<PAGE>
================================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO ____
COMMISSION FILE NUMBER 0-296
EL PASO ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
TEXAS 74-0607870
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
KAYSER CENTER, 100 NORTH STANTON, EL PASO, TEXAS 79901
(Address of principal executive offices) (Zip Code)
(915) 543-5711
(Registrant's telephone number, including area code)
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 whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES X NO
----- -----
As of November 7, 1997, there were 60,239,236 shares of the Company's no par
value common stock outstanding.
================================================================================
<PAGE>
EL PASO ELECTRIC COMPANY
INDEX TO FORM 10-Q
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1997
and December 31, 1996......................................... 1
Statements of Operations - Three Months Ended September 30,
1997 and 1996; Nine Months Ended September 30, 1997, Period
From February 12 to September 30, 1996 and Period From
January 1 to February 11, 1996; Twelve Months Ended
September 30, 1997, Period From February 12 to September 30,
1996 and Period From October 1, 1995 to February 11, 1996..... 3
Statements of Accumulated Earnings - Three Months Ended
September 30, 1997 and 1996; Nine Months Ended September 30,
1997, Period From February 12 to September 30, 1996 and Period
From January 1 to February 11, 1996; Twelve Months Ended
September 30, 1997, Period From February 12 to September 30,
1996 and Period From October 1, 1995 to February 11, 1996..... 6
Statements of Cash Flows - Nine Months Ended September 30, 1997,
Period From February 12 to September 30, 1996 and Period From
January 1 to February 11, 1996................................ 9
Notes to Financial Statements.................................. 10
Independent Auditors' Review Report............................ 18
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................... 26
Item 5. Other Matters........................................... 26
Item 6. Exhibits and Reports on Form 8-K........................ 26
-i-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EL PASO ELECTRIC COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS September 30,
(In thousands) 1997 December 31,
(UNAUDITED) 1996
------------- ------------
<S> <C> <C>
Utility plant:
Electric plant in service............................................................ $1,521,218 $1,492,737
Less accumulated depreciation and amortization....................................... 142,055 77,976
---------- ----------
Net plant in service............................................................... 1,379,163 1,414,761
Construction work in progress........................................................ 49,023 44,432
Nuclear fuel; includes fuel in process of $1,941 and $5,084, respectively............ 77,574 60,014
Less accumulated amortization........................................................ 34,601 18,651
---------- ----------
Net nuclear fuel................................................................... 42,973 41,363
---------- ----------
Net utility plant................................................................ 1,471,159 1,500,556
---------- ----------
CURRENT ASSETS:
Cash and temporary investments....................................................... 87,612 68,767
Accounts receivable, principally trade, net of allowance for
doubtful accounts of $6,241 and $6,161, respectively............................... 69,335 57,587
Federal income tax receivable........................................................ - 20,713
Inventories, at cost................................................................. 27,619 28,322
Net undercollection of fuel revenues................................................. 11,477 1,925
Prepayments and other................................................................ 10,932 8,727
---------- ----------
Total current assets............................................................. 206,975 186,041
---------- ----------
LONG-TERM CONTRACT RECEIVABLE.......................................................... 28,532 31,057
---------- ----------
DEFERRED CHARGES AND OTHER ASSETS:
Accumulated deferred income taxes, net............................................... 48,117 73,884
Decommissioning trust fund........................................................... 37,374 33,054
Other................................................................................ 21,299 21,598
---------- ----------
Total deferred charges and other assets.......................................... 106,790 128,536
---------- ----------
TOTAL ASSETS..................................................................... $1,813,456 $1,846,190
========== ==========
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
EL PASO ELECTRIC COMPANY
BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
CAPITALIZATION AND LIABILITIES SEPTEMBER 30,
(In thousands except for share data) 1997 DECEMBER 31,
(UNAUDITED) 1996
------------- ------------
<S> <C> <C>
Capitalization:
Common stock, stated value $1 per share, 100,000,000 shares authorized,
60,067,832 and 59,999,981 shares issued and outstanding; and 171,404
and 180,000 restricted shares, respectively...................................... $ 60,239 $ 60,180
Capital in excess of stated value.................................................. 241,120 240,768
Unearned compensation - restricted stock awards.................................... (975) (758)
Accumulated earnings............................................................... 64,202 30,835
Net unrealized gain on marketable securities, less applicable
income tax expense of $63 and $125, respectively................................. 117 232
---------- ----------
Common stock equity............................................................ 364,703 331,257
Preferred stock, cumulative, no par value, 2,000,000 shares authorized:
Redemption required - 1,179,587 and 1,084,264 shares issued and
outstanding, respectively; at liquidation preference......................... 117,959 108,426
Long-term debt..................................................................... 944,014 1,021,749
Financing and capital lease obligations............................................ 24,398 24,424
---------- ----------
Total capitalization......................................................... 1,451,074 1,485,856
---------- ----------
CURRENT LIABILITIES:
Current maturities of long-term debt and financing and capital lease obligations... 28,489 28,333
Accounts payable, principally trade................................................ 27,723 37,215
Taxes accrued other than federal income taxes...................................... 24,639 21,296
Interest accrued................................................................... 20,177 23,150
Other.............................................................................. 16,768 15,000
---------- ----------
Total current liabilities.................................................... 117,796 124,994
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Decommissioning.................................................................... 93,574 89,544
Accrued postretirement benefit liability........................................... 77,015 71,313
Accrued pension liability.......................................................... 34,259 34,550
Other.............................................................................. 39,738 39,933
---------- ----------
Total deferred credits and other liabilities................................. 244,586 235,340
---------- ----------
COMMITMENTS AND CONTINGENCIES
TOTAL CAPITALIZATION AND LIABILITIES......................................... $1,813,456 $1,846,190
========== ==========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
EL PASO ELECTRIC COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands except for share data)
THREE THREE
MONTHS MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
OPERATING REVENUES:
Base revenues.............................................................. $ 133,005 $ 131,955
Fuel revenues and economy sales............................................ 35,845 33,645
Other...................................................................... 1,290 1,056
----------- -----------
170,140 166,656
----------- -----------
FUEL EXPENSES:
Fuel....................................................................... 28,459 30,052
Purchased and interchanged power........................................... 8,921 5,326
----------- -----------
37,380 35,378
----------- -----------
OPERATING REVENUES NET OF FUEL EXPENSES...................................... 132,760 131,278
----------- -----------
OTHER OPERATING EXPENSES:
Other operations........................................................... 34,452 32,295
Maintenance................................................................ 5,680 8,820
Depreciation and amortization.............................................. 22,283 22,584
Taxes other than income taxes.............................................. 11,166 9,615
----------- -----------
73,581 73,314
----------- -----------
OPERATING INCOME............................................................. 59,179 57,964
----------- -----------
OTHER INCOME (DEDUCTIONS):
Investment income.......................................................... 1,576 1,245
Gain on sale of investment................................................. - 3,844
Other, net................................................................. (239) (333)
----------- -----------
1,337 4,756
----------- -----------
INCOME BEFORE INTEREST CHARGES............................................... 60,516 62,720
----------- -----------
INTEREST CHARGES (CREDITS):
Interest on long-term debt................................................. 21,141 24,230
Other interest............................................................. 1,714 1,806
Interest capitalized and deferred.......................................... (1,449) (1,402)
----------- -----------
21,406 24,634
----------- -----------
INCOME BEFORE INCOME TAXES................................................... 39,110 38,086
INCOME TAX EXPENSE........................................................... 15,122 15,316
----------- -----------
INCOME BEFORE EXTRAORDINARY LOSS ON REPURCHASE OF DEBT....................... 23,988 22,770
EXTRAORDINARY LOSS ON REPURCHASE OF DEBT, NET OF FEDERAL
INCOME TAX BENEFIT......................................................... (69) -
----------- -----------
NET INCOME.................................................................. 23,919 22,770
PREFERRED STOCK DIVIDEND REQUIREMENTS........................................ 3,331 2,977
----------- -----------
NET INCOME APPLICABLE TO COMMON STOCK........................................ $ 20,588 $ 19,793
=========== ===========
NET INCOME PER COMMON SHARE:
Income before extraordinary loss on repurchase of debt..................... $ 0.342 $ 0.329
Extraordinary loss on repurchase of debt, net of federal
income tax benefit....................................................... (0.001) -
----------- -----------
Net income............................................................... $ 0.341 $ 0.329
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON
SHARE EQUIVALENTS OUTSTANDING.............................................. 60,459,648 60,239,238
=========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
EL PASO ELECTRIC COMPANY
STATEMENTS OF OPERATIONS
(In thousands except for share data)
<TABLE>
<CAPTION>
NINE PERIOD FROM |
MONTHS FEBRUARY 12 | PERIOD FROM
ENDED TO | JANUARY 1
SEPTEMBER 30, SEPTEMBER 30, | TO
1997 1996 | FEBRUARY 11,
(UNAUDITED) (UNAUDITED) | 1996
------------- ------------- | ------------
<S> <C> <C> | <C>
OPERATING REVENUES: |
Base revenues.......................................................... $ 349,963 $ 306,656 | $ 44,679
Fuel revenues and economy sales........................................ 96,585 71,755 | 9,849
Other.................................................................. 3,724 2,540 | 421
----------- ----------- | -----------
450,272 380,951 | 54,949
----------- ----------- | -----------
FUEL EXPENSES: |
Fuel................................................................... 82,368 62,893 | 10,125
Purchased and interchanged power....................................... 16,921 13,503 | 2,282
----------- ----------- | -----------
99,289 76,396 | 12,407
----------- ----------- | -----------
OPERATING REVENUES NET OF FUEL EXPENSES.................................. 350,983 304,555 | 42,542
----------- ----------- | -----------
OTHER OPERATING EXPENSES: |
Other operations....................................................... 96,605 79,491 | 23,559
Maintenance............................................................ 24,519 24,282 | 4,743
Depreciation and amortization.......................................... 66,286 56,953 | 6,577
Taxes other than income taxes.......................................... 33,116 29,298 | 6,024
----------- ----------- | -----------
220,526 190,024 | 40,903
----------- ----------- | -----------
OPERATING INCOME......................................................... 130,457 114,531 | 1,639
----------- ----------- | -----------
OTHER INCOME (DEDUCTIONS): |
Litigation settlement, net............................................. 7,500 - | -
Investment income...................................................... 3,698 3,482 | -
Gain on sale of investment............................................. - 3,844 | -
Other, net............................................................. (786) (449) | 50
----------- ----------- | -----------
10,412 6,877 | 50
----------- ----------- | -----------
INCOME BEFORE INTEREST CHARGES........................................... 140,869 121,408 | 1,689
----------- ----------- | -----------
INTEREST CHARGES (CREDITS): |
Interest on long-term debt............................................. 64,949 62,937 | -
Other interest......................................................... 5,100 4,376 | -
Interest during reorganization......................................... - - | 9,569
Interest capitalized and deferred...................................... (4,339) (3,718) | (412)
----------- ----------- | -----------
65,710 63,595 | 9,157
----------- ----------- | -----------
INCOME (LOSS) BEFORE INCOME TAXES........................................ 75,159 57,813 | (7,468)
INCOME TAX EXPENSE (BENEFIT)............................................. 29,333 23,854 | (3,415)
----------- ----------- | -----------
INCOME (LOSS) BEFORE REORGANIZATION ITEMS AND |
EXTRAORDINARY ITEMS.................................................... 45,826 33,959 | (4,053)
REORGANIZATION ITEMS, NET OF INCOME TAX BENEFIT.......................... - - | 122,251
----------- ----------- | -----------
INCOME BEFORE EXTRAORDINARY ITEMS........................................ 45,826 33,959 | 118,198
----------- ----------- | -----------
EXTRAORDINARY ITEMS: |
Extraordinary loss on repurchase of debt, net of federal |
income tax benefit................................................... (2,741) - | -
Extraordinary gain on discharge of debt................................ - - | 264,273
----------- ----------- | -----------
(2,741) - | 264,273
----------- ----------- | -----------
NET INCOME............................................................... 43,085 33,959 | 382,471
PREFERRED STOCK DIVIDEND REQUIREMENTS.................................... 9,718 7,426 | -
----------- ----------- | -----------
NET INCOME APPLICABLE TO COMMON STOCK.................................... $ 33,367 $ 26,533 | $ 382,471
=========== =========== | ===========
NET INCOME PER COMMON SHARE: |
Income before extraordinary items...................................... $ 0.596 $ 0.441 | $ 3.325
Extraordinary loss on repurchase of debt, net of federal |
income tax benefit................................................... (0.045) - | -
Extraordinary gain on discharge of debt................................ - - | 7.435
----------- ----------- | -----------
Net income........................................................... $ 0.551 $ 0.441 | $ 10.760
=========== =========== | ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON |
SHARE EQUIVALENTS OUTSTANDING.......................................... 60,517,687 60,160,478 | 35,544,330
=========== =========== | ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
EL PASO ELECTRIC COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
TWELVE PERIOD FROM | PERIOD FROM
MONTHS FEBRUARY 12 | OCTOBER 1, 1995
ENDED TO | TO
SEPTEMBER 30, SEPTEMBER 30, | FEBRUARY 11,
1997 1996 | 1996
-------------- -------------- | ----------------
<S> <C> <C> | <C>
OPERATING REVENUES: |
Base revenues............................................. $ 459,527 $ 306,656 | $ 145,596
Fuel revenues and economy sales........................... 129,023 71,755 | 27,398
Other..................................................... 4,744 2,540 | 1,323
----------- ----------- | -----------
593,294 380,951 | 174,317
----------- ----------- | -----------
FUEL EXPENSES: |
Fuel...................................................... 112,374 62,893 | 34,289
Purchased and interchanged power.......................... 21,239 13,503 | 6,318
----------- ----------- | -----------
133,613 76,396 | 40,607
----------- ----------- | -----------
OPERATING REVENUES NET OF FUEL EXPENSES..................... 459,681 304,555 | 133,710
----------- ----------- | -----------
OTHER OPERATING EXPENSES: |
Other operations.......................................... 132,857 79,491 | 76,907
Maintenance............................................... 34,938 24,282 | 15,461
Depreciation and amortization............................. 89,105 56,953 | 20,883
Taxes other than income taxes............................. 42,365 29,298 | 19,678
----------- ----------- | -----------
299,265 190,024 | 132,929
----------- ----------- | -----------
OPERATING INCOME............................................ 160,416 114,531 | 781
----------- ----------- | -----------
OTHER INCOME (DEDUCTIONS): |
Litigation settlement, net................................ 7,500 - | -
Investment income......................................... 5,011 3,482 | -
Settlement of bankruptcy professional fees................ 2,305 - | -
Gain on sale of investment................................ - 3,844 | -
Other, net................................................ (1,018) (449) | (259)
----------- ----------- | -----------
13,798 6,877 | (259)
----------- ----------- | -----------
INCOME BEFORE INTEREST CHARGES.............................. 174,214 121,408 | 522
----------- ----------- | -----------
INTEREST CHARGES (CREDITS): |
Interest on long-term debt................................ 87,644 62,937 | -
Other interest............................................ 6,446 4,376 | -
Interest during reorganization............................ - - | 29,021
Interest capitalized and deferred......................... (5,809) (3,718) | (1,299)
----------- ----------- | -----------
88,281 63,595 | 27,722
----------- ----------- | -----------
INCOME (LOSS) BEFORE INCOME TAXES........................... 85,933 57,813 | (27,200)
INCOME TAX EXPENSE (BENEFIT)................................ 32,147 23,854 | (9,127)
----------- ----------- | -----------
INCOME (LOSS) BEFORE REORGANIZATION |
ITEMS AND EXTRAORDINARY ITEMS.............................. 53,786 33,959 | (18,073)
REORGANIZATION ITEMS, NET OF INCOME TAX BENEFIT............. - - | 117,402
----------- ----------- | -----------
INCOME BEFORE EXTRAORDINARY ITEMS........................... 53,786 33,959 | 99,329
----------- ----------- | -----------
EXTRAORDINARY ITEMS: |
Extraordinary loss on repurchase of debt, net of federal |
income tax benefit....................................... (2,741) - | -
Extraordinary gain on discharge of debt................... - - | 264,273
----------- ----------- | -----------
(2,741) - | 264,273
----------- ----------- | -----------
NET INCOME.................................................. 51,045 33,959 | 363,602
PREFERRED STOCK DIVIDEND REQUIREMENTS....................... 12,780 7,426 | -
----------- ----------- | -----------
NET INCOME APPLICABLE TO COMMON STOCK....................... $ 38,265 $ 26,533 | $ 363,602
=========== =========== | ===========
NET INCOME PER COMMON SHARE: |
Income before extraordinary items......................... $ 0.678 $ 0.441 | $ 2.795
Extraordinary loss on repurchase of debt, net of federal |
income tax benefit....................................... (0.045) - | -
Extraordinary gain on discharge of debt................... - - | 7.435
----------- ----------- | -----------
Net income.............................................. $ 0.633 $ 0.441 | $ 10.230
=========== =========== | ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON |
SHARE EQUIVALENTS OUTSTANDING............................. 60,454,470 60,160,478 | 35,544,330
=========== =========== | ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
EL PASO ELECTRIC COMPANY
STATEMENTS OF ACCUMULATED EARNINGS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
-------------- -------------
<S> <C> <C>
ACCUMULATED EARNINGS AT BEGINNING OF PERIOD................... $43,614 $ 6,144
ADD:
Net income.................................................. 23,919 22,770
------- -------
23,919 22,770
------- -------
DEDUCT:
Cumulative preferred stock dividend requirement............. 3,331 2,977
------- -------
3,331 2,977
------- -------
ACCUMULATED EARNINGS AT END OF PERIOD......................... $64,202 $25,937
======= =======
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
EL PASO ELECTRIC COMPANY
STATEMENTS OF ACCUMULATED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE PERIOD FROM |
MONTHS FEBRUARY 12 | PERIOD FROM
ENDED TO | JANUARY 1
SEPTEMBER 30, SEPTEMBER 30, | TO
1997 1996 | FEBRUARY 11,
(UNAUDITED) (UNAUDITED) | 1996
-------------- -------------- | -------------
|
<S> <C> <C> | <C>
ACCUMULATED EARNINGS (DEFICIT) AT BEGINNING OF PERIOD.................... $30,835 $ - | $(758,032)
|
ADD: |
Net income............................................................. 43,085 33,959 | 382,471
Elimination of predecessor equity accounts............................. - - | 375,561
------- ------- | ---------
43,085 33,959 | 758,032
------- ------- | ---------
|
DEDUCT: |
Cumulative preferred stock dividend requirement........................ 9,718 7,426 | -
Capital stock expense.................................................. - 596 | -
------- ------- | ---------
9,718 8,022 | -
------- ------- | ---------
|
ACCUMULATED EARNINGS AT END OF PERIOD.................................... $64,202 $25,937 | $ -
======= ======= | =========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
EL PASO ELECTRIC COMPANY
STATEMENTS OF ACCUMULATED EARNINGS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE PERIOD FROM | PERIOD FROM
MONTHS FEBRUARY 12 | OCTOBER 1, 1995
ENDED TO | TO
SEPTEMBER 30, SEPTEMBER 30, | FEBRUARY 11,
1997 1996 | 1996
------------- ------------- | ----------------
|
<S> <C> <C> | <C>
ACCUMULATED EARNINGS (DEFICIT) AT BEGINNING OF PERIOD.................... $25,937 $ - | $(739,163)
|
ADD: |
Net income............................................................. 51,045 33,959 | 363,602
Elimination of predecessor equity accounts............................. - - | 375,561
------- ------- | ---------
51,045 33,959 | 739,163
------- ------- | ---------
|
DEDUCT: |
Cumulative preferred stock dividend requirement........................ 12,780 7,426 | -
Capital stock expense.................................................. - 596 | -
------- ------- | ---------
12,780 8,022 | -
------- ------- | ---------
|
ACCUMULATED EARNINGS AT END OF PERIOD.................................... $64,202 $25,937 | $ -
======= ======= | =========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
EL PASO ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE PERIOD FROM |
MONTHS FEBRUARY 12 | PERIOD FROM
ENDED TO | JANUARY 1
SEPTEMBER 30, SEPTEMBER 30, | TO
1997 1996 | FEBRUARY 11,
(UNAUDITED) (UNAUDITED) | 1996
------------- ------------- | --------------
<S> <C> <C> | <C>
CASH FLOWS FROM OPERATING ACTIVITIES: |
Net income..................................................................... $ 43,085 $ 33,959 | $ 382,471
Adjustments to reconcile net income to net cash provided by operating |
activities: |
Depreciation and amortization................................................ 83,271 71,129 | 8,246
Deferred income taxes and investment tax credit, net......................... 27,305 22,349 | (3,116)
Other operating activities................................................... 1,781 2,011 | (805)
Extraordinary loss on repurchase of debt, net of federal income tax benefit.. 2,741 - | -
Gain on sale of investment................................................... - (3,844) | -
Reorganization items, net of income tax benefit.............................. - - | (122,251)
Extraordinary gain on discharge of debt...................................... - - | (264,273)
Change in: |
Accounts receivable.......................................................... (8,670) (3,746) | 5,429
Federal income tax receivable................................................ 17,635 - | -
Inventories.................................................................. 703 24 | 90
Prepayments and other........................................................ (2,205) (4,152) | 34
Long-term contract receivable................................................ 2,525 1,658 | 293
Accounts payable............................................................. (9,492) (7,758) | (6,859)
Interest accrued............................................................. (2,973) 23,137 | -
Net under/overcollection of fuel revenues.................................... (9,552) (7,767) | 417
Other current liabilities.................................................... 5,126 1,955 | (152)
Deferred charges and credits................................................. 6,867 (856) | 1,994
Obligations subject to compromise............................................ - - | 9,430
Revenues subject to refund................................................... - - | 2,785
---------- ---------- | ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................................. 158,147 128,099 | 13,733
---------- ---------- | ------------
CASH FLOWS FROM INVESTING ACTIVITIES (NOTE A): |
Additions to utility plant and other investing activities...................... (53,847) (39,899) | (8,176)
Investment in decommissioning trust fund....................................... (4,497) (4,555) | (553)
Proceeds from sale of investment............................................... - 20,183 | -
---------- ---------- | ------------
NET CASH USED FOR INVESTING ACTIVITIES..................................... (58,344) (24,271) | (8,729)
---------- ---------- | ------------
CASH FLOWS FROM FINANCING ACTIVITIES (NOTE A): |
Repurchase of and payments on long-term debt................................... (81,233) (64,023) | -
Proceeds from financing and capital lease obligations.......................... 17,560 14,890 | 43,309
Redemption of financing and capital lease obligations.......................... (17,285) (8,556) | -
Capital stock expense.......................................................... - (596) | -
Proceeds from issuance of preferred stock...................................... - - | 97,500
Proceeds from issuance of long-term debt....................................... - - | 778,120
Redemption of obligations subject to compromise................................ - - | (1,131,695)
---------- ---------- | ------------
NET CASH USED FOR FINANCING ACTIVITIES..................................... (80,958) (58,285) | (212,766)
---------- ---------- | ------------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS........................ 18,845 45,543 | (207,762)
CASH AND TEMPORARY INVESTMENTS AT BEGINNING OF PERIOD............................ 68,767 54,745 | 262,507
---------- ---------- | ------------
CASH AND TEMPORARY INVESTMENTS AT END OF PERIOD.................................. $ 87,612 $ 100,288 | $ 54,745
========== ========== | ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
Cash (refunded) paid for: |
Income taxes, net............................................................ $ (16,035) $ 353 | $ -
Interest..................................................................... 59,229 32,911 | 8,580
Reorganization items - professional fees and other........................... 2,469 5,017 | 2,279
========== ========== | ============
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
A. PRINCIPLES OF PREPARATION
Pursuant to the rules and regulations of the Securities and Exchange
Commission, certain financial information has been condensed and certain
footnote disclosures have been omitted. Such information and disclosures are
normally included in financial statements prepared in accordance with generally
accepted accounting principles.
These condensed financial statements should be read in conjunction with the
financial statements and notes thereto in the Annual Report of El Paso Electric
Company (the "Company") on Form 10-K for the year ended December 31, 1996 (the
"1996 Form 10-K"). Capitalized terms used in this report and not defined herein
have the meaning ascribed for such terms in the 1996 Form 10-K. In the opinion
of management of the Company, the accompanying financial statements contain all
adjustments necessary to present fairly the financial position of the Company at
September 30, 1997 and December 31, 1996; the results of operations for the
three months ended September 30, 1997 and 1996, the nine months ended September
30, 1997, the period from February 12 to September 30, 1996, the period from
January 1 to February 11, 1996, the twelve months ended September 30, 1997, the
period from February 12 to September 30, 1996 and the period from October 1,
1995 to February 11, 1996; and cash flows for the nine months ended September
30, 1997, the period from February 12 to September 30, 1996 and the period from
January 1 to February 11, 1996. The results of operations for the nine and
twelve months ended September 30, 1997 are not necessarily indicative of the
results to be expected for the full calendar year.
As more fully described in the 1996 Form 10-K, on February 12, 1996, the
Company emerged from bankruptcy reorganization as an independent investor-owned
utility. As of February 12, 1996, the Company applied fresh-start reporting to
the financial statements to reflect assets at reorganization value and
liabilities at fair value. A vertical line separates the accompanying financial
statements prepared before and after the application of fresh-start reporting to
signify that the financial statements of the Reorganized Company have been
prepared on a different basis than those prior to the Reorganization and,
therefore, are not comparable in all respects.
10
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NON-CASH INVESTING AND FINANCING
Non-cash investing and financing activities recorded by the Company consisted
of the following (In thousands):
<TABLE>
<CAPTION>
NINE PERIOD FROM | PERIOD FROM
MONTHS FEBRUARY 12 | JANUARY 1
ENDED TO | TO
SEPTEMBER 30, SEPTEMBER 30, | FEBRUARY 11,
1997 1996 | 1996
------------- ------------- | ------------
<S> <C> <C> | <C>
Issuance of Preferred Stock for |
pay-in-kind dividend........................ $9,533 $ - | $ -
Issuance of restricted shares of |
Common Stock................................ 411 948 | -
Reorganized Common Stock exchanged |
for Predecessor Common and |
Preferred Stock............................. - - | 45,000
Reorganized Common Stock exchanged |
for settlement of obligations subject |
to compromise............................... - - | 255,000
Long-term debt exchanged for settlement |
of obligations subject to compromise........ - - | 151,834
Plant in service reacquired through |
incurring obligation subject to |
compromise.................................. - - | 227,656
</TABLE>
B. RATE MATTERS
For a full discussion of the Company's rate matters, see Note C of Notes to
Financial Statements in the 1996 Form 10-K.
General. The electric utility industry faces increasing pressure to become
more competitive as legislative, regulatory, economic and technological changes
occur. Federal regulation, as well as legislative and regulatory initiatives in
various states, including Texas and New Mexico, encourages competition for
electricity generation among electric utility and non-utility power producers.
Together with increasing customer demand for lower-priced electricity and other
energy services, these measures have accelerated the industry's movement toward
more competitive pricing and cost structures. Such competitive pressures could
require the Company to reduce its rates, result in the loss of customers and
diminish the ability of the Company to fully recover both its investment in
generation assets and the cost of operating these assets. This issue is
particularly important to the Company because its rates are higher than national
and regional averages. There can be no assurance that these competitive
pressures will not adversely affect the future operations, cash flows and
financial condition of the Company, or that the Company will be able to sustain
current retail rates.
11
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Of particular importance to the Company is the issue of the recoverability
from customers of "stranded costs," or costs previously found by regulatory
authorities to be reasonable and prudent, but which are higher than would be
recovered under immediate, full competition. Throughout the industry, and at
the federal and state levels, there is substantial discussion and debate on this
issue, but no consensus solution has yet emerged. At the federal level, the
Federal Energy Regulatory Commission ("FERC") has announced, through a formal
rulemaking, its intention to allow 100% recovery of all legitimate verifiable
stranded costs attributable to FERC jurisdictional customers. Both the Texas
and New Mexico Commissions are conducting proceedings related to industry
restructuring and stranded cost recovery, but the Company is unable to predict
the ultimate outcome of these proceedings.
FERC. In July 1996, the Company filed its open access transmission tariffs
(Docket No. 0A96-200-000) in compliance with FERC Order No. 888, covering
network and point-to-point transmission services and the six specifically
required ancillary services. Several parties, including Las Cruces, other
utilities and several wholesale power marketers, intervened and filed protests
to the Company's tariffs. Issues raised by the intervenors included rates and
the terms and conditions of the Company's tariffs, including the treatment and
costs related to certain facilities making access to the Comision Federal de
Electricidad de Mexico ("CFE") more available to parties other than the Company.
In February 1997, the Company entered into a stipulated agreement among the
various parties settling all rate issues related to this proceeding. Under the
settlement, the Company will provide transmission service, to the extent
transmission capacity is available, to any party for firm or interruptible
service to the CFE until the earlier of the end of 1998 or the date the FERC
rules on the previous complaint requesting service to Mexico. Intervenors in
this proceeding have also raised certain issues relating to the criteria by
which the Company will determine the amount of transmission capacity that is
available for use by third parties desiring to use its transmission system.
Pursuant to a procedural schedule adopted in July 1997, an evidentiary hearing
on these issues is to be held before a FERC administrative law judge in January
1998.
In July 1996, Las Cruces exercised its right under FERC Order No. 888 to
request that the Company calculate Las Cruces' stranded cost obligation should
it leave the Company's system and operate its own municipal utility. The
Company's initial non-binding calculation was provided within the statutory
period. Las Cruces subsequently filed a request at the FERC for a determination
that Las Cruces would have no stranded cost obligation to the Company or, in the
alternative, that the FERC convene a hearing to establish the amount of any
stranded costs. In August 1997, the FERC issued an order denying Las Cruces'
request for a determination that Las Cruces would have no stranded cost
obligation, and providing for evidentiary hearings on the following stranded
cost issues: (i) whether the Company has met the "reasonable expectation"
standard so as to justify recovery of stranded costs from Las Cruces; and (ii)
if so, the amount of stranded costs that the Company may recover from Las
Cruces. On October 3, 1997, the Company filed testimony in support of its
recovery and calculation of stranded costs, calculated pursuant to the FERC
formula, of approximately $169 million. Las Cruces is scheduled to file its
testimony on November 14, 1997 and the FERC staff is scheduled to file testimony
on December 19, 1997. The Company is scheduled to file rebuttal testimony on
January 10, 1998. Hearings are scheduled to begin on February 2, 1998.
12
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Texas. During 1996, the Texas Commission conducted projects to evaluate the
(i) scope of competition in the electric industry in Texas and (ii) potential
for stranded investment, procedures for allocating stranded costs and acceptable
methods of stranded cost recovery. The Texas Commission's report consolidating
the two projects was issued in January 1997. While it recommended a careful and
deliberate approach to continued expansion of competition in the Texas electric
market, ultimately leading to retail competition with certain safeguards, it
also recommended against any legislation that would introduce broad-based retail
competition before 2000. The Texas Commission also quantified the potential
retail "excess of cost over market" ("ECOM") under several scenarios. The Texas
Commission's ECOM estimate for the Company ranged from a high of $1.3 billion to
a low of $781 million, with an expected value of $1.1 billion, assuming full
retail access in 1998. Although several pieces of legislation were offered, the
1997 Texas legislative session adjourned without passing any significant
deregulation legislation.
In August 1997, the Lieutenant Governor appointed seven senators to serve on
a special interim committee to study the various issues involved in a possible
transition to a competitive electric market. On September 26, 1997, the
committee held its first meeting to receive invited testimony from various
parties, including environmental advocates, consumer advocates, power marketers,
public power entities, electric cooperatives and investor-owned utilities, as
well as testimony and comments from the public at large. The committee is
holding public hearings across the state on various aspects of the electric
industry restructuring debate. The Association of Electric Companies of Texas
(the "AECT") testified on behalf of all investor-owned utilities in Texas,
including the Company. The AECT testified that it would support retail
competition that provides benefits to all consumers, maintains electric system
reliability, provides for equitable treatment of all competitors and provides
for the preservation of prior regulatory commitments. The committee is
scheduled to file a status report by March 1, 1998 and a final report by October
1, 1998. Recently, the Lieutenant Governor asked the Texas Comptroller of
Public Accounts to initiate a study to review the impact of a deregulated
electric market on state and local tax systems.
New Mexico. The New Mexico Commission initiated a notice of inquiry
regarding competition and the restructuring of regulation of the electric
industry in 1996. The New Mexico Commission received comments from numerous
parties representing various interests and conducted workshops in an attempt to
arrive at a consensus with respect to the need for regulatory change, the nature
of such change and the timing/transition of any changes. No consensus was
reached by the participants. The New Mexico Commission also commenced a
collaborative process with the assistance of facilitators in an attempt to reach
consensus. Although that collaborative process failed to reach a consensus
around which restructuring legislation could be drafted, the New Mexico
investor-owned utilities, including the Company, have agreed to support
legislation that would permit retail competition provided: (i) all customers
have the opportunity to benefit, (ii) reliability of electric service is
maintained, (iii) all energy suppliers are subject to the same laws and
regulations, (iv) the price of electric generating capacity and electric energy
is determined solely by market forces, (v) unbundled transmission and
distribution functions remain subject to regulation, and (vi) each electric
utility must have a reasonable opportunity to recover its strandable costs.
13
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
With respect to the calculation of the Company's stranded costs, the New
Mexico Commission utilized several methodologies, one of which was the same ECOM
model that was developed for Texas. The New Mexico Commission's ECOM calculation
for the Company ranged from a high of $248 million to a low of $173 million.
The Company's calculation of stranded costs for New Mexico pursuant to FERC
Order No. 888, as previously reported to the New Mexico Commission, totaled $364
million.
The Company cannot predict the nature of any legislative initiatives
addressing electric industry restructuring during the 1998 legislative session.
Additionally, if there are legislative initiatives, the Company cannot predict
whether any, or all, will be consistent with the principles stated above, and
therefore, supportable by the Company.
In response to complaints filed by two customers in the fall of 1996, the New
Mexico Commission docketed an investigation into the Company's current rates and
ordered the Company to file data to support its current rate level. In March
1997, the Company filed the data requested, which showed that the Company had a
rate deficiency of approximately $8.6 million, although the Company did not
request a rate increase. On October 22, 1997, the New Mexico Commission
appointed a hearing examiner to preside over the proceeding investigating the
Company's New Mexico rates. The Company cannot predict the timing or ultimate
outcome of this proceeding.
On August 1, 1997 the New Mexico Commission allowed the Company's proposed
increase in its fuel factor to $0.01949 per KWH from $0.01283 to become
effective and ordered the Company to file testimony supporting continued use of
its methodology and manner of collecting fuel and purchased power costs
contained in its tariffs. On October 31, 1997, the Company filed testimony
supplementing the testimony filed with the New Mexico Commission in its original
request to change fuel factors and reconcile 1996 fuel and purchased power
costs. The Company believes it has fully justified its fuel and purchased power
cost recovery methodology, as required by New Mexico Commission rules. The
Company cannot predict what, if any, further action the New Mexico Commission
may take with respect to the Company's fuel and purchased power recovery and
reconciliation procedures.
In May 1997, Texas-New Mexico Power Company ("TNP") filed an application to
obtain a Certificate of Convenience and Necessity ("CCN") from the New Mexico
Commission to serve customers within the Company's New Mexico service territory
in the Santa Teresa, New Mexico area. The Company has intervened in the
proceeding, challenging TNP's CCN application. Hearings on the application are
scheduled to commence in December 1997. The Company believes TNP's application
should be rejected because granting TNP's application would result in an
unnecessary duplication of facilities and would impact the Company's CCN rights.
In August 1997, the Company filed suit in the District Court for Dona Ana
County, New Mexico against TNP for tortious interference with a contract. The
Company alleges that TNP knowingly entered into an agreement with a customer
already under contract with the Company. The Company also filed a breach of
contract lawsuit against the customer. Neither case has been set for trial. The
Company is unable at this time to predict the outcome of these proceedings.
14
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
C. COMMITMENTS AND CONTINGENCIES
For a full discussion of commitments and contingencies, including
environmental matters related to the Company, see Note J of Notes to Financial
Statements in the 1996 Form 10-K. In addition, see Note E of Notes to Financial
Statements in the 1996 Form 10-K regarding matters related to Palo Verde,
including liability and insurance matters, decommissioning and the operation of
steam generators.
D. LITIGATION
For a full discussion of litigation, see Note K of Notes to Financial
Statements in the 1996 Form 10-K.
LITIGATION WITH LAS CRUCES
Las Cruces is attempting to replace the Company as the electric service
provider in Las Cruces by acquiring, through condemnation or otherwise, the
distribution assets and other facilities used to provide electric service to
customers in Las Cruces. Sales to customers in Las Cruces represent
approximately 7% of the Company's operating revenues.
Las Cruces filed an action seeking to recover unpaid franchise fees in
federal district court in New Mexico in 1995, seeking the reasonable value of
the Company's use, occupation and rental of Las Cruces' rights-of-way or damages
for trespass and an unspecified amount of punitive damages. The Company ceased
payment of franchise fees in March 1994 upon the expiration of the franchise
agreement. In June 1997, after disposing of various procedural and substantive
issues and after a trial on the merits, the court rendered judgment in favor of
Las Cruces, ordering the Company to pay $2.5 million in back franchise fees and
judgment interest. Although the Company has appealed the judgment, it has
reserved in its financial statements an amount equal to the franchise fees under
the expired agreement and the related interest.
In April 1995, Las Cruces filed a complaint against the Company in the
District Court for Dona Ana County, New Mexico, seeking a declaratory judgment
that Las Cruces has a right of eminent domain to condemn the electric
distribution system and related facilities owned and operated by the Company
within and adjacent to the city limits that provide or assist in the provision
of electricity within the municipal boundaries of Las Cruces. In May 1995, the
Company removed the case to federal district court in New Mexico. Following a
trial on the merits, the Federal Magistrate granted the Company's motion to
certify to the New Mexico Supreme Court the question of whether Las Cruces
possesses the authority to condemn the Company's property for use as a municipal
utility when that property is already devoted to public use. The New Mexico
Supreme Court heard oral arguments in February 1997, but prior to the issuance
of a ruling by the courts, the New Mexico legislature enacted a bill which
purports to give Las Cruces the authority to condemn the Company's distribution
system within its city limits and a territory extending five miles beyond the
municipal boundary. The New Mexico Supreme Court has subsequently requested
that the parties submit to the court briefs on
15
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
the impact this new legislation will have on the case. The Company believes that
the new legislation does not render the case moot and has requested that the
court rule on the issues presented to it in the February 1997 hearing.
If Las Cruces succeeds in its efforts to condemn the Company's distribution
system, the Company could lose its Las Cruces customer base, although the
Company would be entitled to receive "just compensation" as established by the
court under New Mexico law. "Just compensation" is generally defined as the
amount of money that would fairly compensate the party whose property is
condemned. In the Company's case, it is the Company's opinion that this amount
would be the difference between the value of the Company's entire system prior
to the taking, as compared to the value of the entire system after the taking.
In any successful condemnation by Las Cruces, the Company also would be entitled
to recover, pursuant to Order No. 888, the stranded costs associated with the
loss of its distribution system as determined by the FERC, to the extent such
costs are in excess of "just compensation." For a full discussion of stranded
costs see Note B.
Las Cruces has taken several actions to position itself to acquire portions
of the Company's distribution system and certain related facilities. In August
1994, Southwestern Public Service Company ("SPS") and Las Cruces entered into a
fifteen-year contract granting SPS the right to provide all of the electric
power and energy required by Las Cruces during the term of the contract. In
addition, Las Cruces sold approximately $73 million in revenue bonds in October
1995 to provide funding to finance the acquisition by condemnation or negotiated
purchase of the Company's electrical distribution assets within and adjacent to
the Las Cruces city limits.
The Company filed a lawsuit in the Dona Ana County District Court and is
pursuing a complaint simultaneously before the New Mexico Commission challenging
the legality of the sale of the revenue bonds. In addition, the New Mexico
Commission is investigating the agreement between SPS and Las Cruces which,
under certain circumstances, would grant Las Cruces an option to sell electric
utility assets acquired through condemnation to SPS. In August 1996, the Dona
Ana County District Court issued an opinion letter stating that Section 3-23-3
of the New Mexico Municipal Code is inapplicable to home rule municipalities and
Las Cruces, therefore, was not required to acquire the New Mexico Commission's
approval before issuing revenue bonds to acquire utility property. However, the
court did agree with the Company that the revenue bonds, in this case backed by
utility revenues, are subject to the same requirements as those imposed on other
revenue bonds backed by gross receipts tax revenues. Therefore, if the court's
finding on the applicability of Las Cruces' home rule authority is overturned on
appeal, the Company's position that the issuance of the bonds required prior
approval could be upheld. The court's order was signed and entered in November
1996. The Company has filed an appeal with the New Mexico Court of Appeals.
Las Cruces has requested an expedited ruling from the Court of Appeals. A final
ruling by the Court of Appeals is subject to appeal to the New Mexico Supreme
Court.
In April 1997, Las Cruces announced its plan to build a substation and
distribution lines to serve a new customer in a city-owned industrial park. Las
Cruces stated that SPS would construct, operate and maintain the new substation
facility, and that the rates for this new customer would be significantly lower
than the Company's current rates. In that regard, Las Cruces has approved a
contract with SPS to
16
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
provide operation and maintenance services for the proposed Las Cruces electric
distribution system, substations and associated transmission facilities. In May
1997, the Company filed a complaint with the New Mexico Commission alleging that
the participation of SPS in this project without first obtaining a CCN from the
New Mexico Commission violates New Mexico law. In June 1997, the New Mexico
Commission rejected the Company's complaint and ruled that SPS's participation
in this project is part of an agency relationship with Las Cruces and,
therefore, not subject to the New Mexico Commission's jurisdiction.
The Company continues to believe that it can provide lower cost electric
service to customers in Las Cruces than can be achieved through a municipal
takeover. Accordingly, the Company has stated its strong preference for a
resolution of its differences with Las Cruces through negotiation rather than
litigation and condemnation. The parties are currently participating in a FERC
sponsored mediation in an effort to seek a negotiated resolution. Any
negotiated settlement in New Mexico could include an agreement by the Company to
reduce its rates as part of an overall settlement of all issues in New Mexico,
which could create increased political and economic pressure on the Company to
reduce rates in Texas.
The Company is unable to predict the outcome of Las Cruces' efforts to
replace the Company as its electric service provider or the effects it may have
on the Company's financial position, results of operations and cash flows. The
Company does not believe it is probable that a loss has been incurred and,
therefore, has made no provision in the accompanying financial statements
related to these matters.
17
<PAGE>
Independent Auditors' Review Report
-----------------------------------
The Shareholders and the Board of Directors
El Paso Electric Company:
We have reviewed the accompanying condensed balance sheet of El Paso Electric
Company (the Company) as of September 30, 1997, the related condensed statements
of operations and accumulated earnings for the three months ended September 30,
1997 and 1996, for the nine months ended September 30, 1997, for the period from
February 12, 1996 to September 30, 1996, for the twelve months ended September
30, 1997, and the period from October 1, 1995 to February 11, 1996, and the
related condensed statements of cash flows for the nine months ended September
30, 1997 and for the period from February 12, 1996 to September 30, 1996. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical review procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of El Paso Electric Company as of December 31,
1996, and the related statements of operations, accumulated earnings (deficit),
and cash flows for the period February 12, 1996 to December 31, 1996, and the
period January 1, 1996 to February 11, 1996 (not presented herein); and in our
report dated March 27, 1997, we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth in the
accompanying condensed balance sheet as of December 31, 1996 and in the
condensed statements of operations, accumulated earnings (deficit), and cash
flows for the period January 1, 1996 to February 11, 1996, is fairly presented,
in all material respects, in relation to the financial statements from which it
has been derived.
As discussed in Note A of Notes to Financial Statements, on February 12, 1996,
the Company emerged from bankruptcy. The financial statements of the
reorganized Company reflect assets at reorganization value and liabilities at
fair value under fresh-start reporting as of February 12, 1996. As a result,
the financial statements of the reorganized Company are presented on a different
basis than those prior to the reorganization and, therefore, are not comparable
in all respects.
KPMG Peat Marwick LLP
El Paso, Texas
October 16, 1997
18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained in this Item 2 updates and should be read in
conjunction with the information set forth in Part II, Item 7 in the Company's
1996 Form 10-K.
Statements in this document, other than statements of historical information,
are forward-looking statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 (the "1995
Act"). Such forward-looking statements, as well as other oral and written
forward-looking statements made by or on behalf of the Company from time to
time, including statements contained in the Company's filings with the
Securities and Exchange Commission and its reports to stockholders, involve
known and unknown risks and other factors which may cause the Company's actual
results in future periods to differ materially from those expressed in any
forward-looking statements. Any such statement is qualified by reference to the
risks and factors discussed below under the headings "Operational and Regulatory
Prospects and Challenges" and "Liquidity and Capital Resources" and in the
Company's filings with the Securities and Exchange Commission, which are
available from the Securities and Exchange Commission or which may be obtained
upon request from the Company. The Company cautions that the foregoing list of
important factors is not exclusive. The Company does not undertake to update
any forward-looking statement that may be made from time to time by or on behalf
of the Company.
OPERATIONAL AND REGULATORY PROSPECTS AND CHALLENGES
OPERATIONAL
The electric utility industry faces increasing pressure to become more
competitive as legislative, regulatory, economic and technological changes
occur. Federal regulation, as well as legislative and regulatory initiatives in
various states, including Texas and New Mexico, encourages competition in the
Company's service area for electricity generation among electric utility and
non-utility power producers. Together with increasing customer demand for lower-
priced electricity and other energy services, these measures have accelerated
the industry's movement toward more competitive pricing and cost structures.
Such competitive pressures could require the Company to reduce its rates, result
in the loss of customers and diminish the ability of the Company to fully
recover both its investment in generation assets and the cost of operating these
assets. This issue is particularly important to the Company because its rates
are higher than national and regional averages. In the face of increased
competition, there can be no assurance that such competition will not adversely
affect the future operations, cash flows and financial condition of the Company,
or that the Company will be able to sustain current retail rates.
Although the Rate Stipulation provides a certain level of stability in the
rates that the Company currently charges the majority of its customers,
political and economic forces may create downward pressures on the Company's
rates. Any negotiated settlement in New Mexico could include an agreement by the
Company to reduce its rates as part of an overall settlement of all issues in
New Mexico, which could create increased political and economic pressure on the
Company to reduce rates in Texas. Nonetheless, the Company intends to enhance
its position during the Freeze Period by (i) serving the growing need for
electricity within its retail service territory; (ii) continuing to focus on its
strategic location on the border with Mexico; (iii) executing long-term
contracts to provide electricity to its largest retail customers; and (iv)
controlling and reducing operating costs.
The Company faces a number of challenges which could negatively impact its
operations during the Freeze Period. An important challenge is the risk of
increased costs, including the risk of additional
19
<PAGE>
or unanticipated costs at Palo Verde resulting from (i) increases in operation
and maintenance expenses; (ii) the potential replacement of steam generators;
(iii) an extended outage of any of the Palo Verde units; (iv) increases in
estimates of decommissioning costs; (v) the storage of radioactive materials;
and (vi) compliance with the various requirements and regulations governing
commercial nuclear generating stations. There can be no assurance that the
Company's revenues will be sufficient to recover any increased costs incurred
during the Freeze Period, including any such increased costs in connection with
Palo Verde or increases in other costs of operation, whether as a result of
higher than anticipated levels of inflation, changes in tax laws or regulatory
requirements, or other causes.
Another risk to the Company's operations is the potential loss of customers.
The Company's wholesale and large retail customers currently have, in varying
degrees, and, in the future may have, alternate sources of economical power,
including co-generation of electric power. If the Company loses a significant
portion of its retail customer base or wholesale sales, the Company may not be
able to replace such revenues through either the addition of new customers or an
increase in rates to remaining customers. Las Cruces continues its efforts to
replace the Company as its electric service provider. The New Mexico
legislature has recently passed legislation which purports to give Las Cruces
the authority to condemn the Company's distribution system and related assets
located within its city limits and a territory extending five miles beyond the
municipal boundary. If Las Cruces succeeds in its efforts to condemn the
Company's distribution system, the Company could lose its Las Cruces customer
base, although the Company would be entitled to receive "just compensation" as
established by the court under New Mexico law. In the Company's case, it is the
Company's belief that "just compensation" would be the difference between the
value of the Company's entire system prior to the taking, as compared to the
value of the entire system after the taking. In any successful condemnation by
Las Cruces, the Company also would be eligible to receive, pursuant to Order No.
888, the stranded costs associated with the loss of its distribution system to
the extent such costs are in excess of "just compensation."
Additionally, TNP has filed an application to obtain a CCN from the New
Mexico Commission to serve customers within the Company's New Mexico service
territory in the Santa Teresa, New Mexico area. The Company has intervened in
the proceeding, challenging TNP's CCN application. Hearings on the application
are scheduled to commence in December 1997. The Company believes TNP's
application should be rejected because granting TNP's application would result
in an unnecessary duplication of facilities and would impact the Company's CCN
rights. In August 1997, the Company filed suit in the District Court for Dona
Ana County, New Mexico against TNP for tortious interference with a contract.
The Company alleges that TNP knowingly entered into an agreement with a customer
already under contract with the Company. The Company also filed a breach of
contract lawsuit against the customer. Neither case has been set for trial. The
Company is unable at this time to predict the outcome of these proceeding.
In recent years, the United States has closed a large number of military
bases and there can be no assurance that Holloman Air Force Base ("Holloman"),
White Sands Missile Range ("White Sands") or the United States Army Air Defense
Center at Fort Bliss ("Ft. Bliss") will not be closed in the future or that the
Company will not lose all or some of its military base sales. The Company's
sales to the military bases represent approximately 3% of operating revenues.
The Company signed a new contract with Ft. Bliss in August 1996, which provides
that Ft. Bliss will take service from the Company through 1999, with the right
thereafter to continue service for two years on a year to year basis. The
Company has a contract for service to Holloman for a ten-year term beginning in
December 1995. In August 1996, the Army advised the Company that White Sands
would continue to purchase retail electric service from the Company until
written termination of such contract by the Army not less than one year in
advance of the termination date.
20
<PAGE>
REGULATORY
Seasonal volatility in fuel prices may increase concern among the Company's
customers and regulators over price levels for energy, including electricity.
The Company's recovery of fuel expense is subject to challenges regarding
reasonableness and prudence through periodic fuel reconciliation proceedings.
As of September 30, 1997, the Company had a net undercollected balance of
approximately $11.5 million, which consists of $6.2 million in New Mexico, $5.1
million in Texas and $0.2 million from FERC jurisdictional customers. The
Company believes it is also entitled to a performance reward of approximately
$0.6 million in its Texas jurisdiction (related to the operating performance of
Palo Verde) which is not reflected in the Company's financial statements. On
August 1, 1997, the New Mexico Commission ordered the implementation of the
Company's new fuel factor. On October 31, 1997, as ordered by the New Mexico
Commission, the Company filed testimony and evidence to support its continued
use of the methodology and manner of collecting fuel and purchased power costs
contained in its tariffs.
The Company does not currently have an agreement with New Mexico regulatory
authorities or parties to past New Mexico regulatory proceedings comparable to
the Rate Stipulation. Pursuant to an order from the New Mexico Commission, the
Company filed data to support its current level of rates with the Commission in
March 1997. Although the Company's filing demonstrates a revenue deficiency of
approximately $8.6 million under current rates, the Company did not request a
rate change to recover the deficiency. The New Mexico Commission could order a
rate reduction or, alternatively, in response to regulatory, political and
competitive pressures, the Company could agree to a rate reduction as part of an
overall settlement of all issues in New Mexico. The Company is unable at this
time to predict with certainty the outcome of the proceeding currently pending
before the New Mexico Commission.
Finally, the electric utility industry in general is facing significant
challenges and increased competition as a result of changes in federal
provisions relating to third-party transmission services and independent power
production, as well as potential changes in federal and state law and regulatory
provisions relating to wholesale and retail service. Both the Texas and New
Mexico Commissions are conducting proceedings related to industry restructuring
and stranded cost recovery. The Company cannot predict the outcome of these
proceedings. The potential effects of deregulation are particularly important to
the Company because its rates are higher than national and regional averages. In
the face of increased competition, there can be no assurance that such
competition will not adversely affect the level of current retail rates or
future operations, cash flow and financial condition of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity requirements through the end of the decade
are expected to consist of interest payments on the Company's indebtedness and
capital expenditures related to the Company's generating facilities and
transmission and distribution systems. The Company expects that cash flows from
operations will be sufficient for such purposes.
Long-term capital requirements of the Company will consist primarily of
maintenance and construction of electric utility plant, payment of interest on
and retirement of debt and payment of dividends on and redemption of preferred
stock. The Company has no current plans to construct any new generating
capacity through at least 2004. Utility construction expenditures will consist
primarily of expanding and updating the transmission and distribution systems
and the cost of betterments and improvements to Palo Verde and other generating
facilities.
21
<PAGE>
The Company anticipates that internally generated funds will be sufficient to
meet its construction requirements, provide for the retirement of debt at
maturity and enable the Company to meet other contingencies that may exist, such
as compliance with environmental regulation, pending litigation and any claims
for indemnification. At September 30, 1997, the Company had approximately $87.6
million in cash and cash equivalents, out of which approximately $6.6 million of
reorganization expenses are expected to be paid upon receipt of the Bankruptcy
Court's final order for allowable professional fees related to the Company's
bankruptcy proceedings. The Company also has a $100 million revolving credit
facility, which provides up to $60 million for nuclear fuel purchases and up to
$50 million (depending on the amount of borrowings outstanding for nuclear fuel
purchases) for working capital needs. At September 30, 1997, approximately
$48.3 million had been drawn for nuclear fuel purchases. No amounts have been
drawn on this facility for working capital needs.
The Company has substantial leverage and significant debt service
obligations. Due to the Rate Stipulation and competitive pressures, the Company
does not expect to be able to raise its base rates in the event of increases in
non-fuel costs or loss of revenues. Accordingly, soon after its emergence from
bankruptcy, the Company established debt reduction as a high priority in order
to gain additional financial flexibility to address the evolving competitive
market.
The Company has significantly reduced its long-term debt following the
Reorganization. From June 1, 1996 through September 30, 1997, the Company
repurchased approximately $195.6 million of first mortgage bonds as part of an
aggressive deleveraging program. As a result, long-term indebtedness as a
percentage of capitalization was reduced from 74% at June 30, 1996 to 67% at
September 30, 1997, and the Company will reduce its annual interest expense by
approximately $15.4 million.
The Company continues to believe that the orderly reduction of debt with a
goal of achieving a debt to capitalization ratio that is more typical in the
electric utility industry and, ultimately, an investment grade rating, is a
significant component of long-term shareholder value creation. Accordingly, the
Company will regularly evaluate market conditions and, when appropriate, use a
portion of its available cash to reduce its fixed obligations through open
market purchases of first mortgage bonds. However, the significant amount of
debt reduction that the Company has achieved since the Reorganization, and the
need for cash both to meet upcoming bond maturities and, if appropriate, to
redeem early the Series A Preferred Stock, may result in a lower volume of
repurchases in the future. Accordingly, the Company may experience a net
increase in cash as it evaluates the comparative economic value of using excess
cash for purposes other than open market purchases of its first mortgage bonds.
The degree to which the Company is leveraged could have important
consequences on the Company's liquidity, including (i) the Company's ability to
obtain additional financing for working capital, capital expenditures,
acquisitions, general corporate or other purposes could be limited in the
future; (ii) a substantial portion of the Company's cash flow from operations
will be dedicated to the payment of principal and interest on its indebtedness
and, if appropriate, to the payment of the early redemption price of its Series
A Preferred Stock; and (iii) the Company's substantial leverage may place the
Company at a competitive disadvantage by limiting its financial flexibility to
respond to the demands of the competitive market and make it more vulnerable to
adverse economic or business changes.
22
<PAGE>
RESULTS OF OPERATIONS
Financial comparisons herein for the nine and twelve months ended September
30, 1997 as compared to the same period in the prior year are based on the
combined results of the Reorganized Company for the period February 12, 1996 to
September 30, 1996 and the Predecessor Company for the period January 1, 1996 to
February 11, 1996 and the period October 1, 1995 to February 11, 1996,
respectively.
Net income applicable to common stock before extraordinary item was
approximately $20.7 million, or $0.34 per common share, for the three months
ended September 30, 1997, compared with $19.8 million, or $0.33 per share, for
the same period a year ago. For the nine months ended September 30, 1997, net
income applicable to common stock before reorganization items and extraordinary
items was approximately $36.1 million, or $0.60 per common share, compared with
combined net income applicable to common stock before reorganization items and
extraordinary items of $22.5 million for the same period a year ago. For the
twelve months ended September 30, 1997, net income applicable to common stock
before reorganization items and extraordinary items was approximately $41.0
million, or $0.68 per common share, compared with $8.5 million for the same
period a year ago.
Operating revenues net of fuel expenses increased $1.5 million, $3.9 million
and $21.4 million for the three, nine and twelve months ended September 30, 1997
compared to the same periods last year. The increase was primarily due to
increased KWH sales, partially offset by reduced revenue per KWH from CFE.
Comparisons of KWH sales and operating revenues are shown below (In thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30: INCREASE/(DECREASE)
- -------------------------------- ----------------------
1997 1996 AMOUNT PERCENT
---------- ---------- --------- -------
Electric KWH Sales:
<S> <C> <C> <C> <C>
Retail Customers........................ 1,688,713 1,634,176 54,537 3.3%
Other Utilities......................... 594,279 503,098 91,181 18.1
---------- ---------- --------- -----
Total.................................. 2,282,992 2,137,274 145,718 6.8
========== ========== ========= =====
Operating Revenues:
Retail Customers........................ $ 144,141 $ 134,523 $ 9,618 7.1%
Other Utilities......................... 25,999 32,133 (6,134) (19.1)
---------- ---------- --------- -----
Total.................................. $ 170,140 $ 166,656 $ 3,484 2.1
========== ========== ========= =====
NINE MONTHS ENDED SEPTEMBER 30: INCREASE/(DECREASE)
- ------------------------------- ----------------------
1997 1996 AMOUNT PERCENT
---------- ---------- --------- -------
Electric KWH Sales:
Retail Customers........................ 4,397,052 4,331,720 65,332 1.5%
Other Utilities......................... 1,477,422 1,326,143 151,279 11.4
---------- ---------- --------- -----
Total.................................. 5,874,474 5,657,863 216,611 3.8
========== ========== ========= =====
Operating Revenues:
Retail Customers........................ $ 377,456 $ 356,479 $ 20,977 5.9%
Other Utilities......................... 72,816 79,421 (6,605) (8.3)
---------- ---------- --------- -----
Total.................................. $ 450,272 $ 435,900 $ 14,372 3.3
========== ========== ========= =====
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED SEPTEMBER 30: INCREASE/(DECREASE)
- --------------------------------- --------------------
1997 1996 AMOUNT PERCENT
----------- ---------- --------- -------
Electric KWH Sales:
<S> <C> <C> <C> <C>
Retail Customers........................ 5,718,239 5,591,301 126,938 2.3%
Other Utilities......................... 1,904,832 1,678,285 226,547 13.5
---------- ---------- -------- -----
Total.................................. 7,623,071 7,269,586 353,485 4.9
========== ========== ======== =====
Operating Revenues:
Retail Customers........................ $ 492,800 $ 450,858 $ 41,942 9.3%
Other Utilities......................... 100,494 104,410 (3,916) (3.8)
---------- ---------- -------- -----
Total.................................. $ 593,294 $ 555,268 $ 38,026 6.8
========== ========== ======== =====
</TABLE>
Other operations and maintenance expense decreased $1.0 million for the
three months ended September 30, 1997 compared to the same period last year as a
result of decreased maintenance expense of $3.1 million offset by an increase of
$2.1 million in operations expenses. The decreased maintenance expense was due
to various factors, the largest of which were a $0.8 million reclassification of
an insurance settlement and a $0.5 million settlement related to environmental
claims. The increase in operations expenses was due to various factors, the
largest of which is the $0.8 million reclassification mentioned above.
Other operations and maintenance expense decreased $11.0 million and
$28.3 million for the nine and twelve months ended September 30, 1997 compared
to the same periods last year. The decrease was a result of a reduction in Palo
Verde costs of approximately $8.7 million and $27.7 million for the nine and
twelve month periods, due to the lease accruals recorded by the Predecessor
Company, with no corresponding accrual by the Reorganized Company as a result of
the reacquisition of the leased portion of Palo Verde in the Reorganization.
Depreciation and amortization expense was essentially unchanged for the
three months ended and increased $2.8 million and $11.3 million for the nine and
twelve months ended September 30, 1997 compared to the same periods last year.
The effect of an increase in depreciable plant following the reacquisition in
the Reorganization of a portion of Palo Verde and the depreciation of a portion
of such amounts over the period of the Rate Stipulation was partially offset by
the decrease in the book value of depreciable plant from fresh-start
adjustments.
Taxes other than income taxes increased $1.6 million for the three
months ended and decreased $2.2 million and $6.6 million for the nine and twelve
months ended September 30, 1997 compared to the same periods last year,
primarily due to an annual decrease in Arizona property tax resulting from a new
state property tax law which reduced total property taxes for the calendar years
1996 and 1997, but which was recorded beginning in July 1996.
Other income decreased $3.4 million for the three months ended
September 30, 1997 compared to the same period last year as a result of a gain
on sale of investment of $3.8 million in 1996. Other income increased $3.5
million and $7.2 million for the nine and twelve month periods when compared to
the same periods last year due to a favorable litigation settlement in 1997 of
$7.5 million, net of legal fees and expenses, partially offset by a gain on sale
of investment of $3.8 million in 1996 for the nine month period and an
additional increase of $2.3 million for the twelve month period due to the
settlement of bankruptcy professional fees.
24
<PAGE>
Interest charges decreased $3.2 million, $7.0 million and $3.0 million
for the three, nine and twelve months ended September 30, 1997 compared to the
same periods last year, primarily due to a reduction in outstanding debt as a
result of open market purchases of the Company's first mortgage bonds and the
extinguishment of certain debt in conjunction with the Reorganization.
Income taxes as a percentage of pretax income is higher for the twelve
months ended September 30, 1996 as compared to the same period in 1997 due to
permanent differences that arose in the fourth quarter of 1995 with no
comparable items in the twelve months ended September 30, 1997.
The reorganization items benefit recorded by the Predecessor Company
upon the emergence from bankruptcy consisted of the effects of the Rate
Stipulation and deferred income tax benefits related to the Reorganization.
These benefits were partially offset by (i) the adjustments of assets and
liabilities to their fair market values; (ii) provisions for settlement of
claims; and (iii) professional fees and other expenses. There were no
comparable amounts in the nine and twelve month periods ended September 30,
1997.
Extraordinary loss on repurchase of debt for the three, nine and twelve
months ended September 30, 1997 represents the payment of premiums on debt
repurchased and the recognition of unamortized issuance expenses on that debt of
$69,000, net of federal income tax benefit of $38,000, $2.7 million, net of
federal income tax benefit of $1.4 million, and $2.7 million, net of federal
income tax benefit of $1.4 million, respectively, with no comparable amounts for
the same periods in 1996.
Extraordinary gain on discharge of debt for the Predecessor Company for
the periods January 1, 1996 to February 11, 1996 and October 1, 1995 to February
11, 1996 consisted of forgiven indebtedness primarily related to the
extinguishment of Palo Verde lease obligations with no comparable amounts in the
nine and twelve month periods ended September 30, 1997.
SFAS No. 128, "Earnings per Share" ("SFAS No. 128"), establishes
standards for computing and presenting earnings per share and applies to
entities with publicly held common stock. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods; earlier application is not permitted. The Company has
determined that SFAS No. 128 will not have a material effect on its financial
statements.
25
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In August 1997, the Company filed suit in the District Court for Dona Ana
County, New Mexico, against TNP. The suit alleges that TNP knowingly entered
into an agreement with a customer already under contract with the Company. The
Company has also filed a breach of contract suit against the customer in New
Mexico Federal Court. This litigation arises out of a proceeding before the New
Mexico Commission in which the Company is challenging TNP's application for a
CCN to serve customers within the Company's service territory in Santa Teresa,
New Mexico.
ITEM 5. OTHER MATTERS
The Company has 337 employees (approximately 30% of its work force) who are
covered by a collective bargaining agreement with the International Brotherhood
of Electrical Workers, Local 960 ("Local 960"). Local 960's members work
primarily as linemen and power plant personnel with the Company. The collective
bargaining agreement between the Company and Local 960 expired on June 16, 1997.
On August 21, 1997, the Company and Local 960 agreed on the terms of a new
collective bargaining agreement, and Local 960's members ratified the new
agreement by a majority vote. The new agreement is in effect through June 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Index to Exhibits incorporated herein by reference.
(b) Reports on Form 8-K:
None
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EL PASO ELECTRIC COMPANY
By: /s/ Gary R. Hedrick
----------------------------------
Gary R. Hedrick
Vice President, Treasurer and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
Dated: November 13, 1997
27
<PAGE>
<TABLE>
<CAPTION>
EL PASO ELECTRIC COMPANY
INDEX TO EXHIBITS
Exhibit Sequentially
Number Exhibit Numbered Page
-------- ------- -------------
<S> <C> <C>
4.01 Second Supplemental Indenture dated as of August
19, 1997, including form of Series I and Series J
First Mortgage Bonds.
4.02 Letter of Credit and Reimbursement Agreement
dated as of August 27, 1997, between the Company,
the creditors named therein, Barclays Bank PLC,
New York Branch, as Issuing Bank and Agent for
the Creditors, and Union Bank of California,
N.A., as Documentation Agent, related to the
three series of pollution control bonds issued in
connection with the Company's interest in Palo
Verde.
4.03 Letter of Credit and Reimbursement Agreement
dated as of August 27, 1997, between the Company,
the Creditors named therein, Barclays Bank PLC,
New York Branch, as Issuing Bank and Agent for
the Creditors, and Union Bank of California,
N.A., as Documentation Agent, related to the
series of pollution control bonds issued in
connection with the Company's interest in Four
Corners.
11 Statement re Computation of Per Share Earnings
15 Letter re Unaudited Interim Financial
Information
27 Financial Data Schedule (EDGAR filing only)
</TABLE>
28
<PAGE>
Exhibit 4.01
THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A UTILITY
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS
_______________________________________________________
SECOND
SUPPLEMENTAL INDENTURE
____________________
EL PASO ELECTRIC COMPANY
TO
STATE STREET BANK AND TRUST COMPANY
TRUSTEE
DATED AS OF AUGUST 19, 1997
____________________
CREATING ISSUES OF
COLLATERAL SERIES I FIRST MORTGAGE BONDS
COLLATERAL SERIES J FIRST MORTGAGE BONDS
SUPPLEMENTAL TO GENERAL MORTGAGE INDENTURE
AND DEED OF TRUST
DATED AS OF FEBRUARY 1, 1996
_______________________________________________________
THIS IS A SECURITY AGREEMENT GRANTING A SECURITY INTEREST
IN PERSONAL PROPERTY INCLUDING PERSONAL PROPERTY
AFFIXED TO REALTY AS WELL AS A MORTGAGE
UPON REAL ESTATE AND OTHER PROPERTY
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
Definitions
SECTION 1.01. Terms Incorporated by Reference............................. 2
SECTION 1.02. Additional Definitions...................................... 3
SECTION 1.03. Other Definitions........................................... 4
ARTICLE 2
The Series I Bonds and the Series J Bonds
SECTION 2.01. Terms of Series I Bonds and the Series J Bonds.............. 4
SECTION 2.02. Payment of Interest......................................... 7
SECTION 2.03. Registrar and Paying Agent; Transfer and Exchange of Bonds.. 7
SECTION 2.04. Definitive Bonds............................................ 8
SECTION 2.05. Execution, Authentication and Delivery...................... 8
ARTICLE 3
Redemptions and Repurchases
SECTION 3.01. Mandatory Redemption of Series I Bonds and Series J Bonds... 8
ARTICLE 4
Covenants
SECTION 4.01. Restricted Payments......................................... 9
SECTION 4.02. Incurrence of Indebtedness.................................. 11
SECTION 4.03. Limitation on Liens......................................... 13
SECTION 4.04. Dividend and Other Payment Restrictions
Affecting Subsidiaries...................................... 14
SECTION 4.05. Merger, Consolidation or Sale of Assets..................... 14
SECTION 4.06. Transactions with Affiliates................................ 15
SECTION 4.07. Insurance................................................... 15
SECTION 4.08. Payments for Consents....................................... 15
SECTION 4.09. Reports..................................................... 16
SECTION 4.10. Restrictions on Release of Mortgaged Property............... 17
SECTION 4.11. Application of Certain Proceeds of Sales or Condemnations... 17
-ii-
<PAGE>
ARTICLE 5
Events of Default
SECTION 5.01. Events of Default........................................... 18
ARTICLE 6
The Trustee
SECTION 6.01. Trustee's Disclaimer........................................ 20
ARTICLE 7
Miscellaneous
SECTION 7.01. Reference to Original Indenture............................. 20
SECTION 7.02. Benefits of Original Indenture.............................. 20
SECTION 7.03. Governing Law............................................... 20
SECTION 7.04. Successors.................................................. 21
SECTION 7.05. Counterparts................................................ 21
SCHEDULES
Schedule 1 - Existing Investments of the Company
EXHIBITS
Exhibit A - Form of Series I Bond
Exhibit B - Form of Series J Bond
-iii-
<PAGE>
SECOND SUPPLEMENTAL INDENTURE
THIS SECOND SUPPLEMENTAL INDENTURE, dated as of August 19, 1997 (the
"Supplemental Indenture"), between EL PASO ELECTRIC COMPANY, a Texas corporation
(the "Company"), whose principal office is located at 100 North Stanton Street,
El Paso, Texas, 79901, and STATE STREET BANK AND TRUST COMPANY, a banking
corporation organized under the laws of The Commonwealth of Massachusetts, as
Trustee (the "Trustee"), whose principal corporate trust office is located at
225 Franklin Street, Boston, Massachusetts, 02110.
WITNESSETH
WHEREAS, the Company and the Trustee have entered into that (i) General
Mortgage Indenture and Deed of Trust, dated as of February 1, 1996 (the
"Original Indenture"), relating to the issuance of Bonds as may be created and
established from time to time in one or more series; (ii) First Supplemental
Indenture dated as of February 1, 1996 (the "First Supplemental Indenture" and,
together with the Original Indenture, the "Indenture"); and
WHEREAS, the Company issued Bonds pursuant to the terms of the Original
Indenture and the First Supplemental Indenture, and mortgaged and pledged the
Mortgaged Property to secure payment of the Bonds; and
WHEREAS, pursuant to the Indenture, there have been executed,
authenticated, delivered and issued and there are now outstanding Bonds of
series and in principal amounts as follows:
<TABLE>
<CAPTION>
Issued and
Series Designation Outstanding Amount
------------------ ------------------
<S> <C>
7.25% Series A First Mortgage Bonds due 1999 $ 77,792,000
7.75% Series B First Mortgage Bonds due 2001 $ 68,323,000
8.25% Series C First Mortgage Bonds due 2003 $138,219,000
8.90% Series D First Mortgage Bonds due 2006 $235,957,000
9.40% Series E First Mortgage Bonds due 2011 $285,900,000
Collateral Series F First Mortgage Bonds $163,841,823
Collateral Series G First Mortgage Bonds $ 34,134,780
Collateral Series H First Mortgage Bonds $100,000,000;
</TABLE>
and
WHEREAS, the Collateral Series F First Mortgage Bonds will be extinguished
and retired pursuant to their terms on or around September 23, 1997 upon the
surrender and cancellation thereof by the Holders thereof in connection with the
refinancing of the Maricopa LCs and the replacement of the Maricopa
Reimbursement Agreement with the New Maricopa Reimbursement Agreement; and
-1-
<PAGE>
WHEREAS, the Collateral Series G First Mortgage Bonds will be extinguished
and retired pursuant to their terms on or about September 23, 1997 upon the
surrender and cancellation thereof by the Holders thereof in connection with the
refinancing of the Farmington LC and the replacement of the Farmington
Reimbursement Agreement with the New Farmington Reimbursement Agreement; and
WHEREAS, Section 4.01 of the Original Indenture permits the issuance of
additional Bonds to secure Indebtedness or reimbursement obligations of the
Company in a principal amount not exceeding 100% of the principal amount of
certain Retired Bonds, including Retired Initial Series Bonds that were issued
for the purpose of securing the repayment of any Indebtedness or reimbursement
obligations of the Company; and
WHEREAS, the Company desires in and by this Supplemental Indenture to
create new series of Bonds to be issued under the Original Indenture, to
designate such series and to set forth the form, the maturity date, interest
rate and other terms of the Bonds of such series; and
WHEREAS, it is provided in the Original Indenture, among other things, that
the Company shall execute and file with the Trustee, and the Trustee at the
request of the Company, when required by the Original Indenture, shall join in
indentures supplemental thereto, and which thereafter shall form a part thereof,
for the purpose, among others, of providing for the creation of any series of
Bonds and specifying the form and provisions of the Bonds of such series; and
WHEREAS, all acts and things have been done and performed which are
necessary to make this Supplemental Indenture, when duly executed and delivered,
a valid, binding and legal instrument in accordance with its terms and for the
purposes herein expressed; and the execution and delivery of this Supplemental
Indenture have been in all respects duly authorized.
NOW THEREFORE, in consideration of the premises and in further
consideration of the sum of One Dollar in lawful money of the United States of
America paid to the Company by the Trustee at or before the execution and
delivery of this Supplemental Indenture, the receipt whereof is hereby
acknowledged, and of other good and valuable consideration, it is agreed by and
between the Company and the Trustee as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01 Terms Incorporated by Reference.
-------------------------------
Except for the terms defined in this Supplemental Indenture, all
capitalized terms used in this Supplemental Indenture have the respective
meanings set forth in the Indenture.
-2-
<PAGE>
SECTION 1.02 Additional Definitions.
----------------------
"Collateral Series Bonds" means, collectively, the Series F Bonds,
-----------------------
Series G Bonds and Series H Bonds.
"New Farmington LC Agent" means Barclays Bank PLC, New York Branch, as
-----------------------
agent for the Issuing Bank and the New Farmington LC Creditors under the New
Farmington Reimbursement Agreement, and its successors.
"New Farmington LC Creditors" means the Creditors specified in the New
---------------------------
Farmington Reimbursement Agreement and their respective successors.
"New Farmington Reimbursement Agreement" means that certain Letter of
--------------------------------------
Credit and Reimbursement Agreement to be entered into among the Company,
Barclays Bank PLC, New York Branch, as Issuing Bank, and the Creditors specified
therein, and Barclays Bank PLC, New York Branch, as Administrative Agent for the
Issuing Bank and the Creditors, and Union Bank of California, N.A., as
Documentation Agent, as the same may be amended from time to time.
"New Maricopa LC Agent" means Barclays Bank PLC, New York Branch, as
---------------------
agent for the Issuing Bank and the New Maricopa LC Creditors under the New
Maricopa Reimbursement Agreement, and its successors.
"New Maricopa LC Creditors" means the Creditors specified in the New
-------------------------
Maricopa Reimbursement Agreement and their respective successors.
"New Maricopa Reimbursement Agreement" means that certain Letter of
------------------------------------
Credit and Reimbursement Agreement to be entered into among the Company,
Barclays Bank PLC, New York Branch, as Issuing Bank, and the Creditors specified
therein, and Barclays Bank PLC, New York Branch, as Administrative Agent for the
Issuing Bank and the Creditors, and Union Bank of California, N.A. as
Documentation Agent, as the same may be amended from time to time.
"New Reimbursement Agent" means the New Maricopa LC Agent and the New
-----------------------
Farmington LC Agent, as the context may require.
"New Reimbursement Agreement" means the New Maricopa Reimbursement
---------------------------
Agreement and the New Farmington Reimbursement Agreement, as the context may
require.
"Second Issuance Date" means the date that Series I Bonds or Series J
--------------------
Bonds are first issued pursuant to this Supplemental Indenture.
"Series I Bonds" means the Collateral Series I First Mortgage Bonds of
--------------
the Company.
-3-
<PAGE>
"Series J Bonds" means the Collateral Series J First Mortgage Bonds of
--------------
the Company.
SECTION 1.03. Other Definitions.
Defined in
Term Section
---- ----------
"Affiliate Transaction" 4.06
"Excess Proceeds" 4.11
"Net Proceeds" 4.11
"Payment Default" 5.01
"Restricted Payments" 4.01
"Series I or J Redemption Demand" 3.01
ARTICLE 2
THE SERIES I BONDS AND SERIES J BONDS
SECTION 2.01 Terms of Series I Bonds and the Series J Bonds.
----------------------------------------------
(a) There are hereby created and established two new series of Bonds to be
issued and secured by the Lien of the Indenture, having the respective series
designations and maximum aggregate principal amounts (subject to Section 2.09 of
the Original Indenture) as follows:
<TABLE>
<CAPTION>
Maximum
Series Designation Principal Amount
- ------------------ ----------------
<S> <C>
Collateral Series I First Mortgage Bonds $163,841,823
Collateral Series J First Mortgage Bonds $ 34,134,780
</TABLE>
(i) The Series I Bonds are issued to provide for payment by the
Company of the principal, reimbursement obligations, interest, commissions,
fees, charges, expenses and other amounts due under the New Maricopa
Reimbursement Agreement. For purposes of the Series I Bonds, (i) interest shall
include, without limitation, interest payable under Article II of the New
Maricopa Reimbursement Agreement and (ii) commissions and fees shall include,
without limitation, the letter of credit fees and fronting fees payable under
Section 2.04 of the New Maricopa Reimbursement Agreement and the drawing fee,
agency fee and transfer fee payable under Section 2.03 of the New Maricopa
Reimbursement Agreement. The Series I Bonds will be issued to and registered in
the name of the New Maricopa LC Agent and will not be transferable except to a
successor to such New Maricopa LC Agent under the New Maricopa Reimbursement
Agreement. The Series I Bonds shall be limited to an aggregate principal amount
of $163,841,823, but the
-4-
<PAGE>
aggregate principal amount thereof outstanding at any time shall not exceed (if
less) such lesser amount as is equal to the sum of (a) the aggregate Available
Amount of all Letters of Credit outstanding at such time, plus (b) the aggregate
principal amount of Tender Advances (as such terms are defined in the New
Maricopa Reimbursement Agreement) then outstanding under the New Maricopa
Reimbursement Agreement, plus (c) the aggregate amount of all other unreimbursed
drawings under such Letters of Credit which are then outstanding. The principal
amount of the Series I Bonds shall be payable in such amount and on such date or
dates set forth in the New Maricopa Reimbursement Agreement for the payment of
principal or the reimbursement of drawings under the Letters of Credit, but not
later than the Stated Termination Date (as defined in the New Maricopa
Reimbursement Agreement) for the last Letter of Credit outstanding under the
Reimbursement Agreement or December 31, 2000, whichever shall occur first.
Interest will accrue and be payable on the Series I Bonds at the rates per
annum, in the amounts, and on each date set forth in the New Maricopa
Reimbursement Agreement for the accrual and payment of interest, commissions,
fees, charges, expenses and other amounts due thereunder. Any payment made in
respect of the Company's obligations to pay principal, reimbursement
obligations, interest, commissions, fees, charges, expenses and other amounts
under the New Maricopa Reimbursement Agreement shall be deemed a payment in
respect of the Series I Bonds, but such payment shall not reduce the principal
amount of the Series I Bonds unless the sum of (a) the aggregate Available
Amount of all Letters of Credit outstanding at such time, plus (b) the aggregate
principal amount of Tender Advances then outstanding under the New Maricopa
Reimbursement Agreement, plus (c) the aggregate amount of all other unreimbursed
drawings under such Letters of Credit which are then outstanding is reduced
concurrently with such payment; provided, however, if after a drawing under a
-------- -------
Letter of Credit issued under the New Maricopa Reimbursement Agreement such
Letter of Credit shall have been reinstated in respect of such drawing prior to
the Maricopa LC Agent having received reimbursement for such drawing from the
Company, the reimbursement of such reinstated amount shall not reduce the
principal amount of the Series I Bonds.
(ii) The Series J Bonds are issued to provide for payment by the
Company of the principal, reimbursement obligations, interest, commissions,
fees, charges, expenses and other amounts due under the New Farmington
Reimbursement Agreement. For purposes of the Series J Bonds, (i) interest shall
include, without limitation, interest payable under Article II of the New
Farmington Reimbursement Agreement and (ii) commissions and fees shall include,
without limitation, the letter of credit fees and fronting fees payable under
Section 2.04 of the New Farmington Reimbursement Agreement and the drawing fee,
agency fee and transfer fee payable under Section 2.03 of the New Farmington
Reimbursement Agreement. The Series J Bonds will be issued to and registered in
the name of the New Farmington LC Agent and will be not be transferable except
to a successor to the New Farmington LC Agent under the New Farmington
Reimbursement Agreement. The Series J Bonds shall be limited to an aggregate
principal amount of $34,134,780, but the aggregate principal amount thereof
outstanding at any time shall not exceed (if less) such lesser amount as is
equal to the sum of (a) the aggregate Available Amount of the Letter of Credit
outstanding at such time, plus (b) the aggregate principal amount of Tender
Advances (as such terms are defined in the New Farmington Reimbursement
Agreement) then outstanding under the New Farmington Reimbursement Agreement,
plus (c) the aggregate amount of all other unreimbursed
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<PAGE>
drawings under the Letter of Credit which are then outstanding. The principal
amount of the Series J Bonds shall be payable in such amount and on such date or
dates set forth in the New Farmington Reimbursement Agreement for the payment of
principal or the reimbursement of drawings under the Letter of Credit, but not
later than the Stated Termination Date (as defined in the New Farmington
Reimbursement Agreement) or December 31, 2000, whichever shall occur first.
Interest will accrue and be payable on the Series J Bonds at the rates per annum
and on each date set forth in the New Farmington Reimbursement Agreement for the
accrual and payment of interest, commissions, fees, charges, expenses and other
amounts due thereunder. Any payment made in respect of the Company's obligations
to pay principal, reimbursement obligations, interest, commissions, fees,
charges, expenses and other amounts under the New Farmington Reimbursement
Agreement shall be deemed a payment in respect of the Series J Bonds, but such
payment shall not reduce the principal amount of the Series J Bonds unless the
sum of (a) the aggregate Available Amount of the Letter of Credit outstanding at
such time, plus (b) the aggregate principal amount of Tender Advances then
outstanding under the New Farmington Reimbursement Agreement, plus (c) the
aggregate amount of all other unreimbursed drawings under such Letter of Credit
which are then outstanding is reduced concurrently with such payment; provided,
--------
however, if after a drawing under the Letter of Credit issued under the New
- -------
Farmington Reimbursement Agreement the Letter of Credit shall have been
reinstated in respect of such drawing prior to the New Farmington LC Agent
having received reimbursement for such drawing from the Company, the
reimbursement of such reinstated amount shall not reduce the principal amount of
the Series J Bonds.
(b) The Trustee may conclusively presume that the Company's obligations to
make payments of principal, interest, fees and other amounts under the
respective New Reimbursement Agreement have been satisfied and discharged,
unless and until the Trustee shall have received a Series I or J Redemption
Demand for the Series I Bonds or the Series J Bonds, as the case may be. The
Company shall provide the Trustee with complete copies of each New Reimbursement
Agreement promptly upon the Second Issuance Date and shall provide the Trustee
with all copies of any amendment, modification or extension to any such New
Reimbursement Agreement promptly upon execution thereof. The Trustee shall be
fully protected in relying on such Series I or J Redemption Demand from the New
Maricopa LC Agent with respect to a Series I Bond or the New Farmington LC Agent
with respect to a Series J Bond or the absence of such Series I or J Redemption
Demand and shall have no duty to inquire into the rights, obligations or
performance of any party to a New Reimbursement Agreement. In the event that all
of the Company's obligations under a New Reimbursement Agreement have been paid
in full and discharged, the Series I Bonds or Series J Bonds issued to secure
such New Reimbursement Agreement shall be deemed paid in full and the New
Maricopa LC Agent holding such Series I Bonds or New Farmington LC Agent holding
such Series J Bonds, as applicable, shall surrender such Bonds to the Trustee
for cancellation.
(c) The Series I Bonds and Series J Bonds are entitled to the protections
of the covenants contained in Article 4 hereof and are subject to the provisions
pertaining to Events of Default contained in Article 5 hereof. The Series I
Bonds and Series J Bonds shall be issuable in fully registered form, without
coupons. The Series I Bonds shall be numbered RI-001 consecutively upwards and
the Series J Bonds shall be numbered RJ-001 consecutively upwards. The Series I
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<PAGE>
Bonds and Series J Bonds shall be dated as described in Section 2.03 of the
Original Indenture, except that the Series I Bonds and Series J Bonds first
issued shall be dated as of their date of initial issuance.
(d) The Series I Bonds shall be substantially in the form of Exhibit A and
the Series J Bonds shall be substantially in the form of Exhibit B, which
exhibits shall be a part of this Supplemental Indenture. Additional terms are
contained in the forms of the Series I Bonds and the Series J Bonds, which terms
are incorporated by reference herein.
SECTION 2.02 Payment of Interest.
-------------------
So long as there is no existing Default in the payment of interest on the
Series I Bonds or Series J Bonds, the Person in whose name any Series I Bond or
Series J Bond, as applicable, is registered at the close of business on any
record date with respect to any interest payment date shall be entitled to
receive the interest payable on such interest payment date, notwithstanding any
transfer or exchange of such Series I Bond or Series J Bond subsequent to the
record date and on or prior to such interest payment date, except as and to the
extent the Company shall default in the payment of the interest due on such
interest payment date, in which case such defaulted interest shall be paid to
the Person in whose name such Series I Bond or Series J Bond, as applicable, is
registered on the record date for the payment of such defaulted interest.
SECTION 2.03 Registrar and Paying Agent; Transfer and Exchange of Bonds.
----------------------------------------------------------
The Company initially appoints the Trustee as Registrar, Paying Agent and
agent for service of demands and notices to or upon the Company in respect of
this Supplemental Indenture and the Series I Bonds and the Series J Bonds.
Subject to the limitations on transfer of Series I Bonds and Series J Bonds
contained in Section 2.01 of this Supplemental Indenture, Series I Bonds and the
Series J Bonds shall be transferrable and exchangeable at the option of the
Holders thereof and upon surrender thereof at the office or agency of the
Company in the City and State of New York (initially State Street Bank and Trust
Company, N.A.) or at the principal corporate trust office of the Trustee, for
registered Series I Bonds or Series J Bonds of the same series without coupons
of the same aggregate principal amount but of different authorized denomination
or denominations, and such exchanges and any transfer of Series I Bonds or
Series J Bonds will be made without service charge (except for any applicable
taxes or fees required by law).
SECTION 2.04 Definitive Bonds.
----------------
Definitive Series I Bonds and Series J Bonds may be in the form of fully
engraved Bonds or Bonds typed, printed or lithographed with or without steel
engraved borders. Until Series I Bonds or Series J Bonds in definitive form are
ready for delivery, the Company may execute, and upon its
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<PAGE>
request in writing the Trustee shall authenticate and deliver, Series I Bonds
and Series J Bonds, as applicable, in temporary form as provided in Section 2.08
of the Original Indenture.
SECTION 2.05 Execution, Authentication and Delivery.
--------------------------------------
Series I Bonds and Series J Bonds shall be executed, authenticated and
delivered pursuant to Article 4 of the Original Indenture.
ARTICLE 3
REDEMPTIONS AND REPURCHASES
SECTION 3.01 Mandatory Redemption of Series I Bonds and Series J Bonds.
---------------------------------------------------------
Upon receipt by the Trustee of a written demand for redemption from a
Holder of Series I Bonds or Series J Bonds (a "Series I or J Redemption
Demand"), such Series I Bonds or Series J Bonds, as applicable, shall be
redeemed at a redemption price of 100% (expressed as a percentage of principal
amount) plus accrued interest thereon through the redemption date, in cash.
Such Series I Bonds or Series J Bonds, as applicable, shall be redeemed in the
amount specified in the Series I or J Redemption Demand, which amount shall be
equal to all outstanding principal, reimbursement obligations, interest,
commissions, fees, charges, expenses and other amounts then due and owing under
the applicable New Reimbursement Agreement. The Series I or J Redemption Demand
shall also state (i) that an "Event of Default" has occurred and is continuing
under the terms of the applicable New Reimbursement Agreement, (ii) that payment
of the principal amount outstanding under such New Reimbursement Agreement, all
interest thereon and all other amounts payable thereunder are immediately due
and payable, and (iii) that such Holder of Series I Bonds or Series J Bonds, as
the case may be, has demanded payment thereof from the Company. The portion of
the Series I Bonds or Series J Bonds, as applicable, subject to redemption shall
be redeemed on the fifth Business Day following receipt by the Trustee of such
Series I or J Redemption Demand. Any payment made to the Holder of Series I
Bonds or Series J Bonds, as applicable, pursuant to a Series I or J Redemption
Demand shall constitute a payment by the Company in respect of its obligations
under the New Reimbursement Agreement applicable to the redeemed Series I Bonds
or Series J Bonds. The Series I or J Redemption Demand shall be rescinded and
shall be null and void for all purposes of the Indenture upon receipt by the
Trustee, no later than the Business Day prior to the date fixed for redemption,
of a certificate of the Holder of Series I Bonds or Series J Bonds previously
making such Series I or J Redemption Demand (a) stating that there has been a
waiver of such Event of Default, or (b) withdrawing said Series I or J
Redemption Demand.
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<PAGE>
ARTICLE 4
COVENANTS
For the benefit of the Series I Bonds and the Series J Bonds, the Company
agrees that it shall not fail to observe any of the following covenants:
SECTION 4.01 Restricted Payments.
--------------------
The Company shall not, and shall not permit any of its Subsidiaries,
directly or indirectly, to: (i) declare or pay any dividend or make any
distribution on account of the Company's or any of its Subsidiaries' Equity
Interests, including, without limitation, any payment in connection with any
merger or consolidation involving the Company (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of the
Company or dividends or distributions payable by a Subsidiary of the Company to
the Company or to any Wholly Owned Subsidiary of the Company); (ii) purchase,
redeem or otherwise acquire or retire for value any Equity Interests of the
Company, any of its Subsidiaries or any direct or indirect parent of the Company
(other than any Equity Interests owned by the Company); (iii) make any principal
payment on, or purchase, redeem, defease or otherwise acquire or retire for
value any Subordinated Indebtedness, except at final maturity; or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being referred to as "Restricted Payments"), unless, at
the time of and after giving effect to such Restricted Payment:
(A) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(B) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
--- -----
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of Subordinated Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in clause (a) of the first
paragraph of Section 4.02 of this Supplemental Indenture; provided,
--------
however, that this clause (B) shall not apply to the payment of dividends
-------
in respect of Common Stock; and
(C) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the
Initial Issuance Date (excluding Restricted Payments permitted by clauses
(i), (ii), (iv) and (vi) of the next succeeding paragraph), is less than
the sum of (i) 50% of an amount equal to the Consolidated Net Income of the
Company minus dividends (whether in cash or in kind) paid in respect of its
Series A Preferred Stock for the period (taken as one accounting period)
from the day after the Initial Issuance Date to the end of the Company's
most recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) 100% of the aggregate net cash proceeds received by the
----
Company from the issuance or sale since the Initial Issuance Date of Equity
Interests (other than Disqualified Stock) of the Company or of debt
securities of the Company that have been converted into such Equity
Interests of the Company, plus (iii) $10,000,000;
----
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<PAGE>
provided, however, that the foregoing limitations contained in clause (C) of the
- -------- -------
first paragraph of this Section 4.01 shall not apply during any period
commencing on the date of delivery to the Trustee of an Officers' Certificate to
the effect that the Investor Series Bonds of the series having the longest
maturity then Outstanding have been rated Investment Grade by a Rating Agency
identified in such certificate and terminating on the date upon which such
securities cease to be rated, or are downgraded or placed on a "watch list" for
possible downgrading below, Investment Grade by every Rating Agency which
provided the Investment Grade rating (or if a Rating Agency is then no longer
able to provide rating information, by any other Rating Agency which similarly
rated such series of Investor Series Bonds Investment Grade).
The foregoing provisions shall not prohibit: (i) the payment of dividends,
whether paid in kind or in cash, in respect of the Series A Preferred Stock in
accordance with the terms thereof; (ii) the purchase, redemption or other
acquisition or retirement for value of the Series A Preferred Stock (provided,
--------
however, in the case of the foregoing clauses (i) and (ii),the Company shall not
- -------
pay any cash dividends on (except cash paid solely in lieu of the Company's
issuance of any fractional shares of Series A Preferred Stock paid as in kind
dividends on the Series A Preferred Stock) or purchase, redeem, acquire or
retire any Series A Preferred Stock until the earlier to occur of (A) the date
of delivery to the Trustee of an Officers' Certificate to the effect that the
Investor Series Bonds having the longest maturity then Outstanding have been
rated Investment Grade by a Rating Agency identified in such certificate, and
terminating on the date upon which such securities cease to be rated or are
downgraded or placed on a "watch list" for possible downgrading below Investment
Grade by every Rating Agency which provided the Investment Grade rating, and (B)
February 12, 1999); (iii) the payment of any dividend within 60 days after the
date of declaration thereof, if at said date of declaration such payment would
have complied with the provisions of the Indenture; (iv) the redemption,
repurchase, retirement or other acquisition of any Equity Interests of the
Company in exchange for, or out of the proceeds of, the substantially concurrent
sale (other than to a Subsidiary of the Company) of other Equity Interests of
the Company (other than any Disqualified Stock); provided, however, that the
-------- -------
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition shall be excluded from clause
(C)(ii) of the first paragraph of this Section 4.01; (v) the repurchase,
redemption or other acquisition or retirement for value of any Equity Interests
of the Company or any Subsidiary of the Company held by any member of the
Company's (or any of its Subsidiaries') management; provided, however, that the
-------- -------
aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $250,000 in any twelve-month period, plus the
aggregate cash proceeds received by the Company during such twelve-month period
from any reissuance of Equity Interests by the Company to members of management
of the Company and its Subsidiaries; and (vi) the repurchase by the Company of
the Series A Preferred Stock on or prior to February 12, 1999 in accordance with
the terms thereof upon the occurrence of a Change of Control; provided, further,
-------- -------
that in the case of each of clauses (i) through (vi) above, no Default or Event
of Default shall have occurred and be continuing immediately after such
transaction.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by the Company or such
Subsidiary, as the case may be. Not later than the date of making any
Restricted
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<PAGE>
Payment, and so long as the limitations contained in clause (C) of the first
paragraph of this Section 4.01 apply, the Company shall deliver to the Trustee
an Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required in this Section
4.01 were computed, which calculations may be based upon the Company's latest
available financial statements.
SECTION 4.02 Incurrence of Indebtedness.
--------------------------
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guaranty or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt) and the
Company shall not issue any Disqualified Stock; provided, however, that (a) the
-------- -------
Company may incur Subordinated Indebtedness (including Acquired Debt) and issue
shares of Disqualified Stock if the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
Subordinated Indebtedness is incurred or such Disqualified Stock is issued would
have been at least 2.0 to 1, and (b) the Company may incur any Indebtedness
(including Acquired Debt) other than Subordinated Indebtedness if the Fixed
Charge Coverage Ratio for the Company's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which such additional Indebtedness is incurred would have
been at least 2.5 to 1, in each case, determined on a pro forma basis (including
--- -----
a pro forma application of the net proceeds therefrom), as if such additional
--- -----
Indebtedness had been incurred, or the Disqualified Stock had been issued, as
the case may be, at the beginning of such four-quarter period.
The foregoing provisions shall not apply to: (i) Indebtedness represented
by the Initial Series Bonds; (ii) Plan Indebtedness other than the Initial
Series Bonds; (iii) Indebtedness arising under a nuclear fuel financing facility
(including, without limitation, any Indebtedness represented by the nuclear fuel
financing portion of the New Credit Agreement); provided, however, that an
-------- -------
amount equal to the amount of such nuclear fuel financing facility (after
deduction for any transaction costs) shall have been applied pursuant to the
Plan or, thereafter, the positive difference, if any, between the amount of the
nuclear fuel financing facility and the amount previously applied either
pursuant to the Plan or to retire Investor Series Bonds shall be used within 45
days of the receipt thereof by the Company to retire Investor Series Bonds then
Outstanding through open market purchases of such Bonds; (iv) Indebtedness
arising under an accounts receivable financing facility and/or contract payments
financing facility; provided, however, that the net proceeds (after deduction
-------- -------
for any transaction costs) from such facility shall be used within 45 days of
the receipt thereof by the Company to retire Investor Series Bonds then
Outstanding through open market purchases of such Bonds; (v) any Indebtedness
(not otherwise arising under clauses (iii) and (iv) above) issued to a bank or
other commercial lender (including, without limitation, Indebtedness represented
by the working capital portion of the New Credit Agreement, if issued);
provided, however, that any advances thereunder which shall result at any time
- -------- -------
in an amount outstanding in excess of $50,000,000 thereunder (after deduction
for any transaction costs) shall be used within 45 days of receipt by the
Company to retire Investor Series Bonds then Outstanding through open market
purchases of such Bonds); (vi) the incurrence by the Company or any of its
Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money
-11-
<PAGE>
obligations, or extensions, refinancings, renewals or replacements thereof, in
each case incurred for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of property used in the business of
the Company or such Subsidiary, in an aggregate principal amount not to exceed
$5,000,000 at any time outstanding; (vii) the incurrence by the Company or any
of its Subsidiaries of (A) Permitted Refinancing Indebtedness in exchange for,
or the net proceeds of which are used to extend, refinance, renew, replace,
defease or refund, Indebtedness permitted under clause (ii) above, and (B) any
Indebtedness in exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease or refund, Indebtedness permitted under
clauses (iii), (iv) or (v) above so long as the principal amount of such
Indebtedness does not exceed the principal amount of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of accrued interest and premiums, if any, thereon and the reasonable expenses
incurred in connection therewith); (viii) the incurrence by the Company or any
of its Subsidiaries of intercompany Indebtedness between and among the Company
and any of its Wholly Owned Subsidiaries; provided, however, that (A) any
-------- -------
subsequent issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than a Wholly Owned Subsidiary and (B)
any sale or other transfer of any such Indebtedness to a Person that is not
either the Company or a Wholly Owned Subsidiary shall be deemed, in each case,
to constitute an incurrence of such Indebtedness by the Company or such
Subsidiary, as the case may be; (ix) the incurrence by the Company or any of its
Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing
or hedging interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of the Indenture to be outstanding; (x) Bonds
issued from time to time to secure the obligations of the Company under (A) each
New Facility Agreement or New Reimbursement Agreement, (B) the pollution control
bonds for which the New Maricopa Reimbursement Agreement and/or New Farmington
Reimbursement Agreements provides credit support, or (C) any financing entered
into in connection with the extension, refinancing, renewal or refunding of all
or part of the Indebtedness under such New Facility Agreement or New
Reimbursement Agreement, the Indebtedness in respect of such pollution control
bonds for which such New Facility Agreement or New Reimbursement Agreement
provides credit support, or the Indebtedness under such extension, refinancing,
renewal or refunding; provided, however, that each such Bond shall by its terms
-------- -------
provide that it shall be deemed paid in full at such time as the Company's
obligations referenced in the above subclauses (A), (B) or (C) of this clause
(x) which such Bond is intended to secure, as the case may be, are paid in full
and discharged, and that any payment made in respect of such Bond shall be
deemed a payment made in respect of such underlying obligation which such Bond
is intended to secure; and (xi) Subordinated Indebtedness incurred after the
third anniversary of the Initial Issuance Date for the purpose of financing the
redemption or repurchase of any Series A Preferred Stock of the Company,
provided that (A) the principal amount of such Subordinated Indebtedness does
not exceed the aggregate redemption or repurchase price of such Series A
Preferred Stock (plus accrued dividends thereon and reasonable expenses incurred
in connection therewith), (B) the interest rate on such Subordinated
Indebtedness shall not exceed the dividend or coupon rate payable in respect of
such Series A Preferred Stock, and (C) the maturity date of such Subordinated
Indebtedness shall be no sooner than the mandatory redemption date for the
Series A Preferred Stock occurring in the year 2008.
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<PAGE>
SECTION 4.03 Limitation on Liens.
-------------------
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien on any
Mortgaged Property now owned or hereafter acquired, other than the Lien of the
Indenture and Permissible Encumbrances (provided, however, that, for purposes of
-------- -------
this Section 4.03 only, Permissible Encumbrances of the type set forth in clause
(a) of the definition of Permissible Encumbrances, other than the Lien of the
Indenture, shall not be permitted hereunder).
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien on any
assets other than the Mortgaged Property now owned or hereafter acquired by the
Company or a Subsidiary of the Company, other than (i) Permissible Encumbrances
(provided, however, that, for purposes of this Section 4.03 only, Permissible
-------- -------
Encumbrances of the type set forth in clause (a) of the definition of
Permissible Encumbrances, other than the Lien of the Indenture, shall not be
permitted hereunder), (ii) Liens existing on the Second Issuance Date, (iii)
Liens on nuclear fuel, cores and materials, and interests in such nuclear fuel,
cores and materials, pursuant to a nuclear fuel financing facility permitted
under clause (iii) of the second paragraph of Section 4.02 of this Supplemental
Indenture; (iv) Liens incurred in connection with an accounts receivable
facility and/or contract payments facility permitted under clause (iv) of the
second paragraph of Section 4.02 of this Supplemental Indenture; (v) Liens with
respect to Indebtedness incurred by the Company or a Subsidiary of the Company
in connection with the acquisition or lease by the Company or such Subsidiary
after the Second Issuance Date of furniture, fixtures, equipment and other
assets not owned by the Company as of the Second Issuance Date in connection
with the ordinary course of business of the Company or such Subsidiary and
otherwise permitted under Section 4.02 of this Supplemental Indenture; provided,
--------
however, that (a) such Indebtedness shall not be secured by any assets of the
- -------
Company or any Subsidiary of the Company other than the asset with respect to
which such Indebtedness is incurred; and (b) the Lien securing such Indebtedness
shall be created within 90 days of the incurrence of such Indebtedness; (vi)
Liens incurred or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security; (vii) Liens on the assets of any Person existing at the time such
assets are acquired by the Company or any of its Subsidiaries, whether by
merger, consolidation, purchase of assets or otherwise so long as such Liens (a)
are not created, incurred or assumed in contemplation of such assets being
acquired by the Company or any of its Subsidiaries, and (b) do not extend to any
other assets of the Company or any of its Subsidiaries; and (viii) Liens arising
from any Permitted Refinancing Indebtedness with respect to the foregoing;
provided, however, that the Lien shall be limited to all or part of the property
- -------- -------
or assets which secured the Indebtedness so refinanced.
SECTION 4.04 Dividend and Other Payment Restrictions Affecting Subsidiaries.
--------------------------------------------------------------
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Subsidiary to:
(a)(i) pay dividends or make any other distributions to the Company or any of
its Subsidiaries (A) on its Capital Stock or (B) with respect to any other
interest or
-13-
<PAGE>
participation in, or measured by, its profits or (ii) pay any Indebtedness owed
to the Company or any of its Subsidiaries, (b) make loans or advances to the
Company or any of its Subsidiaries or (c) transfer any of its properties or
assets to the Company or any of its Subsidiaries, except for such encumbrances
or restrictions existing under or by reason of (i) the Indenture and the Bonds,
(ii) the New Facility Agreements or New Reimbursement Agreements, (iii)
applicable law, (iv) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Subsidiaries as in effect at the
time of such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, provided, however, that the Consolidated Cash Flow of such Person is
-------- -------
not taken into account in determining whether such acquisition was permitted by
the terms of the Indenture, (v) by reason of customary non-assignment provisions
in leases entered into in the ordinary course of business and consistent with
past practices, (vi) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described in
clause (c) above on the property so acquired, or (vii) Permitted Refinancing
Indebtedness, provided, however, that the restrictions contained in the
-------- -------
agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced.
SECTION 4.05 Merger, Consolidation or Sale of Assets.
---------------------------------------
In addition to the provisions of Section 12.01 of the Indenture, the
Company shall not, directly or indirectly, consolidate or merge with or into
(whether or not the Company is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of the
Mortgaged Property in one or more related transactions, or assign any of its
obligations under the Indenture, to another corporation, Person or entity,
unless (i) immediately before and after such transaction no Default or Event of
Default exists, and (ii) the Successor Entity (or the Company, in the case of a
consolidation or merger in which the Company is the surviving entity) (a) has
Consolidated Net Worth immediately after the transaction (but prior to any
revaluation or recalculation of Consolidated Net Worth as of the date of the
transaction relating to a carry-over basis (if any) of the assets acquired in
the transaction (as determined in accordance with GAAP)) equal to or greater
than the Consolidated Net Worth of the Company immediately preceding the
transaction, and (b) shall, at the time of such transaction and after giving pro
---
forma effect thereto as if such transaction had occurred at the beginning of the
- -----
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Subordinated Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in clause (a) of the first paragraph of Section 4.02 of this
Supplemental Indenture.
SECTION 4.06 Transactions with Affiliates.
----------------------------
The Company shall not, and shall not permit any of its Subsidiaries to,
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into or make any contract,
agreement, understanding, loan, advance or Guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(a) such Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Subsidiary
-14-
<PAGE>
than those that would have been obtained in a comparable transaction by the
Company or such Subsidiary with an unrelated Person, and (b) the Company
delivers to the Trustee (i) with respect to any Affiliate Transaction involving
aggregate consideration in excess of $5,000,000, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (a) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the Board of
Directors, and (ii) with respect to any Affiliate Transaction involving
aggregate consideration in excess of $10,000,000, an opinion as to the fairness
to the Company or such subsidiary of such Affiliate Transaction from a financial
point of view issued by an investment banking firm of national standing with
total assets in excess of $1,000,000,000; provided, however, that (x) any
-------- -------
employment agreement entered into by the Company or any of its Subsidiaries,
provided that the Company delivers to the Trustee a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such transaction
has been approved by a majority of the disinterested members of the Board of
Directors, (y) transactions between or among the Company and/or its
Subsidiaries, and (z) transactions permitted under Section 4.01 of this
Supplemental Indenture, in each case, shall not be deemed Affiliate
Transactions.
SECTION 4.07 Insurance.
---------
Until such time as the Series I Bonds and Series J Bonds shall have been
paid in full, the Company shall, and shall cause its Subsidiaries to, maintain
insurance with responsible carriers against such risks and in such amounts as is
customarily carried by similar businesses with such deductibles, retentions,
self-insured amounts and co-insurance provisions as are customarily carried by
similar businesses of similar size, including, without limitation, general
liability, special liability, property and casualty and nuclear insurance.
SECTION 4.08 Payments for Consents.
---------------------
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Bonds for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Bonds unless such consideration is offered to be paid or agreed
to be paid to all Holders of the Bonds that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
SECTION 4.09 Reports.
-------
The Company shall file with the Trustee, within 15 days of filing them with
the Commission, copies of the annual reports and of the information, documents
and other reports (or copies of such portions of any of the foregoing as the
Commission may by rules and regulations prescribe) that the Company is required
to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
If the Company is not subject to the requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall nevertheless file with the Commission and the
Trustee, on the date upon which it would have been required to file with the
Commission, financial statements, including any notes thereto (and with respect
to annual reports, an auditor's report by a firm of established national
reputation, upon which the Trustee may conclusively rely), and a "Management's
Discussion and
-15-
<PAGE>
Analysis of Financial Condition and Results of Operations," both comparable to
that which the Company would have been required to include in such annual
reports, information, documents or other reports if the Company were subject to
the requirements of Section 13 or 15(d) of the Exchange Act; provided, however,
-------- -------
that the Company shall not be required to register under the Exchange Act by
virtue of this provision, if it were not otherwise required to do so.
If the Company is required to furnish annual or quarterly reports to
its stockholders pursuant to the Exchange Act, the Company shall cause any
annual report furnished to its stockholders generally and any quarterly or other
financial reports it furnishes to its stockholders generally to be filed with
the Trustee and the Company shall cause such reports to be mailed to the Holders
at their addresses appearing in the register of Bonds maintained by the
Registrar. If the Company is not required to furnish annual or quarterly
reports to its stockholders pursuant to the Exchange Act, the Company shall
cause its financial statements referred to in the immediately preceding
paragraph, including any notes thereto (and with respect to annual reports, an
auditors' report by a firm of established national reputation), and a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," to be so mailed to the Holders within 120 days after the end of
each of the Company's fiscal years and within 60 days after the end of each of
the first three fiscal quarters of each year.
So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered to the Trustee pursuant to this Section 4.09 shall be
accompanied by a written statement of the Company's independent public
accountants (who shall be a firm of established national reputation reasonably
satisfactory to the Trustee) that in making the examination necessary for
certification of such financial statements nothing has come to their attention
which would lead them to believe that the Company has violated any provisions of
Sections 7.01(a) of the Original Indenture or Sections 4.01 through 4.06 of this
Supplemental Indenture or, if any such violation has occurred, specifying the
nature and period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any Person for any
failure to obtain knowledge of any such violation.
SECTION 4.10 Restrictions on Release of Mortgaged Property.
---------------------------------------------
The Company covenants and agrees that so long as any Series I Bonds or
Series J Bonds are Outstanding, it shall not release or cause to release any
Mortgaged Property on the basis of Section 9.04 of the Original Indenture.
Section 9.04 of the Original Indenture is hereby deemed inoperative until such
time as the Series I Bonds and Series J Bonds are no longer Outstanding at which
time (and only at such time) the provisions of such section shall be reinstated
with full force and effect.
SECTION 4.11 Application of Certain Proceeds of Sales or Condemnations.
---------------------------------------------------------
The Company covenants and agrees that, in the event of the sale or
condemnation of Bondable Property, it shall deposit the Net Proceeds thereof
with the Trustee to the extent required by the Original Indenture. Within one
year of the receipt by the Trustee of any Excess Proceeds, the Company will (i)
reinvest, or enter into an agreement with respect to the reinvestment of, such
Excess Proceeds in real or tangible personal property integral to the
generation, transmission or
-16-
<PAGE>
distribution of electricity (which property shall automatically be deemed to
constitute Bondable Property for purposes of the Indenture) or (ii) use such
Excess Proceeds to repurchase Investor Series Bonds through open market
purchases of such Investor Series Bonds. To the extent that, after application
of such Excess Proceeds in accordance with clauses (i) and (ii) above, any
Excess Proceeds remain in an amount less than $1,000 (or an amount necessary to
purchase one Bond), such remaining Excess Proceeds shall remain on deposit with
the Trustee.
Notwithstanding anything to the contrary contained in Articles 3 or 5 of
the Original Indenture, the Company shall not use any Excess Proceeds as a basis
upon which to issue additional Bonds under the Indenture, unless and until such
Excess Proceeds are reinvested as contemplated by clause (i) of the preceding
paragraph.
As used in this Section 4.11, "Excess Proceeds" shall mean an amount equal
to (x) the aggregate Net Proceeds from all such sales or condemnations occurring
within any twelve month period (which, within such twelve month period, have not
been reinvested in real or tangible personal property integral to the
generation, transmission or distribution of electricity (which property shall
automatically be deemed to constitute Bondable Property)), the value of which
sales or condemnations shall be determined as of the date of such sale or
condemnation, minus (y) the amount, if any, required under Section 2(j) of the
-----
Rate Stipulation (as such term is defined in the Plan) to be paid or credited to
ratepayers as a result of each such sale or condemnation, if and only if the
Company is required to make such payment or credit to ratepayers over a period
of twelve months or less, minus (z) $10,000,000. The amount of Excess Proceeds
-----
shall be determined as of the date of sale or condemnation and shall be
deposited and applied as such amount is received by the Company or the Trustee
(as the case may be). "Net Proceeds" means the aggregate cash proceeds received
by the Company or any of its Subsidiaries in respect of any sale or condemnation
of Bondable Property (including, without limitation, any cash received upon the
sale or other disposition of any non-cash consideration received in any such
sale or condemnation), net of the direct costs relating to such sale or
condemnation (including, without limitation, legal, accounting and investment
banking fees, and sales commissions) and any expenses incurred in the relocation
of assets (which relocation is required as a result of such sale or
condemnation), taxes paid or payable which are attributable to such sale or
condemnation (after taking into account any available tax credits or deductions
and any tax sharing arrangements), and any cash reserve for adjustment in
respect of the sale price of such asset or assets established in accordance with
GAAP.
ARTICLE 5
EVENTS OF DEFAULT
SECTION 5.01 Events of Default.
-----------------
(a) So long as any Series I Bonds or Series J Bonds are Outstanding, in
addition to the Events of Default specified in clauses (i) through (vi) of the
Section 11.01(a) under the Original Indenture, each of the following is also an
Event of Default:
-17-
<PAGE>
(i) failure by the Company to comply with the requirements of Sections
3.01, 4.01, 4.02 or 4.05 of this Supplemental Indenture or Section 12.01 of
the Original Indenture;
(ii) a default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or any of its Subsidiaries (or the payment of
which is Guaranteed by the Company or any of its Subsidiaries) whether such
Indebtedness or Guarantee now exists, or is created after the date of this
Supplemental Indenture, which default (a) is caused by a failure to pay
principal of, interest on or other amounts owing in respect of such
Indebtedness at maturity of such Indebtedness (a "Payment Default") or (b)
has resulted in the acceleration of such Indebtedness prior to its
expressed maturity; and in each case the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $10,000,000 or more;
(iii) the failure by the Company or any of its Subsidiaries to pay
one or more final judgments aggregating in excess of $10,000,000, not
otherwise covered and payable by insurance, which judgments are not paid,
discharged or stayed for a period of 60 days;
(iv) by decree of a court of competent jurisdiction any Subsidiary of
the Company is adjudicated a bankrupt or insolvent, or an order is made by
such court for the winding up or liquidation of the affairs of any
Subsidiary of the Company or approving a petition seeking reorganization or
arrangement of a Subsidiary of the Company under any Bankruptcy Law, or, by
order of such court, a trustee, liquidator, receiver, assignee or similar
official under any Bankruptcy Law is appointed for a Subsidiary of the
Company or for the property of such Subsidiary, and such decree or order
shall continue in effect for a period of 60 days; or
(v) a Subsidiary of the Company files a petition for voluntary
bankruptcy, or consents to the filing of any order for relief against it in
an involuntary case, or makes an assignment for the benefit of creditors,
or consents to the appointment of a trustee, liquidator, receiver, assignee
or similar official under any Bankruptcy Law of such Subsidiary, or files a
petition or answer or consent seeking reorganization or arrangement under
any Bankruptcy Law, or consents to the filing of any such petition, or
files a petition to take advantage of any law for the relief of debtors.
(b) So long as any Series I Bonds or Series J Bonds are Outstanding,
Section 11.03(a) of the Original Indenture is hereby replaced with the
following:
"In case of the occurrence and during the continuance of any Event of
Default with respect to any Bonds at the time Outstanding, the Trustee or
the Holders of at least 25% in aggregate principal amount of the then
Outstanding Bonds (or, in case the Event of Default affects the rights of
the Holders of Bonds of one or more series which does not similarly affect
the rights of Holders of other series of Bonds at the time Outstanding,
then at least 25% in aggregate principal amount of the then Outstanding
Bonds of any such affected series) may,
-18-
<PAGE>
by notice in writing delivered to the Company, declare the Principal of and
all accrued interest on all the Bonds due and payable immediately, and upon
any such declaration, the same shall be immediately due and payable.
Notwithstanding the foregoing, if an Event of Default specified in clauses
(iv) or (v) of Section 11.01(a) of the Original Indenture or, with respect
to any Significant Subsidiary or any group of Subsidiaries that, taken
together, would constitute a Significant Subsidiary, an Event of Default
specified in clauses (iv) and (v) of Section 5.01(a) of this Supplemental
Indenture occurs, such an amount shall become immediately due and payable
without any declaration or any other act on the part of the Trustee or any
other Holder. The foregoing provisions, however, are subject to the
condition that if at any time after the Principal of said Bonds shall have
been so declared due and payable and before any sale of the Mortgaged
Property shall have been made pursuant to the Original Indenture, all
arrears of interest upon all of said Bonds, with interest upon overdue
installments of interest at the same rates respectively as were borne by
the respective Bonds on which installments of interest were overdue, shall
either be paid by the Company or be collected out of the Mortgaged
Property, and all other Events of Default shall have been remedied, then
the Holders of at least 25% in aggregate principal amount of the
Outstanding Bonds (unless such declaration has been made only with respect
to the series of Bonds affected by such Event of Default, in which event at
least 25% in aggregate principal amount of the Outstanding Bonds of such
series), by written notice to the Company and to the Trustee, may rescind
such declaration and its consequences; but no such rescission shall extend
to or affect any subsequent Event of Default, or impair any right
consequent thereon."
ARTICLE 6
THE TRUSTEE
SECTION 6.01 Trustee's Disclaimer.
--------------------
The Trustee shall not be responsible in any manner whatsoever for or in
respect of the validity or sufficiency of this Supplemental Indenture or the due
execution hereof by the Company, or for or in respect of the recitals and
statements contained herein, all of which recitals and statements are made
solely by the Company.
Except as herein otherwise provided, no duties, responsibilities or
liabilities are assumed, or shall be construed to be assumed, by the Trustee by
reason of this Supplemental Indenture other than as set forth in the Indenture,
and this Supplemental Indenture is executed and accepted on behalf of the
Trustee, subject to all the terms and conditions set forth in the Indenture, as
fully to all intents as if the same were set forth at length herein.
-19-
<PAGE>
ARTICLE 7
MISCELLANEOUS
SECTION 7.01 Reference to Original Indenture.
-------------------------------
Except insofar as otherwise expressly provided herein, all the provisions,
definitions, terms and conditions of the Original Indenture, as it has been and
may from time to time be amended, shall be deemed to be incorporated in and made
a part of this Supplemental Indenture; and the Original Indenture as heretofore
supplemented and as supplemented by this Supplemental Indenture is in all
respects ratified and confirmed; and the Original Indenture, as amended, and
this Supplemental Indenture shall be read, taken and construed as one and the
same instrument.
SECTION 7.02 Benefits of Original Indenture.
------------------------------
Nothing in this Supplemental Indenture is intended, or shall be construed,
to give to any Person, other than the parties hereto and the Holders of Series I
Bonds and Series J Bonds issued under and secured by the Original Indenture, any
legal or equitable right, remedy or claim under or in respect of this
Supplemental Indenture, or under any covenant, condition or provision herein
contained, all the covenants, conditions and provisions of this Supplemental
Indenture being intended to be, and being, for the sole and exclusive benefit of
the parties hereto and of the Holders of Series I Bonds and Series J Bonds
issued and to be issued under the Original Indenture and this Supplemental
Indenture.
SECTION 7.03 Governing Law.
-------------
In view of the fact that Bondholders may reside in various states and the
desire to establish with certainty that this Supplemental Indenture will be
governed by and construed and interpreted in accordance with the law of a state
having a well developed body of commercial and financial law relevant to
transactions of the type contemplated herein, this Supplemental Indenture and
each Series I Bond and Series J Bond shall be construed in accordance with and
governed by the laws of the State of New York (without regard to the conflict of
laws provisions thereof) applicable to agreements made and to be performed
therein, except to the extent that the TIA shall be applicable and except to the
extent the law of any jurisdiction wherein any portion of the Mortgaged Property
is located shall mandatorily govern the perfection, priority or enforcement of
the Lien of the Indenture with respect to such portion of the Mortgaged
Property.
SECTION 7.04 Successors.
----------
All covenants, stipulations and agreements of the Company in this
Supplemental Indenture and the Series I Bonds and Series J Bonds shall bind its
successors and assigns. All agreements of the Trustee in this Supplemental
Indenture shall bind its successor.
-20-
<PAGE>
SECTION 7.05 Counterparts.
------------
This Supplemental Indenture may be executed in any number of counterparts,
and each of such counterparts when so executed shall be deemed to be an
original, but all such counterparts shall together constitute by one and the
same instrument.
-21-
<PAGE>
IN WITNESS WHEREOF, EL PASO ELECTRIC COMPANY has caused this
Supplemental Indenture to be executed by its Chairman of the Board, Chief
Executive Officer, President or one of its Vice Presidents, and duly attested by
its Secretary or one of its Assistant Secretaries, and STATE STREET BANK AND
TRUST COMPANY has caused the same to be executed by one of its Vice Presidents
or Assistant Vice Presidents and its corporate seal to be hereunto affixed, and
duly attested by one of its Assistant Secretaries, as of the day and year first
above written.
EL PASO ELECTRIC COMPANY
By: /s/ Gary R. Hedrick
----------------------------------------------
Gary R. Hedrick
Vice President and Chief Financial Officer
Attest:
/s/ Guillermo Silva, Jr.
- ---------------------------------
Secretary
-22-
<PAGE>
STATE STREET BANK AND
TRUST COMPANY
By: /s/ Ruth A. Smith
----------------------------------------------
Name: Ruth A. Smith
Title: Vice President
[Corporate Seal]
Attest:
/s/ T. Hopkins
- ---------------------------------
Title: Assistant Secretary
-23-
<PAGE>
ACKNOWLEDGMENT
--------------
STATE OF TEXAS )
) SS.
COUNTY OF EL PASO )
On the 20th day of August 1997, before me personally came Gary R. Hedrick,
to me known, who, being by me duly sworn, did depose and say that he resides in
El Paso, Texas; that he is the Vice President and Chief Financial Officer of El
Paso Electric Company, a Texas corporation, the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
authority of the board of directors of said corporation.
/s/ Hilda Vargas
-----------------------------------------------------
Notary Public
(Notary Seal)
-24-
<PAGE>
ACKNOWLEDGMENT
--------------
COMMONWEALTH OF MASSACHUSETTS )
) SS.
COUNTY OF SUFFOLK )
On the 20th day of August 1997, before me personally came Ruth A. Smith, to
me known, who, being by me duly sworn, did depose and say that she resides in
Stoughton, Massachusetts; that she is a Vice President of State Street Bank and
Trust Company, a banking corporation organized under the laws of The
Commonwealth of Massachusetts, the corporation described in and which executed
the foregoing instrument; that she knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that it was so affixed
by authority of the board of directors of said corporation, and that she signed
her name thereto by like authority.
/s/ Stacye M. Junior
-----------------------------------------------------
Notary Public
(Notary Seal)
-25-
<PAGE>
Schedule 1
Existing Investments of the Company
1. Note receivable from Wheeler Peak Capital Corporation for $125,000, balance
due at October 31, 1991.
2. Contributions to and interests of the Company in decommissioning trusts
relating to the Palo Verde Nuclear Generating Station (to the extent such
contributions and interests constitute investments).
3. Other minor investments existing on the date of this Supplemental
Indenture, which were obtained in the ordinary course of business and, in
the aggregate, have a book value of less than $200,000.
-26-
<PAGE>
Exhibit 4.02
EXHIBIT A
THIS BOND IS NOT TRANSFERABLE EXCEPT TO A SUCCESSOR UNDER THE LETTER OF CREDIT
AND REIMBURSEMENT AGREEMENT, DATED AS OF ______ ____, 1997, AMONG THE COMPANY,
BARCLAYS BANK PLC, NEW YORK BRANCH, AS ISSUING BANK, THE CREDITORS SPECIFIED
THEREIN, BARCLAYS BANK PLC, NEW YORK BRANCH, AS ADMINISTRATIVE AGENT FOR THE
ISSUING BANK AND THE CREDITORS (THE "AGENT"), AND UNION BANK OF CALIFORNIA,
N.A., AS DOCUMENTATION AGENT (SUCH REIMBURSEMENT AGREEMENT, AS AMENDED FROM TIME
TO TIME, THE "REIMBURSEMENT AGREEMENT").
EL PASO ELECTRIC COMPANY
No. RI - ___________ [$163,841,823]
COLLATERAL SERIES I FIRST MORTGAGE BONDS
El Paso Electric Company, a Texas corporation (herein, together with
its successors and assigns, the "Company"), for value received promises to pay
to Barclays Bank PLC, New York Branch, as Agent, or registered assigns, the
principal sum of [spell out amount of bond] Dollars or, at any time (if less),
such lesser principal amount as is equal to the sum of (a) the aggregate
Available Amount of all Letters of Credit outstanding at such time, plus (b) the
aggregate principal amount of all Tender Advances which are outstanding at such
time, plus (c) the aggregate amount of all other unreimbursed drawings under all
Letters of Credit which are outstanding at such time, on such date or dates and
in such amounts as set forth in the Reimbursement Agreement for the payment of
principal on Tender Advances and the reimbursement of drawings under the Letters
of Credit, but not later than the Stated Termination Date for the last Letter of
Credit outstanding under the Reimbursement Agreement and [_________], 2000,
whichever shall occur first, at the same place or places as set forth in the
Reimbursement Agreement, in any coin or currency of the United States of America
which at the time of such payment shall be legal tender for the payment of
public and private debts and in the same manner set forth in the Reimbursement
Agreement. Interest will accrue and be payable on this Series I Bond at the
rates per annum, in the amounts, and on each date set forth in the Reimbursement
Agreement for the accrual and payment of interest, commissions, fees, charges,
expenses and other amounts (all such interest, commissions, fees, charges,
expenses and other amounts payable under the Reimbursement Agreement being
referred to collectively as "Interest") in like coin or currency to the
registered owner hereof at said place or places and in the same manner set forth
in the Reimbursement Agreement. Interest shall accrue and be payable until
maturity of this Series I Bond, or if the Agent shall demand redemption of this
Series I Bond, until the redemption date, or, if the Company shall default in
the payment of principal due on this Series I Bond, whether at maturity or upon
redemption, until the Company's obligation with respect to the payment of such
principal shall be discharged as provided in the
<PAGE>
Indenture (as hereinafter defined). For purposes hereof, (i) interest under the
Reimbursement Agreement shall include, without limitation, interest provided for
under Article II of the Reimbursement Agreement and (ii) commissions and fees
under the Reimbursement Agreement shall include, without limitation, the letter
of credit fees and fronting fees provided for under Section 2.04 of the
Reimbursement Agreement and the drawing fee, agency fee and transfer fee
provided for under Section 2.03 of the Reimbursement Agreement.
The Bonds of this series have been issued to the Agent for the issuer
of Letters of Credit for the account of the Company and for certain creditors
pursuant to the Reimbursement Agreement, to secure the payment of principal,
reimbursement obligations, interest, fees, commissions, charges, expenses and
other amounts due to the Holder under the Reimbursement Agreement. As used
herein, the terms "Available Amount," "Tender Advances", "Letters of Credit",
"Participation Percentage" and "Stated Termination Date" shall have the
respective meanings set forth in the Reimbursement Agreement.
Except as hereinafter provided, this Series I Bond shall bear interest
(a) from the interest payment date next preceding the date of this Series I Bond
to which interest has been paid, or (b) if the date of this Series I Bond is an
interest payment date to which interest has been paid, then from such date, or
(c) if no interest has been paid on this Series I Bond, then from the date of
initial issue.
This Series I Bond is one of the bonds of the Company known as its
First Mortgage Bonds (the "Bonds"), issued and to be issued in one or more
series under and secured by a General Mortgage Indenture and Deed of Trust,
dated as of February 1, 1996, duly executed by the Company to State Street Bank
and Trust Company, a banking corporation organized under the laws of The
Commonwealth of Massachusetts, Trustee ("Trustee"), and indentures supplemental
thereto, heretofore or hereafter executed, to which General Mortgage Indenture
and Deed of Trust and all indentures supplemental thereto (collectively referred
to as the "Indenture") reference is hereby made for a description of the
property mortgaged and pledged, the nature and extent of the security, the terms
and conditions upon which the Bonds are, and are to be, issued and secured, and
the rights of the owners of the Bonds and the Trustee in respect of such
security. As provided in the Indenture, the Bonds may be in various principal
sums, are issuable in series, may mature at different times, may bear interest
at different rates and may otherwise vary as therein provided; and this Bond is
the only Bond of a series entitled "Collateral Series I First Mortgage Bonds",
created by a Second Supplemental Indenture dated as of August 19, 1997, as
provided for in the Indenture. The terms of this Series I Bond include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb)
(the "Act"), as in effect on the date of the Indenture.
The Indenture authorizes the issuance of up to $163,841,823 aggregate
principal amount of Series I Bonds, but the aggregate principal amount of all
Series I Bonds outstanding at any time shall not exceed the lesser of such
amount and the amount that is equal to the sum of (a) the aggregate Available
Amount of all Letters of Credit outstanding at such time, plus (b) the aggregate
principal amount of all Tender Advances outstanding at such time, plus (c) the
I-2
<PAGE>
aggregate amount of all other unreimbursed drawings under such Letters of Credit
which are outstanding at such time.
This Series I Bond has been issued by the Company to the Agent (i) to
provide for the payment of the Company's obligations to make payments in respect
of principal, reimbursement obligations, interest, fees, commissions, charges,
expenses and other amounts to any person under the Reimbursement Agreement and
(ii) to provide to such person the benefits of the security provided for by this
Series I Bond.
Any payment of principal, reimbursement obligations, interest, fees,
charges, expenses, commissions or other amounts made by or on behalf of the
Company in respect of its obligations to pay such principal, reimbursement
obligations, interest, fees, commissions, charges, expenses and other amounts
under and in accordance with the Reimbursement Agreement shall be deemed a
payment in respect of this Series I Bond, but such payment shall not reduce the
principal amount of this Series I Bond then in effect unless the sum of (a) the
aggregate Available Amount of all Letters of Credit outstanding at such time,
plus (b) the aggregate principal amount of Tender Advances which are then
outstanding under the Reimbursement Agreement, plus (c) the aggregate amount of
all other unreimbursed drawings under such Letters of Credit which are then
outstanding, is reduced concurrently with such payment; provided, however, if
-------- -------
after a drawing under any Letter of Credit issued under the Reimbursement
Agreement such Letter of Credit shall have been reinstated in respect of such
drawing prior to the Agent having received reimbursement for such drawing from
the Company, the reimbursement of such reinstated amount shall not reduce the
principal amount of this Bond. In the event that all of the Company's
obligations under the Reimbursement Agreement have been discharged, this Series
I Bond shall be deemed paid in full and the Holder shall surrender this Series I
Bond to the Trustee for cancellation.
In the manner provided in the Indenture, this Series I Bond shall be
redeemed at a redemption price of 100% (expressed as a percentage of principal
amount) plus accrued interest thereon through the redemption date, in cash, upon
receipt by the Trustee of a written demand for redemption of this Series I Bond
from the Agent on behalf of the Holder (the "Series I Redemption Demand"). This
Series I Bond shall be redeemed in the amount specified with respect thereto in
the Series I Redemption Demand, which amount shall be equal to the portions of
the outstanding principal, reimbursement obligation, interest, commissions,
fees, charges, expenses and other amounts then due and owing under the
Reimbursement Agreement. The Series I Redemption Demand shall also state (i)
that an "Event of Default" has occurred and is continuing under the terms of the
Reimbursement Agreement, (ii) that payment of the principal amount and
reimbursement obligations outstanding under the Reimbursement Agreement, all
interest, commissions and fees thereon and all charges, expenses and other
amounts payable thereunder are immediately due and payable, and (iii) that the
Agent has demanded payment thereof from the Company. The portion of this Series
I Bond subject to redemption shall be redeemed on the fifth Business Day
following receipt by the Trustee of the Series I Redemption Demand. Any payment
made to the Agent pursuant to a Series I Redemption Demand shall constitute a
payment by the Company in respect of its obligations under the Reimbursement
I-3
<PAGE>
Agreement. The Series I Redemption Demand shall be rescinded and shall be null
and void for all purposes of the Indenture upon receipt by the Trustee, no later
than the Business Day prior to the date fixed for redemption, of a certificate
of the Agent (a) stating that there has been a waiver of such Event of Default,
or (b) withdrawing said Series I Redemption Demand.
The principal of this Series I Bond may be declared or may become due
before the maturity hereof, on the conditions, in the manner and at the times
set forth in the Indenture, upon the happening of an Event of Default as therein
defined.
With the consent of the Holders of not less than a majority in
aggregate principal amount of the Outstanding Bonds which would be affected by
the action to be taken, the Company and the Trustee may from time to time and at
any time, enter into a Supplemental Indenture for the purpose of adding any
provision or changing in any manner or eliminating any provision of the
Indenture or of any Supplemental Indenture or of modifying in any manner the
rights of the Holders of Bonds and any coupons; provided, however, that (i) no
-------- -------
such Supplemental Indenture shall, without the consent of the Holder of each
Outstanding Bond affected thereby (a) reduce the principal amount of Bonds whose
Holders must consent to an amendment, supplement or waiver, (b) reduce the
Principal of or change the fixed maturity of any Bond, or alter the provisions
with respect to any sinking, improvement, maintenance, replacement or analogous
fund or conversion, redemption or repurchase rights with respect to any Bond,
(c) reduce the rate of or change the time for payment of interest on any Bond,
(d) waive a Default or Event of Default in the payment of Principal of or
interest on the Bonds (except a rescission of acceleration of the Bonds pursuant
to the Indenture where the Event of Default has been remedied), (e) make any
Bond of any Series payable in money other than that stated in such Bond, (f)
make any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of Holders of Bonds to receive payments of Principal of
or interest on the Bonds, (g) waive a redemption payment with respect to any
Bond, (h) limit the right of a Holder of Bonds to institute suit for the
enforcement of payment of Principal of or interest on such Bonds in accordance
with the terms of said Bonds, (i) permit the creation by the Company of any
Prior Lien (but no merger or consolidation permitted under the Indenture of the
Company with any other Person owning property which is subject to a Prior Lien,
shall be deemed the creation of a Prior Lien), or (j) make any change in the
Indenture pertaining to amendments, supplements or waivers to the Indenture or
any Supplemental Indenture with the consent of the Holders, and (ii) if there
shall be Bonds of more than one series of Bonds outstanding and if such
proposed action shall materially adversely affect the rights of Holders of Bonds
of one or more such series, then the consent (including consents obtained in
connection with a tender offer or exchange offer for Bonds) only of the Holders
of a majority in aggregate principal amount of the outstanding Bonds of all
series so affected, considered as one class, shall be required.
No incorporator, stockholder, director, officer or employee of the
Company shall have any liability for any obligations of the Company under this
Series I Bond and the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Any and all such rights and
claims against every such incorporator, stockholder, director, officer or
employee, as such, whether arising at common law or in equity, or created by
rule of law, statute,
I-4
<PAGE>
constitution or otherwise, are expressly released and waived as a condition of,
and as part of the consideration for, the execution of the Indenture and the
issuance of this Series I Bond.
This Series I Bond is nontransferable except to effect transfer to any
successor to the Agent under the Reimbursement Agreement, but is exchangeable by
the registered holder hereof, in person or by attorney duly authorized, at the
corporate trust office of the Trustee, any such permitted transfer or exchange
to be made in the manner and upon the conditions prescribed in the Indenture,
upon the surrender and cancellation of this Series I Bond and the payment of any
applicable taxes and fees required by law, and upon any such transfer or
exchange a new registered bond or bonds or the same series and tenor, will be
issued to the authorized transferee, or the registered holder, as the case may
be.
This Series I Bond shall not be valid until authenticated by the
manual signature of the Trustee, or a successor trustee or authenticating agent
appointed pursuant to the Indenture.
I-5
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Series I Bond to be
executed in its name by the manual or facsimile signature of its Chairman of the
Board, its Chief Executive Officer, its President or one of its Vice Presidents,
and attested by the manual or facsimile signature of its Secretary or one of its
Assistant Secretaries.
Issue Date:
Authentication Date:
This Bond is one of the Bonds of the EL PASO ELECTRIC COMPANY,
series designated therein, described in as Issuer
the within-mentioned Indenture.
STATE STREET BANK AND By:
TRUST COMPANY, --------------------------------
as Trustee [Title of Officer]
Attest:
By:
------------------------------------
Authorized Officer
-----------------------------------
[Assistant] Secretary
I-6
<PAGE>
ASSIGNMENT
To assign this Series I Bond, fill in the form below:
(I) or (we) assign and transfer this Series I Bond to
- -------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint _______________________________________________________
_____________________________agent to transfer this Series I Bond on the books
of the Company. The agent may substitute another to act for him.
Date:
---------------------
Your Signature:
- -------------------------------------------------------------------------------
(Sign exactly as your name appears on this Series I Bond)
Signature
Guarantee:
---------------------------------------------------------------------
(Signatures must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Registrar, which
requirements will include membership or participation in STAMP or
such other "signature guarantee program" as may be determined by
the Registrar in addition to, or in substitution for, STAMP, all
in accordance with the Exchange Act.)
I-7
<PAGE>
Exhibit 4.03
EXHIBIT B
THIS BOND IS NOT TRANSFERABLE EXCEPT TO A SUCCESSOR AGENT UNDER THE LETTER OF
CREDIT AND REIMBURSEMENT AGREEMENT, DATED AS OF _________, 1997 AMONG THE
COMPANY, BARCLAYS BANK, PLC, NEW YORK BRANCH, AS ISSUING BANK, THE CREDITORS
SPECIFIED THEREIN, BARCLAYS BANK PLC, NEW YORK BRANCH, AS ADMINISTRATIVE AGENT
FOR THE ISSUING BANK AND THE CREDITORS (THE "AGENT"), AND UNION BANK OF
CALIFORNIA, N.A., AS DOCUMENTATION AGENT (SUCH REIMBURSEMENT AGREEMENT, AS
AMENDED FROM TIME TO TIME, THE "REIMBURSEMENT AGREEMENT").
EL PASO ELECTRIC COMPANY
No. RJ - ___________ $34,134,780
COLLATERAL SERIES J FIRST MORTGAGE BONDS
El Paso Electric Company, a Texas corporation (herein, together with
its successors and assigns, the "Company"), for value received promises to pay
to Barclays Bank PLC, New York Branch, as Agent, or registered assigns, the
principal sum of Thirty Four Million One Hundred Thirty Four Thousand Seven
Hundred Eighty Dollars or, at any time (if less), such lesser principal amount
as is equal to the sum of (a) the Available Amount under the Letter of Credit,
plus (b) the aggregate principal amount of all Tender Advances outstanding at
such time, plus (c) the aggregate amount of all other unreimbursed drawings of
the Letter of Credit which are outstanding at such time, on such date or dates
and in such amounts as set forth in the Reimbursement Agreement for the payment
of principal on Tender Advances and the reimbursement of drawings under the
Letter of Credit, but not later than the Stated Termination Date or
[____________], 2000, whichever shall occur first, at the same place or places
as set forth in the Reimbursement Agreement, in any coin or currency of the
United States of America which at the time of such payment shall be legal tender
for the payment of public and private debts and in the same manner set forth in
the Reimbursement Agreement. Interest will accrue and be payable on this Series
J Bond at the rates per annum, in the amounts, and on each date set forth in the
Reimbursement Agreement for the accrual and payment of interest, commissions,
fees, charges, expenses and other amounts in like coin or currency to the
registered owner hereof at said place or places and in the same manner set forth
in the Reimbursement Agreement. Such interest shall accrue and be payable until
maturity of this Series J Bond, or if the Agent shall demand redemption of this
Series J Bond, until the redemption date, or, if the Company shall default in
the payment of principal due on this Series J Bond, whether at maturity or upon
redemption, until the Company's obligation with respect to the payment of such
principal shall be discharged as provided in the Indenture (as hereinafter
defined). For purposes hereof, (i) interest shall include, without limitation,
interest provided for under Article II of the Reimbursement Agreement and (ii)
commissions and fees shall include, without limitation, the letter of credit
<PAGE>
fees and fronting fees provided for under Section 2.04 of the Reimbursement
Agreement and the drawing fee, agency fee and transfer fee payable under Section
2.03 of the Reimbursement Agreement.
The Bonds of this series have been issued to the Agent for the issuer
of a Letter of Credit for the account of the Company and for certain creditors
pursuant to the Reimbursement Agreement, to secure the payment of principal,
reimbursement obligations, interest, fees, commissions, charges, expenses and
other amounts due thereunder. As used herein, the terms "Available Amount,"
"Tender Advances", "Letter of Credit" and "Stated Termination Date" shall have
the respective meanings set forth in the Reimbursement Agreement.
Except as hereinafter provided, this Series J Bond shall bear interest
(a) from the interest payment date next preceding the date of this Series J Bond
to which interest has been paid, or (b) if the date of this Series J Bond is an
interest payment date to which interest has been paid, then from such date, or
(c) if no interest has been paid on this Series J Bond, then from the date of
initial issue.
This Series J Bond is one of the bonds of the Company known as its
First Mortgage Bonds (the "Bonds"), issued and to be issued in one or more
series under and secured by a General Mortgage Indenture and Deed of Trust,
dated as of February 1, 1996, duly executed by the Company to State Street Bank
and Trust Company, a banking corporation organized under the laws of The
Commonwealth of Massachusetts, Trustee ("Trustee"), and indentures supplemental
thereto, heretofore or hereafter executed, to which General Mortgage Indenture
and Deed of Trust and all indentures supplemental thereto (collectively referred
to as the "Indenture") reference is hereby made for a description of the
property mortgaged and pledged, the nature and extent of the security, the terms
and conditions upon which the Bonds are, and are to be, issued and secured, and
the rights of the owners of the Bonds and the Trustee in respect of such
security. As provided in the Indenture, the Bonds may be in various principal
sums, are issuable in series, may mature at different times, may bear interest
at different rates and may otherwise vary as therein provided; and this Bond is
the only Bond of a series entitled "Collateral Series J First Mortgage Bonds",
created by a Second Supplemental Indenture dated as of August 19, 1997, as
provided for in the Indenture. The terms of this Series J Bond include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb)
(the "Act"), as in effect on the date of the Indenture.
The Indenture authorizes the issuance of up to $34,134,780 aggregate
principal amount of Series J Bonds, but the aggregate principal amount of all
Series J Bonds outstanding at any time shall not exceed the lesser of such
amount and the amount that is equal to the sum of (a) the Available Amount of
the Letter of Credit, plus (b) the aggregate principal amount of all Tender
Advances outstanding at such time, plus (c) the aggregate amount of all other
unreimbursed drawings under such Letter of Credit which are outstanding at such
time.
J-2
<PAGE>
This Series J Bond has been issued by the Company to the Agent (i) to
provide for the payment of the Company's obligations to make payments in respect
of principal, reimbursement obligations, interest, fees, commissions, charges,
expenses, and other amounts to any person under the Reimbursement Agreement and
(ii) to provide to such persons the benefits of the security provided for by
this Series J Bond.
Any payment of principal, reimbursement obligations, interest, fees,
commissions, charges, expenses or other amounts made by or on behalf of the
Company in respect of its obligations to pay such principal, reimbursement
obligations, interest, fees, commissions, charges, expenses and other amounts
under and in accordance with the Reimbursement Agreement shall be deemed a
payment in respect of this Series J Bond, but such payment shall not reduce the
principal amount of this Series J Bond unless the sum of (a) the Available
Amount of the Letter of Credit outstanding at such time, plus (b) the aggregate
principal amount of all Tender Advances then outstanding under the Reimbursement
Agreement, plus (c) the aggregate amount of all other unreimbursed drawings
under the Letter of Credit which are then outstanding, is reduced concurrently
with such payment; provided, however, if after a drawing under any Letter of
-------- -------
Credit issued under the Reimbursement Agreement such Letter of Credit shall have
been reinstated in respect of such drawing prior to the Agent having received
reimbursement for such drawing from the Company, the reimbursement of such
reinstated amount shall not reduce the principal amount of this Bond. In the
event that all of the Company's obligations under the Reimbursement Agreement
have been discharged, this Series J Bond shall be deemed paid in full and the
Agent shall surrender this Series J Bond to the Trustee for cancellation.
In the manner provided in the Indenture, this Series J Bond shall be
redeemed at a redemption price of 100% (expressed as a percentage of principal
amount) plus accrued interest thereon through the redemption date, in cash, upon
receipt by the Trustee of a written demand for redemption of this Series J Bond
from the Agent (the "Series J Redemption Demand"). This Series J Bond shall be
redeemed in the amount specified in the Series J Redemption Demand, which amount
shall be equal to the outstanding principal, reimbursement obligations,
interest, commissions, fees, charges, expenses, and other amounts then due and
owing under the Reimbursement Agreement. The Series J Redemption Demand shall
also state (i) that an "Event of Default" has occurred and is continuing under
the terms of the Reimbursement Agreement, (ii) that payment of the principal
amount and reimbursement obligations outstanding under the Reimbursement
Agreement, all interest, commissions and fees thereon and all charges, expenses,
and other amounts payable thereunder are immediately due and payable, and (iii)
that the Agent has demanded payment thereof from the Company. The portion of
this Series J Bond subject to redemption shall be redeemed on the fifth Business
Day following receipt by the Trustee of the Series J Redemption Demand. Any
payment made to the Agent pursuant to a Series J Redemption Demand shall
constitute a payment by the Company in respect of its obligations under the
Reimbursement Agreement. The Series J Redemption Demand shall be rescinded and
shall be null and void for all purposes of the Indenture upon receipt by the
Trustee, no later than the Business Day prior to the date fixed for redemption,
of a certificate of the Agent (a) stating
J-3
<PAGE>
that there has been a waiver of such Event of Default, or (b) withdrawing said
Series J Redemption Demand.
The principal of this Series J Bond may be declared or may become due
before the maturity hereof, on the conditions, in the manner and at the times
set forth in the Indenture, upon the happening of an Event of Default as therein
defined.
With the consent of the Holders of not less than a majority in
aggregate principal amount of the Outstanding Bonds which would be affected by
the action to be taken, the Company and the Trustee may from time to time and at
any time, enter into a Supplemental Indenture for the purpose of adding any
provision or changing in any manner or eliminating any provision of the
Indenture or of any Supplemental Indenture or of modifying in any manner the
rights of the Holders of Bonds and any coupons; provided, however, that (i) no
-------- -------
such Supplemental Indenture shall, without the consent of the Holder of each
Outstanding Bond affected thereby (a) reduce the principal amount of Bonds whose
Holders must consent to an amendment, supplement or waiver, (b) reduce the
Principal of or change the fixed maturity of any Bond, or alter the provisions
with respect to any sinking, improvement, maintenance, replacement or analogous
fund or conversion, redemption or repurchase rights with respect to any Bond,
(c) reduce the rate of or change the time for payment of interest on any Bond,
(d) waive a Default or Event of Default in the payment of Principal of or
interest on the Bonds (except a rescission of acceleration of the Bonds pursuant
to the Indenture where the Event of Default has been remedied), (e) make any
Bond payable in money other than that stated in such Bond, (f) make any change
in the provisions of the Indenture relating to waivers of past Defaults or the
rights of Holders of Bonds to receive payments of Principal of or interest on
the Bonds, (g) waive a redemption payment with respect to any Bond, (h) limit
the right of a Holder of Bonds to institute suit for the enforcement of payment
of Principal of or interest on such Bonds in accordance with the terms of said
Bonds, (i) permit the creation by the Company of any Prior Lien (but no merger
or consolidation permitted under the Indenture of the Company with any other
Person owning property which is subject to a Prior Lien, shall be deemed the
creation of a Prior Lien), or (j) make any change in the Indenture pertaining to
amendments, supplements or waivers to the Indenture or any Supplemental
Indenture with the consent of the Holders, and (ii) if there shall be Bonds of
more than one series of Bonds outstanding and if such proposed action shall
materially adversely affect the rights of Holders of Bonds of one or more such
series, then the consent (including consents obtained in connection with a
tender offer or exchange offer for Bonds) only of the Holders of a majority in
aggregate principal amount of the outstanding Bonds of all series so affected,
considered as one class, shall be required.
No incorporator, stockholder, director, officer or employee of the
Company shall have any liability for any obligations of the Company under this
Series J Bond and the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Any and all such rights and
claims against every such incorporator, stockholder, director, officer or
employee, as such, whether arising at common law or in equity, or created by
rule of law, statute, constitution or otherwise, are expressly released and
waived as a condition of, and as part of the consideration for, the execution of
the Indenture and the issuance of this Series J Bond.
J-4
<PAGE>
This Series J Bond is nontransferable except to effect transfer to any
successor to the Agent under the Reimbursement Agreement, but is exchangeable by
the registered holder hereof, in person or by attorney duly authorized, at the
corporate trust office of the Trustee, any such permitted transfer or exchange
to be made in the manner and upon the conditions prescribed in the Indenture,
upon the surrender and cancellation of this Series J Bond and the payment of any
applicable taxes and fees required by law, and upon any such transfer or
exchange a new registered bond or bonds or the same series and tenor, will be
issued to the authorized transferee, or the registered holder, as the case may
be.
This Series J Bond shall not be valid until authenticated by the
manual signature of the Trustee, or a successor trustee or authenticating agent
appointed pursuant to the Indenture.
IN WITNESS WHEREOF, the Company has caused this Series J Bond to be
executed in its name by the manual or facsimile signature of its Chairman of the
Board, its Chief Executive Officer, its President or one of its Vice Presidents,
and attested by the manual or facsimile signature of its Secretary or one of its
Assistant Secretaries.
Issue Date:
Authentication Date:
This Bond is one of the Bonds of the EL PASO ELECTRIC COMPANY,
series designated therein, described in as Issuer
the within-mentioned Indenture.
STATE STREET BANK AND By:
TRUST COMPANY, --------------------------------
as Trustee Title:
Attest:
By:
-----------------------------------
Authorized Officer
-----------------------------------
[Assistant] Secretary
J-5
<PAGE>
ASSIGNMENT
To assign this Series J Bond, fill in the form below:
(I) or (we) assign and transfer this Series J Bond to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint _______________________________________________________
_____________________________agent to transfer this Series J Bond on the books
of the Company. The agent may substitute another to act for him.
Date:
---------------
Your Signature:
- --------------------------------------------------------------------------------
(Sign exactly as your name appears on this Series J Bond)
Signature
Guarantee:
----------------------------------------------------------------------
(Signatures must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Registrar, which
requirements will include membership or participation in STAMP or
such other "signature guarantee program" as may be determined by
the Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Exchange Act.)
J-6
<PAGE>
EL PASO ELECTRIC COMPANY EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------ ------------
<S> <C> <C>
PRIMARY:
Weighted average number of common shares outstanding 60,067,832 59,999,981
Weighted average number of restricted shares 171,404 180,000
Net effect of dilutive stock options 220,412 59,257
------------ ------------
Total 60,459,648 60,239,238
============ ============
Net income applicable to common stock:
Income before extraordinary loss on repurchase of debt $ 20,657 $ 19,793
Extraordinary loss on repurchase of debt, net of
federal income tax benefit (69) -
------------ ------------
Net income applicable to common stock $ 20,588 $ 19,793
============ ============
Net income per common share:
Income before extraordinary loss on repurchase of debt $ 0.342 $ 0.329
Extraordinary loss on repurchase of debt, net of
federal income tax benefit (0.001) -
------------ ------------
Net income $ 0.341 $ 0.329
============ ============
FULLY DILUTED (1):
Weighted average number of common shares outstanding 60,067,832 59,999,981
Weighted average number of restricted shares 171,404 180,000
Net effect of dilutive stock options 220,412 59,257
------------ ------------
Total 60,459,648 60,239,238
============ ============
Net income applicable to common stock:
Income before extraordinary loss on repurchase of debt $ 20,657 $ 19,793
Extraordinary loss on repurchase of debt, net of
federal income tax benefit (69) -
------------ ------------
Net income applicable to common stock $ 20,588 $ 19,793
============ ============
Net income per common share:
Income before extraordinary loss on repurchase of debt $ 0.342 $ 0.329
Extraordinary loss on repurchase of debt, net of
federal income tax benefit (0.001) -
------------ ------------
Net income $ 0.341 $ 0.329
============ ============
</TABLE>
(1) This calculation is submitted in accordance with Securities Exchange Act of
1934 Release No. 9083, although not required by footnote 2 to paragraph 14
of APB Opinion No. 15 because it results in dilution of less than 3%.
<PAGE>
EL PASO ELECTRIC COMPANY EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
NINE PERIOD FROM | PERIOD FROM
MONTHS FEBRUARY 12 | JANUARY 1
ENDED TO | TO
SEPTEMBER 30, SEPTEMBER 30, | FEBRUARY 11,
1997 1996 | 1996
------------ ------------ | -----------
<S> <C> <C> | <C>
PRIMARY: |
|
Weighted average number of common shares outstanding 60,052,481 59,999,981 | 35,544,330
Weighted average number of restricted shares 173,863 137,866 | -
Net effect of dilutive stock options 291,343 22,631 | -
------------ ------------ | -----------
Total 60,517,687 60,160,478 | 35,544,330
============ ============ | ===========
|
|
Net income applicable to common stock: |
Income before extraordinary items $ 36,108 $ 26,533 | $ 118,198
Extraordinary loss on repurchase of debt, net of |
federal income tax benefit (2,741) - | -
Extraordinary gain on discharge of debt - - | 264,273
------------ ------------ | -----------
Net income applicable to common stock $ 33,367 $ 26,533 | 382,471
============ ============ | ===========
|
Net income per common share: |
Income before extraordinary items $ 0.596 $ 0.441 | 3.325
Extraordinary loss on repurchase of debt, net of |
federal income tax benefit (0.045) - | -
Extraordinary gain on discharge of debt - - | 7.435
------------ ------------ | -----------
Net income $ 0.551 $ 0.441 | $ 10.760
============ ============ | ===========
|
FULLY DILUTED (1): |
|
Weighted average number of common shares outstanding 60,052,481 59,999,981 | 35,544,330
Weighted average number of restricted shares 173,863 137,866 | -
Net effect of dilutive stock options 291,343 22,631 | -
------------ ------------ | -----------
Total 60,517,687 60,160,478 | 35,544,330
============ ============ | ===========
|
|
Net income applicable to common stock: |
Income before extraordinary items $ 36,108 $ 26,533 | $ 118,198
Extraordinary loss on repurchase of debt, net of |
federal income tax benefit (2,741) - | -
Extraordinary gain on discharge of debt - - | 264,273
------------ ------------ | -----------
Net income applicable to common stock $ 33,367 $ 26,533 | $ 382,471
============ ============ | ===========
|
Net income per common share: |
Income before extraordinary items $ 0.596 $ 0.441 | $ 3.325
Extraordinary loss on repurchase of debt, net of |
federal income tax benefit (0.045) - | -
Extraordinary gain on discharge of debt - - | 7.435
------------ ------------ | -----------
Net income $ 0.551 $ 0.441 | $ 10.760
============ ============ | ===========
</TABLE>
(1) This calculation is submitted in accordance with Securities Exchange Act of
1934 Release No. 9083, although not required by footnote 2 to paragraph 14
of APB Opinion No. 15 because it results in dilution of less than 3%.
<PAGE>
EL PASO ELECTRIC COMPANY EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
TWELVE PERIOD FROM | PERIOD FROM
MONTHS FEBRUARY 12 | OCTOBER 1, 1995
ENDED TO | TO
SEPTEMBER 30, SEPTEMBER 30, | FEBRUARY 11,
1997 1996 | 1996
------------ ------------ | -------------
<S> <C> <C> | <C>
PRIMARY: |
|
Weighted average number of common shares outstanding 60,039,248 59,999,981 | 35,544,330
Weighted average number of restricted shares 175,410 137,866 | -
Net effect of dilutive stock options 239,812 22,631 | -
------------ ------------ | ------------
Total 60,454,470 60,160,478 | 35,544,330
============ ============ | ============
|
|
Net income applicable to common stock: |
Income before extraordinary items $ 41,006 $ 26,533 | $ 99,329
Extraordinary loss on repurchase of debt, net of |
federal income tax benefit (2,741) - | -
Extraordinary gain on discharge of debt - - | 264,273
------------ ------------ | ------------
Net income applicable to common stock $ 38,265 $ 26,533 | $ 363,602
============ ============ | ============
|
Net income per common share: |
Income before extraordinary items $ 0.678 $ 0.441 | $ 2.795
Extraordinary loss on repurchase of debt, net of |
federal income tax benefit (0.045) - | -
Extraordinary gain on discharge of debt - - | 7.435
------------ ------------ | ------------
Net income $ 0.633 $ 0.441 | $ 10.230
============ ============ | ============
|
FULLY DILUTED (1): |
|
Weighted average number of common shares outstanding 60,039,248 59,999,981 | 35,544,330
Weighted average number of restricted shares 175,410 137,866 | -
Net effect of dilutive stock options 239,812 22,631 | -
------------ ------------ | ------------
Total 60,454,470 60,160,478 | 35,544,330
============ ============ | ============
|
|
Net income applicable to common stock: |
Income before extraordinary items $ 41,006 $ 26,533 | $ 99,329
Extraordinary loss on repurchase of debt, net of |
federal income tax benefit (2,741) - | -
Extraordinary gain on discharge of debt - - | 264,273
------------ ------------ | ------------
Net income applicable to common stock $ 38,265 $ 26,533 | $ 363,602
============ ============ | ============
|
Net income per common share: |
Income before extraordinary items $ 0.678 $ 0.441 | $ 2.795
Extraordinary loss on repurchase of debt, net of |
federal income tax benefit (0.045) - | -
Extraordinary gain on discharge of debt - - | 7.435
------------ ------------ | ------------
Net income $ 0.633 $ 0.441 | $ 10.230
============ ============ | ============
</TABLE>
(1) This calculation is submitted in accordance with Securities Exchange Act of
1934 Release No. 9083, although not required by footnote 2 to paragraph 14
of APB Opinion No. 15 because it results in dilution of less than 3%.
<PAGE>
Exhibit 15
El Paso Electric Company
El Paso, Texas
Ladies and Gentlemen:
Re: Registration Statement No. 333-17971
With respect to the subject registration statement, we acknowledge our awareness
of the use therein of our report dated October 16, 1997 related to our review of
interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
Very truly yours,
KPMG Peat Marwick LLP
El Paso, Texas
October 16, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF EL PASO ELECTRIC COMPANY AS OF SEPTEMBER 30, 1997 AND THE RELATED
STATEMENTS OF INCOME AND CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,471,159
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 206,975
<TOTAL-DEFERRED-CHARGES> 106,790
<OTHER-ASSETS> 28,532
<TOTAL-ASSETS> 1,813,456
<COMMON> 60,239
<CAPITAL-SURPLUS-PAID-IN> 240,145
<RETAINED-EARNINGS> 64,319
<TOTAL-COMMON-STOCKHOLDERS-EQ> 364,703
117,959
0
<LONG-TERM-DEBT-NET> 944,014
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 83
0
<CAPITAL-LEASE-OBLIGATIONS> 24,398
<LEASES-CURRENT> 28,406
<OTHER-ITEMS-CAPITAL-AND-LIAB> 333,893
<TOT-CAPITALIZATION-AND-LIAB> 1,813,456
<GROSS-OPERATING-REVENUE> 450,272
<INCOME-TAX-EXPENSE> 25,162
<OTHER-OPERATING-EXPENSES> 319,815
<TOTAL-OPERATING-EXPENSES> 344,977
<OPERATING-INCOME-LOSS> 105,295
<OTHER-INCOME-NET> 6,241
<INCOME-BEFORE-INTEREST-EXPEN> 111,536
<TOTAL-INTEREST-EXPENSE> 65,710
<NET-INCOME> 43,085<F1>
9,718
<EARNINGS-AVAILABLE-FOR-COMM> 33,367
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 77,376
<CASH-FLOW-OPERATIONS> 158,147
<EPS-PRIMARY> 0.551
<EPS-DILUTED> 0.551
<FN>
<F1>NET INCOME IS NET OF EXTRAORDINARY LOSS ON REPURCHASE OF DEBT (NET OF FEDERAL
INCOME TAX BENEFIT) OF ($2,741).
</FN>
</TABLE>
