UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
___________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(X) COMBINED ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
TNP ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Texas 4100 International Plaza, P. O. Box 2943, Commission File
(State of Fort Worth, Texas 76113 Number: 1-8847
incorporation) (Address and zip code of principal
executive offices)
Telephone number, including area code: 817-731-0099 75-1907501
(I.R.S. employer
identification no.)
Securities registered pursuant to Section 12(b) of the Act:
Shares Outstanding Name of each exchange
Title of each class on January 31, 1997 on which registered
Common stock, no par value 13,011,454 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes\X\ No\ \
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 registrant's 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\
The aggregate market value of TNP Enterprises, Inc. common stock held by
nonaffiliates on January 31, 1997, was $355,560,068 based on the common stock's
closing price on the New York Stock Exchange on the same date of $27.50 per
share.
TEXAS-NEW MEXICO POWER COMPANY
(Exact name of registrant as specified in its charter)
Texas 4100 International Plaza, P. O. Box 2943, Commission File
(State of Fort Worth, Texas 76113 Number: 2-97230
incorporation) (Address and zip code of principal
executive offices)
Telephone number, including area code: 817-731-0099 75-0204070
(I.R.S. employer
identification no.)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
First mortgage bonds: Series M, 8.7% due 2006; Series T,
11.25% due 1997; and
Series U, 9.25% due 2000 None
Secured debentures: 12.5% due 1999; Series A,
10.75% due 2003 None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes\X\ No\ \
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 registrant's 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\
TNP Enterprises, Inc. holds all 10,705 outstanding common shares of Texas-New
Mexico Power Company.
________________________________________________________________________________
DOCUMENTS INCORPORATED BY REFERENCE
Document Part Where Incorporated
Proxy Statement for 1997 Annual Meeting of Holders of
TNP Enterprises, Inc. Common Stock III
<PAGE>
TNP ENTERPRISES INC. AND SUBSIDIARIES
TEXAS NEW-MEXICO POWER COMPANY AND SUBSIDIARIES
Combined Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1996
This combined annual report on Form 10-K is filed separately by TNP
Enterprises, Inc. and Texas-New Mexico Power Company. Information contained in
this report relating to Texas-New Mexico Power Company is filed by TNP
Enterprises, Inc. and separately by Texas-New Mexico Power Company on its own
behalf. Texas-New Mexico Power Company makes no representation as to information
relating to TNP Enterprises, Inc. or to any other affiliate or subsidiary of TNP
Enterprises, Inc., except as it may relate to Texas-New Mexico Power Company.
TABLE OF CONTENTS
Glossary of Terms.......................................................... 3
Part I
Item 1. BUSINESS......................................................... 4
Introduction..................................................... 4
TNP's Service Areas.............................................. 4
Seasonality of Business.......................................... 5
Sources of Energy................................................ 5
Government Regulation............................................ 6
Employees and Executive Officers................................. 6
Item 2. PROPERTIES....................................................... 7
Administrative and Service Facilities............................ 7
Generating Facilities............................................ 8
Transmission and Distribution Facilities......................... 8
Item 3. LEGAL PROCEEDINGS................................................ 8
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 8
Part II
Item 5. MARKET FOR REGISTRANTS' COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.................................. 8
Item 6. SELECTED FINANCIAL DATA.......................................... 9
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................. 11
Competitive Conditions........................................... 11
Results of Operations............................................ 12
Liquidity and Capital Resources.................................. 15
Other Matters.................................................... 16
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................... 17
TNP Enterprises, Inc. and Subsidiaries........................... 19
Texas-New Mexico Power Company and Subsidiaries.................. 24
Notes to Consolidated Financial Statements....................... 29
Selected Quarterly Consolidated Financial Data................... 40
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.............................. 40
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............... 41
Directors........................................................ 41
Executive Officers............................................... 41
Item 11. EXECUTIVE COMPENSATION........................................... 41
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT... 41
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 41
Part IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.. 41
<PAGE>
TNP ENTERPRISES INC. AND SUBSIDIARIES
TEXAS NEW-MEXICO POWER COMPANY AND SUBSIDIARIES
Combined Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1996
Glossary of Terms
As used in this combined report, the following abbreviations, acronyms, or
capitalized terms have the meanings set forth below:
Abbreviation, Acronym,
or Capitalized Term Meaning
AFUDC ................Allowance for borrowed funds used during construction
Bond Indenture .......Document pursuant to which FMBs are issued
EPS...................Earnings (loss) per share of common stock
Facility Works........Facility Works, Inc., a wholly owned subsidiary of TNPE,
formerly known as Community Public Service Company
FERC..................Federal Energy Regulatory Commission
FMB(s)................One or more First Mortgage Bonds issued by TNP
GWH...................Gigawatt-Hours
IRS...................Internal Revenue Service
ITC...................Investment Tax Credits
KWH...................Kilowatt-Hours
MW....................Megawatts
MWH...................Megawatt-Hours
NMPUC.................New Mexico Public Utility Commission
PPM...................PPM America, Inc.
PUCT..................Public Utility Commission of Texas
SPS...................Southwestern Public Service Company
SFAS..................Statement of Financial Accounting Standards
TEP...................Tucson Electric Power Company
TGC...................Texas Generating Company, a wholly owned subsidiary of TNP
TGC II................Texas Generating Company II, a wholly owned subsidiary of
TNP
TNP One...............A two-unit, lignite-fueled, circulating fluidized-bed
generating plant located in Robertson County, Texas
TNP...................Texas-New Mexico Power Company, a wholly owned subsidiary
of TNPE
TNPE..................TNP Enterprises, Inc.
TU....................Texas Utilities Electric Company
Unit 1................The first completed electric generating unit of TNP One
Unit 2................The second completed electric generating unit of TNP One
Statement Regarding Forward Looking Information
The discussions in this document that are not historical facts, including,
but not limited to, statements regarding TNPE and TNP's business strategy,
projected sources and uses of cash, and projected operations, are based upon
current expectations. Actual results may differ materially. Among the facts that
could cause the results to differ materially are the following: changes in
regulations; results of regulatory proceedings; future acquisitions or strategic
partnerships; general business and economic conditions; and other factors
described from time to time in TNPE and TNP's reports filed with the Securities
and Exchange Commission. TNPE and TNP wish to caution readers not to place undue
reliance on any such forward-looking statements, which are made pursuant to the
Private Securities Litigation Reform Act of 1995 and, as such, speak only as of
the date made.
<PAGE>
PART I
Item 1. BUSINESS.
Introduction
TNPE was organized as a holding company in 1983 and currently transacts
business through its subsidiaries. TNP is a public utility engaged in
generating, purchasing, transmitting, distributing, and selling electricity to
customers in Texas and New Mexico. TNP's original predecessor was organized in
1925. TNP has two subsidiaries, TGC and TGC II, both of which were organized to
facilitate TNP's acquisitions of TNP One, Unit 1 and Unit 2 in 1990 and 1991,
respectively.
Facility Works is a wholly owned subsidiary of TNPE that began operations
in early 1996. Facility Works provides energy and utility related facility
services to commercial and institutional customers in mostly nonmetropolitan
areas. Facility Works provides lighting and electrical services; heating,
cooling and power-related services; and energy-management services.
TNPE, TNP, TGC, TGC II and Facility Works are all Texas corporations. Their
executive offices are located at 4100 International Plaza, P.O. Box 2943, Fort
Worth, Texas 76113 and their telephone number is (817) 731-0099. Unless
otherwise indicated, all financial information in this report is presented on a
consolidated basis.
TNP's Service Areas
TNP provides electric service to 85 Texas and New Mexico municipalities and
adjacent rural areas with more than 218,000 customers. TNP's ser vice areas are
organized into three operating regions: the Gulf Coast Region, the North-Central
Region, and the Mountain Region.
Gulf Coast Region
The Gulf Coast Region includes the area along the Texas Gulf Coast between
Houston and Galveston. The oil and petrochemical industries, agricultural
industry and general commercial activity in the Houston area support the economy
of this area.
North-Central Region
The North-Central Region extends from Lewisville, Texas, which is north of
Dallas-Fort Worth International Airport, to municipalities along the Red River.
TNP provides electric service to a variety of commercial, agricultural and
petroleum industry customers in this area. This region also includes
municipalities and communities south and west of Fort Worth. This area's economy
depends largely on agriculture and, to a lesser extent, tourism and oil
production. The North-Central Region previously included service territory in a
portion of the Texas Panhandle that TNP sold in September 1995.
Mountain Region
The Mountain Region includes areas in southwest and south-central New
Mexico. This region's economy is primarily dependent upon mining and
agriculture. Copper mines are the major industrial customers in this region.
This region also includes the area in far west Texas between Midland and El
Paso. The economy in this area is based primarily on oil and gas production,
agriculture, and food processing.
TNP's sales in all regions are primarily to retail customers. Revenues
contributed by each operating region and its percentage of total operating
revenues in 1996, 1995, and 1994, respectively, are set forth in the following
table. No single customer accounted for more than 10% of operating revenues
during the years presented in the table.
<TABLE>
<CAPTION>
Operating Revenues ($000's)
Region 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Gulf Coast $ 269,535 53.6% $ 250,165 51.5% $ 241,285 50.5%
North-Central 134,236 26.7 130,200 26.8 122,945 25.7
Panhandle - - 7,322 1.5 9,650 2.0
Mountain 98,966 19.7 98,136 20.2 104,109 21.8
Total $ 502,737 100.0% $ 485,823 100.0% $ 477,989 100.0%
</TABLE>
<PAGE>
Franchises and Certificates of Public Convenience and Necessity
TNP holds 83 franchises with terms ranging from 20 to 50 years and two
franchises with indefinite terms from the 85 municipalities to which it provides
electric service. These franchises will expire on various dates from 1997 to
2039. Three Texas franchises, comprising 23% of total company revenues, are
scheduled to expire in 1997, 1998 and 1999. However, Texas law does not require
an electric utility to execute a franchise agreement with a Texas municipality
to be entitled to provide or continue to provide electrical service within the
municipality. A franchise agreement documents the mutually agreeable terms under
which the service will be provided. TNP intends to negotiate and execute new or
amended franchise agreements to be effective before existing franchises expire.
TNP also holds PUCT certificates of public convenience and necessity
covering all Texas areas that TNP serves. These certificates include terms that
are customary in the public utility industry. TNP generally has not been
required to have certificates of public convenience and necessity to provide
electric power in New Mexico.
Seasonality of Business
TNP experiences increased sales and operating revenues during the summer
months as a result of increased air conditioner usage in hot weather. In 1996,
approximately 41% of annual revenues were recorded in June, July, August, and
September.
Sources of Energy
TNP owns one 300 MW lignite-fueled generating facility, TNP One. During
1996, TNP One provided approximately 28% of TNP's total energy requirements.
Power generated at TNP One is transmitted over TNP's own transmission lines to
other utilities' transmission systems for delivery to TNP's Texas service area
systems. To maintain a reliable power supply for its customers and to coordinate
interconnected operations, TNP is a member of the Electric Reliability Council
of Texas and the Western Systems Coordinating Council.
TNP purchases the remainder of its electricity from various suppliers with
diversified fuel sources. During 1996, approximately 80% of the purchases of
power were made under firm contracts, while 20% was purchased through short-term
spot market purchases. The availability and cost of purchased power to TNP is
subject to changes in supplier costs, regulations and laws, fuel costs, and
other factors. TNP is pursuing various opportunities to reduce purchased power
costs.
The following table sets forth certain information concerning TNP's sources
of electric energy in 1996.
Year Contract Percent of
Expires Energy Provided
TEXAS
Generation
TNP One.................................... - 35%
Purchased Power
Texas Utilities (1)........................ 1999 24
Clear Lake Cogeneration L.P................ 2004 17
Other (primarily co-generators)............ Various 24
Total 100%
NEW MEXICO
Purchased Power
Public Service Co. of New Mexico(2) (3).... 1999 7%
El Paso Electric Co.(3).................... 2002 13
Southwest Public Service Co. (3)........... 2001 7
Other (primarily short-term contracts) (4). - 73
Total 100%
(1) TNP has notified TU of its intent to cease purchasing full
requirements power and energy effective January 1, 1999, as
described in Note 12.
(2) TNP has notified PNM of its intent to cease purchasing full
requirements power and energy effective January 1, 1999 under an
existing agreement. TNP continues to purchase power from
PNM under both old and newly executed agreements.
(3) These suppliers may not terminate service to TNP without FERC
authorization.
(4) Suppliers under the short-term contracts include Tucson Electric
Power Co., Public Service Co. of New Mexico, El Paso Electric Co.
and Southwest Public Service Co.
Management believes that current supply arrangements and available
capacities on the wholesale market are adequate to satisfy TNP's foreseeable
power requirements.
Recovering Purchased Power and Fuel Costs
Purchased power is recovered from TNP customers through power cost recovery
adjustment clauses authorized by the PUCT and NMPUC. These clauses enable TNP to
recover this significant component of operating expenses within two months of
billing by its suppliers.
Fuel costs are recovered from TNP's Texas customers through a fixed fuel
recovery factor approved by the PUCT. The fixed fuel recovery factor is
described at Item 7, "Pass-Through Expenses--Fuel," which is incorporated here
by reference.
Government Regulation
TNP is subject to PUCT and NMPUC regulation. Some of its activities, such
as issuing securities, are also subject to FERC regulation. Recent regulatory
developments are changing competitive conditions in the electric utility
industry. These changes are discussed in Item 7, "Competitive Conditions," which
is incorporated here by reference.
In addition to regulation as a utility, TNP's facilities are regulated by
the Environmental Protection Agency and Texas and New Mexico environmental
agencies. TNP One uses environmentally superior circulating fluidized bed
technology that eliminates the need for expensive scrubbers. TNP was allotted
sufficient emission allowances to comply with the Clean Air Act of 1990 through
the year 2000. During 1996, 1995, and 1994, TNP incurred expenses related to
air, water, and solid waste pollution abatement (including ash removal) of
approximately $6.1 million, $5.5 million, and $5.9 million, respectively.
Employees And Executive Officers
At December 31, 1996, TNP had 819 employees and Facility Works had 116
employees. The employees are not represented by a union or covered by a
collective bargaining agreement. Management believes relations with its
employees are good.
Executive officers of TNPE and TNP, who are elected annually by the
respective boards of directors and serve at the discretion of the boards, are as
follows:
Name Age Position with TNPE
Kevern R. Joyce 50 Chairman, President, & Chief Executive Officer
Jack V. Chambers, Jr. 47 Senior Vice President
John P. Edwards 54 Senior Vice President
Manjit S. Cheema 42 Vice President & Chief Financial Officer
Ralph Johnson 53 Vice President
John A. Montgomery 35 Vice President
Michael D. Blanchard 46 Corporate Secretary & General Counsel
Patrick L. Bridges 38 Treasurer
Name Age Position with TNP
Kevern R. Joyce 50 Chairman, President, & Chief Executive Officer
Jack V. Chambers, Jr. 47 Senior Vice President & Chief Customer Officer
Manjit S. Cheema 42 Senior Vice President & Chief Financial Officer
John P. Edwards 54 Senior Vice President - Corporate Relations
Ralph Johnson 53 Senior Vice President - Power Resources
Dennis R. Cash 43 Vice President - Human Resources
Allan B. Davis 59 Vice President & Regional Customer Officer
Melissa D. Davis 39 Vice President & Regional Customer Officer
Larry W. Dillon 42 Vice President & Regional Customer Officer
W. Douglas Hobbs 53 Vice President - Business Development
Michael D. Blanchard 46 Corporate Secretary & General Counsel
Patrick L. Bridges 38 Treasurer
Scott Forbes 39 Controller
Kevern R. Joyce joined TNPE and TNP in April 1994 as President and Chief
Executive Officer. He became Chairman in April 1995. From 1992 until April 1994,
Mr. Joyce served as Senior Vice President and Chief Operating Officer of TEP.
Jack V. Chambers has served as Senior Vice President and Chief Customer
Officer of TNP since 1994. He was TNP's Sector Vice President - Revenue
Production from 1990 to 1994.
John P. Edwards joined TNP and TNPE in July 1996 as Senior Vice President -
Corporate Relations. From October 1994 until joining TNP and TNPE he was Senior
Vice President/Customer Group and Special Assistant to the Chief Operating
Officer, Tennessee Valley Authority. His primary responsibilities were general
administrative in nature for TVA's transmission operations, customer
relationship, rate and regulatory affairs. From July 1990 until October 1994, he
was President/CEO of Old Dominion Electric Cooperative and
Virginia-Maryland-Delaware Association of Electric Cooperatives.
Manjit S. Cheema joined TNP in June 1994. He was Treasurer of TNP from June
1994 until September 1995. In December 1994, he became Vice President & Chief
Financial Officer of TNPE and TNP, and in July 1996, he became Senior Vice
President & Chief Financial Officer of TNP. From March 1990 until he joined TNPE
and TNP, Mr. Cheema was Assistant Treasurer and Manager of Financial Planning
and Budgeting for TEP.
Ralph Johnson joined TNP and TNPE as Vice President in February 1995. In
July 1996, he was named Senior Vice President - Power Resources. From March 1991
until he joined TNP and TNPE, Mr. Johnson was Assistant General Manager for
Tri-State Generation and Transmission Association in Denver, Colorado, which
sells power to rural electric cooperatives.
John A. Montgomery became President of Facility Works in April 1996. From
December 1995 to December 1996 he served as TNP's Vice President - Marketing. He
became Vice President of TNPE in April 1996. From February 1994 until he joined
TNP, he served as Director of Marketing and Regional Marketing Director of
Greyhound Lines, Inc., a bus transportation company. From August 1990 to
February 1994, Mr. Montgomery was President of Viva Brands International, Inc.,
a tropical fruit beverage company that he founded.
Michael D. Blanchard has been Corporate Secretary and General Counsel of
TNP and TNPE since 1987.
Patrick L. Bridges was appointed Treasurer of TNPE and TNP in September
1995. He served as TNP's Director - Finance from 1994 to September 1995,
Assistant Treasurer from 1993 to September 1995, Manager - Revenue Accounting
during 1993, and Manager - Forecasting from 1990 to 1993.
Dennis R. Cash has served TNP as Vice President - Human Resources since
1994. From 1990 until 1994 he was General Manager - or Manager - Human
Resources.
Allan B. Davis has been a TNP Vice President and Regional Customer Officer
since 1994. From 1991 to 1994, he was TNP's Vice President - Chief Engineer,
Chief Engineer, or Assistant Chief Engineer.
Melissa D. Davis became a TNP Vice President and Regional Customer Officer
in February 1997. From September 1995 to February 1997 she was TNP' Controller.
From 1994 to September 1995, she was Director - Financial Accounting and
Assistant Controller of TNP. She served as Division Accounting Manager from 1991
to 1994.
Larry W. Dillon has been a TNP Vice President and Regional Customer Officer
since 1994. From 1993 to 1994, he was TNP's Vice President - Operations. He was
TNP's Division Manager from 1990 to 1993.
W. Douglas Hobbs was appointed as Vice President - Business Development of
TNP in February 1997. He was a TNP Vice President and Regional Customer Officer
from April 1994 to February 1997. He served as TNP One Plant Manager from April
1992 to 1994.
Scott Forbes was appointed TNP's Controller in February 1997. From
September 1996 to February 1997, he was Manager - Financial Systems and
Reporting. From January 1994 to September 1996 he was Manager - Financial
Reporting and Accounting Policy with Entergy Services, Inc. From 1991 to 1993 he
was Manager - Regulatory and Financial Reporting with Gulf States Utilities
Company.
Item 2. PROPERTIES.
Substantially all of TNP's real and personal property secures its FMBs.
Substantially all of TNP's real and personal property in Texas secures its
revolving credit facilities and debentures. TNP's long-term debt is described in
Note 9.
Administrative and Service Facilities
TNPE's, TNP's and Facility Works' corporate headquarters are located in an
office building in Fort Worth, Texas. Space in this building is leased through
2003.
TNP owns or leases local offices in 37 of the municipalities that it
serves. TNP owns 14 construction/service centers in Texas and New Mexico.
Generating Facilities
TNP One is a two-unit, lignite-fueled generating plant, located in
Robertson County, Texas. TNP One generates power for TNP's Texas service areas
and operates as a base load facility.
Transmission and Distribution Facilities
Management believes that TNP's transmission and distribution facilities are
of sufficient capacity to serve existing customers adequately and to be extended
and expanded to serve customer growth for the foreseeable future. These
facilities primarily consist of overhead and underground lines, substations,
transformers, and meters. TNP generally constructs its transmission and
distribution facilities on easements or public rights of way and not on real
property held in fee simple.
Item 3. LEGAL PROCEEDINGS.
The information set forth in Notes 2, 4, and 12 regarding regulatory and
legal matters is incorporated here by reference.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders in the fourth
quarter of 1996.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
TNPE's common stock is traded on the New York Stock Exchange under the
symbol "TNP." The high and low sales prices of, and the amount of dividends
declared and paid on, TNPE's common stock during each quarter in 1996 and 1995
were as follows:
TNPE
MARKET PRICE RANGE DIVIDENDS
1996 1995 PAID
QUARTER HIGH LOW HIGH LOW 1996 1995
_______ ____ ___ ____ ___ ____ ____
First $23 1/4 $18 1/2 $16 $14 5/8 $ 0.22 $ 0.20
Second 28 5/8 22 16 3/4 15 0.22 0.20
Third 28 1/8 23 17 3/4 16 0.245 0.20
Fourth 28 1/8 24 1/2 19 1/8 17 1/2 0.245 0.22
$ 0.930 $ 0.82
As of January 31, 1997, there were approximately 4,980 record holders of
TNPE common stock.
TNPE holds all 10,705 outstanding common shares of TNP. During 1996 and
1995, TNP paid common dividends to TNPE as follows:
TNP DIVIDENDS PAID ($000's)
QUARTER 1996 1995
First $ 2,400 $ -
Second 2,400 -
Third 2,700 -
Fourth 3,200 2,400
Total $ 10,700 $ 2,400
<PAGE>
<TABLE>
<CAPTION>
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data of TNPE and TNP for 1992 through 1996.
1996 1995 1994 1993 1992
------------- -------------- -------------- ------------- -------------
(In thousands except per share amounts and percentages)
<S> <C> <C> <C> <C> <C>
TNP ENTERPRISES, INC.
Consolidated results
Operating revenues $ 502,737 $ 485,823 $ 477,989 $ 474,242 $ 443,827
Net income (loss) (1) $ 23,053 $ 41,505 $ (17,441) $ 11,605 $ 10,930
Total assets $ 1,006,784 $ 1,030,433 $ 1,054,488 $ 1,086,938 $ 1,182,707
Cash flows
Construction expenditures $ 28,006 $ 28,689 $ 29,038 $ 26,360 $ 22,410
Cash internally generated as a percentage
of construction expenditures 194% 275% 105% 123% 213%
Common shares outstanding
Weighted average 11,543 10,901 10,750 10,641 8,545
End of year 13,006 10,920 10,866 10,696 10,598
Per share of common stock
Earnings (loss) (1) $ 1.98 $ 3.75 $ (1.70) $ 1.01 $ 1.17
Cash dividends declared $ 0.93 $ 0.82 $ 1.22 $ 1.63 $ 1.63
Book value $ 21.41 $ 19.91 $ 17.01 $ 19.97 $ 20.62
Capitalization
Common shareholders' equity $ 278,474 $ 217,457 $ 184,869 $ 213,627 $ 218,535
Preferred stock 3,420 3,600 8,680 9,560 10,440
Long-term debt, less current maturities 533,964 611,925 682,832 678,994 742,087
------------- -------------- -------------- ------------- -------------
Total capitalization $ 815,858 $ 832,982 $ 876,381 $ 902,181 $ 971,062
============= ============== ============== ============= =============
Capitalization ratios
Common shareholders' equity 34.1% 26.1% 21.1% 23.7% 22.5%
Preferred stock 0.4 0.4 1.0 1.1 1.1
Long-term debt, less current maturities 65.5 73.5 77.9 75.2 76.4
------------- -------------- -------------- ------------- -------------
Total capitalization 100.0% 100.0% 100.0% 100.0% 100.0%
============= ============== ============== ============= =============
TEXAS-NEW MEXICO POWER COMPANY
Consolidated results
Operating revenues $ 502,737 $ 485,823 $ 477,989 $ 474,242 $ 443,827
Net income (loss) (1) $ 26,862 $ 41,809 $ (16,634) $ 11,523 $ 10,845
Total assets $ 1,002,157 $ 1,024,943 $ 1,043,178 $ 1,076,820 $ 1,156,567
Cash flows (same as TNPE)
Capitalization
Common shareholder's equity $ 287,548 $ 224,351 $ 185,777 $ 214,184 $ 205,875
Preferred stock 3,420 3,600 8,680 9,560 10,440
Long-term debt, less current maturities 533,800 611,925 682,832 678,994 742,087
------------- -------------- -------------- ------------- -------------
Total capitalization $ 824,768 $ 839,876 $ 877,289 $ 902,738 $ 958,402
============= ============== ============== ============= =============
Capitalization ratios
Common shareholder's equity 34.9% 26.7% 21.2% 23.7% 21.5%
Preferred stock 0.4 0.4 1.0 1.1 1.1
Long-term debt, less current maturities 64.7 72.9 77.8 75.2 77.4
------------- -------------- -------------- ------------- -------------
Total capitalization 100.0% 100.0% 100.0% 100.0% 100.0%
============= ============== ============== ============= =============
(1) TNPE's and TNP's 1995 income before the cumulative effect of change in accounting were $33,060 and $33,364, respectively.
TNPE's 1995 EPS before the cumulative effect of change in accounting was $2.98.
(2) Cash internally generated is defined as cash generated from operations less cash dividends.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED OPERATING STATISTICS
1996 1995 1994 1993 1992
-------------- --------------- --------------- --------------- --------------
TNP ENTERPRISES, INC.
Operating revenues (in thousands):
<S> <C> <C> <C> <C> <C>
Residential $ 206,748 $ 200,455 $ 194,933 $ 193,484 $ 175,885
Commercial 150,034 148,908 141,886 138,680 128,550
Industrial 129,972 113,728 122,714 124,474 121,027
Other 15,983 22,732 18,456 17,604 18,365
------------- --------------- --------------- --------------- ---------------
Total $ 502,737 $ 485,823 $ 477,989 $ 474,242 $ 443,827
============== =============== =============== =============== ===============
Sales (MWH):
Residential 2,230,558 2,141,553 2,085,621 2,047,360 1,947,593
Commercial 1,725,650 1,681,130 1,618,840 1,567,083 1,499,927
Industrial 3,797,776 2,704,159 2,652,844 2,567,552 2,508,837
Other 108,039 113,985 114,190 104,882 109,954
------------- --------------- --------------- --------------- ---------------
Total 7,862,023 6,640,827 6,471,495 6,286,877 6,066,311
============== =============== =============== =============== ===============
Number of customers (at year end):
Residential 187,796 183,863 185,364 181,298 178,154
Commercial 29,864 29,361 30,624 30,235 30,359
Industrial 135 136 142 141 155
Other 224 244 237 237 229
------------- --------------- --------------- --------------- ---------------
Total 218,019 213,604 216,367 211,911 208,897
============== =============== =============== =============== ===============
Revenue statistics:
Average annual use per residential
customer (KWH) 11,973 11,476 11,354 11,362 11,003
Average annual revenue per residential
customer (dollars) 1,110 1,074 1,061 1,067 987
Average revenue per KWH sold
per residential customer (cents) 9.27 9.36 9.35 9.45 9.03
Average revenue per KWH sold
total sales (cents) 6.39 7.32 7.39 7.54 7.32
Net generation and purchases (MWH):
Generated 2,296,056 2,351,000 2,336,830 2,363,493 2,247,664
Purchased 5,769,173 4,612,186 4,472,306 4,385,697 4,261,129
------------- --------------- --------------- --------------- ---------------
Total 8,065,229 6,963,186 6,809,136 6,749,190 6,508,793
============== =============== =============== =============== ===============
Average cost per KWH purchased (cents) 3.51 3.87 4.35 4.56 4.09
Employees (year-end)
Texas-New Mexico Power Company 819 858 894 1,051 1,086
Facility Works 116 - - - -
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
SIGNIFICANT EVENTS AND KNOWN TRENDS AFFECTING TNPE AND TNP
Competitive Conditions
The electric utility industry continues its transition toward an
environment of increased competition. Pressures that underlie the movement
toward increasing competition are numerous and complex. They include legislative
and regulatory changes, technological advances, consumer demands, greater
availability of natural gas, environmental needs, and other factors. The
increasingly competitive environment presents opportunities to compete for new
customers, as well as the risk of loss of existing customers.
Community ChoiceSM
In May 1996, in order to meet the issue of competition head on, TNP filed
an application with the PUCT requesting approval of a program known as Community
Choice that would apply to electric services provided by TNP in Texas. On June
21, 1996, TNP filed an application with the NMPUC requesting approval of a
similar Community Choice program that would apply to electric service provided
by TNP in New Mexico. Community Choice is a transition plan designed to address
the opportunities and challenges presented by the increasingly deregulated and
competitive environment of the electric services industry.
As proposed by TNP, Community Choice provided for transition periods of
four years in New Mexico and five years in Texas. Community Choice proposed
that, during the transition periods, TNP's rates for electric service in New
Mexico and Texas would be structured to provide TNP a reasonable opportunity to
reduce its so-called potential "stranded costs." "Stranded costs" means the
difference between what it currently costs TNP to provide service and what a
customer would be willing to pay for such service in a competitive market. In
Texas, TNP's potential stranded cost relates to TNP One, its 300 MW generating
unit, and could potentially be more than $250 million. In New Mexico, TNP's
potential stranded cost relates to its purchased power contracts and could
potentially be more than $10 million. At the end of the transition periods, TNP
would aggregate, or combine, its customers at the community level and permit
these aggregated electrical loads to choose the types and nature of electric
services that will be available to individual customers within each aggregated
load.
In November 1996, TNP withdrew its Community Choice filing in Texas. Prior
to the withdrawal TNP had attempted to work through the numerous issues with
various intervenors. The withdrawal was due to a lack of consensus on key
issues, including the issue of stranded costs.
In late February 1997, TNP proposed a new plan for transition to
competition to the communities within TNP's service territory in Texas. The new
plan includes a five-year transition period and the opportunity to reduce
potential stranded costs. The new plan also includes options providing various
levels of access to the open market, which TNP customers will be able to select
from at the end of the transition period. Due to the numerous issues involved,
TNP can provide no assurance as to the timing or outcome of the new transition
to competition plan in Texas. As discussed below, certain gulf coast cities and
TNP agreed to delay a rate review filing until July 1, 1997, in order to reopen
negotiations on the new transition to competition plan.
On February 4, 1997, TNP filed a stipulation with the NMPUC adjusting
several of the components of the original Community Choice proposal. The
stipulation has the support of the major stakeholders. The revised plan gives
TNP customers the right to choose their energy provider after a three-year
transition period, freezes rates (including fuel and purchased power) for a
three-year period, and allows for customer aggregation based on market forces.
Hearings were held in late February 1997. Approval by the NMPUC is the final
step. TNP believes the plan will allow it to recover most if not all of its
potential stranded costs in New Mexico, however, the actual recovery of any
stranded costs will depend on the future market and price for energy through
2002.
Impact of Competition on TNP
The most significant effect of competition on TNP, as well as other
utilities, will be the ability to recover potential stranded costs, as well as
to retain and attract new customers. The inability to recover a significant
portion of stranded costs would adversely impact TNPE's and TNP's financial
condition. TNP will continue to seek solutions to the recovery of its potential
stranded costs. Although the final resolution and magnitude of the issue is
uncertain, management realizes it is possible that shareholders may share the
financial burden of stranded costs with customers.
Assuming satisfactory resolution of the stranded costs issue, TNP believes
that current competitive developments on the wholesale market ultimately will
benefit TNP and its customers. Because TNP purchases much of its power, TNP can
take advantage of the lower transmission prices, additional market flexibility,
and new options in obtaining purchased power. TNP's competitive position has
been strengthened with the PUCT open access to transmission rule. TNP currently
has no significant wholesale power sales but expects to position itself to take
advantage of opportunities to serve additional wholesale customers as they
arise. Management believes TNP's revenue growth opportunities are in an
increased customer base and new services.
TNP believes its market niche is in smaller to medium sized communities.
Only two of the 85 communities in TNP's service area have populations in excess
of 50,000.
Control Area
TNP implemented a control area in Texas which became operational on July
31, 1996. The control area is an electrical system which enables TNP to
instantaneously balance its system resources with loads. TNP had previously
contracted with another utility for these services. It also permits TNP to
replace standby power for TNP One with the purchase of planning reserves.
Implementation of the control area is estimated to result in additional base
revenues and cost savings of approximately $10 million annually.
Texas Transmission Access Filing
During 1996 the PUCT passed a wholesale transmission access rule which
establishes a regional method of transmission pricing, terms, and conditions.
The purpose is to increase competition in wholesale energy sales within Texas
and establish an Independent System Operator for the Electric Reliability
Council of Texas ("ERCOT") transmission system. The PUCT will set the
transmission pricing rules for the ERCOT region. TNP believes it should benefit
from the new rules as competition should increase in the wholesale power market
and result in reduced purchased power and wheeling costs. The new transmission
fee structure is scheduled to start in early 1997. However, several Texas
utilities have petitioned the PUCT to revise the new transmission rules.
Unregulated Operations
TNPE also plans to meet the effects of competition on the traditional
utility business by expanding earnings through unregulated operations. In early
1996, TNPE formed Facility Works, a wholly owned subsidiary, to provide energy
and utility related facility services to commercial and institutional customers
in primarily nonmetropolitan areas. TNPE is also evaluating unregulated
investment and joint venture opportunities in additional energy-related
businesses, but has not entered into any agreements related to such activities.
Results of Operations
Overall Results
Income applicable to common stock was $22.9 million for 1996, compared to
$40.9 million in 1995. Results for 1996 included a $3.1 million loss associated
with the start-up operations of Facility Works, and a $1.3 million after tax
reserve for the tentative settlement of litigation associated with the Series T
FMB retirement in 1995. Results for 1995 included a number of one-time items
consisting of the cumulative effect of the change in accounting for unbilled
revenues of $8.4 million, a gain on sale of the Texas Panhandle properties of
$9.5 million, and recognition of deferred revenues related to a favorable IRS
private letter ruling of $3.0 million. Excluding the one-time items, 1996
earnings were $27.3 million, and 1995 earnings were $19.9 million.
One-time items, net of taxes, in 1994 consisted of the recognition of
regulatory disallowances of $20.5 million and reorganization costs of $5.7
million. Additional information concerning these one-time items is set forth in
Notes 2, 3, 4, 5, and 6.
The following table sets forth results of operations for 1996, 1995, and
1994 and the impact of one-time items:
<TABLE>
<CAPTION>
1996 1995 1994
_________________ _________________ ________________
Amount EPS Amount EPS Amount EPS
______ ___ ______ ___ ______ ___
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Income applicable to common
stock before one-time items................. $27,283 $ 2.36 $19,908 $ 1.83 $ 7,997 $ 0.74
One-time items, net of income taxes:
Start up costs of Facility Works............ (3,097) (0.27) - - - -
Reserve for Series T litigation settlement.. (1,300) (0.11) - - - -
Cumulative effect of change in accounting... - - 8,445 0.77 - -
Gain on sale of Texas Panhandle properties.. - - 9,479 0.87 - -
Recognition of deferred revenues............ - - 3,018 0.28 - -
Reorganization costs........................ - - - - (5,723) (0.53)
Regulatory disallowances.................... - - - - (20,505) (1.91)
Total one-time items, net................. (4,397) (0.38) 20,942 1.92 (26,228) (2.44)
Income (loss) applicable
to common stock............................. $22,886 $ 1.98 $40,850 $ 3.75 $(18,231) $(1.70)
</TABLE>
<PAGE>
The operations of TNP currently represent most of TNPE's operations. The
following discussion focuses on TNP's operations, except where stated otherwise.
Operating Revenues
The following table summarizes the components of operating revenues (in
thousands).
<TABLE>
<CAPTION>
Increase (Decrease)
___________________
1996 1995 1994 '96 v. '95 '95 v. '94
<S> <C> <C> <C> <C> <C>
__________ _________ __________ __________ __________
Operating revenues $ 502,737 $ 485,823 $ 477,989 $ 16,914 $ 7,834
Effect of recognizing deferred
revenue from private letter ruling - (4,128) - 4,128 (4,128)
__________ _________ __________ __________ __________
Subtotal 502,737 481,695 477,989 21,042 3,706
Pass-through items 244,889 228,903 243,513 15,986 (14,610)
__________ _________ __________ __________ __________
Base revenues $ 257,848 $ 252,792 $ 234,476 $ 5,056 $ 18,316
========== ========= ========== ========== ==========
</TABLE>
Pass-through items are the portion of operating revenues that recover from
customers the costs of purchased power, fuel, and standby power. These items
affect customer rates but do not affect operating income. Annual variances are
discussed under "Results of Operations--Operating Expenses."
The base revenue increase of $5.1 million during 1996 was attributable to
increased residential, commercial, and economy rate industrial sales, and
additional base revenues provided by the control area. The overall increase, was
partially offset by a reduction in firm rate industrial sales and lower margins
on the industrial economy rate sales.
Excluding the effects of one-time items, 1995 base revenues exceeded 1994
base revenues by $18.3 million. The increase is primarily due to rate increases
in both Texas ($17.5 million annualized) and New Mexico ($0.4 million
annualized) resulting from settlement agreements in October and May of 1994,
respectively. Increased sales also contributed to the base revenue increase.
Sales of 6,641 GWH in 1995 represented a 2.6% improvement over prior year sales
and contributed $5.1 million to the increase in 1995 base revenues.
The components of GWH sales for 1996 and 1995 are summarized in the
following table:
1996 1995 Variance %
________ _______ _________ ________
Residential 2,230 2,142 88 4.1
Commercial 1,726 1,681 45 2.7
Industrial:
Firm 1,295 1,440 (145) (10.1)
Economy 2,503 1,264 1,239 98.0
Other 108 114 (6) (5.3)
Total GWH sales 7,862 6,641 1,221 18.4
Sales to residential and commercial customers increased during 1996 due to
warmer than usual weather during the second quarter of 1996, in addition to
colder than usual weather in Texas during the first quarter. The increase in GWH
sales resulted primarily from increased industrial economy sales. During 1996,
TNP entered into new sales agreements with two cogeneration customers. The new
economy rate sales are at significantly lower margins than traditional firm rate
industrial sales.
Pursuant to a rate case settlement approved by the PUCT in October 1994,
TNP may not increase its base rates in Texas prior to March 1999 except in
certain extraordinary circumstances. Additional information about the settlement
is set forth in Note 2. In December 1996, certain cities in the Texas gulf coast
area served by TNP passed resolutions requiring TNP to file complete rate
information with those cities. In February 1997, those cities have agreed to
reopen negotiations on a new transition to competition proposal and have
deferred the required rate filing until July 1, 1997. If negotiations on the new
transition to competition proposal are not successful and the rate filings are
made, TNP anticipates a final resolution of the rate review with the cities in
late 1997. Based on its preliminary analysis, TNP believes the filing will
support the reasonableness of TNP's current rates.
TNP is actively negotiating with a significant industrial customer in Texas
that provided sales of 628 GWH and annual revenues of $27.8 million in 1996
($9.9 million in base revenues). This customer will replace the power previously
provided by TNP with a cogeneration plant, which is expected to commence
operations in 1998. TNP is negotiating with the customer to continue providing
transmission, distribution and other services. Even if TNP is successful in
these negotiations, base revenues from this customer are expected to be
significantly less.
In October 1996, a large industrial customer in New Mexico gave TNP notice
to reduce their power supply requirements under its current contract by 25 MW's
effective December 1998, and to terminate the contract effective December 1999.
TNP believes the customer is positioning itself for access to a competitive
power supply market. Due to the potential effects that the recently approved
Community Choice plan in New Mexico may have on which power supplier this
customer may ultimately choose, TNP is unable to determine the impact of this
notice at this time.
Operating Expenses
Operating expenses for 1996 were $19.6 million higher than in 1995, due
primarily to higher pass-through expenses, property taxes and franchise taxes.
Operating expenses for 1995 were $2.0 million lower than in 1994, excluding
the $8.8 million reorganization costs in 1994. The decrease is primarily due to
lower pass-through expenses of $14.6 million and labor/benefits expenses of $1.0
million offset by increased income tax expense of $13.6 million.
Pass-Through Expenses
The following table summarizes the components of pass-through expenses (in
thousands).
<TABLE>
<CAPTION>
Increase (Decrease)
________________________
1996 1995 1994 '96 v. '95 '95 v. '94
__________ _________ __________ ___________ ___________
<S> <C> <C> <C> <C> <C>
Pass-through expenses:
Purchased power $ 196,481 $ 178,465 $ 194,595 $ 18,016 $ (16,130)
Fuel 45,300 44,828 43,024 472 1,804
Standby power 3,108 5,610 5,894 (2,502) (284)
Total $ 244,889 $ 228,903 $ 243,513 $ 15,986 $ (14,610)
</TABLE>
Purchased Power. During 1996, purchased power expense increased by $18
million due to the substantial increase in the number of MWH's purchased. The
additional purchases were made to meet increased sales requirements, primarily
for two new economy rate industrial customers.
Purchased power decreased $16.1 million in 1995. Purchases for Texas
service areas were shifted to lower cost suppliers for 1995 supplemental summer
peaking capacity. This arrangement became effective May 1, 1995, and resulted in
annualized cost savings of $7.0 million. During 1995, TNP actively intervened in
a Texas rate case of a major supplier and is benefiting with annualized cost
savings of $10.5 million. Purchases for New Mexico service areas were also
shifted to lower cost suppliers beginning mid 1994 and continuing in 1995. TNP's
customers directly benefit from these cost reductions as these expenses are
recovered through adjustment clauses.
Purchased power costs represent TNP's largest operating expense. Based on
current contracts, TU continues as TNP's largest supplier of purchased power in
Texas and is TNP's highest price supplier. As described in Note 12, TNP has
notified TU of its intent to cease purchasing full requirements power and energy
effective January 1, 1999. TNP has requested proposals for purchased power
resources to replace most of the power currently provided by TU.
Fuel. Fuel expense in 1996 and 1995 increased $.5 million and $1.8 million,
excluding amounts of nonpass-through fuel expenditures, respectively, as
compared to the corresponding prior years. Fuel expense is directly related to
an increased fixed fuel recovery factor approved by the PUCT in connection with
the 1994 Texas rate case settlement. The majority of TNP's fuel expense is
recovered in revenues and any difference from actual costs is deferred until a
new factor is established. TNP expects to file a reconciliation of fuel costs in
June 1997, for the period of October 1993 through December 1996. Management
believes the ultimate outcome of this fuel reconciliation will not have a
material adverse effect on TNP's or TNPE's consolidated financial position or
results of operations. The under-recovered fuel amount at December 31, 1996, was
$4.4 million. TNP currently estimates that the current fixed fuel factor should
enable the recovery of under-recovered fuel costs during 1997.
Other Operating Expenses
Other operating expense was $2.0 million higher in 1996 than in 1995. The
increase is due to higher payroll and payroll related items, incentive
compensation and the reserve associated with the tentative settlement of Series
T FMB litigation. These increases were offset in part by reduced standby power
costs resulting from the implementation of the control area in July 1996, as
discussed above.
Other operating expense was $1.0 million lower in 1995 than in 1994.
Payroll and payroll related items decreased $7.2 million, primarily as a result
of the 1994 reorganization. Offsetting these savings were the costs of employee
incentive compensation plans adopted in 1995, increases in customer collection
costs, outsourcing, outside services, wage and salary increases, and other
administrative expenses.
Interest Charges
During 1996 interest charges decreased $4.6 million due to the reduction in
the amount of debt and lower interest rates on the credit facilities. During
1996 TNP retired $91.7 million of FMBs and reduced the average amount
outstanding under the credit facilities. Partially offsetting the reductions
discussed above was interest charges of $1.3 million payable to the IRS
associated with the resolution of outstanding tax audits for the years 1990
through 1994.
A $1.3 million decrease in 1995 interest charges, compared to 1994 resulted
from reduced long-term debt levels and decreased interest rates associated with
the 1995 Credit Facility. Contributing to reduced debt levels were the
retirement of $29.2 million of Series T FMBs in October 1995 with proceeds from
the sale of the Texas panhandle properties and lower average borrowings under
TNP's credit facility. Increased cash flow during 1995 enabled TNP to reduce its
average borrowings under its credit facility.
Interest charges are expected to continue to decrease during 1997 due to
reduced levels of overall long-term debt, the refinancing of high cost long-term
debt with borrowings under the credit facilities, and reduced interest rate
margins on the credit facilities.
Liquidity and Capital Resources
Sources of Liquidity
The main sources of liquidity for TNPE are cash flow from operations,
borrowings from credit facilities and sale of additional common stock.
TNPE's cash flow from operations totaled $65.2 million, $88.4 million and
$44.3 million in 1996, 1995, and 1994. Cash flow from operations continues to be
strong, however it decreased in 1996 due to increased income tax payments. Cash
flow from operations had increased in 1995 due to increased base revenues. TNP's
cash flow from operations mirrored that of TNPE.
As discussed in Note 9, TNP entered into a new credit facility in 1996 to
supplement the existing credit facility. As of December 31, 1996, the unused
commitment under the credit facilities was $195 million. In January 1997 TNP
used borrowings from the credit facilities to retire the $100.8 million of
outstanding Series T FMBs, which reduced the available borrowings under the
credit facilities to $90.5 million.
TNPE has reserved 1 million shares of common stock for issuance through a
new direct stock purchase plan beginning in 1997. The plan is designed to
provide investors with a convenient method to purchase shares of TNPE's common
stock directly from the company and to reinvest cash dividends. The plan has
replaced TNPE's prior dividend reinvestment plan.
Capital Resources
TNPE's and TNP's capital structure continued to improve during 1996, due to
reduced debt levels and increased common equity. TNPE's common equity increased
during 1996, due to an issuance of 2 million shares of common stock with
proceeds of $47.2 million in October 1996, in addition to strong earnings for
the year. Proceeds from TNPE's common stock issuance were transferred to TNP as
an equity contribution. The equity portion of TNPE's capital structure increased
from 26.1% at December 31, 1995, to 34.1% at December 31, 1996. Conversely, the
long-term debt ratio decreased from 73.5% to 65.5% for the same period. TNP
experienced similar results with its capital ratios.
TNP's capital requirements through 2001 are projected to be as follows
(amounts in millions):
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
_______ ________ ________ _______ _______
<S> <C> <C> <C> <C> <C>
FMB and secured debenture maturities (see Note 9) $ .1 $ .1 $ 130.1 $ 100.1 $ .1
Capital expenditures 28.6 29.9 31.2 32.7 34.1
Total capital requirements $ 28.7 $ 30.0 $ 161.3 $ 132.8 $ 34.2
</TABLE>
TNP believes that cash flow from operations and periodic borrowings under
the credit facilities will be sufficient to meet working capital requirements
and planned capital requirements through 1998.
Other Matters
As a result of the Energy Policy Act of 1992 and actions of regulatory
commissions, the electric utility industry is moving toward a combination of
competition and modified regulatory environment. TNP's financial statements
currently reflect assets and costs based on current cost-based ratemaking
regulations in accordance with SFAS 71, Accounting for the Effects of Certain
Types of Regulation. Continued applicability of SFAS 71 to TNP's financial
statements requires that rates set by an independent regulator on a
cost-of-service basis can actually be charged to and collected from customers.
In the event that all or a portion of a utility's operations cease to meet
those criteria for various reasons, including deregulation, a change in the
method of regulation, or a change in the competitive environment for the
utilities regulated service, the utility will have to discontinue SFAS 71 for
that portion of operations. That discontinuation would be reported by the
write-off of regulatory assets and liabilities.
Management believes that, as of December 31, 1996, and for the foreseeable
future, TNP's financial statements continue to follow SFAS 71.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Independent Auditors' Report
The Board of Directors and Shareholders
TNP Enterprises, Inc.:
We have audited the consolidated financial statements of TNP Enterprises, Inc.
and subsidiaries as listed in the accompanying index at Part IV. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TNP Enterprises,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 3 to the consolidated financial statements, the Company
changed its method of accounting for operating revenues in 1995.
KPMG Peat Marwick LLP
Fort Worth, Texas
January 30, 1997
Independent Auditors' Report
The Board of Directors
Texas-New Mexico Power Company:
We have audited the consolidated financial statements of Texas-New Mexico Power
Company (a wholly owned subsidiary of TNP Enterprises, Inc.) and subsidiaries as
listed in the accompanying index at Part IV. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Texas-New Mexico
Power Company and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 3 to the consolidated financial statements, the Company
changed its method of accounting for operating revenues in 1995.
KPMG Peat Marwick LLP
Fort Worth, Texas
January 30, 1997
<TABLE>
<CAPTION>
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
For the Years Ended December 31,
1996 1995 1994
--------------- --------------- ---------------
(In thousands except per share amounts)
<S> <C> <C> <C>
OPERATING REVENUES $ 502,737 $ 485,823 $ 477,989
--------------- --------------- ---------------
OPERATING EXPENSES:
Purchased power 196,481 178,465 194,595
Fuel 47,201 48,898 46,988
Other operating and general expenses 73,276 71,311 72,472
Maintenance 10,672 11,522 11,966
Reorganization costs - - 8,782
Depreciation of utility plant 38,170 37,850 36,782
Taxes other than income taxes 32,727 28,865 29,651
Income taxes 10,333 12,317 (1,238)
--------------- --------------- ---------------
Total operating expenses 408,860 389,228 399,998
--------------- --------------- ---------------
NET OPERATING INCOME 93,877 96,595 77,991
--------------- --------------- ---------------
OTHER INCOME (LOSS):
Gain on sale of Texas Panhandle properties (note 4) - 14,583 -
Recognition of regulatory disallowances (note 2) - - (31,546)
Other income and deductions, net (3,799) 1,245 1,057
Income taxes 2,338 (5,403) 10,305
--------------- --------------- ---------------
Other income (loss), net of taxes (1,461) 10,425 (20,184)
--------------- --------------- ---------------
INCOME BEFORE INTEREST CHARGES AND
CHANGE IN ACCOUNTING 92,416 107,020 57,807
--------------- --------------- ---------------
INTEREST CHARGES:
Interest on long-term debt 64,654 70,544 71,568
Other interest and amortization of debt-related costs 4,709 3,416 3,680
--------------- --------------- ---------------
Total interest charges 69,363 73,960 75,248
--------------- --------------- ---------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING 23,053 33,060 (17,441)
Cumulative effect of change in accounting for
unbilled revenues, net of taxes (note 3) - 8,445 -
--------------- --------------- ---------------
NET INCOME (LOSS) 23,053 41,505 (17,441)
Dividends on preferred stock 167 655 790
--------------- --------------- ---------------
INCOME (LOSS) APPLICABLE TO COMMON STOCK $ 22,886 $ 40,850 $ (18,231)
=============== =============== ===============
EARNINGS PER SHARE OF COMMON STOCK:
Earnings (loss) before cumulative effect of change in accounting $ 1.98 $ 2.98 $ (1.70)
Cumulative effect of change in accounting for unbilled revenues - 0.77 -
--------------- --------------- ---------------
Earnings (loss) per share $ 1.98 $ 3.75 $ (1.70)
=============== =============== ===============
DIVIDENDS PER SHARE OF COMMON STOCK $ 0.93 $ 0.82 $ 1.22
=============== =============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 11,543 10,901 10,750
=============== =============== ===============
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1996 1995 1994
--------------- ---------------- -----------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 505,307 $ 481,470 $ 475,462
Purchased power (198,696) (172,486) (193,366)
Fuel costs paid (45,576) (44,781) (46,537)
Cash paid for payroll and to other suppliers (75,138) (76,735) (85,912)
Interest paid, net of amounts capitalized (69,247) (68,484) (76,402)
Income taxes paid (15,684) (1,095) 365
Other taxes paid, net of amounts capitalized (32,243) (30,556) (30,323)
Other operating cash receipts and payments, net (3,522) 1,043 1,014
--------------- ---------------- -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 65,201 88,376 44,301
--------------- ---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant, net of capitalized
depreciation and interest (28,006) (28,689) (29,038)
Net proceeds from sale of Texas Panhandle properties - 29,009 -
Maturities (purchases) of temporary investments - 5,590 (5,590)
Additions to other property and investments (2,771) - -
--------------- ---------------- -----------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (30,777) 5,910 (34,628)
--------------- ---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common stocks (10,866) (9,616) (13,823)
Borrowings (repayments) under revolving credit
facilities 12,000 (42,272) 6,472
Issuances:
Common stock 48,798 856 2,502
Other long-term debt 202 - -
Deferred expenses associated with financings (588) (2,096) -
Redemptions:
Preferred stock (180) (5,080) (880)
First mortgage bonds (96,508) (30,270) (1,070)
--------------- ---------------- -----------------
NET CASH USED IN FINANCING ACTIVITIES (47,142) (88,478) (6,799)
--------------- ---------------- -----------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (12,718) 5,808 2,874
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 21,105 15,297 12,423
--------------- ---------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,387 $ 21,105 $ 15,297
=============== ================ =================
RECONCILIATION OF NET EARNINGS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income (loss) $ 23,053 $ 41,505 $ (17,441)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Cumulative effect of change in accounting for
unbilled revenues, net of taxes - (8,445) -
Gain on sale of Texas Panhandle properties - (14,583) -
Recognition of deferred revenues - (4,782) 1,382
Depreciation of utility plant 38,170 37,850 36,782
Amortization of debt-related costs and other
deferred charges 3,329 4,952 5,495
Allowance for borrowed funds used during
construction (99) (162) (275)
Deferred income taxes (excluding effect of
change in accounting) (193) 5,256 (10,915)
Investment tax credits (380) 1,679 (1,436)
Reorganization costs - - 6,858
Recognition of regulatory disallowances - - 31,546
Cash flows impacted by changes in current assets
and liabilities:
Deferred purchased power and fuel costs 5,696 5,997 (107)
Accrued interest (3,103) 2,289 (4,422)
Accrued taxes (7,372) 8,483 (1,108)
Purchased power costs subject to refund (5,688) 5,688 -
Changes in other current assets and liabilities 4,181 3,138 (1,387)
Other, net 7,607 (489) (671)
--------------- ---------------- -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 65,201 $ 88,376 $ 44,301
=============== ================ =================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1996 1995
--------------- ----------------
(In thousands)
<S> <C> <C>
ASSETS
UTILITY PLANT:
Electric plant $ 1,215,355 $ 1,193,538
Construction work in progress 906 3,334
--------------- ----------------
Total 1,216,261 1,196,872
Less accumulated depreciation 282,322 252,868
--------------- ----------------
Net utility plant 933,939 944,004
--------------- ----------------
OTHER PROPERTY AND INVESTMENTS, at cost 3,927 1,156
--------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 8,387 21,105
Customer receivables 16,362 15,569
Inventories, at lower of average cost or market:
Fuel 367 492
Materials and supplies 6,384 7,287
Deferred purchased power and fuel costs 3,565 9,261
Accumulated deferred income taxes 1,937 144
Other current assets 1,121 960
--------------- ----------------
Total current assets 38,123 54,818
--------------- ----------------
DEFERRED CHARGES 30,795 30,455
--------------- ----------------
$ 1,006,784 $ 1,030,433
=============== ================
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common shareholders' equity:
Common stock - no par value per share. Authorized 50,000,000
shares; issued 13,006,492 shares in 1996 and 10,920,060
in 1995 $ 183,771 $ 134,973
Retained earnings 94,703 82,484
--------------- ----------------
Total common shareholders' equity 278,474 217,457
Preferred stock 3,420 3,600
Long-term debt, less current maturities 533,964 611,925
--------------- ----------------
Total capitalization 815,858 832,982
--------------- ----------------
CURRENT LIABILITIES:
Current maturities of long-term debt 138 1,070
Accounts payable 28,446 22,040
Accrued interest 10,879 13,982
Accrued taxes 18,833 26,205
Customers' deposits 2,662 2,493
Purchased power costs subject to refund - 5,688
Other current liabilities 11,797 12,472
--------------- ----------------
Total current liabilities 72,755 83,950
--------------- ----------------
REGULATORY TAX LIABILITIES 10,963 26,826
ACCUMULATED DEFERRED INCOME TAXES 74,844 57,381
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS 19,734 18,592
DEFERRED CREDITS 12,630 10,702
COMMITMENTS AND CONTINGENCIES (Notes 1, 2, 4, 8 and 12)
--------------- ----------------
$ 1,006,784 $ 1,030,433
=============== ================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31,
1996 1995
--------------- ---------------
(In thousands)
<S> <C> <C>
COMMON SHAREHOLDERS' EQUITY
Common stock with no par value per share
Authorized shares - 50,000,000
Outstanding shares - 13,006,492 in 1996 and 10,920,060 in 1995 $ 183,771 $ 134,973
Retained earnings 94,703 82,484
--------------- ---------------
Total common shareholders' equity 278,474 217,457
--------------- ---------------
PREFERRED STOCK
Preferred stock with no par value
Authorized shares - 5,000,000
Outstanding shares - None
Redeemable cumulative preferred stock of TNP with $100 par value
Authorized shares - 1,000,000
Redemption
price at TNP's Outstanding shares
option 1996 1995
------ ---- ----
Series B 4.65% $ 100.00 21,600 22,800 2,160 2,280
Series C 4.75% 100.00 12,600 13,200 1,260 1,320
------------ ------------ --------------- ---------------
Total redeemable cumulative preferred stock 34,200 36,000 3,420 3,600
------------ ------------ --------------- ---------------
LONG-TERM DEBT
FIRST MORTGAGE BONDS
Series L 10.50% due 2000 - 9,600
Series M 8.70% due 2006 8,100 8,200
Series R 10.00% due 2017 - 62,400
Series S 9.63% due 2019 - 19,600
Series T 11.25% due 1997 100,800 100,800
Series U 9.25% due 2000 100,000 100,000
Unamortized debt discount - (605)
SECURED DEBENTURES
12.50% due 1999 130,000 130,000
Series A 10.75% due 2003 140,000 140,000
REVOLVING CREDIT FACILITIES
1995 Facility - 43,000
1996 Facility 55,000 -
OTHER 202 -
--------------- ---------------
Total long-term debt 534,102 612,995
Less current maturities (138) (1,070)
--------------- ---------------
Total long-term debt, less current maturities 533,964 611,925
--------------- ---------------
TOTAL CAPITALIZATION $ 815,858 $ 832,982
=============== ===============
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
For the Years Ended December 31,
Common Shareholders' Equity
--------------------------------------------------------
Common Stock Retained
Shares Amount Earnings Total
______ ______ ________ _____
(In thousands)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Balance at December 31, 1993 10,696 $ 131,615 $ 82,012 $ 213,627
Net loss - - (17,441) (17,441)
Dividends on preferred stock - - (790) (790)
Dividends on common stock - $1.22 per share - - (13,046) (13,046)
Sale of common stock 170 2,502 - 2,502
Retirement of preferred stock - - 17 17
------------ ------------ ------------- -------------
Balance at December 31, 1994 10,866 134,117 50,752 184,869
YEAR ENDED DECEMBER 31, 1995
Net income - - 41,505 41,505
Dividends on preferred stock - - (655) (655)
Dividends on common stock - $0.82 per share - - (8,938) (8,938)
Sale of common stock 54 856 - 856
Retirement of preferred stock - - (180) (180)
------------ ------------ ------------- -------------
Balance at December 31, 1995 10,920 134,973 82,484 217,457
YEAR ENDED DECEMBER 31, 1996
Net income - - 23,053 23,053
Dividends on preferred stock - - (167) (167)
Dividends on common stock - $0.93 per share - - (10,699) (10,699)
Sale of common stock 2,086 48,798 - 48,798
Retirement of preferred stock - - 32 32
------------ ------------ ------------- -------------
Balance at December 31, 1996 13,006 $ 183,771 $ 94,703 $ 278,474
============ ============ ============= =============
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
For the Years Ended December 31,
1996 1995 1994
-------------- -------------- --------------
(In thousands)
<S> <C> <C> <C>
OPERATING REVENUES $ 502,737 $ 485,823 $ 477,989
-------------- -------------- --------------
OPERATING EXPENSES:
Purchased power 196,481 178,465 194,595
Fuel 47,201 48,898 46,988
Other operating and general expenses 73,276 71,311 72,472
Maintenance 10,672 11,522 11,966
Reorganization costs - - 8,782
Depreciation of utility plant 38,170 37,850 36,782
Taxes other than income taxes 32,727 28,865 29,651
Income taxes 10,333 12,317 (1,238)
------------- -------------- --------------
Total operating expenses 408,860 389,228 399,998
------------- -------------- --------------
NET OPERATING INCOME 93,877 96,595 77,991
------------- -------------- --------------
OTHER INCOME (LOSS) :
Gain on sale of Texas Panhandle
properties (note 4) - 14,583 -
Recognition of regulatory disallowances
(note 2) - - (31,546)
Other income and deductions, net 1,626 1,470 1,475
Income taxes 722 (5,324) 10,694
------------- -------------- --------------
Other income (loss), net of taxes 2,348 10,729 (19,377)
------------- -------------- --------------
INCOME BEFORE INTEREST CHARGES
AND CHANGE IN ACCOUNTING 96,225 107,324 58,614
------------- -------------- --------------
INTEREST CHARGES:
Interest on long-term debt 64,654 70,544 71,568
Other interest and amortization of
debt-related costs 4,709 3,416 3,680
------------- -------------- --------------
Total interest charges 69,363 73,960 75,248
------------- -------------- --------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING 26,862 33,364 (16,634)
Cumulative effect of change in accounting for
unbilled revenues, net of taxes (note 3) - 8,445 -
------------- -------------- --------------
NET INCOME (LOSS) 26,862 41,809 (16,634)
Dividends on preferred stock 167 655 790
------------- -------------- --------------
INCOME (LOSS) APPLICABLE TO COMMON STOCK $ 26,695 $ 41,154 $ (17,424)
============= ============== ==============
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1996 1995 1994
--------------- ------------- ---------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 502,954 $ 481,470 $ 475,462
Purchased power (198,696) (172,486) (193,366)
Fuel costs paid (45,576) (44,781) (46,537)
Cash paid for payroll and to other suppliers (75,807) (76,793) (86,632)
Interest paid, net of amounts capitalized (69,236) (68,484) (76,402)
Income taxes paid (14,242) (1,199) (1,215)
Other taxes paid, net of amounts capitalized (31,219) (30,054) (29,906)
Other operating cash receipts and payments, net 1,135 639 1,442
--------------- ------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 69,313 88,312 42,846
--------------- ------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant, net of capitalized
depreciation and interest (28,006) (28,689) (29,038)
Net proceeds from sale of Texas Panhandle properties - 29,009 -
Additions to other property and investments (1,669) - -
--------------- ------------- ---------------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES (29,675) 320 (29,038)
--------------- ------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common stocks (10,867) (3,078) (11,794)
Equity contribution from TNPE 47,170 - -
Borrowings (repayments) under revolving credit
facilities 12,000 (42,272) 6,472
Deferred expenses associated with financings (588) (2,096) -
Redemptions:
Preferred stock (180) (5,080) (880)
First mortgage bonds (96,508) (30,270) (1,070)
--------------- ------------- ---------------
NET CASH USED IN FINANCING ACTIVITIES (48,973) (82,796) (7,272)
--------------- ------------- ---------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (9,335) 5,836 6,536
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 14,450 8,614 2,078
--------------- ------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,115 14,450 $ 8,614
=============== ============= ===============
RECONCILIATION OF NET EARNINGS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income (loss) $ 26,862 $ 41,809 $ (16,634)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Cumulative effect of change in accounting for
unbilled revenues, net of taxes - (8,445) -
Gain on sale of Texas Panhandle properties - (14,583) -
Recognition of deferred revenues - (4,782) 1,382
Depreciation of utility plant 38,170 37,850 36,782
Amortization of debt-related costs and other
deferred charges 3,329 4,952 5,495
Allowance for borrowed funds used during
construction (99) (162) (275)
Deferred income taxes (excluding effect of
change in accounting) 1,140 5,132 (10,920)
Investment tax credits (111) 1,691 (1,374)
Reorganization costs - - 6,858
Recognition of regulatory disallowances - - 31,546
Cash flows impacted by changes in current assets
and liabilities:
Deferred purchased power and fuel costs 5,696 5,997 (107)
Accrued interest (3,103) 2,289 (4,422)
Accrued taxes (8,429) 8,432 (1,108)
Purchased power costs subject to refund (5,688) 5,688 -
Changes in other current assets and liabilities 6,474 3,174 (3,103)
Other, net 5,072 (730) (1,274)
--------------- ------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 69,313 $ 88,312 $ 42,846
=============== ============= ===============
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED BALANCE SHEETS
December 31,
1996 1995
--------------- ----------------
(In thousands)
<S> <C> <C>
ASSETS
UTILITY PLANT:
Electric plant $ 1,215,355 $ 1,193,538
Construction work in progress 906 3,334
--------------- ----------------
Total 1,216,261 1,196,872
Less accumulated depreciation 282,322 252,868
--------------- ----------------
Net utility plant 933,939 944,004
--------------- ----------------
OTHER PROPERTY AND INVESTMENTS, at cost 1,884 175
--------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 5,115 14,450
Customer receivables 15,521 15,569
Inventories, at lower of average cost or market:
Fuel 367 492
Materials and supplies 6,384 7,287
Deferred purchased power and fuel costs 3,565 9,261
Accumulated deferred income taxes 1,937 144
Other current assets 1,324 1,274
--------------- ----------------
Total current assets 34,213 48,477
--------------- ----------------
DEFERRED CHARGES 32,121 32,287
--------------- ----------------
$ 1,002,157 $ 1,024,943
=============== ================
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common shareholder's equity:
Common stock, $10 par value per share.
Authorized 12,000,000 shares; issued 10,705 shares $ 107 $ 107
Capital in excess of par value 222,133 174,931
Retained earnings 65,308 49,313
--------------- ----------------
Total common shareholder's equity 287,548 224,351
Redeemable cumulative preferred stock 3,420 3,600
Long-term debt, less current maturities 533,800 611,925
--------------- ----------------
Total capitalization 824,768 839,876
--------------- ----------------
CURRENT LIABILITIES:
Current maturities of long-term debt 100 1,070
Accounts payable 27,254 22,040
Accrued interest 10,879 13,982
Accrued taxes 16,901 25,330
Customers' deposits 2,662 2,493
Purchased power costs subject to refund - 5,688
Other current liabilities 10,993 12,472
--------------- ----------------
Total current liabilities 68,789 83,075
--------------- ----------------
REGULATORY TAX LIABILITIES 10,963 26,826
ACCUMULATED DEFERRED INCOME TAXES 65,860 47,066
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS 19,164 17,398
DEFERRED CREDITS 12,613 10,702
COMMITMENTS AND CONTINGENCIES (Notes 1, 2, 4, 8 and 12)
--------------- ----------------
$ 1,002,157 $ 1,024,943
=============== ================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31,
1996 1995
--------------- ---------------
(In thousands)
<S> <C> <C>
COMMON SHAREHOLDER'S EQUITY
Common stock, $10 par value per share
Authorized shares - 12,000,000
Outstanding shares - 10,705 $ 107 $ 107
Capital in excess of par value 222,133 174,931
Retained earnings 65,308 49,313
--------------- ----------------
Total common shareholder's equity 287,548 224,351
--------------- ----------------
PREFERRED STOCK
Redeemable cumulative preferred stock with $100 par value
Authorized shares - 1,000,000
Redemption
price at TNP's Outstanding shares
option 1996 1995
------ ---- ----
Series B 4.65% 100.00 21,600 22,800 2,160 2,280
Series C 4.75% 100.00 12,600 13,200 1,260 1,320
------------ ----------- --------------- ---------------
Total redeemable cumulative preferred stock 34,200 36,000 3,420 3,600
------------ ----------- --------------- ---------------
LONG-TERM DEBT
FIRST MORTGAGE BONDS
Series L 10.50% due 2000 - 9,600
Series M 8.70% due 2006 8,100 8,200
Series R 10.00% due 2017 - 62,400
Series S 9.63% due 2019 - 19,600
Series T 11.25% due 1997 100,800 100,800
Series U 9.25% due 2000 100,000 100,000
Unamortized debt discount - (605)
SECURED DEBENTURES
12.50% due 1999 130,000 130,000
Series A 10.75% due 2003 140,000 140,000
REVOLVING CREDIT FACILITIES
1995 Facility - 43,000
1996 Facility 55,000 -
--------------- ---------------
Total long-term debt 533,900 612,995
Less current maturities (100) (1,070)
--------------- ---------------
Total long-term debt, less current maturities 533,800 611,925
--------------- ---------------
TOTAL CAPITALIZATION $ 824,768 $ 839,876
=============== ===============
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY
For the Years Ended December 31,
Common Shareholder's Equity
--------------------------------------------------------------
Capital in
Common Stock Excess of Retained
Shares Amount Par Value Earnings Total
______ ______ __________ ________ _____
(In thousands)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Balance at December 31, 1993 11 $ 107 $ 175,094 $ 38,983 $ 214,184
Net loss - - - (16,634) (16,634)
Dividends on preferred stock - - - (790) (790)
Dividends on common stock - - - (11,000) (11,000)
Retirement of preferred stock - - 17 - 17
---------- ---------- ----------- ------------ -----------
Balance at December 31, 1994 11 107 175,111 10,559 185,777
YEAR ENDED DECEMBER 31, 1995
Net income - - - 41,809 41,809
Dividends on preferred stock - - - (655) (655)
Dividends on common stock - - - (2,400) (2,400)
Retirement of preferred stock - - (180) - (180)
---------- ---------- ----------- ------------ -----------
Balance at December 31, 1995 11 107 174,931 49,313 224,351
YEAR ENDED DECEMBER 31, 1996
Net income - - - 26,862 26,862
Dividends on preferred stock - - - (167) (167)
Dividends on common stock - - - (10,700) (10,700)
Equity contribution from TNPE - - 47,170 - 47,170
Retirement of preferred stock - - 32 - 32
---------- ---------- ----------- ------------ -----------
Balance at December 31, 1996 11 $ 107 $ 222,133 $ 65,308 $ 287,548
========== ========== =========== ============ ===========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
TNP ENTERPRISES, INC. AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
General Information
The consolidated financial statements of TNPE and subsidiaries include the
accounts of TNPE and its wholly owned subsidiaries, TNP, Facility Works, Inc.,
and TNP Operating Company. The consolidated financial statements of TNP and
subsidiaries include the accounts of TNP and its wholly owned subsidiaries, TGC
and TGC II. All intercompany transactions and balances have been eliminated in
consolidation.
TNP is TNPE's principal operating subsidiary. TNP is a public utility
engaged in generating, purchasing, transmitting, distributing, and selling
electricity in Texas and New Mexico. TNP is subject to PUCT and NMPUC
regulation. Some of TNP's activities, including the issuance of securities, are
subject to FERC regulation and its accounting records are maintained in
accordance with FERC's Uniform System of Accounts.
The use of estimates is required to prepare TNPE's and TNP's consolidated
financial statements in conformity with generally accepted accounting
principles. Management believes that estimates are essential and will not
materially differ from actual results. However, adjustments may be necessary in
the future to the extent that future estimates or actual results are different
from the estimates used in the 1996 financial statements.
Accounting for the Effects of Regulation
Electric utilities operate in a highly regulated environment. TNPE's and
TNP's consolidated financial statements reflect the application of certain
accounting standards, including SFAS 71, "Accounting for the Effects of Certain
Types of Regulation," which provide for recognition of the economic effects of
rate regulation. Included among these effects are the recognition of regulatory
assets and liabilities. Regulatory assets represent revenues associated with
certain costs that are expected to be recovered from customers in future rates.
Regulatory liabilities are costs previously collected from customers or other
amounts that reduce future rates. The following table summarizes TNPE's and
TNP's regulatory assets and liabilities as of December 31, 1996 and 1995.
1996 1995
________ _________
(In thousands)
Regulatory Assets:
Deferred purchased power and fuel costs $ 3,565 $ 9,261
Deferred charges:
Losses on reaquired debt 10,000 4,810
Rate case expenses 3,743 4,454
Deferred accounting amounts 4,157 4,287
Other - 792
________ _________
Total $ 21,465 $ 23,604
======== =========
Regulatory Liabilities:
Income tax related $ 10,963 $ 26,826
Purchased power costs subject to refund - 5,688
________ _________
Total $ 10,963 $ 32,514
======== =========
Federal and state legislators and regulatory authorities have adopted or
are considering a number of changes that are significantly impacting competitive
conditions in the electric utility industry, such as the emergence of
independent power producers, wholesale transmission access, and retail wheeling.
If recovery of costs through rates becomes uncertain or unlikely, whether due to
legislative or regulatory changes, competition, or otherwise, accounting
standards such as SFAS 71 may no longer apply to TNPE and TNP. As a result, TNPE
and TNP could be required to write off all or a portion of their regulatory
assets and liabilities. Moreover, to the extent that future rates are
insufficient to recover costs, additional write downs could be required.
Management of TNPE and TNP are currently unable to predict the ultimate outcome
of changes in the electric utility industry and whether the outcome will have a
significant effect on their consolidated financial position and results of
operations. However, based upon current regulatory conditions in the states in
which TNP operates, management believes it probable that TNP will continue, for
the foreseeable future, to meet the criteria for continued application of SFAS
71, and it is probable that TNP will recover from ratepayers the regulatory
assets included in the table above.
Utility Plant
Utility plant is stated at the historical cost of construction which
includes labor, materials, indirect charges for such items as engineering and
administrative costs, and AFUDC. Property repairs and replacement of minor items
are charged to operating expenses; major replacements and improvements are
capitalized to utility plant.
AFUDC is a noncash item designed to enable a utility to capitalize interest
costs during periods of construction. Established regulatory practices enable
TNP to recover these costs from ratepayers. The composite rates used for AFUDC
were 6.0%, 8.0%, and 8.8% in 1996, 1995, and 1994, respectively.
The costs of depreciable units of plant retired or disposed of in the
normal course of business are eliminated from utility plant accounts and such
costs plus removal expenses less salvage are charged to accumulated
depreciation. When complete operating units are disposed of, appropriate
adjustments are made to accumulated depreciation, and the resulting gains or
losses, if any, are recognized.
Depreciation is provided on a straight-line method based on the estimated
lives of the properties as indicated by periodic depreciation studies. A portion
of depreciation of transportation equipment used in construction is charged to
utility plant accounts in accordance with the equipment's use. Depreciation as a
percentage of average depreciable cost was 3.2%, 3.3%, and 3.1% in 1996, 1995,
and 1994, respectively.
Cash Equivalents
All highly liquid debt instruments with maturities of three months or less
when purchased are considered cash equivalents.
Customer Receivables and Operating Revenues
TNP accrues estimated revenues for energy delivered since the latest
billing. Prior to January 1, 1995, TNP recognized revenue when billed. See Note
3 for the effects of the change in recognizing revenues from cycle billing to
the accrual method in 1995.
TNP sells customer receivables to an unaffiliated company on a nonrecourse
basis.
Purchased Power and Fuel Costs
Electric rates include estimates of purchased power and fuel costs incurred
by TNP in purchasing or generating electricity. Differences between amounts
collected and allowable costs are recorded either as purchased power subject to
refund or deferred purchased power and fuel costs in accordance with regulatory
ratemaking policy.
Deferred Charges
Expenses incurred in issuing long-term debt and related discount and
premium are amortized on a straight-line basis over the lives of the respective
issues.
Included in deferred charges are other assets that are expected to benefit
future periods and certain costs that are deferred for ratemaking purposes and
amortized over periods allowed by regulatory authorities.
Derivatives
Premiums paid for an interest rate collar will be amortized over the term
of the related agreement. Unamortized premiums are included in Deferred Charges
in the consolidated balance sheets. Amounts to be received or paid under the
agreement will be recognized on the accrual basis as a component of interest
expense.
Income Taxes
TNPE files a consolidated federal income tax return that includes the
consolidated operations of TNP and its subsidiaries. The amounts of income taxes
recognized in TNP's accompanying consolidated financial statements were computed
as if TNP and its subsidiaries filed a separate consolidated federal income tax
return.
ITC amounts utilized in the federal income tax return are deferred and
amortized to earnings ratably over the estimated service lives of the related
assets.
Fair Values of Financial Instruments
Fair values of cash equivalents, temporary investments, and customer
receivables approximated the carrying amounts because of the short maturities of
those instruments.
The estimated fair values of long-term debt and preferred stock were based
on quoted market prices of the same or similar issues. The estimated fair values
of long-term debt and preferred stock were as follows:
December 31, 1996 December 31, 1995
_________________ _________________
Carrying Amount Fair Values Carrying Amount Fair Values
_______________ ___________ _______________ ___________
(In thousands)
Long-term debt $ 533,900 $ 564,000 $ 612,995 $ 643,000
Preferred stock 3,420 1,500 3,600 1,600
Interest rate collar 295 180 - -
Common Stock
At December 31, 1996, 280,799 shares of TNPE's common stock were reserved
for issuance to TNP's 401(k) plan. Additionally, 576,947 shares of TNPE's common
stock were reserved for subsequent issuance under other stock compensation or
shareholder plans.
Shareholder Rights Plan
TNPE has a Rights Plan that is designed to protect TNPE's shareholders from
coercive takeover tactics and inadequate or unfair takeover bids. The Rights
Plan provides for the distribution of one right for each share of TNPE's common
stock currently outstanding or issued until the close of business on November 4,
1998.
Upon the occurrence of certain events, each right entitles a shareholder to
elect to purchase one share of common stock at $45 per share or, under certain
circumstances, shares of common stock at half the then-current market price or
to receive TNPE common stock or other securities having an aggregate value equal
to the excess of (i) the value of the common stock or other securities on the
date the rights are exercised over (ii) the cash payment that would have been
payable upon exercise of the rights if cash payment had been elected.
Until certain triggering events occur, the rights will trade together with
TNPE's common stock and separate rights certificates will not be issued. Among
the triggering events are the acquisition by a person or group of 10% or more of
TNPE's outstanding common stock or the commencement of a tender or exchange
offer that, upon consummation, would result in a person or group of persons
owning 15% or more of TNPE's outstanding common stock. The rights expire
November 4, 1998, unless earlier redeemed or exchanged by TNPE, and have had no
effect on EPS.
Stock-Based Compensation
As discussed in Note 7, TNPE has an equity based incentive compensation
plan that awards stock-based compensation. In 1995 the FASB issued SFAS 123,
Accounting for Stock-Based Compensation, that changes the method for calculating
expenses associated with stock-based compensation. SFAS 123, which became
effective for 1996, also allows companies to retain the approach as set forth in
APB Opinion 25, Accounting for Stock Issued to Employees, for measuring expense
for stock-based compensation. TNP has elected to continue to apply the
provisions of APB Opinion 25 in calculating stock-based compensation. The pro
forma effect of applying SFAS 123 to the equity awards during 1995 and 1996 was
immaterial.
Note 2. Regulatory Matters
Cities Rate Review
In December 1996, certain cities in the Texas gulf coast area served by TNP
passed resolutions requiring TNP to file complete rate information with those
cities. In 1997 those cities have agreed to reopen negotiations on a new
transition to competition proposal and have deferred the required rate filing
until July 1, 1997. If negotiations on the new transition to competition
proposal is not successful and the rate filings are made, TNP anticipates a
final resolution of the rate review with the cities in late 1997. Based on its
preliminary analysis, TNP believes the filing will support the reasonableness of
TNP's current rates.
Community ChoiceSM
On May 2, 1996, TNP filed an application with the PUCT requesting approval
of a program known as Community Choice that would apply to electric services
provided by TNP in Texas. On June 21, 1996, TNP filed an application with the
NMPUC requesting approval of a similar program that would apply to electric
service provided by TNP in New Mexico. Community Choice is a transition plan
designed to address the opportunities and challenges presented by the
increasingly deregulated and competitive environment of the electric services
industry.
As proposed by TNP, Community Choice provided for transition periods of
four years in New Mexico and five years in Texas. Community Choice proposed that
during the transition periods, TNP's rates for electric service in New Mexico
and Texas would be structured to provide TNP a reasonable opportunity to reduce
its so-called potential "stranded costs." "Stranded costs" means the difference
between what it currently costs TNP to provide service and what a customer would
be willing to pay for such service in a competitive market. In Texas, TNP's
potential stranded cost relates to TNP One, its 300 MW generating unit, and
could potentially be more than $250 million. In New Mexico, TNP's potential
stranded cost relates to its purchased power contracts and could potentially be
more than $10 million. At the end of the transition periods, TNP would
aggregate, or combine, its customers at the community level and permit these
aggregated electrical loads to choose the types and nature of electric services
that will be available to individual customers within each aggregated load.
In November 1996, TNP withdrew its Community Choice filing in Texas. Prior
to the withdrawal TNP had attempted to work through the numerous issues with
various intervenors. The withdrawal was due to a lack of consensus on key
issues, including the issue of stranded costs.
In 1997 TNP proposed a new plan for transition to competition to the
communities within TNP's service territory in Texas. The new plan includes a
five-year transition period and the opportunity to reduce potential stranded
costs. The new plan also entails options providing various levels of access to
the open market, which TNP customers will be able to select from at the end of
the transition period. Due to the numerous issues involved, TNP can provide no
assurance as to the timing or outcome of the new transition to competition plan
in Texas.
In 1997 TNP filed a stipulation with the NMPUC adjusting several of the
components of the original Community Choice proposal. The stipulation has the
support of the major stakeholders. The revised plan gives TNP customers the
right to choose their energy provider after a three-year transition period,
freezes rates (including fuel and purchased power) for a three-year period, and
allows for customer aggregation based on market forces. Hearings were held in
late February 1997. Approval by the NMPUC is the final step. TNP believes the
plan will allow it to recover most if not all of its potential stranded costs in
New Mexico, however, the actual recovery of any stranded costs will depend on
the future market and price for energy through 2002.
Fuel Reconciliation
TNP's fixed fuel factor remains the same until changed as part of general
rate case or fuel reconciliation, or until the PUCT orders a reconciliation for
any over or under collections of fuel costs. TNP expects to file a
reconciliation of fuel costs in June 1997, for the period of October 1993
through December 1996. Management believes the ultimate outcome of this fuel
reconciliation will not have a material adverse effect on TNP's or TNPE's
consolidated financial position or results of operations.
1994 Texas Rate Case Settlement
On October 6, 1994, the PUCT approved a unanimous settlement among the
parties in TNP's 1994 retail rate application. The rate case settlement provided
for an increase in annualized revenues in Texas of $17.5 million, or 4.5%, which
TNP implemented on October 2, 1994.
The settlement resolved all outstanding court appeals in connection with
TNP's two previous rate cases and required TNP to write off $31.5 million ($35.0
million of the original cost of TNP One). TNP recognized the write-off in the
second quarter of 1994, which resulted in an after-tax charge of approximately
$20.5 million, or $1.91 per share of TNPE common stock. The settlement also
required TNP to sell its Texas Panhandle properties, subject to certain
conditions.
The rate case settlement includes a moratorium restricting TNP from
applying for rate increases in Texas until March 31, 1999, subject to certain
conditions. These conditions do not allow TNP to apply for any base rate
increase under any circumstances prior to March 31, 1997, but would allow an
application for increased rates to be filed after that time if certain force
majeure events (as defined in the agreement) occur during the moratorium.
Note 3. Change in Accounting for Unbilled Revenues
Effective January 1, 1995, TNP changed its method of accounting for
operating revenues from cycle billing to the accrual method. The change was made
in order to more closely match revenues and expenses and more closely conforms
to common utility industry practice. The cumulative effect of this change was to
recognize $12,993,000 of additional revenues ($8,445,000, net of taxes, or $0.77
per share). The pro forma effects of the change in accounting on 1994, assuming
the new method was applied retroactively to that year, would have been to
decrease the net loss by $1,347,000 or $0.13 per share).
Note 4. Sale of Texas Panhandle Properties
In September 1995, TNP sold its Texas Panhandle properties to SPS for $29.2
million, and recognized a net of tax gain of $9.5 million, or $0.87 per share of
TNPE common stock. The sale was consummated pursuant to the sale agreement
between TNP and SPS in connection with the Texas rate case settlement discussed
in Note 2. The Panhandle properties comprised a relatively small portion of
TNP's business. The book value of the Panhandle properties sold was $14.3
million. Revenues from the properties for 1995 through the closing date were
$7.4 million with corresponding sales of 76.3 GWH to 7,350 customers.
The proceeds received from SPS were used to redeem $29.2 million of Series
T FMBs. In January 1996, TNP filed a class action lawsuit against John Hancock
Mutual Life Insurance Company, a Series T bondholder. TNP sought confirmation
that its redemption of Series T FMBs with proceeds from the Panhandle sale was
within its rights under the indenture governing the FMBs.
TNP's lawsuit was originally filed against PPM, which claimed to be a
bondholder and threatened to take legal action against TNP over the redemption.
PPM filed a counterclaim seeking declarations that the Series T partial
redemption breached the indenture governing the FMBs and that TNP could not
redeem Series T FMBs prior to maturity under circumstances like the Panhandle
sale. Because PPM was not a bondholder, it was dismissed from the lawsuit and,
on PPM's motion, Jackson National Life Insurance Company was substituted as
defendant.
As a result of federal mediation on January 30, 1997, TNP, Jackson National
Life Insurance Company and John Hancock Insurance Co. agreed to a tentative
settlement of the lawsuit. The proposed settlement, which is subject to approval
of the federal judge, calls for TNP to pay $2 million to the parties of the
lawsuit. Accordingly, TNP established a reserve for the settlement in 1996. The
proposed settlement, if approved, will allow for the end of costly ongoing
litigation.
Note 5. Revenues Subject to Refund
During the third quarter of 1995, the IRS issued TNP a favorable private
letter ruling that enabled TNP to recognize additional revenues and accrued
interest of $4.9 million that previously had been deferred. This resulted in a
one-time after-tax earnings increase of $3.0 million, or $0.28 per share of TNPE
common stock.
The revenues recognized were collected from October 1991 through October
1994, as a result of a Texas rate case filed in 1991. The PUCT allowed TNP to
collect additional annualized revenues of $1.6 million pending the resolution of
the regulatory tax treatment of disallowed utility plant. Recognition of these
revenues was conditioned upon TNP obtaining the ruling from the IRS.
Note 6. Reorganization
During the fourth quarter of 1994, TNP reduced company-wide staffing levels
by 140 positions, or 14% of the workforce, as a result of work elimination
reviews by employee teams. The goals of the teams were to streamline operations
and reduce future costs. The staffing reductions were accomplished primarily
through early retirements and involuntary terminations. The aggregate costs
impacting TNP's 1994 operations were $8,782,000 ($5,723,000, net of taxes, or
$0.53 per share of TNPE common stock).
Note 7. Employee Benefit Plans
Pension Plan
TNP has a defined benefit pension plan covering substantially all of its
employees. Benefits are based on an employee's years of service and
compensation. TNP's funding policy is to contribute the minimum amount required
by federal funding standards. The following table sets forth the plan's funded
status and amounts recognized in the consolidated balance sheets at December 31,
1996, and 1995.
1996 1995
_________ _________
(In thousands)
Actuarial present value of benefit obligations:
Vested benefit obligation $ 58,466 $ 59,393
Unvested benefit obligation 4,539 4,383
_________ _________
Accumulated benefit obligation $ 63,005 $ 63,776
========= =========
Projected benefit obligation $ 66,406 $ 67,752
Unrecognized net asset 83 107
Unrecognized prior service cost 1,588 2,536
Unrecognized net gain from past experience 21,484 11,357
_________ _________
89,561 81,752
Plan assets (principally marketable securities)
at estimated fair value 82,771 75,037
________ _________
Accrued pension costs (included in deferred
credits in the consolidated balance sheets) $ 6,790 $ 6,715
========= =========
Net pension costs were comprised of the following components as determined
using the projected unit credit actuarial method:
1996 1995 1994
_______ _______ _______
(In thousands)
Service cost $ 1,425 $ 1,071 $ 1,763
Interest cost on projected benefit obligation 4,841 4,762 4,179
Adjustment for actual return on plan assets (12,398) (13,797) 260
Effect of reorganization costs, net - - 3,537
Net amortization and deferral 6,207 7,607 (6,238)
_______ ________ ________
Net pension costs $ 75 $ (357) $ 3,501
======= ======== ========
Assumptions used in accounting for the pension plan as of December 31,
1996, and 1995 were as follows:
1996 1995
____ ____
Discount rates 7.75% 7.25%
Rates of increase in compensation levels 4.0% 4.0%
Expected long-term rate of return on assets 9.5% 9.5%
Postretirement Benefit Plan
TNP sponsors a health care plan that provides postretirement medical and
death benefits to retirees who satisfied minimum age and service requirements
during employment. TNP recognizes the costs of postretirement benefits on the
accrual basis during the periods that employees render service to earn the
benefits in accordance with SFAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions". Prior to 1993, the costs of these benefits were
expensed on a "pay-as-you-go" basis. TNP has been permitted to recover through
rates the additional costs resulting from the adoption of SFAS 106. TNP
established a trust fund dedicated to paying these postretirement benefits.
The following table sets forth the plan's funded status and amounts
recognized in the consolidated balance sheets at December 31, 1996, and 1995.
1996 1995
_______ _______
(In thousands)
Accumulated postretirement benefit obligation:
Retirees and dependents $13,060 $14,229
Active employees 4,244 4,093
_______ _______
Total benefits earned 17,304 18,322
Plan assets (principally marketable securities)
at estimated fair value 6,975 5,710
_______ _______
Accumulated postretirement benefit
obligation in excess of plan assets 10,329 12,612
Unrecognized transition obligation (13,721) (14,579)
Unrecognized net gain from past experience 6,998 5,603
_______ _______
Accrued postretirement benefit costs (included in
deferred credits in the consolidated balance sheets) $ 3,606 $ 3,636
======= =======
Net postretirement benefit costs were comprised of the following
components:
1996 1995 1994
______ ______ ______
(In thousands)
Service cost $ 524 $ 374 $ 738
Interest cost on postretirement
benefit obligation 1,259 1,265 1,642
Reduction for actual return on plan
assets (708) (956) (59)
Effect of reorganization costs, net - - 2,945
Net amortization and deferral 922 1,145 784
______ ______ ______
Net postretirement benefit costs $1,997 $1,828 $6,050
====== ====== ======
The transition obligation is being amortized over a 20-year period that
began in 1993. The assumed health care cost trend rate used to measure the
expected cost of benefits was 5.7% for 1996 and is assumed to trend downward
slightly each year to 4.3% for 2003 and thereafter. That assumed rate has a
significant effect on the amounts reported. For example, increasing the assumed
health care cost trend rates by one percentage point in each year would increase
the accumulated postretirement benefit obligation as of December 31, 1996, by
$2.1 million and the aggregate of the service and interest cost components of
net postretirement benefit cost for 1996 by $288,000.
<PAGE>
Additional assumptions used in accounting for the postretirement benefit
plan as of December 31, 1996, and 1995, were as follows:
1996 1995
____ ____
Discount rates 7.75% 7.25%
Expected rate of return on assets (net of taxes) 5.7% 6.0%
Incentive Plans
TNPE and TNP have several incentive compensation plans. All employees
participate in one or more of these plans. Incentive compensation is based on
meeting key financial and operational performance goals such as EPS, operations
and maintenance costs per KWH, and system reliability measures. Operating
expenses for 1996 and 1995 included costs for the various cash and equity plans
of $4.8 million and $2.0 million, respectively.
Other Employee Benefits
TNP has a 401(k) plan designed to enhance the other retirement plans
available to its employees. Employees may invest their contributions in fixed
income securities, mutual funds, or TNPE common stock. TNP's contributions are
used to purchase TNPE common stock, which employees may later convert into
investments in other investment options.
TNP has employment contracts with certain members of management and other
key personnel. The contracts provide for lump sum compensation payments and
other rights in the event of termination of employment or other adverse
treatment of such persons following a "change in control" of TNPE or TNP. Such
event is defined to include, among other things, substantial changes in the
corporate structure, ownership, or board of directors of either entity.
An excess benefit plan has been provided for certain key personnel and
retired employees. The payment of benefits under the excess benefit plan is
partially provided under an insurance policy arrangement for paying the benefits
that generally would have been provided by the pension and thrift plans except
for federal limitations.
Note 8. Income Taxes
<TABLE>
<CAPTION>
Components of income taxes were as follows:
TNPE TNP
____________________________________ _____________________________________
1996 1995 1994 1996 1995 1994
____ ____ ____ ____ ____ ____
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Taxes on net operating income:
Federal - current $ 8,596 $ 3,108 $ (253) $ 8,596 $ 3,108 $ (253)
State - current 86 507 55 86 507 55
Federal - deferred 1,381 6,700 (13) 1,381 6,700 (13)
ITC adjustments 270 2,002 (1,027) 270 2,002 (1,027)
_________ ___________ __________ __________ ___________ __________
10,333 12,317 (1,238) 10,333 12,317 (1,238)
_________ ___________ __________ __________ ___________ __________
Taxes on other income (loss):
Federal - current (114) 7,170 1,006 (100) 7,203 560
Federal - deferred (1,574) (1,444) (10,902) (241) (1,568) (10,907)
ITC adjustments (650) (323) (409) (381) (311) (347)
_________ ___________ __________ __________ ___________ __________
(2,338) 5,403 (10,305) (722) 5,324 (10,694)
_________ ___________ __________ __________ ___________ __________
Taxes on cumulative effect
of change in accounting,
federal-deferred (Note 3) - 4,548 - - 4,548 -
_________ ___________ __________ __________ ___________ __________
Total income taxes $ 7,995 $ 22,268 $ (11,543) $ 9,611 $ 22,189 $ (11,932)
======== ========== =========== ========== =========== ==========
</TABLE>
<PAGE>
The amounts for total income taxes differ from the amounts computed by
applying the appropriate federal income tax rate to earnings (loss) before
income taxes for the following reasons:
<TABLE>
<CAPTION>
TNPE TNP
___________________________________ ___________________________________
1996 1995 1994 1996 1995 1994
____ ____ ____ ____ ____ ____
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory tax rate $ 10,850 $ 17,595 $ (9,873) $ 12,735 $ 17,674 $ (9,731)
Amortization of
accumulated deferred ITC (1,323) (1,079) (1,055) (1,323) (1,079) (1,055)
Amortization of
excess deferred taxes (143) (160) (183) (143) (318) (183)
State income taxes 86 507 55 86 507 55
ITC related to disallowances (191) (312) (347) (191) (312) (347)
ITC adjustment (760) - - - - -
Taxes on cumulative effect
of change in accounting,
federal- deferred (Note 3) - 4,548 - - 4,548 -
Other, net (524) 1,169 (140) (1,553) 1,169 (671)
_________ _________ __________ _________ _________ _________
Actual income taxes $ 7,995 $ 22,268 $ (11,543) $ 9,611 $ 22,189 $(11,932)
========= ========= ========== ========= ========= =========
</TABLE>
The tax effects of temporary differences that gave rise to significant
portions of net current and net noncurrent deferred income taxes as of December
31, 1996, and 1995, are presented below.
<TABLE>
<CAPTION>
TNPE TNP
__________________________ __________________________
1996 1995 1996 1995
____ ____ ____ ____
(In thousands)
<S> <C> <C> <C> <C>
Current deferred income taxes:
Deferred tax assets:
Unbilled revenues $ 2,470 $ 2,413 $ 2,470 $ 2,413
Other 663 264 663 264
____________ ____________ ____________ ____________
3,133 2,677 3,133 2,677
Deferred tax liability:
Deferred purchased power and fuel costs (1,196) (2,533) (1,196) (2,533)
____________ ____________ ____________ ____________
Current deferred income taxes, net $ 1,937 $ 144 $ 1,937 $ 144
============ ============ ============ ============
Noncurrent deferred income taxes:
Deferred tax assets:
Minimum tax credit carryforwards $ 27,445 $ 22,365 $ 34,703 $ 27,317
Federal regular tax net operating
loss carryforwards - 4,240 1,724 9,604
ITC carryforwards 11,255 14,399 11,823 15,591
Regulatory related items 16,844 17,921 16,844 17,921
Accrued employee benefit costs 3,486 3,323 3,486 3,323
Other 1,263 1,900 696 707
____________ ____________ ___________ ____________
60,293 64,148 69,276 74,463
____________ ____________ ___________ ____________
Deferred tax liabilities:
Utility plant, principally due to
depreciation and basis differences (115,823) (114,446) (115,823) (114,446)
Deferred charges and other (5,565) (4,743) (5,565) (4,743)
Regulatory related items (13,749) (2,340) (13,748) (2,340)
____________ ____________ ____________ ____________
(135,137) (121,529) (135,136) (121,529)
____________ ____________ ____________ ____________
Noncurrent deferred income taxes, net $ (74,844) $ (57,381) $ (65,860) $ (47,066)
============ ============ ============ ============
</TABLE>
<PAGE>
Federal tax carryforwards as of December 31, 1996, were as follows:
TNPE TNP
(In thousands)
Net operating loss
Amount $ - $ 4,926
Expiration period - 2009
Minimum tax credits
Amount $ 27,445 $ 34,703
Expiration period None None
Investment tax credit
Amount $ 11,255 $ 11,823
Expiration period 2005 2005
In March 1995, an Internal Revenue Service revenue agent involved in
auditing TNPE's 1990-1994 consolidated federal income tax returns recommended
that a private letter ruling concerning eligibility of the TNP One generating
plant for ITC be revoked retroactively. Management believes that TNP's claim for
ITC is valid and is contesting the agent's recommendation. Of the $22.5 million
of ITC at issue, TNPE and its subsidiaries have utilized $8.2 million of ITC in
the consolidated tax returns through 1995 and expect to utilize $1.6 million in
the 1996 consolidated tax returns. TNP's portion is $7.0 million and $1.8
million, respectively. However, since 1990 TNPE and TNP have only recognized
$2.2 million of the ITC in results of operations.
Note 9. Long-Term Debt
First Mortgage Bonds
FMBs issued under the Bond Indenture are secured by substantially all
utility plant owned directly by TNP. The Bond Indenture restricts cash dividend
payments on TNP common stock as discussed in Note 11.
TNP has the ability to issue additional FMBs based on certain financial
tests, or based on previously retired FMBs. As of December 31, 1996, TNP could
not issue any additional FMBs based on the required financial tests. However,
TNP also has the ability to issue additional FMBs against previously retired
FMBs, as limited by an earnings test. As of December 31, 1996, TNP could issue
up to $91 million of FMBs at an assumed interest rate of 9% based on previously
retired FMBs.
Secured Debentures
TNP's Series A, 10.75% secured debentures and 12.5% secured debentures are
secured with a first lien on a portion of Unit 1. The 12.5% secured debentures
are also secured by a first lien on a portion of Unit 2. TNP's secured debenture
holders are also secured by second liens on substantially all utility plant in
Texas owned directly by TNP. The secured debentures also contain restrictions on
dividends and asset dispositions.
Revolving Credit Facilities
In September 1996, TNP entered into a new credit facility ("1996
Facility"). The 1996 Facility provides for a total commitment of $100 million
and supplements the existing credit facility ("1995 Facility"). The 1995
Facility provides for a total commitment of $150 million. The 1996 Facility
commitment expires September 2001, while the 1995 Facility commitment will
reduce to $125 million on November 3, 1998, and to $100 million on November 3,
1999, and will expire on November 3, 2000. The collateral securing the 1996
Facility is $100 million of non-interest bearing (except upon default) FMBs.
Collateral securing the 1995 Facility is generally a first lien on a portion of
TNP One, a second lien on TNP's first mortgage bond trust estate located in
Texas, and $30 million of noninterest bearing FMBs. This collateral secures
borrowings up to $100 million. Before increasing borrowings above $100 million,
TNP must pledge additional noninterest bearing FMBs in an amount equal to the
borrowings over $100 million.
In addition to the 1996 Facility, TNP purchased a $50 million interest rate
collar to mitigate exposure to variable interest rates. The collar sets floor
and ceiling rates on the 90-day LIBOR rate at 5.25% and 7.50%, respectively. The
term of the interest rate collar is September 1997 through September 2000.
TNP has sufficient liquidity to satisfy the possibility of any known
contingencies. Management believes cash flow from operations and periodic
borrowings under its two revolving credit facilities should be sufficient to
meet working capital requirements and planned capital expenditures at least
through 1998.
At December 31, 1996, interest rates on borrowings under the 1996 Facility
were 7.06% and would have been 7.12% on the 1995 Facility. The composite average
borrowing rates under TNP's credit facilities were 7.32% and 8.92% for 1996 and
1995, respectively. The interest rate margins on both facilities will decrease
as the ratings on TNP's FMBs improve.
Under specified conditions, TNP's credit facilities restrict the payment of
cash dividends on TNP common stock. The credit facilities also prohibit the
sale, lease, transfer, or other disposition of assets other than in the ordinary
course of business.
Maturities
As of December 31, 1996, FMB and secured debenture maturities and sinking
fund requirements for the five years following 1996 are as follows:
Secured Total FMBs and
Year FMBs Debentures Secured Debentures
____ ____ __________ __________________
(In thousands)
1997 $ 100 $ - $ 100
1998 100 - 100
1999 100 130,000 130,100
2000 100,100 - 100,100
2001 100 - 100
At the end of 1996, $55 million was outstanding under the 1996 Facility,
which matures in 2001. In January 1997 TNP borrowed from its credit facilities
in order to retire the $100.8 million of 11.25% Series T FMBs. Accordingly, at
December 31, 1996, the $100.8 million was classified as long-term debt.
Following the retirement of the Series T FMBs, TNP had available borrowing
capacity of $90.5 million under the credit facilities.
As of December 31, 1996, Facility Works had $202,000 of debt associated
with the purchase of vehicles.
Note 10. Redeemable Cumulative Preferred Stock
If TNP liquidates voluntarily or involuntarily, holders of preferred stock
have preferences equal to amounts payable on redemption or par, respectively,
plus accrued dividends. TNP's charter provides that additional shares of
preferred stock may not be issued unless certain tests are met. As of December
31, 1996, $25 million additional preferred stock could be issued.
Note 11. Capital Stock and Dividends
TNPE
In October 1996, TNPE issued 2 million shares of common stock in a public
offering, with net proceeds of approximately $47,170,000. The net proceeds were
transferred to TNP as an equity contribution.
In September 1996, TNPE increased its quarterly dividend from $0.22 to
$0.245 per share. TNPE had reduced the quarterly dividend by 51% from $0.41 to
$0.20 per share beginning with the third quarter of 1994 due to TNP's
restriction (discussed below) and other factors such as the relatively low
common equity component of TNPE's capital structure and industry considerations.
TNP
The Bond Indenture prohibits TNP from paying cash dividends on its common
stock to TNPE unless unrestricted retained earnings are available. The
restriction became operative during 1994 due to the recognition of $35.0 million
of regulatory disallowances as discussed in Note 2 and temporarily precluded TNP
from paying cash dividends until March 1995.
As of December 31, 1996, $46.6 million of unrestricted retained earnings
were available for dividends.
Note 12. Commitments and Contingencies
Fuel Supply Agreement
TNP successfully negotiated a 20% reduction in the cost of lignite provided
by Walnut Creek Mining Company effective January 1, 1995, for the life of TNP
One. Walnut Creek Mining Company is jointly owned by Phillips Coal Company and
Peter Kiewit Sons', Inc.
<PAGE>
Wholesale Purchased Power Agreements
TNP purchases a significant portion of its electric requirements from
various wholesale suppliers. These contracts are scheduled to expire in various
years through 2010.
TNP has notified TU of its intent to cease purchasing full requirements
power and energy effective January 1, 1999. In addition, in July 1995 TNP filed
proceedings with the PUCT and in a Texas state district court to declare TNP's
wholesale purchased power agreement with TU null and void. On August 29, 1996,
The PUCT entered an order declaring two of the terms of the TU Agreement void,
but upheld the validity of the remainder of the contract. In November 1996, TNP
filed an a appeal of the PUCT's ruling with a state district court.
In 1996, TU supplied approximately 43% of TNP's Texas capacity and 24% of
its Texas energy requirements. Management expects, as a result of the developing
competition within the wholesale power market, to enter into new arrangements
for such capacity and energy on terms that are more favorable for its customers.
TNP has requested proposals for purchased power resources to replace power
currently purchased from TU.
At December 31, 1996, TNP had various outstanding commitments for take or
pay agreements, including the fuel supply agreement discussed above. Detailed
below are the fixed and determinable portion of the obligations (amounts in
millions):
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
_______ ________ ________ _______ _______
<S> <C> <C> <C> <C> <C>
Purchased power agreements $ 67.4 $ 52.0 $ 17.1 $ 16.7 $ 16.4
Fuel supply agreements 30.2 30.2 30.2 30.2 30.2
_______ ________ ________ _______ _______
Total $ 97.6 $ 82.2 $ 47.3 $ 46.9 $ 46.6
======= ======== ======== ======= =======
</TABLE>
Significant Customer
TNP is actively negotiating with a significant major industrial customer in
Texas that provided GWH sales of 628 and annual revenues of $27.8 million in
1996 ($9.9 million in base revenues). This customer is constructing a 300-MW
cogeneration plant, the first phase of which is expected to commence operations
in 1998. TNP is negotiating with the customer to continue providing
transmission, distribution and other services. Even if TNP is successful in
these negotiations, base revenues from this customer are expected to be
significantly less.
Legal Actions
TNP is involved in various claims and other legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on TNP's
and TNPE's consolidated financial position or results of operations.
<PAGE>
TNP ENTERPRISES, INC. AND SUBSIDIARIES
Selected Quarterly Consolidated Financial Data
The following selected quarterly consolidated financial data for TNPE is
unaudited, and, in the opinion of the TNPE's management, is a fair summary of
the results of operations for such periods:
<TABLE>
<CAPTION>
March 31 June 30 Sept. 30 Dec. 31
__________ __________ __________ __________
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
1996
____
Operating revenues........................................ $ 99,827 $ 122,020 $ 157,453 $ 123,437
Net operating income...................................... 17,786 25,327 31,237 19,527
Net income................................................ 562 7,831 14,292 368
Income applicable to common stock......................... 520 7,789 14,250 327
Earnings per share of common stock........................ 0.05 0.71 1.29 0.03
Dividends per share of common stock....................... $ 0.22 $ 0.22 $ 0.245 $ 0.245
Weighted average common shares outstanding................ 10,986 11,028 11,080 13,032
1995
____
Operating revenues........................................ $ 105,647 $ 121,237 $ 151,586 $ 107,353
Net operating income...................................... 17,044 25,100 35,147 19,304
Net income ............................................... 6,124 6,131 26,728 2,522
Income applicable to common stock......................... 5,936 5,951 26,576 2,387
Earnings per share of common stock........................ 0.55 0.54 2.44 0.22
Dividends per share of common stock....................... $ 0.20 $ 0.20 $ 0.20 $ 0.22
Weighted average common shares outstanding................ 10,877 10,901 10,909 10,915
</TABLE>
Generally, the variations between quarters reflect the seasonal
fluctuations of TNP's business. In addition, the results above are impacted by
one-time items. These items, net of taxes, are as follows:
- - reserve for tentative settlement of Series T litigation $1.3 million in
fourth quarter of 1996 (Note 4)
- - change in accounting for unbilled revenues of $8.4 million in first quarter
of 1995 (Note 3)
- - gain on sale of Texas Panhandle properties of $9.5 million in third quarter
of 1995 (Note 4)
- - recognition of previously deferred revenues of $3.0 million during the
third quarter of 1995 (Note 5)
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
See Form 8-K filed on February 25, 1997.
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors
The information required by this item is incorporated by reference to
"Election of Directors" and "Security Ownership of Management and Certain
Beneficial Owners" in the proxy statement relating to the 1997 Annual Meeting of
Holders of TNPE Common Stock.
Executive Officers
The information set forth under "Employees and Executives" in Part I is
incorporated here by reference.
Item 11. EXECUTIVE COMPENSATION.*
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.*
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.*
* The information required by Items 11, 12, and 13 is incorporated by
reference to "Compensation of Directors and Executive Officers" and
"Security Ownership of Management and Certain Beneficial Owners" in the
proxy statement relating to the 1997 Annual Meeting of Holders of TNPE
Common Stock.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) The following financial statements are filed as part of this report:
<S> <C>
Page
Independent Auditors' Reports...................................................................... 17
TNPE
Consolidated Statements of Income (Loss), Three Years Ended December 31, 1996...................... 19
Consolidated Statements of Cash Flows, Three Years Ended December 31, 1996......................... 20
Consolidated Balance Sheets, December 31, 1996, and 1995........................................... 21
Consolidated Statements of Capitalization, December 31, 1996, and 1995............................. 22
Consolidated Statements of Common Shareholders' Equity,
Three Years Ended December 31, 1996.............................................................. 23
TNP
Consolidated Statements of Income (Loss), Three Years Ended December 31, 1996...................... 24
Consolidated Statements of Cash Flows, Three Years Ended December 31, 1996......................... 25
Consolidated Balance Sheets, December 31, 1996, and 1995........................................... 26
Consolidated Statements of Capitalization, December 31, 1996, and 1995............................. 27
Consolidated Statements of Common Shareholders' Equity,
Three Years Ended December 31, 1996.............................................................. 28
Notes to Consolidated Financial Statements......................................................... 29
Selected Quarterly Consolidated Financial Data - TNPE.............................................. 40
</TABLE>
(b) Report on Form 8-K
TNPE and TNP filed a report on Form 8-K dated February 25, 1997, reporting
information under Item 4 - regarding a change in Independent Accountants
and the satisfactory resolution of a disagreement on accounting.
(c) The Exhibit Index on pages 43-48 is incorporated here by reference.
(d) All financial statement schedules are omitted, as the required information
is not applicable or the information is presented in the consolidated
financial statements or related Notes.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrants have duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized.
TNP ENTERPRISES, INC.
Date: March 7, 1997 By: \s\ M. S. Cheema
Manjit S. Cheema, Vice President &
Chief Financial Officer
TEXAS-NEW MEXICO POWER COMPANY
Date: March 7, 1997 By: \s\ M. S. Cheema
Manjit S. Cheema, Senior Vice President &
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 the
Registrants and in the capacities and on the dates indicated.
Title Date
By \s\ Kevern R. Joyce Chairman, President, 3/7/97
Kevern R. Joyce & Chief Executive Officer
By \s\ M. S. Cheema Senior Vice President 3/7/97
Manjit S. Cheema & Chief Financial Officer
of TNP and Vice President
& Chief Financial
Officer of TNPE
By \s\ Scott Forbes Controller of TNP & 3/7/97
Scott Forbes Chief Accounting
Officer of TNPE
By \s\ R. Denny Alexander Director 3/7/97
R. Denny Alexander
By \s\ John A. Fanning Director 3/7/97
John A. Fanning
By \s\ Sidney M. Gutierrez Director 3/7/97
Sidney M. Gutierrez
By \s\ James R. Holland, Jr. Director 3/7/97
James R. Holland, Jr.
By \s\ Harris L. Kempner, Jr. Director 3/7/97
Harris L. Kempner, Jr.
By \s\ Dwight R. Spurlock Director 3/7/97
Dwight R. Spurlock
By \s\ Dr. Carol D. Smith Surles Director 3/7/97
Dr. Carol D. Smith Surles
By \s\ Dennis H. Withers Director 3/7/97
Dennis H. Withers
<PAGE>
EXHIBIT INDEX
Exhibits filed with this report are denoted by "*."
Exhibit
No. Description
TNPE incorporates the following exhibits by reference to the exhibits and
filings noted in parenthesis.
3(a) - Articles of Incorporation and Amendments through March 6, 1984
(Exhibit 3(a) to TNPE 1984 Form S-14, File No. 2-89800).
3(b) - Amendment to Articles of Incorporation filed September 25, 1984
(Exhibit 3(b) to TNPE 1984 Form 10-K, File No.
1-8847).
3(c) - Amendment to Articles of Incorporation filed August 29, 1985
(Exhibit 3(a) to TNPE 1985 Form 10-K, File No.1-8847).
3(d) - Amendment to Articles of Incorporation filed June 2, 1986
(Exhibit 3(a) to TNPE 1986 Form 10-K, File No.1-8847).
3(e) - Amendment to Articles of Incorporation filed May 10, 1988
(Exhibit 3(e) to TNPE 1988 Form 10-K, File No.1-8847).
3(f) - Amendment to Articles of Incorporation filed May 10, 1988
(Exhibit 3(f) to TNPE 1988 Form 10-K, File No.1-8847).
3(g) - Amendment to Articles of Incorporation filed December 27, 1988
(Exhibit 3(g) to TNPE 1988 Form 10-K, File No.1-8847).
3(h) - Bylaws, as amended (Exhibit 3(h) to joint 1994 Form 10-K, File
Nos. 1-8847 and 2-97230).
4(u) - Rights Agreement and Form of Right Certificate, as amended,
effective November 13, 1990 (Exhibit 2.1 to TNPE Form 8-A, File
No. 1-8847).
*23 - Independent Auditors' Consent - KPMG Peat Marwick LLP.
*27 - Financial Data Schedule for TNPE.
TNP incorporates the following exhibits by reference to the exhibits and filings
noted in parenthesis.
3(i) - Restated Articles of Incorporation. (Exhibit 3(i) to TNP 1996 10-K,
File No. 2-97230)
3(ii) - Bylaws, as amended November 15, 1994 (Exhibit 3(hh) to TNP 1994
Form 10-K, File No. 2-97230).
*27 - Financial Data Schedule for TNP.
TNPE and TNP incorporate the following exhibits by reference to the exhibits and
filings noted in parenthesis.
4(a) - Indenture of Mortgage and Deed of Trust dated as of November 1,
1944 (Exhibit 2(d) to Community Public Service Co. ("CPS") 1978
Form S-7, File No. 2-61323).
4(b) - Seventh Supplemental Indenture dated as of May 1, 1963 (Exhibit
2(k) to CPS Form S-7, File No. 2-61323).
4(c) - Eighth Supplemental Indenture dated as of July 1, 1963 (Exhibit
2(1), to CPS Form S-7, File No. 2-61323).
4(d) - Ninth Supplemental Indenture dated as of August 1, 1965 (Exhibit
2(m), to CPS Form S-7, File No. 2-61323).
4(e) - Tenth Supplemental Indenture dated as of May 1, 1966 (Exhibit 2(n),
to CPS Form S-7, File No. 2-61323).
4(f) - Eleventh Supplemental Indenture dated as of October 1, 1969
(Exhibit 2(o), to CPS Form S-7, File No. 2-61323).
4(g) - Twelfth Supplemental Indenture dated as of May 1, 1971 (Exhibit
2(p), to CPS Form S-7, File No. 2-61323).
4(h) - Thirteenth Supplemental Indenture dated as of July 1, 1974 (Exhibit
2(q), to CPS Form S-7, File No. 2-61323).
4(i) - Fourteenth Supplemental Indenture dated as of March 1, 1975
(Exhibit 2(r), to CPS Form S-7, File No. 2-61323).
4(j) - Fifteenth Supplemental Indenture dated as of September 1, 1976
(Exhibit 2(e), File No. 2-57034).
4(k) - Sixteenth Supplemental Indenture dated as of November 1, 1981
(Exhibit 4(x), File No. 2-74332).
4(l) - Seventeenth Supplemental Indenture dated as of December 1, 1982
(Exhibit 4(cc), File No. 2-80407).
4(m) - Eighteenth Supplemental Indenture dated as of September 1,
1983 (Exhibit (a) to Form 10-Q of TNP for the quarter ended
September 30, 1983, File No. 1-4756).
4(n) - Nineteenth Supplemental Indenture dated as of May 1, 1985
(Exhibit 4(v), File No. 2-97230).
4(o) - Twentieth Supplemental Indenture dated as of July 1, 1987
(Exhibit 4(o) to Form 10-K of TNP for the year ended December 31,
1987, File No. 2-97230).
4(p) - Twenty-First Supplemental Indenture dated as of July 1, 1989
(Exhibit 4(p) to Form 10-Q of TNP for the quarter ended June 30,
1989, File No. 2-97230).
4(q) - Twenty-Second Supplemental Indenture dated as of January 15,
1992 (Exhibit 4(q) to Form 10-K of TNP for the year ended
December 31, 1991, File No. 2-97230).
4(r) - Twenty-Third Supplemental Indenture dated as of September 15,
1993 (Exhibit 4(r) to Form 10-K of TNP for the year ended December
31, 1993, File No. 2-97230).
4(s) - Twenty-Fourth Supplemental Indenture dated as of November 3,
1995 (Exhibit 4(s) to Form 10-K of TNP for the year ended
December 31, 1993, File No. 2-97230).
4(t) - Twenty-Fifth Supplemental Indenture dated as of September 10,
1996 (Exhibit 4(t) to Form 10-Q of TNP for the quarter ended
September 30, 1996, File No. 2-97230).
4(u) - Indenture and Security Agreement for 12 1/2% Secured Debentures
dated as of January 15, 1992 (Exhibit 4(r) to TNP 1991 Form 10-K,
File No. 2-97230).
4(v) - Indenture and Security Agreement for 10 3/4% Secured Debentures
dated as of September 15, 1993 (Exhibit 4(t) to TNP 1993 Form 10-K,
File No. 2-97230).
Contracts Relating to TNP One
10(a) - Fuel Supply Agreement, dated November 18, 1987, between
Phillips Coal Company and TNP (Exhibit 10(j) to TNP 1987 Form 10-K,
File No. 2-97230).
10(a)1 - Amendment No. 1, dated as of April 1, 1988, to Fuel Supply
Agreement dated November 18, 1987, between Phillips Coal Company
and TNP (Exhibit 10(a)1 to Joint 1994 Form 10-K, File Nos. 1-8847
and 2-97230).
10(a)2 - Amendment No. 2, dated as of November 29, 1994, between Walnut
Creek Mining Company and TNP, to Fuel Supply Agreement dated
November 18, 1987, between Phillips Coal Company and TNP, (Exhibit
10(a)2 to joint 1994 Form 10-K, File Nos. 1-8847 and 2-97230).
10(b) - Unit 1 First Amended and Restated Project Loan and Credit
Agreement, dated as of January 8, 1992 (the "Unit 1 Credit
Agreement"), among TNP, TGC, certain banks (the "Unit 1 Banks")
and Chase Manhattan Bank (National Association), as Agent for
the Unit 1 Banks (the "Unit 1 Agent"), (Exhibit 10(c) to TNP 1991
Form 10-K , File No. 2-97230).
10(b)1 - Participation Agreement, dated as of January 8, 1992, among
certain banks, Participants, and the Unit 1 Agent (Exhibit 10(c)1
to TNP 1991 Form 10-K, File No. 2-97230).
10(b)2 - Amendment No. 1, dated as of September 21, 1993, to the Unit 1
Credit Agreement (Exhibit 10(b)2 to TNP 1993 Form 10-K , File
No. 2-97230).
10(c) - Assignment and Security Agreement, dated as of January 8, 1992,
among TGC and the Unit 1 Agent (Exhibit 10(d) to TNP 1991 Form
10-K , File No. 2-97230).
10(d) - Amended and Restated Subordination Agreement, dated as of October
1, 1988, among TNP, Continental Illinois National Bank and Trust
Company of Chicago and the Unit 1 Agent(Exhibit 10(uu) to TNP 1988
Form 10-K, File No.
2-97230).
10(e) - Unit 1 Mortgage and Deed of Trust, dated as of December 1, 1987,
(Exhibit 10(ee) to TNP 1987 Form 10-K , File No. 2-97230).
10(e)1 - Supplemental Unit 1 Mortgage and Deed of Trust executed on January
27, 1992, (Exhibit 10(g)4 to TNP 1991 Form
10-K , File No. 2-97230).
10(e)2 - First TGC Modification and Extension Agreement, dated as of
January 24, 1992, among the Unit 1 Banks, the Unit 1 Agent, TNP,
and TGC (Exhibit 10(g)1 to TNP 1991 Form 10-K, File No. 2-97230).
10(e)3 - Second TGC Modification and Extension Agreement, dated as of
January 27, 1992, among the Unit 1 Banks, the Unit 1 Agent, TNP,
and TGC (Exhibit 10(g)2 to TNP 1991 Form 10-K, File No. 2-97230).
10(e)4 - Third TGC Modification and Extension Agreement, dated as of
January 27, 1992, among the Unit 1 Banks, the Unit 1 Agent, TNP,
and TGC (Exhibit 10(g)3 to TNP 1991 Form 10-K, File No. 2-97230).
10(e)5 - Fourth TGC Modification and Extension Agreement, dated as of
September 29, 1993, among the Unit 1 Banks, the Unit 1 Agent, TNP,
and TGC (Exhibit 10(f)5 to TNP 1993 Form 10-K, File No. 2-97230).
10(e)6 - Fifth TGC Modification and Extension Agreement, dated as of
September 29, 1993, among the Unit 1 Banks, the Unit 1 Agent, TNP,
and TGC (Exhibit 10(f)6 to TNP 1993 Form 10-K, File No. 2-97230).
10(f) - Indemnity Agreement, dated December 1, 1987, by Westinghouse, CE
and Zachry, (Exhibit 10(ff) to TNP 1987 Form 10-K, File
No. 2-97230).
10(g) - Unit 1 Second Lien Mortgage and Deed of Trust dated as of
December 1, 1987, (Exhibit 10(jj) to TNP 1987 Form 10-K, File No.
2-97230).
10(g)1 - Correction Second Lien Mortgage and Deed of Trust, dated as of
December 1, 1987, (Exhibit 10(vv) to TNP 1988 Form 10-K, File No.
2-97230).
10(g)2 - Second Lien Mortgage and Deed of Trust Modification, Extension
and Amendment Agreement, dated as of January 8, 1992 (Exhibit
10(i)2 to TNP 1991 Form 10-K, File No. 2-97230).
10(g)3 - TNP Second Lien Mortgage Modification No. 2, dated as of
September 21, 1993 (Exhibit 10(h)3 to TNP 1993 Form 10-K, File
No. 2-97230).
10(h) - Agreement for Conveyance and Partial Release of Liens, dated
as of December 1, 1987, by PFC and the Unit 1 Agent (Exhibit
10(kk) to TNP 1987 Form 10-K, File No. 2-97230).
10(i) - Inducement and Consent Agreement, dated as of June 15, 1988,
among Phillips Coal Company, Kiewit Texas Mining Company, TNP,
Phillips Petroleum Company, and Peter Kiewit Son's, Inc. (Exhibit
10(nn) to TNP 1988 Form 10-K, File No. 2-97230).
10(j) - Assumption Agreement, dated as of October 1, 1988, by TGC, in
favor of certain banks, the Unit 1 Agent, and the Depositary, as
defined therein (Exhibit 10(ww) to TNP 1988 Form 10-K, File No.
2-97230).
10(k) - Guaranty, dated as of October 1, 1988, by TNP of TGC obligations
under Unit 1 Credit Agreement (Exhibit 10(xx)to TNP 1988 Form 10-K
of TNP, File No. 2-97230).
10(l) - First Amended and Restated Facility Purchase Agreement,
dated as of January 8, 1992, between TNP and TGC (Exhibit 10(n) to
TNP 1991 Form 10-K, 1991, File No. 2-97230).
10(m) - Operating Agreement, dated as of October 1, 1988, between TNP
and TGC (Exhibit 10(zz) to TNP 1988 Form 10-K, File No. 2-97230).
10(n) - Unit 2 First Amended and Restated Project Loan and Credit
Agreement, dated as of January 8, 1992 (the "Unit 2 Credit
Agreement"), among TNP, TGC II, certain banks (the "Unit 2
Banks") and The Chase Manhattan Bank (National Association),
as Agent for the Unit 2 Banks (the "Unit 2 Agent") (Exhibit
10(q) to TNP 1991 Form 10-K, File No. 2-97230).
10(n)1 - Amendment No. 1, dated as of September 21, 1993, to the Unit 2
Credit Agreement (Exhibit 10(o)1 to TNP 1993 Form 10-K, File No.
2-97230).
10(o) - Assignment and Security Agreement, dated as of January 8, 1992,
among TGC II and the Unit 2 Agent (Exhibit 10(r) to TNP 1991 Form
10-K, File No. 2-97230).
10(p) - Assignment and Security Agreement, dated as of October 1, 1988,
by TNP to the Unit 2 Agent (Exhibit 10(jjj) to TNP 1988 Form 10-K,
File No. 2-97230).
10(q) - Subordination Agreement, dated as of October 1, 1988, among TNP,
Continental Illinois National Bank and Trust Company of Chicago,
and the Unit 2 Agent (Exhibit 10(mmm) to TNP 1988 Form 10-K, File
No. 2-97230).
10(r) - Unit 2 Mortgage and Deed of Trust dated as of October 1, 1988
(Exhibit 10(uuu) to TNP 1988 Form 10-K, File No.2-97230).
10(r)1 - First TGC II Modification and Extension Agreement, dated as of
January 24, 1992, among the Unit 2 Banks, the Unit 2 Agent, TNP,
and TGC II (Exhibit 10(u)1 to TNP 1991 Form 10-K, File No.2-97230).
10(r)2 - Second TGC II Modification and Extension Agreement, dated as of
January 27, 1992, among the Unit 2 Banks, the Unit 2 Agent, TNP and
TGC II (Exhibit 10(u)2 to TNP 1991 Form 10-K, File No. 2-97230).
10(r)3 - Third TGC II Modification and Extension Agreement, dated as of
January 27, 1992, among the Unit 2 Banks, the Unit 2 Agent, TNP,
and TGC II (Exhibit 10(u)3 to TNP 1991 Form 10-K, File No.2-97230).
10(r)4 - Fourth TGC II Modification and Extension Agreement, dated as of
September 29, 1993, among the Unit 2 Banks, the Unit 2 Agent, TNP,
and TGC II (Exhibit 10(s)4 to TNP 1993 Form 10-K, File No.2-97230).
10(r)5 - Fifth TGC II Modification and Extension Agreement, dated as of
June 15, 1994, among the Unit 2 Banks, the Unit 2 Agent, TNP, and
TGC II (Exhibit 10(s)5 to TNP Form 10-Q for quarter ended June 30,
1994, File No. 2-97230).
10(s) - Release and Waiver of Liens and Indemnity Agreement, dated
October 1, 1988, by Westinghouse, CE, and Zachry (Exhibit
10(vvv) to TNP 1988 Form 10-K, File No. 2-97230).
10(t) - Second Lien Mortgage and Deed of Trust, dated as of October 1,
1988, (Exhibit 10(www) to TNP 1988 Form 10-K, File No. 2-97230).
10(t)1 - Second Lien Mortgage and Deed of Trust Modification, Extension
and Amendment Agreement, dated as of January 8, 1992, (Exhibit
10(w)1 to TNP 1991 Form 10-K, File No. 2-97230).
10(t)2 - TNP Second Lien Mortgage Modification No. 2, dated as of
September 21, 1993, (Exhibit 10(u)2 to TNP 1993 Form 10-K, File
No. 2-97230).
10(u) - Intercreditor and Nondisturbance Agreement, dated as of October
1, 1988, among PFC, Texas PFC, Inc., TNP, certain creditors,
as defined therein, and the Collateral Agent, as defined therein
(Exhibit 10(xxx) to TNP 1988 Form 10-K, File No. 2-97230).
10(u)1 - Amendment No. 1, dated as of January 8, 1992, to Intercreditor and
Nondisturbance Agreement, (Exhibit 10(x)1 to TNP 1991 Form 10-K,
File No. 2-97230).
10(u)2 - Amendment No. 2, dated as of September 21, 1993, to Intercreditor
and Nondisturbance Agreement, (Exhibit 10(v)2 to TNP 1993 Form
10-K of TNP, File No. 2-97230).
10(v) - Grant of Reciprocal Easements and Declaration of Covenants
Running with the Land, dated October 1, 1988, between PFC and Texas
PFC, Inc. (Exhibit 10(yyy) to TNP 1988 Form 10-K, File No.
2-97230).
10(w) - Non-Partition Agreement, dated as of May 30, 1990, among TNP,
TGC, and the Unit 1 Agent (Exhibit 10(ss) to TNP 1990 Form 10-K of
TNP, File No. 2-97230).
10(x) - Assumption Agreement, dated as of May 31, 1991, by TGC II in
favor of certain banks, the Unit 2 Agent, and the Depositary, as
defined therein (Exhibit 10(kkk) to Amendment No. 1 to File No.
33-41903).
10(y) - Guaranty, dated as of May 31, 1991, by TNP, for TGC II obligations
under the Unit 2 Credit Agreement (Exhibit 10(lll) to Amendment
No. 1 to File No. 33-41903).
10(z) - First Amended and Restated Facility Purchase Agreement, dated as
of January 8, 1992, between TNP, and TGC II (Exhibit 10(dd) to TNP
1991 Form 10-K, File No. 2-97230).
10(z)1 - Amendment No. 1 to the Unit 2 First Amended and Restated Facility
Purchase Agreement, dated as of September 21, 1993, between TNP and
TGC II (Exhibit 10(aa)1 to TNP 1993 Form 10-K, File No. 2-97230).
10(aa) - Operating Agreement, dated as of May 31, 1991, between TNP and
TGC II (Exhibit 10(nnn) to Amendment No. 1 to File No. 33-41903).
10(bb) - Non-Partition Agreement, dated as of May 31, 1991, among TNP, TGC
II, and the Unit 2 Agent (Exhibit 10(ppp) to Amendment No. 1 to
File No. 33-41903).
Contracts Relating to TNP One
10(cc) - Revolving Credit Facility Agreement, dated as of November 3,
1995, among TNP, certain lenders, and Chemical Bank, as
Administrative Agent and Collateral Agent. (Exhibit 10(cc) to
Form 10-K of TNPE and TNP for 1996, File Nos. 1-8847 and 2-9730).
10(cc)1 - Form of Guarantee and Pledge Agreement, dated as of November 3,
1995, between TGC II, and Chemical Bank, as collateral agent
(Exhibit D to Revolving Credit Facility Agreement). (Exhibit
10(cc)1 to Form 10-K of TNPE and TNP for 1996, File Nos. 1-8847 and
2-9730)
10(cc)2 - Form of Bond Agreement, dated as of November 3, 1995, between TNP
and Chemical Bank, as Collateral Agent (Exhibit E to Revolving
Credit Facility Agreement). (Exhibit 10(cc)2 to Form 10-K of TNPE
and TNP for 1996, File Nos. 1-8847 and 2-9730)
10(cc)3 - Form of Note Pledge Agreement, dated as of November 3, 1995,
between TNP and Chemical Bank, as collateral agent (Exhibit F to
Revolving Credit Facility Agreement). (Exhibit 10(cc)3 to Form 10-K
of TNPE and TNP for 1996, File Nos. 1-8847 and 2-9730)
10(cc)4 - Form of Sixth TGC II Modification and Extension Agreement, dated as
of November 3, 1995, among the Unit 2 Banks, The Chase Manhattan
Bank, as agent, TNP, and TGC II (Exhibit H to the Revolving Credit
Facility Agreement). (Exhibit 10(cc)4 to Form 10-K of TNPE and TNP
for 1996, File Nos. 1-8847 and 2-9730)
10(cc)5 - Form of Second Lien Mortgage and Deed of Trust Modification,
Extension and Amendment Agreement No. 3, dated as of November 3,
1995 (Exhibit I to the Revolving Credit Facility Agreement).
(Exhibit 10(cc)5 to Form 10-K of TNPE and TNP for 1996, File Nos.
1-8847 and 2-9730)
10(cc)6 - Form of Assignment and Amendment Agreement, dated as of November 3,
1995, among TNP, TGC II, and Chemical Bank, as administrative agent
and collateral agent (Exhibit J to the Revolving Credit Facility
Agreement). (Exhibit 10(cc)6 to Form 10-K of TNPE and TNP for 1996,
File Nos. 1-8847 and 2-9730)
10(cc)7 - Form of Assignment of TGC II Mortgage Lien, dated as of November 3,
1995, by The Chase Manhattan Bank as agent to Chemical Bank
(Exhibit K to the Revolving Credit Facility Agreement). (Exhibit
10(cc)7 to Form 10-K of TNPE and TNP for 1996, File Nos. 1-8847 and
2-9730)
10(cc)8 - Form of Collateral Transfer of Notes, Rights and Interests, dated
as of November 3, 1995, between TNP and Chemical Bank, as
Administrative Agent and as Collateral Agent (Exhibit L to the
Revolving Credit Facility Agreement). (Exhibit 10(cc)8 to Form 10-K
of TNPE and TNP for 1996, File Nos. 1-8847 and 2-9730)
10(cc)9 - Form of Assignment of Second Lien Mortgage and Deed of Trust, dated
as of November 3, 1995, between the Chase Manhattan Bank, as Agent,
and Chemical Bank, as agent (Exhibit M to the Revolving Credit
Facility Agreement). (Exhibit 10(cc)9 to Form 10-K of TNPE and TNP
for 1996, File Nos. 1-8847 and 2-9730)
10(cc)10 - Form of Collateral Transfer of Notes, Rights and Interests, dated
as of November 3, 1995, between TNP and Chemical Bank, as
Administrative Agent and as Collateral Agent (Exhibit N to the
Revolving Credit Facility Agreement). (Exhibit 10(cc)10 to Form
10-K of TNPE and TNP for 1996, File Nos. 1-8847 and 2-9730)
10(cc)11 - Form of Amendment No. 1, dated as of November 3, 1995, to the
Assignment and Security Agreement between TNP, and The Chase
Manhattan Bank, as agent (Exhibit O to the Revolving Credit
Agreement). (Exhibit 10(cc)11 to Form 10-K of TNPE and TNP for
1996, File Nos. 1-8847 and 2-9730)
Power Supply Contracts
10(dd) - Contract dated May 12, 1976, between TNP and Houston Lighting &
Power Company (Exhibit 5(a), File No. 2-69353).
10(dd)1 - Amendment, dated January 4, 1989, to contract between TNP and
Houston Lighting & Power Company (Exhibit 10(cccc) to TNP 1988 Form
10-K).
10(ee) - Amended and Restated Agreement for Electric Service dated May 14,
1990, between TNP and Texas Utilities Electric Company (Exhibit
10(vv) to TNP 1990 Form 10-K, File No. 2-97230).
10(ee)1 - Amendment, dated April 19, 1993, to Amended and Restated Agreement
for Electric Service, between TNP and Texas Utilities Electric
Company (Exhibit 10(ii)1 to 1993 Form S-2, Registration Statement,
File No. 33-66232).
10(ff) - Contract dated April 27, 1977, between TNP and West Texas Utilities
Company, as amended (Exhibit 10(e) of Form 8 applicable to TNP
1986 Form 10-K, File No. 2-97230).
10(gg) - Contract dated April 29, 1987, between TNP and El Paso Electric
Company (Exhibit 10(f) of Form 8 applicable to TNP 1986 Form 10-K,
File No. 2-97230).
10(hh) - Amended and Restated Contract for Electric Service, dated April 29,
1988, between TNP and Public Service Company of New Mexico
(Exhibit 10(zz)3 to Amendment No. 1 to File No. 33-41903).
10(ii) - Contract dated December 8, 1981, between TNP and SPS as amended
(Exhibit 10(h) of Form 8 applicable to TNP 1986 Form 10-K, File
No. 2-97230).
10(ii)1 - Amendment, dated December 12, 1988, to contract between TNP and
SPS (Exhibit 10(llll) to TNP 1988 Form 10-K, File No. 2-97230).
10(ii)2 - Amendment, dated December 12, 1990, to contract between TNP and SPS
(Exhibit 19(t) to TNP 1990 Form 10-K, File No. 2-97230).
10(jj) - Contract dated August 31, 1983, between TNP and Capitol
Cogeneration Company, Ltd. (Exhibit 10(i) of Form 8 applicable
to TNP 1986 Form 10-K, File No. 2-97230).
10(jj)1 - Agreement Substituting a Party, dated May 3, 1988, among Capitol
Cogeneration Company, Ltd., Clear Lake Cogeneration Limited
Partnership and TNP (Exhibit 10(nnnn) to TNP 1988 Form 10-K, File
No. 2-97230).
10(jj)2 - Letter Agreements, dated May 30, 1990, and August 28, 1991, between
Clear Lake Cogeneration Limited Partnership and TNP (Exhibit
10(oo)2 to TNP 1992 Form 10-K, File No. 2-97230).
10(jj)3 - Notice of Extension Letter, dated August 31, 1992, between Clear
Lake Cogeneration Limited Partnership and TNP (Exhibit 10(oo)3 to
TNP 1992 Form 10-K, File No. 2-97230).
10(jj)4 - Scheduling Agreement, dated September 15, 1992, between Clear Lake
Cogeneration Limited Partnership and TNP (Exhibit 10(oo)4 to TNP
1992 Form 10-K, File No. 2-97230).
10(kk) - Interconnection Agreement between TNP and Plains Electric
Generation and Transmission Cooperative, Inc. dated July 19, 1984
(Exhibit 10(j) of Form 8 applicable to TNP 1986 Form 10-K, File No.
2-97230).
10(ll) - Interchange Agreement between TNP and El Paso Electric Company
dated April 29, 1987 (Exhibit 10(l) of Form 8 applicable to TNP
1986 Form 10-K, File No. 2-97230).
10(mm) - Amendment No. 1, dated November 21, 1994, to Interchange
Agreement between TNP and El Paso Electric Company (Exhibit
10(nn)1 to joint 1994 Form 10-K, File Nos. 1-8847 and 2-97230).
10(nn) - DC Terminal Participation Agreement between TNP and El Paso
Electric Company dated December 8, 1981 as amended (Exhibit 10(m)
of Form 8 applicable to TNP 1986 Form 10-K, File No. 2-97230).
10(oo) - 1996 Firm Capacity & Energy Sale Agreement between TNP and TEP
dated, as of January 1, 1996 (Exhibit 10(pp) to joint 1994 Form
10-K, File Nos. 1-8847 and 2-97230).
*10(pp) - Agreement for Purchase and Sale of Energy effective as of May 1,
1996 among TNP, Amoco Chemical Company and Amoco Oil Company.
*10(qq) - Agreement dated December 30, 1994 between TNP and Union Carbide
Corporation ("UCC") for Purchase of Capacity and Energy from UCC.
Management Contracts
10(rr) - Form of TNP Executive Agreement for Severance Compensation Upon
Change in Control and schedule of substantially identical
agreements. (Exhibit 10(qq) to TNP and TNPE Form 10-K for 1996,
File Nos. 1-8847 and 2-97230)
10(ss) - Agreement between Kevern Joyce and TNPE and TNP, executed March
25, 1994 (Exhibit 10(tt) to TNPE and TNP 1994 Form 10-Q, File Nos.
1-8847 and 2-97230).
*10(tt) - Form of TNPE Incentive Compensation Award Agreement and schedule
of substantially identical agreements.
*21 - Subsidiaries of the Registrants.
<PAGE>
SUBSIDIARIES OF THE REGISTRANTS Exhibit 21
Name State of
Incorporation
TNPE
Texas-New Mexico Power Company Texas
Facility Works, Inc. Texas
TNP Operating Company Texas
TNP
Texas Generating Company Texas
Texas Generating Company II Texas
TNP ENTERPRISES, INC. AND SUBSIDIARIES Exhibit 23
Independent Auditors' Consent
The Board of Directors
TNP Enterprises, Inc.:
We consent to incorporation by reference in the Registration Statements (Nos.
2-93266 and 333-17835) on Form S-3 and in the Registration Statements (Nos.
2-93265 and 33-58897) on Form S-8 of TNP Enterprises, Inc. of our report dated
January 30, 1997, relating to the consolidated balance sheets and statements of
capitalization of TNP Enterprises, Inc. and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of income (loss), common
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996, which report appears in the December 31, 1996,
annual report on Form 10-K of TNP Enterprises, Inc.
Our report refers to a change in the method of accounting for operating revenues
in 1995.
KPMG Peat Marwick LLP
Fort Worth, Texas
March 6, 1997
TEXAS-NEW MEXICO POWER COMPANY
TERMS AND CONDITIONS
FOR PURCHASE OF CAPACITY AND ENERGY
FROM
UNION CARBIDE CORPORATION
DECEMBER 30, 1994
<PAGE>
TABLE OF CONTENTS
I. RECITALS 04
II. DEFINITIONS 04
III. SALE AND PURCHASE OF ENERGY AND CAPACITY 09
IV. STATUTORY OR REGULATORY CHANGES 10
V. PRE-OPERATION PERIOD 14
VI. EFFECTIVE DATE, TERM AND TERMINATION 18
Vii. DEFAULT 20
Viii. REPRESENTATIONS, WARRANTIES AND
AGREEMENT OF THE PARTIES 20
IX. CONTROL AND OPERATION OF QUALIFYING
X. INTERCONNECTION AND SPECIAL FACILITIES 26
XI. METERING 29
XII. PAYMENT AND BILLING 31
XIII. INSURANCE 33
XIV. LIABILITY, NONCOMPLIANCE AND GUARANTEES 34
XV. TAXES 36
XVI. CHOICE OF LAW 36
XVII. MISCELLANEOUS PROVISIONS 37
XVIII. NOTICES 39
XIX. STANDBY POWER 39
XX. FORCE MAJEURE 41
XXI. ENTIRETY 43
XXII. AMENDMENTS 44
XXIII. COUNTERPARTS 44
XXIV. REMEDIES CUMULATIVE AND CONCURRENT 44
XXV. SIGNATURE CLAUSE 45
APPENDICES
Appendix A Interconnection Cost
..........................................Study
Appendix B One Line Diagram
Appendix C Safety Requirements
Appendix D Operating Agreement
<PAGE>
PURCHASE AGREEMENT
Union Carbide Corporation ("UCC") and Texas-New Mexico Power Company ("TNP")
agree as follows:
I. RECITAL
1.1 This Agreement describes the terms, conditions and prices applicable
to Energy and Capacity sold and delivered by UCC to TNP from the
Qualifying Facility, as provided for by the PUCT, the FERC and PURPA.
1.2 UCC desires to construct, own, operate and control a generation
facility that meets the qualifying facility requirements established
by the FERC rules (18 C.F.R. 292 et seq.) implementing PURPA, and
desires to generate electric energy and sell energy and capacity
produced by the Facility to TNP. 1.3 TNP agrees to purchase Energy
delivered and Capacity made available from UCC's Qualifying Facility
to TNP subject to the terms of this Agreement.
II. DEFINITIONS
2.1 "Agreement" - This document, including any appendices attached hereto,
as may be amended from time to time.
2.2 "Capacity Factor" - The ratio, expressed as a percentage, of the (i)
total amount of Energy up to Contract Capacity that UCC was able to
deliver to TNP at the Point of Delivery during a calendar year and
divided by (ii) the number of clock hours for such period multiplied
by Contract Capacity.
2.3 "Commercial Operations" - The period of time commencing on the first
day following the date on which TNP received written notice from UCC
that all start-up and testing operations are complete and the Facility
is able to operate at or above Contract Capacity and continuing until
termination of this Agreement, provided however, if Commercial
Operations commence on a day other than the first day of a calendar
month, the compensation provisions and delivery requirements hereunder
shall be adjusted by mutual agreement of the parties.
2.4 "Contract Capacity" or "Capacity" - The electrical capacity indicated
in Section 3.1 which UCC shall deliver and TNP shall receive in
accordance with the terms of this Agreement.
2.5 "Emergency" - A condition or situation which in the sole judgment of
either TNP, SWPP or ERCOT affects or will affect TNP's ability, or the
ability of any member of ERCOT, SWPP, or any other applicable groups,
to maintain safe, adequate and continuous electric service.
2.6 "Energy" - The electrical energy, expressed in kilowatt-hours,
indicated in Section 3.1 which UCC's Qualifying Facility shall deliver
and TNP shall receive in accordance with the terms of this Agreement.
2.7 "ERCOT" - The Electric Reliability Council of Texas, including any
successor thereto and subdivision thereof.
2.8 "FERC" - The Federal Energy Regulatory commission or any successor
thereto.
2.9 "Forced outage" - Any outage that fully or partially curtails the
electric output of the Facility, other than an outage caused by a
force majeure event as defined in Section XX or a Scheduled
Maintenance.
2.10 "Heat-Rate" - The number of BTU's required to produce one (1)
kilowatt-hour of Energy, determined in accordance with standard
practice in the utility industry.
2.11 "Interconnection Costs" - Reasonable costs of connection, switching,
metering, transmission, distribution, safety provisions, engineering,
administrative costs and taxes incurred by TNP as described in Exhibit
A directly related to the installation of the physical facilities
necessary to permit interconnected operations with UCC's Qualifying
Facility, to the extent that such costs are in excess of the
corresponding costs that TNP would have incurred if it had not engaged
in interconnected operations with the Qualifying Facility, but instead
generated an equivalent amount of capacity and energy itself or
purchased an equivalent amount of capacity and energy from other
sources.
2.12 "Interconnection Facilities" All machinery, equipment, and fixtures
required to be installed or retained in service solely to interconnect
and deliver capacity and Energy from UCC's Qualifying Facility to
TNP's electrical system, including, but not limited to, connection,
transformation, switching, metering, relaying, line and safety
equipment and shall include all necessary additions to, and/or
reinforcements of TNP'S system as described in Exhibit A attached
hereto and incorporated herein by reference.
2.13 "Internal Usage Energy", or "Internal Usage Capacity" - the energy or
capacity that UCC is purchasing from TNP under the Power Sales
Agreement.
2.14 "KW" or "kw" - One Kilowatt (1000 watts) of electricity.
2.15 "KWH" or "kwh" - One kilowatt-hour of electricity.
2.16 "MWH" or ""mwh" - One thousand kilowatt-hours of electricity.
2.17 "Off-Peak Billing Month" - Any calendar month without On Peak Hours.
2.18 "Off-Peak Hours" - All hours of the year not designated as On Peak
Hours.
2.19 "On Peak Billing Month" Any calendar month with On Peak Hours.
2.20 "On Peak Hours - From 9 a.m. to 10 p.m. -each Monday through Friday
starting on May 15 and continuing through October 15 each year. Labor
Day and Independence Day (July 4) shall not be considered on Peak. If
July 4th occurs on Sunday then the following Monday shall not be
considered On Peak.
2.21 "Point of Delivery" or "POD" - The geographical and physical location
as shown on the attached Appendix B at which the Qualifying Facility
and the Interconnection Facilities are to be located. UCC will
furnish, install, own, and maintain the UCC-TNP tie lines including
conductors, dead-ends, hardware and connectors up to the TNP furnished
ball and socket dead-end insulators and the jaw end connector pads of
TNP's line disconnect switches. TNP will furnish, install, own, and
maintain the arrester leads that connect to the TNP end of the UCC tie
lines.
2.22 "PUCT" - The Public Utility Commission of Texas or any successor
thereto.
2.23 "PURA" Public Utility Act as amended as of September 1, 1987.
2.24 "PURPA" Public Utility Regulatory Policies Act of 1978, as amended.
2.25 "Qualifying Facility" or "Facility" or "Q.F." UCC's Texas City
cogeneration facility which meets the criteria for a qualifying
facility as presently set forth in Subpart B of Paragraph 292,
Subchapter k, Chapter 1, Title 18 of the Code of Federal Regulations.
2.26 "Reserve Margin" - The difference between (i) TNP's net generating
station capability, plus firm capability obtained from third parties
by contract, including, without limitation, firm power contracts with
utilities, small power producers, other qualifying facilities, and the
Qualifying Facility and (ii) TNP's net peak load requirement.
2.27 "Power Sales Agreement" - The Agreement dated December 30, 1994
whereby UCC agrees to purchase its electrical energy requirements for
its facilities located at or near Texas City, Texas from TNP.
2.28 "Scheduled Maintenance" - Periodical period of time when curtailment
of the electric output of the Facility is due to inspection or
maintenance in accordance with an advance schedule.
2.29 "Special Facilities" All equipment and facilities other than those
defined as Interconnection Facilities which are furnished by TNP and
are necessary to economically, reliably and safely integrate the
Qualifying Facility into TNP's electrical system.
2.30 Suspension - Suspension of the obligation of TNP to interconnect with
or make power deliveries for or on behalf of UCC.
2.31 "SWPP" - The Southwest Power Pool, including any successor thereto and
subdivision thereof.
2.32 Termination - Termination of this Agreement and the rights and
obligations of the parties under this Agreement, except as otherwise
provided for in this Agreement.
III. SALE AND PURCHASE OF ENERGY AND CAPACITY
3.1 UCC will supply and sell and TNP will take and pay for (i) Energy and
(ii) Contract Capacity in the amount of 60 MW, subject to the
following: 1. UCC shall not be required to furnish Energy in excess of
70 MW, except as otherwise provided for herein; and 2. TNP shall not
be required to take or pay for Contract Capacity or Energy it refuses
to take pursuant to Section IX of this Agreement, and 3. Without the
prior authorization of TNP, UCC shall not supply, nor be entitled to
compen-sationfor deliveries of Energy at an instantaneous rate in
excess of 70 MW. 4. UCC will endeavor to maintain a Capacity Factor
greater than or equal to 90%. If the Capacity Factor falls below 85%
UCC and TNP will renegotiate in good faith the Agreement. 5. Either
party has the right to change the Contract Capacity if both parties
agree to the change. This will be negotiated in good faith between the
Parties.
3.2. UCC shall at any time, upon TNP's request, increase deliveries of
Energy up to a maximum rate of delivery equal to 70 MW except to the
extent that output of the Facility is unavailable because of Forced
Outage or Schedule Maintenance or that UCC would be required to
operate in an inefficient manner.
3.3 UCC's supply will be three (3) phase, four, (4) wire alternating
current at approximately 60 hertz and approximately 138,000 volts
unless TNP specifically approves otherwise, in writing.
IV. STATUTORY OR REGULATORY CHANGES
4.1 If during the term hereof statutory or regulatory requirements change
(including, without limitation, legislative, administrative or
judicial changes, interpretations or reinterpretations, whether
involving TNP's participation or not) in such a way as to prevent TNP
from accepting and paying for electric energy tendered from qualifying
facilities, then TNP shall have the right, upon ninety (90) days'
written notice and good faith negotiations, to reduce, limit or modify
its purchases and takes of Energy delivered hereunder to the, same
extent required by such change in statutory or regulatory
requirements. In such event, UCC shall have no further obligation to
supply or sell to TNP any energy at a rate in excess of Contract
Capacity to the same extent as TNP shall have reduced, limited,
modified or eliminated its purchase and take obligations hereunder,
and UCC may at its option-,i supply or sell all- or any part of such
energy to any lawful purchaser to the full extent permitted by
applicable law, or may upon thirty (30) days written notice to TNP
terminate this Agreement without further obligations or liability.
4.2 Nothing in this Agreement shall limit UCC or TNP's right to petition
in good faith FERC, PUCT, or other agency of competent jurisdiction
for such rules, orders or other relief as such agency may issue with
respect to TNP's right to reduce or otherwise dispatch Energy
deliveries hereunder, and any required changes lawfully ordered by
such agency shall apply to this Agreement. Prior to initiating a
petition under this Section, the petitioner shall give the other party
advance written notice of its intent, and shall provide the other
party a copy of its filing when made with the appropriate regulatory
authority.
4.3 This Agreement has been entered into in accordance with relevant rules
of the PUCT currently in force; however, if any federal, state or
municipal government or regulatory authority, including without
limitation the PUCT, should for any reason enter an order modifying
its rule or TNP's tariff, or take any action whatsoever, having the
effect of disallowing TNP recovery in its rates, fuel cost recovery
factor, purchased power cost recovery factor, or otherwise, of all or
any portion of the cost of purchases hereunder (except where such
disallowance is due to TNP's failure to seek recovery or comply with
procedural requirements governing recovery of such costs) TNP may, at
its option, suspend any affected portion(s) of the payment obligation
hereunder pending approval of a superseding order, modified rules or
tariff for TNP, or other action that would permit timely recovery of
such costs. During such suspension, UCC may make any lawful
disposition it elects of the Energy and Capacity for which payment has
been suspended to the full extent permitted by applicable law, and TNP
will transmit, at UCC's request, such Energy and Capacity to such
other lawful purchaser under reasonable terms and conditions to be
agreed upon by the parties in accordance with any applicable rules and
regulations; except that TNP shall not be required to transmit such
Energy and Capacity, if in TNP's good faith judgment, UCC's equipment
and facilities are not sufficient to protect TNP's system, employees
or customers from damage or injury arising out of such transmission.
TNP and UCC obligate themselves to all good faith efforts necessary to
expedite the establishment, if possible, of such superseding order,
approval of modified rules or tariffs, or other action so as to allow
the earliest possible resumption of full payment, or failing that,
adjusted payments hereunder should any such government or regulatory
action denying recovery hereunder become final and unappealable:
1. UCC shall indemnify (TNP) including interest at the rate
announced from time to time by Texas Commerce Bank N.A. at its
prime rate to the extent of any prior payments for Energy and/or
Capacity made to UCC for energy in excess of UCC's Internal
Usage, the recovery of which is prevented by such government or
regulatory action; and
2. TNP may, at its option, upon at least fourteen (14) days prior
written notice to UCC, and within thirty (30) days following the
date on which such government or regulatory action hereunder
becomes final and unappealable, (i) reduce UCC's deliveries
hereunder to a level that will allow TNP complete recovery of the
cost thereof, or (ii) terminate this Agreement in whole or in
part. TNP's option to terminate does not relieve UCC of the
responsibility to repay TNP pursuant to paragraph
4.3.1. This section 4.3 shall survive termination of this Agreement
for a period of two (2) years after the effective day of
termination.
4.4 TNP and UCC recognize that TNP's decision to purchase Contract
Capacity hereunder is based on and limited by TNP's electric system
capacity requirements and capacity expansion plan(s), as approved by
the PUCT pursuant to PUCT Substantive Rule 23.66 and as may from time
to time be reviewed by the PUCT in any proceeding. If the PUCT should
determine in any proceeding that T Is available capacity sources
exceed its capacity requirements, and on that basis by final order
reduces TNP's recoverable cost of service (which includes the recovery
of capacity purchases hereunder), then TNP may reduce the Contract
Capacity hereunder to the extent such excess Capacity results from
purchases made hereunder by an amount sufficient to enable TNP to
achieve a Reserve Margin which the PUCT has determined to be
reasonable and prudent.
4.5 TNP and UCC recognize that TNP's decision to purchase energy hereunder
is based on, and limited by, TNP's electric system energy
requirements. If the PUCT determines in any proceeding that TNP's
available energy sources exceed its energy requirements and on that
basis, by final order, reduces TNP's recoverable cost of service, then
TNP may reduce the Energy purchased hereunder so that TNP's energy
purchases do not exceed its energy requirements.
4.6 In the event that, under section 4.4 or 4.5 of this Agreement,
reductions to the Contract Capacity or Energy requirements hereunder
are made, then in such event or events UCC may upon thirty (30) days
prior written notice to TNP, and within thirty (30) days following the
date on which such regulatory action hereunder becomes final and
unappealable terminate this Agreement without further obligation or
liability, or renegotiate this Agreement with TNP to address such
event(s).
V. PRE-OPERATION PERIOD
5.1 UCC shall make available to TNP site(s) to be used for the
Interconnection Facilities and Special Facilities. The site(s) with
easements shall be made available to TNP within three (3) months of
signing this Agreement.
5.2 UCC shall, at its sole expense, acquire and maintain in effect all
permits and approvals, and complete or have completed all
environmental impact studies necessary for the construction, operation
and maintenance of the Qualifying Facility. UCC agrees to cooperate
with TNP in the applications for permits required by TNP as
contemplated herein.
5.3 UCC agrees to grant, at no expense to TNP, all easements and
rights-of-way necessary for TNP to install, operate, maintain,
replace, and remove TNP's metering and Interconnection Facilities,
including, but not limited to, adequate and continuous access rights
to property owned or leased by UCC. TNP is limited to accessing UCC's
property for purposes of construction, inspections, improvements and
repairs. TNP agrees to abide by UCC's Health Safety and Environmental
requirements while on UCC's plant site.
5.4 UCC agrees to execute and deliver to TNP all documents TNP shall deem
necessary to enable TNP to obtain and record such easements and
rights-of-way.
5.5 It is the responsibility of UCC to obtain all easements and access to
land used for Interconnection Facilities. TNP is responsible for
obtaining all transmission line easements and rights-of-way.
5.6 UCC hereby grants to TNP all necessary licenses, rights-of-way and
easements, including adequate and continuing access rights on property
of UCC to install, operate, maintain, replace and/or remove the
Special Facilities. UCC agrees to execute such other grants, deeds or
documents as TNP may require to enable it to record such rights-of-way
and easements, in a form reasonably satisfactory to TNP, for the
construction, operation, maintenance, replacement or removal of TNP's
equipment upon such property. TNP shall endeavor to acquire other
necessary licenses, rights-of-way and easements for the Special
Facilities on reasonable terms in accordance with its usual practices.
5.7 UCC shall submit for TNP's review its construction, start-up and
testing schedule for the Facility within thirty (30) calendar days
after execution of this Agreement or thirty (30) days after completion
by TNP of an interconnection study, whichever is later. UCC shall
thereafter submit periodic progress reports in a form reasonably
satisfactory to TNP and notify TNP of any changes to such schedules in
a timely manner. TNP shall have the right to monitor the construction,
start-up and testing of the Facility and UCC shall comply with all
reasonable requests of TNP resulting therefrom.
5.8 TNP shall perform an interconnection study at TNP's cost within a
reasonable period of time after receipt of written application from
UCC and under reasonable terms and conditions agreed upon by the
parties. The interconnection study shall determine the Special
Facilities and Interconnection Facilities and the estimated costs
associated therewith. The parties shall enter into mutually
satisfactory terms under which TNP shall construct Special Facilities
in a timely manner, subject, however, to events beyond TNP's
reasonable control, including, without limitation, time constraints
incident to events of force majeure, in order that such Special
Facilities will be available as of the date identified by UCC for
start of deliveries hereunder or as soon thereafter as such Special
Facilities can reasonably be constructed and readied for safe and
reliable operation to receive the Energy and Capacity UCC is to
deliver hereunder. TNP shall submit for UCC's review its construction,
start-up and testing schedule for the Interconnection Facilities and
Special Facilities within thirty (30) calendar days after execution of
this Agreement or thirty (30) days after completion by TNP of an
interconnection study, whichever is later. TNP shall thereafter submit
periodic progress reports to UCC.
5.9 UCC shall notify TNP in writing prior to (i) the initial energizing at
the Point of Delivery, (ii) the initial parallel operation with TNP's
system, and (iii) the initial testing of UCC's Facility . TNP and UCC
shall agree on the dates and times of the foregoing and TNP shall have
the right to have a representative present at such time.
5.10 UCC may conduct such tests of the Facility from time to time, prior to
Commercial Operations, as UCC in its discretion may deem appropriate.
Subject to the limitations expressed in Section 5.10, if UCC desires
TNP to take energy generated by the Facility during any proposed test,
UCC shall notify TNP in writing within a reasonable time not less than
three (3) days prior to such test. Such notice shall, at a minimum,
include a description of the test, approximate time and duration of
the test and approximate amount of energy intended to be delivered to
TNP as a result of such test. For energy delivered during start-up and
testing, TNP shall pay UCC at the rate, expressed in dollars per
kilowatt-hour, as calculated based upon TNP's decremental cost of
energy purchased, that is avoided by TNP due to the Qualifying
Facility's delivery.
5.11 UCC shall determine when the Facility is ready to commence Commercial
Operations; provided however, TNP shall not be required to accept or
pay for capacity and energy deliveries, including, without limitation,
capacity and energy deliveries during startup and testing of UCC's
generating unit(s), if in TNP's good faith judgment the
Interconnection Facilities and/or Special Facilities are not
sufficiently completed to accept or meter such deliveries or protect
the public, TNP's employees, customers, or electrical system from
damage or injury arising out of or in connection with the operation of
uccls generating unit(s). TNP's agreement to accept capacity and/or
energy shall not be construed as confirming or endorsing the design,
construction, or operation of UCC's facility, or as a warranty of its
safety, durability, or reliability. In the event TNP determines that
the Interconnection Facilities are not sufficient to accept or meter
capacity and energy deliveries, TNP shall give UCC prompt written
notice of such fact. After such notification, TNP shall promptly take
any actions it deems necessary to remedy any problem with the
Interconnection Facilities which TNP installed or maintains.
5.12 UCC shall provide TNP seven (7) days prior written notice that the
Facility is ready to commence Commercial operations. The delivery
requirements and the compensation provisions hereunder shall take
effect on the first day of Commercial operation; provided, however, if
commercial operations commence on a day other than the first day of a
calendar month, the compensation provisions and delivery requirements
hereunder shall be adjusted by mutual agreement of the parties, to
account for the partial month of delivery.
VI. EFFECTIVE DATE, TERM AND TERMINATION
6.1 This Agreement is effective as of December 30, 1994, and shall
continue in effect for an initial term of ten (10) years from the
commencement of Commercial Operations.
6.2 TNP reserves the right to i terminate this agreement, without
prejudice to any other power, right or remedy it may have, if UCC
should:
1. Fail to deliver any Energy for 12 consecutive months after
Commercial Operations have begun provided that such failure to
deliver is not due to an act of or omission of TNP; or,
2. Fail to commence construction of the Facility PAGE 19 by March 1,
1995, abandon construction of the Facility at any time after
construction commences, or fail to commence Commercial Operations
by May 15, 1996.
3. Fail to maintain a Capacity Factor of 85% as addressed in Section
III, provided that such failure is not due to an act or omission
of TNP, except when TNP has arranged and provided standby power,
or TNP could make up the capacity loss from its available
resources; or, TNP and UCC negotiate a new Capacity Factor as
addressed in Section III; or,
4. Fail to perform its obligations contained in Section XII.
6.3 Should UCC default on this Agreement pursuant to Section VII or cancel
this Agreement prior to its expiration or TNP terminates this
Agreement pursuant to Section 6.2 above, then UCC will reimburse TNP
for all Interconnection Costs and Special Facilities Costs incurred to
date that have not been recovered to date by TNP. This will include
any enhancements or modifications made to the Interconnection and
Special Facilities. If any of the aforementioned items occur, the
Power Sales Agreement is also nullified at that time.
6.4 Should UCC cancel the Power Sales Agreement, or UCC no longer
purchases power from TNP under the Power Sales Agreement, this
Agreement is nullified. As such, UCC will reimburse TNP for all
Interconnection Costs and Special Facilities costs incurred to date
that have not been recovered to date by TNP. This will include any
enhancements or modifications made to the Interconnection and/or
Special Facilities. 6.5 TNP will remove at its expense all
Interconnection Facilities and Special Facilities on UCC's land within
one (1) year of the expiration or cancellation of this Agreement
unless agreed otherwise.
VII. DEFAULT
7.1 Should either party materially default in the performance of its
obligations hereunder, or should UCC default in payment to TNP of any
applicable tariff schedules, the nondefaulting party may suspend
performance under this Agreement upon thirty (30) days written notice;
and if the default continues for more than ninety (90) days after such
written notice by the non-defaulting party, then the non-defaulting
party may terminate this Agreement. No termination shall occur,
however, if the defaulting party, at the end of said ninety (90) day
period presents evidence to I the .1 non-defaulting party that
satisfactory measures have been taken or are being taken to cure the
default within the next one hundred and eighty (180) days. Section VI
above further addresses termination by either party.
VIII. REPRESENTATION. WARRANTIES AND AGREEMENTS
8.1 The Facility shall be operated and maintained in accordance with TNP's
Specification of Qualifying Facility Interconnection and Safety
Requirements attached hereto as Appendix C, and good and generally
accepted utility standards with respect to synchronizing, voltage and
reactive power control.
8.2 UCC shall operate the Facility at the power factors and/or voltage
levels reasonably prescribed by TNP's system dispatcher or designated
representative, provided such factors or levels are within the
Facility's design limitations. Without limiting the generality of the
foregoing, the Facility shall generate such reactive power as may be
necessary to maintain reactive area support.
8.3 UCC shall during an Emergency supply such Capacity and Energy as the
Facility is able to generate and TNP is able to receive. If UCC has
previously scheduled an outage coincident with an Emergency, UCC shall
make all reasonable efforts to reschedule the outage.
8.4 Each party shall at all times conform to all applicable laws,
ordinances, rules and regulations applicable to it. Each party shall
give all required notices, shall procure and maintain all necessary
governmental permits, licenses and inspections necessary for its
performance of this Agreement, and shall pay all charges and fees
in-connection therewith.
8.5 UCC shall keep TNP's dispatcher informed, in the manner prescribed in
the Operating Agreement, attached hereto as Appendix D, as to the
daily operating schedule and generation capability of its Facility,
including, without limitation, Forced Outage.
8.6 UCC shall, within thirty (30) days following execution of this
Agreement, submit a maintenance, schedule for the first year of the
Facility's Commercial operations. Thereafter, UCC shall submit
semi-annual maintenance schedules on July 1 and January 1. The January
1 schedule shall cover the period July 1 through December 31 of that
same year, the July 1 schedule shall cover the period January 1
through June 30 of the following year. UCC shall furnish TNP with
reasonable advance notice of any change in the schedule. TNP's ability
to recognize and accept such notice is contingent upon any necessary
scheduled backup power arrangements. TNP shall provide UCC reasonable
advance notice of significant plans with respect to its system that
may affect interconnection with the Facility.
8.7 For any planned outages, UCC must submit written notice to TNP at
least 50 days prior to the date UCC intends to begin the outage.
8.8 UCC shall submit an annual forecast of the electric output which UCC
expects to sell to TNP from the Facility. Such forecast shall be
submitted to TNP within one (1) month after execution of this
Agreement and thereafter annually by April 1 during the term of this
Agreement. Each annual forecast shall express the anticipated electric
sales on a monthly basis for the first two (2 years of the forecast
and on an annual basis thereafter.
8.9 UCC shall maintain an accurate and up-to-date operating log at the
Facility with records of: real and reactive power production for each
clock hour, changes in operating status, scheduled and Forced Outages
and any unusual conditions found during inspections. TNP shall be
permitted to inspect such operating log upon request and copies of
such log shall be provided, if requested, within thirty (30) days of
TNP's request.
IX. CONTROL AND OPERATION OF QUALIFYING FACILITY; DISPATCHING
9.1 UCC shall control and operate the Facility; except that TNP shall not
be obligated to purchase or receive and may require UCC to reduce
Energy deliveries in excess of UCC's internal usage, and from time to
time, if: (i) an Emergency condition or situation exists; or (ii) TNP
reasonably determines that it is necessary to construct, install,
repair, replace, remove, investigate or inspect any part of its
electrical system relating to the Qualifying Facility. TNP will make a
reasonable effort to notify and coordinate such reductions with UCC;
except that with respect to (ii) above, TNP shall provide UCC at least
forty-eight (48) hours prior notice if practical. Any reduction
required of UCC's Facility hereunder shall be implemented in a manner
consistent with safe operating procedures.
9.2 In addition to the rights to reduce Energy deliveries granted to TNP
in the preceding Section 9.1, TNP shall not be obligated to purchase
or receive and may require UCC to reduce Energy deliveries at any time
from time to time, if in TNP's judgment: i) reduction of deliveries is
required pursuant to Section 23.66 of the Substantive Rules of the
PUCT; or ii) a reduction is necessary because of minimum loading
conditions or other operational conditions on TNP's system. TNP shall
furnish Qualifying Facility with reasonable notice of reductions
directed under this Section 9.2. Reasonable notice of any reduction is
as follows:
The reduction of generation shall be based upon the requirements of
TNP at the time of the requested reduction. UCC agrees to reduce
output to a level specified by TNP at the time of notice in order to
meet and not exceed TNP's requirements.
9.3 UCC shall employ operators or dispatchers for monitoring the Facility
and for coordinating operations of the Facility with TNP's system. UCC
shall ensure that operators or dispatchers (or an alternate contact if
the Facility has been shut down) are on duty at all times, twenty-four
(24) hours a day and seven (7) days a week.
9.4 The parties recognize that TNP is a member of ERCOT and may in the
future become a member of other reliability councils or power pools,
and to ensure continuous and reliable electric service, TNP operates
its system in accordance with the operating criteria and guidelines of
ERCOT or other reliability councils or their equivalent where
applicable.
9.5 The load-break disconnect switch(es) provided by UCC may be secured by
TNP and operated by TNP without prior notice to UCC in the event of
either of the following circumstances provided that TNP uses its best
efforts to notify UCC in advance:
a) An Emergency that requires immediate disconnection.
b) An immediate hazard to life or property caused by UCC. TNP will
notify UCC of its intent to open the switch if:
a) The operation of UCC's Facility is interfering with electrical
service to other TNP customers or interfering with, the operation
of TNP-owned equipment. UCC's Facility will be reconnected by TNP
to TNP's electrical system when UCC makes the necessary changes
so that the Facility will no longer be interfering with
electrical service to other TNP customers. UCC will cooperate
with TNP in any disconnection procedure that is necessary to
investigate and determine the cause of problems on TNP's system.
b) It is necessary to assure the safety of TNP personnel.
c) Suspension of service is required under order of the PUCT.
9.6 The notification required above shall be given to UCC's Facility plant
manager or to any other employee designated in writing by the plant
manager. The Facility plant manager is hereby designated to be:
Colleen Robisheaux
P.O. Box 471
3301 5th Avenue South
Texas City, Texas 77592-0471
The name, title or address of the Facility plant manager designated in this
Section 9.6 may be changed by written notification from UCC to TNP in
accordance with the provisions of Section XVIII.
9.7 Without limiting the generality of the foregoing, TNP's dispatcher may
require UCC's Facility operator or dispatcher to raise or lower
production of Energy generated by the Facility to maintain safe and
reliable load levels and voltages on TNP's transmission system;
provided, however, any changes in the level of electric output
required of Facility hereunder shall be implemented in a manner
consistent with safe operating procedures and within the Facility's
design limitations.
9.8 UCC shall operate the Facility with its speed governors and voltage
regulators in service whenever the Facility is connected to or
operated in parallel with TNP's electric system. UCC shall not cause
its Facility to automatically or instantaneously disconnect from TNP's
system or trip any generating unit comprising the Facility on account
of abnormal frequency conditions unless the frequency of TNP's system
is below that stated in the Operating Agreement provided in Appendix
D.
9.9 UCC shall notify TNP prior to making any modifications to the
interconnection between UCC's Facility and TNP. UCC must receive
approval from TNP, which approval shall not be unreasonably withheld,
prior to proceeding with such modifications. UCC shall permit TNP at
any time to install or modify any equipment, facility or apparatus
which is reasonably necessary to protect the safety of TNP employees
or to assure the accuracy of TNP metering equipment, the reasonable
cost of which shall be paid for by TNP.
9.10 UCC agrees to the terms and conditions detailed in Appendix C, the
Specification of Qualifying Facility Interconnection and Safety
Requirements.
X. INTERCONNECTION AND SPECIAL FACILITIES
10. 1 Following execution of this Agreement and receipt by TNP of
necessary rights-of-way and easements, TNP shall design, construct,
and install the Interconnection Facilities and Special Facilities at
TNP's expense with a target completion date of twelve (12) months
after the signing of this Agreement, and no later than May 1, 1996 as
long as this Agreement has been signed by May 1, 1995. TNP will
operate, and maintain all Interconnection Facilities in accordance
with TNP's Specification of Qualifying Facility Interconnection and
Safety Requirements included as Exhibit C attached hereto, and perform
all work necessary to economically, reliably and safely connect
Qualifying Facility to the Point of Delivery. The One-Line Diagram,
provided as Appendix B attached hereto, details the Interconnection
facilities and the Point of Delivery. An estimate of all costs to
construct the Interconnection Facilities is included in the attached
Appendix A. TNP shall own and maintain all Interconnection Facilities.
10.2 UCC shall comply with all reasonable TNP requirements as to: (i) the
design, installation, purchase, operation and maintenance of all
equipment necessary to connect UCC's Qualifying Facility to TNP's
system and (ii) the protection of TNP's system, employees and
customers from damage or injury arising out of or in connection with
operation of Qualifying Facility.
10.3 TNP shall have the right to review the specifications for the
Facility, including, without limitation, improvements, additions,
modifications, replacements or other changes to equipment, electrical
drawings and one-line diagrams, provided however that for the purpose
of this Section 10.3 only, the definition of Facility shall exclude
equipment that consumes process steam or thermal energy produced by
the Facility and/or equipment that produces fuel resources for the
facility. TNP's review of UCC's specifications, drawings and one-line
diagrams shall not be construed as confirming or endorsing the design
of such Facilities, or as a warranty of the safety, durability or
reliability thereof.
10.4 TNP shall evaluate, design, install, own, operate and maintain all
Special Facilities and perform all work necessary to economically,
reliably and safely connect TNP's existing system to UCC's Facility at
the Point of Delivery in order to accept and meter the electrical
output of the Qualifying Facility sold hereunder.
10.5 UCC shall furnish, install and maintain clearly labeled load-break
disconnect switch(es) approved by TNP in a visible, outside,
readily-accessible location for the purpose of isolating the
Qualifying Facility's generation from the TNP system. Such disconnect
switch(es) must be of a securable type and capable of disconnecting
the Qualifying Facility's generator from TNP's electrical system
without interruption to other types of services provided to the QF by
TNP. UCC shall provide a drawing as part of Appendix B showing the
exact location of the disconnect switch(es). Ingress and egress to the
disconnect switch(es) shall be provided to TNP personnel at all times
by UCC.
10.6 TNP or its designated representative shall have the right to monitor
the construction, start-up and testing of the equipment related to the
generation, control and transmission of Capacity and Energy by the
Qualifying Facility at such times as may be reasonably agreed upon by
the parties, and UCC shall comply with all reasonable requests of TNP
relating thereto. TNP's review and monitoring shall not be construed
as confirming or endorsing the scheduling, construction, start-up or
testing of UCC's equipment, or as a warranty of its safety,
durability, or reliability.
10.7 The parties recognize that from time to time certain improvements,
additions or other changes in the Interconnection Facilities and/or
Special Facilities may be required by TNP for the economical, reliable
and safe operation of the Qualifying Facility in parallel with TNP's
system. Such changes shall be made at TNP's expense.
10.8 The parties recognize that from time to time certain modifications,
additions, replacements or other changes ("System Modifications") in
TNP's transmission and distribution system may be necessary to
economically, reliably and safely integrate UCC's Qualifying Facility
and the qualifying facilities of other cogenerators into TNP's system.
These modifications, additions, and replacements shall be made at
TNP's expense. if any System Modification is required to integrate the
Qualifying Facility, TNP shall design, install, own, operate and
maintain such System Modifications.
XI. METERING
11.1 UCC shall supply at its own expense, a suitable location acceptable to
TNP for all meters and associated equipment.
11.2 TNP shall maintain at its expense all necessary meters and associated
equipment (including, without limitation, generation metering and
telemetering equipment) utilized for measuring Energy deliveries and
for determining TNP's payments to UCC.
11.3 UCC shall permit TNP employees to enter upon its premises at any
reasonable time for the purpose of inspecting and/or testing or
witnessing the testing of the accuracy of the metering equipment. TNP
agrees to abide by UCC's Health Safety and Environmental requirements
while on UCC's plant site.
11.4 TNP's meters and associated current transformers installed pursuant to
this Agreement shall be tested by TNP, at TNP's expense, at least once
each year and at any reasonable time upon requests by either party, at
TNP's expense. UCC shall be afforded an opportunity to be present
during all testing and shall be furnished 'all testing results on a
timely basis if requested.
11.5 If the meter test(s) conducted under Section 11.4 above results in an
inaccuracy in measurement of Energy in excess of one percent (1%), any
affected meter(s) shall be recalibrated to within 1% accuracy and
payments hereunder shall be retroactively adjusted for (i) the actual
period during which inaccurate measurements were made, if the period
can be determined, or if not, (ii) the period immediately preceding
the test of the meter equal to one-half the time from the date of the
last previous test of the meter, but not exceeding six (6) months.
11.6 If, for any reason, any meter(s), or metering equipment is out of
service or out of repair, so that the amount of Energy delivered
cannot be ascertained or computed from the readings thereof, the
Energy delivered during the period of such outage shall be estimated
and agreed upon by the parties hereto upon the basis of the best data
available.
XII. PAYMENT AND BILLING
12.1 Energy delivered and Capacity made available shall be calculated in
accordance with the information collected by metering as defined in
Section XI.
12.2 The monthly payment to UCC consists of two (2) components: Energy and
Capacity. The total payment to UCC equals the sum of the two (2)
components. Payment = Energy Payment + Capacity Payment = EP + CP
12.3 For each kilowatt hour of Energy delivered to TNP, TNP shall pay UCC
an energy payment actually avoided. The payment is described by the
following formula: EP = KWH * ER where EP = monthly energy payment KWH
= the kilowatt hours delivered to TNP for a month, provided that such
deliveries do not exceed the amounts scheduled by TNP or amounts
required by TNP. ER = 99% of the energy cost that TNP actually avoided
purchasing from TNP's energy supplier during the billing period as a
result of energy deliveries made hereunder. This is calculated in
$/KWH to a precision of six (6) decimal places using conventional
rounding,
12.4 TNP shall pay UCC a Capacity Payment as described by the following
formula: CP = (CC * $5.75/KW) + (AC * ADR) where CP = Monthly Capacity
Payment CC = Contract Capacity AC = Avoided Capacity is the monthly
capacity that TNP actually avoids establishing on a wholesale tariff
from TNP's supplier serving the Texas City area. This kW amount is
determined by taking the total capacity load of the Qualifying
Facility at the time of TNP's peak on the wholesale supplier and
subtracting out the Internal Usage Capacity at that time. ADR = (WCR *
95%) where ADR = Avoided Demand Rate WCR = Wholesale Capacity Rate is
the rate expressed in $/kW (kVa) charged by the wholesale supplier in
the Texas city area.
12.5 TNP shall read UCC's meter monthly at such time as the Parties shall
agree TNP shall send a statement and make a payment on or before the
20th day after the meter is read subject to the condition that UCC
shall make its payment to TNP for electrical service during the
corresponding period on the same day as TNP's payment to UCC
hereunder. The billing statement will show the hourly kilowatt-hours
of Energy delivered at the Point of Delivery, the total kilowatt-hours
delivered, the duration of the billing period (in clock hours), the
Contract Capacity, the monthly capacity, UCC's Internal Capacity
Usage, the total amount due UCC and, upon request, any other data
reasonably pertinent to the calculation of the Energy Payment and
Capacity Payment.
12.6 Any payments required or authorized herein shall be deemed given when
made in writing and delivered or mailed with sufficient postage to the
following addresses of the parties:
(a) If to UCC:
(i) to - Union Carbide Corporation
Sammie Lehman
3301 5th Avenue South
P.O. Box 471
Texas City, Texas 77592-0471
(b) If to TNP:
(i) to - Texas-New Mexico Power Company
Manager - Customer Accounting
4100 International Plaza
Fort Worth, TX 76109
OR
P.O. Box 2943
Fort Worth, TX 76113
12.7 Any service that UCC requests from TNP will be provided to UCC
according to the applicable TNP tariff on file with the PUCT.
XIII. INSURANCE
13.1 During the term of this Agreement, UCC shall procure, pay premiums for
and maintain in full force and effect the insurance coverage's
described below for its own benefit:
1. (a) Worker's Compensation Insurance as required by the laws of
the State of Texas, and (b) Employer's Liability with limits of
not less than $100,000 each accident, both to include any other
statutory or federal coverage if applicable; and
2. Comprehensive General Liability Insurance,, including coverage
for (a) premises/operations, (b) independent contractor, (c)
products and completed operation, (d) broad form contractual
liability, (e) broad form property damage and, (f) explosion,
collapse and underground damage exclusion deletion, all with
limits of not less than $1,000,0000 each occurrence, $1,000,000
aggregate for bodily injury and with limits of not less than
$500,000 each occurrence, $500,000 aggregate for property damage;
and
3. Excess umbrella Liability Insurance with limits of not less than
$10,000,000 each accident or occurrence and $10,000,000 annual
aggregate, in excess of the underlying limits and terms as set
forth in this Section 13.1.
13.2 Each insurance policy provided by UCC shall include the following:
1. At least thirty (30) days' prior written notice of cancellation
or material change will be provided to TNP hereto.
2. A waiver of subrogation in favor of TNP, its affiliated entities
and their officers, directors, agents, subcontractors and
employees.
13.3 UCC shall provide certificates of insurance evidencing the insurance
coverage's required to be maintained prior t@ execution of this
Agreement.
13.4 Upon mutual agreement of the parties, not to be unreasonably withheld,
UCC may provide adequate self insurance in lieu of the requirements
set forth in Section 13.1 through 13.3.
XIV. LIABILITY, NONCOMPLIANCE AND GUARANTEES
14.1 Neither party shall hold the other party (including its corporate
affiliates, parent, subsidiaries, directors, officers, employees and
agents) liable for any claims, losses, costs and expenses of any kind
or character (including, without limitation, loss of earnings and
attorneys' fees) on account of damage to property of TNP or UCC in any
way occurring incident to, arising out of, or in connection with a
party's performance under this Agreement.
14.2 TNP and UCC shall each be responsible for the safe installation,
repair and condition of their respective lines and appurtenances on
their respective sides of the Point of Delivery. TNP and UCC will each
protect and indemnify the other (including its corporate affiliates,
parent, subsidiaries, directors, officers, employees and agents) from
and against any liability or loss (including reasonable expenses and
attorneys I fees) because of bodily injury or property damage to a
third party arising out of TNP's or UCC's respective responsibilities
as stated herein; except that neither shall be obligated to indemnify
the other for injury or damage (a) caused solely by the negligence of
the other or, (b) caused by an employee of the party seeking
indemnity, tampering with or attempting to repair or maintain any
facilities of the party from whom indemnity is sought, or, (c) to the
extent caused @y the concurrent negligence of the other party.
14.3 An undertaking by one party to the other party under any provision of
this Agreement shall not constitute the dedication of such party's
system or any portion thereof to the public or to the other party and
any such undertaking shall cease upon termination of the party's
obligations herein.
14.4 In performing under this Agreement, each party relative to the other,
shall operate as or have the status of an independent contractor and
shall not act as or be an agent, servant, or employee of the other
party.
14.5 The parties shall negotiate the terms and conditions under which TNP
will be provided the opportunity to acquire the Facility installation
before the installation is offered to another purchaser in the event
of its abandonment.
14.6 Under no circumstances shall either party, or their respective
affiliates, directors, officers, employees and agents, or any of them,
be liable to the other party for any indirect, special or
consequential damages.
14.7 Any waiver at any time by either party of its rights with respect to a
default under this Agreement, or with respect to any other matters
arising in connection with this Agreement, shall not be deemed waiver
with respect to any subsequent default or other matter.
14.8 This Section XIV shall survive termination of this Agreement for a
period of two (2) years after the effective date of termination. XV.
TAXES
15.1 All present or future federal, state, municipal or other lawful taxes
applicable by reason of the sale of Energy or Contract Capacity shall
be paid by UCC. XVI. CHOICE OF LAW
16.1 This Agreement shall be interpreted, construed under and governed by
the laws of the State of Texas or the laws of the United States, as
applicable. The parties hereby submit to the jurisdiction of courts
located in, and venue is hereby stipulated in Travis County, Texas.
XVII. MISCELLANEOUS PROVISIONS
17.1 Neither party shall assign this Agreement or any portion thereof
without the prior written consent of the other party which consent
shall not be unreasonably withheld, provided, however, such consent
shall, not be required prior to an assignment to a parent, subsidiary
or affiliated corporation; but provided, further that: (i) any
assignee shall expressly assume assignor's obligations hereunder; (ii)
no such assignment shall impair any security given by UCC hereunder;
and (iii) unless expressly agreed by the other party in writing, no
assignment, whether or not consented to, shall relieve the assignor of
its obligations hereunder in the event its assignee fails to perform.
17.2 The failure of either party to insist in any one or more instances
upon strict performance of any provisions of this Agreement, or take
advantage of any of its rights hereunder, shall not be construed as a
waiver of any such provisions or the relinquishment of any such right
or any other right hereunder, which shall remain in full force and
effect.
17.3 The headings contained in this Agreement are used solely for
convenience and do not constitute a part of the agreement between the
parties hereto, nor should they be used to aid in any manner in the
construction of this Agreement.
17.4 Neither party is to make an announcement or release information
concerning this agreement unless; (i) such announcement or release has
been submitted to and approved in writing by the other party or; (ii)
such information is released in order to comply with any statutes,
laws, regulations, or orders issued by any authority legally empowered
to compel compliance or having jurisdiction over either party to this
Agreement.
17.5 Each party shall designate, by written notice to the other party, a
representative who is authorized to act in its behalf in the
implementation and administration of this Agreement provided that the
Authorized Representative shall have no authority to modify any of the
provisions of this Agreement. Either party may at any time change the
designation of its Authorized Representative by written notice to the
other party.
17.6 This Agreement and any amendments agreed to by both TNP and UCC
hereto, shall at all times be subject to such changes or modifications
as shall be ordered from time to time by any regulatory authority or
court having jurisdiction to require such changes or modification
including, without limitation, all successor tariffs and schedules to
the tariffs and schedules which apply to this Agreement at the time of
its execution.
17.7 This Agreement sets forth the entire understanding and agreement
between the parties hereto and supersedes and replaces any prior
understandings, warranties, representations, agreement or statements
(written or oral) of intent relating to the subject of this Agreement.
Any modification or other alteration of this Agreement by the parties
shall be effective only if set forth in writing as an amendment hereto
and signed by both parties.
XVIII. NOTICES
18.1 Except as otherwise provided herein, notices, demands or requests
required or authorized herein shall be deemed given when made in
writing and delivered or mailed with sufficient postage to the
following addresses of the parties:
(a) If to UCC:
(i) to Union Carbide corporation
Attn: Colleen Robisheaux
P.O. Box 471
3301 5th Avenue South
Texas City, Texas 77592-0471
(b) If to TNP:
(i) to Texas-New Mexico Power Company
Attn: Assistant Vice President
Resource Acquisition
4100 International Plaza
Fort Worth, TX 76109
OR
(P. 0. Box 2943
Fort Worth, TX 76113)
18.2 The names, titles, and addresses of either party designated in this
Section XVIII may be changed by written notification to the other
party. Notices during a system emergency or operational circumstances
may be made in person or by telephone in accordance with Appendix D.
XIX. STANDBY POWER:
19.1 For the purposes of this Agreement, Standby Power shall mean capacity
and energy as applicable, not to exceed the level of Contract
Capacity, necessary for TNP's system which cannot be supplied from
UCC's resources due to outages of UCC's generation or failure of
Qualifying Facility to deliver Capacity and Energy as provided for in
this Agreement.
19.2 In order to qualify for Scheduled Maintenance Service, UCC will meet
the following conditions:
.1 UCC will submit written notice to TNP at least 50 days prior to
the date UCC intends to do Scheduled Maintenance Service.
.2 UCC shall be limited to a maximum of six (6) periods of scheduled
maintenance which may not, in the aggregate, include more than 60
days in a calendar year and must be scheduled, with TNP's
approval, far the months of January, February, March, April,
November, and/or December or at such other times and/or for such
other periods as may be mutually acceptable.
19.4 During periods of Forced Outage or failure of UCC's power production
equipment, TNP will obtain Standby Power for a maximum of two (2)
consecutive months. Should the outage period exceed two (2)/'months,
UCC must provide in writing to TNP's satisfaction, a detailed
description of the events causing the Forced outage, at which time TNP
will determine what further arrangements may be necessary.
19.5 During periods of Forced Outage of UCC's Facility, UCC will be billed
for Internal Usage in the amount, if any, that TNP's energy cost (per
Section 12.3 of this Agreement) is greater than the energy charge that
TNP incurs to replace it. TNP will credit its monthly purchase power
bill from UCC to reflect this charge.
19.6 It is understood by the parties hereto that TNP may be unable to
obtain Standby Power for the full term of this contract. The parties
also recognize that TNP's ability to secure Standby Power for the
Qualifying Facility is solely dependent upon the availability from
other suppliers. TNP agrees PAGE 4 1 that it will deliver notice to
UCC when its standby supplier has given TNP notice of intention to
cancel standby service with TNP. Such notice to UCC shall be given
within two weeks of the time notice from the supplier is received by
TNP. The notice to UCC shall be written, and contain, at a minimum,
information sufficient to inform UCC of the date upon which the
standby service to TNP will cease.
19.7 UCC must submit to TNP records showing, to TNP's satisfaction, what
part of UCC's metered Ova in any month was due to Standby Power, for
either Maintenance and/or Back-up service. These records must include
an hourly profile of the Standby Ova. UCC must notify TNP in writing
within forty-eight (48) hours of each start of and end of a period of
using standby power, whether for maintenance or back-up service.
19.8 Qualifying Facility taking Standby Power on a stand-alone basis need
not submit hourly profiles.
19.9 Qualifying Facility taking Standby Power in conjunction with other
service, where KWH usage for Standby Power cannot be determined from
metered information, the KWH usage will be based on the schedule of
Standby Ova which will be assumed to be taken at the average power
factor of the total load at that time.
19.10Standby Power provided by TNP to UCC under this contract, is subject
to the term of this agreement.
XX. FORCE MAJEURE
20.1 The term force majeure, as used herein, means causes beyond the
reasonable control of, and without the fault or negligence of the
party claiming force majeure, including, without limitation, acts of
God, sudden actions of the elements, such as floods, hurricanes or
tornadoes, and action by federal, state, municipal or any other
government or agency, sabotage, war or riots.
1. The term force majeure does not include any full or partial
curtailment in the electric output of the Facility which is
caused by or arises from the act or acts of any third party
including, without limitation, any vendor or supplier of UCC,
unless such act or acts is itself excused by reason of force
majeure.
2. The term force majeure does not include any full or partial
curtailment in the electric output of the Facility that is caused
by or arises from a mechanical or equipment breakdown, unless
such breakdown is caused by acts of God, sudden actions of the
elements such as floods, hurricanes or tornadoes, sabotage, war
or riots. 3. The term force majeure does not include changes in
market conditions that affect the cost of UCC's supply of fuel or
alternate supplies of fuel or that affect demand for UCC's
products.
20.2 If either party because of force majeure is rendered wholly or partly
unable to perform any of its obligations under this Agreement
(including, without limitation, as to the Qualifying Facility, the
obligations of the Qualifying Facility set forth in Section 6.2
hereof), that party shall be excused from whatever performance is
affected by the force majeure to the extent so affected provided that:
.1 The non-performing party, within two (2) weeks after the
occurrence of the force majeure, gives the other party written
notice describing the particulars of the occurrence.
.2 The suspension of performance is of no greater scope and of no
longer duration than is required by the force majeure.
.3 The non-performing party uses its best reasonable efforts to
remedy its inability to perform.
.4 When the non-performing party is able to resume performance of
its obligations under this Agreement, that party shall give the
other party written notice to that effect.
20.3 Force majeure conditions shall be reflected in the Capacity Payment in
accordance with Section XII hereof.
20.4 Except as otherwise provided, a Forced Outage does not relieve either
party of any of its obligations under this Agreement. XXI. ENTIRETY
21.1 This Agreement is intended by the parties as the final expression of
their agreement and is intended also as a complete and exclusive
statement of the terms of their agreement with respect to the Energy
and Capacity sold and purchased and the construction, operation and
maintenance of the Interconnection Facilities that are required to
provide a means for the transfer of power and energy generated by the
Qualifying Facility to TNP's electrical system. All prior written or
oral understandings, offers or other communications of every kind
pertaining to the sale of Energy and Capacity hereunder to TNP by UCC
are hereby abrogated and withdrawn. TS 22.1 This Agreement may be
amended only in writing and upon mutual agreement of the parties. Any
amendment hereafter made by mutual agreement of the parties shall not
be effective unless and until approved by the PUCT.
XXIII. COUNTERPARTS
23.1 This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which shall
together constitute one and the same Agreement.
XXIV. REMEDIES CUMULATIVE AND CONCURRENT
24.1 The duties, covenants, conditions, obligations and warranties of the
Parties as provided in this Agreement are the joint and several
obligations of the Parties and the successors and transferees of the
Parties.
24.2 No right or remedy of either Party as provided in this Agreement or
the schedules, rules and regulations of TNP is exclusive; every right
or remedy of either Party as provided in this Agreement or the
schedules, rules and regulations of TNP will be cumulative and
concurrent, with every other right or remedy, now or subsequently
existing, as provided in this Agreement or the schedules, rules or
regulations of TNP, at law, in equity or by statute or regulation.
Every right or remedy of either party may be pursued separately,
successively or together against either Party, or against the
successors or assigns of either Party or any one or more of them, in
the sole and absolute discretion of either Party, and may be exercised
as often as occasion for the pursuit arises and from time to time as
either Party may deem expedient, in the sole and absolute discretion
of either Party. XXV. SIGNATURE CLAUSE
25.1 The signatories hereto represent that they have been appropriately
authorized to enter into this Agreement on behalf of the party for
whom they sign.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
this the 30th day of December, 1994, in multiple counterparts.
Attest: _______________________________
______________________________ By:_______________________________
Secretary
Title:_______________________________
Date:________________________________
Attest: TEXAS-NEW MEXICO POWER COMPANY
______________________________ By:_________________________________
Assistant Secretary Assistant Vice President -
Title: Resource Acquisition & Management
Date:________________________________
TNP LETTERHEAD
August 16, 1996
Mr. Tim Soles
Amoco Corporation
Worldwide Engineering & Construction
3700 Bay Area Boulevard
Mail Code 4365
Houston, Texas 77058
Re: Letter Agreement for the Purchase and Sale of Energy Between Texas-New
Mexico Power Company & Amoco Chemical Company & Amoco Oil Company
Dear Mr. Soles:
This letter agreement is hereby entered into by Texas-New Mexico Power
Company (TNP), Amoco Oil Company (AOC) and Amoco Chemical Company (ACC), also
known collectively herein as Amoco, in order to achieve mutual intents of (1)
lowering AOC's and ACC's electrical costs on an annual basis, (2) providing
electric service for the total AOC and ACC loads and (3) providing dynamic
scheduling capability for Amoco to make excess electrical energy sales to
Houston Lighting & Power (HL&P).
This letter agreement shall become effective as of May 1, 1996 and continue
through an initial term of September 30, 1996. The agreement will continue on a
monthly basis after its initial term has expired unless any party to the
agreement gives 30 days written notice of intent to terminate the agreement.
This letter agreement shall supersede and replace in their entirety all prior
Conjunctive Billing Agreements. Furthermore, TNP shall retroactively adjust
billing to AOC and ACC under the terms of this letter agreement to the effective
date of this agreement.
This letter agreement shall become effective retroactive to May 1, 1996
upon execution, however the parties recognize that a new tariff with the City of
Texas City must be approved by the City of Texas City in order to implement the
pricing on TNP's power purchase and sale from/to Amoco. TNP will work diligently
to seek approval from the City. If TNP fails to obtain approval of this tariff,
then Amoco will be billed according to the Agreement For Consolidating Of
Metering And Billing Of Electrical Service in effect prior to the execution of
this letter agreement.
Sale/Purchase of AOC and ACC's Internal Energy Production and Consumption
TNP agrees to purchase monthly all of ACC's metered generation of
electrical energy and a fixed (215,000 kW @ 85% Capacity Factor) monthly amount
of AOC's electrical energy production at a price of $0.0175 per kilowatt-hour
(kWh). In addition, TNP agrees to purchase from AOC the net monthly metered
energy exported by AOC to TNP that can be used to supply ACC with any electrical
energy purchase requirements above ACC's own metered generated electrical energy
at a price of $0.0175 per kWh. Amoco agrees to purchase that same amount of
electrical energy to serve the AOC and ACC internal energy requirements at a
price of $0.01975 per kWh. The $0.01975 per kWh includes $0.00225 per kWh tariff
fees that must be approved by the City of Texas City.
AOC/ACC Energy Purchases Above Their Combined Internal Generation
If for any reason during the billing month should Amoco not actually
produce an amount of electrical energy that is at least equal to Amoco's actual
internal energy load, then TNP shall be obligated to provide this energy
difference at a total price of $0.0275 per kWh. There will be no demand charges
associated with any power sales to AOC or ACC or power purchases by TNP.
TNP will provide all maintenance energy replacement service to both AOC and
ACC similar to that as referenced in the ACC Agreement for Standby Service dated
August 1, 1987 and the AOC Agreement for Standby Service dated July 1, 1987.
TNP agrees to use its best efforts to obtain the lowest priced maintenance
energy replacement service to both AOC and ACC. As outlined in the
aforementioned agreements for maintenance energy replacement service, AOC and/or
ACC each agree to provide TNP with at least 50 days written notice prior to the
date maintenance energy replacement service is required and schedule no more
than 6 periods each of maintenance service during a calendar year with TNP
approval, for an aggregate of 60 days each. The maintenance energy replacement
service cost will be no more than $0.0275 per kWh. There will be no reservation
or demand charges associated with TNP providing the maintenance energy
replacement service to AOC and ACC.
It is the intent of TNP and Amoco that in the future, Amoco may elect to
purchase any or all of the electrical energy for internal load that is not met
by the TNP purchase of Amoco generation, including maintenance energy
replacement service, from other sources than TNP.
Sale of AOC and ACC Excess Energy to HL&P
Excess electrical energy shall be defined as AOC's and ACC's combined
metered electrical energy outputs to TNP less any internal needs as measured by
TNP's metered electrical energy inputs to AOC and ACC.
Excess electrical energy shall be scheduled for delivery to the HL&P
control area through TNP's control area by the use of a Dynamic Schedule (as
that term is used in the ERCOT Operating Guides). The integrated amount of power
delivered in each hour shall be considered the energy scheduled for that hour.
HL&P will integrate the Dynamic Schedule signals provided by TNP hourly. In
performing the hourly integration, HL&P will formulate by truncations to whole
Megawatt hours (MWhs) such that any remaining kWhs in a MWh will be carried
forward to the next MWh.
During those periods (if any) when any party to this letter agreement
experiences a communication failure in its dynamic signals, the last value
received by HL&P will be retained. During the telemetry downtime and as soon as
mutually acceptable arrangements can be made between Amoco, TNP and HL&P, the
transaction will be administered through the use of static schedules prepared by
Amoco and delivered to TNP and HL&P.
In the event excess electrical energy scheduled by Amoco for delivery to
the HL&P control area can not be delivered with a Dynamic Schedule, a static
schedule will be used. TNP agrees to coordinate with Amoco the static scheduling
of excess electrical energy for sale to HL&P. TNP on behalf of Amoco will
schedule the excess electrical energy for sale to HL&P on a hourly basis as
close as it reasonably can in order to match the production of excess electrical
energy. Doing such will allow TNP to mitigate the quantity of electrical energy
which TNP will be required to provide on behalf of Amoco in order to match the
schedule of excess electrical energy sales by Amoco to HL&P and to mitigate the
quantity of excess electrical energy which will be purchased by TNP due to
production of excess electrical energy exceeding the schedule of excess
electrical energy sales submitted to HL&P. Should TNP be required to provide
electrical energy on behalf of Amoco to meet the schedule for excess electrical
energy sales to HL&P, then the charge to Amoco shall be TNP's actual incremental
energy cost. If TNP is required to purchase production of excess electrical
energy that exceeds the schedule of excess electrical energy sales submitted to
HL&P, then Amoco shall be compensated at TNP's actual decremental energy cost.
Other & Miscellaneous
Exhibit A describes the accounting methodology that will be used under this
letter agreement and Exhibit B shows a sample billing of the AOC and ACC May and
June's billings under this letter agreement. These exhibits are intended to
demonstrate the principles of this letter agreement and the effect on the AOC
and ACC electrical energy costs.
This letter agreement is considered confidential and should not be
publicized for any reason other than that necessary to seek tariff approval.
Billing shall be consolidated and include sufficient detail for Amoco to
internally disburse costs and savings amongst AOC and ACC.
Stranded Cost Recovery
In further consideration of the mutual benefits to be derived from this
letter agreement, TNP agrees that it will not seek recovery of stranded
investment costs as a result of this letter agreement. It is not the intent of
the parties that the structure of this letter agreement and the purchase and
sale of electrical energy should create any incremental liability for such
stranded costs by AOC and ACC. However, if as a result of this agreement, any
stranded costs are imposed on AOC or ACC by any current or future applicable
law, tariff, rule, regulation or order of any legislative or regulatory body to
pay for stranded costs attributable to deregulation of TNP, HL&P, or any other
utility, it is agreed that TNP will, to the extent legally possible, reimburse
or credit AOC or ACC, as applicable, for any such stranded costs imposed on AOC
or ACC as a result of this agreement. Further, in such event, the parties agree
that they will immediately restructure this letter agreement, or any successor
agreement, to alleviate or minimize such exposure.
Continued Discussions
The parties also agree to continue to negotiate in good faith toward the
execution of a mutually acceptable long term agreement.
Signature Clause
The signatories hereto represent that they have been appropriately
authorized to enter into this Agreement on behalf of the party for whom each
signs.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
this ______ day of ______________, 1996 in multiple counterparts.
AMOCO CHEMICAL COMPANY
By: _______________________________________
Title: _______________________________________
Date: _______________________________________
AMOCO OIL COMPANY
By: _______________________________________
Title: _______________________________________
Date: _______________________________________
TEXAS-NEW MEXICO POWER COMPANY
By: _______________________________________
Title: _______________________________________
Date: _______________________________________
Page 1
Incentive Compensation Award Agreement
for Short- and Long-Term Awards
This Agreement is dated and effective as of January 1, 1997, and is between
___________________________________ ("Participant"), Texas-New Mexico Power
Company (the "Company") and TNP Enterprises, Inc. ("TNPE").
RECITALS
A Committee appointed by and having full authority to act on behalf of the
Board of Directors of the Company and TNPE, respectively, (collectively, the
"Compensation Committee") adopted the following incentive compensation plans:
A. Texas-New Mexico Power Company Management Short-Term Incentive Plan
("Management Plan"); and
B. TNP Enterprises, Inc. Equity Incentive Plan ("Equity Plan").
On April 28, 1995, the Shareholders approved the adoption by the Board of
Directors of the Equity Plan.
The Management Plan provides for the payment of cash if certain incentive
goals are achieved. The Equity Plan provides for the delivery of stock options,
stock, and performance units upon the achievement of certain incentive goals
which may be short-term and/or long-term goals.
On January 20, 1997, the Compensation Committee (the "Committee")
established the performance goals to be achieved in order to earn incentive
compensation under the plans.
The Participant has been selected to receive awards under each plan subject
to the terms of each applicable plan and the Participant signing this Award
Agreement.
The Participant and the Company agree that this Agreement does not affect
Participant's status as an employee at will and further agree that either party
may terminate Participant's employment at any time with or without cause.
The Committee reserves, in its sole discretion, the right to interpret the
terms and conditions of any award and this agreement and to resolve any
disagreements or disputes concerning this Award Agreement and any decision is
binding upon all parties.
In consideration of the Recitals and mutual covenants and agreements below,
the Participant and the Company desire to and by their respective signatures do
hereby agree to the terms and conditions set forth below.
AGREEMENT
SHORT-TERM AWARDS
Short-Term Cash Award: Participant is hereby awarded _____% of the control
point established for Participant's salary range as of the beginning of each
plan year as a cash award subject to the 1997 short-term goals for the
Management Plan being met as such goals are set forth on Exhibit A attached
hereto and made a part hereof for all purposes. Such award may be adjusted
between 50% and 150% on a straight line basis depending upon where the
performance related to each goal occurs within the range established for each
goal. No award payment will be made for performance below the established
minimum for each goal set forth in Exhibit A. The cash award shall be paid no
later than March 15th following the end of the plan year.
The parties agree that no portion of the cash award is due or payable
regardless of whether any Corporate Operational Goal or Departmental/Individual
Goals are met unless the minimum Corporate Financial Goal is met. Further, the
Committee reserves the right to make year-end adjustments which may account for
any unusual or unforeseen events that impact the attainability of any goal.
Short-Term Stock Award: Participant is hereby awarded _____% of the control
point established for Participant's salary range as of the beginning of the plan
year as a stock award subject to the 1997 goals being met as such goals are set
forth on Exhibit A. Such award may be adjusted between 50% and 150% on a
straight line basis depending upon where the performance related to each goal
occurs within the range established for each goal. No award payment will be made
for performance below the established minimum for each goal set forth in Exhibit
A. The stock award shall be paid no later than March 15th following the end of
the plan year.
The parties agree that no portion of the stock award is due or payable
regardless of whether any Corporate Operational Goal or Departmental/Individual
Goals are met unless the minimum Corporate Financial Goal is met. Further, the
Committee reserves the right to make year-end adjustments which may account for
any unusual or unforeseen events that impact the attainability of any goal.
Restrictions on Sale of Stock: Participant agrees that the short-term stock
award is restricted from being sold for a two-year period following the end of
____________________ (the "Restriction Period"). Participant agrees that any
stock issued as a short-term stock award will bear a legend stating any
applicable restrictions. Participant further agrees that such stock award is
forfeited and of no effect in the event that Participant attempts to sell such
stock during the Restriction Period.
Notwithstanding the foregoing, all restrictions on the sale of the stock
lapse and said stock may be freely sold or transferred if during the Restriction
Period one of the following should occur:
a. Participant's employment should be terminated for any reason other
than cause.
b. A Change of Control should occur as that term is defined in the Equity
Plan.
(Participant should be cognizant of Rule 16(b) to the extent it may apply.)
Allocation of Awards: Participant agrees that total amounts awarded under
the cash and stock awards will be allocated among the Corporate Financial Goal,
Corporate Operational Goals, and Departmental/Individual Performance Goals
applicable to such Participant as is set forth in Exhibit B.
Participant agrees that to the extent any amount of the total award is
allocated to the Departmental/Individual Performance Goals, such amount will be
due and payable only to the extent the performance of the Participant, as
determined by the officer executing this Agreement on behalf of the Company in
such officer's sole discretion (or, if Participant is the Chief Executive
Officer, then as determined by the Committee in its sole discretion), falls
within the Performance Rating range set forth in Exhibit C which is attached
hereto and made a part hereof for all purposes.
LONG-TERM AWARD
Long-Term Stock Award: Participant is hereby awarded _____% of the control
point established for Participant's salary range as of the beginning of the
long-term plan cycle as a stock award subject to the 1997 long-term plan cycle
award opportunities established for the Equity Plan being met as such goals are
set forth on Exhibit D which is attached hereto and made a part hereof for all
purposes. Such award may be adjusted between 50% and 150% on a straight line
basis, depending upon where the performance related to each goal occurs within
the range established for each goal. No award payment will be made for
performance below the established minimum for each goal set forth in Exhibit D.
Any stock award earned shall be paid no later than March 15th following the end
of the 1997 long-term plan cycle. The 1997 Plan year cycle will be a period of
three years beginning January 1, 1997.
Allocation of Award: Participant agrees that the total amount awarded under
the Equity Plan will be allocated 50% to the goal established for Total
Shareholder Return in comparison to the S&P 500, and 50% to the goal established
for Total Shareholder Return in comparison to the S&P Electrical Utility Group.
The amounts allocated to each set of goals will be due and payable only to the
extent each such goal shall be met as set forth in Exhibit D.
GENERAL TERMS
Dividend Equivalents: Participant shall have the right to receive, at the
time any stock awards are paid, cash in an amount equal in value to the
dividends declared on each Share on each record date occurring during the
applicable performance period established for each plan. Dividend equivalents
will not include any dividends on the dividend equivalents accrued during the
applicable performance periods.
Pro-Ration of Awards: If a Participant's employment is terminated due to
retirement, death, or disability during a plan year or the 1997 long-term
performance cycle, any award earned shall be prorated based on the number of
months of participation within the plan year or long-term plan cycle. The
prorated award will be based upon performance determined at year or cycle end
and will be paid at the same time as all other awards are paid from each of the
plans under which awards are made.
Termination of Employment: If employment is terminated for any reason other
than retirement, death, or disability, any award opportunity granted under
either plan shall be forfeited, provided that the Committee may waive such
forfeiture upon the CEO's recommendation.
Valuation of Shares: Shares issued under the Equity Plan pursuant to having
been earned under the plan and the terms of this Agreement shall be valued by
averaging the high and low prices of the stock on the first and last trading
days of the plan performance period (the "Share Value"). The Share Value shall
be applied to the dollar value of the award to arrive at the equivalent number
of shares awarded. The awarded shares shall be adjusted for the average of the
high and low stock price on the last trading day of the plan year.
Tax Treatment: Payments are taxable to the participant in the year of
receipt. The Company will have the right to deduct any federal, state, or local
taxes required by law to be withheld. In regard to any stock award made
hereunder a Participant, at Participant's option, may elect to have the Company
withhold sufficient stock to pay the taxes then due on such stock award.
Provisions Consistent with Plan: This Agreement shall be construed
consistent with the provisions of the applicable plan under which any award may
be made. Where matters are not addressed in this Award Agreement, but are
addressed in the Management Plan or Equity Plan, then such terms are deemed a
part of this Award Agreement and shall apply equally to all awards granted
herein, except for where such terms obviously apply solely to one of the plans.
If there is a conflict between the provisions of this Agreement and such plan,
the provisions of the applicable plan control. Unless otherwise noted to the
contrary, the definition of terms in each Plan also apply in this Agreement.
Attorney Fees: In the event either party is required to bring a cause of
action against the other to enforce the terms of this Agreement, then such
party, to the extent such party is successful in such action, shall be entitled
to reasonable attorney fees.
Governing Law: This Agreement shall be governed by the laws of the State of
Texas. Venue for any cause of action shall be Tarrant County, Texas.
Texas-New Mexico Power Company Participant:
By: ____________________ By: ____________________
TNP Enterprises, Inc. Participant
By:_____________________ By:_____________________
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
TNP ENTERPRISES, INC.
TEXAS-NEW MEXICO POWER COMPANY
Short-Term Incentive Corporate Goals
<S> <C> <C> <C> <C>
1997 Goals
Measurement Objective Minimum Target Maximum
___________ _________ _______ ______ _______
Financial
1. Cash Value Added Improve Financial 4.05 4.40 4.75
Condition
Corporate Threshold 4.05
Opeational
2. Customer Satisfaction Rating Improve Customer 79 82 85
(Use CSI instead of overall Service
favorability in 1997)
3. O&M Costs/KWH Sales ((cent)KWH) Reduce Operating Costs
4.15 3.95 3.75
4. Equivalent Forced Outage Rate (Moved Improve TNP One's
to Plant Specific Goals in 1997) Reliability 4.7 4.5 4.3
5. Injury Frequency Ratio Reduce Employee 5.05 4.44 3.82
Accidents 49 43 37
6. System Reliability
A) Average Minutes of Outage per Reduce Outage Time 86 76 66
customer
B) Average Number of Outages per Reduce No. of
customer Customers Interrupted 1.40 1.25 1.10
</TABLE>
<PAGE>
EXHIBIT B
<TABLE>
<CAPTION>
TEXAS-NEW MEXICO POWER COMPANY
Short-Term Incentive Plan
Weighting of 1997 Goals for
Texas-New Mexico Power Company Participants
Corporate
Financial Corporate Operational
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash Customer O&M Avg. Avg.
Value Satisfaction Costs/per Minutes of Number of Departmental/
Added Rating KWH IFR Outage Outages EFOR Individual Total
-------- ---------- --------- ------- --------- --------- ------ ------------ --------
CEO 60 5 5 5 5 5 5 10 100%
- ---
SR VP CCO 60 10 5 5 5 5 10 100%
RCOs 50 5 5 5 2.5 2.5 30 100%
Key Employees 50 5 5 5 2.5 2.5 30 100%
SR VP Power Resources 60 5 5 5 25 100%
Asst. Res. Acq. 60 5 5 30 100%
Asst. VP Ind. Mkt. 60 5 5 30 100%
Key Participants 60 5 5 30 100%
Plant Mgr. & Key Participants 60 5 5 * 30 100%
SR VP CFO 60 5 5 30 100%
Controller 60 5 5 30 100%
Treasurer 60 5 5 30 100%
Key Employees 60 5 5 30 100%
SR VP Corporate Relations 60 5 5 5 25 100%
VP HR 60 5 5 5 25 100%
Sec Gen Counsel 60 5 5 30 100%
Key Employees 60 5 5 30 100%
* 1/3 of TNP One's Departmental Goal will be EFOR.
</TABLE>
<PAGE>
<TABLE>
EXHIBIT C
<CAPTION>
DEPARTMENTAL/INDIVIDUAL PERFORMANCE TARGET GOALS
<S> <C>
Individual Performance
Performance Rating as a % of Target Award
4 - Greatly exceeded expectations for objective(s) 150%
(maximum)
3 - Exceeded expectations for objective(s) 125%
2 - Achieved expectations for objective(s) (target) 100%
1 - Almost achieved expectations for objective(s) 50%
(minimum)
0 - Improvement needed, failed to meet objective(s) 0%
</TABLE>
<PAGE>
EXHIBIT D
LONG-TERM STOCK AWARD GOALS
Total Shareholder Return Payout
on the basis of matrix
reflecting total
shareholder return in
relation to each of the S&P
500 and the S&P Electric
Utility Index.
TSR to S&P 500 (50% weighting)
Performance Ranking % of Target Shares Earned
Maximum =>75th percentile 150%
Target =>55th percentile 100%
Minimum =>35th percentile 50%
Below Minimum <=35th percentile 0%
TSR to S&P Electric Utility Index (50% weighting)
Performance Ranking % of Target Shares Earned
Maximum =>75th percentile 150%
Target =>55th percentile 100%
Minimum =>35th percentile 50%
Below Minimum <=35th percentile 0%
<PAGE>
SCHEDULE OF AWARD AGREEMENTS
Employee Position
- --------------------------------------------------------------------------------
1. Kevern Joyce Chairman President & CEO
2. Jack Chambers Sr VP & Chief Customer Officer
3. Manjit Cheema Sr VP & Chief Financial Officer
4. John Edwards Sr VP - Corporate Relations
5. Ralph Johnson Sr VP - Power Resources
6. Doug Hobbs VP - Business Development
7. Allan Davis VP - Regional Customer Officer
8. Larry Dillon VP - Regional Customer Officer
9. Melissa Davis VP - Regional Customer Officer
10. Dennis Cash VP - Human Resources
1. Mike Blanchard Corporate Secretary & General Counsel
12. John Montgomery President (Facility Works)
13. Pat Bridges Treasurer
14. Scott Forbes Controller
15. Randy Ownby Asst. VP - Resource Acquisition
16. Larry Gunderson Director Regulatory & Governmental Affairs
17. Mark Wilson Plant Manager
18. Mark Coulson Asst VP - Industrial Marketing
19. Cathy Means Director - Information Services
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000741612
<NAME> TNP ENTERPRISES, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 933,939
<OTHER-PROPERTY-AND-INVEST> 3,927
<TOTAL-CURRENT-ASSETS> 38,123
<TOTAL-DEFERRED-CHARGES> 30,795
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,006,784
<COMMON> 183,771
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 94,703
<TOTAL-COMMON-STOCKHOLDERS-EQ> 278,474
0
3,420
<LONG-TERM-DEBT-NET> 533,964
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 138
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 190,788
<TOT-CAPITALIZATION-AND-LIAB> 1,006,784
<GROSS-OPERATING-REVENUE> 502,737
<INCOME-TAX-EXPENSE> 10,333
<OTHER-OPERATING-EXPENSES> 398,527
<TOTAL-OPERATING-EXPENSES> 408,860
<OPERATING-INCOME-LOSS> 93,877
<OTHER-INCOME-NET> (1,461)
<INCOME-BEFORE-INTEREST-EXPEN> 92,416
<TOTAL-INTEREST-EXPENSE> 69,363
<NET-INCOME> 23,053
167
<EARNINGS-AVAILABLE-FOR-COMM> 22,886
<COMMON-STOCK-DIVIDENDS> 10,700
<TOTAL-INTEREST-ON-BONDS> 64,654
<CASH-FLOW-OPERATIONS> 65,201
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.98
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000022767
<NAME> TEXAS-NEW MEXICO POWER CO.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 933,939
<OTHER-PROPERTY-AND-INVEST> 1,884
<TOTAL-CURRENT-ASSETS> 34,213
<TOTAL-DEFERRED-CHARGES> 32,121
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,002,157
<COMMON> 107
<CAPITAL-SURPLUS-PAID-IN> 222,133
<RETAINED-EARNINGS> 65,308
<TOTAL-COMMON-STOCKHOLDERS-EQ> 287,548
0
3,420
<LONG-TERM-DEBT-NET> 533,800
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 100
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 177,289
<TOT-CAPITALIZATION-AND-LIAB> 1,002,157
<GROSS-OPERATING-REVENUE> 502,737
<INCOME-TAX-EXPENSE> 10,333
<OTHER-OPERATING-EXPENSES> 389,527
<TOTAL-OPERATING-EXPENSES> 408,860
<OPERATING-INCOME-LOSS> 93,877
<OTHER-INCOME-NET> 2,348
<INCOME-BEFORE-INTEREST-EXPEN> 96,225
<TOTAL-INTEREST-EXPENSE> 69,363
<NET-INCOME> 26,862
167
<EARNINGS-AVAILABLE-FOR-COMM> 26,695
<COMMON-STOCK-DIVIDENDS> 10,700
<TOTAL-INTEREST-ON-BONDS> 64,654
<CASH-FLOW-OPERATIONS> 69,313
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
