<PAGE>
================================================================================
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
(MARK ONE)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO ____
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)
Registrant's telephone number, including area code: (915) 543-5711
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
COMMON STOCK, NO PAR VALUE AMERICAN STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTION 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
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [X]
AS OF MARCH 13, 1998, THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT WAS $399,107,460.
AS OF MARCH 13, 1998, THERE WERE OUTSTANDING 60,276,784 SHARES OF COMMON
STOCK, NO PAR VALUE.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE 1998 ANNUAL
MEETING OF ITS SHAREHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III OF THIS
REPORT.
================================================================================
<PAGE>
DEFINITIONS
The following abbreviations, acronyms or defined terms used in this report
are defined below:
Abbreviations,
Acronyms or Defined Terms Terms
------------------------- -----
Agreed Order.......................... Agreed Order of the Texas Commission
entered August 30, 1995 implementing
certain provisions of the Rate
Stipulation
ANPP Participation Agreement.......... Arizona Nuclear Power Project
Participation Agreement dated August
23, 1973, as amended
APS................................... Arizona Public Service Company
Bankruptcy Case....................... The case commenced January 8, 1992 by El
Paso Electric Company in the United
States Bankruptcy Court for the Western
District of Texas, Austin Division, as
Case No. 92-10148-FM
CFE................................... Comision Federal de Electricidad de
Mexico, the national electric utility
of Mexico
Common Plant or Common Facilities..... Facilities at or related to Palo Verde
that are common to all three Palo Verde
Units
Company............................... El Paso Electric Company
DOE................................... United States Department of Energy
Effective Date........................ February 12, 1996, the date the
Reorganization became effective
FERC.................................. Federal Energy Regulatory Commission
Four Corners.......................... Four Corners Generating Station
Freeze Period......................... Ten-year period beginning August 2,
1995, during which base rates for most
Texas retail customers are expected to
remain frozen pursuant to the Rate
Stipulation
IID................................... Imperial Irrigation District, an
irrigation district in Southern
California
KV.................................... Kilovolt(s)
KW.................................... Kilowatt(s)
KWH................................... Kilowatt-hour(s)
MW.................................... Megawatt(s)
MWH................................... Megawatt-hour(s)
New Mexico Commission................. New Mexico Public Utility Commission
NRC................................... Nuclear Regulatory Commission
OPC................................... Texas Office of Public Utility Counsel
Palo Verde............................ Palo Verde Nuclear Generating Station
Palo Verde Leases..................... Leases and other documents entered into
in connection with a series of sale and
leaseback transactions in 1986 and 1987
involving a portion of the Company's
interest in Palo Verde
Palo Verde Participants............... Those utilities who share in power and
energy entitlements, and bear certain
allocated costs, with respect to Palo
Verde pursuant to the ANPP
Participation Agreement
Plan.................................. The Company's Fourth Amended Plan of
Reorganization dated November 7, 1995,
pursuant to which the Company emerged
from bankruptcy on the Effective Date
PNM................................... Public Service Company of New Mexico
Predecessor Company................... The Company prior to the Reorganization
Rate Stipulation...................... Stipulation and Settlement Agreement
dated as of July 27, 1995, between the
Company, the City of El Paso, OPC and
most other parties to the Company's
rate proceedings before the Texas
Commission providing for a ten-year
rate freeze and other matters
Reorganization........................ Reorganization and the emergence from
bankruptcy by the Company pursuant to
the Plan
Reorganized Company................... The Company following the Reorganization
SFAS.................................. Statement of Financial Accounting
Standards
SPS................................... Southwestern Public Service Company
Texas Commission...................... Public Utility Commission of Texas
TNP................................... Texas-New Mexico Power Company
(i)
<PAGE>
TABLE OF CONTENTS
Item Description Page
- ---- ----------- ----
PART I
1 Business............................................. 1
2 Properties........................................... 19
3 Legal Proceedings.................................... 19
4 Submission of Matters to a Vote of Security Holders.. 22
PART II
5 Market for Registrant's Common Equity and Related
Stockholder Matters................................. 23
6 Selected Financial Data.............................. 25
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 26
8 Financial Statements and Supplementary Data.......... 33
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. 82
PART III
10 Directors and Executive Officers of the Registrant... 82
11 Executive Compensation............................... 82
12 Security Ownership of Certain Beneficial Owners and
Management.......................................... 82
13 Certain Relationships and Related Transactions....... 82
PART IV
14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K......................................... 82
(ii)
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
El Paso Electric Company is a public utility engaged in the generation,
transmission and distribution of electricity in an area of approximately 10,000
square miles in west Texas and southern New Mexico. The Company also serves
wholesale customers in Texas, New Mexico, California and Mexico. The Company
owns or has significant ownership interests in five electrical generating
facilities providing it with a total capacity of approximately 1,500 MW. For
the twelve months ended December 31, 1997, the Company's energy sources
consisted of approximately 53% nuclear fuel, 34% natural gas, 6% coal and 7%
purchased power.
The Company serves approximately 284,000 residential, commercial,
industrial and wholesale customers. The Company distributes electricity to
retail customers principally in El Paso, Texas and the City of Las Cruces ("Las
Cruces"), New Mexico (representing approximately 58% and 8%, respectively, of
the Company's revenues for the twelve months ended December 31, 1997). In
addition, the Company sells electricity to wholesale customers, including Texas-
New Mexico Power Company, the Imperial Irrigation District (a southern
California electric power agency), and the Comision Federal de Electricidad de
Mexico (the national electric utility of Mexico). Principal industrial and
other large customers of the Company include steel production, copper and oil
refining, garment manufacturing concerns and United States military
installations, including the United States Army Air Defense Center at Fort Bliss
in Texas and White Sands Missile Range and Holloman Air Force Base in New
Mexico.
The Company's principal offices are located at Kayser Center, 100 North
Stanton, El Paso, Texas 79901 (telephone 915-543-5711). The Company was
incorporated in Texas in 1901. As of February 23, 1998, the Company had
approximately 1,100 employees, approximately 31% of whom are covered by a
collective bargaining agreement that expires in June 2000.
FACILITIES
The Company currently has a net installed generating capacity of
approximately 1,500 MW, consisting of an entitlement of 600 MW from Palo Verde
Units 1, 2 and 3, 482 MW from its Newman Power Station, 246 MW from its Rio
Grande Power Station, 104 MW from Four Corners Units 4 and 5, and 68 MW from its
Copper Power Station.
PALO VERDE STATION
The Company owns a 15.8% interest in each of the three nuclear generating
units and Common Plant at Palo Verde, located west of Phoenix, Arizona. The
Palo Verde Participants include the Company and six other utilities: APS,
Southern California Edison Company, PNM, Southern California Public Power
Authority, Salt River Project Agricultural Improvement and Power District and
the Los Angeles Department of Water and Power. APS serves as operating agent
for Palo Verde.
The NRC has granted facility operating licenses and full power operating
licenses for all three units at Palo Verde for terms of forty years each. In
addition, the Company is separately licensed by the NRC to own its proportionate
share of Palo Verde.
1
<PAGE>
Pursuant to the ANPP Participation Agreement, the Palo Verde Participants
share costs and generating entitlements in the same proportion as their
percentage interests in the generating units and each Palo Verde Participant is
required to fund its proportionate share of fuel, other operation, maintenance
and capital costs. The Company's total monthly share of these costs was
approximately $7.3 million in 1997. The ANPP Participation Agreement provides
that, if a participant fails to meet its payment obligations, each non-
defaulting participant shall pay its proportionate share of the payments owed by
the defaulting participant.
Decommissioning. Pursuant to the ANPP Participation Agreement and federal
law, the Company is required to fund its share of the estimated costs to
decommission Palo Verde over the estimated service life of forty years. The
Company's funding requirements are determined periodically based upon
engineering cost estimates performed by outside engineers retained by the ANPP.
In December 1995, the Palo Verde Participants approved a decommissioning
study performed by an outside engineering firm. The 1995 study determined that
the Company will have to fund approximately $229 million (stated in 1995
dollars) to cover its share of decommissioning costs. The 1995 study assumed
that (i) maintenance expense for spent fuel storage will be incurred for ten
years after the shutdown of the last unit (estimated to be in 2024); (ii) a
national interim spent fuel storage facility will be available; and (iii) as a
result of such national spent fuel storage facility, the amount of spent fuel
stored on-site will be reduced from all spent fuel assemblies to the final core
plus fuel assemblies from approximately three refuelings. See "Spent Fuel
Storage" below.
Cost estimates for decommissioning have increased with each study. The
previous cost estimate from a 1993 study determined that the Company would have
to fund approximately $221 million (stated in 1993 dollars). The 1993 estimate,
however, reflected an 84% increase from the previous estimate made in 1989,
primarily related to increases in estimated costs for low-level radioactive
waste disposal.
Although the 1995 study was based on the latest available information,
there can be no assurance that decommissioning cost estimates will not continue
to increase in the future or that regulatory requirements will not change. In
addition, until a new low-level radioactive waste repository opens and operates
for a number of years, estimates of the cost to dispose of low-level radioactive
waste are subject to significant uncertainty. The decommissioning study is
updated every three years and a new study will be completed in 1998. See
"Disposal of Low-Level Radioactive Waste" below.
The rate freeze under the Rate Stipulation would preclude the Company from
seeking a rate increase in Texas during the Freeze Period to recover increases
in decommissioning cost estimates. Additionally, there can be no assurance that
the Company could increase its rates in any of its other jurisdictions to
recover such increased costs. See Part II, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Operational Prospects
and Challenges."
Steam Generators. Palo Verde has experienced degradation in the steam
generator tubes of each unit. The degradation includes axial tube cracking in
the upper regions of the two steam generators in Unit 2 and, to a lesser degree,
in Units 1 and 3. This form of steam generator tube degradation, while less
common than other types, has also been seen at other United States nuclear
generating stations. The units also have experienced circumferential cracking at
the tube sheet, a more common type of tube cracking. The axial tube cracking was
discovered following a steam generator tube rupture in Unit 2 in
2
<PAGE>
March 1993. Since that time, APS has undertaken an ongoing investigation and
analysis and has performed corrective actions designed to mitigate further
degradation. Corrective actions have included changes in operational procedures
designed to lower the operating temperatures of the units, chemical cleaning and
the implementation of other technical improvements. APS has stated that it
believes its remedial actions have slowed the rate of tube degradation.
Steam generator tubes in each of the Palo Verde units have been inspected
during regularly scheduled refueling outages and mid-cycle inspection outages.
If tube cracks are detected during an inspection, the affected tubes are taken
out of service by plugging. This may impair the performance of a unit if
sufficient numbers of steam generator tubes are affected.
The projected service lives of the units' steam generators are reassessed
by APS periodically in conjunction with inspections made during outages of the
Palo Verde units. APS has determined that it will be economically desirable to
replace the Unit 2 steam generators, which have been the most affected by tube
cracking. In 1997, the Palo Verde Participants unanimously approved the
purchase of one set of spare steam generators for delivery in May 2002. The
Company's share of the cost is approximately $12.9 million. APS has indicated
that in 1998 it will request that the participants approve installation of the
spare generators in Unit 2 in 2003. The Company believes that such installation
would require the unanimous approval of the Palo Verde Participants. The
Company will continue to analyze the economic feasibility of steam generator
replacement, or other options that may be available in connection with the
operation of Unit 2. Also, the Company cannot predict whether the Palo Verde
Participants will agree to replace the Unit 2 steam generators. The costs for
the construction and shipping of the spare steam generators are expected to be
incurred between 1998 and 2002. Installation costs, if they are approved, would
be expected to be incurred between 1999 and 2003, with the bulk of the
expenditures after 2000. The Company's portion of total costs associated with
construction and potential installation of new steam generators in Unit 2,
including replacement power costs and costs that would otherwise have been
expended through the operation and maintenance budget, is currently estimated
not to exceed $36 million. APS has also stated that, based on the latest
available data, it estimates that the steam generators in Units 1 and 3 should
operate for their designated lives of 40 years (to 2025 and 2027, respectively).
APS will reassess the expected lives of these steam generators periodically.
The Rate Stipulation precludes the Company from seeking a rate increase in
Texas during the Freeze Period to recover capital costs associated with such
replacement of steam generators. It is uncertain whether the costs associated
with replacing the Unit 2 steam generators would be approved by the New Mexico
Commission and included in the Company's rate base in New Mexico. See Part II,
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Operational Prospects and Challenges."
Disposal of Low-Level Radioactive Waste. Congress has established
requirements for the disposal of radioactive waste by each state generated
within its borders. Arizona, California, North Dakota and South Dakota have
entered into a compact (the "Southwestern Compact") for the disposal of low-
level radioactive waste. California will act as the first host state of the
Southwestern Compact, and Arizona will serve as the second host state. The
construction and opening of the California low-level radioactive waste disposal
site in Ward Valley has been delayed due to extensive public hearings, disputes
over environmental issues and review of technical issues related to the proposed
site. Despite being licensed by the State of California, the Department of the
Interior has not transferred the land to the state.
3
<PAGE>
Following a report by the National Academy of Sciences, the Department of the
Interior announced that, if certain environmental conditions were implemented
prior to the transfer, it was prepared to convey the land. On January 16, 1998,
the Department of the Interior announced that further scientific drilling had
been approved for the Ward Valley site with testing to be performed by the
federal government first, followed by testing by the State of California. No
dates for the commencement of federal government testing have been established.
Although Palo Verde is projected to undergo decommissioning during the
period in which Arizona will act as host for the Southwestern Compact, the
opposition, delays, uncertainty and costs experienced in California demonstrate
possible roadblocks that may be encountered when Arizona seeks to open its own
waste repository.
Spent Fuel Storage. The spent fuel storage facilities at Palo Verde have
sufficient capacity to store all fuel expected to be discharged from normal
operation of all three Palo Verde units through at least 1999. APS anticipates
requesting approval from the NRC to use more of the space in the existing spent
fuel storage facilities to extend the available storage capacity through 2001.
Alternative on-site storage facilities are expected to be constructed by 2001 to
supplement the existing facilities.
Pursuant to the Nuclear Waste Policy Act of 1982, as amended in 1987 (the
"Waste Act"), the DOE is obligated to accept and dispose of all spent nuclear
fuel and other high-level radioactive wastes generated by all domestic power
reactors. In accordance with the Waste Act, the DOE entered into a spent
nuclear fuel contract with the Company and all other Palo Verde Participants.
In November 1989, the DOE reported that its spent nuclear fuel disposal
facilities would not be in operation until 2010. Subsequent judicial decisions
required the DOE to start accepting spent nuclear fuel no later than January 31,
1998. The DOE did not meet that deadline. As a result, under the DOE's current
criteria for shipping allocation rights, it is estimated that Palo Verde could
not ship spent fuel to the DOE's permanent disposal facility until approximately
2025. APS has indicated that alternative interim spent fuel storage methods will
be available on-site or off-site for use by Palo Verde to allow its continued
operation and to store spent fuel safely until shipments to the DOE's permanent
disposal facility begin. APS's recommendation is to establish an on-site
facility initially capable of storing approximately one-fourth of the total
amount of spent fuel expected to be produced by Palo Verde, utilizing a dual
purpose (storage and transport) dry storage system. The facility will be
designed to be expandable in phases to accommodate additional amounts of spent
fuel as needed. This facility is planned to be completed by May 2001. In
January 1997, the Texas Commission established a project to evaluate what, if
any, action it should take with regard to payments made to the DOE for funding
of the DOE's obligation to start accepting spent nuclear fuel by January 31,
1998. After receiving initial comments, no further action has been taken in the
project.
Liability and Insurance Matters. The Palo Verde Participants have public
liability insurance against nuclear energy hazards up to the full limit of
liability under federal law. The insurance consists of $200 million of primary
liability insurance provided by commercial insurance carriers, with the balance
being provided by an industry-wide retrospective assessment program, pursuant to
which industry participants would be required to pay an assessment to cover any
loss in excess of $200 million. The maximum assessment per reactor for each
nuclear incident is approximately $79.2 million, subject to an annual limit of
$10 million per incident. Based upon the Company's 15.8% interest in Palo
Verde, the Company's maximum potential assessment per incident is approximately
$37.6 million for all three units with an annual payment limitation of
approximately $4.7 million.
4
<PAGE>
The Palo Verde Participants maintain "all risk" (including nuclear hazards)
insurance for property damage to, and decontamination of, property at Palo Verde
in the aggregate amount of $2.7 billion, a substantial portion of which must
first be applied to stabilization and decontamination. Finally, the Company has
obtained insurance against a portion of any increased cost of generation or
purchased power which may result from an accidental outage of any of the three
Palo Verde units if the outage exceeds 23 weeks.
NEWMAN POWER STATION
The Company's Newman Power Station, located in El Paso, Texas, consists of
four generating units with an aggregate capacity of 482 MW. The units operate
primarily on natural gas, but can also operate on fuel oil.
RIO GRANDE POWER STATION
The Company's Rio Grande Power Station, located in Sunland Park, New
Mexico, adjacent to El Paso, Texas, consists of three steam-electric generating
units with an aggregate capacity of 246 MW. The units operate primarily on
natural gas, but can also operate on fuel oil.
FOUR CORNERS STATION
The Company owns an undivided 7% interest in Units 4 and 5 at Four Corners,
located in northwestern New Mexico. The two coal-fired generating units each
have a generating capacity of 739 MW. The Company shares power entitlements and
certain allocated costs of the two units with APS (the Four Corners operating
agent) and the other participants.
Four Corners is located on land held under easements from the federal
government and a lease from the Navajo Nation that expires in 2016. Certain of
the facilities associated with Four Corners, including transmission lines and
almost all of the contracted coal sources, are also located on Navajo land.
Units 4 and 5 are located adjacent to a surface-mined supply of coal. See
"Environmental Matters-Coal Mine Reclamation" below.
COPPER POWER STATION
The Company's Copper Power Station, located in El Paso, Texas, consists of
a 68 MW combustion turbine used primarily to meet peak demands. The unit
operates primarily on natural gas, but can also operate on fuel oil. The
Company leases the combustion turbine and other generation equipment at the
station under a lease that expires in July 2000, with renewal options for up to
seven additional years.
TRANSMISSION AND DISTRIBUTION LINES AND AGREEMENTS
The Company owns or has significant ownership interests in four major
transmission lines and owns the distribution network within its retail service
area. The Company is also a party to various transmission and power exchange
agreements that, together with its owned transmission lines, enable the Company
to obtain its energy entitlements from its remote generation at Palo Verde and
Four Corners.
5
<PAGE>
Springerville-Diablo Line. The Company owns a 310-mile, 345 KV
transmission line from Tucson Electric Power Company's ("TEP") Springerville
Generating Plant near Springerville, Arizona, to the Luna Substation near
Deming, New Mexico, and to the Diablo Substation near Sunland Park, New Mexico,
providing an interconnection with TEP for delivery of the Company's generation
entitlements from Palo Verde and, if necessary, Four Corners.
Arroyo-West Mesa Line. The Company owns a 202-mile, 345 KV transmission
line from the Arroyo Substation located near Las Cruces, New Mexico, to PNM's
West Mesa Substation located near Albuquerque, New Mexico. This is the delivery
point for the Company's generation entitlement from Four Corners, which is
transmitted to the West Mesa Substation over approximately 150 miles of
transmission lines owned by PNM. This transmission line also carries power from
the region to the west and north of Four Corners, where the Company has a major
interconnection with the other Four Corners participants.
Greenlee-Newman Line. The Company owns an undivided interest in a 196-
mile, 345 KV transmission line from the Newman Power Station to TEP's Greenlee
Substation in Arizona. This line provides an interconnection with TEP for
delivery of the Company's entitlements from Palo Verde and, if necessary, Four
Corners.
AMRAD-Eddy County Line. The Company owns an undivided 66.7% interest in a
125-mile, 345 KV transmission line from the AMRAD Substation near Oro Grande,
New Mexico, to the Company's and TNP's high voltage direct current terminal at
the Eddy County substation near Artesia, New Mexico. This terminal enables the
Company to connect its transmission system to that of SPS, providing the Company
with access to power markets to the east.
Issues Regarding Operation of Transmission System. As previously reported,
the Company experienced four system-wide outages between September 1995 and
March 1996. As a result of remedial actions begun in November 1995, however,
the Company has not experienced a system outage since March 1996. The remedial
actions included relay equipment replacements, transmission structure
reconfigurations and implementation of load-shedding schemes designed to limit
the extent of system instability under certain atypical conditions. The Company
continues to import normal amounts of power over its transmission system and
believes that it has identified and corrected the root causes of the outages to
such a degree as to preclude, to the extent possible, similar future
occurrences.
ENVIRONMENTAL MATTERS
The Company is subject to regulation with respect to air, soil and water
quality, solid waste disposal and other environmental matters by federal, state
and local authorities. These authorities govern current facility operations and
exercise continuing jurisdiction over facility modifications. Environmental
regulations can change rapidly and are difficult to predict. Because
construction of new facilities is subject to standards imposed by environmental
regulation, substantial expenditures may be required to comply with such
regulations. The Company analyzes the costs of its obligations arising from
environmental matters on an ongoing basis, and management believes it has made
adequate provision in its financial statements to meet such obligations.
However, unforeseen expenses associated with compliance could have a material
adverse effect on the future operations and financial condition of the Company.
6
<PAGE>
PCB Treatment, Inc. The Company received a request from the U.S.
Environmental Protection Agency ("EPA") to participate in the remediation of
polychlorinated biphenyls ("PCBs") at two facilities in Kansas and Missouri,
which had been operated by PCB Treatment, Inc. ("PTI"). Presently, PTI has
discontinued operations and the EPA has determined that PTI's abandoned
facilities require remediation.
The Company and the PTI Steering Committee, which consists of the largest
generators of the PCBs sent to PTI, have executed a settlement agreement. In
consideration for the payment of approximately $0.2 million, the settlement
agreement excuses any further liability by the Company to the Steering Committee
and indemnifies the Company for any liabilities to other parties as may be
asserted in the future.
On September 16, 1997, the EPA sent the Company a "general notice of
liability" wherein the agency formally notified the Company that it was
considered a Potentially Responsible Party at the sites. The Company believes
any liability it may face at the sites is covered by the settlement agreement.
Accordingly, the Company immediately notified the Steering Committee and
demanded it defend and indemnify the Company as provided in the settlement
agreement. The Steering Committee informed the Company that it intends to honor
this indemnity obligation.
The Company may still face liability for possible deliveries of PCBs by PTI
to a third site which is also subject to remedial action by the federal
authorities, except to the extent that those PCBs were transferred from the
first site. The Company's records do not indicate any deliveries of PCBs to
this third site. The Company believes it is unlikely to face substantial
unindemnified liabilities associated with this third site.
Coal Mine Reclamation. The Company has been informed by APS that the
Company's estimated financial obligation for coal mine reclamation at Four
Corners is not being fully reflected in the costs for which the Company is
billed. APS, the operating agent for Four Corners, is performing an analysis to
establish an appropriate revised cost estimate. Based on preliminary estimates
from APS and the coal provider, the Company recorded a liability of
approximately $12 million in 1996 which reflects the present value of the
estimated future costs of reclamation for its share of the coal mine reclamation
obligation.
7
<PAGE>
CONSTRUCTION PROGRAM
The Company has no current plans to construct any new generating facilities
through at least 2004. Utility construction expenditures reflected in the table
below consist primarily of expanding and updating the electric transmission and
distribution systems and the cost of improvements and purchases of new steam
generators at Palo Verde. The Company's estimated cash construction costs for
1998 through 2001 are approximately $220 million. Actual costs may vary from
the construction program estimates set forth below. Such estimates are reviewed
and updated periodically to reflect changed conditions.
<TABLE>
<CAPTION>
BY YEAR (1) BY FUNCTION
(IN MILLIONS) (IN MILLIONS)
- ------------------------------------- -------------------------------------
<S> <C> <C> <C>
1998........................ $ 51 Production (1)............... $ 57
1999........................ 57 Transmission................. 22
2000........................ 56 Distribution................. 105
2001........................ 56 General...................... 36
---- ----
Total..................... $220 Total........................ $220
==== ====
</TABLE>
- -------------------
(1) Does not include acquisition costs for nuclear fuel. See "Energy
Sources--Nuclear Fuel."
ENERGY SOURCES
GENERAL
The following table summarizes the percentage contribution of nuclear fuel,
natural gas, coal and purchased power to the total KWH energy mix of the
Company:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
POWER SOURCE 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Nuclear Fuel............................................. 53% 53% 53%
Natural Gas.............................................. 34 32 30
Coal..................................................... 6 7 9
Purchased Power.......................................... 7 8 8
---- --- ----
Total.................................................. 100% 100% 100%
==== === ====
</TABLE>
Fuel and purchased power costs are generally passed through directly to
customers in Texas and New Mexico pursuant to currently applicable regulations.
Historical fuel costs and revenues are reconciled periodically in proceedings
before the appropriate commission to establish the applicable fuel rate to be
charged customers and to determine whether a refund or surcharge based on such
historical costs and revenues is necessary. See "Regulation-Texas Rate Matters-
Fuel" and "-New Mexico Rate Matters-Fuel."
8
<PAGE>
NUCLEAR FUEL
The Palo Verde Participants have contracts for uranium concentrate which
should be sufficient to meet Palo Verde's operational requirements through at
least 2000. The Company made spot purchases of uranium during 1997 to take
advantage of low market prices. Additional spot purchases may be made as
appropriate. The Palo Verde Participants have contracted for up to 100% of
conversion services required through 2000. The Palo Verde Participants have an
enrichment services contract with the United States Enrichment Corporation
("USEC") which obligates USEC to furnish the enrichment services required for
the operation of the three Palo Verde units through 2002, with an option for
five additional years. A new contract provides fuel assembly fabrication
services for each Palo Verde unit through 2016.
Nuclear Fuel Financing. Pursuant to the ANPP Participation Agreement, the
Company owns an undivided interest in nuclear fuel purchased in connection with
Palo Verde. The Company has available a $100 million credit facility that
provides for working capital and up to $60 million for the financing of nuclear
fuel. At December 31, 1997, approximately $52.0 million had been drawn to
finance nuclear fuel. This financing is effected through a trust that borrows
under the facility to acquire and process the nuclear fuel. The Company is
obligated to repay the trust's borrowings, and has secured this obligation with
First Mortgage Collateral Series Bonds. In the Company's financial statements,
the assets and liabilities of the trust are reported as assets and liabilities
of the Company.
NATURAL GAS
In 1997, the Company's natural gas requirements at the Rio Grande Power
Station were met solely with spot natural gas purchases from various suppliers.
Interstate gas is delivered under a firm ten-year transportation agreement,
which expires in 2001. Based on the current availability of economical and
reliable spot natural gas, the Company anticipates it will continue to purchase
spot natural gas for a portion of the fuel needs for the Rio Grande Power
Station for the near term. To complement the spot purchases in 1998, the
Company has entered into a one-year fixed-price gas supply contract. In
addition, the Company has entered into a partial-year gas supply contract (April
through October 1998). For the long term, the Company will evaluate the
availability of spot natural gas versus other supplies in obtaining a reliable
and economical supply for the Rio Grande Power Station.
In 1997, natural gas for the Newman and Copper Power Stations was supplied
pursuant to an intrastate natural gas contract which became effective January 1,
1997 and which expires December 31, 2001. To supplement this contract, the
Company entered into a second natural gas supply agreement, which runs through
2001.
COAL
APS, as operating agent for Four Corners, purchases Four Corners' coal
requirements from a supplier with a long-term lease of coal reserves owned by
the Navajo Nation. The Company, based upon information from the operating
agent, believes that Four Corners has sufficient reserves of coal to meet the
plant's operational requirements for its useful life.
PURCHASED POWER
To supplement its own generation and operating reserves, the Company has a
firm power purchase agreement with SPS for amounts ranging from 50 MW to 110 MW
for 1998.
9
<PAGE>
OPERATING STATISTICS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1997 1996 (A) 1995 (B)
------------- ------------- -------------
<S> <C> <C> <C>
Operating revenues (In thousands):
Base revenues:
Retail:
Residential............................................... $ 146,412 $ 141,719 $ 128,295
Commercial and industrial, small.......................... 143,395 138,910 128,715
Commercial and industrial, large.......................... 45,581 43,483 40,870
Sales to public authorities............................... 64,328 65,534 59,613
---------- ---------- ----------
Total retail............................................ 399,716 389,646 357,493
Wholesale sales for resale.................................. 59,263 71,254 74,557
---------- ---------- ----------
Total base revenues..................................... 458,979 460,900 432,050
Fuel revenues and economy sales............................... 130,172 114,042 68,823
Other......................................................... 4,887 3,981 3,744
---------- ---------- ----------
Total operating revenues................................ $ 594,038 $ 578,923 $ 504,617
========== ========== ==========
Number of customers (End of year):
Residential................................................... 254,348 250,209 245,245
Commercial and industrial, small.............................. 25,900 25,304 24,615
Commercial and industrial, large.............................. 115 102 89
Other......................................................... 3,811 3,711 3,674
---------- ---------- ----------
Total................................................... 284,174 279,326 273,623
========== ========== ==========
Average annual KWH use per residential customer................. 6,285 6,238 6,057
========== ========== ==========
Energy supplied, net, KWH (In thousands):
Generated..................................................... 8,186,187 7,920,675 7,439,404
Purchased and interchanged.................................... 617,651 711,791 584,853
---------- ---------- ----------
Total................................................... 8,803,838 8,632,466 8,024,257
========== ========== ==========
Energy sales, KWH (In thousands):
Retail:
Residential................................................. 1,587,733 1,545,274 1,473,349
Commercial and industrial, small............................ 1,834,953 1,779,986 1,754,176
Commercial and industrial, large............................ 1,271,449 1,216,941 1,121,329
Sales to public authorities................................. 1,090,312 1,110,706 1,068,048
---------- ---------- ----------
5,784,447 5,652,907 5,416,902
Wholesale:
Sales for resale............................................ 1,897,885 1,753,553 1,646,357
Economy sales............................................... 640,017 757,999 538,102
---------- ---------- ----------
Total sales............................................. 8,322,349 8,164,459 7,601,361
Losses and company use........................................ 481,489 468,007 422,896
---------- ---------- ----------
Total................................................... 8,803,838 8,632,466 8,024,257
========== ========== ==========
Native system:
Peak load, KW................................................. 1,122,000 1,105,000 1,088,000
Net generating capacity for peak, KW.......................... 1,500,000 1,500,000 1,500,000
Load factor................................................... 64.0% 63.4% 61.6%
========== ========== ==========
Total system:
Peak load, KW................................................. 1,442,000 1,387,000 1,374,000
Net generating capacity for peak, KW.......................... 1,500,000 1,500,000 1,500,000
Load factor................................................... 64.0% 64.2% 62.0%
========== ========== ==========
</TABLE>
(A) Financial data is based on the combined results for the Predecessor Company
for the period January 1, 1996 to February 11, 1996 and the Reorganized
Company for the period February 12, 1996 to December 31, 1996.
(B) Predecessor Company.
10
<PAGE>
REGULATION
TEXAS RATE MATTERS
The rates and services of the Company in Texas municipalities are regulated
by those municipalities, and in unincorporated areas by the Texas Commission.
The largest municipality in the Company's service area is the City of El Paso.
The Texas Commission has exclusive appellate jurisdiction to review municipal
orders and ordinances regarding rates and services in Texas and jurisdiction
over certain other activities of the Company. The decisions of the Texas
Commission are subject to judicial review.
Rate Stipulation and Agreed Order. The Company's rates for its Texas
customers are governed by a rate order entered by the Texas Commission in Docket
12700 adopting a Rate Stipulation and Agreed Order entered into by the Company,
the Texas Commission staff, the City of El Paso and virtually all other
intervenors in the case. The Agreed Order implemented certain provisions of the
Rate Stipulation and set rates consistent with the Rate Stipulation. Among
other things, under the Rate Stipulation: (i) the Company's base rates for most
customers in Texas were fixed for the ten-year Freeze Period which began in
August 1995; (ii) the City of El Paso granted the Company a new franchise that
extends through the Freeze Period; (iii) the Company will retain 75% during the
first five years of the Freeze Period and 50% during the remainder of the Freeze
Period of (A) the net revenues generated by providing third-party transmission
services and (B) profit margins from certain off-system power sales; (iv) the
Company's reacquisition of the Palo Verde leased assets was deemed to be in the
public interest; and (v) all appeals of Texas Commission orders concerning the
Company and all outstanding Texas Commission dockets concerning the Company's
rates were resolved.
Neither the Rate Stipulation nor the Agreed Order deprives the Texas
regulatory authorities of their jurisdiction over the Company during the Freeze
Period. However, the Texas Commission determined in the Agreed Order that the
rate freeze is in the public interest and results in just and reasonable rates.
Further, the signatories to the Rate Stipulation (other than the General
Counsel, OPC and the State of Texas) agreed not to seek to initiate an inquiry
into the reasonableness of the Company's rates during the Freeze Period and to
support the Company's entitlement to rates at the freeze level throughout the
Freeze Period. The Company believes, but cannot assure, that its cost of
service will support rates at or above the freeze level throughout the Freeze
Period and, therefore, does not believe any attempt to reduce the Company's
rates would be successful. However, during the Freeze Period, the Company is
precluded from seeking rate increases in Texas, even in the event of increased
operating or capital costs. In the event of a merger, the parties to the Rate
Stipulation retain all rights provided in the Rate Stipulation, their rights to
participate as a party in any proceeding related to the merger, and the right to
pursue a reduction in rates below the freeze level to the extent of post-merger
synergy savings.
Fuel. Pursuant to Texas Commission rules, the Company periodically must
make a filing reconciling the revenues collected from Texas customers under its
fixed fuel factor with the fuel and purchased power expenses actually incurred
for the period covered by the reconciliation. A fuel and purchased power
reconciliation must include not less than twelve months nor more than thirty-six
months of reconcilable data. The Company has not filed a reconciliation for any
period since June 1995. Differences between revenues collected and expenses
incurred are subject to a refund to customers (in the case of an overrecovery of
fuel costs) or surcharge (in the case of an underrecovery of fuel costs). The
Texas Commission staff, local regulatory authorities such as the City of El
Paso, and
11
<PAGE>
customers are entitled to intervene in a fuel reconciliation proceeding and to
challenge the recovery of fuel and purchased power expenses.
Higher than expected natural gas prices were experienced in December 1996,
continued in the first quarter of 1997 and remained at higher levels through the
remainder of 1997 compared to 1996. These higher natural gas prices have
increased the Company's underrecovered fuel costs, which will be reviewed in the
next Texas fuel reconciliation. A significant disallowance of fuel costs in
this reconciliation could have an adverse effect on the Company's financial
results. In January 1998, the Company filed a request with the Texas Commission
to increase its Texas fixed fuel factor and implement a surcharge, subject to
reconciliation, of its underrecovered fuel costs. The Company entered into a
stipulation with all parties to the docket to implement the surcharge and a new
fixed fuel factor. Both the fixed fuel factor and surcharge are expected to go
into effect in April 1998.
Palo Verde Performance Standards. The Texas Commission has established
performance standards for the operation of Palo Verde, pursuant to which each
Palo Verde unit is evaluated annually to determine whether its three-year
rolling average capacity factor entitles the Company to a reward or subjects it
to a penalty. There are five performance bands based around a target capacity
factor of 70%. The capacity factor is calculated as the ratio of actual
generation to maximum possible generation. If the capacity factor, as measured
on a station-wide basis for any consecutive 24-month period, should fall below
35%, the Texas Commission could reconsider the rate treatment of Palo Verde,
regardless of the provisions of the Rate Stipulation. The removal of Palo Verde
from rate base could have a significant negative impact on the Company's
revenues and financial condition. For the three-year rolling average period
ended December 31, 1997, Palo Verde Units 1, 2 and 3 achieved capacity factors
of 83.75%, 83.04% and 88.70%, respectively. These capacity factors result in
the Company's entitlement to a combined reward of $2.8 million pursuant to the
formula established by the Texas Commission for the Palo Verde units.
NEW MEXICO RATE MATTERS
The New Mexico Commission has jurisdiction over the Company's rates and
services in New Mexico and over certain other activities of the Company,
including prior approval of the issuance, assumption or guarantee of securities.
The New Mexico Commission's decisions are subject to judicial review. Current
base rates in New Mexico were established in 1990 and have not increased since.
The Company does not have an agreement with New Mexico regulatory authorities or
parties to past New Mexico regulatory proceedings comparable to the Rate
Stipulation. The largest city in the Company's New Mexico service territory is
Las Cruces, which in 1997 accounted for 8% of the Company's total revenue. See
Item 3, "Legal Proceedings-Litigation with Las Cruces."
Pending Rate Case. In October 1996, the New Mexico Commission issued an
order in Case No. 2722, requiring the Company to answer certain ratepayer
complaints and to file a rate filing package, including cost of service data and
supporting testimony. On March 3, 1997, the Company filed with the New Mexico
Commission all of the rate filing package data required by the Commission's
order. 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 economic factors and
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.
Prosecution of the rate case before the New Mexico
12
<PAGE>
Commission is expected to be completed before the end of 1998. The Company is
unable at this time to predict the outcome of this proceeding.
Fuel. The Company is required to make annual filings with the New Mexico
Commission to reconcile the revenues collected under its fixed fuel factor with
its fuel and purchased power expenses actually incurred, and to report the
results of Palo Verde performance standards. These reports are due by January
31 of each year for the preceding calendar year, and are filed along with the
Company's request to revise its fixed fuel factor to reflect current projections
of fuel and purchased power costs and to include the over or underrecovery
reflected in the reconciliation report and the reward or penalty reflected in
the performance standards report. On October 31, 1997, the Company filed
testimony and evidence supporting its continued use of the methodology and
manner of collecting fuel and purchased power costs reflected in its tariffs. A
hearing on this filing is scheduled for July 1998.
The Company's 1998 annual filing reflects a significant increase in the
monthly fuel charge. This increase is necessary because of (i) significant
increases in the spot price of natural gas and (ii) the delayed implementation
of the 1997 change, effective with bills rendered on or after August 1, 1997,
which has caused the Company to underrecover its fuel costs in New Mexico by
approximately $5.3 million for the year ended December 31, 1997. The recovery
of this amount, coupled with continued higher gas costs for 1998, results in an
increase in the proposed 1998 fixed fuel factor of approximately 24% over the
present factor. The Company believes it has fully justified its fuel and
purchased power costs and recovery methodology. In March 1998, the New Mexico
Commission consolidated the 1998 annual filing and the October 1997 filing for
hearing in July 1998. There can be no assurance that the New Mexico Commission
will accept the Company's proposed fixed fuel factor. As in Texas, interested
parties are allowed to intervene and challenge the recoverability of fuel
expenses. A significant disallowance of fuel costs could have an adverse effect
on the Company's financial results.
Palo Verde Performance Standards. The New Mexico Commission has
established performance standards for the operation of Palo Verde, pursuant to
which the entire Palo Verde station is evaluated annually to determine if its
achieved capacity factor allows the Company to claim a reward or subjects it to
a penalty. There are five performance bands based around a target capacity
factor of 67.5%. Because Unit 3 is not included in the Company's New Mexico rate
base, any penalty or reward calculated on a total station basis is limited to
two-thirds of such penalty or reward. The capacity factor is calculated as the
ratio of actual generation to maximum possible generation. If the annual
capacity factor is 35% or less, the New Mexico Commission is required to
initiate a proceeding to reconsider the rate base treatment of Palo Verde Units
1 and 2. The removal of Palo Verde from rate base could have a significant
negative impact on the Company's revenues and financial condition. For the year
ended December 31, 1997, the Palo Verde station capacity factor was 88.43%.
This capacity factor results in the Company's entitlement to a reward of $1.1
million, pursuant to the formula established by the New Mexico Commission for
the Palo Verde units.
FEDERAL REGULATORY MATTERS
Federal Energy Regulatory Commission. The Company is subject to regulation
by the FERC in certain matters, including rates for wholesale power sales,
transmission of electric power and the issuance of securities.
The Company has a long-term firm power sales agreement with IID providing
for the sale of 100 MW of firm capacity and 50 MW of contingent capacity through
April 2002. The agreement
13
<PAGE>
generally provides for level sales prices over the life of the agreement. The
Company also has a firm power sales agreement with TNP, providing for sales to
TNP in the minimum amount of 25 MW through 2002. Sales prices are essentially
level for the remaining life of the agreement. Rate tariffs currently applicable
to IID and TNP contain fuel and purchased power cost adjustment provisions
designed to recover the Company's fuel and purchased power costs.
In July 1996, the Company filed its open access transmission tariffs
(Docket No. OA96-200-000) (the "Open Access Case"), in compliance with FERC
Order No. 888, Promoting Wholesale Competition Through Open Access Non-
Discriminatory Transmission Services by Public Utilities; Recovery of Stranded
Costs by Public Utilities and Transmitting Utilities ("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 of
and costs related to, certain facilities making access to the 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 the Open Access Case. 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 complaint filed by one of the
wholesale power marketers that submitted a bid in 1996 to the CFE. See
"Department of Energy" below.
Intervenors in the Open Access Case 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. Hearings related to these issues were conducted before a
FERC administrative law judge in January 1998. A final decision from the FERC
on these issues is not expected until the fourth quarter of 1998. The Company
does not expect a material financial impact to result from a FERC ruling.
In July 1996, Las Cruces exercised its right under 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. For a discussion of
this proceeding, see Item 3, "Legal Proceedings-Litigation with Las Cruces."
Department of Energy. The DOE regulates the Company's exports of power to
the CFE in Mexico pursuant to a license granted by the DOE and a presidential
permit. In addition, the DOE is authorized to assess operators of nuclear
generating facilities for a share of the costs of decommissioning the DOE's
uranium enrichment facilities and for the ultimate costs of disposal of spent
nuclear fuel. See "Facilities-Palo Verde Station-Spent Fuel Storage."
In September 1996, one of the wholesale power marketers that submitted a
bid in 1996 to the CFE in connection with renewal of the interchange agreement
for the supply of power during 1997 to Ciudad Juarez, Mexico, filed a complaint
against the Company with the FERC. The complaint sought emergency relief and
requested the FERC to direct the Company to enter into an agreement to provide
firm point-to-point transmission service to the CFE under the Company's open
access transmission tariff. In October 1996, the FERC issued an order requiring
the Company to provide point-to-point transmission service over the Company's
transmission system to substation facilities near the United States/Mexico
border. The FERC, however, concurred with the Company's position that the FERC
does not have jurisdiction to order transmission across the border, suggesting
that the DOE has such jurisdiction. The DOE subsequently issued a Notice of
Delegation and Assignment which delegated
14
<PAGE>
to the FERC the DOE's authority to carry out its duties in this case. The FERC
has docketed the Delegation and Assignment and the process is expected to
continue throughout 1998.
Nuclear Regulatory Commission. The NRC has jurisdiction over the Company's
licenses for Palo Verde and regulates the operation of nuclear generating
stations to protect the health and safety of the public from radiation hazards
and has authority to conduct environmental reviews pursuant to the National
Environmental Policy Act.
OTHER WHOLESALE CUSTOMERS
The term of the Company's previous one-year 1997 sales agreement for firm
capacity and associated energy to the CFE terminated December 31, 1997.
Pursuant to a bidding process, the Company was selected by the CFE to provide
varying amounts of power during 1998 ranging from 90 to 200 MW. The price is
stable throughout the twelve-month term of the agreement and includes charges
for capacity and energy as well as transmission and any required ancillary
services. Under the new agreement, the Company's revenues in 1998 related to
power sales to the CFE are expected to be similar to 1997 revenues. There can be
no assurance that the CFE will remain a customer after 1998. The agreement
requires payment in United States dollars.
RECENT CHANGES IN UTILITY REGULATION
General. The electric utility industry faces increasing pressure to become
more competitive as legislative, regulatory, economic and technological changes
occur. Federal and state legislation, regulatory initiatives, and proposed
initiatives in Texas and New Mexico encourage competition in the industry, and
ultimately in the Company's service area. 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 result in the loss of
customers and could diminish the ability of the Company to fully recover its
investment in generation assets, as well as the cost of operating these assets.
This issue is particularly important to the Company because its rates are
significantly higher than national and regional averages. In the face of
increased competition, there can be no assurance that the future operations,
cash flows and financial condition of the Company will not be adversely
affected, or that the Company will be able to sustain retail rates at the levels
established by the Rate Stipulation during the Freeze Period.
Of particular importance to the Company is the issue of ultimate
recoverability of "stranded costs," or costs previously found by regulatory
authorities to be reasonable and prudent, but which at the same time are higher
than would be recovered under immediate, full competition. There is substantial
discussion and debate on this issue on both a national and state level and, at
this time, there appears to be no clear solution. At the federal level, the
FERC has announced, through a formal rulemaking, its intention to allow 100%
recovery of all legitimate verifiable stranded costs attributable to FERC
jurisdictional customers. Texas and New Mexico commissions and legislatures are
engaged in various activities which are attempting to address the issue of
stranded cost recovery from customers subject to their jurisdictions.
FERC. In April 1996, the FERC issued its Order No. 888, requiring all
public utilities owning, operating or controlling facilities used for
transmitting electricity in interstate commerce to (i) file open access
transmission tariffs containing minimum terms and conditions of non-
discriminatory service and (ii) take transmission service (including ancillary
services) for their own new wholesale sales and
15
<PAGE>
purchases of electric energy under the open access tariffs. Additionally, Order
No. 888 permits public utilities to seek recovery of legitimate, prudent and
verifiable stranded costs and provides a mechanism for the recovery of such
costs. Order No. 888 also provides for recovery of costs associated with former
power customers and new municipally-owned entities becoming transmission-only
customers as a result of providing open access transmission if the utility had a
reasonable expectation of continuing to provide service to the departing
customer. Order No. 888 established criteria under which stranded costs will be
evaluated for contracts entered into prior to July 11, 1994, and for stranded
costs resulting from the formation of any new municipal utilities. Recovery of
stranded costs under contracts entered into after July 10, 1994, will be
governed by the terms of those contracts.
In April 1996, the FERC also issued Order No. 889, Open Access Same-Time
Information System (formerly Real-Time Information Networks) and Standards of
Conduct ("Order No. 889"). Order No. 889 requires all public utilities owning,
operating or controlling facilities used for transmitting electricity in
interstate commerce to develop and maintain an Open Access Same-Time Information
System that will give existing and potential transmission users access to
transmission-related information on a basis consistent with that available to a
utility's employees engaged in the buying and selling of power. Order No. 889
further requires public utilities to separate their transmission and generation
marketing functions and adopt standards of conduct ensuring that all open access
transmission customers are treated in a non-discriminatory manner.
Texas. During 1996, the Texas Commission conducted projects to evaluate
the (i) scope of competition in the electric industry in Texas and (ii)
potential stranded investment, procedures for allocating stranded costs, and
acceptable methods of stranded cost recovery. The Texas Commission's report,
which was issued in January 1997, recommended a careful and deliberate approach
to continued expansion of competition in the Texas electric market, ultimately
leading to retail competition with certain safeguards, and 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. In February 1998, the Texas
Commission requested all Texas utilities to revise the ECOM estimates based on
certain updated assumptions. Using the Texas Commission's revised model inputs,
the Company's revised ECOM estimates range from a high of $1.5 billion to a low
of $843 million, with an expected value of $1.2 billion, assuming full retail
access in 1999. Although several pieces of legislation were offered during the
1997 Texas legislative session, no significant deregulation legislation was
passed.
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. The committee is receiving
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, and 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 expected
to file a final report in late 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.
16
<PAGE>
New Mexico. In 1995, the New Mexico Commission initiated a notice of
inquiry regarding competition and the restructuring of regulation of the
electric industry. 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 stranded costs. The
1998 legislative session concluded without the passage of any significant
deregulation legislation.
REORGANIZATION UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE
On February 12, 1996, the Company emerged from a bankruptcy proceeding
which it instituted in January 1992. As a result of the Reorganization, the
Company significantly reduced its debt and simplified its capital structure.
The Company's total obligations subject to compromise (including obligations
related to the Palo Verde Leases, which represented $700 million of allowed
claims in the Bankruptcy Case) prior to its Reorganization was $2,007 million.
Under the Plan, this debt and the Palo Verde Lease obligations were extinguished
and the creditors received a combination of $212 million cash and newly issued
debt and equity securities of the Reorganized Company consisting of $1,189
million of long-term bonds and financing and capital lease obligations, $100
million of redeemable preferred stock and $255 million of common stock.
Under the Plan, all of the Predecessor Company's common and preferred stock
was canceled and the holders of such securities received approximately $45
million (15%) of the Reorganized Company's common stock and the right to receive
certain potential litigation recoveries which ultimately amounted to $20
million. In addition, on the Effective Date, the Palo Verde Leases were
terminated and the Company reacquired such interests. See Part II, Item 8,
"Financial Statements and Supplementary Data-Note H of Notes to Financial
Statements."
The Reorganized Company's financial statements for periods after February
12, 1996 are not comparable to the Predecessor Company's financial statements
for periods before February 12, 1996. A vertical line is shown in the
accompanying selected financial data and financial statements to separate the
Reorganized Company from the Predecessor Company because the respective
financial information has not been prepared on a consistent basis of accounting.
17
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF THE COMPANY
Current Position and
Name Age Business Experience
---- --- ---------------------
<S> <C> <C>
James S. Haines..................... 51 Chief Executive Officer, President and Director since
May 1996; Executive Vice President and Chief Operating
Officer of Western Resources, Inc. from June 1995 to May
1996; Executive Vice President and Chief Administrative
Officer of Western Resources, Inc. from April 1992 to
June 1995.
Eduardo A. Rodriguez................ 42 Senior Vice President - Customer and Corporate Services
since August 1996; Senior Vice President since January
1994; Vice President from April 1992 to January 1994;
General Counsel from 1988 to August 1996; Secretary from
January 1989 to January 1994.
J. Frank Bates...................... 47 Vice President - Transmission and Distribution since
August 1996; Vice President - Operations from May 1994 to
August 1996; Vice President - Customer Services Texas
Division from June 1989 to May 1994.
Michael L. Blough................... 42 Vice President - Administration since August 1996; Vice
President since May 1995; Controller and Chief
Accounting Officer from November 1994 to August 1996;
Assistant Vice President - Financial Planning from
September 1990 to November 1994.
Gary R. Hedrick..................... 43 Vice President, Chief Financial Officer and Treasurer
since August 1996; Treasurer since March 1996; Vice
President - Financial Planning and Rate Administration
from September 1990 to August 1996.
John C. Horne....................... 49 Vice President - Power Generation since August 1996; Vice
President - Power Supply from May 1994 to August 1996;
Vice President - Transmission Systems Division from
August 1989 to May 1994.
Robert C. McNiel.................... 51 Vice President - New Mexico Affairs since December 1997;
Vice President - Public Affairs and Marketing from August
1996 to December 1997; Vice President - New Mexico
Division from December 1989 to August 1996.
Terry Bassham....................... 37 General Counsel since August 1996; Shareholder with
Clark, Thomas & Winters, P.C. from May 1993 to August
1996; Shareholder with Moreno, Fry & Bassham from
February 1992 to May 1993.
Guillermo Silva, Jr................. 44 Secretary since January 1994; Assistant Secretary from
June 1989 to January 1994.
</TABLE>
The executive officers of the Company are elected annually and serve at the
discretion of the Board of Directors.
18
<PAGE>
ITEM 2. PROPERTIES
The principal properties of the Company are described in Item 1,
"Business," and such descriptions are incorporated herein by reference.
Transmission lines are located either on private rights-of-way, easements or on
streets or highways by public consent. See Part II, Item 8, "Financial
Statements and Supplementary Data-Note F of Notes to Financial Statements" for
information regarding encumbrances against the principal properties of the
Company.
ITEM 3. LEGAL PROCEEDINGS
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 a negotiated
purchase, the distribution assets and other facilities used to provide electric
service to customers in Las Cruces. Sales to customers in Las Cruces represent
approximately 8% of the Company's operating revenues.
In April 1995, Las Cruces filed a complaint against the Company in New
Mexico state court, 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. 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.
Prior to a ruling by the New Mexico Supreme Court, 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. On February 11, 1998, the New Mexico
Supreme Court ruled that the subsequent legislation rendered moot the certified
question before the Supreme Court. On February 26, 1998, the Company received
notice from Las Cruces of its intent to file a condemnation action in New Mexico
district court. At this time the Company is unable to predict the outcome of
this litigation.
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. 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. See Item 1,
"Business-Regulation-Federal Regulatory Matters" for a full discussion of
stranded costs.
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, 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
19
<PAGE>
negotiated purchase of the Company's electrical distribution assets within and
adjacent to the Las Cruces city limits.
The Company has 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 to
SPS electric utility assets acquired through condemnation. 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 of 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 Company filed an appeal
with the New Mexico Court of Appeals and Las Cruces requested an expedited
ruling from the Court of Appeals. In August 1997, the New Mexico Court of
Appeals certified to the New Mexico Supreme Court the issues related to Las
Cruces' authority to issue the revenue bonds. Oral argument before the Supreme
Court was held in November 1997.
In July 1996, Las Cruces exercised its right under 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
costs 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. The Company filed testimony in support of its recovery and calculation
of stranded costs, calculated pursuant to the FERC formula. After removal of all
distribution and transmission related expenses, the Company's testimony reflects
a generation stranded cost request of approximately $101 million. In November
1997, Las Cruces filed testimony which takes the position that the Company is
entitled to stranded costs in the range of $0 to $19 million. On December 19,
1997, the FERC staff filed testimony estimating the Company's stranded cost to
be $29.4 million. Hearings of all issues were conducted at the FERC in February
1998. A final decision from the FERC is not expected before late 1998 or early
1999.
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. Las Cruces has approved a contract with SPS
to provide operation and maintenance services for the proposed Las Cruces
electric distribution system, substations and associated transmission
facilities.
20
<PAGE>
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. A negotiated settlement of the Company's pending
rate case in New Mexico could include a reduction in rates and settlement of all
issues in New Mexico, which would be likely to 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.
FOUR CORNERS
In July 1995, the Navajo Nation enacted the Navajo Nation Air Pollution
Prevention and Control Act, the Navajo Nation Safe Drinking Water Act and the
Navajo Nation Pesticide Act (collectively, the "Acts"). In October 1995, the
Four Corners participants requested that the United States Secretary of the
Interior resolve their dispute with the Navajo Nation regarding whether the Acts
apply to operation of Four Corners. The Four Corners participants subsequently
filed a lawsuit in the District Court of the Navajo Nation, Window Rock
District, seeking, among other things, a declaratory judgment that (i) the Four
Corners leases and federal easements preclude the application of the Acts to the
operation of Four Corners; and (ii) the Navajo Nation and its agencies and
courts lack adjudicatory jurisdiction to determine the enforceability of the
Acts as applied to Four Corners. On October 18, 1995, the Navajo Nation and the
Four Corners participants agreed to stay the proceedings indefinitely so the
parties may attempt to resolve the dispute without litigation. This matter
remains inactive and the Company is unable to predict the outcome of this case.
WATER CASES
San Juan River System. The Four Corners participants are among the
defendants in a suit filed by the State of New Mexico in 1975 in state district
court in New Mexico against the United States of America, the City of
Farmington, New Mexico, the Secretary of the Interior as Trustee for the Navajo
Nation and other Indian tribes and certain other defendants (State of New Mexico
ex rel. S. E. Reynolds, New Mexico State Engineer v. United States of America,
et al., Eleventh Judicial District Court, County of San Juan, State of New
Mexico, Cause No. 75-184). The suit seeks adjudication of the water rights of
the San Juan River Stream System in New Mexico, which, among other things,
supplies the water used at Four Corners. An agreement reached with the Navajo
Nation in 1985 provides that if Four Corners loses a portion of its water rights
in the adjudication, the tribe will provide sufficient water from its allocation
to offset the loss. The case has been inactive for many years and the Company
is unable to predict the outcome of this case.
Gila River System. In connection with the construction and operation of
Palo Verde, APS entered into contracts with certain municipalities granting APS
the right to purchase effluent for cooling purposes at Palo Verde. In 1986, a
summons was served on APS that required all water claimants in the Lower Gila
River Watershed in Arizona to assert any claims to water in an action pending in
Maricopa County Superior Court, titled In re The General Adjudication of All
Rights to Use Water in the Gila River System and Source. Palo Verde is located
within the geographic area subject to the summons and the rights of the
21
<PAGE>
Palo Verde Participants to the use of groundwater and effluent at Palo Verde is
potentially at issue in this action. APS, as operating agent, filed claims that
dispute the Court's jurisdiction over the Palo Verde Participants' groundwater
rights and their contractual rights to effluent relating to Palo Verde and,
alternatively, seek confirmation of such rights. In December 1992, the Arizona
Supreme Court heard oral argument on certain issues in this matter that are
pending on interlocutory appeal. Issues important to the Palo Verde
Participants' claims were remanded to the trial court for further action and the
trial court certified its decision for another interlocutory appeal to the
Arizona Supreme Court. The Arizona Supreme Court will hear argument on these
issues in October 1998 and subsequently render a decision. The Company is unable
to predict the outcome of this case.
OTHER LEGAL PROCEEDINGS
The Company is a party to various other claims, legal actions and
complaints. In many of these matters, the Company has excess casualty liability
insurance which is applicable. Based upon a review of these claims and
applicable insurance coverage, the Company believes that none of these claims
will have a material adverse effect on the operations, financial position or
cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
22
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock began trading on the American Stock Exchange on
February 16, 1996 under the symbol "EE." The high and low sales prices for the
Company's common stock, as reported in the consolidated reporting system of the
American Stock Exchange, for the periods indicated below, were as follows:
<TABLE>
<CAPTION>
SALES PRICE
------------------------
HIGH LOW
--------- -----------
<S> <C> <C>
1997
- ----
First Quarter................................ $7 15/16 $5 7/8
Second Quarter............................... 7 5/8 5 1/2
Third Quarter................................ 7 1/16 5 13/16
Fourth Quarter............................... 7 1/2 5 1/2
1996
- ----
February 16 - March 31....................... $6 1/4 $4 3/4
Second Quarter............................... 6 1/8 5
Third Quarter................................ 6 1/8 5 1/4
Fourth Quarter............................... 6 5/8 4 15/16
</TABLE>
At March 17, 1998, there were 6,141 holders of record of the Company's
common stock.
The Company's ability to pay dividends on the common stock for the next
several years will be limited by applicable law and by the financing
arrangements entered into pursuant to the Reorganization. Pursuant to the
resolutions creating the Company's Series A Preferred Stock, no dividends can be
paid on the common stock if there are dividends in arrears on the Series A
Preferred Stock. Pursuant to the First and Second Supplemental Indentures, so
long as the Company's First Mortgage Bonds, are outstanding and the series with
the longest maturity is not rated "investment grade" by either Standard & Poor's
Rating Service or Moody's Investors Service, Inc., the Company may not declare
any dividend on the common stock, other than in additional shares of common
stock, or make any other distribution on, or acquire for value any shares of
common stock (with certain limited exceptions) unless, after giving effect
thereto, the aggregate of all such dividends, distributions and certain other
payments made by the Company since February 12, 1996 would be less than the sum
of (i) 50% of the consolidated net income (as defined in the mortgage indenture)
of the Company minus dividends paid in respect of the Series A Preferred Stock
for the period from February 13, 1996 to the most recently ended fiscal quarter
for which quarterly financial statements are available (or, if such consolidated
net income is a deficit, less 100% of such deficit), plus (ii) 100% of the
aggregate net proceeds received by the Company from the issuance or sale since
February 12, 1996 of equity securities or debt securities that have been
converted into equity securities, plus (iii) $10.0 million. Currently, the
Company's First Mortgage Bonds are not rated investment grade.
Pursuant to the terms of the reimbursement agreements related to four
letters of credit issued with respect to the four series of pollution control
revenue bonds, so long as a drawing is available under any of the letters of
credit, the same limitation contained in the First and Second Supplemental
23
<PAGE>
Indentures on the declaration of dividends would apply to the Company. In
addition to the restriction contained in the mortgage indenture, the credit
agreement for the working capital and fuel financing facility limits to $15.0
million the aggregate amount of dividends that can be paid on the common stock
during the three years after its initial issuance on February 12, 1996.
24
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
As of and for the following periods (In thousands except for share data):
<TABLE>
<CAPTION>
PERIOD FROM | PERIOD FROM
YEAR FEBRUARY 12 | JANUARY
ENDED TO | TO
DECEMBER 31, DECEMBER 31, | FEBRUARY 11, YEARS ENDED DECEMBER 31,
| --------------------------------------
1997 1996 | 1996 1995 1994 1993
------------ ------------ | ----------- ------------- ------------ ---------
<S> <C> <C> | <C> <C> <C> <C>
Operating revenues.......................... $ 594,038 $ 523,974 | $ 54,949 $ 504,617 $ 536,760 $ 543,594
Operating income............................ 161,667 144,491 | 1,639 49,874 54,997 57,035
Income (loss) before extraordinary items |
and cumulative effect of a change |
in accounting principle.................... 54,568 41,919 | 118,198 (33,319) (28,153) (41,855)
Extraordinary loss on repurchases of debt, |
net of federal income tax benefit.......... (2,775) - | - - - -
Extraordinary gain on discharge of debt..... - - | 264,273 - - -
Cumulative effect of a change in |
accounting principle....................... - - | - - - (96,044)(1)
|
Net income (loss) applicable to common |
stock...................................... 38,649 31,431 | 382,471 (33,319) (28,153) (137,899)
Basic earnings per common share: |
Income (loss) before extraordinary items |
and cumulative effect of a change in |
accounting principle...................... 0.689 0.523 | 3.325 (0.937) (0.792) (1.178)
Extraordinary loss on repurchases of debt, |
net of federal income tax benefit......... (0.046) - | - - - -
Extraordinary gain on discharge of debt.... - - | 7.435 - - -
Cumulative effect of a change in |
accounting principle...................... - - | - - - (2.702)(1)
|
Net income (loss).......................... 0.643 0.523 | 10.760 (0.937) (0.792) (3.880)
Weighted average number of common |
shares outstanding......................... 60,128,505 60,073,808 | 35,544,330 35,544,330 35,544,330 35,539,480
Diluted earnings per common share: |
Income (loss) before extraordinary items |
and cumulative effect of a change in |
accounting principle...................... 0.685 0.523 | 3.325 (0.937) (0.792) (1.178)
Extraordinary loss on repurchases of debt, |
net of federal income tax benefit......... (0.046) - | - - - -
Extraordinary gain on discharge of debt.... - - | 7.435 - - -
Cumulative effect of a change in |
accounting principle...................... - - | - - - (2.702)(1)
|
Net income (loss).......................... 0.639 0.523 | 10.760 (0.937) (0.792) (3.880)
Weighted average number of common shares |
and common share equivalents outstanding... 60,437,632 60,116,709 | 35,544,330 35,544,330 35,544,330 35,539,480
Additions to utility plant.................. 75,431 53,346 | 8,176 87,937 59,976 57,806
Total assets................................ 1,812,613 1,846,190 1,910,354 | 1,809,891 1,730,851 1,715,406
Long-term debt and financing and capital |
lease obligations.......................... 966,810 1,046,173 1,164,328 | - - -
Debt and obligations subject to compromise.. - - - | 1,608,091 1,537,303 1,495,315
Preferred stock............................. 121,319 108,426 100,000 | 81,464 81,464 81,464
Common stock equity (deficit)............... 369,640 331,257 300,000 | (418,763) (385,966) (357,463)
========= ========= ======== | ========= ========= =========
</TABLE>
_______________
(1) Reflects the change in accounting for income taxes due to the
implementation of SFAS No. 109, "Accounting for Income Taxes."
The selected financial data should be read in conjunction with Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and Item 8, "Financial Statements and Supplementary Data."
25
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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. 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 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 PROSPECTS AND CHALLENGES
While the Company prepares for a new era of deregulation and competition in
the electric utility industry, the Rate Stipulation provides a certain level of
stability in the rates that the Company currently charges the majority of its
customers. During the Freeze Period, the Company's strategic goals include (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) enhancing long-term relationships with its largest retail customers; (iv)
continuing to reduce operating costs; and (v) developing an energy-related
services business.
The Company faces a number of challenges which could negatively impact its
operations during the Freeze Period. The primary challenge is the risk of
increased costs, including the risk of additional or unanticipated costs at Palo
Verde resulting from (i) increases in operation and maintenance expenses; (ii)
the possible 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.
In December 1996 and the first quarter of 1997, rapid escalation in natural
gas prices increased concern 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. See Part I, Item 1, "Business-Regulation-Texas Rate Matters
- -Fuel" and "-Regulation-New Mexico Rate Matters-Fuel."
Another risk to the Company's operations is the potential loss of
customers. The Company's wholesale and large retail customers have, in varying
degrees, additional alternate sources of economical
26
<PAGE>
power, including co-generation of electric power. For example, a 504 MW
combined-cycle generating plant located in Samalayuca, Chihuahua, which is
scheduled to be fully operational by the end of 1998, will give the CFE the
current capacity to supply electricity to portions of northern Chihuahua,
including the geographic area currently served by the Company. 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. The New Mexico
State Legislature has passed legislation which gives Las Cruces the apparent
legal authority to condemn the Company's distribution system and related assets
located within its city limits, and the Company has received notice from Las
Cruces of its intent to file an eminent domain proceeding. If Las Cruces
succeeds in its efforts, the Company could lose its Las Cruces customer base,
although the Company would receive "just compensation" as established by the
court. See Part I, Item 3, "Legal Proceedings-Litigation with Las Cruces."
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 represented approximately $19.6 million or 3% of
operating revenues for the year ended December 31, 1997. The Company signed a
new contract with Ft. Bliss in August 1996, under which Ft. Bliss will take
service from the Company through 1999, with the right thereafter to continue
service on a year-to-year basis for an additional two years. The Company has a
contract to provide retail electric service to Holloman for a ten-year term
which began in December 1995. In August 1996, the Army advised the Company
White Sands would continue to purchase retail electric service from the Company
pursuant to the existing retail service contract for an indefinite period. The
Army will provide the Company written notice of termination of such contract not
less than one year in advance of the termination date.
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 rate data 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, after hearing, 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, which would be likely to create
increased political and economic pressure on the Company to reduce rates in
Texas. Prosecution of the case before the New Mexico Commission is expected to
be completed in 1998. The Company is unable at this time to predict with
certainty the outcome of this proceeding currently pending before the New Mexico
Commission. See Part I, Item 1, "Business-Regulation-New Mexico Rate
Matters."
The Company faces the same concerns as most other companies that use
computers relating to the Year 2000 problem. The problem is that many computer
applications do not correctly differentiate a one year difference between the
years 1999 and 2000. Applications that are date sensitive may not properly
calculate information or may not function.
The Company began working on the Year 2000 computer concern during the last
quarter of 1996 and is attempting to either revise current computer systems to
be Year 2000 compliant, or replace
27
<PAGE>
systems with new ones that are Year 2000 compliant by the end of 1998, to allow
adequate time for additional testing and correction. Incremental costs of the
project are anticipated to be immaterial as the Company is using internal
resources to modify and test programs. The Company anticipates spending
approximately $1.8 million on this project and is expensing such amount as
incurred over the life of the project.
Because of the integrated nature of the Company's business with other
utilities and its joint facilities operated by other utilities, the Company is
inquiring about and reviewing the activities of the other utilities which
comprise the integrated system. In addition, the Company is inquiring about and
reviewing the activities of its financial institutions and major suppliers to
determine their compliance with Year 2000 issues. Given the complex nature of
this problem and the potential overlap with systems beyond the Company's
control, the Company cannot assure that it will not experience some difficulty
relating to the Year 2000 problem.
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 state regulatory provisions relating
to wholesale and retail service. Both the Texas and New Mexico Commissions have
conducted proceedings related to industry restructuring and stranded cost
recovery; however, restructuring legislation has yet to be passed in either
state. See Part I, Item 1, "Business-Regulation-Recent Changes in Utility
Regulation." The potential effects of deregulation are particularly important to
the Company because its rates are significantly higher than the 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 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
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.
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 December 31, 1997, the Company had approximately $111.2
million in cash and cash equivalents. 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
28
<PAGE>
December 31, 1997, approximately $52.0 million had been drawn for nuclear fuel
purchases. No amounts have been drawn on this facility for working capital
needs.
The Company has a high debt to capitalization ratio 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 March 18, 1998, the Company
repurchased approximately $230.3 million of first mortgage bonds as part of an
aggressive deleveraging program and has reduced its annual interest expense by
approximately $17.9 million. Long-term indebtedness as a percentage of
capitalization was reduced from 74% at June 30, 1996 to 66% at December 31,
1997.
The Company continues to believe that the orderly reduction of debt with a
goal of achieving a capital structure 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, the early redemption 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.
HISTORICAL RESULTS OF OPERATIONS
Financial comparisons herein for the years ended December 31, 1997, 1996
and 1995 are based on the results of operations of the Reorganized Company for
the year ended December 31, 1997, combined results of the Reorganized Company
for the period February 12, 1996 to December 31, 1996 and the Predecessor
Company for the period January 1, 1996 to February 11, 1996, and results of the
Predecessor Company for the year ended December 31, 1995.
Net income applicable to common stock before extraordinary item in 1997 was
approximately $41.4 million, or $0.69 per diluted common share, compared with
combined net income applicable to common stock before reorganization items and
extraordinary item of $27.4 million for the same period a
29
<PAGE>
year ago, and net loss before reorganization items of $23.3 million, or $0.66
per diluted common share in 1995.
Operating revenues net of energy expenses increased $4.7 million in 1997
compared to 1996, primarily due to increased KWH sales, partially offset by
reduced revenue per KWH from the CFE. Operating revenues net of energy expenses
increased $43.8 million in 1996 compared to 1995, primarily due to an increase
in Texas base rates associated with the implementation of the Rate Stipulation
and increased KWH sales.
Comparisons of KWH sales and operating revenues are shown below (In
thousands):
<TABLE>
<CAPTION>
INCREASE/(DECREASE)
-------------------------
YEARS ENDED DECEMBER 31: 1997 1996 AMOUNT PERCENT
- ------------------------ ---- ---- --------- -----------
Electric KWH Sales:
<S> <C> <C> <C>
Retail Customers..................... 5,784,447 5,652,907 131,540 2.3%
Other Utilities...................... 1,897,885 1,753,553 144,332 8.2
---------- ---------- -----------
Total............................... 7,682,332 7,406,460 275,872 3.7
========== ========== ===========
Operating Revenues:
Retail Customers..................... $ 497,868 $ 471,824 $ 26,044 5.5%
Other Utilities...................... 96,170 107,099 (10,929) (10.2)
---------- ---------- -----------
Total............................... $ 594,038 $ 578,923 $ 15,115 2.6
========== ========== ===========
INCREASE/(DECREASE)
------------------------
YEARS ENDED DECEMBER 31: 1996 1995 AMOUNT PERCENT
- ------------------------ ---- ---- --------- -----------
Electric KWH Sales:
Retail Customers..................... 5,652,907 5,416,902 236,005 4.4%
Other Utilities...................... 1,753,553 1,646,357 107,196 6.5
---------- ---------- -----------
Total............................... 7,406,460 7,063,259 343,201 4.9
========== ========== ===========
Operating Revenues:
Retail Customers..................... $ 471,824 $ 405,316 $ 66,508 16.4%
Other Utilities...................... 107,099 99,301 7,798 7.9
---------- ---------- -----------
Total............................... $ 578,923 $ 504,617 $ 74,306 14.7
========== ========== ===========
</TABLE>
Other operations and maintenance expense decreased $12.0 million in 1997
compared to 1996, and $73.1 million in 1996 compared to 1995. The decreases
were primarily the result of a reduction in Palo Verde costs of approximately
$8.7 million and $67.3 million, respectively, due to the lease accruals 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 expense increased $2.4 million to $88.7 million in 1997
compared to $86.3 million in 1996. The effect of an increase in depreciable
plant following the reacquisition in the Reorganization of a portion of Palo
Verde and the depreciation of such amounts over the period of the Rate
Stipulation
30
<PAGE>
was partially offset by the decrease in the book value of depreciable plant
from fresh-start reporting adjustments.
Combined depreciation expense increased $29.5 million to $86.3 million in
1996 compared to $56.8 million in 1995. The effect of an increase in
depreciable plant following the reacquistion in the Reorganization of a portion
of Palo Verde was partially offset by the decrease in the book value of
depreciable plant from fresh-start reporting adjustments. The effect of the
implementation of fresh-start reporting and the accelerated depreciation of a
portion of such amounts over the period of the Rate Stipulation resulted in
increased depreciation expense of $37.2 million for the period February 12, 1996
to December 31, 1996, which was partially offset by decreased nuclear
decommissioning amortization. As part of the adoption of fresh-start reporting,
the Company recognized the net present value of estimated future expenditures
for nuclear decommissioning of approximately $84.9 million.
Taxes other than income taxes decreased $1.2 million in 1997 compared to
1996 and $9.0 million in 1996 compared to 1995, due to reduced Arizona property
taxes. The decreases in Arizona property taxes resulted from a decrease in
taxable nuclear plant based on plant reductions on the Company's regulatory
books in 1997 and a new state property tax law which reduced the Company's
property taxes by approximately $8.8 million in 1996.
Other income increased $3.8 million in 1997 compared to 1996 due to the
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 and
an additional $2.3 million due to favorable settlement of bankruptcy
professional fees in 1996. There was no comparable activity in 1995. Also, in
1996, investment income was classified as Other Income, whereas investment
income in 1995 was included in Reorganization Items (Expense) for the
Predecessor Company. Investment income decreased $6.9 million in 1996 compared
to 1995 due to reduced levels of cash resulting from repurchases of debt and the
payment of bankruptcy-related claims.
Interest charges decreased $8.9 million in 1997 compared to 1996, 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. Interest charges increased $7.2 million in
1996 compared to 1995, primarily due to (i) increased interest on mortgage bonds
due to a greater amount of bonds being outstanding subsequent to the
Reorganization and (ii) accretion of the increased nuclear decommissioning
liability as a result of implementing fresh-start reporting. This increase was
partially offset by decreased interest charges due to the extinguishment of
certain debt in conjunction with the Reorganization.
Income tax expense, excluding income tax benefits of $1.5 million related
to the loss on repurchases of debt, increased $11.5 million in 1997 compared to
1996, primarily due to changes in pre-tax income, including a favorable
litigation settlement and certain permanent differences. Income tax expense,
excluding the deferred income tax effects of fresh-start reporting,
reorganization items and income taxes on interest income during bankruptcy,
increased $39.1 million in 1996 compared to 1995, primarily due to changes in
pre-tax income and certain differences in book and taxable income.
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 to their
31
<PAGE>
reorganization value 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 1997.
Extraordinary loss on repurchases of debt represents the payment of
premiums on debt repurchased and the recognition of unamortized issuance
expenses on that debt of $2.8 million, net of federal income tax benefits of
$1.5 million, with no comparable amounts in 1996.
Extraordinary gain on discharge of debt for the Predecessor Company for the
period January 1, 1996 to February 11, 1996 consisted of forgiven indebtedness
upon the Reorganization, primarily related to the extinguishment of Palo Verde
lease obligations with no comparable amounts in 1997.
For the last several years, inflation has been relatively low and,
therefore, has had little impact on the Company's results of operations and
financial condition.
In 1997, the Company implemented SFAS No. 128, "Earnings Per Share," SFAS
No. 129, "Disclosure of Information about Capital Structure," and SFAS No. 130,
"Reporting Comprehensive Income," none of which had a material effect on the
Company's financial statements. See Item 8, "Financial Statements and
Supplementary Data-Note A of Notes to Financial Statements." There are no new
accounting standards pending implementation by the Company which would have a
material effect on the Company's financial statements.
32
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Independent Auditors' Report................................................................. 35
Balance Sheets at December 31, 1997 and 1996................................................. 36
Statements of Operations for the year ended December 31, 1997, the period from February 12
to December 31, 1996, the period from January 1 to February 11, 1996 and the year ended
December 31, 1995........................................................................... 38
Statements of Comprehensive Operations for the year ended December 31, 1997, the period from
February 12 to December 31, 1996, the period from January 1 to February 11, 1996 and the
year ended December 31, 1995................................................................ 39
Statements of Changes in Common Stock Equity (Deficit) for the year ended December 31, 1995,
the period from January 1 to February 11, 1996, the period from February 12 to December 31,
1996 and the year ended December 31, 1997................................................... 40
Statements of Cash Flows for the year ended December 31, 1997, the period from February 12
to December 31, 1996, the period from January 1 to February 11, 1996 and the year ended
December 31, 1995........................................................................... 41
Notes to Financial Statements................................................................ 42
</TABLE>
33
<PAGE>
This page left blank intentionally.
34
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
El Paso Electric Company
We have audited the accompanying balance sheets of El Paso Electric Company (the
"Company") as of December 31, 1997 and 1996 and the related statements of
operations, comprehensive operations, changes in common stock equity (deficit),
and cash flows for the year ended December 31, 1997, the period February 12,
1996 to December 31, 1996, the period January 1, 1996 to February 11, 1996, and
the year ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of El Paso Electric Company as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the year ended December 31, 1997, the period February 12, 1996 to December
31, 1996, the period January 1, 1996 to February 11, 1996, and the year ended
December 31, 1995 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
El Paso, Texas
February 6, 1998
35
<PAGE>
EL PASO ELECTRIC COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS DECEMBER 31,
(IN THOUSANDS) -------------------------
1997 1996
---------- ----------
<S> <C> <C>
UTILITY PLANT (Notes A, B, C and F )
Electric plant in service........................................ $1,538,572 $1,492,737
Less accumulated depreciation and amortization................... 164,283 77,976
---------- ----------
Net plant in service.......................................... 1,374,289 1,414,761
Construction work in progress.................................... 43,761 44,432
Nuclear fuel; includes fuel in process of $9,910 and
$5,084, respectively.......................................... 86,609 60,014
Less accumulated amortization.................................... 40,142 18,651
---------- ----------
Net nuclear fuel.............................................. 46,467 41,363
---------- ----------
Net utility plant........................................... 1,464,517 1,500,556
---------- ----------
CURRENT ASSETS:
Cash and temporary investments................................... 111,227 68,767
Accounts receivable, principally trade, net of allowance for
doubtful accounts of $5,124 and $6,161, respectively.......... 58,960 57,587
Federal income tax receivable.................................... - 20,713
Inventories, at cost............................................. 27,130 28,322
Net undercollection of fuel revenues............................. 13,870 1,925
Prepayments and other............................................ 6,930 8,727
---------- ----------
Total current assets........................................ 218,117 186,041
---------- ----------
LONG-TERM CONTRACT RECEIVABLE (Note B)............................. 27,659 31,057
---------- ----------
DEFERRED CHARGES AND OTHER ASSETS:
Accumulated deferred income taxes, net (Note G).................. 43,208 73,884
Decommissioning trust fund (Note C).............................. 38,438 33,054
Other............................................................ 20,674 21,598
---------- ----------
Total deferred charges and other assets..................... 102,320 128,536
---------- ----------
TOTAL ASSETS................................................ $1,812,613 $1,846,190
========== ==========
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
EL PASO ELECTRIC COMPANY
BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
CAPITALIZATION AND LIABILITIES DECEMBER 31,
(IN THOUSANDS EXCEPT FOR SHARE DATA) ----------------------------
1997 1996
---------- ----------
<S> <C> <C>
CAPITALIZATION (Notes D and E):
Common stock, stated value $1 per share, 100,000,000 shares authorized,
60,060,034 and 59,999,981 shares issued and outstanding; and
196,404 and 180,000 restricted shares, respectively....................... $ 60,256 $ 60,180
Capital in excess of stated value........................................... 241,222 240,768
Unearned compensation - restricted stock awards............................. (1,138) (758)
Accumulated earnings........................................................ 69,484 30,835
Accumulated other comprehensive income (loss) (unrealized gains (losses)
on marketable securities)................................................ (184) 232
---------- ----------
Common stock equity..................................................... 369,640 331,257
Preferred stock, cumulative, no par value, 2,000,000 shares authorized:
Redemption required - 1,213,188 and 1,084,264 shares issued and
outstanding, respectively; at liquidation preference...................... 121,319 108,426
Long-term debt (Note F)..................................................... 938,562 1,021,749
Financing and capital lease obligations (Note F)............................ 28,248 24,424
---------- ----------
Total capitalization.................................................. 1,457,769 1,485,856
---------- ----------
CURRENT LIABILITIES:
Current maturities of financing and capital lease obligations (Note F)...... 28,463 28,333
Accounts payable, principally trade......................................... 24,957 37,215
Taxes accrued other than federal income taxes............................... 19,292 21,296
Interest accrued............................................................ 21,172 23,150
Other....................................................................... 17,439 15,000
---------- ----------
Total current liabilities............................................. 111,323 124,994
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Decommissioning (Note C).................................................... 94,917 89,544
Accrued postretirement benefit liability (Note J)........................... 75,531 71,313
Accrued pension liability (Note J).......................................... 33,909 34,550
Other....................................................................... 39,164 39,933
---------- ----------
Total deferred credits and other liabilities.......................... 243,521 235,340
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes B, C, H, I and J)
TOTAL CAPITALIZATION AND LIABILITIES.................................. $1,812,613 $1,846,190
========== ==========
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
EL PASO ELECTRIC COMPANY
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM | PERIOD FROM
YEAR FEBRUARY 12 | JANUARY 1 YEAR
ENDED TO | TO ENDED
DECEMBER 31, DECEMBER 31, | FEBRUARY 11, DECEMBER 31,
1997 1996 | 1996 1995
------------ ------------ | ------------ ------------
<S> <C> <C> | <C> <C>
OPERATING REVENUES: |
Base revenues................................................ $ 458,979 $ 416,221 | $ 44,679 $ 432,050
Fuel revenues and economy sales.............................. 130,172 104,193 | 9,849 68,823
Other........................................................ 4,887 3,560 | 421 3,744
----------- ----------- | ----------- -----------
594,038 523,974 | 54,949 504,617
----------- ----------- | ----------- -----------
ENERGY EXPENSES: |
Fuel......................................................... 113,457 92,899 | 10,125 76,005
Purchased and interchanged power............................. 20,130 17,821 | 2,282 16,568
----------- ----------- | ----------- -----------
133,587 110,720 | 12,407 92,573
----------- ----------- | ----------- -----------
OPERATING REVENUES NET OF ENERGY EXPENSES...................... 460,451 413,254 | 42,542 412,044
----------- ----------- | ----------- -----------
OTHER OPERATING EXPENSES: |
Other operations............................................. 131,916 115,742 | 23,559 208,445
Maintenance.................................................. 34,782 34,702 | 4,743 43,412
Depreciation and amortization................................ 88,735 79,772 | 6,577 56,762
Taxes other than income taxes................................ 43,351 38,547 | 6,024 53,551
----------- ----------- | ----------- -----------
298,784 268,763 | 40,903 362,170
----------- ----------- | ----------- -----------
OPERATING INCOME............................................... 161,667 144,491 | 1,639 49,874
----------- ----------- | ----------- -----------
OTHER INCOME (DEDUCTIONS): |
Litigation settlement, net................................... 7,500 - | - -
Investment income............................................ 6,095 4,796 | - -
Gain on sale of investment................................... - 3,844 | - -
Settlement of bankruptcy professional fees................... 362 2,305 | - -
Other, net................................................... 162 (681) | 50 (910)
----------- ----------- | ----------- -----------
14,119 10,264 | 50 (910)
----------- ----------- | ----------- -----------
INCOME BEFORE INTEREST CHARGES................................. 175,786 154,755 | 1,689 48,964
----------- ----------- | ----------- -----------
INTEREST CHARGES (CREDITS): |
Interest on long-term debt................................... 86,117 85,633 | - -
Other interest............................................... 6,200 5,722 | - -
Interest during reorganization............................... - - | 9,569 91,923
Interest capitalized and deferred............................ (5,875) (5,189) | (412) (3,820)
----------- ----------- | ----------- -----------
86,442 86,166 | 9,157 88,103
----------- ----------- | ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.............................. 89,344 68,589 | (7,468) (39,139)
INCOME TAX EXPENSE (BENEFIT) (Note G).......................... 34,776 26,670 | (3,415) (15,798)
----------- ----------- | ----------- -----------
INCOME (LOSS) BEFORE REORGANIZATION ITEMS |
(EXPENSE) AND EXTRAORDINARY ITEMS............................ 54,568 41,919 | (4,053) (23,341)
REORGANIZATION ITEMS (EXPENSE), NET OF INCOME |
TAX BENEFIT (EXPENSE)........................................ - - | 122,251 (9,978)
----------- ----------- | ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS....................... 54,568 41,919 | 118,198 (33,319)
----------- ----------- | ----------- -----------
EXTRAORDINARY ITEMS: |
Extraordinary loss on repurchases of debt, net of |
federal income tax benefit................................ (2,775) - | - -
Extraordinary gain on discharge of debt...................... - - | 264,273 -
----------- ----------- | ----------- -----------
(2,775) - | 264,273 -
----------- ----------- | ----------- -----------
NET INCOME (LOSS).............................................. 51,793 41,919 | 382,471 (33,319)
PREFERRED STOCK DIVIDEND REQUIREMENTS.......................... 13,144 10,488 | - -
----------- ----------- | ----------- -----------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK................... $ 38,649 $ 31,431 | $ 382,471 $ (33,319)
=========== =========== | =========== ===========
|
BASIC EARNINGS PER COMMON SHARE (Note A): |
Income (loss) before extraordinary items..................... $ 0.689 $ 0.523 | $ 3.325 $ (0.937)
Extraordinary loss on repurchases of debt, net of |
federal income tax benefit................................ (0.046) - | - -
Extraordinary gain on discharge of debt...................... - - | 7.435 -
----------- ----------- | ----------- -----------
Net income (loss)......................................... $ 0.643 $ 0.523 | $ 10.760 $ (0.937)
=========== =========== | =========== ===========
DILUTED EARNINGS PER COMMON SHARE (Note A): |
Income (loss) before extraordinary items..................... $ 0.685 $ 0.523 | $ 3.325 $ (0.937)
Extraordinary loss on repurchases of debt, net of |
federal income tax benefit................................ (0.046) - | - -
Extraordinary gain on discharge of debt...................... - - | 7.435 -
----------- ----------- | ----------- -----------
Net income (loss)......................................... $ 0.639 $ 0.523 | $ 10.760 $ (0.937)
=========== =========== | =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES |
OUTSTANDING.................................................. 60,128,505 60,073,808 | 35,544,330 35,544,330
=========== =========== | =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES |
AND COMMON SHARE EQUIVALENTS OUTSTANDING..................... 60,437,632 60,116,709 | 35,544,330 35,544,330
=========== =========== | =========== ===========
</TABLE>
See accompanying notes to financial statements.
38
<PAGE>
EL PASO ELECTRIC COMPANY
STATEMENTS OF COMPREHENSIVE OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM | PERIOD FROM
YEAR FEBRUARY 12 | JANUARY 1 YEAR
ENDED TO | TO ENDED
DECEMBER 31, DECEMBER 31, | FEBRUARY 11, DECEMBER 31,
1997 1996 | 1996 1995
------------ ------------ | ------------ ------------
|
<S> <C> <C> | <C> <C>
NET INCOME (LOSS)............................................... $ 51,793 $ 41,919 | $382,471 $(33,319)
OTHER COMPREHENSIVE INCOME (LOSS) (Note A): |
Net unrealized gain (loss) on marketable securities, less |
applicable income tax benefit (expense) of $223, |
$(125), $ - and $(282), respectively..................... (416) 232 | - 522
Reclassification adjustment included in net |
income, net of income tax of $93........................... - - | (172) -
-------- -------- | -------- --------
COMPREHENSIVE INCOME (LOSS)..................................... 51,377 42,151 | 382,299 (32,797)
PREFERRED STOCK DIVIDEND REQUIREMENTS........................... 13,144 10,488 | - -
|
-------- -------- | -------- --------
COMPREHENSIVE INCOME (LOSS) APPLICABLE TO COMMON STOCK.......... $ 38,233 $ 31,663 | $382,299 $(32,797)
======== ======== | ======== ========
</TABLE>
See accompanying notes to financial statements.
39
<PAGE>
EL PASO ELECTRIC COMPANY
STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (DEFICIT)
(IN THOUSANDS EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
UNEARNED
COMPENSATION-
COMMON STOCK CAPITAL IN RESTRICTED
--------------------------- EXCESS OF STOCK
SHARES AMOUNT STATED VALUE AWARDS
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1994.......... 35,544,330 $ 339,097 $ - $ -
Net loss..............................
Other comprehensive income............
----------- ----------- ----------- -----------
BALANCES AT DECEMBER 31, 1995.......... 35,544,330 339,097 - -
Net income............................
Elimination of predecessor equity
accounts............................ (35,544,330) (339,097)
Effects of fresh-start reporting
adjustment to common stock equity...
----------- ----------- ----------- -----------
BALANCES AT FEBRUARY 11, 1996.......... - - - -
- -------------------------------------------------------------------------------------------------------
Issuance of common stock upon
reorganization...................... 59,999,981 60,000 240,000
Capital stock expense.................
Grants of restricted common
stock............................... 180,000 180 768 (948)
Amortization of unearned
compensation........................ 190
Preferred stock dividends.............
Net income............................
Other comprehensive income............
----------- ----------- ----------- -----------
BALANCES AT DECEMBER 31, 1996.......... 60,179,981 60,180 240,768 (758)
Grants of restricted common
stock............................... 84,255 84 491 (575)
Amortization of unearned
compensation........................ 195
Repurchase of unrestricted
common stock........................ (7,798) (8) (37)
Preferred stock dividends.............
Net income............................
Other comprehensive loss..............
----------- ----------- ----------- -----------
BALANCES AT DECEMBER 31, 1997.......... 60,256,438 $ 60,256 $ 241,222 $ (1,138)
=========== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED COMMON
ACCUMULATED OTHER STOCK
EARNINGS COMPREHENSIVE EQUITY
(DEFICIT) INCOME (LOSS) (DEFICIT)
----------- ------------- -----------
<S> <C> <C> <C>
BALANCES AT DECEMBER 31, 1994.......... $ (724,713) $ (350) $ (385,966)
Net loss.............................. (33,319) (33,319)
Other comprehensive income............ 522 522
----------- ----------- -----------
BALANCES AT DECEMBER 31, 1995.......... (758,032) 172 (418,763)
Net income............................ 382,471 382,471
Elimination of predecessor equity
accounts............................ 339,097 -
Effects of fresh-start reporting
adjustment to common stock equity... 36,464 (172) 36,292
----------- ----------- -----------
BALANCES AT FEBRUARY 11, 1996.......... - - -
- --------------------------------------------------------------------------------------
Issuance of common stock upon
reorganization...................... 300,000
Capital stock expense................. (596) (596)
Grants of restricted common
stock............................... -
Amortization of unearned
compensation........................ 190
Preferred stock dividends............. (10,488) (10,488)
Net income............................ 41,919 41,919
Other comprehensive income............ 232 232
----------- ----------- -----------
BALANCES AT DECEMBER 31, 1996.......... 30,835 232 331,257
Grants of restricted common
stock............................... -
Amortization of unearned
compensation........................ 195
Repurchase of unrestricted
common stock........................ (45)
Preferred stock dividends............. (13,144) (13,144)
Net income............................ 51,793 51,793
Other comprehensive loss.............. (416) (416)
----------- ----------- -----------
BALANCES AT DECEMBER 31, 1997.......... $ 69,484 $ (184) $ 369,640
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
40
<PAGE>
EL PASO ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM | PERIOD FROM
YEAR FEBRUARY 12 | JANUARY 1 YEAR
ENDED TO | TO ENDED
DECEMBER 31, DECEMBER 31, | FEBRUARY 11, DECEMBER 31,
1997 1996 | 1996 1995
------------- ------------- | ------------- -------------
<S> <C> <C> | <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: |
Net income (loss)......................................... $ 51,793 $ 41,919 | $ 382,471 $ (33,319)
Adjustments to reconcile net income (loss) to net cash |
provided by operating activities: |
Depreciation and amortization........................... 111,622 99,355 | 8,246 69,444
Deferred income taxes and investment tax credit, net.... 32,394 41,341 | (3,116) (26,744)
Other operating activities.............................. 2,552 2,487 | (805) (6,795)
Extraordinary loss on repurchases of debt, net of |
federal income tax benefit............................ 2,775 - | - -
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..................................... (1,373) 3,513 | 5,429 (4,866)
Federal income tax receivable........................... 20,713 (20,713) | - -
Inventories............................................. 1,192 (32) | 90 1,590
Prepayments and other................................... 1,797 (1,974) | 34 2,214
Long-term contract receivable........................... 3,398 2,333 | 293 (80)
Accounts payable........................................ (12,258) (4,038) | (6,859) 11,885
Interest accrued........................................ (1,978) 23,034 | - -
Net under/overcollection of fuel revenues............... (11,945) (12,709) | 417 16,581
Other current liabilities............................... 386 (1,242) | (152) 1,027
Deferred charges and credits............................ 5,520 (1,117) | 1,994 21,187
Obligations subject to compromise....................... - - | 9,430 71,839
Revenues subject to refund.............................. - - | 2,785 24,107
-------- --------- | ----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES............. 206,588 168,313 | 13,733 148,070
-------- --------- | ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES: |
Additions to utility plant................................ (75,431) (53,346) | (8,176) (87,937)
Investment in decommissioning trust fund.................. (6,023) (5,960) | (553) (5,159)
Proceeds from sale of investment.......................... - 20,183 | - -
-------- --------- | ----------- ----------
NET CASH USED FOR INVESTING ACTIVITIES................ (81,454) (39,123) | (8,729) (93,096)
-------- --------- | ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES: |
Repurchases of and payments on long-term debt............. (86,771) (117,528) | - -
Net proceeds from financing obligations................... 5,369 3,320 | 43,309 -
Redemption of capital lease obligations................... (1,272) (364) | - -
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) (1,051)
-------- --------- | ----------- ----------
NET CASH USED FOR FINANCING ACTIVITIES................ (82,674) (115,168) | (212,766) (1,051)
-------- --------- | ----------- ----------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS... 42,460 14,022 | (207,762) 53,923
|
CASH AND TEMPORARY INVESTMENTS AT BEGINNING OF PERIOD....... 68,767 54,745 | 262,507 208,584
-------- --------- | ----------- ----------
CASH AND TEMPORARY INVESTMENTS AT END OF PERIOD............. $111,227 $ 68,767 | $ 54,745 $ 262,507
======== ========= | =========== ==========
</TABLE>
See accompanying notes to financial statements.
41
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General. El Paso Electric Company (the "Company") is a public utility
engaged in the generation, transmission and distribution of electricity in an
area of approximately 10,000 square miles in west Texas and southern New Mexico.
The Company also serves wholesale customers in Texas, New Mexico, California and
Mexico.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Bankruptcy Reorganization. On February 12, 1996 (the "Effective Date"),
the Company emerged (the "Reorganization") from a bankruptcy proceeding which it
instituted in January 1992 (the "Bankruptcy Case"). As a result of the
Reorganization, the Company significantly reduced its debt and simplified its
capital structure. The Company prior to the Reorganization (the "Predecessor
Company") had total obligations subject to compromise of $2,007 million
(including obligations related to leases on portions of the Palo Verde Nuclear
Generating Station ("Palo Verde") (the "Palo Verde Leases"), which represented
$700 million of allowed claims in the Bankruptcy Case). Under the Company's
Fourth Amended Plan of Reorganization (the "Plan"), this debt and the Palo Verde
Lease obligations were extinguished and the creditors received a combination of
$212 million cash and newly issued debt and equity securities of the Company
following the Reorganization (the "Reorganized Company") consisting of $1,189
million of long-term bonds and financing and capital lease obligations, $100
million of redeemable preferred stock and $255 million of common stock.
Under the Plan, all of the Predecessor Company's common and preferred stock
was canceled and the holders of such securities received approximately $45
million (15%) of the Reorganized Company's common stock and the right to receive
certain potential litigation recoveries which ultimately amounted to $20
million. In addition, on the Effective Date, the Palo Verde Leases were
terminated and the Company reacquired such interests. See Note H.
Basis of Presentation. The Company maintains its accounts in accordance
with the Uniform System of Accounts prescribed by the Federal Energy Regulatory
Commission (the "FERC"). The Company had determined that it does not meet the
criteria for the application of Statement of Financial Accounting Standards
("SFAS") No. 71, "Accounting for the Effects of Certain Types of Regulation,"
and accordingly does not report the effects of certain actions of regulators as
assets or liabilities unless such actions result in assets or liabilities under
generally accepted accounting principles for commercial enterprises in general.
The Company accounted for all transactions related to its Reorganization in
accordance with Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"). As of the Effective
Date of the Reorganization, the Company applied "fresh-start"
42
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
reporting in accordance with SOP 90-7 resulting in the creation of a new
reporting entity having no retained earnings or accumulated deficit. In applying
fresh-start reporting, the Company determined its reorganization value, which
was allocated to the Company's assets, and recorded its liabilities at fair
value. Reorganization value was determined as the value of the Company's capital
structure, based on management's estimates of future operating results, less
operational liabilities.
Because of the effects of fresh-start reporting, the Reorganized Company's
financial statements for periods after February 12, 1996 are not comparable to
the Predecessor Company's financial statements for periods before February 12,
1996. A vertical line is shown in the accompanying financial statements to
separate the Reorganized Company from the Predecessor Company because the
respective financial statements have not been prepared on a consistent basis of
accounting.
Comprehensive Income. In 1997, the Company implemented SFAS No. 130,
"Reporting Comprehensive Income." Under this standard, certain gains and losses
that are not recognized currently in the statement of operations are reported as
other comprehensive income.
Utility Plant. Upon adoption of fresh-start reporting, the Company
revalued its utility plant. As of February 12, 1996, the value allocated to the
assets used in the Company's generation, transmission and distribution
operations was based on the Company's estimate of the replacement cost less
depreciation ("RCLD") and was derived from the value of the Company as a going
concern rather than on an appraisal or other professional valuation of its
assets. The RCLD of generation assets was calculated based on estimates of the
current cost of gas-fired combined-cycle and combustion turbine power plants,
adjusted for certain economic factors. Additions to utility plant subsequent to
February 12, 1996 are reported at historical cost. Depreciation is provided on
a straight-line basis over the estimated remaining lives of the assets (ranging
from 11 years to 31 years), except for approximately $384 million of
reorganization value allocated to net transmission, distribution and general
plant in service. This amount is being depreciated over the ten-year period of
a rate settlement (the "Rate Stipulation") dated July 27, 1995 among the Company
and substantially all of the other parties to Docket No. 12700.
The Company charges the cost of repairs and minor replacements to the
appropriate operating expense accounts and capitalizes the cost of renewals and
betterments. Gains or losses resulting from retirements or other dispositions
of operating property in the normal course of business are credited or charged
to the accumulated provision for depreciation.
The Company accrued a liability for the present value of the estimated
decommissioning costs for the Company's interest in Palo Verde using an
escalation rate of 3% and a discount rate of 6%. Accretion of the
decommissioning liability is charged to interest charges in the statements of
operations.
The cost of nuclear fuel is amortized to fuel expense on a unit-of-
production basis. A provision for spent fuel disposal costs is charged to
expense based on requirements of the Department of Energy (the "DOE") for
disposal cost of approximately one-tenth of one cent on each kilowatt hour
generated.
43
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
Impairment of Long-Lived Assets. The Company evaluates impairment of its
long-lived assets and certain intangible assets whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. An asset is deemed impaired if the sum of the expected future cash
flows is less than the carrying amount of the asset.
Capitalized Interest. The Company capitalizes, to construction work in
progress, interest cost calculated in accordance with SFAS No. 34,
"Capitalization of Interest Cost."
Cash and Cash Equivalents. All temporary cash investments with an original
maturity of three months or less are considered cash equivalents.
Investments. The Company's marketable securities, included in
decommissioning trust funds in the balance sheets, are reported at fair market
value and consist primarily of municipal bonds in trust funds established for
decommissioning of its interest in Palo Verde which had a fair market value of
approximately $38.4 million at December 31, 1997. Such marketable securities
are classified as "available-for-sale" securities and as such unrealized gains
and losses are included in accumulated other comprehensive income as a separate
component of capitalization.
Inventories. Inventories, primarily parts, materials and supplies are
stated at average cost not to exceed recoverable cost.
Operating Revenues. The Company accrues revenues for services rendered but
unbilled.
The regulations of the Public Utility Commission of Texas (the "Texas
Commission"), the New Mexico Public Utility Commission (the "New Mexico
Commission") and the FERC and the agreements with individual customers generally
provide for fuel and purchased and interchanged power expenses to be recovered
from customers. Fuel revenues reflect the Company's estimate of recoverable
fuel and purchased and interchanged power expenses net of a percentage of (i)
profit margins from certain off-system sales and (ii) revenues from third-party
transmission services, which are credited to customers. Economy sales relate to
spot market sales and are included in fuel revenues. Base revenues refer to the
Company's revenues from the sale of electricity, excluding such fuel revenues.
Federal Income Taxes. The Company accounts for federal income taxes under
the asset and liability method of accounting for income taxes. Under this
method, deferred income taxes are recognized for the estimated future tax
consequences of "temporary differences" by applying enacted statutory tax rates
for each taxable jurisdiction applicable to future years to differences between
the financial statement carrying amounts and the tax bases of existing assets
and liabilities. The Company records a valuation allowance to reduce its
deferred tax assets to the extent it is more likely than not that such deferred
tax assets will not be realized. The effect on deferred tax assets and
liabilities of a change in tax rate is recognized in income in the period that
includes the enactment date.
Earnings per Share. The Company adopted the provisions of SFAS No. 128,
"Earnings per Share," which establishes standards for computing and presenting
earnings per share, for the year ended
44
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1997. All per share amounts reported in prior periods presented
have been restated to conform to the new standard. Basic earnings (loss) per
common share is computed by dividing net income or loss, after deducting the
preferred dividend requirements, by the weighted average number of common shares
outstanding. Diluted earnings (loss) per common share is computed by dividing
net income or loss, after deducting the preferred dividend requirements, by the
weighted average number of common shares and dilutive common shares outstanding.
Benefit Plans. See Note J for accounting policies regarding the Company's
retirement plans and postretirement benefits.
Stock Options and Restricted Stock. The Company has a long-term incentive
plan which reserves shares of common stock for issuance to officers, key
employees and non-employee directors through the award or grant of stock options
and restricted stock. The Company has adopted the disclosure-only provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123").
Accordingly, compensation expense is recognized for the intrinsic value, if any,
of option grants at measurement date ratably over the vesting period of the
options. Compensation expense for the restricted stock awards is recognized for
the fair value of the shares at the award date ratably over the restriction
period. Unearned compensation related to stock options and restricted stock
awards is shown as a reduction of common stock equity.
Reclassifications. Certain amounts in the financial statements for 1996
and 1995 have been reclassified to conform with the 1997 presentation.
45
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
SUPPLEMENTAL STATEMENTS OF CASH FLOW DISCLOSURES (IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM | PERIOD FROM
YEAR FEBRUARY 12 | JANUARY 1 YEAR
ENDED TO | TO ENDED
DECEMBER 31, DECEMBER 31, | FEBRUARY 11, DECEMBER 31,
1997 1996 | 1996 1995
----------- ----------- | ----------- -----------
<S> <C> <C> | <C> <C>
Cash (refunded) paid for: |
Income taxes, net............................ $(17,812) $ (2,504) | $ - $ 12,950
Interest..................................... 76,477 53,000 | 8,580 80,688
Reorganization items - professional |
fees and other............................. 3,264 8,910 | 2,279 15,207
|
Non-cash investing and financing activities: |
Issuance of preferred stock for |
pay-in-kind dividends...................... 12,893 8,426 | - -
Grants of restricted shares of |
common stock............................... 575 948 | - -
Property purchased through issuance |
of promissory note......................... - 964 | - -
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
TEXAS RATE MATTERS
The rates and services of the Company in Texas municipalities are regulated
by those municipalities, and in unincorporated areas by the Texas Commission.
The largest municipality in the Company's service area is the City of El Paso.
The Texas Commission has exclusive appellate jurisdiction to review municipal
orders and ordinances regarding rates and services in Texas and
46
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
jurisdiction over certain other activities of the Company. The decisions of the
Texas Commission are subject to judicial review.
Rate Stipulation and Agreed Order. The Company's rates for its Texas
customers are governed by a rate order entered by the Texas Commission in Docket
12700 (the "Agreed Order") adopting a Rate Stipulation. The Agreed Order and
Rate Stipulation were entered into by the Company, the Texas Commission staff,
the City of El Paso and virtually all other intervenors in the case. The Agreed
Order implemented certain provisions of the Rate Stipulation and set rates
consistent with the Rate Stipulation. Among other things, under the Rate
Stipulation: (i) the Company's base rates for most customers in Texas were fixed
for ten years beginning in August 1995 (the "Freeze Period"); (ii) the City of
El Paso granted the Company a new franchise that extends through the Freeze
Period; (iii) the Company will retain 75% during the first five years of the
Freeze Period and 50% during the remainder of the Freeze Period of (A) the net
revenues generated by providing third-party transmission services and (B) profit
margins from certain off-system power sales; (iv) the Company's reacquisition of
the Palo Verde leased assets was deemed to be in the public interest; and (v)
all appeals of Texas Commission orders concerning the Company and all
outstanding Texas Commission dockets concerning the Company's rates were
resolved.
Neither the Rate Stipulation nor the Agreed Order deprives the Texas
regulatory authorities of their jurisdiction over the Company during the Freeze
Period. However, the Texas Commission determined in the Agreed Order that the
rate freeze is in the public interest and results in just and reasonable rates.
Further, the signatories to the Rate Stipulation (other than the General
Counsel, the Texas Office of Public Utility Counsel and the State of Texas)
agreed not to seek to initiate an inquiry into the reasonableness of the
Company's rates during the Freeze Period and to support the Company's
entitlement to rates at the freeze level throughout the Freeze Period. The
Company believes, but cannot assure, that its cost of service will support rates
at or above the freeze level throughout the Freeze Period and, therefore, does
not believe any attempt to reduce the Company's rates would be successful.
However, during the Freeze Period, the Company is precluded from seeking rate
increases in Texas, even in the event of increased operating or capital costs.
In the event of a merger, the parties to the Rate Stipulation retain all rights
provided in the Rate Stipulation, their rights to participate as a party in any
proceeding related to the merger, and the right to pursue a reduction in rates
below the freeze level to the extent of post-merger synergy savings.
Fuel. Pursuant to Texas Commission rules, the Company periodically must
make a filing reconciling the revenues collected from Texas customers under its
fixed fuel factor with the fuel and purchased power expenses actually incurred
for the period covered by the reconciliation. A fuel and purchased power
reconciliation must include not less than twelve months nor more than thirty-six
months of reconcilable data. The Company has not filed a reconciliation for any
period since June 1995. Differences between revenues collected and expenses
incurred are subject to a refund to customers (in the case of an overrecovery of
fuel costs) or surcharge (in the case of an underrecovery of fuel costs). The
Texas Commission staff, local regulatory authorities such as the City of El
Paso, and customers are entitled to intervene in a fuel reconciliation
proceeding and to challenge the recovery of fuel and purchased power expenses.
47
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
Higher than expected natural gas prices were experienced in December 1996,
continued in the first quarter of 1997 and remained at higher levels through the
remainder of 1997 compared to 1996. These higher natural gas prices have
increased the Company's underrecovered fuel costs, which will be reviewed in the
next Texas fuel reconciliation. A significant disallowance of fuel costs in
this reconciliation could have an adverse effect on the Company's financial
results. In January 1998, the Company filed a request with the Texas Commission
to increase its Texas fixed fuel factor and implement a surcharge, subject to
reconciliation, of its underrecovered fuel costs. The Company entered into a
stipulation with all parties to the docket to implement the surcharge and a new
fixed fuel factor. Both the fixed fuel factor and surcharge are expected to go
into effect in April 1998.
Palo Verde Performance Standards. The Texas Commission has established
performance standards for the operation of Palo Verde, pursuant to which each
Palo Verde unit is evaluated annually to determine whether its three-year
rolling average capacity factor entitles the Company to a reward or subjects it
to a penalty. There are five performance bands based around a target capacity
factor of 70%. The capacity factor is calculated as the ratio of actual
generation to maximum possible generation. If the capacity factor, as measured
on a station-wide basis for any consecutive 24-month period, should fall below
35%, the Texas Commission could reconsider the rate treatment of Palo Verde,
regardless of the provisions of the Rate Stipulation. The removal of Palo Verde
from rate base could have a significant negative impact on the Company's
revenues and financial condition. For the three-year rolling average period
ended December 31, 1997, Palo Verde Units 1, 2 and 3 achieved capacity factors
of 83.75%, 83.04% and 88.70%, respectively. These capacity factors result in
the Company's entitlement to a combined reward of $2.8 million pursuant to the
formula established by the Texas Commission for the Palo Verde units.
NEW MEXICO RATE MATTERS
The New Mexico Commission has jurisdiction over the Company's rates and
services in New Mexico and over certain other activities of the Company,
including prior approval of the issuance, assumption or guarantee of securities.
The New Mexico Commission's decisions are subject to judicial review. Current
base rates in New Mexico were established in 1990 and have not increased since.
The Company does not have an agreement with New Mexico regulatory authorities or
parties to past New Mexico regulatory proceedings comparable to the Rate
Stipulation. The largest city in the Company's New Mexico service territory is
Las Cruces, which in 1997 accounted for 8% of the Company's total revenue. See
Note I.
Pending Rate Case. In October 1996, the New Mexico Commission issued an
order in Case No. 2722, requiring the Company to answer certain ratepayer
complaints and to file a rate filing package, including cost of service data and
supporting testimony. On March 3, 1997, the Company filed with the New Mexico
Commission all of the rate filing package data required by the Commission's
order. 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 economic factors
48
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
and 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.
Prosecution of the rate case before the New Mexico Commission is expected to be
completed before the end of 1998. The Company is unable at this time to predict
the outcome of this proceeding.
Fuel. The Company is required to make annual filings with the New Mexico
Commission to reconcile the revenues collected under its fixed fuel factor with
its fuel and purchased power expenses actually incurred, and to report the
results of Palo Verde performance standards. These reports are due by January
31 of each year for the preceding calendar year, and are filed along with the
Company's request to revise its fixed fuel factor to reflect current projections
of fuel and purchased power costs and to include the over or underrecovery
reflected in the reconciliation report and the reward or penalty reflected in
the performance standards report. On October 31, 1997, the Company filed
testimony and evidence supporting its continued use of the methodology and
manner of collecting fuel and purchased power costs reflected in its tariffs. A
hearing on this filing is scheduled for July 1998.
The Company's 1998 annual filing reflects a significant increase in the
monthly fuel charge. This increase is necessary because of (i) significant
increases in the spot price of natural gas and (ii) the delayed implementation
of the 1997 change, effective with bills rendered on or after August 1, 1997,
which has caused the Company to underrecover its fuel costs in New Mexico by
approximately $5.3 million for the year ended December 31, 1997. The recovery
of this amount, coupled with continued higher gas costs for 1998, results in an
increase in the proposed 1998 fixed fuel factor of approximately 24% over the
present factor. The Company believes it has fully justified its fuel and
purchased power costs and recovery methodology. In March 1998, the New Mexico
Commission consolidated the 1998 annual filing and the October 1997 filing for
hearing in July 1998. There can be no assurance that the New Mexico Commission
will accept the Company's proposed fixed fuel factor. As in Texas, interested
parties are allowed to intervene and challenge the recoverability of fuel
expenses. A significant disallowance of fuel costs could have an adverse effect
on the Company's financial results.
Palo Verde Performance Standards. The New Mexico Commission has
established performance standards for the operation of Palo Verde, pursuant to
which the entire Palo Verde station is evaluated annually to determine if its
achieved capacity factor allows the Company to claim a reward or subjects it to
a penalty. There are five performance bands based around a target capacity
factor of 67.5%. Because Unit 3 is not included in the Company's New Mexico rate
base, any penalty or reward calculated on a total station basis is limited to
two-thirds of such penalty or reward. The capacity factor is calculated as the
ratio of actual generation to maximum possible generation. If the annual
capacity factor is 35% or less, the New Mexico Commission is required to
initiate a proceeding to reconsider the rate base treatment of Palo Verde Units
1 and 2. The removal of Palo Verde from rate base could have a significant
negative impact on the Company's revenues and financial condition. For the year
ended December 31, 1997, the Palo Verde station capacity factor was 88.43%.
This capacity factor results in the Company's entitlement to a reward of $1.1
million, pursuant to the formula established by the New Mexico Commission for
the Palo Verde units.
49
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
FEDERAL REGULATORY MATTERS
Federal Energy Regulatory Commission. The Company is subject to regulation
by the FERC in certain matters, including rates for wholesale power sales,
transmission of electric power and the issuance of securities.
The Company has a long-term firm power sales agreement with Imperial
Irrigation District ("IID") providing for the sale of 100 megawatts ("MW") of
firm capacity and 50 MW of contingent capacity through April 2002. The
agreement generally provides for level sales prices over the life of the
agreement. The Company also has a firm power sales agreement with Texas-New
Mexico Power Company ("TNP"), providing for sales to TNP in the minimum amount
of 25 MW through 2002. Sales prices are essentially level for the remaining
life of the agreement. Rate tariffs currently applicable to IID and TNP contain
fuel and purchased power cost adjustment provisions designed to recover the
Company's fuel and purchased power costs.
In July 1996, the Company filed its open access transmission tariffs
(Docket No. OA96-200-000) (the "Open Access Case"), in compliance with FERC
Order No. 888, Promoting Wholesale Competition Through Open Access Non-
Discriminatory Transmission Services by Public Utilities; Recovery of Stranded
Costs by Public Utilities and Transmitting Utilities ("Order No. 888"), covering
network and point-to-point transmission services and the six specifically
required ancillary services. Several parties, including the City of Las Cruces,
New Mexico ("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 of 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 the Open Access Case. 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 complaint filed by one of the
wholesale power marketers that submitted a bid in 1996 to the CFE. See
"Department of Energy" below.
Intervenors in the Open Access Case 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. Hearings related to these issues were conducted before a
FERC administrative law judge in January 1998. A final decision from the FERC
on these issues is not expected until the fourth quarter of 1998. The Company
does not expect a material financial impact to result from a FERC ruling.
In July 1996, Las Cruces exercised its right under 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. For a discussion of
this proceeding, see Note I.
Department of Energy. The DOE regulates the Company's exports of power to
the CFE in Mexico pursuant to a license granted by the DOE and a presidential
permit. In addition, the DOE is authorized
50
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
to assess operators of nuclear generating facilities for a share of the costs of
decommissioning the DOE's uranium enrichment facilities and for the ultimate
costs of disposal of spent nuclear fuel.
In September 1996, one of the wholesale power marketers that submitted a
bid in 1996 to the CFE in connection with renewal of the interchange agreement
for the supply of power during 1997 to Ciudad Juarez, Mexico, filed a complaint
against the Company with the FERC. The complaint sought emergency relief and
requested the FERC to direct the Company to enter into an agreement to provide
firm point-to-point transmission service to the CFE under the Company's open
access transmission tariff. In October 1996, the FERC issued an order requiring
the Company to provide point-to-point transmission service over the Company's
transmission system to substation facilities near the United States/Mexico
border. The FERC, however, concurred with the Company's position that the FERC
does not have jurisdiction to order transmission across the border, suggesting
that the DOE has such jurisdiction. The DOE subsequently issued a Notice of
Delegation and Assignment which delegated to the FERC the DOE's authority to
carry out its duties in this case. The FERC has docketed the Delegation and
Assignment and the process is expected to continue throughout 1998.
Nuclear Regulatory Commission. The Nuclear Regulatory Commission (the
"NRC") has jurisdiction over the Company's licenses for Palo Verde and regulates
the operation of nuclear generating stations to protect the health and safety of
the public from radiation hazards and has authority to conduct environmental
reviews pursuant to the National Environmental Policy Act.
OTHER WHOLESALE CUSTOMERS
The term of the Company's previous one-year 1997 sales agreement for firm
capacity and associated energy to the CFE terminated December 31, 1997.
Pursuant to a bidding process, the Company was selected by the CFE to provide
varying amounts of power during 1998 ranging from 90 to 200 MW. The price is
stable throughout the twelve-month term of the agreement and includes charges
for capacity and energy as well as transmission and any required ancillary
services. Under the new agreement, the Company's revenues in 1998 related to
power sales to the CFE are expected to be similar to 1997 revenues. There can
be no assurance that the CFE will remain a customer after 1998. The agreement
requires payment in United States dollars.
RECENT CHANGES IN UTILITY REGULATION
General. The electric utility industry faces increasing pressure to become
more competitive as legislative, regulatory, economic and technological changes
occur. Federal and state legislation, regulatory initiatives, and proposed
initiatives in Texas and New Mexico encourage competition in the industry, and
ultimately in the Company's service area. 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 result in the loss of
customers and could diminish the ability of the Company to fully recover its
investment in generation assets, as well as the cost of operating these assets.
This issue is particularly important to the Company because its rates are
significantly higher than national and regional averages. In the face of
51
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
increased competition, there can be no assurance that the future operations,
cash flows and financial condition of the Company will not be adversely
affected, or that the Company will be able to sustain retail rates at the levels
established by the Rate Stipulation during the Freeze Period.
Of particular importance to the Company is the issue of ultimate
recoverability of "stranded costs," or costs previously found by regulatory
authorities to be reasonable and prudent, but which at the same time are higher
than would be recovered under immediate, full competition. There is substantial
discussion and debate on this issue on both a national and state level and, at
this time, there appears to be no clear solution. At the federal level, the
FERC has announced, through a formal rulemaking, its intention to allow 100%
recovery of all legitimate verifiable stranded costs attributable to FERC
jurisdictional customers. Texas and New Mexico commissions and legislatures are
engaged in various activities which are attempting to address the issue of
stranded cost recovery from customers subject to their jurisdictions.
FERC. In April 1996, the FERC issued its Order No. 888, requiring all
public utilities owning, operating or controlling facilities used for
transmitting electricity in interstate commerce to (i) file open access
transmission tariffs containing minimum terms and conditions of non-
discriminatory service and (ii) take transmission service (including ancillary
services) for their own new wholesale sales and purchases of electric energy
under the open access tariffs. Additionally, Order No. 888 permits public
utilities to seek recovery of legitimate, prudent and verifiable stranded costs
and provides a mechanism for the recovery of such costs. Order No. 888 also
provides for recovery of costs associated with former power customers and new
municipally-owned entities becoming transmission-only customers as a result of
providing open access transmission if the utility had a reasonable expectation
of continuing to provide service to the departing customer. Order No. 888
established criteria under which stranded costs will be evaluated for contracts
entered into prior to July 11, 1994, and for stranded costs resulting from the
formation of any new municipal utilities. Recovery of stranded costs under
contracts entered into after July 10, 1994, will be governed by the terms of
those contracts.
In April 1996, the FERC also issued Order No. 889, Open Access Same-Time
Information System (formerly Real-Time Information Networks) and Standards of
Conduct ("Order No. 889"). Order No. 889 requires all public utilities owning,
operating or controlling facilities used for transmitting electricity in
interstate commerce to develop and maintain an Open Access Same-Time Information
System that will give existing and potential transmission users access to
transmission-related information on a basis consistent with that available to a
utility's employees engaged in the buying and selling of power. Order No. 889
further requires public utilities to separate their transmission and generation
marketing functions and adopt standards of conduct ensuring that all open access
transmission customers are treated in a non-discriminatory manner.
Texas. During 1996, the Texas Commission conducted projects to evaluate
the (i) scope of competition in the electric industry in Texas and (ii)
potential stranded investment, procedures for allocating stranded costs, and
acceptable methods of stranded cost recovery. The Texas Commission's report,
which was issued in January 1997, recommended a careful and deliberate approach
to continued expansion of competition in the Texas electric market, ultimately
leading to retail competition with
52
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
certain safeguards, and 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. In February 1998, the Texas Commission requested all Texas utilities
to revise the ECOM estimates based on certain updated assumptions. Using the
Texas Commission's revised model inputs, the Company's revised ECOM estimates
range from a high of $1.5 billion to a low of $843 million, with an expected
value of $1.2 billion, assuming full retail access in 1999. Although several
pieces of legislation were offered during the 1997 Texas legislative session, no
significant deregulation legislation was passed.
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. The committee is receiving
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, and 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 expected
to file a final report in late 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. In 1995, the New Mexico Commission initiated a notice of
inquiry regarding competition and the restructuring of regulation of the
electric industry. 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 stranded costs. The
1998 legislative session concluded without the passage of any significant
deregulation legislation.
C. PALO VERDE AND OTHER JOINTLY-OWNED UTILITY PLANT
The Company has a 15.8% undivided interest in the three nuclear generating
units at Palo Verde. The Palo Verde Participants include the Company, five
other utilities and Arizona Public
53
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
Service Company ("APS"), which serves as the operating agent for Palo Verde. The
operation of Palo Verde and the relationship among the Palo Verde Participants
is governed by the Arizona Nuclear Power Project Participation Agreement (the
"ANPP Participation Agreement").
Other jointly-owned utility plant includes a 7% undivided interest in Units
4 and 5 of Four Corners Generating Station ("Four Corners") and certain other
transmission facilities. A summary of the Company's investment in jointly-owned
utility plant, excluding fuel, at December 31, 1997 and 1996 is as follows (In
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------- ----------------------
PALO VERDE PALO VERDE
STATION OTHER STATION OTHER
---------------------- ----------------------
<S> <C> <C> <C> <C>
Electric plant in service........... $573,218 $180,815 $568,957 $180,366
Accumulated depreciation............ (46,589) (27,078) (22,162) (12,747)
Construction work in progress....... 12,545 2,249 8,545 985
</TABLE>
Pursuant to the ANPP Participation Agreement, the Palo Verde Participants
share costs and generating entitlements in the same proportion as their
percentage interests in the generating units and each Palo Verde Participant is
required to fund its proportionate share of fuel, other operation, maintenance
and capital costs, which, except capital costs, are included in the
corresponding expense captions in the statements of operations. The Company's
total monthly share of these costs was approximately $7.3 million in 1997. The
ANPP Participation Agreement provides that if a participant fails to meet its
payment obligations, each non-defaulting participant shall pay its proportionate
share of the payments owed by the defaulting participant.
Decommissioning. Pursuant to the ANPP Participation Agreement and federal
law, the Company is required to fund its share of the estimated costs to
decommission Palo Verde over the estimated service life of forty years. The
Company's funding requirements are determined periodically based upon
engineering cost estimates performed by outside engineers retained by the ANPP.
In December 1995, the Palo Verde Participants approved a decommissioning
study performed by an outside engineering firm. The 1995 study determined that
the Company will have to fund approximately $229 million (stated in 1995
dollars) to cover its share of decommissioning costs. The 1995 study assumed
that (i) maintenance expense for spent fuel storage will be incurred for ten
years after the shutdown of the last unit (estimated to be in 2024); (ii) a
national interim spent fuel storage facility will be available; and (iii) as a
result of such national spent fuel storage facility, the amount of spent fuel
stored on-site will be reduced from all spent fuel assemblies to the final core
plus fuel assemblies from approximately three refuelings.
Cost estimates for decommissioning have increased with each study. The
previous cost estimate from a 1993 study determined that the Company would have
to fund approximately $221 million (stated
54
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
in 1993 dollars). The 1993 estimate, however, reflected an 84% increase from the
previous estimate made in 1989, primarily related to increases in estimated
costs for low-level radioactive waste disposal.
Although the 1995 study was based on the latest available information,
there can be no assurance that decommissioning cost estimates will not continue
to increase in the future or that regulatory requirements will not change. In
addition, until a new low-level radioactive waste repository opens and operates
for a number of years, estimates of the cost to dispose of low-level radioactive
waste are subject to significant uncertainty. The decommissioning study is
updated every three years and a new study will be completed in 1998.
The rate freeze under the Rate Stipulation would preclude the Company from
seeking a rate increase in Texas during the Freeze Period to recover increases
in decommissioning cost estimates. Additionally, there can be no assurance that
the Company could increase its rates in any of its other jurisdictions to
recover such increased costs.
The Company has established external trusts with independent trustees,
which enable the Company to record a current deduction for federal income tax
purposes of a portion of amounts funded. As of December 31, 1997, the aggregate
balance of the trust funds was approximately $38.4 million, which is reflected
in the Company's balance sheets in deferred charges and other assets.
Steam Generators. Palo Verde has experienced degradation in the steam
generator tubes of each unit. The degradation includes axial tube cracking in
the upper regions of the two steam generators in Unit 2 and, to a lesser degree,
in Units 1 and 3. This form of steam generator tube degradation, while less
common than other types, has also been seen at other United States nuclear
generating stations. The units also have experienced circumferential cracking at
the tube sheet, a more common type of tube cracking. The axial tube cracking was
discovered following a steam generator tube rupture in Unit 2 in March 1993.
Since that time, APS has undertaken an ongoing investigation and analysis and
has performed corrective actions designed to mitigate further degradation.
Corrective actions have included changes in operational procedures designed to
lower the operating temperatures of the units, chemical cleaning and the
implementation of other technical improvements. APS has stated that it believes
its remedial actions have slowed the rate of tube degradation.
Steam generator tubes in each of the Palo Verde units have been inspected
during regularly scheduled refueling outages and mid-cycle inspection outages.
If tube cracks are detected during an inspection, the affected tubes are taken
out of service by plugging. This may impair the performance of a unit if
sufficient numbers of steam generator tubes are affected.
The projected service lives of the units' steam generators are reassessed
by APS periodically in conjunction with inspections made during outages of the
Palo Verde units. APS has determined that it will be economically desirable to
replace the Unit 2 steam generators, which have been the most affected by tube
cracking. In 1997, the Palo Verde Participants unanimously approved the
purchase of one set of spare steam generators for delivery in May 2002. The
Company's share of the cost is approximately $12.9 million. APS has indicated
that in 1998 it will request that the participants approve installation of
55
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
the spare generators in Unit 2 in 2003. The Company believes that such
installation would require the unanimous approval of the Palo Verde
Participants. The Company will continue to analyze the economic feasibility of
steam generator replacement, or other options that may be available in
connection with the operation of Unit 2. Also, the Company cannot predict
whether the Palo Verde Participants will agree to replace the Unit 2 steam
generators. The costs for the construction and shipping of the spare steam
generators are expected to be incurred between 1998 and 2002. Installation
costs, if they are approved, would be expected to be incurred between 1999 and
2003, with the bulk of the expenditures after 2000. The Company's portion of
total costs associated with construction and potential installation of new steam
generators in Unit 2, including replacement power costs and costs that would
otherwise have been expended through the operation and maintenance budget, is
currently estimated not to exceed $36 million. APS has also stated that, based
on the latest available data, it estimates that the steam generators in Units 1
and 3 should operate for their designated lives of 40 years (to 2025 and 2027,
respectively). APS will reassess the expected lives of these steam generators
periodically.
The Rate Stipulation precludes the Company from seeking a rate increase in
Texas during the Freeze Period to recover capital costs associated with such
replacement of steam generators. It is uncertain whether the costs associated
with replacing the Unit 2 steam generators would be approved by the New Mexico
Commission and included in the Company's rate base in New Mexico.
Liability and Insurance Matters. The Palo Verde Participants have public
liability insurance against nuclear energy hazards up to the full limit of
liability under federal law. The insurance consists of $200 million of primary
liability insurance provided by commercial insurance carriers, with the balance
being provided by an industry-wide retrospective assessment program, pursuant to
which industry participants would be required to pay an assessment to cover any
loss in excess of $200 million. The maximum assessment per reactor for each
nuclear incident is approximately $79.2 million, subject to an annual limit of
$10 million per incident. Based upon the Company's 15.8% interest in Palo
Verde, the Company's maximum potential assessment per incident is approximately
$37.6 million for all three units with an annual payment limitation of
approximately $4.7 million.
The Palo Verde Participants maintain "all risk" (including nuclear hazards)
insurance for property damage to, and decontamination of, property at Palo Verde
in the aggregate amount of $2.7 billion, a substantial portion of which must
first be applied to stabilization and decontamination. Finally, the Company has
obtained insurance against a portion of any increased cost of generation or
purchased power which may result from an accidental outage of any of the three
Palo Verde units if the outage exceeds 23 weeks.
56
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
D. COMMON STOCK
OVERVIEW
The Company issued approximately 60 million shares of new common stock on
February 12, 1996. The common stock has a stated value of $1 per share, with no
cumulative voting rights or preemptive rights. Holders of the common stock have
the right to elect the Company's directors and to vote on other matters.
Pursuant to the resolutions creating the Series A Preferred Stock, no
dividends can be paid on the common stock if there are dividends in arrears on
the Series A Preferred Stock. So long as the Company's First Mortgage Bonds are
outstanding and the series with the longest maturity is not rated "investment
grade" by either Standard & Poor's Rating Service or Moody's Investors Service,
Inc., the Company may not declare any dividend on the common stock, other than
in additional shares of common stock, or make any other distribution on, or
acquire for value any shares of common stock (with certain limited exceptions)
unless, after giving effect thereto, the aggregate of all such dividends,
distributions and certain other payments made by the Company since February 12,
1996 would be less than the sum of (i) 50% of the consolidated net income (as
defined in the mortgage indenture) of the Company minus dividends paid in
respect of the Series A Preferred Stock for the period from February 13, 1996 to
the most recently ended fiscal quarter for which quarterly financial statements
are available (or, if such consolidated net income is a deficit, less 100% of
such deficit), plus (ii) 100% of the aggregate net proceeds received by the
Company from the issuance or sale since February 12, 1996 of equity securities
or debt securities that have been converted into equity securities, plus (iii)
$10.0 million. Currently, the Company's First Mortgage Bonds are not rated
investment grade.
Pursuant to the terms of the reimbursement agreements related to four
letters of credit issued with respect to the four series of pollution control
revenue bonds, so long as a drawing is available under any of the letters of
credit, the same limitation on the declaration of dividends would apply to the
Company. In addition to the restriction contained in the mortgage indenture, the
credit agreement for the working capital and fuel financing facility limits to
$15.0 million the aggregate amount of dividends that can be paid on the common
stock during the three years after its initial issuance on February 12, 1996.
1996 LONG-TERM INCENTIVE PLAN
The 1996 Long-Term Incentive Plan (the "1996 Plan") authorized the issuance
of up to 3,500,000 shares of common stock for the benefit of officers, key
employees and non-employee directors through the award or grant of non-statutory
stock options, incentive stock options, stock appreciation rights, restricted
stock, bonus stock and performance stock.
Stock Options. Stock options have been granted at prices equal to or
greater than the market value of the shares at the date of grant. The options
expire ten years from the date of grant unless terminated
57
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
earlier by the Board of Directors. The following table summarizes the
transactions of the Company's stock options for 1996 and 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
----------- ----------
<S> <C> <C>
Unexercised options outstanding at February 12, 1996..... - $ -
Options granted..................................... 1,900,000 5.69
Options exercised................................... - -
Options forfeited................................... - -
---------
Unexercised options outstanding at December 31, 1996..... 1,900,000 5.69
Options granted..................................... 55,000 6.56
Options exercised................................... - -
Options forfeited................................... (5,000) 6.56
---------
Unexercised options outstanding at December 31, 1997..... 1,950,000 5.71
=========
</TABLE>
Certain stock options awarded vest ratably over a four or five-year period.
Stock options outstanding at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
EXERCISE NUMBER REMAINING NUMBER
PRICE OUTSTANDING LIFE, IN YEARS EXERCISABLE
-------- ----------- -------------- -----------
<S> <C> <C> <C>
$ 5.32 800,000 8.3 320,000
5.56 800,000 8.4 320,000
6.56 50,000 9.3 50,000
7.00 300,000 8.4 300,000
--------- -------
1,950,000 990,000
========= =======
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, because the stock option grants had no intrinsic value at the
measurement date, no compensation cost has been recognized. Had compensation
cost for the plan been determined based on the fair value at
58
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
the grant date, consistent with the provisions of SFAS No. 123, the Company's
net earnings and earnings per share would have been reduced to the pro forma
amounts presented below:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 12
TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Net income applicable to common stock (In thousands):
As reported......................................... $38,649 $31,431
Pro forma........................................... 38,093 30,337
Basic earnings per share:
As reported......................................... 0.643 0.523
Pro forma........................................... 0.634 0.505
Diluted earnings per share:
As reported......................................... 0.639 0.523
Pro forma........................................... 0.630 0.505
</TABLE>
The fair value for these options was estimated at the grant date using the
Black-Scholes option pricing model. Weighted average assumptions and grant-date
fair value for 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Risk-free interest rate 6.76% 6.85%
Expected life, in years 10 10
Expected volatility 10.86% 4.24%
Expected dividend yield - -
Fair value $ 3.24 $2.60
</TABLE>
Restricted Stock. The Company has awarded vested and unvested restricted
stock awards under the 1996 Plan. Restrictions from resale generally lapse, and
unvested awards vest, over periods of four to five years. During 1997 and 1996,
approximately $0.5 million and $0.2 million, respectively, relating to
59
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
restricted stock awards were charged to expense. The following table summarizes
the vested and unvested restricted stock awards for 1997 and 1996:
<TABLE>
<CAPTION>
VESTED UNVESTED TOTAL
---------------- ---------------- ----------------
<S> <C> <C> <C>
Restricted shares outstanding at February 12, 1996.... - - -
Restricted stock awards............................ 80,000 100,000 180,000
Lapsed restrictions................................ - - -
--------------- --------------- ---------------
Restricted shares outstanding at December 31, 1996... 80,000 100,000 180,000
Restricted stock awards............................ 47,440 36,815 84,255
Lapsed restrictions and vesting.................... (40,488) (27,363) (67,851)
--------------- --------------- ---------------
Restricted shares outstanding at December 31, 1997... 86,952 109,452 196,404
=============== =============== ===============
</TABLE>
The holder of a restricted stock award has rights as a shareholder of
the Company, including the right to vote and, if applicable, receive cash
dividends on restricted stock, except that certain restricted stock awards
require any cash dividend on restricted stock to be delivered to the Company in
exchange for additional shares of restricted stock of equivalent market value.
60
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
RECONCILIATION OF BASIC AND DILUTED EARNINGS PER COMMON SHARE
The reconciliation of basic and diluted earnings per common share before
extraordinary items is presented below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------
PER
COMMON
INCOME SHARES SHARE
---------------- ----------------- ---------------
<S> <C> <C> <C>
(IN THOUSANDS)
Income before extraordinary items............. $54,568
Less: Preferred stock dividends............. 13,144
-------
Basic earnings per common share:
Income applicable to common stock............ 41,424 60,128,505 $0.689
=========
Effect of dilutive securities:
Unvested restricted stock.................... - 16,041
Stock options................................ - 293,086
------- ----------
Diluted earnings per common share:
Income applicable to common stock............ $41,424 60,437,632 $0.685
======= ========== =========
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM FEBRUARY 12 TO
DECEMBER 31, 1996
----------------------------------------------------
PER
COMMON
INCOME SHARES SHARE
---------------- ----------------- ---------------
<S> <C> <C> <C>
(IN THOUSANDS)
Income before extraordinary items............. $41,919
Less: Preferred stock dividends............. 10,488
-------
Basic earnings per common share:
Income applicable to common stock............ 31,431 60,073,808 $0.523
======
Effect of dilutive securities:
Unvested restricted stock.................... - 3,912
Stock options................................ - 38,989
------- ----------
Diluted earnings per common share:
Income applicable to common stock............ $31,431 60,116,709 $0.523
======= ========== ======
</TABLE>
Options to purchase 300,000 shares of common stock at $7.00 per share were
outstanding during 1997 and the second half of 1996 but were excluded from the
computation of diluted earnings per common share for all periods except the
first quarter of 1997 because the options' exercise price was greater than the
average market price of the common shares for those periods. The options, which
expire on June 11, 2006, were still outstanding at the end of 1997. Also
excluded from the computation
61
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
of diluted earnings per common share were options to purchase 525,000 shares of
common stock at $7.50 per share, granted on January 2, 1998.
The reconciliation of basic and diluted earnings per common share for the
Predecessor Company are not presented herein as there were no reconciling items
for periods prior to February 12, 1996.
E. PREFERRED STOCK
The Company issued one million shares of new Series A Preferred Stock on
February 12, 1996. The preferred stock has a liquidation preference of $100 per
share, has no sinking fund requirements and must be redeemed by the Company in
2008. The preferred stock has an annual dividend rate of 11.40%, which is to be
paid through the issuance of additional shares of preferred stock for the first
three years and in cash thereafter. The Company issued a total of 213,188
additional shares between November 1, 1996 and December 31, 1997 to satisfy pay-
in-kind dividends. Also, on January 22, 1998, the Company's Board of Directors
declared a scheduled pay-in-kind dividend which was paid on February 1, 1998,
through the issuance of 34,559 additional shares to shareholders of record as of
January 22, 1998.
Following is a summary of the changes in the preferred stock of the
Predecessor and Reorganized Company:
<TABLE>
<CAPTION>
REDEMPTION REQUIRED REDEMPTION NOT REQUIRED
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ------------ ---------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at December 31, 1994 and 1995.............. 639,600 $ 67,266 142,450 $ 14,198
Redemption of Predecessor preferred stock........ (639,600) (67,266) (142,450) (14,198)
Issuance of Reorganized preferred stock.......... 1,000,000 100,000 - -
Issuance of dividends............................ 84,264 8,426 - -
--------- -------- --------- ------------
Balance at December 31, 1996....................... 1,084,264 108,426 - -
Issuance of dividends............................ 128,924 12,893 - -
--------- -------- --------- ------------
Balance at December 31, 1997....................... 1,213,188 $121,319 - $ -
========= ======== ========= ============
</TABLE>
Optional Redemption. The Series A Preferred Stock is not redeemable at the
Company's option prior to February 1, 1999; provided, however, that upon the
occurrence of a change of control on or prior to February 1, 1999, the Company
shall have the right to redeem the outstanding Series A Preferred Stock, in
whole or in part, no earlier than 30 days nor later than 60 days from the date
the change of control offer is mailed to the holders of Series A Preferred
Stock, in cash, at a price per share equal to the sum of (i) 108% of the
liquidation preference plus (ii) accrued and unpaid dividends (including an
amount equal to a prorated dividend from the immediately preceding dividend
accrual date), if any, to the redemption date. Thereafter, the outstanding
Series A Preferred Stock may be redeemed, in whole or in part, at the option of
the Company, in cash at the redemption prices set forth in the table below, plus
all accrued and unpaid dividends (including an amount equal to a prorated
62
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
dividend from the immediately preceding dividend accrual date to the date of
redemption), if any, if redeemed during the twelve-month period beginning on
February 1 of the years indicated below:
<TABLE>
<CAPTION>
OPTIONAL
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
1999....................................... 105.70%
2000....................................... 104.56
2001....................................... 103.42
2002....................................... 102.28
2003....................................... 101.14
2004 and thereafter........................ 100.00
</TABLE>
Mandatory Redemption. On February 1, 2008, the Company will be required to
redeem (subject to the legal availability of funds therefor) all outstanding
shares of Series A Preferred Stock at a price in cash equal to the sum of (i)
the liquidation preference thereof plus (ii) all accrued and unpaid dividends,
if any, to the date of redemption.
63
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
F. LONG-TERM AND FINANCING AND CAPITAL LEASE OBLIGATIONS
Outstanding long-term and financing and capital lease obligations are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
(IN THOUSANDS)
Long-Term Obligations:
- ----------------------
First Mortgage Bonds (1):
7.25% Series A, issued 1996, due 1999.................................. $ 66,261 $ 78,266
7.75% Series B, issued 1996, due 2001.................................. 62,698 78,771
8.25% Series C, issued 1996, due 2003.................................. 119,292 148,989
8.90% Series D, issued 1996, due 2006.................................. 223,132 235,957
9.40% Series E, issued 1996, due 2011.................................. 273,398 285,900
Pollution Control Bonds (2):
Secured by First Mortgage Collateral Series Bonds:
Variable rate bonds, due 2014........................................ 63,500 63,500
Variable rate refunding bonds, due 2013.............................. 33,300 33,300
Variable rate refunding bonds, due 2014.............................. 37,100 37,100
Variable rate refunding bonds, due 2015.............................. 59,235 59,235
Promissory note due 2007 ($84,000 due in 1998) (3)......................... 730 958
-------- ----------
Total long-term obligations........................................ 938,646 1,021,976
-------- ----------
Financing and Capital Lease Obligations:
- ----------------------------------------
Turbine lease ($1,722,000 due in 1998) (4)................................. 4,628 5,900
Nuclear fuel ($26,657,000 due in 1998) (5)................................. 51,999 46,630
-------- ----------
Total financing and capital lease obligations...................... 56,627 52,530
-------- ----------
Total long-term and financing and capital lease obligations........ 995,273 1,074,506
Current maturities (Amount due within one year).............................. (28,463) (28,333)
-------- ----------
$966,810 $1,046,173
======== ==========
- -------------
</TABLE>
(1) First Mortgage Bonds
Substantially all of the Company's utility plant is subject to liens under
the First Mortgage Indenture.
The First Mortgage Indenture imposes certain limitations on the ability of
the Company to (i) declare or pay dividends on common stock; (ii) incur
additional indebtedness or liens on mortgaged property; and (iii) enter
into a consolidation, merger or sale of assets.
Series A, B, C and D Bonds may not be redeemed by the Company prior to
maturity. Series E Bonds may be redeemed at the option of the Company, in
whole or in part, on or after February 1, 2006.
64
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the bonds prior to maturity.
Repurchases of First Mortgage Bonds made during 1997 and 1996 are as follows
(In thousands):
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 12
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
7.25% Series A............................ $12,005 $ 46,726
7.75% Series B............................ 16,073 71,217
8.25% Series C............................ 29,697 8
8.90% Series D............................ 12,825 -
9.40% Series E............................ 12,502 -
------- --------
Total................................... $83,102 $117,951
======= ========
</TABLE>
(2) Pollution Control Bonds
The Company has four series of tax exempt Pollution Control Bonds in an
aggregate principal amount of approximately $193.1 million. Each of the tax
exempt issues is enhanced by a letter of credit. The Company's obligation to
the issuing banks pursuant to the letter of credit reimbursement agreements
are secured by First Mortgage Collateral Series Bonds (the "Collateral
Series Bonds") issued pursuant to the First Mortgage Indenture in the amount
of the letters of credit. The effective annual interest rate on the bonds is
calculated to be 5.65% at December 31, 1997. The bonds may be required to be
repurchased at the holder's option or are subject to mandatory redemption
upon the occurrence of certain events, and are redeemable at the option of
the Company under certain circumstances.
(3) Promissory Note
The note has an annual interest rate of 5.5% and is secured by certain
furniture and fixtures.
(4) Capitalized Lease Obligation, Copper Turbine
The Company leases a turbine and certain other related equipment under a
lease which expires in July 2000, with renewal options for up to seven
additional years. Semiannual lease payments, including interest, are
approximately $0.9 million through July 2000. The effective annual interest
rate implicit in this lease is calculated to be 9.6%.
65
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(5) Nuclear Fuel Financing
The Company has available a $100 million credit facility that provides for
working capital and up to $60 million for the financing of nuclear fuel.
This financing is effected through a trust that borrows under the facility
to acquire and process the nuclear fuel. The Company is obligated to repay
the trust's borrowings, and has secured this obligation with Collateral
Series Bonds. In the Company's financial statements, the assets and
liabilities of the trust are reported as assets and liabilities of the
Company.
The letter of credit reimbursement agreements which enhance the Company's
Pollution Control Bonds and the $100 million credit facility require compliance
with certain total debt and interest coverage ratios. The Company maintained
the required compliance throughout 1997.
Scheduled maturities of long-term and financing and capital lease
obligations at December 31, 1997 are as follows (In thousands):
<TABLE>
<S> <C>
1998.............................................. $28,463
1999.............................................. 93,412
2000.............................................. 1,815
2001.............................................. 62,797
2002.............................................. 104
</TABLE>
The table above does not reflect nuclear fuel purchase commitments and related
obligations and maturities.
66
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
G. INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1996 are presented below (In thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Reorganization expenses financed with bonds............ $ 18,308 $ 22,526
Capital leases......................................... 2,633 2,873
Benefits of tax loss carryforwards..................... 222,764 256,510
Investment tax credit carryforward..................... 20,410 20,410
Alternative minimum tax credit carryforward............ 11,954 9,627
Other (including state deferred taxes)................. 82,929 92,643
--------- ---------
Total gross deferred tax assets..................... 358,998 404,589
--------- ---------
Less valuation allowance:
Federal............................................. 12,661 12,661
State............................................... 17,149 17,941
--------- ---------
Total valuation allowance......................... 29,810 30,602
--------- ---------
Net deferred tax assets........................ 329,188 373,987
--------- ---------
Deferred tax liabilities:
Plant, principally due to differences in depreciation
and basis differences............................... (275,531) (288,416)
Other.................................................. (10,449) (11,687)
--------- ---------
Total gross deferred tax liabilities................ (285,980) (300,103)
--------- ---------
Net accumulated deferred income taxes.......... $ 43,208 $ 73,884
========= =========
</TABLE>
The deferred tax asset valuation allowance decreased by approximately $0.8
million in 1997, $226.7 million in 1996 and $4.5 million in 1995. The decrease
in 1997 was due to a reduction of unused state net operating loss ("NOL")
carryforward benefits, which had valuation allowances recorded against them.
The decrease in 1996 was primarily due to the Company's belief that, because of
the Rate Stipulation, Reorganization, and other factors, it is more likely than
not that the Company will have sufficient taxable income in the future to
utilize most of the tax NOL carryforward benefits that had valuation allowances
recorded against them. The Company believes that the net deferred tax assets
would be fully realized at current levels of taxable income. Prior to the
effective date of the Reorganization, the Predecessor Company did not assume
future taxable income for the utilization of NOL carryforwards. Approximately
$27.1 million of the Company's valuation allowance at December 31, 1997, if
subsequently recognized as a tax benefit, would be credited directly to capital
in excess of stated value in accordance with SOP 90-7.
67
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
The Company recognized income taxes as follows (In thousands):
<TABLE>
<CAPTION>
PERIOD FROM | PERIOD FROM
FEBRUARY 12 | JANUARY 1
YEAR ENDED TO | TO YEAR ENDED
DECEMBER 31, DECEMBER 31, | FEBRUARY 11, DECEMBER 31,
1997 1996 | 1996 1995
------------- ------------- | ------------- -------------
<S> <C> <C> | <C> <C>
Income tax expense (benefit): |
Federal: |
Current......................................... $ 2,382 $(17,203) | $ - $ 13,757
Deferred........................................ 28,087 38,828 | (2,340) (21,703)
Investment tax credit amortization.............. - - | (325) (2,828)
--------- -------- | ------------ --------
Subtotal current operations................... 30,469 21,625 | (2,665) (10,774)
Deferred tax benefit on extraordinary loss...... (1,494) - | - -
Adjustment of assets to reorganization value |
and liabilities to fair value (eliminatio |
of accumulated deferred investment |
tax credits).................................. - - | (77,950) -
Deferred included in reorganization items....... - - | (172,899) (1,194)
Income tax expense on interest income |
during bankruptcy............................. - - | 583 4,633
--------- -------- | ------------ --------
Total....................................... $28,975 $ 21,625 | $(252,931) $ (7,335)
========= ======== | ============ ========
|
State: |
Current......................................... $ - $ 278 | $ 116 $ 935
Deferred........................................ 4,307 4,767 | (866) (5,959)
--------- -------- | ------------ --------
Subtotal current operations................... 4,307 5,045 | (750) (5,024)
Deferred included in reorganization items....... - - | (17,494) -
--------- -------- | ------------ --------
Total....................................... $ 4,307 $ 5,045 | $ (18,244) $ (5,024)
========= ======== | ============ ========
</TABLE>
The current federal income tax expense for 1997 results primarily from the
accrual of alternative minimum tax ("AMT") for 1997. Deferred federal income
tax includes an offsetting AMT benefit of approximately $2.4 million.
The current federal income tax benefit for 1996 resulted primarily from the
carryback of 1996 AMT NOL to the 1993, 1994 and 1995 tax years and decreased by
an expense for the reduction of investment tax credits ("ITC") utilized.
Deferred federal income tax includes an offsetting AMT deferred expense of
approximately $24.0 million and a benefit for an increase in ITC carryforward of
approximately $6.8 million.
The current federal income tax expense for 1995 results primarily from the
accrual of AMT expense. The deferred federal income tax benefit recorded in
1995 includes offsetting AMT credits of approximately $18.3 million. ITC
utilized of approximately $4.6 million was recorded as a reduction to current
tax and included as a deferred tax expense.
68
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
Federal income tax provisions differ from amounts computed by applying the
statutory rate of 35% to book income (loss) before federal income tax as follows
(In thousands):
<TABLE>
<CAPTION>
PERIOD FROM | PERIOD FROM
FEBRUARY 12 | JANUARY 1
YEAR ENDED TO | TO YEAR ENDED
DECEMBER 31, DECEMBER 31, | FEBRUARY 11, DECEMBER 31,
1997 1996 | 1996 1995
----------------- --------------- | ------------ -----------
<S> <C> <C> | <C> <C>
Federal income tax expense (benefit) computed |
on income (loss) at statutory rate................ $28,269 $ 22,240 | $ 45,339 $(14,229)
Difference due to: |
ITC amortization (net of deferred taxes).......... - - | (211) (1,838)
Nondeductible bankruptcy costs.................... - - | 3,604 5,925
Federal valuation allowance....................... - - | (204,848) (4,461)
Adjustment of assets to reorganization value |
and liabilities to fair value (elimination |
of accumulated deferred ITCs)................... - - | (77,950) -
Reorganization costs (including the nontaxable |
extraordinary gain on discharge of debt)........ - - | (27,745) -
Other............................................. 706 (615) | 8,880 7,268
------- -------- | --------- --------
Total federal income tax expense (benefit)...... $28,975 $ 21,625 | $(252,931) $ (7,335)
======= ======== | ========= ========
Effective federal income tax rate................. 35.9% 34.0% | (195.3)% 18.0%
======= ======== | ========= ========
</TABLE>
The Company had approximately $636.5 million of tax NOL carryforwards,
approximately $20.4 million of ITC carryforwards and approximately $12.0 million
of AMT credit carryforwards as of December 31, 1997. If unused, the NOL
carryforwards would expire at the end of the year 2011, the ITC carryforwards
would expire in the years 2001 through 2005 and the AMT credit carryforwards
have an unlimited life.
The Reorganization and the associated implementation of fresh-start
reporting gave rise to significant items of income and expense for financial
reporting purposes that are not included in taxable income. These
reorganization items resulted in an effective tax rate for the period from
January 1 to February 11, 1996 that is significantly different than the current
statutory rate of 35%.
H. COMMITMENTS AND CONTINGENCIES
SALE/LEASEBACK INDEMNIFICATION OBLIGATIONS
Pursuant to the Palo Verde sale/leaseback participation agreements and
leases, if the lessors incur additional tax liability or other loss as a result
of federal or state tax assessments related to the sale/leaseback transactions,
the lessors may have claims against the Company for indemnification. Pursuant to
settlement agreements entered into under the Plan, certain of these indemnity
obligations related to tax matters have continued after the Effective Date.
One of the lessors in the sale/leaseback transactions related to Unit 2 of
Palo Verde has notified the Company that the Internal Revenue Service ("IRS")
has raised issues, primarily related to ITC
69
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
claims by the lessor, regarding the income tax treatment of the sale/leaseback
transactions. The Company estimates that the total amount of potential claims
for indemnification from all lessors related to the issues raised by the IRS
could approximate $10.0 million, exclusive of any applicable interest, if the
IRS prevails. Although the Company believes the lessor has meritorious defenses
to the IRS' position, the Company cannot predict the outcome of the matter or
the Company's liability for any resulting claim for indemnification. 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 this
matter.
ENVIRONMENTAL MATTERS
The Company is subject to regulation with respect to air, soil and water
quality, solid waste disposal and other environmental matters by federal, state
and local authorities. These authorities govern current facility operations and
exercise continuing jurisdiction over facility modifications. Environmental
regulations can change rapidly and are difficult to predict. Because
construction of new facilities is subject to standards imposed by environmental
regulation, substantial expenditures may be required to comply with such
regulations. The Company analyzes the costs of its obligations arising from
environmental matters on an ongoing basis, and management believes it has made
adequate provision in its financial statements to meet such obligations.
However, unforeseen expenses associated with compliance could have a material
adverse effect on the future operations and financial condition of the Company.
PCB Treatment, Inc. The Company received a request from the U.S.
Environmental Protection Agency ("EPA") to participate in the remediation of
polychlorinated biphenyls ("PCBs") at two facilities in Kansas and Missouri,
which had been operated by PCB Treatment, Inc. ("PTI"). Presently, PTI has
discontinued operations and the EPA has determined that PTI's abandoned
facilities require remediation.
The Company and the PTI Steering Committee, which consists of the largest
generators of the PCBs sent to PTI, have executed a settlement agreement. In
consideration for the payment of approximately $0.2 million, the settlement
agreement excuses any further liability by the Company to the Steering Committee
and indemnifies the Company for any liabilities to other parties as may be
asserted in the future.
On September 16, 1997, the EPA sent the Company a "general notice of
liability" wherein the agency formally notified the Company that it was
considered a Potentially Responsible Party at the sites. The Company believes
any liability it may face at the sites is covered by the settlement agreement.
Accordingly, the Company immediately notified the Steering Committee and
demanded it defend and indemnify the Company as provided in the settlement
agreement. The Steering Committee informed the Company that it intends to honor
this indemnity obligation.
The Company may still face liability for possible deliveries of PCBs by PTI
to a third site which is also subject to remedial action by the federal
authorities, except to the extent that those PCBs were
70
<PAGE>
transferred from the first site. The Company's records do not indicate any
deliveries of PCBs to this third site. The Company believes it is unlikely to
face substantial unindemnified liabilities associated with this third site.
Coal Mine Reclamation. The Company has been informed by APS that the
Company's estimated financial obligation for coal mine reclamation at Four
Corners is not being fully reflected in the costs for which the Company is
billed. APS, the operating agent for Four Corners, is performing an analysis to
establish an appropriate revised cost estimate. Based on preliminary estimates
from APS and the coal provider, the Company recorded a liability of
approximately $12 million in 1996 which reflects the present value of the
estimated future costs of reclamation for its share of the coal mine reclamation
obligation.
I. LITIGATION
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 a negotiated
purchase, the distribution assets and other facilities used to provide electric
service to customers in Las Cruces. Sales to customers in Las Cruces represent
approximately 8% of the Company's operating revenues.
In April 1995, Las Cruces filed a complaint against the Company in New
Mexico state court, 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. 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.
Prior to a ruling by the New Mexico Supreme Court, 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. On February 11, 1998, the New Mexico
Supreme Court ruled that the subsequent legislation rendered moot the certified
question before the Supreme Court. On February 26, 1998, the Company received
notice from Las Cruces of its intent to file a condemnation action in New Mexico
district court. At this time the Company is unable to predict the outcome of
this litigation.
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. 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. See Note B for a
full discussion of stranded costs.
71
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
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 has 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 to
SPS electric utility assets acquired through condemnation. 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 of 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 Company filed an appeal
with the New Mexico Court of Appeals and Las Cruces requested an expedited
ruling from the Court of Appeals. In August 1997, the New Mexico Court of
Appeals certified to the New Mexico Supreme Court the issues related to Las
Cruces' authority to issue the revenue bonds. Oral argument before the Supreme
Court was held in November 1997.
In July 1996, Las Cruces exercised its right under 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
costs 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. The Company filed testimony in support of its recovery and calculation
of stranded costs, calculated pursuant to the FERC formula. After removal of
all distribution and transmission related expenses, the Company's testimony
reflects a generation stranded cost request of approximately $101 million. In
November 1997, Las Cruces filed testimony which takes the position that the
Company is entitled to stranded costs in the range of $0 to $19 million. On
December 19, 1997, the FERC staff filed testimony estimating the Company's
stranded cost to be $29.4 million. Hearings of all issues were conducted at the
72
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
FERC in February 1998. A final decision from the FERC is not expected before
late 1998 or early 1999.
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. Las Cruces has approved a contract with SPS to
provide operation and maintenance services for the proposed Las Cruces electric
distribution system, substations and associated transmission facilities.
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. A negotiated settlement of the Company's pending
rate case in New Mexico could include a reduction in rates and settlement of all
issues in New Mexico, which would be likely to 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.
FOUR CORNERS
In July 1995, the Navajo Nation enacted the Navajo Nation Air Pollution
Prevention and Control Act, the Navajo Nation Safe Drinking Water Act and the
Navajo Nation Pesticide Act (collectively, the "Acts"). In October 1995, the
Four Corners participants requested that the United States Secretary of the
Interior resolve their dispute with the Navajo Nation regarding whether the Acts
apply to operation of Four Corners. The Four Corners participants subsequently
filed a lawsuit in the District Court of the Navajo Nation, Window Rock
District, seeking, among other things, a declaratory judgment that (i) the Four
Corners leases and federal easements preclude the application of the Acts to the
operation of Four Corners; and (ii) the Navajo Nation and its agencies and
courts lack adjudicatory jurisdiction to determine the enforceability of the
Acts as applied to Four Corners. On October 18, 1995, the Navajo Nation and the
Four Corners participants agreed to stay the proceedings indefinitely so the
parties may attempt to resolve the dispute without litigation. This matter
remains inactive and the Company is unable to predict the outcome of this case.
WATER CASES
San Juan River System. The Four Corners participants are among the
defendants in a suit filed by the State of New Mexico in 1975 in state district
court in New Mexico against the United States of America, the City of
Farmington, New Mexico, the Secretary of the Interior as Trustee for the Navajo
Nation and other Indian tribes and certain other defendants (State of New Mexico
ex rel. S. E. Reynolds,
73
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
New Mexico State Engineer v. United States of America, et al., Eleventh Judicial
District Court, County of San Juan, State of New Mexico, Cause No. 75-184). The
suit seeks adjudication of the water rights of the San Juan River Stream System
in New Mexico, which, among other things, supplies the water used at Four
Corners. An agreement reached with the Navajo Nation in 1985 provides that if
Four Corners loses a portion of its water rights in the adjudication, the tribe
will provide sufficient water from its allocation to offset the loss. The case
has been inactive for many years and the Company is unable to predict the
outcome of this case.
Gila River System. In connection with the construction and operation of
Palo Verde, APS entered into contracts with certain municipalities granting APS
the right to purchase effluent for cooling purposes at Palo Verde. In 1986, a
summons was served on APS that required all water claimants in the Lower Gila
River Watershed in Arizona to assert any claims to water in an action pending in
Maricopa County Superior Court, titled In re The General Adjudication of All
Rights to Use Water in the Gila River System and Source. Palo Verde is located
within the geographic area subject to the summons and the rights of the Palo
Verde Participants to the use of groundwater and effluent at Palo Verde is
potentially at issue in this action. APS, as operating agent, filed claims that
dispute the Court's jurisdiction over the Palo Verde Participants' groundwater
rights and their contractual rights to effluent relating to Palo Verde and,
alternatively, seek confirmation of such rights. In December 1992, the Arizona
Supreme Court heard oral argument on certain issues in this matter that are
pending on interlocutory appeal. Issues important to the Palo Verde
Participants' claims were remanded to the trial court for further action and the
trial court certified its decision for another interlocutory appeal to the
Arizona Supreme Court. The Arizona Supreme Court will hear argument on these
issues in October 1998 and subsequently render a decision. The Company is unable
to predict the outcome of this case.
OTHER LEGAL PROCEEDINGS
The Company is a party to various other claims, legal actions and
complaints. In many of these matters, the Company has excess casualty liability
insurance which is applicable. Based upon a review of these claims and
applicable insurance coverage, the Company believes that none of these claims
will have a material adverse effect on the operations, financial position or
cash flows of the Company.
J. EMPLOYEE BENEFITS
PENSION PLAN
The Company's Retirement Income Plan (the "Retirement Plan") covers
employees who have completed one year of service with the Company, are 21 years
of age and work at least a minimum number of hours each year. The Retirement
Plan is a qualified noncontributory defined benefit plan. Upon retirement or
death of a vested plan participant, assets of the Retirement Plan are used to
pay benefit obligations under the Retirement Plan. Contributions from the
Company are based on the minimum funding amounts required by the Department of
Labor and IRS under provisions of the Retirement Plan, as actuarially
calculated. The assets of the Retirement Plan are invested in equity
74
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
securities, fixed income instruments and cash equivalents and are managed by
professional investment managers appointed by the Company.
The Company's Non-Qualified Retirement Income Plan is a non-funded defined
benefit plan which covers certain former employees of the Company. The pension
cost for the Non-Qualified Retirement Income Plan is based on substantially the
same actuarial methods and economic assumptions as those used for the Retirement
Plan.
During 1996, as part of the Reorganization, the Company terminated the Non-
Qualified Retirement Income Plan with respect to all active employees resulting
in a curtailment gain of approximately $2.0 million. In conjunction therewith,
the Company entered into retirement agreements with ten officers who had been
participants in the Non-Qualified Retirement Income Plan resulting in an
increase in the accumulated benefit obligation of approximately $10.2 million.
This increase in the accumulated benefit obligation and the curtailment gain
were recognized as reorganization items by the Predecessor Company.
Net periodic pension cost for the Retirement Plan and the Non-Qualified
Retirement Income Plan under SFAS No. 87, "Employers' Accounting for Pensions,"
is made up of the components listed below as determined using the projected unit
credit actuarial cost method (In thousands):
<TABLE>
<CAPTION>
PERIOD FROM | PERIOD FROM
YEAR FEBRUARY 12 | JANUARY 1 YEAR
ENDED TO | TO ENDED
DECEMBER 31, DECEMBER 31, | FEBRUARY 11, DECEMBER 31,
1997 1996 | 1996 1995
------------------ ----------------- | ----------------- -----------------
<S> <C> <C> | <C> <C>
Service costs for benefits earned during the |
period........................................... $ 2,402 $ 2,148 | $ 354 $ 2,011
Interest costs on projected benefit obligation.... 6,737 5,774 | 749 5,157
Actual return on plan assets...................... (12,469) (5,019) | (570) (9,267)
Net amortization and deferral..................... 7,375 842 | 113 6,008
Recognition of previously unrecognized items...... - - | 21,738 -
-------- ------- | ------- -------
Net periodic pension cost recognized............ $ 4,045 $ 3,745 | $22,384 $ 3,909
======== ======= | ======= =======
</TABLE>
The assumed annual discount rates used in determining the net periodic
pension cost were 7.50%, 7.25% and 8.50% for 1997, 1996 and 1995, respectively.
The pension cost includes amortization of unrecognized items. In the
application of fresh-start reporting, the Company recorded the then existing
unrecognized items as of February 11, 1996 in the amount of approximately $21.7
million.
75
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
The funded status of the plans and amount recognized in the Company's
balance sheets at December 31, 1997 and 1996 are presented below (In thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------
1997 1996
--------------------------------- ----------------------------------
NON- NON-
QUALIFIED QUALIFIED
RETIREMENT RETIREMENT RETIREMENT RETIREMENT
INCOME INCOME INCOME INCOME
PLAN PLAN PLAN PLAN
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation........................... $(65,523) $(19,324) $(57,366) $(18,171)
======== ======== ======== ========
Accumulated benefit obligation...................... $(68,481) $(19,324) $(59,883) $(18,171)
======== ======== ======== ========
Projected benefit obligation........................ $(83,812) $(19,324) $(72,951) $(18,171)
Plan assets at fair value............................. 74,114 - 61,460 -
-------- -------- -------- --------
Projected benefit obligation in excess of plan assets. (9,698) (19,324) (11,491) (18,171)
Unrecognized net (gain) loss from past experience..... (4,887) 162 (3,520) (1,368)
Adjustment required to recognize minimum liability.... - (162) - -
-------- -------- -------- --------
Accrued pension liability........................... $(14,585) $(19,324) $(15,011) $(19,539)
======== ======== ======== ========
</TABLE>
Actuarial assumptions used in determining the actuarial present value of
projected benefit obligations are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Discount rate............................................ 7.00% 7.50%
Rate of increase in compensation levels.................. 5.00% 5.00%
Expected long-term rate of return on plan assets......... 8.50% 8.50%
</TABLE>
OTHER POSTRETIREMENT BENEFITS
The Company provides certain health care benefits for retired employees and
their eligible dependents and life insurance benefits for retired employees
only. Substantially all of the Company's employees may become eligible for
those benefits if they reach retirement age while working for the Company.
Those benefits are accounted for under SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." Contributions from the Company
are based on the funding amounts required by the Texas Commission in the Rate
Stipulation. The assets of the Other Postretirement Benefits Plan are invested
in fixed income instruments and cash equivalents and are managed by professional
investment managers appointed by the Company.
76
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
The benefit cost includes amortization of unrecognized items. In the
application of fresh-start reporting, the Company recorded the then existing
unrecognized items as of February 11, 1996 in the amount of approximately $52.3
million.
Net periodic postretirement benefit cost is made up of the components
listed below (In thousands):
<TABLE>
<CAPTION>
PERIOD | PERIOD
FROM | FROM
YEAR FEBRUARY 12 | JANUARY 1 YEAR
ENDED TO | TO ENDED
DECEMBER 31, DECEMBER 31, | FEBRUARY 11, DECEMBER 31,
1997 1996 | 1996 1995
--------------- --------------- | -------------- ---------------
<S> <C> <C> | <C> <C>
Service costs for benefits earned during |
the period................................... $2,538 $2,209 | $ 279 $1,603
Interest costs on accumulated postretirement |
benefit obligation........................... 5,254 4,723 | 607 4,046
Actual return on plan assets.................. (250) (146) | - -
Amortization of transition obligations........ - - | 263 2,363
Amortization of (gain) loss................... (7) - | 60 (54)
Recognition of previously unrecognized |
items........................................ - - | 52,340 -
------ ------ | ------- ------
Net periodic postretirement benefit cost |
recognized................................. $7,535 $6,786 | $53,549 $7,958
====== ====== | ======= ======
</TABLE>
The funded status of the plan and amount recognized in the Company's
balance sheets at December 31, 1997 and 1996 are presented below (In thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................................ $(35,846) $(29,908)
Active participants:
Fully eligible....................................................... (10,171) (10,964)
Other................................................................ (37,956) (36,727)
-------- --------
(83,973) (77,599)
Plan assets at fair value................................................. 8,822 8,050
-------- --------
Accumulated postretirement benefit obligation in excess of plan assets.... (75,151) (69,549)
Unrecognized net gain from past experience different from that assumed.... (380) (1,764)
-------- --------
Accrued postretirement benefit liability................................ $(75,531) $(71,313)
======== ========
</TABLE>
For measurement purposes, a 10.9% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1998; the rate was assumed
to decrease gradually to 6% for 2004
77
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
and remain at that level thereafter. The health care cost trend rate assumption
has a significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of December 31,
1997 by $10.5 million and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the year ended
December 31, 1997 by $1.2 million.
Actuarial assumptions used in determining the actuarial present value of
accumulated postretirement benefit obligations are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Discount rate..................................... 7.00% 7.50%
Rate of increase in compensation levels........... 5.00% 5.00%
Rate of return on plan assets..................... 4.50% 4.50%
</TABLE>
ALL EMPLOYEE CASH BONUS PLAN
The All Employee Cash Bonus Plan (the "Bonus Plan"), introduced in early
1997, was established to reward employees for their contribution in helping the
Company attain its corporate goals. Eligible employees below officer level would
receive a cash bonus if the Company attained established levels of safety,
customer satisfaction and deleveraging (or cash flow) during 1997. The cash
flow goal had to be met before any bonus amounts would be paid, and improvement
in cash flow must be greater than any bonus amounts paid. The Company was able
to surpass the required minimum levels of improvement in two out of the three
performance measures. As a result of the Company's success, the Company
distributed approximately $2.3 million in cash bonuses to all eligible employees
in early February 1998. The bonus was expensed in the fourth quarter of 1997.
The Company has renewed the Bonus Plan in 1998 with similar goals.
K. FRANCHISES AND SIGNIFICANT CUSTOMERS
CITY OF EL PASO FRANCHISE
The Company's major franchise is with the City of El Paso, Texas. The
franchise agreement provides an arrangement for the Company's utilization of
public rights-of-way necessary to serve its retail customers within the City of
El Paso. The franchise with the City of El Paso extends through August 1, 2005.
LAS CRUCES FRANCHISE
The Company's franchise with Las Cruces expired in March 1994. The Company
has continued to provide electric service to customers within Las Cruces;
however, Las Cruces is attempting to replace the Company as the electric service
provider in Las Cruces. Recently, the New Mexico legislature has passed
legislation which purports to give Las Cruces the authority to condemn the
78
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
Company's distribution system and related assets. If Las Cruces succeeds in its
efforts to condemn the Company's distribution system, the Company could lose its
Las Cruces customer base. See Note I.
MILITARY INSTALLATIONS
The Company currently serves Holloman Air Force Base ("Holloman"), White
Sands Missile Range ("White Sands") and the United States Army Air Defense
Center at Fort Bliss ("Ft. Bliss"). The Company's sales to the military bases
represented approximately $19.6 million or 3% of operating revenues in 1997.
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 on a year-to-year basis for an additional two
years. The Company has a contract for service to Holloman for a ten-year term
which began in December 1995. In August 1996, the Army advised the Company that
White Sands would continue to purchase retail electric service from the Company
pursuant to the existing retail service contract for an indefinite period, until
written termination of such contract by the Army not less than one year in
advance of the termination date.
L. FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments,"
requires the Company to disclose estimated fair values for its financial
instruments. The Company has determined that cash and temporary investments,
accounts receivable, long-term contract receivable, accounts payable, customer
deposits, decommissioning trust funds, long-term debt, and preferred stock meet
the definition of financial instruments. The carrying amounts of cash and
temporary investments, accounts receivable, accounts payable, and customer
deposits approximate fair value because of the short maturity of these items.
Based on prevailing interest rates, the fair value of the long-term contract
receivable approximates its carrying value. Decommissioning trust funds are
carried at market value.
79
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
The fair values of the Company's long-term debt, including the current
portion thereof, and preferred stock, are based on estimated market prices for
similar issues at December 31, 1997 and 1996 and are presented in the table
below (In thousands):
<TABLE>
<CAPTION>
1997 1996
------------------------------- --------------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
First Mortgage Bonds...................... $744,781 $ 814,857 $ 827,883 $ 864,047
Pollution Control Bonds................... 193,135 193,135 (2) 193,135 193,135 (2)
Nuclear Fuel Financing(1)................. 51,999 51,999 (3) 46,630 46,630 (3)
-------- ----------- ---------- -----------
Total................................. $989,915 $ 1,059,991 $1,067,648 $ 1,103,812
======== =========== ========== ===========
Preferred Stock........................... $121,319 $ 131,752 $ 108,426 $ 119,377
======== =========== ========== ===========
</TABLE>
- ------------------
(1) Includes current maturities.
(2) The interest rate on the Company's pollution control bonds is reset weekly
to reflect current market rates. Consequently, the carrying value
approximates fair value.
(3) The interest rate on the Company's financing and capital lease obligations
for nuclear fuel purchases is reset every quarter to reflect current market
rates. Consequently, the carrying value approximates fair value.
80
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
M. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1997 QUARTERS 1996 QUARTERS
-------------------------------------------------- ------------------------------------
4th(1) 3rd 2nd 1st 4th 3rd 2nd
-------- -------- ---------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT FOR SHARE DATA)
Operating revenues.................. $143,766 $170,140 $144,275 $135,857 $143,023 $166,656 $144,388
Operating income.................... 31,210 59,179 40,045 31,233 29,958 57,964 40,730
Income (loss) before reorganization
items and extraordinary items...... 8,743 23,988 16,245 5,592 7,960 22,770 9,500
Reorganization items, net of income
tax benefit........................ - - - - - - -
Extraordinary loss on repurchases
of debt,
net of federal income tax benefit.. (35) (69) (427) (2,244) - - -
Extraordinary gain on discharge of
debt............................... - - - - - - -
Net income applicable to common
stock.............................. 5,282 20,588 12,580 199 4,898 19,793 6,603
Basic earnings per common share:
Income before extraordinary items.. 0.089 0.343 0.216 0.040 0.082 0.329 0.110
Extraordinary loss on repurchases
of debt, net of federal income tax
benefit........................... (0.001) (0.001) (0.007) (0.037) - - -
Extraordinary gain on discharge of
debt.............................. - - - - - - -
Net income......................... 0.088 0.342 0.209 0.003 0.082 0.329 0.110
Diluted earnings per common share:
Income before extraordinary items.. 0.088 0.342 0.216 0.040 0.081 0.329 0.110
Extraordinary loss on repurchases
of debt, net of federal income tax
benefit........................... (0.001) (0.001) (0.007) (0.037) - - -
Extraordinary gain on discharge of
debt.............................. - - - - - - -
Net income......................... 0.087 0.341 0.209 0.003 0.081 0.329 0.110
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM | PERIOD FROM
FEBRUARY 12 | JANUARY 1
TO | TO
MARCH 31, | FEBRUARY 11,
1996 | 1996
----------- | -------------
<S> <C> | <C>
Operating revenues.................. $69,907 | $ 54,949
Operating income.................... 15,839 | 1,639
Income (loss) before reorganization |
items and extraordinary items...... 1,689 | (4,053)
Reorganization items, net of income |
tax benefit........................ - | 122,251
Extraordinary loss on repurchases |
of debt, |
net of federal income tax benefit.. - | -
Extraordinary gain on discharge of |
debt............................... - | 264,273 (2)
Net income applicable to common |
stock.............................. 137 | 382,471
Basic earnings per common share: |
Income before extraordinary items.. 0.002 | 3.325
Extraordinary loss on repurchases |
of debt, net of federal income tax |
benefit........................... - | -
Extraordinary gain on discharge of |
debt.............................. - | 7.435 (2)
Net income......................... 0.002 | 10.760
Diluted earnings per common share: |
Income before extraordinary items.. 0.002 | 3.325
Extraordinary loss on repurchases |
of debt, net of federal income tax |
benefit........................... - | -
Extraordinary gain on discharge of |
debt.............................. - | 7.435 (2)
Net income......................... 0.002 | 10.760
</TABLE>
- ------------
(1) Includes an all employee cash bonus. See Note J.
(2) Reflects the discharge of obligations subject to compromise for less than
their recorded amounts.
81
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors is incorporated herein by reference from
the Company's definitive proxy statement for the 1998 Annual Meeting of
Shareholders (the "1998 Proxy Statement"). Information regarding executive
officers of the Company, included herein under the caption "Executive Officers
of the Registrant" in Part I, Item 1 above, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the 1998 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report:
Page
----
1. Financial Statements:
See Index to Financial Statements......... 33
2. Financial Statement Schedules:
All schedules are omitted as the required
information is not applicable or is included
in the financial statements or related notes
thereto.
3. Exhibits
Certain of the following documents are filed herewith. Certain other of the
following exhibits have heretofore been filed with the Securities and Exchange
Commission, and, pursuant to Rule 12b-32 and Regulation 201.24, are incorporated
herein by reference.
82
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Title
------ -----
Exhibit 2 - Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession:
2.01 - Fourth Amended Plan of Reorganization, dated November 7, 1995.
(Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995)
2.02 - Disclosure Statement to Fourth Amended Plan of Reorganization of
El Paso Electric Company. (Exhibit 2.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995)
Exhibit 3 - Articles of Incorporation and Bylaws:
3.01 - Restated Articles of Incorporation of the Company, dated February
7, 1996 and effective February 12, 1996. (Exhibit 3.01 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995)
3.01-01 - Statement of Resolution Establishing Series of Preferred Stock,
dated February 7, 1996 and effective February 12, 1996, amending
Exhibit 3.01. (Exhibit 3.01-01 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995)
3.02 - Bylaws of the Company, dated February 6, 1996. (Exhibit 3.02 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995)
Exhibit 4 - Instruments Defining the Rights of Security Holders, including
Indentures:
4.01 - General Mortgage Indenture and Deed of Trust, dated as of
February 1, 1996, and First Supplemental Indenture, dated as of
February 1, 1996, including form of Series A through H First
Mortgage Bonds. (Exhibit 4.01 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995)
4.01-01 - Second Supplemental Indenture, dated as of August 19, 1997, to
Exhibit 4.01. (Exhibit 4.01 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997)
4.02 - Statement of Resolution Establishing Series of Preferred Stock,
dated February 7, 1996 and effective February 12, 1996. (Exhibit
4.02 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995)
4.03 - Indenture of Trust, dated as of July 1, 1994, between Maricopa
County, Arizona Pollution Control Corporation and Texas Commerce
Bank National Association, as Trustee, related to $63,500,000
principal amount of Maricopa County, Arizona Pollution Control
Corporation Adjustable Tender Pollution Control Revenue Bonds,
1994 Series A (El Paso Electric Company Palo Verde Project).
(Exhibit 4.01 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1994)
83
<PAGE>
4.03-01 - Supplemental Indenture of Trust No. 1, dated as of December 12,
1995, related to Exhibit 4.03, including form of bond. (Exhibit
4.03-01 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995)
4.04 - Loan Agreement, dated as of July 1, 1994, between Maricopa
County, Arizona Pollution Control Corporation and the Company,
related to the Pollution Control Bonds referred to in Exhibit
4.03. (Exhibit 4.02 to the Company's Quarterly Report on Form 10-
Q for the quarter ended September 30, 1994)
4.04-01 - Supplemental Loan Agreement No. 1, dated as of February 12, 1996,
related to Exhibit 4.04. (Exhibit 4.04-01 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995)
4.05 - Remarketing Agreement, dated as of July 1, 1994, between the
Company and Smith Barney Inc., related to the Pollution Control
Bonds referred to in Exhibit 4.03. (Exhibit 4.04 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1994)
4.06 - Tender Agreement, dated as of July 1, 1994, between the Company
and Smith Barney Inc., related to the Pollution Control Bonds
referred to in Exhibit 4.03. (Exhibit 4.05 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1994)
4.07 - Ordinance No. 94-1018 adopted by the City Council of the City of
Farmington, New Mexico, on October 18, 1994, authorizing and
providing for the issuance by the City of Farmington, New Mexico,
of $33,300,000 principal amount of its Adjustable Tender
Pollution Control Revenue Refunding Bonds, 1994 Series A (El Paso
Electric Company Four Corners Project). (Exhibit 4.07 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994)
4.07-01 - Ordinance No. 96-1035 adopted by the City Council of the City of
Farmington, New Mexico, on January 23, 1996 as Supplemental
Ordinance No. 1, related to Exhibit 4.07. (Exhibit 4.07-01 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995)
4.08 - Resolution No. 94-798 adopted by the City Council of the City of
Farmington, New Mexico, on October 18, 1994, relating to the
issuance of the Pollution Control Bonds referred to in Exhibit
4.07. (Exhibit 4.08 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994)
4.09 - Amended and Restated Installment Sale Agreement, dated as of
November 1, 1994, between the Company and the City of Farmington,
New Mexico, relating to the Pollution Control Bonds referred to
in Exhibit 4.07. (Exhibit 4.09 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1994)
4.10 - Representation and Indemnity Agreement, dated as of October 31,
1994, between the Company, the City of Farmington, New Mexico,
and Smith Barney Inc., relating to the Pollution Control Bonds
referred to in Exhibit 4.07. (Exhibit 4.10 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1994)
84
<PAGE>
4.11 - Remarketing Agreement, dated as of November 1, 1994, between the
Company and Smith Barney Inc., relating to the Pollution Control
Bonds referred to in Exhibit 4.07. (Exhibit 4.11 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1994)
4.12 - Tender Agreement, dated as of November 1, 1994, between the
Company and Smith Barney Inc., relating to the Pollution Control
Bonds referred to in Exhibit 4.07. (Exhibit 4.12 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1994)
4.13 - 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, relating to the Pollution Control Bonds
referred to in Exhibit 4.07. (Exhibit 4.03 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997)
4.14 - Loan Agreement, dated as of December 1, 1984, between Maricopa
County, Arizona Pollution Control Corporation and the Company,
relating to $37,100,000 principal amount of Maricopa County,
Arizona Pollution Control Corporation Pollution Control Refunding
Revenue Bonds, 1984 Series E (El Paso Electric Company Palo Verde
Project). (Exhibit 4.27 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1984)
4.14-01 - Supplemental Loan Agreement, dated as of June 1, 1986, to Exhibit
4.14. (Exhibit 4.29-01 to the Company's Annual Report on Form 10-
K for the year ended December 31, 1986)
4.14-02 - Supplemental Loan Agreement No. 3, dated as of February 12, 1996,
to Exhibit 4.14. (Exhibit 4.14-02 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995)
4.15 - Trust Indenture, dated as of December 1, 1984, by and between
Maricopa County, Arizona Pollution Control Corporation and MBank
El Paso, National Association, as Trustee, securing the Pollution
Control Refunding Revenue Bonds referred to in Exhibit 4.14.
(Exhibit 4.27-01 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1984)
4.15-01 - Supplemental Trust Indenture No. 2, dated as of June 1, 1986, to
Exhibit 4.15. (Exhibit 4.29-03 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1986)
4.15-02 - Supplemental Trust Indenture No. 3, dated as of May 6, 1994, to
Exhibit 4.15. (Exhibit 4.01 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994)
4.15-03 - Supplemental Trust Indenture No. 4, dated as of November 30,
1995, to Exhibit 4.15, including form of bond. (Exhibit 4.15-03
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995)
85
<PAGE>
4.16 - Indexing Agent's Agreement among Maricopa County, Arizona
Pollution Control Corporation, the Company and Smith Barney,
Harris Upham & Co., Incorporated, relating to the Pollution
Control Refunding Revenue Bonds referred to in Exhibit 4.14.
(Exhibit 4.27-03 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1984)
4.17 - Remarketing Agent Agreement, dated as of May 6, 1994, between
Smith Barney Shearson Inc., and the Company, relating to the
Pollution Control Refunding Revenue Bonds referred to in Exhibit
4.14. (Exhibit 4.02 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994)
4.18 - Loan Agreement, dated as of February 12, 1996, between Maricopa
County, Arizona Pollution Control Corporation and the Company,
relating to $59,235,000 principal amount of Maricopa County,
Arizona Pollution Control Corporation Pollution Control Refunding
Revenue Bonds, 1985 Series A (El Paso Electric Company Palo Verde
Project). (Exhibit 4.18 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995)
4.19 - Indenture of Trust, dated as of February 12, 1996, by and between
Maricopa County, Arizona Pollution Control Corporation and Texas
Commerce Bank National Association, as Trustee, relating to the
Pollution Control Refunding Revenue Bonds referred to in Exhibit
4.18. (Exhibit 4.19 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995)
4.20 - Tender Agent Agreement, dated as of February 12, 1996, between
the Company and Smith Barney Inc., relating to the Pollution
Control Refunding Revenue Bonds referred to in Exhibit 4.18.
(Exhibit 4.20 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995)
4.21 - Remarketing Agent Agreement, dated as of February 12, 1996,
between the Company and Smith Barney Inc., relating to the
Pollution Control Refunding Revenue Bonds referred to in Exhibit
4.18. (Exhibit 4.21 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995)
4.22 - 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, relating to the Pollution Control Bonds
referred to in Exhibits 4.03, 4.14 and 4.18. (Exhibit 4.02 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997)
Exhibit 10 - Material Contracts:
10.01 - Co-Tenancy Agreement, dated July 19, 1966, and Amendments No. 1
through 5 thereto, between the Participants of the Four Corners
Project, defining the respective ownerships, rights and
obligations of the Parties. (Exhibit 10.01 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995)
86
<PAGE>
10.02 - Supplemental and Additional Indenture of Lease, dated May 27,
1966, including amendments and supplements to original Lease Four
Corners Units 1, 2 and 3, between the Navajo Tribe of Indians and
Arizona Public Service Company, and including new Lease Four
Corners Units 4 and 5, between the Navajo Tribe of Indians and
Arizona Public Service Company, the Company, Public Service
Company of New Mexico, Salt River Project Agricultural
Improvement and Power District, Southern California Edison
Company and Tucson Gas & Electric Company. (Exhibit 4-e to
Registration Statement No. 2-28692 on Form S-9)
10.02-01 - Amendment and Supplement No. 1, dated March 21, 1985, to Exhibit
10.02. (Exhibit 19.3 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1985)
10.03 - El Paso Electric Company 1996 Long-Term Incentive Plan (Exhibit
4.1 to Registration Statement No. 333-17971 on Form S-8)
10.04 - Four Corners Project Operating Agreement, dated May 15, 1969,
between Arizona Public Service Company, the Company, Public
Service Company of New Mexico, Salt River Project Agricultural
Improvement and Power District, Southern California Edison
Company and Tucson Gas & Electric Company, and Amendments 1
through 10 thereto. (Exhibit 10.04 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995)
10.04-01 - Amendment No. 11, dated May 23, 1997, to Exhibit 10.04. (Exhibit
10.04-01 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997)
10.05 - Arizona Nuclear Power Project Participation Agreement, dated
August 23, 1973, between Arizona Public Service Company, Public
Service Company of New Mexico, Salt River Project Agricultural
Improvement and Power District, Tucson Gas & Electric Company and
the Company, describing the respective participation ownerships
of the various utilities having undivided interests in the
Arizona Nuclear Power Project and in general terms defining the
respective ownerships, rights, obligations, major construction
and operating arrangements of the Parties, and Amendments No. 1
through 13 thereto. (Exhibit 10.05 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995)
10.06 - ANPP Valley Transmission System Participation Agreement, dated
August 20, 1981, and Amendments No. 1 and 2 thereto. APS Contract
No. 2253-419.00. (Exhibit 10.06 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995)
10.07 - Arizona Nuclear Power Project High Voltage Switchyard
Participation Agreement, dated August 20, 1981. APS Contract No.
2252-419.00. (Exhibit 20.14 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1981)
10.07-01 - Amendment No. 1, dated November 20, 1986, to Exhibit 10.07.
(Exhibit 10.11-01 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1986)
87
<PAGE>
10.08 - Firm Palo Verde Nuclear Generating Station Transmission Service
Agreement, between Salt River Project Agricultural Improvement
and Power District and the Company, dated October 18, 1983.
(Exhibit 19.12 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1983)
10.09 - Trust Agreement, dated as of May 1, 1980, between The Bank of New
York, as Beneficiary, and First Security Bank of Utah, N.A., and
Robert S. Clark, as Owner Trustees, establishing a trust
designated as El Paso Electric Company (1980) Equipment Trust No.
2. (Exhibit 5-p-1 to Registration Statement No. 2-68414 on Form
S-7)
10.10 - Trust Indenture, dated as of May 1, 1980, between The Connecticut
Bank and Trust Company, as Indenture Trustee, and First Security
Bank of Utah, N.A., and Robert S. Clark, Owner Trustees. (Exhibit
5-p-2 to Registration Statement No. 2-68414 on Form S-7)
10.11 - Lease Agreement, dated as of May 1, 1980, between First Security
Bank of Utah, N.A., and Robert S. Clark, the Owner Trustees, as
Lessor, and the Company, as Lessee, providing for the lease of a
combustion turbine and related generation equipment. (Exhibit
5-p-3 to Registration Statement No. 2-68414 on Form S-7)
10.12 - Participation Agreement, dated as of May 1, 1980, among the
Company, as Lessee, The Bank of New York, as Beneficiary, First
Security Bank of Utah, N.A., and Robert S. Clark, as Owner
Trustees, The Connecticut Bank and Trust Company, as Indenture
Trustee, Franklin Life Insurance Company, Woodmen of the World
Life Insurance Society, Minnesota Mutual Life Insurance Company,
MacCabees Mutual Life Insurance Company and Mutual Service
Insurance Company, as Lenders, pertaining to Exhibit 10.11.
(Exhibit 5-p-4 to Registration Statement No. 2-68414 on Form S-7)
10.13 - Interconnection Agreement, as amended, dated December 8, 1981,
between the Company and Southwestern Public Service Company, and
Service Schedules A through F thereto. (Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995)
10.13-01 - Letter Agreement, dated December 19, 1996, modifying Service
Schedule E, relating to Exhibit 10.13. (Exhibit 10.13-01 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1996)
10.14 - Amrad to Artesia 345 KV Transmission System and DC Terminal
Participation Agreement, dated December 8, 1981, between the
Company and Texas-New Mexico Power Company, and the First through
Third Supplemental Agreements thereto. (Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995)
10.15 - Interconnection Agreement and Amendment No. 1, dated July 19,
1966, between the Company and Public Service Company of New
Mexico. (Exhibit 19.01 to the Company's Annual Report on Form
10-K for the year ended December 31, 1982)
88
<PAGE>
10.16 - Southwest New Mexico Transmission Project Participation
Agreement, dated April 11, 1977, between Public Service Company
of New Mexico, Community Public Service Company and the Company,
and Amendments 1 through 5 thereto. (Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995)
10.17 - Tucson-El Paso Power Exchange and Transmission Agreement, dated
April 19, 1982, between Tucson Electric Power Company and the
Company. (Exhibit 19.26 to the Company's Annual Report on Form
10-K for the year ended December 31, 1982)
*10.18 - Southwest Reserve Sharing Group Participation Agreement, dated
January 1, 1998, between the Company, Arizona Electric Power
Cooperative, Arizona Public Service Company, City of Farmington,
Los Alamos County, Nevada Power Company, Plains Electric G&T
Cooperative, Inc., Public Service Company of New Mexico, Tucson
Electric Power and Western Area Power Administration.
10.19 - Power Sales Agreement No. 2, dated December 2, 1986, between the
Company and Imperial Irrigation District, and Amendment No. 1
thereto. (Exhibit 10.19 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995)
10.20 - Arizona Nuclear Power Project Transmission Project Westwing
Switchyard Amended Interconnection Agreement, dated August 14,
1986, between The United States of America; Arizona Public
Service Company; Department of Water and Power of the City of Los
Angeles; Nevada Power Company; Public Service Company of New
Mexico; Salt River Project Agricultural Improvement and Power
District; Tucson Electric Power Company; and the Company.
(Exhibit 10.72 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1986)
10.21 - Power Sales Agreement, dated April 29, 1987, between the Company
and Texas-New Mexico Power Company, and Amendment No. 1 thereto.
(Exhibit 10.21 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995)
10.22 - Form of Indemnity Agreement, between the Company and its
directors and officers. (Exhibit 10.22 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995)
10.23 - Interchange Agreement, executed April 14, 1982, between Comision
Federal de Electricidad and the Company. (Exhibit 19.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1991)
10.23-01 - Interchange Service D Agreement Firm Capacity, executed April 3,
1991, to Exhibit 10.23. (Exhibit 19.2-04 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1991) [At the Company's request, confidential treatment has been
granted by the Securities and Exchange Commission to portions of
this document.]
89
<PAGE>
*10.23-02 - Contract for the Purchase, Sale or Exchange of Economy Energy,
executed December 19, 1997, between Comision Federal de
Electricidad and the Company. [The Company has requested
confidential treatment from the Securities and Exchange
Commission for certain portions of this document.]
10.24 - Credit Agreement, dated as of February 12, 1996, between the
Company, Chemical Bank, as agent, and Texas Commerce Bank
National Association, as Trustee. (Exhibit 10.24 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995)
10.24-01 - Amendment No. 1, dated as of February 12, 1996, to Exhibit 10.24.
(Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996)
*10.24-02 - Amendment No. 2, dated as of July 31, 1997, to Exhibit 10.24.
10.25 - Amended and Restated Executive Services Agreement for David H.
Wiggs, Jr., dated February 27, 1996. (Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995)
10.26 - Retirement Agreement for Curtis L. Hoskins, dated October 26,
1995. (Exhibit 10.26 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995)
10.27 - Retirement Agreement for John E. Droubay, dated February 22,
1996. (Exhibit 10.27 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995)
10.28 - Employment Agreement for Eduardo A. Rodriguez, dated October 26,
1995. (Exhibit 10.28 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995)
10.29 - Employment Agreement for Gary R. Hedrick, dated February 12,
1996. (Exhibit 10.29 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995)
10.30 - Employment Agreement for James S. Haines, Jr., dated April 30,
1996. (Exhibit 10.30 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996)
10.31 - Restatement of Decommissioning Trust Agreement, dated as of
February 12, 1996, between the Company and Boatmen's Trust
Company of Texas, as Decommissioning Trustee for Palo Verde Unit
1. (Exhibit 10.30 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995)
10.32 - Restatement of Decommissioning Trust Agreement, dated as of
February 12, 1996, between the Company and Boatmen's Trust
Company of Texas, as Decommissioning Trustee for Palo Verde Unit
2. (Exhibit 10.31 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995)
90
<PAGE>
10.33 - Restatement of Decommissioning Trust Agreement, dated as of
February 12, 1996, between the Company and Boatmen's Trust
Company of Texas, as Decommissioning Trustee for Palo Verde Unit
3. (Exhibit 10.32 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995)
10.34 - Spent Fuel Trust Agreement, dated as of February 12, 1996,
between the Company and Boatmen's Trust Company of Texas, as
Spent Fuel Trustee. (Exhibit 10.33 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995)
10.35 - Trust Agreement, dated as of February 12, 1996, between the
Company and Texas Commerce Bank National Association, as Trustee
of the Rio Grande Resources Trust II. (Exhibit 10.34 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995)
10.36 - Purchase Contract, dated as of February 12, 1996, between the
Company and Texas Commerce Bank National Association, as Trustee
of the Rio Grande Resources Trust II. (Exhibit 10.35 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995)
10.37 - Registration Rights Agreement, dated as of February 12, 1996,
among the Company, Fidelity Management & Research Company and
Fidelity Management Trust Company. (Exhibit 10.01 to Registration
Statement No. 333-32030 on Form S-1)
*Exhibit 11 - Statement re Computation of Per Share Earnings
Exhibit 23 - Consent of Experts:
*23.01 - Consent of KPMG Peat Marwick LLP (set forth on page 96 of this
report).
Exhibit 24 - Power of Attorney:
*24.01 - Powers of Attorney (set forth on page 95 of this report).
*24.02 - Certified copy of resolution authorizing signatures pursuant to
power of attorney.
*Exhibit 27 - Financial Data Schedule (EDGAR filing only)
Exhibit 99 - Additional Exhibits:
99.01 - Agreed Order, entered August 30, 1995, by the Public Utility
Commission of Texas. (Exhibit 99.31 to Registration Statement No.
33-99744 on Form S-1)
99.02 - Restricted Stock Award Agreement, dated as of January 17, 1997,
with James S. Haines, Jr. (Exhibit 99.02 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996)
99.03 - Stock Option Agreement, dated as of January 17, 1997, with James
S. Haines, Jr. (Exhibit 99.03 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996)
*99.03-01 - Amendment No. 1, dated April 30, 1997, to Exhibit 99.03.
91
<PAGE>
99.04 - Stock Option Agreement, dated as of January 17, 1997, with David
H. Wiggs, Jr. (Exhibit 99.04 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996)
99.05 - Directors' Restricted Stock Award Agreement, dated as of January
17, 1997, with George H. Edwards, Jr. (Exhibit 99.05 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1996)
99.06 - Form of Directors' Restricted Stock Award Agreement between the
Company and certain directors of the Company. (Exhibit 99.06 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
99.07 - Form of Stock Option Agreement between the Company and certain
key officers of the Company. (Exhibit 99.07 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
*+99.08 - Form of Restricted Stock Award Agreement between the Company and
certain key officers of the Company.
*99.09 - Restricted Stock Award Agreement, dated as of June 9, 1997, with
Eduardo A. Rodriguez.
*99.10 - Restricted Stock Award Agreement, dated as of June 15, 1997, with
Robert C. McNiel.
*99.11 - Restricted Stock Award Agreement, dated as of June 12, 1997, with
Susanne M. Sickles.
*99.12 - Restricted Stock Award Agreement, dated as of June 16, 1997, with
Guillermo Silva, Jr.
*99.13 - Restricted Stock Award Agreement, dated as of June 16, 1997, with
Pedro Serrano, Jr.
*99.14 - Restricted Stock Award Agreement, dated as of June 16, 1997, with
Thomas L. Newsom.
*99.15 - Restricted Stock Award Agreement, dated as of June 16, 1997, with
John A. Whitacre.
*99.16 - Restricted Stock Award Agreement, dated as of June 9, 1997, with
Terry D. Bassham.
*++99.17 - Form of Stock Option Agreement between the Company and certain
directors of the Company.
*99.18 - Directors' Restricted Stock Award Agreement, dated as of November
13, 1997, with George H. Edwards, Jr.
* Filed herewith.
+ Four agreements, substantially identical in all material respects
to this Exhibit, have been entered into with J. Frank Bates;
Michael L. Blough; Gary R. Hedrick; and John C. Horne, officers
of the Company.
92
<PAGE>
++ Eleven agreements, substantially identical in all material
respects to this Exhibit, have been entered into with George W.
Edwards, Jr.; Ramiro Guzman; James W. Harris; Kenneth R. Heitz;
Edward C. Houghton; Michael K. Parks; Eric B. Siegel; Stephen
Wertheimer; Charles A. Yamarone; James A. Cardwell; and Wilson K.
Cadman, directors of the Company.
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed during the last
quarter of 1997:
FINANCIAL STATEMENTS
DATE OF REPORT ITEM NUMBER REQUIRED TO BE FILED
-------------- ----------- --------------------
None
93
<PAGE>
UNDERTAKING
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
94
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of El Paso Electric Company, a
Texas corporation, and the undersigned directors and officers of El Paso
Electric Company, hereby constitutes and appoints James S. Haines, Eduardo A.
Rodriguez, Gary R. Hedrick, Terry D. Bassham and Guillermo Silva, Jr., its, his
or her true and lawful attorneys-in-fact and agents, for it, him or her and its,
his or her name, place and stead, in any and all capacities, with full power to
act alone, to sign this report and any and all amendments to this report, and to
file each such amendment to this report, with all exhibits thereto, and any and
all documents in connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform any and all acts and things
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as it, he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may lawfully do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 26th day of
March 1998.
EL PASO ELECTRIC COMPANY
By: /s/ JAMES S. HAINES
-------------------------------------
James S. Haines,
Chief Executive Officer and President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ------ ----
<S> <C> <C>
Chief Executive Officer, President |
/s/ JAMES S. HAINES (Principal Executive Officer) and Director |
- --------------------------------------- |
(James S. Haines) |
Vice President, Chief Financial Officer and Treasurer |
/s/ GARY R. HEDRICK (Principal Financial Officer and Principal Accounting |
- --------------------------------------- Officer) |
(Gary R. Hedrick) |
|
/s/ WILSON K. CADMAN Director |
- --------------------------------------- |
(Wilson K. Cadman) |
|
/s/ JAMES A. CARDWELL Director |
- --------------------------------------- |
(James A. Cardwell) |
|
/s/ JAMES W. CICCONI Director |
- --------------------------------------- |
(James W. Cicconi) |
|
/s/ GEORGE W. EDWARDS, JR. Director |
- --------------------------------------- |
(George W. Edwards, Jr.) |
|
/s/ RAMIRO GUZMAN Director } March 26, 1998
- --------------------------------------- |
(Ramiro Guzman) |
|
/s/ JAMES W. HARRIS Director |
- --------------------------------------- |
(James W. Harris) |
|
/s/ KENNETH R. HEITZ Director |
- --------------------------------------- |
(Kenneth R. Heitz) |
|
/s/ PATRICIA Z. HOLLAND-BRANCH Director |
- --------------------------------------- |
(Patricia Z. Holland-Branch) |
|
/s/ MICHAEL K. PARKS Director |
- --------------------------------------- |
(Michael K. Parks) |
|
/s/ ERIC B. SIEGEL Director |
- --------------------------------------- |
(Eric B. Siegel) |
|
/s/ STEPHEN WERTHEIMER Director |
- --------------------------------------- |
(Stephen Wertheimer) |
|
/s/ CHARLES A. YAMARONE Director |
- --------------------------------------- |
(Charles A. Yamarone) |
</TABLE>
95
<PAGE>
EXHIBIT 10.18
LETTER OF UNDERSTANDING
This Letter of Understanding (Letter) is entered into by and between ARIZONA
ELECTRIC POWER COOPERATIVE, INC., an incorporated cooperative association
organized and existing under the laws of the State of Arizona; ARIZONA PUBLIC
SERVICE COMPANY, an Arizona corporation; CITY OF FARMINGTON, an incorporated
municipality existing as a political subdivision under the laws of the State of
New Mexico; EL PASO ELECTRIC COMPANY, a Texas corporation; INCORPORATED, COUNTY
OF LOS ALAMOS, a political subdivision of the State of New Mexico; NEVADA POWER
COMPANY, a Nevada corporation; PLAINS ELECTRIC GENERATION AND TRANSMISSION
COOPERATIVE, INC., an incorporated cooperative association organized and
existing under the laws of the State of New Mexico; PUBLIC SERVICE COMPANY OF
NEW MEXICO, a New Mexico corporation; SALT RIVER PROJECT AGRICULTURAL
IMPROVEMENT AND POWER DISTRICT, an agricultural improvement district organized
and existing under the laws of the State of Arizona; TUCSON ELECTRIC POWER
COMPANY, an Arizona corporation; and THE UNITED STATES OF AMERICA, WESTERN AREA
POWER ADMINISTRATION, DESERT SOUTHWEST REGION represented by the officer
executing this Agreement, a duly appointed successor or a duly authorized
representative, pursuant to the Acts of Congress dated June 17, 1902 (32 Stat.
388), and August 4, 1977 (91 Stat. 565), and acts amendatory thereof or
supplementary thereto. The entities listed above are hereinafter referred to
collectively as "Parties" and individually as "Party."
IN CONSIDERATION OF THE MUTUAL COVENANTS AND PROMISES HEREIN SET FORTH, THE
PARTIES AGREE AS FOLLOWS:
In accordance with Section 5.1 of the Southwest Reserve Sharing Group
(SRSG) Participation Agreement, the Parties agree to shorten the notice period
required to withdraw from the SRSG Participation Agreement from one (1) year to
thirty (30) days advance written
<PAGE>
Southwest Reserve Sharing Group
Letter of Understanding
Page 2
notice. This interim notice requirement shall apply to the period of January 1,
1998 through June 30, 1998.
The Parties agree to direct the Operating Committee to create an
Operating Procedure to address penalties associated with non-compliance of the
SRSG Participation Agreement by April 1, 1998. In the event the Operating
Committee is unsuccessful in creating such Operating Procedure by April 1, 1998,
the Operating Committee shall recommend to the Executive Committee a list of
options. The Executive Committee shall make a final determination relating to
penalties prior to May 1, 1998. The final determination of the Operating or
Executive Committee shall be binding on all Parties. In any event, any and all
penalty assessments shall be waived for the period of January 1, 1998 through
June 30, 1998.
Upon the execution of this Letter, the Parties agree that the following
Operating Procedures, issued November 3, 1997, shall become effective January 1,
1998:
* Resource Reserve Qualification
* Data Submittals
* After the Fact Hourly Reserve Calculations
* Activation of Reserves for Emergency Assistance
* Emergency Communication Procedure
* Suspension or Termination of Membership
The terms and conditions of this Letter of Understanding shall terminate
on July 1, 1998.
\\\
\\\
\\\
<PAGE>
Southwest Reserve Sharing Group
Letter of Understanding
Page 3
Each Party hereto represents and warrants that the person executing this
Letter has been duly authorized to act on its behalf.
ARIZONA ELECTRIC POWER COOPERATIVE, INC.
By: /s/ MILES H. OLDFATHER
------------------------------------
TITLE: Board Vice President
---------------------------------
DATE: November 11, 1997
---------------------------------
ARIZONA PUBLIC SERVICE COMPANY
By: /s/ JACK DAVIS
------------------------------------
TITLE: Executive V.P. Commercial
---------------------------------
Operations
---------------------------------
DATE: November 7, 1997
---------------------------------
CITY OF FARMINGTON
ATTEST: By: /s/ MAUDE GRANTHAM RICHARDS
------------------------------------
TITLE: Electric Utility Director
---------------------------------
- ---------------------------------- DATE: November 14, 1997
---------------------------------
EL PASO ELECTRIC COMPANY
By: /s/ JOHN A. WHITACRE
------------------------------------
TITLE: Assistant VP-System Operations
---------------------------------
DATE: November 24, 1997
---------------------------------
<PAGE>
Southwest Reserve Sharing Group
Letter of Understanding
Page 4
INCORPORATED COUNTY OF LOS ALAMOS
By: /s/ D. CHRISTOPHER ORTEGA
------------------------------------
TITLE: Utilities Manager
---------------------------------
DATE: November 13, 1997
---------------------------------
NEVADA POWER COMPANY
By: /s/ MATT H. DAVIS
------------------------------------
TITLE: Division Director, System
---------------------------------
Planning & Operations
---------------------------------
DATE: November 6, 1997
---------------------------------
PLAINS ELECTRIC GENERATION AND
TRANSMISSION COOPERATIVE, INC.
ATTEST: By: /s/ MICHAEL S. McINNES
------------------------------------
TITLE: Executive VP/General Manager
---------------------------------
- ---------------------------------- DATE: November 10, 1997
Assistant Secretary ---------------------------------
PUBLIC SERVICE COMPANY OF NEW MEXICO
By: /s/ R. FLYNN
------------------------------------
TITLE: Sr. Vice President, Electric
---------------------------------
Services
---------------------------------
DATE: November 10, 1997
---------------------------------
<PAGE>
Southwest Reserve Sharing Group
Letter of Understanding
Page 5
SALT RIVER PROJECT AGRICULTURAL
IMPROVEMENT AND POWER DISTRICT
By: /s/ MARK B. BONSALL
------------------------------------
TITLE: Associate General Manager
---------------------------------
Marketing, Customer Service,
---------------------------------
Finance and Planning
---------------------------------
DATE: November 13, 1997
---------------------------------
TUCSON ELECTRIC POWER COMPANY
By: /s/ N. A. DELAWDER
------------------------------------
TITLE: Vice President
---------------------------------
DATE: November 12, 1997
---------------------------------
WESTERN AREA POWER ADMINISTRATION
DESERT SOUTHWEST REGION
By: /s/ J. T. CARLSON
------------------------------------
TITLE: Regional Manager
---------------------------------
DATE: November 17, 1997
---------------------------------
<PAGE>
SOUTHWEST RESERVE SHARING GROUP
PARTICIPATION AGREEMENT
Execution Copy
<PAGE>
SOUTHWEST RESERVE SHARING GROUP
-------------------------------
PARTICIPATION AGREEMENT
-----------------------
TABLE OF CONTENTS
-----------------
SECTION TITLE PAGE
- ------- ----- ----
1. PARTIES........................................................ 1
2. RECITALS....................................................... 2
3. AGREEMENT...................................................... 3
4. DEFINITIONS.................................................... 3
4.1 Administrative Costs..................................... 3
4.2 Administrator Site System................................ 3
4.3 Agreement................................................ 3
4.4 Agreement Developmental Fee.............................. 3
4.5 Area Control Error (ACE)................................. 3
4.6 Capacity................................................. 3
4.7 Capital Expenditures..................................... 4
4.8 Contingency Reserve...................................... 4
4.9 Control Area............................................. 4
4.10 Developmental Costs...................................... 4
4.11 Disturbance.............................................. 4
4.12 Emergency................................................ 4
4.13 Emergency Assistance..................................... 5
4.14 Energy................................................... 5
4.15 Executive Committee...................................... 5
4.16 Exhibits................................................. 5
4.17 Firm Commitment.......................................... 5
4.18 Firm Load................................................ 5
4.19 Funding Agreement No. 2.................................. 5
4.20 Interim Funding Agreement No. 1.......................... 5
4.21 Load..................................................... 5
4.22 Most Severe Single Contingency........................... 5
4.23 NERC Disturbance Control Standard (DCS).................. 6
4.24 Non-Spinning Reserve..................................... 6
4.25 Operating Committee...................................... 6
4.26 Operating Procedure...................................... 6
4.27 Operating Reserve........................................ 6
4.28 Peak Commitment.......................................... 6
4.29 Service Schedule......................................... 6
4.30 Single Contingency....................................... 6
4.31 Spinning Reserve......................................... 7
4.32 SRSG..................................................... 7
4.33 SRSG Administrator....................................... 7
4.34 SRSG Emergency Assistance Matrices....................... 7
4.35 SRSG Firm Deliveries..................................... 7
i
<PAGE>
4.36 SRSG Firm Receipts....................................... 7
4.37 System................................................... 7
4.38 WSCC Minimum Operating Reliability Criteria.............. 7
5. EFFECTIVE DATE AND TERM........................................ 7
6. RESOLUTION OF CONFLICTS........................................ 8
7. PARTY OBLIGATIONS.............................................. 8
8. ORGANIZATION AND ADMINISTRATION................................ 10
8.1 SRSG Administrator........................................ 10
8.2 Executive Committee....................................... 12
8.3 Operating Committee....................................... 14
8.4 General................................................... 15
9. MEMBERSHIP ELIGIBILITY AND CERTIFICATION....................... 16
10. COST RESPONSIBILITIES.......................................... 18
11. DISBURSEMENT OF FUNDS.......................................... 19
11.1 Application Fees......................................... 19
11.2 Entrance Fees............................................ 19
11.3 Penalty Funds............................................ 19
11.4 Administrative Costs..................................... 19
12. VOTING AND APPROVALS........................................... 19
12.1 Amendments............................................... 20
12.2 Operating Procedures..................................... 20
12.3 Committee Voting......................................... 20
13. BILLING AND PAYMENTS........................................... 21
14. AUDITS......................................................... 23
15. DISPUTE RESOLUTION............................................. 24
16. UNCONTROLLABLE FORCES.......................................... 26
17. WAIVERS........................................................ 27
18. NOTICES........................................................ 27
19. APPROVALS...................................................... 28
20. TRANSFER OF INTEREST IN AGREEMENT.............................. 29
ii
<PAGE>
21. SEVERABILITY................................................... 30
22. RELATIONSHIPS OF PARTIES....................................... 30
23. NO DEDICATION OF FACILITIES.................................... 30
24. THIRD PARTY BENEFICIARIES...................................... 30
25. LIABILITY...................................................... 31
26. DEFAULTS....................................................... 31
27. OTHER AGREEMENTS............................................... 33
28. PROPRIETARY INFORMATION........................................ 33
29. PARTICIPATION BY THE UNITED STATES............................. 33
30. CONTINGENT UPON APPROPRIATIONS................................. 34
31. OFFICIALS NOT TO BENEFIT....................................... 34
32. EXECUTION BY COUNTERPART....................................... 34
33. SIGNATURE CLAUSE............................................... 35
EXHIBITS
- --------
A. Official Mailing Titles and Addresses of the Parties..........Ex A-1
B. Official Billing Addresses................................... Ex B-1
C Agreement Developmental Fee.................................. Ex C-1
SERVICE SCHEDULES
- -----------------
A. RESERVE OBLIGATIONS............................................ A-1
B. ACTIVATION OF RESERVES FOR EMERGENCY ASSISTANCE................ B-1
iii
<PAGE>
SOUTHWEST RESERVE SHARING GROUP
PARTICIPATION AGREEMENT
1. PARTIES:
The Parties to this SOUTHWEST RESERVE SHARING GROUP PARTICIPATION AGREEMENT
are: ARIZONA ELECTRIC POWER COOPERATIVE, INC., an incorporated cooperative
association organized and existing under the laws of the State of Arizona
(hereinafter called "AEPC"); ARIZONA PUBLIC SERVICE COMPANY, an Arizona
corporation (hereinafter called "APS"); CITY OF FARMINGTON, an incorporated
municipality existing as a political subdivision under the laws of the
State of New Mexico (hereinafter called "FARM"); EL PASO ELECTRIC COMPANY,
a Texas corporation (hereinafter called "EPE"); INCORPORATED COUNTY OF LOS
ALAMOS, a political subdivision of the State of New Mexico (hereinafter
called "LAC"); NEVADA POWER COMPANY, a Nevada corporation (hereinafter
called "NEVP"); PLAINS ELECTRIC GENERATION AND TRANSMISSION COOPERATIVE,
INC., an incorporated cooperative association organized and existing under
the laws of the State of New Mexico (hereinafter called "PEGT"); PUBLIC
SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation (hereinafter called
"PNM"); SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT, an
agricultural improvement district organized and existing under the laws of
the State of Arizona (hereinafter called "SRP"); TUCSON ELECTRIC POWER
COMPANY, an Arizona corporation (hereinafter called "TEP"); and THE UNITED
STATES OF AMERICA, WESTERN AREA POWER ADMINISTRATION, DESERT SOUTHWEST
REGION represented by the officer executing this Agreement, a duly
appointed successor or a duly authorized representative, pursuant to the
Acts of Congress dated June 17, 1902 (32 Stat. 388), and August 4, 1977 (91
Stat. 565), and acts amendatory thereof or supplementary
1
<PAGE>
thereto (hereinafter called "WALC"). The entities listed above are
hereinafter referred to collectively as "Parties" and individually as
"Party."
2. RECITALS:
2.1 Parties from Arizona, Nevada, New Mexico, and West Texas have
developed a conceptual framework for a regional reserve sharing group
that for some Parties will replace their Inland Power Pool membership
when the Amended and Restated Inland Power Pool Agreement expires on
December 31, 1997.
2.2 The Southwest Reserve Sharing Group (SRSG) will allow for sharing of
Contingency Reserves among the Parties in order to realize a more
efficient and economic power system operation while maintaining the
reliability of the interconnected system. Any other reserve
obligation necessary to meet North American Electric Reliability
Council (NERC) and Western Systems Coordinating Council (WSCC)
criteria will continue to be the responsibility of each Party.
2.3 It is the intent of the Parties to meet or exceed all WSCC and NERC
reliability criteria, as such criteria may be amended, modified, or
revised.
2.4 The Parties believe that this Agreement will yield important benefits
to their respective customers or members. Such benefits include the
following:
2.4.1 The combined Loads of the Parties can be supplied and protected
with less aggregate Contingency Reserve resulting in a net
savings in operating expenses.
2.4.2 Emergency conditions can be met with less likelihood of
curtailment or impairment of electric service to customers or
members of the Parties.
2.4.3 The Parties can promote, facilitate, and coordinate the
operation of the respective Systems of the Parties, to the
benefit of the interconnected system.
2
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2.5 Each Party is willing to utilize its respective electric generation
and transmission systems to the extent of its respective obligations
which are set forth in this Agreement.
3. AGREEMENT:
IN CONSIDERATION OF THE MUTUAL COVENANTS AND PROMISES HEREIN SET FORTH, THE
PARTIES AGREE AS FOLLOWS:
4. DEFINITIONS:
The following terms, whether in the singular or in the plural, when
initially capitalized in this Agreement, shall have the meanings specified:
4.1 Administrative Costs - Costs incurred by the SRSG Administrator in
--------------------
performing ongoing administrative functions assigned pursuant to
Section 8.1 herein.
4.2 Administrator Site System - A computer application system, operated
-------------------------
and maintained by the SRSG Administrator, that (i) contains the data
provided by each Party, (ii) provides tools for the maintenance of
such data, and (iii) provides a means to determine and allocate
reserve quotas, Emergency Assistance, reserve penalties and
settlements to each Party.
4.3 Agreement - This Southwest Reserve Sharing Group Participation
---------
Agreement, together with the Service Schedules, attachments thereto,
and Exhibits.
4.4 Agreement Developmental Fee - A fee charged to new members which
---------------------------
reflects costs incurred by the Parties in the formation of the SRSG.
Such fee shall be determined in accordance with Exhibit C attached
hereto.
4.5 Area Control Error (ACE) - The instantaneous difference between
------------------------
actual and scheduled interchange, taking into account the effects of
frequency bias (and time error or unilateral inadvertent interchange
if automatic correction for either is part of the system's automatic
generation control).
4.6 Capacity - The rated continuous load-carrying ability, expressed in
--------
megawatts.
3
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(MW) or megavoltamperes (MVA) of generation, transmission, or other
electrical equipment.
4.7 Capital Expenditures - All capital costs incurred by the SRSG in
--------------------
association with making enhancements to, or the replacement of, the
initial hardware and software system of the SRSG.
4.8 Contingency Reserve - A portion of Operating Reserve, sufficient to
-------------------
reduce ACE to meet the NERC Disturbance Control Standard following the
Most Severe Single Contingency. Contingency Reserve consists of both
Spinning Reserve and Non-Spinning Reserve; however, at least fifty
percent (50%) of this Contingency Reserve shall be Spinning Reserve.
Any Spinning Reserve in excess of a Party's Spinning Reserve quota may
count towards its remaining Contingency Reserve quota.
4.9 Control Area - An area comprised of an electrical system or systems,
------------
bound by interconnection metering and telemetry, capable of
controlling generation to maintain its interchange schedule with other
Control Areas and contributing to frequency regulation of the
interconnection.
4.10 Developmental Costs - All costs incurred in the initial development
-------------------
of the hardware and software systems associated with the Administrator
Site System.
4.11 Disturbance - The sudden loss of a Party's transmission or generation
-----------
Capacity that causes an ACE of a magnitude that requires immediate
action to meet NERC performance criteria.
4.12 Emergency - An abnormal system condition which requires immediate
---------
manual or automatic action to prevent loss of Firm Load, equipment
damage, or to prevent tripping of system elements that could adversely
affect the reliability of the electric system.
4
<PAGE>
4.13 Emergency Assistance - Energy furnished to a Party under Emergency
--------------------
conditions when power supply to the Party's Firm Commitments is
threatened or curtailed.
4.14 Energy - The accumulated amount of power delivered over a stated time
------
interval; usually expressed in megawatt hours (MWh).
4.15 Executive Committee - That committee established pursuant to Section 8
-------------------
herein.
4.16 Exhibits - Exhibits A, B, and C attached hereto, as they may be
--------
amended, modified, or revised.
4.17 Firm Commitment - The Load associated with wholesale and retail power
---------------
customers on whose behalf the Party, by statute, franchise, regulatory
requirement, or contract, has undertaken an obligation to operate the
Party's system to meet the reliable electric needs of such customers.
For SRSG purposes, Firm Commitment shall be calculated as the sum of
Firm Load, plus SRSG Firm Deliveries, less SRSG Firm Receipts.
4.18 Firm Load - Power and Energy requirements (including system losses) of
---------
customers which a Party is obligated to supply at all times.
4.19 Funding Agreement No. 2 - The Southwest Reserve Sharing Group Funding
-----------------------
Agreement No. 2 executed by the Parties on July 2, 1997.
4.20 Interim Funding Agreement No. 1 - The Southwest Reserve Sharing Group
-------------------------------
Interim Funding Agreement No. 1 executed by the Parties on February
28, 1997.
4.21 Load - An end-use device or customer that receives power from the
----
electric system.
4.22 Most Severe Single Contingency - That Single Contingency which
------------------------------
results in the most adverse system performance under any operating
condition or
5
<PAGE>
anticipated mode of operation.
4.23 NERC Disturbance Control Standard (DCS) - The NERC Disturbance Control
---------------------------------------
Standard established in accordance with NERC Policy 1, as it may be
amended, modified, or revised.
4.24 Non-Spinning Reserve - That portion of Operating Reserve not
--------------------
connected to the system but capable of serving demand within ten (10)
minutes, or interruptible Load that can be removed from the system
within ten (10) minutes.
4.25 Operating Committee - That committee established pursuant to Section 8
-------------------
herein.
4.26 Operating Procedure - Written procedures, developed and approved by
-------------------
the Operating Committee pursuant to Section 8 herein, to implement
specific provisions of this Agreement.
4.27 Operating Reserve - That capability above firm system demand required
-----------------
to provide for regulation, Load forecasting error, forced and
scheduled outages, and local area protection. Operating Reserve
consists of Spinning Reserve and Non-Spinning Reserve.
4.28 Peak Commitment - The highest hourly Firm Commitment during a
---------------
designated time period.
4.29 Service Schedule - A specific written agreement among the Parties for
----------------
the purposes of dictating or specifying methods of coordination,
operation, maintenance, or planning of the respective Systems, for
improving the reliability of power supply and achieving economics for
the customers or members served by the Parties.
4.30 Single Contingency - The loss of a single system element under any
------------------
operating condition or anticipated mode of operation.
6
<PAGE>
4.31 Spinning Reserve - Unloaded generation which is synchronized and
----------------
ready to serve additional demand.
4.32 SRSG - The Southwest Reserve Sharing Group.
----
4.33 SRSG Administrator - That Party or entity designated to perform
------------------
duties as provided for in Section 8 herein.
4.34 SRSG Emergency Assistance Matrices - Those matrices depicting the
----------------------------------
allocation of Emergency Assistance among the Parties.
4.35 SRSG Firm Deliveries - Deliveries which are not recallable in less
--------------------
than ten (10) minutes.
4.36 SRSG Firm Receipts - Receipts which are not recallable in less than
------------------
sixty (60) minutes.
4.37 System - The integrated electrical facilities, which may include
------
generation, transmission and distribution facilities, that are
controlled by one organization.
4.38 WSCC Minimum Operating Reliability Criteria - WSCC Minimum Operating
-------------------------------------------
Reliability Criteria dated March 11, 1997, as such criteria may be
amended, modified, or revised.
5. EFFECTIVE DATE AND TERM:
5.1 This Agreement shall become effective on the later of: (i) when duly
executed by all Parties, (ii) when filed with the Federal Energy
Regulatory Commission for acceptance, or (iii) January 1, 1998. This
Agreement shall continue in effect for a period of ten (10) years from
said effective date and thereafter on a year to year basis until
terminated by the Parties; provided, however, that any Party may
withdraw its participation at any time after the effective date of
this Agreement by providing written notice to the Executive Committee
at least one (1) year in advance of its effective date of withdrawal,
unless a shorter period of time is agreed to by all Parties.
7
<PAGE>
5.2 As of the effective date of withdrawal, the withdrawing Party shall
have no further rights or obligations under this Agreement, except
payment of amounts then or previously due. Such amounts shall include
any financial obligation incurred hereunder prior to the effective
date of withdrawal and any amounts incurred by the SRSG Administrator
in processing the withdrawal of such Party.
5.3 Neither expiration, termination nor voiding of this Agreement shall
relieve a Party of its obligation to make payment of amounts due
hereunder.
5.4 No Party shall oppose before any regulatory agencies having
jurisdiction, a Party's withdrawal from this Agreement, so long as the
provisions of Sections 5.1 and 5.2 herein have been met.
6. RESOLUTION OF CONFLICTS:
In the event of a conflict between the terms and conditions of this
Agreement and a Service Schedule, the terms and conditions of the Service
Schedule shall prevail.
7. PARTY OBLIGATIONS:
7.1 It is the intent of the Parties to meet or exceed the WSCC Minimum
Operating Reliability Criteria and the NERC Control Performance And
Disturbance Control Standards, as they may be adopted, modified, or
revised.
7.2 The SRSG has been formed for the purpose of sharing Contingency
Reserves. Each Party shall maintain, or cause to be maintained, an
amount of Contingency Reserve equal to or greater than its Contingency
Reserve requirement, as such requirement shall be determined in
accordance with Service Schedules A and B attached hereto.
7.3 Each Party shall activate and provide its Contingency Reserves to
other Parties, as requested, in accordance with Service Schedule B
attached hereto.
8
<PAGE>
7.4 Each Party shall operate its System continuously in parallel;
provided, however, that each Party shall have the right to temporarily
separate the facilities of its System from the System of any other
Party when, in the judgment of the separating Party, abnormal
operating conditions exist which require such separation to prevent
damage to its facilities, injuries to personnel or impairment of
service to its customers or members; and for necessary inspection,
maintenance, repair or replacement of its facilities, or additional
construction.
7.5 Each Party shall exercise reasonable efforts to construct, operate and
maintain its System to avoid the likelihood of a Disturbance
originating within its System causing an impairment of service in the
Systems of other Parties and to minimize the exposure to damage
resulting from Disturbances on the System of other Parties.
7.6 The Parties shall comply with all SRSG Operating Procedures.
7.7 Any Party within a Control Area may make arrangements with the host
Control Area to provide or share reserve responsibilities between
themselves or third parties, to include billings for reserve
deficiency, or any other services rendered, so long as the total
reserve responsibility is accommodated.
7.8 Each Party shall be responsible to provide and maintain hardware and
software which is compatible with the Administrator Site System for
complying with the reporting requirements of this Agreement.
7.9 Each Party is responsible for any financial obligation derived from
its membership herein.
7.10 Each Party shall be responsible for its share of costs and expenses
attributable to the SRSG Administrator performing its functions
pursuant to this Agreement.
9
<PAGE>
7.11 Each Party shall cooperate with the SRSG Administrator and provide the
SRSG Administrator information necessary for the performance of its
duties herein.
8. ORGANIZATION AND ADMINISTRATION:
As a means of securing effective and timely cooperation within the
activities of the SRSG and a means of facilitating the administration,
coordination, operations and problem solving, the Parties hereby establish
(i) the role of a SRSG Administrator, (ii) an Executive Committee, and
(iii) an Operating Committee.
8.1 SRSG Administrator
------------------
8.1.1 The SRSG Administrator shall be designated by the Operating
Committee from among the Parties of the SRSG; provided,
however, that the Operating Committee, with the approval of the
Executive Committee, may designate an entity other than a Party
to serve as SRSG Administrator.
8.1.2 The SRSG Administrator may resign by providing written notice
to both the Executive Committee and the Operating Committee at
least one (1) year in advance of the effective date of its
resignation, unless a shorter period of time is agreed to by
all Parties.
8.1.3 The SRSG Administrator may be removed at any time by the
Executive Committee, with or without cause.
8.1.4 Upon resignation or removal of the SRSG Administrator pursuant
to Section 8.1.2 or Section 8.1.3 herein, the outgoing SRSG
Administrator shall:
8.1.4.1 Transfer and provide technical training regarding all
hardware, software, and all other material owned by
the SRSG or owned on behalf of the SRSG to the new
SRSG Administrator; and
10
<PAGE>
8.1.4.2 Settle all outstanding financial obligations
corresponding with its term as SRSG Administrator and
transfer any remaining SRSG funds to the new SRSG
Administrator.
8.1.5 The SRSG Administrator shall be responsible for performing its
assigned duties in accordance with Operating Procedures
established by the Operating Committee. Such duties shall
include, but not be limited to the following:
8.1.5.1 Data - Data collection, data monitoring, and data
----
processing.
8.1.5.2 Preparation and Consolidation of Reports
----------------------------------------
8.1.5.2.1 Maintenance and preservation of all records
(including both the Executive Committee and
Operating Committee meeting minutes and
Operating Procedures) reasonably necessary
for the performance of the duties
hereunder.
8.1.5.2.2 Submission of an annual budget to the
Operating Committee and the tracking of
SRSG related expenses.
8.1.5.2.3 Preparation and distribution of SRSG
reports required by NERC, WSCC, and the
Operating Committee.
8.1.5.3 Administrator Site System - The SRSG Administrator
-------------------------
shall be responsible for the procurement, operation,
maintenance, and the coordination of the Administrator
Site System.
8.1.5.4 Payments - The SRSG Administrator shall be
--------
responsible for the payment of invoices and the
distribution of funds in accordance with this
Agreement.
11
<PAGE>
8.1.5.5 Other Duties as Assigned - Such other duties shall
------------------------
include but not be limited to the following:
8.1.5.5.1 Training and consulting for the Parties in
association with questions or problems
relating to SRSG reserves and SRSG data
reporting;
8.1.5.5.2 Certify that an applicant has met all
membership eligibility criteria as set
forth in Section 9 herein;
8.1.5.5.3 Notify the Executive Committee and all
Parties that an applicant has met all
membership criteria and is now a Party to
the SRSG;
8.1.5.5.4 Notify all Parties when an existing
Party(ies) is not in compliance with this
Agreement.
8.1.5.5.5 Bill each Party for its share of expenses
incurred pursuant to Section 13 herein.
8.1.5.5.6 Cooperate with an audit request of the
Operating Committee pursuant to Section 14
herein.
8.1.5.5.7 Make available during its normal business
hours all the records and accounts
maintained by the SRSG Administrator
pertaining to the requesting Party(ies) and
pursuant to activities and responsibilities
hereunder. Such records shall be made
available in a timely manner and at the
requesting Party's expense.
8.2 Executive Committee
-------------------
The Executive Committee shall consist of one representative from each
Party designated pursuant to Section 8.4 herein. The responsibilities
of the
12
<PAGE>
Executive Committee are as follows:
8.2.1 To establish additional subcommittees as it may from time to
time deem necessary;
8.2.2 To review at least annually the activities of all committees to
ensure their activities are coordinated and consistent with the
spirit and intent of this Agreement;
8.2.3 To review unresolved disputes which may arise within the SRSG
and resolve the disputes pursuant to Section 15 herein;
8.2.4 To review and approve the annual budget of the SRSG;
8.2.5 To review and recommend to the Parties for approval additions
or amendments to this Agreement;
8.2.6 To receive, review, and process an applicant's written request
to become a Party, in accordance with Section 9 herein and
where applicable, notify entities of their SRSG eligibility in
accordance with Section 10.2 herein;
8.2.7 To establish, review, approve, and maintain procedures for the
determination and recertification of creditworthiness for new
applicants and existing members respectively;
8.2.8 To establish procedures for the allocation to and payment by
any new Party to the existing Parties for the past, current and
future cost of facilities, equipment, services, or other costs
such as software that are of benefit to all Parties;
8.2.9 To review and process, in accordance with Section 5 herein, the
notice by a Party to withdraw as a Party to this Agreement;
8.2.10 To review and process the termination of a Party's rights and
obligations under this Agreement;
13
<PAGE>
8.2.11 To provide minutes for all Executive Committee meetings and
distribute copies of such minutes to all committee members and
to the SRSG Administrator; and
8.2.12 To do such other things and carry out such duties as
specifically required or authorized by this Agreement.
8.3 Operating Committee
-------------------
The Operating Committee shall consist of one representative from each
Party designated pursuant to Section 8.4 herein. The responsibilities
of the Operating Committee are as follows:
8.3.1 To establish Operating Procedures for the sharing of
Contingency Reserves such that the SRSG will meet or exceed the
WSCC Minimum Operating Reliability Criteria and NERC's
Disturbance Control Standards relative to Contingency Reserves,
as they may be amended, modified, or revised;
8.3.2 To establish, review, approve, and modify Operating Procedures,
consistent with the provisions herein, for the guidance of
operating employees in the Parties' Systems as to matters
affecting the ability to maintain Contingency Reserves, the
delivery and receipt of Emergency Assistance, and other similar
operating matters;
8.3.3 To establish, review, approve, and modify Operating Procedures
for determining the ratings of the generating facilities of the
Parties;
8.3.4 To establish, review, approve and modify Operating Procedures
for calculating Contingency Reserves within the SRSG;
8.3.5 To establish, review, approve, and modify Operating Procedures
relating to Contingency Reserve deficiencies;
8.3.6 To establish, review, approve, and modify Operating Procedures
14
<PAGE>
relating to suspension or termination of a Party from this
Agreement;
8.3.7 To establish a "Disturbance Review" task force to review all
SRSG Disturbances to ensure that all SRSG and individual Party
reliability obligations are being met;
8.3.8 To ensure the proper level and location of reserves;
8.3.9 To designate a SRSG Administrator to function under the
direction of the Operating Committee;
8.3.10 To review and recommend, as necessary, the types and
arrangement of equipment and associated communication
facilities needed for SRSG operations;
8.3.11 To review and recommend approval of the annual budget, prepared
by the SRSG Administrator, to the Executive Committee;
8.3.12 To develop, review, approve, and recommend changes to the SRSG
Emergency Assistance Matrices;
8.3.13 To review and process the suspension of all benefits of reserve
sharing and applicable reserve sharing obligations of a Party;
8.3.14 To recommend the termination of a Party from the Agreement to
the Executive Committee;
8.3.15 To provide minutes for all Operating Committee meetings and
distribute copies of such minutes to all committee members and
to the SRSG Administrator; and
8.3.16 To do such other things and carry out such duties as
specifically required or authorized by this Agreement.
8.4 General
-------
8.4.1 Each Party shall designate, in accordance with Section 18
herein, its representative and alternate representative (to act
in the absence of
15
<PAGE>
the designated representative) on each committee within thirty
(30) days after the execution of this Agreement. Notice of any
change of representation shall be given by written notice to
the other Parties and the SRSG Administrator. Each Party's
designated representatives or alternate representatives will be
authorized to act on its behalf with respect to those committee
responsibilities provided herein.
8.4.2 Each committee shall meet at least annually.
8.4.3 Each committee will elect a chairperson and establish a meeting
protocol at its first meeting.
8.4.4 Each committee shall elect a new chairperson at least every two
(2) years thereafter, provided, that a succeeding chairperson
may not be from the same Party.
8.4.5 No committee shall have the authority to amend this Agreement.
9. MEMBERSHIP ELIGIBILITY AND CERTIFICATION:
An entity may apply and become a Party to this Agreement by submitting to
the Executive Committee a written request for membership to the SRSG,
accompanied by a non-refundable application fee of five thousand dollars
($5,000), and by demonstrating to the satisfaction of the Executive
Committee that the entity can continuously meet the criteria and
certification requirements set forth below:
9.1 It is eligible to file a request for transmission service pursuant to
Section 211 of the Federal Power Act.
9.2 It can maintain, provide and receive reserves, by contractual
arrangement or otherwise, as required pursuant to this Agreement, and
is able to deliver and receive Energy associated with these reserves
at one or more of the following high voltage switchyards:
(a) Four Corners 230 kV or 345 kV Switchyards;
16
<PAGE>
(b) Navajo 500 kV Switchyard;
(c) Palo Verde 500 kV Switchyard;
(d) San Juan 345 kV Switchyard;
(e) Westwing 500 kV Switchyard;
(f) Shiprock 345 kV Switchyard;
(g) Mead 230 kV, 345 kV, or 500 kV Switchyards;
(h) Greenlee 345kV Switchyard;
(i) West Mesa 345kV, Switchyard;
(j) Other switchyards as may be determined by the Operating
Committee.
9.3 It has established appropriate creditworthiness consistent with the
criteria established in accordance with Section 8.2.7 herein.
9.4 It has the ability to provide documentation of an ACE or ACE equivalent
measurement. The SRSG will operate using all individual Party's ACE data
for Disturbance evaluation.
9.5 It has the ability to comply with all applicable terms and conditions
established pursuant to Service Schedules A and B hereto.
9.6 Upon demonstrating to the satisfaction of the Executive Committee that such
entity meets the criteria set forth in Sections 9.1 through 9.5 herein, the
entity shall be deemed eligible to become a Party.
9.7 Once the entity has been deemed eligible to become a Party, the Executive
Committee shall direct the SRSG Administrator to begin the certification
process.
9.8 The certification process shall consist of the following: (i) execution of
this Agreement or a counterpart hereof; (ii) verification from the SRSG
Administrator that such entity is current with all its payment obligations
relative
17
<PAGE>
to the SRSG, and (iii) verification from the SRSG Administrator that such
entity has provided the required data to the SRSG Administrator and has in
place the required facilities to effectively transmit and receive data with
the Administrator Site System.
9.9 Upon successful completion of the certification process, the entity shall
be deemed a Party and the SRSG Administrator shall provide notification to
the Executive Committee and all Parties.
10. COST RESPONSIBILITIES:
10.1 The costs of the SRSG shall be allocated as follows:
10.1.1 All Developmental Costs and Capital Expenditures, approved by
the Executive Committee, will be allocated equally among all
Parties. Payments made by a Party pursuant to the Interim
Funding Agreement No. 1 and the Funding Agreement No. 2 shall
be credited towards such Party's share of Developmental Costs.
10.1.2 Annual Administrative Costs, as set forth in the annual
operating budget, will be allocated to the Parties as follows:
10.1.2.1 One-half (1/2) of the on-going Administrative Costs
incurred shall be allocated equally among all
Parties;
10.1.2.2 One-half (1/2) of the on-going Administrative Costs
incurred shall be allocated to each Party in
accordance with the ratio of its Firm Commitments to
the total Firm Commitments of the SRSG at the time
of the SRSG annual coincident Peak Commitment for
the previous calendar year.
10.2 Each entity eligible to become a Party shall be notified by the
Executive Committee and shall, as a condition of the certification
process, pay, within thirty (30) calendar days following such
notification, an entrance fee equal to
18
<PAGE>
the sum of:
10.2.1 Its share of Developmental Costs and Capital Expenditures in
accordance with Section 10.1.1 herein; plus
10.2.2 An Agreement Developmental Fee determined in accordance with
Exhibit C attached hereto; plus
10.2.3 Administrative Costs for incorporating the entity into the
SRSG.
10.3 A new Party shall begin incurring its share of ongoing Administrative
Costs upon completion of the certification process set forth in
Section 9.8 herein.
11. DISBURSEMENT OF FUNDS:
11.1 Application Fees - Application fees received from applicants pursuant
----------------
to Section 9 herein, shall be utilized to offset the SRSG
Administrator's expenses incurred in processing the application.
11.2 Entrance Fees - Entrance fees received pursuant to Section 10.2
-------------
herein, shall be allocated equally to all Parties with the exception
that the new Party shall not participate in the allocated
disbursement.
11.3 Penalty Funds - Penalty funds assessed by the SRSG Administrator
-------------
shall be allocated among the Parties using the same methodology
utilized to allocate Administrative Costs, with the exception that the
penalized Party or Parties shall not participate in the allocated
disbursement of such penalty funds.
11.4 Administrative Costs - The initial payment of Administrative Costs
--------------------
received from a new Party pursuant to Section 10.3 herein, shall be
allocated among the existing Parties using the same methodology
utilized to allocate Administrative Costs.
12. VOTING AND APPROVALS:
All matters requiring approval as provided in this Agreement, shall be
approved through the following procedures:
19
<PAGE>
12.1 Amendments - Any amendments to this Agreement shall be approved by
----------
unanimous vote of the Parties. Unless otherwise specified, amendments
to this Agreement shall become effective when all Party signatures
have been received subject to the provisions of Section 19 herein.
The Executive Committee chairperson shall be responsible for
circulating the appropriate signature pages to each Party, receiving
executed counterparts, notifying the Parties when all signatures have
been received, distributing executed originals to all Parties and the
SRSG Administrator, and ensuring that appropriate regulatory filings
are made.
12.2 Operating Procedures - Modification of an Operating Procedure
--------------------
developed under this Agreement, which has been expressly granted to a
committee shall become effective and apply to all Parties when the
necessary affirmative votes have been received.
12.3 Committee Voting - Unless otherwise stated in this Agreement, all
----------------
matters requiring committee approval shall be approved by a three-
quarters (75%) majority vote of committee representatives present at a
meeting of the appropriate committee; provided, that a quorum of at
least seventy percent (70%) of the respective representatives or their
alternates are in attendance, in person or represented by proxy.
Provided further, that written notice be given by the committee
chairperson to each Party's designated committee representative(s) at
least two (2) weeks in advance of the meeting unless otherwise agreed.
Such notice shall include an agenda of the meeting.
12.3.1 A Party casting an abstention vote shall be deemed in
attendance for purposes of determining whether a quorum
exists; provided, however, that determination of whether a
three-quarter (75%) majority agreement of the Parties exists
with respect to any issue shall be made
20
<PAGE>
by counting the votes of only the non-abstaining Parties.
12.3.2 If a vote is taken by telephone or other direct communication
at the direction of the committee chairperson, all committee
representatives or alternate(s) shall be contacted and given
an opportunity to vote. A three-quarters (75%) majority vote
shall be required for approval and the results documented in
writing by the committee chairperson. A record of all such
votes shall be distributed to all designated committee
representative(s) and the SRSG Administrator.
13. BILLING AND PAYMENTS:
All billing and payments associated with this Agreement, shall be in
accordance with this Section 13, and as set forth in the applicable
Operating Procedure(s).
13.1 The accounting and billing period associated with all charges shall be
for one (1) calendar month, unless otherwise specified herein, or
agreed to by the Parties in writing. Each bill shall include an
itemized list of expenses. Bills sent to any Party shall be sent to
the official billing address specified in Exhibit B.
13.2 Charges associated with this Agreement are listed below, but are not
limited to:
13.2.1 Administrative Costs - Administrative Costs shall be billed
--------------------
on an annual basis to each Party by the SRSG Administrator.
13.2.2 Capital Expenditures - Capital Expenditures shall be billed
--------------------
monthly to the Parties by the SRSG Administrator, or as
otherwise agreed to by the Operating Committee.
13.2.3 Emergency Assistance - Emergency Assistance shall be billed
--------------------
between the Parties on a monthly basis, or as otherwise agreed
to among the Parties in writing.
21
<PAGE>
13.3 Bills issued by any Party, or the SRSG Administrator, shall be issued
within the first ten (10) days of the month following the month(s) in
which services were furnished. Payments for amounts billed shall be
due and payable on or before the close of business on the twentieth
(20) calendar day after the date of receipt of the bill.
13.4 Payments shall be made by electronic transfer to a bank designated by
the Party to which payment is due, or any other method which provides
immediately available funds on the date payment is due. Payments shall
be considered paid when payment is received by the billing Party.
13.5 Bills not paid in full on or before the due date shall thereafter
accrue an interest charge equal to the prime rate of interest plus two
percent (2%) per annum, or the maximum interest rate permitted by law,
if any, whichever is less, prorated daily from the date due to the
date the amount due is paid in full. The prime rate shall be as
established by the Bank of America, or any other institution mutually
agreed to by the Parties in writing, on the last business day of the
month for which the bill was submitted.
13.6 In case any portion of any bill is in dispute, the entire bill shall
be paid in full when due. Any excess amount, which as a result of a
dispute may have been overpaid, shall be returned by the owing Party
upon determination of the correct amount, with interest accrued at the
rate specified in Section 13.5 herein, prorated by the number of days
from the date of overpayment to the date of refund.
13.7 There shall be no interest accrued on overpayments resulting from
inadvertent errors in payment. Refunds on overpayments shall be
limited to a period of time not to exceed two (2) years from the date
payment is received by the billing Party.
22
<PAGE>
14. AUDITS:
14.1 Each Party, at reasonable times and at its normal places of business,
shall at no charge make available its records and supporting
documentation of any cost, payment, settlement, or data submittal, not
subject to a confidentiality agreement with a third party, pertaining
to any bill rendered to a Party hereunder for the inspection of that
Party for a period of time not to exceed two (2) years from the date
such bills were rendered, unless such data is the subject of an
ongoing audit.
14.1.1 A Party requesting to review another Party's records will give
such Party sufficient notice of its intent, but in no event
less than thirty (30) days prior to the date of the review.
14.1.2 The requesting Party, using personnel from its own staff or
its agent, may perform this review.
14.1.3 All costs incurred in performing this review will be at the
requesting Party's expense.
14.1.4 The Party performing the review shall not release the other
Party's records or disclose any information contained therein
to any other Party or third party without written consent of
the Party whose records were reviewed, unless otherwise
required by law.
14.2 The Operating Committee, at reasonable times and at its normal places
of business, may audit a Party's records and supporting documentation
of any information submitted to the Administrator Site System, and
Disturbance data when applicable. Unless such data is subject to an
ongoing audit, no Party shall be required to maintain its records and
supporting documentation for any data submitted hereunder for a period
of time in excess of two (2) years from the date such data was
submitted. Audits shall be limited to a period of time
23
<PAGE>
not to exceed two (2) years from the date of the audit request.
15. DISPUTE RESOLUTION:
15.1 Any controversy, dispute or claim arising out of, in connection with,
or relating to the interpretation of this Agreement, or the alleged
breach hereof, shall:
15.1.1 First be submitted to the Operating Committee for resolution.
If the Operating Committee representatives are unable to reach
resolution within three (3) calendar months or if the
aggrieved Party is not satisfied with the resolution of the
Operating Committee, such dispute, controversy or claim shall
be forwarded to the Executive Committee.
15.1.2 Upon receipt of a dispute, controversy or claim forwarded in
accordance with Section 15.1.1 herein, the Executive Committee
shall meet or confer within thirty (30) days (or such other
period of time as mutually agreed upon by the representatives
of the Executive Committee) to discuss and attempt to reach a
resolution of the dispute controversy or claim. If the
Executive Committee cannot resolve the dispute, controversy or
claim within thirty (30) days after its initial meeting or
conference (or within such other period of time mutually
agreed upon by the representatives of the Executive Committee)
or if the aggrieved Party is not satisfied with the resolution
of the Executive Committee, the aggrieved Party may request
and file a petition for arbitration within thirty (30) days.
15.2 If all Parties to the controversy, dispute or claim consent to
arbitration, such arbitration shall be conducted in accordance with
the Commercial Arbitration Rules of the American Arbitration
Association. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The Parties agree to
cooperate and use best efforts to arbitrate in a
24
<PAGE>
timely manner. The arbitration is subject to the following:
15.2.1 The arbitration shall be heard by one arbitrator. Such
arbitrator shall have experience in the electric utility
industry, shall not be a customer of any Party involved in the
dispute, and shall not have any current or past substantial
business or financial relationships with any Party involved in
the dispute.
15.2.2 The arbitrator shall have the discretion to order a pre-
hearing exchange of information by the Parties involved in the
dispute, including, without limitation, production of
requested documents, exchange of summaries of testimony of
proposed witnesses, and examination by deposition of Parties
involved in the dispute.
15.2.3 The arbitration shall be conducted in accordance with the
American Arbitration Association's Commercial Arbitration
Rules ("Rules") in effect at the time of the arbitration.
15.2.4 The arbitrator shall have the authority to award any remedy or
relief that a state or federal court which would have
jurisdiction over the dispute could grant.
15.2.5 The arbitration award shall be in writing and shall specify
the factual and legal basis for the award. The award shall be
final and binding upon the Parties involved in the dispute
except with respect to issues over which FERC, RUS, or other
entities having jurisdictional authority have retained
ultimate authority to resolve, in which case, an aggrieved
Party may appeal the decision of the arbitrator to that entity
having jurisdiction for review.
15.2.6 No Party nor the arbitrator may disclose the existence,
content, or results of any arbitration hereunder without the
prior written consent of
25
<PAGE>
all Parties involved in the dispute, unless otherwise required
by law.
15.2.7 Each Party involved in the dispute shall pay for an equal
share of the arbitrator's fee including travel and lodging.
15.2.8 The arbitration shall be governed by the Federal Arbitration
Act ("FAA"). If terms and conditions of this Section 15
conflict with the FAA, then the FAA shall prevail.
15.2.9 The prevailing Party in an arbitration proceeding shall be
entitled to reasonable attorneys' fees, expert witness fees,
and other incidental costs incurred in the proceeding, as
determined by the arbitrator.
15.3 In the event that all such Parties do not consent to arbitration, any
one or more of such Parties shall be free to seek resolution of the
controversy, dispute or claim in such manner as may be provided by
law, or in equity.
15.4 To the extent a dispute, controversy or claim involves the SRSG
Administrator, this Agreement, and the rights and obligations
hereunder shall be construed in accordance with the applicable federal
laws and laws of the state in which the SRSG Administrator's principal
headquarters is located.
16. UNCONTROLLABLE FORCES:
No Party shall be considered to be in default in performance of any of its
obligations under this Agreement, except to pay amounts due under this
Agreement, when a failure of performance is due to an uncontrollable force.
The term "uncontrollable force" means any cause beyond the control of the
Party affected, including but not restricted to flood, drought, earthquake,
storm, fire, lightning, epidemic, war, riot, civil disturbance or
disobedience, labor dispute, sabotage, changes in law or regulation,
restraint by court order or public authority and action or non-action by or
failure to obtain the necessary authorizations or approvals from any
governmental agency or authority which by exercise of due diligence such
Party could not reasonably have
26
<PAGE>
been expected to avoid and which by exercise of due diligence it has been
unable to overcome. No Party shall, however, be relieved of liability for
failure of performance if such failure is due to causes arising out of its
own gross negligence or willful misconduct or due to removable or
remediable causes which it fails to remove or remedy within a reasonable
time period. Nothing contained herein shall be construed to require a Party
to settle any strike or labor dispute in which it may be involved. A Party
rendered unable to fulfill its obligations under this Agreement by reason
of an uncontrollable force shall give prompt written notice of such fact to
the other Parties and shall exercise due diligence to remove such inability
within a reasonable time period. Nothing contained herein shall excuse a
Party from all or any portion of its obligations to maintain Contingency
Reserve hereunder, so long as such Party is serving Load.
17. WAIVERS:
A Party's waiver of its rights with respect to a default hereunder, or any
other matter hereunder, shall not be deemed a waiver with respect to any
subsequent default of the same or any other matter.
18. NOTICES:
18.1 A formal notice, demand or request provided for in this Agreement,
shall be in writing and shall be properly served, given or made if
delivered in person, or sent by either registered or certified mail,
postage prepaid, or prepaid telegram or facsimile or E-mail followed
by a written original, to the persons specified in Exhibit A attached
hereto and hereby made a part of this Agreement.
18.2 The designation of any person specified in either Exhibit A or Exhibit
B, or the address of any such person, may be changed at any time with
ten (10) days prior written notice to the other Parties and to the
SRSG Administrator given in the same manner as provided in Section
18.1 herein, for other notices.
27
<PAGE>
18.3 Notices and requests of a routine nature in connection with delivery
or receipt of power or Energy or in connection with operation of
facilities shall be given in such manner as the committees from time
to time shall prescribe.
19. APPROVALS:
19.1 This Agreement is subject to valid laws, orders, rules and regulations
of duly constituted authorities having jurisdiction. Nothing contained
in this Agreement shall be construed as a grant of jurisdiction over
any Party by a state, federal, or regulatory agency not otherwise
having jurisdiction by law.
19.2 This Agreement requires execution by the Parties, acceptance for
filing by the Federal Energy Regulatory Commission (FERC), or other
regulatory bodies having jurisdiction thereof, and with respect to any
Party subject to the jurisdiction of the Rural Utility Services (RUS),
is subject to the approval of the RUS. If a regulatory body having
jurisdiction, grants or orders a hearing or orders changes or
modifications to this Agreement, then the Parties shall negotiate in
good faith to change or modify the Agreement, so as to be acceptable
to the Parties, the FERC, the RUS, or other regulatory bodies having
jurisdiction.
19.3 An amendment or change in rates established pursuant to this Agreement
and which is subject to the FERC, the RUS, or other regulatory bodies
having jurisdiction with regard to any Party, shall become effective
hereunder upon execution by the Parties. If a regulatory body having
jurisdiction, grants or orders a hearing or orders changes or
modifications to such amendment or change in rates, then the Parties
shall negotiate in good faith to change or modify such amendment, so
as to be acceptable to the Parties, the FERC, the RUS, or other
regulatory bodies having jurisdiction.
19.4 Nothing contained herein shall be construed as affecting in any way
the right
28
<PAGE>
of the Parties furnishing service under this Agreement, to
unilaterally make application to the FERC for a change in rates,
charges, classifications, or service, or in any rule, regulation,
contract, or provision of any appendix relating thereto under Section
205 of the Federal Power Act and pursuant to the FERC's rules and
regulations promulgated thereunder. Provided, however, that the Party
making application to the FERC shall give the other Parties to the
Agreement at least sixty (60) days advance written notice of its
intent to initiate such filing so that the Parties can, if possible,
reach a mutually acceptable change to the Agreement through the
negotiation of the Parties.
20. TRANSFER OF INTEREST IN AGREEMENT:
No voluntary transfer of interest, rights, or obligations of any Party
under this Agreement, shall be made without the written consent and
approval of all other Parties except to a successor in operation of the
System, or any component thereof. Written approval when required shall not
be unreasonably withheld. Any successor or assignee of the rights of any
Party, whether by voluntary transfer, judicial or foreclosure sale or
otherwise, shall be subject to all the provisions and conditions of this
Agreement, to the same extent as though such successor or assignee were the
original Party hereunder, and no assignment or transfer of any rights
hereunder shall be effective unless and until the assignee or transferee
agrees in writing to assume all of the obligations of the assignor or
transferor and to be bound by all of the provisions and conditions of this
Agreement; provided, that the execution of a mortgage or trust deed or a
judicial or foreclosure sale made thereunder, or if through the disposition
by the Administrator of the RUS, shall not be deemed a voluntary transfer
within the meaning of this Section 20. If, due to reorganization,
sale/purchase, or other means, a Party changes its relationship to the
SRSG, its membership(s) will be evaluated by the Executive Committee and
any appropriate change in representation will be
29
<PAGE>
subject to approval of the Executive Committee.
21. SEVERABILITY:
In the event that any of the terms, covenants or conditions of this
Agreement, or the application of any such term, covenant, or condition,
shall be held invalid as to any person or circumstance by any court having
jurisdiction, all other terms, covenants, or conditions of this Agreement,
and their application shall not be affected thereby, but shall remain in
force and effect unless a court holds that the provisions are not separable
from all other provisions of this Agreement.
22. RELATIONSHIP OF PARTIES:
22.1 Nothing contained herein shall be construed to create an association,
joint venture, trust, or partnership, or impose a trust, partnership,
covenant, obligation, or liability on or with regard to any one or
more of the Parties. Each Party shall be individually responsible for
its own covenants, obligations, and liabilities under this Agreement.
22.2 All rights of the Parties are several, not joint. No Party shall be
under the control of or shall be deemed to control another Party.
Except as expressly provided in this Agreement, no Party shall have a
right or power to bind another Party without its express written
consent.
23. NO DEDICATION OF FACILITIES:
Any undertaking by one Party to another Party under any provision of this
Agreement, shall not constitute the dedication of the System or any portion
thereof of the undertaking Party to the public or to the other Party, and
it is understood and agreed that any such undertaking, by a Party shall
cease upon the termination of such Party's obligations under this
Agreement.
24. THIRD PARTY BENEFICIARIES:
This Agreement shall not be construed to create rights in, or to grant
remedies to, any
30
<PAGE>
third party as a beneficiary of this Agreement, or of any duty, obligation
or undertaking established herein.
25. LIABILITY:
25.1 Subject to any applicable state and federal law which specifically
prevents a Party from complying with the provisions hereof, and except
for the obligation to pay amounts due in accordance with Section 13
herein, no Party, its directors, members of its governing bodies,
officers or employees, shall be liable to any other Party or Parties
for loss or damage to property, loss of earnings or revenues, personal
injury, or any other direct, indirect, or consequential damages or
injury which may occur or result from the performance or non-
performance of this Agreement, including any negligence arising
hereunder, unless actions or claims and resulting liability, judgments
and costs were caused by or resulted from action taken or not taken by
a Party or Parties at the direction of its or their directors, members
of its governing bodies, officers or employees with management or
administrative responsibility affecting its or their performance under
this Agreement, which is knowingly or intentionally taken or not taken
with conscious indifference to the consequences thereof or with the
intent that injury or damage would result or would probably result
therefrom. For the purposes of this Section 25 herein, a "Party" shall
include the SRSG Administrator; if the SRSG Administrator is a Party
to this Agreement.
25.2 The benefits of Section 25.1 herein, shall not extend to a Party
prevented by state or federal law from complying with the provisions
thereof.
26. DEFAULTS:
26.1 A Party shall be in default in payment when payment is not received
within ten (10) days after its final due date. A default by any Party
in its payment
31
<PAGE>
obligations under this Agreement, shall be cured by payment of all
overdue amounts together with interest accrued at the rate set forth
in Section 13.5 herein, prorated daily from the due date to the date
the payment curing the default is made.
26.2 Notwithstanding Section 25 herein, a defaulting Party shall be liable
to the non-defaulting Parties for all costs, including costs of
collection and reasonable attorney fees incurred by such non-
defaulting Parties, plus interest as provided in Section 26.1 hereof.
The proceeds paid by a defaulting Party to remedy any such default
shall be distributed to the non-defaulting Parties in proportion to
the additional costs and expenses actually paid by the non-defaulting
Parties as a result of the default.
26.3 The rights of a Party who is in default of any of its payment or other
material obligations herein, may be suspended by a vote of the non-
defaulting Parties' representatives on the Operating Committee or
terminated by a vote of the non-defaulting Parties' representatives on
the Executive Committee. This provision allowing the non-defaulting
Parties to suspend or terminate such rights is in addition to any
other remedies provided in this Agreement, at law, or in equity, and
shall in no way limit the non-defaulting Parties' ability to seek
judicial enforcement of the defaulting Party's obligations under this
Agreement. Upon the effective date of such suspension or termination
of rights, all rights of the defaulting Party and all obligations of
non-defaulting Parties to the defaulting Party imposed by this
Agreement, except payment obligations, shall immediately be suspended
or terminated.
26.4 Upon suspension or termination of the rights of a defaulting Party
under this Agreement, the Operating Committee shall review reserve
responsibility and cost allocations of the non-defaulting Parties and
make adjustments thereto as
32
<PAGE>
it deems necessary.
27. OTHER AGREEMENTS:
No provision of this Agreement, shall preclude a Party from entering into
other agreements or conducting transactions under existing agreements with
other Parties or third parties. This Agreement, shall not be deemed to
modify or change any rights or obligations under any prior contracts or
agreements between or among any of the Parties.
28. PROPRIETARY INFORMATION:
All material of any nature originated or developed hereunder by the
committees, SRSG Administrator, or any Party including, but not limited to,
reports and computer printouts, shall remain the sole property of the
Parties despite distribution, if any, to participating Parties or third
parties. It is hereby agreed that such material shall be deemed to contain
confidential or proprietary information and shall not be released by any
Party to any other Party or third party without the originating Party's
consent, unless required by law, or such material has subsequently been
made available to the public by the Party owning such material. Prior to
releasing such records, to the extent applicable law allows, at least ten
(10) working days notice shall be given to the Party whose records are
being released.
29. PARTICIPATION BY THE UNITED STATES:
The participation by the United States in this Agreement is subject in all
respects to acts of Congress and to lawful and valid regulations
established thereunder and rate schedules promulgated by the delegates of
the Secretary of Energy thereunder. Reference to any Federal statute,
regulation or executive order in this Agreement, shall be for the purpose
of identification only and all Parties agree that performance by the
United States will require compliance with all current laws, regulations,
or executive orders. Updates, revisions, reissuances, or a new enactment
of law, regulation, or executive order may also be applicable by the terms
of such law,
33
<PAGE>
regulation, or executive order to performance by the United States
hereunder.
30. CONTINGENT UPON APPROPRIATIONS:
The United States shall make every effort to obtain appropriations as
necessary for continued participation in this Agreement; however, it is
understood that the participation of the United States is contingent upon
obtaining the necessary appropriations and, if such necessary
appropriations are not obtained from Congress, then the other Parties
hereby agree to release and discharge the United States from any financial
liability or responsibility in connection with the continued participation
and associated rights in this Agreement; provided, that if the United
States is unable to continue participation as a result of non-
appropriation of funds, the United States will, at the time sufficient
funds are appropriated, make payment to the appropriate Party or Parties
equal to the amount plus interest calculated pursuant to Section 13.5
herein, which become due under this Agreement, if funds had been timely
appropriated. Payment by the United States shall constitute performance by
the United States as if funds had been appropriated and payment made as
scheduled. Full reinstatement of the United States under the terms of this
Agreement shall be granted only if funds are appropriated in amounts to
cover any obligations which might arise by virtue of the application of
Section 26 herein.
31. OFFICIALS NOT TO BENEFIT:
No Member of or Delegate to Congress or Resident Commissioner shall be
admitted to any share or part of this Agreement, or to any benefit that may
arise herefrom, but this restriction shall not be construed to extend to
this Agreement if made with a corporation or company for its general
benefit.
32. EXECUTION BY COUNTERPART:
This Agreement may be executed in any number of counterparts, and upon
execution
34
<PAGE>
of this Agreement by all Parties, each executed counterpart shall be
binding, and all executed counterparts shall together have the same force
and effect as an original instrument as if all Parties had signed the same
instrument. Any signature page of this Agreement may be detached from any
counterpart of this Agreement without impairing the legal effect of any
signature thereon, and may be attached to another counterpart of this
Agreement identical in form hereto but having attached to it one or more
signature pages.
33. SIGNATURE CLAUSE:
Each Party hereto represents and warrants that the person executing this
Agreement has been duly authorized to act on its behalf.
ARIZONA ELECTRIC POWER COOPERATIVE, INC.
BY: /s/ MILES H. OLDFATHER
-------------------------------------------
TITLE: Board Vice President
----------------------------------------
DATE: November 11, 1997
-----------------------------------------
ARIZONA PUBLIC SERVICE COMPANY
BY: /s/ JACK DAVIS
--------------------------------------------
TITLE: Executive V.P. Commercial Operations
-----------------------------------------
DATE: November 7, 1997
------------------------------------------
35
<PAGE>
CITY OF FARMINGTON
ATTEST:
BY: /s/ MAUDE GRANTHAM RICHARDS
--------------------------------------------
TITLE: Electric Utility Director
- ------------------------ --------------------------------------------
DATE: November 14, 1997
--------------------------------------------
EL PASO ELECTRIC COMPANY
BY: /s/ JOHN A. WHITACRE
--------------------------------------------
TITLE: Assistant VP-System Operations
-----------------------------------------
DATE: November 24, 1997
------------------------------------------
INCORPORATED COUNTY OF LOS ALAMOS
ATTEST:
BY: /s/ D. CHRISTOPHER ORTEGA
--------------------------------------------
TITLE: Utilities Manager
- ------------------------ -----------------------------------------
DATE: November 13, 1997
------------------------------------------
NEVADA POWER COMPANY
BY: /s/ MATT H. DAVIS
--------------------------------------------
TITLE: Division Director, System Planning &
Operations
-----------------------------------------
DATE: November 6, 1997
------------------------------------------
36
<PAGE>
PLAINS ELECTRIC GENERATION AND
TRANSMISSION COOPERATIVE, INC.
ATTEST:
BY: /s/ MICHAEL S. McINNES
--------------------------------------------
TITLE: Executive VP/General Manager
- ------------------------ -----------------------------------------
Assistant Secretary DATE: November 10, 1997
------------------------------------------
PUBLIC SERVICE COMPANY OF NEW MEXICO
BY: /s/ R. FLYNN
--------------------------------------------
TITLE: Sr. Vice President, Electric Services
-----------------------------------------
DATE: November 10, 1997
------------------------------------------
SALT RIVER PROJECT AGRICULTURAL
IMPROVEMENT AND POWER DISTRICT
BY: /s/ MARK B. BONSALL
--------------------------------------------
TITLE: Associated General Manager
-----------------------------------------
Marketing, Customer Service, Finance
-----------------------------------------
and Planning
-----------------------------------------
DATE: November 13, 1997
------------------------------------------
TUCSON ELECTRIC POWER COMPANY
BY: /s/ N. A. DELAWDER
--------------------------------------------
TITLE: Vice President
-----------------------------------------
DATE: November 12, 1997
------------------------------------------
37
<PAGE>
WESTERN AREA POWER ADMINISTRATION
DESERT SOUTHWEST REGION
BY: /s/ J. T. CARLSON
--------------------------------------------
TITLE: Regional Manager
-----------------------------------------
DATE: November 17, 1997
------------------------------------------
38
<PAGE>
SOUTHWEST RESERVE SHARING GROUP
-------------------------------
PARTICIPATION AGREEMENT
-----------------------
EXHIBIT A
---------
Official Mailing Titles and Addresses
-------------------------------------
of the Parties
--------------
Arizona Electric Power Cooperative
----------------------------------
c/o Executive Vice President and General Manager
P. O. Box 670
Benson, AZ 85602
Arizona Public Service Company
------------------------------
c/o Secretary of the Company
Arizona Public Service Company
P. O. Box 53999
Phoenix, AZ 85072-3999
City of Farmington
------------------
c/o Electric Utility Director
800 Municipal Drive
Farmington, NM 87401
El Paso Electric Company
------------------------
c/o Secretary
P. O. Box 982
El Paso, TX 79960
Incorporated County of Los Alamos
---------------------------------
c/o Manager, Department of Public Utilities
P. O. Drawer 1030
Los Alamos, NM 87544
Nevada Power Company
--------------------
c/o Division Director, System Planning and Operations
6226 West Sahara Avenue (89102)
P.O. Box 230
Las Vegas, NV 89151
Plains Electric Generation and Transmission Cooperative, Inc.
-------------------------------------------------------------
P. O. Box 6551
Albuquerque, NM 87197
Public Service Company of New Mexico
------------------------------------
c/o Secretary
Alvarado Square
Albuquerque, NM 87158
Ex A-1
<PAGE>
Salt River Project Agricultural Improvement and Power District
--------------------------------------------------------------
c/o Secretary
P. O. Box 52025
Phoenix, AZ 85072-2025
SRSG Administrator
------------------
c/o SRSG Administrator - Mail Sta: POB013
P.O. Box 52025
Phoenix, AZ 85072-2025
Tucson Electric Power Company
-----------------------------
c/o Secretary
P. O. Box 711
Tucson, AZ 85702
Western Area Power Administration - Desert Southwest Region
-----------------------------------------------------------
c/o Regional Manager
Western Area Power Administration
P. O. Box 6457 (615 S. 43/rd/ Avenue)
Phoenix, AZ 85005-6457
Ex A-2
<PAGE>
SOUTHWEST RESERVE SHARING GROUP
-------------------------------
PARTICIPATION AGREEMENT
-----------------------
EXHIBIT B
---------
Official Billing Addresses
--------------------------
Arizona Electric Power Cooperative
- ----------------------------------
Attn: Randall Welker
P.O. Box 670
Benson, AZ 85602
Phone: (520) 586-5241
FAX: (520) 586-5279
Arizona Public Service Company
- ------------------------------
Attn: Marceline Otondo
P.O. Box 53999, ms 2208
Phoenix, AZ 85072-3999
Phone: (602) 250-1268
FAX: (602) 250-1127
City of Farmington
- ------------------
Attn: Dean Chirigos
501 McCormick School Road
Farmington, NM 87401
Phone: (505) 324-3401
FAX: (505) 326-2315
El Paso Electric Company
- ------------------------
Attn: AVP - System Operations, m/s 751
P.O. Box 982
El Paso, TX 79960
Phone: (915) 543-5888
FAX: (915) 521-4763
Incorporated County of Los Alamos
- ---------------------------------
Department of Public Utilities
Attn: Holly Brown
P.O. Drawer 1030
Los Alamos, NM 87544
Phone: (505) 662-8004
FAX: (505) 662-8005
Nevada Power Company
- --------------------
Attn: Barbara Sztabnik, M/S 20
6226 West Sahara Avenue (89102)
P.O. Box 230
Las Vegas, NV 89151
Phone: (702) 227-2476
FAX: (702) 367-5096
Ex B-1
<PAGE>
Plains Electric Generation and Transmission
- -------------------------------------------
Attn: Dorothy Reyes
2401 Aztec Road NE
P.O. Box 6551
Albuquerque, NM 87197-6551
Phone: (505) 889-7200
FAX: (505) 889-7430
Public Service Company of New Mexico
- ------------------------------------
Alvarado Square
Albuquerque, NM, 87158
ATTN: Supervisor, Energy Analysis, MS-EP11
Phone: (505) 241-2400
FAX: (505) 241-6891
Salt River Project Agricultural Improvement and Power District
- --------------------------------------------------------------
Attn: Manager of Power Generation - Mail Sta. POB004
P.O. Box 52025
Phoenix, AZ 85072-2025
Phone: (602) 236-3965
FAX: (602) 236-3961
Tucson Electric Power Company
- -----------------------------
Energy Accounting - SC209
Tucson Electric Power
P.O. Box 711
Tucson, AZ 85702
Phone: (520) 745-7173
FAX: (520) 745-3348
Western Area Power Administration - Desert Southwest Region
- -----------------------------------------------------------
Manager, Billing and Scheduling
615 S. 43/rd/ Ave.
P.O. Box 6457
Phoenix, AZ 85009-6457
Phone: (602) 352-2555
FAX: (602) 352-2569
Ex B-2
<PAGE>
SOUTHWEST RESERVE SHARING GROUP
-------------------------------
PARTICIPATION AGREEMENT
-----------------------
EXHIBIT C
---------
Agreement Developmental Fee
---------------------------
The Agreement Developmental Fee allocated to new members shall be determined as
follows:
(Agreement Development Costs)
-----------------------------
(Number of Parties) = Agreement Developmental Fee
Where:
- -----
Agreement Development Cost = [Labor Cost + Travel Cost] X [(Number of Meetings)
X (Number of attendees) X (8-hours/day)]
Number of Meetings = Total number of meetings held in regards to the initial
formation and development of the SRSG.
Labor Cost = Average labor cost per man-hour ($50/man-hour), this average
includes labor and overheads
Travel Cost = Average cost per man-hour ($25/man-hour), this is based on an
average of $200 per person per day for travel, room, and meals.
From July, 1996 through October 23, 1997, the Agreement Developmental Fee
is:
($405,600)
----------
(11) = $36,873
Ex C-1
<PAGE>
SERVICE SCHEDULE A
RESERVE OBLIGATIONS
<PAGE>
SERVICE SCHEDULE A
------------------
RESERVE OBLIGATIONS
-------------------
A-1. PARTIES:
This Service Schedule A is agreed upon as part of the Agreement.
A-2. GENERAL:
A-2.1 The purpose of this Service Schedule A is to define the aggregate
reserve requirements of the SRSG and to specify the apportionment
thereof among the Parties. Specific reserve requirements of the
individual Parties are described and settlement provisions for
reserve deficiencies are also established herein.
A-2.2 All reserve requirement calculations derived herein shall be rounded
up to the nearest whole Megawatt.
A-2.3 It is the intent of the Parties to meet or exceed the WSCC Minimum
Operating Reliability Criteria, and the NERC control performance and
disturbance control standards, as they may be adopted, modified, or
revised.
A-2.4 The SRSG has been formed for the purpose of sharing Contingency
Reserves only. Any reserve obligation necessary to meet NERC and
WSCC criteria for regulation, interruptible imports, and on-demand
contracts will continue to be the responsibility of each Party.
A.3. TERM:
This Service Schedule A shall continue in effect concurrently with the
Agreement unless and until terminated by the Parties in accordance with the
provisions of Section 5 of the Agreement.
A-4. SRSG CONTINGENCY RESERVE REQUIREMENT:
A-4.1 Consistent with this Agreement, the Parties shall ensure the proper
level and location of the Contingency Reserves. The scheduling of
these Contingency
A-1
<PAGE>
Reserves shall be in accordance with Operating Procedures
established by the Operating Committee.
A-4.2 The amount of Contingency Reserve to be maintained jointly for the
SRSG shall be the greater of either:
A-4.2.1 The loss of generating Capacity due to forced outage of
generation or transmission equipment that would result from
the Most Severe Single Contingency of the SRSG (at least
half of which must be Spinning Reserve); or
A-4.2.2 The sum of five percent (5%) of the aggregate Firm
Commitment responsibility served by the Parties with hydro
generation, plus seven percent (7%) of the aggregate Firm
Commitment responsibility served by the Parties with thermal
generation (at least half of which must be Spinning
Reserve).
A graphic representation of the SRSG Contingency Reserve calculation is
depicted in Attachment 1 to this Service Schedule A.
A-5. SRSG SPINNING RESERVE REQUIREMENT:
The amount of Spinning Reserve to be maintained jointly for the SRSG shall
be equal to fifty percent (50%) of the SRSG Contingency Reserve requirement
determined in accordance with Section A-4.2 herein. All SRSG Spinning
Reserve shall be responsive to WSCC frequency deviations.
A-6. RESERVE RESPONSIBILITY VALUE/RESERVE RESPONSIBILITY RATIO:
A-6.1 Reserve Responsibility Value (RRV)
----------------------------------
A Party's RRV is equal to twenty-five percent (25%) of its Firm
Commitment, plus one-hundred percent (100%) of the number of
megawatts associated with its Most Severe Single Contingency.
\\\
A-2
<PAGE>
A-6.2 Reserve Responsibility Ratio (RRR)
----------------------------------
A Party's RRR is equal to its RRV divided by the sum of the RRV's
for each Party.
Graphic representations of the Reserve Responsibility Value and Reserve
Responsibility Ratio calculations are depicted in Attachment 2 to this
Service Schedule A.
A-7. PARTY RESERVE QUOTAS:
Each Party is responsible for supplying its quota for Contingency Reserve,
which is made up of Spinning Reserve and Non-Spinning Reserve, for all
hours based on the following reserve quotas. Contingency Reserves
activated due to the occurrence of any event shall be restored by the
affected Party or Parties in as short a period of time as possible, but
not longer than sixty (60) minutes from the start of the event, unless and
until the Operating Committee shall establish a different time period.
A-7.1 Contingency Reserve -The hourly Contingency Reserve quota for a
-------------------
Party shall be equal to the product of the SRSG Contingency Reserve
requirement for that hour, as determined in accordance with Section
A-4.2 herein, multiplied by its RRR, as determined in accordance
with Section A-6.2 herein; provided, however, each Party shall
maintain at least 5 MW of Contingency Reserve at all times.
A-7.2 Spinning Reserve - The hourly Spinning Reserve quota for a Party
----------------
shall be equal to fifty percent (50%) of its hourly Contingency
Reserve quota, as determined in accordance with Section A-7.1
herein; provided, however, each Party shall maintain at least 3 MW
of Spinning Reserve at all times.
Graphic representations of the Party's Contingency Reserve and Spinning
Reserve calculations are depicted in Attachment 3 to this Service Schedule
A.
A-8. PENALTIES:
A-8.1 At the end of each hour, the SRSG Administrator shall compare the
actual
A-3
<PAGE>
amount of Contingency Reserve and Spinning Reserve carried by each
Party to that Party's respective reserve quotas. A Party shall be
deficient in Contingency Reserve if the actual amount of reserve
carried by the Party is less than that Party's respective reserve
quotas. If a Party is deficient in the amount of Contingency
Reserve, the deficient Party shall be assessed a penalty as set
forth in the applicable Operating Procedure(s).
A-8.2 Penalties imposed by NERC or WSCC on the SRSG for failure to carry
required Contingency Reserves shall be applied only to the
Party(ies) that caused the Contingency Reserve deficiency in
proportion to which such Party(ies) contributed to the Contingency
Reserve deficiency.
A-9. BILLING AND PAYMENT
All billings and payments associated with this Service Schedule A shall be
made in accordance with Section 13 of the Agreement.
A-4
<PAGE>
ATTACHMENT 1 TO SERVICE SCHEDULE A
----------------------------------
CALCULATION OF
--------------
SRSG CONTINGENCY RESERVE REQUIREMENTS
-------------------------------------
------------------------------------
7% of aggregate Firm Commitment
served by thermal generation
Plus
5% of aggregate Firm Commitment
served by hydro generation
------------------------------------
----------------------------
SRSG Contingency Reserve Greater of
Requirement
----------------------------
------------------------------------
SRSG's
Most Severe Single Contingency
(Largest Hazard)
------------------------------------
Where:
----------------------------
SRSG Contingency Reserve
Requirement
----------------------------
---------------------------- ----------------------------
SRSG Spinning Reserve SRSG Non-Spinning Reserve
---------------------------- ----------------------------
----------------------------
---------------------------- SRSG Contingency Reserve
50% of
SRSG Contingency Reserve Less
Requirement
---------------------------- SRSG Spinning Reserve
-----------------------------
A-5
<PAGE>
ATTACHMENT 2 TO SERVICE SCHEDULE A
----------------------------------
CALCULATION OF
--------------
RESERVE RESPONSIBILITY RATIO (RRR)
----------------------------------
AND
---
RESERVE RESPONSIBILITY VALUE (RRV)
----------------------------------
--------------------------------
Party's RRV
-------------
Party's RRR Divided By
-------------
Sum of RRV for All Parties
--------------------------------
Where:
------------------------------------------
25% Hourly Integrated Firm Commitment
Plus
100% Largest Thermal Hazard
------------------------------------------
------------------------------------------
25% Hourly Integrated Firm Commitment
-------------
Party's RRV Greater of Plus
-------------
100% Largest Hydro Hazard
------------------------------------------
------------------------------------------
25% Hourly Integrated Firm Commitment
Plus
100% Largest Transmission Hazard
------------------------------------------
A-6
<PAGE>
ATTACHMENT 3 TO SERVICE SCHEDULE A
----------------------------------
CALCULATION OF
--------------
PARTY'S CONTINGENCY AND SPINNING RESERVE REQUIREMENTS
-----------------------------------------------------
-----------------------------
SRSG Contingency Reserve
Requirement
Multiplied by
Party's RRR
-----------------------------
----------------------
Party's Contingency Greater of
Reserve Requirement
----------------------
-------------
5 MW
--------------
-----------------------------
50% of
Party's Contingency
Reserve Requirement
-----------------------------
----------------------
Party's Spinning Greater of
Reserve Requirement
----------------------
-------------
3 MW
-------------
A-7
<PAGE>
SERVICE SCHEDULE B
ACTIVATION OF RESERVES
FOR
EMERGENCY ASSISTANCE
<PAGE>
SERVICE SCHEDULE B
------------------
ACTIVATION OF RESERVES FOR EMERGENCY ASSISTANCE
-----------------------------------------------
B-1. PARTIES:
This Service Schedule B is agreed upon as part of the Agreement.
B-2. GENERAL:
The purpose of this Service Schedule B is to define the terms and
conditions under which a Party is obligated to activate its reserves for
another Party requesting Emergency Assistance.
B-3. TERM:
This Service Schedule B shall continue in effect concurrently with the
Agreement unless and until terminated by the Parties in accordance with
provisions of Section 5 of the Agreement.
B-4. PARTY OBLIGATIONS:
Each Party is responsible for the activation of reserves as follows:
B-4.1 Party Experiencing a Disturbance
--------------------------------
The Party experiencing a Disturbance shall immediately activate its
own Contingency Reserves and initiate a system disturbance message
(which shall include a request for Emergency Assistance if
required), in accordance with Operating Procedures established by
the Operating Committee.
B-4.2 Party Supplying Emergency Assistance
------------------------------------
A Party supplying Emergency Assistance shall activate its reserves
in accordance with Operating Procedures established by the Operating
Committee.
B-4.3 All Parties
-----------
B-4.3.1 Each Party shall be required to complete the activation of
its reserves within ten (10) minutes from the time of the
Disturbance.
B-1
<PAGE>
B-4.3.2 When supplying Emergency Assistance a Party has no
obligation to supply more than its Contingency Reserve
quota.
B-4.3.3 A Party has no obligation to supply Emergency Assistance
to another Party beyond a period of sixty (60) minutes
from the time of the Disturbance.
B-4.4 Pursuant to WSCC and NERC criteria, each Party shall maintain
sufficient transmission to support the activation of its own
Contingency Reserves and its Emergency Assistance obligations in
accordance with the Agreement.
B-4.4.1 The amount of non-recallable transmission required to
predetermined points of delivery shall be determined using
matrices for all major contingencies specifying the
transmission paths necessary to deliver SRSG reserves in
accordance with the applicable Operating Procedures as
established by the Operating Committee.
B-5. SETTLEMENT FOR EMERGENCY ASSISTANCE:
B-5.1 Transmission - Charges associated with the transmission utilized in
------------
accordance with Section B-4.4 herein, shall be the responsibility of
the Party reserving such transmission.
B-5.2 Capacity - There shall be no Capacity (demand) charge associated
--------
with the supply or receipt of Emergency Assistance.
B-5.3 Energy - The Party receiving Emergency Assistance shall pay the
------
supplying Party or Parties for the Energy received at a rate of one-
hundred percent (100%) of the supplying Party's cost incurred. For
the purpose of this Agreement, the term "cost incurred" shall mean
the expense incurred by the supplying Party in supplying Emergency
Assistance, as such cost is determined in accordance with the
applicable Operating Procedures as established by the Operating
Committee. Such costs shall include, but not be
B-2
<PAGE>
limited to, the following:
B-5.3.1 The cost of fuel which was consumed in generating Energy
for Emergency Assistance; plus
B-5.3.2 Startup and incremental cost of unit operation and
maintenance.
B-6. PENALTIES:
Penalties imposed by NERC or WSCC on the SRSG for failure to recover from a
Disturbance shall be applied only to the Party(ies) that caused such
failure.
B-7. BILLING AND PAYMENT
All billings and payments associated with this Service Schedule B shall be
made in accordance with Section 13 of the Agreement.
B-3
<PAGE>
EXHIBIT 10.23-02
CONTRACT FOR THE PURCHASE, SALE OR
EXCHANGE OF ECONOMY ENERGY
BETWEEN
COMISION FEDERAL DE ELECTRICIDAD
AND
EL PASO ELECTRIC COMPANY
LEGEND: PORTIONS OF THIS DOCUMENT HAVE
BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL
TREATMENT AND SUCH OMITTED
MATERIAL HAS BEEN FILED
SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION
Pag. 1 de 19
<PAGE>
CONTRACT FOR THE PURCHASE OF FIRM CAPACITY AND ASSOCIATED POWER ENTERED INTO BY
COMISION FEDERAL DE ELECTRICIDAD, HEREINAFTER REFERRED TO AS "CFE", REPRESENTED
BY LIC. LUIS R. ALMEIDA DURAN AND BY ING. RAYMUNDO CAMPOS MILAN IN THEIR
CAPACITY AS PROGRAMMING SUBDIRECTOR; AND TRANSMISSION, TRANSFORMATION AND
CONTROL SUBDIRECTOR RESPECTIVELY AND BY "EL PASO ELECTRIC COMPANY", HEREINAFTER
REFERRED TO AS "EPE", REPRESENTED BY JOHN C. HORNE, IN HIS CAPACITY AS VICE
PRESIDENT-POWER GENERATION, PURSUANT TO THE FOLLOWING RECITALS AND CLAUSES.
R E C I T A L S
I. CFE STATES THAT:
I.1 It is a decentralized organization of the Federal Public Administration of
the United Mexican States, possessing its own legal personality and assets,
and regulated by the Electric Power Public Service Law, published in the
Official Federal Daily Journal on December 22, 1975.
I.2 Part of its objective is the import of electric power, exclusively for the
provision of public service.
I.3 Its objective also includes the execution of agreements or contracts with
private entities, to carry out acts related to the provision of public
service of electric power, as well as to carry out the acts and execute the
contracts necessary for the fulfillment of its objective.
I.4 It is currently authorized by the Federal Department of Energy to import
*SEE LEGEND ON FIRST PAGE OF EXHIBIT* electric power monthly from the
United States of America. Copies of the permits are included as Attachment
I.
I.5 Award of the present CONTRACT was the result of competition through direct
invitation, as for by Constitutional article 134th; 9th,
Pag. 3 de 19
<PAGE>
Section III of the Electric Power Public Service Law, and Article 7th of
the Regulation of said law. A copy of the decision of the competition
held, appears in Attachment I-BIS.
I.6 This CONTRACT is not subject to the dispositions of the North American Free
Trade Agreement, insofar as it refers to acts that lead to the provision of
electric power public service, pursuant to the provisions contained in
appendix 1001.1B-2, section B Mexico list, section 2, and in official
document No. 202'94'90 dated June 29, 1994 by the General Direction of
International Institutions Headquarters of the Federal Department of
Commerce and Industrial Promotion.
I.7 It possesses the necessary funds, authorized by the Federal Department of
the Treasury, to effect the disbursements arising from this CONTRACT.
I.8 Lic. Luis Almeida and Ing. Raymundo Campos Milan have the necessary
authority to represent it in this act, same as has not been revoked to
date.
I.9 It is domiciled at Don Manuelito No. 32, Col. Olivar de los Padres 01780
Mexico, D.F. Mexico, being this the same given for all legal purposes
pertaining to this CONTRACT.
II. EPE STATES THAT:
II.1 It is a company constituted and existing pursuant to the laws of the State
of Texas of the United States of North America as evidenced by the legal
documents added to the present CONTRACT as Attachment II.
II.2 Its purpose consists of the generation, purchase, sale and transmission of
electric power in the United States of America, in accordance with that
established in Attachment II.
II.3 It received the direct invitation sent to it by CFE to participate in the
competition for the purchase of FIRM CAPACITY and ASSOCIATED
pag. 4 de 19
<PAGE>
POWER, agreeing to participate in the competition, for which reason it
submitted its offer.
II.4 It has the legal status to contract, and meets the technical and economic
conditions to obligate itself pursuant to the terms of the present
CONTRACT.
II.5 It is familiar with the contents of the Electric Power Public Service Law
and its Regulations.
II.6 Its representative Mr. John C. Horne verifies his capacity and authority to
appear at this act by means of a certified copy of the protocolized power
granted him, which is added to this CONTRACT as Attachment III.
II.4 It is domiciled at 123 West Mills, El Paso, Texas 79901-1341 being this the
same given for all legal purposes pertaining to this CONTRACT.
III. THE PARTIES STATE THAT:
III.1 Hereinafter, CFE and EPE may also be individually called "PARTY" or
jointly called "PARTIES".
The foregoing having been declared, the PARTIES execute the following:
CLAUSES
FIRST.- SUBJECT MATTER OF THE CONTRACT
The subject matter of the present CONTRACT is to establish the terms and
conditions pursuant to which EPE commits to sell and deliver to CFE, and the
latter commits to purchase and receive FIRM, CAPACITY and ASSOCIATED POWER, as
provided for in this CONTRACT.
Pag.5 de 19
<PAGE>
SECOND.- DEFINITIONS
For the purpose of the present CONTRACT the PARTIES agree to establish
the following conventional definitions, which shall be used with no
distinction in singular or plural. The terms defined shall be written
in bold type and upper case letters.
2.1 CONTRACTED CAPACITY
The amount of FIRM CAPACITY in MW, that EPE commits to have at
the disposal of CFE at the POINT OF DELIVERY.
Period Demand (MW)
------ -----------
98/01/01 - 98/03/31 *SEE
98/04/01 - 98/04/30 LEGEND
98/05/01 - 98/08/31 ON FIRST
98/09/01 - 98/12/31 PAGE OF EXHIBIT*
2.2 CAPACITY CHARGE
The monthly charge in dollars of the United States of America
for each kW with CONTRACT CAPACITY, specified in the Fifth
Clause of this CONTRACT.
2.3 TRANSMISSION CHARGE
The monthly charge in dollars of the United States of America
for each of CONTRACT CAPACITY associated with the use of the
transmission system of EPE or with third parties and specified
in the Fifth Clause of this CONTRACT.
2.4 ASSOCIATED POWER CHARGE
The charge in dollars of the United States of America for each
kW of ASSOCIATED POWER, specified in the Fifth Clause of this
CONTRACT.
Pag. 6 de 19
<PAGE>
2.5 FORTUITOUS CASES AND FORCE MAJEURE CAUSES
As established in the Twelfth Clause, section 12.3
2.6 CFE-JUAREZ
Is the electric system property of CFE which supplies the
northern part of the state of Chihuahua and adjoins the border
of the United States of America, and interconnects with the rest
of the SINAL at the Moctezuma Substation.
2.7 EMERGENCY
The loss or interruption of generating capacity or TRANSMISSION
CAPACITY in the system of either of the PARTIES, which degrades
system safety to the point of placing service in risk to its
native users or the integrity of the system, as a result of any
other cause other than:
(1) scheduled maintenance or;
(2) an expected shortage in the fuel supply.
2.8 ASSOCIATED POWER
The energy delivery to CFE expressed in kWh, associated with
CONTRACTED CAPACITY.
2.9 POINT OF DELIVERY.
Point at which the electric power transmission lines which
connect the Azcarate and Diablo Substations, property of EPE,
with the Riverena and Insurgentes Substations, property of CFE,
cross the international border of the United States of America
and the United Mexican States.
Pag. 7 de 19
<PAGE>
2.10 SERVICE RESTRICTIONS
Partial or total interruption of the supply of electric power to
CFE.
2.11 NATIONAL INTERCONNECTED SYSTEM (SINAL)
CFE'S principal electric power system, of which CFE-JUAREZ is a
part.
2.12 WESTERN SYSTEMS COORDINATING COUNCIL (WSCC)
Is an organization made up of different interconnected electric
power companies, located in the western part of the United
States of America and Canada, and of which EPE is a member.
THIRD.- TERM
This CONTRACT shall take effect on the date on which it is signed by
the PARTIES; the services to be provided pursuant to same shall
commence on January 1st of 1998 and conclude on December the 31st of
1998.
The present CONTRACT shall take effect under the condition that CFE
obtains the budgetary authorization mentioned in statement 1.7.
FOURTH.- TECHNICAL ASPECTS
4.1 INTERCONNECTION
The INTERCONNECTION between the CFE-JUAREZ and EPE systems is by
means of two 115 kV connections in the border which connect the
Riverena and Insurgentes substations, property of CFE, with the
Azcarate and Diablo substations, property of EPE. CFE shall
receive the power of EPE via these lines at the POINT OF
DELIVERY
Pag. 8 de 19
<PAGE>
Transmission of power up to the POINT OF DELIVERY will be the
exclusive responsibility of EPE.
4.2 TRANSFERRED LOAD
Both PARTIES acknowledge that the reception of energy is not
practical or convenient during the time the CFE-JUAREZ is
interconnected to the SINAL of CFE.
For the above stated, in order for an exchange of electric power
to take place between the PARTIES, they agree to separate a part
of the CFE-JUAREZ system, and to continue applying the
procedures established, between the PARTIES, for that purpose.
4.3 DELIVERY CONDITIONS
EPE may not interrupt the delivery of ASSOCIATED POWER, except
under EMERGENCY conditions, FORTUITOUS CASES or FORCE MAJEURE
CAUSES.
4.4 OPERATING PROCEDURES
Both PARTIES agree to continue operating, during the term of
this CONTRACT, according to *SEE LEGEND ON FIRST PAGE OF
EXHIBIT*
4.5 MEASUREMENTS
For billing purposes, the measurements of energy demand and
supply by EPE to CFE will be taken by the Azcarate and Diablo
Substations, property of EPE, according to the operating
procedures established for that purpose between the PARTIES.
Pag. 9 de 19
<PAGE>
FIFTH.- BASIS FOR THE DETERMINATION OF BENEFITS
5.1 PRICES
EPE shall supply the CONTRACTED CAPACITY and ASSOCIATED POWER to
CFE which shall pay to EPE in dollars of the United States of
America, during the term this CONTRACT is in effect, the prices
offered by EPE in the bidding process, and which are stated as
follows:
*SEE LEGEND ON FIRST PAGE OF EXHIBIT*
5.2 BILLING
Monthly billing for the services will be the sum of the Billing
for CONTRACTED CAPACITY, Billing for Transmission, plus the
Billing for ASSOCIATED POWER, and the Billing for Other Charges,
as stated below:
*SEE LEGEND ON FIRST PAGE OF EXHIBIT*
Pag. 10 de 19
<PAGE>
5.3 PRICE CHARACTERISTICS
The prices established in Section 5.1 of this Clause, represent
the total payment required from CFE, up to the POINT OF
DELIVERY, and include all taxes, duties and other fiscal
contributions or payments, arising in the United States of
America, consequently, EPE may not claim, for any reason,
greater benefits other than those agreed and described in
Section 5.1
CFE shall be responsible for the payment of all taxes, duties
and other fiscal contributions, arising in the United Mexican
States arising by the import of electric power.
SIXTH.- BILLING AND PAYMENT
6.1 INVOICE
The invoice which EPE presents to CFE *SEE LEGEND ON FIRST PAGE
OF EXHIBIT*.
Pag. 11 de 19
<PAGE>
6.2 PERIOD FOR BILLING
EPE shall present CFE within 10 calendar days subsequent to the
end of each month, the invoices to be charged, in dollars of the
United States of America, for the sales made pursuant to this
CONTRACT, for the months in which such sales take place. The
monthly invoices presented shall be paid by CFE to EPE, within
the 20 calendar days subsequent to the date the invoice was
received.
6.3 BILLING DISCREPANCIES
In the event of a discrepancy between the PARTIES, regarding the
amount stated in an invoice, the invoice must be paid entirely
within the period agreed, in the understanding that the amount
subject to dispute between the PARTIES, is being paid under
protest. If it is determined that any part of the protested
amount charged is incorrect, EPE must reimburse CFE the amount
of the overcharge, including a 1% monthly interest, calculated
as of the day on which the overcharge was paid until the amount
and its interest are reimbursed.
6.4 ACCOUNTS FOR PAYMENTS
All payments made by CFE to EPE shall be made in dollars of the
United States of America, by electronic means, in a Banking
Institution outside the United Mexican States, designated by
EPE.
SEVENTH.- TAXES AND DUTIES
The taxes and duties legally arising as a consequence of this CONTRACT
in the United States of America and in the United Mexican States,
shall be paid respectively by EPE and CFE, as set forth in their
respective fiscal regulations.
Pag. 12 de 19
<PAGE>
EIGHT.- REPRESENTATION
Within thirty calendar days commencing as of the date on which the
present CONTRACT is executed, each PARTY shall designate a
representative and an alternate, and shall notify the other PARTY in
writing, within the same period, their names and duties.
The representatives of the PARTIES shall basically have the function
of contributing to the satisfactory performance of the operational
aspects arising out of this CONTRACT, as well as to serve as a liaison
between the PARTIES, in order to achieve an adequate implementation of
it.
The PARTIES may change their representatives at any time, subject to
prior notification there of by one PARTY to the other.
All decisions taken by the representatives of the PARTIES must be
recorded in minutes which must be signed by them. The representatives,
however, are not authorized to modify what has been agreed to in this
CONTRACT.
The salaries and expenses of these representatives shall be borne by
the represented PARTY.
NINTH.- DEFAULT
9.1 EVENT OF DEFAULT
In the Event of Default or breach, the conforming PARTY shall
notify the other PARTY, in writing, of such event, the non
complying PARTY shall explain and remedy the non-compliance or
otherwise prove that no event of Default has occurred.
Once the PARTY has been notified of the non-compliance, if there
were such non-compliance, the PARTY in non-compliance shall
correct its fault, as soon as reasonably
Pag. 13 de 19
<PAGE>
possible without exceeding three (3) calendar days commencing on
the date in which notification took place. If due to its nature
it were not possible to remedy the situation within three (3)
calendar days, the non-complying PARTY shall submit, within such
period, a schedule of activities which fully satisfies the other
PARTY, to remedy the non-compliance. If no agreement is reached
by the PARTIES, they shall submit the disputed issues to
arbitration, as established in the Fifteenth Clause of the
present CONTRACT. The PARTIES shall abide by the arbitral
verdict, which shall be definitive.
9.2 RESCISSION
The present CONTRACT may be rescinded due to serious or repeated
non-compliances of either of the PARTIES, regarding the
obligations provided in the present CONTRACT.
TENTH.- PENALTIES
When EPE fails to make the CONTRACTED CAPACITY partially or totally
available to CFE, and this not be due to an EMERGENCY, a FORTUITOUS
CASE OR FORCE MAJEURE CAUSE, or caused by CFE, EPE must pay the
positive difference, duly documented by CFE, between the cost to CFE
for the amount of energy not supplied and the contracted price with
EPE, CFE shall not pay the charge for CONTRACTED CAPACITY and the
charge for TRANSMISSION CAPACITY in proportion to the amount and time
of the non-compliance.
ELEVENTH.-RESPONSIBILITIES
Each of the PARTIES shall indemnify and hold the other PARTY harmless
from any responsibility, loss, damage or destruction of property as a
result of dolus, fault or negligence of its officers, advisors,
employees, workers and other personnel.
Pag. 14 de 19
<PAGE>
Claims or indemnifications of employees or workers of either PARTY as
a result of work accidents shall be the sole liability of that PARTY.
Each PARTY shall assume responsibility to its consumers, for claims
caused by interruptions or deficiencies of service. Each PARTY agrees
to hold the other PARTY safe and harmless if a consumer of one of the
PARTIES files suit against the other PARTY.
TWELFTH.- GENERAL MATTERS
12.1 NOTIFICATIONS
Any notification, petition or request relative to this CONTRACT,
shall be deemed duly delivered to CFE, if it is sent by
certified mail with return receipt requested, by messenger
service, or by fax, obtaining confirmations of its reception by
the Jefe del Area de Control Norte at Guanacevi No. 131, Parque
Industrial Lagunero, Gomez Palacio, Dgo. C.P. 35078, Mexico; if
the notification is to EPE, it must be sent to the Assistant
Vice President of Resource and Planning Department at 123 West
Mills, El Paso, Texas 79901.
The designation of the person to whom notifications shall be
sent, or the address of said person may be changed at any time
by means of written notification. Every notification and request
related to the delivery or reception of electric power or to the
operation of facilities, shall be deemed valid if it is
transmitted by telephone and recorded in the system operators
logs of both PARTIES.
12.2 SUCCESSORS AND ASSIGNEES
The present CONTRACT shall be effective in benefit of and
binding on the successors and assignees of both PARTIES; however
it shall not be transferable by either of the PARTIES without
prior written consent from the other, which shall not be denied
without just cause.
Pag. 15 de 19
<PAGE>
12.3 FORTUITOUS CASE OR FORCE MAJEURE CAUSE
Neither EPE nor CFE shall be liable for default in their
obligations arising out of the present CONTRACT, when said
default is due to a FORTUITOUS CASE or FORCE MAJEURE CAUSE,
provided that the PARTY which finds itself unable to comply has
not contributed or given cause to the occurrence of said
FORTUITOUS CASE or FORCE MAJEURE CAUSE.
A FORTUITOUS CASE or FORCE MAJEURE CAUSE shall be understood to
mean any natural phenomenon or human act that is unexpected or
unavoidable, even when proceeding with due diligence, and that
prevents fulfillment of any of its obligations arising out of
this CONTRACT. Included among but not limited to FORTUITOUS
CASES or FORCE MAJEURE CAUSES are the following: Flooding,
earthquake, storm, fire, lightning, epidemic, war, revolt,
strike, not attributable to the affected PARTY, acts by
authorities not promoted or caused by the affected PARTY.
When a FORTUITOUS CASE or FORCE MAJEURE CAUSE occurs, the PARTY
subjected to it must notify and confirm its existence to the
other PARTY.
The PARTY subjected to a FORTUITOUS CASE or FORCE MAJEURE CAUSE
shall indicate to the other PARTY how long it is expected to
last and the measures it is taking to resolve it.
12.4 PARTIAL INVALIDITY
The invalidity or nullity of any part of this CONTRACT, provided
said invalidity or nullity does not affect essential elements of
same, allowing it to remain in effect, shall not affect the
validity of any other provision contained herein.
12.5 DISPUTES
Any dispute arising out this CONTRACT, shall be discussed and
resolved by the representatives of the
Pag. 16 de 19
<PAGE>
PARTIES, who shall make their best efforts to resolve said
dispute in a friendly and opportune manner. If they are unable
to resolve such disputes, they shall submit them for
consideration and resolution by their respective superior
executives, without prejudice to the provisions contained in the
Fifteenth Clause.
THIRTEENTH.- AUTHORIZATIONS
All authorizations required by either PARTY for the execution of this
CONTRACT, whether in their own country or any country, shall be
obtained by the PARTY and be in effect at the time of this CONTRACT is
to be signed.
FOURTEENTH.- LANGUAGE
The PARTIES signing this CONTRACT do so in two (2) originals in
Spanish and (2) two originals in English. It is agreed that the two
versions in Spanish and English of this CONTRACT are valid and
binding. In the event of any discrepancy in the interpretation of
either of these versions, the version in Spanish shall prevail.
FIFTEENTH.-ARBITRATION
In the event of disputes of a technical or economic nature related to
this CONTRACT, which the PARTIES are unable to overcome within a
period of thirty (30) calendar days, said dispute shall be resolved by
means of arbitration. The arbitration procedure shall be subject to
the Rules of Conciliation and Arbitration of the International Chamber
of Commerce of Paris. The arbitral tribunal must be comprised by three
arbiters selected according to said Rule, unless the PARTIES agree to
appoint only one arbiter. The arbitration shall take place in Mexico
City, in the Spanish language. The costs and expenses which arise by
reason of the arbitration shall be paid by the losing PARTY. The
arbitral veredict shall be unappealable and definitive. If during the
course of the arbitration
Pag. 17 de 19
<PAGE>
proceeding it is determined that the dispute in question is not of a
technical or economic nature, said dispute shall be submitted to the
jurisdiction of the Federal Tribunals indicated in the Sixteenth
Clause.
SIXTEENTH.-REGULATORY LAW
The present CONTRACT shall be governed by and interpreted pursuant to
the federal laws of the United Mexican States, therefore, the PARTIES
agree that whatever disputes may arise from the present CONTRACT,
other than those indicated in clause Fifteenth, shall be of the
competency of the Federal Tribunals, and for the purpose, the PARTIES
submit to the jurisdiction of said Tribunals in Mexico City, D.F.
therefore they waive any forum which might pertain to them by reason
of their current or future address or any other reason.
This CONTRACT is executed in Mexico city, Distrito Federal in two issues in
English and two issues in Spanish on the 19th day of December of the year
1997.
Pag. 18 de 19
<PAGE>
COMISION FEDERAL DE EL PASO ELECTRIC
ELECTRICIDAD COMPANY
/s/ LUIS R. ALMEIDA /s/ JOHN C. HORNE
- -------------------------------------- ---------------------------------------
Lic. Luis R. Almeida John C. Horne
Programming Subdirector Vice President-Power Generation
/s/ RAYMUNDO CAMPOS MILAN
- --------------------------------------
Ing. Raymundo Campos Milan
Transmission, Transformation and
Control Subdirector
Revised in its Legal Aspects
/s/ EMILIO REYES LAGUNES
- --------------------------------------
Lic. Emilio Reyes Lagunes
Legal Business Department Manager
The above signatures correspond to the Contract for the Purchase of Firm
Capacity and Associated Power entered into by Comision Federal de Electricidad
and El Paso Electric Company.
I, Josefina Sosa Santos Interpreter and Translator, duly certified by the
Superior Court of Justice of the State of Baja California, do herby certify that
the foregoing text is a true and correct translation from Spanish into English.
Mexicali, B.C. December 16, 1997
/s/ JOSEFINA SOSA SANTOS
Josefina Sosa Santos.
Pag. 19 de 19
<PAGE>
EXHIBIT 10.24-02
Execution Copy
AMENDMENT No. 2 dated as of July 31, 1997 (the
"Amendment"), to the CREDIT AGREEMENT dated as of February
------------
12, 1996 (the "Credit Agreement"), among EL PASO ELECTRIC
-------------------
COMPANY, a Texas corporation ("El Paso"), TEXAS COMMERCE
-----------
BANK NATIONAL ASSOCIATION, a national banking association,
not in its individual capacity, but solely in its capacity
as trustee of the Rio Grande Resources Trust II (the
"Trustee"; El Paso and the Trustee are referred to
---------
collectively herein as the "Borrowers"), the financial
-----------
institutions party thereto (the "Lenders") and THE CHASE
---------
MANHATTAN BANK, a New York banking corporation, as issuing
bank, administrative agent (in such capacity, the
"Administrative Agent") and collateral agent for the
----------------------
Lenders.
The Borrowers have requested that restrictions on acquisitions of El
Paso's capital stock contained in Section 6.06 be modified to allow the purchase
or acquisition of shares of El Paso's capital stock by El Paso from members of
management in amounts not exceeding $250,000 in the aggregate for any twelve-
month period, and the Required Lenders are willing so to amend the Credit
Agreement.
Capitalized terms used but not defined herein shall have the meanings
assigned to them in the Credit Agreement.
Accordingly, in consideration of the mutual agreements contained
herein and other good and valuable consideration, the sufficiency and receipt of
which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Amendment to Section 6.06 of the Credit Agreement.
-------------------------------------------------
Section 6.06 of the Credit Agreement is hereby amended by adding after the
existing paragraph (c) thereof a new paragraph (d) that reads as follows:
(d) so long as no Default or Event of Default shall have occurred and
be continuing or would occur as a result thereof, El Paso may
repurchase, redeem or otherwise acquire or retire for value any shares
of any class of the capital stock of El Paso or any Subsidiary of El
Paso held by any member of El Paso's (or any of its Subsidiaries')
management; provided, however, that the aggregate price paid for all
-------- --------
such repurchased, redeemed, acquired or retired capital stock shall
not exceed $250,000 in any twelve-month period, plus the aggregate
cash proceeds received by
<PAGE>
El Paso during such twelve-month period from the reissuance of shares
of any class of the capital stock by El Paso to members of management
of El Paso and its Subsidiaries.
SECTION 2. Conditions to Effectiveness. This Amendment shall become
---------------------------
effective as of the date first written above on the date that the Administrative
Agent shall have received counterparts of this Amendment which, when taken
together, bear the signatures of the Required Lenders and the Borrowers.
SECTION 3. Effect of Amendment. Except as expressly set forth
-------------------
herein, this Amendment shall not by implication or otherwise limit, impair,
constitute a waiver of, or otherwise affect the rights and remedies of the
Lenders, the Administrative Agent, the Collateral Agent or the Issuing Bank
under the Credit Agreement or any other Loan Document, and shall not alter,
modify, amend or in any way affect any of the terms, conditions, obligations,
covenants or agreements contained in the Credit Agreement or any other Loan
Document, all of which are ratified and affirmed in all respects and shall
continue in full force and effect. Nothing herein shall be deemed to entitle
the Borrowers to a consent to, or waiver, amendment, modification or other
change of, any of the terms, conditions, obligations, covenants or agreements
contained in the Credit Agreement or any other Loan Document in similar or
different circumstances. This Amendment shall apply and be effective only with
respect to the provision of the Credit Agreement specifically referred to
herein.
SECTION 4. Counterparts. This Amendment may be executed in any
------------
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same contract.
Delivery of an executed counterpart of a signature page of this Amendment by
facsimile transmission shall be as effective as delivery of a manually executed
counterpart hereof.
SECTION 5. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
--------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. Headings. The headings of this Amendment are for purposes
--------
of reference only and shall not limit or otherwise affect the meaning hereof.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their duly authorized officers, all as of the date first
above written.
EL PASO ELECTRIC COMPANY
By: /s/ GARY R. HEDRICK
------------------------------------------
Name: Gary R. Hedrick
Title: VP-Treasurer & CFO
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION, not in
its individual capacity, but
solely in its capacity as
Trustee,
By: /s/ SARAH WILSON
------------------------------------------
Name: Sarah Wilson
Title: Vice President
THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent,
Collateral Agent and
Issuing Bank
By: /s/ PAUL V. FARRELL
------------------------------------------
Name: Paul V. Farrell
Title: Vice President
OCTAGON CREDIT INVESTORS LOAN
PORTFOLIO, a unit of The Chase
Manhattan Bank
By: /s/ JOYCE C. DELUCCA
------------------------------------------
Name: Joyce C. Delucca
Title: Managing Director
-3-
<PAGE>
GUARANTY FEDERAL BANK
By: /s/ MARK L. WAYNE
------------------------------------------
Name: Mark L. Wayne
Title: Vice President
CREDIT LYONNAIS NEW YORK
BRANCH
By: /s/ ROBERT IVOSEVICH
------------------------------------------
Name: Robert Ivosevich
Title: Sr. Vice President
-4-
<PAGE>
El Paso Electric Company
Computation of Earnings Per Share
(In Thousands Except for Share Data)
EXHIBIT 11
<TABLE>
<CAPTION>
Period From | Period From
Year February 12 | January 1 Year
Ended to | to Ended
December 31, December 31, | February 11, December 31,
1997 1996 | 1996 1995
------------- -------------- | ------------- -------------
<S> <C> <C> | <C> <C>
Net income (loss) applicable to common stock: |
Income (loss) before extraordinary items $ 41,424 $ 31,431 | $ 118,198 $ (33,319)
Extraordinary loss on repurchases of debt, |
net of federal income tax benefit (2,775) - | - -
Extraordinary gain on discharge of debt - - | 264,273 -
------------- -------------- | ------------- -------------
Net income (loss) applicable to common stock $ 38,649 $ 31,431 | $ 382,471 $ (33,319)
============= ============== | ============= =============
|
Basic earnings per common share: |
Weighted average number of common |
shares outstanding 60,128,505 60,073,808 | 35,544,330 35,544,330
============= ============== | ============= =============
|
Net income (loss) per common share: |
Income (loss) before extraordinary items $ 0.689 $ 0.523 | $ 3.325 $ (0.937)
Extraordinary loss on repurchases of debt, |
net of federal income tax benefit (0.046) - | - -
Extraordinary gain on discharge of debt - - | 7.435 -
------------- -------------- | ------------- -------------
Net income (loss) $ 0.643 $ 0.523 | $ 10.760 $ (0.937)
============= ============== | ============= =============
|
Diluted earnings per common share: |
Weighted average number of common |
shares outstanding 60,128,505 60,073,808 | 35,544,330 35,544,330
------------- -------------- | ------------- -------------
Effect of potential dilutive common stock options |
based on the treasury stock method using |
average market price: |
First quarter 90,200 - | - -
Second quarter 72,847 4,564 | - -
Third quarter 55,103 16,826 | - -
Fourth quarter 74,936 17,599 | - -
Effect of potential dilutive restricted common stock |
based on the treasury stock method using |
average market price: |
First quarter 4,773 - | - -
Second quarter 3,985 563 | - -
Third quarter 3,159 1,651 | - -
Fourth quarter 4,124 1,698 | - -
------------- -------------- | ------------- -------------
Total effect of potential dilutive |
common stock 309,127 42,901 | - -
------------- -------------- | ------------- -------------
Weighted average number of common shares |
and common share equivalents outstanding 60,437,632 60,116,709 | 35,544,330 35,544,330
============= ============== | ============= =============
|
Net income (loss) per common share: |
Income (loss) before extraordinary items $ 0.685 $ 0.523 | $ 3.325 $ (0.937)
Extraordinary loss on repurchases of debt, |
net of federal income tax benefit (0.046) - | - -
Extraordinary gain on discharge of debt - - | 7.435 -
------------- -------------- | ------------- -------------
Net income (loss) $ 0.639 $ 0.523 | $ 10.760 $ (0.937)
============== ============== | ============= ==============
</TABLE>
<PAGE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
El Paso Electric Company:
We consent to incorporation by reference in the registration statement (No. 333-
17971) on Form S-8 of El Paso Electric Company of our report dated February 6,
1998, relating to the balance sheets of El Paso Electric Company as of December
31, 1997 and 1996 and the related statements of operations, comprehensive
operations, changes in common stock equity (deficit), and cash flows for the
year ended December 31, 1997, the period February 12, 1996 to December 31, 1996,
the period January 1, 1996 to February 11, 1996, and the year ended December 31,
1995, which report appears in the December 31, 1997 annual report on Form 10-K
of El Paso Electric Company.
KPMG Peat Marwick LLP
El Paso, Texas
March 25, 1998
96
<PAGE>
EXHIBIT 24.02
EL PASO ELECTRIC COMPANY
CERTIFICATE OF RESOLUTION
I, Guillermo Silva, Jr., Secretary of El Paso Electric Company, a Texas
corporation (the "Company"), do hereby certify that attached hereto is a true,
correct and complete copy of the resolution authorizing signatures pursuant to
the Power of Attorney for the 1997 Form 10-K, duly adopted by the Board of
Directors of the Company at a meeting of said Board duly convened and held on
January 22, 1998.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the
Company this 23rd day of March 1998.
/s/ GUILLERMO SILVA, JR.
------------------------
Guillermo Silva, Jr.
Secretary
(Corporate Seal)
<PAGE>
EL PASO ELECTRIC COMPANY
BOARD OF DIRECTORS
RESOLUTION
JANUARY 22, 1998
FURTHER RESOLVED, that James S. Haines, Eduardo A. Rodriguez, Gary R.
Hedrick, Terry D. Bassham and Guillermo Silva, Jr. are each hereby duly
appointed the Company's and its Officers' and Directors', true and lawful
attorneys-in-fact and agents, for its place and stead, in any and all
capacities, with full power to act alone, to sign the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 (the "1997 Form 10-K"), and any
and all amendments thereto, and to file such 1997 Form 10-K and each such
amendment, with all exhibits thereto, and any and all documents in connection
therewith, with the Securities and Exchange Commission, hereby granting unto
each of the said attorneys-in-fact and agents, full power and authority to do
and perform any and all acts and things requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or any of them, may lawfully do or cause to be done by virtue
hereof.
<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 DECEMBER 31, 1997 AND THE RELATED
STATEMENTS OF INCOME AND CASH FLOWS FOR THE TWELVE MONTHS ENDED DECEMBER 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,464,517
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 218,117
<TOTAL-DEFERRED-CHARGES> 102,320
<OTHER-ASSETS> 27,659
<TOTAL-ASSETS> 1,812,613
<COMMON> 60,256
<CAPITAL-SURPLUS-PAID-IN> 240,084
<RETAINED-EARNINGS> 69,300
<TOTAL-COMMON-STOCKHOLDERS-EQ> 369,640
121,319
0
<LONG-TERM-DEBT-NET> 938,562
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 84
0
<CAPITAL-LEASE-OBLIGATIONS> 28,248
<LEASES-CURRENT> 28,379
<OTHER-ITEMS-CAPITAL-AND-LIAB> 326,381
<TOT-CAPITALIZATION-AND-LIAB> 1,812,613
<GROSS-OPERATING-REVENUE> 594,038
<INCOME-TAX-EXPENSE> 29,206
<OTHER-OPERATING-EXPENSES> 432,371
<TOTAL-OPERATING-EXPENSES> 461,577
<OPERATING-INCOME-LOSS> 132,461
<OTHER-INCOME-NET> 8,549
<INCOME-BEFORE-INTEREST-EXPEN> 141,010
<TOTAL-INTEREST-EXPENSE> 86,442
<NET-INCOME> 51,793<F1>
13,144
<EARNINGS-AVAILABLE-FOR-COMM> 38,649
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 76,015
<CASH-FLOW-OPERATIONS> 206,588
<EPS-PRIMARY> 0.643<F2>
<EPS-DILUTED> 0.639<F2>
<FN>
<F1>NET INCOME IS NET OF EXTRAORDINARY LOSS ON REPURCHASES OF DEBT (NET OF FEDERAL
INCOME TAX BENEFIT) OF ($2,775).
<F2>PRIMARY AND FULLY DILUTED EARNINGS PER SHARE ARE NO LONGER BEING CALCULATED,
PER SFAS NO. 128. THE AMOUNTS SHOWN REPRESENT BASIC AND DILUTED EARNINGS PER
SHARE, RESPECTIVELY.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99.03-01
AMENDMENT NO. 1
TO STOCK OPTION AGREEMENT
This Amendment No. 1 to that certain Stock Option Agreement dated as
of January 17, 1997 (the "Agreement") between El Paso Electric Company, a Texas
corporation (the "Company") and James S. Haines, Jr. (the "Optionee").
WITNESSETH:
WHEREAS, the parties have heretofore entered into the Agreement;
WHEREAS, the Company has requested the Optionee to accept certain
modifications to the Agreement in order to address issues that have been raised
by the Company's auditors regarding the accounting treatment of the Agreement;
and
WHEREAS, the Optionee is willing to accept the modifications requested
by the Company.
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 2.5 of the Agreement shall be deleted in its entirety and
replaced with the following:
"2.5. Dividend Equivalents. The Company hereby grants to Optionee
--------------------
706,045 dividend equivalents (the "Dividend Equivalents"). Each Dividend
Equivalent shall entitle Optionee to receive a cash payment on each dividend
payment date after May 1, 1996 equal to the product of (i) of the amount any
dividend declared with respect to a share of Stock and (ii) the number of shares
of Stock subject to unexercised Non-Qualified Options hereunder that have not
expired or terminated on the date of payment of such dividend."
2. Except as modified by this Amendment No. 1, the Agreement shall
remain in full force and effect with no other modifications. The
Compensation/Benefits Committee of the Board of Directors has approved this
Amendment No. 1.
3. This Amendment No. 1 shall be effective as of January 17, 1997.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
No. 1 on the date set forth below.
Date: April 30, 1997 EL PASO ELECTRIC COMPANY
/s/ KENNETH R. HEITZ
------------------------------------------
By: Kenneth R. Heitz
Title: Chairman,
Compensation/Benefits
Committee of the Board of Directors
OPTIONEE
/s/ JAMES S. HAINES, JR.
------------------------------------------
James S. Haines, Jr.
-2-
<PAGE>
EXHIBIT 99.08
EL PASO ELECTRIC COMPANY
RESTRICTED STOCK AWARD AGREEMENT
EL Paso Electric Company, a Texas corporation (the 'Company'), hereby
grants to ___________________ (the "Holder"), pursuant to the provisions of the
El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a
restricted stock award (the "Award") of 4,395 shares of the Company's Common
Stock, no par value ("Stock"), upon and subject to the restrictions, terms and
conditions set forth below. Capitalized terms not defined herein shall have the
meanings specified in the Plan.
1. Award Subject to Acceptance of Agreement. The Award shall be null and
----------------------------------------
void unless the Holder shall accept this Agreement by executing it in the space
provided below and returning it to the Company and execute and return one or
more irrevocable stock powers. As soon as practicable after the Holder has
executed this Agreement and such stock power or powers and returned the same to
the Company, the Company shall cause to be issued in the Holder's name a stock
certificate or certificates representing the total number of shares of Stock
subject to the Award.
2. Rights as a Stockholder. Holder shall have the right to vote the
-----------------------
shares of Stock subject to the Award. During the Restriction Period as to any
shares of Stock, cash dividends which would otherwise be payable on any such
shares of will be credited to the Holder in the form of additional unvested
shares of Stock as if the dividend had purchased additional shares at the
closing market price on the date such dividend is paid, and such additional
shares (including shares received as stock dividend or stock split), shall be
delivered to the Company (and the Holder shall, if requested by the Company,
execute and return one or more irrevocable stock powers related thereto) and
shall be subject to the same restrictions as the shares of Stock with respect to
which such dividend or other distribution was made.
3. Custody and Delivery of Certificates Representing Shares. The Company
--------------------------------------------------------
shall hold the certificate or certificates representing the shares of Stock
subject to the Award until the restrictions on such Award shall have lapsed, in
whole or in part, pursuant to Section 4 hereof, and the Company shall as soon
thereafter as practicable, subject to Section 5.3, deliver the certificate or
certificates for such shares to the Holder and destroy the stock power or powers
relating to such shares. If such stock power or powers also relates to shares as
to which restrictions remain in effect, the Company may require, as a condition
precedent to delivery of any certificate pursuant to this Section 3, the
execution and delivery to the Company of one or more stock powers relating to
such shares.
4. Restriction Period and Vesting. (a) The restrictions on the Award shall
------------------------------
lapse on the earliest of the following: (i) with respect to one-fifth of the
aggregate number of shares of Stock subject to the Award on March 12, 1997 and
as to an
<PAGE>
additional one-fifth of such aggregate number of shares on each anniversary
thereof during the years 1998 through 2001, inclusive, or (ii) in accordance
with Section 6.8 of the Plan (the "Restriction Period").
(b) If the Holder's employment with the Company is terminated by the
Company during the Restriction Period or by reason of the Holder's "Permanent
and Total Disability" (as such term is defined in the Plan), or by reason of the
Holder's voluntary resignation or retirement or his death, then any shares of
Stock as to which restrictions have not lapsed shall be forfeited.
5. Additional Terms and Conditions of Award.
----------------------------------------
5.1. Nontransferability of Award. During the Restriction Period, the
---------------------------
shares of Stock subject to the Award as to which restrictions remain in effect
may not be transferred by the Holder other than by will, the laws of descent and
distribution or pursuant to beneficiary designation procedures approved by the
Company. Except to the extent permitted by the foregoing, during the Restriction
Period, the shares of Stock subject to the Award as to which restrictions remain
in effect may not be sold, transferred, assigned, pledged, hypothecated,
encumbered or otherwise disposed of (whether by operation of law or otherwise)
or be subject to execution, attachment or similar process. Upon any attempt to
so sell, transfer, assign, pledge, hypothecate or encumber, or otherwise dispose
of such shares, the Award shall immediately become null and void.
5.2. Investment Representation. The Holder hereby represents and covenants
-------------------------
that (a) any share of Stock acquired upon the lapse of restrictions will be
acquired for investment and not with a view to the distribution thereof within
the meaning of the Securities Act of 1933, as amended (the "Securities Act"),
unless such acquisition has been registered under the Securities Act and any
applicable state securities law; (b) any subsequent sale of any such shares
shall be made either pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws, or pursuant to an
exemption from registration under the Securities Act and such state securities
laws; and (c) if requested by the Company, the Holder shall submit a written
statement, in form satisfactory to the Company, to the effect that such
representation (x) is true and correct as of the date of acquisition of any
shares hereunder or (y) is true and correct as of the date of any sale of any
such shares, as applicable. As a further condition precedent to the delivery to
the Holder of any shares subject to the Award, the Holder shall comply with all
regulations and requirements of any regulatory authority having control of or
supervision over the issuance of the shares and, in connection therewith, shall
execute any documents which the Board or any committee authorized by the Board
shall in its sole discretion deem necessary or advisable.
-2-
<PAGE>
5.3. WITHHOLDING TAXES. (a) As a condition precedent to the delivery to
-----------------
the Holder of any shares of Stock subject to the Award, the Holder may, upon
request by the Company, pay to the Company such amount of cash as the Company
may be required, under all applicable federal, state, local or other laws or
regulations, to withhold and pay over as income or other withholding taxes (the
"Required Tax Payments") with respect to the Award. If the Holder shall fail to
advance the Required Tax Payments after request by the Company, the Company may,
in its discretion, deduct any Required Tax Payments from any amount then or
thereafter payable by the Company to the Holder.
(b) The Holder may elect to satisfy his or her obligation to advance
the Required Tax Payments by any of the following means: (1) a cash payment to
the Company pursuant to Section 5.3(a), (2) delivery to the Company of
previously owned whole shares of Stock (which the Holder has held for at least
six months prior to the delivery of such shares or which the Holder purchased on
the open market and for which the Holder has good title, free and clear of all
liens and encumbrances) having a Fair Market Value, determined as of the date
the obligation to withhold or pay taxes first arises in connection with the
Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
Company to withhold from the shares of Stock otherwise to be delivered to the
Holder pursuant to the Award, a number of whole shares of Stock having a Fair
Market Value, determined as of the Tax Date, equal to the Required Tax Payments,
(4) a cash payment by a broker-dealer acceptable to the Company through whom the
Holder has sold the shares with respect to which the Required Tax Payments have
arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove
an election pursuant to any of clauses (2)-(5) if the Committee determines,
based on the opinion of recognized securities counsel, that the method so
elected would result in liability to the Optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, or the regulations promulgated
thereunder. Shares of Stock to be delivered or withheld may have a Fair Market
Value in excess of the minimum amount of the Required Tax Payments, but not in
excess of the amount determined by applying the Holder's maximum marginal tax
rate. Any fraction of a share of Stock which would be required to satisfy such
an obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Holder. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
5.4. Adjustment. In the event of any stock split, stock dividend,
----------
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Stock other than a regular cash
dividend, the number and class of securities subject to the Award shall be
appropriately adjusted by the Committee. If any adjustment
-3-
<PAGE>
would result in a fractional security being subject to the Award, the Company
shall pay the Holder in connection with the vesting, if any, of such fractional
security, an amount in cash determined by multiplying (i) such fraction (rounded
to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The
decision of the Committee regarding any such adjustment shall be final, binding
and conclusive.
5.5. Compliance with Applicable Law. Award is subject to the condition
------------------------------
that if the listing, registration or qualification of the shares subject to the
Award upon any securities exchange or under any law, or the consent or approval
of any governments body, or the taking of any other action is necessary or
desirable as a condition of, or in connection with, the vesting or delivery of
shares hereunder, the shares of Stock subject to the Award may not be delivered,
in whole or in part, unless such listing, registration, qualification, consent
or approval shall have been effected or obtained, free of any conditions not
acceptable to the Company. The Company agrees to use reasonable efforts to
effect or obtain any such listing, registration, qualification, consent or
approval.
5.6. Agreement Subject to the Plan. This Agreement is subject to the
-----------------------------
provisions of the Plan and shall be interpreted in accordance therewith. The
Holder hereby acknowledges receipt of a copy of the Plan.
6. Miscellaneous Provisions.
------------------------
6.1. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of any successor or successors of the Company and any person or persons
who shall, upon the death of the Holder, acquire any rights hereunder in
accordance with this Agreement or the Plan.
6.2. Notices. All notices, requests or other communications provided for
-------
in this Agreement shall be made, if to the Company, to Kayser Building, 100
North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to
the Holder, to ___________________________________. All notices, requests or
other communications provided for in this Agreement shall be made in writing
either (a) by personal delivery to the party entitled thereto, (b) by facsimile
with confirmation of receipt, (c) by mailing in the United States mails to the
last known address of the party entitled thereto or (d) by express courier
service. The notice, request or other communication shall be deemed to be
received upon personal delivery, upon confirmation of receipt of facsimile
transmission, or upon receipt by the party entitled thereto if by United States
mail or express courier service; provided, however, that if a notice, request or
other communication is not received during regular business hours, it shall be
deemed to be received on the next succeeding business day of the Company.
-4-
<PAGE>
6.3. Governing Law. This Agreement, the Award and all determinations made
-------------
and actions taken pursuant hereto and thereto, to the extent not otherwise
governed by the laws of the United States shall be governed by the laws of the
State of Texas and construed in accordance therewith without giving effect to
conflicts of laws principles.
6.4. Counterparts. This Agreement may be executed in two counterpart each
------------
of which shall be deemed an original and both of which together shall constitute
one and the same instrument.
EL PASO ELECTRIC COMPANY
By: /s/ KENNETH R. HEITZ
--------------------------------------------
NAME: KENNETH R. HEITZ
TITLE: DIRECTOR
ACCEPTANCE DATE: JUNE 17, 1997
-----------------
- ---------------------------------
-5-
<PAGE>
EXHIBIT 99.09
EL PASO ELECTRIC COMPANY
RESTRICTED STOCK AWARD AGREEMENT
El Paso Electric Company, a Texas corporation (the 'Company'), hereby
grants to Eduardo A. Rodriguez (the "Holder"), pursuant to the provisions of the
El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a
restricted stock award (the "Award") of 6,705 shares of the Company's Common
Stock, no par value ("Stock"), upon and subject to the restrictions, terms and
conditions set forth below. Capitalized terms not defined herein shall have the
meanings specified in the Plan.
1. Award Subject to Acceptance of Agreement. The Award shall be null and
----------------------------------------
void unless the Holder shall accept this Agreement by executing it in the space
provided below and returning it to the Company and execute and return one or
more irrevocable stock powers. As soon as practicable after the Holder has
executed this Agreement and such stock power or powers and returned the same to
the Company, the Company shall cause to be issued in the Holder's name a stock
certificate or certificates representing the total number of shares of Stock
subject to the Award.
2. Rights as a Stockholder. Holder shall have the right to vote the
-----------------------
shares of Stock subject to the Award. During the Restriction Period as to any
shares of Stock, cash dividends which would otherwise be payable on any such
shares of will be credited to the Holder in the form of additional unvested
shares of Stock as if the dividend had purchased additional shares at the
closing market price on the date such dividend is paid, and such additional
shares (including shares received as stock dividend or stock split), shall be
delivered to the Company (and the Holder shall, if requested by the Company,
execute and return one or more irrevocable stock powers related thereto) and
shall be subject to the same restrictions as the shares of Stock with respect to
which such dividend or other distribution was made.
3. Custody and Delivery of Certificates Representing Shares. The Company
--------------------------------------------------------
shall hold the certificate or certificates representing the shares of Stock
subject to the Award until the restrictions on such Award shall have lapsed, in
whole or in part, pursuant to Section 4 hereof, and the Company shall as soon
thereafter as practicable, subject to Section 5.3, deliver the certificate or
certificates for such shares to the Holder and destroy the stock power or powers
relating to such shares. If such stock power or powers also relates to shares
as to which restrictions remain in effect, the Company may require, as a
condition precedent to delivery of any certificate pursuant to this Section 3,
the execution and delivery to the Company of one or more stock powers relating
to such shares.
4. Restriction Period and Vesting. (a) The restrictions on the Award
------------------------------
shall lapse on the earliest of the following: (i) with respect to one-fifth of
the aggregate number of shares of Stock subject to the Award on March 12, 1997
and as to an
<PAGE>
additional one-fifth of such aggregate number of shares on each anniversary
thereof during the years 1998 through 2001, inclusive, or (ii) in accordance
with Section 6.8 of the Plan (the "Restriction Period").
(b) If the Holder's employment with the Company is terminated by the
Company during the Restriction Period or by reason of the Holder's "Permanent
and Total Disability" (as such term is defined in the Plan), or by reason of the
Holder's voluntary resignation or retirement or his death, then any shares of
Stock as to which restrictions have not lapsed shall be forfeited.
5. Additional Terms and Conditions of Award.
----------------------------------------
5.1. Nontransferability of Award. During the Restriction Period, the
---------------------------
shares of Stock subject to the Award as to which restrictions remain in effect
may not be transferred by the Holder other than by will, the laws of descent and
distribution or pursuant to beneficiary designation procedures approved by the
Company. Except to the extent permitted by the foregoing, during the
Restriction Period, the shares of Stock subject to the Award as to which
restrictions remain in effect may not be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law
or otherwise) or be subject to execution, attachment or similar process. Upon
any attempt to so sell, transfer, assign, pledge, hypothecate or encumber, or
otherwise dispose of such shares, the Award shall immediately become null and
void.
5.2. Investment Representation. The Holder hereby represents and
-------------------------
covenants that (a) any share of Stock acquired upon the lapse of restrictions
will be acquired for investment and not with a view to the distribution thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), unless such acquisition has been registered under the Securities Act and
any applicable state securities law; (b) any subsequent sale of any such shares
shall be made either pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws, or pursuant to an
exemption from registration under the Securities Act and such state securities
laws; and (c) if requested by the Company, the Holder shall submit a written
statement, in form satisfactory to the Company, to the effect that such
representation (x) is true and correct as of the date of acquisition of any
shares hereunder or (y) is true and correct as of the date of any sale of any
such shares, as applicable. As a further condition precedent to the delivery to
the Holder of any shares subject to the Award, the Holder shall comply with all
regulations and requirements of any regulatory authority having control of or
supervision over the issuance of the shares and, in connection therewith, shall
execute any documents which the Board or any committee authorized by the Board
shall in its sole discretion deem necessary or advisable.
-2-
<PAGE>
5.3. Withholding Taxes. (a) As a condition precedent to the delivery to
-----------------
the Holder of any shares of Stock subject to the Award, the Holder may, upon
request by the Company, pay to the Company such amount of cash as the Company
may be required, under all applicable federal, state, local or other laws or
regulations, to withhold and pay over as income or other withholding taxes (the
"Required Tax Payments") with respect to the Award. If the Holder shall fail to
advance the Required Tax Payments after request by the Company, the Company may,
in its discretion, deduct any Required Tax Payments from any amount then or
thereafter payable by the Company to the Holder.
(b) The Holder may elect to satisfy his or her obligation to advance
the Required Tax Payments by any of the following means: (1) a cash payment to
the Company pursuant to Section 5.3(a), (2) delivery to the Company of
previously owned whole shares of Stock (which the Holder has held for at least
six months prior to the delivery of such shares or which the Holder purchased on
the open market and for which the Holder has good title, free and clear of all
liens and encumbrances) having a Fair Market Value, determined as of the date
the obligation to withhold or pay taxes first arises in connection with the
Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
Company to withhold from the shares of Stock otherwise to be delivered to the
Holder pursuant to the Award, a number of whole shares of Stock having a Fair
Market Value, determined as of the Tax Date, equal to the Required Tax Payments,
(4) a cash payment by a broker-dealer acceptable to the Company through whom the
Holder has sold the shares with respect to which the Required Tax Payments have
arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove
an election pursuant to any of clauses (2)-(5) if the Committee determines,
based on the opinion of recognized securities counsel, that the method so
elected would result in liability to the Optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, or the regulations promulgated
thereunder. Shares of Stock to be delivered or withheld may have a Fair Market
Value in excess of the minimum amount of the Required Tax Payments, but not in
excess of the amount determined by applying the Holder's maximum marginal tax
rate. Any fraction of a share of Stock which would be required to satisfy such
an obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Holder. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
5.4. Adjustment . In the event of any stock split, stock dividend,
----------
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Stock other than a regular cash
dividend, the number and class of securities subject to the Award shall be
appropriately adjusted by the Committee. If any adjustment
-3-
<PAGE>
would result in a fractional security being subject to the Award, the Company
shall pay the Holder in connection with the vesting, if any, of such fractional
security, an amount in cash determined by multiplying (i) such fraction (rounded
to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The
decision of the Committee regarding any such adjustment shall be final, binding
and conclusive.
5.5. Compliance with Applicable Law. Award is subject to the condition
------------------------------
that if the listing, registration or qualification of the shares subject to the
Award upon any securities exchange or under any law, or the consent or approval
of any governments body, or the taking of any other action is necessary or
desirable as a condition of, or in connection with, the vesting or delivery of
shares hereunder, the shares of Stock subject to the Award may not be delivered,
in whole or in part, unless such listing, registration, qualification, consent
or approval shall have been effected or obtained, free of any conditions not
acceptable to the Company. The Company agrees to use reasonable efforts to
effect or obtain any :such listing, registration, qualification, consent or
approval.
5.6. Agreement Subject to the Plan. This Agreement is subject to the
-----------------------------
provisions of the Plan and shall be interpreted in accordance therewith. The
Holder hereby acknowledges receipt of a copy of the Plan.
6. Miscellaneous Provisions.
------------------------
6.1. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of any successor or successors of the Company and any person or persons
who shall, upon the death of the Holder, acquire any rights hereunder in
accordance with this Agreement or the Plan.
6.2. Notices. All notices, requests or other communications provided for
-------
in this Agreement shall be made, if to the Company, to Kayser Building, 100
North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to
the Holder, to 6404 Los Altos, El Paso, Texas 79912. All notices, requests or
other communications provided for in this Agreement shall be made in writing
either (a) by personal delivery to the party entitled thereto, (b) by facsimile
with confirmation of receipt, (c) by mailing in the United States mails to the
last known address of the party entitled thereto or (d) by express courier
service. The notice, request or other communication shall be deemed to be
received upon personal delivery, upon confirmation of receipt of facsimile
transmission, or upon receipt by the party entitled thereto if by United States
mail or express courier service; provided, however, that if a notice, request or
other communication is not received during regular business hours, it shall be
deemed to be received on the next succeeding business day of the Company.
-4-
<PAGE>
6.3. Governing Law. This Agreement, the Award and all determinations made
-------------
and actions taken pursuant hereto and thereto, to the extent not otherwise
governed by the laws of the United States, shall be governed by the laws of the
State of Texas and construed in accordance therewith without giving effect to
conflicts of laws principles.
6.4. Counterparts. This Agreement may be executed in two counterpart each
------------
of which shall be deemed an original and both of which together shall constitute
one and the same instrument.
EL PASO ELECTRIC COMPANY
By: /s/ KENNETH R. HEITZ
--------------------------------------------
Name: Kenneth R. Heitz
Title: Director
Acceptance Date: June 9, 1997
-----------------
/s/ EDUARDO A. RODRIGUEZ
- ---------------------------------
Eduardo A. Rodriguez
-5-
<PAGE>
EXHIBIT 99.10
EL PASO ELECTRIC COMPANY
RESTRICTED STOCK AWARD AGREEMENT
El Paso Electric Company, a Texas corporation (the 'Company'), hereby
grants to Robert C. McNiel (the "Holder"), pursuant to the provisions of the El
Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted
stock award (the "Award") of 3,660 shares of the Company's Common Stock, no par
value ("Stock"), upon and subject to the restrictions, terms and conditions set
forth below. Capitalized terms not defined herein shall have the meanings
specified in the Plan.
1. Award Subject to Acceptance of Agreement. The Award shall be null and
----------------------------------------
void unless the Holder shall accept this Agreement by executing it in the space
provided below and returning it to the Company and execute and return one or
more irrevocable stock powers. As soon as practicable after the Holder has
executed this Agreement and such stock power or powers and returned the same to
the Company, the Company shall cause to be issued in the Holder's name a stock
certificate or certificates representing the total number of shares of Stock
subject to the Award.
2. Rights as a Stockholder. Holder shall have the right to vote the
-----------------------
shares of Stock subject to the Award. During the Restriction Period as to any
shares of Stock, cash dividends which would otherwise be payable on any such
shares of will be credited to the Holder in the form of additional unvested
shares of Stock as if the dividend had purchased additional shares at the
closing market price on the date such dividend is paid, and such additional
shares (including shares received as stock dividend or stock split), shall be
delivered to the Company (and the Holder shall, if requested by the Company,
execute and return one or more irrevocable stock powers related thereto) and
shall be subject to the same restrictions as the shares of Stock with respect to
which such dividend or other distribution was made.
3. Custody and Delivery of Certificates Representing Shares. The Company
--------------------------------------------------------
shall hold the certificate or certificates representing the shares of Stock
subject to the Award until the restrictions on such Award shall have lapsed, in
whole or in part, pursuant to Section 4 hereof, and the Company shall as soon
thereafter as practicable, subject to Section 5.3, deliver the certificate or
certificates for such shares to the Holder and destroy the stock power or powers
relating to such shares. If such stock power or powers also relates to shares
as to which restrictions remain in effect, the Company may require, as a
condition precedent to delivery of any certificate pursuant to this Section 3,
the execution and delivery to the Company of one or more stock powers relating
to such shares.
4. Restriction Period and Vesting. (a) The restrictions on the Award
------------------------------
shall lapse on the earliest of the following: (i) with respect to one-fifth of
the aggregate number of shares of Stock subject to the Award on March 12, 1997
and as to an
<PAGE>
additional one-fifth of such aggregate number of shares on each anniversary
thereof during the years 1998 through 2001, inclusive, or (ii) in accordance
with Section 6.8 of the Plan (the "Restriction Period").
(b) If the Holder's employment with the Company is terminated by the
Company during the Restriction Period or by reason of the Holder's "Permanent
and Total Disability" (as such term is defined in the Plan), or by reason of the
Holder's voluntary resignation or retirement or his death, then any shares of
Stock as to which restrictions have not lapsed shall be forfeited.
5. Additional Terms and Conditions of Award.
----------------------------------------
5.1. Nontransferability of Award. During the Restriction Period, the
---------------------------
shares of Stock subject to the Award as to which restrictions remain in effect
may not be transferred by the Holder other than by will, the laws of descent and
distribution or pursuant to beneficiary designation procedures approved by the
Company. Except to the extent permitted by the foregoing, during the
Restriction Period, the shares of Stock subject to the Award as to which
restrictions remain in effect may not be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law
or otherwise) or be subject to execution, attachment or similar process. Upon
any attempt to so sell, transfer, assign, pledge, hypothecate or encumber, or
otherwise dispose of such shares, the Award shall immediately become null and
void.
5.2. Investment Representation. The Holder hereby represents and
-------------------------
covenants that (a) any share of Stock acquired upon the lapse of restrictions
will be acquired for investment and not with a view to the distribution thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), unless such acquisition has been registered under the Securities Act and
any applicable state securities law; (b) any subsequent sale of any such shares
shall be made either pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws, or pursuant to an
exemption from registration under the Securities Act and such state securities
laws; and (c) if requested by the Company, the Holder shall submit a written
statement, in form satisfactory to the Company, to the effect that such
representation (x) is true and correct as of the date of acquisition of any
shares hereunder or (y) is true and correct as of the date of any sale of any
such shares, as applicable. As a further condition precedent to the delivery to
the Holder of any shares subject to the Award, the Holder shall comply with all
regulations and requirements of any regulatory authority having control of or
supervision over the issuance of the shares and, in connection therewith, shall
execute any documents which the Board or any committee authorized by the Board
shall in its sole discretion deem necessary or advisable.
-2-
<PAGE>
5.3. Withholding Taxes. (a) As a condition precedent to the delivery to
-----------------
the Holder of any shares of Stock subject to the Award, the Holder may, upon
request by the Company, pay to the Company such amount of cash as the Company
may be required, under all applicable federal, state, local or other laws or
regulations, to withhold and pay over as income or other withholding taxes (the
"Required Tax Payments") with respect to the Award. If the Holder shall fail to
advance the Required Tax Payments after request by the Company, the Company may,
in its discretion, deduct any Required Tax Payments from any amount then or
thereafter payable by the Company to the Holder.
(b) The Holder may elect to satisfy his or her obligation to advance
the Required Tax Payments by any of the following means: (1) a cash payment to
the Company pursuant to Section 5.3(a), (2) delivery to the Company of
previously owned whole shares of Stock (which the Holder has held for at least
six months prior to the delivery of such shares or which the Holder purchased on
the open market and for which the Holder has good title, free and clear of all
liens and encumbrances) having a Fair Market Value, determined as of the date
the obligation to withhold or pay taxes first arises in connection with the
Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
Company to withhold from the shares of Stock otherwise to be delivered to the
Holder pursuant to the Award, a number of whole shares of Stock having a Fair
Market Value, determined as of the Tax Date, equal to the Required Tax Payments,
(4) a cash payment by a broker-dealer acceptable to the Company through whom the
Holder has sold the shares with respect to which the Required Tax Payments have
arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove
an election pursuant to any of clauses (2)-(5) if the Committee determines,
based on the opinion of recognized securities counsel, that the method so
elected would result in liability to the Optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, or the regulations promulgated
thereunder. Shares of Stock to be delivered or withheld may have a Fair Market
Value in excess of the minimum amount of the Required Tax Payments, but not in
excess of the amount determined by applying the Holder's maximum marginal tax
rate. Any fraction of a share of Stock which would be required to satisfy such
an obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Holder. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
5.4. Adjustment. In the event of any stock split, stock dividend,
----------
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Stock other than a regular cash
dividend, the number and class of securities subject to the Award shall be
appropriately adjusted by the Committee. If any adjustment
-3-
<PAGE>
would result in a fractional security being subject to the Award, the Company
shall pay the Holder in connection with the vesting, if any, of such fractional
security, an amount in cash determined by multiplying (i) such fraction (rounded
to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The
decision of the Committee regarding any such adjustment shall be final, binding
and conclusive.
5.5. Compliance with Applicable Law. Award is subject to the condition
------------------------------
that if the listing, registration or qualification of the shares subject to the
Award upon any securities exchange or under any law, or the consent or approval
of any governments body, or the taking of any other action is necessary or
desirable as a condition of, or in connection with, the vesting or delivery of
shares hereunder, the shares of Stock subject to the Award may not be delivered,
in whole or in part, unless such listing, registration, qualification, consent
or approval shall have been effected or obtained, free of any conditions not
acceptable to the Company. The Company agrees to use reasonable efforts to
effect or obtain any :such listing, registration, qualification, consent or
approval.
5.6. Agreement Subject to the Plan. This Agreement is subject to the
-----------------------------
provisions of the Plan and shall be interpreted in accordance therewith. The
Holder hereby acknowledges receipt of a copy of the Plan.
6. Miscellaneous Provisions.
------------------------
6.1. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of any successor or successors of the Company and any person or persons
who shall, upon the death of the Holder, acquire any rights hereunder in
accordance with this Agreement or the Plan.
6.2. Notices. All notices, requests or other communications provided for
-------
in this Agreement shall be made, if to the Company, to Kayser Building, 100
North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to
the Holder, to 4860 Sage Road, Las Cruces, New Mexico 88001. All notices,
requests or other communications provided for in this Agreement shall be made in
writing either (a) by personal delivery to the party entitled thereto, (b) by
facsimile with confirmation of receipt, (c) by mailing in the United States
mails to the last known address of the party entitled thereto or (d) by express
courier service. The notice, request or other communication shall be deemed to
be received upon personal delivery, upon confirmation of receipt of facsimile
transmission, or upon receipt by the party entitled thereto if by United States
mail or express courier service; provided, however, that if a notice, request or
other communication is not received during regular business hours, it shall be
deemed to be received on the next succeeding business day of the Company.
-4-
<PAGE>
6.3. Governing Law. This Agreement, the Award and all determinations made
-------------
and actions taken pursuant hereto and thereto, to the extent not otherwise
governed by the laws of the United States, shall be governed by the laws of the
State of Texas and construed in accordance therewith without giving effect to
conflicts of laws principles.
6.4. Counterparts. This Agreement may be executed in two counterpart each
------------
of which shall be deemed an original and both of which together shall constitute
one and the same instrument.
EL PASO ELECTRIC COMPANY
By: /s/ KENNETH R. HEITZ
--------------------------------------------
Name: Kenneth R. Heitz
Title: Director
Acceptance Date: June 15, 1997
-----------------
/s/ ROBERT C. MCNIEL
- ---------------------------------
Robert C. McNiel
-5-
<PAGE>
EXHIBIT 99.11
EL PASO ELECTRIC COMPANY
RESTRICTED STOCK AWARD AGREEMENT
El Paso Electric Company, a Texas corporation (the 'Company'), hereby
grants to Susanne M. Sickles (the "Holder"), pursuant to the provisions of the
El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a
restricted stock award (the "Award") of 1,700 shares of the Company's Common
Stock, no par value ("Stock"), upon and subject to the restrictions, terms and
conditions set forth below. Capitalized terms not defined herein shall have the
meanings specified in the Plan.
1. Award Subject to Acceptance of Agreement. The Award shall be null and
----------------------------------------
void unless the Holder shall accept this Agreement by executing it in the space
provided below and returning it to the Company and execute and return one or
more irrevocable stock powers. As soon as practicable after the Holder has
executed this Agreement and such stock power or powers and returned the same to
the Company, the Company shall cause to be issued in the Holder's name a stock
certificate or certificates representing the total number of shares of Stock
subject to the Award.
2. Rights as a Stockholder. Holder shall have the right to vote the
-----------------------
shares of Stock subject to the Award. During the Restriction Period as to any
shares of Stock, cash dividends which would otherwise be payable on any such
shares of will be credited to the Holder in the form of additional unvested
shares of Stock as if the dividend had purchased additional shares at the
closing market price on the date such dividend is paid, and such additional
shares (including shares received as stock dividend or stock split), shall be
delivered to the Company (and the Holder shall, if requested by the Company,
execute and return one or more irrevocable stock powers related thereto) and
shall be subject to the same restrictions as the shares of Stock with respect to
which such dividend or other distribution was made.
3. Custody and Delivery of Certificates Representing Shares. The Company
--------------------------------------------------------
shall hold the certificate or certificates representing the shares of Stock
subject to the Award until the restrictions on such Award shall have lapsed, in
whole or in part, pursuant to Section 4 hereof, and the Company shall as soon
thereafter as practicable, subject to Section 5.3, deliver the certificate or
certificates for such shares to the Holder and destroy the stock power or powers
relating to such shares. If such stock power or powers also relates to shares
as to which restrictions remain in effect, the Company may require, as a
condition precedent to delivery of any certificate pursuant to this Section 3,
the execution and delivery to the Company of one or more stock powers relating
to such shares.
4. Restriction Period and Vesting. (a) The restrictions on the Award
------------------------------
shall lapse on the earliest of the following: (i) with respect to one-fifth of
the aggregate number of shares of Stock subject to the Award on March 12, 1997
and as to an
<PAGE>
additional one-fifth of such aggregate number of shares on each anniversary
thereof during the years 1998 through 2001, inclusive, or (ii) in accordance
with Section 6.8 of the Plan (the "Restriction Period").
(b) If the Holder's employment with the Company is terminated by the
Company during the Restriction Period or by reason of the Holder's "Permanent
and Total Disability" (as such term is defined in the Plan), or by reason of the
Holder's voluntary resignation or retirement or his death, then any shares of
Stock as to which restrictions have not lapsed shall be forfeited.
5. Additional Terms and Conditions of Award.
----------------------------------------
5.1. Nontransferability of Award. During the Restriction Period, the
---------------------------
shares of Stock subject to the Award as to which restrictions remain in effect
may not be transferred by the Holder other than by will, the laws of descent and
distribution or pursuant to beneficiary designation procedures approved by the
Company. Except to the extent permitted by the foregoing, during the
Restriction Period, the shares of Stock subject to the Award as to which
restrictions remain in effect may not be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law
or otherwise) or be subject to execution, attachment or similar process. Upon
any attempt to so sell, transfer, assign, pledge, hypothecate or encumber, or
otherwise dispose of such shares, the Award shall immediately become null and
void.
5.2. Investment Representation. The Holder hereby represents and
-------------------------
covenants that (a) any share of Stock acquired upon the lapse of restrictions
will be acquired for investment and not with a view to the distribution thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), unless such acquisition has been registered under the Securities Act and
any applicable state securities law; (b) any subsequent sale of any such shares
shall be made either pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws, or pursuant to an
exemption from registration under the Securities Act and such state securities
laws; and (c) if requested by the Company, the Holder shall submit a written
statement, in form satisfactory to the Company, to the effect that such
representation (x) is true and correct as of the date of acquisition of any
shares hereunder or (y) is true and correct as of the date of any sale of any
such shares, as applicable. As a further condition precedent to the delivery to
the Holder of any shares subject to the Award, the Holder shall comply with all
regulations and requirements of any regulatory authority having control of or
supervision over the issuance of the shares and, in connection therewith, shall
execute any documents which the Board or any committee authorized by the Board
shall in its sole discretion deem necessary or advisable.
-2-
<PAGE>
5.3. Withholding Taxes. (a) As a condition precedent to the delivery to
-----------------
the Holder of any shares of Stock subject to the Award, the Holder may, upon
request by the Company, pay to the Company such amount of cash as the Company
may be required, under all applicable federal, state, local or other laws or
regulations, to withhold and pay over as income or other withholding taxes (the
"Required Tax Payments") with respect to the Award. If the Holder shall fail to
advance the Required Tax Payments after request by the Company, the Company may,
in its discretion, deduct any Required Tax Payments from any amount then or
thereafter payable by the Company to the Holder.
(b) The Holder may elect to satisfy his or her obligation to advance
the Required Tax Payments by any of the following means: (1) a cash payment to
the Company pursuant to Section 5.3(a), (2) delivery to the Company of
previously owned whole shares of Stock (which the Holder has held for at least
six months prior to the delivery of such shares or which the Holder purchased on
the open market and for which the Holder has good title, free and clear of all
liens and encumbrances) having a Fair Market Value, determined as of the date
the obligation to withhold or pay taxes first arises in connection with the
Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
Company to withhold from the shares of Stock otherwise to be delivered to the
Holder pursuant to the Award, a number of whole shares of Stock having a Fair
Market Value, determined as of the Tax Date, equal to the Required Tax Payments,
(4) a cash payment by a broker-dealer acceptable to the Company through whom the
Holder has sold the shares with respect to which the Required Tax Payments have
arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove
an election pursuant to any of clauses (2)-(5) if the Committee determines,
based on the opinion of recognized securities counsel, that the method so
elected would result in liability to the Optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, or the regulations promulgated
thereunder. Shares of Stock to be delivered or withheld may have a Fair Market
Value in excess of the minimum amount of the Required Tax Payments, but not in
excess of the amount determined by applying the Holder's maximum marginal tax
rate. Any fraction of a share of Stock which would be required to satisfy such
an obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Holder. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
5.4. Adjustment . In the event of any stock split, stock dividend,
----------
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Stock other than a regular cash
dividend, the number and class of securities subject to the Award shall be
appropriately adjusted by the Committee. If any adjustment
-3-
<PAGE>
would result in a fractional security being subject to the Award, the Company
shall pay the Holder in connection with the vesting, if any, of such fractional
security, an amount in cash determined by multiplying (i) such fraction (rounded
to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The
decision of the Committee regarding any such adjustment shall be final, binding
and conclusive.
5.5. Compliance with Applicable Law. Award is subject to the condition
------------------------------
that if the listing, registration or qualification of the shares subject to the
Award upon any securities exchange or under any law, or the consent or approval
of any governments body, or the taking of any other action is necessary or
desirable as a condition of, or in connection with, the vesting or delivery of
shares hereunder, the shares of Stock subject to the Award may not be delivered,
in whole or in part, unless such listing, registration, qualification, consent
or approval shall have been effected or obtained, free of any conditions not
acceptable to the Company. The Company agrees to use reasonable efforts to
effect or obtain any :such listing, registration, qualification, consent or
approval.
5.6. Agreement Subject to the Plan. This Agreement is subject to the
-----------------------------
provisions of the Plan and shall be interpreted in accordance therewith. The
Holder hereby acknowledges receipt of a copy of the Plan.
6. Miscellaneous Provisions.
------------------------
6.1. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of any successor or successors of the Company and any person or persons
who shall, upon the death of the Holder, acquire any rights hereunder in
accordance with this Agreement or the Plan.
6.2. Notices. All notices, requests or other communications provided for
-------
in this Agreement shall be made, if to the Company, to Kayser Building, 100
North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to
the Holder, to Rt. 1, Box 1021, Anthony, New Mexico 88021. All notices,
requests or other communications provided for in this Agreement shall be made in
writing either (a) by personal delivery to the party entitled thereto, (b) by
facsimile with confirmation of receipt, (c) by mailing in the United States
mails to the last known address of the party entitled thereto or (d) by express
courier service. The notice, request or other communication shall be deemed to
be received upon personal delivery, upon confirmation of receipt of facsimile
transmission, or upon receipt by the party entitled thereto if by United States
mail or express courier service; provided, however, that if a notice, request or
other communication is not received during regular business hours, it shall be
deemed to be received on the next succeeding business day of the Company.
-4-
<PAGE>
6.3. Governing Law. This Agreement, the Award and all determinations made
-------------
and actions taken pursuant hereto and thereto, to the extent not otherwise
governed by the laws of the United States, shall be governed by the laws of the
State of Texas and construed in accordance therewith without giving effect to
conflicts of laws principles.
6.4. Counterparts. This Agreement may be executed in two counterpart each
------------
of which shall be deemed an original and both of which together shall constitute
one and the same instrument.
EL PASO ELECTRIC COMPANY
By: /s/ KENNETH R. HEITZ
--------------------------------------------
Name: Kenneth R. Heitz
Title: Director
Acceptance Date: June 12, 1997
-----------------
/s/ SUSANNE M. SICKLES
- ---------------------------------
Susanne M. Sickles
-5-
<PAGE>
EXHIBIT 99.12
EL PASO ELECTRIC COMPANY
RESTRICTED STOCK AWARD AGREEMENT
El Paso Electric Company, a Texas corporation (the 'Company'), hereby
grants to Guillermo Silva, Jr. (the "Holder"), pursuant to the provisions of the
El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a
restricted stock award (the "Award") of 1,660 shares of the Company's Common
Stock, no par value ("Stock"), upon and subject to the restrictions, terms and
conditions set forth below. Capitalized terms not defined herein shall have the
meanings specified in the Plan.
1. Award Subject to Acceptance of Agreement. The Award shall be null and
----------------------------------------
void unless the Holder shall accept this Agreement by executing it in the space
provided below and returning it to the Company and execute and return one or
more irrevocable stock powers. As soon as practicable after the Holder has
executed this Agreement and such stock power or powers and returned the same to
the Company, the Company shall cause to be issued in the Holder's name a stock
certificate or certificates representing the total number of shares of Stock
subject to the Award.
2. Rights as a Stockholder. Holder shall have the right to vote the
-----------------------
shares of Stock subject to the Award. During the Restriction Period as to any
shares of Stock, cash dividends which would otherwise be payable on any such
shares of will be credited to the Holder in the form of additional unvested
shares of Stock as if the dividend had purchased additional shares at the
closing market price on the date such dividend is paid, and such additional
shares (including shares received as stock dividend or stock split), shall be
delivered to the Company (and the Holder shall, if requested by the Company,
execute and return one or more irrevocable stock powers related thereto) and
shall be subject to the same restrictions as the shares of Stock with respect to
which such dividend or other distribution was made.
3. Custody and Delivery of Certificates Representing Shares. The Company
--------------------------------------------------------
shall hold the certificate or certificates representing the shares of Stock
subject to the Award until the restrictions on such Award shall have lapsed, in
whole or in part, pursuant to Section 4 hereof, and the Company shall as soon
thereafter as practicable, subject to Section 5.3, deliver the certificate or
certificates for such shares to the Holder and destroy the stock power or powers
relating to such shares. If such stock power or powers also relates to shares
as to which restrictions remain in effect, the Company may require, as a
condition precedent to delivery of any certificate pursuant to this Section 3,
the execution and delivery to the Company of one or more stock powers relating
to such shares.
4. Restriction Period and Vesting. (a) The restrictions on the Award
------------------------------
shall lapse on the earliest of the following: (i) with respect to one-fifth of
the aggregate number of shares of Stock subject to the Award on March 12, 1997
and as to an
<PAGE>
additional one-fifth of such aggregate number of shares on each anniversary
thereof during the years 1998 through 2001, inclusive, or (ii) in accordance
with Section 6.8 of the Plan (the "Restriction Period").
(b) If the Holder's employment with the Company is terminated by the
Company during the Restriction Period or by reason of the Holder's "Permanent
and Total Disability" (as such term is defined in the Plan), or by reason of the
Holder's voluntary resignation or retirement or his death, then any shares of
Stock as to which restrictions have not lapsed shall be forfeited.
5. Additional Terms and Conditions of Award.
----------------------------------------
5.1. Nontransferability of Award. During the Restriction Period, the
---------------------------
shares of Stock subject to the Award as to which restrictions remain in effect
may not be transferred by the Holder other than by will, the laws of descent and
distribution or pursuant to beneficiary designation procedures approved by the
Company. Except to the extent permitted by the foregoing, during the
Restriction Period, the shares of Stock subject to the Award as to which
restrictions remain in effect may not be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law
or otherwise) or be subject to execution, attachment or similar process. Upon
any attempt to so sell, transfer, assign, pledge, hypothecate or encumber, or
otherwise dispose of such shares, the Award shall immediately become null and
void.
5.2. Investment Representation. The Holder hereby represents and
-------------------------
covenants that (a) any share of Stock acquired upon the lapse of restrictions
will be acquired for investment and not with a view to the distribution thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), unless such acquisition has been registered under the Securities Act and
any applicable state securities law; (b) any subsequent sale of any such shares
shall be made either pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws, or pursuant to an
exemption from registration under the Securities Act and such state securities
laws; and (c) if requested by the Company, the Holder shall submit a written
statement, in form satisfactory to the Company, to the effect that such
representation (x) is true and correct as of the date of acquisition of any
shares hereunder or (y) is true and correct as of the date of any sale of any
such shares, as applicable. As a further condition precedent to the delivery to
the Holder of any shares subject to the Award, the Holder shall comply with all
regulations and requirements of any regulatory authority having control of or
supervision over the issuance of the shares and, in connection therewith, shall
execute any documents which the Board or any committee authorized by the Board
shall in its sole discretion deem necessary or advisable.
-2-
<PAGE>
5.3. Withholding Taxes. (a) As a condition precedent to the delivery to
-----------------
the Holder of any shares of Stock subject to the Award, the Holder may, upon
request by the Company, pay to the Company such amount of cash as the Company
may be required, under all applicable federal, state, local or other laws or
regulations, to withhold and pay over as income or other withholding taxes (the
"Required Tax Payments") with respect to the Award. If the Holder shall fail to
advance the Required Tax Payments after request by the Company, the Company may,
in its discretion, deduct any Required Tax Payments from any amount then or
thereafter payable by the Company to the Holder.
(b) The Holder may elect to satisfy his or her obligation to advance
the Required Tax Payments by any of the following means: (1) a cash payment to
the Company pursuant to Section 5.3(a), (2) delivery to the Company of
previously owned whole shares of Stock (which the Holder has held for at least
six months prior to the delivery of such shares or which the Holder purchased on
the open market and for which the Holder has good title, free and clear of all
liens and encumbrances) having a Fair Market Value, determined as of the date
the obligation to withhold or pay taxes first arises in connection with the
Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
Company to withhold from the shares of Stock otherwise to be delivered to the
Holder pursuant to the Award, a number of whole shares of Stock having a Fair
Market Value, determined as of the Tax Date, equal to the Required Tax Payments,
(4) a cash payment by a broker-dealer acceptable to the Company through whom the
Holder has sold the shares with respect to which the Required Tax Payments have
arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove
an election pursuant to any of clauses (2)-(5) if the Committee determines,
based on the opinion of recognized securities counsel, that the method so
elected would result in liability to the Optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, or the regulations promulgated
thereunder. Shares of Stock to be delivered or withheld may have a Fair Market
Value in excess of the minimum amount of the Required Tax Payments, but not in
excess of the amount determined by applying the Holder's maximum marginal tax
rate. Any fraction of a share of Stock which would be required to satisfy such
an obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Holder. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
5.4. Adjustment. In the event of any stock split, stock dividend,
----------
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Stock other than a regular cash
dividend, the number and class of securities subject to the Award shall be
appropriately adjusted by the Committee. If any adjustment
-3-
<PAGE>
would result in a fractional security being subject to the Award, the Company
shall pay the Holder in connection with the vesting, if any, of such fractional
security, an amount in cash determined by multiplying (i) such fraction (rounded
to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The
decision of the Committee regarding any such adjustment shall be final, binding
and conclusive.
5.5. Compliance with Applicable Law. Award is subject to the condition
------------------------------
that if the listing, registration or qualification of the shares subject to the
Award upon any securities exchange or under any law, or the consent or approval
of any governments body, or the taking of any other action is necessary or
desirable as a condition of, or in connection with, the vesting or delivery of
shares hereunder, the shares of Stock subject to the Award may not be delivered,
in whole or in part, unless such listing, registration, qualification, consent
or approval shall have been effected or obtained, free of any conditions not
acceptable to the Company. The Company agrees to use reasonable efforts to
effect or obtain any :such listing, registration, qualification, consent or
approval.
5.6. Agreement Subject to the Plan. This Agreement is subject to the
-----------------------------
provisions of the Plan and shall be interpreted in accordance therewith. The
Holder hereby acknowledges receipt of a copy of the Plan.
6. Miscellaneous Provisions.
------------------------
6.1. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of any successor or successors of the Company and any person or persons
who shall, upon the death of the Holder, acquire any rights hereunder in
accordance with this Agreement or the Plan.
6.2. Notices. All notices, requests or other communications provided for
-------
in this Agreement shall be made, if to the Company, to Kayser Building, 100
North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to
the Holder, to 4629 R.T. Cassidy, El Paso, Texas 79904. All notices, requests
or other communications provided for in this Agreement shall be made in writing
either (a) by personal delivery to the party entitled thereto, (b) by facsimile
with confirmation of receipt, (c) by mailing in the United States mails to the
last known address of the party entitled thereto or (d) by express courier
service. The notice, request or other communication shall be deemed to be
received upon personal delivery, upon confirmation of receipt of facsimile
transmission, or upon receipt by the party entitled thereto if by United States
mail or express courier service; provided, however, that if a notice, request or
other communication is not received during regular business hours, it shall be
deemed to be received on the next succeeding business day of the Company.
-4-
<PAGE>
6.3. Governing Law. This Agreement, the Award and all determinations made
-------------
and actions taken pursuant hereto and thereto, to the extent not otherwise
governed by the laws of the United States, shall be governed by the laws of the
State of Texas and construed in accordance therewith without giving effect to
conflicts of laws principles.
6.4. Counterparts. This Agreement may be executed in two counterpart each
------------
of which shall be deemed an original and both of which together shall constitute
one and the same instrument.
EL PASO ELECTRIC COMPANY
By: /s/ KENNETH R. HEITZ
--------------------------------------------
Name: Kenneth R. Heitz
Title: Director
Acceptance Date: June 16, 1997
-----------------
/s/ GUILLERMO SILVA, JR.
- ---------------------------------
Guillermo Silva, Jr.
-5-
<PAGE>
EXHIBIT 99.13
EL PASO ELECTRIC COMPANY
RESTRICTED STOCK AWARD AGREEMENT
El Paso Electric Company, a Texas corporation (the 'Company'), hereby
grants to Pedro Serrano, Jr. (the "Holder"), pursuant to the provisions of the
El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a
restricted stock award (the "Award") of 1,565 shares of the Company's Common
Stock, no par value ("Stock"), upon and subject to the restrictions, terms and
conditions set forth below. Capitalized terms not defined herein shall have the
meanings specified in the Plan.
1. Award Subject to Acceptance of Agreement. The Award shall be null and
----------------------------------------
void unless the Holder shall accept this Agreement by executing it in the space
provided below and returning it to the Company and execute and return one or
more irrevocable stock powers. As soon as practicable after the Holder has
executed this Agreement and such stock power or powers and returned the same to
the Company, the Company shall cause to be issued in the Holder's name a stock
certificate or certificates representing the total number of shares of Stock
subject to the Award.
2. Rights as a Stockholder. Holder shall have the right to vote the
-----------------------
shares of Stock subject to the Award. During the Restriction Period as to any
shares of Stock, cash dividends which would otherwise be payable on any such
shares of will be credited to the Holder in the form of additional unvested
shares of Stock as if the dividend had purchased additional shares at the
closing market price on the date such dividend is paid, and such additional
shares (including shares received as stock dividend or stock split), shall be
delivered to the Company (and the Holder shall, if requested by the Company,
execute and return one or more irrevocable stock powers related thereto) and
shall be subject to the same restrictions as the shares of Stock with respect to
which such dividend or other distribution was made.
3. Custody and Delivery of Certificates Representing Shares. The Company
--------------------------------------------------------
shall hold the certificate or certificates representing the shares of Stock
subject to the Award until the restrictions on such Award shall have lapsed, in
whole or in part, pursuant to Section 4 hereof, and the Company shall as soon
thereafter as practicable, subject to Section 5.3, deliver the certificate or
certificates for such shares to the Holder and destroy the stock power or powers
relating to such shares. If such stock power or powers also relates to shares
as to which restrictions remain in effect, the Company may require, as a
condition precedent to delivery of any certificate pursuant to this Section 3,
the execution and delivery to the Company of one or more stock powers relating
to such shares.
4. Restriction Period and Vesting. (a) The restrictions on the Award
------------------------------
shall lapse on the earliest of the following: (i) with respect to one-fifth of
the aggregate number of shares of Stock subject to the Award on March 12, 1997
and as to an
<PAGE>
additional one-fifth of such aggregate number of shares on each anniversary
thereof during the years 1998 through 2001, inclusive, or (ii) in accordance
with Section 6.8 of the Plan (the "Restriction Period").
(b) If the Holder's employment with the Company is terminated by the
Company during the Restriction Period or by reason of the Holder's "Permanent
and Total Disability" (as such term is defined in the Plan), or by reason of the
Holder's voluntary resignation or retirement or his death, then any shares of
Stock as to which restrictions have not lapsed shall be forfeited.
5. Additional Terms and Conditions of Award.
----------------------------------------
5.1. Nontransferability of Award. During the Restriction Period, the
---------------------------
shares of Stock subject to the Award as to which restrictions remain in effect
may not be transferred by the Holder other than by will, the laws of descent and
distribution or pursuant to beneficiary designation procedures approved by the
Company. Except to the extent permitted by the foregoing, during the
Restriction Period, the shares of Stock subject to the Award as to which
restrictions remain in effect may not be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law
or otherwise) or be subject to execution, attachment or similar process. Upon
any attempt to so sell, transfer, assign, pledge, hypothecate or encumber, or
otherwise dispose of such shares, the Award shall immediately become null and
void.
5.2. Investment Representation. The Holder hereby represents and
-------------------------
covenants that (a) any share of Stock acquired upon the lapse of restrictions
will be acquired for investment and not with a view to the distribution thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), unless such acquisition has been registered under the Securities Act and
any applicable state securities law; (b) any subsequent sale of any such shares
shall be made either pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws, or pursuant to an
exemption from registration under the Securities Act and such state securities
laws; and (c) if requested by the Company, the Holder shall submit a written
statement, in form satisfactory to the Company, to the effect that such
representation (x) is true and correct as of the date of acquisition of any
shares hereunder or (y) is true and correct as of the date of any sale of any
such shares, as applicable. As a further condition precedent to the delivery to
the Holder of any shares subject to the Award, the Holder shall comply with all
regulations and requirements of any regulatory authority having control of or
supervision over the issuance of the shares and, in connection therewith, shall
execute any documents which the Board or any committee authorized by the Board
shall in its sole discretion deem necessary or advisable.
-2-
<PAGE>
5.3. Withholding Taxes. (a) As a condition precedent to the delivery to
-----------------
the Holder of any shares of Stock subject to the Award, the Holder may, upon
request by the Company, pay to the Company such amount of cash as the Company
may be required, under all applicable federal, state, local or other laws or
regulations, to withhold and pay over as income or other withholding taxes (the
"Required Tax Payments") with respect to the Award. If the Holder shall fail to
advance the Required Tax Payments after request by the Company, the Company may,
in its discretion, deduct any Required Tax Payments from any amount then or
thereafter payable by the Company to the Holder.
(b) The Holder may elect to satisfy his or her obligation to advance
the Required Tax Payments by any of the following means: (1) a cash payment to
the Company pursuant to Section 5.3(a), (2) delivery to the Company of
previously owned whole shares of Stock (which the Holder has held for at least
six months prior to the delivery of such shares or which the Holder purchased on
the open market and for which the Holder has good title, free and clear of all
liens and encumbrances) having a Fair Market Value, determined as of the date
the obligation to withhold or pay taxes first arises in connection with the
Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
Company to withhold from the shares of Stock otherwise to be delivered to the
Holder pursuant to the Award, a number of whole shares of Stock having a Fair
Market Value, determined as of the Tax Date, equal to the Required Tax Payments,
(4) a cash payment by a broker-dealer acceptable to the Company through whom the
Holder has sold the shares with respect to which the Required Tax Payments have
arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove
an election pursuant to any of clauses (2)-(5) if the Committee determines,
based on the opinion of recognized securities counsel, that the method so
elected would result in liability to the Optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, or the regulations promulgated
thereunder. Shares of Stock to be delivered or withheld may have a Fair Market
Value in excess of the minimum amount of the Required Tax Payments, but not in
excess of the amount determined by applying the Holder's maximum marginal tax
rate. Any fraction of a share of Stock which would be required to satisfy such
an obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Holder. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
5.4. Adjustment . In the event of any stock split, stock dividend,
----------
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Stock other than a regular cash
dividend, the number and class of securities subject to the Award shall be
appropriately adjusted by the Committee. If any adjustment
-3-
<PAGE>
would result in a fractional security being subject to the Award, the Company
shall pay the Holder in connection with the vesting, if any, of such fractional
security, an amount in cash determined by multiplying (i) such fraction (rounded
to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The
decision of the Committee regarding any such adjustment shall be final, binding
and conclusive.
5.5. Compliance with Applicable Law. Award is subject to the condition
------------------------------
that if the listing, registration or qualification of the shares subject to the
Award upon any securities exchange or under any law, or the consent or approval
of any governments body, or the taking of any other action is necessary or
desirable as a condition of, or in connection with, the vesting or delivery of
shares hereunder, the shares of Stock subject to the Award may not be delivered,
in whole or in part, unless such listing, registration, qualification, consent
or approval shall have been effected or obtained, free of any conditions not
acceptable to the Company. The Company agrees to use reasonable efforts to
effect or obtain any :such listing, registration, qualification, consent or
approval.
5.6. Agreement Subject to the Plan. This Agreement is subject to the
-----------------------------
provisions of the Plan and shall be interpreted in accordance therewith. The
Holder hereby acknowledges receipt of a copy of the Plan.
6. Miscellaneous Provisions.
------------------------
6.1. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of any successor or successors of the Company and any person or persons
who shall, upon the death of the Holder, acquire any rights hereunder in
accordance with this Agreement or the Plan.
6.2. Notices. All notices, requests or other communications provided for
-------
in this Agreement shall be made, if to the Company, to Kayser Building, 100
North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to
the Holder, to 4115 Bliss, El Paso, Texas 79903. All notices, requests or other
communications provided for in this Agreement shall be made in writing either
(a) by personal delivery to the party entitled thereto, (b) by facsimile with
confirmation of receipt, (c) by mailing in the United States mails to the last
known address of the party entitled thereto or (d) by express courier service.
The notice, request or other communication shall be deemed to be received upon
personal delivery, upon confirmation of receipt of facsimile transmission, or
upon receipt by the party entitled thereto if by United States mail or express
courier service; provided, however, that if a notice, request or other
communication is not received during regular business hours, it shall be deemed
to be received on the next succeeding business day of the Company.
-4-
<PAGE>
6.3. Governing Law. This Agreement, the Award and all determinations made
-------------
and actions taken pursuant hereto and thereto, to the extent not otherwise
governed by the laws of the United States, shall be governed by the laws of the
State of Texas and construed in accordance therewith without giving effect to
conflicts of laws principles.
6.4. Counterparts. This Agreement may be executed in two counterpart each
------------
of which shall be deemed an original and both of which together shall constitute
one and the same instrument.
EL PASO ELECTRIC COMPANY
By: /s/ KENNETH R. HEITZ
--------------------------------------------
Name: Kenneth R. Heitz
Title: Director
Acceptance Date: June 16, 1997
-----------------
/s/ PEDRO SERRANO, JR.
- ---------------------------------
Pedro Serrano, Jr.
-5-
<PAGE>
EXHIBIT 99.14
EL PASO ELECTRIC COMPANY
RESTRICTED STOCK AWARD AGREEMENT
El Paso Electric Company, a Texas corporation (the 'Company'), hereby
grants to Thomas L. Newsom (the "Holder"), pursuant to the provisions of the El
Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted
stock award (the "Award") of 1,625 shares of the Company's Common Stock, no par
value ("Stock"), upon and subject to the restrictions, terms and conditions set
forth below. Capitalized terms not defined herein shall have the meanings
specified in the Plan.
1. Award Subject to Acceptance of Agreement. The Award shall be null and
----------------------------------------
void unless the Holder shall accept this Agreement by executing it in the space
provided below and returning it to the Company and execute and return one or
more irrevocable stock powers. As soon as practicable after the Holder has
executed this Agreement and such stock power or powers and returned the same to
the Company, the Company shall cause to be issued in the Holder's name a stock
certificate or certificates representing the total number of shares of Stock
subject to the Award.
2. Rights as a Stockholder. Holder shall have the right to vote the
-----------------------
shares of Stock subject to the Award. During the Restriction Period as to any
shares of Stock, cash dividends which would otherwise be payable on any such
shares of will be credited to the Holder in the form of additional unvested
shares of Stock as if the dividend had purchased additional shares at the
closing market price on the date such dividend is paid, and such additional
shares (including shares received as stock dividend or stock split), shall be
delivered to the Company (and the Holder shall, if requested by the Company,
execute and return one or more irrevocable stock powers related thereto) and
shall be subject to the same restrictions as the shares of Stock with respect to
which such dividend or other distribution was made.
3. Custody and Delivery of Certificates Representing Shares. The Company
--------------------------------------------------------
shall hold the certificate or certificates representing the shares of Stock
subject to the Award until the restrictions on such Award shall have lapsed, in
whole or in part, pursuant to Section 4 hereof, and the Company shall as soon
thereafter as practicable, subject to Section 5.3, deliver the certificate or
certificates for such shares to the Holder and destroy the stock power or powers
relating to such shares. If such stock power or powers also relates to shares
as to which restrictions remain in effect, the Company may require, as a
condition precedent to delivery of any certificate pursuant to this Section 3,
the execution and delivery to the Company of one or more stock powers relating
to such shares.
4. Restriction Period and Vesting. (a) The restrictions on the Award
------------------------------
shall lapse on the earliest of the following: (i) with respect to one-fifth of
the aggregate number of shares of Stock subject to the Award on March 12, 1997
and as to an
<PAGE>
additional one-fifth of such aggregate number of shares on each anniversary
thereof during the years 1998 through 2001, inclusive, or (ii) in accordance
with Section 6.8 of the Plan (the "Restriction Period").
(b) If the Holder's employment with the Company is terminated by the
Company during the Restriction Period or by reason of the Holder's "Permanent
and Total Disability" (as such term is defined in the Plan), or by reason of the
Holder's voluntary resignation or retirement or his death, then any shares of
Stock as to which restrictions have not lapsed shall be forfeited.
5. Additional Terms and Conditions of Award.
----------------------------------------
5.1. Nontransferability of Award. During the Restriction Period, the
---------------------------
shares of Stock subject to the Award as to which restrictions remain in effect
may not be transferred by the Holder other than by will, the laws of descent and
distribution or pursuant to beneficiary designation procedures approved by the
Company. Except to the extent permitted by the foregoing, during the
Restriction Period, the shares of Stock subject to the Award as to which
restrictions remain in effect may not be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law
or otherwise) or be subject to execution, attachment or similar process. Upon
any attempt to so sell, transfer, assign, pledge, hypothecate or encumber, or
otherwise dispose of such shares, the Award shall immediately become null and
void.
5.2. Investment Representation. The Holder hereby represents and
-------------------------
covenants that (a) any share of Stock acquired upon the lapse of restrictions
will be acquired for investment and not with a view to the distribution thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), unless such acquisition has been registered under the Securities Act and
any applicable state securities law; (b) any subsequent sale of any such shares
shall be made either pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws, or pursuant to an
exemption from registration under the Securities Act and such state securities
laws; and (c) if requested by the Company, the Holder shall submit a written
statement, in form satisfactory to the Company, to the effect that such
representation (x) is true and correct as of the date of acquisition of any
shares hereunder or (y) is true and correct as of the date of any sale of any
such shares, as applicable. As a further condition precedent to the delivery to
the Holder of any shares subject to the Award, the Holder shall comply with all
regulations and requirements of any regulatory authority having control of or
supervision over the issuance of the shares and, in connection therewith, shall
execute any documents which the Board or any committee authorized by the Board
shall in its sole discretion deem necessary or advisable.
-2-
<PAGE>
5.3. Withholding Taxes. (a) As a condition precedent to the delivery to
-----------------
the Holder of any shares of Stock subject to the Award, the Holder may, upon
request by the Company, pay to the Company such amount of cash as the Company
may be required, under all applicable federal, state, local or other laws or
regulations, to withhold and pay over as income or other withholding taxes (the
"Required Tax Payments") with respect to the Award. If the Holder shall fail to
advance the Required Tax Payments after request by the Company, the Company may,
in its discretion, deduct any Required Tax Payments from any amount then or
thereafter payable by the Company to the Holder.
(b) The Holder may elect to satisfy his or her obligation to advance
the Required Tax Payments by any of the following means: (1) a cash payment to
the Company pursuant to Section 5.3(a), (2) delivery to the Company of
previously owned whole shares of Stock (which the Holder has held for at least
six months prior to the delivery of such shares or which the Holder purchased on
the open market and for which the Holder has good title, free and clear of all
liens and encumbrances) having a Fair Market Value, determined as of the date
the obligation to withhold or pay taxes first arises in connection with the
Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
Company to withhold from the shares of Stock otherwise to be delivered to the
Holder pursuant to the Award, a number of whole shares of Stock having a Fair
Market Value, determined as of the Tax Date, equal to the Required Tax Payments,
(4) a cash payment by a broker-dealer acceptable to the Company through whom the
Holder has sold the shares with respect to which the Required Tax Payments have
arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove
an election pursuant to any of clauses (2)-(5) if the Committee determines,
based on the opinion of recognized securities counsel, that the method so
elected would result in liability to the Optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, or the regulations promulgated
thereunder. Shares of Stock to be delivered or withheld may have a Fair Market
Value in excess of the minimum amount of the Required Tax Payments, but not in
excess of the amount determined by applying the Holder's maximum marginal tax
rate. Any fraction of a share of Stock which would be required to satisfy such
an obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Holder. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
5.4. Adjustment. In the event of any stock split, stock dividend,
----------
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Stock other than a regular cash
dividend, the number and class of securities subject to the Award shall be
appropriately adjusted by the Committee. If any adjustment
-3-
<PAGE>
would result in a fractional security being subject to the Award, the Company
shall pay the Holder in connection with the vesting, if any, of such fractional
security, an amount in cash determined by multiplying (i) such fraction (rounded
to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The
decision of the Committee regarding any such adjustment shall be final, binding
and conclusive.
5.5. Compliance with Applicable Law. Award is subject to the condition
------------------------------
that if the listing, registration or qualification of the shares subject to the
Award upon any securities exchange or under any law, or the consent or approval
of any governments body, or the taking of any other action is necessary or
desirable as a condition of, or in connection with, the vesting or delivery of
shares hereunder, the shares of Stock subject to the Award may not be delivered,
in whole or in part, unless such listing, registration, qualification, consent
or approval shall have been effected or obtained, free of any conditions not
acceptable to the Company. The Company agrees to use reasonable efforts to
effect or obtain any :such listing, registration, qualification, consent or
approval.
5.6. Agreement Subject to the Plan. This Agreement is subject to the
-----------------------------
provisions of the Plan and shall be interpreted in accordance therewith. The
Holder hereby acknowledges receipt of a copy of the Plan.
6. Miscellaneous Provisions.
------------------------
6.1. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of any successor or successors of the Company and any person or persons
who shall, upon the death of the Holder, acquire any rights hereunder in
accordance with this Agreement or the Plan.
6.2. Notices. All notices, requests or other communications provided for
-------
in this Agreement shall be made, if to the Company, to Kayser Building, 100
North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to
the Holder, to 6883 Orizaba, El Paso, Texas 79912. All notices, requests or
other communications provided for in this Agreement shall be made in writing
either (a) by personal delivery to the party entitled thereto, (b) by facsimile
with confirmation of receipt, (c) by mailing in the United States mails to the
last known address of the party entitled thereto or (d) by express courier
service. The notice, request or other communication shall be deemed to be
received upon personal delivery, upon confirmation of receipt of facsimile
transmission, or upon receipt by the party entitled thereto if by United States
mail or express courier service; provided, however, that if a notice, request or
other communication is not received during regular business hours, it shall be
deemed to be received on the next succeeding business day of the Company.
-4-
<PAGE>
6.3. Governing Law. This Agreement, the Award and all determinations made
-------------
and actions taken pursuant hereto and thereto, to the extent not otherwise
governed by the laws of the United States, shall be governed by the laws of the
State of Texas and construed in accordance therewith without giving effect to
conflicts of laws principles.
6.4. Counterparts. This Agreement may be executed in two counterpart each
------------
of which shall be deemed an original and both of which together shall constitute
one and the same instrument.
EL PASO ELECTRIC COMPANY
By: /s/ KENNETH R. HEITZ
--------------------------------------------
Name: Kenneth R. Heitz
Title: Director
Acceptance Date: June 16, 1997
-----------------
/s/ THOMAS L. NEWSOM
- ---------------------------------
Thomas L. Newsom
-5-
<PAGE>
EXHIBIT 99.15
EL PASO ELECTRIC COMPANY
RESTRICTED STOCK AWARD AGREEMENT
El Paso Electric Company, a Texas corporation (the 'Company'), hereby
grants to John A. Whitacre (the "Holder"), pursuant to the provisions of the El
Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted
stock award (the "Award") of 1,595 shares of the Company's Common Stock, no par
value ("Stock"), upon and subject to the restrictions, terms and conditions set
forth below. Capitalized terms not defined herein shall have the meanings
specified in the Plan.
1. Award Subject to Acceptance of Agreement. The Award shall be null and
----------------------------------------
void unless the Holder shall accept this Agreement by executing it in the space
provided below and returning it to the Company and execute and return one or
more irrevocable stock powers. As soon as practicable after the Holder has
executed this Agreement and such stock power or powers and returned the same to
the Company, the Company shall cause to be issued in the Holder's name a stock
certificate or certificates representing the total number of shares of Stock
subject to the Award.
2. Rights as a Stockholder. Holder shall have the right to vote the
-----------------------
shares of Stock subject to the Award. During the Restriction Period as to any
shares of Stock, cash dividends which would otherwise be payable on any such
shares of will be credited to the Holder in the form of additional unvested
shares of Stock as if the dividend had purchased additional shares at the
closing market price on the date such dividend is paid, and such additional
shares (including shares received as stock dividend or stock split), shall be
delivered to the Company (and the Holder shall, if requested by the Company,
execute and return one or more irrevocable stock powers related thereto) and
shall be subject to the same restrictions as the shares of Stock with respect to
which such dividend or other distribution was made.
3. Custody and Delivery of Certificates Representing Shares. The Company
--------------------------------------------------------
shall hold the certificate or certificates representing the shares of Stock
subject to the Award until the restrictions on such Award shall have lapsed, in
whole or in part, pursuant to Section 4 hereof, and the Company shall as soon
thereafter as practicable, subject to Section 5.3, deliver the certificate or
certificates for such shares to the Holder and destroy the stock power or powers
relating to such shares. If such stock power or powers also relates to shares
as to which restrictions remain in effect, the Company may require, as a
condition precedent to delivery of any certificate pursuant to this Section 3,
the execution and delivery to the Company of one or more stock powers relating
to such shares.
4. Restriction Period and Vesting. (a) The restrictions on the Award
------------------------------
shall lapse on the earliest of the following: (i) with respect to one-fifth of
the aggregate number of shares of Stock subject to the Award on March 12, 1997
and as to an
<PAGE>
additional one-fifth of such aggregate number of shares on each anniversary
thereof during the years 1998 through 2001, inclusive, or (ii) in accordance
with Section 6.8 of the Plan (the "Restriction Period").
(b) If the Holder's employment with the Company is terminated by the
Company during the Restriction Period or by reason of the Holder's "Permanent
and Total Disability" (as such term is defined in the Plan), or by reason of the
Holder's voluntary resignation or retirement or his death, then any shares of
Stock as to which restrictions have not lapsed shall be forfeited.
5. Additional Terms and Conditions of Award.
----------------------------------------
5.1. Nontransferability of Award. During the Restriction Period, the
---------------------------
shares of Stock subject to the Award as to which restrictions remain in effect
may not be transferred by the Holder other than by will, the laws of descent and
distribution or pursuant to beneficiary designation procedures approved by the
Company. Except to the extent permitted by the foregoing, during the
Restriction Period, the shares of Stock subject to the Award as to which
restrictions remain in effect may not be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law
or otherwise) or be subject to execution, attachment or similar process. Upon
any attempt to so sell, transfer, assign, pledge, hypothecate or encumber, or
otherwise dispose of such shares, the Award shall immediately become null and
void.
5.2. Investment Representation. The Holder hereby represents and
-------------------------
covenants that (a) any share of Stock acquired upon the lapse of restrictions
will be acquired for investment and not with a view to the distribution thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), unless such acquisition has been registered under the Securities Act and
any applicable state securities law; (b) any subsequent sale of any such shares
shall be made either pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws, or pursuant to an
exemption from registration under the Securities Act and such state securities
laws; and (c) if requested by the Company, the Holder shall submit a written
statement, in form satisfactory to the Company, to the effect that such
representation (x) is true and correct as of the date of acquisition of any
shares hereunder or (y) is true and correct as of the date of any sale of any
such shares, as applicable. As a further condition precedent to the delivery to
the Holder of any shares subject to the Award, the Holder shall comply with all
regulations and requirements of any regulatory authority having control of or
supervision over the issuance of the shares and, in connection therewith, shall
execute any documents which the Board or any committee authorized by the Board
shall in its sole discretion deem necessary or advisable.
-2-
<PAGE>
5.3. Withholding Taxes. (a) As a condition precedent to the delivery to
-----------------
the Holder of any shares of Stock subject to the Award, the Holder may, upon
request by the Company, pay to the Company such amount of cash as the Company
may be required, under all applicable federal, state, local or other laws or
regulations, to withhold and pay over as income or other withholding taxes (the
"Required Tax Payments") with respect to the Award. If the Holder shall fail to
advance the Required Tax Payments after request by the Company, the Company may,
in its discretion, deduct any Required Tax Payments from any amount then or
thereafter payable by the Company to the Holder.
(b) The Holder may elect to satisfy his or her obligation to advance
the Required Tax Payments by any of the following means: (1) a cash payment to
the Company pursuant to Section 5.3(a), (2) delivery to the Company of
previously owned whole shares of Stock (which the Holder has held for at least
six months prior to the delivery of such shares or which the Holder purchased on
the open market and for which the Holder has good title, free and clear of all
liens and encumbrances) having a Fair Market Value, determined as of the date
the obligation to withhold or pay taxes first arises in connection with the
Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
Company to withhold from the shares of Stock otherwise to be delivered to the
Holder pursuant to the Award, a number of whole shares of Stock having a Fair
Market Value, determined as of the Tax Date, equal to the Required Tax Payments,
(4) a cash payment by a broker-dealer acceptable to the Company through whom the
Holder has sold the shares with respect to which the Required Tax Payments have
arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove
an election pursuant to any of clauses (2)-(5) if the Committee determines,
based on the opinion of recognized securities counsel, that the method so
elected would result in liability to the Optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, or the regulations promulgated
thereunder. Shares of Stock to be delivered or withheld may have a Fair Market
Value in excess of the minimum amount of the Required Tax Payments, but not in
excess of the amount determined by applying the Holder's maximum marginal tax
rate. Any fraction of a share of Stock which would be required to satisfy such
an obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Holder. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
5.4. Adjustment. In the event of any stock split, stock dividend,
----------
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Stock other than a regular cash
dividend, the number and class of securities subject to the Award shall be
appropriately adjusted by the Committee. If any adjustment
-3-
<PAGE>
would result in a fractional security being subject to the Award, the Company
shall pay the Holder in connection with the vesting, if any, of such fractional
security, an amount in cash determined by multiplying (i) such fraction (rounded
to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The
decision of the Committee regarding any such adjustment shall be final, binding
and conclusive.
5.5. Compliance with Applicable Law. Award is subject to the condition
------------------------------
that if the listing, registration or qualification of the shares subject to the
Award upon any securities exchange or under any law, or the consent or approval
of any governments body, or the taking of any other action is necessary or
desirable as a condition of, or in connection with, the vesting or delivery of
shares hereunder, the shares of Stock subject to the Award may not be delivered,
in whole or in part, unless such listing, registration, qualification, consent
or approval shall have been effected or obtained, free of any conditions not
acceptable to the Company. The Company agrees to use reasonable efforts to
effect or obtain any :such listing, registration, qualification, consent or
approval.
5.6. Agreement Subject to the Plan. This Agreement is subject to the
-----------------------------
provisions of the Plan and shall be interpreted in accordance therewith. The
Holder hereby acknowledges receipt of a copy of the Plan.
6. Miscellaneous Provisions.
------------------------
6.1. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of any successor or successors of the Company and any person or persons
who shall, upon the death of the Holder, acquire any rights hereunder in
accordance with this Agreement or the Plan.
6.2. Notices. All notices, requests or other communications provided for
-------
in this Agreement shall be made, if to the Company, to Kayser Building, 100
North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to
the Holder, to 333 Kingswood, El Paso, Texas 79932. All notices, requests or
other communications provided for in this Agreement shall be made in writing
either (a) by personal delivery to the party entitled thereto, (b) by facsimile
with confirmation of receipt, (c) by mailing in the United States mails to the
last known address of the party entitled thereto or (d) by express courier
service. The notice, request or other communication shall be deemed to be
received upon personal delivery, upon confirmation of receipt of facsimile
transmission, or upon receipt by the party entitled thereto if by United States
mail or express courier service; provided, however, that if a notice, request or
other communication is not received during regular business hours, it shall be
deemed to be received on the next succeeding business day of the Company.
-4-
<PAGE>
6.3. Governing Law. This Agreement, the Award and all determinations made
-------------
and actions taken pursuant hereto and thereto, to the extent not otherwise
governed by the laws of the United States, shall be governed by the laws of the
State of Texas and construed in accordance therewith without giving effect to
conflicts of laws principles.
6.4. Counterparts. This Agreement may be executed in two counterpart each
------------
of which shall be deemed an original and both of which together shall constitute
one and the same instrument.
EL PASO ELECTRIC COMPANY
By: /s/ KENNETH R. HEITZ
--------------------------------------------
Name: Kenneth R. Heitz
Title: Director
Acceptance Date: June 16, 1997
-----------------
/s/ JOHN A. WHITACRE
- ---------------------------------
John A. Whitacre
-5-
<PAGE>
EXHIBIT 99.16
EL PASO ELECTRIC COMPANY
RESTRICTED STOCK AWARD AGREEMENT
El Paso Electric Company, a Texas corporation (the 'Company'), hereby
grants to Terry D. Bassham (the "Holder"), pursuant to the provisions of the El
Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted
stock award (the "Award") of 725 shares of the Company's Common Stock, no par
value ("Stock"), upon and subject to the restrictions, terms and conditions set
forth below. Capitalized terms not defined herein shall have the meanings
specified in the Plan.
1. Award Subject to Acceptance of Agreement. The Award shall be null and
----------------------------------------
void unless the Holder shall accept this Agreement by executing it in the space
provided below and returning it to the Company and execute and return one or
more irrevocable stock powers. As soon as practicable after the Holder has
executed this Agreement and such stock power or powers and returned the same to
the Company, the Company shall cause to be issued in the Holder's name a stock
certificate or certificates representing the total number of shares of Stock
subject to the Award.
2. Rights as a Stockholder. Holder shall have the right to vote the
-----------------------
shares of Stock subject to the Award. During the Restriction Period as to any
shares of Stock, cash dividends which would otherwise be payable on any such
shares of will be credited to the Holder in the form of additional unvested
shares of Stock as if the dividend had purchased additional shares at the
closing market price on the date such dividend is paid, and such additional
shares (including shares received as stock dividend or stock split), shall be
delivered to the Company (and the Holder shall, if requested by the Company,
execute and return one or more irrevocable stock powers related thereto) and
shall be subject to the same restrictions as the shares of Stock with respect to
which such dividend or other distribution was made.
3. Custody and Delivery of Certificates Representing Shares. The Company
--------------------------------------------------------
shall hold the certificate or certificates representing the shares of Stock
subject to the Award until the restrictions on such Award shall have lapsed, in
whole or in part, pursuant to Section 4 hereof, and the Company shall as soon
thereafter as practicable, subject to Section 5.3, deliver the certificate or
certificates for such shares to the Holder and destroy the stock power or powers
relating to such shares. If such stock power or powers also relates to shares
as to which restrictions remain in effect, the Company may require, as a
condition precedent to delivery of any certificate pursuant to this Section 3,
the execution and delivery to the Company of one or more stock powers relating
to such shares.
4. Restriction Period and Vesting. (a) The restrictions on the Award
------------------------------
shall lapse on the earliest of the following: (i) with respect to one-fifth of
the aggregate number of shares of Stock subject to the Award on March 12, 1997
and as to an
<PAGE>
additional one-fifth of such aggregate number of shares on each anniversary
thereof during the years 1998 through 2001, inclusive, or (ii) in accordance
with Section 6.8 of the Plan (the "Restriction Period").
(b) If the Holder's employment with the Company is terminated by the
Company during the Restriction Period or by reason of the Holder's "Permanent
and Total Disability" (as such term is defined in the Plan), or by reason of the
Holder's voluntary resignation or retirement or his death, then any shares of
Stock as to which restrictions have not lapsed shall be forfeited.
5. Additional Terms and Conditions of Award.
----------------------------------------
5.1. Nontransferability of Award. During the Restriction Period, the
---------------------------
shares of Stock subject to the Award as to which restrictions remain in effect
may not be transferred by the Holder other than by will, the laws of descent and
distribution or pursuant to beneficiary designation procedures approved by the
Company. Except to the extent permitted by the foregoing, during the
Restriction Period, the shares of Stock subject to the Award as to which
restrictions remain in effect may not be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law
or otherwise) or be subject to execution, attachment or similar process. Upon
any attempt to so sell, transfer, assign, pledge, hypothecate or encumber, or
otherwise dispose of such shares, the Award shall immediately become null and
void.
5.2. Investment Representation. The Holder hereby represents and
-------------------------
covenants that (a) any share of Stock acquired upon the lapse of restrictions
will be acquired for investment and not with a view to the distribution thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), unless such acquisition has been registered under the Securities Act and
any applicable state securities law; (b) any subsequent sale of any such shares
shall be made either pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws, or pursuant to an
exemption from registration under the Securities Act and such state securities
laws; and (c) if requested by the Company, the Holder shall submit a written
statement, in form satisfactory to the Company, to the effect that such
representation (x) is true and correct as of the date of acquisition of any
shares hereunder or (y) is true and correct as of the date of any sale of any
such shares, as applicable. As a further condition precedent to the delivery to
the Holder of any shares subject to the Award, the Holder shall comply with all
regulations and requirements of any regulatory authority having control of or
supervision over the issuance of the shares and, in connection therewith, shall
execute any documents which the Board or any committee authorized by the Board
shall in its sole discretion deem necessary or advisable.
-2-
<PAGE>
5.3. Withholding Taxes. (a) As a condition precedent to the delivery to
-----------------
the Holder of any shares of Stock subject to the Award, the Holder may, upon
request by the Company, pay to the Company such amount of cash as the Company
may be required, under all applicable federal, state, local or other laws or
regulations, to withhold and pay over as income or other withholding taxes (the
"Required Tax Payments") with respect to the Award. If the Holder shall fail to
advance the Required Tax Payments after request by the Company, the Company may,
in its discretion, deduct any Required Tax Payments from any amount then or
thereafter payable by the Company to the Holder.
(b) The Holder may elect to satisfy his or her obligation to advance
the Required Tax Payments by any of the following means: (1) a cash payment to
the Company pursuant to Section 5.3(a), (2) delivery to the Company of
previously owned whole shares of Stock (which the Holder has held for at least
six months prior to the delivery of such shares or which the Holder purchased on
the open market and for which the Holder has good title, free and clear of all
liens and encumbrances) having a Fair Market Value, determined as of the date
the obligation to withhold or pay taxes first arises in connection with the
Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
Company to withhold from the shares of Stock otherwise to be delivered to the
Holder pursuant to the Award, a number of whole shares of Stock having a Fair
Market Value, determined as of the Tax Date, equal to the Required Tax Payments,
(4) a cash payment by a broker-dealer acceptable to the Company through whom the
Holder has sold the shares with respect to which the Required Tax Payments have
arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove
an election pursuant to any of clauses (2)-(5) if the Committee determines,
based on the opinion of recognized securities counsel, that the method so
elected would result in liability to the Optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, or the regulations promulgated
thereunder. Shares of Stock to be delivered or withheld may have a Fair Market
Value in excess of the minimum amount of the Required Tax Payments, but not in
excess of the amount determined by applying the Holder's maximum marginal tax
rate. Any fraction of a share of Stock which would be required to satisfy such
an obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Holder. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
5.4. Adjustment. In the event of any stock split, stock dividend,
----------
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Stock other than a regular cash
dividend, the number and class of securities subject to the Award shall be
appropriately adjusted by the Committee. If any adjustment
-3-
<PAGE>
would result in a fractional security being subject to the Award, the Company
shall pay the Holder in connection with the vesting, if any, of such fractional
security, an amount in cash determined by multiplying (i) such fraction (rounded
to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The
decision of the Committee regarding any such adjustment shall be final, binding
and conclusive.
5.5. Compliance with Applicable Law. Award is subject to the condition
------------------------------
that if the listing, registration or qualification of the shares subject to the
Award upon any securities exchange or under any law, or the consent or approval
of any governments body, or the taking of any other action is necessary or
desirable as a condition of, or in connection with, the vesting or delivery of
shares hereunder, the shares of Stock subject to the Award may not be delivered,
in whole or in part, unless such listing, registration, qualification, consent
or approval shall have been effected or obtained, free of any conditions not
acceptable to the Company. The Company agrees to use reasonable efforts to
effect or obtain any :such listing, registration, qualification, consent or
approval.
5.6. Agreement Subject to the Plan. This Agreement is subject to the
-----------------------------
provisions of the Plan and shall be interpreted in accordance therewith. The
Holder hereby acknowledges receipt of a copy of the Plan.
6. Miscellaneous Provisions.
------------------------
6.1. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of any successor or successors of the Company and any person or persons
who shall, upon the death of the Holder, acquire any rights hereunder in
accordance with this Agreement or the Plan.
6.2. Notices. All notices, requests or other communications provided for
-------
in this Agreement shall be made, if to the Company, to Kayser Building, 100
North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to
the Holder, to 365 La Mirada, El Paso, Texas 79932. All notices, requests or
other communications provided for in this Agreement shall be made in writing
either (a) by personal delivery to the party entitled thereto, (b) by facsimile
with confirmation of receipt, (c) by mailing in the United States mails to the
last known address of the party entitled thereto or (d) by express courier
service. The notice, request or other communication shall be deemed to be
received upon personal delivery, upon confirmation of receipt of facsimile
transmission, or upon receipt by the party entitled thereto if by United States
mail or express courier service; provided, however, that if a notice, request or
other communication is not received during regular business hours, it shall be
deemed to be received on the next succeeding business day of the Company.
-4-
<PAGE>
6.3. Governing Law. This Agreement, the Award and all determinations made
-------------
and actions taken pursuant hereto and thereto, to the extent not otherwise
governed by the laws of the United States, shall be governed by the laws of the
State of Texas and construed in accordance therewith without giving effect to
conflicts of laws principles.
6.4. Counterparts. This Agreement may be executed in two counterpart each
------------
of which shall be deemed an original and both of which together shall constitute
one and the same instrument.
EL PASO ELECTRIC COMPANY
By: /s/ KENNETH R. HEITZ
--------------------------------------------
Name: Kenneth R. Heitz
Title: Director
Acceptance Date: June 9, 1997
-----------------
/s/ TERRY D. BASSHAM
- ---------------------------------
Terry D. Bassham
-5-
<PAGE>
EXHIBIT 99.17
EL PASO ELECTRIC COMPANY
STOCK OPTION AGREEMENT
FOR NON-EMPLOYEE DIRECTORS
(NON-QUALIFIED STOCK OPTIONS)
El Paso Electric Company, a Texas corporation (the "Company"), hereby
-------
grants to ______________________ (the "Optionee") as of May 8, 1997 (the "Option
------
Date"), pursuant to the provisions of the El Paso Electric Company 1996 Long-
- ----
Term Incentive Plan (the "Plan"), a non-qualified option (the "Option") to
----
purchase from the Company 5,000 shares of its Common Stock, no par value
("Stock") at the price of $6.56 per share, upon and subject to the terms and
-----
conditions set forth below.
1. Options Subject to Acceptance of Agreement. The Options shall be
------------------------------------------
null and void unless the Optionee shall accept this Agreement by executing it in
the space provided below and returning such original execution copy to the
Company.
2. Time and Manner of Exercise of Option.
-------------------------------------
2.1. Maximum Term of Option. In no event may the Options be
----------------------
exercised, in whole or in part, after May 8, 2007 (the "Expiration Date").
---------------
2.2. Exercise of Options. (a) The Options are fully exercisable
-------------------
from and after the date hereof.
(b) If the Optionee shall cease for any reason to serve as a
Director of the Company, the Options may thereafter be exercised by the Optionee
or the Optionee's Legal Representative or Permitted Transferees, as the case may
be, until and including the earliest to occur of (i) the date which is 120 days
after the termination of such person's service on the Board and (ii) the
Expiration Date.
2.3 Method of Exercise. Subject to the limitations set forth in
------------------
this Agreement, the Options may be exercised by the Optionee (1) by giving
written notice to the Company specifying the Option or Options being exercised,
and the number of whole shares of Stock to be purchased and accompanied by
payment therefor in full (or arrangement made for such payment to the Company's
satisfaction) either (i) in cash, (ii) by delivery of previously owned whole
shares of Stock (which the Optionee has held for at least six months prior to
the delivery of such shares or which the Optionee purchased on the open market
and for which the Optionee has good title, free and clear of all liens and
encumbrances) having a Fair Market Value, determined as of the date of exercise,
equal to the aggregate purchase price payable pursuant to the Option by reason
of such exercise, (iii) in cash by a broker-dealer acceptable to the Company to
whom the Optionee has submitted an irrevocable notice of exercise, (iv) a
combination of (i) and (ii), and (2) by executing such documents as the Company
may reasonably request. The Committee may disapprove an election pursuant to any
of clauses (ii) - (iv) if the Committee determines, based on the opinion of
recognized securities counsel, that the method of exercise so elected would
result in liability to the Optionee under
<PAGE>
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or the regulations promulgated thereunder. Any fraction of a share of
Stock which would be required to pay such purchase price shall be disregarded
and the remaining amount due shall be paid in cash by the Optionee. No
certificate representing a share of Stock shall be delivered until the full
purchase price therefor has been paid.
2.4 Termination of Options. (a) In no event may an Option be
----------------------
exercised after it terminates as set forth in this Section 2.4. The Option
shall terminate, to the extent not exercised pursuant to Section 2.3 or earlier
terminated pursuant to Section 2.2, on the Expiration Date.
(b) In the event that rights to purchase all or a portion of
the shares of Stock subject to the Option expire or are exercised, cancelled or
forfeited, the Optionee shall, upon the Company's request, promptly return this
Agreement to the Company for full or partial cancellation, as the case may be.
Such cancellation shall be effective regardless of whether the Optionee returns
this Agreement. If the Optionee continues to have rights to purchase shares of
Stock hereunder, the Company shall, within 10 days of the Optionee's delivery of
this Agreement to the Company, either (i) mark this Agreement to indicate the
extent to which the Option has expired or been exercised, cancelled or forfeited
or (ii) issue to the Optionee a substitute option agreement applicable to such
rights, which agreement shall otherwise be substantially similar to this
Agreement in form and substance.
3. Additional Terms and Conditions of Option.
-----------------------------------------
3.1. Nontransferability of Options. The Options may not be
-----------------------------
transferred by the Optionee other than (i) by will or the laws of descent and
distribution or pursuant to beneficiary designation procedures approved by the
Company or (ii) as otherwise permitted under Rule 16b-3 under the Exchange Act
as may be set forth in an amendment to this Agreement. Except to the extent
permitted by the foregoing sentence, during the Optionee's lifetime the Options
are exercisable only by the Optionee or the Optionee's Legal Representative.
Except to the extent permitted by the foregoing, the Options may not be sold,
transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed
of (whether by operation of law or otherwise) or be subject to execution,
attachment or similar process. Upon any attempt to so sell, transfer, assign,
pledge, hypothecate, encumber or otherwise dispose of an Option, the Option and
all rights hereunder shall immediately become null and void.
3.2. Investment Representation. The Optionee hereby represents and
-------------------------
covenants that (a) any share of Stock purchased upon exercise of the Option will
be purchased for investment and not with a view to the distribution thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
----------
Act"), unless such purchase has been registered under the Securities Act and any
- ---
applicable state securities laws; (b) any subsequent sale of any such shares
shall be made either pursuant to an effective registration statement under the
Securities Act and any
-2-
<PAGE>
applicable state securities laws, or pursuant to an
exemption from registration under the Securities Act and such state securities
laws; and (c) if requested by the Company, the Optionee shall submit a written
statement, in form satisfactory to the Company, to the effect that such
representation (x) is true and correct as of the date of purchase of any shares
hereunder or (y) is true and correct as of the date of any sale of any such
shares, as applicable. As a further condition precedent to any exercise of the
Option, the Optionee shall comply with all regulations and requirements of any
regulatory authority having control of or supervision over the issuance or
delivery of the shares and, in connection therewith, shall execute any documents
which the Board or the Committee shall in its sole discretion deem necessary or
advisable.
3.3. Withholding Taxes. (a) As a condition precedent to the
-----------------
delivery of Stock upon exercise of the Option, the Optionee may, upon request by
the Company, pay to the Company in addition to the purchase price of the shares,
such amount of cash as the Company may be required, under all applicable
federal, state, local or other laws or regulations, to withhold and pay over as
income or other withholding taxes (the "Required Tax Payments") with respect to
---------------------
such exercise of the Option. If the Optionee shall fail to advance the Required
Tax Payments after request by the Company, the Company may, in its discretion,
deduct any Required Tax Payments from any amount then or thereafter payable by
the Company to the Optionee.
(b) The Optionee may elect to satisfy his or her obligation
to advance the Required Tax Payments by any of the following means: (1) a cash
payment to the Company pursuant to Section 3.3(a), (2) delivery to the Company
of previously owned whole shares of Stock (which the Optionee has held for at
least six months prior to the delivery of such shares or which the Optionee
purchased on the open market and for which the Optionee has good title, free and
clear of all liens and encumbrances) having a Fair Market Value, determined as
of the date the obligation to withhold or pay taxes first arises in connection
with the Option (the "Tax Date"), equal to the Required Tax Payments, (3)
--------
authorizing the Company to withhold whole shares of Stock which would otherwise
be delivered to the Optionee upon exercise of the Option having a Fair Market
Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a
cash payment by a broker-dealer acceptable to the Company to whom the Optionee
has submitted an irrevocable notice of exercise or (5) any combination of (1),
(2) and (3). The Committee may disapprove an election pursuant to any of clauses
(2)-(5) if the Committee determines, based on the opinion of recognized
securities counsel, that the method so elected would result in liability to the
Optionee under Section 16(b) of the Exchange Act or the regulations promulgated
thereunder. Shares of Stock to be delivered or withheld may not have a Fair
Market Value in excess of the minimum amount of the Required Tax Payments. Any
fraction of a share of Stock which would be required to satisfy any such
obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Optionee. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
-3-
<PAGE>
3.4 Adjustment. In the event of any stock split, stock dividend,
----------
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Stock other than a regular cash
dividend, the number and class of securities subject to the Options and the
purchase price per security shall be appropriately adjusted by the Committee
without an increase in the aggregate purchase price. If any adjustment would
result in a fractional security being subject to the Options, the Company shall
pay the Optionee, in connection with the first exercise of the Option, in whole
or in part, occurring after such adjustment, an amount in cash determined by
multiplying (i) the fraction of such security (rounded to the nearest hundredth)
by (ii) the excess, if any, of (A) the Fair Market Value on the exercise date
over (B) the exercise price of the Option. The decision of the Committee
regarding any such adjustment shall be final, binding and conclusive.
3.5. Compliance with Applicable Law. The Options is subject to
------------------------------
the condition that if the listing, registration or qualification of the shares
subject to the Option upon any securities exchange or under any law, or the
consent or approval of any governmental body, or the taking of any other action
is necessary or desirable as a condition of, or in connection with, the purchase
or delivery of shares hereunder, the Options may not be exercised, in whole or
in part, unless such listing, registration, qualification, consent or approval
shall have been effected or obtained, free of any conditions not acceptable to
the Company. The Company agrees to use reasonable efforts to effect or obtain
any such listing, registration, qualification, consent or approval.
3.6. Delivery of Certificates. Upon the exercise of the Option,
------------------------
in whole or in part, the Company shall deliver or cause to be delivered one or
more certificates representing the number of shares purchased against full
payment therefor. The Company shall pay all original issue or transfer taxes and
all fees and expenses incident to such delivery, except as otherwise provided in
Section 3.3.
3.7. Options Confer No Rights as Stockholder. The Optionee shall
---------------------------------------
not be entitled to any privileges of ownership with respect to shares of Stock
subject to the Option unless and until purchased and delivered upon the exercise
of an Option, in whole or in part, and the Optionee becomes a stockholder of
record with respect to such delivered shares; and the Optionee shall not be
considered a stockholder of the Company with respect to any such shares not so
purchased and delivered.
3.8. Company to Reserve Shares. The Company shall at all times
-------------------------
prior to the expiration or termination of the Options reserve and keep
available, either in its treasury or out of its authorized but unissued shares
of Stock, the full number of shares subject to the Options from time to time.
3.9. Agreement Subject to the Plan. This Agreement is subject to
-----------------------------
the provisions of the Plan and shall be interpreted in accordance therewith.
The Optionee hereby acknowledges receipt of a copy of the Plan.
-4-
<PAGE>
4. Miscellaneous Provisions.
------------------------
4.1. Designation as Stock Option. The Option is hereby designated
---------------------------
as not constituting an "incentive stock option" within meaning of Section 422 of
the Internal Revenue Code of 1986, as amended. This Agreement shall be
interpreted and treated consistently with such designation.
4.2. Meaning of Certain Terms. As used herein, the term "Legal
------------------------ -----
Representative" shall include an executor, administrator, legal representative,
- --------------
guardian or similar person and the term "Permitted Transferee" shall include any
--------------------
transferee (i) pursuant to a transfer permitted under Section 6.4 of the Plan
and Section 3.1 hereof or (ii) designated pursuant to beneficiary designation
procedures approved by the Company.
4.3. Successors. This Agreement shall be binding upon and inure
----------
to the benefit of any successor or successors of the Company and any person or
persons who shall, upon the death of the Optionee, acquire any rights hereunder
in accordance with this Agreement or the Plan.
4.4. Notices. All notices, requests or other communications
-------
provided for in this Agreement shall be made, if to the Company, to Kayser
Building, 100 North Stanton, El Paso, Texas 79901, Attention: Corporate
Secretary, and if to the Optionee, to ________________________________________.
All notices, requests or other communications provided for in this Agreement
shall be made in writing either (a) by personal delivery to the party entitled
thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the
United States mails to the last known address of the party entitled thereto or
(d) by express courier service. The notice, request or other communication shall
be deemed to be received upon personal delivery, upon confirmation of receipt of
facsimile transmission or upon receipt by the party entitled thereto if by
United States mail or express courier service; provided, however, that if a
notice, request or other communication is not received during regular business
hours, it shall be deemed to be received on the next succeeding business day of
the Company.
4.5. Governing Law. This Agreement, the Option and all
-------------
determinations made and actions taken pursuant hereto and thereto, to the extent
not governed by the laws of the United States, shall be governed by the laws of
the State of Texas and construed in accordance therewith without giving effect
to principles of conflicts of laws.
-5-
<PAGE>
4.6. Counterparts. This Agreement may be executed in two
------------
counterparts each of which shall be deemed an original and both of which
together shall constitute one and the same instrument.
EL PASO ELECTRIC COMPANY
By: /s/ KENNETH R. HEITZ
---------------------------
Name: Kenneth R. Heitz
Title: Director
Accepted this 8th day of May, 1997
- -------------------------------------
-6-
<PAGE>
EXHIBIT 99.18
EL PASO ELECTRIC COMPANY
DIRECTORS' RESTRICTED STOCK AWARD AGREEMENT
El Paso Electric Company, a Texas corporation (the "Company"), hereby
grants to George W. Edwards, Jr. (the "Holder"), pursuant to the provisions of
the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a
restricted stock award (the "Award") of 25,000 shares of the Company's Common
Stock, no par value ("Stock"), upon and subject to the restrictions, terms and
conditions set forth below. Capitalized terms not defined herein shall have the
meanings specified in the Plan.
1. Award Subject to Acceptance of Agreement. The Award shall be null
----------------------------------------
and void unless the Holder shall (a) accept this Agreement by executing it in
the space provided below and returning it to the Company and (b) execute and
return one or more irrevocable stock powers. As soon as practicable after the
Holder has executed this Agreement and such stock power or powers and returned
the same to the Company, the Company shall cause to be issued in the Holder's
name a stock certificate or certificates representing the total number of shares
of Stock subject to the Award.
2. Rights as a Stockholder. The Holder shall have the right to vote
-----------------------
the shares of Stock subject to the Award and to receive dividends and other
distributions thereon; provided, however, that a dividend or other distribution
with respect to shares of Stock (including, without limitation, a stock dividend
or stock split), other than a regular cash dividend, shall be delivered to the
Company (and the Holder shall, if requested by the Company, execute and return
one or more irrevocable stock powers related thereto) and shall be subject to
the same restrictions as the shares of Stock with respect to which such dividend
or other distribution was made.
3. Custody and Delivery of Certificates Representing Shares. The
--------------------------------------------------------
Company shall hold the certificate or certificates representing the shares of
Stock subject to the Award until the restrictions on such Award shall have
lapsed, in whole or in part, pursuant to Paragraph 4 hereof, and the Company
shall as soon thereafter as practicable, subject to Section 5.3, deliver the
certificate or certificates for such shares to the Holder and destroy the stock
power or powers relating to such shares. If such stock power or powers also
relates to shares as to which restrictions remain in effect, the Company may
require, as a condition precedent to delivery of any certificate pursuant to
this Section 3, the execution and delivery to the Company of one or more stock
powers relating to such shares.
4. Restriction Period and Vesting. The restrictions on the Award
------------------------------
shall lapse (i) with respect to all of the shares of Stock subject to the Award
at the earlier of May 31, 1998 and the conclusion of the 1998 Annual Meeting of
Shareholders of the Company, or (ii) earlier in accordance with Section 6.8 of
the Plan (the "Restriction Period").
<PAGE>
5. Additional Terms and Conditions of Award.
----------------------------------------
5.1. Nontransferability of Award. During the Restriction Period, the
---------------------------
shares of Stock subject to the Award as to which restrictions remain in effect
may not be transferred by the Holder other than by will, the laws of descent and
distribution or pursuant to beneficiary designation procedures approved by the
Company. Except to the extent permitted by the foregoing, during the
Restriction Period, the shares of Stock subject to the Award as to which
restrictions remain in effect may not be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law
or otherwise) or be subject to execution, attachment or similar process. Upon
any attempt to so sell, transfer, assign, pledge, hypothecate or encumber, or
otherwise dispose of such shares, the Award shall immediately become null and
void.
5.2. Investment Representation. The Holder hereby represents and
-------------------------
covenants that (a) any share of Stock acquired upon the lapse of restrictions
will be acquired for investment and not with a view to the distribution thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), unless such acquisition has been registered under the Securities Act and
any applicable state securities law; (b) any subsequent sale of any such shares
shall be made either pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws, or pursuant to an
exemption from registration under the Securities Act and such state securities
laws; and (c) if requested by the Company, the Holder shall submit a written
statement, in form satisfactory to the Company, to the effect that such
representation (x) is true and correct as of the date of acquisition of any
shares hereunder or (y) is true and correct as of the date of any sale of any
such shares, as applicable. As a further condition precedent to the delivery to
the Holder of any shares subject to the Award, the Holder shall comply with all
regulations and requirements of any regulatory authority having control of or
supervision over the issuance of the shares and, in connection therewith, shall
execute any documents which the Board or any committee authorized by the Board
shall in its sole discretion deem necessary or advisable.
5.3. Withholding Taxes. (a) As a condition precedent to the
-----------------
delivery to the Holder of any shares of Stock subject to the Award, the Holder
may, upon request by the Company, pay to the Company such amount of cash as the
Company may be required, under all applicable federal, state, local or other
laws or regulations, to withhold and pay over as income or other withholding
taxes (the "Required Tax Payments") with respect to the Award. If the Holder
shall fail to advance the Required Tax Payments after request by the Company,
the Company may, in its discretion, deduct any Required Tax Payments from any
amount then or thereafter payable by the Company to the Holder.
(b) The Holder may elect to satisfy his or her obligation to advance
the Required Tax Payments by any of the following means: (1) a cash payment to
the Company pursuant to Section 5.3(a), (2) delivery to the Company of
previously owned
-2-
<PAGE>
whole shares of Stock (which the Holder has held for at least six months prior
to the delivery of such shares or which the Holder purchased on the open market
and for which the Holder has good title, free and clear of all liens and
encumbrances) having a Fair Market Value, determined as of the date the
obligation to withhold or pay taxes first arises in connection with the Award
(the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
Company to withhold from the shares of Stock otherwise to be delivered to the
Holder pursuant to the Award, a number of whole shares of Stock having a Fair
Market Value, determined as of the Tax Date, equal to the Required Tax Payments,
(4) a cash payment by a broker-dealer acceptable to the Company through whom the
Holder has sold the shares with respect to which the Required Tax Payments have
arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove
an election pursuant to any of clauses (2)-(5) if the Committee determines,
based on the opinion of recognized securities counsel, that the method so
elected would result in liability to the Optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, or the regulations promulgated
thereunder. Shares of Stock to be delivered or withheld may have a Fair Market
Value in excess of the minimum amount of the Required Tax Payments, but not in
excess of the amount determined by applying the Holder's maximum marginal tax
rate. Any fraction of a share of Stock which would be required to satisfy such
an obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Holder. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
5.4. Adjustment. In the event of any stock split, stock dividend,
----------
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Stock other than a regular cash
dividend, the number and class of securities subject to the Award shall be
appropriately adjusted by the Committee. If any adjustment would result in a
fractional security being subject to the Award, the Company shall pay the Holder
in connection with the vesting, if any, of such fractional security, an amount
in cash determined by multiplying (i) such fraction (rounded to the nearest
hundredth) by (ii) the Fair Market Value on the vesting date. The decision of
the Committee regarding any such adjustment shall be final, binding and
conclusive.
5.5. Compliance with Applicable Law. The Award is subject to the
------------------------------
condition that if the listing, registration or qualification of the shares
subject to the Award upon any securities exchange or under any law, or the
consent or approval of any governmental body, or the taking of any other action
is necessary or desirable as a condition of, or in connection with, the vesting
or delivery of shares hereunder, the shares of Stock subject to the Award may
not be delivered, in whole or in part, unless such listing, registration,
qualification, consent or approval shall have been effected or obtained, free of
any conditions not acceptable to the Company. The Company agrees to use
reasonable efforts to effect or obtain any such listing, registration,
qualification, consent or approval.
-3-
<PAGE>
5.6. Decisions of Board or Committee. The Board or the Committee
-------------------------------
shall have the right to resolve all questions which may arise in connection with
the Award. Any interpretation, determination or other action made or taken by
the Board or the Committee regarding the Plan or this Agreement shall be final,
binding and conclusive.
5.7. Agreement Subject to the Plan. This Agreement is subject to the
-----------------------------
provisions of the Plan and shall be interpreted in accordance therewith. The
Holder hereby acknowledges receipt of a copy of the Plan.
6. Miscellaneous Provisions.
------------------------
6.1. Successors. This Agreement shall be binding upon and inure to
----------
the benefit of any successor or successors of the Company and any person or
persons who shall, upon the death of the Holder, acquire any rights hereunder in
accordance with this Agreement or the Plan.
6.2. Notices. All notices, requests or other communications provided
-------
for in this Agreement shall be made, if to the Company, to Kayser Building, 100
North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to
the Holder, to 4651 Gulf Shore Boulevard North, Vistas #906, Naples, Florida
33940. All notices, requests or other communications provided for in this
Agreement shall be made in writing either (a) by personal delivery to the party
entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing
in the United States mails to the last known address of the party entitled
thereto or (d) by express courier service. The notice, request or other
communication shall be deemed to be received upon personal delivery, upon
confirmation of receipt of facsimile transmission, or upon receipt by the party
entitled thereto if by United States mail or express courier service; provided,
however, that if a notice, request or other communication is not received during
regular business hours, it shall be deemed to be received on the next succeeding
business day of the Company.
6.3. Governing Law. This Agreement, the Award and all determinations
-------------
made and actions taken pursuant hereto and thereto, to the extent not otherwise
governed by the laws of the United States, shall be governed by the laws of the
State of Texas and construed in accordance therewith without giving effect to
conflicts of laws principles.
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<PAGE>
6.4. Counterparts. This Agreement may be executed in two
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counterparts each of which shall be deemed an original and both of which
together shall constitute one and the same instrument.
EL PASO ELECTRIC COMPANY
By: /s/ KENNETH R. HEITZ
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Name: Kenneth R. Heitz
Title: Director
Accepted this 13th day of
November, 1997
/s/ GEORGE W. EDWARDS, JR.
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Holder
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