbundling plans submitted by Colorado gas
utilities in the future. PSCo plans to participate fully in any such legislative
efforts and in any regulatory proceedings which will affect the unbundling of
natural gas delivery services.
The natural gas delivery or transportation business has remained
competitive as industrial and large commercial customers have the ability to
"by-pass" the local gas utility through the construction of interconnections
directly with, and the purchase of gas directly from, interstate pipelines,
thereby avoiding the delivery charges added by the local gas utility. PSCo and
Cheyenne have and will continue to aggressively pursue the retention of all of
these customers on their systems.
PSCo and Cheyenne extend and operate their distribution systems primarily
by virtue of non-exclusive franchises granted by the various cities and towns.
Such franchise agreements are approved by their respective state commissions.
Because the franchises are non-exclusive, PSCo and Cheyenne can be faced with
the threat of intrusion into their gas territory by third parties. PSCo and
Cheyenne hold territorial certificates for a portion of their gas service
territory giving them the exclusive right to extend their distribution system
and provide natural gas sales and transportation service. However, for the
majority of their gas service territory, no such territorial certificates exist.
PSCo has filed with the CPUC an application to certificate its gas service
territory along the front range of Colorado.
Franchises
PSCo held nonexclusive franchises to provide electric or gas service or
both services in approximately 121 incorporated cities and towns at December 31,
1998. These franchises consist of 69 combined gas and electric service
franchises, 28 electric service franchises and 24 gas service franchises. In
1999, PSCo expects to re-negotiate four of the franchise agreements which will
be expiring. PSCo's franchise with the City of Denver will expire in 2006. PSCo
supplies electric or gas service or both services in about 114 unincorporated
communities.
SPS held franchises to provide electric service in approximately 104
cities and towns at December 31, 1998.
Foreign Investments
Yorkshire Power
During the second quarter of 1997, Yorkshire Power, a joint venture
initially equally owned by PSCo and AEP, acquired indirectly all of the
outstanding ordinary shares of Yorkshire Electricity, a United Kingdom regional
electricity company. Effective March 31, 1998, NCI was sold to NC Enterprises,
an NCE subsidiary. The total consideration paid by Yorkshire Power for Yorkshire
Electricity in 1997 was approximately $2.4 billion (1.5 billion pounds
sterling). Yorkshire Electricity's main businesses are the distribution and
supply of electricity and the supply of gas and its service territory is one of
the region's largest with approximately 2 million customers.
In July 1997, the U.K. government enacted a windfall tax on certain
privatized business entities, payable in two installments with the first in
December 1997 and the second in December 1998. The windfall tax was a
retroactive adjustment to the privatization value based on post-privatization
profits during the 1992 to 1995
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period. During the third quarter of 1997, Yorkshire Power recorded an
extraordinary charge of approximately $221 million (135 million pounds sterling)
for this windfall tax. The Company's share of this tax was approximately $110.6
million.
During the second quarter of 1998, Yorkshire Electricity 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
facilities 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. In the fourth quarter of 1998, Yorkshire Power
recognized a $42.1 million after-tax gain on the sale of its generation assets.
Yorkshire Electricity is focusing its main business on the distribution and
supply of electricity and the supply of natural gas. See Note 2. Investment in
Yorkshire Electricity and U.K. Windfall Tax in Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA for summary financial information on Yorkshire Power.
Other foreign investments
The Company owns other foreign investments through various non-regulated
subsidiaries; however, at this time, these investments are not significant to
the Company's consolidated assets or results of operations.
Service Company
NCS, a wholly-owned subsidiary of NCE, was incorporated in 1997 under the
laws of the State of Delaware. NCS is the service company for the NCE system and
provides a variety of administrative, management, engineering, construction,
environmental and support services. NCS provides its services to the NCE system
generally at cost, pursuant to service agreements approved by the SEC under
PUHCA.
Non-Utility Operations
NC Enterprises, a wholly-owned subsidiary of NCE, was incorporated in 1997
under the laws of the State of Delaware. NC Enterprises was incorporated to
serve as a holding company for non-utility subsidiaries and foreign operations
of NCE. NC Enterprises currently has the following subsidiaries: NCI, Quixx, UE,
e prime, Natural Fuels, Planergy, New Century Cadence and New Century Centrus.
The table presented below provides certain financial information regarding each
subsidiary of NC Enterprises, followed by a discussion of the operations of the
subsidiaries.
<TABLE>
<CAPTION>
New New
Natural Century Century
NCI Quixx UE e prime Fuels Planergy Cadence Centrus
----- ----- ---- ------- ------ --------- -------- -------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $ - $14.6 $106.3 $255.4 $ 7.6 $ 9.3 $ - $ -
Total assets 353.7 88.2 58.5 81.5 10.2 31.4 2.1 0.7
NC Enterprise's Net
investment at
12/31/98 349.6 78.0 44.8 27.8 3.5 12.0 1.6 0.8
</TABLE>
NCI: NCI was formed in 1997 to hold PSCo's 50% interest in Yorkshire
Power. For a more detailed discussion refer to "Foreign Investments" above.
Quixx: Quixx was incorporated in 1985 under the laws of the State of
Texas. Quixx's primary business is investing in and developing cogeneration and
energy-related projects. Quixx also holds water rights and certain other
non-utility assets. Quixx also finances sales of heat pumps and markets other
non-utility goods and services. Quixx currently has the following wholly-owned
subsidiaries, most of which hold partnership interests in various energy-related
limited partnerships:
Quixx Jamaica, Inc., a wholly-owned subsidiary of Quixx, holds a 99%
limited partnership interest in KES Jamaica, L.P. which owned a facility
consisting of two-oil fired combustion turbines located in Montego
15
<PAGE>
Bay, Jamaica, W.I. This facility was completely dismantled in 1998. The
remaining 1% general partnership interest is owned by KES Montego, Inc. a
wholly-owned subsidiary of Quixx. As of December 31, 1998, Quixx is in the
process of winding up operations of this subsidiary.
Quixx Mustang Station, Inc., a wholly-owned subsidiary of Quixx, was
created to hold Quixx's 0.5%, general partnership interest in Denver City Energy
Associates, L.P., a partnership which owns a 50% interest in Mustang Station, a
488 Mw combined cycle generating facility which is scheduled for completion in
1999. Quixx also holds a 49.5% limited partnership interest in Denver City
Energy Associates, L.P., through Quixx Resources, Inc. a wholly-owned subsidiary
of Quixx.
Quixxlin Corp, a wholly-owned subsidiary of Quixx, holds a 0.5% general
partnership interest in Quixx Linden, L.P., which owns a 23 Mw natural gas fired
cogeneration facility under construction in Linden, New Jersey. It is estimated
that this facility will be completed in early 1999. Quixx also directly holds a
49.5% limited partnership interest in Quixx Linden, L.P.
Quixx Borger Cogen, Inc., a wholly-owned subsidiary of Quixx, holds a
0.45% general partnership interest in Borger Energy Associates, L.P., which owns
Blackhawk Station, a cogeneration plant located at the Phillips Petroleum
Refinery Complex near Borger, Texas. Quixx Resources, Inc., a wholly-owned
subsidiary of Quixx, holds a 44.55% limited partnership interest in this same
partnership. This facility commenced Phase I electric operations in October
1998, and is expected to commence Phase II cogeneration operations in 1999.
Quixx WPP94, Inc., a wholly-owned subsidiary of Quixx, holds a 0.33%
general partnership interest in Windpower Partners, 1994 L.P. Windpower
Partners, 1994 L.P. owns a 35 Mw wind generation facility in Culberson County,
Texas. Quixx also directly holds a 24.67% limited partnership interest in
Windpower Partners, 1994 L.P.
Quixx Louisville, L.L.C., a wholly-owned subsidiary of Quixx, owns a
facility consisting of two gas-fired boilers providing steam to a DuPont plant
in Louisville, Kentucky.
Quixx Power Services, Inc., a wholly-owned subsidiary of Quixx, operates
and maintains certain cogeneration facilities.
Quixx Resources, Inc., a wholly-owned subsidiary of Quixx, holds a 44.55%
limited partnership interest in Borger Energy Associates, L.P., a 49.5% limited
partnership interest in Denver City Energy Associates, L.P., and a 99% limited
partnership interest in Quixx WRR, L.P.
Quixx WRR, L.P., a wholly-owned subsidiary of Quixx, holds Quixx's water
rights located in Roberts, Gray, Hutchinson and Carson Counties, Texas. Quixx
holds a 1% general partnership interest and through Quixx Resources, Inc. a 99%
limited partnership interest in Quixx WRR, L.P.
Quixx Carolina, Inc., a wholly-owned subsidiary of Quixx, holds a 1%
general partnership interest in Carolina Energy Limited Partnership, a
waste-to-energy cogeneration facility. Quixx also holds a 32.33% limited
partnership interest in this same partnership. In June 1997, Quixx wrote off its
investment of approximately $13.64 million in the Carolina Energy Limited
Partnership (see Note 3. Acquisitions and Divestitures in Item 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA).
Quixx holds a 42.2% limited partnership interest in BCH Energy Limited
Partnership, a waste-to-energy facility, which has declared in bankruptcy near
Fayetteville, North Carolina. In December 1996, Quixx wrote off its entire
investment in this project of approximately $16 million (See Note 3.
Acquisitions and Divestitures in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA).
UE: UE was incorporated in 1985 under the laws of the State of Texas. UE
is engaged in engineering, design, construction management and other
miscellaneous services. UE currently has two wholly-owned subsidiaries Universal
Utility Services Company and Precision Resource Company. Universal Utility
Services
16
<PAGE>
Company provides cooling tower maintenance and repair, certain other industrial
plant improvement services, and engineered maintenance of high voltage plant
electric equipment. Precision Resource Company provides contract professional
and technical resources for customers in the energy industrial sectors.
e prime: e prime was incorporated in 1995 under the laws of the State of
Colorado. e prime provides energy related products and services which include,
but are not limited to, electric and gas brokering, marketing and trading and
energy consulting. In March of 1996, e prime received authorization from the
FERC to act as a power marketer. In September 1996, e prime acquired TOG, a gas
marketing company, with headquarters in Houston and an office in Boston. e prime
and TOG have merged operations and together they provide value-added energy
related products and services to over 2,200 end use customers and utilities
nationwide. Additionally, e prime currently owns the following subsidiaries
(subsidiaries formed, but inactive have been excluded):
TOP is a small pipeline company which connects two major interstate
pipelines.
YGSC owns a 47.5% general partnership interest in Young Storage which owns
and operates an underground gas storage facility in northeastern Colorado.
e prime also holds a 50% ownership interest in Johnstown Cogeneration, a
limited liability company.
Natural Fuels: Natural Fuels was incorporated in 1990 under the laws of
the State of Colorado. Natural Fuels sells compressed natural gas as a
transportation fuel to retail markets, converts vehicles for natural gas usage,
constructs fueling facilities, and sells miscellaneous fueling facility
equipment. Natural Fuels has a 50% ownership interest in Natural/Total Limited
Liability Company, which owns and operates natural gas fueling stations located
at Total Petroleum Gas Stations in Colorado. Natural Fuels has a 25% ownership
interest in Natural/Peoples Limited Liability Company which owns and operates
one natural gas fueling station located in Castle Rock, Colorado. Additionally,
Natural Fuels has a 67% ownership interest through Natural/Total in
Natural/Total/KN Limited Partnership, a partnership which owns the profits
interest in the natural gas fueling stations located at Total Petroleum sites in
the Colorado towns of Grand Junction and Glenwood Springs.
Planergy: Planergy, which was acquired April 1, 1998 (formerly known as
Falcon Seaboard Energy Services, Inc.), was incorporated in 1990 under the laws
of the State of Texas. Planergy provides energy management, consulting and
demand side management services to commercial, industrial, utility and municipal
customers. Planergy currently has two principal wholly-owned subsidiaries,
Planergy, Inc., and Planergy Services, Inc. Planergy Inc. provides energy
consulting, energy-efficiency management, conservation programs and mass-market
services. Planergy Services, Inc. specializes in industrial energy audits, and
conservation and reliability projects. It focuses on energy services for
industrial and large commercial customers.
New Century Cadence: New Century Cadence was incorporated in 1997
under the laws of the State of Colorado. New Century Cadence was created to
hold a 1/3 interest in Cadence Network, LLC, an energy-related company which
provides energy management and consulting services, as well as brokering and
marketing of energy commodities. Cadence Network LLC is equally owned by New
Century Cadence, Cinergy-Cadence, Inc. (a subsidiary of Cinergy, Inc.) and
Progress Holdings, Inc. (a subsidiary of Florida Progress Holdings, Inc.).
New Century Centrus: New Century Centrus was incorporated in 1998
under the laws of the State of Colorado. New Century Centrus was created in
1998 to hold a 1/3 interest in Centrus, LLP. Centrus LLP was established to
develop products and services to meet the residential and small business
customers increasing demands for a "one-bill" utility and telecommunications
approach. Centrus LLP is equally owned by New Century Centrus,
Cinergy-Centrus, Inc. (a subsidiary of Cinergy, Inc.) and Progress-Centrus,
Inc. (a subsidiary of Florida Progress Holdings, Inc.).
17
<PAGE>
Employees
The number of employees in the NCE system at December 31, 1998, is presented in
the table below. Of the employees listed below, approximately 2,817, or 45%, are
covered under collective bargaining agreements. For further information, see
Note 10. Commitments and Contingencies - Union Contracts in Item 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
NCE System Employees
--------------------
PSCo 3,148
SPS 1,345
NCS 1,229
Cheyenne 97
NC Enterprises 490
----
Total 6,309
=====
18
<PAGE>
Consolidated Electric Operating Statistics (NCE)
Year Ended December 31,
1998 1997 1996
---- ---- ----
Energy Generated, Received & Sold
(Thousands of Kwh):
Net Generated:
Steam, Fossil.................. 33,960,532 33,278,721 32,116,961
Combustion Turbine............. 8,211,645 6,595,055 6,351,117
Pumped Storage................. 222,175 193,834 178,205
Hydro.......................... 206,287 224,898 197,660
------- ------- --------
Total Net Generation......... 42,600,639 40,292,508 38,843,943
Energy Used for Pumping........ 343,393 300,649 276,983
------- ------- --------
Total Net System Input....... 42,257,246 39,991,859 38,566,960
Purchased Power and Net
Interchange ................. 17,066,272 11,985,546 10,295,074
---------- ---------- ----------
Total System Input........... 59,323,518 51,977,405 48,862,034
Used by Company................ 75,303 77,734 88,304
Other (1)...................... 1,739,911 1,677,085 1,352,843
--------- --------- ---------
Total Energy Sold............ 57,508,304 50,222,586 47,420,887
========== ========== ==========
Electric Sales (Thousands of Kwh):
Residential.................... 10,136,581 9,730,390 9,530,275
Commercial..................... 14,135,012 13,223,936 12,832,091
Industrial..................... 13,530,830 13,789,814 13,729,777
Public Authorities............. 840,611 773,656 780,251
Wholesale - Regulated.......... 15,948,594 11,494,742 10,129,788
Wholesale Energy Services -
Non-Regulated 2,916,676 1,210,048 418,705
--------- --------- -------
Total Energy Sold............ 57,508,304 50,222,586 47,420,887
========== ========== ==========
Number of Customers at End
of Period:
Residential.................... 1,313,075 1,285,307 1,269,322
Commercial..................... 190,812 185,911 183,928
Industrial..................... 12,956 12,888 12,830
Public Authorities............. 83,775 81,994 80,486
Wholesale - Regulated.......... 317 279 235
Wholesale Energy Services -
Non-Regulated ............... 27 12 6
------ -------- -------
Total Customers............ 1,600,962 1,566,391 1,546,807
========= ========= =========
Electric Revenues
(Thousands of Dollars):
Residential.................... $ 720,841 $ 692,886 $ 682,966
Commercial..................... 774,521 735,636 738,266
Industrial..................... 524,645 532,276 521,843
Public Authorities............. 63,249 58,235 55,608
Wholesale - Regulated.......... 532,431 412,088 376,315
Wholesale Energy Services -
Non-Regulated ............... 74,518 22,861 7,806
Other Electric Revenues........ 7,281 19,377 33,735
------- ------- --------
Total Electric Revenues...... $2,697,486 $2,473,359 $2,416,539
========== ========== ==========
Average Annual Kwh Sales per
Residential Customer 7,818 7,613 7,508
Average Annual Revenue per
Residential Customer $555.94 $542.12 $538.06
Average Residential Revenue
per Kwh $0.0711 $0.0712 $0.0717
Average Commercial Revenue
per Kwh $0.0548 $0.0556 $0.0575
Average Industrial Revenue
per Kwh $0.0388 $0.0386 $0.0380
Average Wholesale - Regulated
Revenue per Kwh $0.0334 $0.0359 $0.0371
- -------------------------
(1) Primarily includes net distribution and transmission line losses.
19
<PAGE>
Consolidated Electric Operating Statistics (PSCo)
Year Ended December 31,
1998 1997(1) 1996(1)
-------- --------- ---------
Energy Generated, Received & Sold
(Thousands of Kwh):
Net Generated:
Steam, Fossil.................. 17,939,109 17,586,343 17,099,890
Combustion Turbine............. 636,455 154,019 121,079
Pumped Storage................. 222,175 193,834 178,205
Hydro.......................... 206,287 224,898 197,660
------- ------- --------
Total Net Generation......... 19,004,026 18,159,094 17,596,834
Energy Used for Pumping........ 343,393 300,649 276,983
------- ------- --------
Total Net System Input....... 18,660,633 17,858,445 17,319,851
Purchased Power and Net
Interchange 13,544,768 11,470,535 10,349,298
---------- ---------- ----------
Total System Input........... 32,205,401 29,328,980 27,669,149
Used by Company................ 45,857 45,492 57,603
Other (2)...................... 1,707,914 1,659,347 1,352,843
--------- --------- ---------
Total Energy Sold............ 30,451,630 27,624,141 26,258,703
========== ========== ==========
Electric Sales (Thousands of Kwh):
Residential.................... 6,760,764 6,662,679 6,606,601
Commercial..................... 10,778,116 10,109,615 9,880,502
Industrial..................... 4,831,965 5,511,722 5,791,608
Public Authorities............. 206,985 189,141 200,070
Wholesale - Regulated ......... 7,873,800 4,490,895 3,361,217
Wholesale Energy Services -
Non-Regulated - 660,089 418,705
------- -------- -------
Total Energy Sold............ 30,451,630 27,624,141 26,258,703
========== =========== ==========
Number of Customers at End
of Period:
Residential.................... 970,217 947,017 959,249
Commercial..................... 127,386 123,839 126,426
Industrial..................... 325 330 380
Public Authorities............. 82,764 81,023 79,725
Wholesale - Regulated.......... 50 33 26
Wholesale Energy Services -
Non-Regulated - - 6
------- -------- -------
Total Customers............ 1,180,742 1,152,242 1,165,812
========= ========= =========
Electric Revenues (Thousands
of Dollars):
Residential.................... $ 514,235 $ 503,727 $ 507,233
Commercial..................... 592,045 563,439 571,536
Industrial..................... 207,885 228,925 249,774
Public Authorities............. 29,546 26,778 25,798
Wholesale - Regulated.......... 250,555 145,561 120,478
Wholesale Energy Services -
Non-Regulated - 10,448 7,806
Other Electric Revenues........ 41,307 6,318 6,365
------- ------- --------
Total Electric Revenues...... $1,635,573 $1,485,196 $1,488,990
========== ========== ==========
Average Annual Kwh Sales per
Residential Customer 7,071 6,875 6,965
Average Annual Revenue per
Residential Customer $537.80 $519.08 $534.79
Average Residential Revenue
per Kwh $0.0761 $0.0756 $0.0768
Average Commercial Revenue
per Kwh $0.0549 $0.0557 $0.0578
Average Industrial Revenue
per Kwh $0.0430 $0.0415 $0.0431
Average Wholesale - Regulated
Revenue per Kwh $0.0318 $0.0324 $0.0358
- -------------------------
(1)The 1996 and 1997 information through July 31, 1997 include information
related to Cheyenne, WGI and e prime. These subsidiaries were transferred to
NCE, effective August 1, 1997, in connection with the Merger.
(2) Primarily includes net distribution and transmission line losses.
20
<PAGE>
Consolidated Electric Operating Statistics (SPS)
<TABLE>
<CAPTION>
Year ended September 1- Year ended
December 31, December 31, August 31,
1998 1997 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Energy Generated, Received & Sold
(Thousands of Kwh):
Net Generated:
Steam, Fossil.................. 16,021,423 15,692,378 4,994,294 14,895,995
Combustion Turbine............. 7,575,190 6,441,036 1,747,556 6,186,155
--------- --------- --------- ----------
Total Net Generation......... 23,596,613 22,133,414 6,741,850 21,082,150
Purchased Power and Net
Interchange (276,031) (402,504) 332,644 1,226,976
-------- -------- ------- ---------
Total System Input........... 23,320,582 21,730,910 7,074,494 22,309,126
Used by Company and Other...... 28,606 31,862 438,190 1,420,687
------ ------ ------- ---------
Total Energy Sold.............. 23,291,976 21,699,048 6,636,304 20,888,439
========== ========== ========= ==========
Electric Sales (Thousands of Kwh):
Residential.................... 3,169,433 2,986,815 891,695 2,868,982
Commercial..................... 3,051,258 2,990,488 989,580 2,886,807
Industrial..................... 8,367,012 8,135,280 2,661,642 7,813,433
Public Authorities............. 629,478 582,618 190,439 571,579
Wholesale - Regulated ......... 8,074,795 7,003,847 1,902,948 6,747,638
--------- --------- --------- ---------
Total Energy Sold............ 23,291,976 21,699,048 6,636,304 20,888,439
========== ========== ========= ==========
Number of Customers at End of Period:
Residential.................... 312,539 308,439 310,073 308,554
Commercial..................... 58,535 57,298 57,502 57,204
Industrial..................... 12,622 12,549 12,450 12,418
Public Authorities............. 824 785 761 750
Wholesale - Regulated ......... 267 246 209 197
------- ------- -------- -------
Total Customers ........... 384,787 379,317 380,995 379,123
======= ======= ======== =======
Electric Revenues (Thousands of Dollars):
Residential.................... $194,535 $184,372 $ 54,109 $172,214
Commercial..................... 168,731 166,572 54,033 154,653
Industrial..................... 305,987 298,754 95,494 274,117
Public Authorities............. 33,207 31,249 10,090 29,220
Wholesale - Regulated.......... 281,877 266,527 71,663 252,145
Other Electric Revenues (1).... (33,150) 12,881 10,190 17,048
-------- ------- -------- -------
Total Electric Revenues...... $951,187 $960,355 $295,579 $899,397
======== ======== ======== ========
Average Kwh Sales per
Residential Customer 10,212 9,669 2,876 9,298
Average Revenue per
Residential Customer $626.80 $596.85 $174.50 $558.13
Average Residential
Revenue per Kwh $0.0614 $0.0617 $0.0607 $0.0600
Average Commercial
Revenue per Kwh $0.0553 $0.0557 $0.0546 $0.0536
Average Industrial
Revenue per Kwh $0.0366 $0.0367 $0.0359 $0.0351
Average Wholesale -
Regulated Revenue per Kwh $0.0349 $0.0381 $0.0377 $0.0374
- -------------------------
</TABLE>
(1)Other electric revenues is negative in 1998 primarily due to the recognition
of lower deferred fuel revenues resulting from cost reductions for fuel used
in generation.
21
<PAGE>
Consolidated Gas Operating Statistics (NCE and PSCo)
<TABLE>
<CAPTION>
Year Ended December 31,
NCE NCE & PSCo PSCo
1998 1997 1996 1998 1997 (3)
------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Natural Gas Purchased and Sold
(Thousands of Dth):
Purchased for Utility
Operations 141,887 151,687 147,298 137,402 150,163
Purchased for Non-regulated
Gas Marketing (1) 72,651 61,248 22,807 - 35,189
------- ------- ------- ------ ------
Total Purchased............ 214,538 212,935 170,105 137,402 185,352
Company Use.................... 1,411 1,213 520 1,397 1,211
Other (2)...................... 14,038 17,236 10,000 11,608 15,461
------- ------- ------- ------- --------
Total Gas Sold............... 199,089 194,486 159,585 124,397 168,680
======= ======= ======= ======= ========
Gas Deliveries (Thousands of Dth):
Residential.................... 84,710 87,386 86,102 82,239 86,634
Commercial..................... 42,352 47,471 51,655 40,191 46,857
Non-regulated Gas Marketing (1) 70,599 59,629 21,828 - 35,189
------ ------ ------ ----- ------
Total Gas Sold............. 197,661 194,486 159,585 122,430 168,680
Transportation................. 107,423 93,271 90,304 90,746 86,831
Other Gas Deliveries........... - 73 1,141 - 73
------- ------- ------- ------- --------
Total Deliveries............. 305,084 287,830 251,030 213,176 255,584
======= ======= ======= ======= ========
Number of Customers at End of
Period:
Residential.................... 958,693 928,134 902,078 932,829 902,759
Commercial..................... 93,549 91,937 90,761 90,858 89,229
Non-regulated Gas Marketing (1) 2,043 2,190 1,255 - -
----- ----- ----- ---- ----
Total........................ 1,054,285 1,022,261 994,094 1,023,687 991,988
Transportation and Other....... 2,738 2,215 1,794 2,731 2,205
------- ------- ------- ------- --------
Total Customers.............. 1,057,023 1,024,476 995,888 1,026,418 994,193
========= ========= ======= ========= =======
Gas Revenues (Thousands of Dollars):
Residential.................... $ 434,503 $ 410,406 $362,481 $ 423,875 $407,004
Commercial..................... 182,506 186,248 176,328 175,291 184,192
Non-regulated Gas Marketing (1) 180,641 172,524 64,389 - 99,273
Transportation................. 34,990 32,646 28,549 34,472 32,465
Other Gas Revenues............. 8,636 14,772 8,750 6,426 10,157
------- ------- -------- ------- --------
Total Gas Revenues......... $ 841,276 $816,596 $640,497 $ 640,064 $733,091
========= ======== ======== ========= ========
Average Annual Dth Sales per
Residential Customer ........... 89.99 95.51 97.14 89.81 94.70
Average Annual Revenue per
Residential Customer ........... $461.60 $448.55 $408.93 $462.90 $444.91
Average Revenue per Dekatherm:
Residential ................... $5.129 $4.696 $4.210 $5.154 $4.698
Commercial .................... $4.309 $3.923 $3.414 $4.361 $3.931
Transportation ................ $0.326 $0.350 $0.316 $0.380 $0.374
- -------------------------
</TABLE>
(1) Includes purchases and sales by e prime and TOG.
(2)Primarily includes distribution and transmission line losses and net changes
to gas in storage.
(3)Information through July 31, 1997 includes information related to Cheyenne,
WGI, Natural Fuels and e prime. These subsidiaries were transferred to NCE,
effective August 31, 1997, in connection with the Merger.
22
<PAGE>
Item 2. Properties
PSCo Electric Generation Property
The PSCo electric generating stations expected to be available at the time
of the anticipated 1999 net firm system peak demand during the summer season are
as follows:
<TABLE>
<CAPTION>
Net Dependable
Capacity
Installed (Mw)
Gross at Time of Anticipated Major
Name of Station Capacity 1999 Net Firm System Fuel
and Location (Mw) Peak Demand* Source
------------ ---- ------------ ------
<S> <C> <C> <C>
Steam:
Arapahoe - Denver.................. 262.00 246.00 Coal
Cameo - near Grand Junction ....... 77.00 72.70 Coal
Cherokee - Denver.................. 779.00 717.00 Coal
Comanche - near Pueblo............. 725.00 660.00 Coal
Craig - near Craig................. 86.90 (a) 83.20 Coal
Hayden - near Hayden............... 259.00 (b) 237.00 Coal
Pawnee - near Brush................ 530.00 511.00 Coal
Valmont - near Boulder (Unit 5).... 188.00 178.00 Coal
Zuni - Denver...................... 115.00 107.00 Gas/Oil
------- ------
Total............................ 3,021.90 2,811.90
Fort St. Vrain Combustion Turbines
- near Platteville ................... 243.45 226.75 Gas
Combustion turbines (6 units-various
locations) .......................... 209.00 171.00 Gas
Hydro (14 units-various locations) (c). 53.35 36.55 (d) Hydro
Cabin Creek Pumped Storage-near
Georgetown .......................... 324.00 (e) 162.00 Hydro
Total............................ 3,851.70 3,408.20
======== ========
- ----------------
</TABLE>
* A measure of the unit capability planned to be available at the time of the
system peak load net of seasonal reductions in unit capability due to weather,
stream flow, fuel availability and station housepower, including requirements
for air and water quality control equipment.
(a)The gross maximum capability of Craig Units No. 1 and No. 2 is 894 Mw, of
which the Company has a 9.72% undivided ownership interest.
(b)The gross maximum capability of Hayden Units No. 1 and No. 2 is 202.01 Mw
and 285.96 Mw, respectively, of which the Company has a 75.5% and 37.4%
undivided ownership interest, respectively.
(c)Includes one station (two units) not owned by the Company but operated under
contract.
(d)Seasonal Hydro Plant net dependable capabilities are based upon average
water conditions and limitations for each particular season. The individual
plant seasonal capabilities are sometimes limited by less than design water
flow.
(e) Capability at maximum load.
Fort St. Vrain, PSCo's only former nuclear generating station, ceased
operations on August 29, 1989, and on March 22, 1996, the physical
decommissioning of the station was completed. The initial phase of the repowered
gas fired combined cycle steam electric generating station began commercial
operations on May 1, 1996. Phase 2 is scheduled to begin operations in May 1999.
(see Note 10. Commitments and Contingencies in Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA).
23
<PAGE>
SPS Electric Generation Property
The SPS electric generating stations expected to be available at the time
of the anticipated 1999 net firm system peak demand during the summer season are
as follows:
<TABLE>
<CAPTION>
Net Dependable
Capacity
Installed (Mw)
Gross at Time of Anticipated Major
Name of Station Capacity 1999 Net Firm System Fuel
and Location (Mw) Peak Demand* Source
------------ ---- ------------ ------
<S> <C> <C> <C>
Steam:
Harrington - near Amarillo, TX..... 1,137.00 1,066.00 Coal
Tolk - near Muleshoe, TX .......... 1,130.00 1,080.00 Coal
Jones - near Lubbock, TX........... 512.00 486.00 Gas
Plant X - near Earth, TX........... 463.00 442.00 Gas
Nichols - near Amarillo, TX........ 479.00 457.00 Gas
Cunningham - near Hobbs, NM........ 281.00 267.00 Gas
Maddox - near Hobbs, NM............ 123.00 118.00 Gas
CZ-2 - near Pampa, TX.............. 26.00 26.00 Purch. steam
Moore County - near Sunray, TX..... 51.00 48.00 Gas
------- ------
Total............................ 4,202.00 3,990.00
Gas Turbine:
Carlsbad - near Carlsbad, NM....... 16.00 16.00 Gas
CZ-1 - near Pampa, TX.............. 13.00 13.00 Hot nitrogen
Maddox - near Hobbs, NM............ 76.00 76.00 Gas
Riverview - near Borger, TX........ 25.00 25.00 Gas
Cunningham - near Hobbs, NM........ 245.00 231.00 Gas
Diesel Engine (1 unit) - Tucumcari, NM. 15.00 15.00 Diesel
------- -------
Total............................ 4,592.00 4,366.00
======== ========
- ----------------
</TABLE>
* A measure of the unit capability planned to be available at the time of the
system peak load net of seasonal reductions in unit capability due to weather,
stream flow, fuel availability and station housepower, including requirements
for air and water quality control equipment.
Electric Transmission Property
PSCo: On December 31, 1998, PSCo's transmission system consisted of
approximately 112 circuit miles of 345 Kv overhead lines; 1,936 circuit miles of
230 Kv overhead lines; 15 circuit miles of 230 Kv underground lines; 65 circuit
miles of 138 Kv overhead lines; 1,002 circuit miles of 115 Kv overhead lines; 22
circuit miles of 115 Kv underground lines; 330 circuit miles of 69 Kv overhead
lines; 137 circuit miles of 44 Kv overhead lines; and 1 circuit mile of 44 Kv
underground lines. PSCo jointly owns with another utility approximately 342
circuit miles of 345 Kv overhead lines and 359 miles of 230 Kv overhead lines,
of which PSCo's share is 112 miles and 147 miles, respectively, which shares are
included in the amounts listed above.
SPS: On December 31, 1998, SPS's transmission system consisted of
approximately 319 circuit miles of 345 Kv overhead lines; 1,598 circuit miles of
230 Kv overhead lines; 2,579 circuit miles of 115 Kv overhead lines; 1,768
circuit miles of 69 Kv overhead lines; 1 circuit mile of 115 Kv underground
line; and 5 circuit miles of 69 Kv underground lines.
24
<PAGE>
Interconnections
PSCo: PSCo's transmission facilities are located wholly within Colorado.
The system is interconnected with the systems of the following utilities with
which PSCo has major firm purchase power contracts; capacity and energy are
provided primarily by generating sources in the locations indicated:
Utility Location
------- --------
Basin Electric Power Cooperative................ Southeast Wyoming
PacifiCorp ..................................... West & Northwest U.S.
Northwest Colorado
Platte River Power Authority.................... Northcentral Colorado
Tri-State....................................... Southeast Wyoming and
Northwest Colorado
PSCo has wheeling agreements with the above, and with other utilities and
public power agencies, which are utilized to provide capacity and energy to
PSCo's system from time to time.
PSCo is a member of the WSCC, an interstate network of transmission
facilities which are owned by public entities and investor-owned utilities. WSCC
is the regional reliability coordinating organization for member electric power
systems in the western United States. PSCo is also a member of the Western
Systems Power Pool which is an economic power pool that operates an electronic
bulletin board and acts as a clearinghouse for bulk power transactions among
over 90 member utilities and marketers.
SPS: SPS's transmission system is located in parts of Texas, New Mexico,
Oklahoma and Kansas. SPS is connected with utilities west of its service
territory through two HVDC interconnections in New Mexico and has four
interconnecting transmission lines with utilities of the SPP. These
interconnections are described in the following table:
Utility Location
------- --------
El Paso Electric Company and Texas-New
Mexico Power Company ........................Near Artesia, NM
Public Service Company of New Mexico .............Near Clovis, NM
Public Service Company of Oklahoma................Near Oklaunion, TX
and near Elk City, OK
West Texas Utilities..............................Near Shamrock, TX
and near Groom, TX
WestPlains Energy.................................Near Guymon, OK
SPS is a member of the SPP. Transactions with the SPP are handled through
interties near Elk City and Guymon, OK, and Shamrock and Oklaunion, TX. These
interties allow the Company to sell or to purchase energy from the eastern
electrical grid. HVDC interconnections link SPS with the western electrical grid
of the United States. SPS purchases and sells energy through HVDC interties near
Artesia and Clovis, New Mexico.
SPS is a participant in the FERC approved WSPP bulk power market This
arrangement provides for short-term energy and capacity exchanges, transmission
services, flexible pricing, and electronic bulletin board posting of available
power and energy.
After further evaluation during 1998, PSCo and SPS recently announced plans
to interconnect their systems and build additional transmission facilities to
alleviate transmission constraints, increase reliability and provide energy
supply alternatives in anticipation of competition. This expansion is expected
to be completed in a phased approach and will require various regulatory
approvals. This first phase is 230 miles of 345 Kv line from Amarillo, TX to
Holcomb, KS, and is expected to be completed in 2001, pending regulatory
approvals. The second phase is 100 miles of 345 Kv line from Holcomb to Lamar,
CO and a high voltage direct current
25
<PAGE>
conversion facility, which would interconnect the PSCo and SPS systems, as well
as the WSCC and SPP regional transmission grids. This second phase is now
scheduled for completion in 2004. While not directly related to the
interconnection of the PSCo and SPS systems, the third phase of this project is
approximately 275 miles of 345 Kv line from Amarillo to Oklahoma City, OK. The
estimated completion of this line is not expected before 2006.
Electric Distribution Property
The distribution system of the Company's electric subsidiaries consists of
both overhead lines and underground distribution systems. PSCo owns
approximately 210 substations (30 of which are jointly owned) having an
aggregate transformer capacity of 19,390,000 Kva, of which 4,141,000 Kva is
step-up transformer capacity at generating stations. SPS owns approximately 316
substations having an aggregate transformer capacity of 20,531,310 Kva, of which
5,951,000 Kva is step-up transformer capacity.
Gas Property
The gas property of PSCo at December 31, 1998, consisted of approximately
16,048 miles of distribution mains ranging in size from 0.50 to 30 inches and
related equipment. The Denver distribution system consisted of 9,093 miles of
mains. Pressures in the system are varied to meet load requirements and
individual house regulators are installed on each customer's premises to provide
uniform flow of gas to appliances. PSCo also owns and operates four gas storage
facilities.
Other Property
PSCo's steam heating property at December 31, 1998, consisted of 10.5
miles of transmission, distribution and service lines in the central business
district of Denver, CO including a steam transmission line connecting the steam
heating system with Zuni. Steam is supplied from boilers installed at PSCo's
Denver Steam Plant which has a capability of 295,000 pounds of steam per hour
under sustained load and an additional 300,000 pounds of steam per hour is
available from Zuni on a peak demand basis. An additional 80,000 pounds per hour
can be supplied as emergency backup through operation of a leased steam heat
boiler housed at the State of Colorado. PSCo also owns service and office
facilities in Denver and other communities strategically located throughout its
service territory.
As of December 31, 1998, PSCo has installed 8,500 tons of mechanical and
iced storage capacity. Approximately 3,200 feet of piping has been installed to
provide central chilled water service to the Downtown Denver area.
Property of Subsidiaries
Unregulated subsidiary property is approximately 1% of the total net
book value of the properties of the Company and consolidated subsidiaries
combined. 1480 Welton, Inc. owns two buildings that are used by PSCo.
Character of Ownership
The steam electric generating stations, the majority of major electric
substations owned by the Company and its subsidiaries are on land owned in fee.
Approximately half of the compressor stations and a limited number of town
border and meter stations are also on land owned in fee. The remaining major
electric substations, compressor stations and the majority of gas regulator
stations and town border and meter stations are wholly or partially on land
leased from others or on or along public highways or on streets or public places
within incorporated towns and cities (under franchises or other rights). PSCo's
Cabin Creek Pumped Storage Hydroelectric Generating Station, its Shoshone
Hydroelectric Generating Station and a portion of the related intake tunnel are
located on public lands of the United States. As to substantially all property
on or across public lands of the United States, the Company or its subsidiaries
hold licenses or permits issued by appropriate Federal agencies or departments.
The Leyden gas storage facility is located largely on leased property under
leases expiring December 31, 2040. The Company and its utility subsidiaries have
the power of eminent domain
26
<PAGE>
pursuant to State law to acquire property for their electric and gas facilities.
The electric and gas transmission and distribution facilities are for the most
part located on land owned by the Company or its subsidiaries pursuant to
easements obtained from the record holders of title or are over or under
streets, public highways or other public places and on public lands under
franchises or other rights. The water rights of the Company and its subsidiaries
are owned subject to divestment to the extent of any abandonment thereof.
Substantially all of the utility plant and other physical property owned
by the Company's utility subsidiaries is subject to the liens of the respective
indentures securing the mortgage bonds of the Company's utility subsidiaries.
Item 3. Legal Proceedings
See Note 9. Regulatory Matters and Note 10. Commitments and
Contingencies in ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Item 4. Submission of Matters to a Vote of Security Holders
NCE: None.
PSCo: Omitted pursuant to General Instruction I(2)(c).
SPS: Omitted pursuant to General Instruction I(2)(c).
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock, $1.00 par value per share, is listed on the
New York Stock Exchange. On August 1, 1997, following the receipt of all
required State and Federal regulatory approvals, PSCo and SPS combined to form
NCE with the result that the common shareholders of PSCo and SPS became the
common shareholders of NCE. Pursuant to the Merger Agreement, each outstanding
share of PSCo common stock, par value $5.00 per share, was canceled and
converted into one share of NCE common stock and each outstanding share of SPS
common stock, $1.00 par value per share, was canceled and converted into 0.95 of
one share of NCE common stock. Prior to the Merger, PSCo and SPS common stock
was listed on the New York, Chicago and Pacific Stock Exchanges. The following
table sets forth for the periods indicated the dividends declared per share of
common stock and the high and low sale prices of the common stock on the
consolidated tape as reported by The Wall Street Journal for NCE, PSCo and SPS
in 1998 and 1997.
Dividends Price Range
NCE Declared High Low
--- -------- ---- ---
1998
First Quarter................................ $ 0.58 $51 3/16 $44 1/2
Second Quarter............................... 0.58 50 3/4 44 5/16
Third Quarter................................ 0.58 49 3/16 41 5/8
Fourth Quarter............................... 0.58 52 1/4 45 1/2
-------
$ 2.32
1997
Third Quarter (from August 1, 1997).......... $ 0.58 $43 3/16 $ 39
Fourth Quarter............................... 0.58 49 5/8 40 1/4
--------
$ 1.16
27
<PAGE>
Dividends Price Range
PSCo Declared High Low
---- -------- ---- ---
1997
First Quarter................................ $0.525 $40 1/8 $38 1/4
Second Quarter............................... 0.525 41 3/4 37 3/4
Third Quarter (to August 1, 1997) (1)........ 0.115 42 3/16 40 1/8
-------
$1.165
SPS
1997
First Quarter................................ $ 0.55 $37 1/8 $35 3/4
Second Quarter............................... 0.55 39 1/2 37 3/8
Third Quarter (to August 1, 1997) (2)........ 0.46 40 1/8 37 5/8
-------
$ 1.56
(1)A partial dividend payable to shareholders covering the period July 12, 1997
through July 31, 1997, the day prior to the Merger effective date, based on
the quarterly dividend rate of $0.525, but pro-rated for the number of days
in the interim period.
(2)A partial dividend payable to shareholders covering the period May 16, 1997
through July 31, 1997, the day prior to the Merger effective date, based on
the quarterly dividend rate of $0.55, but pro-rated for the number of days in
the interim period.
At December 31, 1998, the book value of the Company's common equity was
$22.84 per share. At March 24, 1999, there were 73,000 holders of record of
the Company's common stock and the market price of the stock was $38 11/16. The
Company sold 5.9 million shares of common stock in December 1997 and sold 2.5
million shares in November 1998. See NOTE 4. CAPITAL STOCK for a discussion of
the shareholders' rights plan.
The dividend level is dependent upon the Company's results of operations,
financial position and other factors and is evaluated quarterly by the Board of
Directors. See Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS Of FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (NCE).
28
<PAGE>
Item 6. Selected Financial Data (NCE)
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the management's
discussion and analysis of financial condition and results of operations
appearing elsewhere herein. The NCE selected financial data for 1996 has been
prepared from the combination of the historical information of PSCo and SPS as
of and for the year ended December 31, 1996. The 1995 and 1994 selected
financial data has been prepared from the combination of PSCo information as of
and for the years ended December 31, 1995 and 1994 with the SPS information as
of and for the years ending August 31, 1995 and 1994.
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands, except per share data & ratio)
<S> <C> <C> <C> <C> <C>
NCE
Operating revenues:
Electric.................. $ 2,697,486 $ 2,473,359 $ 2,416,539 $ 2,283,179 $ 2,243,284
Gas....................... 841,276 816,596 640,497 624,585 624,922
Other..................... 72,143 52,570 39,998 54,444 42,092
------- ------- ------- ------ ------
Total.................. 3,610,905 3,342,525 3,097,034 2,962,208 2,910,298
Total operating expenses..... 2,960,404 2,713,300 2,461,451 2,345,264 2,413,704
Operating income............. 650,501 629,225 635,583 616,944 496,594
Income before extraordinary
item ...................... 341,957 261,487 272,341 281,492 255,545
Extraordinary item - U.K.
windfall tax .............. - (110,565) - - -
Net income................... 341,957 150,922 272,341 281,492 255,545
Per share data applicable to
common stock (a):
Basic earnings per share (c) $3.06 $2.50 $2.64 $2.77 $2.54
Diluted earnings per share (c) $3.05 $2.50 $2.64 $2.77 $2.54
Dividends declared (b).... $2.32 $2.53 $2.18 $2.15 $2.13
Rate of return earned on
average common equity
(income before extraordinary
item to common) ......... 13.8% 11.6% 12.8% 14.0% 13.3%
Total assets................. $7,671,964 $7,321,666 $6,617,442 $6,260,794 $6,027,106
Total construction expenditures 608,972 475,497 454,968 380,407 409,485
Total common equity.......... 2,614,827 2,357,387 2,170,040 2,064,397 1,963,654
Preferred stock of subsidiaries:
Not subject to mandatory
redemption .............. - 140,002 140,008 212,688 212,688
Subject to mandatory
redemption at par
(including amounts due
within one year) ....... - 41,829 42,489 43,865 45,241
PSCo and SPS obligated
mandatorily redeemable
preferred securities...... 294,000 100,000 100,000 - -
Long-term debt of subsidiaries
(including amounts due
within one year) ....... 2,343,710 2,245,424 2,050,189 1,854,737 1,703,808
Notes payable & commercial
paper ..................... 524,394 588,343 298,561 288,050 339,794
- -----------------
</TABLE>
(a)Earnings per share are based on the weighted average number of shares of
common stock outstanding.
(b)The 1997 amount includes dividends declared by PSCo and SPS for the period
January 1, 1997 through July 31, 1997 and dividends declared by NCE for the
period August 1, 1997 through December 31, 1997. See Item 5. Market for
Registrant's Common Equity and Related Stockholder Matters.
(c)The 1997 amounts are before the $1.06 extraordinary loss per share related
to the U.K. windfall tax.
29
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
1998(d) 1997 (e) 1996 (e) 1995 (e) 1994 (e)
------- -------- -------- -------- --------
PSCo (In thousands, except per share data & ratio)
<S> <C> <C> <C> <C> <C>
Operating revenues:
Electric.................. $1,635,573 $1,485,196 $1,488,990 $1,449,096 $1,399,836
Gas....................... 640,064 733,091 640,497 624,585 624,922
Other..................... 8,449 11,356 7,951 7,010 7,517
------- ------ ----- ------ ------
Total.................. 2,284,086 2,229,643 2,137,438 2,080,691 2,032,275
Total operating expenses..... 1,952,068 1,892,290 1,812,902 1,784,784 1,786,592
Operating income............. 332,018 337,353 324,536 295,907 245,683
Income before extraordinary item 200,103 204,042 190,346 178,856 170,269
Extraordinary item - U.K.
windfall tax - (110,565) - - -
Net income................... 200,103 93,477 190,346 178,856 170,269
Total assets................. 5,177,636 4,998,875 4,572,648 4,351,789 4,207,832
Total common equity.......... 1,627,332 1,625,541 1,438,288 1,343,645 1,267,482
Preferred stock:
Not subject to mandatory
redemption ................ - 140,002 140,008 140,008 140,008
Subject to mandatory
redemption at par (including
amounts due within one year) - 41,829 42,489 43,865 45,241
PSCo obligated mandatorily
redeemable preferred
securities................. 194,000 - - - -
Long-term debt
(including amounts due
within one year) ........ 1,687,611 1,595,298 1,414,558 1,278,389 1,180,580
Notes payable & commercial paper 402,795 348,555 244,725 288,050 324,800
- -----------------
</TABLE>
(d)The 1998 information includes NCI through March 31, 1998, at which time it
was sold to NC Enterprises.
(e)The 1994 through 1997 information includes Cheyenne, WGI, e prime, and
Natural Fuels through July 31, 1997. These subsidiaries were transferred by
dividend to NCE in connection with the Merger.
<TABLE>
<CAPTION>
Year ended December 31, Transition Year Ended August 31,
1998 1997 Period 1996 1995 1994
--------- -------- -------- -------- --------- ------
SPS (f) (In thousands, except per share data & ratio)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Electric................ $ 951,187 $ 960,355 $ 295,579 $ 899,397 $ 834,083 $ 843,448
Other................... - 18,928 10,701 32,403 47,434 34,575
------- ------- ------ ------- ------- ------
Total................ 951,187 979,283 306,280 931,800 881,517 878,023
Total operating expenses... 785,508 820,002 252,299 780,758 723,485 738,304
Operating income........... 165,679 159,281 53,981 151,042 158,032 139,719
Net income................. 114,987 75,575 19,137 105,773 119,477 102,168
Total assets............... 2,129,864 2,188,736 2,044,799 1,997,817 1,909,005 1,821,235
Total common equity........ 738,220 698,390 731,752 735,119 720,752 696,172
Preferred stock, not subject
to mandatory redemption... - - - - 72,680 72,680
SPS obligated mandatorily
redeemable preferred
securities................. 100,000 100,000 100,000 100,000 - -
Long-term debt
(including amounts due
within one year)........ 620,731 620,771 635,631 638,107 582,552 523,228
Notes payable & commercial
paper .................... 94,162 179,404 53,836 69,624 - 14,944
- -----------------
</TABLE>
(f)The 1994 through 1997 information includes UE and Quixx through July 31,
1997. These subsidiaries were transferred by sale to NC Enterprises in
connection with the Merger.
30
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (NCE,PSCo and SPS)
Competition and Industry Outlook
The business and regulatory environment in the utility industry that has
existed for decades is continuing to change. Competition is increasing,
particularly in energy supply and retail energy services. Several states in the
U.S. have either passed or proposed legislation that provides for retail
electric competition and price deregulation of energy supply. The wholesale
electric energy market has expanded and geographic boundaries are no longer
barriers. Increased activity by power marketers and traders has added new
dimensions of complexity and risk. A significant amount of electric generation
assets have been purchased, sold or traded in the U.S. during 1998 and this
trend is expected to continue. Consolidation and globalization is a continuing
trend as businesses position themselves for competition in an unbundled energy
industry. The Company continues to look for opportunities to expand its customer
base as an energy service provider and on an ongoing basis evaluates merger,
acquisition and divestiture opportunities.
Electric prices in the Company's service territories are low in comparison
to other parts of the U.S. State legislatures and state utility commissions in
the retail jurisdictions served by the Company's utility subsidiaries are
focusing on the restructuring and deregulation of the electric utility industry,
however, no significant progress was achieved during 1998. The Company supports
a fair and orderly transition to a competitive environment and believes that any
restructuring plans should provide the Company with an opportunity to recover
its costs for prudently incurred utility investments and contractual commitments
that may be uneconomic in the future. Overall, the Company believes that the
prices its utility subsidiaries charge for electricity and the quality and
reliability of their service currently place them in a position to compete
effectively in the energy market. The potential negative financial impacts of
deregulation, however, could include an impairment of assets, a loss of retail
customers, lower profit margins and increased costs of capital (see Note 1.
Summary of Significant Accounting Policies in Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA). At this time, the Company and its utility subsidiaries
cannot predict when they will be subject to changes in legislation or
regulation, nor can they predict the impacts of such changes on their financial
position, results of operations or cash flows.
Corporate Overview - 1998
The Company completed its first full year of operations since the merger
of PSCo and SPS which was effective August 1, 1997. The primary focus in 1998
has been on providing customers with reliable energy service, controlling costs
to maintain low prices for customers and to earn an adequate return for
shareholders. Customers benefited from electric rate reductions resulting from
shared savings under a performance based regulatory plan in Colorado and the
pass through of lower fuel costs in several jurisdictions. Strong customer
growth in its service territories and aggressive cost control efforts continue
to help keep gas and electric rates among the lowest in the industry. In
connection with various state regulatory and legislative initiatives, the
Company is evaluating its potentially stranded costs. The issues related to
determining stranded costs are very complex and dependent upon the future
changes in legislation or regulation. However, at this time the Company believes
that its risks related to this matter are relatively low. Risk management
initiatives were further implemented this year to better manage exposures to
changes in market risks and to better position the Company for the future.
Additionally, Yorkshire Power provided a solid contribution to earnings for the
year demonstrating the value of some strategic international diversification.
The Company has organized into business units as part of its strategy for
future growth. These business units, consisting of Energy Supply, Retail,
Delivery and International have made significant progress in developing business
plans focused on the corporate priorities to profitably grow the Company. In
1999, the Company will continue to further develop and implement the business
unit infrastructure, including business systems and regulatory strategies. The
deployment of this strategy will be an important step toward creating
shareholder value and preparing the Company for the year 2000 and beyond.
31
<PAGE>
Earnings
Basic earnings per share were $3.06 (diluted earnings per share were
$3.05), $1.44 ($2.50 before the extraordinary item) and $2.64 during 1998, 1997
and 1996, respectively. The increase in 1998 earnings was primarily attributed
to increased electricity sales during the hot summer months with continued
strong customer growth in Colorado. Improved earnings from NCE's investment in
Yorkshire Power, also contributed positively to the higher 1998 earnings. The
significant decrease in 1997 earnings, as compared to 1996, was primarily
attributable to the recognition of an extraordinary item related to the one-time
U.K. windfall tax of approximately $110.6 million, or $1.06 per share, however,
ongoing operations of Yorkshire Power positively impacted the Company's 1997
earnings. Earnings during 1997 and 1996 were negatively impacted by the
write-offs of certain investments in waste-to-energy cogeneration facilities,
higher merger and business integration costs resulting from the August 1, 1997,
closing of the Merger and electric rate decreases instituted in 1997 and 1996.
Electric Operations
The following table details the annual change in electric operating
revenues and energy costs as compared to the preceding year (in thousands).
Increase (Decrease)
From Prior Year
1998 1997
-------- --------
Electric operating revenues:
Retail...................................... $ 62,565 $ 20,350
Wholesale................................... 120,343 35,773
Non-regulated power marketing............... 51,656 15,055
Other (including unbilled revenues)......... (10,437) (14,358)
-------- --------
Total revenues............................. 224,127 56,820
Fuel used in generation...................... (27,494) 36,525
Purchased power.............................. 181,400 20,905
-------- --------
Net increase (decrease) in electric margin $ 70,221 $ (610)
======== ========
The following table summarizes electric Kwh sales by major customer
classes.
% Change *
Millions of Kwh Sales From Prior Year
1998 1997 1998 1997
---- ---- ---- ----
Residential ............................... 10,136 9,730 4.2% 2.1%
Commercial and Industrial ................ 27,666 27,014 2.4 1.7
Public Authority .......................... 841 774 8.7 (0.8)
------ -----
Total Retail............................. 38,643 37,518 3.0 1.8
Wholesale.................................. 15,948 11,495 38.7 13.5
Non-regulated Power Marketing.............. 2,917 1,210 ** **
------ -----
Total...................................... 57,508 50,223 14.5 5.9
====== ======
* Percentages are calculated using unrounded amounts.
** Percentage change is significant, but presentation of the amount is not
meaningful.
Electric margin increased during 1998, when compared to 1997, due
primarily to a 3.0% increase in total retail sales and a 14.5% increase in total
sales resulting from customer growth of 2.2% and hotter than normal weather
during the second and third quarters of 1998. In addition, PSCo's margin was
positively impacted by lower accruals of approximately $9.6 million for the
estimated customer refund obligation associated with the sharing of earnings in
excess of 11% return on equity in Colorado (see Note 9. Regulatory Matters in
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA). Higher wholesale and
non-regulated power marketing sales, reflecting marketing activities for
economy, short-term firm and off-system sales, contributed to increased
operating revenues, however, the margin on such sales was minimal. SPS's margin
was also positively impacted by $16.9 million in revenue recognized with the
settlement of a 1985 FERC rate case.
32
<PAGE>
Electric margin decreased slightly during 1997 when compared to 1996.
PSCo's retail rate reductions (approximately $15.4 million) implemented in
October 1996 and February 1997 and the recognition at PSCo of an estimated
customer refund obligation (approximately $16.4 million) in connection with the
earnings sharing in excess of 11% return on equity which resulted from the
settlement of the Merger proceedings in Colorado (see Note 9. Regulatory Matters
in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA) were primary
contributors to the decrease. Electric margin was also negatively impacted by
the recognition at SPS of an estimated customer refund obligation (approximately
$1.8 million) related to the guaranteed merger savings as well as interruptible
rates available to certain classes of retail and wholesale customers. An overall
1.8% increase in electric Kwh sales to retail customers, resulting primarily
from customer growth of 1.3% minimized the impact of these rate reductions.
Higher wholesale electric sales and power marketing activities by non-regulated
subsidiaries also contributed to increased operating revenues, however, the
margin on such sales is minimal
The Company's regulated subsidiaries have cost adjustment mechanisms which
recognize the majority of the effects of changes in fuel used in generation and
purchased power costs and allow recovery of such costs on a timely basis. As a
result, the changes in revenues associated with these mechanisms in 1998 and
1997, when compared to the respective preceding year, had little impact on net
income. In its decision on the Merger, the CPUC replaced PSCo's ECA with an ICA,
effective October 1, 1996, which allows for a 50%/50% sharing of certain fuel
and energy cost increases and decreases among customers and shareholders. For
1998 and 1997, the ICA did not significantly impact electric margin (see Note 9.
Regulatory Matters in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).
Fuel used in generation expense decreased approximately 4.1% during 1998,
as compared to 1997, primarily due to lower per unit cost of coal and natural
gas offset, in part, by increased generation levels at PSCo and SPS. Fuel used
in generation expense increased approximately 5.8% during 1997, as compared to
1996, primarily due to increased generation levels at PSCo and SPS, and higher
natural gas costs at SPS.
Purchased power expense increased 34.1% and 4.1% during 1998 and 1997,
respectively, as compared to the previous year. These increases are primarily
due to the amount of power purchased by PSCo and a non-regulated subsidiary
related to growth in wholesale marketing activities of gas trading and
non-trading operations.
Gas Operations
The following table details the annual change in gas revenues and gas
purchased for resale as compared to the preceding year (in thousands).
Increase (Decrease)
From Prior Year
1998 1997
-------- --------
Revenues from gas sales (including
unbilled revenues) ....................... $ 22,500 $172,340
Gas purchased for resale.................... 19,292 150,128
-------- --------
Net increase in gas sales margin........... 3,208 22,212
Transportation revenues..................... 2,180 3,759
-------- --------
Increase in net gas margin................ $ 5,388 $ 25,971
======== ========
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The following table compares gas dekatherm (Dth) deliveries by major
customer classes.
Millions of % Change *
Dth Deliveries From Prior Year
1998 1997 1998 1997
---- ---- ---- ----
Residential............................ 84.7 87.4 (3.1)% 1.5%
Commercial............................. 42.4 47.5 (10.8) (8.1)
Non-regulated gas marketing............ 70.6 59.6 18.4 **
------ ------
Total Sales.......................... 197.7 194.5 1.6 21.9
Transportation, gathering and processing 107.4 93.3 15.2 2.1
----- ----
Total................................ 305.1 287.8 6.0 14.7
====== ======
* Percentages are calculated using unrounded amounts
** Percentage change is significant, but presentation of the amount is not
meaningful
Gas sales margin increased slightly in 1998, when compared to 1997,
primarily due to an increase in PSCo's base revenues associated with a rate
increase effective February 1, 1997, offset in part, by lower PSCo retail sales
which resulted from warmer weather. Gas sales margin increased in 1997, when
compared to 1996, primarily due to an increase in PSCo's base revenues
associated with the higher rates, effective February 1, 1997, and an increase in
gas marketing activities by non-regulated subsidiaries. Per-unit gas costs were
lower in 1998 than 1997, however, the total cost of gas increased due to an
increase in the quantity purchased. Gas costs were higher during 1997, as
compared to 1996, as a result of higher per-unit gas prices throughout 1997.
Gas transportation revenues increased during 1998 and 1997, when compared
to the respective preceding years, primarily due to increases in deliveries and
higher transportation rates, effective February 1, 1997, resulting from PSCo's
1996 rate case. In addition, the shifting of various PSCo commercial customers
to firm transportation customers, some of which became retail customers of the
Company's non-regulated subsidiaries, contributed to the increases in both 1998
and 1997.
PSCo and Cheyenne have in place GCA mechanisms for natural gas sales,
which recognize the majority of the effects of changes in the cost of gas
purchased for resale and adjust revenues to reflect such changes in costs on a
timely basis. As a result, the changes in revenues associated with these
mechanisms during 1998 and 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.
Other Operating Revenues
Other operating revenues increased approximately $19.6 million and $12.6
million during 1998 and 1997, respectively, as compared the preceding year,
primarily due to higher revenues from diversified energy related businesses,
primarily engineering, design and construction management, energy management and
consulting services.
Non-Fuel Operating Expenses and Other Income and Deductions
Other operating and maintenance expenses increased $43.4 and $25.8 million
during 1998 and 1997, respectively, as compared to the same period in the
preceding year. The increase in 1998 was primarily due to higher operating costs
from non-regulated operations (approximately $34 million). The increase in
non-regulated operating and maintenance expenses is due to the acquisition of
subsidiaries and growth of existing businesses. The increase in operating and
maintenance costs in the Company's regulated operations (approximately $9
million) was primarily due to higher labor costs from wage rate increases,
increased contract labor costs, higher data processing costs, including Year
2000 related costs and additional transmission wheeling costs. Other operating
and maintenance expenses increased during 1997 due to the recognition of the
Thunder Basin judgement (approximately $12 million). The Thunder Basin judgment
did not impact earnings as the costs were included in
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the calculation of deferred revenue. The Company expects to recover these costs
through SPS's fixed fuel factor (see Note 9. Regulatory Matters in Item 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA). Also contributing to the 1997
increase was the favorable impact on 1996 earnings of the settlement agreement
with the DOE resolving all spent nuclear fuel storage and disposal issues at
Fort St. Vrain (approximately $16 million).
Depreciation and amortization expense increased $25.7 million in 1998 and
$18.2 million in 1997 primarily due to higher depreciation expenses from
property additions. The increase in 1998 also includes $7.6 million of
additional depreciation in connection with a settlement related to an SPS 1985
wholesale rate case.
Other income and deductions increased $59.0 million in 1998 and $7.3
million in 1997 when compared to the preceding year. The increase in 1998 was
primarily attributable to the absence of Merger expenses and the write-off of
investments in cogeneration projects and lower legal costs associated with
various employee lawsuits. The increase in 1997 was primarily due to equity in
earnings of Yorkshire Power ($34.9 million) offset, in part, by increases in
Merger expenses in 1997 and the recognition of a gain on the sale of water
rights by Quixx in 1996.
Interest charges and preferred dividends of subsidiaries decreased $1.8
million in 1998. Proceeds from the issuance of $250 million in long-term debt in
April 1998 were used, in part, to reduce short term-debt. Proceeds from the
November 1998 issuance of $117 million in common stock were used, primarily to
reduce short-term debt and other borrowings. Higher average levels of debt were
offset by lower average interest rates. Additionally, in May 1998, PSCo issued
$194 million of Trust Originated Preferred Securities ("TOPRS"). The proceeds
were used to redeem all of PSCo's outstanding preferred stock (totaling $181.8
million) on June 10, 1998. A redemption premium totaling approximately $2.1
million was incurred as part of this refinancing, however, the after-tax
financing costs associated with the TOPRS will be lower over the long-term.
Additionally, higher AFDC was recorded in 1998 as a result of higher
construction expenditures. In 1997, interest charges and preferred dividends of
subsidiaries increased $31.5 million primarily due to interest on borrowings
used to finance capital expenditures and the April 1997 investment in Yorkshire
Power. These financings included PSCo's issuance of medium-term notes and an
increased level of short-term borrowings by NCE and its subsidiaries.
Additionally, dividends on SPS obligated mandatorily redeemable preferred
securities of subsidiary trust increased due to the October 1996 issuance of
$100 million of these preferred securities.
Risk Management
NCE and its subsidiaries are exposed to market risks in both the energy
trading and non-trading operations. The objective of NCE's trading operations,
which were primarily initiated in 1998, is to generate profits while minimizing
the related exposure to changes in commodity prices. These operations include
the gas and power marketing and trading activities at e prime and the wholesale
power trading activities at PSCo and SPS. The objective of NCE's non-trading
activities is to protect the Company's profitability. These operations include
the retail gas business at e prime, the gas distribution and electricity load
management activities at PSCo in addition to the normal operations of the
Company. The market risks mentioned above include changes in commodity prices,
interest rates, and currency exchange rates. Due to cost-based rate regulation,
NCE's regulated subsidiaries have limited exposure to commodity price and
interest rate risk.
The Company manages these market risks through various policies and
procedures that allow for the use of various instruments in the energy and
financial markets. Risk management activities are monitored by the Company's
Risk Management Compliance Committee, whose responsibilities include reviewing
NCE and its subsidiaries' overall risk management strategy and monitoring risk
management activities to ensure compliance with risk management limitations,
policies and procedures.
Commodity Price Risk
NCE continued to develop and expand its gas and power marketing and
trading activities during 1998 and management expects to continue the growth of
these activities during 1999. As a result, the Company's exposure to changes in
commodity prices may increase and NCE may experience earnings volatility. To
manage
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<PAGE>
exposure to price volatility in the natural gas and electricity markets, a
variety of energy contracts, both financial and commodity based are utilized as
hedges. These contracts consist mainly of commodity futures and options, index
or fixed price swaps and basis swaps and are used by both the trading and
non-trading operations.
NCE measures its open exposure to commodity price changes separately for
the trading and non-trading operations using a Value-at-Risk ("VaR") methodology
to quantify the estimates of the magnitude and probability of potential future
losses related to open contractual positions. VaR expresses the potential loss
in fair value of all open forward contract and option positions over a
particular period of time, with a specified likelihood of occurrence. The model
employs a 95 percent confidence level based on historical price movement for a
holding period of 30 days. As of December 31, 1998, the calculated VaR was as
follows (in thousands):
NCE PSCo
--- ----
Natural gas marketing & trading activities ..... $ 29 $ -
Power marketing & trading activities ........... 307 291
Natural gas non-trading activities.............. 312 -
Power non-trading activities.................... 1,159 1,159
On a thirty-day holding period as of December 31, 1998, the VaR for NCE
does not exceed $1.3 million.
Interest Rate Risk
NCE and its subsidiaries have both long-term and short-term debt
instruments that subject the Company and certain of its subsidiaries to the risk
of loss associated with movements in market interest rates. This risk is limited
for NCE's regulated companies primarily due to cost based rate regulation.
Except for one interest rate swap agreement entered into by SPS, the Company is
not currently utilizing financial instruments to manage its exposure to interest
rate fluctuations. In the future, management anticipates utilizing financial
instruments to manage its exposure to changes in interest rates. These
instruments may include interest rate swaps, caps, collars and exchange-traded
futures contracts and put or call options on U.S.
Treasury securities.
As of December 31 1998, a 100 basis point change in each outstanding
debt's instrument benchmark rate would impact net income of NCE, PSCo and SPS by
approximately $5.8 million, $2.9 million and $2.1 million, respectively. If
interest rates were to decline by 10% from their levels at December 31, 1998,
the corresponding increase in fair value of $69 million at NCE and its
subsidiaries, $53 million at PSCo and its subsidiaries and $15 million at SPS
would impact earnings and cash flows only if the Company and its subsidiaries
were to reacquire all or a portion of these instruments in the open market prior
to their maturity.
Currency Exchange Risk
NCE's investment in Yorkshire Power, a foreign currency denominated joint
venture, also exposes the Company to currency translation rate risk. At December
31, 1998 and 1997, the Company's exposure to changes in foreign currency
exchange rates is not material to its consolidated financial position, results
of operations or cash flows. The Company does not presently utilize financial
instruments to manage its exposures to foreign currency exchange rate movements.
Credit Risk
In addition to the risks discussed above, NCE and its subsidiaries are
exposed to credit risk in its risk management activities. Credit risk relates to
the risk of loss resulting from the nonperformance of a counterparty of its
contractual obligations. As the Company continues to expand its gas and power
marketing and trading activities, the Company's exposure to credit risk and
counterparty default may increase. NCE and its subsidiaries maintain credit
policies intended to minimize overall credit risk.
36
<PAGE>
NCE and its subsidiaries conduct standard credit reviews for all of its
counterparties. The Company employs additional credit risk control mechanisms
when appropriate, such as letters of credit, parental guarantees and
standardized master netting agreements that allow for offsetting of positive and
negative exposures. The credit exposure is monitored and, when necessary, the
activity with a specific counterparty is limited until credit enhancement is
provided.
Commitments and Contingencies
Issues relating to regulatory and environmental matters are discussed in
Notes 9 and 10 in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. These
matters and the future resolution thereof may impact the Company's future
results of operations, financial position or cash flows.
Year 2000 Issue
The Year 2000 ("Y2K") issue is a result of a universal programming
standard that records dates as six digits, e.g., mm/dd/yy, using only the last
two digits for the year. Any automated system software or firmware that uses
two-digit fields could understand the year 2000 as the year 1900 if the issue is
not corrected. This situation is not limited to computers; it has the potential
to affect many systems, components and devices, which have embedded computer
chips, which may be, date sensitive. The Y2K issue could result in a major
system failure or miscalculations and does impact many NCE systems considered
critical or important to the Company's business operations. Systems posing the
greatest business risks to the Company include power generation and distribution
systems, telecommunications systems, energy trading systems and billing systems.
The Company is addressing all potential Y2K failure points identified in its
critical automated systems to maintain service to its customers and to mitigate
legal and financial risks.
In 1997, the Company established the Y2K Program Office to oversee all
corporate-wide Y2K initiatives. These initiatives encompass all computer
software, embedded systems, as well as contingency planning. Teams of internal
and external specialists were established to inventory and assess and test
critical computer programs and automated operational systems and modify those
that may not be Y2K compliant. The inventory phase and assessment phase for
information technology ("IT") systems were completed in 1998. Additionally,
approximately 77% of the remediation and testing phase for all critical IT
systems was completed in 1998 with the remaining remediation and testing planned
to be completed by June 30, 1999. For non-IT systems, which exist primarily in
the generation, transmission and distribution areas of the business, the
inventory and assessment phases are complete. Remediation and testing for non-IT
systems were approximately 46% complete at December 31, 1998, with the remainder
expected to be completed by September 30, 1999. Systems critical to the
generation and delivery of energy are expected to be completed by June 30, 1999.
The Company has identified third parties, with which it has material
business relationships including interconnected utilities, telecommunications
service providers, fuel and water suppliers, equipment suppliers, leased
facilities and financial institutions. Subject matter experts, along with
functional managers, continue to evaluate the current list of third parties and
have ongoing discussions with these and other critical suppliers about their Y2K
readiness and contingency planning efforts.
The Company currently expects to incur costs of approximately $25 million
to modify its computer software, hardware and other automated systems used in
operations enabling proper data processing relating to the year 2000 and beyond.
This includes approximately $19 million for inventory, assessment, remediation
and testing and approximately $6 million for the replacement of automated system
components. Furthermore, the Company expects to spend approximately $15 million
for the accelerated replacement of certain non-compliant IT systems, which are
expected to be implemented by September 30, 1999. The majority of all Y2K costs
will be incurred by PSCo and SPS. A significant portion of the costs incurred to
address the Company's Y2K issues will represent the redeployment of existing
information technology resources. The table below details the actual costs
incurred through December 31, 1998, and the estimated costs to be incurred
during 1999 (in millions).
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<PAGE>
Actual Costs Estimated Estimated
1998 and Prior 1999 Total
-------------- ---- -----
Operating expenses....................... $ 8.2 $11.1 $19.3
Capital expenditures .................... 7.1 13.4 20.5
Yorkshire Power has also undertaken activities to address Y2K issues. The
estimated proportionate share of Yorkshire Power's incremental Y2K costs (costs
which would not have been required in the normal course of business) that will
flow through to the Company's earnings as a result of such activities is not
expected to have a material impact on the financial condition or results of
operations of the Company.
The most reasonably likely worst case scenario resulting during Y2K
critical dates is a loss of production capacity from certain of the Company's
generating units, along with loss of a portion of the communication system that
is critical to generation and distribution control. If this were to occur, the
Company's operating utilities may be required to "island" (separate from
neighboring interconnected utilities) their generation and distribution systems
in their service territories. As part of this scenario, difficulty could be
encountered with the restart of generating units. The overall blackout recovery
plan for NCE is designed so that this most reasonably likely worst case scenario
would be addressed and electricity restored. Critical components of this plan
have been and continue to be tested to provide assurance that the Company will
be prepared for risks which could result from the Y2K millennium change.
If correction or replacement of non-compliant systems are not completed on
a timely basis, the Y2K issues may have a material impact on the operations of
the Company and its subsidiaries. Management, however, 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.
Tax Matters
PSRI, a subsidiary of PSCo, owns and manages permanent life insurance
policies on certain past and present employees. These corporate owned life
insurance ("COLI") policies were entered into prior to July 1, 1986. In 1996,
Congress passed legislation to phase out the tax benefits with certain COLI
policies, however, the Company's policies were grandfathered under this
legislation. In August 1998, the IRS issued a Notice of Proposed Adjustment
proposing to disallow the 1993 and 1994 deductions of interest expense related
to policy loans on the COLI policies totaling approximately $54.6 million. A
Request for Technical Advice was filed with the IRS National Office on January
15, 1999, with respect to the proposed adjustment.
Management plans to vigorously contest this issue. PSCo has not recorded
any provision for income tax or interest expense related to this matter.
Management believes that the Company's tax deduction of interest expense on life
insurance policy loans was in full compliance with IRS regulations and believes
that the resolution of this matter will not have a material adverse impact on
PSCo's financial position, results of operations or cash flows.
Common Stock Dividend
During 1998, the Company declared common stock dividends totaling $2.32
per share. The Company's common stock dividend level is dependent upon the
Company's results of operations, financial position, cash flows and other
factors. The Board of Directors of the Company will continue to evaluate the
common stock dividend on a quarterly basis.
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<PAGE>
Liquidity and Capital Resources
Cash Flows
1998 1997 1996
---- ---- ----
Net cash provided by operating
activities (in millions) ................ $659.5 $344.4 $481.2
Cash provided by operations increased in 1998, when compared to 1997,
primarily due to higher earnings from utility operations and a decrease in
payments to gas suppliers resulting from lower gas costs during 1998.
Additionally, 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 during
1998. Cash provided by operating activities decreased in 1997, when compared to
1996, primarily due to the SPS payment of the Thunder Basin judgment and an
increase in payments to gas suppliers resulting from the higher gas costs in
late 1996 and early 1997. A portion of these lower gas costs incurred in 1998
and higher gas costs incurred in 1997 have been deferred through PSCo's GCA and
will be paid to or recovered from customers in the future.
1998 1997 1996
---- ---- ----
Net cash used in investing
activities (in millions) ................ $614.0 $856.4 $443.2
Cash used in investing activities decreased during 1998, when compared to
1997, primarily due to the investment in Yorkshire Power in 1997, partially
offset by higher 1998 construction expenditures and the acquisition of Planergy.
Cash used in investing activities increased during 1997, when compared to 1996,
primarily due to the equity investment in Yorkshire Power for approximately $360
million and the 1996 sale by Quixx of certain water rights. Construction
expenditures also increased in 1997 when compared to the preceding year.
1998 1997 1996
---- ---- ----
Net cash (used in) provided by
financing activities (in millions) ...... $(61.5) $534.6 $(16.3)
Cash provided by financing activities decreased during 1998, when compared
to 1997, primarily due to PSCo's issuance of debt in early 1997 to finance the
investment in Yorkshire Power. In November 1998, the Company issued $117 million
in common stock and in April 1998, PSCo's issued $250 million of long-term
bonds. Proceeds from the 1998 financings were primarily used to reduce
short-term debt and other corporate purposes. In May 1998, PSCo issued $194
million of Trust Originated Preferred Securities. The proceeds were used to
redeem all of PSCo's outstanding preferred stock (totaling $181.8 million) on
June 10, 1998. Cash provided by financing activities increased during 1997, when
compared to 1996, primarily due to NCE's issuance of common stock in December
1997 and PSCo's issuance of medium-term notes. The proceeds from the $75 million
financing by PSCo in January 1997 were used to fund its construction program.
The proceeds from the issuance of $250 million medium-term notes by PSCo in
March 1997, together with additional borrowings of approximately $110 million on
its short-term lines of credit, were used to fund the investment in Yorkshire
Power. An increase in recoverable purchased gas and electric energy costs and
reduced cash flows resulting from lower electric rates, coupled with increased
merger and business integration costs, required PSCo to temporarily utilize the
additional short-term borrowings to finance ongoing construction expenditures.
39
<PAGE>
Prospective Capital Requirements
The estimated cost as of December 31, 1998 of the construction programs of
the Company and its subsidiaries and other capital requirements for the years
1999, 2000 and 2001 are shown in the table below (in millions):
1999 2000 2001
------- ------ ------
Electric
Production *........................ $ 163 $ 134 $ 79
Transmission........................ 44 107 92
Distribution........................ 188 170 181
Gas .................................... 82 82 85
General and non-utility subsidiaries.... 155 117 128
------- ------ ------
Total construction expenditures... 632 610 565
Less: Allowance for funds used during
construction 20 17 18
Add: Sinking funds and debt maturities.. 192 35 143
------- ------ ------
Total capital requirements.............. $ 804 $ 628 $ 690
======= ====== ======
* Capital requirements for 1999 Electric Production include approximately $72
million for emission control equipment and environmental projects.
The construction programs of the Company's subsidiaries are subject to
continuing review and modification. In particular, actual construction
expenditures may vary from the estimates due to changes in the electric system
projected load growth, the desired reserve margin and the availability of
purchased power, as well as alternative plans for meeting the Company's
long-term energy needs. In addition, the Company's ongoing evaluation of merger,
acquisition and divestiture opportunities to support corporate strategies and
future requirements to install emission control equipment may impact actual
capital requirements (see Note 10. Commitments and Contingencies - Environmental
Issues in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).
Capital Sources
At December 31, 1998, the Company and its subsidiaries estimate that their
1999-2001 capital requirements will be met with a combination of funds from
external sources and funds from operations. The Company and its subsidiaries may
meet their external capital requirements through the sale of common stock by
NCE, the issuance by NCE and its subsidiaries of secured and unsecured long-term
and short-term debt and the sale of other securities. The financing needs are
subject to continuing review and can change depending on market and business
conditions and changes, if any, in the construction programs and other capital
requirements of the Company and its subsidiaries.
Registration Statements
The Company has an effective registration statement covering the issuance
of 10 million shares of common stock to be issued under the Company's Dividend
Reinvestment and Cash Payment Plan ("Dividend Reinvestment Plan"). Any proceeds
received by the Company will be used for general corporate purposes. This
program allows for either the purchase of shares on the open market or the
issuance of new shares. The Dividend Reinvestment Plan allows the Company's
shareholders to purchase additional shares of the Company's common stock through
the reinvestment of cash dividends and the purchase of additional shares of
common stock with optional cash payments. As of December 31, 1998, approximately
8.8 million shares were available for issuance.
Subsidiary Registration Statement
SPS has an effective shelf registration statement under which $220 million
of debt securities and/or preferred stock are available for issuance, a portion
of which is still subject to state utility commission approval.
40
<PAGE>
Short-Term Borrowing Arrangements
NCE has a $225 million credit facility with several banks that provides
for $200 million of direct borrowings by NCE and $25 million by Cheyenne.
PSCo and its subsidiaries have available committed lines of credit to meet
their short-term cash requirements. PSCo and its subsidiaries have a credit
facility with several banks which provides $300 million in committed bank lines
of credit and is used primarily to support the issuance of commercial paper by
PSCo and PSCCC, and to provide for direct borrowings thereunder. At December 31,
1998, this facility was fully drawn. Generally, the banks participating in the
credit facility would have no obligation to continue their commitments if there
has been a material adverse change in the consolidated financial condition,
operations, business or otherwise that would prevent PSCo and its subsidiaries
from performing their obligation under the credit facility. This facility
expires on November 17, 2000. PSCo also has available a $150 million line of
credit which expires on June 25, 1999. At December 31, 1998, approximately $47.2
million of this facility remained unused.
PSCCC may periodically issue medium-term notes to supplement the financing
or purchase of PSCo's customer accounts receivable and fossil fuel inventories.
As of December 31, 1998, PSCCC had issued and had outstanding $100 million in
medium-term notes. The level of financing of PSCCC is tied directly to daily
changes in the level of PSCo's outstanding customer accounts receivable and
monthly changes in fossil fuel inventories and will vary minimally from
year-to-year although seasonal fluctuations in the level of assets will cause
corresponding fluctuations in the level of associated financing.
SPS has available a $200 million committed line of credit, expiring
February 26, 1999. This credit facility, which is being renewed, is primarily
used to support commercial paper issued by SPS. At December 31, 1998, SPS had
$86 million in commercial paper outstanding and $114 million was available under
this line of credit.
Accounting Pronouncements Issued But Not Yet Effective
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 to
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, PSCo or SPS.
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 on January 1, 1999.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities". This statement requires companies to expense incurred costs for
start-up activities, including organizational 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 FASB issued SFAS 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.
41
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Item 7a. Quantitative and Qualitative Disclosure About Market Risk (NCE,
PSCo, and SPS)
Reference is made to the "Risk Management" section in Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (NCE,
PSCo and SPS).
42
<PAGE>
Item 8. Financial Statements and Supplementary Data (NCE)
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Board of Directors of the Company addresses its oversight responsibility for
the consolidated financial statements through its Audit Committee. The Audit
Committee meets regularly with the independent public accountants and the
internal auditor to discuss results of their audit work and their evaluation of
the adequacy of the internal controls and the quality of financial reporting.
In fulfilling its responsibilities in 1998, the Audit Committee recommended to
the Board of Directors, subject to shareholder approval, the selection of the
Company's independent public accountants. The Audit Committee reviewed the
overall scope and specific plans of the independent public accountants' and
internal auditor's respective audit plans, and discussed the independent public
accountants' management letter recommendations, approved their general audit
fees, and reviewed their non-audit services to the Company.
The committee meetings are designed to facilitate open communications among
Company management, internal auditing, independent public accountants and the
Audit Committee. To ensure auditor independence, both the independent public
accountants and internal auditor have full and free access to the Audit
Committee.
Danny H. Conklin, Chairman
Audit Committee
February 23, 1999
43
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REPORT OF MANAGEMENT
The accompanying financial statements of New Century Energies, Inc. and
subsidiaries have been prepared by Company personnel in conformity with
generally accepted accounting principles consistent with the Uniform System of
Accounts of the Federal Energy Regulatory Commission. The integrity and
objectivity of the data in these financial statements are the responsibility of
management. Financial information contained elsewhere in this Annual Report on
Form 10-K is consistent with that in the financial statements.
The accompanying financial statements have been audited by independent public
accountants. Management has made available to its independent public accountants
all the Company's and its subsidiaries' financial records and related data and
has provided to them representations we believe to be valid and appropriate.
The Company maintains a system of internal control over financial reporting,
including the safeguarding of assets against unauthorized acquisition, use or
disposition, which is designed to provide reasonable assurance to the Company's
management and Board of Directors regarding the preparation of reliable
published financial statements and such asset safeguarding. The system includes
a documented organizational structure and division of responsibility,
established policies and procedures including a code of conduct to foster a
strong ethical climate, which are communicated throughout the Company, and the
careful selection, training and development of our people. Internal auditors
monitor the operation of the internal control system and report findings and
recommendations to management and the Audit Committee of the Board of Directors,
and corrective actions are taken to address control deficiencies and other
opportunities for improving the system as they are identified. The board,
operating through its Audit Committee, which is composed entirely of directors
who are not officers or employees of the Company, provides oversight to the
financial reporting process.
There are inherent limitations in the effectiveness of any system of internal
control, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even an effective internal control system
can provide only reasonable assurance with respect to financial statement
preparation. Further, because of changes in conditions, internal control system
effectiveness may vary over time.
The Company assessed its internal control system as of December 31, 1998 in
relation to criteria for effective internal control over financial reporting
described in "Internal Control - Integrated Framework" issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on the results of
its assessment, the Company believes that, as of December 31, 1998, the
Company's system of internal control over external financial reporting,
including the safeguarding of assets against unauthorized acquisition, use or
disposition, met those criteria.
Teresa S. Madden Bill D. Helton
Principal Accounting Officer Chief Executive Officer
February 23, 1999
44
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO NEW CENTURY ENERGIES, INC.:
We have audited the consolidated balance sheets of New Century Energies, Inc. (a
Delaware corporation) and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits. We did not audit
the consolidated financial statements of Southwestern Public Service Company for
the year ended December 31, 1996, included in the consolidated financial
statements of New Century Energies, Inc., which statements reflect total
revenues constituting 31% in 1996, of the related consolidated totals. Those
statements were audited by other auditors whose report thereon has been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for Southwestern Public Service Company, is based solely upon
the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of New Century Energies, Inc. and its
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 23, 1999
45
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
December 31, 1998 and 1997
ASSETS
1998 1997
---- ----
Property, plant and equipment, at cost:
Electric .......................................... $7,097,070 $6,703,863
Gas................................................ 1,210,605 1,136,231
Steam and other.................................... 111,620 120,322
Common to all departments.......................... 423,287 437,636
Construction in progress........................... 391,100 318,124
------- -------
9,233,682 8,716,176
Less: accumulated depreciation .................... 3,351,659 3,182,800
--------- ---------
Total property, plant and equipment.............. 5,882,023 5,533,376
--------- ---------
Investments, at cost:
Investment in Yorkshire Power and other
unconsolidated subsidiaries (Note 2)............. 340,874 299,458
Other.............................................. 64,562 71,411
------- ------
Total investments................................. 405,436 370,869
------- -------
Current assets:
Cash and temporary cash investments................ 56,667 72,623
Accounts receivable, less reserve for uncollectible
accounts ($4,842 at December 31, 1998; $5,355
at December 31, 1997)............................ 319,145 315,539
Accrued unbilled revenues.......................... 130,455 110,877
Recoverable purchased gas and electric energy
costs - net ..................................... 66,154 129,292
Materials and supplies, at average cost............ 69,298 68,411
Fuel inventory, at average cost.................... 24,653 23,162
Gas in underground storage, at cost (LIFO)......... 52,624 47,394
Prepaid expenses and other......................... 83,561 56,868
------- ------
Total current assets.............................. 802,557 824,166
------- -------
Deferred charges:
Regulatory assets (Note 1)......................... 381,632 430,475
Unamortized debt expense .......................... 27,408 20,833
Other.............................................. 172,908 141,947
------- -------
Total deferred charges............................ 581,948 593,255
------- -------
$7,671,964 $7,321,666
========== ==========
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
46
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
December 31, 1998 and 1997
CAPITAL AND LIABILITIES
1998 1997
---- ----
Common stock (Note 4)................................ $1,866,386 $1,694,195
Retained earnings.................................... 740,677 659,050
Accumulated comprehensive income..................... 7,764 4,142
------- ------
Total common equity.............................. 2,614,827 2,357,387
Preferred stock of subsidiaries (Note 4):
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 5).......................................... 294,000 100,000
Long-term debt of subsidiaries (Note 6).............. 2,205,545 1,987,955
--------- ---------
5,114,372 4,624,597
Noncurrent liabilities:
Employees' postretirement benefits other than
pensions (Note 12) ................................ 61,732 62,716
Employees' postemployment benefits (Note 12)....... 31,326 27,953
------- ------
Total noncurrent liabilities...................... 93,058 90,669
------- ------
Current liabilities:
Notes payable and commercial paper (Note 7)........ 524,394 588,343
Long-term debt due within one year................. 138,165 257,469
Preferred stock subject to mandatory redemption
within one year ................................. - 2,576
Accounts payable................................... 285,080 298,469
Dividends payable.................................. 69,271 68,296
Recovered electric energy costs - net.............. 18,760 -
Customers' deposits................................ 30,793 27,993
Accrued taxes...................................... 85,384 66,587
Accrued interest................................... 50,229 52,615
Current portion of accumulated deferred income
taxes (Note 13) ................................. 2,031 27,391
Other.............................................. 120,716 94,623
------- ------
Total current liabilities......................... 1,324,823 1,484,362
--------- ---------
Deferred credits:
Customers' advances for construction............... 55,400 53,041
Unamortized investment tax credits ................ 100,925 106,147
Accumulated deferred income taxes (Note 13)........ 947,247 922,341
Other.............................................. 36,139 40,509
------- ------
Total deferred credits............................ 1,139,711 1,122,038
--------- ---------
Commitments and contingencies (Notes 9 and 10)........ ---------- ----------
$7,671,964 $7,321,666
========== ==========
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
47
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars, Except per Share Data)
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
---- ---- ----
Operating revenues:
Electric................................ $2,697,486 $2,473,359 $2,416,539
Gas..................................... 841,276 816,596 640,497
Other................................... 72,143 52,570 39,998
------- ------- ------
3,610,905 3,342,525 3,097,034
Operating expenses:
Fuel used in generation................... 644,311 671,805 635,280
Purchased power........................... 712,887 531,487 510,582
Cost of gas sold.......................... 562,583 543,291 393,163
Other operating and maintenance expenses.. 637,743 594,359 568,581
Depreciation and amortization............. 268,743 243,078 224,865
Taxes (other than income taxes) .......... 134,137 129,280 128,980
------- ------- -------
2,960,404 2,713,300 2,461,451
--------- --------- ---------
Operating income............................ 650,501 629,225 635,583
Other income and deductions:
Merger expenses........................... (790) (34,088) (21,107)
Write-off of investments in cogeneration
projects (Note 3) ...................... - (16,052) (15,546)
Equity in earnings of Yorkshire Power and
other unconsolidated subsidiaries (Note 2) 36,101 34,166 389
Miscellaneous income and deductions - net.. (3,460) (11,215) 1,771
------ ------- ------
31,851 (27,189) (34,493)
Interest charges and preferred dividends
of subsidiaries:
Interest on long-term debt................. 168,184 165,560 144,067
Other interest............................. 31,069 32,389 23,479
Allowance for borrowed funds used during
construction ............................ (17,347) (10,921) (5,945)
Dividends on PSCo and SPS obligated
mandatorily redeemable preferred
securities of subsidiary trusts holding
solely subordinated debentures of PSCo
and SPS ................................. 17,561 7,850 1,526
Dividend requirements and redemption premium
on preferred stock of subsidiaries ...... 5,332 11,752 11,969
----- ------ ------
204,799 206,630 175,096
------- ------- -------
Income before income taxes and
extraordinary item ......................... 477,553 395,406 425,994
Income taxes (Note 13)........................ 135,596 133,919 153,653
------- ------- -------
Income before extraordinary item.............. 341,957 261,487 272,341
Extraordinary item - U.K. windfall tax (Note 2). - (110,565) -
------- -------- ------
Net income.................................... $341,957 $150,922 $272,341
======== ======== ========
Weighted average common shares outstanding:
Basic...................................... 111,859 104,805 103,059
Diluted.................................... 112,008 104,872 103,102
Earnings per share of common stock outstanding
- Basic:
Income before extraordinary item........... $3.06 $2.50 $2.64
Extraordinary item......................... - (1.06) -
---- ----- -----
Net income................................. $3.06 $1.44 $2.64
===== ===== =====
Earnings per share of common stock outstanding
- Diluted:
Income before extraordinary item........... $3.05 $2.50 $2.64
Extraordinary item......................... - (1.06) -
----- ----- -----
Net income................................. $3.05 $1.44 $2.64
===== ===== =====
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
48
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Thousands of Dollars, Except Share Information)
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Accumulated
Other
Common Stock, $1 par value Paid Retained Comprehensive
Shares Amount in Capital Earnings Income Total
------ ------ ---------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996.. 102,230,141 $ 102,230 $1,243,278 $ 726,065 $ - $2,071,573
Net income/Comprehensive
income ................... - - - 272,341 - 272,341
Dividends declared on common
stock .................... - - - (225,130) - (225,130)
Issuance of common stock:
Employees' Savings Plan .. 274,934 275 9,519 - - 9,794
Dividend Reinvestment Plan 809,603 810 27,818 - - 28,628
Incentive Compensation Plans 58,346 58 1,661 - - 1,719
Acquisitions (Note 3) .... 317,748 318 10,882 - - 11,200
Other....................... - - - (85) - (85)
------- ------ ------- ------- ------- -------
Balance at December 31, 1996 103,690,772 103,691 1,293,158 773,191 - 2,170,040
Comprehensive income:
Net income................ - - - 150,922 - 150,922
Foreign currency translation
adjustment ............. - - - - 4,142 4,142
-----
Comprehensive income
(Note 1) ............ 155,064
Dividends declared on common
stock ................... - - - (264,957) - (264,957)
Issuance of common stock:
Employees' Savings Plan .. 250,058 250 9,518 - - 9,768
Dividend Reinvestment Plan 818,783 819 32,512 - - 33,331
Incentive Compensation Plans 89,688 89 2,765 - - 2,854
Stock offering proceeds, net
(Note 4) .................. 5,900,000 5,900 245,493 - - 251,393
Other......................... - - - (106) - (106)
------- ------ ------- ------- ------- -------
Balance at December 31, 1997 110,749,301 110,749 1,583,446 659,050 4,142 2,357,387
Comprehensive income:
Net income.......... - - - 341,957 - 341,957
Foreign currency translation
adjustment - - - - 3,622 3,622
-----
Comprehensive income (Note 1) 345,579
Dividends declared on common stock - - - (260,330) - (260,330)
Issuance of common stock:
Employees' Savings Plan 222,387 222 10,146 - - 10,368
Dividend Reinvestment Plan 825,005 825 37,198 - - 38,023
Incentive Compensation Plans 194,079 195 6,605 - - 6,800
Stock offering proceeds, net
(Note 4) 2,500,000 2,500 114,500 - - 117,000
--------- ----- ------- ----- ----- -------
Balance at December 31, 1998 114,490,772 $ 114,491 $1,751,895 $ 740,677 $7,764 $2,614,827
=========== ========== ========== ========= ====== ==========
</TABLE>
Authorized shares of common stock were 260 million at December 31, 1998, 1997
and 1996.
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
49
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
---- ---- -----
Operating activities:
Net income................................... $341,957 $150,922 $272,341
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary item - U.K. windfall tax
(Note 2) ................................ - 110,565 -
Depreciation and amortization.............. 279,829 253,263 225,264
Amortization of investment tax credits..... (5,222) (5,501) (7,506)
Deferred income taxes...................... 6,248 52,211 78,962
Write-off of investments in cogeneration
projects (Note 3) ....................... - 16,052 15,546
Equity in earnings of Yorkshire Power and
other unconsolidated subsidiaries, net (34,199) (31,168) (389)
Allowance for equity funds used during
construction ............................. - 1 (936)
Change in accounts receivable.............. 2,026 (29,627) (92,600)
Change in inventories...................... (7,485) (2,334) 23,479
Change in other current assets............. 16,965 (97,063) (47,226)
Change in accounts payable................. (13,704) (18,791) 141,771
Change in other current liabilities........ 69,908 (15,356) (85,321)
Change in deferred amounts................. 740 (46,134) (34,617)
Change in noncurrent liabilities........... 2,389 4,567 (9,725)
Other...................................... 87 2,832 2,139
------- ------- -------
Net cash provided by operating activities 659,539 344,439 481,182
Investing activities:
Construction expenditures.................... (608,972) (475,497)(454,968)
Allowance for equity funds used during
construction .............................. - (1) 936
Proceeds from disposition of property, plant
and equipment ............................. 9,369 2,117 24,292
Payment for purchase of companies, net of
cash acquired (Note 3) .................... (13,725) - 3,649
Investment in Yorkshire Power (Note 2)....... - (362,342) -
Purchase of other investments................ (6,131) (32,560) (17,790)
Sale of other investments.................... 5,466 11,844 664
------- ------- -------
Net cash used in investing activities.... (613,993) (856,439)(443,217)
Financing activities:
Proceeds from sale of common stock (Note 4).. 161,823 286,869 30,115
Proceeds from sale of long-term debt (Note 6) 250,497 419,819 359,715
Proceeds from sale of PSCo and SPS obligated
mandatorily redeemable preferred securities
of subsidiary trusts holding solely
subordinated debentures of PSCo
and SPS (Note 6)............................ 187,700 - 100,000
Redemption of long-term debt................. (159,323) (227,577)(175,298)
Short-term borrowings - net.................. (63,949) 289,782 (105,739)
Redemption of preferred stock of subsidiaries (181,824) (665) (1,636)
Dividends on common stock.................... (256,426) (233,620)(223,413)
-------- -------- ------
Net cash (used in) provided by financing
activities ............................ (61,502) 534,608 (16,256)
------- ------- ------
Net (decrease) increase in cash and
temporary cash investments ........... (15,956) 22,608 21,709
Cash and temporary cash investments at
beginning of year 72,623 50,015 51,553
Net decrease in cash and temporary cash
investments for SPS for the
transition period (Note 1)........... - - (23,247)
----- ----- -------
Cash and temporary cash investments at
end of year ......................... $ 56,667 $ 72,623 $50,015
======== ======== =======
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
50
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (PSCo)
The following narrative analysis discusses PSCo's results of operations
comparing the changes for the years ended December 31, 1998, 1997 and 1996. PSCo
merged with SPS effective August 1, 1997. 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. Accordingly, the consolidated statements of income
and cash flows for 1997 reflect the results of operations of Cheyenne, WGI, e
prime and Natural Fuels through July 31, 1997. Where relevant, additional
information has been presented to discuss the impact of the transfer of these
subsidiaries. Certain information has been omitted pursuant to General
Instructions I(2)(a). Discussion related to PSCo's Commitments and Contingencies
is covered within NCE's Management's Discussion and Analysis of Financial
Condition and Results of Operations. See FORWARD LOOKING INFORMATION.
In addition, on March 31, 1998, NCI was transferred through the sale by
PSCo of all the outstanding common stock of NCI at net book value (approximately
$292.6 million), to NC Enterprises, an intermediate holding company of NCE, and
received as consideration a promissory note from NC Enterprises. The
consolidated statements of income and cash flows for 1998 reflect the results of
NCI through March 31, 1998 (See Note 2. Investment in Yorkshire Power and U.K.
Windfall Tax in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).
Earnings Available for Common Stock
Earnings were $194.8 million, $81.7 million and $178.5 million during
1998, 1997 and 1996, respectively. The significant decrease in 1997 was
primarily attributable to the recognition of an extraordinary item related to
the one-time U.K. windfall tax of approximately $110.6 million for its 50%
ownership in Yorkshire Power. Excluding the impact of this extraordinary item,
earnings increased slightly from 1997 to 1998 primarily due to higher 1998
electric margin resulting from customer growth and lower merger costs, offset in
part by the sale of NCI to NCT. Excluding the impact of the extraordinary
charge, earnings increased $13.7 million in 1997, as compared to 1996, as a
result of customer growth contributing to increased electric and gas sales,
lower operating and maintenance expenses as well as equity earnings.
Electric Operations
The following table details the annual change in electric operating
revenues and energy costs as compared to the preceding year (in thousands).
1998 Increase (Decrease) From Prior Year
Cheyenne
PSCo & e prime Total
---- --------- -----
Electric operating revenues:
Retail........................... $ 40,850 $(21,492) $ 19,358
Wholesale - regulated............ 104,994 - 104,994
Non-regulated power marketing.... - (10,448) (10,448)
Other (including unbilled revenues) 36,492 (19) 36,473
------ ----- ------
Total revenues.................. 182,336 (31,959) 150,377
Fuel used in generation........... 13,478 - 13,478
Purchased power................... 121,546 (25,811) 95,735
------- ------- ------
Net increase (decrease) in
electric margin ................ $47,312 $ (6,148) $41,164
======= ======== =======
51
<PAGE>
1997 Increase (Decrease) From Prior Year
Cheyenne
PSCo & e prime Total
---- --------- -----
Electric operating revenues:
Retail........................... $(15,167) $(16,305) $(31,472)
Wholesale - regulated............ 25,083 - 25,083
Non-regulated power marketing.... - 2,642 2,642
Other (including unbilled revenues) (25) (22) (47)
--- --- ---
Total revenues.................. 9,891 (13,685) (3,794)
Fuel used in generation........... 3,264 - 3,264
Purchased power................... 13,340 (9,866) 3,474
------- -------- --------
Net decrease in electric margin. $(6,713) $(3,819) $(10,532)
======= ======= ========
The following table compares electric Kwh sales by major customer classes.
Millions of Kwh Sales % Change From Prior Year *
1998 1997
-------------- ---------------
Consoli PSCo Consoli PSCo
1998 1997 dated Only dated Only
---- ---- ----- ---- ----- ----
Residential .............. 6,761 6,663 1.5% 3.4% 0.8% 2.1%
Commercial and Industrial. 15,610 15,621 (0.1) 2.3 (0.3) 1.3
Public Authority ......... 207 189 9.4 10.8 (5.5) (4.6)
------ ------
Total Retail............ 22,578 22,473 0.5 2.7 - 1.5
Wholesale - Regulated..... 7,874 4,491 75.3 75.3 33.6 33.6
Non-regulated Power
Marketing .............. - 660 ** ** 57.7 -
----- ----
Total..................... 30,452 27,624 10.2 15.0 5.2 5.8
====== ======
* Percentages are calculated using unrounded amounts.
** Percentage change is significant, but presentation of amount is not
meaningful.
Electric margin increased in 1998, when compared to 1997, primarily due to
higher retail sales of 2.7% resulting from customer growth of approximately 1.8%
and the positive impact of a lower 1998 accrual related to the estimated
customer refund obligation (approximately $9.6 million) in connection with the
earnings sharing in excess of 11% return on equity (see Note 9. Regulatory
Matters in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA). Higher
wholesale electric sales, reflecting increased marketing activities for economy,
short-term firm and off-system sales, contributed to increased operating
revenues; however, the margin on such sales is minimal. Electric margin revenues
decreased in 1997, when compared to 1996, primarily due to the retail rate
reductions (approximately $15.4 million) implemented in October 1996 and
February 1997 and the recognition of an estimated customer refund obligation
(approximately $16.4 million) in connection with the earnings sharing in excess
of 11% return on equity. Higher economy sales by PSCo and power marketing
activities of non-regulated subsidiaries contributed to the increase in
wholesale revenues but had little impact on electric margin.
PSCo has cost adjustment mechanisms which recognize the majority of the
effects of changes in fuel used in generation and purchased power costs and
allow recovery of such costs on a timely basis. In its decision on the Merger,
the CPUC replaced PSCo's ECA with an ICA, effective October 1, 1996, which
allows for a 50%/50% sharing of certain fuel and energy cost increases and
decreases among customers and shareholders. For 1998 and 1997, the ICA did not
significantly impact electric margin (see Note 9. Regulatory Matters in Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).
Fuel used in generation expense increased approximately $13.5 million
during 1998, as compared to 1997, primarily due to increased generation levels
at PSCo's power plants. Fuel used in generation expense increased slightly
during 1997, as compared to prior year, due to increased generation levels at
PSCo's power plants offset in part, by lower coal supply costs.
52
<PAGE>
Purchased power expense increased approximately $95.7 million during 1998,
as compared to 1997, primarily due to purchases to meet increased wholesale
marketing activities. Purchased power expense increased slightly during 1997, as
compared to the prior year, primarily due to purchases to meet increased
wholesale requirements, other customer demands and non-regulated power marketing
sales commitments. The increase in 1997 was offset, in part, by the recognition
of only seven months of Cheyenne and e prime costs in 1997.
Gas Operations
The following table details the annual change in revenues from gas sales
and gas purchased for resale as compared to the preceding year (in thousands).
1998 Increase (Decrease) From Prior Year
Cheyenne
Natural Fuels
WGI &
PSCo e prime Total
---- ------- -----
Revenues from gas sales (including
unbilled revenues) .................. $15,122 $(110,156) $ (95,034)
Gas purchased for resale............... 14,078 (101,269) (87,191)
------ -------- -------
Net increase (decrease) in gas sales
margin ............................. 1,044 (8,887) (7,843)
Transportation, gathering, and
processing revenues ................. 2,464 (457) 2,007
----- ---- -----
Increase (decrease) in gas margin.... $3,508 $ (9,344) $ (5,836)
====== ========= =========
1997 Increase (Decrease) From Prior Year
Cheyenne
Natural Fuels
WGI &
PSCo e prime Total
---- ------- -----
Revenues from gas sales (including
unbilled revenues) .................. $62,504 $ 26,538 $ 89,042
Gas purchased for resale............... 44,500 30,082 74,582
------ ------ ------
Net increase (decrease) in gas sales
margin ............................ 18,004 (3,544) 14,460
Transportation, gathering, and
processing revenues .................. 4,068 (516) 3,552
----- ------- -----
Increase (decrease) in gas margin.... $22,072 $ (4,060) $ 18,012
======= ========= =========
The following table compares gas dekatherm ("Dth") deliveries by major
customer classes.
Millions of % Change From Prior Year *
Dth Deliveries 1998 1997
Consoli PSCo Consoli PSCo
1998 1997 dated Only dated Only
---- ---- ----- ---- ----- ----
Residential .............. 82.2 86.6 (5.1)% (3.2)% 0.6% 1.5%
Commercial................ 40.2 46.9 (14.2) (11.7) (9.3) (7.1)
Non-regulated gas marketing - 35.2 ** - 61.2 -
---- ----
Total sales............. 122.4 168.7 (27.4) (6.2) 5.7 (1.7)
Transportation, gathering
and processing 90.7 86.9 4.5 17.3 (5.0) 3.1
---- ----
Total................... 213.1 255.6 (16.6) 2.5 1.8 -
===== ======
* Percentages are calculated using unrounded amounts.
** Percentage change is significant, but presentation of amount is not
meaningful.
Gas sales margin increased in 1998 and 1997, when compared to the
respective preceding year, 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 in 1998 was offset, in part, by a 6.2% decrease in
PSCo's retail gas sales, which resulted from warmer weather despite a 2.8%
increase in customers. Gas marketing activities by non-regulated subsidiaries
favorably contributed to the gas sales margin in 1997 and 1996.
53
<PAGE>
Gas transportation, gathering and processing revenues increased
approximately $2.0 million and $3.6 million, when compared to 1997 and 1996,
respectively, primarily due to an increase in transport deliveries and higher
transportation rates effective February 1, 1997, resulting from the Company's
1996 rate case. The increase in transport deliveries continues to be impacted by
the shifting of various commercial customers to transport customers as such
customers procure their unbundled gas supply from other sources.
PSCo has in place a GCA mechanism for natural gas sales, which recognizes
the majority of the effects of changes in the cost of gas purchased for resale
and adjusts revenues to reflect such changes in cost on a timely basis. As a
result, the changes in revenues associated with these mechanisms in 1998 and
1997, when compared to the respective preceding year, had little impact on net
income. However, the fluctuations in gas sales impact the amount of gas PSCo
must purchase and, therefore, along with the increases and decreases in the
per-unit cost of gas, affect total gas purchased for resale. In 1998, lower
quantities of gas were purchased during the year along with a decrease in the
per-unit cost of gas, served to reduce the cost of gas purchased for resale;
however, these decreases were offset in part, by the recovery of prior year
deferred gas costs. This recovery was greater than the decrease in purchases,
thereby increasing the cost of gas. During 1997, there were higher per-unit
average costs of gas, along with increases in the quantity of gas purchased,
which contributed to the increase in cost of gas purchased for resale.
Non-Fuel Operating Expenses
Other operating and maintenance expenses increased approximately $12.1
million during 1998 as compared to 1997 primarily due to electric operations,
including higher distribution costs to serve new customers and a $5 million
reduction in the decommissioning liability during 1997. Other operating and
maintenance expenses decreased $8.8 million during 1997 as compared to the prior
year, primarily due to lower labor and employee benefit costs, the recognition
in 1997 of only seven months of costs from the subsidiaries that were
transferred to NCE effective with the Merger and other general reductions
resulting from the Merger and cost containment efforts. These decreases were
offset, in part, by the favorable impact of the February 9, 1996 settlement
agreement with the DOE resolving all spent nuclear fuel storage and disposal
issues at Fort St. Vrain (See Note 10. Commitments and Contingencies - Fort St.
Vrain in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).
Depreciation and amortization expense increased $12.5 million in 1998 and
$13.8 million in 1997 primarily due to the depreciation of property additions
and the higher amortization of software costs.
Income taxes increased $10.7 million in 1998, as compared to 1997,
primarily due to higher pre-tax income and lower foreign tax credits as PSCo
transferred its investment in Yorkshire Power, effective March 31, 1998. Income
taxes decreased $5.5 million in 1997, as compared to prior year, primarily due
to the recognition of foreign tax credits. Additional income tax expense was
recognized in 1997 due to higher non-deductible merger and executive severance
costs.
Other Income and Deductions
Other income and deductions increased $3.5 million during 1998, when
compared to 1997, primarily due to the absence of Merger and business
integration costs and legal costs associated with various employee lawsuits. In
addition, equity in earnings from Yorkshire Power decreased as a result of the
sale of NCI to NC Enterprises in exchange for a promissory note, effective March
31, 1998. This decrease in equity earnings was offset, in part, by interest
income recognized on the note receivable ($14.2 million). See Note 2. Investment
in Yorkshire Power and U.K. Windfall Tax in Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA. Other income and deductions increased $27.4 million during
1997, when compared to prior year, primarily due to the recognition of equity
earnings in Yorkshire Power ($34.9 million). Merger and business integration
costs increased in 1997 by $7.5 million, when compared to the preceding year.
The 1997 amount included executive severance costs and other costs which
resulted from the closing of the Merger effective August 1, 1997.
54
<PAGE>
Interest Charges
Interest charges and dividend requirements and redemption premium on
preferred stock decreased $4.3 million during 1998, when compared to 1997.
Proceeds from the issuance of $250 million of long-term debt in April 1998 were
used, in part, to reduce short-term debt. Higher interest costs on additional
long-term debt, net of retirements, were offset, in part, by lower interest
rates. Other interest expense decreased primarily due to lower short-term
borrowings. The increase in 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 5. Obligated Mandatorily
redeemable Preferred Securities of subsidiary Trust Holding Solely Subordinated
Debentures in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA). Interest
charges and dividends on preferred stock increased $26.4 million during 1997,
when compared to the prior year, primarily due to interest on borrowings
utilized to finance capital expenditures and the April 1997 investment in
Yorkshire Power. These financings included the issuance of medium-term notes and
an increased level of short-term borrowings.
Liquidity and Capital Resources
Prospective Capital Requirements
The estimated cost as of December 31, 1998, of the construction programs
of PSCo and its subsidiaries and other capital requirements for the years 1999,
2000 and 2001 are shown in the table below (in millions):
1999 2000 2001
------- ------ ------
Electric
Production.......................... $ 117 $ 117 $ 76
Transmission........................ 16 46 23
Distribution........................ 151 108 134
Gas .................................... 79 80 82
General................................. 74 55 55
Non-utility............................. 4 2 1
------- ------ ------
Total construction expenditures... 441 408 371
Less: AFDC.............................. 13 9 10
Add: Sinking funds and debt maturities
and refinancings ...................... 89 31 140
-- -- ---
Total capital requirements........ $ 517 $ 430 $ 501
======= ====== ======
The construction programs of PSCo and its subsidiaries are subject to
continuing review and modification. In particular, actual construction
expenditures may vary from the estimates due to changes in the electric system
projected load growth, the desired reserve margin and the availability of
purchased power, as well as alternative plans for meeting PSCo's long-term
energy needs. In addition, PSCo's ongoing evaluation of asset acquisition and
divestiture opportunities to support corporate strategies and future
requirements to install emission control equipment may impact actual capital
requirements (see Note 10. Commitments and Contingencies - Environmental Issues
in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).
Capital Sources
At December 31, 1998, PSCo and its subsidiaries estimate that their
1999-2001 capital requirements, as summarized above, and the payment of common
stock dividends to NCE will be met with a combination of funds from external
sources and funds from operations. PSCo and its subsidiaries may meet their
external capital requirements through capital contributions by NCE, the issuance
of secured or unsecured long-term and short-term debt and the sale of other
securities by PSCo and its subsidiaries. The financing needs are subject to
continuing review and can change depending on market and business conditions and
changes, if any, in the construction programs and other capital requirements of
PSCo and its subsidiaries.
55
<PAGE>
Item 8. Financial Statements and Supplementary Data (PSCo)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO PUBLIC SERVICE COMPANY OF COLORADO:
We have audited the accompanying consolidated balance sheets and statements of
capitalization of Public Service Company of Colorado (a Colorado corporation)
and subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of income, shareholder's equity and cash flows for each of the three
years in the period ended December 31, 1998. These financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Public Service Company of
Colorado and subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 23, 1999
56
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
December 31, 1998 and 1997
ASSETS
1998 1997
---- ----
Property, plant and equipment, at cost:
Electric .......................................... $4,369,134 $4,088,447
Gas................................................ 1,171,198 1,100,003
Steam and other.................................... 71,986 78,740
Common to all departments.......................... 418,484 432,840
Construction in progress........................... 264,752 170,503
------- -------
6,295,554 5,870,533
Less: accumulated depreciation .................... 2,241,165 2,145,673
--------- ---------
Total property, plant and equipment.............. 4,054,389 3,724,860
--------- ---------
Investments, at cost:
Investment in Yorkshire Power (Note 2)............. - 290,845
Note receivable from affiliate (Note 2)............ 192,620 -
Other.............................................. 22,664 43,311
------- ------
Total investments................................. 215,284 334,156
------- -------
Current assets:
Cash and temporary cash investments................ 19,926 18,909
Accounts receivable, less reserve for uncollectible
accounts ($2,254 at December 31, 1998;
$2,272 at December 31, 1997) ................... 172,587 183,063
Accrued unbilled revenues ......................... 119,856 94,284
Recoverable purchased gas and electric energy costs
- net ............................................ 62,761 103,197
Materials and supplies, at average cost............ 47,881 48,030
Fuel inventory, at average cost.................... 22,361 20,862
Gas in underground storage, at cost (LIFO)......... 51,779 46,576
Prepaid expenses and other......................... 46,523 47,686
------- ------
Total current assets.............................. 543,674 562,607
------- -------
Deferred charges:
Regulatory assets (Note 1)......................... 269,112 310,658
Unamortized debt expense .......................... 17,874 10,800
Other.............................................. 77,303 55,794
------- ------
Total deferred charges............................ 364,289 377,252
------- -------
$5,177,636 $4,998,875
========== ==========
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
57
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
December 31, 1998 and 1997
CAPITAL AND LIABILITIES
1998 1997
---- ----
Common stock...................................... $1,302,119 $1,302,119
Retained earnings................................. 325,213 319,280
Accumulated comprehensive income.................. - 4,142
------- -------
Total common equity........................... 1,627,332 1,625,541
Preferred stock (Note 4):
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 5) ....... 194,000 -
Long-term debt (Note 6)........................... 1,643,130 1,338,138
--------- ---------
3,464,462 3,142,934
--------- ---------
Noncurrent liabilities:
Employees' postretirement benefits other than
pensions (Note 12) ........................... 55,537 58,695
Employees' postemployment benefits (Note 12)... 27,195 25,031
------- -------
Total noncurrent liabilities.................. 82,732 83,726
------- -------
Current liabilities:
Notes payable and commercial paper (Note 7)..... 402,795 348,555
Long-term debt due within one year.............. 44,481 257,160
Preferred stock subject to mandatory redemption
within one year .............................. - 2,576
Accounts payable................................ 226,712 189,998
Dividends payable............................... 46,461 40,975
Customers' deposits............................. 23,902 21,888
Accrued taxes................................... 57,848 42,549
Accrued interest................................ 36,729 39,177
Current portion of accumulated deferred income
taxes (Note 13) ............................. 8,142 19,872
Other........................................... 68,729 88,655
------- -------
Total current liabilities...................... 915,799 1,051,405
------- ---------
Deferred credits:
Customers' advances for construction............ 54,260 51,830
Unamortized investment tax credits ............. 94,459 99,355
Accumulated deferred income taxes (Note 13)..... 538,581 534,246
Other........................................... 27,343 35,379
------- -------
Total deferred credits......................... 714,643 720,810
------- -------
Commitments and contingencies (Notes 9 and 10)..... ---------- ----------
$5,177,636 $4,998,875
========== ==========
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
58
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPTALIZATION
(Thousands of Dollars, Except Share Information)
December 31, 1998 and 1997
1998 1997
---- ----
Common shareholder's equity:
Common stock, $0.01 par value, authorized and
outstanding 100 shares in 1998 and 1997 $ - $ -
Paid in capital................................... 1,302,119 1,302,119
Retained earnings................................. 325,213 319,280
Accumulated comprehensive income.................. - 4,142
------- -------
Total common shareholder's equity................ 1,627,332 1,625,541
--------- ---------
Preferred stock (Note 4):
Shares Issued and Outstanding
-----------------------------
1998 1997
---- ----
$100 Par Value,
Authorized 3,000,000 Shares
Not subject to mandatory
redemption
4.20% series - 100,000 - 10,000
4.25% series (includes
$7,500 premium) - 174,997 - 17,507
4.50% series - 65,000 - 6,500
4.64% series - 159,950 - 15,995
4.90% series - 150,000 - 15,000
4.90% 2nd series - 150,000 - 15,000
7.15% series - 250,000 - 25,000
------ ------- ------- ------
- 1,049,947 - 105,002
------ --------- ------- -------
Subject to mandatory
redemption
7.50% series - 216,000 - 21,600
8.40% series - 202,294 - 20,229
------ ------- ------ ------
- 418,294 - 41,829
Less: Preferred stock
subject to mandatory
redemption within
one year - (25,760) - (2,576)
------ ------- ------ ------
- 392,534 - 39,253
------ ------- ------ ------
$25 Par Value, Authorized
4,000,000 Shares
Not subject to mandatory
redemption
8.40% series - 1,400,000 - 35,000
------ --------- ------- ------
$0.01 Par Value, Authorized
10,000,000 Shares - - - -
------ ------ ------- ------
Total preferred stock - 2,842,481 - 179,255
------ --------- ------- -------
PSCo obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
subordinated debentures of PSCo (Note 5) ........... 194,000 -
Long-term debt (Note 6):
Public Service Company of Colorado:
First Mortgage Bonds
6-3/4% retired July 1, 1998...................... - 25,000
6% due January 1, 2001........................... 102,667 102,667
6% due April 15, 2003............................ 250,000 -
8-1/8% due March 1, 2004......................... 100,000 100,000
Pollution Control Series A and B, 5-7/8% due
March 1, 2004 ................................. 21,500 22,000
6-3/8% due November 1, 2005...................... 134,500 134,500
7-1/8% due June 1, 2006.......................... 125,000 125,000
Pollution Control Series G, 5-5/8%
due April 1, 2008 ............................. 18,000 18,000
Pollution Control Series F, 7-3/8%
due November 1, 2009 .......................... 27,250 27,250
Pollution Control Series G, 5-1/2%
due June 1, 2012. ............................. 50,000 50,000
Pollution Control Series G, 5-7/8%
due April 1, 2014 ............................. 61,500 61,500
9-7/8% due July 1, 2020.......................... 75,000 75,000
8-3/4% due March 1, 2022......................... 150,000 150,000
7-1/4% due January 1, 2024....................... 110,000 110,000
Secured Medium-Term Notes, Series A and B,
6.02% - 9.25%, due March 4, 1998 - March 5, 2007 296,500 423,500
Unamortized premium............................... - 4
Unamortized discount.............................. (4,616) (4,670)
Capital lease obligations, 6.68% -11.21% due in
installments through May 31, 2025 .............. 39,555 44,392
------ ------
$1,556,856 $1,464,143
---------- ----------
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
59
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPTALIZATION (continued)
(Thousands of Dollars, Except Share Information)
December 31, 1998 and 1997
1998 1997
---- ----
Long-term debt (continued)
PS Colorado Credit Corporation, Inc.:
Unsecured Medium-Term Notes, Series A,
5.86% - 6.14%, due October 13, 1998 - May 30, 2000 $100,000 $100,000
1480 Welton, Inc.:
13.25% secured promissory note, due in installments
through October 1, 2016 ........................... 30,755 31,155
------ ------
1,687,611 1,595,298
Less: maturities due within one year................. 44,481 257,160
------ -------
Total long-term debt.............................. 1,643,130 1,338,138
--------- ---------
Total capitalization.................................. $3,464,462 $3,142,934
========== ==========
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
60
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars)
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
---- ---- ----
Operating revenues:
Electric................................. $1,635,573 $1,485,196 $1,488,990
Gas...................................... 640,064 733,091 640,497
Other.................................... 8,449 11,356 7,951
------- ------ -----
2,284,086 2,229,643 2,137,438
Operating expenses:
Fuel used in generation.................. 212,184 198,706 195,442
Purchased power.......................... 589,637 493,902 490,428
Gas purchased for resale................. 380,554 467,745 393,163
Other operating and maintenance expenses. 403,292 391,177 400,008
Depreciation and amortization............ 180,913 168,451 154,631
Taxes (other than income taxes) ......... 83,994 81,496 82,899
Income taxes (Note 13) .................. 101,494 90,813 96,331
------- ------- -------
1,952,068 1,892,290 1,812,902
--------- --------- ---------
Operating income............................ 332,018 337,353 324,536
Other income and deductions:
Merger expenses.......................... 418 (18,661) (11,210)
Equity in earnings of Yorkshire
Power (Note 2) ........................ 3,446 34,926 -
Miscellaneous income and deductions -
net (Note 15) ........................ 2,535 (13,374) (13,260)
----- ------- -------
6,399 2,891 (24,470)
Interest charges:
Interest on long-term debt............... 120,082 118,438 95,826
Other interest........................... 20,849 24,117 17,238
Allowance for borrowed funds used during
construction .......................... (12,328) (6,353) (3,344)
Dividends on PSCo obligated mandatorily
redeemable preferred securities of
subsidiary trust holding solely
subordinated debentures of PSCo (Note 5) 9,711 - -
----- ----- ----
138,314 136,202 109,720
------- ------- -------
Income before extraordinary item............ 200,103 204,042 190,346
Extraordinary item - U.K. windfall tax (Note 2) - (110,565) -
----- -------- -------
Net income................................... 200,103 93,477 190,346
Dividend requirements and redemption premium
on preferred stock ......................... 5,332 11,752 11,848
----- ------ ------
Earnings available for common stock......... $194,771 $81,725 $178,498
======== ======= ========
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
61
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(Thousands of Dollars, Except Share Information)
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Accumulated
Other
Common Stock, $1 par value Paid Retained Comprehensive
Shares Amount in Capital Earnings Income Total
------ ------ ---------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 63,358,128 $316,791 $680,315 $346,539 $ - $ 1,343,645
Net income/Comprehensive income - - - 190,346 - 190,346
Dividends declared:
Common stock........ - - - (135,111) - (135,111)
Preferred stock, $100 par value - - - (8,889) - (8,889)
Preferred stock $25 par value - - - (2,940) - (2,940)
Issuance of common stock:
Employees' Savings Plan 274,934 1,374 8,420 - - 9,794
Dividend Reinvestment Plan 809,603 4,048 24,580 - - 28,628
Management Incentive Plan 58,346 292 1,427 - - 1,719
Acquisitions (Note 4) 317,748 1,589 9,611 - - 11,200
Other................. - - - (104) - (104)
------- ------ ----- ------ ------- ------
Balance at December 31, 1996 64,818,759 324,094 724,353 389,841 - 1,438,288
Comprehensive income:
Net income.......... - - - 93,477 - 93,477
Foreign currency translation
adjustment - - - - 4,142 4,142
-----
Comprehensive income (Note 1) 97,619
Dividends declared:
Common stock, prior to
August 1, 1997 Merger - - - (76,202) - (76,202)
Common stock, to NCE - - - (76,093) - (76,093)
Preferred stock, $100 par value - - - (8,803) (8,803)
Preferred stock, $25 par value - - - (2,940) (2,940)
Issuance of common stock:
Employees' Savings Plan 250,058 1,250 8,518 - - 9,768
Dividend Reinvestment Plan 488,224 2,441 16,899 - - 19,340
Management Incentive Plan 40,404 202 993 - - 1,195
Merger with SPS:
Exchange of common stock for
NCE stock......... (65,597,345) (327,987) 327,987 - - -
Dividend of subsidiaries'
stock to NCE............ - - (49,912) - - (49,912)
Contribution of capital by
NCE (Note 4) - - 273,300 - - 273,300
Other................. - - (19) - - (19)
------ ------ ---- ------- ------- ----
Balance at December 31, 1997 100 - 1,302,119 319,280 4,142 1,625,541
Comprehensive income:
Net income.......... - - - 200,103 - 200,103
Foreign currency translation
adjustment - - - - 5,260 5,260
Sale of NCI to NC Enterprises - (9,402) (9,402)
------
Comprehensive income (Note 1) 195,961
Dividends declared
Common stock, to NCE - - - (188,845) - (188,845)
Preferred stock, $100 par value - - - (4,166) - (4,166)
Preferred stock, $25 par value - - - (1,166) - (1,166)
Other............... - - - 7 - 7
------- ------ ------- ------ ------- -----
Balance at December 31, 1998 100 $ - $1,302,119 $ 325,213 $ - $1,627,332
=== ======= ========== ========= ======= ==========
</TABLE>
(1)Authorized shares of common stock were 100 at December 31, 1998 and 1997 and
160 million at December 31, 1996. Common stock, par value was $5 through
September 18, 1997. Effective September 19, 1997, common stock, par value was
changed to $0.01.
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
62
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
----- ---- ----
Operating activities:
Net income................................... $200,103 $ 93,477 $190,346
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary item - U.K. windfall tax
(Note 2) ................................. - 110,565 -
Depreciation and amortization.............. 186,620 173,047 159,400
Amortization of investment tax credits..... (4,896) (5,219) (7,256)
Deferred income taxes...................... 7,092 37,390 60,899
Equity in earnings of Yorkshire Power...... (3,446) (34,926) -
Allowance for equity funds used during
construction ............................. - 6 (757)
Change in accounts receivable.............. 21,540 (15,378) (88,680)
Change in inventories...................... (6,553) (2,163) 20,542
Change in other current assets............. 7,937 (52,914) (31,169)
Change in accounts payable................. 9,148 (5,413) 88,473
Change in other current liabilities........ 22,957 (15,870) (36,615)
Change in deferred amounts................. (18,289) (21,913) (19,550)
Change in noncurrent liabilities........... (995) 3,367 (9,779)
Other...................................... - (144) 1,760
------- ------- -------
Net cash provided by operating activities 421,218 263,912 327,614
Investing activities:
Construction expenditures.................... (504,727) (352,273)(321,162)
Allowance for equity funds used during
construction .............................. - (6) 757
Proceeds from disposition of property, plant
and equipment ............................. 9,102 3,187 20,454
Investment in Yorkshire Power (Note 2)....... - (362,342) -
Payment received on note receivable from NC
Enterprises (Note 2) ...................... 100,000 - -
Payment for purchase of companies, net of
cash acquired (Note 3) .................... - - 3,649
Transfer of subsidiaries to NCE (Note 1)..... - (2,229) -
Purchase of other investments................ (1,345) (19,224) (11,485)
Sale of other investments.................... 4,101 11,162 664
------- ------- -------
Net cash used in investing activities.... (392,869) (721,725)(307,123)
Financing activities:
Proceeds from sale of common stock (Note 4).. - 20,517 30,115
Contribution of capital by NCE............... - 273,300 -
Proceeds from sale of PSCo obligated mandatorily
redeemable preferred securities (Note 5)..... 187,700 - -
Proceeds from sale of long-term debt (Note 6) 247,025 412,220 217,415
Redemption of long-term debt................. (157,737) (205,550) (83,356)
Short-term borrowings - net.................. 66,195 127,530 (43,325)
Redemption of preferred stock................ (181,824) (665) (1,376)
Dividends on common stock (Notes 4 and 15)... (180,430) (148,279)(133,394)
Dividends and redemption premium on preferred
stock ..................................... (8,261) (11,757) (11,857)
------ ------- -------
Net cash (used in) provided by financing
activities ............................. (27,332) 467,316 (25,778)
------- ------- -------
Net increase (decrease) in cash and
temporary cash investments ............ 1,017 9,503 (5,287)
Cash and temporary cash investments at
beginning of year ..................... 18,909 9,406 14,693
------ ----- ------
Cash and temporary cash investments at
end of year ......................... $19,926 $18,909 $ 9,406
======= ======= =======
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
63
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (SPS)
The following narrative analysis discusses SPS's results of operations
comparing the years ending December 31, 1998, December 31, 1997 and the fiscal
year ending August 31, 1996. SPS merged with PSCo effective August 1, 1997.
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 1997 statements of income and cash flows reflect the
results of operations of Quixx and UE through July 31, 1997.
SPS changed its fiscal year in early 1997 and then filed a Transition
Report on Form 10-K for the period September 1, 1996 to December 31, 1996.
Additional information has been presented where meaningful, however, certain
information has been omitted pursuant to General Instructions I(2)(a).
Discussion related to Commitments and Contingencies is covered within NCE's
Management's Discussion and Analysis of Financial Condition and Results of
Operations. See FORWARD LOOKING INFORMATION.
Earnings Available for Common Stock
Earnings available for common stock were $115.0 million, $75.6 million and
$103.3 million during 1998, 1997 and 1996, respectively. The increase in 1998
earnings was primarily due to higher electric sales, lower operation and
maintenance expenses, the recognition of merger and business integration costs
during 1997 and the write-off of Quixx's and UE's investments in the Carolina
Energy Project in 1997. 1997 earnings were negatively impacted by the
recognition of merger and business integration costs, the write-off of Quixx's
and UE's investments in the Carolina Energy Project in 1997 and the recognition
of a $11.7 million gain on the sale of certain water rights by Quixx in 1996
(see Note 3. Acquisitions and Divestitures Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA).
The $9.4 million decrease in earnings during the Transition Period, as
compared to the same period in 1995, was primarily due to the write-off of the
BCH project in December 1996 (see Note 3. Acquisitions and Divestitures in Item
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).
Electric Operations
Substantially all of SPS's operating revenues result from the sale of
electric energy. The principal factors impacting revenues are the amount and
price of energy sold. The following table details the annual change in electric
operating revenues and energy costs as compared to the preceding fiscal year (in
thousands):
Increase (Decrease) From Prior Year
1998 1997
---- ----
Electric operating revenues:
Retail........................... $21,513 $50,743
Wholesale........................ 15,350 14,382
Other (including unbilled revenues) (46,031) (4,167)
------- ------
Total revenues.................. (9,168) 60,958
Fuel used in generation........... (40,972) 56,076
Purchased power................... 8,654 (3,509)
------- -------
Net increase in electric margin. $23,150 $ 8,391
======= =======
64
<PAGE>
The following table compares electric Kwh sales by major customer classes.
Millions of Kwh Sales % Change From Prior Year
1998 1997 1998 1997
---- ---- ---- ----
Residential .............. 3,169 2,987 6.1% 4.1%
Commercial .............. 3,051 2,990 2.0 3.6
Industrial .............. 8,367 8,135 2.9 4.1
Public Authority ......... 630 583 8.1 2.1
------ -----
Total Retail............ 15,217 14,695 3.6 3.9
Wholesale................. 8,075 7,004 15.3 3.8
------ -----
Total..................... 23,292 21,699 7.3 3.9
====== ======
Electric operating revenues decreased $9.2 million or 1.0% in 1998, when
compared to 1997, primarily due to lower deferred fuel revenues attributable to
the pass through to customers of lower fuel costs, the recognition in 1997 of
revenues associated with the anticipated recovery of the Thunder Basin judgment
and rate reductions for guaranteed Merger savings, $5.8 million in 1998,
compared to $1.5 million in 1997. This decrease was offset, in part, by higher
electric sales due to the hotter weather during the summer of 1998 and a 1.4%
increase in customer growth and additional revenues of approximately $16.9
million recorded in connection with the settlement of the 1985 FERC rate case
(See Note 9. Regulatory Matters in Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.).
Electric operating revenues increased $61.0 million or 6.8% in 1997, when
compared to 1996, primarily due to the pass through to customers of higher fuel
costs and costs related to the Texas jurisdictional portion of the Thunder Basin
judgment, a portion of which were recorded as an operating expense and increased
electric sales. 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
case (See Note 9. Regulatory Matters, Merger Related Rate Reductions, in Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.).
Fuel used in generation expense decreased $41.0 million or 8.7% in 1998,
when compared to 1997, primarily due to lower prices of coal and natural gas
offset, in part, by increased generation levels required to serve retail and
wholesale customers. 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 and lower transportation costs. The cost of natural gas increased due to
generation at the new Cunningham Station combustion turbine unit. Fuel used in
generation expense increased $56.1 million or 13.4% in 1997, when compared to
the prior year, primarily due to increased generation levels at SPS's power
plants and higher prices of natural gas as SPS purchased approximately 40% of
its gas supply requirements on the spot market during 1997.
Purchased power increased $8.7 million during 1998, when compared to the
same period in 1997, primarily due to an increase in spot market prices and an
increase in demand requirements resulting from increased wholesale and retail
sales. Purchased power decreased $3.5 million in 1997, when compared to 1996,
primarily due to the increased availability and efficiency of SPS's power
plants. 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 and as needed
to meet customer requirements.
SPS has fuel cost adjustment mechanisms which recognize the majority of
the effects of changes in fuel used in generation and purchased power costs and
allow recovery of such costs on a timely basis. As a result, the changes in
revenues associated with these mechanisms in 1998 and 1997, when compared to the
respective preceding year, had little impact on net income. The recovery of fuel
and purchase power costs is discussed further in Note 9. Regulatory Matters in
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
65
<PAGE>
Other Operating Revenues
Other operating revenues decreased $18.9 million in 1998 and $13.5 million
in 1997, when compared to the prior year, due to the August 1, 1997, sale of
Quixx and UE, as discussed above. Other operating revenues in 1997 include only
seven months of Quixx and UE operations as compared to twelve months in 1996.
Non-Fuel Operating Expenses
Other operating and maintenance expenses decreased $28.1 million in 1998
as compared to 1997. Excluding the seven months of expenses recognized in 1997
for UE and Quixx and the $12.1 million Thunder basin costs judgement costs,
other operating and maintenance expenses decreased $2.4 million. This decrease
is primarily due to lower maintenance costs at the Company's power plants and
employee benefit costs. Other operating and maintenance expenses increased $1.6
million in 1997 as compared to 1996. This increase was due to the Thunder Basin
judgment costs, discussed above, offset in part, by lower labor and employee
benefit costs attributable to staffing reductions in connection with the Merger
and SPS's cost containment efforts.
Depreciation and amortization expense increased $8.3 million in 1998
primarily due to $7.6 million of additional depreciation expense recorded in
1998, in connection with the settlements related to the 1985 wholesale rate case
and the depreciation of property additions. Depreciation and amortization
expense increased $0.6 million in 1997 primarily due to the depreciation of
property additions.
Income taxes increased $16.9 million in 1998 and decreased $16.5 million
in 1997, as compared to the prior year, primarily due to changes in pre-tax
income. Income tax expense for 1997 and 1996 include the effects of recognizing
certain merger and executive severance costs as non-deductible.
Other Income and Deductions
Other income and deductions increased $34.2 million in 1998, as compared
to 1997, primarily due to the 1997 write-off of the investments in the Carolina
Energy Project (which totaled approximately $16.1 million), the absences of
merger and business integration expenses in 1998 and lower income and deductions
attributable to Quixx and UE. Higher interest income was recognized in 1998
related to the note receivable from NC Enterprises for the sale of Quixx and UE.
Other income and deductions decreased $31.9 million in 1997, as compared to the
prior year, primarily due to the write-off of investments in the Carolina Energy
Project by Quixx and UE, the recognition of the $11.7 million gain on the sale
of certain water rights by Quixx in 1996 and higher merger and business
integration expenses (see Note 3. Acquisitions and Divestitures in Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).
Other income and deductions decreased $15.4 million in the Transition
Period in 1996, as compared to the same period in 1995, primarily due to the
December 1996 write-off of Quixx's investment in the BCH Project of
approximately $15.5 million.
Interest Charges
Interest charges increased $1.2 million in 1998 primarily due to higher
interest costs on short-term debt used for general corporate requirements.
Interest charges increased $6.5 million in 1997 primarily due to interest on
borrowings used to finance capital expenditures. In October 1996, Southwestern
Public Service Capital I, a wholly owned trust, issued $100 million of 7.85%
Trust Preferred Securities, Series A, due September 1, 2036. The expense for
these securities is shown as Dividends on SPS obligated mandatorily redeemable
preferred securities of subsidiary trust holding solely subordinated debentures
of SPS. The funds from this financing were used to reduce short-term debt.
66
<PAGE>
Liquidity and Capital Resources
Prospective Capital Requirements
The estimated cost as of December 31, 1998, of the construction programs
of SPS and other capital requirements for the years 1999, 2000 and 2001 are
shown in the table below (in millions):
1999 2000 2001
------- ------ ------
Electric
Production.......................... $ 46 $ 17 $ 3
Transmission........................ 29 62 69
Distribution........................ 32 56 44
General................................. 12 4 4
------- ------ ------
Total construction expenditures... 119 139 120
Less: AFDC.............................. 7 8 8
Add: Sinking funds and debt maturities
and refinancings ................... 90 - -
-- -- ---
Total capital requirements.............. $ 202 $ 131 $ 112
======= ====== ======
The construction programs of SPS are subject to continuing review and
modification. In particular, actual construction expenditures may vary from the
estimates due to changes in the electric system projected load growth, the
desired reserve margin and the availability of purchased power, as well as
alternative plans for meeting SPS's long-term energy needs. In addition, SPS's
ongoing evaluation of asset acquisition and divestiture opportunities to support
corporate strategies and future requirements to install emission control
equipment may impact actual capital requirements (see Note 10. Commitments and
Contingencies - Environmental Issues in Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA).
Capital Sources
At December 31, 1998, SPS estimates that its 1999-2001 capital
requirements, as summarized above, and the payment of common stock dividends to
NCE will be met with a combination of funds from external sources and funds from
operations. SPS may meet its external capital requirements through capital
contributions by NCE, the issuance of secured or unsecured long-term and
short-term debt, and the sale of other securities. The financing needs are
subject to continuing review and can change depending on market and business
conditions and changes, if any, in the construction programs and other capital
requirements of SPS.
67
<PAGE>
Item 8. Financial Statements and Supplementary Data (SPS)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO SOUTHWESTERN PUBLIC SERVICE COMPANY:
We have audited the accompanying balance sheets and statements of capitalization
of Southwestern Public Service Company (a New Mexico corporation) as of December
31, 1998 and 1997, and the related statements of income, shareholder's equity
and cash flows for each of the two years in the period ended December 31, 1998.
These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Southwestern Public Service
Company as of December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1998,
in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 23, 1999
68
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Southwestern Public Service Company:
We have audited the consolidated statements of income, shareholder's equity and
cash flows for the four months ended December 31, 1996 and the year ended August
31, 1996 of Southwestern Public Service Company and subsidiaries. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of Southwestern
Public Service Company and subsidiaries for the above stated periods, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 28, 1997
(June 19, 1997, as to the Carolina Energy
Limited Partnership in Note 3)
69
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
BALANCE SHEETS
(Thousands of Dollars)
December 31, 1998 and 1997
ASSETS
1998 1997
---- ----
Property, plant and equipment, at cost:
Electric ....................................... $2,665,115 $2,557,579
Construction in progress........................ 121,407 144,452
------- -------
2,786,522 2,702,031
Less: accumulated depreciation ................. 1,057,183 987,487
--------- -------
Total property, plant and equipment............ 1,729,339 1,714,544
--------- ---------
Investments, at cost:
Notes receivable from affiliate (Note 4)........ 119,036 119,036
Other........................................... 5,591 5,832
----- -------
Total investments.............................. 124,627 124,868
------- -------
Current assets:
Cash and temporary cash investments............. 1,350 986
Accounts receivable, less reserve for
uncollectible accounts ($1,695 at
December 31, 1998; $2,442 at December 31, 1997) 76,190 96,548
Accrued unbilled revenues ...................... 9,373 15,468
Recoverable electric energy costs - net......... - 23,086
Materials and supplies, at average cost......... 16,970 16,337
Fuel inventory, at average cost................. 2,293 2,301
Current portion of accumulated deferred income
taxes (Note 13) ............................. 6,113 -
Prepaid expenses and other...................... 5,248 3,367
----- -------
Total current assets........................... 117,537 158,093
------- -------
Deferred charges:
Regulatory assets (Note 1)...................... 111,971 119,244
Unamortized debt expense ....................... 8,767 9,395
Other........................................... 37,623 62,592
------ -------
Total deferred charges......................... 158,361 191,231
------- -------
$2,129,864 $2,188,736
========== ==========
The accompanying notes to financial statements are an
integral part of these financial statements.
70
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
BALANCE SHEETS
(Thousands of Dollars)
December 31, 1998 and 1997
CAPITAL AND LIABILITIES
1998 1997
---- ----
Common stock....................................... $ 348,402 $ 348,402
Retained earnings.................................. 389,818 349,988
------- -------
Total common equity............................ 738,220 698,390
SPS obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
subordinated debentures of SPS (Note 5) .......... 100,000 100,000
Long-term debt (Note 6)............................ 530,618 620,598
------- -------
1,368,838 1,418,988
--------- ---------
Noncurrent liabilities:
Employees' postretirement benefits other than
pensions (Note 12) ........................... 5,941 3,800
Employees' postemployment benefits (Note 12).... 3,571 2,446
----- -----
Total noncurrent liabilities................... 9,512 6,246
----- -----
Current liabilities:
Notes payable and commercial paper (Note 7)..... 85,162 154,244
Notes payable to affiliates (Note 7)............ 9,000 25,160
Long-term debt due within one year.............. 90,113 173
Accounts payable................................ 64,275 107,465
Dividends payable............................... 20,007 22,546
Recovered electric energy costs - net........... 18,760 -
Customers' deposits............................. 5,904 5,471
Accrued taxes................................... 37,646 28,051
Accrued interest................................ 12,273 12,715
Current portion of accumulated deferred income
taxes (Note 13) ............................. - 10,740
Other........................................... 18,011 14,658
------ -------
Total current liabilities...................... 361,151 381,223
------- -------
Deferred credits:
Unamortized investment tax credits ............. 5,219 5,469
Accumulated deferred income taxes (Note 13)..... 380,655 372,447
Other........................................... 4,489 4,363
----- -------
Total deferred credits......................... 390,363 382,279
------- -------
Commitments and contingencies (Notes 9 and 10)..... ---------- ----------
$2,129,864 $2,188,736
========== ==========
The accompanying notes to financial statements are an
integral part of these financial statements.
71
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF CAPITALIZATION
(Thousands of Dollars, Except Per Share Information)
December 31, 1998 and 1997
1998 1997
---- ----
Common shareholder's equity:
Common stock, $1 par value, authorized 200 shares
in 1998 and in 1997, outstanding 100 shares in
1998 and in 1997........ ........................ $ - $ -
Paid in capital.................................... 348,402 348,402
Retained earnings.................................. 389,818 349,988
------- -------
Total common shareholder's equity................. 738,220 698,390
------- -------
Preferred stock (Note 4):
$1 par value, 10 million shares authorized; no
shares outstanding ............................... - -
------- -------
SPS obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely subordinated
debentures of SPS, 4 million shares outstanding,
7.85% (Note 5) ...................................... 100,000 100,000
------- -------
Long-term debt (Note 6):
First Mortgage Bonds:
6-7/8% due December 1, 1999........................ 90,000 90,000
7-1/4% due July 15, 2004........................... 135,000 135,000
6-1/2% due March 1, 2006........................... 60,000 60,000
8-1/4% due July 15, 2022........................... 40,000 40,000
8-1/5% due December 1, 2022........................ 100,000 100,000
8-1/2% due February 15, 2025....................... 70,000 70,000
Pollution control obligations, securing pollution
control revenue bonds:
Not collateralized by First Mortgage Bonds:
variable rate (4.30% at December 31, 1998 and 1997)
due July 1, 2011 ................................. 44,500 44,500
variable rate (6.435% effective December 31, 1998
and 1997) due July 1, 2016 ....................... 25,000 25,000
5-3/4% series, due September 1, 2016.............. 57,300 57,300
Less: funds held by Trustee........................ (168) (161)
Other................................................. 112 286
Unamortized discount and premium-net.................. (1,013) (1,154)
------- -------
620,731 620,771
Less: maturities due within one year.................. 90,113 173
------- -------
Total long-term debt.............................. 530,618 620,598
------- -------
Total capitalization.................................. $1,368,838 $1,418,988
========== ==========
The accompanying notes to financial statements are an
integral part of these financial statements.
72
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF INCOME
(Thousands of Dollars)
Years ended December 31, 1998, 1997 and August 31, 1996 (Note 1)
1998 1997 1996
------- ------- -------
Operating revenues:
Electric..................................... $951,187 $960,355 $899,397
Other........................................ - 18,928 32,403
------- ------- -------
951,187 979,283 931,800
Operating expenses:
Fuel used in generation...................... 432,127 473,099 417,023
Purchased power.............................. 23,155 14,501 18,010
Other operating & maintenance expenses....... 138,679 166,761 165,129
Depreciation and amortization................ 78,592 70,331 69,781
Taxes (other than income taxes) ............. 47,259 46,515 45,518
Income taxes (Note 13) ...................... 65,696 48,795 65,297
------- ------- -------
785,508 820,002 780,758
------- ------- -------
Operating income................................ 165,679 159,281 151,042
Other income and deductions:
Merger expenses.............................. (1,208) (15,427) (7,878)
Write-off of investment in Carolina Energy
Project (Note 3) .......................... - (16,052) -
Miscellaneous income and deductions - net
(Notes 3 and 15) .......................... 8,819 4,877 13,226
----- ----- ------
7,611 (26,602) 5,348
Interest charges:
Interest on long-term debt................... 46,471 46,356 47,045
Other interest............................... 8,925 7,444 6,088
Allowance for borrowed funds used during
construction .............................. (4,943) (4,546) (2,516)
Dividends on SPS obligated mandatorily
redeemable preferred securities of
subsidiary trust holding solely subordinated
debentures of SPS .......................... 7,850 7,850 -
----- ----- ------
58,303 57,104 50,617
------- ------- -------
Net income...................................... 114,987 75,575 105,773
Dividend requirements on preferred stock........ - - 2,494
------- ------- -------
Earnings available for common stock............. $114,987 $75,575 $103,279
======== ======= ========
The accompanying notes to financial statements are an integral
part of these financial statements.
73
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF INCOME
(Thousands of Dollars)
For the four months ended December 31, 1996 and 1995 (Note 1)
1996 1995
---- ----
(Unaudited)
Operating revenues:
Electric.......................................... $295,579 $267,427
Other............................................. 10,701 11,055
-------- -------
306,280 278,482
Operating expenses:
Fuel used in generation........................... 141,896 119,081
Purchased power................................... 4,900 2,756
Other operating & maintenance expenses............ 55,582 52,134
Depreciation and amortization..................... 23,782 23,329
Taxes (other than income taxes)................... 15,152 14,590
Income taxes (Note 13)............................ 10,987 18,963
-------- -------
252,299 230,853
------- -------
Operating income..................................... 53,981 47,629
Other income and deductions, net:
Merger expenses................................... (2,019) (2,171)
Write-off of investment in BCH project (Note 3)... (15,546) -
Miscellaneous income and deductions - net......... 759 737
-------- -------
(16,806) (1,434)
Interest charges:
Interest on long-term debt........................ 16,302 15,106
Other interest.................................... 1,102 950
Allowance for borrowed funds used during
construction ................................... (892) (807)
Dividends on SPS obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely subordinated debentures of SPS .......... 1,526 -
----- ----
18,038 15,249
------ ------
Net income........................................... 19,137 30,946
Dividend requirements on preferred stock............. - 2,373
-------- -------
Earnings available for common stock.................. $ 19,137 $ 28,573
======== ========
The accompanying notes to financial statements
are an integral part of these financial statements
74
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
(Thousands of Dollars, Except Share Information)
Year ended December 31, 1998, 1997, four months ended December 31, 1996 and
year ended August 31, 1996 (Note 1)
<TABLE>
<CAPTION>
Common Stock, $1 par value Retained
Shares Amount Paid in Capital Earnings Total
------ ------ --------------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1995.. 40,917,908 40,918 306,376 373,458 720,752
Net income.................. - - - 105,773 105,773
Retirements of cumulative
preferred stock ........... - - 1,108 (921) 187
Dividends declared
Common stock.............. - - - (90,020) (90,020)
Cumulative preferred stock - - - (1,573) (1,573)
-------- ------ ------- ------ -------
Balance at August 31, 1996.. 40,917,908 40,918 307,484 386,717 735,119
Net income ................. - - - 19,137 19,137
Dividends declared on
common stock .............. - - - (22,504) (22,504)
------ ------- ------ ------- -------
Balance at December 31, 1996 40,917,908 40,918 307,484 383,350 731,752
Net income.................. - - - 75,575 75,575
Dividends declared
Common stock, prior to
August 1, 1997 Merger ... - - - (63,845) (63,845)
Common stock, to NCE...... - - - (45,092) (45,092)
Merger with PSCo
Exchange of common shares
for NCE stock ............ (40,917,808) (40,918) 40,918 - -
----------- ------- ------ ------- -------
Balance at December 31, 1997 100 - 348,402 349,988 698,390
Net income.................. - - - 114,987 114,987
Dividends declared
Common stock, to NCE...... - - - (75,157) (75,157)
-------- ------ ------- ------- -------
Balance at December 31, 1998 100 $ - $ 348,402 $ 389,818 $ 738,220
====== ======= ========== ========= ==========
</TABLE>
Authorized shares of common stock were 200 at December 31, 1998 and 1997 and 100
million at December 31, 1996 and August 31, 1996.
The accompanying notes to financial statements are an integral
part of these financial statements.
75
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF CASH FLOWS
(Thousands of Dollars, Except Share Information) Years
ended December 31, 1998, 1997, and August 31, 1996 (Note 1)
1998 1997 1996
---- ----- ----
Operating activities:
Net income................................... $114,987 $ 75,575 $105,773
Adjustments to reconcile net income to net
cash provided by operating activities
(Note 1):
Depreciation and amortization.............. 83,103 76,929 65,448
Write-off of investment in Carolina Energy
Project (Note 3)......................... - 16,052 -
Amortization of investment tax credits..... (250) (250) (250)
Deferred income taxes...................... (8,600) 3,587 16,423
Allowance for equity funds used during
construction ............................. - (5) (60)
Change in accounts receivable.............. 20,358 (39,842) (4,697)
Change in inventories...................... (625) 301 134
Change in other current assets............. 27,300 (3,061) (7,688)
Change in accounts payable................. (43,190) 45,683 10,024
Change in other current liabilities........ 31,699 (10,000) (7,271)
Change in deferred amounts................. 30,309 (48,934) (11,381)
Other...................................... 3,358 276 13,571
------- ------- -------
Net cash provided by operating activities 258,449 116,311 180,026
Investing activities:
Construction expenditures.................... (92,218) (118,550)(111,986)
Allowance for equity funds used during
construction .............................. - 5 60
Cost of disposition of property, plant and
equipment ................................. (2,897) (2,371) -
Proceeds from the sale of Quixx and UE, net
of cash disposed (Note 1) ................. - (29,567) -
Purchase of other investments................ (673) (4,639) (1,768)
Sale of other investments.................... 820 - -
Acquisition of TNP properties (Note 3)....... - - (29,200)
------- ------- -------
Net cash used in investing activities.... (94,968) (155,122)(142,894)
Financing activities:
Proceeds from sale of long-term debt......... - - 60,000
Redemption of long-term debt................. (179) (14,986) (4,445)
Short-term borrowings - net.................. (85,242) 100,564 69,624
Retirement of preferred stock................ - - (75,434)
Dividends on common stock (Notes 4 and 15)... (77,696) (86,391) (90,020)
Dividends on preferred stock................. - - (2,494)
------- ------- -------
Net cash used in financing activities.... (163,117) (813) (42,769)
-------- ------- -------
Net increase (decrease) in cash and
temporary cash investments ........... 364 (39,624) (5,637)
Cash and temporary cash investments at
beginning of year .................... 986 40,610 36,860
--- ------ ------
Cash and temporary cash investments at
end of year $ 1,350 $ 986 $31,223
======= ======= =======
The accompanying notes to financial statements are an integral
part of these financial statements.
76
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Four months ended December 31, 1996 and 1995 (Note 1)
1996 1995
---- ----
(Unaudited)
Operating activities:
Net income......................................... $19,137 $30,946
Adjustments to reconcile net income to net
cash provided by operating activities (Note 1):
Depreciation and amortization.................... 22,289 21,873
Write-off of investment in BCH Project (Note 3).. 15,546 -
Deferred income taxes and investment tax credits 4,806 3,166
Allowance for equity funds used during construction (179) (60)
Change in accounts receivable.................... 10,180 9,402
Change in inventories............................ 1,417 928
Change in other current assets................... (5,674) 9,977
Change in accounts payable....................... 628 (10,673)
Change in other current liabilities.............. (12,487) (11,021)
Other............................................ (14,674) 7,627
------- -------
Net cash provided by operating activities...... 40,989 62,165
Investing activities:
Construction expenditures.......................... (66,031) (44,950)
Purchase of other investments...................... (2,297) (3,741)
Acquisition of TNP properties (Note 3)............. - (29,200)
------- -------
Net cash used in investing activities.......... (68,328) (77,891)
Financing activities:
Proceeds from sale of long-term notes and bonds (Note 6) 82,300 -
Proceeds from sale of SPS obligated mandatorily
redeemable preferred securities of subsidiary trust
holding solely subordinated debentures of SPS 100,000 -
Retirement of long-term notes and bonds............ (84,776) (1,717)
Short-term borrowings - net........................ (15,788) 116,250
Retirement of preferred stock...................... - (74,672)
Dividends on common stock.......................... (45,010) (45,010)
Dividends on preferred stock....................... - (2,373)
------- -------
Net cash provided by (used in) financing activities 36,726 (7,522)
------ ------
Net increase (decrease) in cash and temporary
cash investments ........................... 9,387 (23,248)
Cash and temporary cash investments at beginning
of period .................................. 31,223 36,860
------ ------
Cash and temporary cash investments at end of period $40,610 $13,612
======= =======
The accompanying notes to financial statements are an integral
part of these financial statements.
77
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
1. Summary of Significant Accounting Policies (NCE, PSCo and SPS)
Business, Utility Operations and Regulation
NCE is a registered holding company under PUHCA and its domestic utility
subsidiaries (PSCo, SPS and Cheyenne) are engaged principally in the generation,
purchase, transmission, distribution and sale of electricity and in the
purchase, transportation, distribution and sale 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 Statement of Financial Accounting Standards
("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. The Company believes its utility subsidiaries
will continue to be subject to rate regulation. In the event that a portion of a
subsidiaries' operations is no longer subject to the provisions of SFAS 71, as a
result of a change in regulation or the effects of competition, the Company's
subsidiaries could be required to write-off their regulatory assets, determine
any impairment to other assets resulting from deregulation and write-down any
impaired assets to their estimated fair value, which could have a material
adverse effect on NCE's, PSCo's and SPS's financial position, results of
operations or cash flows.
The following regulatory assets are reflected in the Company's
consolidated balance sheets (in thousands):
1998 NCE PSCo SPS
------ ------ ------
Income taxes (Note 13).............. $148,499 $ 69,868 $79,116
Nuclear decommissioning costs....... 69,490 69,490 -
Employees' postretirement benefits
other than pensions (Note 12)..... 57,350 54,461 2,889
Employees' postemployment benefit
(Note 12) ......................... 24,888 24,416 -
Demand-side management costs........ 37,160 31,984 5,176
Unamortized debt reacquisition costs 33,138 15,769 16,808
Early retirement costs.............. 1,000 - 1,000
Thunder Basin judgment (Note 9)..... 548 - 548
Other............................... 9,559 3,124 6,434
------ ------ ------
Total............................. $381,632 $269,112 $111,971
======== ======== ========
78
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1997 NCE PSCo SPS
------ ------ ------
Income taxes (Note 13).............. $162,985 $ 84,356 $ 79,161
Nuclear decommissioning costs....... 76,881 76,881 -
Employees' postretirement benefits
other than pensions (Note 12)..... 63,023 59,995 3,028
Employees' postemployment benefits
(Note 12) ......................... 24,455 23,932 -
Demand-side management costs........ 42,503 38,518 3,985
Unamortized debt reacquisition costs 36,717 17,791 18,344
Early retirement costs.............. 8,008 6,645 1,363
Thunder Basin judgment (Note 9)..... 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 December 31, 1998 and 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. Refer to the discussion below or the Notes to Consolidated
Financial Statements as identified in the above table for a more detailed
discussion regarding recovery periods.
Effective July 1, 1993, PSCo began collecting from customers the costs
approved by the CPUC for the decommissioning of Fort St. Vrain. This recoverable
amount totaled approximately $124.4 million (plus a 9% carrying cost). Such
amount, which is being collected over a twelve-year period, represented the
inflation-adjusted estimated remaining cost of decommissioning activities not
previously recognized as expense at the time of CPUC approval. PSCo is
recovering approximately $13.9 million per year from its customers, including
carrying costs.
On January 27, 1997, the CPUC issued its order on PSCo's 1996 gas rate
case. The CPUC allowed recovery of postemployment benefit costs on an accrual
basis under SFAS 112 and denied amortization of the approximately $8.9 million
regulatory asset recognized upon the adoption of SFAS 112 (see Note 12. Employee
Benefits - Postemployment Benefits). PSCo has appealed in the Denver District
Court the decision related to this issue. 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 electric department 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. In December 1998, the CPUC approved
a settlement agreement on this matter which deferred the final determination of
the regulatory treatment of these costs pending the outcome of the current
appeal of the decision on PSCo's gas rate case. PSCo believes that it will be
allowed recovery of SFAS 112 costs on an accrual basis. If PSCo is ultimately
unsuccessful in its appeal of the gas rate case decision and/or in its request
to recover its electric jurisdictional regulatory asset, all unrecoverable
amounts will be written off (see Note 9. Regulatory Matters).
Certain costs associated with PSCo's DSM programs are deferred and
recovered in rates over five to seven-year periods through the DSMCA. Non-labor
incremental expenses, carrying costs associated with deferred DSM costs and
incentives associated with approved DSM programs are recovered on an annual
basis. Costs associated with SPS's DSM programs are also deferred and, as part
of a negotiated settlement agreement reached in July 1995, will be included in
rate base and cost of service in future PUCT proceedings.
Costs incurred to reacquire debt prior to scheduled maturity dates are
deferred and amortized over the life of the debt issued to finance the
reacquisition, or as approved by the applicable regulatory authority.
79
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Recovered/Recoverable Purchased Gas and Electric Energy Costs -Net
The Company's utility subsidiaries have adjustment mechanisms in place
which currently provide for the recovery of certain purchased gas and electric
energy costs. These cost adjustment tariffs may increase or decrease the level
of costs recovered through base rates and are revised periodically, as
prescribed by the appropriate regulatory agencies, for any difference between
the total amount collected under the clauses and the recoverable costs incurred
(see Note 9. Regulatory Matters).
Other Property
Property, plant and equipment includes approximately $18.4 million and
$25.4 million, respectively, for costs associated with the engineering design of
the future Pawnee 2 generating station and certain water rights located in
southeastern Colorado, also obtained for a future generating station. PSCo is
earning a return on these investments based on its weighted average cost of debt
in accordance with a CPUC rate order.
Non-utility Subsidiaries and International Investments
The Company's non-utility subsidiaries are principally involved in
energy-related businesses including the following: 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
and U.K. Windfall Tax). Financial statements of foreign subsidiaries are
translated into U.S. dollars at current rates, except for revenues, costs and
expenses, which are translated at average current rates during each reporting
period.
Consolidation and Financial Statement Presentation
The Company follows the practice of consolidating the accounts of its
majority owned and controlled subsidiaries. The Company recognizes equity in
income from its unconsolidated investments accounted for under the equity method
of accounting. All intercompany items and transactions have been eliminated.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
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. The Merger was accounted for as a pooling of
interests. Effective with the Merger, certain utility and non-utility
subsidiaries were transferred within NCE's common controlled subsidiaries. The
common stock of Quixx and UE, former SPS subsidiaries, were transferred through
the sale by SPS of the common stock of such subsidiaries at net book value,
aggregating approximately $119.0 million, to NC Enterprises in exchange for
notes payable of NC Enterprises. Subsidiaries of PSCo (Cheyenne, WGI, e prime
and Natural Fuels) were transferred by a declaration of a dividend of the
subsidiaries' stock, at net book value, aggregating approximately $49.9 million,
to NCE. NCE subsequently made a capital contribution of the e prime and Natural
Fuels common stock, at net book value, aggregating approximately $29.5 million,
to NC Enterprises.
On April 22, 1997, SPS changed its fiscal year from a twelve-month period
ending August 31 to twelve-month period ending December 31. SPS filed a
Transition report on Form 10-K for the period September 1, to December 31, 1996
("Transition Period"). The fiscal year periods presented in SPS's statements of
income and cash flows are for the twelve-months ending December 31, 1998 and
1997 and August 31, 1996.
80
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Revenue Recognition
The Company's utility subsidiaries accrue for estimated unbilled revenues
for services provided after the meters were last read on a cycle billing basis
through the end of each year.
Risk Management
The Company and its subsidiaries have initiated the utilization of a
variety of energy contracts, both financial and commodity based, in the energy
trading and energy non-trading operations to reduce their exposure to commodity
price risk. These contracts consist mainly of commodity futures and options,
index or fixed price swaps and basis swaps.
Energy contracts entered into for the trading operations are accounted for
using the mark-to-market method of accounting. Under mark-to-market accounting,
natural gas and power trading contracts, including both physical transactions
and financial instruments, are recorded at fair value and recognized as an
increase or decrease to purchased power or cost of gas sold upon contract
execution. Changes in the market value of the portfolio are recognized as gains
or losses in the period of change and the resulting unrealized gains and losses
are recorded as other current assets and liabilities. Such amounts are
recognized as net positions in the consolidated balance sheets and income
statements as NCE and its subsidiaries have master netting agreements in place
with counterparties.
Energy contracts are also utilized in the Company and its subsidiaries'
non-trading operations to reduce commodity price risk. Hedge accounting is
applied only if the contract reduces the price risk of the underlying hedged
item and is designated as a hedge at its inception. Gains and losses related to
qualifying hedges of firm commitments or anticipated transactions are deferred
and recognized as a component of purchased power or cost of gas sold when
settlement occurs. If, subsequent to being hedged, underlying transactions are
no longer likely to occur, the related gains and losses are recognized currently
in income (see Note 8. Financial Instruments - Risk Management for further
discussion of the Company's risk management activities).
Comprehensive Income
The Company and its subsidiaries adopted SFAS No. 130, "Reporting
Comprehensive Income," effective January 1, 1998. This statement establishes
standards for the reporting and display of comprehensive income (net income plus
all other changes in net assets from non-owner sources) and its components in
financial statements. Other comprehensive income for NCE and PSCo was reported
in the consolidated Statements of Shareholders' Equity and consists of foreign
currency translation adjustments related to the investment in Yorkshire Power.
Basic and Diluted Earnings Per Share
Effective in calendar year 1997, the FASB issued SFAS No. 128, "Earnings
per Share" ("SFAS 128") requiring presentation of basic and diluted earnings per
share. Basic earnings per share is based upon the weighted average common shares
outstanding during the year. Diluted earnings per share reflects the potential
dilution that could occur if securities or other agreements to issue common
stock were exercised or converted into common stock. Diluted earnings per share
is based upon the weighted average common and common equivalent shares
outstanding during each year. Employee stock options are the Company's only
common stock equivalents. There are no other potentially dilutive securities.
81
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For the year ended December 31, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
---------- ------------ ------
(in thousands)
Basic EPS
Net income................................ $341,957 111,859 $ 3.06
======
Effect of Dilutive Securities:
Common stock options...................... - 149
------- -------
Diluted EPS
Net income and assumed conversion......... $341,957 112,008 $ 3.05
======== ======= ======
SFAS 128 had no effect on the Company's 1997 and 1996 reported earnings
per share information.
Approximately 780,000 common stock options were outstanding during 1998,
but were not included in the computation of diluted earnings per share because
the options' exercise prices were greater than the average market price of the
common stock.
Income Taxes
The Company and its subsidiaries file consolidated Federal and
consolidated and separate state income tax returns. Income taxes are allocated
to the subsidiaries based on separate company computations of taxable income or
loss. Investment tax credits have been deferred and are being amortized over the
service lives of the related property. Deferred taxes are provided on temporary
differences between the financial accounting and tax bases of assets and
liabilities using the tax rates which are in effect at the balance sheet date
(see Note 13. Income Taxes).
Stock-based Compensation
The Company uses the intrinsic value based method of accounting for its
stock-based compensation plan (see Note 12. Employee Benefits - Incentive
Compensation).
Temporary Cash Investments and Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company and
its subsidiaries consider all temporary cash investments to be cash equivalents.
These temporary cash investments are securities having original maturities of
three months or less or having longer maturities but with put dates of three
months or less. At December 31, 1998, approximately $14.3 million of cash
balances are restricted for operational uses as they have been committed for
investments in cogeneration projects.
Income Taxes and Interest (Excluding Amounts Capitalized) Paid (in
thousands):
NCE 1998 1997 1996
------- ------- -------
Income taxes ............................... $135,776 $ 99,938 $117,121
Interest.................................... $249,405 $230,507 $197,073
PSCo 1998 1997 1996
------- ------- -------
Income taxes, including amounts paid to NCE $114,340 $ 75,439 $ 66,871
Interest.................................... $188,443 $172,470 $144,533
82
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SPS 1998 1997 1996
------- ------- -------
Income taxes, including amounts paid to NCE $69,111 $37,752 $50,250
Interest.................................... $55,739 $56,486 $52,540
Non-cash Transactions:
Shares of NCE's common stock in 1998 and PSCo's common stock in 1997 and
1996 (222,387 in 1998, 250,058 in 1997 and 274,934 in 1996), valued at the
market price on date of issuance (approximately $10 million for each year), were
issued to a savings plan of the Company. The estimated issuance values were
recognized in other operating expenses during the respective preceding years.
Effective March 31, 1998, PSCo sold its common stock investment in NCI to
NC Enterprises, an NCE subsidiary. PSCo received as consideration a 20-year
promissory note from NC Enterprises in the amount of approximately $292.6
million (see Note 2. Investment in Yorkshire Power and U.K. Windfall Tax).
Stock issuances and the dividend of subsidiaries' stock in connection with
the Merger discussed above were non-cash financing and investing activities and
are not reflected in the consolidated statements of cash flows.
During 1996, PSCo exchanged shares of its common stock in connection with
the acquisition of TOG and TOP (see Note 3. Acquisitions and Divestitures).
Property and Depreciation
Property, plant and equipment is stated at original cost. Replacements and
capital improvements, representing units of property, are capitalized.
Maintenance and repairs of property and replacements of items of property
determined to be less than a unit of property are charged to operations as
maintenance expense. The cost of units of property retired, together with cost
of removal, less salvage, is charged to accumulated depreciation.
Depreciation expense, for financial accounting purposes, is computed on
the straight-line basis based on the estimated service lives and costs of
removal of the various classes of property. Depreciation expense, expressed as a
percentage of average depreciable property, for NCE, PSCo and SPS ranged from
approximately 2.7%-2.9% for the years ended December 31, 1998, 1997 and 1996.
For income tax purposes, the Company and its subsidiaries use accelerated
depreciation and other elections provided by the tax laws.
Allowance for Funds Used During Construction
AFDC, as defined in the system of accounts prescribed by the FERC,
represents the net cost during the period of construction of borrowed funds used
for construction purposes and a reasonable rate on funds derived from other
sources. AFDC does not represent current cash earnings. The Company's regulated
subsidiaries capitalize AFDC as a part of the cost of utility plant.
Gas in Underground Storage (NCE and PSCo)
Gas in underground storage is accounted for under the last-in, first-out
("LIFO") cost method. The estimated replacement cost of gas in underground
storage at December 31, 1998 and 1997, exceeded the LIFO cost by approximately
$13.0 million and $36.0 million, respectively.
83
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Cash Surrender Value of Life Insurance Policies (NCE and PSCo)
The following amounts related to COLI contracts, issued by one major
insurance company, are recorded as a component of Investments, at cost, on the
consolidated balance sheets (in thousands):
1998 1997
---- ----
Cash surrender value of contracts..................... $461,752 $408,425
Borrowings against contracts.......................... 458,104 405,285
------- -------
Net investment in life insurance contracts......... $ 3,648 $ 3,140
======== ========
Refer to Note 10. "Commitments and Contingencies", for discussion of
certain tax matters.
Management Estimates
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Investment in Yorkshire Power and U.K. Windfall Tax (NCE and PSCo)
Acquisition
During the second quarter of 1997, Yorkshire Power, a joint venture
initially equally owned by PSCo and AEP, acquired indirectly all of the
outstanding ordinary shares of Yorkshire Electricity, a U.K. 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.
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 October 1998, NCE contributed $100 million to NC Enterprises, which was
used to reduce the principle balance of the promissory note to PSCo.
U.K. Windfall Tax
In July 1997, the U.K. government enacted a windfall tax on certain
privatized business entities, payable in two installments with the first in
December 1997 and the second in December 1998. The windfall tax was a
retroactive adjustment to the privatization value based on post-privatization
profits during the 1992 to 1995 period. During the third quarter of 1997,
Yorkshire Power recorded an extraordinary charge of approximately $221 million
(135 million pounds sterling) for this windfall tax. The Company's share of this
tax was approximately $110.6 million.
84
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Investment in Ionica
During the second quarter of 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
facilities had been unsuccessful. In November of 1998, Ionica was placed into
receivership and an administrator was appointed to oversee its operations and
distribute its remaining assets. Due to the complexity of Ionica operations it
may take considerable time to complete this process. Yorkshire Electricity
continues to assess the recoverability of the remaining book value of this
investment (approximately $7 million at December 31, 1998).
Generation Sale
In the fourth quarter of 1998, Yorkshire Power recognized a $42.1 million
after-tax gain on the sale of its generation assets. This included the sale of
its 75% interest in Regional Power Generators, Ltd., which owned a 272-megawatt
combined cycle, gas fired plant located in North Lincolnshire, England and the
sale of other generation capacity. Proceeds from these sales were used to reduce
the debt of Yorkshire Power. Yorkshire Electricity is focusing its main business
on the distribution and supply of electricity and the supply of natural gas.
Summarized income statement information for the year ended December 31,
1998 and from the date of acquisition, April 1, 1997 to December 31, 1997, is
presented below (in millions):
1998 1997
------------------ -------
Year 3 Months
Ended Ended (NCE
December 31, March 31, and
(NCE) (PSCo) PSCo)
----- ------ -----
Yorkshire Power:
Operating revenues............... $2,281.7 $ 663.2 $1,492.9
-------- -------- --------
Operating income................. 324.9 65.5 202.3
-------- -------- --------
Income before extraordinary item. 76.9 6.9 69.8
-------- -------- --------
Extraordinary item - U.K.
windfall tax - - (221.1)
-------- ------ ------
Net income (loss)................ $ 76.9 $ 6.9 $ (151.3)
======== ======== ========
NCI's equity in earnings (losses):
Equity in earnings of Yorkshire
Power $ 38.5 $ 3.5 $ 34.9
Extraordinary item - U.K.
windfall tax - - (110.6)
----- ---- ------
$ 38.5 $ 3.5 $ (75.7)
======== ======== ========
85
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NCI's investment in Yorkshire Power at December 31, 1998 and 1997 was
approximately $333 million and $290 million, respectively. Summarized balance
sheet information for Yorkshire Power as of December 31, 1998 and 1997, is
presented below (in millions):
1998 1997
Assets:
Property, plant and equipment............ $1,602 $1,645
Current assets........................... 552 602
Goodwill (net)........................... 1,547 1,602
Other assets............................. 295 293
------ ------
$3,996 $4,142
====== ======
Capitalization and Liabilities:
Common shareholders' equity.............. $ 655 $ 542
Long-term debt........................... 2,121 704
Other non-current liabilities............ 413 489
Current liabilities...................... 807 2,407
------ ------
$3,996 $4,142
====== ======
The unaudited pro forma financial information presented below for NCE
assumes that Yorkshire Power was acquired on January 1, 1997. The pro forma
adjustments include recognition of equity in the estimated earnings of Yorkshire
Power, an adjustment for interest expense on debt associated with the investment
in Yorkshire Power and related income taxes. The estimated earnings of Yorkshire
Power were based on historical earnings of Yorkshire Electricity, prior to its
acquisition by Yorkshire Power, adjusted for the estimated effects of purchase
accounting (including the amortization of goodwill), conversion to United States
generally accepted accounting principles, interest expense on debt issued by
Yorkshire Power associated with the acquisition and related income taxes. Sales
of electricity are affected by seasonal weather patterns and, therefore, the
results of Yorkshire Power/Yorkshire Electricity will not be distributed evenly
during the year. Equity in earnings of Yorkshire Power has been converted at the
average exchange rates for the year ended December 31, 1997 and December 31,
1996, of $1.639/pound and $1.561/pound, respectively.
Based on the above assumptions, shown below is unaudited pro forma
financial information for the years ended December 31, 1997 and 1996 (in
millions, except per share amounts):
NCE Earnings
Available for
common stock EPS-Basic (1)
1997 1996 1997 1996
---- ---- ---- ----
Net income before extraordinary item... $261.5 $272.3 $2.50 $2.64
===== =====
Pro forma adjustments:
Equity in earnings of
Yorkshire Power, net of
U.S. tax benefits (2)............... (10.1) 19.3
Interest expense, net of tax......... (3.5) (13.8)
----- ------
Pro forma result....................... $247.9 $ 277.8 $2.37 $2.70
====== ======= ===== =====
(1) Based on the weighted average number of common shares outstanding for the
period.
(2) The years ending December 31, 1997 and 1996 amounts include $24.0 million
and $18.9 million ($17.9 million and $11.7 million after-tax),
respectively, of write-offs related to certain computer development costs,
acquisition expenses and costs incurred for the preparation for
deregulation.
86
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The unaudited pro forma financial information presented below for PSCo
assumes that NCI 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 years ended December 31, 1998 and 1997 (in
millions):
PSCo Earnings
1998 1997
---- ----
Net income before extraordinary item..................... $200.1 $204.0
Pro forma adjustments:
NCI's net income before extraordinary item............. (2.8) (35.9)
Interest income from promissory note, net of tax....... 3.2 9.5
----- -----
Pro forma result......................................... $200.5 $177.6
====== ======
3. Acquisition and Divestiture of Investments
Acquisition of Planergy (NCE)
Effective April 1, 1998, the Company acquired all of the outstanding
common stock of Falcon Seaboard Energy Services, Inc. ("Planergy") and assumed
other outstanding debt. Planergy includes Planergy, Inc. and Planergy Services
and is primarily engaged in energy consulting, energy efficiency management,
conservation programs and mass-market services. Such acquisition was accounted
for using the purchase method and the acquired assets and liabilities were
valued at their estimated fair market values as of the date of acquisition.
Planergy has been consolidated as a subsidiary of NC Enterprises in the
Company's consolidated financial statements.
Carolina Energy Limited Partnership Investment (NCE and SPS)
The Carolina Energy Partnership, a waste-to-energy cogeneration facility,
was originally scheduled to be completed in 1997, but was halted pending an
independent analysis of the project's engineering and financial viability. The
banks providing debt financing to the project withheld funds for continued
construction. Quixx, UE, other equity owners, senior creditors and the
construction contractor were unable to restructure the project on mutually
agreeable terms and the senior creditors took possession of the assets of the
facility. In June 1997, Quixx wrote-off its investment of approximately $13.6
million in the Carolina Energy Partnership. Additionally, UE wrote-off its net
investment of approximately $2.4 million in this same partnership. Quixx holds a
one-third ownership interest, including a 1% general partnership interest, in
the partnership. UE's net investment in the partnership was comprised of
subordinated debt, the related interest receivable, as well as fees for
engineering services.
BCH Energy Limited Partnership Investment (NCE and SPS)
Quixx holds a 49% limited partnership interest in BCH Energy Limited
Partnership which owned a waste-to-energy cogeneration facility located near
Fayetteville, North Carolina. Limited commercial operation of the BCH project
began in June 1996; however, the facility did not achieve the expected
performance level. An effort was made to restructure the project but it was not
possible to achieve the required improvements on economically viable terms. In
late 1996, senior creditors took possession of the assets of the facility. In
December 1996, Quixx wrote-off its investment of approximately $16 million in
this project.
87
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Quixx Underground Water Rights (NCE and SPS)
During 1996, Quixx sold a portion of its underground water rights for
approximately $14 million. Quixx recognized an after-tax gain on the sale of
these water rights of approximately $11.7 million, which is reflected, in
Miscellaneous income and deductions - net for the year ended December 31, 1996.
Acquisition of Texas-Ohio Gas, Inc. and Texas-Ohio Pipeline, Inc. (NCE and
PSCo)
Effective September 1, 1996, e prime acquired all of the outstanding stock
of TOG and TOP in exchange for a combination of common stock of PSCo and cash.
Such acquisitions were accounted for using the purchase method and the acquired
assets and liabilities were valued at their estimated fair market values as of
the date of acquisition. These companies are primarily engaged in gas brokering
and marketing activities and interstate gas transmission and are subsidiaries of
e prime.
Acquisition of TNP Properties (SPS)
In September 1995, SPS purchased properties of TNP located in the Texas
Panhandle area for $29.2 million. The purchase added approximately 8,000
customers and was accounted for using the purchase method. Cost recovery of this
amount was allowed by the PUCT through a rate surcharge over a ten-year period.
4. Capital Stock (NCE, PSCo and SPS)
Shareholder Rights
On April 30, 1997, the Board of Directors declared that a dividend of one
right for each Common Share be paid on the effective date of the business
combination among the Company, PSCo and SPS to shareholders of record of the
common shares issued and outstanding at the close of business on the day before
the effective date of the business combination. Each right represents the right
to purchase one one-hundredth of a share of Series A Junior Participating
Preferred Stock at a price of $100 per one one-hundredth share. Additionally,
the Board of Directors created a Series A Junior Participating Preferred Stock,
$1 par value, and reserved 2.6 million shares for issuance upon exercise of the
Rights. In the event any person or group acquires 10% or more of the Company's
common stock, the holders of the rights generally will be entitled to receive,
upon exercise, common stock of the Company having a value equal to two times the
exercise price of the right. In addition, the Board of Directors may, at its
option after a person or group acquires 10% or more of the Company's common
stock, exchange all or part of the rights for shares of the Company's common
stock. In the event that the Company is acquired in a merger or other business
combination or 50% or more of the Company's assets or earning power is sold or
transferred, the holders of the rights have the right to receive, upon exercise,
common stock of the acquiring company having a value equal to two times the
exercise price of the right. The Company may redeem the rights at a price of
$0.001 per right at any time prior to the tenth day following the date any
person or group acquires 10% or more of the Company's common stock. The rights
expire 10 years after the record date, unless earlier redeemed or exchanged by
the Company.
Common Stock Issuances
In November 1998, NCE issued 2.5 million shares of common stock. The net
proceeds totaling $117.0 million were used for general corporate purposes and
the retirement of short-term debt. In December 1997, NCE issued 5.9 million
shares of common stock, resulting in net proceeds (after deducting issuance
costs) totaling approximately $251.4 million. The proceeds from the sale of
stock were used for general corporate purposes, including retirement of
short-term debt and a capital contribution to PSCo. PSCo used such proceeds to
retire short-term debt.
88
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Preferred Stock of NCE
NCE has 20 million shares of preferred stock authorized. At December 31,
1998, the Company has not issued any of the preferred stock.
Preferred Stock of Subsidiaries
December 31, 1998 December 31, 1997
Shares Amount Shares Amount
------ ------ ------ ------
(in thousands) (in thousands)
PSCo cumulative preferred stock,
$100 par value, 3 million shares
authorized:
Issued and outstanding:
Not subject to mandatory
redemption (1):
4.20% series................... - - 100,000 $ 10,000
41/4% series (includes $7,500
premium) ..................... - - 174,997 17,507
41/2% series................... - - 65,000 6,500
4.64% series................... - - 159,950 15,995
4.90% series................... - - 150,000 15,000
4.90% 2nd series............... - - 150,000 15,000
7.15% series................... - - 250,000 25,000
------ ------- ------- -------
Total.......................... - - 1,049,947 $105,002
====== ======= ========== ========
Subject to mandatory redemption (2):
7.50% series .................. - - 216,000 $ 21,600
8.40% series................... - - 202,294 20,229
------ ------- ------- -------
- - 418,294 41,829
Less: Preferred stock subject to
mandatory redemption within
one year....................... - - (25,760) (2,576)
------ ------- ------- -------
Total........................ - - 392,534 $ 39,253
====== ======= ======= ========
PSCo cumulative preferred stock,
$25 par value, 4 million shares
authorized:
Issued and outstanding:
Not subject to mandatory redemption (1):
8.40% series................... - - 1,400,000 $ 35,000
====== ======= ========= ========
PSCo cumulative preferred stock,
$0.01 par value,
10 million shares authorized with
no shares outstanding (3) ....... - - - $ -
===== ==== ===== ========
SPS cumulative preferred stock, $1
par value,
10 million shares authorized with
no shares outstanding (4) ........ - - - $ -
==== ==== ==== ========
(1) On June 10, 1998, PSCo redeemed all of the preferred stock, $100 par value,
at a value of $101 per share plus accrued dividends and all of the preferred
stock, $25 par value, at a value of $25.25 per share plus accrued dividends.
(2) On June 10, 1998, PSCo redeemed all outstanding shares of the 7.50% series
subject to mandatory redemption for $101.50 per share plus accrued dividends and
all of the 8.40% series subject to mandatory redemption for $101.75 per share
plus accrued dividends. In 1997, PSCo repurchased 6,598 shares of the 8.40%
cumulative preferred series subject to mandatory redemption. In 1996, PSCo
repurchased 13,760 shares of the 8.40% cumulative preferred series subject to
mandatory redemption.
(3) On July 10, 1998, the shareholders of PSCo approved an amendment to the
Restated Articles of Incorporation to replace the existing authorized preferred
stock and to provide for a class of 10 million authorized shares of preferred
stock, $0.01 par value. This preferred stock may be issued from time to time in
such series and having such designations, preferences, limitations and relative
rights as the Board of Directors may determine.
(4) On January 31, 1996, the shareholders of SPS approved an amendment to the
Restated Articles of Incorporation to replace the existing authorized preferred
stock and to provide for a class of 10 million authorized shares of preferred
stock, $1.00 par value. This preferred stock may be issued from time to time in
such series and having such designations, preferences, limitations and relative
rights as the Board of Directors may determine.
89
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. 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 obligations under the
Subordinated 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 PSCo 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 $100 million of its 7.85% Trust Preferred Securities,
Series A. The sole asset of the trust is $103 million principal amount of SPS's
7.85% Deferrable Interest Subordinated Debentures, Series A due September 1,
2036. 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 expenses of the trust. Considered together, the Back-up
Undertakings constitute a full and unconditional guarantee by SPS of the trust
obligations under the preferred securities. The proceeds from the sale were used
to reduce short-term debt.
90
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Long-Term Debt of Subsidiaries (NCE, PSCo and SPS)
1998 1997
---- ----
(in thousands)
First Mortgage Bonds:
6-3/4% retired July 1, 1998........................ $ - $ 25,000
6-7/8% due December 1, 1999........................ 90,000 90,000
6.00% due January 1, 2001.......................... 102,667 102,667
7-7/8% due April 1, 2003........................... 4,000 4,000
6.00% due April 15, 2003........................... 250,000 -
8-1/8% due March 1, 2004........................... 100,000 100,000
5-7/8% due March 1, 2004........................... 21,500 22,000
7-1/4% due July 15, 2004........................... 135,000 135,000
6-3/8% due November 1, 2005........................ 134,500 134,500
6-1/2% due March 1, 2006........................... 60,000 60,000
7-1/8% due June 1, 2006............................ 125,000 125,000
5-5/8% due April 1, 2008........................... 18,000 18,000
7-3/8% due November 1, 2009........................ 27,250 27,250
5-1/2% due June 1, 2012............................ 50,000 50,000
5-7/8% due April 1, 2014........................... 61,500 61,500
9-7/8% due July 1, 2020............................ 75,000 75,000
Variable rate (4.05% and 3.80% at December 31, 1998
and 1997) due September 1, 2021.................. 7,000 7,000
8-3/4% due March 1, 2022........................... 150,000 150,000
8-1/4% due July 15, 2022........................... 40,000 40,000
8.20% due December 1, 2022......................... 100,000 100,000
7-1/4% due January 1, 2024......................... 110,000 110,000
7.50% due January 1, 2024.......................... 8,000 8,000
8.50% due February 15, 2025........................ 70,000 70,000
Variable rate (4.05% and 3.80% at December 31, 1998
and 1997) due March 1, 2027...................... 10,000 10,000
Secured Medium-Term Notes, 6.02% - 9.25%, due March
4, 1998 - March 5, 2007.......................... 296,500 423,500
Other secured long-term debt 13.25%, due in
installments through October 1, 2016............... 30,755 31,155
Pollution control obligations, securing pollution
control revenue bonds:
Not collateralized by First Mortgage Bonds:
Variable rate (4.30% at December 31, 1998 and
1997), due July 1, 2011 ........................ 44,500 44,500
Variable rate (6.435% effective at December 31,
1998 and 1997), due July 1, 2016................ 25,000 25,000
5-3/4% series, due September 1, 2016............. 57,300 57,300
Less: funds held by Trustee:....................... (168) (161)
Unsecured Medium-Term Notes:
5.86% - 6.14% due October 13, 1998 - May 30, 2000 100,000 100,000
Capital lease obligations, 4.21% - 11.21% due in
installments through May 31, 2025.................. 39,751 44,747
Other................................................ 6,284 286
Unamortized discount and premium - net............... (5,629) (5,820)
------- ------
2,343,710 2,245,424
Less: maturities due within one year.................... 138,165 257,469
------- -------
$2,205,545 $1,987,955
========== ==========
The First Mortgage Bonds include all debt (including First Collateral
Trust Bonds) issued by the Company's utility subsidiaries under various mortgage
indentures. Substantially all properties of the Company's utility subsidiaries,
other than expressly excepted property, are subject to the liens securing the
First Mortgage Bonds. Additionally, the SPS Indenture provides for certain
restrictions on the payment of dividends by SPS.
The Red River Authority of Texas has issued certain obligations, based on
long-term installment sale agreements executed by SPS, that relate to the
pollution control facilities installed at SPS's coal-fueled generating units.
SPS's payments under the pollution control obligations are pledged to secure the
Red River Authority Pollution Control Revenue Bonds.
91
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The annual maturities and sinking fund requirements during the five years
subsequent to December 31, 1998 are (in thousands):
Year Maturities Sinking Fund Requirements Total
---- ---------- ------------------------- -----
NCE 1999 $138,165 $ 560 $138,725
2000 131,721 1,310 133,031
2001 140,969 1,310 142,279
2002 16,806 2,810 19,616
2003 281,848 2,810 284,658
PSCo 1999 $ 44,481 $ 500 $ 44,981
2000 131,656 1,250 132,906
2001 140,969 1,250 142,219
2002 16,806 2,750 19,556
2003 281,848 2,750 284,598
SPS 1999 $ 90,113 $ - $ 90,113
2000 - - -
2001 - - -
2002 - - -
2003
The sinking fund requirements relate to PSCo and Cheyenne and they expect
to satisfy substantially all of their sinking fund obligations in accordance
with the terms of their respective indentures through the application of
property additions. SPS has no significant sinking fund requirements.
7. Short-term Borrowing Arrangements (NCE, PSCo and SPS)
Notes Payable and Commercial Paper
Information regarding notes payable and commercial paper for the years
ended December 31, 1998 and 1997 is as follows (in thousands, except interest
rates):
1998 1997
NCE
Notes payable to banks............................... $ 36,437 $147,500
Commercial paper..................................... 487,957 440,843
------- -------
$524,394 $588,343
======== ========
Weighted average interest rate at year end.............. 5.57% 5.74%
PSCo
Notes payable to banks............................... $ - $ 50,000
Commercial paper..................................... 402,795 286,599
Note payable to affiliates (by NCI to Quixx)......... - 11,956
------- -------
$402,795 $348,555
======== ========
Weighted average interest rate at year end.............. 5.72% 5.78%
SPS
Commercial paper..................................... $ 85,162 $154,244
Note payable to affiliates (UE)...................... 9,000 9,000
Note payable to affiliates (Quixx)................... - 16,160
------- -------
$ 94,162 $179,404
======== ========
Weighted average interest rate at year end.............. 5.50% 5.60%
92
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Bank Lines of Credit and Compensating Bank Balances
In August 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. As of December 31, 1998, NCE had used $37
million.
PSCo and its subsidiaries have entered into a credit facility with several
banks providing $300 million in committed bank lines of credit. The credit
facility, which is used primarily to support the issuance of commercial paper by
PSCo and PSCCC, alternatively provides for direct borrowings thereunder. 1480
Welton, Inc. and PSRI are provided access to the credit facility with direct
borrowings guaranteed by PSCo. The facility expires November 17, 2000.
Additionally, PSCo has a credit facility which provides $150 million in
committed lines of credit and expires on June 25, 1999. SPS has a credit
facility which provides $200 million in committed bank lines of credit and
expires February 26, 1999. As of December 31, 1998, PSCo had used $404 million
and SPS had used $86 million.
Borrowings permitted under the committed bank lines of credit totaled $705
million at December 31, 1998. Arrangements by the Company and its subsidiaries
for committed lines of credit are maintained by a combination of fee payments
and compensating balances.
PSCo and SPS may borrow under uncommitted preapproved lines of credit upon
request; however, the banks have no firm commitment to make such loans.
Individual PSCo arrangements for uncommitted bank lines of credit totaled $50
million at December 31, 1997, of which all were used. None were used or
outstanding as of December 31, 1998.
8. Financial Instruments (NCE, PSCo and SPS)
Fair Value of Financial Instruments
The following tables present the carrying amounts and fair values of the
Company's and subsidiaries' significant financial instruments at December 31,
1998 and 1997. The carrying amount of all other financial instruments
approximates fair value. SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments," defines the fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale.
<TABLE>
<CAPTION>
1998 1997
---------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
NCE (in thousands)
<S> <C> <C> <C> <C>
Investments, at cost................. $ 35,885 $ 35,256 $ 36,936 $ 36,072
Preferred stock of subsidiaries
subject to mandatory redemption .... - - 41,829 42,893
PSCo and SPS obligated mandatorily
redeemable preferred securities of
subsidiary trust holding solely
subordinated debentures of SPS and
PSCo ............................... 294,000 308,250 100,000 104,752
Long-term debt of subsidiaries....... 2,343,710 2,434,249 2,245,424 2,251,523
PSCo
Investments, at cost................. $ 30,355 $ 31,324 $ 36,936 $ 36,072
Preferred stock subject to mandatory
redemption ......................... - - 41,829 42,893
PSCo obligated mandatorily redeemable
preferred securities of subsidiary
trust holding solely subordinated
debentures of PSCo ................. 194,000 204,000 - -
Long-term debt....................... 1,687,611 1,590,226 1,595,298 1,604,160
</TABLE>
93
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1998 1997
---------------- ---------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
SPS (in thousands)
Investments, at cost................... $5,530 $ 3,932 $ - $ -
SPS obligated mandatorily redeemable
preferred securities of subsidiary
trust holding solely subordinated
debentures of SPS ................... 100,000 104,250 100,000 104,752
Long-term debt......................... 620,731 661,823 620,771 625,348
The fair value of the debt and equity securities included in Investments,
at cost, is estimated based on quoted market prices for the same or similar
investments. The debt securities are classified as held-to-maturity and the
equity securities are classified as available-for-sale. The unrealized holding
gains and losses for these debt and equity securities are not significant.
The PSCo and SPS obligated mandatorily redeemable preferred securities and
long-term debt are based on quoted market prices of the same or similar
instruments. Since PSCo, SPS and Cheyenne are subject to regulation, any gains
or losses related to the difference between the carrying amount and the fair
value of these financial instruments would not be realized by the Company's
shareholders.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1998 and 1997. These fair
value estimates have not been comprehensively revalued for purposes of these
financial statements since that date, and current estimates of fair values may
differ significantly from the amounts presented herein.
Off-Balance-Sheet Financial Instruments
NCE has entered in to a construction contract guarantee which assures
Quixx's performance under its engineering, procurement, and construction
contract with Borger Energy Associates, L.P. ("BEA"). Quixx, which owns 45% of
BEA, is constructing a 230 Mw cogeneration facility at a Phillips Petroleum site
near Borger, Texas. The maximum aggregate amount of this guarantee at December
31, 1998 was $88.4 million. This maximum amount decreases to $25.0 million at
commercial operation of the facility, currently estimated in March 1999, and
remains in effect for a period of no longer than 24 months before expiring.
Based upon the current state of construction of the facility, this guarantee is
not expected to have any financial impact on NCE.
As of December 31, 1998, NCE had $59.9 million of guarantees outstanding
to e prime. These guarantees were made to facilitate e prime's energy marketing
and trading activities. Also, e prime, inc. has guaranteed obligations relating
to the sale and purchase of energy and capacity for TOG. These guarantees
totaled $13.3 million at December 31, 1998.
In connection with an agreement for the sale of electric power, SPS
guaranteed certain obligations of a customer totaling $48 million. These
obligations related to the construction of certain utility property that, in the
event of default by the customer, would revert to SPS.
NCE and YGSC have guaranteed 50% of amounts financed under a $32 million
Credit Agreement among Young Storage and various lending institutions entered
into on June 27, 1995. This debt financing is for the development, construction
and operation of an underground natural gas storage facility in northeastern
Colorado. (see Note 3. Acquisitions and Divestitures).
NC Enterprises has guarantees totaling $10 million of New Century Cadence
as of December 31, 1998. These guarantees relate to the capital requirements and
operations of Cadence Network LLC, in which New Century Cadence is a 33.3%
partner.
94
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Risk Management
Energy Financial Contracts - Trading
The Company and its subsidiaries use the mark-to-market method of
accounting for energy trading activities and recognized a gain related to e
prime's power trading activities and a loss related to e prime's gas trading
activities. These gains and losses were recognized as part of purchased power
and gas purchased for resale, respectively, and totaled less than $500,000. The
following table displays the mark-to-market values of the energy trading
financial instruments of the Company and its subsidiaries at December 31, 1998
and the average value for the period then ended.
Assets Liabilities
Net Notional Average Dec. 31, 1998 Average Dec. 31, 1998
Amount Value Value Value Value
------ ----- ----- ----- -----
(in thousands) (in thousands)
Natural Gas (Mmbtus) 30,000 $ 335 $ 467 $ 344 $ 489
Power (Mwhs) 61,800 149 426 256 795
In addition, PSCo and SPS did not hold any energy trading financial
instruments at December 31, 1998. There were no energy trading financial
instruments held by NCE and its subsidiaries at December 31, 1997.
Energy Financial Contracts - Other than Trading
Various energy financial instruments are used by NCE and its subsidiaries
as hedging mechanisms against future contractual energy related obligations. The
weighted average maturity of these instruments is less than one year. At
December 31, 1998, the Company, as part of e prime's retail gas marketing
business, held notional long volumetric positions of approximately 14.2 million
Mmbtus of natural gas related to these financial instruments which had related
unrealized losses of approximately $6.4 million. At December 31, 1997, e prime
held notional long volumetric positions of approximately $5.2 million Mmbtus of
natural gas related to these financial instruments which had related unrealized
losses of approximately $0.7 million. In addition, PSCo and SPS did not hold any
energy financial instruments at December 31, 1998.
Financial Derivatives - Interest Rates
SPS has an interest rate swap agreement, which, in effect, fixes the
interest rate on a $25 million notional amount at 6.435%. Amounts paid or
received under this agreement are accrued as interest rates change and are
recognized over the life of the agreement as an adjustment to interest expense.
SPS is exposed to interest rate risk in the event of nonperformance by
counterparties; however, SPS does not anticipate such nonperformance.
Credit Risk
In addition to the risks discussed above, NCE and its subsidiaries are
exposed to credit risk in its risk management activities. Credit risk relates to
the risk of loss resulting from the nonperformance of a counterparty of its
contractual obligations. As the Company continues to expand its gas and power
marketing and trading activities, the Company's exposure to credit risk and
counterparty default may increase. NCE and its subsidiaries maintain credit
policies intended to minimize overall credit risk.
NCE and its subsidiaries conduct standard credit review for all of its
counterparties. The Company employs additional credit risk control mechanisms
when appropriate, such as letters of credit, parental guarantees and
standardized master netting agreements that allow for offsetting of positive and
negative exposures. The credit exposure is monitored and, when necessary, the
activity with a specific counterparty is limited until credit enhancement is
provided.
95
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Concentration of Credit Risk - Accounts Receivable
No individual customer or group of customers engaged in similar activities
represents a material concentration of credit risk to the Company and its
subsidiaries.
9. Regulatory Matters (NCE, PSCo and SPS)
Electric Utility Matters
PSCo Performance Based Regulatory Plan
PSCo's base electric rates are based on traditional cost of service
ratemaking principles. The CPUC established a performance based regulatory plan
in connection with the CPUC's decision to approve the Merger. The major
components of this regulatory plan include the following:
- an annual electric department earnings test with the sharing of earnings
in excess of an 11% return on equity for the calendar years 1997-2001;
- a Quality of Service Plan ("QSP") designed with performance measures to
effectively penalize or reward PSCo based on the quality of service
provided to retail customers; and
- an Incentive Cost Adjustment ("ICA") which provides for the sharing of
energy costs and savings relative to an annual target cost/delivered Kwh.
The sharing of earnings in excess of an 11% return on equity for the
calendar years 1997-2001 are 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 QSP provides for bill credits if PSCo does not achieve certain
performance measures relating to electric reliability, customer complaints and
telephone response to inquiries. For 1997, the QSP provided for up to $3 million
of rewards for its performance and PSCo's actual reward totaled approximately
$1.5 million. During the third quarter of 1998, PSCo reached a settlement
agreement with the CPUC Staff and the OCC which modified the bill credit
structure for 1998 electric reliability and eliminated the reward structure for
the years 1999 through 2001. Approval of this modification was obtained in
November 1998.
In April 1998, PSCo filed with the CPUC its proposed Performance Based
Regulatory Plan adjustment for calendar year 1997. This adjustment provides 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 earnings test, net of QSP rewards. PSCo recorded a customer refund
obligation of $15.1 million for the 1997 earnings test. In July 1998, PSCo began
refunding a portion of this amount to customers through bill credits. As of
December 31, 1998, PSCo recorded an estimated refund obligation of approximately
$8.1 million for the 1998 earnings test.
Additionally, a $6 million annual electric rate reduction was instituted
October 1, 1996, followed by an additional $12 million annual electric rate
reduction effective with the implementation of new retail gas rates on February
1, 1997. PSCo agreed to freeze base electric rates after the Merger rate
reductions for the period through December 31, 2001 with the flexibility to make
certain other rate changes, including those necessary for the recovery of DSM,
QF capacity costs 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.
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PSCo FERC Rate Case
PSCo filed a rate case with the FERC on December 29, 1995, requesting a
slight overall rate increase (less than 1%) from its wholesale electric
customers. This filing, among other things, requested approval for recovery of
OPEB costs under SFAS 106, postemployment benefit costs under SFAS 112 and new
depreciation rates based on the Company's most recent depreciation study. In
March 1997, the FERC issued an order accepting for filing and suspending certain
proposed rate changes. Settlement agreements were reached with all parties and
filed with the FERC, which, resulted in a slight decrease in rates overall. A
final order accepting the settlement agreements was received in June 1997.
SPS Merger Related Rate Reductions
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, $100,000 in Oklahoma and $10,000 in Kansas and $1.5 million to
wholesale customers.
Under a settlement reached with the NMPRC, effective December 30, 1998,
SPS discontinued the merger savings credit of $1.2 million per year with the
implementation of new retail rates in New Mexico as discussed below.
SPS Electric Cost Adjustment Mechanisms
Substantially all fuel and purchased power costs are recoverable from
utility customers, as determined on a jurisdictional basis, using approved cost
adjustment mechanisms. As a result of amendments during 1998 to contracts
between the coal supplier to SPS and the railroad company it employs, coal
transportation costs are projected to decline significantly for the period from
November 1998 through December 2002. These savings will be passed on to
customers.
Texas
The PUCT's regulations require 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.
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. The
Company has also requested the prospective sharing of margins from wholesale
non-firm sales. The outcome of this fuel reconciliation proceeding is pending
and a hearing has been set for June 1999.
SPS was named as a defendant in a case entitled Thunder Basin Coal Co. vs.
Southwestern Public Service Co. In November, 1994, the jury returned a verdict
in favor of Thunder Basin and awarded damages of approximately $18.8 million.
SPS appealed the judgment and, in January 1997, that Court found in favor of
Thunder Basin and upheld the judgment. 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.
During 1996 and 1997, SPS obtained conditional approval to collect portions
of the Thunder Basin judgment from wholesale customers from the FERC and the
NMPRC issued an order granting recovery of the New Mexico retail jurisdictional
portion of the judgment. In May 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. The PUCT issued a decision which denied
recovery of the judgment through a surcharge on the grounds that the costs were
not classified as
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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.
New Mexico
In October 1997, the NMPRC approved a fixed fuel factor for SPS's New
Mexico retail jurisdiction, effective January 1998. This employs an over/under
fuel collection calculation made on a monthly basis. SPS is required to petition
for a change in the fixed fuel factor if the over/under recovery balance reaches
$5 million. In addition, on an annual basis SPS files with the NMPRC a report of
SPS's fuel and purchase power costs, which includes the current over/under
recovery balance and proposed rate changes to refund or surcharge the balance.
The methodology of the over/under calculation, plus interest, is similar to the
Texas fixed fuel factor calculation. Previously, New Mexico's retail
jurisdictional electric rates applied a monthly fuel factor. In January 1999,
SPS implemented new annual fixed fuel cost recovery factors to reflect lower
fuel costs primarily as a result of the aforementioned coal transportation cost
settlement between SPS's coal supplier and the railroad company.
SPS Rate Cases
New Mexico
In November 1997, the NMPRC issued an order investigating SPS's rates. In
the order, the NMPRC determined that because of the rapid changes occurring in
the electric industry the NMPRC 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 in May 1998,
which proposed a $1.7 million annual rate reduction for certain retail customers
in New Mexico and incorporated the $1.2 million guaranteed minimum annual
credits, discussed above. In October 1998, SPS entered into an uncontested
stipulation agreement settling the rate investigation case. As part of this
settlement, SPS instituted a $6 million annual reduction in base rates
(discontinuing the $1.2 million in guaranteed minimum annual credits) for
certain retail customers. Additionally, SPS implemented full normalization in
its accounting for income taxes with recovery of the New Mexico jurisdictional
portion of the tax regulatory asset over 16.8 years. On November 30, 1998, the
NMPRC approved the stipulation and the rate reduction became effective December
30, 1998.
Wholesale - FERC
In 1989, the FERC issued its final order regarding a 1985 wholesale rate
case. SPS appealed certain portions of that order that related to recognition of
rates of the reduction of the federal income tax rates from 46% to 34%. The
United States Court of Appeals remanded the case, directing the FERC to
reconsider SPS's claim. Negotiated settlements with certain customers were
reached, and approved by the FERC, in 1993 and 1995, with SPS receiving
approximately $10 million, including interest. Settlement agreements were
reached with the two remaining customers during 1998 and approved by the FERC.
In connection with these settlements, SPS recorded $16.9 million of additional
revenues and $7.6 million of additional depreciation expense.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Cheyenne Electric Cost Adjustment Mechanism
Cheyenne filed for an increase in its ECA rates of approximately $3
million and new rates became effective January 1, 1999. This increase, however,
is being contested and hearings are scheduled for March 1999.
Gas Utility Matters
PSCo Rate Cases
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. The District Court judge
requested oral arguments in the proceeding. The Company anticipates a decision
during 1999.
In November 1998, PSCo filed a retail gas rate case with the CPUC
requesting an annual increase in rates of approximately $23.4 million. The
request for a rate increase reflects revenues for additional plant investment, a
12.0% return on equity and the recovery of incremental year 2000 costs (see Note
5. Commitments and Contingencies - Year 2000 Costs). The recovery of
postemployment benefit costs was not included in this request pending a decision
from the Denver District Court, as discussed above. Hearings are set for April
1999. The new rates, if approved, would become effective July 1, 1999.
Cheyenne Rate Case
In May 1997, Cheyenne filed an application with the WPSC for an overall
annual increase in retail gas revenues of approximately $1.25 million. 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.
10. Commitments and Contingencies (NCE, PSCo and SPS)
Environmental Issues
The Company and its subsidiaries are subject to various environmental
laws, including regulations governing air and water quality and the storage and
disposal of hazardous or toxic wastes. The Company and its subsidiaries assess,
on an ongoing basis, measures to ensure compliance with laws and regulations
related to air and water quality, hazardous materials and hazardous waste
compliance and remediation activities.
Environmental Site Cleanup
As described below, PSCo has been or is currently involved with the
cleanup of contamination from certain hazardous substances. In many 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 is pursuing, or intends to pursue, recovery from other PRPs and
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 CERCLA, the U.S. 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
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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. Both sides of the
litigation filed petitions for certiorari to the Colorado Supreme Court which
granted a hearing on several issues, although the matter is still pending. 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 that 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, which is still pending. In March 1998,
PSCo sold the remaining Barter properties, and the total proceeds were $1.1
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
judgment approving a $5.3 million offer of settlement between PSCo and the
building owners resolving all claims. In December 1995, PSCo filed complaints
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, which is still pending. One
carrier was excluded from the summary judgment; subsequently, that carrier
received approval to be dismissed on the same basis as the other carriers. In
March 1998, PSCo reached a settlement with another carrier who was not part of
the Denver District Court action. In December 1998, the CPUC approved recovery
of the electric jurisdictional net costs totaling approximately $3.1 million
through PSCo's electric department earnings test over a five-year amortization
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 will 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 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) the 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. In addition,
PSCo 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 these future plant modifications to meet NOx requirements total
approximately $2.5 million and pertain to PSCo's Cherokee Unit 1 and 2 and
Arapahoe Unit 3.
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
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sufficient to meet future state requirements for 15 years. Legislation was
passed and signed into law during the second quarter of 1998. During the third
quarter of 1998, PSCo and the CDPHE entered into a voluntary emissions reduction
agreement under the legislation. In November 1998, the Company filed for
recovery of these costs with the CPUC. The voluntary emissions reduction
agreement will be effective only if the CPUC approves a cost recovery mechanism
acceptable to PSCo.
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. Installation of this emission control equipment is in process and on
schedule in accordance with the settlement agreement. The initial installation
of some equipment at Unit 1 was completed in late 1998.
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. Settlement discussions were held in 1998, although no
settlement was achieved. There have been no further settlement discussions.
Resolution of this matter may require the installation of additional 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.
Fort St. Vrain Defueling and Decommissioning
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 the site was released for unrestricted use.
PSCo is currently operating a gas-fired combined cycle steam generation plant at
this facility.
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
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request to the NRC to transfer the title of the ISFSI. The NRC is reviewing this
request and PSCo anticipates approval in early 1999.
As a result of the DOE settlement, coupled with a complete review of
expected remaining decommissioning costs and establishment of the anticipated
refund to customers, pre-tax earnings were positively impacted for 1997 and 1996
by approximately $5 million and $16 million, respectively. In accordance with
the 1991 CPUC approval to recover certain decommissioning costs, 50% of any cash
amounts received from the DOE as part of a settlement, net of costs incurred by
PSCo, including legal fees, is to be refunded or credited to customers. At
December 31, 1998, a $4.7 million refund to customers has been recorded on the
consolidated balance sheet.
Under the Price-Anderson Act, PSCo remains subject to potential
assessments levied in response to any nuclear incidents prior to early 1994.
PSCo continues to maintain primary commercial nuclear liability insurance of
$100 million for the Fort St. Vrain site and the adjoining ISFSI. PSCo also
maintains coverage of $20.4 million to provide property damage and
decontamination protection in the event of an accident involving the ISFSI.
Leyden Gas Storage Facility
During August 1998, a Jefferson County, Colorado District Court jury found
PSCo liable for approximately $1.8 million for the reduction in land value and
related damages resulting from the allegations that natural gas had migrated
from the Leyden Gas Storage facility. PSCo appealed the judgment. The affected
land is located north of, but not immediately adjacent to, the storage facility.
Additionally, PSCo has requested condemnation authorization for a buffer zone
from the Colorado Oil and Gas Conservation Commission.
Fuel Purchase Requirements
Coal Purchases and Transportation
PSCo and SPS have in place various long-term contracts for the purchase
and transportation of coal (and with respect to SPS, the processing of coal for
deliveries to its bunkers) which are used in the generation of electricity.
These contracts expire on various dates through 2017 and at December 31, 1998,
the total estimated obligations, based on 1998 prices, for PSCo were
approximately $729.2 million, and for SPS were approximately $1.2 billion.
Gas Purchases and Transportation
PSCo and Cheyenne have long-term contracts for the purchase, firm
transportation and storage of natural gas. These contracts, excluding the
thirty-year contract with Young Storage which has been accounted for as a
capital lease, are primarily used to support distribution of natural gas and the
majority of these contracts expire on various dates through 2002. At December
31, 1998, PSCo has minimum annual obligations under such contracts of
approximately $167 million in 1999 declining thereafter for a total estimated
commitment of approximately $245 million. The combined PSCo and Cheyenne minimum
annual obligation at December 31, 1998, under such contracts is approximately
$169 million in 1999 declining thereafter for a total estimated commitment of
approximately $248 million. SPS does not have any long-term contracts with
minimum obligations.
Purchased Power
PSCo, SPS and Cheyenne have entered into agreements with utilities and QFs
for purchased power to meet system load and energy requirements, replace
generation from company-owned units under maintenance and during outages, and
meet operating reserve obligations.
PSCo and SPS have various pay-for-performance contracts with QFs having
expiration dates through the year 2022. In general, these contracts provide for
capacity payments, subject to the QFs meeting certain contract obligations, and
energy payments based on actual power taken under the contracts. The capacity
and energy costs
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are recovered through base rates and other cost recovery mechanisms.
Additionally, the Company's regulated utilities have long-term purchased power
contracts with various regional utilities expiring through 2018. Total capacity
and energy payments associated with such contracts for NCE were $490 million,
$477 million, and $473 million; for PSCo such payments were $439 million, $452
million and $453 million; and, for SPS such payments were $23 million, $15
million and $20 million in 1998, 1997 and 1996, respectively.
At December 31, 1998, the estimated future payments for capacity that NCE,
PSCo and SPS are obligated to purchase, subject to availability, are as follows
(in thousands):
Regional
QFs Utilities Total
--- --------- -----
NCE
1999.............................. $ 156,489 $ 182,969 $ 339,458
2000.............................. 153,808 163,990 317,798
2001.............................. 151,903 142,301 294,204
2002.............................. 139,656 130,534 270,190
2003.............................. 128,171 119,397 247,568
2004 and thereafter............... 1,053,855 1,018,503 2,072,359
--------- ---------- ---------
Total............................ $1,783,882 $1,757,694 $3,541,576
========== ========== ==========
PSCo
1999.............................. $ 140,445 $ 166,620 $ 307,065
2000.............................. 137,497 155,227 292,724
2001.............................. 135,323 142,301 277,624
2002.............................. 122,802 130,534 253,336
2003.............................. 111,035 119,397 230,432
2004 and thereafter............... 758,917 1,018,504 1,777,421
------- --------- ---------
Total............................ $1,406,019 $1,732,583 $3,138,602
========== ========== ==========
SPS
1999.............................. $ 16,044 $ 7,923 $ 23,967
2000.............................. 16,311 - 16,311
2001.............................. 16,580 - 16,580
2002.............................. 16,854 - 16,854
2003.............................. 17,136 - 17,136
2004 and thereafter............... 294,938 - 294,938
------- ------- -------
Total............................ $377,863 $ 7,923 $385,786
======== ======= ========
Historically, all minimum coal, coal transportation, natural gas and
purchased power requirements have been met.
System Purchase Option
SPS and the City of Las Cruces, New Mexico ("the City") entered into a
System Purchase Option and Rate Agreement in August 1994, which grants the City
the option to sell to SPS the electric utility system serving the City
(including distribution, subtransmission and transmission facilities), which the
City plans to acquire from El Paso Electric Company ("EPE") by purchase or
through condemnation proceedings. The agreement has a three-year term beginning
at the time the City acquires the facilities and ending no later than January 1,
2002. The purchase price which would be paid by SPS would be equal to the amount
required to retire all outstanding debt incurred by the City in acquiring the
facilities plus the City's reasonable costs in acquiring the facilities. SPS has
the right to terminate the agreement if, in SPS's sole discretion, it determines
that any proposed condemnation award is excessive or upon the occurrence of
certain other events. The agreement also provides that, if the City abandons or
dismisses condemnation proceedings as a consequence of SPS's termination of the
agreement, SPS
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
will reimburse the City for one-half of its reasonable litigation expenses and
for any of EPE's damages and litigation expenses that the City is obligated to
pay by final court order. It is anticipated that the City will file a in suit in
State District Court in 1999 seeking to condemn the electric distribution
facilities of EPE. In conjunction with the agreement, the NMPRC has initiated
Case 2651 to investigate whether the agreement constitutes a security, or the
guarantee of a security, under the New Mexico Public Utility Act. SPS has
responded to the Commission's Order to Show Cause and does not believe the
agreement to be a security or the guarantee of a security. A hearing was
conducted in Case 2651 in July 1997. On November 24, 1998, the NMPRC issued an
order dismissing the investigation.
Other
In connection with an agreement for the sale of electric power, SPS
guaranteed certain obligations of a customer totaling $48 million at December
31, 1997. These obligations are related to the construction of certain utility
property that, in the event of default by the customer, would revert to SPS.
Additionally, the Company and its subsidiaries have commitments related to the
purchase of materials, plant and equipment additions, DSM expenditures and other
various items resulting from the normal course of business.
Tax Matters
PSRI, a subsidiary of PSCo, owns and manages permanent life insurance
policies on certain past and present employees. These corporate owned life
insurance ("COLI") policies were entered into prior to July 1, 1986. In 1996,
Congress passed legislation to phase out the tax benefits with certain COLI
policies, however, the Company's policies were grandfathered under this
legislation. In August 1998, the IRS issued a Notice of Proposed Adjustment
proposing to disallow the 1993 and 1994 deductions of interest expense related
to policy loans on the COLI policies totaling approximately $54.6 million. A
Request for Technical Advice was filed with the IRS National Office on January
15, 1999, with respect to the proposed adjustment.
Management plans to vigorously contest this issue. PSCo has not recorded
any provision for income tax or interest expense related to this matter.
Management believes that the Company's tax deduction of interest expense on life
insurance policy loans was in full compliance with IRS regulations and believes
that the resolution of this matter will not have a material adverse impact on
PSCo's financial position, results of operations or cash flows.
Year 2000 Issue
The Y2K issue is a result of a universal programming standard that records
dates as six digits, e.g., mm/dd/yy, using only the last two digits for the
year. Any automated system software or firmware that uses two-digit fields could
understand the year 2000 as the year 1900 if the issue is not corrected. This
situation is not limited to computers; it has the potential to affect many
systems, components and devices, which have embedded computer chips, which may
be, date sensitive. The Y2K issue could result in a major system failure or
miscalculations and does impact many NCE systems considered critical or
important to the Company's business operations. Systems posing the greatest
business risks to the Company include power generation and distribution systems,
telecommunications systems, energy trading systems and billing systems. The
Company is addressing all potential Y2K failure points identified in its
critical automated systems to maintain service to its customers and to mitigate
legal and financial risks.
In 1997, the Company established the Y2K Program Office to oversee all
corporate-wide Y2K initiatives. These initiatives encompass all computer
software, embedded systems, as well as contingency planning. Teams of internal
and external specialists were established to inventory and assess and test
critical computer programs and automated operational systems and modify those
that may not be Y2K compliant. The inventory phase and assessment phase for IT
systems were completed in 1998. Additionally, approximately 77% of the
remediation and testing phase for all critical IT systems was completed in 1998
with the remaining remediation and testing planned to be completed by June 30,
1999. For non-IT systems, which exist primarily in the generation,
104
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
transmission and distribution areas of the business, the inventory and
assessment phases are complete. Remediation and testing for non-IT systems were
approximately 46% complete at December 31, 1998;the remainder is expected to be
completed by September 30, 1999. Systems critical to the generation and delivery
of energy are expected to be completed by June 30, 1999.
The Company has identified third parties, with which it has material
business relationships including interconnected utilities, telecommunications
service providers, fuel and water suppliers, equipment suppliers, leased
facilities and financial institutions. Subject matter experts, along with
functional managers, continue to evaluate the current list of third parties and
have ongoing discussions with these and other critical suppliers about their Y2K
readiness and contingency planning efforts.
The Company currently expects to incur costs of approximately $25 million
to modify its computer software, hardware and other automated systems used in
operations enabling proper data processing relating to the year 2000 and beyond.
This includes approximately $19 million for inventory, assessment, remediation
and testing and approximately $6 million for the replacement of automated system
components. Furthermore, the Company expects to spend approximately $15 million
in capital expenditures for the accelerated replacement of certain non-compliant
IT systems, which are expected to be implemented by September 30, 1999. The
majority of all Y2K costs will be incurred by PSCo and SPS. A significant
portion of the costs incurred to address the Company's Y2K issues will represent
the redeployment of existing information technology resources. The table below
details the actual costs incurred through December 31, 1998, and the estimated
costs to be incurred during 1999 (in millions).
Actual Costs Estimated Estimated
1998 and Prior 1999 Total
-------------- ---- -----
Operating expenses.................... $ 8.2 $ 11.1 $ 19.3
Capital expenditures ................. 7.1 13.4 20.5
Yorkshire Power has also undertaken activities to address Y2K issues. The
estimated proportionate share of Yorkshire Power's incremental Y2K costs (costs
which would not have been required in the normal course of business) that will
flow through to the Company's earnings as a result of such activities is not
expected to have a material impact on the financial condition or results of
operations of the Company.
The most reasonably likely worst case scenario resulting during Y2K
critical dates is a loss of production capacity from certain of the Company's
generating units, along with loss of a portion of the communication system that
is critical to generation and distribution control. If this were to occur, the
Company's operating utilities may be required to "island" (separate from
neighboring interconnected utilities) their generation and distribution systems
in their service territories. As part of this scenario, difficulty could be
encountered with the restart of generating units. The overall blackout recovery
plan for NCE is designed so that this most reasonably likely worst case scenario
would be addressed and electricity restored. Critical components of this plan
have been and continue to be tested to provide assurance that the Company will
be prepared for risks which could result from the Y2K millennium change.
If correction or replacement of non-compliant systems are not completed on
a timely basis, the Y2K issues may have a material impact on the operations of
the Company and its subsidiaries. Management, however, 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.
Leasing Program
The Company's subsidiaries lease various equipment and facilities used in
the normal course of business, some of which are accounted for as capital
leases. Expiration of the capital leases range from 1999 to 2025. The net book
value of property under capital leases was $39.8 million and $39.6 million for
NCE and PSCo,
105
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
respectively at December 31, 1998 and $44.7 million and $44.4 million for NCE
and PSCo, respectively, at December 31, 1997. Assets acquired under capital
leases are recorded as property at the lower of fair-marketvalue or the present
value of future lease payments and are amortized over their actual contract term
in accordance with practices allowed by regulators. The related obligation is
classified as long-term debt. Executory costs are excluded from the minimum
lease payments.
The majority of the operating leases are under a leasing program that has
initial noncancellable terms of one year, while the remaining leases have
various terms. These leases may be renewed or replaced. No material restrictions
exist in these leasing agreements concerning dividends, additional debt, or
further leasing. Rental expense for 1998, 1997 and 1996 was $15.5 million, $36.2
million and $26.9 million, respectively, for NCE; $12.2 million, $31.1 million
and $25.0 million, respectively, for PSCo; and $2.4 million, $4.3 million and
$3.7 million, respectively, for SPS. SPS's rental expense for the Transition
Period was $1.2 million.
Estimated future minimum lease payments at December 31, 1998, are as
follows (in thousands):
Capital Leases
NCE PSCo
--- ----
1999 .............................................. $ 8,020 $ 7,890
2000............................................... 5,158 5,092
2001............................................... 5,035 5,035
2002............................................... 4,820 4,820
2003............................................... 4,646 4,646
All years thereafter............................... 71,711 71,711
------- -------
Total future minimum lease payments 99,390 99,194
Less amounts representing interest............. 59,639 59,639
------- -------
Present value of net minimum lease payments.... $39,751 $39,555
======= =======
Operating Leases
NCE PSCo SPS
--- ---- ---
1999.................................. $13,512 $10,451 $ 2,292
2000.................................. 10,647 8,012 2,195
2001.................................. 5,450 3,297 1,860
2002.................................. 499 347 31
2003.................................. 379 245 26
All years thereafter................. 7,752 7,313 52
------- ------- -------
Total future minimum lease payments $38,239 $29,665 $ 6,456
======= ======= =======
Employee Matters
The Company and its subsidiaries are engaged in certain employment related
litigation and intend to contest, or are actively contesting, all such claims,
and believe that the ultimate outcome will not have a material adverse impact on
the financial position, results of operations or cash flows of the Company or
its subsidiaries.
Union Contracts
PSCo
The current Collective Bargaining Agreement is a three-year agreement
extending from June 1, 1997 through May 31, 2000 with wage increases of 3%, 3%
and 3.25% beginning in each year of the agreement 1997, 1998 and 1999,
respectively. Approximately 1,946 employees, or 62% of PSCo's total workforce at
December 31, 1998, are represented by the International Brotherhood of
Electrical Workers, ("IBEW"), Local 111.
106
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SPS
The current Collective Bargaining Agreement is a three-year agreement
extending from November 1, 1996 through November 1, 1999 with wage increases of
3% in each year of the agreement. Approximately 805 employees, or 60% of SPS's
total workforce at December 31, 1998, are represented by the IBEW, Local 602.
11. Jointly-Owned Electric Utility Plants (NCE and PSCo)
The Company's investments in jointly-owned plants (PSCo participation) and
its ownership percentages as of December 31, 1998, are (in thousands):
Plant Construction
in Accumulated Work in
Service Depreciation Progress Ownership %
Hayden Unit 1................ $ 70,191 $ 31,785 $ 2,841 75.50
Hayden Unit 2................ 58,257 35,518 11,191 37.40
Hayden Common Facilities..... 23,411 720 1,350 53.10
Craig Units 1 & 2............ 57,660 25,985 50 9.72
Craig Common Facilities
Units 1 & 2 ............... 10,990 3,388 30 9.72
Craig Common Facilities
Units 1,2 & 3 ............ 8,773 3,698 1 6.47
Transmission Facilities,
Including Substations ..... 79,722 24,703 92 42.0-73.0
------ ------ ---
$309,004 $125,797 $ 15,555
======== ======== ========
These assets include approximately 320 Mw of net dependable generating
capacity. PSCo is responsible for its proportionate share of operating expenses
(reflected in PSCo's and the Company's consolidated statements of income) and
construction expenditures. The increase in plant in service in 1998 and the
construction work in progress amounts for Hayden Unit 1, Hayden Unit 2 and
Hayden Common Facilities include construction expenditures for installing
emission control equipment for these facilities as discussed in Note 10.
12. Employee Benefits (NCE, PSCo and SPS)
The FASB issued SFAS No.132, "Employers' Disclosures about Pensions &
Other Postretirement Benefits", effective for 1998. This standard does not
change the measurement or recognition of costs for pension or other
postretirement plans but rather standardizes disclosures.
Pensions
The Company and its subsidiaries maintain tax qualified noncontributory
defined benefit pension plans which cover substantially all employees. At
December 31, 1998, there were 5,839, 3,118, and 1,276 NCE, PSCo and SPS
employees, respectively, participating in these plans. NCE, as the plan sponsor,
has overall responsibility for directly allocating such costs of each individual
plan to each of the participating employers. This allocation was determined by
the plans' actuary based on benefit obligations for active participants.
Plan assets are held in a master trust. Plan assets are stated at fair
value and are comprised primarily of corporate debt and equity securities, a
real estate fund and government securities held either directly or in commingled
funds. The Company's funding policy is to contribute annually, at a minimum, the
amount necessary to satisfy the IRS funding standards.
A comparison of the actuarially computed benefit obligation and plan
assets at December 31, 1998 and 1997, is presented in the following table (in
thousands).
107
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1998 1997
---- ----
Change in Benefit Obligation
Obligation at January 1............ $ 991,973 $ 919,452
Service cost....................... 23,902 18,418
Interest cost...................... 66,735 68,327
Plan amendments *.................. (60,014) -
Actuarial loss..................... 52,416 42,460
Benefit payments................... (61,221) (54,412)
Curtailment........................ - (2,272)
------ ------
Obligation at December 31.......... $1,013,791 $ 991,973
========== ==========
Change in Fair Value of Plan Assets
Fair value of plan assets at January 1 $1,131,270 $ 996,085
Actual return on plan assets....... 168,872 189,597
Benefit payments................... (61,221) (54,412)
------- -------
Fair value of plan assets at
December 31 ..................... $1,238,921 $1,131,270
========== ==========
Funded Status
Funded status at December 31....... $ 255,130 $ 139,297
Unrecognized transition asset...... (30,871) (38,109)
Unrecognized prior-service cost (credit) (33,073) 26,477
Unrecognized gain.................. (120,838) (111,190)
-------- --------
NCE prepaid pension asset.......... $ 40,348 $ 16,475
========== =========
PSCo prepaid pension asset........ $ 15,089 $ 9,925
========== =========
SPS prepaid pension asset......... $ 24,611 $ 7,243
========== =========
* Effective July 1, 1998, a new cash balance plan was established by NCE. The
NCE board of directors approved amendments to the existing pension plans and the
plan assets and obligation for all non-bargaining unit employees were
transferred into this plan.
1998 1997
---- ----
Significant assumptions:
Discount rate 6.75% 7.0%
Expected long-term increase
in compensation level 4.0% 4.0%
Cumulative variances between actual experience and assumptions for costs
and returns on assets, outside of a 10% corridor of the greater of plan assets
and obligations, are amortized over the average remaining service lives of
employees in the plans.
The components of net periodic pension cost (credit) are as follows (in
thousands):
NCE 1998 1997 1996
- --- ------- ------ -----
Service cost............................... $ 23,902 $ 18,418 $21,226
Interest cost.............................. 66,735 68,327 66,503
Expected return on plan assets............. (103,928) (89,567) (75,723)
Curtailment................................ - 126 -
Amortization of transition asset........... (7,238) (7,238) (7,238)
Amortization of prior-service cost (credit) (464) 2,431 2,440
Amortization of net gain................... (2,880) (2,395) (801)
------- ------ ------
NCE net periodic pension cost (credit)..... $(23,873) $ (9,898) $ 6,407
======== ======== =======
PSCo net periodic pension cost (credit).... $ (5,093) $ 2,318 $ 6,856
======== ======== =======
SPS net periodic pension cost (credit)..... $(15,175) $(10,968) $ 855
======== ======== =======
108
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SPS
Transition
1996 PSCo SPS Period
- ---- ------ ------ --------
Service cost............................... $ 14,317 $ 6,846 $ 2,390
Interest cost.............................. 46,497 20,266 7,066
Expected return on plan assets............ (53,739) (20,984) (8,263)
Amortization of transition asset........... (3,674) (3,564) (1,188)
Amortization of prior-service cost......... 2,304 136 45
Amortization of net loss (gain)............ 1,151 (1,845) (59)
------- ------- ------
Net periodic pension cost.................. $ 6,856 $ 855 $ (9)
======== ======== ======
1998 1997 1996
------- ------ ------------
PSCo SPS
---- ---
Significant assumptions:
Discount rate............................ 7.0% 7.5-8.0% 7.25% 8.0%
Expected long-term increase in
compensation level ..................... 4.0% 4.25-6.0% 4.0% 6.0%
Expected weighted average long-term rate
of return on assets .................... 9.5% 9.75% 9.75% 8.0%
Additionally, the Company maintains noncontributory defined benefit
supplemental retirement income plans ("Supplemental Plan") for certain
qualifying executive personnel. The Supplemental Plan benefits are paid out
of/or funded through the Company's general fund.
Defined Contribution Plans
The Company and its subsidiaries maintain defined contribution plans which
cover substantially all employees. Total contributions to these plans by the
Company and its subsidiaries were approximately $12 million in 1998, 1997 and
1996.
Postretirement Benefits Other Than Pensions
The Company and its subsidiaries provide certain postretirement health
care and life insurance benefits for substantially all employees who reach
retirement age while working for the Company. PSCo, SPS, NCS and other NCE
affiliates participate in these plans. NCE, as the plan sponsor, will continue
to reflect the costs of these plans in accordance with SFAS 106 and directly
allocate such costs to each of the participating employers. Historically, the
Company recorded the cost of these benefits for these plans on a pay-as-you-go
basis. The Company's subsidiaries have adopted SFAS 106 which requires the
accrual, during the years that an employee renders service to the Company, of
the expected cost of providing these benefits to the employee. The Company is
amortizing the transition obligations for these plans over a period of 20 years.
Plan assets are stated at fair value and are comprised primarily of
corporate debt and equity securities, a real estate fund, government securities
and other short-term investments held either directly or in commingled funds.
PSCo adopted SFAS 106 based on a level of expense determined in accordance
with the CPUC. PSCo transitioned to full accrual accounting for OPEB costs
between January 1, 1993 and December 31, 1997, consistent with the accounting
requirements for rate regulated enterprises. All OPEB costs deferred during the
transition period will be amortized on a straight line basis over the subsequent
15 years.
Additionally, certain state agencies, which regulate the Company's utility
subsidiaries, have issued guidelines related to the recovery or funding of OPEB
costs. SPS is required to fund SFAS 106 costs for Texas and New Mexico
jurisdictional amounts collected in rates and PSCo and Cheyenne are required to
fund SFAS 106 costs in irrevocable external trusts which are dedicated to the
payment of these postretirement benefits.
109
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A comparison of the actuarially computed benefit obligation and plan
assets at December 31, 1998 and 1997, is presented in the following table (in
thousands):
1998 1997
---- ----
Change in Benefit Obligation
Obligation at January 1............ $376,685 $350,354
Service cost....................... 4,917 6,120
Interest cost...................... 26,503 26,537
Plan amendments.................... (14,346) -
Actuarial loss..................... 20,310 16,627
Benefit payments................... (16,874) (21,253)
Curtailment........................ - (1,700)
------ -------
Obligation at December 31.......... $397,195 $376,685
======== ========
Change in Fair Value of Plan Assets
Fair value of plan assets at January 1 $112,324 $ 88,673
Actuarial return on plan assets.... 14,158 1,423
Employer contributions............. 26,928 28,908
Employee contributions............. 535 1,886
Benefit payments................... (7,717) (8,566)
------- -------
Fair value of plan assets at
December 31 ...................... $146,228 $112,324
======== ========
Funded Status
Funded status at December 31....... $250,967 $264,361
Unrecognized transition obligation. (212,648) (227,724)
Unrecognized prior-service credit.. 13,588 -
Unrecognized gain.................. 9,825 26,079
------ ------
NCE accrued benefit cost........... $ 61,732 $ 62,716
======== ========
PSCo accrued benefit cost.......... $ 55,537 $ 58,695
======== ========
SPS accrued benefit cost........... $ 5,941 $ 3,800
======== ========
1998 1997
---- ----
Significant assumptions:
Discount rate 6.75% 7.0%
Expected long-term increase in
compensation level 4.0% 4.0%
110
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The components of net periodic postretirement benefit cost are as follows
(in thousands):
NCE 1998 1997 1996
- --- ------ ------ -----
Service cost............................... $ 4,917 $ 6,121 $ 8,191
Interest cost.............................. 26,503 26,537 27,998
Expected return on plan assets............. (10,767) (8,078) (6,233)
Curtailment................................ - 3,323 -
Amortization of transition obligation...... 15,076 14,992 15,388
Amortization of prior-service cost (credit) (757) - -
Amortization of net gain................... (786) (1,162) (90)
Net periodic postretirement benefit costs.. 34,186 41,733 45,254
OPEB expense recognized in accordance with
current regulations ...................... (39,859) (36,351) (37,981)
Increase (decrease) in regulatory
asset (Note 1) .......................... (5,673) 5,382 7,273
Regulatory asset at beginning of year...... 63,023 57,641 50,368
------- ------ ------
Regulatory asset at end of period.......... $ 57,350 $ 63,023 $ 57,641
======== ======== ========
1998 1997
---------------- --------------
PSCo SPS PSCo SPS
---- --- ---- ---
Net periodic postretirement benefit costs.. $ 26,044 $3,295 $29,025 $8,199
OPEB expense recognized in accordance with
current regulations ..................... (31,578) (3,434) (23,479) (8,363)
Increase (decrease) in regulatory
asset (Note 1) .......................... (5,534) (139) 5,546 (164)
Regulatory asset at beginning of year...... 59,995 3,028 54,449 3,192
------- ------ ------- -----
Regulatory asset at end of period.......... $ 54,461 $2,889 $59,995 $3,028
======== ====== ======= =====
SPS
Transition
1996 PSCo SPS Period
- ---- ------ ------ ---------
Service cost............................... $ 6,928 $ 1,266 $ 419
Interest cost.............................. 22,982 5,109 1,608
Expected return on plan assets............. (4,500) (1,589) (674)
Amortization of transition obligation...... 12,710 2,674 892
Amortization of net gain................... - - (87)
------- ------ ------
Net periodic postretirement benefit costs.. 38,120 7,460 2,158
OPEB expense recognized in accordance with
current regulations ...................... (31,271) (6,715) (2,230)
------- ------ ------
Increase in regulatory asset (Note 1)...... 6,849 745 (72)
Regulatory asset at beginning of year...... 47,600 2,519 3,264
------- ------ ------
Regulatory asset at end of period.......... $54,449 $3,264 $3,192
======= ====== ======
1998 1997 1996
------- ------ -----------
PSCo SPS
---- ---
Significant assumptions:
Discount rate............................ 7.0% 7.5-8.0% 7.25% 8.0%
Expected long-term increase in
compensation level .................... 4.0% 4.0-6.0% 4.0% 6.0%
Expected weighted average long-term rate
of return on assets ................... 9.5% 9.75% 9.75% 8.0%
The assumed health care cost trend rate for 1998 is 8.5%, decreasing to
4.5% in 2007 in 0.5% annual increments. A 1% increase in the assumed health care
cost trend rate would have the following effects (in thousands):
<TABLE>
<CAPTION>
NCE PSCo SPS
1% Increase 1% Decrease 1% Increase 1% Decrease 1% Increase 1% Decrease
----------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Effect on total of
service and interest cost
components of net periodic
postretirement benefit cost......... $ 3,300 $ (2,600) $ 2,364 $(1,911) $ 787 $ (634)
Effect on the accumulated
postretirement benefit obligation... $38,200 $(31,300) $27,290 $(22,509) $9,414 $(7,681)
</TABLE>
111
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Postemployment Benefits
The Company and its subsidiaries provide certain benefits to former or
inactive employees after employment but before retirement (postemployment
benefits). At December 31, 1998, the Company has recorded a $31.3 million
liability on the consolidated balance sheet, using an assumed discount rate of
6.75%. The costs of the benefit were historically recorded on a pay-as-you-go
basis prior to the adoption of SFAS 112 in 1994, which required accrual
accounting. PSCo and Cheyenne recorded regulatory assets upon the adoption of
SFAS 112 in anticipation of obtaining future rate recovery of these costs (see
Note 1. Summary of Significant Accounting Policies Regulatory Assets and
Liabilities). PSCo received FERC approval in 1997 to recover the electric
wholesale jurisdictional portion of its regulatory asset and Cheyenne received
WPSC approval in 1997 to recover its gas jurisdictional portion. The CPUC
allowed recovery of postemployment benefit costs on an accrual basis in
connection with PSCo's 1996 gas rate case, but denied PSCo's request to amortize
its approximately $8.9 million regulatory asset (gas jurisdictional) portion.
PSCo has appealed to the Denver District Court the decision related to this
issue. A final determination on the recovery of PSCo's retail electric
jurisdictional portion has not been made. Management believes it is probable
that the Company will receive the required regulatory approvals to recover these
costs in the future.
Incentive Compensation
The Company and its subsidiaries have Incentive Compensation Plans
("Incentive Plans"), which provide for annual and long-term incentive awards for
key employees. Approximately 5 million shares of common stock have been
authorized for these Incentive Plans for the issuance of restricted shares
and/or stock options, with certain vesting and/or exercise requirements. The
Company recognizes compensation expense for restricted stock awards based on the
fair value of the Company's common stock on the date of grant, consistent with
SFAS 123. Cash, restricted stock and stock option awards were made under these
plans during 1998, 1997 and 1996.
The Company applies Accounting Principles Board Opinion No. 25 in
accounting for its stock-based compensation and, accordingly, no compensation
cost is recognized for the issuance of stock options as the exercise price of
the options equals the fair-market value of the Company's common stock at the
date of grant. Assuming compensation cost for the Company, PSCo and SPS had been
determined consistent with SFAS 123 using the fair-value based method, the
Company's net income would have been reduced by approximately $1.1 million and
$2.8 million in 1998 and 1997, respectively, which would have reduced earnings
per share by approximately $0.01 and $0.03, respectively. The net income would
have been reduced by an insignificant amount with no impact on earnings per
share for 1996.
112
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SFAS 123's method of accounting for stock-based compensation plans has not been
applied to options granted prior to January 1, 1995, and as a result the pro
forma compensation cost may not be representative of that to be expected in
future years. A summary of the Company's stock options at December 31, 1998,
1997 and 1996 and changes during the years then ended is presented in the table
below:
<TABLE>
<CAPTION>
NCE* PSCo SPS
--------------- --------------- ---------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
1998
Outstanding at beginning
of year 2,085,632 $ 41.10
Granted 570,200 47.55
Exercised 187,198 34.61
Forfeited 38,607 45.10
------
Outstanding at end of year 2,430,027 43.07
=========
Exercisable at end of year 1,650,088 40.99
=========
Weighted-average fair value
of options granted $ 4.40
1997
Outstanding at beginning
of year 477,783 $ 31.46 441,227 $31.38 38,480 $30.80
Granted 1,690,147 43.32 62,100 39.00 2,147 37.24
Exercised 78,647 30.34 40,404 29.57 3,666 30.81
Forfeited 3,651 33.41 3,651 33.41 - -
Converted to NCE options at
Merger date - - 459,272 32.56 36,961 32.70
------ ------- -------
Outstanding at end of year 2,085,632 41.10 - - - -
========= ===== ==== =====
Exercisable at end of year 431,071 32.66 - - - -
========= ===== ==== =====
Weighted-average fair value
of options granted $ 5.45 $ 4.23 $ 3.70
1996
Outstanding at beginning
of year 407,117 $29.78 347,931 $ 29.33 62,301 $30.78
Granted 158,270 35.13 158,270 35.13 - -
Exercised 74,303 30.87 51,673 30.21 21,647 30.76
Forfeited 13,301 32.48 13,301 32.84 - -
------ ------ -----
Outstanding at year
of year 477,783 31.46 441,227 31.38 40,654 30.79
======= ======= ======
Exercisable at end of year 158,970 29.05 158,970 29.05 - -
======= ======= =====
Weighted-average fair value
of options granted $ 4.31 $ 4.31 $ -
SPS Transition Period
Outstanding at beginning of year 40,654 $ 30.79
Granted. - -
Exercised 2,174 30.69
Forfeited - -
-----
Outstanding at year of year 38,480 30.80
======
Exercisable at end of year -
======
</TABLE>
* For 1997 and 1996 the amounts reflect the conversion of SPS and PSCo stock
options to NCE stock options.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes Option-Pricing Model with the following weighted-average
assumptions:
1998 1997 1996
-------- -------- --------
Expected option life..................... 10 years 10 years 10 years
Stock volatility.......................... 13.8% 13.3% 11.95%
Risk-free interest rate................... 5.08% 6.15% 6.21%
Dividend yield............................ 5.4% 5.4% 5.8%
113
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Additionally, NCE, PSCo and SPS have other plans, which provide for cash
awards to all employees based on the achievement of corporate goals, of which
certain goals were met in each of the last three years. The expenses accrued
under the incentive programs for the years 1998, 1997 and 1996 are as follows
(in millions of dollars):
1998 1997 1996
------- ------ -----
NCE........................................ $ 11.3 $ 4.2 $ 10.9
PSCo....................................... 3.4 2.7 7.8
SPS........................................ 1.9 1.1 3.1
In accordance with the terms of the Company's Incentive Plans, certain
unexercisable stock options, restricted stock awards and dividend equivalents
became exercisable or vested on the effective date of the Merger. The NCE
Omnibus Incentive Plan, which was adopted in 1997, contains a change in control
provision under which all stock-based awards, such as options and restricted
shares, will vest 100% and all cash-based awards will be paid out immediately in
cash as if the performance objectives have been achieved through the effective
date of the change in control.
13. Income Taxes (NCE, PSCo and SPS)
The provisions for income taxes for NCE and PSCo for the years ended
December 31, 1998, 1997 and 1996, and for SPS for the years ended December 31,
1998, 1997 and August 31, 1996 and for the four months ended December 31, 1996
consist of the following (in thousands of dollars):
1998 NCE PSCo SPS
--- ---- ---
Current income taxes:
Federal.......................... $126,122 $91,122 $71,954
State............................ 8,448 8,176 2,592
-------- ------- -------
Total current income taxes.......... 134,570 99,298 74,546
-------- ------- -------
Deferred income taxes:
Federal.......................... 5,433 6,014 (8,266)
State............................ 815 1,078 (334)
-------- ------- -------
Total deferred income taxes...... 6,248 7,092 (8,600)
-------- ------- -------
Investment tax credits - net........ (5,222) (4,896) (250)
-------- ------- -------
Total provision for income taxes.... $135,596 $101,494 $65,696
======== ======== =======
1997 NCE PSCo SPS
--- ---- ---
Current income taxes:
Federal.......................... $ 82,337 $55,041 $43,401
State............................ 4,872 3,601 2,057
-------- ------- -------
Total current income taxes.......... 87,209 58,642 45,458
-------- ------- -------
Deferred income taxes:
Federal.......................... 45,537 31,548 3,045
State............................ 6,674 5,842 542
-------- ------- -------
Total deferred income taxes...... 52,211 37,390 3,587
-------- ------- -------
Investment tax credits - net........ (5,501) (5,219) (250)
-------- ------- -------
Total provision for income taxes.... $133,919 $90,813 $48,795
======== ======= =======
114
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1996 NCE PSCo SPS
--- ---- ---
Current income taxes:
Federal.......................... $ 79,365 $41,737 $46,435
State............................ 2,832 951 2,689
-------- ------- -------
Total current income taxes..... 82,197 42,688 49,124
-------- ------- -------
Deferred income taxes:
Federal.......................... 70,964 53,612 15,776
State............................ 7,998 7,287 647
-------- ------- -------
Total deferred income taxes...... 78,962 60,899 16,423
-------- ------- -------
Investment tax credits - net........ (7,506) (7,256) (250)
-------- ------- -------
Total provision for income taxes.... $153,653 $96,331 $65,297
======== ======= =======
Four Months Ending December 31,
SPS - Transition Period 1996 1995
--------- ---------
(unaudited)
Current income taxes:
Federal.......................... $ 5,991 $14,799
State............................ 190 998
-------- -------
Total current income taxes..... 6,181 15,797
-------- -------
Deferred income taxes:
Federal.......................... 4,697 3,117
State............................ 192 132
-------- -------
Total deferred income taxes...... 4,889 3,249
-------- -------
Investment tax credits - net........ (83) (83)
-------- -------
Total provision for income taxes.... $ 10,987 $18,963
======== =======
A reconciliation of the statutory U.S. income tax rates and the effective
tax rates follows (in thousands):
<TABLE>
<CAPTION>
1998
NCE PSCo SPS
--- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Tax computed at U.S. statutory
rate on pre-tax accounting income $169,010 35.0% $105,559 35.0% $ 63,239 35.0%
Increase (decrease) in tax from:
Allowance for funds used
during construction......... (6,072) (1.3) (4,315) (1.4) (1,730) (1.0)
Amortization of investment tax
credits .................... (5,221) (1.1) (4,896) (1.6) (250) (0.1)
State income taxes, net of
Federal income tax benefit 6,010 1.2 6,015 2.0 1,468 0.8
Cash surrender value of life
insurance policies.......... (14,553) (3.0) (14,478) (4.8) (76) -
Amortization of prior
flow-through amounts ...... 10,509 2.2 10,446 3.5 - -
Merger related costs -
non-deductible ............ 1,482 0.3 - - 562 0.3
Foreign tax credit........... (15,457) (3.2) (1,363) (0.5) - -
International treaty tax relief (12,806) (2.7) (1,129) (0.4) - -
Other-net.................... 2,694 0.7 5,655 1.9 2,483 1.4
----- ---- ------ ---- ------ ----
Total income taxes.......... $135,596 28.1% $101,494 33.7% $65,696 36.4
======== ==== ======== ===== ======= =====
</TABLE>
115
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
1997
NCE PSCo SPS
--- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Tax computed at U.S. statutory
rate on pre-tax accounting
income......................... $142,506 35.0% $103,199 35.0% $43,529 35.0%
Increase (decrease) in tax from:
Allowance for funds used
during construction......... (2,220) (0.6) (2,222) (0.8) (2) -
Amortization of investment tax
credits .................... (5,501) (1.4) (5,219) (1.8) (250) (0.2)
State income taxes, net of
Federal income tax benefit 6,617 1.6 5,250 1.8 1,689 1.4
Cash surrender value of life
insurance policies.......... (12,952) (3.2) (12,876) (4.4) (76) (0.1)
Amortization of prior
flow-through amounts ....... 10,509 2.6 10,483 3.6 - -
Merger related costs -
non-deductible ............. 8,274 2.0 4,921 1.7 3,352 2.7
Foreign tax credit........... (7,043) (1.7) (7,043) (2.4) - -
International treaty tax relief (6,309) (1.4) (6,309) (2.1) - -
Other-net.................... 38 0.0 629 0.2 553 0.4
----- ----- ------ ---- ------ -----
Total income taxes.......... $133,919 32.9% $ 90,813 30.8% $48,795 39.2%
======== ==== ======== ==== ======= =====
</TABLE>
<TABLE>
<CAPTION>
1996
NCE PSCo SPS
--- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Tax computed at U.S. statutory
rate on pre-tax accounting
income... .................... $153,287 35.0% $100,337 35.0% $59,874 35.0%
Increase (decrease) in tax from:
Allowance for funds used
during construction......... (1,685) (0.3) (1,438) (0.5) (248) (0.1)
Amortization of investment tax
credits .................... (7,506) (1.7) (7,256) (2.5) (250) (0.1)
State income taxes, net of
Federal income tax benefit 6,579 1.5 5,356 1.9 1,748 0.9
Cash surrender value of life
insurance policies.......... (11,265) (2.6) (11,265) (3.9) (76) -
Amortization of prior
flow-through amounts ....... 10,509 2.4 10,509 3.6 - -
Merger related costs -
non-deductible ............. 4,258 1.0 2,574 0.9 2,006 1.2
Other-net.................... (524) (0.2) (2,486) (0.9) 2,243 1.3
----- ----- ------ ---- ----- ---
Total income taxes.......... $153,653 35.1% $ 96,331 33.6% $65,297 38.2%
======== ==== ======== ===== ======= ====
</TABLE>
SPS Transition Period Four Months Ending December 31,
1996 1995
------------- --------------
(unaudited)
Tax computed at U.S. statutory
rate on pre-tax accounting
income... ..................... $10,544 35.0% $17,468 35.0%
Increase (decrease) in tax from:
Allowance for funds used
during construction......... (144) (0.5) (180) (0.4)
Amortization of investment tax
credits ................... (83) (0.3) (83) (0.2)
State income taxes, net of
Federal income tax benefit... 123 0.4 649 1.3
Merger related costs -
non-deductible ............. 488 1.6 620 1.2
Other-net.................... 59 0.3 489 1.1
----- --- --- ----
Total income taxes.......... $10,987 36.5% $18,963 38.0%
======= ==== ======= ======
The Company and its regulated subsidiaries have historically provided for
deferred income taxes to the extent allowed by their regulatory agencies whereby
deferred taxes were not provided on all differences between financial statement
and taxable income (the flow-through method). At December 31, 1998, PSCo and SPS
are fully normalized for FERC jurisdictional purposes. For state jurisdictional
purposes, PSCo is fully normalized in Colorado and Wyoming, respectfully and SPS
is fully normalized in Texas, Oklahoma, and New Mexico (see Note 9. Regulatory
Matters -SPS Electric Cost adjustment Mechanisms). SPS is fully normalized to
the extent allowed by its regulators in Kansas, with flow-through treatment of
certain temporary differences. To give effect to temporary differences for which
deferred taxes were not previously required to be provided, a regulatory asset
was recognized. The regulatory asset represents temporary differences primarily
associated with prior flow-through amounts and the equity component of allowance
for funds used during construction, net of temporary differences related to
unamortized investment tax credits and excess deferred income taxes that have
resulted from historical reductions in tax rates (see Note 1. Summary of
Significant Accounting Policies).
116
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The tax effects of significant temporary differences representing deferred
tax liabilities and assets as of December 31, 1998 and 1997 are as follows (in
thousands in dollars):
1998 NCE PSCo SPS
--- ---- ---
Deferred income tax liabilities:
Accelerated depreciation and
amortization ................... $ 762,538 $ 471,776 $ 280,949
Plant basis differences (prior
flow-through) .................. 150,210 98,208 52,383
Allowance for equity funds used
during construction ............ 74,903 45,137 29,664
Pensions.......................... 29,915 35,053 (6,648)
Other............................. 114,456 64,045 36,169
-------- ------- --------
Total............................ 1,132,022 714,219 392,517
Deferred income tax assets:
Investment tax credits............ 61,912 58,315 2,925
Contributions in aid of construction 87,685 84,720 2,172
Other............................. 33,147 24,461 12,878
-------- ------- --------
Total............................ 182,744 167,496 17,975
-------- ------- --------
Net deferred income tax liability... $ 949,278 $546,723 $374,542
======== ======== ========
1997 NCE PSCo SPS
--- ---- ---
Deferred income tax liabilities:
Accelerated depreciation and
amortization ................... $ 724,879 $ 432,453 $ 278,566
Plant basis differences (prior
flow-through) ................... 173,523 118,332 54,384
Allowance for equity funds used
during construction ............. 77,925 46,715 31,103
Pensions.......................... 31,832 33,105 (1,693)
Other............................. 116,912 75,143 39,424
-------- ------- --------
Total............................ 1,125,071 705,748 401,784
Deferred income tax assets:
Investment tax credits............ 65,111 61,333 3,065
Contributions in aid of construction 72,424 69,560 2,172
Other............................. 37,804 20,737 13,360
-------- ------- --------
Total............................ 175,339 151,630 18,597
-------- ------- --------
Net deferred income tax liability... $949,732 $554,118 $383,187
======== ======== ========
As of December 31, 1998, the consolidated group does not have any
cumulative Federal or state tax credits which have not been realized. A
valuation allowance has not been recorded as the Company expects that all
deferred income tax assets will be realized in the future. The Company's
management intends to reinvest indefinitely, its earnings from the foreign
operations of Yorkshire Power. According, deferred income taxes have not been
provided on any cumulative amount of unremitted earnings.
117
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 14. Business Segment Information (NCE, PSCo and SPS)
NCE:
NCE has three reportable segments: electric utility, gas utility and
international. The electric utility segment consists primarily of the activities
of the three regulated operating companies that provide wholesale and retail
electric service in the states of Colorado, Texas, New Mexico, Wyoming, Kansas
and Oklahoma. The gas utility segment consists primarily of the activities of
three regulated operating companies providing retail gas service in the state of
Colorado and Wyoming. The international segment consists of equity investments
in foreign operations held by NCI since 1997. Revenues from operating segments
below the quantitative thresholds are included in the all other category. Those
primarily include a company involved in non-regulated power and gas marketing
activities throughout the United States; a company that invests in and develops
cogeneration and energy related projects; a company that is engaged in
engineering, design construction management and other miscellaneous services and
a company engaged in energy consulting, energy efficiency management,
conservation programs and mass market services.
The accounting policies of the segments are the same as those described in
Note 1. Summary of Significant Accounting Policies. NCE evaluates performance by
each legal entity based on profit or loss generated from the product or service
provided. NCE segment information is as follows (in thousands):
Electric Gas All
1998 Utility Utility International Other Total
-------- ------- ------------- ----- -----
Revenues:
External customers. $2,626,644 $653,438 $ - $330,823 $3,610,905
Intersegment....... 316 5,281 - 75,209 80,806
Electric margin..... 1,339,201 - - 1,087 1,340,288
Gas margin.......... - 265,971 - 12,722 278,693
Equity in earnings of
nonconsolidated
subsidiaries ....... - - 38,127 (2,026) 36,101
Interest charges and
preferred dividend
requirements ....... 153,462 28,589 745 15,530 198,326
Income taxes.......... 164,189 14,273 (15,817) (12,075) 150,570
Depreciation &
amortization ........ 216,288 43,889 121 8,445 268,743
Segment profit (loss) 278,726 29,859 51,978 9,396 369,959
Segment assets...... 4,777,189 973,263 333,069 482,560 6,566,081
Construction
expenditures ....... 412,005 99,038 - 97,929 608,972
Electric Gas All
1997 Utility Utility International Other Total
-------- ------- ------------- ----- -----
Total
Revenues:
External customers. $2,450,498 $640,248 $ - $251,779 $3,342,525
Intersegment........ 293 3,825 - 25,819 29,937
Electric margin..... 1,269,080 - - 987 1,270,067
Gas margin.......... - 268,423 - 4,882 273,305
Equity in earnings of
nonconsolidated
subsidiaries ..... - - 35,499 (1,333) 34,166
Interest charges and
preferred dividend
requirements ...... 151,718 27,376 186 14,168 193,448
Income taxes........ 146,621 18,555 (1,186) (26,875) 137,115
Depreciation &
amortization 193,877 39,833 89 9,279 243,078
Segment profit (loss) 215,712 27,034 35,946 1,746 280,438
Segment assets...... 4,770,091 1,060,633 290,845 90,401 6,211,970
Construction
expenditures ..... 365,219 105,894 - 4,384 475,497
118
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Electric Gas All
1996 Utility Utility International Other Total
-------- ------- ------------- ----- -----
Total
Revenues:
External customers. $2,408,733 $571,329 $ - $116,972 $3,097,034
Intersegment........ 733 - - 7,008 7,741
Electric margin..... 1,270,520 - - 157 1,270,677
Gas margin.......... - 239,521 - 7,813 247,334
Equity in earnings of
nonconsolidated
subsidiaries ..... - - - 389 389
Interest charges and
preferred dividend
requirements ...... 141,380 23,665 - 14,759 179,804
Income taxes........ 163,657 12,913 - (22,917) 153,653
Depreciation &
amortization ...... 182,667 34,166 - 8,032 224,865
Segment profit (loss) 239,442 17,356 - 13,862 270,660
Segment assets...... 4,529,294 933,666 - 135,362 5,598,322
Construction
expenditures ...... 357,201 96,842 - 925 454,968
Reconciliations: 1998 1997 1996
-------- -------- --------
Revenues
Total revenues for reportable
segments $3,280,398 $3,090,746 $2,980,062
Intersegment revenue............ 80,806 29,937 7,741
Other revenues.................. 330,507 251,779 116,972
Elimination of intersegment revenues (80,806) (29,937) (7,741)
------ -------- ------
Total consolidated revenues.. $3,610,905 $3,342,525 $3,097,034
========== ========== ==========
Profit or Loss
Total profit for reportable segments $ 360,563 $ 278,692 $ 256,798
Other profit (loss)............. 9,396 1,743 13,862
Other unallocated amounts....... (28,002) (18,954) 3,643
Elimination of intercompany profit - 6 (1,962)
----- ----- ------
Income before extraordinary item $ 341,957 $ 261,487 $ 272,341
========== ========== ==========
Assets
Total assets for reportable
segments $6,083,521 $6,121,049 $5,462,960
Other assets.................... 482,559 90,401 135,362
Unallocated assets.............. 1,105,884 1,109,696 1,019,120
--------- --------- ---------
Total consolidated assets.... $7,671,964 $7,321,146 $6,617,442
========== ========== ==========
Segment Consolidated
Other Significant Items Totals Adjustments Totals
------ ----------- ------
1998
Interest charges & preferred
dividends .................... $ 198,326 $ 6,473 $ 204,799
Income taxes.................... 150,570 (14,974) 135,596
Depreciation and amortization... 268,743 - 268,743
Equity in earnings of
unconsolidated subsidiaries... 36,101 - 36,101
Construction expenditures....... 608,972 - 608,972
1997
Interest charges & preferred
dividends .................... $ 193,448 $ 13,182 $ 206,630
Income taxes.................... 137,115 (3,196) 133,919
Depreciation and amortization... 243,078 - 243,078
Equity in earnings of
unconsolidated subsidiaries... 34,166 - 34,166
Construction expenditures....... 475,497 - 475,497
119
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Segment Consolidated
1996 Totals Adjustments Totals
------ ----------- ------
Interest charges & preferred
dividends .................... $ 179,804 $ (4,708) $ 175,096
Income taxes.................... 153,653 - 153,653
Depreciation and amortization... 224,865 - 224,865
Equity in earnings of
unconsolidated subsidiaries... 389 - 389
Construction expenditures....... 454,968 - 454,968
PSCo:
PSCo has three reportable segments: electric utility, gas utility, and
international. During 1998, the electric utility segment consists primarily of
the activities of PSCo's regulated operations that provide wholesale and retail
electric service in the state of Colorado. For the years ended December 31, 1997
and 1996, this segment also included Cheyenne's regulated operations in the
state of Wyoming. During 1998, the gas utility segment consists primarily of the
activities of PSCo's regulated gas operations in Colorado. For the years ended
December 31, 1997 and 1996, this segment also included Cheyenne's regulated
operations in the state of Wyoming and WGI's regulated operations in the states
of Colorado and Wyoming. Revenues from operating segments below the quantitative
thresholds are included in the all other category. Those segments primarily
include a real estate company which owns certain real estate interests of PSCo,
a company which owns and manages permanent life insurance policies on certain
past and present employees and a finance company that finances certain of PSCo's
current assets.
The accounting policies of the segments are the same as those described in
Note 1. Summary of Significant Accounting Policies. PSCo evaluates performance
by each legal entity based on profit or loss generated from the product or
service provided. PSCo segment information is as follows (in thousands):
Electric Gas All
1998 Utility Utility International Other Total
-------- -------- ------------- ------- -----
Total
Revenues from
external customers. $1,635,573 $ 640,064 $ - $ 8,449 $2,284,086
Electric margin..... 833,752 - - - 833,752
Gas margin.......... - 259,509 - - 259,509
Equity in earnings of
Yorkshire Power... - - 3,446 - 3,446
Interest charges and
preferred dividend
requirements ...... 93,579 27,745 192 14,291 135,807
Income taxes........ 97,924 13,997 427 (10,854) 101,494
Depreciation &
amortization ...... 135,876 43,036 40 1,961 180,913
Segment profit...... 166,066 29,207 2,799 15,015 213,087
Segment assets...... 2,981,154 944,456 - 433,417 4,359,027
Construction
expenditures ..... 313,825 95,692 - 95,211 504,728
120
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Electric Gas All
1997 Utility Utility International Other Total
-------- -------- ------------- ----- ------
Total
Revenues from
external customers. $1,485,196 $733,091 $ - $ 11,356 $2,229,643
Electric margin..... 792,588 - - - 792,588
Gas margin.......... - 265,346 - - 265,346
Equity in earnings of
Yorkshire Power... - - 34,926 - 34,926
Interest charges and
preferred dividend
requirements ....... 92,684 26,980 186 13,885 133,735
Income taxes........ 92,930 18,496 (1,186) (19,427) 90,813
Depreciation &
amortization ...... 125,418 38,983 89 3,961 168,451
Segment profit...... 137,899 25,813 35,946 14,091 213,749
Segment assets...... 2,955,537 1,027,060 290,845 55,212 4,328,654
Construction
expenditures ..... 246,015 103,957 - 2,301 352,273
Electric Gas All
1996 Utility Utility International Other Total
-------- -------- ------------- ----- ------
Total
Revenues from
external customers. $1,488,990 $640,497 $ - $ 7,951 $2,137,438
Electric margin..... 803,120 - - - 803,120
Gas margin.......... - 239,521 - 7,813 247,334
Interest charges and
preferred dividend
requirements ...... 87,001 23,665 - 14,115 124,781
Income taxes........ 106,615 12,913 - (23,197) 96,331
Depreciation &
amortization ..... 116,802 34,166 - 3,663 154,631
Segment profit...... 151,139 17,356 - 11,900 180,395
Segment assets...... 2,840,481 930,474 - 71,109 3,842,064
Construction
expenditures ...... 223,395 96,842 - 925 321,162
Reconciliations: 1998 1997 1996
-------- -------- --------
Revenues
Total revenues for reportable
segments $2,275,637 $2,218,287 $2,129,487
Other revenues.................. 8,449 11,356 7,951
----- ------ -----
Total consolidated revenues.. $2,284,086 $2,229,643 $2,137,438
========== ========== ==========
Profit or Loss
Total profit or loss for reportable
segments $198,072 $199,658 $179,679
Other profit or loss............ 15,015 14,091 11,926
Other unallocated amounts....... (18,316) (21,458) (13,107)
Elimination of intersegment profit - (1) -
----- ------ ----
Income before extraordinary item $194,771 $192,290 $178,498
======== ======== ========
Assets
Total assets for reportable segments $3,925,610 $4,273,442 $3,770,955
Other assets.................... 433,417 55,212 71,109
Other unallocated amounts....... 818,609 666,079 730,584
-------- -------- --------
Consolidated total........... $5,177,636 $4,994,733 $4,572,648
========== ========== ==========
121
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Segment Consolidated
Other Significant Items Totals Adjustments Totals
1998
Interest charges & preferred
dividends .................... $135,807 $ 7,839 $143,646
Income taxes.................... 101,494 - 101,494
Depreciation and amortization... 180,913 - 180,913
Equity in earnings of Yorkshire
Power ........................ 3,446 - 3,446
Construction expenditures..... 504,727 - 504,727
1997
Interest charges & preferred
dividends ..................... $133,735 $14,219 $147,954
Income taxes.................... 90,813 - 90,813
Depreciation and amortization... 168,451 - 168,451
Equity in earnings of Yorkshire
Power ....................... 34,926 - 34,926
Construction expenditures....... 352,273 - 352,273
1996
Interest charges & preferred
dividends ..................... $124,781 $(3,213) $121,568
Income taxes.................... 96,331 - 96,331
Depreciation and amortization... 154,631 - 154,631
Construction expenditures....... 321,162 - 321,162
SPS:
SPS operates in the regulated electric utility industry providing wholesale
and retail electric service in the states of Texas, New Mexico, Kansas and
Oklahoma. Revenues from external customers for this reportable segment were
$951.2 million, $979.3 million, $931.8 million, $306.3 million, and $278.5
million for the fiscal years ended December 31, 1998, 1997 and August 31, 1996
and for the four months ended December 1996 and 1995, respectively. During the
fiscal years ended December 31, 1997 and August 31, 1996, operating results
included the activities of Quixx and UE, subsidiaries that were subsequently
transferred to NC Enterprises in connection with the Merger. Neither of these
two segments has ever met any of the quantitative thresholds for determining
reportable segments.
15. Transactions with Affiliates (PSCo and SPS)
PSCo and SPS receive various administrative, management, environmental and
other support services from NCS, which began operations on May 1, 1997 and
construction services from UE. In addition, PSCo and SPS pay interest expense on
any short-term borrowings from NCE. Dividends on common stock declared by PSCo
and SPS are paid to NCE.
PSCo sells firm and interruptible transportation services to e prime for
gas delivered into the Denver/Pueblo operating area. PSCo also receives interest
income from NC Enterprises on the note receivable related to the sale of NCI
effective March 31, 1998 (see Note 2. "Investment in Yorkshire Power and U.K.
Windfall Tax"). SPS receives interest income from NC Enterprises on the note
receivable related to the sale of Quixx and UE as part of the Merger. The table
below contains the various significant affiliate transactions among the
companies and related parties for the years ended December 31, 1998 and 1997 (in
thousands).
PSCo SPS
------------------- --------------------
1998 1997 1998 1997
------- ------- ------- --------
Gas revenues................. $ 5,281 $ 3,825 $ - $ -
Operating expenses........... 197,862 108,096 63,108 36,317
Interest income.............. 14,188 - 8,630 3,618
Interest expenses............ 1,714 156 1,390 747
Dividends paid to NCE........ 188,845 76,093 75,157 45,092
Construction services........ 68,744 16,934 6,465 3,832
There were no significant related party transactions for the year ended
December 31, 1996.
122
<PAGE>
16. Quarterly Financial Data (Unaudited) (NCE, PSCo and SPS)
The following summarized quarterly information for 1998 and 1997 is
unaudited, but includes all adjustments (consisting only of normal recurring
accruals) which the Company considers necessary for a fair presentation of the
results for the periods. Information for any one quarterly period is not
necessarily indicative of the results which may be expected for a twelve-month
period due to seasonal and other factors (in thousands, except per share data).
<TABLE>
<CAPTION>
NCE Three Months ended
--------------------------------------------------
1998 March 31 June 30 September 30 December 31
------- --------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Operating revenues.................... $ 939,504 $ 859,621 $915,898 $ 895,882
Operating income ..................... 181,837 146,666 164,173 157,825
Net income ........................... 86,149 56,593 90,772 108,443
Earnings per share of common stock
outstanding:
Basic............................... $0.78 $0.50 $0.82 $0.96
Diluted............................. $0.78 $0.50 $0.82 $0.95
1997
----
Operating revenues.................... $ 890,011 $ 776,742 $793,472 $ 882,300
Operating income ..................... 176,000 130,336 153,168 169,721
Net income (loss)..................... 78,156 34,045 (47,225) 85,946
Basic and diluted earnings per share
of common stock outstanding:
Income before extraordinary item.... $0.75 $0.33 $ 0.61 $0.81
Extraordinary item (1) ............ - - (1.06) -
Net income (loss)................... $0.75 $0.33 $(0.45) $0.81
</TABLE>
<TABLE>
<CAPTION>
PSCo Three Months ended
---------------------------------------------------
1998 March 31 June 30 September 30 December 31
------- --------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Operating revenues.................... $ 644,642 $ 504,598 $541,601 $593,245
Operating income ..................... 99,846 63,266 76,834 92,072
Net income............................ 68,897 30,908 44,015 56,283
1997
-----
Operating revenues.................... $ 668,717 $ 533,520 $466,582 $560,824
Operating income ..................... 95,981 73,271 70,372 97,729
Net income............................ 62,881 30,607 (73,085)(1) 73,074
</TABLE>
<TABLE>
<CAPTION>
SPS Three Months ended
---------------------------------------------------
1998 March 31 June 30 September 30 December 31
------- --------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Operating revenues.................... $199,732 $ 264,006 $284,648 $202,801
Operating income ................... 31,339 49,319 49,458 35,563
Net income.......................... 18,139 36,917 36,929 23,002
1997
-----
Operating revenues.................... $221,295 $ 243,221 $284,156 $230,611
Operating income ................... 34,457 41,744 50,976 32,104
Net income.......................... 18,218 6,380 (2) 31,111 19,866
</TABLE>
(1)Includes the extraordinary U.K. windfall tax recognized in the third
quarter 1997.
(2)Includes the write-off of Quixx's & UE's investment in the Carolina Energy
Project.
123
<PAGE>
SCHEDULE II
NEW CENTURY ENERGIES, INC.
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended December 31, 1998, 1997 and 1996
Additions
---------
Balance at Charged Charged to Deductions Balance
beginning to other from at end
of period income accounts(1) reserves(2) of year
--------- ------ ----------- ----------- -------
NCE (in thousands)
Reserve deducted from related
assets:
Provision for uncollectible
accounts:
1998....................... $5,355 $6,852 $ 41 $ 7,406 $4,842
====== ====== ===== ======= ======
1997....................... $6,623 $5,854 $ 79 $ 7,201 $5,355
====== ====== ===== ======= ======
1996....................... $6,218 $7,283 $ 453 $ 7,331 $6,623
====== ====== ===== ======= ======
PSCo
Reserve deducted from related
assets:
Provision for uncollectible
accounts:
1998....................... $2,272 $5,593 $ (32) $ 5,579 $2,254
====== ====== ====== ======= ======
1997....................... $4,049 $5,193 $(500) $ 6,470 $2,272
====== ====== ====== ======= ======
1996....................... $3,630 $6,741 $ 477 $ 6,799 $4,049
====== ====== ===== ======= ======
SPS
Reserve deducted from related
assets:
Provision for uncollectible
accounts:
1998....................... $2,442 $ 400 $ (7) $ 1,140 $1,695
====== ====== ====== ======= ======
1997....................... $2,574 $ 661 $ (62) $ 731 $2,442
====== ====== ====== ======= ======
1996 (September 1996 through
December 1996) $2,669 $ 223 $ (13) $ 305 $2,574
====== ====== ===== ======= ======
1996 (3)................... $2,494 $ 535 $ (9) $ 351 $2,669
====== ====== ====== ======= ======
---------------------------------------
(1)Uncollectible accounts subsequently recovered, transfers from customers'
deposits, etc., and the transfer of certain subsidiaries' balances of
$571,620 for PSCo and $69,320 for SPS in 1997.
(2) Uncollectible accounts written off or transferred to other parties.
(3) Information reflects fiscal year ended August 31, 1996.
124
<PAGE>
EXHIBIT 12(a)
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
TO CONSOLIDATED FIXED CHARGES
(not covered by Report of Independent Public Accountants)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands, except ratios)
<S> <C> <C> <C> <C> <C>
Fixed charges:
Interest on long-term debt....... $115,808 $114,460 $ 92,205 $ 85,832 $ 89,005
Dividends on PSCo obligated
mandatorily redeemable preferred
securities......................... 9,711 - - - -
Interest on borrowings against
COLI contracts .................. 51,664 46,082 40,160 34,717 29,786
Other interest................... 20,849 24,117 17,238 23,392 14,235
Amortization of debt discount and
expense less premium 4,274 3,987 3,621 3,278 3,126
Interest component of rental
expense ......................... 8,233 9,012 10,649 6,729 6,888
----- ----- ------ ----- -----
Total ......................... $210,539 $197,658 $163,873 $153,948 $143,040
======== ======== ======== ======== ========
Earnings (before fixed charges and
taxes on income):
Net income....................... $200,103 $204,042 $190,346 $178,856 $170,269
Fixed charges as above........... 210,539 197,658 163,873 153,948 143,040
Provisions for Federal and state
taxes on income, net of investment
tax credit amortization ........ 101,494 90,813 96,331 95,357 48,500
------- ------ ------ ------ ------
Total.......................... $512,136 $492,513 $450,550 $428,161 $361,809
======== ======== ======== ======== ========
Ratio of earnings to fixed charges.. 2.43 2.49 2.75 2.78 2.53
===== ===== ===== ====== =====
</TABLE>
125
<PAGE>
EXHIBIT 12(b)
SOUTHWESTERN PUBLIC SERVICE COMPANY
COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES
(not covered by Report of Independent Public Accountants)
<TABLE>
<CAPTION>
Year Ended Trans- Year Ended
December 31, ition August 31,
1998 1997 Period 1996 1995 1994
---- ---- ------ ---- ---- ----
(in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C>
Fixed charges:
Interest on long-term debt..... $44,220 $44,112 $15,556 $44,964 $ 40,645 $37,881
Dividends on SPS obligated
mandatorily redeemable
preferred securities......... 7,850 7,850 1,526 - - -
Other interest................. 8,925 7,444 1,612 6,561 3,219 3,068
Amortization of debt discount
and expense less premium ..... 2,251 2,244 235 577 534 518
Interest component of rental
expense ...................... 806 1,425 415 1,245 1,292 1,184
--- ----- ----- ----- ----- ------
Total ..................... $64,052 $63,075 $19,344 $53,347 $ 45,690 $42,651
======= ======= ======= ======= ======== =======
Earnings (before fixed charges and
taxes on income):
Net income..................... $114,987 $ 75,575 $19,137 $105,773 $119,477 $102,168
Fixed charges as above......... 64,052 63,075 19,344 53,347 45,690 42,651
Provisions for Federal and state
taxes on income, net of
investment tax credit
amortization ................. 65,696 48,795 10,987 65,297 67,649 58,388
------ ------ ------ ------ ------ ------
Total...................... $244,735 $187,445 $49,468 $224,417 $232,816 $203,207
======== ======== ======= ======== ======== ========
Ratio of earnings to fixed charges 3.82 2.97 2.56 4.21 5.10 4.76
==== ==== ==== ==== ==== ====
</TABLE>
126
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Does not apply.
PART III
Item 10. Directors and Executive Officers of the Registrant (NCE, PSCo and
SPS)
Biographies concerning the directors of NCE are contained under ELECTION
OF DIRECTORS in NCE's 1999 Proxy Statement, which is incorporated herein by
reference. The following table sets forth certain information concerning the
executive officers of NCE as of December 31, 1998. Information concerning
directors and executive officers of PSCo and SPS has been omitted pursuant to
General Instructions I(2)(c).
NEW CENTURY ENERGIES, INC.
<TABLE>
<CAPTION>
Name Age Occupation/Title Period
- ---- --- ---------------- ------
Executive Officers
- ------------------
<S> <C> <C>
Bill D. Helton 60 Chairman of the Board, CEO and Director 1997-Present
Chairman of the Board and Director 1997-Present
Public Service Company of Colorado, Cheyenne Light,
Fuel and Power Company, NC Enterprises, Inc.,
New Century Services, Inc., New Century-Cadence,Inc.,
and e prime, inc.
Director, Southwestern Public Service Company 1990-Present
CEO, Southwestern Public Service Company 1990-1997
Chairman of the Board, Southwestern Public Service
Company, Quixx Corporation and Utility Engineering 1991-Present
Corporation
Director, Natural Fuels Corporation 1997-Present
Director, Quixx Corporation 1990-Present
Chairman of the Board and Director, Quixx Power
Services, Inc. 1993-Present
Director, Utility Engineering Corporation 1989-Present
Director, New Century International, Inc. 1998-Present
Chairman of the Board, Natural Fuels Corporation 1998-Present
Chairman of the Board and Director 1998-Present
New Century-Centrus, Inc. and New Century Energies
Foundation
Wayne H. Brunetti (a) 56 Vice Chairman, President, COO, and Director 1997-Present
Vice Chairman and CEO, Public Service Company of 1997-Present
Colorado and Cheyenne Light, Fuel and Power Company
President and Director, Public Service Company of Colorado 1994-Present
Vice Chairman, President, CEO, and Director, 1997-Present
NC Enterprises, Inc., New Century Services, Inc. and
New Century Cadence, Inc.
Chairman, 1480 Welton, Inc., Green and Clear Lakes 1997-Present
Company, and WestGas InterState, Inc.
Chairman, PSR Investments, Inc. and PS Colorado Credit 1997-1998
Corporation
President and Director, 1480 Welton, Inc. 1996-Present
Director, Natural Fuels Corporation 1994-Present
President, Natural Fuels Corporation 1996-1998
Vice Chairman, CEO, and Director, Southwestern Public 1997-Present
Service Company
127
<PAGE>
Director, Cheyenne Light, Fuel and Power Co., Green and 1994-Present
Clear Lakes Company, and WestGas InterState, Inc.
Director, PSR Investments, Inc. and PS Colorado Credit 1994-1998
Corporation
Director, Young Gas Storage Company and e prime, inc. 1995-Present
President and Director, Fuel Resources Development Co. 1995-Present
President, Green and Clear Lakes Company and WestGas 1995-Present
InterState, Inc.
President, New Century International, Inc. 1997-1997
Director, New Century International, Inc. 1997-Present
Chairman of the Board, New Century International, Inc. 1998-Present
President, PSR Investments, Inc. and PS Colorado Credit 1996-1998
Corporation
Director, and Yorkshire Electricity Group plc and 1997-Present
Yorkshire Holdings, plc and Yorkshire Power Group
Limited
Chairman of the Board, Cheyenne Light, Fuel and Power 1997-1997
Company and e prime, inc.
Vice Chairman and Director, Quixx Corporation and
Utility Engineering Corporation 1997-Present
Director, Yorkshire Holdings plc 1997-Present
Vice Chairman, Yorkshire Holdings plc 1997-1998
Vice Chairman, e prime, inc. 1997-Present
Vice Chairman, Yorkshire Electricity Group plc 1997-1998
Chairman of the Board, Yorkshire Electricity Group, plc 1998-Present
Chairman of the Board and Director, Yorkshire Power 1998-Present
Group Limited, Yorkshire Holdings plc
Chairman of the Board and Director 1998-Present
Planergy (Delaware) Inc., Planergy Energy Services
Corporation, Planergy New York, Inc., Planergy
Power II, Inc., Planergy Services USA, Inc., Planergy
Services of California, Inc., Planergy Services of
Houston, Inc., Planergy Services of Texas, Inc.,
Planergy Services, Inc., Planergy, Inc., Cogeneration
Capital Associates Incorporated, The Planergy Group, Inc.
President and Director, New Century Energies Foundation 1998-Present
Vice Chairman, Director, President and CEO, New Century 1998-Present
Centrus, Inc.
Richard C. Kelly (d) 52 Executive Vice President and Chief Financial Officer 1997-Present
President, Treasurer, and Director 1995-1997
Executive Vice President and Director, Public Service 1997-Present
Company of Colorado and Southwestern Public Service
Company
Chief Financial Officer, Public Service Company of 1997-1998
Colorado and Southwestern Public Service Company
Senior Vice President, Public Service Company of Colorado 1990-1997
Treasurer, Public Service Company of Colorado 1986-1997
Executive Vice President and Director, NC Enterprises, 1997-Present
Inc. and New Century Services, Inc.
Treasurer, Fuel Resources Development Co., Green and 1994-Present
Clear Lakes Company and WestGas InterState, Inc.
Treasurer, 1480 Welton, Inc. and Cheyenne Light, Fuel 1994-1998
and Power Company
128
<PAGE>
Director, Texas-Ohio Gas, Inc., Texas-Ohio Pipeline, 1996-Present
Inc., and e prime Networks, Inc.
Director, Quixx Corporation, Utility Engineering 1997-Present
Corporation, Yorkshire Electricity Group plc,
Yorkshire Holdings plc, Yorkshire Power Group Limited,
e prime operating, inc. and e prime projects
international, inc.
Director, 1480 Welton, Inc. 1989-Present
Director, Cheyenne Light, Fuel and Power Company 1990-Present
Vice President, Fuel Resources Development Co. 1990-Present
Director, Fuel Resources Development Co. 1991-Present
Director, Green and Clear Lakes Company and 1990-Present
Natural Fuels Corporation
Director, New Century International, Inc. 1997-Present
Secretary, New Century International, Inc. 1997-1998
Director and Treasurer, New Century-Cadence, Inc. 1997-Present
Director, PSR Investments, Inc. 1986-Present
Vice President, PSR Investments, Inc. 1986-1998
Director, PS Colorado Credit Corporation 1987-Present
Vice President, PS Colorado Credit Corporation 1987-1998
Director, WestGas InterState, Inc. 1993-Present
Director, Young Gas Storage Company and e prime inc. 1995-Present
Vice President and Treasurer, Young Gas Storage Company 1995-1998
Secretary, Treasurer and Director, e prime 1997-Present
Energy Marketing, Inc.
President and CEO, e prime inc. 1997-Present
Vice President and Treasurer, e prime, inc. 1995-1997
Chairman of the Board Texas-Ohio Gas, Inc., Texas-Ohio 1997-Present
Pipeline, Inc.
Chairman of the Board, and Young Gas Storage Company 1998-Present
Chief Financial Officer, New Century Services, Inc., 1998-Present
WestGas InterState, Inc. and Green and Clear Lakes
Company
Director, Planergy (Delaware), Inc., Planergy Energy 1998-Present
Services Corporation, Planergy Services USA, Inc.,
Planergy Services of California, Inc., Planergy Services
of Houston, Inc., Planergy Services of Texas, Inc.,
Planergy Services, Inc., Planergy, Inc., Cogeneration
Capital Associates Incorporated
Vice President and Director, Planergy New York, Inc., 1998-Present
Planergy Power II, Inc., The Planergy Group, Inc.
President and Director, NCE Communications, Inc. 1996-Present
(former e prime Telecom, Inc.)
Treasurer and Director, New Century Energies Foundation 1998-Present
and New Century-Centrus, Inc.
Management Committee Representative and Director, ep3,L.P. 1998-Present
Treasurer and Corporate Secretary, e prime Networks,Inc. 1998-Present
Paul J. Bonavia (b) 47 Senior Vice President and General Counsel 1997-Present
General Counsel, 1480 Welton, Inc., Green and Clear Lakes 1998-Present
Company, NC Enterprises, Inc., PSR Investments, Inc.,
PS Colorado Credit Corporation, WestGas InterState, Inc.
Senior Vice President and General Counsel, Cheyenne Light, 1998-Present
Fuel and Power Company, New Century Services, Inc.,
Public Service Company of Colorado and Southwestern
Public Service Company
129
<PAGE>
President, General Counsel and Director, New Century 1998-Present
International, Inc.
Director, Yorkshire Power Group Limited, Yorkshire 1998-Present
Holdings plc and Yorkshire Electric Group plc
Brian P. Jackson (c) 40 Senior Vice President Finance and Administrative Services 1997-Present
Treasurer, Chief Financial Officer and Director, 1998-Present
1480 Welton, Inc., NC Enterprises, Inc. and Cheyenne
Light, Fuel and Power Company
Treasurer and Chief Financial Officer, NCE 1998-Present
Communications, Inc. and New Century International,
Inc.
Chairman of the Board, President, Chief Financial 1998-Present
Officer, and Director, PSR Investments, Inc. and PS
Colorado Credit Corporation
Treasurer, Planergy (Delaware), Inc., Planergy Energy 1998-Present
Services Corporation, Planergy Limited,
Planergy New York, Inc., Planergy Power II, Inc.,
Planergy Services USA, Inc., Planergy Services of
California, Inc., Planergy Services of Houston, Inc.,
Planergy Services of Texas, Inc., Planergy Services,
Inc., Planergy, Inc., The Planergy Group, Inc.,
Cogeneration Capital Associates Incorporated
Treasurer and Director, e prime, inc. 1998-Present
Senior Vice President and Chief Financial Officer, 1998-Present
Southwestern Public Service Company
Senior Vice President, Chief Financial Officer and 1998-Present
Director, Public Service Company of Colorado
Senior Vice President, New Century Services, Inc. 1998-Present
Management Committee Representative, Centrus,LLP 1998-Present
Director, New Century-Centrus, Inc. 1998-Present
Teresa S. Madden 42 Controller 1997-Present
Secretary 1997-1998
Controller, Public Service Company of Colorado, 1997-Present
Southwestern Public Service Company and New Century
Services, Inc.
Secretary, Public Service Company of Colorado and New 1997-1998
Century Services, Inc.
Assistant Secretary, Southwestern Public Service Company 1997-1998
Director, Yorkshire Power Group Limited, Yorkshire 1997-1998
Holdings plc and Yorkshire Electricity Group plc
Secretary, Fuel Resources Development Co. 1997-Present
Secretary, NC Enterprises, Inc., WestGas InterState,Inc., 1997-1998
e prime,inc., Cheyenne Light, Fuel and Power Company,
New Century-Cadence, Inc., Texas-Ohio Pipeline, Inc.
and Texas-Ohio Gas, Inc.
Manager of Corporate Accounting, Public Service Company 1990-1997
of Colorado
Assistant Secretary, Public Service Company of Colorado 1995-1997
and e prime, inc.
Assistant Secretary, 1480 Welton, Inc., PSR Investments, 1991-1998
Inc., PS Colorado Credit Corporation,
Assistant Secretary, Cheyenne Light, Fuel and Power 1991-1997
Company and Fuel Resources Development Co.
130
<PAGE>
Controller, 1480 Welton, Inc., Cheyenne Light, Fuel 1998-Present
and Power Company, Green and Clear Lakes Company, NC
Enterprises, Inc., New Century International, Inc.,
PSR Investments, Inc., PS Colorado Credit Corporation,
and WestGas InterState, Inc.
Assistant Secretary, Yorkshire Electricity Group plc, 1998-Present
Yorkshire Holdings plc, and Yorkshire Power Group Limited
James D. Steinhilper(e)49 Treasurer 1997-Present
Treasurer, Public Service Company of Colorado and 1997-Present
Southwestern Public Service Company
Assistant Treasurer, Cheyenne Light, Fuel and Power 1997-Present
Company, New Century-Cadence, Inc. and WestGas
InterState, Inc.
Director of Finance and Treasurer, New Century Services, 1997-Present
Inc.
Assistant Treasurer, 1480 Welton, Inc., Green and 1998-Present
Clear Lakes Company, and New Century-Centrus, Inc.
Treasurer and Director, PSR Investments, Inc. and PS 1998-Present
Colorado Credit Corporation
Treasurer, e prime, inc. and NC Enterprises, Inc. 1997-1998
Group Manager, Finance, Southwestern Public Service Company 1989-1997
Chairman of the Board, President and Director, Borger 1998-Present
Funding Corporation
Treasurer and Assistant Secretary, KES Montego, Inc., 1998-Present
Quixx Carolina, Inc., Quixx Corporation, Quixx Jamaica,
Inc., Quixx Power Services, Inc., Quixx WPP94, Inc., and
Quixxlin Corp.
Treasurer, Director and Assistant Secretary, Quixx Borger 1998-Present
Cogen, Inc., and Quixx Mustang Station, Inc.
David M. Wilks 52 Executive Vice President and Director, Public Service 1997-Present
Company of Colorado and New Century Services, Inc.
Executive Vice President and Director, New Century- 1997-1998
Cadence, Inc.
Director, Cheyenne Light, Fuel and Power Company 1997-Present
Director, Southwestern Public Service Company, Quixx Power 1995-Present
Services, Inc., Utility Engineering Corporation and
Quixx Corporation
President and Chief Operating Officer, Southwestern 1995-Present
Public Service Company
Senior Vice President, Southwestern Public Service 1991-1995
Company
Director, WestGas InterState, Inc. and Young Gas Storage 1998-Present
Company
Vice President and Director, New Century Energies 1998-Present
Foundation
Cathy J. Hart (f) 49 Secretary 1998-Present
Secretary, 1480 Welton, Inc., Cheyenne Light, Fuel and 1998-Present
Power Company, Cogeneration Capital Associates
Incorporated, Green and Clear Lakes Company, NC
Enterprises, Inc., New Century International, Inc.,
New Century Services, Inc., New Century-Cadence,
Inc., New Century-Centrus, Inc., PSR Investments,
Inc., PS Colorado Credit Corporation, Planergy
(Delaware), Inc., Planergy Energy Services Corporation,
Planergy Limited, Planergy New York, Inc., Planergy
Power II, Inc., Planergy Services USA, Inc., Planergy
Services of California, Inc., Planergy Services of
Houston,I nc., Planergy Services of Texas, Inc.,
Planergy Services, Inc., Planergy, Inc.,
131
<PAGE>
Public Service Company of Colorado, Texas-Ohio Gas,
Inc., Texas-Ohio Pipeline, Inc., The Planergy Group,
Inc., WestGas InterState, Inc., Young Gas Storage
Company and e prime, inc.
Assistant Secretary, Southwestern Public Service Company 1998-Present
Manager, Corporate Communications, Public Service Company 1993-1996
of Colorado
Tom Petillo (g) 54 Executive Vice President, New Century Services, Inc. 1998-Present
President and Director, New Century International,Inc. 1997-1998
Executive Vice President, Public Service Company of
Colorado and Southwestern Public Service Company 1998-Present
Chairman of the Board and Director, Planergy Limited 1998-Present
Senior Vice President and Director, Planergy New York, 1998-Present
Inc. and Planergy, Inc.
Vice President and Director, Cogeneration Capital 1998-Present
Associates Incorporated, New Century-Centrus, Inc.,
Planergy (Delaware), Inc., Planergy Energy Services
Corporation, Planergy Services USA, Inc., Planergy
Services of California, Inc., Planergy Services of
Houston, Inc., Planergy Services of Texas, Inc.
and Planergy Services, Inc.
President and Director, Planergy Power II, Inc. and 1998-Present
The Planergy Group, Inc.
Executive Vice President and Director, New Century- 1998-Present
Cadence, Inc.
Henry H. Hamilton 60 Executive Vice President and Director, Southwestern 1997-Present
Public Service Company, Public Service Company of
Colorado and New Century Services, Inc.
Vice President of Production, Southwestern Public Service 1987-1997
Company
Director, Quixx Power Services, Inc. 1993-Present
Chairman of the Board and President and Director, 1998-Present
KES Montego, Inc., Quixx Borger Cogen, Inc.,
Quixx Carolina, Inc., Quixx Jamaica, Inc.,
Quixx Mustang Station, Inc., Quixx WPP94, Inc.
and Quixxlin Corp.
President, CEO, COO and Director, Quixx Corporation 1998-Present
President and CEO, Quixx Power Services, Inc. 1998-Present
Director, Utility Engineering Corporation 1998-Present
CEO, Borger Funding Corporation 1998-Present
</TABLE>
There are no family relationships between executive officers or directors
of the registrants. There are no arrangements or understandings between the
executive officers individually and any other person with reference to their
being selected as officers of each registrant. All executive officers of each
registrant are elected annually by the respective Board of Directors.
(a)Mr. Brunetti was President and Chief Executive Officer of Management Systems
International from June 1991 through July 1994 and Executive Vice President
of Florida Power & Light Company from 1987 through May 1991.
(b)Mr. Bonavia was Of Counsel at LeBoeuf, Lamb, Greene & MacRae, LLP from March
1997 through December 1997 and Senior Vice President at Dominion Resources,
Inc. from 1991 through February 1997.
(c)Mr. Jackson was named Treasurer of New Century Energies, Inc. effective
January 1, 1999. Mr. Jackson was employed by Arthur Andersen LLP from 1980
through November 1997. He was a partner with the firm from 1994 through 1997.
132
<PAGE>
(d)Mr. Kelly is Chairman of the audit committee and a member of the finance
committee of Yorkshire Electricity Group plc.
(e)Mr. Steinhelper was named Vice President of Quixx Corporation effective
January 1, 1999, and subsequently resigned as Treasurer of New Century
Energies, Inc. and certain other subsidiary positions.
(f)Ms. Hart was self-employed as communications and marketing consultant,
Sydney, Australia and Denver, Colorado from June 1996 through June 1998.
(g)Mr. Petillo was Director and President, Qualtec Quality Services, Inc. from
August 1992 through October 1995 and Senior Vice President of Florida Power &
Light Company from June 1991 through December 1995.
Item 11. Executive Compensation
Information concerning executive compensation for NCE is contained under
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS in the NCE 1999 Proxy
Statement, which information is incorporated herein by reference. Information
concerning executive compensation for PSCo and SPS has been omitted pursuant to
General Instruction I(2)(c).
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning the security ownership of the directors and
officers of NCE is contained under ELECTION OF DIRECTORS in NCE's 1999 Proxy
Statement, which information is incorporated herein by reference. Information
concerning the security ownership of the directors and officers of PSCo and SPS
is omitted pursuant to General Instruction I(2)(c).
Item 13. Certain Relationships and Related Transactions
Information concerning relationships and related transactions of the
directors and officers of NCE is contained under CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS in NCE's 1999 Proxy Statement, which information is
incorporated herein by reference. PSCo and SPS have no information concerning
relationships and related transactions required to be disclosed.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements, Financial Statement Schedules, and Exhibits:
(1)Financial Statements and Reports of Independent Public Accountants on
the financial statements for NCE,
PSCo and SPS are listed under Item 8 herein.
(2)Financial Statement Schedules.
Reports of Independent Public Accountants as to Schedules for NCE, PSCo
and SPS are included in the Reports of Independent Public Accountants for
each registrant.
(3)Exhibits.
Exhibits for NCE, PSCo and SPS are listed in Index to Exhibits below.
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed since the end of the third
quarter of 1998:
- A combined report on Form 8-K dated February 23, 1999, was filed
separately by NCE, PSCo and SPS on February 23, 1999.
The item reported was Item 5. Other Events: Filing of audited financial
statements of NCE and its subsidiaries, PSco and its subsidiaries and SPS
for the year ended December 31, 1998.
133
<PAGE>
- A report on Form 8-K dated February 25, 1999, was filed by SPS on
February 25, 1999.
The item reported was Item 5. Other Events: filing of consent of Arthur
Andersen LLP and Letter on unaudited financial information of Arthur
Andersen LLP.
- A report on Form 8-K dated February 25, 1999, was filed by SPS on March
9, 1999.
The item reported was Item 5. Other Events: Filing of Purchase Agreement.
the Indenture and the First Supplemental Indenture realted to the sale of
Series A Senior Notes.
- A report on Form 8-K dated March 24, 1999, was filed by NCE on March 24,
1999.
The item reported was Item 5. Other Events: Filing of an Agreement and
Plan of Merger dated March 24, 1999, between New Century Energies, Inc.
and Northern States Power Company and a joint press release announcing
the proposed merger.
- A report of Form 8-K dated March 26, 1999 was filed by NCE on March 26,
1999.
The item reported was Item 5. Other Events: Filing of slide presentation
for joint meeting, NCE and Northern State Power Company held with
financial analysts.
134
<PAGE>
EXPERTS
The consolidated balance sheets of New Century Energies, Inc. and its
subsidiaries as of December 31, 1998 and 1997, the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1998, and the related financial statement
schedule, appearing in this Annual Report on Form 10-K, have been audited by
Arthur Andersen LLP, independent public accountants, as set forth in their
report appearing elsewhere herein. Arthur Andersen LLP did not audit the
consolidated financial statements of Southwestern Public Service Company for the
year ended December 31, 1996, included in the consolidated financial statements
of New Century Energies, Inc., which statements reflect total revenues
constituting 31% in 1996, of the related consolidated totals. The consolidated
financial statements and the related financial statement schedule, which are
included in this Annual Report on Form 10-K, are included herein in reliance
upon the authority of said firm as experts in giving said report.
The consolidated balance sheets and statements of capitalization of Public
Service Company of Colorado and its subsidiaries as of December 31, 1998 and
1997, the related consolidated statements of income, shareholder's equity and
cash flows for each of the three years in the period ended December 31, 1998,
and the related financial statement schedule, appearing in this Annual Report on
Form 10-K, have been audited by Arthur Andersen LLP, independent public
accountants, as set forth in their report appearing elsewhere herein. The
consolidated financial statements and the related financial statement schedule,
which are included in this Annual Report on Form 10-K, are included herein in
reliance upon the authority of said firm as experts in giving said report.
The balance sheets and statements of capitalization of Southwestern Public
Service Company as of December 31, 1998 and 1997, the related statements of
income, shareholder's equity and cash flows for each of the two years in the
period ended December 31, 1998, and the related financial statement schedule,
appearing in this Annual Report on Form 10-K, have been audited by Arthur
Andersen LLP, independent public accountants, as set forth in their report
appearing elsewhere herein. The financial statements and the related financial
statement schedule, which are included in this Annual Report on Form 10-K, are
included herein in reliance upon the authority of said firm as experts in giving
said report.
135
<PAGE>
EXHIBIT 23 (a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report included in this Form 10-K, into New Century
Energies, Inc.'s previously filed Registration Statement (Form S-8, File No.
333-28639) pertaining to the Omnibus Incentive Plan; New Century Energies,
Inc.'s Registration Statement (Form S-3, File No. 333-28637) pertaining to the
Dividend Reinvestment and Cash Payment Plan; New Century Energies, Inc.'s
Registration Statement (Form S-3, File Nos. 333-40361 and 333-6407) pertaining
to the registration of NCE Common Stock and New Century Energies, Inc.'s
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
to all references to our Firm included in this Form 10-K.
As independent public accountants, we hereby consent to the incorporation
by reference of our report included in this Form 10-K, into Public Service
Company of Colorado's previously filed Registration Statement (Form S-3, File
No. 33-62233) pertaining to the Automatic Dividend Reinvestment and Common Stock
Purchase Plan; Public Service Company of Colorado's Registration Statement (Form
S-3, File No. 33-37431) as amended on December 4, 1990, pertaining to the shelf
registration of Public Service Company of Colorado's First Mortgage Bonds;
Public Service Company of Colorado's Registration Statement (Form S-8, File No.
33-55432) pertaining to the Omnibus Incentive Plan; Public Service Company of
Colorado's Registration Statement (Form S-3, File No. 33-51167) pertaining to
the shelf registration of Public Service Company of Colorado's First Collateral
Trust Bonds and Public Service Company of Colorado's Registration Statement
(Form S-3, File No. 33-54877) pertaining to the shelf registration of Public
Service Company of Colorado's First Collateral Trust Bonds and Cumulative
Preferred Stock and to all references to our Firm included in this Form 10-K.
As independent public accountants, we hereby consent to the incorporation
by reference of our report included in this Form 10-K, into Southwestern Public
Service Company's previously filed Registration Statement (Form S-3, File No.
333-05199) pertaining to Southwestern Public Service Company's Preferred Stock
and Debt Securities; Southwestern Public Service Company's Registration
Statement (Form S-8, File No. 33-27452) pertaining to Southwestern Public
Service Company's 1989 Stock Incentive Plan and Southwestern Public Service
Company's Registration Statement (Form S-8, File No. 33-57869) pertaining to
Southwestern Public Service Company's Employee Investment Plan and Non-Qualified
Salary Deferral Plan and to all references to our Firm included in this Form
10-K.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 29, 1999
136
<PAGE>
EXHIBIT 23 (b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in Registration Statement No.
333-05199 on Form S-3 and Registration Statements No. 33-27452 and 33-57869
on Form S-8 of Southwestern Public Service Company and Registration Statement
No. 333-28637 and 333-40361 on Form S-3 and Registration Statement No.
333-28639 on Form S-8 of New Century Energies, Inc. of our report dated
February 28, 1997 (June 19, 1997, as to the Carolina Energy Limited
Partnership in Note 3) on Southwestern Public Service Company, appearing in
the Annual Report on Form 10-K of New Century Energies, Inc. for the year
ended December 31, 1998.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 29, 1999
EXHIBIT 24
POWER OF ATTORNEY
Each director and/or officer of New Century Energies, Inc., whose
signature appears herein hereby appoints Bill D. Helton and Richard C. Kelly,
and each of them severally, and each director and/or officer of Public Service
Company of Colorado and Southwestern Public Service Company, whose signature
appears herein hereby appoints Wayne H. Brunetti and Brian P. Jackson, and each
of them severally, as his or her attorney-in-fact to sign in his or her name and
behalf, in any and all capacities stated herein, and to file with the Securities
and Exchange Commission, any and all amendments to this Annual Report on Form
10-K.
137
<PAGE>
NEW CENTURY ENERGIES, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, New Century Energies, Inc. has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized on the
23rd day of February, 1999.
NEW CENTURY ENERGIES, INC.
By /s/Richard C. Kelly
---------------------------------
Richard C. Kelly
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of New Century
Energies, Inc. and in the capacities and on the date indicated.
Signature Title Date
- --------------------------------------------------------------------------------
/s/Bill D. Helton
____________________________ Principal Executive March 24, 1999
Bill D. Helton Officer and Director
Chairman of the Board and
Chief Executive Officer
/s/Richard C. Kelly
_____________________________ Principal March 24, 1999
Richard C. Kelly Financial Officer
Executive Vice President and
Chief Financial Officer
/s/Teresa S. Madden
_____________________________ Principal Accounting Officer March 24, 1999
Teresa S. Madden
Controller
138
<PAGE>
Signature Title Date
- --------------------------------------------------------------------------------
/s/Bill D. Helton
__________________________________ Chairman of the Board March 24, 1999
Bill D. Helton and Director
/s/ Wayne H. Brunetti
__________________________________ Vice Chairman and
Wayne H. Brunetti Director March 24, 1999
/s/C. Coney Burgess
__________________________________ Director March 24, 1999
C. Coney Burgess
/s/ Danny H. Conklin
__________________________________ Director March 24, 1999
Danny H. Conklin
/s/Giles M. Forbess
__________________________________ Director March 24, 1999
Giles M. Forbess
/s/Gayle L. Greer
__________________________________ Director March 24, 1999
Gayle L. Greer
/s/R. R. Hemminghaus
__________________________________ Director March 24, 1999
R. R. Hemminghaus
/s/A. Barry Hirschfeld
__________________________________ Director March 24, 1999
A. Barry Hirschfeld
/s/ J. Howard Mock
__________________________________ Director March 24, 1999
J. Howard Mock
/s/ Albert F. Moreno
__________________________________ Director March 24, 1999
Albert F. Moreno
/s/ Will F. Nicholson, Jr.
__________________________________ Director March 24, 1999
Will F. Nicholson, Jr.
/s/J. Michael Powers
__________________________________ Director March 24, 1999
J. Michael Powers
/s/Rodney E. Slifer
__________________________________ Director March 24, 1999
Rodney E. Slifer
139
<PAGE>
Signature Title Date
- --------------------------------------------------------------------------------
/s/W. Thomas Stephens
__________________________________ Director March 24, 1999
W. Thomas Stephens
/s/Robert G. Tointon
__________________________________ Director March 24, 1999
Robert G. Tointon
140
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Public Service Company of Colorado has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized
on the 23td day of February, 1999.
PUBLIC SERVICE COMPANY OF COLORADO
By /s/Brian P. Jackson
---------------------------------
Brian P. Jackson
Senior Vice President, Finance and
Administrative Services, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Public
Service Company of Colorado and in the capacities and on the date indicated.
Signature Title Date
- --------------------------------------------------------------------------------
/s/Wayne H. Brunetti
__________________________ Principal Executive March 24, 1999
Wayne H. Brunetti Officer and Director
Vice Chairman, President and
Chief Executive Officer
/s/Brian P. Jackson
__________________________ Principal Financial Officer March 24, 1999
Brian P. Jackson and Director
Senior Vice President, Finance
and Administrative Services,
Chief Financial
Officer and Treasurer
/s/Teresa S. Madden
__________________________ Principal Accounting Officer March 24, 1999
Teresa S. Madden
Controller
141
<PAGE>
Signature Title Date
- --------------------------------------------------------------------------------
/s/ Bill. D. Helton
__________________________________ Director March 24, 1999
Bill. D. Helton
/s/Henry H. Hamilton
__________________________________ Director March 24, 1999
Henry H. Hamilton
/s/ Richard C. Kelly
__________________________________ Director March 24, 1999
Richard C. Kelly
/s/David M. Wilks
__________________________________ Director March 24, 1999
David M. Wilks
142
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Southwestern Public Service Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized
on the 23rd day of February, 1999.
SOUTHWESTERN PUBLIC SERVICE COMPANY
By /s/Brian P. Jackson
---------------------------------
Brian P. Jackson
Senior Vice President, Finance and
Administrative Services, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Southwestern
Public Service Company and in the capacities and on the date indicated.
Signature Title Date
- --------------------------------------------------------------------------------
/s/Wayne H. Brunetti
___________________________ Principal Executive March 24, 1999
Wayne H. Brunetti Officer and Director
Vice Chairman and
Chief Executive Officer
/s/Brian P. Jackson
___________________________ Principal Financial Officer March 24, 1999
Brian P. Jackson
Senior Vice President, Finance
and Administrative Services,
Chief Financial
Officer and Treasurer
/s/Teresa S. Madden
___________________________ Principal Accounting Officer March 24, 1999
Teresa S. Madden
Controller
143
<PAGE>
Signature Title Date
- --------------------------------------------------------------------------------
/s/Bill. D. Helton
__________________________________ Director March 24, 1999
Bill. D. Helton
/s/Henry H. Hamilton
__________________________________ Director March 24, 1999
Henry H. Hamilton
/s/ Richard C. Kelly
__________________________________ Director March 24, 1999
Richard C. Kelly
/s/David M. Wilks
__________________________________ Director March 24, 1999
David M. Wilks
144
<PAGE>
EXHIBIT INDEX
2 Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession
NCE
2(a)1* Agreement and Plan of Merger dated March 24, 1999 (Form 8-K, March 24,
1999, Exhibit 2.1).
2(a)2* Merger Agreement and Plan of Reorganization dated August 22, 1995
(Form S-4, Annex I, File No. 33-64951).
PSCo
2(a)1* Merger Agreement and Plan of Reorganization dated August 22, 1995
(Form 8-K, dated August 22, 1995, File No. 1-3280 - Exhibit 2).
SPS
2(a)1* Agreement and Plan of Reorganization dated August 22, 1995 (Form 8-K,
Exhibit 2, dated August 22, 1995).
3 (i) Articles of Incorporation
NCE
3(a)1* Restated Articles of Incorporation dated December 8, 1995 (Form S-4,
Exhibit 3(a)).
PSCo
3(a)1 Amended and Restated Articles of Incorporation dated July 10, 1998.
SPS
3(a)2* Amended and Restated Articles of Incorporation dated September 30,
1997.
3 (ii) By-Laws
NCE
3(b)1 Restated By-laws dated December 15, 1998.
PSCo
3(b)1* By-laws dated November 20, 1997.
SPS
3(b)2* By-laws dated September 29, 1997.
4 Instruments Defining the Rights of Security Holders, Including Indentures
NCE
4(a)1* Rights Agreement, dated as of August 1, 1997, between New Century
Energies, Inc. and the Bank of New York, as Rights Agent (Form 8-K,
August 1, 1997-Exhibit 1).
4(a)2* Amendment as of March 24, 1999 to the Rights Agreement, dated as of
August 1, 1997, between New Century Energies, Inc. and the Bank of New
York (Form 8-K, March 24, 1999, Exhibit 99.2)
PSCo
4(a)1* Indenture, dated as of December 1, 1939, providing for the issuance
of First Mortgage Bonds (Form 10 for 1946- Exhibit (B-1)).
4(a)2* Indentures supplemental to Indenture dated as of December 1, 1939:
Previous Filing: Previous Filing:
Form; Date orExhibit Form; Date or Exhibit
Dated as of File No. No. Dated as of File No. No.
Mar. 14, 1941 10, 1946 B-2 Sept. 1, 19708-K, Sept. 1970 2
May 14, 1941 10, 1946 B-3 Feb. 1, 1971 8-K, Feb. 1971 2
Apr. 28, 1942 10, 1946 B-4 Aug. 1, 1972 8-K, Aug. 1972 2
Apr. 14, 1943 10, 1946 B-5 June 1, 1973 8-K, June 1973 1
145
<PAGE>
Apr. 27, 1944 10, 1946 B-6 Mar. 1, 1974 8-K, Apr. 1974 2
Apr. 18, 1945 10, 1946 B-7 Dec. 1, 1974 8-K, Dec. 1974 1
Apr. 23, 1946 10-K, 1946 B-8 Oct. 1, 1975 S-7, (2-60082) 2(b)(3)
Apr. 9, 1947 10-K, 1946 B-9 Apr. 28, 1976S-7, (2-60082) 2(b)(4)
June 1, 1947 S-1, (2-7075) 7(b) Apr. 28, 1977S-7, (2-60082) 2(b)(5)
Apr. 1, 1948 S-1, (2-7671)7(b)(1) Nov. 1, 1977 S-7, (2-62415) 2(b)(3)
May 20, 1948 S-1, (2-7671)7(b)(2) Apr. 28, 1978S-7, (2-62415) 2(b)(4)
Oct. 1, 1948 10-K, 1948 4 Oct. 1, 1978 10-K, 1978 D(1)
Apr. 20, 1949 10-K, 1949 1 Oct. 1, 1979 S-7, (2-66484) 2(b)(3)
Apr. 24, 19508-K, Apr. 1950 1 Mar. 1, 1980 10-K, 1980 4(c)
Apr. 18, 19518-K, Apr. 1951 1 Apr. 28, 1981S-16, (2-74923) 4(c)
Oct. 1, 19518-K, Nov. 1951 1 Nov. 1, 1981 S-16, (2-74923) 4(d)
Apr. 21, 19528-K, Apr. 1952 1 Dec. 1, 1981 10-K, 1981 4(c)
Dec. 1, 1952S-9, (2-11120)2(b)(9) Apr. 29, 1982 10-K, 1982 4(c)
Apr. 15, 19538-K, Apr. 1953 2 May 1, 1983 10-K, 1983 4(c)
Apr. 19, 19548-K, Apr. 1954 1 Apr. 30, 1984S-3, (2-95814) 4(c)
Oct. 1, 19548-K, Oct. 1954 1 Mar. 1, 1985 10-K, 1985 4(c)
Apr. 18, 19558-K, Apr. 1955 1 Nov. 1, 1986 10-K, 1986 4(c)
Apr. 24, 1956 10-K, 1956 1 May 1, 1987 10-K, 1987 4(c)
May 1, 1957S-9, (2-13260)2(b)(15) July 1, 1990 S-3, (33-37431) 4(c)
Apr. 10, 19588-K, Apr. 1958 1 Dec. 1, 1990 10-K, 1990 4(c)
May 1, 1959 8-K, May 1959 2 Mar. 1, 1992 10-K, 1992 4(d)
Apr. 18, 19608-K, Apr. 1960 1 Apr. 1, 199310-Q, June 30, 19934(a)
Apr. 19, 19618-K, Apr. 1961 1 June 1, 199310-Q, June 30, 19934(b)
Oct. 1, 19618-K, Oct. 1961 2 Nov. 1, 1993 S-3, (33-51167) 4(a)(3)
Mar. 1, 19628-K, Mar. 1962 3(a) Jan. 1, 1994 10-K, 1993 4(a)(3)
June 1, 19648-K, June 1964 1 Sept. 2, 19948-K, Sept. 1994 4(a)
May 1, 1966 8-K, May 1966 2 May 1, 199610Q, June 30, 1996 4(a)
July 1, 19678-K, July 1967 2 Nov. 1, 1996 10-K, 1996 4(a)(3)
July 1, 19688-K, July 1968 2 Feb. 1, 199710-Q, Mar. 31, 19974(a)
Apr. 25, 19698-K, Apr. 1969 1 April 1, 199810-Q, Mar. 31, 19984(a)
Apr. 21, 19708-K, Apr. 1970 1
4(b)1* Indenture, dated as of October 1, 1993, providing for the
issuance of First Collateral Trust Bonds
(Form 10-Q, September 30, 1993 - Exhibit 4(a)).
4(b)2* Indentures supplemental to Indenture dated as of October 1, 1993:
Previous Filing:
Form; Date or Exhibit
Dated as of File No. No.
----------- -------- ---
November 1, 1993 S-3, (33-51167) 4(b)(2)
January 1, 1994 10-K, 1993 4(b)(3)
September 2, 1994 8-K, Sept. 1994 4(b)
May 1, 1996 10-Q, June 30, 1996 4(b)
November 1, 1996 10-K, 1996 4(b)(3)
February 1, 1997 10-Q, Mar. 31, 1997 4(b)
April 1, 1998 10-Q, Mar. 31, 1998 4(b)
4(c)1* Indenture date May 1, 1998, between PSCo and The Bank of New York,
providing for the issuance of Subordinated Debt Securities (Form 8-K,
May 6, 1998 - Exhibit 4.2).
4(c)2* Supplemental Indenture dated May 11, 1998, between PSCo and The Bank
of New York, (Form 8-K, May 6, 1998 - Exhibit 4.3).
146
<PAGE>
4(c)3* Preferred Securities Guarantee Agreement dated May 11, 1998, between
PSCo and The Bank of New York, (Form 8-K, May 6, 1998 - Exhibit 4.4).
4(c)4* Amended and Restated Declaration of Trust of PSCo Capital and Trust
I date May 11, 1998, (Form 8-K, May 6, 1998 - Exhibit 4.1).
SPS
4(a)1* Indenture, dated as of August 1, 1946, providing for the issuance of
First Mortgage Bonds (Registration No. 2-6910, Exhibit 7-A).
4(a)2* Indentures supplemental to Indenture dated as of August 1, 1946:
Previous Filing:
Form; Date or Exhibit
Dated as of File No. No.
----------- -------- ---
February 1, 1967 2-25983 2-S
October 1, 1970 2-38566 2-T
February 9, 1977 2-58209 2-Y
March 1, 1979 2-64022 b(28)
April 1, 1983 (two) 10-Q, May 1983 4(a)
February 1, 1985 10-K, Aug. 1985 4(c)
July 15, 1992 (two) 10-K, Aug. 1992 4(a)
December 1, 1992 (two) 10-Q, Feb. 1993 4
February 15, 1995 10-Q, May 1995 4
March 1, 1996 333-05199 4(c)
4(b)1* Indenture dated February 1, 1999 between SPS and the Chase Manhattan
Bank (Form 8-K, February 25, 1999. Exhibit B).
4(b)2* Supplemental Indenture dated March 1, 1999, between SPS and the Chase
Manhattan Bank (Form 8-K, February 25, 1999, Exhibit C).
4(c)1* Standby Credit Agreement with Union Bank of Switzerland (Houston Agency)
dated July 1, 1991 (Form 10-K, August 31, 1991 - Exhibit 4(a)).
4(d)1* Red River Authority for Texas Indenture of Trust dated July 1, 1991
(Form 10-K, August 31, 1991 - Exhibit 4(b)).
4(e)1* Indenture dated October 21, 1996, between SPS and Wilmington Trust
Company, (Form 10-Q, November 30, 1996 - Exhibit 4(a)).
4(f)1* Supplemental Indenture dated October 21, 1996, between SPS and
Wilmington Trust Company, (Form 10-Q, November 30, 1996 - Exhibit 4(b)).
4(g)1* Guarantee Agreement dated October 21, 1996, between SPS and Wilmington
Trust Company, (Form 10-Q, November 30, 1996 - Exhibit 4(c)).
4(h)1* Amended and Restated Trust Agreement dated October 21, 1996, among SPS,
David M. Wilks, as initial depositor, Wilmington Trust Company
and the administrative trustees named therein (Form 10- Q, November
30, 1996 Exhibit 4(d)).
4(i)1* Agreement as to Expenses dated October 21, 1996, between SPS and
Southwestern Public Service Capital I, (Form 10-K, December 31, 1996
Exhibit F).
147
<PAGE>
10 Material Contracts
NCE
10(a)1 Form of Key Executive Change in Control Agreement.
10(b)1*+ Employment Agreement, effective August 1, 1997, between the Company
and Mr. Bill D. Helton (Form S-4, Annex I, File No.
33-64951).
10(b)2*+ Employment Agreement, effective August 1, 1997, between the Company
and Mr. Wayne H. Brunetti (Form S-4, Annex I, File No.
33-64951).
10(b)3*+ Employment Agreement, effective December 15, 1997, between company
and Mr. Paul J. Bonavia (Form 10Q, September 30, 1998 - Exhibit 10(a)).
10(c)1*+ Omnibus Incentive Plan, effective August 1, 1997 (Form Def 14A,
December 31, 1997 - Exhibit A)
10(d)1+ Directors' Voluntary Deferral Plan
10(e)1+ Supplemental Executive Retirement Plan
10(f)1+ Salary Deferral and Supplemental Savings Plan for Executive Officers
10(g)1+ Salary Deferral and Supplemental Savings Plan for Key Managers
PSCo
10(a)1* Settlement Agreement dated February 9, 1996 between the Company and
the United States Department of Energy (Form 10-K, December 31, 1995 -
Exhibit 10(a)(1)).
10(a)2* Settlement Agreement dated June 27, 1979 between the Registrant and
General Atomic Company (Form S-7, File No. 2-66484 - Exhibit 5(a)(1)).
10(a)3* Services Agreement executed June 27, 1979 and effective as of
January 1, 1979 between the Registrant and General Atomic Company (Form
S-7, File No. 2-66484 - Exhibit 5(a)(3)).
10(b)1* Amended and Restated Coal Supply Agreement entered into October 1,
1984 but made effective as of January 1, 1976 between the Registrant
and Amax Inc. on behalf of its division, Amax Coal Company (Form 10-K,
December 31, 1984 - Exhibit 10(c)(1)).
10(b)2* First Amendment to Amended and Restated Coal Supply Agreement
entered into May 27, 1988 but
made effective January 1, 1988 between the Registrant and Amax Coal
Company (Form 10-K, December 31, 1988-Exhibit 10(c)(2).**
10(c)1*+ Supplemental Executive Retirement Plan for Key Management
Employees, as amended and restated March 26, 1991 (Form 10-K, December
31, 1991 - Exhibit 10(e)(2)).
10(c)2*+ Executive Savings Plan (Form 10-K, December 31, 1991 - Exhibit
10(e)(5)).
10(c)3*+ Form of Key Executive Severance Agreement, as amended on August 22,
and November 27, 1995. (Form 10-K, December 31, 1995 - Exhibit
10(3)(4)).
SPS
10(a)1* Coal Supply Agreement (Harrington Station) between SPS and TUCO,
dated May 1, 1979 (Form 8-K, May 14, 1979 - Exhibit 3).
10(b)1* Master Coal Service Agreement between Swindell-Dressler Energy
Supply Company and TUCO, dated July 1, 1978 (Form 8-K, May 14, 1979 -
Exhibit 5(A)).
148
<PAGE>
10(c)1* Guaranty of Master Coal Service Agreement between Swindell-Dressler
Energy Supply Company and TUCO (Form 8-K, May 14, 1979 - Exhibit 5(B)).
10(d)1* Coal Supply Agreement (Tolk Station) between SPS and TUCO dated
April 30, 1979, as amended November 1, 1979 and December 30, 1981 (Form
10-Q, February 28, 1982 - Exhibit 10(b)).
10(e)1* Master Coal Service Agreement between Wheelabrator Coal Services Co.
and TUCO dated December 30, 1981, as amended November 1, 1979 and
December 30, 1981 (Form 10-Q, February 28, 1982 - Exhibit 10(c)).
10(f)1*+ Incentive Compensation Plan (an Executive Management Plan) as
amended July 23, 1996 (Form 10-K, August 31, 1996 - Exhibit 10(a)).
10(g)1*+ 1989 Stock Incentive Plan as amended April 23, 1996 (Form 10-K,
August 31, 1996 - Exhibit 10(b)).
10(h)1*+ Director's Deferred Compensation Plan as amended January 10, 1990
(Form 10-K, August 31, 1996 - Exhibit 10(c)).
10(i)1*+ Supplemental Retirement Income Plan as amended July 23, 1991 (Form
10-K, August 31, 1996 - Exhibit 10(e)).
10(j)1*+ EPS Performance Unit Plan dated October 27, 1992 (Form 10-K, August
31, 1996 - Exhibit 10(a)).
12 Statement Re Computation of Ratios
12(a) PSCo Computation of Ratio of Consolidated Earnings to Consolidated
Fixed Charges is set forth at page 125 herein.
12(b) SPS Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges is set forth at page 126 herein.
21 Subsidiaries of the Registrants
23(a) Consent of Arthur Andersen LLP is set forth at page 136 herein.
23(b) Consent of Deloitte & Touche LLP is set forth at page 137 herein.
24 Power of Attorney is set forth at page 137 herein.
27 Financial Data Schedule UT
27(a) Financial Data Schedule for NCE as of December 31, 1998
27(b) Financial Data Schedule for PSCo as of December 31, 1998
27(c) Financial Data Schedule for SPS as of December 31, 1998
- --------------
* Previously filed as indicated and incorporated herein by reference.
+ Management contracts of compensatory plans or arrangements.
149
EXHIBIT 21
SUBSIDIARIES OF
NEW CENTURY ENERGIES, INC
As of December 31, 1998
Subsidiary State of Incorporation
1. Public Service Company of Colorado Colorado
2. Southwestern Public Service Company New Mexico
3. Cheyenne Light, Fuel and Power Company Wyoming
4. WestGas InterState, Inc. Colorado
5. New Century Services, Inc. Delaware
6. NC Enterprises, Inc. Delaware
SUBSIDIARIES OF
PUBLIC SERVICE COMPANY OF COLORADO
As of December 31, 1998
Subsidiary State of Incorporation
1. 1480 Welton, Inc. Colorado
2. PSR Investments, Inc. Colorado
3. PS Colorado Credit Corporation Colorado
4. Green and Clear Lakes Company New York
5. Fuel Resources Development Co.
(a dissolved Colorado corporation) Colorado
Exhibit 3(a)1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PUBLIC SERVICE COMPANY OF COLORADO
Public Service Company of Colorado, a Colorado corporation (the
"Corporation"), pursuant to sections 7-110-106 and 107 of the Colorado Business
Corporation Act (the "Act"), hereby adopts the following amended and restated
Articles of Incorporation:
1. Name. The name of the Corporation is: Public Service Company of
Colorado
2. Purpose. The nature, objects and purposes of the business to be
transacted by the Corporation shall be to engage in any lawful activity
for which corporations may be organized under the Act. The Corporation shall
have and may exercise all of the rights, powers and privileges now or hereafter
exercisable by corporations organized under the laws of Colorado. In addition,
the Corporation may do everything necessary, suitable, convenient or proper for
the accomplishment of any of its corporate purposes.
3. Stock. The total number of shares of capital stock which the
Corporation is authorized to issue is ten million one hundred (10,000,100),
consisting of one hundred (100) shares of common stock, one cent ($0.01) par
value per share ("Common Stock"), and ten million (10,000,000) shares of
preferred stock, one cent ($0.01) par value per share ("Preferred Stock").
1. Preferred Stock. The Board of Directors of the Corporation is
expressly granted the authority, by one or more appropriate filings with
the Colorado Secretary of State pursuant to the Act, to issue the
Preferred Stock in one or more classes or series, and to fix, by one or
more resolutions from time to time, the number of shares, the
designations, powers, preferences and rights, and the qualifications,
limitations and restrictions, of such classes and series of the Preferred
Stock. Each share of Preferred Stock of any one series shall be identical
to each other share of that series, except as to the dates from and after
which dividends thereon shall cumulate (if cumulative).
2. Common Stock. The holders of Common Stock shall have the right to
vote for the election of directors and on all other matters submitted to a
vote of the shareholders generally, with each share entitled to one vote.
Each share of Common Stock shall be equal to every other share of Common
Stock for all purposes. Subject to the prior rights and privileges of the
holders of Preferred Stock (if any), upon the voluntary liquidation,
dissolution or winding up of the Corporation, the net assets of the
Corporation shall be distributed pro rata to the holders of the Common
Stock.
4. Partial Liquidation. The Board of Directors may from time to time
distribute to the shareholders in partial liquidation, out of stated capital or
capital surplus of the Corporation, a portion of its assets, in cash or
property, subject to the limitations contained in the statutes of Colorado.
Shareholders shall share in such distributions in accordance with the provisions
of Article 3 above.
5. Election of Directors; No Cumulative Voting. The Board of Directors
shall consist of one or more members, with the number specified or fixed in
accordance with the Bylaws of the Corporation. Members of the Board of Directors
may be elected either by written ballot or by voice vote. The shareholders of
the Corporation shall not have cumulative voting rights in the election of
directors or with respect to any other matter.
6. Indemnification. The Corporation shall indemnify, to the maximum extent
permitted by law, any person who is or was a director, officer, agent, fiduciary
or employee of the Corporation against any
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claim, liability or expense arising against or incurred by such person as a
result of actions reasonably taken by him at the direction of the Corporation.
The Corporation further shall have the authority, to the maximum extent
permitted by law and its Bylaws, to indemnify its directors, officers, agents,
fiduciaries and employees against any claim, liability or expense arising
against or incurred by them in all other circumstances and to maintain insurance
at the Corporation's expense providing for such indemnification (including
insurance with respect to claims, liabilities and expenses for which the
Corporation does not have the power to indemnify such persons).
7. Limitation on Director's Liability. A director of the Corporation shall
not be personally liable to the Corporation or its shareholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Corporation or to its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for a breach of
Colorado Revised Statutes sections.7-108-403, or (iv) for any transaction from
which the director directly or indirectly derived an improper personal benefit.
8. Conflicting Interest Transactions. As used in this paragraph,
"conflicting interest transaction" means any of the following: (i) a loan or
other assistance by the Corporation to a director of the Corporation or to an
entity in which a director of the Corporation is a director or officer or has a
financial interest; (ii) a guaranty by the Corporation of an obligation of a
director of the Corporation or of an obligation of an entity in which a director
of the Corporation is a director or officer or has a financial interest; or
(iii) a contract or transaction between the Corporation and a director of the
Corporation or between the Corporation and an entity in which a director of the
Corporation is a director or officer or has a financial interest. No conflicting
interest transaction shall be void or voidable, be enjoined, be set aside, or
give rise to an award of damages or other sanctions in a proceeding by a
shareholder or by or in the right of the Corporation, solely because the
conflicting interest transaction involves a director of the Corporation or an
entity in which a director of the Corporation is a director or officer or has a
financial interest, or solely because the director is present at or participates
in the meeting of the Corporation's Board of Directors or of the committee of
the Board of Directors which authorizes, approves or ratifies a conflicting
interest transaction, or solely because the director's vote is counted for such
purpose, if: (A) the material facts as to the director's relationship or
interest and as to the conflicting interest transaction are disclosed or are
known to the Board of Directors or the committee, and the Board of Directors or
committee in good faith authorizes, approves or ratifies the conflicting
interest transaction by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors are less than a quorum; or
(B) the material facts as to the director's relationship or interest and as to
the conflicting interest transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the conflicting interest transaction
is specifically authorized, approved or ratified in good faith by a vote of the
shareholders; or (C) a conflicting interest transaction is fair as to the
Corporation of the time it is authorized, approved or ratified by the Board of
Directors, a committee thereof, or the shareholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes, approves or ratifies
the conflicting interest transaction.
9. Loans and Guaranties for the Benefit of Directors. Neither the Board of
Directors nor any committee thereof shall authorize a loan by the Corporation to
a director of the Corporation or to an entity in which a director of the
Corporation is a director or officer or has a financial interest, or a guaranty
by the Corporation of an obligation of a director of the Corporation or of an
obligation of an entity in which a director of the Corporation is a director or
officer or has a financial interest, until at least ten days after written
notice of the proposed authorization of the loan or guaranty has been given to
the shareholders who would be entitled to vote thereon if the issue of the loan
or guaranty were submitted to a vote of the shareholders. The requirements of
this Article 9 are in addition to, and not in substitution for, the provisions
of Article 8 above.
10. Negation of Equitable Interests in Shares or Rights. Unless a person
is recognized as a shareholder through procedures established by the Corporation
pursuant to Colorado Revised Statute sections 7-107-204 or any similar law, the
Corporation shall be entitled to treat the registered holder of any shares of
the Corporation as the owner thereof for all purposes permitted by the Act,
including without limitation all rights deriving from such shares, and the
Corporation shall not be bound to recognize any equitable or
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other claim to, or interest in, such shares or rights deriving from such shares
on the part of any other person, including without limitation, a purchaser,
assignee or pledgee of such shares or of rights deriving from such shares,
unless and until such purchaser, assignee, pledgee or other person becomes the
registered holder of such shares or is recognized as such, whether or not the
Corporation shall have either actual or constructive notice of the interest of
such purchaser, assignee, pledgee or other person. By way of example and not of
limitation, no such purchaser, assignee, pledgee or other person shall be
entitled to receive notice of any meetings of shareholders, to vote at such
meetings, to examine a list of shareholders, to be paid dividends or other sums
payable to shareholders, or to own, enjoy and exercise any other rights deriving
from such shares, until such purchaser, assignee, pledgee or other person has
become the registered holder of such shares or is recognized as such.
11. Registered Office; Registered Agent. The street address of the
registered office of the Corporation is 1225 17th Street, 9th Floor, Denver, CO
80202. The name of the registered agent at such address is Paul J. Bonavia.
12. Principal Office. The address of the principal office of the
Corporation is 1225 17th Street, Denver, CO 80202.
These Amended and Restated Articles of Incorporation were adopted by
unanimous written consent of the directors of the Corporation and by written
consent of the sole shareholder of the Corporation. The number of votes cast for
each amendment by each voting group entitled to vote separately on the amendment
was sufficient for approval by that voting group.
IN WITNESS WHEREOF, the Corporation has set its hand and seal effective as
of July 10, 1998.
PUBLIC SERVICE COMPANY OF COLORADO
By: /s/ Wayne H. Brunetti
--------------------------------------
Wayne H. Brunetti, Chief Executive Officer
Attest:
- -----------------------------
Cathy J. Hart, Corporate Secretary
* * * * *
Paul J. Bonavia hereby consents to his appointment as the registered agent
for Public Service Company of Colorado.
/s/ Paul J. Bonavia
---------------------------------
Paul J. Bonavia
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Exhibit 3(b)1
RESTATED BYLAWS
OF NEW CENTURY ENERGIES, INC.
1. OFFICES.
1.1 Offices. In addition to its registered office in the State of
Delaware, the Corporation shall have a corporate office in Denver, Colorado and
significant operating offices in Amarillo, Texas, and such other offices, either
within or without the State of Delaware, at such locations as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
2. SEAL.
2.1 Seal. The Corporation shall have a seal, which shall have inscribed
thereon its name and year of incorporation and the words, "Corporate Seal
Delaware."
3. MEETINGS OF STOCKHOLDERS.
3.1 Annual Meetings. The annual meeting of stockholders of the Corporation
shall be held on such date, at such time and at such place within or without the
State of Delaware as shall be determined by the Board of Directors from time to
time.
3.2 Special Meetings. Special meetings of the stockholders of the
Corporation shall be held on such date, at such time and at such place within or
without the State of Delaware as the Board of Directors may designate.
3.3 Notice of Meetings. (a) Notices of meetings of stockholders shall be
in writing and shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which a meeting is
called. No business other than that specified in the notice thereof shall be
transacted at any special meeting.
(b) Such notice shall either be delivered personally or mailed,
postage prepaid, to each stockholder entitled to vote at such meeting not less
than 10 nor more than 60 days before the date of the meeting. If mailed, the
notice shall be directed to the stockholder at his or her address as it appears
on the records of the Corporation. Personal delivery of any such notice to any
officer of a corporation or association or to any member of a partnership shall
constitute delivery of such notice to such corporation, association or
partnership.
(c) Notice of any meeting of stockholders need not be given to any
stockholder if waived by such stockholder in writing, whether before or after
such meeting is held, or if such stockholder shall sign the minutes or attend
the meeting, except that if such stockholder attends a meeting for the express
purpose of objecting at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened, such
stockholder shall not be deemed to have waived notice of such meeting.
3.4 Adjourned Meetings. When a meeting is adjourned to another time or
place, unless otherwise provided by these Restated Bylaws, notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned meeting the
stockholders may transact any business which might have been transacted at the
original meeting. If an adjournment is for more than 30 days, or if after an
adjournment, a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder entitled to vote at the
meeting.
3.5 Quorum and Adjournment. Except as otherwise provided by law, by the
Restated Certificate of Incorporation of the Corporation or by these Restated
Bylaws, the presence, in person or by proxy, of the holders of a majority of the
aggregate voting power of the stock issued and outstanding, entitled to vote
thereat, shall constitute a quorum for the transaction of business at all
meetings of stockholders. If such majority shall
<PAGE>
not be present or represented at any meeting of stockholders, the stockholders
present, although less than a quorum, shall have the power to adjourn the
meeting.
3.6 Vote Required. Except as otherwise provided by law or by the
Restated Certificate of Incorporation:
(a) Directors shall be elected by a plurality of the votes cast at a
meeting of stockholders by the stockholders entitled to vote in the election,
and
(b) whenever any corporate action other than the election of
Directors is to be taken, it shall be authorized by a majority of the votes cast
at a meeting of stockholders by the stockholders entitled to vote thereon.
3.7 Manner of Voting. At each meeting of stockholders, each stockholder
having the right to vote shall be entitled to vote in person or by proxy. Each
stockholder shall be entitled to vote each share of stock having voting power
registered in his name on the books of the Corporation on the record date fixed
for determination of stockholders entitled to vote at such meeting.
3.8 Proxies. (a) ) At any meeting of stockholders, any stockholder may be
represented and vote by proxy or proxies. In the event that any form of proxy
shall designate two or more persons to act as proxies, a majority of such
persons present at the meeting or, if only one shall be present, then that one
shall have and may exercise all of the powers conferred by the form of proxy
upon all of the persons so designated unless the form of proxy shall otherwise
provide.
(b) The Board of Directors may, in advance of any annual or special
meeting of the stockholders, prescribe additional regulations concerning the
manner of execution and filing of proxies and the validation of the same, which
are intended to be voted at any such meeting.
3.9 Presiding Officer and Secretary. The Chairman of the Board shall act
as chairman of all meetings of the stockholders. In the absence of the Chairman
of the Board, the Vice Chairman of the Board or, in his or her absence, the
President, or in his or her absence, any Vice President designated by the Board
of Directors shall act as chairman of the meeting.
The Secretary of the Corporation shall act as secretary of all meetings of
the stockholders, but, in the absence of the Secretary, the Assistant Secretary
designated in accordance with Section 5.11(b) of these Restated Bylaws shall act
as secretary of all meetings of the stockholders, but in the absence of a
designated Assistant Secretary, the chairman of the meeting may appoint any
person to act as secretary of the meeting.
3.10 Procedure. At each meeting of stockholders, the chairman of the
meeting shall fix and announce the date and time of the opening and the closing
of the polls for each matter upon which the stockholders will vote at the
meeting and shall determine the order of business and all other matters of
procedure. Except to the extent inconsistent with any such rules and regulations
as adopted by the Board of Directors, the chairman of the meeting may establish
rules, which need not be in writing, to maintain order and safety and for the
conduct of the meeting. Without limiting the foregoing, he or she may:
(a) restrict attendance at any time to bona fide stockholders of
record and their proxies and other persons in attendance at the invitation of
the chairman;
(b) restrict dissemination of solicitation materials and use of
audio or visual recording devices at the meeting;
(c) adjourn the meeting without a vote of the stockholders, whether
or not there is a quorum present; and
(d) make rules governing speeches and debate, including time limits
and access to microphones.
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The chairman of the meeting acts in his or her absolute discretion and his or
her rulings are not subject to appeal.
4. DIRECTORS.
4.1 Powers. The Board of Directors shall exercise all of the powers of the
Corporation except such as are by law, or by the Restated Certificate of
Incorporation of this Corporation or by these Restated Bylaws conferred upon or
reserved to the stockholders of any class or classes.
4.2 Resignations. Any Director may resign at any time by giving written
notice to the Board of Directors or the Secretary. Such resignation shall take
effect at the date of receipt of such notice or at any later time specified
therein. Acceptance of such resignation shall not be necessary to make it
effective.
4.3 Presiding Officer and Secretary. The Chairman of the Board shall act
as chairman of all meetings of the Board of Directors. In the absence of the
Chairman of the Board, the Vice Chairman of the Board, or in his absence, the
Chief Executive Officer or other person designated by the Board of Directors
shall act as chairman of the meeting.
The Secretary of the Corporation shall act as secretary of all
meetings of the Board of Directors, but, in the absence of the Secretary, the
Assistant Secretary designated in accordance with Section 5.11(b) of these
Restated Bylaws shall act as secretary of all meetings of the stockholders, but
in the absence of a designated Assistant Secretary, the chairman of the meeting
may appoint any person to act as secretary of the meeting.
4.4 Annual Meetings. The Board of Directors shall meet each year
immediately following the annual meeting of stockholders, at the place where
such meeting of stockholders has been held, or at such other place as shall be
fixed by the person presiding over the meeting of the stockholders, for the
purpose of election of officers and consideration of such other business as the
Board of Directors considers relevant to the management of the Corporation.
4.5 Regular Meetings. Regular meetings of the Board of Directors shall be
held on such dates and at such times and places, within or without the state of
Delaware, as shall from time to time be determined by the Board of Directors. In
the absence of any such determination, such meetings shall be held at such times
and places, within or without the State of Delaware, as shall be designated by
the Chairman of the Board on not less than twelve hours notice to each Director,
given verbally or in writing either personally, by telephone (including by
message or recording device), by facsimile transmission, by telegram or by telex
or on not less than three (3) calendar days' notice to each Director given by
mail.
4.6 Special Meetings. Special meetings of the Board of Directors shall be
held at the call of the Chairman of the Board at such times and places, within
or without the State of Delaware, as he or she shall designate, on not less than
twelve hours notice to each Director, given verbally or in writing either
personally, by telephone (including by message or recording device), by
facsimile transmission, by telegram or by telex or on not less than three (3)
calendar days' notice to each Director given by mail. Special meetings shall be
called by the Secretary on like notice at the written request of a majority of
the Directors then in office.
4.7 Quorum and Powers of a Majority. At all meetings of the Board of
Directors and of each committee thereof, a majority of the members shall be
necessary and sufficient to constitute a quorum for the transaction of business,
and the act of a majority of the members present at any meeting at which a
quorum is present shall be the act of the Board of Directors or such committee,
unless by express provision of law, of the Restated Certificate of Incorporation
or these Restated Bylaws, a different vote is required, in which case such
express provision shall govern and control. In the absence of a quorum, a
majority of the members present at any meeting may, without notice other than
announcement at the meeting, adjourn such meeting from time to time until a
quorum is present.
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4.8 Waiver of Notice. Notice of any meeting of the Board of Directors, or
any committee thereof, need not be given to any member if waived by him or her
in writing, whether before or after such meeting is held, or if he or she shall
sign the minutes or attend the meeting, except that if such Director attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened, then such Director shall not be deemed to have waived notice of such
meeting.
4.9 Manner of Acting. (a) Members of the Board of Directors, or any
committee thereof, may participate in any meeting of the Board of Directors or
such committee by means of conference telephone or similar communications
equipment by means of which all persons participating therein can hear each
other, and participation in a meeting by such means shall constitute presence in
person at such meeting.
(b) Any action required or permitted to be taken at any meeting of
the Board of Directors or any committee thereof may be taken without a meeting
if all members of the Board of Directors or such committee, as the case may be,
consent thereto in writing, and the writings are filed with the minutes of
proceedings of the Board of Directors or such committee.
4.10 Compensation. (a) The Board of Directors, by a resolution or
resolutions, may fix, and from time to time change, the compensation of
Directors.
(b) Each Director shall be entitled to reimbursement from the
Corporation for his or her reasonable expenses incurred with respect to duties
as a member of the Board of Directors or any committee thereof.
(c) Nothing contained in these Restated Bylaws shall be construed to
preclude any Director from serving the Corporation in any other capacity and
from receiving compensation from the Corporation for service rendered to it in
such other capacity.
4.11 Standing Committees. The Board of Directors shall have the following
four standing committees, each committee of which shall consist of five members,
including the chairman of the committee:
(a) A Nominating and Civic Responsibility Committee which shall, in
addition to any other duties assigned to such committee by the Board of
Directors, nominate candidates to fill vacancies on the Board of Directors and
shall review the participation of the Corporation in the communities in which
the Corporation operates;
(b) A Finance Committee which shall, in addition to any other duties
assigned to such committee by the Board of Directors, review and make
recommendations to the Board of Directors as to the methods of financing the
Corporation's operations;
(c) An Audit Committee which shall, in addition to any other duties
assigned to such committee by the Board of Directors, review the financial
affairs of the Corporation with the Corporation's auditors; and
(d) A Compensation Committee which shall, in addition to any other
duties assigned to such committee by the Board of Directors, review and make
recommendations to the Board of Directors concerning the compensation of
officers of the Corporation.
4.12 Additional Committees. In addition to the standing committees, the
Board of Directors may, (i) if on or prior to the date four and one-half years
after the effective date, if any, of the mergers (the "Merger Date") which cause
Public Service Company of Colorado and Southwestern Public Service Company to
become subsidiaries of the Corporation pursuant to the Agreement and Plan of
Reorganization dated August 22 1995, as amended, among the Corporation, Public
Service Company of Colorado and Southwestern Public Service Company (the "Merger
Agreement") by resolution adopted by two-thirds of the entire Board of
Directors, and (ii) if thereafter, by resolution adopted by a majority of the
entire Board of Directors, designate one or more additional committees, each
committee to consist of one or more Directors, which to the extent
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provided in said resolution or resolutions shall have and may exercise the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, except as provided in Section 4.13.
4.13 Committee Procedure, Limitations of Committee Powers. (a) Except as
otherwise provided by these Restated Bylaws, each committee shall adopt its own
rules governing the time, place and method of holding its meetings and the
conduct of its proceedings and shall meet as provided by such rules or by
resolution of the Board of Directors. Unless otherwise provided by these
Restated Bylaws or any such rules or resolutions, notice of the time and place
of each meeting of a committee shall be given to each member of such committee
as provided in Section 4.6 of these Restated Bylaws with respect to notices of
special meetings of the Board of Directors.
(b) Each committee shall keep regular minutes of its proceedings and
report the same to the Board of Directors when required.
(c) Any member of any committee may be removed from such committee
either with or without cause, at any time, by the Board of Directors at any
meeting thereof. Any vacancy in any committee shall be filled by the Board of
Directors in the manner prescribed by the Restated Certificate of Incorporation
or these Restated Bylaws for the original appointment of the members of such
committee.
4.14 Actions Requiring More Than a Majority of Directors Present. On and
prior to the date that is four and one-half years after the Merger Date, (a) the
following actions by the Board of Directors will require the affirmative vote of
two-thirds of the Board of Directors: (i) any change in the method of selecting
committee members from that set forth in the Merger Agreement, and (ii) any
amendments to Section 1.1 or this Section 4.14 of these Restated Bylaws, and (b)
the removal of or action to fill a vacancy in the office of the Chief Executive
Officer or President of the Corporation or the Chairman of the Board or the Vice
Chairman of the Board will require the affirmative vote of the greater of
two-thirds of the entire Board of Directors or ten Directors.
5. OFFICERS.
5.1 Number. (a) The officers of the Corporation shall include a Chief
Executive Officer, a President, one or more Vice Presidents (including one or
more Executive Vice Presidents and one or more Senior Vice Presidents if deemed
appropriate by the Board of Directors), a Secretary and a Treasurer. The Board
of Directors shall also elect a Chairman of the Board and may elect a Vice
Chairman of the Board. The Board of Directors may also elect such other officers
as the Board of Directors may from time to time deem appropriate or necessary.
Except for the Chairman of the Board, the Vice Chairman of the Board and the
Chief Executive Officer, none of the officers of the Corporation need be a
director of the Corporation. Any two or more offices may be held by the same
person to the extent permitted by the GCLD.
(b) The Board of Directors may delegate to the Chief Executive
Officer or President the power to appoint one or more employees of the
Corporation as divisional or departmental vice presidents and fix the duties of
such appointees. However, no such divisional or departmental vice president
shall be considered as an officer of the Corporation, the officers of the
Corporation being limited to those officers elected by the Board of Directors.
5.2 Election of Officers, Qualification and Term. The officers of the
Corporation shall be elected from time to time by the Board of Directors and,
except as may otherwise be expressly provided in a contract of employment duly
authorized by the Board of Directors or the Merger Agreement, shall hold office
at the pleasure of the Board of Directors.
5.3 Removal. Except as otherwise expressly provided in a contract duly
authorized by the Board of Directors or in the Merger Agreement, any officer
elected by the Board of Directors may be removed, either with or without cause,
by the Board of Directors at any meeting thereof, or to the extent delegated to
the Chairman of the Board or the Chief Executive Officer, by the Chairman of the
Board or the Chief Executive Officer.
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5.4 Resignations. Any officer of the Corporation may resign at any time by
giving written notice to the Board of Directors or to the Chairman of the Board
or to the Chief Executive Officer. Such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
5.5 Salaries. The salaries of all officers of the Corporation shall be
fixed by the Board of Directors from time to time, and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
Director of the Corporation.
5.6 The Chairman of the Board. The Chairman of the Board shall have the
powers and duties customarily and usually associated with the office of the
Chairman of the Board. The Chairman of the Board shall preside at meetings of
the stockholders and of the Board of Directors.
5.7 Vice Chairman of the Board. The Vice Chairman of the Board shall have
the powers and duties customarily and usually associated with the office of the
Vice Chairman of the Board.
5.8 Chief Executive Officer. The Chief Executive Officer shall have,
subject to the supervision, direction and control of the Board of Directors, the
general powers and duties of supervision, direction and management of the
affairs and business of the Corporation usually vested in the chief executive
officer of a corporation, including, without limitation, all powers necessary to
direct and control the organizational and reporting relationships within the
Corporation. If at any time the office of the Chairman of the Board and the Vice
Chairman of the Board shall not be filled, or in the event of the temporary
absence or disability of the Chairman of the Board and the Vice Chairman of the
Board, the Chief Executive Officer shall have the powers and duties of the
Chairman of the Board.
5.9 The President. The President shall serve as chief operating officer
and shall have such other powers and perform such other duties as may be
delegated to him or her from time to time by the Board of Directors or the Chief
Executive Officer.
5.10 The Vice Presidents. Each Vice President shall have such powers and
perform such duties as may from time to time be assigned to him or her by the
Board of Directors, the Chief Executive Officer or the President.
5.11 The Secretary and the Assistant Secretary. (a) The Secretary shall
attend meetings of the Board of Directors and meetings of the stockholders and
record all votes and minutes of all such proceedings in a book kept for such
purpose. He or she shall have all such further powers and duties as generally
are incident to the position of Secretary or as may from time to time be
assigned to him or her by the Board of Directors, the Chief Executive Officer or
the President.
(b) Each Assistant Secretary shall have such powers and perform such
duties as may from time to time be assigned to him or her by the Board of
Directors, the Chief Executive Officer, the President or the Secretary. In case
of the absence or disability of the Secretary, the Assistant Secretary
designated by the Chief Executive Officer (or, in the absence of such
designation, by the Secretary) shall perform the duties and exercise the powers
of the Secretary.
5.12 The Treasurer and the Assistant Treasurer. (a) The Treasurer shall
have custody of the Corporation's funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit or cause to be deposited moneys or other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors. The Treasurer shall also maintain
adequate records of all assets, liabilities and transactions of the Corporation
and shall see that adequate audits thereof are currently and regularly made. The
Treasurer shall have such other powers and perform such other duties that
generally are incident to the position of Treasurer or as may from time to time
be assigned to him or her by the Board of Directors, the Chief Executive Officer
or the President.
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(b) Each Assistant Treasurer shall have such powers and perform such
duties as may from time to time be assigned to him or her by the Board of
Directors, the Chief Executive Officer, the President or the Treasurer. In case
of the absence or disability of the Treasurer, the Assistant Treasurer
designated by the Chief Executive Officer (or, in the absence of such
designation, by the Treasurer) shall perform the duties and exercise the powers
of the Treasurer.
6. STOCK
6.1 Certificates. Certificates for shares of stock of the Corporation
shall be issued under the seal of the Corporation, or a facsimile thereof, and
shall be numbered and shall be entered in the books of the Corporation as they
are issued. Each certificate shall bear a serial number, shall exhibit the
holder's name and the number of shares evidenced thereby, and shall be signed by
the Chairman of the Board or a Vice Chairman, if any, or the Chief Executive
Officer or the President or any Vice President, and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer. Any or all of
the signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if such person or entity were such officer,
transfer agent or registrar at the date of issue.
6.2 Transfers. Transfers of stock of the Corporation shall be made on the
books of the Corporation only upon surrender to the Corporation of a certificate
(if any) for the shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, provided such succession,
assignment or transfer is not prohibited by the Restated Certificate of
Incorporation, these Restated Bylaws, applicable law or contract. Thereupon, the
Corporation shall issue a new certificate (if requested) to the person entitled
thereto, cancel the old certificate (if any) and record the transaction upon its
books.
6.3 Lost, Stolen or Destroyed Certificates. Any person claiming a
certificate of stock to be lost, stolen or destroyed shall make an affidavit or
an affirmation of that fact, and shall give the Corporation a bond of indemnity
in satisfactory form and with one or more satisfactory sureties, whereupon a new
certificate (if requested) may be issued of the same tenor and for the same
number of shares as the one alleged to be lost, stolen or destroyed.
6.4 Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares as the person entitled to exercise the rights of a stockholder and
shall not be bound to recognize any equitable or other claim to or interest in
any such shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise expressly provided by the
General Corporation Law of Delaware (the "GCLD").
6.5 Additional Powers of the Board. (a) In addition to those powers set
forth in Section 4.1, the Board of Directors shall have power and authority to
make all such rules and regulations as it shall deem expedient concerning the
issue, transfer and registration of certificates for shares of stock of the
Corporation, including the use of uncertificated shares of stock subject to the
provisions of the GCLD.
(b) The Board of Directors may appoint and remove transfer agents
and registrars of transfers, and may require all stock certificates to bear the
signature of any such transfer agent and/or any such registrar of transfers.
7
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7. MISCELLANEOUS
7.1 Place and Inspection of Books. (a) The books of the Corporation other
than such books as are required by law to be kept within the State of Delaware
shall be kept in such place or places either within or without the State of
Delaware as the Board of Directors may from time to time determine.
(b) At least ten days before each meeting of stockholders, the
officer in charge of the stock ledger of the Corporation shall prepare a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
(c) The Board of Directors shall determine from time to time whether
and, if allowed, when and under what conditions and regulations the accounts and
books of the Corporation (except such as may be by law specifically open to
inspection or as otherwise provided by these Restated Bylaws) or any of them
shall be open to the inspection of the stockholders and the stockholders' rights
in respect thereof.
7.2 Voting Shares in Other Corporations. The Chief Executive Officer, the
President or any other officer of the Corporation designated by the Board of
Directors may vote any and all shares held by the Corporation in any other
corporation.
7.3 Fiscal Year. The fiscal year of the Corporation shall be such fiscal
year as the Board of Directors from time to time by resolution shall determine.
7.4 Gender/Number. As used in these Restated Bylaws, the masculine,
feminine or neuter gender, and the singular or plural number, shall each include
the others whenever the context so indicates.
7.5 Paragraph Titles. The titles of the paragraphs have been inserted as a
matter of reference only and shall not control or affect the meaning or
construction of any of the terms and provisions hereof.
7.6 Amendment. Subject to Section 4.14 of these Restated Bylaws, these
Restated Bylaws may be altered, amended or repealed by (a) the affirmative vote
of the holders of a majority of the voting power of the stock issued and
outstanding and entitled to vote at any meeting of stockholders, or (b) by
resolution adopted by the affirmative vote of not less than a majority of the
Directors in office, at any annual or regular meeting of the Board of Directors
or at any special meeting of the Board of Directors if notice of the proposed
alteration, amendment or repeal be contained in written notice of such special
meeting. Notwithstanding the foregoing, the amendment of any provision of these
Restated Bylaws requiring an affirmative vote in excess of a majority of the
Directors in office shall require the affirmative vote of at least the number of
directors the affirmative vote of whom is required by such provision.
7.7 Restated Certificate of Incorporation. Notwithstanding anything to the
contrary contained herein, if any provision contained in these Restated Bylaws
is inconsistent with or conflicts with a provision of the Restated Certificate
of Incorporation, such provision of these Restated Bylaws shall be superseded by
the inconsistent provision in the Restated Certificate of Incorporation to the
extent necessary to give effect to such provision in the Restated Certificate of
Incorporation.
8
Exhibit 10(a)1
Form of Change in Control Agreement
Between
New Century Energies, Inc.
and
(Executive Name)
THIS AGREEMENT is made and entered into effective as of the 1st day
of August, 1997 by and between NEW CENTURY ENERGIES, INC., a Delaware
corporation (hereinafter "NCE") and (Executive Name) (hereinafter, the
"Executive").
WHEREAS Executive is a valuable employee of NCE and an integral
part of its management; and
WHEREAS NCE wishes to encourage Executive to continue Executive's
career with and services to NCE for the period during and after an actual or
threatened Change In Control; and
WHEREAS the Board of Directors of NCE has determined that it
would be in the best interests of NCE and its shareholders to assure
continuity in the management of NCE in the event of a Change In Control by
entering into this Agreement with Executive;
NOW, THEREFORE, in consideration of the services to be performed
by Executive for NCE in the future, as well as the promises and covenants
contained in this Agreement, the parties agree as follows:
Sec. 1. DEFINITIONS. For purposes of this Agreement, the
following capitalized terms shall have the meanings prescribed below:
Sec. 1.1 Board. "Board" means the Board of Directors of NCE.
Except where this Agreement requires that action be taken by a specified
percentage or number of the members of the Board, action on behalf of the
Board may be taken by its Executive Committee, or by any other committee or
individual specifically authorized to act on behalf of the Board by
resolution of the Board.
Sec. 1.2 Change In Control. A "Change In Control" is the
occurrence of any of the events described in subsections (a) through (d)
below:
(a) Either (i) receipt by NCE of a report on Schedule 13D, or an
amendment to such a report, filed with the Securities and Exchange
Commission pursuant to Section 13(d) of the Securities Exchange Act
of 1934 (the "1934 Act") disclosing that any person (as such term is
used in Section 13(d) of the 1934 Act) ("Person"), is the beneficial
owner, directly or indirectly, of twenty percent or more of the
combined voting power of the outstanding stock of NCE, or (ii) actual
knowledge by the Board of facts on the basis of which any Person is
required to file such a report on Schedule 13D, or to make an
amendment to such a report, with the SEC (or would be required to
file such a report or amendment upon the lapse of the applicable
period of time specified in Section 13(d) of the 1934 Act) disclosing
that such Person is the beneficial owner, directly or indirectly, of
twenty percent or more of the combined voting power of the
outstanding stock of NCE.
<PAGE>
(b) Purchase by any Person other than NCE or a wholly-owned subsidiary
of NCE, of shares pursuant to a tender or exchange offer to acquire
any stock of NCE (or securities convertible into stock) for cash,
securities or any other consideration provided that, after
consummation of the offer, such Person is the beneficial owner (as
defined in Rule 13d-3 under the 1934 Act), directly or indirectly,
of twenty percent or more of the combined voting power of the
outstanding stock of NCE (calculated as provided in paragraph (d) of
Rule 13d-3 under the 1934 Act in the case of rights to acquire
stock).
(c) Approval by the shareholders of NCE of a transaction described in
any of the following paragraphs:
(1) Any consolidation or merger of NCE in which NCE is not the
continuing or surviving corporation or pursuant to which shares
of stock of NCE would be converted into cash, securities or
other property, other than a consolidation or merger of NCE in
which holders of its stock immediately prior to the
consolidation or merger own at least a majority of the combined
voting power of the outstanding stock of the surviving
corporation immediately after the consolidation or merger (or
at least a majority of the combined voting power of the
outstanding stock of a corporation which owns directly or
indirectly all of the voting stock of the surviving
corporation).
(2) Any consolidation or merger in which NCE is the continuing or
surviving corporation but in which the shareholders of NCE
immediately prior to the consolidation or merger do not hold at
least a majority of the combined voting power of the
outstanding stock of the continuing or surviving corporation
(except where such holders of stock hold at least a majority of
the combined voting power of the outstanding stock of the
corporation which owns directly or indirectly all of the voting
stock of NCE).
(3) Any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all or substantially
all the assets of NCE (except such a transfer to a corporation
which is wholly owned, directly or indirectly, by NCE), or any
complete liquidation of NCE.
(4) Any merger or consolidation of NCE where, after the merger or
consolidation, one Person owns 100% of the shares of stock of
NCE (except where the holders of NCE's voting stock immediately
prior to such merger or consolidation own at least a majority
of the combined voting power of the outstanding stock of such
Person immediately after such merger or consolidation).
(d) A change in the majority of the members of the Board within a
24-month period unless the election or nomination for election by
NCE's shareholders of each new director was approved by the vote of
at least two-thirds of the directors then still in office who were
in office at the beginning of the 24-month period.
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A Change In Control occurs on the date that an event described in subsection
(a), (b) or (d) occurs. In the case of a transaction described in subsection
(c) which is subject to approval by the shareholders, the Change In Control
occurs on the date the transaction is completed.
Sec. 1.3 Code. "Code" means the Internal Revenue Code of 1986,
as amended.
Sec. 1.4 Disability. "Disability" or "Disabled" means the
inability of Executive as a result of physiological or psychological
condition to perform the essential functions of any position held by
Executive on or after the date a Change In Control occurred.
Sec. 1.5 Discharge for Cause. Solely for purposes of this
Agreement, "Discharge for Cause" means a termination of Executive's
employment by NCE because of Executive's fraud or dishonesty which has
resulted, or is likely to result, in material economic damage to NCE, as
determined in good faith by a vote of two-thirds of the non-employee
directors at a meeting of the Board at which Executive has been afforded an
opportunity to be heard.
Sec. 1.6 Good Reason. "Good Reason" means the occurrence, on or
after the date of a Change In Control and without Executive's written
consent, of any of the following events or circumstances, as determined in
good faith by Executive:
(a) A reduction in Executive's base salary in effect immediately prior
to the Change In Control.
(b) A material reduction in Executive's target opportunity, measured as
a percentage of base salary, to earn annual or long-term incentives
or bonuses.
(c) A failure to provide to Executive employee benefits and perquisites
(other than amounts described in subsections (a) and (b)) which are
reasonably equivalent in the aggregate to those provided to
Executive immediately prior to the Change In Control.
(d) A material reduction by NCE of Executive's job duties and
responsibilities that existed immediately prior to the Change In
Control, including but not limited to the assignment to Executive of
duties and responsibilities which are materially inconsistent with
those of Executive's position immediately prior to the Change In
Control.
(e) Assignment or reassignment of Executive to another place of
employment that is more than 50 miles (measured by the shortest
paved highway route) from Executive's place of employment
immediately prior to the Change In Control.
(f) A failure by NCE to pay to Executive when due any deferred
compensation that was deferred by Executive prior to the Change in
Control.
(g) A failure by NCE to comply with the terms and conditions of this
Agreement.
Notwithstanding the foregoing:
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<PAGE>
(aa)An event or circumstance shall not constitute Good Reason unless
Executive provides written notice to NCE specifying the basis for
Executive's determination that Good Reason exists within six months
after the first day on which such Good Reason existed. If NCE cures
the event or circumstance within 30 days of receiving such written
notice (including retroactive restoration of any lost compensation
or benefits, where reasonably possible), Good Reason shall be deemed
never to have existed.
(bb)NCE and Executive may, upon mutual written agreement, waive any
provision of this Section which would otherwise constitute Good
Reason.
Sec. 2. TERM OF AGREEMENT. This Agreement shall become
effective as of the date written in the first paragraph of this Agreement and
shall be for an initial term ending on December 31, 1999. The term of this
Agreement shall be automatically extended on each December 31 for one
additional calendar year, unless NCE provides written notice to Executive
prior to a December 31 that this sentence shall cease to apply on that
December 31. (For example, on December 31, 1997, the term will be
automatically extended to December 31, 2000 unless NCE gives written notice
to Executive prior to December 31, 1997.) This Agreement will apply to any
Change in Control that occurs during the term of this Agreement.
Sec. 3. ELIGIBILITY FOR BENEFITS. Except as provided in
Sec. 3.1, if Executive is a full-time employee of NCE on the date a Change In
Control occurs, Executive shall be entitled to the benefits provided under
Sec. 4 following the occurrence of either of the following events:
(a) Executive's employment is involuntarily terminated by NCE during the
36-month period following the Change In Control.
(b) Executive terminates employment with NCE for Good Reason during the
36-month period following the Change In Control; provided that the
period in which NCE could correct the Good Reason has expired.
Sec. 3.1 Disqualification from Benefits. Notwithstanding
Sec. 3, Executive shall not be eligible for any benefits under this Agreement
under any of the following circumstances:
(a) NCE terminates Executive's employment due to Discharge for Cause.
(b) Executive's employment with NCE terminates due to Disability or
Executive's death.
(c) Executive voluntarily terminates employment without Good Reason.
For purposes of this Agreement, a voluntary termination of
employment includes any termination that qualifies as a form of
"retirement" under any employee pension benefit plan maintained by
NCE that covers Executive; provided that Good Reason does not exist
at the time of such retirement.
(d) Executive's employment is terminated pursuant to any policy of NCE
that requires or permits mandatory retirement of Executive upon
attainment of a specified age and that complies with applicable laws
and regulations.
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<PAGE>
If this Sec. 3.1 applies, Executive shall be subject to the normal policies
of NCE regarding such events and shall be eligible for only such compensation
and benefits as would apply if this Agreement did not exist.
Sec. 3.2 Anticipation of Change In Control. If (i) Executive's
employment is involuntarily terminated by NCE, or Executive terminates such
employment with NCE for Good Reason, on or after the date on which a public
announcement is made by NCE of its intention to participate in a transaction
which would constitute a Change In Control, (ii) Executive would be eligible
under Sec. 3 if the Change In Control had already occurred, (iii) Sec. 3.1
does not apply, and (iv) the Change In Control actually occurs, then
Executive's employment shall be deemed solely for purposes of this Agreement
to have terminated under Sec. 3 on the date the Change In Control occurred
and Executive shall be entitled to the benefits provided under Sec. 4.
Sec. 4. BENEFITS. If Executive is eligible under Sec. 3,
Executive will receive the benefits provided under Sec. 4.1 through Sec. 4.5.
Sec. 4.1 Severance Payment. Within five business days after
Executive's termination of employment under Sec. 3 occurs, NCE will pay to
Executive a lump sum equal to two and one-half times the sum of the amounts
determined under subsections (a) and (b):
(a) Executive's annual base salary immediately prior to the Change In
Control.
(b) The average of the short- and long-term bonuses that Executive
received for the two calendar years immediately preceding the date
Executive's employment terminated. For purposes of this subsection:
(1) If Executive's employment terminates during 1997, the amount
under this subsection (b) shall be equal to the target award
payable by NCE for 1997.
(2) If Executive's employment terminates during 1998, the amount
under this subsection (b) shall be equal to the target award
for 1998.
(3) If Executive's employment terminates during 1999, the amount
under this subsection (b) shall be the average of the actual
bonus for 1998 and the target award for 1999.
(4) Any portion of a bonus that was paid or awarded in the form of
NCE stock will be valued for purposes of this subsection (b) at
the closing price for such stock on the New York Stock Exchange
on the most recent business day preceding the date the cash
portion of the award became payable to Executive (disregarding
any election to defer said payment).
The payment under this Sec. 4.1 shall also include any accrued but unpaid
salary and pay for any accrued but unused vacation under NCE's policies which
is outstanding on the date Executive's employment terminates.
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<PAGE>
Sec. 4.2 Stock Options and Restricted Stock. All stock options
granted to Executive which are outstanding on the date of Executive's
termination of employment under Sec. 3 shall become vested, and all
restrictions on restricted shares of NCE stock granted to Executive shall
lapse on that date. All of Executive' outstanding stock options shall be
exercisable as if Executive had remained an employee of NCE during the two
and one-half year period following the termination of Executive's employment.
Sec. 4.3 Continuation of Welfare Benefits. During the 30 month
period following Executive's termination of employment under Sec. 3,
Executive will be eligible for continuation of coverage for Executive and
Executive's eligible dependents under all life insurance, disability,
accident and health insurance coverage in effect at the time Executive's
employment terminated, subject to the following:
(a) Such coverage shall be provided under the same terms and conditions
as apply to similarly situated active employees of NCE during such
period. Executive shall pay to NCE the contribution, if any,
required to be paid for such coverage by similarly situated active
employees of NCE during such period.
(b) If a group insurance carrier refuses to provide the coverage
described in this Sec. 4.3 under its contract issued to NCE, or if
NCE reasonably determines that the coverage required under this Sec.
4.3 would cause a welfare plan sponsored by NCE to violate any
provision of the Code prohibiting discrimination in favor of highly
compensated employees or key employees, NCE will use its best
efforts to obtain for Executive an individual insurance policy
providing comparable coverage. However, if NCE determines in good
faith that comparable coverage cannot be obtained for less than two
times the premium or premium equivalent for such coverage under
NCE's welfare plan or plans, NCE's sole obligation under this Sec.
4.3 with respect to that coverage will be limited to paying to
Executive a monthly amount equal to two times the monthly premium or
premium equivalent for that coverage under NCE's plans.
(c) Benefits provided to Executive or Executive's dependents under this
section will be secondary to any comparable benefits provided by
another employer to the extent permitted by applicable law.
Sec. 4.4 Retirement Benefits. Within five business days after
Executive's employment terminates under Sec. 3 (or as soon thereafter as the
amount payable under this section can reasonably be determined), NCE will pay
Executive a lump sum equal to the sum of the following amounts:
(a) Retirement Plans. The present value of the additional benefit to
which Executive would be entitled under the qualified defined
benefit pension plan and non-qualified supplemental executive
retirement plan, if any, that covered Executive on the date the
termination of employment occurred, determined by assuming that
Executive's employment had continued for an additional 30 months and
that Executive's rate of compensation being recognized by each such
plan immediately prior to the termination of employment had
continued in effect during such period. The "present value" for
purposes of this subsection (a) shall be determined by using the
actuarial equivalent
6
<PAGE>
factors specified in the qualified defined benefit pension plan for
determining lump sum distributions (disregarding any restriction on
the size of lump sum distributions allowed).
(b) Savings Plans. The sum of the additional contributions (other than
pre-tax salary deferral contributions by Executive) that would have
been made or credited by NCE to Executive's accounts under each
qualified defined contribution plan and non-qualified supplemental
executive savings plan, if any, that covered Executive on the date
the termination of employment occurred, determined by assuming that:
(1) Executive's employment had continued for an additional 30
months.
(2) Executive's rate of compensation being recognized by each plan
immediately prior to the termination of employment had
continued in effect during such period.
(3) In the case of matching contributions, Executive's rate of
pre-tax salary deferral contributions in effect immediately
prior to the termination of employment had remained in effect
throughout such period.
(4) In the case of discretionary contributions by NCE, NCE
continued to make such contributions during such period at the
rate that applied to the most recent plan year that ended prior
to the termination of employment.
Sec. 4.5 Excise Tax Gross-Up. If Independent Tax Counsel
determines that the aggregate payments made to Executive under this Agreement
and any other payments to Executive from NCE which constitute "parachute
payments" as defined in Code Section 280G, or any successor provision thereto
("Parachute Payments") would be subject to the excise tax imposed by Code
Section 4999 (the "Excise Tax"), then Executive will receive an additional
payment (a "Gross-Up Payment") in an amount determined by Independent Tax
Counsel such that after payment by Executive of all federal and state income
and excise taxes (including any Excise Tax) imposed on the Gross-Up Payment
and any interest or penalties imposed with respect to such taxes, Executive
retains from the Gross-Up Payment an amount equal to the Excise Tax imposed
on the payments.
(a) If Independent Tax Counsel determines that no Excise Tax is payable
by Executive, it shall furnish Executive with a written opinion that
Executive has substantial authority not to report any Excise Tax on
Executive's federal income tax return. If Executive is subsequently
required to make a payment of any Excise Tax, then Independent Tax
Counsel shall determine the grossed-up amount of such payment using
the same principles as applied to calculation of the Gross-Up
Payment (referred to herein as a "Gross-Up Underpayment") and any
such Gross-Up Underpayment shall be promptly paid by NCE to or for
the benefit of Executive.
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<PAGE>
(b) Executive shall notify NCE in writing within 15 days of any claim by
the Internal Revenue Service that, if successful, would require the
payment by NCE of a Gross-Up Payment. If NCE notifies Executive in
writing that it desires to contest such claim and that it will bear
the costs and provide the indemnification as required by this
subsection, Executive shall:
(1) Give NCE any information reasonably requested by NCE relating
to such claim.
(2) Take such action in connection with contesting such claim as
NCE shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected
by NCE.
(3) Cooperate with NCE in good faith in order to effectively
contest such claim.
(4) Permit NCE to participate in any proceedings relating to such
claim.
NCE shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such
contest and shall indemnify and hold Executive harmless, on an
after-tax basis, for any Excise Tax or income tax, including
interest and penalties with respect thereto, imposed as a result of
such representation and payment of costs and expenses. NCE shall
control all proceedings taken in connection with such contest. If
NCE directs Executive to pay such claim and sue for a refund, NCE
shall advance the amount of such payment to Executive, on an
interest-free basis and shall indemnify and hold Executive harmless,
on an after-tax basis, from any Excise Tax or income tax, including
interest or penalties with respect thereto, imposed with respect to
such advance or with respect to any imputed income with respect to
such advance.
(c) If, after the receipt by Executive of an amount paid or advanced by
NCE pursuant to this Section, Executive becomes entitled to receive
any refund with respect to such Excise Tax, Executive shall within
10 days pay to NCE the Gross-Up Payment or Gross-Up Underpayment
related to the amount of such refund (together with any interest
paid or credited thereon, after adjustment for any taxes applicable
to such interest or repayment).
(d) For purposes of this Sec. 4.5, "Independent Tax Counsel" means a
lawyer, a certified public accountant with a nationally recognized
accounting firm, or a compensation consultant with a nationally
recognized actuarial and benefits consulting firm, with expertise in
the area of executive compensation tax law, who shall be selected by
Executive and shall be reasonably acceptable to NCE. The fees and
disbursements of Independent Tax Counsel shall be paid by NCE.
Sec. 4.6 No Offsets. Executive shall be under no obligation to
seek other employment or otherwise mitigate the amounts payable by NCE under
Sec. 4. There will be no offset against the amounts payable under Sec. 4 on
account of any compensation or earnings from any subsequent employment or
self-employment of Executive, except as provided in Sec. 4.3(c). NCE's
obligations to make the payments provided for this Agreement and otherwise to
perform its
8
<PAGE>
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which NCE may have
against Executive or others, unless Executive has given written consent to
such as set-off or is subject to a final judgment in favor of NCE.
Sec. 5 SOURCE OF PAYMENTS. Except as otherwise provided in this
section, all payments provided in Sec. 4 shall be paid from the general funds
of NCE, and NCE shall not be required to establish a special or separate fund
or otherwise segregate assets to assure payments will be made under this
Agreement.
(a) On or before the date a Change In Control occurs (or as soon as
reasonably possible following a Change In Control for which NCE has
no advance warning), NCE will establish a trust in the form
generally known as a "rabbi trust", and will immediately deposit
into that trust an amount equal to the total of the estimated
amounts to which Executive would become entitled under Sections 4.1,
4.4 and 4.5 in the event the requirements of Sec. 3 are satisfied.
(1) The trustee shall be a national bank or trust company selected
by NCE and reasonably acceptable to Executive.
(2) The amount to be deposited in the trust shall be determined by
an actuary employed by a nationally recognized actuarial and
benefits consulting firm selected by NCE which shall be
reasonably acceptable to Executive.
(b) In the event Executive satisfies the requirements of Sec. 3 and
becomes entitled to payments under Sec. 4, those payments shall be
made from the assets of the trust to the extent those assets are
sufficient. NCE's obligations under this Agreement shall be reduced
to the extent of the payments made from the trust.
(c) If Executive does not become eligible under Sec. 3 within 36 months
after the date a Change In Control occurs, or if an event described
in Sec. 3.1 occurs that makes Executive ineligible for benefits, the
trust shall terminate and its assets shall be returned to NCE.
Notwithstanding the foregoing provisions of this section, it is expressly
understood and agreed that Executive (and any dependent, beneficiary or
estate of Executive who becomes entitled to payments hereunder) shall at all
times be an unsecured creditor of NCE, and shall have no rights to assets of
NCE (including assets held in any trust) that are superior to other unsecured
creditors of NCE. Nothing in this Agreement shall be interpreted as creating
a constructive trust over any assets of NCE or creating a fiduciary
relationship between NCE and Executive or any other person.
Sec. 6 ENFORCEMENT. The rights and obligations created under
this Agreement shall be enforced as follows:
(a) Arbitration. In the event of any dispute or difference between NCE
and Executive with respect to the subject matter or interpretation
of this Agreement or the enforcement of rights hereunder, such
dispute or difference shall be submitted to arbitration. The
arbitrator or arbitrators shall be selected by agreement of the
parties or, if they cannot
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agree on an arbitrator or arbitrators within 30 days after the date one
party notified the other of the desire to have the question settled
by arbitration, then the arbitrator or arbitrators shall be selected
by the American Arbitration Association (the "AAA") in Denver,
Colorado upon the application of either party. The determination
reached in such arbitration shall be final and binding on both
parties without any right of appeal or further dispute. Execution
of the determination by such arbitrator may be sought in any court
of competent jurisdiction. In any such arbitration or subsequent
proceeding, Executive shall be entitled to seek both legal and
equitable relief and remedies, including but not limited to specific
performance of NCE's obligations under this Agreement. The
arbitrators shall not be bound by judicial formalities and may
abstain from following the strict rules of evidence and shall
interpret this Agreement as an honorable engagement and not merely
as a legal obligation. Unless otherwise agreed by the parties, any
such arbitration shall take place in Denver, Colorado, and shall be
conducted in accordance with the Rules of the AAA.
(b) Costs and Expenses. NCE will pay all fees of the arbitrators,
whether the arbitration is initiated by NCE or Executive. In
addition, NCE will pay, upon written demand from Executive, all
legal fees and expenses which Executive may reasonably incur in
connection with the arbitration or subsequent judicial proceedings
to enforce this Agreement, plus interest on any award at the
applicable federal rate, under Code Section 7872(f)(2); provided,
however, that this sentence shall not apply unless Executive
recovers through such action some amount or benefit (regardless of
size or value) in excess of the amount NCE had offered prior to
commencement of the action.
(c) Survival. The obligations under this Sec. 6 shall survive the
termination of this Agreement for any reason, whether such
termination is by NCE, by Executive, upon the expiration of this
Agreement, or otherwise.
Sec. 7 SUCCESSOR EMPLOYER. If Executive becomes an employee of
another entity as a result of a transaction in which NCE consolidates or
merges into or with such entity or transfers all or substantially all of its
assets to such entity (whether or not the transaction constitutes a Change In
Control), the term "NCE" in this Agreement shall mean such other entity and
this Agreement shall continue in full force and effect. If Executive becomes
an employee of a wholly-owned subsidiary of NCE (or of a successor entity
described in the previous sentence), Executive shall be deemed for purposes
of this Agreement to continue as an employee of NCE (or the successor entity)
while employed by such subsidiary.
Sec. 8 MISCELLANEOUS PROVISIONS.
Sec. 8.1 Amendment. This Agreement may be amended or modified
only in writing, signed by both parties.
Sec. 8.2 Tax Withholding. NCE may withhold from any payments
made under this Agreement all federal, state or other taxes which it
determines to be required pursuant to any law or governmental regulation or
ruling.
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Sec. 8.3 Death of Executive Following Entitlement to Payments.
If Executive dies after becoming eligible under Sec. 3, but before all
payments provided under Sec. 4 have been made, the remaining payments shall
be made to the beneficiary designated by Executive in the most recent written
instrument filed with NCE prior to Executive's death which specifically
refers to this Agreement. Executive may revoke such a beneficiary
designation at any time, without consent of any beneficiary, and file a new
designation. If no effective beneficiary designation is on file with NCE at
the time of Executive's death, the remaining payments shall be paid to
Executive's estate.
Sec. 8.4 Entire Agreement. This Agreement contains the entire
understanding of the parties with regard to all matters contained herein.
There are no other agreements, conditions or representations, oral or
written, expressed or implied, with regard thereto. This Agreement
supersedes all prior agreements relating to separation payments following a
Change In Control between Executive and NCE or any predecessor to NCE.
However, this Agreement shall not operate to reduce any benefit or
compensation to which Executive is entitled under any plan, policy or program
maintained by NCE that does not specifically relate to payments following a
Change In Control, including but not limited to benefits or compensation
under incentive plans, qualified retirement plans, or nonqualified
supplemental or excess pension or savings plans.
Sec. 8.5 Assignment. NCE may in its sole discretion assign this
Agreement to any entity which succeeds to the business of NCE through merger,
consolidation, a sale of all or substantially all of the assets of NCE, or
any similar transaction. Executive acknowledges that the services to be
rendered by Executive are unique and personal. Accordingly, Executive may
not assign any of Executive's rights or obligations under this Agreement.
Sec. 8.6 Successors. Subject to Sec. 8.5, the provisions of
this Agreement shall be binding upon the parties hereto, upon any successor
to or assign of NCE, and upon Executive's heirs and the personal
representative of Executive or Executive's estate.
Sec. 8.7 No Attachment. Except as required by law, no right to
receive payments under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge or
hypothecation or to execution, attachment, levy or similar process or
assignment by operation of law, and any attempt, voluntary or involuntary, to
effect any such action shall be null, void and of no effect.
Sec. 8.8 Notices. Any notice required to be given under this
Agreement shall be in writing and shall be delivered either in person or by
certified or registered mail, return receipt requested. Any notice by mail
shall be addressed as follows:
If to NCE, to:
New Century Energies, Inc.
1225 17th Street
Denver, Colorado 80202
Attention: Marilyn E. Taylor, Vice President/Human Resources
11
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If to Executive, to:
_"Address"___________________
____________________________
____________________________
or to such other addresses as either party may designate in writing to the
other party from time to time.
Sec. 8.9 Waiver of Breach. Any waiver by either party of
compliance with any provision of this Agreement by the other party shall not
operate or be construed as a waiver of any other provision of this Agreement,
or of any subsequent breach by such party of a provision of this Agreement,
unless the waiver specifically states that it is a continuing waiver or that
it applies to other provisions. No waiver by NCE shall be valid unless in
writing and signed by the chief executive officer of NCE. No waiver by
Executive shall be valid unless in writing and signed by Executive.
Sec. 8.10 Severability. If any one or more of the provisions
(or portions thereof) of this Agreement shall for any reason be held by a
final determination of a court of competent jurisdiction to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision (or portions of the
provisions) of this Agreement, and the invalid, illegal or unenforceable
provisions shall be deemed replaced by a provision that is valid, legal and
enforceable and that comes closest to expressing the intention of the parties
hereto.
Sec. 8.11 Governing Law. This Agreement shall be interpreted
and enforced in accordance with the laws of the State of Colorado, without
giving effect to conflict of law principles.
Sec. 8.12 Headings. The headings of sections herein are
included solely for convenience of reference and shall not control the
meaning or interpretation of any of the provisions of this Agreement.
Sec. 8.13 Counterparts. This Agreement may be executed by
either of the parties hereto in counterparts, each of which shall be deemed
to be an original, but all such counterparts shall constitute a single
instrument.
Sec. 9 WAIVER OF SEPARATION AGREEMENT (Applicable to former
Public Service Company of Colorado Executives). Executive is currently a
party to a Separation Agreement with Public Service Company of Colorado
("PSC"), which was originally effective August 22, 1995, and which has been
amended several times prior to the date of this Agreement. (That Separation
Agreement, including all subsequent amendments of it executed prior to August
1, 1997, is hereinafter called the "Separation Agreement".)
Executive is entitled to certain severance payments and other
benefits under the Separation Agreement if Executive's employment terminates
under certain conditions, or if Executive has a "constructive discharge",
following a "change in control" of PSC. Executive understands that the
merger of PSC and Southwestern Public Service Co. to form NCE is a "change in
control" under the Separation Agreement. Paragraph 13 of the Separation
Agreement allows Executive to waive all rights under the Separation Agreement
by executing a written instrument.
In consideration of the benefits described in this Agreement,
Executive hereby waives and surrenders all rights that Executive or any of
Executive's beneficiaries, survivors, heirs, successors
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or assigns may have under the Separation Agreement against NCE, PSC, or any of
their predecessors, successors or affiliates, either now or at any time in the
future. The waiver includes, but is not limited to, all rights under the
Separation Agreement to severance benefits, continuation of employee benefits,
or increases in benefits provided under employee benefit plans (including
nonqualified supplemental plans). For purposes of Paragraph 13 of the Separation
Agreement, Executive's signature below constitutes a complete, continuing and
irrevocable waiver of all the terms and conditions of the Separation Agreement,
both at the present time and at all times in the future.
IN WITNESS WHEREOF, NCE has caused this Agreement to be executed
by its duly authorized officer, and Executive has executed this Agreement,
all effective as of the date first above written.
EXECUTIVE NEW CENTURY ENERGIES, INC.
__________________________________ By:
__________________________________
(Executive Name) Chairman and Chief Executive Officer
or Vice Chairman of the Board
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Schedule to Form of Change in Control Agreement
Effective
Executive Date
Bill D. Helton August 1, 1997
Wayne H. Brunetti August 1, 1997
Marilyn E. Taylor August 1, 1997
Richard C. Kelly August 1, 1997
Doyle R. Bunch II August 1, 1997
Ross C. King August 1, 1997
David M. Wilks August 1, 1997
Henry Hamilton August 1, 1997
Gary L. Gibson August 1, 1997
Teresa S. Madden August 1, 1997
James D. Steinhilper August 1, 1997*
John McAfee August 1, 1997
Paul J. Bonavia December 1, 1997
Brian P. Jackson December 1, 1997
James T. Petillo September 22, 1998
Patricia Vincent January 1, 1999
* Effective January 1, 1999 no longer employee of NCE
Exhibit 10(d)1
New Century Energies, Inc. Directors'
Voluntary Deferral Plan
Article 1. Establishment and Purpose of the Plan
1.1 Establishment. New Century Energies, Inc., a Delaware corporation,
(the "Company"), hereby establishes, as of the effective date of the merger
between Public Service Company of Colorado and Southwestern Public Service
Company, a deferred compensation plan for nonemployee directors as described
herein, which shall be known as the New Century Energies, Inc. Directors'
Voluntary Deferral Plan (the "Plan"). The Plan shall assume the liabilities of
the predecessor companies under the Public Service Company of Colorado
Directors' Voluntary Deferral Plan or the Southwestern Public Service Company
Directors' Deferred Compensation Plan with respect to any nonemployee director
of either such predecessor company who becomes a nonemployee director of the
Company.
1.2 Purpose. The Plan is intended to provide a means whereby nonemployee
directors of the Company may voluntarily defer all or a portion of their
compensation, subject the terms of the Plan.
Article 2. Administration
The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors (the "Board") of the Company. The
Committee is authorized to interpret the Plan and may, from time to time, adopt
such rules and regulations, consistent with the provisions of the Plan, as it
may deem advisable to carry out the Plan. All determinations made by the
Committee shall be final.
The Vice President of Human Resources of the Company shall, as the
delegatee of the Committee, be responsible for the day-to-day administration of
the Plan, including but not limited to, accepting deferral election forms and
accounting for deferrals and distributions under the Plan.
Article 3. Participation in the Plan
3.1 Eligibility. All nonemployee directors of the Company ("Directors")
shall be eligible to participate in the Plan. A Director shall be considered to
be a Director until the close of business on the day preceding the earlier of
(i) the first date the individual becomes a common-law employee of the Company
or any affiliate of the Company, or (ii) the first date the individual ceases to
be a member of the Board for any reason whatsoever.
3.2 Election to Participate. An eligible Director may elect to become a
participant in the Plan ("Participant") by electing to defer all or a portion of
his/her annual retainer and meeting fees ("Compensation"). A separate such
election shall be allowed with respect to the cash portion of Compensation and
with respect to the equity portion of Compensation, with the deferral percentage
with respect to each portion being in such increments as shall be prescribed by
the Committee. Any such
<PAGE>
election shall apply to the Participant's Compensation earned on or after
January 1 of the following calendar year.
Notwithstanding the foregoing, with respect to an individual who first
becomes a Director on a day other than the first day of a calendar year and
elects to participate in that year, any such election shall apply to the
Participant's Compensation during the calendar year in which he/she first
becomes a Director and subsequent years.
3.3 Time and Manner of Making Elections. Any election as to Compensation
which may be made by a Participant must be made on or before December 31 of the
year preceding the calendar year to which the election relates; provided, that
with respect to an individual who first becomes a Director after the beginning
of a calendar year, any such election with respect to the calendar year in which
he/she first becomes a Director must be made within thirty (30) days after
becoming a Director. With respect to deferrals of Compensation to be earned in
1997 after the effective date of the Plan, elections must be made within thirty
(30) days after the effective date of the Plan. All deferral elections must be
made on such form as shall be prescribed for this purpose by the Committee.
3.4 Nature of Elections. Any election as to Compensation which may be made
by a Participant with respect to any calendar year shall be irrevocable once
made; provided, however, that a Director may stop participation in the Plan or
change the percentage deferred by delivering written notice to the Company by
December 31 in the year prior to the year in which Compensation is earned. Such
written notice of termination of participation or change in the percentage
deferred must be made on such form as may be prescribed for this purpose by the
Committee.
Plan provisions to the contrary notwithstanding, any election as to
Compensation made by a Participant with respect to any calendar year, unless
changed or revoked by the Participant prior to the expiration of the time for
making such election with respect to each subsequent calendar year, shall be
deemed to have been made with respect to each subsequent calendar year.
Article 4. Deferred Compensation Account
4.1 Directors' Accounts. The Company shall establish and maintain
individual bookkeeping accounts to reflect deferrals made by a Participant
pursuant to this Plan and accounts transferred from the Public Service Company
of Colorado Directors' Voluntary Deferral Plan or the Southwestern Public
Service Company Directors' Deferred Compensation Plan. Two individual
bookkeeping accounts shall be maintained with respect to each Participant to be
referred to as a "Cash Account" and a "Stock Account".
The Participant shall designate that deferrals made pursuant to this Plan
are to be credited to either the Cash Account or the Stock Account or that a
portion of such deferrals, in such increments as shall be prescribed by the
Committee, are to be credited to either of the Cash Account or the Stock
Account. Such designation shall be made on such form as shall be prescribed for
this purpose by the Company, and
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shall continue in effect with respect to all subsequent deferrals until changed
effective as of any January 1 by the Participant.
The appropriate account shall be credited as of the date the amount
deferred otherwise would have become due and payable to the Participant.
4.2 Additions to Cash Accounts. The balance of a Cash Account shall be
reflected in United States Dollars.
As of the first day of the month after the effective date of the Plan, an
opening balance shall be credited to the Cash Account of each Participant equal
to the balance credited to the Participant under the Public Service Company of
Colorado Director's Voluntary Deferral Plan, or the balance credited to the Cash
Account of the Participant under the Southwestern Public Service Company
Directors' Deferred Compensation Plan, as appropriate, as of the immediately
preceding day.
The Cash Account shall accrue interest each year at the rate on 1 0-Year
Treasury Notes as of the last auction date of the prior year, or such other rate
as shall be determined by the Compensation Committee. Each Participant's Cash
Account shall be credited with interest on the last day of each month. An
interest rate, which when compounded monthly equals the pre-determined annual
interest accrual, shall be applied to each month's beginning balance.
4.3 Additions to Stock Accounts. The balance of a Stock Account shall be
reflected in "Stock Units".
As of the effective date of the Plan, an opening balance shall be credited
to the Stock Account of each Participant who was a participant in the
Southwestern Public Service Company Directors' Deferred Compensation Plan equal
to the number of shares or units credited to the Stock Account of the
Participant under such plan as of the immediately preceding day converted to
Stock Units on such basis as shares of common stock of Southwestern Public
Service Company are converted in the merger into shares of common stock of the
Company ("Company Stock").
As of the date on which Compensation affected by a deferral election and
to be credited to a Participant's Stock Account would otherwise have been paid
to the Participant, the Participant's Stock Account shall be credited with a
number of Stock Units equal to the number of shares of Company Stock, to four
decimal places, that could have been purchased with such deferrals at a per
share price equal to the arithmetic mean between the highest and lowest quoted
selling prices on the New York Stock Exchange Composite Tape on the date the
Compensation would otherwise have been paid to the Participant (or, if there are
no sales on such date, then such arithmetic mean on the next succeeding day on
which there are sales will be used).
As of the payment date of any cash dividend on outstanding shares of
Company Stock, each Participant's Stock Account shall be credited with a number
of additional Stock Units equal to the number of shares of Company Stock, to
four decimal places, that could have been purchased with the base amount (as
defined below) at a per share price equal to the arithmetic mean between the
highest and lowest selling prices
3
<PAGE>
on the New York Stock Exchange Composite Tape for the payment date of the
dividend (or, if there are no sales on that date, then the arithmetic mean on
the next succeeding day on which there are sales will be used). The "base
amount" for purposes of this calculation means the dollar amount of the cash
dividends that would have been paid with respect to a number of outstanding
shares of Company Stock equal to the number of Stock Units (including fractions)
credited to the Participant's Stock Account as of the record date of such
dividend (assuming that fractional shares could be held of record and that
dividends were paid with respect thereto).
As of the payment date of any stock dividend, stock split or other
distribution on outstanding shares of Company Stock, each Participant's Stock
Account shall be credited with a number of additional Stock Units equal to the
number of shares of Company Stock that would have been distributed with respect
to a number of outstanding shares of Company Stock equal to the number of Stock
Units (including fractions) credited to the Participant's Stock Account as of
the record date of such dividend, split or other distribution (assuming that
fractional shares could be held of record and that the dividend, split or
distribution was paid with respect thereto) or the number of shares of Company
Stock that could have been purchased with the cash equivalent of any other
distribution. In the case of a stock dividend, stock split or other distribution
where the ex-date is after the record date, any Stock Units credited to the
Participant's Stock Account as of the record date of such dividend, split or
other distribution but with respect to which a distribution has been made to the
Participant after the record date and prior to the ex-date will be disregarded
for purposes of determining the additional credit under this paragraph.
In the event that the Company shall at any time be consolidated with or
merged with any other corporation and the Company is not the surviving entity,
the amounts credited to each Participant's Stock Account shall be a continuing
liability of the continuing entity and the number of Stock Units credited to the
Participant's Stock Account immediately prior to the merger or consolidation
(including fractions) shall be converted to an equivalent number of Stock Units
based upon the common stock of such continuing entity (including fractional
shares) or other consideration on the same basis as issued and outstanding
shares of Company Stock are exchanged for shares of such continuing entity
(assuming fractional shares could have been so exchanged and that fractional
shares of the continuing entity would have been issued) or other consideration.
Alternatively, each Participant may demand, or the Compensation Committee may
require, that a payment be made as of the day preceding the effective date of
such consolidation or merger of a cash amount equal to the number of Stock Units
credited to the Participant's Stock Account on such day multiplied by the
arithmetic mean between the highest and lowest selling prices for shares of
Company Stock on the New York Stock Exchange Composite Tape on such day (or, if
there are no sales on such day, such arithmetic mean on the next preceding day
on which there are such sales will be used). Such demand made by the Participant
shall be in writing and shall not be effective unless filed with the Secretary
of the Company not later than the day preceding the effective date of such
consolidation or merger.
4.4 Charges Against Accounts. Any payments made to a Participant or
his/her beneficiary shall be charged against the Participant's Cash Account or
Stock Account, as appropriate.
4
<PAGE>
4.5 Designation of Beneficiary. Each Participant shall designate a
beneficiary or beneficiaries who, upon the Participant's death, will receive the
amounts that otherwise would have been paid to the Participant under the Plan.
All designations shall be signed by the Participant and shall be made on a
"Beneficiary Designation Form." Each designation shall be effective as of the
date delivered by the Participant to the Vice President of Human Resources of
the Company.
Participants may change their designations of beneficiary by execution and
delivery of a new Beneficiary Designation Form to the Vice President of Human
Resources of the Company. The payment of amounts under the Plan shall be in
accordance with the last unrevoked Beneficiary Designation Form that has been
signed by the Participant and delivered by the Participant to the Vice President
of Human Resources prior to the Participant's death.
In the event that all beneficiaries named by a Participant pursuant to
this Section 4.5 predecease the Participant, the deferred amounts that would
have been paid to the Participant or the Participant's beneficiaries shall be
paid to the Participant's estate.
In the event that a Participant does not designate a beneficiary, or for
any reason such designation is ineffective, in whole or in part, the amounts
that otherwise would have been paid to the Participant or the Participant's
beneficiaries under the Plan shall be paid to the Participant's estate.
Article 5. Payment Generally
5.1 Payment Generally. Payment of a Participant's Cash Account shall be
made in a single lump-sum cash payment or in five (5) annual cash installments,
as elected by the Participant, beginning as soon as administratively practicable
following termination as an active member of the Board. The Participant shall
make his/her election at the time of his/her deferral election on such form as
shall be prescribed for this purpose by the Committee.
Payment of a Participant's Stock Account shall be made in shares of
Company Stock in certificate form, with the payment to be made as soon as
administratively practicable following termination as an active member of the
Board. The number of shares paid will equal the number of Stock Units credited
to the Participant's Stock Account on his/her last day of service as an active
member of the Board (with a cash equivalent paid for any fraction). If any
additional Stock Units will be credited to the Participant's Stock Account after
his/her last day of service as an active member of the Board as a result of a
cash or stock dividend paid after such date, then, at the discretion of the
Committee, the payment to the Participant or his/her beneficiary may be deferred
until after the payment date of such dividend or an additional payment may be
made consisting of an additional number of shares equal to the number of Stock
Units credited as a result of such dividend.
5.2 Hardship Withdrawals. The Committee shall have the authority to alter
the timing or manner of payment of deferred amounts in the event the Participant
establishes, to the satisfaction of the Committee, severe financial hardship. In
such
5
<PAGE>
event, the Committee may, in its sole discretion, take one or more of the
following actions:
(i) Authorize the cessation of deferrals by such Participant under the
Plan.
(ii) Provide that all, or a portion, of the balance of the Participant's
Cash Account and/or Stock Account shall immediately be paid in a lump
sum cash payment.
(iii) Provide that all, or a portion, of the installment payable over a
period of time shall immediately be paid in a lump sum cash payment.
(iv) Provide for such other installment payment schedule as deemed
appropriate by the Committee under the circumstances.
For purposes of this Section 5.2, "severe financial hardship" shall mean
any financial hardship resulting from extraordinary and unforeseeable
circumstances arising as a result of one or more recent events beyond the
control of the Participant. In any event, payment may not be made to the extent
such emergency is or may be relieved: (i) through reimbursement or compensation
by insurance or otherwise, (ii) by liquidation of Participant's assets, to the
extent the liquidation of such assets would not itself cause severe financial
hardship; and (iii) by cessation of deferrals under the Plan. Withdrawals of
amounts because of a severe financial hardship may only be permitted to the
extent reasonably necessary to satisfy the hardship. Examples of what are not
considered to be severe financial hardships include the need to send a
Participant's child to college or the desire to purchase a home. The
Participant's Cash Account and Stock Account will be adjusted in accordance with
the Plan up to the date of distribution.
The severity of the financial hardship shall be judged by the Committee.
The Committee's decision with respect to the severity of financial hardship and
the manner in which, if at all, the participant's future deferral opportunities
shall cease, and/or the manner in which, if at all, the payment of deferred
amounts to the Participant shall be altered or modified, shall be final,
conclusive, and not subject to appeal.
5.3 Death or Disability. If a Participant dies or becomes disabled,
payment of the entire remaining balance of his/her Cash Account and Stock
Account shall be made in a single lump-sum payment within thirty (30) calendar
days following death or termination as an active member of the Board.
Payment of the Participant's Cash Account (or the remaining portion
thereof) shall be made in cash.
Payment of a Participant's Stock Account shall be made in shares of
Company Stock in certificate form. The number of shares paid will equal the
number of Stock Units credited to the Participant's Stock Account on his/her
last day of service as an active member of the Board (with a cash equivalent
paid for any fraction). If any additional Stock Units will be credited to the
Participant's Stock Account after his/her last day of service as an active
member of the Board as a result of a cash or stock
6
<PAGE>
dividend paid after such date, then, at the discretion of the Committee, the
payment to the Participant may be deferred until after the payment date of such
dividend or an additional payment may be made consisting of an additional number
of shares equal to the number of Stock Units credited as a result of such
dividend.
For purposes of this section, disability shall mean total and permanent
disability within the meaning of the pension plan sponsored by the Company, as
determined in good faith by the Committee, upon receipt of sufficient competent
medical advice from one or more individuals, selected by the Committee, who are
qualified to give professional medical advice.
Article 6. Rights of Participants
6.1 Contractual Obligation. The Plan shall create a contractual obligation
on the part of the Company to make payments to or with respect to the
Participant when due under the terms of the Plan. Payments shall be made out of
the general funds of the Company except as provided in Section 6.2.
6.2 Unsecured Interest. No Participant or party claiming an interest in
deferred amounts shall have any interest whatsoever in any specific asset of the
Company. To the extent that any party acquires a right to receive payments under
the Plan, such right shall be equivalent to that of an unsecured general
creditor of the Company.
The Company may establish one or more trusts, with such trustee as the
Committee may approve, for the purpose of providing for the payment of deferred
amounts. Such trust(s) may be irrevocable, but the assets thereof shall be
subject to the claims of the Company's general creditors. To the extent any
deferred amounts under the Plan are actually paid from any such trust, the
Company shall have no further obligation with respect thereto, but to the extent
not so paid, such deferred amounts and contributions shall remain the obligation
of, and shall be paid by, the Company.
Article 7. Withholding of Taxes
The Company hereby reserves the right to require Participants to remit to
the Company an amount sufficient to satisfy Federal, state, and local
withholding tax requirements, or to deduct from payments made pursuant to the
Plan, or from other payments due from the Company to the Participant, amounts
sufficient to satisfy withholding tax requirements.
Article 8. Miscellaneous
8.1 Nontransferability. Participants' rights to deferred amounts, and
interest earned thereon under the Plan as well as other compensation earned
under the Plan may not be sold, transferred, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution. In
no event shall the Company make any payment under the Plan to any assignee or
creditor of a Participant. Any funds so set aside or acquired shall remain
subject to the claims of the creditors of the Company, present and future.
7
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8.2 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
8.3 Amendment and Termination. The Company hereby reserves the right to
amend, modify, or terminate the Plan or any part thereof, from time to time, by
action of the Committee with approval by the Board; provided that no such
amendment or termination shall in any material manner adversely affect any
Participant's rights to deferred amounts, together with interest earned thereon
as well as other compensation earned under the Plan, without the consent of the
Participant.
8.4 Successors. All obligations of the Company under the Plan shall be
binding on any successor to the Company, whether the existence of such successor
is the result of a direct or indirect purchase, merger, consolidation, or
otherwise, of all or substantially all of the business and/or assets of the
Company. Upon the occurrence of such an event, the term "Company" as used in
this Agreement shall be deemed to refer to such successor or survivor entity or
entities.
8.5 Laws Governing. This plan shall be construed in accordance with and
governed by the laws of the State of Colorado.
8.6 Costs of the Plan. All costs of implementing and administering the
Plan shall be borne by the Company.
8.7 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein shall also include the feminine; the plural shall
include the singular, and the singular shall include the plural.
8
Exhibit 10(e)1
NEW CENTURY ENERGIES
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(As Adopted Effective January 1, 1998)
<PAGE>
NEW CENTURY ENERGIES
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Table of Contents
ARTICLE I GENERAL
Sec. 1.1 Name of Plan................................................ 1
Sec. 1.2 Purpose..................................................... 1
Sec. 1.3 Effective Date.............................................. 1
Sec. 1.4 Company..................................................... 1
Sec. 1.5 Participating Employers..................................... 1
Sec. 1.6 Construction and Applicable Law............................. 1
ARTICLE II DEFINITIONS
Sec. 2.1 Accrual Percentage.......................................... 2
Sec. 2.2 Actuarial Equivalent........................................ 2
Sec. 2.3 Beneficiary................................................. 2
Sec. 2.4 Board....................................................... 2
Sec. 2.5 Change In Control........................................... 2
Sec. 2.6 Committee................................................... 3
Sec. 2.7 Final Average Compensation.................................. 4
Sec. 2.8 Normal Retirement Benefit................................... 4
Sec. 2.9 Normal Retirement Date...................................... 4
Sec. 2.10 Participant................................................. 4
Sec. 2.11 Plan Year................................................... 4
Sec. 2.12 PSCo SERP................................................... 4
Sec. 2.13 Retirement Plan............................................. 4
Sec. 2.14 SPS SERP.................................................... 4
Sec. 2.15 Successor Employer.......................................... 4
Sec. 2.16 Year of Vesting Service..................................... 4
ARTICLE III PARTICIPATION
Sec. 3.1 Eligibility for Participation............................... 5
Sec. 3.2 Cessation of Participation.................................. 5
Sec. 3.3 No Guarantee of Employment.................................. 5
ARTICLE IV BENEFITS
Sec. 4.1 Amount of Normal Retirement Benefit......................... 5
Sec. 4.2 Special Provisions for PSCo, and SPS SERP Participation..... 6
Sec. 4.3 Vesting of Benefit ......................................... 6
ARTICLE V FORM OF PAYMENT AND COMMENCEMENT DATE
Sec. 5.1 Normal Form ................................................ 7
Sec. 5.2 Reduction for Early Retirement ............................. 7
Sec. 5.3 Optional Forms ............................................. 7
Sec. 5.4 Commencement Date .......................................... 7
Sec. 5.5 Disability Before Retirement ............................... 7
Sec. 5.6 Death Prior to Termination of Employment ................... 7
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Sec. 5.7 Death After Termination of Employment ...................... 8
Sec. 5.8 Benefit Upon Change In Control ............................. 8
ARTICLE VI ADMINISTRATION
Sec. 6.1 Administration by the Committee ............................ 8
Sec. 6.2 Withholding of Taxes ....................................... 8
Sec. 6.3 Unfunded and Unsecured Plan ................................ 9
ARTICLE VII AMENDMENT AND TERMINATION
Sec. 7.1 Amendment .................................................. 9
Sec. 7.2 Termination of Plan ........................................ 9
ARTICLE VIII MISCELLANEOUS
Sec. 8.1 Designation of Beneficiary ................................. 9
Sec. 8.2 Benefits May Not Be Assigned or Alienated .................. 9
Sec. 8.3 Headings ................................................... 10
Sec. 8.4 Capitalized Definitions .................................... 10
Sec. 8.5 Gender ..................................................... 10
Sec. 8.6 Use of Compounds of Word "Here . ........................... 10
Sec. 8.7 Construed as a Whole ....................................... 10
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NEW CENTURY ENERGIES
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
ARTICLE I
GENERAL
Sec. 1.1 Name of Plan. The name of this plan is "New Century
Energies Supplemental Executive Retirement Plan" (referred to hereinafter as
the "Plan").
Sec. 1.2 Purpose. The Plan has been established to provide supplemental
retirement benefits and certain benefits upon disability or death before
retirement to certain select management or highly compensated employees so that
such employees may be retained and their productive efforts encouraged. This
Plan is a replacement as of the Effective Date of the PSCo SERP and the SPS
SERP. On and after the Effective Date, the benefits to which individuals are
entitled under said SERPs are incorporated in this Plan and they cease to be
eligible for any separate benefit under those SERPs.
(a) If the individual is a Participant in this Plan on or after January 1,
1998, the benefit shall be determined and paid solely pursuant to the
terms of this Plan, and the provisions of the PSCo SERP or the SPS SERP
shall no longer apply except as expressly provided in this Plan. ,
(b) If an individual who was a participant in the PSCo SERP or the SPS SERP
is not a Participant in this Plan on or after January 1, 1998, the
benefit shall be determined and paid pursuant to the provisions of the
PSCo SERP or the SPS SERP, whichever was applicable, as in effect on
December 31, 1997.
Sec. 1.3 Effective Date. The "Effective Date" of the Plan is January
1, 1998.
Sec. 1.4 Company. For purposes of this Plan, "Company" means New
Century Energies, Inc., a Delaware corporation, and any Successor Employer
thereof.
Sec. 1.5 Participating Employers. The Company is a "Participating
Employer" in the Plan. Any subsidiary of the Company shall become a
Participating Employer in this Plan upon being so designated in a written action
by the Committee, effective as of the date specified by the Committee. Any
Successor Employer to a Participating Employer shall also be a Participating
Employer. A Participating Employer shall cease to be such effective as of the
date specified in a written action by the Committee; provided, however, that
such action shall not cause Participants employed by such employer to forfeit
vested benefits accrued prior to such date.
Sec. 1.6 Construction and Applicable Law. The Plan is intended to be an
unfunded plan maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees,
within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). The Plan shall be
administered and construed consistent with said intent. This Plan also shall be
governed and construed in accordance with the laws of the State of Colorado as
applied to contracts executed and to be wholly performed within said state to
the extent that such laws are not preempted by the laws of the United States of
America.
<PAGE>
ARTICLE II
DEFINITIONS
Sec. 2.1 Accrual Percentage. "Accrual Percentage" means the percentage
(not in excess of 100%) of a Participant's Normal Retirement Benefit which has
accrued under this Plan as of any date. The Normal Retirement Benefit shall
accrue monthly over a period of 20 years commencing from the Participant's date
of employment with the Participating Employers with a portion equal to 1/240 of
the total benefit accruing at the end of each month during such 20-year period,
provided the individual is employed by a Participating Employer on the last day
of said month. If an individual became a Participant on the Effective Date, the
Participant's Accrual Percentage as of the Effective Date shall be based on a
period of employment that includes all service which was recognized on the day
before the Effective Date for purposes of determining the Participant's benefit
under the PSCo SERP or the SPS SERP. The Committee may, in its sole discretion,
specify in the notice of participation that a particular Participant will be
treated as having additional employment with the Participating Employers for
purposes of calculating the Participant's Accrual Percentage under this Section.
Sec. 2.2 Actuarial Equivalent."Actuarial Equivalent" means a benefit of
equivalent value determined by the Committee upon advice of the actuary for the
Retirement Plan using the actuarial factors used for the corresponding type of
calculation under the Retirement Plan.
Sec. 2.3 Beneficiary. "Beneficiary" means the person or persons
designated as such pursuant to the provisions of Sec. 8. 1.
Sec. 2.4 Board. "Board" means the Board of Directors of the Company.
Sec. 2.5 Change In Control. A "Change In Control" is the occurrence
of any of the events described in subsections (a) through (d) below:
(a) Either (i) receipt by the Company of a report on Schedule 13D, or an
amendment to such a report, filed with the Securities and Exchange
Commission pursuant to Section 13(d) of the Securities Exchange Act of
1934 (die "1934 Act") disclosing that any person (as such term is used
in Section 13(d) of the 1934 Act) ("Person"), is the beneficial owner,
directly or indirectly, of twenty percent or more of the combined
voting power of the outstanding stock of the Company, or (ii) actual
knowledge by the Board of facts on the basis of which any Person is
required to file such a report on Schedule 13D, or to make an amendment
to such a report, with the SEC (or would be required to file such a
report or amendment upon the lapse of the applicable period of time
specified in Section 13(d) of the 1934 Act) disclosing that such Person
is the beneficial owner, directly or indirectly, of twenty percent or
more of the combined voting power of the outstanding stock of the
Company.
(b) Purchase by any Person, other than the Company or a wholly-owned
subsidiary of the Company, of shares pursuant to a tender or exchange
offer to acquire any stock of the Company (or securities convertible
into stock) for cash, securities or any other consideration provided
that, after consummation of the offer, such Person is the beneficial
owner (as defined in Rule l3d-3 under the 1934 Act), directly or
indirectly, of twenty percent or more of the combined voting power of
the outstanding stock of the Company
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(calculated as provided in paragraph (d) of Rule l3d-3 under the 1934
Act in the case of rights to acquire stock).
(c) Approval by the shareholders of the Company of a transaction described
in any of the following paragraphs:
(1) Any consolidation or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which
shares of stock of the Company would be converted into cash,
securities or other property, other than a consolidation or merger
of the Company in which holders of its stock immediately prior to
the consolidation or merger own at least a majority of the
combined voting power of the outstanding stock of the surviving
corporation immediately after the consolidation or merger (or at
least a majority of the combined voting power of the outstanding
stock of a corporation which owns directly or indirectly all of
the voting stock of the surviving corporation).
(2) Any consolidation or merger in which the Company is the continuing
or surviving corporation but in which the shareholders of the
Company immediately prior to the consolidation or merger do not
hold at least a majority of the combined voting power of the
outstanding stock of the continuing or surviving corporation
(except where such holders of stock hold at least a majority of
the combined voting power of the outstanding stock of the
corporation which owns directly or indirectly all of the voting
stock of the Company).
(3) Any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all the
assets of the Company (except such a transfer to a corporation
which is wholly owned, directly or indirectly, by the Company), or
any complete liquidation of the Company.
(4) Any merger or consolidation of the Company where, after the merger
or consolidation, one Person owns 100% of the shares of stock of
the Company (except where the holders of the Company's voting
stock immediately prior to such merger or consolidation own at
least a majority of the combined voting power of the outstanding
stock of such Person immediately after such merger or
consolidation).
(d) A change in the majority of the members of the Board within a 24-month
period unless the election or nomination for election by the Company's
shareholders of each new director was approved by the vote of at least
two-thirds of the directors then still in office who were in office at
the beginning of the 24-month period.
A Change In Control occurs on the date that an event described in subsection
(a), (b) or (d) occurs. In the case of a transaction described in subsection (c)
which is subject to approval by the shareholders, the Change In Control occurs
on the date the transaction is completed.
Sec. 2.6 Committee. "Committee" means the Compensation Committee of the
Board or such other committee as may be appointed by the Board to administer the
Plan. However, no member of the Committee who is also a Participant in this Plan
may participate in or vote on any matter involving the Plan.
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Sec. 2.7 Final Average Compensation. "Final Average Compensation" means
the average of the highest three calendar years of Compensation to which the
Participant is entitled from the Participating Employers during the five
calendar year period immediately preceding the calendar year in which the
Participant's retirement or other separation from service occurs (or the average
of the years during such period in which the Participant received Compensation,
if the Participant received Compensation in fewer than three such years). For
purposes of this Section, the Participant's Compensation for a year is the
Participant's base pay from the Participating Employers as of December 31st of
that year, plus any bonus earned by the Participant for that year under the
Company's Annual Incentive Plan (before any reductions for pre-tax contributions
under any Company 401(k) savings plan, deferred compensation plan or other
benefit plan, and before withholding of taxes).
Sec. 2.8 Normal Retirement Benefit. "Normal Retirement Benefit" means the
benefit calculated under Sec. 4. 1.
Sec. 2.9 Normal Retirement Date. "Normal Retirement Date" means the first
day of the calendar month coincident with or next following the Participant's
attainment of age 62.
Sec. 2.10 Participant. "Participant" means an individual defined as such in
Sec. 3. 1.
Sec. 2.11 Plan Year. "Plan Year" means the 12-consecutive-month period
commencing January I and ending December 31.
Sec. 2.12 PSCo SERP. "PSCo SERP" means the Public Service Company of
Colorado Supplemental Executive Retirement Plan for Key Employees as in effect
on August 1, 1997.
Sec. 2.13 Retirement Plan. "Retirement Plan" means the New Century Energies
Retirement Plan, as it may be amended from time to time.
Sec. 2.14 SPS SERP. "SPS SERP" means the Southwestern Public Service
Company Supplemental Retirement Income Plan as in effect on August 1, 1997.
Sec. 2.15 Successor Employer. "Successor Employer" means any entity that
succeeds to the business of the Company or another Participating Employer
through merger, consolidation, acquisition of all or substantially all of its
assets, or any other means.
Sec. 2.16 Year of Vesting Service. "Year of Vesting Service" means a
Plan Year in which an individual is a Participant in this Plan for all or a
portion of the Plan Year, measured in years and completed months as a
Participant (with each completed month expressed as one-twelfth of a year). In
calculating Years of Vesting Service, an individual who becomes a Participant as
of the Effective Date shall receive retroactive credit for all years of
participation credited to the Participant for purposes of vesting under the PSCo
SERP or the SPS SERP prior to the Effective Date.
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<PAGE>
ARTICLE III
PARTICIPATION
Sec. 3.1 Eligibility for Participation. A select management or highly
compensated employee of the Company or another Participating Employer shall
become a Participant in the Plan upon being designated as such by the Committee
in a written notice issued by the Committee to the Participant at the time of
the designation, effective as of the date specified in the notice and subject to
any additional conditions or limitations specified in the notice.
Sec. 3.2 Cessation of Participation. An employee shall cease to be a
Participant on the pa earliest of (i) the date he or she ceases to be an
employee of the Participating Employers, (ii) the date he or she receives a
written notice from the Committee revoking his or her status as a Participant,
or (iii) the date he or she fails to meet the requirements of any regulations
which may be issued by the U.S. Department of Labor that define the phrase
"select group of management or highly compensated employees" under ERISA.
Service or earnings after the date the individual ceases to be a Participant
shall be disregarded for purposes of this Plan, but the individual shall remain
entitled to any benefits under this Plan which have become vested prior to that
date.
Sec. 3.3 No Guarantee of Employment. Participation in the Plan does not
constitute a guarantee or contract of employment with the Participating
Employers. Such participation shall in no way interfere with any rights the
Participating Employers would have in the absence of such participation to
determine the duration of the employee's employment with the Participating
Employers.
ARTICLE IV
BENEFITS
Sec. 4.1 Amount of Normal Retirement Benefit. Subject to the provisions of
Sections 4.2 and 4.3 below, the Normal Retirement Benefit under this Plan of a
Participant who is vested under Sec. 4.3 shall be a monthly amount equal to the
excess, if any, of the amount determined in subsection (a) over the amount
determined in subsection (b):
(a) One-twelfth of 55 % of the Participant's Final Average Compensation
multiplied by the Participant's Accrual Percentage.
(b) The monthly pension to which the Participant is entitled to receive
under the Retirement Plan in the form of a life-only annuity commencing
on the first day of the month following the later of (i) the
Participant's normal retirement age under the Retirement Plan, or (ii)
the date the Participant's retirement or other separation from service
with the Participating Employers occurs. This amount shall be
determined without regard to the actual benefit paid under the
Retirement Plan or the actual time or form of such benefit. If the
Participant has elected under the Retirement Plan to have all or part
of the Participant's "Retirement Program Credits" contributed to the
New Century Energies, Inc. Employees' Savings and Stock Ownership Plan
for Non-Bargaining Unit Employees, or any successor to such plan, the
monthly pension determined under this subsection (b) shall be increased
to reflect the amount
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to which the Participant would have been entitled under the Retirement
Plan if such credits had instead been allocated to the Retirement Plan.
Sec. 4.2 Special Provisions for PSCo and SPS SERP Participation. For
Participants who participated in the PSCo SERP or the SPS SERP on the day before
the Effective Date, the Normal Retirement Benefit under Sec. 4.1 shall not be
less than the Actuarial Equivalent (expressed in the Normal Form payable under
Sec. 5. 1) of whichever of the following benefits is applicable:
(a) If the Participant retires or otherwise separates from service with the
Participating Employers prior to May 1, 2000, the accrued benefit
determined as of the date of separation from service under the PSCo
SERP or the SPS SERP (whichever covered the Participant on the
Effective Date).
(b) If the Participant retires or otherwise separates from service with the
Participating Employers on or after May 1, 2000, the accrued benefit
determined under the PSCo SERP or the SPS SERP (whichever covered the
Participant on the Effective Date), determined by assuming that the
Participant separated from service on May 1, 2000. However, whether the
Participant is vested in such benefit shall be determined pursuant to
Sec. 4.3 of this Plan as of the date the Participant's actual
separation from service occurs.
Sec. 4.3 Vesting of Benefit. A Participant's Normal Retirement Benefit
shall become vested upon the earlier of
(a) The Participant's completion of five Years of Vesting Service.
(b) The Participant's attainment of age 60.
Notwithstanding the foregoing, the Participant shall not be vested in any
benefit under this Plan and the entire benefit shall be forfeited if the
Participant's employment is terminated by his or her Participating Employer
because of the Participant's fraud or dishonesty which has resulted in, or is
likely to result in, material economic damage to a Participating Employer, as
determined in good faith by the Committee. The determination of the Committee
with respect to the Participant's conduct shall be conclusive, whether or not
there are related judicial or other proceedings and without regard to the
outcome of any such proceeding. A Participant who is not vested under this
Section on the date his or her retirement or other separation from service
occurs shall not be eligible to receive any benefit under this Plan.
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ARTICLE V
FORM OF PAYMENT AND COMMENCEMENT DATE
Sec. 5.1 Normal Form. In the event of the Participant's retirement or other
separation from service (except for death or disability) with the Participating
Employers on or after attaining age 62, payment of the Participant's vested
Normal Retirement Benefit shall commence on the first day of the month
coinciding with or next following the date on which such retirement or other
separation from service occurs and continue each month thereafter until 240
monthly payments have been made.
Sec. 5.2 Reduction for Early Retirement. In the event the Participant's
retirement or other separation from service (except for death or disability)
from the Participating Employers occurs prior to his or her attainment of age
62, the Normal Retirement Benefit will be paid commencing on the first day of
the month following the, later of (i) the date the Participant attains age 55,
or (ii) the date the separation from service occurred, unless a later
commencement date is elected pursuant to Sec. 5.3, but shall in all events
commence by the first day of the month coinciding with or next following the
date the Participant attains age 62. The payments shall continue each month
thereafter until a total of 240 monthly payments have been made. The amount of
the Participant's Normal Retirement Benefit shall be reduced by five-twelfths of
one percent for each month by which the commencement date precedes the first day
of the month coinciding with or next following the date the Participant will
attain age 62.
Sec. 5.3 Optional Forms. Upon written application by a Participant not
later than 12 months before the date payments are to commence under Sec. 5. 1 or
5.2, or with Committee consent (which shall be granted in its sole discretion)
for periods of less than 12 months before said date, the benefit to which a
Participant is entitled under Sec. 5.1 or Sec. 5.2 shall be payable, on an
Actuarial Equivalent basis, in the form of a single lump sum or in the form of
any annuity option permitted under the Retirement Plan.
Sec. 5.4 Commencement Date. Retirement benefits shall commence in
accordance with Sec. 5.1 and Sec. 5.2; provided, however, that the Committee
may, in its discretion, after receiving a Participant's lump sum election under
Sec. 5.3, determine that payment shall be made at a later date than that
specified or requested by the Participant. In the event that all or a portion of
any payment under this Article V shall be rendered nondeductible by the
Participating Employers pursuant to Internal Revenue Code Section 162(m) or any
successor provision at the time of the Participant's retirement or termination,
the Committee shall defer any such nondeductible portion to a time period when
such payment would otherwise be deductible by the Participating Employers, and
shall adjust the deferred payment on an Actuarial Equivalent basis to reflect
the date payment is actually made.
Sec. 5.5 Disability Before Retirement. If, while employed by a
Participating Employer, a Participant becomes totally and permanently disabled,
as determined by the Committee, and is separated from service, the monthly
vested Normal Retirement Benefit shall be paid to the Participant beginning on
the first day of the month following the date of the Participant's separation
from service, without any reduction for early commencement of the payments, and
shall continue until a total of 240 monthly payments have been made. For
purposes of this Section, "disabled" means, for a period of up to 24 consecutive
months, a Participant's inability as a result of an accident or illness to
perform the essential functions of the Participant's current position or any
position the Participant held within the 90 day period immediately prior to such
accident or illness, and at the end of said 24 month period, the Participant is
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<PAGE>
permanently unable to engage in any and every occupation or business for
compensation or profit for which the Participant is reasonably fitted by
education, training or experience.
Sec. 5.6 Death Prior to Termination of Employment. If a vested
Participant dies while employed by a Participating Employer (and prior to
commencement of a pension due to disability under Sec. 5.5), the Participant's
Beneficiary shall receive, beginning the first day of the month following the
Participant's death, a monthly payment equal to 50% of the Participant's Normal
Retirement Benefit until a total of 240 monthly payments have been made to the
Beneficiary.
Sec. 5.7 Death After Termination of Employment. If a vested Participant
dies after leaving the employ of the Participating Employers and prior to
Participant's receipt of 240 benefit payments, the Participant's Beneficiary
shall receive payments determined as follows:
(a) The monthly payment will be an amount which is equal to 50 % of
Participant's monthly vested Normal Retirement Benefit from the Plan
which the Participant was receiving immediately preceding the
Participant's death, (or would have been entitled to receive upon
attaining age 62 if the Participant died prior to commencing to receive
payments).
(b) The monthly benefit determined under subsection (a) shall be paid
beginning the first day of the month after the date of death if the
Participant was receiving payments prior to death, and otherwise shall
commence on the first day of the month following the date the
Participant would have attained age 62. Payments shall cease when the
Participant and the Participant's Beneficiary have received a total of
240 monthly benefit payments collectively.
(c) The Committee may in its sole discretion pay any benefit under this
Section in a lump sum in accordance with Sec. 5.3 or may pay a reduced benefit
determined pursuant to Sec. 5.2 commencing at any time determined by the
Committee after the later of the Participant's death or the date the Participant
would have attained age 55.
Sec. 5.8 Benefit Upon Change In Control. If a Participant's retirement
or other separation from service with the Participating Employers occurs within
24 months after a Change In Control, notwithstanding any provision of this Plan
to the contrary, the Participant's entire benefit hereunder shall be paid within
30 days following the separation from service in a single lump stun that is the
Actuarial Equivalent of the benefit to which the Participant was otherwise
entitled.
ARTICLE VI
ADMINISTRATION
Sec. 6.1 Administration by the Committee. The Committee shall administer
the Plan, establish, adopt, or revise such rules and regulations as it may deem
necessary or advisable for the on of the Plan and interpret the provisions of
the Plan. The Committee shall have discretionary authority to interpret the
Plan, and the interpretations of the Committee shall be conclusive.
Sec. 6.2 Withholding of Taxes. The benefits payable under this Plan
shall be subject to the deduction of any federal, state, or local income taxes
or other taxes which are required to be withheld from such payments by
applicable laws and regulations.
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Sec. 6.3 Unfunded and Unsecured Plan. The Plan is an unfunded and
unsecured nonqualified plan for federal income tax, ERISA and Department of
Labor purposes. It is a condition of the Plan, and each Participant expressly
agrees, that the Participant and the Participant's Beneficiary shall look solely
to the Participating Employers for payment of benefits under the Plan, whether
such payments are made from the general funds of the Participating Employers or
otherwise. No Participant or Beneficiary shall have any interest whatsoever in
any specific asset of the Participating Employers. To the extent that any
Participant or Beneficiary acquires a right to receive payments under this Plan,
such right shall be no greater than the right of any unsecured general creditor
of the Participating Employers.
ARTICLE VII
AMENDMENT AND TERMINATION
Sec. 7.1 Amendment. The Board may amend the Plan at any time in whole or
in part for any reason. No amendment shall decrease the benefits that have
accrued under the Plan prior to the date of such amendment based on earnings and
service prior to such date, but the amendment may decrease or eliminate future
accruals (including any continuing accruals under the provisions of the PSCo
SERP or the SPS SERP).
Sec. 7.2 Termination of Plan. The Board may terminate the Plan at any
time. After such termination, no employee shall become a Participant, no further
benefits shall accrue under the Plan, and each Participant shall become 100%
vested in the benefit accrued prior to the date of termination. At the
discretion of the Committee, the benefits accrued prior to termination of the
Plan may be either distributed to Participants (or Beneficiaries in the event of
death) in a lump sum on an Actuarial Equivalent basis as of a date determined by
the Committee which is after the date of termination, or distributed in
accordance with Article V.
ARTICLE VIII
MISCELLANEOUS
Sec. 8.1 Designation of Beneficiary. Each Participant under the Plan may
name any Beneficiary or Beneficiaries (who may be named contingently or
successively) to whom any benefit under the Plan otherwise due to the
Participant may be paid in case of the Participant's death before receiving any
or all of such benefit. Any subsequent designation shall revoke all prior
designations by the same Participant. If the Participant does not designate a
beneficiary, or if none of those designated are alive or existing at the time
the Beneficiary is to be identified to receive a benefit under the Plan, or if
the person receiving benefits as the beneficiary hereunder dies with no
contingent beneficiary designated, the Beneficiary shall be the Participant's
estate.
Sec. 8.2 Benefits May Not Be Assigned or Alienated. Neither a Participant
nor any Beneficiary shall have the right to sell, assign, transfer, encumber or
otherwise convey any right to receive any payment hereunder. No part of the
amounts payable hereunder shall be subject to seizure or sequestration for the
payment of any debts or judgments owed by a Participant or any other person.
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Sec. 8.3 Headings. Headings at the beginning of articles and sections
hereof are for convenience of reference, shall not be considered a part of the
text of the Plan, and shall not influence its construction.
Sec. 8.4 Capitalized Definitions. Capitalized terms used in the Plan
shall have their meaning as defined in the Plan unless the context clearly
indicates to the contrary.
Sec. 8.5 Gender. Any references to the masculine gender include the
feminine and vice versa.
Sec. 8.6 Use of Compounds of Word "Here". Use of the words "hereof",
"herein", "hereunder", or similar compounds of the word "here" shall mean and
refer to the entire Plan unless the context clearly indicates to the contrary.
Sec. 8.7 Construed as a Whole. The provisions of the Plan shall be
construed as a whole in such manner as to carry out the provisions hereof and
shall not be construed separately without relation to the context.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
its duly authorized officer this 3rd day of August, 1998.
NEW CENTURY ENERGIES, INC.
/s/ Bill D. Helton
------------------
By Bill D. Helton
Its Chief Executive Officer
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Exhibit 10(f)1
NEW CENTURY ENERGIES
SALARY DEFERRAL AND SUPPLEMENTAL SAVINGS PLAN
FOR EXECUTIVE OFFICERS
(As Adopted Effective July 1, 1998)
<PAGE>
NEW CENTURY ENERGIES
SALARY DEFERRAL AND SUPPLEMENTAL SAVINGS PLAN
FOR EXECUTIVE OFFICERS
TABLE OF CONTENTS
ARTICLE I GENERAL
Sec. 1. 1 Name of Plan .............................................. 1
Sec. 1.2 Purpose..................................................... 1
Sec. 1.3 Effective Date.............................................. 1
Sec. 1.4 Company..................................................... 1
Sec. 1.5 Participating Employers .................................... 1
Sec. 1.6 Construction and Applicable Law ............................ 1
ARTICLE II DEFINITIONS
Sec. 2.1 Accounts ................................................... 1
Sec. 2.2 Base Salary................................................. 2
Sec. 2.3 Beneficiary................................................. 2
Sec. 2.4 Board....................................................... 2
Sec. 2.5 Code........................................................ 3
Sec. 2.6 Committee................................................... 3
Sec. 2.7 Common Shares............................................... 3
Sec. 2.8 Company Credits............................................. 3
Sec. 2.9 Compensation................................................ 3
Sec. 2.10 Disability................................................. 3
Sec. 2.11 ERISA...................................................... 3
Sec. 2.12 Investment Credits......................................... 3
Sec. 2.13 Participant................................................ 3
Sec. 2.14 Plan Year.................................................. 3
Sec. 2. 15 Prior PSCo Plan........................................... 3
Sec. 2.16 Prior SPS Plan............................................. 3
Sec. 2.17 Retirement................................................. 4
Sec. 2.18 Savings Plan............................................... 4
Sec. 2.19 Successor Employer......................................... 4
Sec. 2.20 Valuation Date............................................. 4
ARTICLE III PARTICIPATION
Sec. 3.1 Eligibility for Participation .............................. 4
Sec. 3.2 Duration of Participation .................................. 4
Sec. 3.3 No Guarantee of Employment ................................. 5
ARTICLE IV DEFERRED COMPENSATION AND CREDITS TO ACCOUNTS
Sec. 4.1 Election to Defer Compensation.............................. 5
Sec. 4.2 Company Credits ............................................ 7
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Sec. 4.3 Investment Credits and Valuation of Accounts ............... 7
Sec. 4.4 Dividends on Common Shares ................................. 8
Sec. 4.5 Adjustment of Stock Accounts for Splits, Dividends, Etc .... 8
ARTICLE V DISTRIBUTION OF ACCOUNTS
Sec. 5.1 Time for Distribution ...................................... 9
Sec. 5.2 Manner of Payment .......................................... 9
Sec. 5.3 Amount of Payment .......................................... 9
Sec. 5.4 Beneficiary Designation .................................... 9
Sec. 5.5 Distributions for Severe Financial Hardship ................ 9
Sec. 5.6 Modification of Elections for Tax Considerations ........... 10
Sec. 5.7 Withholding and Taxes ...................................... 10
ARTICLE VI ADMINISTRATION
Sec. 6.1 Administration by the Committee ............................ 11
Sec. 6.2 Claims Procedure ........................................... 11
ARTICLE VII AMENDMENT AND TERMINATION
Sec. 7.1 Amendment .................................................. 11
Sec. 7.2 Termination of Plan ........................................ 11
ARTICLE VIII MISCELLANEOUS
Sec. 8.1 Unsecured Obligations ...................................... 12
Sec. 8.2 Benefits May Not Be Assigned or Alienated .................. 12
Sec. 8.3 Incompetency................................................ 12
Sec. 8.4 Notices..................................................... 12
Sec. 8.5 Severability................................................ 12
Sec. 8.6 Headings.................................................... 12
Sec. 8.7 Capitalized Definitions .................................... 12
Sec. 8.8 Gender ..................................................... 12
Sec. 8.9 Use of Compounds of Word "Here ............................. 13
Sec. 8. 10 Construed as a Whole ..................................... 13
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NEW CENTURY ENERGIES
SALARY DEFERRAL AND SUPPLEMENTAL SAVINGS PLAN
FOR EXECUTIVE OFFICERS
ARTICLE I
GENERAL
Sec. 1.1 Name of Plan. The name of this plan is the "New Century Energies
Salary Deferral and Supplemental Savings Plan for Executive Officers" (referred
to hereinafter as the "Plan").
Sec. 1.2 Purpose The Plan has been established to provide additional
future income to certain select executive officers through voluntary deferrals
of Compensation and Company Credits related to matching contributions under the
Savings Plan. Those portions of the Prior PSCo Plan and the Prior SPS Plan that
covered individuals who are Participants in this Plan as of July 1, 1998 were
merged into this Plan as of that date, and the benefits of such Participants
under the applicable Prior Plan shall thereafter be provided pursuant to the
provisions of this Plan.
Sec. 1.3 Effective Date. The "Effective Date" of the Plan, the date as of
which the Plan was established, is July 1, 1998.
Sec. 1.4 Company. For purposes of this Plan, "Company" means New Century
Energies, Inc., a Delaware corporation, and any Successor Employer thereof.
Sec. 1.5 Participating Employers. The Company is a "Participating
Employer" in the Plan. Any subsidiary of the Company shall become a
Participating Employer in this Plan upon being so designated in a written action
by the Committee, effective as of the date specified by the Committee. Any
Successor Employer to a Participating Employer shall also be a Participating
Employer. A Participating Employer shall cease to be such effective as of the
date specified in a written action by the Committee; provided, however, that
such action shall not cause Participants employed by such employer to forfeit
benefits accrued prior to such date.
Sec. 1.6 Construction and Applicable Law. The Plan is intended to be an
unfunded plan maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees,
within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. The
Plan is not intended to qualify under Code Section 401(a) or 403(a). The Plan
shall be administered and construed consistent with said intent. This Plan also
shall be governed and construed in accordance with the laws of the State of
Colorado as applied to contracts executed and to be wholly performed within said
state to the extent that such laws are not preempted by the laws of the United
States of America.
ARTICLE II
DEFINITIONS
Sec. 2.1 Accounts. "Accounts" shall be established for each eligible
Participant reflecting the amounts owed to the Participant or the Participant's
Beneficiary under the terms of this Plan. The following Accounts may be
established for each Participant:
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(a) Cash Account. A Cash Account shall be established to which shall be
credited the amounts of Compensation deferred by the Participant under
Sec. 4.1 (other than amounts the Participant has elected to have
deposited in his or her Directable Stock Account) and the Investment
Credits under Sec. 4.3 related to those deferrals. The Committee may
maintain sub-accounts for a Participant within the Cash Account to
reflect the investment options for that Account under Sec. 4.3.
(b) Stock Accounts. The following types of Stock Accounts shall be
established for a Participant:
(1) Directable Stock Account. The Participant's Directable Stock
Account shall be credited with all amounts of Compensation
deferred by the Participant under Sec. 4.1 and accumulated
Investment Credits on those deferrals which the Participant has
elected to be deemed to have been invested in Common Shares.
(2) Nondirectable Stock Account. The Participant's Nondirectable
Stock Account shall be credited with any Company Credits
determined under Sec. 4.2, and adjustments under Sec. 4.4 and
Sec. 4.5 related to those credits.
(c) Prior Plan Accounts. The Accounts of an individual who is a
Participant in this Plan on July 1, 1998 and who was a participant in
the Prior PSCo Plan or the Prior SPS Plan on June 30, 1998, shall be
initially credited as of July 1, 1998 as follows:
(1) The Participant's Cash Account shall be credited with the balance
credited to his or her cash account in the Prior PSCo Plan as of
June 30, 1998 and the Participant's Nondirectable Stock Account
shall be credited with the number of Common Shares. credited to
his or her stock account under the Prior PSCo Plan as of June 30,
1998.
(2) The Participant's Nondirectable Stock Account will be credited
with a number of Common Shares equal to the value of the
Participant's matching account under the Prior SPS Plan on June
30, 1998, and the Participant's Directable Stock Account will be
credited with a number of Common Shares equal to the value of the
Participant's other accounts under the Prior SPS Plan on that
date, in each case divided by the average of the high and low
sale prices of a Common Share on the New York Stock Exchange on
June 30, 1998. This paragraph will be applied by assuming that
June 30, 1998 is a "valuation date" under the Prior SPS Plan.
Each Participant is always 100% vested in amounts credited to his or her
Accounts.
Sec. 2.2 Base Salary. "Base Salary" means a Participant's annual salary
rate in effect from time to time during each Plan Year, unreduced for any salary
deferrals under any Company savings, incentive or other employee benefit plan.
Sec. 2.3 Beneficiary. "Beneficiary" means the person or persons designated
as such pursuant to the provisions of Sec. 5.4.
See. 2.4 Board. "Board" means the board of directors of the Company.
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Sec. 2.5 Code. "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor statute.
Sec. 2.6 Committee. "Committee" means the Compensation Committee of the
Board or any other committee appointed by the Board to administer the Plan.
However, no member of the Committee who is also a Participant in this Plan may
participate in or vote or any matter involving the Plan.
Sec. 2.7 Common Shares. "Common Shares" means shares of the Company's
common stock.
Sec. 2.8 Company Credits. "Company Credits" are the credits allocable to
the Participant's Nondirectable Stock Account pursuant to Sec. 4.2.
Sec. 2.9 Compensation "Compensation" for a Plan Year means the
compensation to which the Participant is entitled from the Participating
Employers with respect to the Plan Year, including any Base Salary payable
during the Plan Year, any annual incentive bonus earned under the Company's
annual incentive plan for the Plan Year and payable in the following Plan Year,
and any cash or Company stock incentive bonus earned for the Plan Year under any
other plan that may be established by the Company, if so permitted by the terms
of such plan (regardless of when paid).
See. 2.10 Disability. "Disability" means, for a period of up to 24
consecutive months, a Participant's inability as a result of an accident or
illness to perform the essential functions of the Participant's current position
or any position the Participant held within the 90 day period immediately prior
to such accident or illness, and at the end of said 24 month period, the
Participant is permanently unable to engage in any and every occupation or
business for compensation or profit for which the Participant is reasonably
fitted by education, training or experience.
See. 2.11 ERISA. "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended from time to time, and any successor statute.
Sec. 2.12 Investment Credits. "Investment Credits" are the gains or losses
allocable to the Cash Accounts of a Participant under Sec. 4.3 based on the
investment indexes elected by the Participant, and adjustments for dividends and
other transactions to the Participant's Stock Accounts under Sec. 4.4 and Sec.
4.5.
Sec. 2.13 Participant. A "Participant" means any executive officer of a
Participating Employer who has been designated in writing by the Committee as
eligible for this Plan.
See. 2.14 Plan Year. A "Plan Year" is the 12-consecutive-month period
commencing on each January 1 and ending on the following December 3 1. However,
the first Plan Year of the Plan begins on July 1, 1998 and ends on December 31,
1998.
See. 2.15 Prior PSCo Plan. "Prior PSCo Plan" means the Public Service
Company of Colorado Executive Savings Plan, as in effect on June 30, 1998.
Sec. 2.16 Prior SPS Plan. "Prior SPS Plan" means the Southwestern Public
Service Company Non-Qualified Salary Deferral Plan, as in effect on June 30,
1998.
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Sec. 2.17 Retirement. "Retirement" means termination of employment with a
Participating Employer after attaining age 62.
See. 2.18 Savings Plan. "Savings Plan" means the New Century Energies
Savings Plan, as it may be amended from time to time.
Sec. 2.19 Successor Employer. A "Successor Employer" is any entity that
succeeds to the business of the Company or another Participating Employer
through merger, consolidation, acquisition of all or substantially all of its
assets, or any other means and which elects before or within a reasonable time
after such succession, by appropriate action evidenced in writing, to continue
the Plan.
See. 2.20 Valuation Date. "Valuation Date" means each date on which the
Accounts of Participants are valued for purposes of this Plan. Valuation Dates
shall include the last day of each month and such other dates as the Committee
determines are necessary or advisable for the administration of the Plan.
ARTICLE III
PARTICIPATION
Sec. 3.1 Eligibility for Participation. A Participant's eligibility under
this Plan shall be subject to the following:
(a) The Participant will become eligible to elect to make deferrals under
Sec. 4.1 and to receive Company Credits under Sec. 4.2 effective as
of the date specified by the Committee in the written notice of
participation. However, deferrals will not commence under Sec. 4. 1
until the effective date of an election filed pursuant to that
section.
(b) An employee who is designated as a Participant before the last
calendar quarter of a Plan Year may wait until the following year to
make deferrals of Compensation or may elect to make deferrals for the
partial Plan Year (for Compensation earned after the calendar quarter
of the election to defer), and in either case such Participant shall
be eligible for Company Credits under Section 4.2 for the partial
Plan Year, unless the Committee determines otherwise at the time the
employee is designated as a Participant.
Sec. 3.2 Duration of Participation. An employee who becomes a Participant
shall continue to be eligible to make elections under Sec. 4.1 thereafter,
subject to the following:
(a) The Participant's deferrals shall cease on the earliest of.
(1) The date the Participant terminates employment with the
Participating Employers.
(2) The date specified in a written notice issued by the Committee
revoking the individual's status as a Participant.
(3) The date the Participant fails to meet the requirements of any
regulations which may be issued by the Department of Labor that
define the phrase "select group of management or highly
compensated employees" under ERISA.
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(b) An individual shall continue to be a Participant for purposes of the
provisions of the Plan other than Sec. 4.1 or Sec. 4.2 until the date
all of his or her Accounts have been distributed.
(c) If an employee who has elected to make deferrals under Sec. 4. 1 for
a particular Plan Year is subsequently determined not to be eligible
to be a Participant for that Plan Year, the employee's deferral
election for that year will be canceled and any amounts which may
have already been deferred for that year will be promptly refunded to
the employee.
Sec. 3.3 No Guarantee of Employment. Participation in the Plan does not
constitute a guarantee or contract of employment with the Participating
Employers. Such participation shall in no way interfere with any rights the
Participating Employers would have in the absence of such participation to
determine the duration of the employee's employment.
ARTICLE IV
DEFERRED COMPENSATION AND CREDITS TO ACCOUNTS
See. 4.1 Election to Defer Compensation. An eligible Participant may elect
to have Compensation with respect to each Plan Year credited to his or her Cash
Account and/or Directable Stock Account rather than being paid in cash, subject
to any limitations that may be imposed by the Committee. Elections shall be made
on forms specified by the Committee for purposes of this Plan, and shall be
filed in the manner specified by the Committee. The Compensation for a Plan Year
of a Participant who elects deferrals under this section shall be reduced by the
percentage or amount so elected, subject to the following:
(a) Elections for each Plan Year must be filed during the election period
specified by the Committee for that Plan Year, which period must end
on or prior to December 31 of the previous year, subject to the
following:
(1) If an individual (other than a former Participant) is designated
as a Participant during a Plan Year, any election for that Plan
Year must be filed within 30 days after the date the Participant
received the notice of participation, and deferrals shall
commence as of the first day of the calendar quarter after the
election is received by the Committee. Such an election shall
apply to Base Salary payable during that Plan Year for payroll
periods beginning on or after the first day of said quarter and
to any incentive compensation for that Plan Year which is subject
to a requirement that the individual remain employed to a date
that is on or after the first day of said quarter.
(2) A former Participant who is again designated as a Participant may
not commence deferrals until January 1 of the Plan Year following
the designation of participation, and an election to defer for
such Plan Year must be made prior to said January 1.
(3) Except as provided in paragraph (4), elections for the Plan Year
commencing July 1, 1998 must be filed by June 30, 1998.
(4) Notwithstanding anything in this Plan to the contrary, if a
Participant was a participant in the Prior PSCo Plan or the Prior
SPS Plan on June 30, 1998, any
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election in effect under such Prior Plan shall continue in effect
for purposes of this Plan for the 1998 Plan Year, and no new
election shall be allowed under this Plan for that Plan Year. Any
such election under a Prior Plan shall not apply to Compensation
with respect to Plan Years commencing after 1998.
(b) The Participant may elect to defer either (i) any whole percent (in
10% increments) of Compensation payable with respect to the Plan Year,
or (ii) any percent or dollar amount of Compensation up to the amount
required for the Participant to receive the maximum Company Credit
under Sec. 4.2. However, the total deferrals during any Plan Year may
not reduce the Participant's Compensation payable during that Plan
Year (after deduction of the deferrals under this Plan) to less than
$100,000 (or the dollar amount in effect for that Plan Year under Code
Section 414(q)(1)(B), if greater).
(c) The deferred compensation credited under this section on behalf of a
Participant shall be allocated to the Participant's Cash Account
and/or Directable Stock Account (as elected by the Participant) as of
the date that the Compensation would otherwise have been paid to the
Participant in cash. The amount of Common Shares to be allocated to a
Directable Stock Account shall be determined by dividing the credit by
the average of the high and low sales prices of a Common Share on the
New York Stock Exchange on the business day proceeding the date the
credit is made.
(d) The Participant must file a separate deferral election for each Plan
Year with respect to which deferrals are to be made under this Plan.
An election for a Plan Year shall become irrevocable on the first day
of that year, subject to subsection (e). Elections will not carry
over into subsequent Plan Years. However, an election for a
particular Plan Year shall apply to all Compensation with respect to
that Plan Year, including incentive bonuses or other amounts earned
during that year but paid in subsequent Plan Years.
(e) Notwithstanding the foregoing provisions of this section:
(1) All deferrals by a Participant shall cease as of (i) the date the
Participant receives a hardship withdrawal under any qualified
defined contribution plan subject to Code Section 401(k)
maintained by the Company or any of its affiliates which requires
that deferrals be suspended for a certain period of time
following such withdrawal, or (ii) the date the Participant
receives a withdrawal from this Plan for severe financial
hardship due to an unforeseeable emergency under Sec. 5.5.
Deferrals under this section may not recommence until the first
day of the second Plan Year beginning after the date deferrals
ceased under the previous sentence, and no further deferrals
shall be made from Compensation with respect to Plan Years prior
to said second Plan Year.
(2) The Committee may in its sole discretion cancel a Participant's
deferral election for the current Plan Year (and for Compensation
not yet paid with respect to any previous Plan Years) upon the
request of a Participant if the Committee determines that an
event has occurred which would make the Participant eligible for
a withdrawal for severe financial hardship due to an
unforeseeable emergency under Sec. 5.5. Deferrals under this
section may not recommence until the first day of the second Plan
Year beginning after the date deferrals ceased under the previous
sentence, and no further deferrals shall be made from
Compensation with respect to
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<PAGE>
Plan Years prior to said second Plan Year. The Participant may
request that deferrals cease under this paragraph whether or not
the Participant requests a withdrawal under Sec. 5.5.
Sec. 4.2 Company Credits. Subject to the Committee's discretion, the
Nondirectable Stock Account of each eligible Participant will be credited for
each Plan Year with a Company Credit representing a number of Common Shares,
determined as follows:
(a) The Company Credit for a Plan Year will be equal to the amount
determined under paragraph (1) minus the amount determined under
paragraph (2), with the result divided by the amount determined under
paragraph (3), and with the result then rounded to four decimal
places, as follows:
(1) A dollar amount equal to 50% of the smaller of (i) the sum of the
amount of Base Salary the Participant deferred under this Plan
for the Plan Year and the Participant's pre-tax contributions to
the Savings Plan for the Plan Year, or (ii) 8 % of the
Participant's "compensation" for the Plan Year recognized by the
Savings Plan for purposes of determining matching contributions
under that Plan (but disregarding the limit on such compensation
under Code Section 401(a)(17)); minus
(2) The dollar amount of matching contributions actually made to the
Savings Plan for the Participant for the Plan Year; divided by
(3) The average of the high and low sale prices of a Common Share on
the New York Stock Exchange on the business day preceding the
date the matching contribution is made to the Savings Plan.
(b) Notwithstanding subsection (a), a Participant will receive the
Company Credit for a Plan Year only if the Participant participates
in the Savings Plan and makes the maximum dollar amount of pre-tax
contribution permitted by the Savings Plan for that year.
(c) The Company Credit for an eligible Participant for a Plan Year will
be allocated to the Participant's Nondirectable Stock Account on the
date the matching contribution for such Plan Year is (or would be)
made under the Savings Plan.
(d) Each Participant's Nondirectable Stock Account shall also be credited
with any Common Shares deferred under any annual incentive plan, or
other plan that may be established by the Company, for that portion
of the award which is otherwise payable in Common Shares. Such credit
shall occur as of the date such shares would otherwise have been
distributed to the Participant.
(e) Notwithstanding the foregoing, the Company Credits for the period
from July I to December 31, 1998 under this Section will be based
only on compensation and contributions during that period.
Sec. 4.3 Investment Credits and Valuation of Accounts. The Accounts of each
Participant will be adjusted as of each Valuation Date to reflect Investment
Credits, deferrals allocated to the Account under Sec. 4. 1, Company Credits
allocated under Sec. 4.2, credits to Stock Accounts
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<PAGE>
under Sec. 4.4, adjustments of Stock Accounts under Sec. 4.5, and distributions
from Accounts under Article V, since the previous Valuation Date, subject to the
following:
(a) Investment Credits on each Cash Account will be based on the
investment index or indexes selected by the Participant to measure
the deemed rate of investment return on his or her Account. The
investment indexes will be the same as the investment options under
the Savings Plan (except the NCE Stock Fund), and such other
investment options as the Committee makes available under this Plan
from time to time.
(b) A Participant may file separate investment elections for the existing
Cash Account balance and for future amounts to be credited to the
Participant's Cash Account and/or Directable Stock Account. The
Participant may also elect to have amounts transferred between his or
her Cash Account and Directable Stock Account. The amount of Common
Shares to be credited upon a transfer into a Directable Stock Account
shall be determined as provided in Sec. 4. 1 (c).
(c) All investment elections shall be in accordance with such rules and
regulations as the Committee may establish from time to time. The
Committee may also establish such procedures for the valuation of
Accounts as the Committee determines in its sole discretion will
reasonably reflect the period of time amounts were credited to each
Account.
(d) Notwithstanding the foregoing, the Committee may modify or disregard
an investment election filed by a Participant to the extent the
Committee determines that such action is necessary to comply with the
terms of this Plan or to avoid adverse tax consequences to the
Participant or the Participating Employers.
(e) Notwithstanding anything in the Plan to the contrary, the
Participating Employers shall be under no obligation to purchase any
investments used for determining Investment Credits or to purchase
Common Shares. The investment indexes and Common Shares are used
solely for the recordkeeping purpose of measuring gains and losses on
each Participant's Accounts, and the Participant's Accounts are not
actually being invested in the indexes or in Common Shares.
Sec. 4.4 Dividends on Common Shares. Each Participant's Stock Accounts
shall be credited as of each dividend payment date for Common Shares with that
number of shares obtained by dividing:
(a) the amount of any dividends that would be payable on the number of
shares (including fractional shares, carried out to four decimal
places) credited to each Stock Account of such Participant as of the
record date for payment of such dividend, by
(b) the average of the high and low sale price of a Common Share on the
New York Stock Exchange on the day preceding the date of such
dividend payment.
See. 4.5 Adjustment of Stock Accounts for Splits, Dividends, Etc. In the
event of any change in the outstanding Common Shares of the Company by reason of
any share dividend or split, recapitalization, merger, consolidation, spin-off,
reorganization, combination or exchange of Common Shares or other similar
corporate change, the Committee shall make appropriate adjustment in the number
of the Common Shares in the Participants' Stock Accounts.
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ARTICLE V
DISTRIBUTION OF ACCOUNTS
Sec. 5.1 Time for Distribution. Except as provided in Sec. 5.5 and the last
paragraph of this Section, all Account balances shall be distributed to the
Participant or Beneficiary within 30 days after the earliest to occur of:
(a) The Participant's Retirement,
(b) The date the Participant is determined by the Committee to have
incurred a Disability.
(c) The date of the Participant's death.
(d) Any other termination of the Participant's employment with the
Participating Employers.
However, any Company Credit for the final partial Plan Year of participation
shall be distributed at the time it is credited to the Participant's
Nondirectable Stock Account.
Sec. 5.2 Manner of Payment. The balance in a Participant's Cash Account and
the value of whole and fractional shares in the Participant's Stock Accounts
shall be paid in cash in a single lump sum payment.
Sec. 5.3 Amount of Payment. The amount of cash to be distributed to a
Participant with respect to the Participant's Cash Account shall be the balance
of such account as of the end of the month prior to the distribution. The amount
of cash to be distributed to a Participant with respect to the Participant's
Stock Accounts shall be the number of shares credited to such Accounts as of the
end of the month prior to the distribution multiplied by the average of the high
and low sales price of a Common Share on the New York Stock Exchange on the last
trading day of the month prior to the distribution.
Sec. 5.4 Beneficiary Designation Each Participant shall have the right, at
any time, to designate any person or persons as Beneficiary or Beneficiaries to
whom payments under this Plan shall be made in the event of the Participant's
death prior to complete distribution of the amount credited to the Participant's
Accounts. Each Participant shall have the right to change his or her Beneficiary
designation at any time. Each Beneficiary designation shall become effective
only when filed in writing with the Committee during the Participant's life on a
form prescribed by the Committee. The rights of each Beneficiary shall be
subject to the terms and conditions specified on the designation form to the
extent consistent with the terms of the Plan. If a Participant fails to
designate a Beneficiary as provided above, or if all designated Beneficiaries
predecease the Participant, then the Beneficiary shall be the Participant's
estate.
Sec. 5.5 Distributions for Severe Financial Hardship. Notwithstanding the
foregoing sections of this Article V, the Committee in its sole discretion may
approve a request by a Participant for a withdrawal from the Participant's
deferred amounts due to an unforeseeable emergency. An "unforeseeable emergency"
is severe financial hardship to the Participant resulting from a sudden and
unexpected illness or accident of the Participant or of a dependent (as defined
in Code Sec. 152(a) of the Participant, loss of the Participant's property due
to casualty, or other similar extraordinary and
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unforeseeable circumstances caused by an event beyond the control of the
Participant. Unforeseeable emergencies specifically do not include the need to
pay for the education of a Participant's child or the desire to purchase a home.
Any such early withdrawal approved by the Committee may not exceed the amount
reasonably necessary to meet the emergency. Payment may not be made to the
extent that such hardship is or may be relieved by any of the following means:
(a) Through reimbursement or compensation by insurance or otherwise.
(b) By liquidation of the Participant's assets, to the extent the
liquidation of such assets would not itself cause severe financial
hardship.
(c) By cessation of deferrals under the Plan.
Sec. 5.6 Modification of Elections for Tax Considerations. Notwithstanding
anything to the contrary in the foregoing sections of this Article V or in any
election filed by a Participant:
(a) If the Committee determines, based on advice of legal counsel or a
final determination by the Internal Revenue Service or a court of
competent jurisdiction, that a Participant or Beneficiary may be held
to be in constructive receipt of benefits under this Plan and
required to recognize such benefit immediately or retroactively for
income tax purposes, the Committee may in its sole discretion take
either of the following actions:
(1) Distribute the entire affected benefit in a single lump sum as
soon as administratively feasible.
(2) Take written action modifying the Participant's election and/or
the terms of the Plan (retroactively, if necessary) in a manner
that win eliminate the allegation of constructive receipt while
at the same time carrying out the Participant's original intent
to the extent possible.
(b) The Committee may postpone any payment to be made to a Participant or
Beneficiary until a subsequent fiscal year of the Participating
Employers to the extent the Committee determines to be necessary in
order to avoid the loss of an income tax deduction under Code Section
162(m).
Sec. 5.7 Withholding and Taxes. The benefits payable under this Plan shall
be subject to the deduction of any federal, state, or local income taxes or
other taxes which are required to be withheld from such payments by applicable
laws and regulations. Any Social Security (FICA) taxes which must be withheld
prior to the distribution of benefits to the Participant shall be withheld from
the amounts deferred, or from the Participant's other compensation, as
determined by the Committee. The Participating Employers provide no assurances
or guarantees regarding the tax treatment of amounts deferred or payments made
under this Plan. Each Participant is solely responsible for any applicable
income, excise and other taxes, penalties or interest (including any excise tax
under Code Section 4999).
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ARTICLE VI
ADMINISTRATION
Sec. 6.1 Administration by the Committee. The Committee shall administer
the Plan, shall establish, adopt, or revise such rules and regulations as it may
deem necessary or advisable for the administration of the Plan, and shall have
discretionary authority to interpret the provisions of the Plan. The
interpretations of the Committee shall be conclusive on all parties.
Sec. 6.2 Claims Procedure. A Participant or Beneficiary may make a claim
for Plan benefits by filing a written request with the Committee. The claim
shall be determined by the Committee within 90 days after the receipt of the
written claim (unless the Committee extends the period for up to an additional
90 days).
(a) Notice of the Committee's decision shall be communicated to the
claimant in writing. If the claim is denied, the notice shall include
the specific reasons for the denial (including reference to pertinent
Plan provisions), a description of any additional material or
information necessary for the Committee to reconsider the claim, the
reasons for any of such additional material or information, and an
explanation of the review procedure.
(b) The claimant or a duly authorized representative may, within 60 days
after receiving such written notice, request in writing that the
Committee review its decision. The Committee may afford the claimant a
hearing and shall afford the claimant the opportunity to review all
pertinent documents and submit issues and comments orally or in
writing. The Committee shall render a review decision in writing
within 60 days after receipt of request for review (unless the
Committee extends the review period for up to an additional 60 days).
The review proceeding shall be conducted in accordance with the rules
and regulations adopted from time to time by the Committee.
ARTICLE VII
AMENDMENT AND TERMINATION
Sec. 7.1 Amendment. The Plan may be amended in whole or in part at any
time for any reason by action of the Board, or by action of any person to whom
that authority has been delegated by the Board. No amendment shall decrease the
benefits under the Plan which have accrued prior to the date such amendment is
adopted, but may modify future Investment Credits to Accounts or the deemed
investments of Accounts in periods following the amendment.
See. 7.2 Termination of Plan. The Company, by action of the Board, may
terminate the Plan at any time. After such termination, no employee shall become
a Participant, and no further amounts shall be credited pursuant to Sec. 4.1 or
Sec. 4.2 to Accounts of Participants. At the discretion of the Company, the
amounts credited to the Accounts of Participants may be either (i) distributed
to Participants as of a date determined by the Company which is after the date
of termination based on values determined as of the last day of the month
preceding the distribution, or (ii) distributed in accordance with Article V.
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<PAGE>
ARTICLE VIII
MISCELLANEOUS
Sec. 8.1 Unsecured Obligations. A Participant's credits in his or her
Accounts shall be an unsecured obligation of the Participating Employers to pay
the Participant (or the Participant's Beneficiary, in the event of the
Participant's death) the actual amount of the credits at the time designated in
Article V. Each Participant or Beneficiary is only a general creditor of the
Participating Employers with respect to his or her Accounts. Accounts are
maintained for recordkeeping purposes only. Notwithstanding the foregoing,
obligations to pay benefits under this Plan may be satisfied by distributions
from a grantor trust created by the Company in its sole discretion for such
purpose. Each Participant shall cooperate with the Committee and shall execute
any documents or submit to any physical examination reasonably required by the
Committee in connection with the administration of the Plan.
Sec. 8.2 Benefits May Not Be Assigned or Alienated. Neither a Participant
nor any Beneficiary shall have the right to sell, assign, transfer, encumber or
otherwise convey any right to receive any payment hereunder. No part of the
amounts payable hereunder shall be subject to seizure or sequestration for the
payment of any debts or judgments owed by a Participant or any other person.
However, the Committee may offset the obligations to the Participant or the
Participant's Beneficiary hereunder by any amounts the Participant owes to the
Participating Employers, provided that such amounts owed by the Participant are
not related in any way to the benefits payable under this Plan and were not
incurred in anticipation of the benefits to which the Participant may become
entitled hereunder.
Sec. 8.3 Incompetency. Every person receiving or claiming benefits under
this Plan shall be conclusively presumed to be mentally competent until the date
on which the Committee receives a written notice in a form and manner acceptable
to the Committee that such person is incompetent and that a guardian,
conservator or other person legally vested with the care of his or her estate
has been appointed. In such event, the Committee may direct payments of benefits
to such guardian, conservator or other person legally vested with the care of
the person's estate and any such payments so made shall be a complete discharge
of the Participating Employers to the extent so made.
Sec. 8.4 Notices. Notices required by this Plan to be given to the
Committee or a Participant shall be in writing and shall be considered to have
been duly given or served if personally delivered, or sent by first class,
certified or registered mail.
Sec. 8.5 Severability. The invalidity or partial invalidity of any portion
of this Plan shall not invalidate the remainder thereof, and said remainder
shall remain in full force and effect.
Sec. 8.6 Headings. Headings at the beginning of articles and sections
hereof are for convenience of reference, shall not be considered a part of the
text of the Plan, and shall not influence its construction.
Sec. 8.7 Capitalized Definitions . Capitalized terms used in the Plan shall
have their meaning as defined in the Plan unless the context clearly indicates
to the contrary.
Sec. 8.8 Gender. Any references to the masculine gender include the
feminine and vice versa.
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Sec. 8.9 Use of Compounds of Word "Here". Use of the words "hereof",
"herein", "hereunder". or similar compounds of the word "here" shall mean and
refer to the entire Plan unless the context clearly indicates to the contrary.
Sec. 8.10 Construed as a Whole. The provisions of the Plan shall be
construed as a whole in such manner as to carry out the provisions hereof and
shall not be construed separately without relation to the context.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its
duly authorized officer this 3rd day of August 1998.
NEW CENTURY ENERGIES, INC.
By: /s/Bill D. Helton
Its Chief Executive Officer
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Exhibit 10(g)1
NEW CENTURY ENERGIES
SALARY DEFERRAL AND SUPPLEMENTAL SAVINGS PLAN
FOR KEY MANAGERS
(As Adopted Effective July 1, 1998)
<PAGE>
NEW CENTURY ENERGIES
SALARY DEFERRAL AND SUPPLEMENTAL SAVINGS PLAN
FOR KEY MANAGERS
TABLE OF CONTENTS
ARTICLE I GENERAL
Sec. 1.1 Name of Plan............................................. 1
Sec. 1.2 Purpose.................................................. 1
Sec. 1.3 Effective Date........................................... 1
Sec. 1.4 Company.................................................. 1
Sec. 1.5 Participating Employers ................................. 1
Sec. 1.6 Construction and Applicable Law ......................... 1
ARTICLE II DEFINITIONS
Sec. 2.1 Accounts................................................. 2
Sec. 2.2 Base Salary.............................................. 3
Sec. 2.3 Beneficiary.............................................. 3
Sec. 2.4 Board.................................................... 3
Sec. 2.5 Code..................................................... 3
Sec. 2.6 Committee................................................ 3
Sec. 2.7 Common Shares............................................ 3
Sec. 2.8 Company Credits.......................................... 3
Sec. 2.9 Compensation............................................. 3
Sec. 2.10 Disability.............................................. 3
Sec. 2.11 ERISA................................................... 3
Sec. 2.12 Investment Credits...................................... 3
Sec. 2.13 Participants............................................ 3
Sec. 2.14 Plan Year............................................... 4
Sec. 2.15 Prior PSCo Plan......................................... 4
Sec. 2.16 Prior SPS Plan.......................................... 4
Sec. 2.17 Retirement.............................................. 4
Sec. 2.18 Savings Plan............................................ 4
Sec. 2.19 Successor Employer...................................... 4
Sec. 2.20 Valuation Date.......................................... 4
ARTICLE III PARTICIPATION
Sec. 3.1 Eligibility for Participation ........................... 4
Sec. 3.2 Duration of Participation ............................... 5
Sec. 3.3 No Guarantee of Employment .............................. 5
ARTICLE IV DEFERRED COMPENSATION AND CREDITS TO ACCOUNTS
Sec. 4.1 Election to Defer Compensation .......................... 5
Sec. 4.2 Company Credits ......................................... 7
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Sec. 4.3 Investment Credits and Valuation of Accounts ............ 8
Sec. 4.4 Dividends on Common Shares .............................. 8
Sec. 4.5 Adjustment of Stock Accounts for Splits, Dividends, Etc . 9
ARTICLE V DISTRIBUTION OF ACCOUNTS
Sec. 5.1 Time for Distribution ................................... 9
Sec. 5.2 Manner of Payment ....................................... 9
Sec. 5.3 Amount of Payment ....................................... 9
Sec. 5.4 Beneficiary Designation . ............................... 9
Sec. 5.5 Distributions for Severe Financial Hardship ............. 10
Sec. 5.6 Modification of Elections for Tax Considerations ........ 10
Sec. 5.7 Withholding and Taxes ................................... 11
ARTICLE VI ADMINISTRATION
Sec. 6.1 Administration by the Committee ......................... 11
Sec. 6.2 Claims Procedure ........................................ 11
ARTICLE VII AMENDMENT AND TERMINATION
Sec. 7.1 Amendment................................................ 12
Sec. 7.2 Termination of Plan ..................................... 12
ARTICLE VIII MISCELLANEOUS
Sec. 8.1 Unsecured Obligations ...................................... 12
Sec. 8.2 Benefits May Not Be Assigned or Alienated .................. 12
Sec. 8.3 Incompetency ............................................... 12
Sec. 8.4 Notices .................................................... 13
Sec. 8.5 Severability................................................ 13
Sec. 8.6 Headings.................................................... 13
Sec. 8.7 Capitalized Definitions .................................... 13
Sec. 8.8 Gender...................................................... 13
Sec. 8.9 Use of Compounds of Word "Here" ............................ 13
Sec. 8.10 Construed as a Whole....................................... 13
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<PAGE>
NEW CENTURY ENERGIES
SALARY DEFERRAL AND SUPPLEMENTAL SAVINGS PLAN
FOR KEY MANAGERS
ARTICLE I
GENERAL
Sec. 1.1 Name of Plan. The name of this plan is the "New Century Energies
Salary Deferral and Supplemental Savings Plan for Key Managers" (referred to
hereinafter as the "Plan").
Sec. 1.2 Purpose. The Plan has been established to provide additional
future income to certain key managers through voluntary deferrals of
Compensation and Company Credits related to matching contributions under the
Savings Plan. The Prior PSCo Plan and the Prior SPS Plan, other than the
portions of those plans which covered individuals who are participants in the
New Century Energies Salary Deferral and Supplemental Savings Plan for Executive
Officers on July 1, 1998, were merged into this Plan as of that date. The
benefits of all individuals covered by the portions of the Prior Plans which
were merged into this Plan shall thereafter be provided pursuant to the
provisions of this Plan. If an individual's benefit from a Prior Plan has been
merged into this Plan but the individual is not designated as a Participant
under this Plan, the individual shall nevertheless be deemed to be a
"Participant" under the provisions of this Plan (other than Article III and
Sections 4.1 and 4.2) until the benefits with respect to the Prior Plan have
been distributed.
Sec. 1.3 Effective Date. The "Effective Date" of the Plan, the date as of
which the Plan was established, is July 1, 1998.
Sec. 1.4 Company. For purposes of this Plan, "Company" means New Century
Energies, Inc., a Delaware corporation, and any Successor Employer thereof.
Sec. 1.5 Participating Employers The Company is a "Participating Employer"
in the Plan. Any subsidiary of the Company shall become a Participating Employer
in this Plan upon being .so designated in a written action by the Committee,
effective as of the date specified by the Committee. Any Successor Employer to a
Participating Employer shall also be a Participating Employer. A Participating
Employer shall cease to be such effective as of the date specified in a written
action by the Committee; provided, however, that such action shall not cause
Participants employed by such employer to forfeit benefits accrued prior to such
date.
Sec. 1.6 Construction and Applicable Law. The Plan is intended to be an
unfunded plan maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees,
within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. The
Plan is not intended to qualify under Code Section 401(a) or 403(a). The Plan
shall be administered and construed consistent with said intent. This Plan also
shall be governed and construed in accordance with the laws of the State of
Colorado as applied to contracts executed and to be wholly performed within said
state to the extent that such laws are not preempted by the laws of the United
States of America.
<PAGE>
ARTICLE II
DEFINITIONS
Sec. 2.1 Accounts. "Accounts" shall be established for each eligible
Participant reflecting the amounts owed to the Participant or the Participant's
Beneficiary under the terms of this Plan. The following Accounts may be
established for each Participant:
(a) Cash Account. A Cash Account shall be established to which shall be
credited the amounts of Compensation deferred by the Participant
under Sec. 4.1 (other than amounts the Participant has elected to
have deposited in his or her Directable Stock Account) and the
Investment Credits under Sec. 4.3 related to those deferrals. The
Committee may maintain sub-accounts for a Participant within the Cash
Account to reflect the investment options for that Account under Sec.
4.3.
(b) Stock Accounts. The following types of Stock Accounts shall be
established for a Participant:
(1) Directable Stock Account. The Participant's Directable Stock
Account shall be credited with all amounts of Compensation
deferred by the Participant under Sec. 4.1 and accumulated
Investment Credits on those deferrals which the Participant has
elected to be deemed to have been invested in Common Shares.
(2) Nondirectable Stock Account. The Participant's Nondirectable
Stock Account shall be credited with any Company Credits
determined under Sec. 4.2, and adjustments under Sec. 4.4 and
Sec. 4.5 related to those credits.
(c) Prior Plan Accounts. The, Accounts of an individual who is a
Participant in this Plan on July 1, 1998 (or is deemed to be a
Participant for certain purposes pursuant to Sec. 1.2) and who was a
participant in the Prior PSCo Plan or the Prior SPS Plan on June 30,
1998, shall be initially credited as of July 1, 1998. as follows:
(1) The Participant's Cash Account shall be credited with the balance
credited to his or her cash account in the Prior PSCo Plan as of
June 30, 1998 and the Participant's Nondirectable Stock Account
shall be credited with the number of Common Shares credited to
his or her stock account under the Prior PSCo Plan as of June 30,
1998.
(2) The Participant's Nondirectable Stock Account win be credited
with a number of Common Shares equal to the value of the
Participant's matching account under the Prior SPS Plan on June
30, 1998, and the Participant's Directable Stock Account will be
credited with a number of Common Shares equal to the value of the
Participant's other accounts under the Prior SPS Plan on that
date, in each case divided by the average of the high and low
sale prices of a Common Share on the New York Stock Exchange on
June 30, 1998. This paragraph will be applied by assuming that
June 30, 1998 is a "valuation date" under the Prior SPS Plan.
Each Participant is always 100 % vested in amounts credited to his or her
Accounts.
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Sec. 2.2 Base Salary. "Base Salary" means a Participant's annual salary
rate in effect from time to time during each Plan Year, unreduced for any salary
deferrals under any Company savings, incentive or other employee benefit plan.
Sec. 2.3 Beneficiary. "Beneficiary" means the person or persons designated
as such pursuant to the provisions of Sec. 5.4.
Sec. 2.4 Board. "Board" means the board of directors of the Company.
Sec. 2.5 Code. "Code" mean the Internal Revenue Code of 1986, as amended
from time to time, and any successor statute.
Sec. 2.6 Committee. "Committee" means the Compensation Committee of the
Board or any other committee appointed by the Board to administer the Plan.
However, no member of the Committee who is also a Participant in this Plan may
participate in or vote or any matter involving the Plan.
Sec. 2.7 Common Shares. "Common Shares" means shares of the Company's
common stock.
Sec. 2.8 Company Credits. "Company Credits" are the credits allocable to
the Participant's Nondirectable Stock Account pursuant to Sec. 4.2.
Sec. 2.9 Compensation. "Compensation" for a Plan Year means the
compensation to'. which the Participant is entitled from the Participating
Employers with respect to the Plan Year, including any Base Salary payable
during the Plan Year, any annual incentive bonus earned under the Company's
annual incentive plan for the Plan Year and payable in the following Plan Year,
and any cash or Company stock incentive bonus earned for the Plan Year under any
other plan that may be. established by the Company, if so permitted by the terms
of such plan (regardless of when paid).
Sec. 2.10 Disability. "Disability" means, for a period of up to 24
consecutive months, a Participant's inability as a result of an accident or
illness to perform the essential functions of the Participant's current position
or any position the Participant held within the 90 day 'period immediately prior
to such accident or illness, and at the end of said 24 month period, the
Participant is permanently unable to engage in any and every occupation or
business for compensation or profit for which the Participant is reasonably.
fitted by education, training or experience.
Sec. 2.11 ERISA. "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended from time to time, and any successor statute.
Sec. 2.12 Investment Credits. "Investment Credits" are the gains or losses
allocable to the Cash Accounts of a Participant under Sec. 4.3 based on the
investment indexes elected by the Participant, and adjustments for dividends and
other transactions to the Participant's Stock Accounts under Sec. 4.4 and Sec.
4.5.
Sec. 2.13 Participant. A "Participant" means any key manager of a
Participating Employer who is a Highly Compensated Employee as defined in Code
Section 414(q), who has been designated in writing by the Committee as eligible
for this Plan, and who does not participate in the New Century Energies Salary
Deferral and Supplemental Savings Plan for Executive Officers. For
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purposes of applying the $80,000 limit (as adjusted) under Code Section 414(q),
the Participant's compensation shall not include deferrals made under this Plan.
Sec. 2.14 Plan Year. A "Plan Year" is the 12-consecutive-month period
commencing on each January 1 and ending on the following December 3 1. However,
the first Plan Year of the Plan begins on July 1, 1998 and ends on December 31,
1998.
Sec. 2.15 Prior PSCo Plan. "Prior PSCo Plan" means the Public Service
Company of Colorado Executive Savings Plan, as in effect on June 30, 1998.
Sec. 2.16 Prior SPS Plan. "Prior SPS Plan" means the Southwestern Public
Service Company Non-Qualified Salary Deferral Plan, as in effect on June 30,
1998.
Sec. 2.17 Retirement. "Retirement" means termination of employment with a
Participating Employer after attaining age 62.
Sec. 2.18 Savings Plan. "Savings Plan" means the New Century Energies
Savings Plan, as it may be amended from time to time.
Sec. 2.19 Successor Employer. A "Successor Employer" is any entity that
succeeds to the business of the Company or another Participating Employer
through merger, consolidation, acquisition of all or substantially all of its
assets, or any other means and which elects before or within a reasonable time
after such succession, by appropriate action evidenced in writing, to continue
the Plan.
Sec. 2.20 Valuation Date. "Valuation Date" means each date on which the
Accounts of Participants are valued for purposes of this Plan. Valuation Dates
shall include the last day of each month and such other dates as the Committee
determines are necessary or advisable for the administration of the Plan.
ARTICLE III
PARTICIPATION
Sec.3.1 Eligibility for Participation. A Participant's eligibility under
this Plan shall be subject to the following:.
(a) The Participant will become eligible to elect to make deferrals under
Sec. 4.1 and to receive Company Credits under Sec. 4.2 effective as
of the date specified by the Committee in the written notice of
participation. However, deferrals will not commence under Sec. 4.1
until the effective date of an election filed pursuant to that
section.
(b) An employee who is designated as a Participant before the last
calendar quarter of a Plan Year may wait until the following year to
make deferrals of Compensation or may elect to make deferrals for the
partial Plan Year (for Compensation earned after the calendar quarter
of the election to defer), and in either case such Participant shall
be eligible for Company Credits under Section 4.2 for the partial
Plan Year, unless the Committee determines otherwise at the time the
employee is designated as a Participant.
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Sec. 3.2 Duration of Participation. An employee who becomes a Participant
shall continue to be eligible to make elections under Sec. 4.1 thereafter,
subject to the following:
(a) The Participant's deferrals shall cease on the earliest of
(1) The date the Participant terminates employment with the
Participating Employers.
(2) The date specified in a written notice issued by the Committee
revoking the individual's status as a Participant.
(3) The date the Participant fails to meet the requirements of any
regulations which may be issued by the Department of Labor that
define the phrase "select group of management or highly
compensated employees" under ERISA.
(b) An individual shall continue to be a Participant for purposes of the
provisions of the Plan other than Sec. 4.1 or See. 4.2 until the date
all of his or her Accounts have been distributed.
(c) If an employee who has elected to make deferrals under Sec. 4.1 for a
particular Plan Year is subsequently determined not to be eligible to
be a Participant for that Plan Year, the employee's deferral election
for that year will be canceled and any amounts which may have already
been deferred for that year will be promptly refunded to the
employee.
Sec. 3.3 No Guarantee of Employment. Participation in the Plan does not
constitute a guarantee or contract of employment with the Participating
Employers. Such participation shall in no way interfere with any rights the
Participating Employers would have in the absence of such participation to
determine the duration of the employee's employment.
ARTICLE IV
DEFERRED COMPENSATION AND CREDITS TO ACCOUNTS
Sec. 4.1 Election to Defer Compensation. An eligible Participant may elect
to have Compensation with respect to each Plan Year credited to his or her Cash
Account and/or Directable Stock Account rather than being paid in cash, subject
to any limitations that may be imposed by the Committee. Elections shall be made
on forms specified by the Committee for purposes of this Plan, and shall be
filed in the manner specified by the Committee. The Compensation for a Plan Year
of a Participant who elects deferrals under this section shall be reduced by the
percentage or amount so elected, subject to the following:
(a) Elections for each Plan Year must be filed during the election period
specified by the Committee for that Plan Year, which period must end
on or prior to December 31 of the previous year, subject to the
following:
(1) If an individual (other than a former Participant) is designated
as a Participant during a Plan Year, any election for that Plan
Year must be filed within 30 days after the date the Participant
received die notice of participation, and deferrals shall
commence as of the first day of the calendar quarter after the
election is received by the Committee. Such an election shall
apply to Base Salary payable during that Plan
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Year for payroll periods beginning on or after the first day of
said quarter and to any incentive compensation paid for that Plan
Year which is subject to a requirement that the individual remain
employed to a date that is on or after the first day of said
quarter.
(2) A former Participant who is again designated as a Participant may
not commence deferrals until January 1 of the Plan Year following
the designation of participation, and an election to defer for
such Plan Year must be made prior to said January 1.
(3) Except as provided in paragraph (4), elections for the Plan Year
commencing July 1, 1998 must be filed by June 30, 1998.
(4) Notwithstanding anything in this Plan to the contrary, if a
Participant was a participant in the Prior PSCo Plan or the Prior
SPS Plan on June 30, 1998, any election in effect under such
Prior Plan shall continue in effect for purposes of this Plan for
the 1998 Plan Year, and no new election shall be allowed under
this Plan for that Plan Year. Any such election under a Prior
Plan shall not apply to Compensation with respect to Plan Years
commencing after 1998.
(b) The Participant may elect to defer either (i) any whole percent (in 10
% increments) of Compensation payable with respect to the Plan Year,
or (ii) any percent or dollar amount of Compensation up to the amount
required for the Participant to receive the Company Credit under Sec.
4.2. However, the total deferrals during any Plan Year may not reduce
the Participant's Compensation payable during that Plan Year (after
deduction of the deferrals under this Plan) to less than the dollar
amount in effect for that Plan Year under Code Section 414(q)(1)(B)
($80,000 for 1998).
(c) The deferred compensation credited under this section on behalf of a
Participant shall be allocated to the Participant's Cash Account
and/or Directable Stock Account (as elected by the Participant) as of
the date that the Compensation would otherwise have been paid to the
Participant in cash. Ile amount of Common Shares to be allocated to a
Directable Stock Account shall be determined by dividing the credit by
the average of the high and low sales prices of a Common Share-on the
New York Stock Exchange on the business day proceeding the date the
credit is made.
(d) The Participant must file a separate deferral election for each
Plan Year with respect to which deferrals are to be made under this
Plan. An election for a Plan Year shall become irrevocable on the
first day of that year, subject to subsection (e). Elections will not
carry over into subsequent Plan Years. However, an election for a
particular Plan Year shall apply to all Compensation with respect to
that Plan Year, including incentive bonuses or other amounts earned
during that year but paid in subsequent Plan Years.
(e) Notwithstanding the foregoing provisions of this section:
(1) All deferrals by a Participant shall cease as of (i) the date the
Participant receives a hardship withdrawal under any qualified
defined contribution plan subject to Code Section 401(k)
maintained by the Company or any of its affiliates which requires
that deferrals be suspended for a certain period of Lime
following such withdrawal, or (ii) the date the Participant
receives a withdrawal from this Plan for severe financial
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hardship due to an unforeseeable emergency under Sec. 5.5.
Deferrals under this section may not recommence until the first
day of the second Plan Year beginning after the date deferrals
ceased under the previous sentence, and no further deferrals
shall be made from Compensation with respect to Plan Years prior
to said second Plan Year.
(2) The Committee may in its sole discretion cancel a Participant's
deferral election for the current Plan Year (and for Compensation
not yet paid with respect to any previous Plan Years) upon the
request of a Participant if the Committee determines that an
event has occurred which would make the Participant eligible for
a withdrawal for severe financial hardship due to an
unforeseeable emergency under Sec. 5.5. Deferrals under this
section may not recommence until the first day of the second Plan
Year beginning after the date deferrals ceased under the previous
sentence, and no further deferrals shall be made from
Compensation with respect to Plan Years prior to said second Plan
Year. The Participant may request that deferrals cease under this
paragraph whether or not the Participant requests a withdrawal
under Sec. 5.5.
Sec. 4.2 Company Credits. Subject to the Committee's discretion, the
Nondirectable Stock Account of each eligible Participant will be credited for
each Plan Year with a Company Credit representing a number of Common Shares,
determined as follows:
(a) The Company Credit for a Plan Year will be equal to the amount
determined under paragraph (1) minus the amount determined under
paragraph (2), with the result divided by the amount determined under
paragraph (3), and with the result then rounded to four decimal
places, as follows:
(1) A dollar amount equal to 50 % of the smaller of (i) the sum of
the amount of Base. Salary the Participant deferred under this
Plan for the Plan Year and the Participant's pre-tax
contributions to the Savings Plan for the Plan Year, or (h) 8 %
of the Participant's "compensation" for the Plan Year recognized
by the Savings Plan for purposes of determining matching
contributions. under that Plan (but disregarding the limit on
such compensation under Code Section 401(a)(17));
(2) The dollar amount of matching contributions actually made to the
Savings Plan for the Participant for the Plan Year; divided by
(3) The average of the high and low sale prices of a Common Share on
the New York Stock Exchange on the business day preceding the
date the matching contribution is made to the Savings Plan.
(b) Notwithstanding subsection (a), a Participant will receive the
Company Credit for a Plan Year only if the Participant participates
in the Savings Plan and makes the maximum dollar amount of pre-tax
contribution permitted by the Savings Plan for that year.
(c) The Company Credit for an eligible Participant for a Plan Year will
be allocated to the Participant's Nondirectable Stock Account on the
date the matching contribution for such Plan Year is (or would be)
made under the Savings Plan.
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(d) Each Participant's Nondirectable Stock Account shall also be credited
with any Common Shares deferred under any annual incentive plan, or
other plan that may be established by the Company, for that portion
of the award which is otherwise payable in Common Shares. Such credit
shall occur as of the date such shares would otherwise have been
distributed to the Participant.
(e) Notwithstanding the foregoing, the Company Credits for the period
from July I to December 31, 1998 under this Section will be based
only on compensation and contributions during that period.
Sec. 4.3 Investment Credits and Valuation of Accounts. The Accounts of each
Participant will be adjusted as of each Valuation Date to reflect Investment
Credits, deferrals allocated to the Account under Sec. 4. 1, Company Credits
allocated under Sec. 4.2, credits to Stock Accounts under Sec. 4.4, adjustments
of Stock Accounts under Sec. 4.5, and distributions from Accounts under Article
V, since the previous Valuation Date, subject to the following:
(a) Investment Credits on each Cash Account will be based on the
investment index or indexes selected by the Participant to measure
the deemed rate of investment return on his or her Account The
investment indexes will be the same as the investment options under
the Savings Plan (except the NCE Stock Fund), and such other
investment options as the Committee makes available under this Plan
from time to time.
(b) A Participant may file separate investment elections for the existing
Cash Account balance and for future amounts to be credited to the
Participant's Cash Account and/or Directable Stock Account. The
Participant may also elect to have amounts transferred between his or
her Cash Account and Directable Stock Account. The amount of Common
Shares to be credited upon a transfer into a Directable Stock Account
shall be determined as provided in Sec. 4. 1 (c).
(c) All investment elections shall be in accordance with such rules and
regulations as the Committee may establish from time to time. The
Committee may also establish such procedures for the valuation of
Accounts as the Committee determines in its sole discretion will
reasonably reflect the period of time amounts were credited to each
Account.
(d) Notwithstanding the foregoing, the Committee may modify or disregard
an investment election filed by a Participant to the extent the
Committee determines that such action is necessary to comply with the
terms of this Plan or to avoid adverse tax consequences to the
Participant or the Participating Employers.
(e) Notwithstanding anything in the Plan to the contrary, the
Participating Employers shall be under no obligation to purchase any
investments used for determining Investment Credits or to purchase
Common Shares. The investment indexes and Common Shares are used
solely for the recordkeeping purpose of measuring gains and losses on
each Participant's Accounts, and the Participant's Accounts are not
actually being invested in the indexes or in Common Shares.
Sec. 4.4 Dividends on Common Shares. Each Participant's Stock Accounts
shall be credited as of each dividend payment date for Common Shares with that
number of shares obtained by dividing:
-8-
<PAGE>
(a) the amount of any dividends that would be payable on the number of
shares (including fractional shares, carried out to four decimal
places) credited to each Stock Account of such Participant as of the
record date for payment of such dividend, by
(b) the average of the high and low sale price of a Common Share on the
New York Stock Exchange on the day preceding the date of such
dividend payment.
Sec. 4.5 Adjustment of Stock Accounts for Splits, Dividends, Etc In the
event of any change in the outstanding Common Shares of the Company by reason of
any share dividend or split, recapitalization, merger, consolidation, spin-off,
reorganization, combination or exchange of Common Shares or other similar
corporate change, the Committee shall make appropriate adjustment in the number
of the Common Shares in the Participants' Stock Accounts.
ARTICLE V
DISTRIBUTION OF ACCOUNTS
Sec. 5.1 Time for Distribution. Except as provided in Sec. 5.5 and the last
paragraph of this Section, all Account balances shall be distributed to the
Participant or Beneficiary within 30 days after the earliest to occur of
(a) The Participant's Retirement,
(b) The date the Participant is determined by the Committee to have
incurred a Disability.
(c) The date of the Participant's death.
(d) Any other termination of the Participant's employment with the
Participating Employers.
However, any Company Credit for the final partial Plan Year of participation
shall be distributed at the time it it credited to the Participant's
Nondirectable Stock Account.
Sec. 5.2 Manner of Payment. The balance in a Participant's Cash Account and
the value of whole and fractional shares in the Participant's Stock Accounts
shall be paid in cash in a single lump sum payment.
Sec. 5.3 Amount of Payment. The amount of cash to be distributed to a
Participant with respect to the Participant's Cash Account shall be the balance
of such account as of the end of the month prior to the distribution. The amount
of cash to be distributed to a Participant with respect to the Participant's
Stock Accounts shall be the number of shares credited to such Accounts as of the
end of the month prior to the distribution multiplied by the average of the high
and low sales price of a Common Share on the New York Stock Exchange on the last
trading day of the month prior to the distribution.
Sec. 5.4 Beneficiary Designation. Each Participant shall have the right, at
any time, to designate any person or persons as Beneficiary or Beneficiaries to
whom payments under this Plan shall be made in the event of the Participant's
death prior to complete distribution of the amount credited to the Participant's
Accounts. Each Participant shall have the right to change his or her Beneficiary
-9-
<PAGE>
designation at any time. Each Beneficiary designation shall become effective
only when filed in writing with the Committee during the Participant's life on a
form prescribed by the Committee. The rights of each Beneficiary shall be
subject to the terms and conditions specified on the designation form to the
extent consistent with the terms of the Plan. If a Participant fails to
designate a Beneficiary as provided above, or if all designated Beneficiaries
predecease the Participant, then the Beneficiary shall be the Participant's
estate.
Sec. 5.5 Distributions for Severe Financial Hardship. Notwithstanding the
foregoing sections of this Article V, the Committee in its sole discretion may
approve a request by a Participant for a withdrawal from the Participant's
deferred amounts due to an unforeseeable emergency. An "unforeseeable emergency"
is severe financial hardship to the Participant resulting from a sudden and
unexpected illness or accident of the Participant or of a dependent (as defined
in Code Sec. 152(a) of the Participant, loss of the Participant's property due
to casualty, or other similar extraordinary and unforeseeable circumstances
caused by an event beyond the control of the Participant. Unforeseeable
emergencies specifically do not include- the need to pay for education of a
Participant's child or the desire to purchase a home. Any such early withdrawal
approved by the Committee may not exceed the amount reasonably necessary to meet
the emergency. Payment may not be made to the ixtent that such hardship is or
may be relieved by any of the following means:
(a) Through reimbursement or compensation by insurance or otherwise.
(b) By liquidation of the Participant's assets, to the extent the
liquidation of such assets would not itself cause severe financial
hardship.
(c) By cessation of deferrals under the Plan.
Sec. 5.6 Modification of Elections for Tax Considerations. Notwithstanding
anything to the contrary in the foregoing sections of this Article V or in any
election filed by a Participant:
(a) If the Committee determines, based on advice of legal counsel or a
final determination by the Internal Revenue Service or a court of
competent jurisdiction, that a Participant or Beneficiary may be held
to be in constructive receipt of benefits under this Plan and
required to recognize such, benefit immediately or retroactively for
income tax purposes, the Committee may in its sole discretion take
either of the following actions:
(1) Distribute the entire affected benefit in a single lump sum as
soon as administratively feasible.
(2) Take written action modifying the Participant's election and/or
the terms of the Plan (retroactively, if necessary) in a manner
that will eliminate the allegation of constructive receipt while
at the same time carrying out the Participant's original intent
to the extent possible.
(b) The Committee may postpone any payment to be made to a Participant or
Beneficiary until a subsequent fiscal year of the Participating
Employers to the extent the Committee determines to be necessary in
order to avoid the loss of an income tax deduction under Code Section
162(m).
-10-
<PAGE>
Sec. 5.7 Withholding and Taxes. The benefits payable under this Plan shall
be subject to the deduction of any federal, state, or local income taxes or
other taxes which are required to be withheld from such payments by applicable
laws and regulations. Any Social Security (FICA) taxes which must be withheld
prior to the distribution of benefits to the Participant shall be withheld from
the amounts deferred, or from the Participant's other compensation, as
determined by the Committee. The Participating Employers provide no assurances
or guarantees regarding the tax treatment of amounts deferred or payments made
under this Plan. Each Participant is solely responsible for any applicable
income, excise and other taxes, penalties or interest (including any excise tax
under Code Section 4999)
ARTICLE VI
ADMINISTRATION
Sec. 6.1 Administration by the Committee. The Committee shall administer
the Plan, shall establish, adopt, or revise such rules and regulations as it may
deem necessary or advisable for the administration of the Plan, and shall have
discretionary authority to interpret the provision of the Plan. The
interpretations of the Committee shall be conclusive on all parties.
Sec. 6.2 Claims Procedure. A Participant or Beneficiary may make a claim
for Plan benefits by filing a written request with the Committee. The claim
shall be determined by the Committee within 90 days after the receipt of the
written claim (unless the Committee extends the period for up to an additional
90 days).
(a) Notice of the Committee's decision shall be communicated to the
claimant in writing. If the claim is denied, the notice shall include
the specific reasons for the denial (including reference to pertinent
Plan provisions), a description of any additional material or
information necessary for the Committee to reconsider the claim, the
reasons for any of such additional material or information, and an
explanation of the review procedure.
(b) The claimant or duly authorized representative may, within 60 days
after receiving such written notice, request in writing that the
Committee review its decision. The Committee may afford the claimant a
hearing and shall afford the claimant the opportunity to review all
pertinent documents and submit issues and comments orally or in
writing. The Committee shall render a review decision in writing
within 60 days after receipt of request for review (unless the
Committee extends the review period for up to an additional 60 days).
The review proceeding shall be conducted in accordance with the rules
and regulations adopted from time to time by the Committee.
-11-
<PAGE>
ARTICLE VII
AMENDMENT AND TERMINATION
Sec. 7.1 Amendment. The Plan may be amended in whole or in part at any
time for any reason by action of the Board, or by action of any person to whom
that authority has been delegated by the Board. No amendment shall decrease the
benefits under the Plan which have accrued prior to the date such amendment is
adopted, but may modify future Investment Credits to Accounts or the deemed
investments of Accounts in periods following the amendment.
Sec. 7.2 'Termination of Plan. The Company, by action of the Board, may
terminate the Plan at any time. After such termination, no employee shall become
a Participant, and no further amounts shall be credited pursuant to Sec. 4.1 or
Sec. 4.2 to Accounts of Participants. At the discretion of the Company, the
amounts credited to the Accounts of Participants may be either (i) distributed
to Participants as of a date determined by die Company which is after the date
of termination based on values determined as of the last day of the month
preceding- the distribution, or (ii) distributed in accordance with Article V.
ARTICLE VIII
MISCELLANEOUS
Sec. 8.1 Unsecured Obligations. A Participant's credits in his or her
Accounts shall be an unsecured obligation of the Participating Employers to pay
the Participant (or the Participant's Beneficiary, in the event of the
Participant's death) the actual amount of the credits at the time designated in
Article V. Each Participant or Beneficiary is only a general creditor of the
Participating Employers with respect to his or her Accounts. Accounts are
maintained for recordkeeping purposes only. Notwithstanding the foregoing,
obligations to pay benefits under this Plan may be satisfied by distributions
from a grantor trust created by the Company in its sole discretion for such
purpose. Each Participant shall cooperate with the Committee and shall execute
any documents or submit to any physical examination reasonably required by the
Committee in connection with the administration of the Plan.
Sec. 8.2 Benefits May Not Be Assigned or Alienated. Neither a Participant
nor any Beneficiary shall have the right to sell, assign, transfer, encumber or
otherwise convey any right to receive any payment hereunder. No part of the
amounts payable hereunder shall be subject to seizure or sequestration for the
payment of any debts or judgments owed by a Participant or any other person.
However, the Committee may offset the obligations to the Participant or the
Participant's Beneficiary hereunder by any amounts the Participant owes to the
Participating Employers, provided that such amounts owed by the Participant are
not related in any way to the benefits payable under this Plan and were not
incurred in anticipation of the benefits to which the Participant may become
entitled hereunder.
Sec. 8.3 Incompetency Every person receiving or claiming benefits under
this Plan shall be conclusively presumed to be mentally competent until the date
on which the Committee receives a written notice in a form and manner acceptable
to the Committee that such person is incompetent and that a guardian,
conservator or other person legally vested with the care of his or her estate
has been appointed. In such event, the Committee may direct payments of benefits
to such guardian,
-12-
<PAGE>
conservator or other person legally vested with the care of the person's estate
and any such payments so made shall be a complete discharge of the Participating
Employers to the extent so made.
Sec. 8.4 Notices. Notices required by this Plan to be given to the
Committee or a Participant shall be in writing and shall be considered to have
been duly given or served if personally delivered, or sent by first class,
certified or registered mail.
Sec. 8.5 Severability. The invalidity or partial invalidity of any portion
of this Plan shall not invalidate the remainder thereof, and said remainder
shall remain in full force and effect.
Sec. 8.6 Headings. Headings at the beginning of articles and sections
hereof are for convenience of reference, shall not be considered a part of the
text of the Plan, and shall not influence its construction.
Sec. 8.7 Capitalized Definitions. Capitalized terms used in the Plan shall
have their meaning as defined in the Plan unless the context clearly indicates
to the contrary.
Sec. 8.8 Gender. Any references to the masculine gender include the
feminine and vice versa.
Sec. 8.9 Use of Compounds of Word "Here". Use of the words "hereof,
"herein", "hereunder", or similar compounds of the word "here" shall mean and
refer to the entire Plan unless the context clearly indicates to the contrary.
Sec. 8.10 Construed as a Whole. The provision's of the Plan shall be
construed as a whole in such manner as to carry out the provisions hereof and
shall not be construed separately without relation to the context.
IN WITNESS VVHEREOF, the Company has caused this Plan to be executed by
its duly authorized officer this 3rd day of August, 1998.
NEW CENTURY ENERGIES, INC.
By: /s/ Bill D. Helton
-----------------------
Its Chief Executive Officer
-13-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW CENTURY
ENERGIES, INC. CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND
CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE YEAR ENDED DECEMBER 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<PERIOD-END> DEC-31-1998
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<TOTAL-NET-UTILITY-PLANT> 5,882,023
<OTHER-PROPERTY-AND-INVEST> 405,436
<TOTAL-CURRENT-ASSETS> 802,557
<TOTAL-DEFERRED-CHARGES> 581,948
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<TOTAL-ASSETS> 7,671,964
<COMMON> 114,491
<CAPITAL-SURPLUS-PAID-IN> 1,751,895
<RETAINED-EARNINGS> 740,677
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,614,827
294,000
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<LONG-TERM-DEBT-NET> 2,169,954
<SHORT-TERM-NOTES> 36,438
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 487,956
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<CAPITAL-LEASE-OBLIGATIONS> 35,591
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<GROSS-OPERATING-REVENUE> 3,610,905
<INCOME-TAX-EXPENSE> 135,596
<OTHER-OPERATING-EXPENSES> 2,960,404
<TOTAL-OPERATING-EXPENSES> 2,960,404
<OPERATING-INCOME-LOSS> 650,501
<OTHER-INCOME-NET> 31,851
<INCOME-BEFORE-INTEREST-EXPEN> 682,352
<TOTAL-INTEREST-EXPENSE> 199,467
<NET-INCOME> 341,957
5,332
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 260,330
<TOTAL-INTEREST-ON-BONDS> 185,745
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PUBLIC
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<TOTAL-ASSETS> 5,177,636
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<CAPITAL-SURPLUS-PAID-IN> 1,302,119
<RETAINED-EARNINGS> 325,213
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,627,332
194,000
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<LONG-TERM-DEBT-NET> 1,607,604
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<COMMERCIAL-PAPER-OBLIGATIONS> 402,795
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<CAPITAL-LEASE-OBLIGATIONS> 35,526
<LEASES-CURRENT> 4,030
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,265,898
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<TOTAL-OPERATING-EXPENSES> 1,952,068
<OPERATING-INCOME-LOSS> 332,018
<OTHER-INCOME-NET> 6,399
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5,332
<EARNINGS-AVAILABLE-FOR-COMM> 194,771
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<LONG-TERM-DEBT-NET> 530,618
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