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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, 1998
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)
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TEXAS 74-0607870
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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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
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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 16, 1999, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $439,496,557.
As of March 16, 1999, there were outstanding 60,405,083 shares of common
stock, no par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the 1999 annual
meeting of its shareholders are incorporated by reference into Part III of this
report.
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DEFINITIONS
The following abbreviations, acronyms or defined terms used in this report
are defined below:
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Abbreviations,
Acronyms or Defined Terms Terms
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Agreed Order....................... Agreed Order of the Texas Commission entered August
30, 1995 implementing certain provisions of the
Texas 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 Texas
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 or its
successor, New Mexico Public Regulation Commission
New Mexico Settlement.............. Stipulation and Settlement Agreement dated as of
July 15, 1998, between the Company, the New Mexico
Attorney General, the New Mexico Commission staff
and most other parties to the Company's rate
proceedings, excluding the City of Las Cruces,
before the New Mexico Commission providing for a
30-month moratorium on rate increases or decreases
and other matters
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
Reorganization..................... Reorganization and the emergence from bankruptcy by
the Company pursuant to the Plan
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(i)
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Abbreviations,
Acronyms or Defined Terms Terms
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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
Texas 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
Texas Settlement Agreement......... Settlement Agreement, filed with the Texas
Commission on March 22, 1999, between the Company,
the City of El Paso and various parties
TNP................................ Texas-New Mexico Power Company
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(ii)
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TABLE OF CONTENTS
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Item Description Page
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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
7A Quantitative and Qualitative Disclosures About Market Risk................ 35
8 Financial Statements and Supplementary Data............................... 38
9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................ 86
PART III
10 Directors and Executive Officers of the Registrant........................ 86
11 Executive Compensation.................................................... 86
12 Security Ownership of Certain Beneficial Owners and Management............ 86
13 Certain Relationships and Related Transactions............................ 86
PART IV
14 Exhibits, Financial Statement Schedules and Reports on Form 8-K........... 86
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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, 1998, the Company's energy sources
consisted of approximately 52% nuclear fuel, 35% natural gas, 7% coal and 6%
purchased power.
The Company serves approximately 291,000 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 56% and 8%, respectively, of
the Company's revenues for the twelve months ended December 31, 1998). In
addition, the Company sells electricity to wholesale customers, including Texas-
New Mexico Power Company and the Imperial Irrigation District (a southern
California electric power agency). Through 1998, the Company also made
wholesale sales to 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 26, 1999, the Company had
approximately 1,100 employees, approximately 30% of whom are covered by a
collective bargaining agreement that expires in June 2000.
FACILITIES
The Company's net installed generating capacity of approximately 1,500 MW
consists of approximately 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 Facilities 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 40 years each. In
addition, the Company is separately licensed by the NRC to own its proportionate
share of Palo Verde.
1
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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 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 $6.7 million in 1998. 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 each Palo Verde unit over the estimated service life of 40 years.
The Company's funding requirements are determined periodically based upon
engineering cost estimates performed by outside engineers retained by the ANPP.
In December 1998, the Palo Verde Participants approved an updated
decommissioning study. The 1998 study determined that the Company will have to
fund approximately $280.5 million (stated in 1998 dollars) to cover its share of
decommissioning costs. Cost estimates for decommissioning have increased with
each study. The previous cost estimate from a 1995 study determined that the
Company would have to fund approximately $229 million (stated in 1995 dollars).
The 1998 estimate reflects a 22% increase from the previous 1995 estimate
primarily due to increases in estimated costs for spent fuel storage after
operations have ceased. See "Spent Fuel Storage" below.
Although the 1998 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 2001. See
"Disposal of Low-Level Radioactive Waste" below.
The rate freeze under the Texas Rate Stipulation and the rate reduction
under the Texas Settlement Agreement would preclude the Company from seeking a
rate increase in Texas to recover increases in decommissioning cost estimates.
The New Mexico Settlement would preclude the Company from seeking a rate
increase to recover increases in decommissioning cost estimates during the 30-
month moratorium. Additionally, there can be no assurance that the Company could
increase its wholesale power rates to recover such increased costs. See also
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. 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.
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
2
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spare steam generators for delivery in September 2002. The Company's share of
the cost is approximately $12.9 million. Palo Verde Participants have
unanimously approved funding pre-installation activities through 1999. 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. The costs for the construction and shipping of the spare
steam generators are expected to be incurred through 2002. Installation costs
would be expected to be incurred between 1999 and 2003, subject to unanimous
approval of Palo Verde Participants, 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 $40
million. The Company cannot predict whether the Palo Verde Participants will
agree to install the replacement steam generators at Unit 2. 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 Texas Rate Stipulation precludes the Company from seeking a rate
increase 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. Additionally,
there can be no assurance that the Company could increase its wholesale power
rates to recover such capital costs. See also Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Operational Prospects and Challenges."
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 into 2003.
Alternative on-site storage facilities are currently being constructed to
supplement existing facilities. Spent fuel will be removed from the original
facilities as necessary and placed in special storage casks which will be stored
at the new facilities until accepted by the DOE for permanent disposal. The
alternative facilities will be built in stages to accommodate casks on an as
needed basis and are expected to be available for use by 2003.
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, and it can not currently be estimated
when spent fuel shipments to the DOE's permanent disposal site will commence.
The 1998 decommissioning study assumes that only 14 of 333 spent fuel casks will
have been removed from Palo Verde by 2037 when title to the remaining spent fuel
is assumed to be transferred to the DOE. 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 on the project.
3
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In July 1998, APS filed, on behalf of all Palo Verde Participants, a
Petition for Review with the United States Court of Appeals for the District of
Columbia Circuit regarding the DOE's failure to comply with its obligation to
begin accepting spent nuclear fuel. APS is continuing, on behalf of the Palo
Verde Participants, to pursue remedies under the contractual terms in place with
the DOE. The Company is unable to predict the outcome of this matter at this
time.
Disposal of Low-Level Radioactive Waste. Congress has established
requirements for the disposal by each state of radioactive waste 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. Palo Verde is projected to undergo decommissioning during the period in
which Arizona will act as host for the Southwestern Compact. However, 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.
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. Effective August 1998, the maximum assessment
per reactor for each nuclear incident is approximately $88.1 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 $41.8 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.
NRC Actions. On December 21, 1998, the NRC issued a Notice of Violation
and Proposed Imposition of Civil Penalty in the amount of $55,000 relating to
occurrences at Palo Verde which began in May 1992 and extended through May 1998.
Beginning in 1992, improper check valve assembly methods resulted in reverse
flow conditions through high pressure safety injection pump discharge check
valves. In the required response to the NRC, APS acknowledged that the
violations had occurred and paid the penalty. The Company's portion of the
penalty was approximately $8,700.
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.
4
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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 7% of 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 on 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.
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 2005, with an extension option for
two additional years.
TRANSMISSION AND DISTRIBUTION LINES AND AGREEMENTS
The Company owns or has significant ownership interests in four major 345
kV transmission lines, three 500 kV lines in Arizona 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 sources at Palo Verde and Four Corners. Pursuant to
standards established by North American Electric Reliability Council, the
Company operates its transmission system in a way that allows it to maintain
complete system integrity in the event of any one of these transmission lines
being out of service.
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 primary
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.
5
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Greenlee-Newman Line. As a participant in the Southwest New Mexico
Transmission Project Participation Agreement, the Company owns 40% of a 60-mile,
345 kV transmission line from TEP's Greenlee Substation in Arizona to the
Hidalgo Substation near Lordsburg, New Mexico, 57.2% of a 50-mile, 345 kV
transmission line between the Hidalgo Substation and the Luna Substation near
Deming, New Mexico, and 100% of an 86-mile, 345 kV transmission line between the
Luna Substation and the Newman Power Station. These lines provide 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 66.7% of 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 emergency power from SPS and power markets to the east.
Palo Verde Transmission. The Company owns 18.7% of two 45-mile, 500 kV
lines from Palo Verde to the Westwing Substation and a 75-mile, 500 kV line from
Palo Verde to the Kyrene Substation. These lines provide the Company with a
transmission path for delivery of power from Palo Verde.
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
regulation. 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 (the "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"). PTI discontinued
operations, and the EPA determined that PTI's abandoned facilities required
remediation.
The Company and the PTI Steering Committee, which consists of the largest
generators of the PCBs sent to PTI, executed a settlement agreement. In
consideration for the payment by the Company 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.
CONSTRUCTION PROGRAM
The Company has no current plans to construct any new generating facilities
to serve retail customers 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 at and the purchase of new steam generators for Palo Verde. The
Company's estimated cash construction costs for 1999 through 2002 are
approximately $229 million. Actual costs may vary
6
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from the construction program estimates set forth below. Such estimates are
reviewed and updated periodically to reflect changed conditions.
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BY YEAR (1) BY FUNCTION
(IN MILLIONS) (IN MILLIONS)
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1999........................ $ 59 Production (1)....... $ 58
2000........................ 57 Transmission........ 21
2001........................ 55 Distribution........ 106
2002........................ 58 General........... 44
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Total..................... $ 229 Total............ $ 229
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(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:
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<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
POWER SOURCE 1998 1997 1996
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Nuclear fuel............................................. 52% 53% 53%
Natural gas.............................................. 35 34 32
Coal..................................................... 7 6 7
Purchased power.......................................... 6 7 8
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Total.................................................. 100% 100% 100%
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Fuel and purchased power costs are generally passed through directly to
customers in Texas pursuant to applicable regulations. Historical fuel costs
and revenues are reconciled periodically in proceedings before the Texas
Commission to determine whether a refund or surcharge based on such historical
costs and revenues is necessary. Prior to the New Mexico Settlement, the Company
was required to make annual filings reconciling the revenues collected under its
New Mexico fixed fuel factor with its New Mexico fuel and purchased power
expenses. As a result of the New Mexico Settlement, the fixed fuel factor has
been incorporated into base rates. See "Regulation - Texas Rate Matters" and "-
New Mexico Rate Matters."
NUCLEAR FUEL
The Company has contracts for uranium concentrates which should be
sufficient to meet the Company's share of Palo Verde's operational requirements
through 2002. The Palo Verde Participants have contracted for substantially all
conversion services through 2002. APS, as agent for Palo Verde, expects to
purchase any additional conversion services needed on the spot market. The Palo
Verde
7
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Participants have an enrichment services contract which runs through 2002, with
an option for five additional years.
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 total of $100 million under a credit
facility that provides for both working capital and up to $70 million for the
financing of nuclear fuel. At December 31, 1998, approximately $49.3 million
had been drawn to finance nuclear fuel. This financing is effectuated 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 1998, the Company's natural gas requirements at the Rio Grande Power
Station were met with both short-term and long-term natural gas purchases from
various suppliers. Interstate gas is delivered under a firm ten-year
transportation agreement, which expires in 2001 with extension provisions
through 2005. Based on the current availability of economical and reliable
market natural gas supplies, the Company anticipates it will continue to
purchase natural gas at market prices on a monthly basis for a portion of the
fuel needs for the Rio Grande Power Station for the near term. To complement
these monthly purchases in 1999, the Company has entered into a one-year fixed-
price gas supply contract and a partial-year fixed-price gas supply contract
(April through October 1999). The Company will continue to evaluate the
availability of short-term natural gas supplies versus long-term supplies to
maintain a reliable and economical supply for the Rio Grande Power Station.
In 1998, natural gas for the Newman and Copper Power Stations was supplied
pursuant to a five-year intrastate natural gas contract which became effective
January 1, 1997 and expires December 31, 2001. To supplement this contract, the
Company entered into a second natural gas supply agreement, which also runs
through 2001. To complement these long-term contracts, the Company will
evaluate and procure short-term natural gas supplies at market prices to
maintain a reliable and economical supply to the Newman and Copper Power
Stations.
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. Based upon information from APS, the Company 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
engages in firm and non-firm power purchase arrangements which may vary in
duration and amount based on evaluation of the Company's resource needs and
economics of the transactions.
8
<PAGE>
OPERATING STATISTICS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1998 1997 1996 (A)
------------- ------------- --------------
<S> <C> <C> <C>
Operating revenues (In thousands):
Retail:
Residential................................................. $ 173,215 $ 172,917 $ 163,742
Commercial and industrial, small............................ 174,729 173,318 163,875
Commercial and industrial, large............................ 62,450 64,468 59,041
Sales to public authorities................................. 82,360 82,278 81,185
---------- ---------- ----------
Total retail............................................ 492,754 492,981 467,843
Wholesale sales for resale.................................... 84,224 85,558 96,067
---------- ---------- ----------
576,978 578,539 563,910
Economy sales................................................. 20,167 10,612 11,032
Other......................................................... 5,076 4,887 3,981
---------- ---------- ----------
Total operating revenues................................ $ 602,221 $ 594,038 $ 578,923
========== ========== ==========
Number of customers (End of year):
Residential................................................... 260,356 254,348 250,209
Commercial and industrial, small.............................. 26,396 25,900 25,304
Commercial and industrial, large.............................. 117 115 102
Other......................................................... 3,867 3,811 3,711
---------- ---------- ----------
Total................................................... 290,736 284,174 279,326
========== ========== ==========
Average annual kWh use per residential customer................. 6,291 6,285 6,238
========== ========== ==========
Energy supplied, net, kWh (In thousands):
Generated..................................................... 8,586,098 8,186,187 7,920,675
Purchased and interchanged.................................... 478,396 617,651 711,791
---------- ---------- ----------
Total................................................... 9,064,494 8,803,838 8,632,466
========== ========== ==========
Energy sales, kWh (In thousands):
Retail:
Residential................................................. 1,621,436 1,587,733 1,545,274
Commercial and industrial, small............................ 1,891,703 1,834,953 1,779,986
Commercial and industrial, large............................ 1,314,428 1,271,449 1,216,941
Sales to public authorities................................. 1,120,654 1,090,312 1,110,706
---------- ---------- ----------
Total retail................................................ 5,948,221 5,784,447 5,652,907
Wholesale:
Sales for resale............................................ 1,757,880 1,897,885 1,753,553
Economy sales............................................... 888,708 640,017 757,999
---------- ---------- ----------
Total sales............................................. 8,594,809 8,322,349 8,164,459
Losses and Company use........................................ 469,685 481,489 468,007
---------- ---------- ----------
Total................................................... 9,064,494 8,803,838 8,632,466
========== ========== ==========
Native system:
Peak load, kW................................................. 1,167,000 1,122,000 1,105,000
Net generating capacity for peak, kW.......................... 1,500,000 1,500,000 1,500,000
Load factor................................................... 63.1% 64.0% 63.4%
========== ========== ==========
Total system:
Peak load, kW................................................. 1,439,000 1,442,000 1,387,000
Net generating capacity for peak, kW.......................... 1,500,000 1,500,000 1,500,000
Load factor................................................... 64.3% 64.0% 64.2%
========== ========== ==========
</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.
9
<PAGE>
REGULATION
GENERAL
The electric utility industry faces increasing pressure to become more
competitive as legislative, regulatory, economic and technological changes
occur. Federal and state legislative and regulatory initiatives, including
proposals advanced in Texas and New Mexico, are designed to 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 diminish the ability of the Company to fully
recover its investment in generation 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, the
Company may not be able to sustain retail rates at the levels established by the
Texas Settlement Agreement and New Mexico Settlement discussed below through the
periods specified by those agreements and, therefore, the Company's results of
operations and cash flow may be adversely affected.
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 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.
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.
In January of each odd-numbered year, the Texas Commission is required to
report to the Texas Legislature on the scope of competition in electric markets
and the effect of competition and industry restructuring on customers in both
competitive and noncompetitive markets. In its January 1997 report, the Texas
Commission 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. In its January
1999 report, the Texas Commission, while not making a specific recommendation
regarding restructuring legislation, reaffirmed its continued support for the
timely move to a competitive retail market that provides adequate protections
for customers and the opportunity for all market participants to benefit. Also,
in 1998 the Texas Commission reported revised "excess of cost over market"
("ECOM") estimates, which is a means of measuring stranded costs for all Texas
utilities. 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.
10
<PAGE>
In 1997, the Texas Lieutenant Governor appointed a special interim
committee to study the various issues involved in a possible transition to a
competitive retail market. The committee held public hearings across the state
receiving testimony from various parties, including investor-owned utilities,
electric cooperatives, public power entities, power marketers, consumer
advocates, environmental advocates and the public. On behalf of all investor-
owned utilities, including the Company, the Association of Electric Companies of
Texas 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. In January 1999, the special interim committee
submitted its final report without specific legislative recommendations. The
final report addresses various issues specifically associated with the
development of a competitive retail electric market, particularly the structure
of the market, stranded costs and market power concerns. The report states that
competition in the electric power market has the potential to benefit all
Texans, but restructuring the industry should only be undertaken with the utmost
caution. The report also includes a summary of the state and local tax issues
from a report by the Texas Comptroller of Public Accounts, which concludes that
market-based revaluation of generation assets, unbundling and possible
divestiture of assets and other aspects of restructuring will have an impact on
local and state tax bases and revenues.
Three comprehensive restructuring bills have been introduced in the 1999
Texas biennial legislative session, one of which was co-sponsored by several of
the senators comprising the special interim committee, including the chairman of
that committee. The Company cannot assure that any legislation will
specifically recognize and accommodate the substantial benefits bargained for by
the Company and the various parties to the Texas Rate Stipulation and the Texas
Settlement Agreement discussed below. Any legislation that does not permit the
Company to recover the costs reflected in rates under the Texas Rate Stipulation
and the Texas Settlement Agreement could have a material adverse impact on the
Company's financial condition, results of operations and cash flow.
Texas Rate Stipulation and Texas Settlement Agreement. The Company's rates
for its Texas customers are governed by a rate order entered by the Texas
Commission adopting the Texas Rate Stipulation and Agreed Order. The Agreed
Order implemented certain provisions of the Texas Rate Stipulation and set rates
consistent with the Texas Rate Stipulation. Among other things, under the Texas
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
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 Texas 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 Texas 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
11
<PAGE>
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 Texas
Rate Stipulation retain all rights provided in the Texas 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.
Following the New Mexico Settlement (see "New Mexico Rate Matters - New
Mexico Settlement," below), the Company offered to enter into a comparable
agreement in Texas. Based upon that offer, the Company entered into the Texas
Settlement Agreement providing for: (i) a total annual jurisdictional base
revenue reduction of approximately $15.4 million; (ii) reconciliation of the
Company's fuel expenses through December 31, 1998, with no disallowance; and
(iii) an agreement to use 50% of all Palo Verde performance rewards related to
evaluation periods after 1997, when collected, for low-income assistance and for
Demand-Side Management ("DSM") programs, primarily focused on small business
customers, through the end of the Freeze Period. See "Integrated Resource Plan"
below. The parties have executed the Texas Settlement Agreement and filed it
with the Texas Commission, the City of El Paso and all other municipalities
having jurisdiction. The Company anticipates the Texas Commission will consider
and approve the Texas Settlement Agreement in the near future.
Fuel. Pursuant to Texas Commission rules, the Company must periodically
make a filing to reconcile the revenues collected from Texas customers under its
fixed fuel factor with the actual fuel and purchased power expenses incurred.
Differences between revenues collected and expenses incurred during the
reconciliation period are subject to a refund (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 prudence of fuel and purchased power expenses.
The Company's fuel expenses for its most recent reconciliation period of July
1995 through December 1998 were approved, without disallowance, as part of the
Texas Settlement Agreement.
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 Texas Rate Stipulation and the Texas
Settlement Agreement. The removal of Palo Verde from rate base could have a
significant negative impact on the Company's revenues and financial condition.
Performance rewards and penalties for the evaluation periods ending in 1995,
1996 and 1997, as well as agreement regarding disposition of any future awards,
have been resolved in the Texas Settlement Agreement and the Integrated Resource
Plan ("IRP") stipulation.
Integrated Resource Plan. Under Texas law and regulations of the Texas
Commission, the Company was required to file its first IRP in June 1998. An IRP
is to be filed every three years and covers a ten-year planning period. The
Company's IRP was the culmination of a lengthy planning process involving the
Company, its customers, the Texas Commission, consumer advocates and various
special interest groups. The purpose of integrated resource planning is to
ensure acquisition of the lowest cost, adequate
12
<PAGE>
resources necessary to meet the varied needs of the Company and its customers,
and to ensure the equitable allocation and distribution of the benefits of such
resource acquisitions and other system benefits to all customer classes. The
Company entered into an agreement with all parties with respect to all IRP
issues, and a Texas Commission order adopting the agreement was issued in
January 1999. Pursuant to the agreement, the Company will meet its resource
needs through a combination of short-term purchased power and a DSM program.
Pursuant to the IRP, the Company expects to incur DSM expenditures annually of
approximately $1.0 million through 2001. Additionally, in response to interest
expressed by its customers and encouragement from the Texas Commission and
environmental advocates, the Company has committed to the development of
renewable resources. Pursuant to the stipulation settling the IRP, the Company
has pledged $3.6 million of Palo Verde performance rewards expected to be
collected by the Company as a result of the Texas Settlement Agreement as
initial financing for the development of renewable resources. Finally, the
Company has committed to fund low-income DSM programs for a three-year period
beginning in 1999. The amount of the Company's DSM commitment totals
approximately $1.0 million over the three-year period. The Company does not
believe the IRP agreement will cause it to incur net costs materially in excess
of those that would have been incurred in the absence of its IRP. Nevertheless,
because of the Texas Rate Stipulation and the Texas Settlement Agreement, the
Company will not be able to increase its rates to recover any increase in net
costs actually experienced as a result of its IRP.
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. In January
1999, pursuant to a state constitutional amendment passed in 1996, the three-
member appointed commission was replaced by an elected commission from five
single-member districts, with regulatory responsibility for electricity, gas,
water, telecommunications, insurance and securities activities within the state.
The Company's New Mexico service area falls entirely within one district. The
largest city in the Company's New Mexico service territory is Las Cruces, which
in 1998 accounted for approximately 8% of the Company's total revenue. See Item
3, "Legal Proceedings--Litigation with Las Cruces."
Since 1995, the New Mexico Commission has conducted hearings and
facilitated debate regarding competition and the restructuring of regulation of
the electric industry. Although these efforts failed to result in 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.
In addition to efforts by the New Mexico Commission, the Interim Water and
Natural Resources Committee, a joint legislative committee with oversight
responsibility for the regulation of public utilities, has conducted public
meetings and taken testimony regarding the potential effects of industry
restructuring in New Mexico. The chairman of this committee has introduced a
comprehensive restructuring bill in the 1999 New Mexico legislative session.
Under this bill, retail customer choice
13
<PAGE>
would begin January 1, 2001, for public post-secondary educational institutions
and public schools and for residential and small business customers. Retail
customer choice would begin January 1, 2002, for all other customers. Utilities
would be allowed to recover no less than 50% of its stranded costs with up to
100% recovery allowed if the New Mexico Commission determines that additional
recovery is in the public interest, is necessary to maintain the utility's
financial integrity or is necessary to continue adequate and reliable service
and will not cause an increase in rates to residential and small business
customers. Utilities would also be required to file transition plans addressing
the various restructuring issues, including the recovery of stranded costs, by
March 1, 2000. The New Mexico Commission could delay implementation of retail
customer choice for up to one year. The chairman's bill passed both houses of
the legislature before the end of the session and is currently awaiting the
signature of the governor to become law. The Company cannot predict whether the
governor will sign or veto the restructuring legislation, nor whether the
implementation of such legislation, if signed into law, will impact the
Company's revenues and recovery of costs contemplated under the New Mexico
Settlement, discussed below.
New Mexico Settlement. In October 1996, the New Mexico Commission issued
an order requiring the Company to answer certain ratepayer complaints and to
file a rate filing package, including cost of service data and supporting
testimony. On July 15, 1998, the Company entered into the New Mexico Settlement
with certain parties to its pending New Mexico rate case, including the New
Mexico Commission staff and the New Mexico Attorney General, but not Las Cruces.
Following a hearing on the New Mexico Settlement, and after considering Las
Cruces' opposition, the New Mexico Commission issued an order adopting (with
some modification) the New Mexico Settlement on September 24, 1998. The New
Mexico Settlement provides for (i) a total annual jurisdictional base revenue
reduction of $4.6 million; (ii) a 30-month moratorium on rate increases or
decreases in New Mexico; (iii) the elimination of the need for future fuel
reconciliations in New Mexico by incorporating the existing fixed fuel factor
into rates; (iv) an increased degree of ratemaking certainty for the future
achieved by an agreement among the signatories reducing the net value of certain
assets by approximately $40 million on a New Mexico jurisdictional basis for
ratemaking purposes (but with no effect on book values), while establishing the
signatories' agreement that the Company is entitled to 100% recovery of such
revalued assets; and (v) the ability to enter into long-term rate contracts with
commercial and industrial customers in New Mexico. The New Mexico Settlement
became effective on October 26, 1998. Additionally, as a result of the New
Mexico Settlement, the Company will contribute $0.4 million annually ($1.0
million over the term of the moratorium period) to a social services agency in
Dona Ana County providing assistance to low-income individuals. Although the
New Mexico Settlement was structured to allow recovery of previously
underrecovered fuel balances, the order adopting the New Mexico Settlement does
not support the recognition of this asset in the Company's financial statements
under existing accounting standards. The Company wrote off the book value of
undercollected fuel revenues in its New Mexico jurisdiction as of September 30,
1998, which amounted to $3.8 million, net of tax, although the Company believes
that, based on current estimates of future fuel prices and operating costs, it
will recover 100% of these amounts. The Company negotiated the New Mexico
Settlement so as to substantially reduce the likelihood of additional rate
reductions during the moratorium period. However, in light of the national
emphasis on competition, there can be no assurance that the Company will be able
to maintain its rates at the new levels.
Fuel. Prior to the New Mexico Settlement, the Company was required to make
annual filings reconciling the revenues collected under its New Mexico fixed
fuel factor with its New Mexico fuel and purchased power expenses, along with
the results of the application of Palo Verde performance standards. As a result
of the New Mexico Settlement, outstanding fuel issues from filings in 1997 and
14
<PAGE>
1998 were satisfactorily resolved with no disallowance of fuel and purchased
power costs or the performance rewards and with the existing fixed fuel factor
incorporated into base rates.
Palo Verde Performance Standards. As a result of the New Mexico
Settlement, the Palo Verde performance standards, which had been in place since
1986, were eliminated. Consequently, the Company is no longer entitled to a
reward or exposed to a penalty in New Mexico resulting from the operations of
Palo Verde. The performance standards report filed with the New Mexico
Commission in January 1998 was the final such report and entitled the Company to
a reward of $1.1 million, which is included in the underrecovered fuel balance
added to the Company's base rates and amortized over a 60-month period.
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.
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 allow access to their transmission
facilities under minimum terms and conditions of non-discriminatory service,
including transmission service for their own new wholesale sales and purchases
of electric energy. 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 stranded costs associated with former power customers and new
municipally-owned entities becoming transmission-only customers as a result of a
utility's 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, which 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.
Pursuant to Order No. 888, the Company filed its non-discriminatory open
access transmission tariffs with the FERC in July 1996. The Company reached a
settlement with the various parties regarding rates for transmission and
ancillary services under these tariffs. However, the settlement, which was
filed with the FERC in March 1997 and approved by the FERC in June 1998, did not
resolve issues that had been raised with respect to the manner in which the
Company will determine the amount of transmission capacity that is available for
use by third parties desiring to use its transmission system. In August 1998, a
FERC administrative law judge issued an Initial Decision in which he concluded
that the manner in which the Company determines the amount of transmission
capacity that is available for use
15
<PAGE>
by third parties is reasonable and consistent with FERC policies. The judge also
concluded that the Company has no obligation under Order No. 888 to provide
back-up generation services to third parties using its transmission system.
Certain parties, including the Company, have filed exceptions to the Initial
Decision. The Company cannot predict when the FERC will render a final decision
on these issues. The Company does not expect a material financial impact to
result from this 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."
In order to procure a firm supply of electric power to serve its proposed
municipal electric system, Las Cruces filed a request with the FERC in November
1998 for an order requiring the Company to sell wholesale power to Las Cruces
pursuant to Section 202(b) of the Federal Power Act from July 1999 until such
time as Las Cruces is able to secure firm transmission service and back-up
generation service required to enable it to obtain reliable service from SPS.
In January 1999, the FERC required the Company to sell electric energy to Las
Cruces at a cost-based wholesale rate from July 1, 1999 until the earlier of the
time Las Cruces begins receiving its power from a different supplier or one
year. The Company submitted a proposed cost-based rate for the sale of
electricity at wholesale to Las Cruces in compliance with the FERC's order in
February 1999. The FERC has asked that all comments on the Company's compliance
filing be submitted by April 2, 1999. The Company has also filed with the FERC
a request for rehearing of the FERC's order and a motion for a stay of that
order pending consideration of its request for rehearing. Both of these matters
are currently pending before the FERC. Upon final FERC action, the Company may
appeal the FERC's order to a United States Court of Appeals.
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. The DOE has determined that all such exports over international
transmission lines shall be made in accordance with Order No. 888. The DOE is
also 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."
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.
WHOLESALE CUSTOMERS
The Company provides IID with 100 MW of firm capacity and associated energy
and 50 MW of system contingent capacity and associated energy pursuant to a 17-
year agreement which expires April 30, 2002. The Company also provides TNP with
up to 75 MW of firm power and associated energy through December 31, 2002. The
contract amount for 1999 is 25 MW.
The Company's one-year 1998 sales agreement for firm capacity and
associated energy to the CFE terminated on December 31, 1998. Revenues under
the contract totaled $34.6 million,
16
<PAGE>
representing approximately 5.7% of the Company's total revenues. The Company
does not expect to provide similar services in 1999 since the CFE's Samalayuca
II generation project went into service in 1998. The Company cannot predict
when, or if, future power sales opportunities to the CFE will materialize, or
whether, in the event such opportunities do materialize, the Company would be
the provider.
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."
On December 14, 1998, the Bankruptcy Case was closed by order of the United
States Bankruptcy Court for the Western District of Texas, Austin Division.
Under the Plan after a certain period of time, any funds designated for the
payment of preconfirmation claims pursuant to the Plan which remained unclaimed
and undistributed became the property of the Reorganized Company. Such funds
amounted to approximately $3.3 million, net of tax, which was received by the
Company in January 1999. Because of the unusual nature and infrequent
occurrence of this transaction, the Company has reported this amount in its
financial statements as an extraordinary item in the fourth quarter of 1998.
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>
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
Current Position and
Name Age Business Experience
---- --- -------------------
<S> <C> <C>
James Haines.................. 52 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.......... 43 Senior Vice President - Energy Services since January 1999; Senior Vice
President - Customer and Corporate Services from August 1996 to January
1999; 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.
Terry Bassham................. 38 Vice President and General Counsel since January 1999; General Counsel
since August 1996; Shareholder with Clark, Thomas & Winters, P.C. from
May 1993 to August 1996.
J. Frank Bates................ 48 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............. 43 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............... 44 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................. 50 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.
Helen Williams Knopp, APR..... 56 Vice President - Customer and Public Affairs effective April 30, 1999;
Executive Director Rio Grande Girl Scout Council, El Paso, Texas since
September 1991.
Earnest A. Lehman............. 46 Vice President - Energy Services Business Group since January 1999;
Director of Rates of Western Resources, Inc. from January 1998 to January
1999; Director of Wholesale Rates of Western Resources, Inc. from January
1997 to January 1998; Vice President - Consumer Sales of Westar Consumer
Services from March 1996 to January 1997; Executive Director of Marketing
of Western Resources, Inc. from December 1994 to March 1996.
Robert C. McNiel.............. 52 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.
Guillermo Silva, Jr........... 45 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.
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<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 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. 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 the city limits and a territory extending five miles beyond the municipal
boundary. In February 1998, the New Mexico Supreme Court ruled that the
subsequent legislation rendered moot the certified question before the Supreme
Court.
In May 1998, the Company filed a complaint before the United States Federal
District Court of New Mexico requesting that the Court find the new law
unconstitutional. The Company's request is based upon its belief that the law
is unconstitutional "special legislation" because it only applies to Las Cruces
and the Company's property. The Company's claims are based on violations of the
equal protection clauses of the New Mexico and federal Constitutions and
violation of the prohibition against special legislation of the New Mexico
Constitution. A trial on the merits has not yet been scheduled by the Court.
On February 26, 1999, Las Cruces filed its Petition for Condemnation and
Application for Immediate Possession. In its Petition for Condemnation, Las
Cruces seeks to condemn the Company's distribution system within the Las Cruces
city limits and other real and personal property owned by the Company used in or
for the benefit of its distribution system. In its Application for Immediate
Possession, Las Cruces seeks possession of the Company's distribution property
in phases beginning on or about July 1, 1999. On March 9, 1999, the Company
removed the Las Cruces petition and application to federal district court in New
Mexico. Following a hearing on a motion for remand filed by Las Cruces, the
federal court ruled the condemnation matter will stay in federal court. At this
time no
19
<PAGE>
hearing on the immediate possession matter has been set. 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.
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 negotiated purchase of the Company's electrical
distribution assets within and adjacent to the Las Cruces city limits.
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 while receiving
certain transmission services from the Company. Las Cruces subsequently filed a
request at the FERC for a summary 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. An evidentiary
hearing was held before an administrative law judge of the FERC in February 1998
on the issues of (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 submitted evidence in that proceeding showing that it was
entitled to recover stranded generation costs from Las Cruces of $101 million.
In contrast, the FERC staff recommended that the Company be permitted to recover
stranded costs of $31.8 million, and Las Cruces claimed that its stranded cost
obligation was in the range of $0 to $17.4 million. In June 1998, an
administrative law judge of the FERC issued an Initial Decision recommending
that Las Cruces pay to the Company $30.4 million for stranded costs if Las
Cruces chose to leave the Company's system as of July 1, 1998. The amount
recommended by the administrative law judge would decline over time based on
when, if ever, Las Cruces leaves the Company's system, and would be reduced to
zero if Las Cruces leaves the Company's system after December 31, 2002. The
administrative law judge's Initial Decision is not binding on the FERC. The
Company believes the administrative law judge's Initial Decision is inconsistent
with the intent and policy of Order No. 888, which establishes the right to full
recovery of a utility's stranded generation cost. The Company continues to
believe it is entitled to full compensation for the costs it incurred with the
expectation of continuing to serve Las Cruces. The Company has sought review of
the administrative law judge's Initial Decision by the FERC and, if necessary,
will contest any final FERC decision on appeal. The Company cannot predict when
the FERC will render a final decision on this issue.
20
<PAGE>
The Company continues to believe 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. In fact, the New Mexico Settlement includes a reduction in rates
and settlement of all issues in New Mexico, excluding Las Cruces.
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. In October 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 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 financial position, results of
operations and cash flow 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>
1998
- ----
First Quarter.................................... $ 8 13/16 $ 6 3/8
Second Quarter................................... 10 3/8 8 9/16
Third Quarter.................................... 9 15/16 7 9/16
Fourth Quarter................................... 9 3/4 8
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
</TABLE>
At March 16, 1999, there were 5,870 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 the financing arrangements entered into
pursuant to the Reorganization. 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 ("S&P") or Moody's Investors Service, Inc.
("Moody's"), 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 any
shares of common stock 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 with respect to 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 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 and the terms of the amended and restated credit facility
agreement for working capital and fuel financing, the same limitation contained
in
23
<PAGE>
the First and Second Supplemental Indentures on the declaration of dividends
would apply to the Company.
On March 1, 1999, after obtaining required consents of holders of certain
of the Company's outstanding debt securities, the Company used cash on hand to
pay for the early redemption of the Series A Preferred Stock. The Company paid
the redemption price, accrued cash dividends and premium aggregating $148.9
million, plus $1.4 million for fees and costs of securing the consents. See
Part II, Item 8, "Financial Statements and Supplementary Data - Note E of Notes
to Financial Statements" for information regarding preferred stock.
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
February 12 | January 1
to | to
Years Ended December 31, December 31, | February 11, Years Ended December 31,
------------------------- | ----------------------------
1998 1997 1996 | 1996 1995 1994
----------- ------------ ------------ | ------------ ------------ ------------
<S> <C> <C> <C> | <C> <C> <C>
Operating revenues.......................... $ 602,221 $ 594,038 $ 523,974 | $ 54,949 $ 504,617 $ 536,760
Operating income............................ 162,539 161,667 144,491 | 1,639 49,874 54,997
Income (loss) before extraordinary items.... 57,073 54,568 41,919 | 118,198 (33,319) (28,153)
Extraordinary gain on discharge of debt, |
net of income tax expense.................. 3,343 - - | 264,273 - -
Extraordinary loss on repurchases of debt, |
net of federal income tax benefit.......... - (2,775) - | - - -
Net income (loss) applicable to common |
stock...................................... 45,709 38,649 31,431 | 382,471 (33,319) (28,153)
Basic earnings (loss) per common share: |
Income (loss) before extraordinary items... 0.704 0.689 0.523 | 3.325 (0.937) (0.792)
Extraordinary gain on discharge of debt, |
net of income tax expense................. 0.056 - - | 7.435 - -
Extraordinary loss on repurchases of debt, |
net of federal income tax benefit......... - (0.046) - | - - -
Net income (loss).......................... 0.760 0.643 0.523 | 10.760 (0.937) (0.792)
Weighted average number of common |
shares outstanding......................... 60,168,234 60,128,505 60,073,808 | 35,544,330 35,544,330 35,544,330
Diluted earnings (loss) per common share: |
Income (loss) before extraordinary items... 0.699 0.685 0.523 | 3.325 (0.937) (0.792)
Extraordinary gain on discharge of debt, |
net of income tax expense................. 0.055 - - | 7.435 - -
Extraordinary loss on repurchases of debt, |
net of federal income tax benefit......... - (0.046) - | - - -
Net income (loss).......................... 0.754 0.639 0.523 | 10.760 (0.937) (0.792)
Weighted average number of common shares |
and dilutive potential common shares |
outstanding................................ 60,633,298 60,437,632 60,116,709 | 35,544,330 35,544,330 35,544,330
Additions to utility property, plant |
and equipment.............................. 54,790 48,837 35,980 | 4,892 71,473 49,404
Total assets................................ 1,891,219 1,812,613 1,846,190 1,910,354 | 1,809,891 1,730,851
Long-term debt and financing and capital |
lease obligations.......................... 897,062 966,810 1,046,173 1,164,328 | - -
Debt and obligations subject to compromise.. - - - - | 1,608,091 1,537,303
Preferred stock............................. 135,744 121,319 108,426 100,000 | 81,464 81,464
Common stock equity (deficit)............... 417,278 369,640 331,257 300,000 | (418,763) (385,966)
=========== =========== =========== =========== |========== ===========
</TABLE>
_______________
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 shareholders, 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," "Liquidity and
Capital Resources" and "Year 2000 Preparedness," as well as 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 risks and factors discussed
below and in such filings are 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
The Texas Rate Stipulation has provided the Company with a stable base of
retail revenues in Texas during a period in which the Company has substantially
reduced its fixed obligations. The New Mexico Settlement provides a similar
level of certainty in the Company's New Mexico rates, although of shorter
duration. As discussed below, the New Mexico Settlement includes an annual base
revenue reduction of $4.6 million, exclusive of the Company's annual $0.4
million contribution for low-income assistance in New Mexico. The Company and
all signatories to the Texas Settlement Agreement have reached an agreement,
subject to Texas Commission approval, providing for comparable annual revenue
reductions in Texas of approximately $15.4 million and approval of all Company
fuel expenses for the 42-month period currently subject to reconciliation.
In return for these rate reductions, the Company believes that it will have
achieved in both Texas and New Mexico a new period of revenue stability at
levels that will permit it to further reduce its debt while continuing to
address issues raised by industry restructuring and competition. During this
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 New Mexico Settlement provides for (i) a total annual jurisdictional
base revenue reduction of $4.6 million; (ii) a 30-month moratorium on rate
increases or decreases in New Mexico; (iii) the elimination of the need for
future fuel reconciliations in New Mexico by incorporating the existing fixed
fuel factor into rates; (iv) an increased degree of ratemaking certainty for the
future achieved by an agreement among the signatories reducing the net value of
certain assets by approximately $40 million
26
<PAGE>
on a New Mexico jurisdictional basis for ratemaking purposes (but with no effect
on book values), while establishing the signatories' agreement that the Company
is entitled to 100% recovery of such revalued assets; and (v) the ability to
enter into long-term rate contracts with commercial and industrial customers in
New Mexico. The New Mexico Settlement became effective on October 26, 1998.
Additionally, as a result of the New Mexico Settlement, the Company will
contribute $0.4 million annually ($1.0 million over the term of the moratorium
period) to a social services agency in Dona Ana County providing assistance to
low-income individuals. Although the New Mexico Settlement was structured to
allow recovery of previously underrecovered fuel balances, the order adopting
the New Mexico Settlement does not support the recognition of this asset in the
Company's financial statements under existing accounting standards. The Company
wrote off the book value of undercollected fuel revenues in its New Mexico
jurisdiction as of September 30, 1998, which amounted to $3.8 million, net of
tax, although the Company believes that, based on current estimates of future
fuel prices and operating costs, it will recover 100% of these amounts. The
Company negotiated the New Mexico Settlement so as to substantially reduce the
likelihood of additional rate reductions during the moratorium period. However,
in light of the regulatory framework in New Mexico and the movement toward
competition, there can be no assurance that the Company will be able to maintain
its rates at the new levels.
Following the New Mexico Settlement, the Company offered to enter into a
comparable agreement in Texas. Based upon that offer, the Company entered into
the Texas Settlement Agreement providing for: (i) a total annual jurisdictional
base revenue reduction of approximately $15.4 million; (ii) reconciliation of
the Company's fuel expenses through December 31, 1998, with no disallowance; and
(iii) an agreement to use 50% of all Palo Verde performance rewards related to
evaluation periods after 1997, when collected, for low-income assistance and for
Demand-Side Management ("DSM") programs, primarily focused on small business
customers, through the end of the Freeze Period. The parties have executed the
Texas Settlement Agreement and filed it with the Texas Commission, the City of
El Paso and all other municipalities having jurisdiction. The Company
anticipates the Texas Commission will consider and approve the Texas Settlement
Agreement in the near future.
The Company faces a number of challenges which could negatively impact its
operations and financial results. 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.
At the same time, the Company's revenues, which will be reduced from current
levels as a result of the New Mexico Settlement and the Texas Settlement
Agreement, are effectively capped. There can be no assurance that the Company's
revenues will be sufficient to recover any increased costs, including any such
increased costs in connection with Palo Verde or increases in other costs of
operation, whether as a result of higher than anticipated levels of inflation,
changes in tax laws or regulatory requirements, or other causes.
Another risk to the Company's operations is the potential loss of
customers. The Company's wholesale and large retail customers have, in varying
degrees, additional alternate sources of economical power, including co-
generation of electric power. For example, a 504 MW combined-cycle generating
plant located in Samalayuca, Chihuahua, Mexico, which became fully operational
at the end of 1998, gave the CFE the current capacity to supply electricity to
portions of northern Chihuahua, including the
27
<PAGE>
geographic area previously served by the Company. In addition, the New Mexico
State Legislature has passed legislation which purportedly gives Las Cruces the
authority to condemn the Company's distribution system and related assets
located within its city limits, and on February 26, 1999, Las Cruces filed its
eminent domain proceeding. If Las Cruces succeeds in its efforts, the Company
could lose its Las Cruces customer base, which currently represents
approximately 8% of annual operating revenues, although the Company would
receive "just compensation" as established by the court. 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. 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 represent approximately 3% of annual operating
revenues. The Company signed a contract with Ft. Bliss in December 1998, under
which Ft. Bliss will take service from the Company through December 2008. 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 that 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.
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 Texas. In
New Mexico, a comprehensive restructuring bill has been introduced in the 1999
New Mexico legislative session. The bill passed both houses of the legislature
and is currently awaiting the signature of the governor to become law. The
Company cannot predict whether the governor will sign or veto the restructuring
legislation, nor whether the implementation of such legislation, if signed into
law, will impact the Company's revenues and recovery of costs contemplated under
the New Mexico Settlement. 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 and principal 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 and payment of interest on and retirement
of debt. The Company has no current plans to
28
<PAGE>
construct any new generating capacity to serve retail load through at least
2004. Utility construction expenditures will consist primarily of expanding and
updating the transmission and distribution systems and the cost of capital
improvements and replacements at 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 and
enable the Company to meet other contingencies that may exist, such as
compliance with environmental regulation, pending litigation, any claims for
indemnification and Year 2000 remediation. At December 31, 1998, the Company
had approximately $229.2 million in cash and cash equivalents. On February 8,
1999, the Company renewed the $100 million revolving credit facility, which now
provides up to $70 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 December 31, 1998, approximately $49.3 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 Texas Rate Stipulation, the Texas Settlement
Agreement, the New Mexico Settlement 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, increases in fuel costs in New Mexico or loss of revenues.
Accordingly, as described below, debt reduction is a high priority for the
Company in order to gain additional financial flexibility to address the
evolving competitive market. During 1998, the Company temporarily suspended its
repurchases of first mortgage bonds to accumulate cash. On March 1, 1999, after
obtaining required consents of holders of certain of the Company's outstanding
debt securities, the Company used cash on hand to pay for the early redemption
of the Series A Preferred Stock. The Company paid the redemption price, accrued
cash dividends and premium, aggregating $148.9 million, plus $1.4 million for
fees and costs of securing the consents. As a result of the early redemption of
the Series A Preferred Stock, the Company will avoid additional cash dividends
of approximately $2.7 million that would have occurred through May 1, 1999, and
$4.0 million quarterly thereafter until mandatory redemption in 2008. The
Company will report the premium and other costs related to the preferred stock
redemption as a reduction of net income applicable to common stock in the first
quarter of 1999 which will result in a one-time decrease in diluted earnings per
common share of $0.15. The preferred stock had an annual dividend rate of
11.40%, which was paid through the issuance of additional shares of preferred
stock for the first three years.
The Company has significantly reduced its long-term debt following its
emergence from bankruptcy in 1996. From June 1, 1996 through March 15, 1999,
the Company repurchased approximately $231.3 million of first mortgage bonds as
part of an aggressive deleveraging program and repaid the remaining $36.0
million of Series A First Mortgage Bonds at their maturity on February 1, 1999.
The foregoing, together with the early redemption of Series A Preferred Stock
have reduced the Company's annual interest expense and annual cash dividend
requirements by approximately $20.6 million and $15.9 million, respectively.
Long-term indebtedness as a percentage of capitalization was reduced from 74% at
June 30, 1996 to 62% at December 31, 1998. Had the redemption of the Series A
Preferred Stock occurred as of December 31, 1998, the Company's long-term
indebtedness as a percentage of capitalization would have increased to 68% due
to the significant reduction of the Company's total capitalization resulting
from the preferred stock redemption.
29
<PAGE>
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.
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
and (ii) 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, 1998, 1997
and 1996 are based on the results of operations of the Reorganized Company for
the years ended December 31, 1998 and December 31, 1997 and the 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.
<TABLE>
<CAPTION>
Period From
February 12
Years Ended to
December 31, December 31,
-----------------------------
1998 1997 1996
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Income Applicable to Common
Stock Before Extraordinary Items
(In thousands)............................... $ 42,366 $ 41,424 $ 31,431
Diluted Earnings Per Common Share
Before Extraordinary Items................... 0.699 0.685 0.523
</TABLE>
Operating revenues net of energy expenses increased $11.7 million in 1998
compared to 1997 primarily due to increased volume of economy sales at higher
margins. Operating revenues net of energy expenses increased $4.7 million in
1997 compared to 1996 primarily due to increased retail and wholesale kWh sales,
partially offset by reduced revenue per kWh from the CFE.
30
<PAGE>
Comparisons of kWh sales and operating revenues are shown below (In
thousands):
<TABLE>
<CAPTION>
Increase/(Decrease)
----------------------
Years Ended December 31: 1998 1997 Amount Percent
- ------------------------ ---- ---- ------ -------
<S> <C> <C> <C> <C>
Electric kWh Sales:
Retail Customers........................ 5,948,221 5,784,447 163,774 2.8%
Other Utilities......................... 1,757,880 1,897,885 (140,005) (7.4)
---------- ---------- ---------
Total.................................. 7,706,101 7,682,332 23,769 0.3
========== ========== =========
Operating Revenues:
Retail Customers........................ $ 497,830 $ 497,868 $ (38) (0.0)%
Other Utilities......................... 104,391 96,170 8,221 8.5
---------- ---------- ---------
Total.................................. $ 602,221 $ 594,038 $ 8,183 1.4
========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Increase/(Decrease)
-------------------
Years Ended December 31: 1997 1996 Amount Percent
- ------------------------ ---- ---- ------ -------
<S> <C> <C> <C> <C>
Electric kWh Sales:
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
========== ========== ========
</TABLE>
Other operations and maintenance expense increased $2.5 million in 1998
compared to 1997 primarily due to increased operations expense of $2.3 million.
This increase was primarily due to (i) increased costs of the all employee bonus
of $2.8 million; (ii) increased professional fees related to regulatory issues
of $2.1 million; and (iii) a curtailment gain of $1.9 million on discontinued
employee benefits recorded in 1997 with no corresponding event in 1998. These
increases were partially offset by (i) decreased outside services costs of $3.8
million; and (ii) decreased workers' compensation expense of $1.0 million.
Other operations and maintenance expense decreased $12.0 million in 1997
compared to 1996 primarily due to decreased Palo Verde costs of approximately
$8.7 million 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.
The New Mexico Settlement charge of $6.3 million represents the write-off
of the book value of undercollected fuel revenues in the Company's New Mexico
jurisdiction.
31
<PAGE>
Depreciation and amortization expense increased $1.1 million in 1998
compared to 1997 due to an increase in depreciable plant balances.
Depreciation and amortization expense increased $2.4 million in 1997
compared to 1996. The effect of an increase in depreciable plant balances
following the reacquisition in the Reorganization of a portion of Palo Verde and
the depreciation of such amounts over the period of the Texas Rate Stipulation
was partially offset by a 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 Texas 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. In
accordance with 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 increased $1.0 million in 1998 compared to
1997 primarily due to increases in Texas property taxes and revenue related
taxes resulting from an increase in revenues in 1998. These increases were
partially offset by a decrease in Arizona property taxes due to a decrease in
the assessment ratio in 1998. The decrease of $1.2 million in 1997 compared to
1996 was primarily due to decreased Arizona property taxes resulting from a
decrease in taxable nuclear plant.
Other income decreased $3.1 million in 1998 compared to 1997 primarily due
to a favorable litigation settlement in 1997 of $7.5 million, net of legal fees
and expenses, partially offset by an increase in investment income of $5.4
million in 1998 resulting from the investment of higher levels of cash. The
increase in other income of $3.8 million in 1997 compared to 1996 was also due
to a favorable litigation settlement in 1997 of $7.5 million, net of legal fees
and expenses, and an increase in investment income of $1.3 million in 1997
resulting from the investment of higher levels of cash. These increases were
partially offset by a gain on sale of investment of $3.8 million and a favorable
settlement of bankruptcy professional fees of $2.3 million in 1996.
Interest charges decreased $4.7 million in 1998 compared to 1997, primarily
due to a reduction in outstanding debt as a result of open market purchases of
the Company's first mortgage bonds. The decrease of $8.9 million in 1997
compared to 1996 was 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.
Income tax expense was essentially unchanged for 1998 compared to 1997
primarily due to changes in pre-tax income which were offset by permanent
differences such as bankruptcy fee settlements and tax-exempt income. Income
tax expense, excluding income tax benefits of $1.5 million related to the
extraordinary 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.
The reorganization items benefit recorded by the Predecessor Company upon
emergence from bankruptcy consisted of the effects of the Texas Rate Stipulation
and deferred income tax benefits related to the Reorganization. These benefits
were partially offset by (i) the adjustments of assets to their
32
<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 1998 or 1997.
Extraordinary gain on discharge of debt of $3.3 million in 1998, net of
income tax expense of $2.1 million, represents unclaimed and undistributed funds
designated for the payment of preconfirmation claims which reverted to the
Company pursuant to the Plan. Extraordinary gain on discharge of debt for the
Predecessor Company for the period January 1, 1996 to February 11, 1996
represents forgiven indebtedness resulting from the Reorganization, primarily
related to the extinguishment of Palo Verde Lease obligations.
Extraordinary loss on repurchases of debt of $2.8 million in 1997, net of
federal income tax benefit of $1.5 million, represents the payment of premiums
on debt repurchased and the recognition of unamortized issuance expenses on that
debt with no comparable amounts in 1998 or 1996.
Allowance for doubtful accounts decreased $3.4 million as of December 31,
1998 compared to December 31, 1997 primarily due to the write-off of previously
reserved receivable amounts related to the bankruptcy settlements of two large
industrial customers.
The Company has an Energy Services Business Unit (the "ESBU") which began
developing energy efficient products and services in 1997. The ESBU offers
customers pricing options, as well as value-added products and services that
give them greater value for the kWh purchased from the Company. The revenues
and expenses related to the operations of the ESBU have not been material to
date.
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 1998, the Company implemented SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which did not have 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.
YEAR 2000 PREPAREDNESS
The Company faces the same concerns relating to the Year 2000 ("Y2K")
problem as other companies that use computers. The problem is that many
computer programs use only the last two digits to refer to a year.
Consequently, these programs may not recognize a year that begins with "20"
instead of the familiar "19". Therefore, applications that are date sensitive
may not function properly. Problems may arise in the Company's information
technology ("IT") systems, including those that allow the Company to operate
generation, transmission and distribution facilities, manage customer billing
accounts and conduct other functions needed to operate the Company's business.
Affected non-IT systems (containing embedded chips that are date sensitive) can
include electric meters, security systems, substation generators, communication
systems and many other devices.
33
<PAGE>
The Company has defined "mission critical" systems as those that could
affect service to its customers or could otherwise result in a permanent and
significant financial loss to the Company, if they fail to function properly.
The Company's goal is that all mission critical systems and applications be
suitable for continued use into the year 2000 ("Y2K ready") by June 30, 1999,
and that all systems and applications will be Y2K ready by December 31, 1999.
The Company began addressing the Y2K problem during the last quarter of 1996
with a program consisting of four major phases: inventory, assessment,
remediation and testing for Y2K readiness.
The Company started the inventory phase for its IT systems in October 1996
and for its non-IT systems in February 1998. Each has now been completed. The
Company will, however, continue to update the information as appropriate, such
as when the Company purchases new software or hardware.
The Company has substantially completed the assessment phase on its IT
systems. Assessment of non-IT systems is currently in progress. The assessment
phase is complete for substantially all mission critical systems. As the
Company purchases new software and other products in 1999, additional readiness
assessments will be performed.
The third phase of the Y2K program is remediation. While the Company is
employing remediation procedures generally accepted as standard, there are no
guarantees such efforts will be entirely successful. At this point, the Company
believes it has completed remediation on more than half of its IT and non-IT
systems. The Company expects to have completed the remediation phase for
substantially all mission critical systems by June 30, 1999.
The Company will continue to test for Y2K readiness throughout 1999. With
respect to IT systems, the Company estimates that more than half of the planned
testing has already been completed. Testing for non-IT systems is currently
underway. The Company intends to test substantially all of its IT systems and
to utilize representative sample testing with respect to some non-IT systems.
The Company may also rely on vendor representations and reports of tests
conducted by other parties with respect to certain IT and non-IT systems. The
Company expects to have completed testing on substantially all mission critical
systems by June 30, 1999.
Because of the integrated nature of the Company's business with other
utilities and its jointly-owned facilities operated by other utilities, the
Company is inquiring about and reviewing the activities of the other utilities
that comprise the integrated system. In addition, the Company is assessing the
activities of its financial institutions and major suppliers and customers to
determine their readiness for Y2K issues. The successful operation of Palo
Verde and other energy sources, water companies, gas suppliers and other
suppliers will be critical to the Company's ability to limit the impact of any
Y2K problems that may arise. Given the complex nature of this problem and the
potential impacts on the Company of non-Y2K ready systems beyond its control,
the Company cannot assure that it will not experience some outages or
operational failures during the Y2K transition period.
In December 1998, the Company retained the services of an independent
consulting firm to review the Company's Y2K program, assess the remediation and
testing procedures, and advise the
34
<PAGE>
Company on the best way to proceed in the time remaining before January 1, 2000.
As a result of the independent review, the Company in February 1999 reassigned
the personnel in charge of its Y2K program and instituted various procedural and
process modifications to improve the program.
The Company has expensed substantially all costs of its Y2K program. As of
December 31, 1998, the Company's expenditures on the Y2K program totaled
approximately $1.4 million and were predominantly related to internal labor,
diagnostic tools and server upgrades. Future expenses, to be incurred through
1999, are not expected to substantially exceed an additional $3.0 million and
will include costs for remediation, consultation, independent verification,
participation in North American Electric Reliability Council drills and
contingency planning. Approximately half of all Y2K program expenses are
expected to be internal labor costs.
The Company has been advised by APS, operating agent for Palo Verde, that
APS has inventoried and assessed essentially all mission critical IT and non-IT
systems and equipment. APS's remediation and testing is expected to be
completed by June 30, 1999, for all mission critical systems, except for those
items that can only be completed during maintenance outages at Palo Verde, which
will be completed for the last unit, which is substantially identical to the
other two units, during the last half of 1999. APS has an internal
audit/quality review team that is periodically reviewing the individual Y2K
projects and their Y2K readiness.
Failure by the Company to meet the challenges of the Y2K problem could have
serious consequences. A malfunction in a system affecting the generation,
transmission or distribution of energy to the Company's customers, whether
caused by a problem with one of the Company's IT or non-IT systems or a system
operated by a third party, could result in a disruption of service. The
severity and cost of the problem would depend on numerous factors, including the
scope and duration of any such disruption. If the disruption is severe enough,
the Company's operations and financial condition could be adversely affected,
the extent of which cannot be predicted.
There are no guarantees that all vendor representations obtained by the
Company will prove to be entirely accurate or that testing and remediation
procedures employed by the Company will identify and correct 100% of potential
Y2K-related problems. There remains a chance that on January 1, 2000 there will
be some system failures. Therefore, the Company is also preparing contingency
and continuity plans. The Company has always prepared for unexpected outages of
its facilities (resulting from storms and other natural disasters) and,
therefore, pre-existing emergency response plans form the core of the Company's
electric system contingency plan. Procedures to deal with a wide array of
difficulties resulting from the singular or simultaneous failure(s) of elements
or systems related specifically to the Y2K transition period are also being
developed based on the Company's basic contingency model. A draft of the
Company's contingency plan was completed in December 1998, and the Company
expects to complete the contingency plan by June 1999. The Company is also
developing a business continuity plan for its business systems and processes
that it expects to complete by December 31, 1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion regarding the Company's market-risk sensitive
instruments contains forward-looking information involving risks and
uncertainties. The statements regarding potential gains and losses are only
estimates of what could occur in the future. Actual future results may differ
35
<PAGE>
materially from those estimates presented due to the characteristics of the
risks and uncertainties involved.
The Company is exposed to market risk due to changes in interest rates,
equity prices and commodity prices. Substantially all financial instruments and
positions held by the Company described below are held for purposes other than
trading.
INTEREST RATE RISK
The Company's interest rate risk relates primarily to debt financing issued
to fund capital and nuclear fuel requirements. Currently, the Company does not
have a plan to issue long-term debt within the next five years. The Company's
long-term debt obligations are all fixed-rate obligations with varying
maturities, except for the pollution control revenue bonds which are variable-
rate bonds and nuclear fuel financing which is based on current commercial paper
rates. The Company's variable-rate pollution control revenue bonds have an
aggregate principal amount of $193.1 million. The near-term losses from
reasonably possible near-term increases in interest rates would not be material
to the Company's financial position, results of operations and cash flow. The
interest rate risk related to the nuclear fuel financing is substantially
mitigated through the operation of the Company's fuel and purchased power cost
recovery clauses ("fuel clauses") in its Texas and wholesale rates. Under these
fuel clauses, fuel expenses, including interest expense on the nuclear fuel
financing, are passed through to the customers. Pursuant to the New Mexico
Settlement, fuel costs are recovered through the Company's base rates and are
not subject to periodic reconciliation for fluctuations in fuel costs. The
interest rate risk related to the nuclear fuel financing for New Mexico fuel
costs are not expected to be material to the Company's financial position,
results of operations and cash flow.
The Company's decommissioning trust funds consist of municipal bonds and
equity securities in 1998 and only municipal bonds in 1997, carried at their
market value. The Company faces interest rate risk related to the municipal
bonds which are valued at $23.0 million and $38.4 million as of December 31,
1998 and 1997, respectively. A hypothetical 10% increase in the rates quoted by
the bond market would result in $2.3 million and $3.8 million reduction in that
fair value, respectively.
EQUITY PRICE RISK
Beginning in 1998, the Company's decommissioning trust funds include
marketable equity securities of approximately $23.7 million at December 31,
1998. A hypothetical 10% decrease in the prices quoted by stock exchanges would
result in a $2.4 million reduction in fair value.
COMMODITY PRICE RISK
The Company utilizes contracts of various durations for the purchase of
natural gas and uranium concentrates to effectively manage its available fuel
portfolio. These agreements contain fixed-priced and variable-priced provisions
and are settled by physical delivery. The contracts with variable-pricing
provisions are exposed to fluctuations in prices due to unpredictable factors,
such as weather, which impacts supply and demand. However, the Company's
exposure to fuel price risk is substantially mitigated through the operation of
its fuel clauses for Texas and wholesale customers as described above.
36
<PAGE>
Pursuant to the New Mexico Settlement, fuel costs are recovered through the
Company's base rates and are not subject to periodic reconciliation for
fluctuations in fuel costs. The near-term losses from reasonably possible near-
term changes in market prices as they relate to the commodity price risk
exposure for New Mexico fuel costs are not expected to be material to the
Company's financial position, results of operations and cash flow.
In the normal course of business, the Company utilizes contracts of various
duration for the forward sale and purchases of electricity to effectively manage
its available generating capacity. Such contracts include forward contracts for
wholesale sales of generating capacity and energy during periods when the
Company's available power resources are expected to exceed the requirements of
its native load and wholesale customers. It may also include forward contracts
for the purchase of wholesale capacity and energy during periods when the market
price of electricity is below the Company's expected incremental power
production costs. At December 31, 1998, there were no material open positions in
these activities.
37
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................................................. 39
Balance Sheets at December 31, 1998 and 1997................................................. 40
Statements of Operations for the years ended December 31, 1998, December 31, 1997, the
period from February 12 to December 31, 1996, and the period from January 1 to February 11,
1996........................................................................................ 42
Statements of Comprehensive Operations for the years ended December 31, 1998, December 31,
1997, the period from February 12 to December 31, 1996, and the period from January 1 to
February 11, 1996........................................................................... 43
Statements of Changes in Common Stock Equity (Deficit) for the period from January 1 to
February 11, 1996, the period from February 12 to December 31, 1996, the year ended
December 31, 1997 and the year ended December 31, 1998...................................... 44
Statements of Cash Flows for the years ended December 31, 1998, December 31, 1997, the
period from February 12 to December 31, 1996, and the period from January 1 to February 11,
1996........................................................................................ 45
Notes to Financial Statements................................................................ 46
</TABLE>
38
<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 as
of December 31, 1998 and 1997 and the related statements of operations,
comprehensive operations, changes in common stock equity (deficit), and cash
flows for the years ended December 31, 1998 and 1997, the period February 12,
1996 to December 31, 1996, and the period January 1, 1996 to February 11, 1996.
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, the Company emerged
from bankruptcy on February 12, 1996. 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, 1998 and 1997, and the results of its operations and its cash flows
for the years ended December 31, 1998 and 1997, the period February 12, 1996 to
December 31, 1996, and the period January 1, 1996 to February 11, 1996, in
conformity with generally accepted accounting principles.
KPMG LLP
El Paso, Texas
February 5, 1999
39
<PAGE>
EL PASO ELECTRIC COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS DECEMBER 31,
-----------------------------------------
(IN THOUSANDS) 1998 1997
------------------ ------------------
<S> <C> <C>
UTILITY PLANT:
Electric plant in service........................................ $ 1,599,207 $ 1,538,572
Less accumulated depreciation and amortization................... 243,405 164,283
------------------ ------------------
Net plant in service.......................................... 1,355,802 1,374,289
Construction work in progress.................................... 54,641 43,761
Nuclear fuel; includes fuel in process of $8,031 and
$9,910, respectively.......................................... 89,784 86,609
Less accumulated amortization.................................... 45,691 40,142
------------------ ------------------
Net nuclear fuel.............................................. 44,093 46,467
------------------ ------------------
Net utility plant........................................... 1,454,536 1,464,517
------------------ ------------------
CURRENT ASSETS:
Cash and temporary investments................................... 229,150 111,227
Accounts receivable, principally trade, net of allowance for
doubtful accounts of $1,738 and $5,124, respectively.......... 64,735 58,960
Inventories, at cost............................................. 27,537 27,130
Net undercollection of fuel revenues............................. - 13,870
Prepayments and other............................................ 16,896 6,930
------------------ ------------------
Total current assets........................................ 338,318 218,117
------------------ ------------------
LONG-TERM CONTRACT RECEIVABLE...................................... 23,139 27,659
------------------ ------------------
DEFERRED CHARGES AND OTHER ASSETS:
Accumulated deferred income taxes, net........................... 10,518 43,208
Decommissioning trust funds...................................... 46,725 38,438
Other............................................................ 17,983 20,674
------------------ ------------------
Total deferred charges and other assets..................... 75,226 102,320
------------------ ------------------
TOTAL ASSETS................................................ $ 1,891,219 $ 1,812,613
================== ==================
</TABLE>
See accompanying notes to financial statements.
40
<PAGE>
EL PASO ELECTRIC COMPANY
BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
CAPITALIZATION AND LIABILITIES DECEMBER 31,
--------------------------------
(IN THOUSANDS EXCEPT FOR SHARE DATA) 1998 1997
------------- -----------------
<S> <C> <C>
CAPITALIZATION:
Common stock, stated value $1 per share, 100,000,000 shares authorized,
60,122,377 and 60,060,034 shares issued and outstanding; and
147,985 and 196,404 restricted shares, respectively............................................ $ 60,270 $ 60,256
Capital in excess of stated value............................................................... 241,325 241,222
Unearned compensation - restricted stock awards................................................. (611) (1,138)
Retained earnings............................................................................... 115,193 69,484
Accumulated other comprehensive income (loss) (unrealized gains (losses)
on marketable securities), net of tax........................................................ 1,101 (184)
----------- --------------
Common stock equity......................................................................... 417,278 369,640
Preferred stock, cumulative, no par value, 2,000,000 shares authorized:
Redemption required - 1,357,444 and 1,213,188 shares issued and
outstanding, respectively; at liquidation preference.......................................... 135,744 121,319
Long-term debt.................................................................................. 872,213 938,562
Financing and capital lease obligations......................................................... 24,849 28,248
----------- --------------
Total capitalization...................................................................... 1,450,084 1,457,769
----------- --------------
CURRENT LIABILITIES:
Current maturities of long-term debt and financing and capital lease
obligations.................................................................................. 63,817 28,463
Accounts payable, principally trade............................................................. 31,135 24,957
Taxes accrued other than federal income taxes................................................... 20,316 19,292
Interest accrued................................................................................ 20,412 21,172
Net overcollection of fuel revenues............................................................. 2,632 -
Other........................................................................................... 19,359 17,439
----------- --------------
Total current liabilities................................................................. 157,671 111,323
----------- --------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Decommissioning................................................................................. 129,750 94,917
Accrued postretirement benefit liability........................................................ 80,477 75,531
Accrued pension liability....................................................................... 33,880 33,909
Other........................................................................................... 39,357 39,164
----------- --------------
Total deferred credits and other liabilities.............................................. 283,464 243,521
----------- --------------
COMMITMENTS AND CONTINGENCIES
TOTAL CAPITALIZATION AND LIABILITIES...................................................... $ 1,891,219 $ 1,812,613
=========== ==============
</TABLE>
See accompanying notes to financial statements.
41
<PAGE>
EL PASO ELECTRIC COMPANY
STATEMENTS OF OPERATIONS
(In thousands except for share data)
<TABLE>
<CAPTION>
PERIOD FROM | PERIOD FROM
FEBRUARY 12 | JANUARY 1
TO | TO
YEARS ENDED DECEMBER 31, DECEMBER 31, | FEBRUARY 11,
------------------------------- |
1998 1997 1996 | 1996
----------- ----------- ----------- | -----------
<S> <C> <C> <C> | <C>
OPERATING REVENUES.............................................. $ 602,221 $ 594,038 $ 523,974 | $ 54,949
----------- ----------- ----------- | -----------
ENERGY EXPENSES: |
Fuel.......................................................... 109,450 113,457 92,899 | 10,125
Purchased and interchanged power.............................. 20,610 20,130 17,821 | 2,282
----------- ----------- ----------- | -----------
130,060 133,587 110,720 | 12,407
----------- ----------- ----------- | -----------
OPERATING REVENUES NET OF ENERGY EXPENSES....................... 472,161 460,451 413,254 | 42,542
----------- ----------- ----------- | -----------
OTHER OPERATING EXPENSES: |
Other operations.............................................. 134,250 131,916 115,742 | 23,559
Maintenance................................................... 34,955 34,782 34,702 | 4,743
New Mexico Settlement charge.................................. 6,272 - - | -
Depreciation and amortization................................. 89,813 88,735 79,772 | 6,577
Taxes other than income taxes................................. 44,332 43,351 38,547 | 6,024
----------- ----------- ----------- | -----------
309,622 298,784 268,763 | 40,903
----------- ----------- ----------- | -----------
OPERATING INCOME................................................ 162,539 161,667 144,491 | 1,639
----------- ----------- ----------- | -----------
OTHER INCOME (DEDUCTIONS): |
Investment income............................................. 11,506 6,095 4,796 | -
Litigation settlement, net.................................... - 7,500 - | -
Settlement of bankruptcy professional fees.................... 1,261 362 2,305 | -
Gain on sale of investment.................................... - - 3,844 | -
Other, net.................................................... (1,730) 162 (681) | 50
----------- ----------- ----------- | -----------
11,037 14,119 10,264 | 50
----------- ----------- ----------- | -----------
INCOME BEFORE INTEREST CHARGES.................................. 173,576 175,786 154,755 | 1,689
----------- ----------- ----------- | -----------
INTEREST CHARGES (CREDITS): |
Interest on long-term debt.................................... 80,967 86,117 85,633 | -
Other interest................................................ 7,198 6,200 5,722 | -
Interest during reorganization................................ - - - | 9,569
Interest capitalized and deferred............................. (6,400) (5,875) (5,189) | (412)
----------- ----------- ----------- | -----------
81,765 86,442 86,166 | 9,157
----------- ----------- ----------- | -----------
INCOME (LOSS) BEFORE INCOME TAXES............................... 91,811 89,344 68,589 | (7,468)
INCOME TAX EXPENSE (BENEFIT).................................... 34,738 34,776 26,670 | (3,415)
----------- ----------- ----------- | -----------
INCOME (LOSS) BEFORE REORGANIZATION ITEMS |
AND EXTRAORDINARY ITEMS....................................... 57,073 54,568 41,919 | (4,053)
REORGANIZATION ITEMS, NET OF INCOME TAX BENEFIT................. - - - | 122,251
----------- ----------- ----------- | -----------
INCOME BEFORE EXTRAORDINARY ITEMS............................... 57,073 54,568 41,919 | 118,198
----------- ----------- ----------- | -----------
EXTRAORDINARY ITEMS: |
Extraordinary gain on discharge of debt, net of |
income tax expense......................................... 3,343 - - | 264,273
Extraordinary loss on repurchases of debt, net of |
federal income tax benefit................................. - (2,775) - | -
----------- ----------- ----------- | -----------
3,343 (2,775) - | 264,273
----------- ----------- ----------- | -----------
NET INCOME...................................................... 60,416 51,793 41,919 | 382,471
PREFERRED STOCK DIVIDEND REQUIREMENTS........................... 14,707 13,144 10,488 | -
----------- ----------- ----------- | -----------
NET INCOME APPLICABLE TO COMMON STOCK........................... $ 45,709 $ 38,649 $ 31,431 | $ 382,471
=========== =========== =========== | ===========
BASIC EARNINGS PER COMMON SHARE: |
Income before extraordinary items............................. $ 0.704 $ 0.689 $ 0.523 | $ 3.325
Extraordinary gain on discharge of debt, net of |
income tax expense......................................... 0.056 - - | 7.435
Extraordinary loss on repurchases of debt, net of |
federal income tax benefit................................. - (0.046) - | -
----------- ----------- ----------- | -----------
Net income................................................. $ 0.760 $ 0.643 $ 0.523 | $ 10.760
=========== =========== =========== | ===========
DILUTED EARNINGS PER COMMON SHARE: |
Income before extraordinary items............................. $ 0.699 $ 0.685 $ 0.523 | $ 3.325
Extraordinary gain on discharge of debt, net of |
income tax expense......................................... 0.055 - - | 7.435
Extraordinary loss on repurchases of debt, net of |
federal income tax benefit................................. - (0.046) - | -
----------- ----------- ----------- | -----------
Net income................................................. $ 0.754 $ 0.639 $ 0.523 | $ 10.760
=========== =========== =========== | ===========
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES |
OUTSTANDING................................................... 60,168,234 60,128,505 60,073,808 | 35,544,330
=========== =========== =========== | ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND |
DILUTIVE POTENTIAL COMMON SHARES OUTSTANDING.................. 60,633,298 60,437,632 60,116,709 | 35,544,330
=========== =========== =========== | ===========
</TABLE>
See accompanying notes to financial statements.
42
<PAGE>
EL PASO ELECTRIC COMPANY
STATEMENTS OF COMPREHENSIVE OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
PERIOD FROM | PERIOD FROM
FEBRUARY 12 | JANUARY 1
TO | TO
YEARS ENDED DECEMBER 31, DECEMBER 31, | FEBRUARY 11,
------------------------- |
1998 1997 1996 | 1996
----------- ---------- ------------ | -----------
<S> <C> <C> <C> | <C>
NET INCOME...................................................... $ 60,416 $ 51,793 $ 41,919 | $ 382,471
OTHER COMPREHENSIVE INCOME (LOSS): |
Net unrealized gain (loss) on marketable securities, net |
of federal income tax (expense) benefit of $(690), |
$223, $(125) and $ - , respectively....................... 1,285 (416) 232 | -
Reclassification adjustment included in net |
income, net of federal income tax benefit of $93........... - - - | (172)
---------- ----------- ----------- | -----------
COMPREHENSIVE INCOME............................................ 61,701 51,377 42,151 | 382,299
PREFERRED STOCK DIVIDEND REQUIREMENTS........................... 14,707 13,144 10,488 | -
----------- ----------- ------------ | -----------
COMPREHENSIVE INCOME APPLICABLE TO COMMON STOCK................. $ 46,994 $ 38,233 $ 31,663 | $ 382,299
========== =========== ============ | ===========
</TABLE>
See accompanying notes to financial statements.
43
<PAGE>
EL PASO ELECTRIC COMPANY
STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (DEFICIT)
(IN THOUSANDS EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
UNEARNED
COMPENSATION- ACCUMULATED
CAPITAL IN RESTRICTED RETAINED OTHER
COMMON STOCK EXCESS OF STOCK EARNINGS COMPREHENSIVE
------------------------
SHARES AMOUNT STATED VALUE AWARDS (DEFICIT) INCOME (LOSS)
------------ ---------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1995.......... 35,544,330 $ 339,097 $ - $ - $(758,032) $ 172
Net income............................ 382,471
Elimination of predecessor equity
accounts............................ (35,544,330) (339,097) 339,097
Effects of fresh-start reporting
adjustment to common stock equity... 36,464 (172)
----------- --------- ------------ ------------- --------- -----------
BALANCES AT FEBRUARY 11, 1996.......... - - - - - -
- -------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock upon
reorganization...................... 59,999,981 60,000 240,000
Capital stock expense................. (596)
Grants of restricted common
stock............................... 180,000 180 768 (948)
Amortization of unearned
compensation........................ 190
Preferred stock dividends............. (10,488)
Net income............................ 41,919
Other comprehensive income............ 232
----------- --------- ------------ ------------- --------- -----------
BALANCES AT DECEMBER 31, 1996.......... 60,179,981 60,180 240,768 (758) 30,835 232
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............. (13,144)
Net income............................ 51,793
Other comprehensive loss.............. (416)
----------- --------- ------------ ------------- --------- -----------
BALANCES AT DECEMBER 31, 1997.......... 60,256,438 60,256 241,222 (1,138) 69,484 (184)
Grants of restricted common
stock............................... 26,675 27 169 (196)
Amortization of unearned
compensation........................ 709
Repurchase of unrestricted
common stock........................ (10,843) (11) (54)
Forfeitures of restricted common
stock............................... (1,908) (2) (12) 14
Preferred stock dividends............. (14,707)
Net income............................ 60,416
Other comprehensive income............ 1,285
----------- --------- ------------ ------------- --------- -----------
BALANCES AT DECEMBER 31, 1998.......... 60,270,362 $ 60,270 $ 241,325 $ (611) $ 115,193 $ 1,101
=========== ========= ============ ============= ========= ===========
<CAPTION>
TOTAL
COMMON
STOCK
EQUITY
(DEFICIT)
-----------
<S> <C>
BALANCES AT DECEMBER 31, 1995.......... $ (418,763)
Net income............................ 382,471
Elimination of predecessor equity
accounts............................ -
Effects of fresh-start reporting
adjustment to common stock equity... 36,292
----------
BALANCES AT FEBRUARY 11, 1996.......... -
- ---------------------------------------------------
Issuance of common stock upon
reorganization...................... 300,000
Capital stock expense................. (596)
Grants of restricted common
stock............................... -
Amortization of unearned
compensation........................ 190
Preferred stock dividends............. (10,488)
Net income............................ 41,919
Other comprehensive income............ 232
----------
BALANCES AT DECEMBER 31, 1996.......... 331,257
Grants of restricted common
stock............................... -
Amortization of unearned
compensation........................ 195
Repurchase of unrestricted
common stock........................ (45)
Preferred stock dividends............. (13,144)
Net income............................ 51,793
Other comprehensive loss.............. (416)
----------
BALANCES AT DECEMBER 31, 1997.......... 369,640
Grants of restricted common
stock............................... -
Amortization of unearned
compensation........................ 709
Repurchase of unrestricted
common stock........................ (65)
Forfeitures of restricted common
stock............................... -
Preferred stock dividends............. (14,707)
Net income............................ 60,416
Other comprehensive income............ 1,285
----------
BALANCES AT DECEMBER 31, 1998.......... $ 417,278
==========
</TABLE>
See accompanying notes to financial statements.
44
<PAGE>
EL PASO ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM | PERIOD FROM
FEBRUARY 12 | JANUARY 1
TO | TO
YEARS ENDED DECEMBER 31, DECEMBER 31, | FEBRUARY 11,
-------------------------- |
1998 1997 1996 | 1996
----------- ----------- ------------- | -------------
<S> <C> <C> <C> | <C>
CASH FLOWS FROM OPERATING ACTIVITIES: |
Net income........................................................ $ 60,416 $ 51,793 $ 41,919 | $ 382,471
Adjustments to reconcile net income to net cash provided |
by operating activities: |
Depreciation and amortization................................... 113,259 111,622 99,355 | 8,246
Deferred income taxes and investment tax credit, net............ 29,854 32,394 41,341 | (3,116)
New Mexico Settlement charge.................................... 6,272 - - | -
Other operating activities...................................... 3,919 2,552 2,487 | (805)
Extraordinary gain on discharge of debt, net of |
income tax expense............................................ (3,343) - - | (264,273)
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)
Change in: |
Accounts receivable............................................. (5,775) (1,373) 3,513 | 5,429
Federal income tax receivable................................... - 20,713 (20,713) | -
Inventories..................................................... (407) 1,192 (32) | 90
Prepayments and other........................................... (4,479) 1,797 (1,974) | 34
Long-term contract receivable................................... 4,520 3,398 2,333 | 293
Accounts payable................................................ 6,178 (12,258) (4,038) | (6,859)
Interest accrued................................................ (760) (1,978) 23,034 | -
Net under/overcollection of fuel revenues....................... 10,230 (11,945) (12,709) | 417
Other current liabilities....................................... 2,906 386 (1,242) | (152)
Deferred charges and credits.................................... 10,445 5,520 (1,117) | 1,994
Obligations subject to compromise............................... - - - | 9,430
Revenues subject to refund...................................... - - - | 2,785
-------- -------- --------- | -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES..................... 233,235 206,588 168,313 | 13,733
-------- -------- --------- | -----------
CASH FLOWS FROM INVESTING ACTIVITIES: |
Cash additions to utility property, plant and equipment........... (49,787) (46,467) (33,926) | (4,724)
Cash additions to nuclear fuel.................................... (15,409) (22,539) (14,123) | (3,040)
Interest capitalized to utility property, plant and |
equipment and nuclear fuel...................................... (6,400) (5,875) (5,189) | (412)
Investment in decommissioning trust funds......................... (6,312) (6,023) (5,960) | (553)
Other investing activities........................................ (2,623) (550) (108) | -
Proceeds from sale of investment.................................. - - 20,183 | -
-------- -------- --------- | -----------
NET CASH USED FOR INVESTING ACTIVITIES........................ (80,531) (81,454) (39,123) | (8,729)
-------- -------- --------- | -----------
CASH FLOWS FROM FINANCING ACTIVITIES: |
Repurchases of and payments on long-term debt..................... (30,698) (86,771) (117,528) | -
Net (repayments of) proceeds from financing obligations........... (2,683) 5,369 3,320 | 43,309
Redemption of capital lease obligations........................... (1,400) (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)
-------- -------- --------- | -----------
NET CASH USED FOR FINANCING ACTIVITIES........................ (34,781) (82,674) (115,168) | (212,766)
-------- -------- --------- | -----------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS........... 117,923 42,460 14,022 | (207,762)
CASH AND TEMPORARY INVESTMENTS AT BEGINNING OF PERIOD............... 111,227 68,767 54,745 | 262,507
-------- -------- --------- | -----------
CASH AND TEMPORARY INVESTMENTS AT END OF PERIOD..................... $229,150 $111,227 $ 68,767 | $ 54,745
======== ======== ========= | ===========
</TABLE>
See accompanying notes to financial statements.
45
<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.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and 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 from a bankruptcy proceeding which it instituted in January
1992. As a result of the Company's emergence from bankruptcy (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 Predecessor Company's voluntary petition
for reorganization (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 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, the Company applied "fresh-start" 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
46
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
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. Certain gains and losses that are not recognized
currently in the statements of operations are reported as other comprehensive
income in accordance with SFAS No. 130, "Reporting Comprehensive Income."
Utility Plant. Upon adoption of fresh-start reporting, the Company
revalued its utility plant. As of the Effective Date, 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
the Effective Date are reported at historical cost. Depreciation is provided on
a straight-line basis over the estimated remaining lives of the assets (ranging
from 5 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 "Texas Rate Stipulation"). Amortization of intangible
plant (software) is provided on a straight-line basis over the estimated useful
life of the asset (primarily three years).
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 recorded 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 kWh generated.
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.
47
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
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 equity securities and municipal bonds in trust
funds established for decommissioning of its interest in Palo Verde which had a
fair market value of approximately $46.7 million at December 31, 1998. 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 common stock equity.
Inventories. Inventories, primarily parts, materials and supplies are
stated at average cost not to exceed recoverable cost.
Operating Revenues Net of Energy Expenses. The Company accrues revenues
for services rendered but unbilled. Energy expenses are stated at actual cost
incurred. The Company's Texas retail customers are presently being billed under
fixed fuel factors approved by the Texas Commission. Rate tariffs currently
applicable to certain FERC jurisdictional customers contain appropriate fuel and
purchased power cost adjustment provisions designed to recover the Company's
fuel and purchased power costs. Any difference between fuel cost and cash
recovered from the Company's Texas and FERC jurisdictional customers is
reflected as net over/undercollection of fuel revenues in the balance sheets.
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. In 1997, the Company adopted the provisions of SFAS
No. 128, "Earnings per Share," which establishes standards for computing and
presenting earnings per share. All per share amounts for prior periods
presented have been restated to conform to the new standard. Basic earnings per
common share is computed by dividing net income, after deducting the preferred
stock dividend requirements, by the weighted average number of common shares
outstanding. Diluted earnings per common share is computed by dividing net
income, after deducting the preferred stock dividend requirements, by the
weighted average number of common shares and dilutive potential common shares
outstanding.
Benefit Plans. See Note J for accounting policies regarding the Company's
retirement plans and postretirement benefits.
48
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
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 restricted stock awards is shown as a
reduction of common stock equity.
Reclassifications. Certain amounts in the financial statements for 1997
and 1996 have been reclassified to conform with the 1998 presentation.
49
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
SUPPLEMENTAL STATEMENTS OF CASH FLOW DISCLOSURES (IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM | PERIOD FROM
FEBRUARY 12 | JANUARY 1
YEARS ENDED TO | TO
DECEMBER 31, DECEMBER 31, | FEBRUARY 11,
----------------------------------- |
1998 1997 1996 | 1996
-------------- --------------- ------------ | ------------
<S> <C> <C> <C> | <C>
Cash paid (refunded) for: |
Income taxes paid............................ $ 2,900 $ 2,901 $ 353 | $ -
Income taxes refunded........................ - (20,713) (2,857) | -
Interest on long-term debt................... 74,537 81,293 57,288 | 8,580
Reorganization items - professional |
fees and other............................. 4,310 3,264 8,910 | 2,279
|
Non-cash investing and financing activities: |
Issuance of preferred stock for |
pay-in-kind dividends.................... 14,425 12,893 8,426 | -
Grants of restricted shares of |
common stock............................... 196 575 948 | -
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
GENERAL
The electric utility industry faces increasing pressure to become more
competitive as legislative, regulatory, economic and technological changes
occur. Federal and state legislative and regulatory initiatives, including
proposals advanced in Texas and New Mexico, are designed to 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 diminish the ability of the Company to fully
recover its
50
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
investment in generation 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, the Company may not be able to
sustain retail rates at the levels established by the Texas Settlement Agreement
and New Mexico Settlement discussed below through the periods specified by those
agreements and, therefore, the Company's results of operations and cash flow may
be adversely affected.
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 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.
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.
In January of each odd-numbered year, the Texas Commission is required to
report to the Texas Legislature on the scope of competition in electric markets
and the effect of competition and industry restructuring on customers in both
competitive and noncompetitive markets. In its January 1997 report, the Texas
Commission 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. In its January
1999 report, the Texas Commission, while not making a specific recommendation
regarding restructuring legislation, reaffirmed its continued support for the
timely move to a competitive retail market that provides adequate protections
for customers and the opportunity for all market participants to benefit. Also,
in 1998 the Texas Commission reported revised "excess of cost over market"
("ECOM") estimates, which is a means of measuring stranded costs for all Texas
utilities. 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.
In 1997, the Texas Lieutenant Governor appointed a special interim
committee to study the various issues involved in a possible transition to a
competitive retail market. The committee held public hearings across the state
receiving testimony from various parties, including investor-owned utilities,
electric cooperatives, public power entities, power marketers, consumer
advocates, environmental advocates and the public. On behalf of all investor-
owned utilities, including the Company, the Association of Electric Companies of
Texas 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. In January 1999,
51
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
the special interim committee submitted its final report without specific
legislative recommendations. The final report addresses various issues
specifically associated with the development of a competitive retail electric
market, particularly the structure of the market, stranded costs and market
power concerns. The report states that competition in the electric power market
has the potential to benefit all Texans, but restructuring the industry should
only be undertaken with the utmost caution. The report also includes a summary
of the state and local tax issues from a report by the Texas Comptroller of
Public Accounts, which concludes that market-based revaluation of generation
assets, unbundling and possible divestiture of assets and other aspects of
restructuring will have an impact on local and state tax bases and revenues.
Three comprehensive restructuring bills have been introduced in the 1999
Texas biennial legislative session, one of which was co-sponsored by several of
the senators comprising the special interim committee, including the chairman of
that committee. The Company cannot assure that any legislation will
specifically recognize and accommodate the substantial benefits bargained for by
the Company and the various parties to the Texas Rate Stipulation and the Texas
Settlement Agreement discussed below. Any legislation that does not permit the
Company to recover the costs reflected in rates under the Texas Rate Stipulation
and the Texas Settlement Agreement could have a material adverse impact on the
Company's financial condition, results of operations and cash flow.
Texas Rate Stipulation and Texas Settlement Agreement. The Company's rates
for its Texas customers are governed by a rate order entered by the Texas
Commission adopting the Texas Rate Stipulation and Agreed Order. The Agreed
Order implemented certain provisions of the Texas Rate Stipulation and set rates
consistent with the Texas Rate Stipulation. Among other things, under the Texas
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
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 Texas 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 Texas Rate Stipulation (other than the Texas
Commission, 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 Texas Rate
Stipulation retain all rights provided in the Texas 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.
52
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EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
Following the New Mexico Settlement (see "New Mexico Rate Matters - New
Mexico Settlement," below), the Company offered to enter into a comparable
agreement in Texas. Based upon that offer, the Company entered into the Texas
Settlement Agreement providing for: (i) a total annual jurisdictional base
revenue reduction of approximately $15.4 million; (ii) reconciliation of the
Company's fuel expenses through December 31, 1998, with no disallowance; and
(iii) an agreement to use 50% of all Palo Verde performance rewards related to
evaluation periods after 1997, when collected, for low-income assistance and for
Demand-Side Management ("DSM") programs, primarily focused on small business
customers, through the end of the Freeze Period. See "Integrated Resource Plan"
below. The parties have executed the Texas Settlement Agreement and filed it
with the Texas Commission, the City of El Paso and all other municipalities
having jurisdiction. The Company anticipates the Texas Commission will consider
and approve the Texas Settlement Agreement in the near future.
Fuel. Pursuant to Texas Commission rules, the Company must periodically
make a filing to reconcile the revenues collected from Texas customers under its
fixed fuel factor with the actual fuel and purchased power expenses incurred.
Differences between revenues collected and expenses incurred during the
reconciliation period are subject to a refund (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 prudence of fuel and purchased power expenses.
The Company's fuel expenses for its most recent reconciliation period of July
1995 through December 1998 were approved, without disallowance, as part of the
Texas Settlement Agreement.
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 Texas Rate Stipulation and the Texas
Settlement Agreement. The removal of Palo Verde from rate base could have a
significant negative impact on the Company's revenues and financial condition.
Performance rewards and penalties for the evaluation periods ending in 1995,
1996 and 1997, as well as agreement regarding disposition of any future awards,
have been resolved in the Texas Settlement Agreement and the Integrated Resource
Plan ("IRP") stipulation.
Integrated Resource Plan. Under Texas law and regulations of the Texas
Commission, the Company was required to file its first IRP in June 1998. An IRP
is to be filed every three years and covers a ten-year planning period. The
Company's IRP was the culmination of a lengthy planning process involving the
Company, its customers, the Texas Commission, consumer advocates and various
special interest groups. The purpose of integrated resource planning is to
ensure acquisition of the lowest cost, adequate resources necessary to meet the
varied needs of the Company and its customers, and to ensure the equitable
allocation and distribution of the benefits of such resource acquisitions and
other system benefits to all customer classes. The Company entered into an
agreement with all parties with respect to all IRP issues, and a Texas
Commission order adopting the agreement was issued in January 1999. Pursuant to
the agreement, the Company will meet its resource needs through a combination of
short-
53
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
term purchased power and a DSM program. Pursuant to the IRP, the Company expects
to incur DSM expenditures annually of approximately $1.0 million through 2001.
Additionally, in response to interest expressed by its customers and
encouragement from the Texas Commission and environmental advocates, the Company
has committed to the development of renewable resources. Pursuant to the
stipulation settling the IRP, the Company has pledged $3.6 million of Palo Verde
performance rewards expected to be collected by the Company as a result of the
Texas Settlement Agreement as initial financing for the development of renewable
resources. Finally, the Company has committed to fund low-income DSM programs
for a three-year period beginning in 1999. The amount of the Company's DSM
commitment totals approximately $1.0 million over the three-year period. The
Company does not believe the IRP agreement will cause it to incur net costs
materially in excess of those that would have been incurred in the absence of
its IRP. Nevertheless, because of the Texas Rate Stipulation and the Texas
Settlement Agreement, the Company will not be able to increase its rates to
recover any increase in net costs actually experienced as a result of its IRP.
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. In January
1999, pursuant to a state constitutional amendment passed in 1996, the three-
member appointed commission was replaced by an elected commission from five
single-member districts, with regulatory responsibility for electricity, gas,
water, telecommunications, insurance and securities activities within the state.
The Company's New Mexico service area falls entirely within one district. The
largest city in the Company's New Mexico service territory is the City of Las
Cruces ("Las Cruces"), which in 1998 accounted for approximately 8% of the
Company's total revenue.
Since 1995, the New Mexico Commission has conducted hearings and
facilitated debate regarding competition and the restructuring of regulation of
the electric industry. Although these efforts failed to result in 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.
In addition to efforts by the New Mexico Commission, the Interim Water and
Natural Resources Committee, a joint legislative committee with oversight
responsibility for the regulation of public utilities, has conducted public
meetings and taken testimony regarding the potential effects of industry
restructuring in New Mexico. The chairman of this committee has introduced a
comprehensive restructuring bill in the 1999 New Mexico legislative session.
Under this bill, retail customer choice would begin January 1, 2001, for public
post-secondary educational institutions and public schools and for residential
and small business customers. Retail customer choice would begin January 1,
2002, for all other customers. Utilities would be allowed to recover no less
than 50% of its stranded costs with up to 100% recovery allowed if the New
Mexico Commission determines that additional recovery is in the public interest,
is necessary to maintain the utility's financial integrity or is necessary to
continue
54
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
adequate and reliable service and will not cause an increase in rates to
residential and small business customers. Utilities would also be required to
file transition plans addressing the various restructuring issues, including the
recovery of stranded costs, by March 1, 2000. The New Mexico Commission could
delay implementation of retail customer choice for up to one year. The
chairman's bill passed both houses of the legislature before the end of the
session and is currently awaiting the signature of the governor to become law.
The Company cannot predict whether the governor will sign or veto the
restructuring legislation, nor whether the implementation of such legislation,
if signed into law, will impact the Company's revenues and recovery of costs
contemplated under the New Mexico Settlement, discussed below.
New Mexico Settlement. In October 1996, the New Mexico Commission issued
an order requiring the Company to answer certain ratepayer complaints and to
file a rate filing package, including cost of service data and supporting
testimony. On July 15, 1998, the Company entered into the New Mexico Settlement
with certain parties to its pending New Mexico rate case, including the New
Mexico Commission staff and the New Mexico Attorney General, but not Las Cruces.
Following a hearing on the New Mexico Settlement, and after considering Las
Cruces' opposition, the New Mexico Commission issued an order adopting (with
some modification) the New Mexico Settlement on September 24, 1998. The New
Mexico Settlement provides for (i) a total annual jurisdictional base revenue
reduction of $4.6 million; (ii) a 30-month moratorium on rate increases or
decreases in New Mexico; (iii) the elimination of the need for future fuel
reconciliations in New Mexico by incorporating the existing fixed fuel factor
into rates; (iv) an increased degree of ratemaking certainty for the future
achieved by an agreement among the signatories reducing the net value of certain
assets by approximately $40 million on a New Mexico jurisdictional basis for
ratemaking purposes (but with no effect on book values), while establishing the
signatories' agreement that the Company is entitled to 100% recovery of such
revalued assets; and (v) the ability to enter into long-term rate contracts with
commercial and industrial customers in New Mexico. The New Mexico Settlement
became effective on October 26, 1998. Additionally, as a result of the New
Mexico Settlement, the Company will contribute $0.4 million annually ($1.0
million over the term of the moratorium period) to a social services agency in
Dona Ana County providing assistance to low-income individuals. Although the
New Mexico Settlement was structured to allow recovery of previously
underrecovered fuel balances, the order adopting the New Mexico Settlement does
not support the recognition of this asset in the Company's financial statements
under existing accounting standards. The Company wrote off the book value of
undercollected fuel revenues in its New Mexico jurisdiction as of September 30,
1998, which amounted to $3.8 million, net of tax, although the Company believes
that, based on current estimates of future fuel prices and operating costs, it
will recover 100% of these amounts. The Company negotiated the New Mexico
Settlement so as to substantially reduce the likelihood of additional rate
reductions during the moratorium period. However, in light of the national
emphasis on competition, there can be no assurance that the Company will be able
to maintain its rates at the new levels.
Fuel. Prior to the New Mexico Settlement, the Company was required to make
annual filings reconciling the revenues collected under its New Mexico fixed
fuel factor with its New Mexico fuel and purchased power expenses, along with
the results of the application of Palo Verde performance standards. As a result
of the New Mexico Settlement, outstanding fuel issues from filings in 1997 and
1998 were satisfactorily resolved with no disallowance of fuel and purchased
power costs or the performance rewards and with the existing fixed fuel factor
incorporated into base rates.
55
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
Palo Verde Performance Standards. As a result of the New Mexico
Settlement, the Palo Verde performance standards, which had been in place since
1986, were eliminated. Consequently, the Company is no longer entitled to a
reward or exposed to a penalty in New Mexico resulting from the operations of
Palo Verde. The performance standards report filed with the New Mexico
Commission in January 1998 was the final such report and entitled the Company to
a reward of $1.1 million, which is included in the underrecovered fuel balance
added to the Company's base rates and amortized over a 60-month period.
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.
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 allow access to their transmission
facilities under minimum terms and conditions of non-discriminatory service,
including transmission service for their own new wholesale sales and purchases
of electric energy. 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 stranded costs associated with former power customers and new
municipally-owned entities becoming transmission-only customers as a result of a
utility's 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, which 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.
Pursuant to Order No. 888, the Company filed its non-discriminatory open
access transmission tariffs with the FERC in July 1996. The Company reached a
settlement with the various parties regarding rates for transmission and
ancillary services under these tariffs. However, the settlement, which was
filed with the FERC in March 1997 and approved by the FERC in June 1998, did not
resolve issues that had been raised with respect to the manner in which the
Company will determine the amount of transmission capacity that is available for
use by third parties desiring to use its transmission system. In August 1998, a
FERC administrative law judge issued an Initial Decision in which he concluded
that the manner in which the Company determines the amount of transmission
capacity that is available for use by third parties is reasonable and consistent
with FERC policies. The judge also concluded that the
56
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
Company has no obligation under Order No. 888 to provide back-up generation
services to third parties using its transmission system. Certain parties,
including the Company, have filed exceptions to the Initial Decision. The
Company cannot predict when the FERC will render a final decision on these
issues. The Company does not expect a material financial impact to result from
this 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.
In order to procure a firm supply of electric power to serve its proposed
municipal electric system, Las Cruces filed a request with the FERC in November
1998 for an order requiring the Company to sell wholesale power to Las Cruces
pursuant to Section 202(b) of the Federal Power Act from July 1999 until such
time as Las Cruces is able to secure firm transmission service and back-up
generation service required to enable it to obtain reliable service from
Southwestern Public Service Company ("SPS"). In January 1999, the FERC required
the Company to sell electric energy to Las Cruces at a cost-based wholesale rate
from July 1, 1999 until the earlier of the time Las Cruces begins receiving its
power from a different supplier or one year. The Company submitted a proposed
cost-based rate for the sale of electricity at wholesale to Las Cruces in
compliance with the FERC's order in February 1999. The FERC has asked that all
comments on the Company's compliance filing be submitted by April 2, 1999. The
Company has also filed with the FERC a request for rehearing of the FERC's order
and a motion for a stay of that order pending consideration of its request for
rehearing. Both of these matters are currently pending before the FERC. Upon
final FERC action, the Company may appeal the FERC's order to a United States
Court of Appeals.
Department of Energy. The DOE regulates the Company's exports of power to
the Comision Federal de Electricidad de Mexico ("CFE"), the national electric
utility of Mexico, pursuant to a license granted by the DOE and a presidential
permit. The DOE has determined that all such exports over international
transmission lines shall be made in accordance with Order No. 888. The DOE is
also 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.
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.
WHOLESALE CUSTOMERS
The Company provides Imperial Irrigation District ("IID") with 100
megawatts ("MW") of firm capacity and associated energy and 50 MW of system
contingent capacity and associated energy pursuant to a 17-year agreement which
expires April 30, 2002. The Company also provides Texas-New Mexico Power
Company with up to 75 MW of firm power and associated energy through December
31, 2002. The contract amount for 1999 is 25 MW.
57
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
The Company's one-year 1998 sales agreement for firm capacity and
associated energy to the CFE terminated on December 31, 1998. Revenues under
the contract totaled $34.6 million, representing approximately 5.7% of the
Company's total revenues. The Company does not expect to provide similar
services in 1999 since the CFE's Samalayuca II generation project went into
service in 1998. The Company cannot predict when, or if, future power sales
opportunities to the CFE will materialize, or whether, in the event such
opportunities do materialize, the Company would be the provider.
C. PALO VERDE AND OTHER JOINTLY-OWNED UTILITY PLANT
The Company owns a 15.8% interest in each of the three nuclear generating
units and common facilities at Palo Verde. The Palo Verde Participants include
the Company, five other utilities and Arizona Public Service Company ("APS"),
which serves as 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 7% of Units 4 and 5 at 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, 1998 and 1997 is as follows (In
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------------- --------------------------------
PALO VERDE PALO VERDE
STATION OTHER STATION OTHER
-------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
Electric plant in service........... $602,061 $180,185 $573,218 $180,815
Accumulated depreciation............ (64,595) (40,959) (46,589) (27,078)
Construction work in progress....... 14,084 2,710 12,545 2,249
</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 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 $6.7 million in 1998. 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 each Palo Verde unit over the estimated service life of 40 years.
The Company's funding requirements are determined periodically based upon
engineering cost estimates performed by outside engineers retained by the ANPP.
In December 1998, the Palo Verde Participants approved an updated
decommissioning study. The 1998 study determined that the Company will have to
fund approximately $280.5 million (stated in 1998 dollars) to cover its share of
decommissioning costs. Cost estimates for decommissioning have
58
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
increased with each study. The previous cost estimate from a 1995 study
determined that the Company would have to fund approximately $229 million
(stated in 1995 dollars). The 1998 estimate reflects a 22% increase from the
previous 1995 estimate primarily due to increases in estimated costs for spent
fuel storage after operations have ceased. See "Spent Fuel Storage" below.
Although the 1998 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 2001. See
"Disposal of Low-Level Radioactive Waste" below.
The rate freeze under the Texas Rate Stipulation and the rate reduction
under the Texas Settlement Agreement would preclude the Company from seeking a
rate increase in Texas to recover increases in decommissioning cost estimates.
The New Mexico Settlement would preclude the Company from seeking a rate
increase to recover increases in decommissioning cost estimates during the 30-
month moratorium. Additionally, there can be no assurance that the Company could
increase its wholesale power rates 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, 1998, the fair
market value of the trust funds was approximately $46.7 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. 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.
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 September 2002.
The Company's share of the cost is approximately $12.9 million. Palo Verde
Participants have unanimously approved funding pre-installation activities
through 1999. 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. The costs for the construction and shipping of the
spare steam generators are expected to be incurred through 2002. Installation
costs would be expected to be incurred between 1999 and 2003, subject to
unanimous approval of Palo Verde Participants, 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 $40 million. The Company cannot predict whether the Palo Verde
Participants will agree to install the
59
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
replacement steam generators at Unit 2. 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 Texas Rate Stipulation precludes the Company from seeking a rate
increase 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. Additionally,
there can be no assurance that the Company could increase its wholesale power
rates to recover such capital costs.
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 into 2003.
Alternative on-site storage facilities are currently being constructed to
supplement existing facilities. Spent fuel will be removed from the original
facilities as necessary and placed in special storage casks which will be stored
at the new facilities until accepted by the DOE for permanent disposal. The
alternative facilities will be built in stages to accommodate casks on an as
needed basis and are expected to be available for use by 2003.
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, and it can not currently be estimated
when spent fuel shipments to the DOE's permanent disposal site will commence.
The 1998 decommissioning study assumes that only 14 of 333 spent fuel casks will
have been removed from Palo Verde by 2037 when title to the remaining spent fuel
is assumed to be transferred to the DOE. 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 on the project.
In July 1998, APS filed, on behalf of all Palo Verde Participants, a
Petition for Review with the United States Court of Appeals for the District of
Columbia Circuit regarding the DOE's failure to comply with its obligation to
begin accepting spent nuclear fuel. APS is continuing, on behalf of the Palo
Verde Participants, to pursue remedies under the contractual terms in place with
the DOE. The Company is unable to predict the outcome of this matter at this
time.
Disposal of Low-Level Radioactive Waste. Congress has established
requirements for the disposal by each state of radioactive waste 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
60
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
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. Palo Verde is projected to undergo decommissioning
during the period in which Arizona will act as host for the Southwestern
Compact. However, 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.
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. Effective August 1998, the maximum assessment
per reactor for each nuclear incident is approximately $88.1 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 $41.8 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.
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.
The Company's ability to pay dividends on the common stock for the next
several years will be limited by the financing arrangements entered into
pursuant to the Reorganization. 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 ("S&P") or Moody's Investors Service, Inc.
("Moody's"), 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 any
shares of common stock 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 with respect to 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
61
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
securities; plus (iii) $10 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 and the terms of the amended and restated credit facility
agreement for working capital and fuel financing, the same limitation contained
in the First and Second Supplemental Indentures on the declaration of dividends
would apply to the Company.
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 earlier by the Board
of Directors. The following table summarizes the transactions of the Company's
stock options for 1996, 1997 and 1998:
<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
Options granted..................................... 585,000 7.71
Options exercised................................... - -
Options forfeited................................... - -
---------
Unexercised options outstanding at December 31, 1998..... 2,535,000 6.17
=========
</TABLE>
62
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
Stock option awards provide for vesting periods of up to five years. Stock
options outstanding at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
EXERCISE NUMBER REMAINING NUMBER
PRICE OUTSTANDING LIFE, IN YEARS EXERCISABLE
-------- ----------- ------------------ -------------
<S> <C> <C> <C>
$ 5.32 800,000 7.3 480,000
5.56 800,000 7.4 440,000
6.56 50,000 8.3 50,000
7.00 300,000 7.4 300,000
7.50 525,000 9.0 -
9.50 60,000 9.4 60,000
--------- ---------
2,535,000 1,330,000
========= =========
</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 expense has been recognized. Had compensation
expense for the plan been determined based on the fair value at 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
YEARS ENDED DECEMBER 31, DECEMBER 31,
---------------------------------
1998 1997 1996
---------------- --------------- ------------
<S> <C> <C> <C>
Net income applicable to common
stock (In thousands):
As reported.............................. $ 45,709 $ 38,649 $ 31,431
Pro forma................................ 44,913 38,093 30,337
Basic earnings per share:
As reported.............................. 0.760 0.643 0.523
Pro forma................................ 0.746 0.634 0.505
Diluted earnings per share:
As reported.............................. 0.754 0.639 0.523
Pro forma................................ 0.742 0.630 0.505
</TABLE>
63
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
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 1998, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Risk-free interest rate 5.82% 6.76% 6.85%
Expected life, in years 10 10 10
Expected volatility 7.47% 10.86% 4.24%
Expected dividend yield - - -
Fair value $2.97 $ 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. The market value of
the restricted stock at the time of grant is recorded as unearned compensation
as a separate component of common stock equity and is amortized to expense over
the restriction period. During 1998, 1997 and 1996, approximately $0.5 million,
$0.5 million and $0.2 million, respectively, related to restricted stock awards
was charged to expense. The following table summarizes the vested and unvested
restricted stock awards for 1998, 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 and vesting.................... - - -
------- ------- -------
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
Restricted stock awards............................ - 26,675 26,675
Lapsed restrictions and vesting.................... (40,488) (32,698) (73,186)
Forfeitures........................................ - (1,908) (1,908)
------- ------- -------
Restricted shares outstanding at December 31, 1998... 46,464 101,521 147,985
======= ======= =======
</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.
64
<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>
YEAR ENDED DECEMBER 31, 1998
---------------------------------------------
PER
COMMON
INCOME SHARES SHARE
-------------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Income before extraordinary items............. $ 57,073
Less: Preferred stock dividends............. 14,707
----------
Basic earnings per common share:
Income applicable to common stock............ 42,366 60,168,234 $ 0.704
=========
Effect of dilutive securities:
Stock options................................ - 434,755
Unvested restricted stock.................... - 30,309
---------- ----------
Diluted earnings per common share:
Income applicable to common stock............ $ 42,366 60,633,298 $ 0.699
========== ========== =========
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------
PER
COMMON
INCOME SHARES SHARE
-------------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
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:
Stock options................................ - 293,086
Unvested restricted stock.................... - 16,041
---------- ----------
Diluted earnings per common share:
Income applicable to common stock............ $ 41,424 60,437,632 $ 0.685
========== ========== ========
</TABLE>
65
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PERIOD FROM FEBRUARY 12 TO
DECEMBER 31, 1996
---------------------------------------------
PER
COMMON
INCOME SHARES SHARE
-------------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
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:
Stock options................................ - 38,989
Unvested restricted stock.................... - 3,912
---------- ----------
Diluted earnings per common share:
Income applicable to common stock............ $ 31,431 60,116,709 $ 0.523
========== ========== =========
</TABLE>
Options that have been excluded from the computation of diluted earnings
per common share because the options' exercise price was greater than the
average market price of the common shares for the period are listed below:
1) 300,000 options granted June 11, 1996, at an exercise price of $7.00
have been excluded for the second through fourth quarters of 1997 and
1996;
2) 525,000 options granted January 2, 1998, at an exercise price of $7.50
have been excluded for the first quarter of 1998; and
3) 60,000 options granted May 29, 1998, at an exercise price of $9.50
have been excluded for the second through fourth quarters of 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.
66
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
E. PREFERRED STOCK
The Company issued one million shares of new Series A Preferred Stock on
February 12, 1996. On March 1, 1999, after obtaining required consents of
holders of certain of the Company's outstanding debt securities, the Company
redeemed the Series A Preferred Stock. The Company paid $148.9 million for the
redemption price, accrued cash dividends and premium plus $1.4 million for fees
and costs of securing the consents. The preferred stock had an annual dividend
rate of 11.40%, which was paid through the issuance of additional shares of
preferred stock for the first three years.
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, 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 dividend............................. 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 - -
Issuance of dividends............................ 144,256 14,425 - -
--------- --------- -------------- -------------
Balance at December 31, 1998....................... 1,357,444 $ 135,744 - $ -
========= ========= ============== =============
</TABLE>
67
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
F. LONG-TERM DEBT AND FINANCING AND CAPITAL LEASE OBLIGATIONS
Outstanding long-term debt and financing and capital lease obligations are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
LONG-TERM DEBT:
First Mortgage Bonds (1):
7.25% Series A, issued 1996, due 1999.................................. $ 36,034 $ 66,261
7.75% Series B, issued 1996, due 2001.................................. 62,698 62,698
8.25% Series C, issued 1996, due 2003.................................. 119,292 119,292
8.90% Series D, issued 1996, due 2006.................................. 223,132 223,132
9.40% Series E, issued 1996, due 2011.................................. 273,398 273,398
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 ($88,000 due in 1999) (3)........................ 646 730
--------- ----------
Total long-term debt............................................... 908,335 938,646
--------- ----------
FINANCING AND CAPITAL LEASE OBLIGATIONS:
Nuclear fuel ($25,973,000 due in 1999) (4)................................. 49,316 51,999
Turbine lease ($1,722,000 due in 1999) (5)................................. 3,228 4,628
--------- ----------
Total financing and capital lease obligations...................... 52,544 56,627
--------- ----------
Total long-term debt and financing and capital
lease obligations................................................ 960,879 995,273
CURRENT MATURITIES (amount due within one year).............................. (63,817) (28,463)
--------- ----------
$ 897,062 $ 966,810
========= ==========
</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.
68
<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 1998, 1997 and 1996 are as
follows (In thousands):
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 12
TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
--------------------------------------
1998 1997 1996
--------------- -------------- ------------
<S> <C> <C> <C>
7.25% Series A..................... $ 30,227 $ 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............................ $ 30,227 $ 83,102 $ 117,951
========== ========== ==========
</TABLE>
The Company repaid the remaining $36.0 million of Series A First Mortgage
Bonds at their maturity on February 1, 1999.
(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 5.95% at December 31, 1998. 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) Nuclear Fuel Financing
The Company has available a $100 million credit facility that provides for
up to $70 million for the financing of nuclear fuel and up to $50 million,
depending on the balance of nuclear fuel financings, for working capital.
This financing is effectuated 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.
69
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(5) Capitalized Lease Obligation, Copper Turbine
The Company leases a turbine and certain other related equipment under a
lease which is currently accounted for as a capital lease and expires in
July 2000. 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%. The Company has renewed the lease
through July 2005, with an extension option for two additional years. The
renewal lease will be accounted for as an operating lease and requires
semiannual lease payments of approximately $0.4 million.
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 1998.
Scheduled maturities of long-term debt and financing and capital lease
obligations at December 31, 1998 are as follows (In thousands):
<TABLE>
<S> <C>
1999...................................... $ 63,817
2000...................................... 25,157
2001...................................... 62,797
2002...................................... 104
2003...................................... 119,402
</TABLE>
The table above does not reflect nuclear fuel purchase commitments and related
obligations and maturities.
70
<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,
1998 and 1997 are presented below (In thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---------- -----------
<S> <C> <C>
DEFERRED TAX ASSETS:
Reorganization expenses financed with bonds................. $ 15,777 $ 18,308
Capital leases.............................................. 2,349 2,633
Benefits of tax loss carryforwards.......................... 171,977 222,764
Investment tax credit carryforward.......................... 20,410 20,410
Alternative minimum tax credit carryforward................. 14,719 11,954
Other (including state deferred taxes)...................... 86,078 82,929
--------- ---------
Total gross deferred tax assets.......................... 311,310 358,998
--------- ---------
Less valuation allowance:
Federal.................................................. 12,661 12,661
State.................................................... 16,314 17,149
--------- ---------
Total valuation allowance.............................. 28,975 29,810
--------- ---------
Net deferred tax assets............................. 282,335 329,188
--------- ---------
DEFERRED TAX LIABILITIES:
Plant, principally due to differences in depreciation
and basis differences.................................... (264,175) (275,531)
Other....................................................... (7,642) (10,449)
--------- ---------
Total gross deferred tax liabilities..................... (271,817) (285,980)
--------- ---------
Net accumulated deferred income taxes............... $ 10,518 $ 43,208
========= =========
</TABLE>
The deferred tax asset valuation allowance decreased by approximately $0.8
million in 1998, $0.8 million in 1997 and $226.7 million in 1996. The decreases
in 1998 and 1997 were 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 Texas 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. Based on the average annual book income
before taxes for the prior three years, the Company believes that the net
deferred tax assets will be fully realized at current levels of book and taxable
income. Prior to the Effective Date, the Predecessor Company did not assume
future taxable income for the utilization of NOL carryforwards. Approximately
$26.5 million of the Company's valuation allowance at December 31, 1998, if
subsequently recognized as a tax benefit, would be credited directly to capital
in excess of stated value in accordance with SOP 90-7.
71
<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
YEARS ENDED TO | TO
DECEMBER 31, DECEMBER 31, | FEBRUARY 11,
---------------------------- |
1998 1997 1996 | 1996
------------ ---------- ------------ | ------------
<S> <C> <C> <C> | <C>
INCOME TAX EXPENSE (BENEFIT): |
FEDERAL: |
Current.......................................... $ 2,884 $ 2,382 $ (17,203) | $ -
Deferred......................................... 27,412 28,087 38,828 | (2,340)
Investment tax credit amortization............... - - - | (325)
--------- --------- ---------- | ---------
Subtotal current operations..................... 30,296 30,469 21,625 | (2,665)
Deferred tax expense (benefit) on |
extraordinary items............................. 1,800 (1,494) - | -
Adjustment of assets to reorganization value |
and liabilities to fair value (elimination |
of accumulated deferred investment |
tax credits).................................... - - - | (77,950)
Deferred included in reorganization items........ - - - | (172,899)
Income tax expense on interest income |
during bankruptcy............................... - - - | 583
--------- --------- ---------- | ---------
Total......................................... $ 32,096 $ 28,975 $ 21,625 | $(252,931)
========= ========= ========== | =========
|
STATE: |
Current.......................................... $ - $ - $ 278 | $ 116
Deferred......................................... 4,442 4,307 4,767 | (866)
--------- --------- ---------- | ---------
Subtotal current operations..................... 4,442 4,307 5,045 | (750)
Deferred included in extraordinary items......... 344 - - | -
Deferred included in reorganization items........ - - - | (17,494)
--------- --------- ---------- | ---------
Total......................................... $ 4,786 $ 4,307 $ 5,045 | $ (18,244)
========= ========= ========== | =========
</TABLE>
The current federal income tax expense for 1998 and 1997 results primarily
from the accrual of alternative minimum tax ("AMT"). Deferred federal income
tax includes an offsetting AMT benefit of approximately $2.8 million and $2.4
million for 1998 and 1997, respectively.
The current federal income tax benefit for 1996 results 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 for 1996 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.
72
<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 before federal income tax as follows (In
thousands):
<TABLE>
<CAPTION>
PERIOD FROM | PERIOD FROM
FEBRUARY 12 | JANUARY 1
YEARS ENDED TO | TO
DECEMBER 31, DECEMBER 31, | FEBRUARY 11,
--------------------- |
1998 1997 1996 | 1996
--------- --------- ------------- | -------------
<S> <C> <C> <C> | <C>
Federal income tax expense computed |
on income at statutory rate..................... $32,379 $28,269 $22,240 | $ 45,339
Difference due to: |
ITC amortization (net of deferred taxes)........ - - - | (211)
Nondeductible bankruptcy costs.................. - - - | 3,604
Federal valuation allowance..................... - - - | (204,848)
Adjustment of assets to reorganization value |
and liabilities to fair value (elimination of |
accumulated deferred ITC's).................... - - - | (77,950)
Reorganization costs (including the |
nontaxable extraordinary gain on |
discharge of debt)............................. - - - | (27,745)
Other........................................... (283) 706 (615) | 8,880
------- ------- ------- | ---------
Total federal income tax expense |
(benefit)..................................... $32,096 $28,975 $21,625 | $(252,931)
======= ======= ======= | =========
Effective federal income tax rate............... 34.7% 35.9% 34.0% | (195.3)%
======= ======= ======= | =========
</TABLE>
The Company had approximately $491.4 million of federal tax NOL
carryforwards, approximately $20.4 million of ITC carryforwards and
approximately $14.7 million of AMT credit carryforwards as of December 31, 1998.
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 Company had approximately $468.9
million of state NOL carryforwards which if unused, would expire at the end of
the year 2001. The differences between book and taxable income are primarily due
to depreciation, plant basis differences and deferred fuel costs.
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.
73
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
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 claims by the lessor, regarding the
income tax treatment of the sale/leaseback transactions. The lessor held a
meeting with the IRS in 1998 to discuss these issues. However, these issues are
still pending with the IRS. 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
regulation. 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 (the "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"). PTI discontinued
operations, and the EPA determined that PTI's abandoned facilities required
remediation.
The Company and the PTI Steering Committee, which consists of the largest
generators of the PCBs sent to PTI, executed a settlement agreement. In
consideration for the payment by the Company 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.
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.
74
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
In April 1995, Las Cruces filed a complaint against the Company 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. 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 the city limits and a territory extending five miles beyond the municipal
boundary. In February 1998, the New Mexico Supreme Court ruled that the
subsequent legislation rendered moot the certified question before the Supreme
Court.
In May 1998, the Company filed a complaint before the United States Federal
District Court of New Mexico requesting that the Court find the new law
unconstitutional. The Company's request is based upon its belief that the law
is unconstitutional "special legislation" because it only applies to Las Cruces
and the Company's property. The Company's claims are based on violations of the
equal protection clauses of the New Mexico and federal Constitutions and
violation of the prohibition against special legislation of the New Mexico
Constitution. A trial on the merits has not yet been scheduled by the Court.
On February 26, 1999, Las Cruces filed its Petition for Condemnation and
Application for Immediate Possession. In its Petition for Condemnation, Las
Cruces seeks to condemn the Company's distribution system within the Las Cruces
city limits and other real and personal property owned by the Company used in or
for the benefit of its distribution system. In its Application for Immediate
Possession, Las Cruces seeks possession of the Company's distribution property
in phases beginning on or about July 1, 1999. On March 9, 1999, the Company
removed the Las Cruces petition and application to federal district court in New
Mexico. Following a hearing on a motion for remand filed by Las Cruces, the
court ruled the condemnation matter will stay in federal court. At this time no
hearing on the immediate possession matter has been set. 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.
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 negotiated purchase of the Company's electrical
distribution assets within and adjacent to the Las Cruces city limits.
75
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
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 while receiving
certain transmission services from the Company. Las Cruces subsequently filed a
request at the FERC for a summary 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. An evidentiary
hearing was held before an administrative law judge of the FERC in February 1998
on the issues of (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 submitted evidence in that proceeding showing that it was
entitled to recover stranded generation costs from Las Cruces of $101 million.
In contrast, the FERC staff recommended that the Company be permitted to recover
stranded costs of $31.8 million, and Las Cruces claimed that its stranded cost
obligation was in the range of $0 to $17.4 million. In June 1998, an
administrative law judge of the FERC issued an Initial Decision recommending
that Las Cruces pay to the Company $30.4 million for stranded costs if Las
Cruces chose to leave the Company's system as of July 1, 1998. The amount
recommended by the administrative law judge would decline over time based on
when, if ever, Las Cruces leaves the Company's system, and would be reduced to
zero if Las Cruces leaves the Company's system after December 31, 2002. The
administrative law judge's Initial Decision is not binding on the FERC. The
Company believes the administrative law judge's Initial Decision is inconsistent
with the intent and policy of Order No. 888, which establishes the right to full
recovery of a utility's stranded generation cost. The Company continues to
believe it is entitled to full compensation for the costs it incurred with the
expectation of continuing to serve Las Cruces. The Company has sought review of
the administrative law judge's Initial Decision by the FERC and, if necessary,
will contest any final FERC decision on appeal. The Company cannot predict when
the FERC will render a final decision on this issue.
The Company continues to believe 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. In fact, the New Mexico Settlement includes a reduction in rates
and settlement of all issues in New Mexico, excluding Las Cruces.
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
76
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
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. In October 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 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 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 financial position, results of
operations, and cash flow of the Company.
77
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
J. EMPLOYEE BENEFITS
RETIREMENT PLANS
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 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 benefit
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.
The Company accounts for the Retirement Plan and the Non-Qualified
Retirement Income Plan under SFAS No. 87, "Employers' Accounting for Pensions,"
("SFAS No. 87"). In 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," ("SFAS No. 132")
which supercedes the disclosure requirements of SFAS No. 87.
78
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
The amounts recognized in the Company's balance sheets and the funded
status of the plans at December 31, 1998 and 1997 are presented below (In
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1998 1997
------------------------ ------------------------
NON- NON-
QUALIFIED QUALIFIED
RETIREMENT RETIREMENT RETIREMENT RETIREMENT
INCOME INCOME INCOME INCOME
PLAN PLAN PLAN PLAN
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year......... $(83,812) $(19,324) $(72,951) $(18,171)
Service cost.................................... (2,879) - (2,402) -
Interest cost................................... (5,861) (1,304) (5,386) (1,351)
Actuarial loss.................................. (4,796) (559) (6,118) (1,494)
Benefits paid................................... 3,208 1,692 3,045 1,692
-------- -------- -------- --------
Benefit obligation at end of year............. (94,140) (19,495) (83,812) (19,324)
-------- -------- -------- --------
CHANGE IN FAIR VALUE OF PLAN ASSETS:
Fair value of plan assets at beginning of year.. 74,114 - 61,460 -
Actual return on plan assets.................... 5,603 - 12,579 -
Employer contribution........................... 3,120 1,692 3,120 1,692
Benefits paid................................... (3,208) (1,692) (3,045) (1,692)
-------- -------- -------- --------
Fair value of plan assets at end of year...... 79,629 - 74,114 -
-------- -------- -------- --------
Funded status..................................... (14,511) (19,495) (9,698) (19,324)
Unrecognized net (gain) loss...................... 126 559 (4,887) 162
Balance of additional liability................... - (559) - (162)
-------- -------- -------- --------
Accrued benefit cost............................ $(14,385) $(19,495) $(14,585) $(19,324)
======== ======== ======== ========
</TABLE>
Weighted average actuarial assumptions used in determining the actuarial
present value of the benefit obligations are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
NON- NON-
QUALIFIED QUALIFIED
RETIREMENT RETIREMENT RETIREMENT RETIREMENT
INCOME INCOME INCOME INCOME
PLAN PLAN PLAN PLAN
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Discount rate................................... 6.75% 6.75% 7.00% 7.00%
Expected return on plan assets.................. 8.50% N/A 8.50% N/A
Rate of compensation increase................... 5.00% N/A 5.00% N/A
</TABLE>
79
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
Net periodic benefit cost 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
FEBRUARY 12 | JANUARY 1
YEARS ENDED TO | TO
DECEMBER 31, DECEMBER 31, | FEBRUARY 11,
----------------------- |
1998 1997 1996 | 1996
---------- ---------- ------------ | ------------
<S> <C> <C> <C> | <C>
COMPONENTS OF NET PERIODIC |
BENEFIT COST: |
Service cost........................... $ 2,879 $ 2,402 $ 2,148 | $ 354
Interest cost.......................... 7,165 6,737 5,774 | 749
Expected return on plan assets......... (5,820) (5,094) (4,177) | (457)
Recognition of previously |
unrecognized items................... - - - | 21,738
------- ------- ------- | -------
Net periodic benefit cost............ $ 4,224 $ 4,045 $ 3,745 | $22,384
======= ======= ======= | =======
</TABLE>
Weighted average actuarial assumptions used in determining the net periodic
benefit costs are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Discount rate.............................. 7.00% 7.50% 7.25%
Expected return on plan assets............. 8.50% 8.50% 8.50%
Rate of compensation increase.............. 5.00% 5.00% 5.00%
</TABLE>
The net periodic 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 $21.7 million.
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," ("SFAS No. 106"). In 1998, the
Company adopted SFAS No. 132 which supercedes the disclosure requirements of
SFAS No. 106. Contributions from the Company are based on the funding amounts
required by the Texas Commission in the Texas 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.
80
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
The amounts recognized in the Company's balance sheets and the funded
status of the plan at December 31, 1998 and 1997 are presented below (In
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year...... $(83,973) $(77,599)
Service cost................................. (2,818) (2,538)
Interest cost................................ (5,822) (5,254)
Actuarial loss............................... (3,438) (1,779)
Retirees' contributions...................... (202) (164)
Benefits paid................................ 1,595 1,695
Curtailments................................. - 1,666
-------- --------
Benefit obligation at end of year.......... (94,658) (83,973)
-------- --------
CHANGE IN FAIR VALUE OF PLAN ASSETS:
Fair value of plan assets at
beginning of year.......................... 8,822 8,050
Actual return on plan assets................. 403 202
Employer contribution........................ 3,422 570
Retirees' contributions...................... 202 -
Benefits paid................................ (1,595) -
-------- --------
Fair value of plan assets at end of year... 11,254 8,822
-------- --------
Funded status................................. (83,404) (75,151)
Unrecognized net (gain) loss.................. 2,927 (380)
-------- --------
Accrued benefit cost......................... $(80,477) $(75,531)
======== ========
</TABLE>
Net periodic benefit cost is made up of the components listed below (In
thousands):
<TABLE>
<CAPTION>
PERIOD | PERIOD
FROM | FROM
FEBRUARY 12 | JANUARY 1
YEARS ENDED TO | TO
DECEMBER 31, DECEMBER 31, | FEBRUARY 11,
---------------------- |
1998 1997 1996 | 1996
---------- ---------- ------------- | ------------
<S> <C> <C> <C> | <C>
COMPONENTS OF NET PERIODIC |
BENEFIT COST: |
Service cost...................................... $2,818 $2,538 $2,209 | $ 279
Interest cost..................................... 5,822 5,254 4,723 | 607
Expected return on plan assets.................... (271) (250) (146) | -
Amortization of unrecognized transition |
obligation..................................... - - - | 263
Recognition of previously unrecognized |
items.......................................... - - - | 52,340
Recognized (gain) loss............................ - (7) - | 60
------ ------ ------ | -------
Net periodic benefit cost.................... $8,369 $7,535 $6,786 | $53,549
====== ====== ====== | =======
</TABLE>
81
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
Weighted average assumptions are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Discount rate......................................... 6.75% 7.00% 7.50%
Expected return on plan assets........................ 4.50% 4.50% 4.50%
Rate of compensation increase......................... 5.00% 5.00% 5.00%
</TABLE>
The net periodic 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.
For measurement purposes, a 10.2% 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 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. The effect of a 1% change in these assumed
health care cost trend rates would increase or decrease the benefit obligation
by $11.9 million or $10.6 million, respectively. In addition, such a 1% change
would increase or decrease the aggregate service and interest cost components of
net periodic benefit cost by $1.3 million or $1.2 million, respectively.
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 manager level would
receive a cash bonus if the Company attained established levels of safety,
customer satisfaction and cash flow during 1998. 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 all of the performance measures. As a
result of the Company's success, the Company distributed approximately $4.3
million in cash bonuses to all eligible employees in February 1999. The bonus
was expensed in 1998. The Company has renewed the Bonus Plan in 1999 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. The New Mexico legislature has
82
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
passed legislation which purports to give Las Cruces the authority to condemn
the 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
represent approximately 3% of annual operating revenues. The Company signed a
contract with Ft. Bliss in December 1998, under which Ft. Bliss will take
service from the Company through December 2008. 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 that 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.
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, financing obligations 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.
83
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
The fair values of the Company's long-term debt and financing obligations,
including the current portion thereof, and preferred stock, are based on
estimated market prices for similar issues at December 31, 1998 and 1997 and are
presented in the table below (In thousands):
<TABLE>
<CAPTION>
1998 1997
---------------------------- ----------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
First Mortgage Bonds (1)...................... $714,554 $ 810,258 $744,781 $ 814,857
Pollution Control Bonds....................... 193,135 193,135 (2) 193,135 193,135 (2)
Nuclear Fuel Financing(1)..................... 49,316 49,316 (3) 51,999 51,999 (3)
-------- ----------- -------- -----------
Total..................................... $957,005 $ 1,052,709 $989,915 $ 1,059,991
======== =========== ======== ===========
Preferred Stock............................... $135,744 $ 148,896 (4) $121,319 $ 131,752
======== =========== ======== ===========
</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 for nuclear fuel purchases is
reset every quarter to reflect current market rates. Consequently, the
carrying value approximates fair value.
(4) Represents amount paid on March 1, 1999 for the early redemption of the
Series A Preferred Stock, accrued cash dividends and premium. See Note E.
84
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
M. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1998 QUARTERS 1997 QUARTERS
-------------------------------------- ----------------------------------------
4TH(1) 3RD 2ND 1ST 4TH(1) 3RD 2ND 1ST
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT FOR SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues.............................. $141,980 $176,893 $146,403 $136,945 $143,766 $170,140 $144,275 $135,857
Operating income................................ 29,031 58,850 40,718 33,940 31,210 59,179 40,045 31,233
Income before extraordinary items............... 6,814 26,049 13,695 10,515 8,743 23,988 16,245 5,592
Extraordinary gain on discharge of debt, net of
income tax expense............................. 3,343 - - - - - - -
Extraordinary loss on repurchases of debt, net
of federal income tax benefit.................. - - - - (35) (69) (427) (2,244)
Net income applicable to common stock........... 6,324 22,322 10,071 6,992 5,282 20,588 12,580 199
Basic earnings per common share:
Income before extraordinary items.............. 0.049 0.371 0.167 0.116 0.089 0.343 0.216 0.040
Extraordinary gain on discharge of debt, net of
income tax expense............................ 0.056 - - - - - - -
Extraordinary loss on repurchases of debt, net
of federal income tax benefit................. - - - - (0.001) (0.001) (0.007) (0.037)
Net income..................................... 0.105 0.371 0.167 0.116 0.088 0.342 0.209 0.003
Diluted earnings per common share:
Income before extraordinary items.............. 0.049 0.368 0.166 0.116 0.088 0.343 0.216 0.040
Extraordinary gain on discharge of debt, net of
income tax expense............................ 0.055 - - - - - - -
Extraordinary loss on repurchases of debt, net
of federal income tax benefit................. - - - - (0.001) (0.001) (0.007) (0.037)
Net income..................................... 0.104 0.368 0.166 0.116 0.087 0.342 0.209 0.003
</TABLE>
___________
(1) Includes an all employee bonus. See Note J.
85
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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 1999 Annual Meeting of
Shareholders (the "1999 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 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the 1999 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the 1999 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:
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Financial Statements:
See Index to Financial Statements....................... 38
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
</TABLE>
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.
86
<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)
87
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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)
88
<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)
89
<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)
90
<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)
91
<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)
92
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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. (Exhibit
10.18 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997)
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)
93
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*10.24 - Credit Agreement, dated as of February 12, 1996, as amended and
restated as of February 8, 1999, between the Company, Chase
Manhattan Bank, as agent, and Chase Bank of Texas, National
Association, as Trustee.
*10.24-01 - Amendment Agreement, dated as of February 8, 1999, 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)
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)
94
<PAGE>
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)
*10.38 - Employment Agreement for Earnest A. Lehman, dated January 5,
1999.
* Exhibit 11 - Statement re Computation of Per Share Earnings
Exhibit 23 - Consent of Experts:
*23.01 - Consent of KPMG LLP (set forth on page 101 of this report).
Exhibit 24 - Power of Attorney:
*24.01 - Power of Attorney (set forth on page 100 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.
(Exhibit 99.03-01 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997)
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)
95
<PAGE>
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. (Exhibit 99.08 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1997)
99.09 - Restricted Stock Award Agreement, dated as of June 9, 1997, with
Eduardo A. Rodriguez. (Exhibit 99.09 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997)
99.10 - Restricted Stock Award Agreement, dated as of June 15, 1997, with
Robert C. McNiel. (Exhibit 99.10 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997)
99.11 - Restricted Stock Award Agreement, dated as of June 16, 1997, with
Guillermo Silva, Jr. (Exhibit 99.12 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997)
99.12 - Restricted Stock Award Agreement, dated as of June 16, 1997, with
Pedro Serrano, Jr. (Exhibit 99.13 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997)
99.13 - Restricted Stock Award Agreement, dated as of June 16, 1997, with
Thomas L. Newsom. (Exhibit 99.14 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997)
99.14 - Restricted Stock Award Agreement, dated as of June 16, 1997, with
John A. Whitacre. (Exhibit 99.15 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997)
99.15 - Restricted Stock Award Agreement, dated as of June 9, 1997, with
Terry D. Bassham. (Exhibit 99.16 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997)
99.16 - Form of Stock Option Agreement between the Company and certain
directors of the Company. (Exhibit 99.17 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997)
99.17 - Directors' Restricted Stock Award Agreement, dated as of November
13, 1997, with George H. Edwards, Jr. (Exhibit 99.18 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1997)
99.18 - Form of Stock Option Agreement between the Company and certain key
officers of the Company. (Exhibit 99.01 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998)
96
<PAGE>
99.19 - Stock Option Agreement, dated as of January 3, 1998, with Terry D.
Bassham. (Exhibit 99.02 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998)
99.20 - Stock Option Agreement, dated as of January 3, 1998, with John C.
Horne. (Exhibit 99.03 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998)
99.21 - Form of Restricted Stock Award Agreement between the Company and
certain key officers of the Company. (Exhibit 99.04 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998)
99.22 - Restricted Stock Award Agreement, dated as of April 6, 1998, with
Robert C. McNiel. (Exhibit 99.05 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998)
99.23 - Restricted Stock Award Agreement, dated as of April 6, 1998, with
Guillermo Silva, Jr. (Exhibit 99.07 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998)
99.24 - Restricted Stock Award Agreement, dated as of March 23, 1998, with
Pedro Serrano, Jr. (Exhibit 99.08 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998)
99.25 - Restricted Stock Award Agreement, dated as of March 24, 1998, with
Thomas L. Newsom. (Exhibit 99.09 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998)
99.26 - Restricted Stock Award Agreement, dated as of March 19, 1998, with
John A. Whitacre. (Exhibit 99.10 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998)
99.27 - Restricted Stock Award Agreement, dated as of March 25, 1998, with
Terry D. Bassham. (Exhibit 99.11 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998)
99.28 - Restricted Stock Award Agreement, dated as of March 30, 1998, with
Eduardo A. Rodriguez . (Exhibit 99.12 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998)
99.29 - Restricted Stock Award Agreement, dated as of March 20, 1998, with
Gary R. Hedrick. (Exhibit 99.13 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998)
99.30 - Restricted Stock Award Agreement, dated as of March 25, 1998, with
John C. Horne. (Exhibit 99.14 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998)
*99.31 - Final Order, entered September 24, 1998, by the New Mexico Public
Utility Commission.
97
<PAGE>
* Filed herewith.
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed during the last quarter of
1998:
FINANCIAL STATEMENTS
DATE OF REPORT ITEM NUMBER REQUIRED TO BE FILED
-------------- ----------- --------------------
None
98
<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.
99
<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 30th day of
March 1999.
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 March 30, 1999
/s/ JAMES S. HAINES (Principal Executive Officer) and Director
- ---------------------------------------
(James S. Haines)
Vice President, Chief Financial Officer and Treasurer March 30, 1999
/s/ GARY R. HEDRICK (Principal Financial Officer and Principal Accounting Officer)
- ---------------------------------------
(Gary R. Hedrick)
/s/ WILSON K. CADMAN Director March 30, 1999
- ---------------------------------------
(Wilson K. Cadman)
/s/ JAMES A. CARDWELL Director March 30, 1999
- ---------------------------------------
(James A. Cardwell)
/s/ JAMES W. CICCONI Director March 30, 1999
- ---------------------------------------
(James W. Cicconi)
/s/ GEORGE W. EDWARDS, JR. Director March 30, 1999
- ---------------------------------------
(George W. Edwards, Jr.)
/s/ RAMIRO GUZMAN Director March 30, 1999
- ---------------------------------------
(Ramiro Guzman)
/s/ JAMES W. HARRIS Director March 30, 1999
- ---------------------------------------
(James W. Harris)
/s/ KENNETH R. HEITZ Director March 30, 1999
- ---------------------------------------
(Kenneth R. Heitz)
/s/ PATRICIA Z. HOLLAND-BRANCH Director March 30, 1999
- ---------------------------------------
(Patricia Z. Holland-Branch)
/s/ MICHAEL K. PARKS Director March 30, 1999
- ---------------------------------------
(Michael K. Parks)
/s/ ERIC B. SIEGEL Director March 30, 1999
- ---------------------------------------
(Eric B. Siegel)
/s/ STEPHEN WERTHEIMER Director March 30, 1999
- ---------------------------------------
(Stephen Wertheimer)
/s/ CHARLES A. YAMARONE Director March 30, 1999
- ---------------------------------------
(Charles A. Yamarone)
</TABLE>
100
<PAGE>
EXHIBIT 10.24
- --------------------------------------------------------------------------------
EXHIBIT A - CONFORMED COPY
El Paso Electric Company
Chase Bank of Texas, National Association
not in its individual capacity,
but solely in its capacity as trustee of the
Rio Grande Resources Trust II
$ 100,000,000
Credit Agreement
dated as of
February 12, 1996,
as amended
and restated as of
February 8, 1999,
THE CHASE MANHATTAN BANK
AS ADMINISTRATIVE AGENT,
COLLATERAL AGENT
AND ISSUING BANK
UNION BANK OF CALIFORNIA, N.A.
AS DOCUMENTATION AGENT
BARCLAYS BANK PLC, NEW YORK BRANCH
AS SYNDICATION AGENT
______________
CHASE SECURITIES INC.
AS BOOK MANAGER AND LEAD ARRANGER
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. Definitions
SECTION 1.01. Defined Terms........................................... 1
SECTION 1.02. Terms Generally......................................... 17
ARTICLE II. The Credits
SECTION 2.01. Commitments............................................. 17
SECTION 2.02. Loans................................................... 17
SECTION 2.03. Borrowing Procedure..................................... 19
SECTION 2.04. Evidence of Debt; Repayment of Loans.................... 19
SECTION 2.05. Fees.................................................... 20
SECTION 2.06. Interest on Loans....................................... 20
SECTION 2.07. Default Interest........................................ 21
SECTION 2.08. Alternate Rate of Interest.............................. 21
SECTION 2.09. Termination and Reduction of Commitments................ 21
SECTION 2.10. Conversion and Continuation of Borrowings.............. 21
SECTION 2.11. Optional Prepayment..................................... 22
SECTION 2.12. Reserve Requirements; Change in Circumstances........... 23
SECTION 2.13. Change in Legality...................................... 24
SECTION 2.14. Indemnity............................................... 25
SECTION 2.15. Pro Rata Treatment...................................... 25
SECTION 2.16. Sharing of Setoffs...................................... 25
SECTION 2.17. Payments................................................ 26
SECTION 2.18. Taxes................................................... 26
SECTION 2.19. Assignment of Commitments Under Certain Circumstances;
Duty to Mitigate........................................ 28
SECTION 2.20. Letters of Credit....................................... 29
SECTION 2.21. Extension of Maturity Date.............................. 32
ARTICLE III. Representations and Warranties
SECTION 3.01. Organization; Powers.................................... 33
SECTION 3.02. Authorization........................................... 33
SECTION 3.03. Enforceability.......................................... 33
SECTION 3.04. Governmental Approvals.................................. 33
SECTION 3.05. Financial Statements.................................... 34
SECTION 3.06. No Material Adverse Change.............................. 34
SECTION 3.07. Title to Properties; Possession Under Leases............ 34
SECTION 3.08. Subsidiaries............................................ 34
SECTION 3.09. Litigation; Compliance with Laws........................ 34
SECTION 3.10. Agreements.............................................. 34
SECTION 3.11. Federal Reserve Regulations............................. 35
SECTION 3.12. Investment Company Act; Public Utility Holding
Company Act............................................ 35
SECTION 3.13. Use of Proceeds......................................... 35
SECTION 3.14. Tax Returns............................................. 35
SECTION 3.15. No Material Misstatements............................... 35
SECTION 3.16. Employee Benefit Plans.................................. 35
SECTION 3.17. Environmental Matters................................... 35
SECTION 3.18. Insurance............................................... 36
SECTION 3.19. Security Documents...................................... 36
SECTION 3.20. Labor Matters........................................... 37
SECTION 3.21. Solvency................................................ 37
SECTION 3.22. Capitalization.......................................... 37
SECTION 3.23. Year 2000............................................... 37
ARTICLE IV. Conditions of Lending
SECTION 4.01. All Credit Events....................................... 38
SECTION 4.02. Restatement Closing Date................................ 38
ARTICLE V. Affirmative Covenants
SECTION 5.01. Existence; Businesses and Properties.................... 40
<PAGE>
Contents, p. 2
Page
----
SECTION 5.02. Insurance............................................... 40
SECTION 5.03. Obligations and Taxes................................... 41
SECTION 5.04. Financial Statements, Reports, etc...................... 41
SECTION 5.05. Litigation and Other Notices............................ 42
SECTION 5.06. Employee Benefits....................................... 42
SECTION 5.07. Maintaining Records; Access to Properties and
Inspections........................................... 42
SECTION 5.08. Use of Proceeds......................................... 42
SECTION 5.09. Compliance with Environmental Laws...................... 42
SECTION 5.10. Further Assurances...................................... 42
ARTICLE VI. Negative Covenants
SECTION 6.01. Indebtedness............................................ 43
SECTION 6.02. Liens................................................... 44
SECTION 6.03. Sale and Lease-Back Transactions........................ 46
SECTION 6.04. Investments, Loans and Advances......................... 46
SECTION 6.05. Mergers, Consolidations and Sales of Assets and
Acquisitions.......................................... 46
SECTION 6.06. Dividends and Distributions............................. 46
SECTION 6.07. Transactions with Affiliates............................ 47
SECTION 6.08. Businesses of Borrowers and Subsidiaries................ 47
SECTION 6.09. Other Indebtedness and Agreements....................... 47
SECTION 6.10. Prohibition of Prepayments, Redemptions and Repurchases
of Indebtedness......................................... 48
SECTION 6.11. Release of Collateral................................... 48
SECTION 6.12. Net Debt Ratio.......................................... 48
SECTION 6.13. Interest Coverage Ratio................................. 48
SECTION 6.14. Consolidated Capital Expenditures....................... 48
SECTION 6.15. Fiscal Year............................................. 48
ARTICLE VII.
Events of Default...................................................... 48
ARTICLE VIII.
The Administrative Agent and the Collateral Agent...................... 50
ARTICLE IX. Guarantee
SECTION 9.01. Guarantee............................................... 52
SECTION 9.02. Obligations Not Waived.................................. 53
SECTION 9.03. Security................................................ 53
SECTION 9.04. Guarantee of Payment.................................... 53
SECTION 9.05. No Discharge or Diminishment of Guarantee............... 53
SECTION 9.06. Defenses of the Trustee Waived.......................... 53
SECTION 9.07. Agreement to Pay; Subrogation........................... 54
SECTION 9.08. Information............................................. 54
SECTION 9.09. Termination............................................. 54
ARTICLE X. Security
SECTION 10.01. First Mortgage Bonds................................... 54
SECTION 10.02. Application of Funds................................... 55
SECTION 10.03. Rights of Bondholders.................................. 55
ARTICLE XI. Miscellaneous
SECTION 11.01. Notices................................................ 56
SECTION 11.02. Survival of Agreement.................................. 56
SECTION 11.03. Binding Effect......................................... 56
SECTION 11.04. Successors and Assigns................................. 57
SECTION 11.05. Expenses; Indemnity.................................... 59
SECTION 11.06. Right of Setoff........................................ 60
SECTION 11.07. Applicable Law......................................... 60
SECTION 11.08. Waivers; Amendment..................................... 60
SECTION 11.09. Interest Rate Limitation............................... 61
SECTION 11.10. Entire Agreement....................................... 61
<PAGE>
Contents, p. 3
Page
----
SECTION 11.11. Waiver of Jury Trial................................... 61
SECTION 11.12. Severability........................................... 62
SECTION 11.13. Counterparts........................................... 62
SECTION 11.14. Headings............................................... 62
SECTION 11.15. Jurisdiction; Consent to Service of Process............ 62
SECTION 11.16. Confidentiality........................................ 62
SECTION 11.17. Texas Revolving Credit Statute......................... 63
SECTION 11.18. No Recourse............................................ 63
SECTION 11.19. Limited Representations, Warranties and Covenants
of Trustee........................................... 63
<PAGE>
Contents, p. 4
Page
----
SCHEDULES
Schedule 2.01 Commitments
Schedule 3.04 Governmental Approvals
Schedule 3.09 Litigation and Compliance with Laws
Schedule 3.17 Environmental Matters
Schedule 3.18 Insurance
Schedule 4.02(a) Local Regulatory Counsel
Schedule 6.01 Indebtedness
Schedule 6.02 Liens
Schedule 6.04 Certain Investments
EXHIBITS
Exhibit A Form of Administrative Questionnaire
Exhibit B Form of Assignment and Acceptance
Exhibit C Form of Borrowing Request
Exhibit D Security Agreement
Exhibit E-1 Form of Opinion of Counsel for El Paso
Exhibit E-2 Form of Opinion of Counsel for the Trustee
Exhibit E-3 Form of Opinion of Federal Regulatory Counsel
Exhibit E-4 Form of Opinion of State Regulatory Counsel
Exhibit E-5 Form of Opinion of General Counsel of El Paso
<PAGE>
CREDIT AGREEMENT dated as of February 12, 1996, as amended
and restated as of February 8, 1999, among EL PASO ELECTRIC
COMPANY, a Texas corporation ("El Paso"), CHASE BANK OF TEXAS,
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"; each of El Paso and
the Trustee is referred to individually herein as a "Borrower"
and collectively as the "Borrowers"), the Lenders (as defined in
Article I), THE CHASE MANHATTAN BANK, as issuing bank (in such
capacity, the "Issuing Bank"), as administrative agent (in such
capacity, the "Administrative Agent") and as collateral agent (in
such capacity, the "Collateral Agent") for the Lenders, UNION
BANK OF CALIFORNIA, N.A., as documentation agent (in such
capacity, the "Documentation Agent") and BARCLAYS BANK PLC, NEW
YORK BRANCH, as syndication agent (in such capacity, the
"Syndication Agent").
The Borrowers, the lenders party thereto, the Issuing Bank, the Collateral
Agent and the Administrative Agent are parties to a Credit Agreement dated as of
February 12, 1996, as amended as of February 12, 1996 and July 31, 1997 (the
"Original Credit Agreement"), pursuant to which (a) the Lenders agreed to extend
credit in the form of Loans (such term and each other capitalized term used but
not defined herein having the meaning given it in Article I) at any time and
from time to time prior to the Original Maturity Date, in an aggregate principal
amount at any time outstanding not in excess of $100,000,000 less the L/C
Exposure at such time and (b) the Issuing Bank agreed to issue letters of
credit, in an aggregate face amount at any time outstanding not in excess of
$60,000,000, to support payment obligations incurred in the ordinary course of
business by the Trustee in respect of the purchase of Nuclear Fuel in accordance
with the Trust Agreement and the Purchase Contract and to provide backup
liquidity for commercial paper issued to finance such purchases.
The Borrowers have requested that the Original Credit Agreement be amended
and restated in the form hereof, and the Lenders and the Issuing Bank are
willing to so amend and restate the Original Credit Agreement.
The proceeds of the Loans are to be used (a) by El Paso solely for general
corporate purposes in the ordinary course of El Paso's business and (b) by the
Trustee solely (i) to finance the purchase of Nuclear Fuel by the Trustee in
accordance with the Trust Agreement and the Purchase Contract, (ii) to provide
backup liquidity for commercial paper issued pursuant to the CP Program to
finance such purchases and (iii) to pay interest and other amounts payable
hereunder by the Trustee as needed. The Letters of Credit shall be issued, if
for the account of El Paso, solely for general corporate purposes incurred in
the ordinary course of business, and, if for the account of the Trustee, solely
to support obligations incurred in the ordinary course of business by the
Trustee in respect of the purchase of Nuclear Fuel in accordance with the Trust
Agreement and the Purchase Contract and to provide backup liquidity for
commercial paper issued to finance such purchases.
Accordingly, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the following
terms shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
<PAGE>
2
"ABR Loan" shall mean any Loan bearing interest at a rate determined by
reference to the Alternate Base Rate in accordance with the provisions of
Article II.
"ABR Spread" shall mean (a) for any day prior to the Restatement Closing
Date, 1.50% and (b) for the Restatement Closing Date and each day thereafter,
the Applicable Spread in effect for such day for ABR Loans.
"ACC" shall mean the Arizona Corporation Commission or any Governmental
Authority succeeding to any or all of such Commission's authority.
"Administrative Agent Fees" shall have the meaning assigned to such term in
Section 2.05(b).
"Administrative Questionnaire" shall mean an Administrative Questionnaire
in the form of Exhibit A, or such other form as shall be approved by the
Administrative Agent.
"Affiliate" shall mean, when used with respect to a specified person,
another person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the person
specified.
"Aggregate Credit Exposure" shall mean the aggregate amount of the Lenders'
Credit Exposures.
"Alternate Base Rate" shall mean, for any day, a rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the
Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day
plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2
of 1%. If for any reason the Administrative Agent shall have determined (which
determination shall be conclusive absent manifest error) that it is unable to
ascertain the Base CD Rate or the Federal Funds Effective Rate or both for any
reason, including the inability or failure of the Administrative Agent to obtain
sufficient quotations in accordance with the terms of the definition thereof,
the Alternate Base Rate shall be determined without regard to clause (b) or (c),
or both, of the preceding sentence, as appropriate, until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate, the Base CD Rate or the Federal Funds
Effective Rate shall be effective on the effective date of such change in the
Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively.
The term "Prime Rate" shall mean the rate of interest per annum publicly
announced from time to time by the Administrative Agent as its prime rate in
effect at its principal office in New York City; each change in the Prime Rate
shall be effective on the date such change is publicly announced as being
effective. The term "Base CD Rate" shall mean the sum of (a) the product of (i)
the Three-Month Secondary CD Rate and (ii) Statutory Reserves and (b) the
Assessment Rate. The term "Federal Funds Effective Rate" shall mean, for any
day, the weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day that is a Business Day,
the average of the quotations for the day for such transactions received by the
Administrative Agent from three Federal funds brokers of recognized standing
selected by it.
"Applicable Percentage" of any Lender at any time shall mean the percentage
of the Total Commitment represented by such Lender's Commitment. In the event
the Commitments shall have expired or been terminated, the Applicable
Percentages shall be determined on the basis of the Commitments most recently in
effect.
"Applicable Spread" shall mean, for any day, with respect to any ABR Loan
or Eurodollar Loan, or with respect to the Commitment Fees, as the case may be,
the applicable percentage set forth below under the caption "ABR Spread", "LIBOR
Spread" or "Fee Percentage", as the case may be, based upon the lower of the
ratings published by S&P and Moody's for the series of First Mortgage Bonds
having the longest maturity (the "Long Series"):
<PAGE>
3
ABR LIBOR Fee
Category S&P Moody's Spread Spread Percentage
- --------------------------------------------------------------------------------
1 *BB- *Ba3 1.500% 2.500% 0.750%
- --------------------------------------------------------------------------------
2 BB- Ba3 1.000% 2.000% 0.500%
- --------------------------------------------------------------------------------
3 BB Ba2 0.625% 1.625% 0.375%
- --------------------------------------------------------------------------------
4 BB+ Ba1 0.250% 1.250% 0.350%
- --------------------------------------------------------------------------------
5 **BB+ **Ba1 0.000% 0.750% 0.300%
- --------------------------------------------------------------------------------
* Less than
** Greater than
Notwithstanding the foregoing (x) if both S&P and Moody's cease to provide
current ratings for the Long Series, the Applicable Spread shall correspond to
the percentages listed in Category 1; and (y) at any time after the occurrence
and during the continuation of an Event of Default, the Applicable Spread shall
correspond to the percentages listed in Category 1.
"Arizona Public Utility Act" shall mean Chapter 2, Title 40 of the Arizona
Revised Statutes and the rules and regulations promulgated thereunder, as
amended from time to time.
"Assessment Rate" shall mean for any date the annual rate (rounded upwards,
if necessary, to the next 1/100 of 1%) most recently estimated by the
Administrative Agent as the then current net annual assessment rate that will be
employed in determining amounts payable by the Administrative Agent to the
Federal Deposit Insurance Corporation (or any successor thereto) for insurance
by such Corporation (or such successor) of time deposits made in dollars at the
Administrative Agent's domestic offices.
"Assigned Agreements" shall mean (a) each agreement listed on Schedule I to
the Security Agreement, (b) each agreement assigned by El Paso to the Trustee
after the Original Closing Date (including any such agreements assigned after
the Restatement Closing Date) pursuant to the Purchase Contract and (c) each
Assignment Agreement (as defined in the Purchase Contract) related to an
agreement referred to in clause (a) or (b) above, in each case as amended,
supplemented or otherwise modified from time to time.
"Assignment and Acceptance" shall mean an assignment and acceptance entered
into by a Lender and an assignee, and accepted by the Administrative Agent, in
the form of Exhibit B or such other form as shall be approved by the
Administrative Agent.
"Atomic Energy Act" shall mean the Atomic Energy Act of 1954, 42 U.S.C.
(S)(S) 2011 et seq. and the rules and regulations promulgated thereunder, as
amended from time to time.
"Board" shall mean the Board of Governors of the Federal Reserve System of
the United States of America.
"Borrowing" shall mean a group of Loans of a single Type made by the
Lenders to the same Borrower on a single date and as to which a single Interest
Period is in effect.
"Borrowing Request" shall mean a request by a Borrower in accordance with
the terms of Section 2.03 and substantially in the form of Exhibit C.
<PAGE>
4
"Business Day" shall mean any day other than a Saturday, Sunday or day on
which banks in New York City are authorized or required by law to close;
provided, however, that when used in connection with a Eurodollar Loan, the term
"Business Day" shall also exclude any day on which banks are not open for
dealings in dollar deposits in the London interbank market.
"Capital Lease Obligations" of any person shall mean the obligations of
such person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"CBT" shall mean Chase Bank of Texas, National Association, a national
banking association, together with its successors and assigns.
A "Change in Control" shall be deemed to have occurred if (a) any person or
group (within the meaning of Rule 13d-5 of the Securities Exchange Act of 1934
as in effect on the date hereof) shall own directly or indirectly, beneficially
or of record, shares representing more than 50% of the aggregate ordinary voting
power represented by the issued and outstanding capital stock of El Paso; (b) a
majority of the members of the Board of Directors of El Paso are not Continuing
Directors; (c) any change in control (or similar event, however denominated)
with respect to El Paso shall occur under and as defined in the Indenture or any
indenture supplemental thereto.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Collateral" shall mean (i) $100,000,000 principal amount of First Mortgage
Bonds - Collateral Series H, which First Mortgage Bonds are secured by the lien
of the Indenture in the Mortgaged Property in favor of the Indenture Trustee and
(ii) all the "Collateral" as defined in the Security Agreement.
"Commitment" shall mean, with respect to each Lender, the commitment of
such Lender to make Loans hereunder as set forth on Schedule 2.01, or in the
Assignment and Acceptance pursuant to which such Lender assumed its Commitment,
as applicable, as the same may be (a) reduced from time to time pursuant to
Section 2.09 or pursuant to Section 2.19 and (b) reduced or increased from time
to time pursuant to assignments by or to such Lender pursuant to Section 11.04.
"Commitment Fee" shall have the meaning assigned to such term in Section
2.05(a).
"Common Stock" shall have the meaning assigned to such term in Section
3.22.
"Confidential Information Package" shall mean the Confidential Information
Package of El Paso dated January, 1998.
"Consolidated Capital Expenditures" shall mean, for any period, the sum of
(a) the aggregate of all expenditures (whether paid in cash or other
consideration or accrued as a liability) by El Paso or any of the Subsidiaries
during such period that, in accordance with GAAP, are or should be included in
"additions to property, plant and equipment" or similar items reflected in the
consolidated statement of cash flows of El Paso and the Subsidiaries for such
period (including the amount of assets leased in connection with any Capital
Lease Obligation), and (b) to the extent not included pursuant to clause (a)
above, the aggregate of all expenditures (whether paid in cash or other
consideration or accrued as a liability) by El Paso or any Subsidiary to
acquire, by purchase or otherwise, the business, property or fixed assets of, or
stock or other evidence of beneficial ownership of, any person. Notwithstanding
the foregoing, any purchase of Nuclear
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5
Fuel by the Trustee pursuant to the Purchase Contract shall not be deemed to be
a capital expenditure for the purpose of determining, for any period, the
Consolidated Capital Expenditures.
"Consolidated Cash Flow" shall mean, for any period, the Consolidated Net
Income for such period plus (i) an amount equal to any extraordinary loss plus
any net loss realized in connection with a sale of assets (to the extent such
losses were deducted in computing such Consolidated Net Income), plus (ii)
provision for taxes based on income or profits of El Paso and the Subsidiaries
for such period, to the extent that such provision for taxes was included in
computing Consolidated Net Income, plus (iii) Consolidated Interest Expense for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of original issue discount, non-cash interest
payments, the interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to any sale and leaseback
transaction, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to hedging transactions, but excluding, however, the interest
component of any deferred payment obligations), to the extent that any such
expense was deducted in computing Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash charges (excluding any such non-cash
charge to the extent that it represents an accrual of or reserve for cash
charges in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of El Paso and the Subsidiaries for such period to the
extent that such depreciation, amortization and other non-cash charges were
deducted in computing Consolidated Net Income, minus (v) cash payments made on
any deferred payment obligations in such period, in each case, on a consolidated
basis and determined in accordance with GAAP. Notwithstanding the foregoing,
the provision for taxes on the income or profits of, and the depreciation and
amortization and other non-cash charges of, a Subsidiary shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
(and in the same proportion) that the net income of such Subsidiary was included
in calculating Consolidated Net Income.
"Consolidated EBITDA" shall mean, for any period, Consolidated Net Income
for such period, plus, to the extent deducted in computing such Consolidated Net
Income, (a) the sum of (i) all Federal, state, local and foreign taxes, (ii)
total interest expense (excluding the interest component of any deferred payment
obligation) and (iii) depreciation, depletion, amortization of intangibles and
other non-cash charges or non-cash losses, minus, to the extent added in
computing such Consolidated Net Income, (b) the sum of (i) any interest income
and (ii) any non-cash income or non-cash gains, all as determined on a
consolidated basis with respect to El Paso and the Subsidiaries in accordance
with GAAP.
"Consolidated Interest Coverage Ratio" shall mean, for any period, the
ratio for such period of (a) Consolidated EBITDA to (b) Consolidated Interest
Expense.
"Consolidated Interest Expense" shall mean, for any period, the gross
interest expense of El Paso and the Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, (a) including (i) the amortization
of debt discounts, (ii) the amortization of all fees (including fees with
respect to Rate Protection Agreements) payable in connection with the incurrence
of Indebtedness to the extent included in interest expense in accordance with
GAAP and (iii) the portion of any payments or accruals with respect to Capital
Lease Obligations that are allocable to interest expense in accordance with GAAP
and (b) excluding the interest component of any deferred payment obligation.
For purposes of the foregoing, gross interest expense shall be determined after
giving effect to any net payments made or received by the Borrower or any
Subsidiary with respect to Rate Protection Agreements.
"Consolidated Net Income" shall mean, for any period, net income or loss of
El Paso and the Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP; provided that there shall be excluded (a) the income of
any person in which any other person (other than El Paso or any of its Wholly
Owned Subsidiaries or any director holding qualifying shares in accordance with
applicable
<PAGE>
6
law) has a joint interest, except to the extent of the amount of dividends or
other distributions actually paid to El Paso or any Wholly Owned Subsidiary by
such person during such period, (b) the income (or loss) of any person accrued
prior to the date it becomes a Subsidiary of El Paso or is merged into or
consolidated with El Paso or any of the Subsidiaries or the date such person's
assets are acquired by El Paso or any of the Subsidiaries, (c) the income of any
Subsidiary of El Paso to the extent that the declaration or payment of dividends
or similar distributions by such Subsidiary of such income is not at the time
permitted by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
such Subsidiary and (d) any after tax gains or losses attributable to sales of
assets out of the ordinary course of business.
"Continuing Directors" shall mean, as of any date of determination, any
member of the board of directors of El Paso who (i) was a member of such board
of directors on the Restatement Closing Date or (ii) was nominated for election
or elected to such board of directors with the approval of a majority of
Continuing Directors who were members of such board at the time of such
nomination or election.
"Control" shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a person,
whether through the ownership of voting securities, by contract or otherwise,
and "Controlling" and "Controlled" shall have meanings correlative thereto.
"CP Program" shall mean a commercial paper program established by the
Trustee pursuant to documentation satisfactory to the Required Lenders for the
purpose of financing the purchase of Nuclear Fuel.
"Credit Event" shall have the meaning assigned to such term in Section
4.01.
"Credit Exposure" shall mean, with respect to any Lender at any time, the
aggregate principal amount at such time of all outstanding Loans of such Lender
plus the aggregate amount at such time of such Lender's L/C Exposure.
"Default" shall mean any event or condition which upon notice, lapse of
time or both would constitute an Event of Default.
"dollars" or "$" shall mean lawful money of the United States of America.
"El Paso L/C Exposure" shall mean that part of the L/C Exposure
attributable to all Letters of Credit issued for the account of El Paso.
"El Paso Obligations" shall have the meaning assigned to such term in
Section 10.01.
"environment" shall mean ambient air, surface water and groundwater
(including potable water, navigable water and wetlands), the land surface or
subsurface strata, the workplace or as otherwise defined in any Environmental
Law.
"Environmental Claim" shall mean any written accusation, allegation, notice
of violation, claim, demand, order, directive, consent decree, cost recovery
action or other cause of action by, or on behalf of, any Governmental Authority
or any person for damages, injunctive or equitable relief, personal injury
(including sickness, disease or death), Remedial Action costs, tangible or
intangible property damage, natural resource damages, nuisance, pollution, any
adverse effect on the environment caused by any Hazardous Material, or for
fines, penalties or restrictions, resulting from or based upon: (a) the
existence, or the continuation of the existence, of a Release (including sudden
or non-sudden, accidental or non-accidental Releases); (b) exposure to any
Hazardous Material; (c) the presence, use, handling,
<PAGE>
7
transportation, storage, treatment or disposal of any Hazardous Material; or (d)
the violation or alleged violation of any Environmental Law or Environmental
Permit.
"Environmental Law" shall mean any and all applicable present and future
treaties, laws, rules, regulations, codes, ordinances, orders, decrees,
judgments, injunctions, notices or binding agreements issued, promulgated or
entered into by any Governmental Authority, relating in any way to the
environment, preservation or reclamation of natural resources, the management,
Release or threatened Release of any Hazardous Material or to health and safety
matters, including the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. (S)(S) 9601 et seq. (collectively
"CERCLA"), the Solid Waste Disposal Act, as amended by the Resource Conservation
and Recovery Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42
U.S.C. (S)(S) 6901 et seq., the Federal Water Pollution Control Act, as amended
by the Clean Water Act of 1977, 33 U.S.C. (S)(S) 1251 et seq., the Clean Air Act
of 1970, 42 U.S.C. (S)(S) 7401 et seq., as amended, the Toxic Substances Control
Act of 1976, 15 U.S.C. (S)(S) 2601 et seq., the Occupational Safety and Health
Act of 1970, as amended by 29 U.S.C. (S)(S) 651 et seq., the Emergency Planning
and Community Right-to-Know Act of 1986, 42 U.S.C. (S)(S) 11001 et seq., the
Safe Drinking Water Act of 1974, as amended by 42 U.S.C. (S)(S) 300(f) et seq.,
the Hazardous Materials Transportation Act, 49 U.S.C. (S)(S) 5101 et seq., the
Atomic Energy Act and Low-Level Radioactive Waste Policy Act, 42 U.S.C. (S)(S)
2014 et seq., as amended, and any similar or implementing state or local law,
and all amendments or regulations promulgated thereunder.
"Environmental Permit" shall mean any permit, approval, authorization,
certificate, license, variance, filing or permission required by or from any
Governmental Authority pursuant to any Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
the same may be amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) that, together with El Paso, is treated as a single employer under
Section 414(b) or (c) of the Code, or solely for purposes of Section 302 of
ERISA and Section 412 of the Code, is treated as a single employer under Section
414 of the Code.
"ERISA Event" shall mean (a) any "reportable event", as defined in Section
4043 of ERISA or the regulations issued thereunder, with respect to a Plan; (b)
the adoption of any amendment to a Plan that would require the provision of
security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c)
the existence with respect to any Plan of an "accumulated funding deficiency"
(as defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (d) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (e) the incurrence of any liability under Title IV of ERISA
with respect to the termination of any Plan or the withdrawal or partial
withdrawal of El Paso or any of its ERISA Affiliates from any Plan or
Multiemployer Plan; (f) the receipt by El Paso or any ERISA Affiliate from the
PBGC or a plan administrator of any notice relating to the intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan; (g)
the receipt by El Paso or any ERISA Affiliate of any notice concerning the
imposition of Withdrawal Liability or a determination that a Multiemployer Plan
is, or is expected to be, insolvent or in reorganization, within the meaning of
Title IV of ERISA; (h) the occurrence of a "prohibited transaction" with respect
to which El Paso or any of the Subsidiaries is a "disqualified person" (within
the meaning of Section 4975 of the Code) or with respect to which El Paso or any
such Subsidiary could otherwise be liable; and (i) any other event or condition
with respect to a Plan or Multiemployer Plan that could reasonably be expected
to result in liability of El Paso.
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
Loans.
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8
"Eurodollar Loan" shall mean any Loan bearing interest at a rate determined
by reference to the LIBO Rate in accordance with the provisions of Article II.
"Event of Default" shall have the meaning assigned to such term in Article
VII.
"Excess Cash" shall mean, as of any date of determination, the sum of (a)
cash and (b) the fair market value of all Permitted Investments as shown on El
Paso's consolidated balance sheet on such date minus $25,000,000; provided,
however, that in no event shall "Excess Cash" be deemed to be less than zero.
"Farmington Loan Agreements" shall mean, individually and collectively, (a)
the Installment Sale Agreement dated as of November 1, 1983, between the City of
Farmington, New Mexico and El Paso and (b) the Amended and Restated Installment
Sale Agreement dated as of November 1, 1994, between the City of Farmington, New
Mexico and El Paso, in each case as amended from time to time in accordance with
the terms hereof and thereof.
"Farmington Reimbursement Agreement" shall have the meaning assigned to
such term in the Indenture.
"Federal Power Act" shall mean the Federal Power Act of 1920, 16 U.S.C.
(S)(S) 791a et seq., and the rules and regulations promulgated thereunder, as
amended from time to time.
"Fee Letter" shall mean the Fee Letter dated December 14, 1998, among El
Paso, the Administrative Agent and Chase Securities Inc.
"Fees" shall mean the Commitment Fees, the Administrative Agent's Fees, the
L/C Participation Fees and the Issuing Bank Fees.
"FERC" shall mean the Federal Energy Regulatory Commission, or any
Governmental Authority succeeding to any or all of such Commission's authority.
"Financial Officer" of any corporation shall mean the chief financial
officer, principal accounting officer, treasurer, controller or other vice
president with financial planning responsibilities of such corporation.
"Finsub" shall mean a corporation organized under the laws of a state of
the United States of America which is a special purpose wholly-owned subsidiary
of El Paso formed solely for the purpose of engaging in the Receivables Program.
"First Mortgage Bonds" shall mean each of the Series A, Series B, Series C,
Series D, Series E, Collateral Series H, Collateral Series I and Collateral
Series J First Mortgage Bonds of El Paso issued pursuant to the Indenture.
"First Mortgage Bonds - Collateral Series H" shall mean the Collateral
Series H First Mortgage Bonds.
"First Supplemental Indenture" shall mean the First Supplemental Indenture
dated as of February 1, 1996, to the Indenture, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
provisions thereof and hereof.
<PAGE>
9
"Fixed Charge Coverage Ratio" shall mean, for any period, the ratio of
Consolidated Cash Flow for such period to Fixed Charges for such period. In the
event that El Paso or any of the Subsidiaries incurs, assumes, Guarantees or
redeems any Indebtedness (other than Indebtedness created hereunder) or issues
any series of preferred stock subsequent to the commencement of the period for
which the Fixed Charge Coverage Ratio is being calculated but prior to the date
on which the event for which the calculation of the Fixed Charge Coverage Ratio
is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, Guarantee or
redemption of Indebtedness, or such issuance or redemption of any series of
preferred stock, as if the same had occurred at the beginning of the applicable
four-quarter reference period. For purposes of making the computation referred
to above, (i) acquisitions that have been made by El Paso or any of the
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period, and (ii) Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges shall not be obligations of El
Paso or any of the Subsidiaries following the Calculation Date.
"Fixed Charges" shall mean, for any period, the sum of (i) Consolidated
Interest Expense for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest payments,
the interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to any sale and leaseback
transactions, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to hedging transactions, but excluding, however, the interest
component of any deferred payment obligations), (ii) Consolidated Interest
Expense that was capitalized during such period, (iii) any interest expense on
Indebtedness of another person that is Guaranteed by El Paso or one of the
Subsidiaries or secured by a Lien on assets of El Paso or one of the
Subsidiaries (whether or not such Guarantee or Lien is called upon), and (iv)
all cash dividend payments on any series of preferred stock, in each case, on a
consolidated basis and in accordance with GAAP.
"GAAP" shall mean generally accepted accounting principles in the United
States of America applied on a consistent basis.
"Governmental Authority" shall mean any Federal, state, local or foreign
court or governmental agency, authority, instrumentality or regulatory body.
"Guarantee" of or by any person shall mean any obligation, contingent or
otherwise, of such person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other person (the "primary obligor") in any
manner, whether directly or indirectly, and including any obligation of such
person, direct or indirect, (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness or to purchase (or to advance
or supply funds for the purchase of) any security for the payment of such
Indebtedness, (b) to purchase or lease property, securities or services for the
purpose of assuring the owner of such Indebtedness of the payment of such
Indebtedness or (c) to maintain working capital, equity capital or any other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness; provided, however, that the
term Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business.
"Hazardous Materials" shall mean all explosive or radioactive substances or
wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or
gaseous wastes, including petroleum or petroleum distillates, asbestos or
asbestos-containing materials, polychlorinated biphenyls ("PCBs") or PCB-
containing materials or equipment, radon gas, infectious or medical wastes and
all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
<PAGE>
10
"Inactive Subsidiary" shall mean, at any time, any Subsidiary that (a) has
assets at such time of $25,000 or less and (b) has not conducted any business
activity during the prior six-month period.
"Indebtedness" of any person shall mean, without duplication, (a) all
obligations of such person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such person
upon which interest charges are customarily paid, (d) all obligations of such
person under conditional sale or other title retention agreements relating to
property or assets purchased by such person, (e) all obligations of such person
issued or assumed as the deferred purchase price of property or services
(excluding trade accounts payable and accrued obligations incurred in the
ordinary course of business), (f) all Indebtedness of others secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on property owned or acquired by such
person, whether or not the obligations secured thereby have been assumed, (g)
all Guarantees by such person of Indebtedness of others, (h) all Capital Lease
Obligations of such person, (i) all obligations of such person in respect of
interest rate protection agreements, foreign currency exchange agreements or
other interest or exchange rate hedging arrangements and (j) all obligations of
such person as an account party in respect of letters of credit and bankers'
acceptances. The Indebtedness of any person shall include the Indebtedness of
any partnership in which such person is a general partner.
"Indenture" shall mean the General Mortgage Indenture and Deed of Trust
dated as of February 1, 1996, by El Paso to the Indenture Trustee, as
supplemented by the First Supplemental Indenture, the Second Supplemental
Indenture and the Third Supplemental Indenture and as the same may be further
supplemented, amended or otherwise modified from time to time in accordance with
the provisions thereof and hereof.
"Indenture Trustee" shall mean the State Street Bank and Trust Company, as
trustee under the Indenture, together with its successors and assigns in such
capacity.
"Interest Payment Date" shall mean, with respect to any Loan, the last day
of the Interest Period applicable to the Borrowing of which such Loan is a part
and, in the case of a Eurodollar Borrowing with an Interest Period of more than
three months' duration, each day that would have been an Interest Payment Date
had successive Interest Periods of three months' duration been applicable to
such Borrowing, and, in addition, the date of any prepayment of such Borrowing
or conversion of such Borrowing to a Borrowing of a different Type.
"Interest Period" shall mean (a) as to any Eurodollar Borrowing, the period
commencing on the date of such Borrowing and ending on the numerically
corresponding day (or, if there is no numerically corresponding day, on the last
day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the
applicable Borrower may elect and (b) as to any ABR Borrowing, the period
commencing on the date of such Borrowing and ending on the earliest of (i) the
next succeeding January 31, April 30, July 31 or October 31 and (ii) the
Maturity Date; provided, however, that if any Interest Period would end on a day
other than a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such
next succeeding Business Day would fall in the next calendar month, in which
case such Interest Period shall end on the next preceding Business Day. Interest
shall accrue from and including the first day of an Interest Period to but
excluding the last day of such Interest Period.
"Issuing Bank Fees" shall have the meaning assigned to such term in Section
2.05(c).
"Investment Grade Rating" shall mean a rating of BBB- or better by S&P or
Baa3 or better by Moody's.
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11
"L/C Commitment" shall mean the commitment of the Issuing Bank to issue
Letters of Credit pursuant to Section 2.20.
"L/C Disbursement" shall mean a payment or disbursement made by the Issuing
Bank pursuant to a Letter of Credit.
"L/C Exposure" shall mean at any time the sum of (a) the aggregate undrawn
amount of all outstanding Letters of Credit at such time plus (b) the aggregate
principal amount of all L/C Disbursements that have not yet been reimbursed at
such time. The L/C Exposure of any Lender at any time shall mean its Applicable
Percentage of the aggregate L/C Exposure at such time.
"L/C Participation Fee" shall have the meaning assigned to such term in
Section 2.05(c).
"Lenders" shall mean (a) the financial institutions listed on Schedule 2.01
(other than any such financial institution that has ceased to be a party hereto
pursuant to an Assignment and Acceptance) and (b) any financial institution that
has become a party hereto pursuant to an Assignment and Acceptance.
"Letter of Credit" shall mean any letter of credit issued pursuant to
Section 2.20.
"LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for any
Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on
any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO Rate" with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
"LIBOR Spread" shall mean (a) for all periods or portions thereof prior to
the Restatement Closing Date, 2.50% and (b) for all periods or portions thereof
on or after the Restatement Closing Date, the Applicable Spread in effect for
such day for Eurodollar Loans.
"Lien" shall mean, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, encumbrance, charge or security interest in or on such
asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement (or any financing lease
having substantially the same economic effect as any of the foregoing) relating
to such asset and (c) in the case of securities, any purchase option, call or
similar right of a third party with respect to such securities.
"Loan Documents" shall mean this Agreement, the Letters of Credit and the
Security Agreement.
"Loan Parties" shall mean the Borrowers and any Subsidiary that shall
become a guarantor of the El Paso Obligations pursuant to Section 5.10.
"Loans" shall mean the loans made by the Lenders to the Borrowers pursuant
to Section 2.01. Each Loan shall be a Eurodollar Loan or an ABR Loan.
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12
"Margin Stock" shall have the meaning assigned to such term in
Regulation U.
"Maricopa Loan Agreements" shall mean, individually and collectively, (a)
the Loan Agreement dated as of December 1, 1983, between Maricopa County,
Arizona Pollution Control Corporation ("Maricopa") and El Paso, (b) the Loan
Agreement dated as of July 1, 1994, between Maricopa and El Paso, (c) the Loan
Agreement dated as of December 1, 1984, between Maricopa and El Paso, and (d)
the Loan Agreement dated as of August 1, 1985, between Maricopa and El Paso, in
each case as amended from time to time in accordance with the provisions hereof
and thereof.
"Maricopa Reimbursement Agreement" shall have the meaning assigned to such
term in the Indenture.
"Material Adverse Effect" shall mean (a) a materially adverse effect on the
business, assets, operations, prospects or condition, financial or otherwise, of
El Paso and the Subsidiaries, taken as a whole, (b) material impairment of the
ability of the Trustee, El Paso or any other Loan Party to perform any of its
obligations under any Transaction Document to which it is or will be a party or
(c) material impairment of the rights of the Lenders under any Transaction
Document.
"Maturity Date" shall mean (a) the third anniversary of the Restatement
Closing Date or (b) such later date to which the final maturity of the Loans and
Commitments shall have been extended pursuant to the provisions of Section 2.21.
"Moody's" shall mean Moody's Investors Service, Inc., and its successors.
"Mortgaged Property" shall have the meaning assigned to such term in the
Indenture.
"Multiemployer Plan" shall mean a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"Net Debt" shall mean, as of any date of determination, Total Debt minus
Excess Cash.
"New Mexico Public Utility Act" shall mean the New Mexico Public Utility
Act, N.M. Stat. Ann. (S)(S) 62-13-1 et seq., and the rules and regulations
promulgated thereunder, as amended from time to time.
"NMPUC" shall mean the New Mexico Public Utilities Commission or any
Governmental Authority succeeding to any or all of such Commission's authority.
"NRC" shall mean the Nuclear Regulatory Commission or any Governmental
Authority succeeding to any or all of such Commission's authority.
"Nuclear Fuel" shall have the meaning assigned to such term in the Purchase
Contract.
"Nuclear Waste Act" shall mean the Nuclear Waste Policy Act of 1982, 42
U.S.C. (S)(S) 10101 et seq., the Nuclear Waste Policy Amendments Act of 1987, 42
U.S.C. (S)(S) 10172, 10172a et seq., and the rules and regulations promulgated
thereunder, as amended from time to time.
"Original Closing Date" shall mean February 12, 1996.
"Original Maturity Date" shall mean February 12, 1999.
"Obligations" shall mean, collectively, the Trust Obligations and the El
Paso Obligations.
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13
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and
defined in ERISA.
"Permitted Investments" shall mean:
(a) direct obligations of, or obligations the principal of and interest on
which are unconditionally guaranteed by, the United States of America (or
by any agency thereof to the extent such obligations are backed by the
full faith and credit of the United States of America), in each case
maturing within one year from the date of acquisition thereof, and
repurchase obligations with a term of not more than seven days for
underlying securities of the type described in this clause (a) (without
regard to their maturity) entered into with financial institutions with the
minimum amount of capital and surplus specified in clause (c) below;
(b) investments in commercial paper maturing within 270 days from the date
of acquisition thereof and having, at such date of acquisition, the highest
credit rating obtainable from S&P or Moody's;
(c) investments in certificates of deposit, banker's acceptances and time
deposits maturing within one year from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts
issued or offered by, any domestic office of any commercial bank (including
the Trustee) organized under the laws of the United States of America or
any state thereof which has a combined capital and surplus and undivided
profits of not less than $250,000,000; and
(d) other investment instruments approved in writing by the Required
Lenders and offered by financial institutions which have a combined capital
and surplus and undivided profits of not less than $250,000,000.
"person" shall mean any natural person, corporation, business trust, joint
venture, association, company, partnership or government, or any agency or
political subdivision thereof.
"Plan" shall mean any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 307 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Preferred Stock" shall have the meaning assigned to such term in Section
3.22.
"PUCT" shall mean the Public Utility Commission of Texas or any
Governmental Authority succeeding to any or all of such Commission's authority.
"Purchase Contract" shall mean the Purchase Contract dated as of February
12, 1996, between the Trustee and El Paso, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
provisions thereof and hereof.
"Purchase Contract Default" shall have the meaning assigned to the term
"Event of Default" in Section 19(a) of the Purchase Contract.
"Rate Protection Agreements" shall mean any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or similar agreement
or arrangement designed to protect El Paso against fluctuations in interest
rates and not for speculation.
"Rating Agency" shall mean S&P and Moody's.
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14
"Receivables Program" shall mean, collectively, (a) the sale of, or
transfer of interests in, account receivables and related contract rights
("Receivables") of El Paso to Finsub and (b) the transfer of such Receivables by
Finsub to a special purpose trust or corporation which is not an Affiliate of El
Paso or Finsub; provided, that all terms and conditions (including, without
limitation, any terms or conditions providing for recourse to El Paso or any of
the Subsidiaries (other than Finsub)) of, and all documentation relating to, the
Receivables Program shall be subject to the prior written approval of the
Required Lenders (it being understood and agreed that certain amendments to
Article VI and the other provisions of this Agreement may be required in
connection with the implementation of the Receivables Program).
"Receivables Program Documents" shall mean all agreements, in form and
substance reasonably satisfactory to the Required Lenders, that may from time to
time be entered into by El Paso or a Subsidiary in connection with any
Receivables Program, as such agreements may be amended, supplemented or
otherwise modified from time to time in accordance with the provisions thereof
and hereof.
"Register" shall have the meaning given such term in Section 11.04(d).
"Regulation T" shall mean Regulation T of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Regulation U" shall mean Regulation U of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Regulation X" shall mean Regulation X of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Release" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, disposing,
depositing, dispersing, emanating or migrating of any Hazardous Material in,
into, onto or through the environment.
"Remedial Action" shall mean (i) "remedial action" as such term is defined
in CERCLA, 42 U.S.C. (S) 9601(24), and (ii) all other actions required by any
Governmental Authority or voluntarily undertaken to: (x) cleanup, remove,
treat, abate or in any other way address any Hazardous Material in the
environment; (y) prevent the Release or threat of Release, or minimize the
further Release of any Hazardous Material so it does not migrate or endanger or
threaten to endanger public health, welfare or the environment; or (z) perform
studies and investigations in connection with, or as a precondition to, (x) or
(y) above.
"Required Lenders" shall mean, at any time, Lenders having Loans, L/C
Exposure and unused Commitments representing more than 50% of the sum of all
Loans outstanding, L/C Exposure and unused Commitments at such time.
"Responsible Officer" of any corporation shall mean any executive officer
or Financial Officer of such corporation and any other officer or similar
official thereof responsible for the administration of the obligations of such
corporation in respect of this Agreement.
"Restatement Closing Date" shall mean February 11, 1999.
"Rio Grande Resources Trust II" shall mean the trust created by the Trust
Agreement.
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15
"Second Supplemental Indenture" shall mean the Second Supplemental
Indenture dated as of August 19, 1997, to the Indenture, as the same may be
amended, supplemented or otherwise modified from time to time in accordance with
the provisions thereof and hereof.
"Secured Parties" shall have the meaning assigned to such term in the
Security Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time.
"Securities Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
"Security Agreement" shall mean the Security Agreement and Assignment of
Contracts dated as of the Original Closing Date between the Trustee and the
Collateral Agent for the benefit of the Secured Parties, a copy of which is
attached hereto as Exhibit D.
"S&P" shall mean Standard & Poor's Rating Services and its successors.
"Statutory Reserves" shall mean a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board and any other banking authority, domestic or foreign,
to which the Administrative Agent or any Lender (including any branch,
Affiliate, or other fronting office making or holding a Loan) is subject for new
negotiable nonpersonal time deposits in dollars of over $100,000 with maturities
approximately equal to three months. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"Stockholders' Equity" shall mean, as at any date of determination, the
stockholders' equity at such date of El Paso, as determined in accordance with
GAAP.
"Subordinated Indebtedness" shall mean Indebtedness of El Paso that is
subordinated to the payment in full of the Obligations and containing terms and
conditions (including with respect to amount, rate, tenor and subordination)
reasonably satisfactory to the Required Lenders.
"subsidiary" shall mean, with respect to any person (herein referred to as
the "parent"), any corporation, partnership, association or other business
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or more
than 50% of the general partnership interests are, at the time any determination
is being made, owned, controlled or held, or (b) that is, at the time any
determination is made, otherwise Controlled, by the parent or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent.
"Subsidiary" shall mean any subsidiary of El Paso.
"Texas Public Utility Regulatory Act" shall mean the Texas Public Utility
Regulatory Act of 1995, and the rules and regulations promulgated thereunder, as
amended from time to time.
"Third Supplemental Indenture" shall mean the Third Supplemental Indenture
dated as of January 29, 1999, to the Indenture, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
provisions thereof and hereof.
"Three-Month Secondary CD Rate" shall mean, for any day, the secondary
market rate for three-month certificates of deposit reported as being in effect
on such day (or, if such day shall not be a Business Day, the next preceding
Business Day) by the Board through the public information telephone
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16
line of the Federal Reserve Bank of New York (which rate will, under the current
practices of the Board, be published in Federal Reserve Statistical Release
H.15(519) during the week following such day), or, if such rate shall not be so
reported on such day or such next preceding Business Day, the average of the
secondary market quotations for three-month certificates of deposit of major
money center banks in New York City received at approximately 10:00 a.m., New
York City time, on such day (or, if such day shall not be a Business Day, on the
next preceding Business Day) by the Administrative Agent from three New York
City negotiable certificate of deposit dealers of recognized standing selected
by it.
"Total Capital" shall mean, as at any date of determination, the sum of
Total Debt on such date and Stockholders' Equity at such date.
"Total Commitment" shall mean, at any time, the aggregate amount of the
Commitments, as in effect at such time. The Total Commitment as of the
Restatement Closing Date is $100,000,000.
"Total Debt" shall mean, as of any date of determination, all Indebtedness
(excluding Indebtedness of the type described in clauses (i) and (j) of the
definition of the term "Indebtedness") of El Paso at such date.
"Transaction Documents" shall mean the Loan Documents, the Indenture and
the First Mortgage Bonds - Collateral Series H.
"Transactions" shall have the meaning assigned to such term in Section
3.02.
"Trust Agreement" shall mean the Trust Agreement dated as of February 12,
1996, between the Trustee and El Paso, providing for the creation of the Rio
Grande Resources Trust II, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the provisions thereof and hereof.
"Trust Indenture Act" shall mean the Trust Indenture Act of 1939, and the
rules and regulations promulgated thereunder, as amended from time to time.
"Trust Obligations" shall have the meaning assigned to such term in Section
9.01.
"Trust Termination Date" shall mean the date of any termination of the
Purchase Contract.
"Trustee L/C Exposure" shall mean that part of the L/C Exposure
attributable to all Letters of Credit issued for the account of the Trustee.
"Trustee's Liens" shall have the meaning assigned to such term in the
Purchase Contract.
"Type", when used in respect of any Loan or Borrowing, shall refer to the
Rate by reference to which interest on such Loan or on the Loans comprising such
Borrowing is determined. For purposes hereof, the term "Rate"shall include the
LIBO Rate and the Alternate Base Rate.
"Wholly Owned Subsidiary" of any person (the "Parent") shall mean a
subsidiary of the Parent of which securities (except for directors' qualifying
shares) or other ownership interests representing 100% of the equity or 100% of
the ordinary voting power or 100% of the general partnership interests are, at
the time any determination is being made, owned, controlled or held by the
Parent and/or one or more Wholly Owned Subsidiaries of the Parent.
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"Withdrawal Liability" shall mean liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation"
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, (a) any reference in this Agreement to any Loan
Document shall mean such document as amended, restated, supplemented or
otherwise modified from time to time and (b) all terms of an accounting or
financial nature shall be construed in accordance with GAAP, as in effect from
time to time; provided, however, that for purposes of determining compliance
with the covenants contained in Article VI, all accounting terms herein shall be
interpreted and all accounting determinations hereunder shall be made in
accordance with GAAP as in effect on the date of this Agreement and applied on a
basis consistent with the application used in the financial statements referred
to in Section 3.05.
ARTICLE II
The Credits
SECTION 2.01. Commitments. Subject to the terms and conditions and
relying upon the representations and warranties herein set forth, each Lender
agrees, severally and not jointly, to make Loans to the Trustee or El Paso, at
any time and from time to time on or after the date hereof, and until the
earlier of the Maturity Date and the termination of the Commitment of such
Lender in accordance with the terms hereof, in an aggregate principal amount at
any time outstanding that will not result in such Lender's Credit Exposure
exceeding such Lender's Commitment; provided, however, that at no time shall the
sum of (x) the aggregate principal amount of Loans outstanding to the Trustee
and (y) the Trustee L/C Exposure exceed $70,000,000. Within the limits set
forth in the preceding sentence and subject to the terms, conditions and
limitations set forth herein, the Borrowers may borrow, pay or prepay and
reborrow Loans.
SECTION 2.02. Loans. (a) Each Loan shall be made as part of a Borrowing
consisting of Loans made by the Lenders ratably in accordance with their
respective Commitments; provided, however, that the failure of any Lender to
make any Loan shall not in itself relieve any other Lender of its obligation to
lend hereunder (it being understood, however, that no Lender shall be
responsible for the failure of any other Lender to make any Loan required to be
made by such other Lender). Except for Loans deemed made pursuant to Section
2.02(f), the Loans comprising any Borrowing shall be in an aggregate principal
amount that is (i)(A) with respect to any Eurodollar Borrowing, an integral
multiple of $1,000,000 and not less than $5,000,000 or (B) with respect to any
ABR Borrowing, an integral multiple of $1,000 and not less than $100,000 or (ii)
equal to the remaining available balance of the Commitments.
(b) Subject to Sections 2.08 and 2.13, each Borrowing shall be comprised
entirely of ABR Loans or Eurodollar Loans as the applicable Borrower may request
pursuant to Section 2.03. Each Lender may at its option make any Eurodollar
Loan by causing any domestic or foreign branch or Affiliate of such Lender to
make such Loan; provided that any exercise of such option shall not affect the
obligation of the Borrower to repay such Loan in accordance with the terms of
this Agreement. Borrowings of more than one Type may be outstanding at the same
time; provided, however, that the Borrowers shall not be entitled to request any
Borrowing that, if made, would result in more than seven Eurodollar Borrowings
outstanding hereunder at any time. For purposes of the foregoing, Borrowings
having different Interest Periods, regardless of whether they commence on the
same date, shall be considered separate Borrowings.
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(c) Each Lender shall make each Loan to be made by it hereunder on the
proposed date thereof by wire transfer of immediately available funds to such
account in New York City as the Administrative Agent may designate not later
than 11:00 a.m., New York City time, and the Administrative Agent shall by 12:00
(noon), New York City time, credit the amounts so received to an account in the
name of the applicable Borrower maintained with the Administrative Agent and
designated by such Borrower in the applicable Borrowing Request or, if a
Borrowing shall not occur on such date because any condition precedent herein
specified shall not have been met, return the amounts so received to the
respective Lenders.
(d) Unless the Administrative Agent shall have received notice from a
Lender prior to the date of any Borrowing that such Lender will not make
available to the Administrative Agent such Lender's portion of such Borrowing,
the Administrative Agent may assume that such Lender has made such portion
available to the Administrative Agent on the date of such Borrowing in
accordance with paragraph (c) above and the Administrative Agent may, in
reliance upon such assumption, make available to the applicable Borrower on such
date a corresponding amount. If the Administrative Agent shall have so made
funds available then, to the extent that such Lender shall not have made such
portion available to the Administrative Agent, such Lender and the applicable
Borrower severally agree to repay to the Administrative Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to the applicable Borrower until the
date such amount is repaid to the Administrative Agent at (i) in the case of
either Borrower, the interest rate applicable at the time to the Loans
comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds
Effective Rate. If such Lender shall repay to the Administrative Agent such
corresponding amount, such amount shall constitute such Lender's Loan as part of
such Borrowing for purposes of this Agreement.
(e) Notwithstanding any other provision of this Agreement, (i) neither
Borrower shall be entitled to request any Borrowing if the Interest Period
requested with respect thereto would end after the Maturity Date and (ii) the
Trustee shall not be entitled to request any Borrowing on or after the Trust
Termination Date.
(f) If the Issuing Bank shall not have received from the Trustee or El
Paso, as the case may be, the payment required to be made by Section 2.20(e)
within the time specified in such Section, the Issuing Bank will promptly notify
the Administrative Agent of the L/C Disbursement and the Administrative Agent
will promptly notify each Lender of such L/C Disbursement and its Applicable
Percentage thereof. Each Lender shall pay by wire transfer of immediately
available funds to the Administrative Agent not later than 2:00 p.m., New York
City time, on such date (or, if such Lender shall have received such notice
later than 12:00 (noon), New York City time, on any day, not later than 10:00
a.m., New York City time, on the immediately following Business Day), an amount
equal to such Lender's Applicable Percentage of such L/C Disbursement (it being
understood that such amount shall be deemed to constitute an ABR Loan of such
Lender and such payment shall be deemed to have reduced the L/C Exposure by such
amount), and the Administrative Agent will promptly pay to the Issuing Bank
amounts so received by it from the Lenders. The Administrative Agent will
promptly pay to the Issuing Bank any amounts received by it from the Trustee or
El Paso, as the case may be, pursuant to Section 2.20(e) prior to the time that
any Lender makes any payment pursuant to this paragraph (f); any such amounts
received by the Administrative Agent thereafter will be promptly remitted by the
Administrative Agent to the Lenders that shall have made such payments and to
the Issuing Bank, as their interests may appear. If any Lender shall not have
made its Applicable Percentage of such L/C Disbursement available to the
Administrative Agent as provided above, such Lender and the Trustee or El Paso,
as the case may be, severally agree to pay interest on such amount, for each day
from and including the date such amount is required to be paid in accordance
with this paragraph to but excluding the date such amount is paid, to the
Administrative Agent at (i) in the case of the Trustee or El Paso, as the case
may be, a rate per annum equal to the interest rate
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applicable to ABR Loans pursuant to Section 2.06(a), and (ii) in the case of
such Lender, for the first such day, the Federal Funds Effective Rate, and for
each day thereafter, the Alternate Base Rate.
SECTION 2.03. Borrowing Procedure. In order to request a Borrowing
(other than a deemed Borrowing pursuant to Section 2.02(f), as to which this
Section 2.03 shall not apply), the applicable Borrower shall hand deliver or
telecopy to the Administrative Agent a duly completed Borrowing Request (a) in
the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before a proposed Borrowing, and (b) in the case of an
ABR Borrowing, not later than 12:00 noon, New York City time, one Business Day
before a proposed Borrowing. Each Borrowing Request shall be irrevocable, shall
be signed by or on behalf of the applicable Borrower and shall specify the
following information: (i) whether the Borrowing then being requested is to be
a Eurodollar Borrowing or an ABR Borrowing; (ii) the date of such Borrowing
(which shall be a Business Day); (iii) the number and location of the account to
which funds are to be disbursed (which shall be an account that complies with
the requirements of Section 2.02(c)); (iv) the amount of such Borrowing; and (v)
if such Borrowing is to be a Eurodollar Borrowing, the Interest Period with
respect thereto; provided, however, that, notwithstanding any contrary
specification in any Borrowing Request, each requested Borrowing shall comply
with the requirements set forth in Section 2.02. If no election as to the Type
of Borrowing is specified in any such notice, then the requested Borrowing shall
be an ABR Borrowing. If no Interest Period with respect to any Eurodollar
Borrowing is specified in any such notice, then the applicable Borrower shall be
deemed to have selected an Interest Period of one month's duration. The
Administrative Agent shall promptly advise the Lenders of any notice given
pursuant to this Section 2.03 (and the contents thereof), and of each Lender's
portion of the requested Borrowing.
SECTION 2.04. Evidence of Debt; Repayment of Loans. (a) Each Borrower
hereby unconditionally promises to pay to the Administrative Agent for the
account of each Lender the then unpaid principal amount of each Loan made to
such Borrower on the Maturity Date; provided, however, that if the Purchase
Contract shall terminate prior to the Maturity Date, the Trustee shall repay the
unpaid principal amount of each Loan made to it on the earlier of (i) the
Maturity Date, (ii) the 150th day following the Trust Termination Date, (iii) if
any Event of Default that is not a Purchase Contract Default shall be in
existence on the Trust Termination Date or shall thereafter occur, the 10th day
following the later to occur of the Trust Termination Date or such Event of
Default or (iv) if a Purchase Contract Default shall have occurred, on (A) the
date of such occurrence or (B) such later date as the Administrative Agent may
elect.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of each Borrower to such Lender
resulting from each Loan made by such Lender from time to time, including the
amounts of principal and interest payable and paid such Lender from time to time
under this Agreement.
(c) The Administrative Agent shall maintain accounts in which it will
record (i) the amount of each Loan made hereunder, the Type thereof and the
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable or to become due and payable from each Borrower to each Lender
hereunder and (iii) the amount of any sum received by the Administrative Agent
hereunder from each Borrower and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraphs (b)
and (c) above shall be prima facie evidence of the existence and amounts of the
obligations therein recorded; provided, however, that the failure of any Lender
or the Administrative Agent to maintain such accounts or any error therein shall
not in any manner affect the obligations of the Borrowers to repay the Loans in
accordance with their terms.
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(e) Notwithstanding any other provision of this Agreement, in the event
any Lender shall request and receive a promissory note payable to such Lender
and its registered assigns, the interests represented by such note shall at all
times (including after any assignment of all or part of such interests pursuant
to Section 11.04) be represented by one or more promissory notes payable to the
payee named therein or its registered assigns.
SECTION 2.05. Fees. (a) The Borrowers agree, jointly and severally, to
pay to each Lender, through the Administrative Agent, on the Restatement Closing
Date and on the last day of January, April, July and October in each year and on
each date on which the Commitment of such Lender shall expire or be terminated
as provided herein, a commitment fee (a "Commitment Fee") of (a) for any such
period ending on or before the Restatement Closing Date, 0.50% per annum and (b)
for all periods thereafter, the Applicable Spread in effect at the beginning of
such period, in each case on the average daily unused amount of the Commitment
of such Lender during the preceding quarter (or other period commencing on the
Restatement Closing Date or ending on the Restatement Closing Date, the Maturity
Date or the date on which the Commitments of such Lender shall expire or be
terminated). All Commitment Fees shall be computed on the basis of the actual
number of days elapsed in a year of 360 days.
(b) The Borrowers agree, jointly and severally, to pay to the
Administrative Agent the fees set forth in the Fee Letter at the times and in
the amounts specified therein (the "Administrative Agent Fees").
(c) The Borrowers agree, jointly and severally, to pay (i) to each Lender,
through the Administrative Agent, on the Restatement Closing Date and on the
last day of January, April, July and October of each year and on the date on
which the Commitment of such Lender shall be terminated as provided herein, a
fee (an "L/C Participation Fee") calculated on such Lender's Applicable
Percentage of the average daily aggregate L/C Exposure (excluding the portion
thereof attributable to unreimbursed L/C Disbursements) during the preceding
quarter (or shorter period commencing on the Restatement Closing Date or ending
on the Restatement Closing Date, the Maturity Date or the date on which all
Letters of Credit have been canceled or have expired and the Commitments of all
Lenders shall have been terminated) at a rate equal to (a) for any such period
ending on or before the Restatement Closing Date, 2.25% per annum, and (b) for
all periods thereafter, the LIBOR Spread and (ii) to the Issuing Bank with
respect to each Letter of Credit the fronting fees set forth in the Fee Letter
(the "Issuing Bank Fees"). All L/C Participation Fees and Issuing Bank Fees
shall be computed on the basis of the actual number of days elapsed in a year of
360 days.
(d) All Fees shall be paid on the dates due, in immediately available
funds, to the Administrative Agent for distribution, if and as appropriate,
among the Lenders, except that the Issuing Bank Fees shall be paid directly to
the Issuing Bank. Once paid, none of the Fees shall be refundable under any
circumstances.
SECTION 2.06. Interest on Loans. (a) Subject to the provisions of
Section 2.07, the Loans comprising each ABR Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 365
or 366 days, as the case may be, when the Alternate Base Rate is determined by
reference to the Prime Rate and over a year of 360 days at all other times) at a
rate per annum equal to the Alternate Base Rate plus the ABR Spread.
(b) Subject to the provisions of Section 2.07, the Loans comprising each
Eurodollar Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 360 days) at a rate per annum equal to the
LIBO Rate for the Interest Period in effect for such Borrowing plus the LIBOR
Spread in effect for such Borrowing.
(c) Interest on each Loan shall be payable on the Interest Payment Dates
applicable to such Loan except as otherwise provided in this Agreement. The
applicable Alternate Base Rate, LIBO Rate, ABR
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21
Spread and LIBOR Spread for each Interest Period or day within an Interest
Period, as the case may be, shall be determined by the Administrative Agent, and
such determination shall be conclusive absent manifest error.
SECTION 2.07. Default Interest. If either Borrower shall default in the
payment of the principal of or interest on any Loan or any other amount becoming
due hereunder, by acceleration or otherwise, or under any other Loan Document,
such Borrower shall on demand from time to time pay interest, to the extent
permitted by law, on such defaulted amount to but excluding the date of actual
payment (after as well as before judgment) (a) in the case of overdue principal,
at the rate otherwise applicable to such Loan pursuant to Section 2.06 plus
2.00% per annum and (b) in all other cases, at a rate per annum (computed on the
basis of the actual number of days elapsed over a year of 365 or 366 days, as
the case may be, when determined by reference to the Prime Rate and over a year
of 360 days at all other times) equal to the sum of the Alternate Base Rate plus
2.00%.
SECTION 2.08. Alternate Rate of Interest. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing the Administrative Agent shall have
determined that dollar deposits in the principal amounts of the Loans comprising
such Borrowing are not generally available in the London interbank market, or
that the rates at which such dollar deposits are being offered will not
adequately and fairly reflect the cost to any Lender of making or maintaining
its Eurodollar Loan during such Interest Period, or that reasonable means do not
exist for ascertaining the LIBO Rate, the Administrative Agent shall, as soon as
practicable thereafter, give written or telecopy notice of such determination to
the Borrowers and the Lenders. In the event of any such determination, until
the Administrative Agent shall have advised the Borrowers and the Lenders that
the circumstances giving rise to such notice no longer exist, any request by
either Borrower for a Eurodollar Borrowing pursuant to Section 2.03 shall be
deemed to be a request for an ABR Borrowing. Each determination by the
Administrative Agent hereunder shall be conclusive absent manifest error.
SECTION 2.09. Termination and Reduction of Commitments. (a) The
Commitments and the L/C Commitment shall automatically terminate on the Maturity
Date.
(b) Upon at least three Business Days' prior irrevocable written or
telecopy notice to the Administrative Agent, the Borrowers may at any time in
whole permanently terminate, or from time to time in part permanently reduce,
the Commitments; provided, however, that (i) each partial reduction of the
Commitments shall be in an integral multiple of $1,000,000 and in a minimum
amount of $5,000,000 and (ii) the Total Commitment shall not be reduced to an
amount that is less than the Aggregate Credit Exposure at the time.
(c) Each reduction in the Commitments hereunder shall be made ratably
among the Lenders in accordance with their respective Commitments. The
Borrowers shall pay to the Administrative Agent for the account of the
applicable Lenders, on the date of each termination or reduction, the Commitment
Fees on the amount of the Commitments so terminated or reduced accrued to but
excluding the date of such termination or reduction.
SECTION 2.10. Conversion and Continuation of Borrowings. The applicable
Borrower shall have the right at any time upon prior irrevocable notice to the
Administrative Agent (a) not later than 12:00 (noon), New York City time, one
Business Day prior to conversion, to convert any Eurodollar Borrowing into an
ABR Borrowing, (b) not later than 10:00 a.m., New York City time, three Business
Days prior to conversion or continuation, to convert any ABR Borrowing into a
Eurodollar Borrowing or to continue any Eurodollar Borrowing as a Eurodollar
Borrowing for an additional Interest Period, and (c) not later than 10:00 a.m.,
New York City time, three Business Days prior to conversion, to convert the
Interest Period with respect to any Eurodollar Borrowing to another permissible
Interest Period, subject in each case to the following:
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(i) each conversion or continuation shall be made pro rata among the
Lenders in accordance with the respective principal amounts of the Loans
comprising the converted or continued Borrowing;
(ii) if less than all the outstanding principal amount of any
Borrowing shall be converted or continued, then each resulting Borrowing
shall satisfy the limitations specified in Sections 2.02(a) and 2.02(b)
regarding the principal amount and maximum number of Borrowings of the
relevant Type;
(iii) each conversion shall be effected by each Lender and the
Administrative Agent by recording for the account of such Lender the new
Loan of such Lender resulting from such conversion and reducing the Loan
(or portion thereof) of such Lender being converted by an equivalent
principal amount; accrued interest on any Eurodollar Loan (or portion
thereof) being converted shall be paid by such Borrower at the time of
conversion;
(iv) if any Eurodollar Borrowing is converted at a time other than the
end of the Interest Period applicable thereto, such Borrower shall pay,
upon demand, any amounts due to the Lenders pursuant to Section 2.14;
(v) any portion of a Borrowing maturing in less than one month may not
be converted into or continued as a Eurodollar Borrowing;
(vi) any portion of a Eurodollar Borrowing that cannot be converted
into or continued as a Eurodollar Borrowing by reason of the immediately
preceding clause shall be automatically converted at the end of the
Interest Period in effect for such Borrowing into an ABR Borrowing; and
(vii) upon notice to the Borrowers from the Administrative Agent given
at the request of the Required Lenders, after the occurrence and during the
continuance of a Default or Event of Default, no outstanding Loan may be
converted into, or continued as, a Eurodollar Loan.
Each notice pursuant to this Section 2.10 shall be irrevocable and shall
refer to this Agreement and specify (w) the identity and amount of the Borrowing
that the applicable Borrower requests be converted or continued, (x) whether
such Borrowing is to be converted to or continued as a Eurodollar Borrowing or
an ABR Borrowing, (y) if such notice requests a conversion, the date of such
conversion (which shall be a Business Day) and (z) if such Borrowing is to be
converted to or continued as a Eurodollar Borrowing, the Interest Period with
respect thereto. If no Interest Period is specified in any such notice with
respect to any conversion to or continuation as a Eurodollar Borrowing, the
applicable Borrower shall be deemed to have selected an Interest Period of one
month's duration. The Administrative Agent shall advise the Lenders of any
notice given pursuant to this Section 2.10 and of each Lender's portion of any
converted or continued Borrowing. If a Borrower shall not have given notice in
accordance with this Section 2.10 to continue any Borrowing into a subsequent
Interest Period (and shall not otherwise have given notice in accordance with
this Section 2.10 to convert such Borrowing), such Borrowing shall, at the end
of the Interest Period applicable thereto (unless repaid pursuant to the terms
hereof), automatically be continued into a new Interest Period as an ABR
Borrowing.
SECTION 2.11. Optional Prepayment. (a) Each Borrower shall have the right
at any time and from time to time to prepay any Borrowing, in whole or in part,
upon written or telecopy notice (or telephone notice promptly confirmed by
written or telecopy notice) to the Administrative Agent before 12:00 (noon), New
York City time (i) in the case of any prepayment of a Eurodollar Borrowing, at
least three Business Days prior to the date designated for such prepayment or
(ii) in the case of any prepayment
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23
of an ABR Borrowing, at least one Business Day prior to the date designated for
such prepayment; provided, however, that each partial prepayment shall be in an
amount that is (x) in the case of any partial prepayment of a Eurodollar
Borrowing, an integral multiple of $1,000,000 and not less than $5,000,000 or
(y) in the case of any partial prepayment of an ABR Borrowing, an integral
multiple of $1,000 and not less than $100,000.
(b) In the event of any termination of all the Commitments, each Borrower
shall repay or prepay all its outstanding Borrowings on the date of such
termination, together with accrued interest to but excluding the date of such
payment. In the event of any partial reduction of the Commitments, then (i) at
or prior to the effective date of such reduction or termination, the
Administrative Agent shall notify the Borrowers and the Lenders of the Aggregate
Credit Exposure after giving effect thereto and (ii) if the Aggregate Credit
Exposure would exceed the Total Commitment after giving effect to such reduction
or termination, then the Borrowers shall, on the date of such reduction or
termination, repay or prepay Borrowings in an amount sufficient to eliminate
such excess.
(c) Each notice of prepayment shall specify the prepayment date and the
principal amount of each Borrowing (or portion thereof) to be prepaid, shall be
irrevocable and shall commit the applicable Borrower to prepay such Borrowing by
the amount stated therein on the date stated therein. All prepayments under
this Section 2.11 shall be subject to Section 2.14 but otherwise without premium
or penalty. All prepayments under this Section 2.11 (other than prepayments of
ABR Loans prior to the Maturity Date) shall be accompanied by accrued interest
on the principal amount being prepaid to the date of payment.
SECTION 2.12. Reserve Requirements; Change in Circumstances. (a)
Notwithstanding any other provision of this Agreement, if after the date of this
Agreement, but prior to the first date on which the events described in clauses
(w), (x), (y) and (z) of subsection (d) of this Section 2.12 shall have occurred
(the "Obligation Termination Date"), any change in applicable law or regulation
or in the interpretation or administration thereof by any Governmental Authority
charged with the interpretation or administration thereof (whether or not having
the force of law) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for the
account of or credit extended by any Lender or the Issuing Bank or shall impose
on such Lender or the Issuing Bank or the London interbank market any other
condition affecting this Agreement or Eurodollar Loans made by such Lender or
any Letter of Credit or participation therein, and the result of any of the
foregoing shall be to increase the cost to such Lender or the Issuing Bank of
making or maintaining any Eurodollar Loan or increase the cost to any Lender or
the Issuing Bank of issuing or maintaining any Letter of Credit or purchasing or
maintaining a participation therein or to reduce the amount of any sum received
or receivable by such Lender or the Issuing Bank hereunder (whether of
principal, interest or otherwise) by an amount deemed by such Lender or the
Issuing Bank to be material, then the applicable Borrower will pay to such
Lender or the Issuing Bank, as the case may be, upon demand such additional
amount or amounts as will compensate such Lender or the Issuing Bank, as the
case may be, for such additional costs incurred or reduction suffered.
(b) If any Lender or the Issuing Bank shall have determined that the
adoption after the date hereof, but prior to the Obligation Termination Date, of
any law, rule, regulation, agreement or guideline regarding capital adequacy, or
any change after the date hereof, but prior to the Obligation Termination Date,
in any such law, rule, regulation, agreement or guideline (whether such law,
rule, regulation, agreement or guideline has been adopted) or in the
interpretation or administration thereof by any Governmental Authority charged
with the interpretation or administration thereof, or compliance by any Lender
(or any lending office of such Lender) or the Issuing Bank or any Lender's or
the Issuing Bank's holding company with any request or directive regarding
capital adequacy (whether or not having the force of law) of any Governmental
Authority has or would have the effect of reducing the rate of return on such
Lender's or the Issuing Bank's capital or on the capital of such Lender's or the
Issuing Bank's holding
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24
company, if any, as a consequence of this Agreement or the Loans made or
participation in Letters of Credit purchased by such Lender pursuant hereto or
the Letters of Credit issued by the Issuing Bank pursuant hereto to a level
below that which such Lender or the Issuing Bank or such Lender's or the Issuing
Bank's holding company could have achieved but for such applicability, adoption,
change or compliance (taking into consideration such Lender's or the Issuing
Bank's policies and the policies of such Lender's or the Issuing Bank's holding
company with respect to capital adequacy) by an amount deemed by such Lender or
the Issuing Bank to be material, then from time to time the applicable Borrower
shall pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or the Issuing Bank
or such Lender's or the Issuing Bank's holding company for any such reduction
suffered.
(c) A certificate of a Lender or the Issuing Bank setting forth the amount
or amounts necessary to compensate such Lender or the Issuing Bank or its
holding company, as applicable, as specified in paragraph (a) or (b) above shall
be delivered to the applicable Borrower and shall be conclusive absent manifest
error. The applicable Borrower shall pay such Lender or the Issuing Bank the
amount shown as due on any such certificate delivered by it within 10 days after
its receipt of the same.
(d) Failure or delay on the part of any Lender or the Issuing Bank to
demand compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital shall not constitute a waiver of
such Lender's or the Issuing Bank's right to demand such compensation under this
Section 2.12 for any costs incurred or reduction suffered with respect to any
date so long as such Lender or the Issuing Bank, as applicable, shall have
notified the applicable Borrower that it will demand compensation for such costs
or reduction under paragraph (c) above, not more than 90 days after the later of
(i) such date and (ii) the date on which such Lender or the Issuing Bank, as
applicable, shall have become aware of such costs or reduction. Notwithstanding
the foregoing, no notification contemplated by the preceding sentence shall in
any event be made more than 30 days after the date that (w) all the Obligations
have been indefeasibly paid in full, (x) the Lenders have no further commitment
to lend to either of the Borrowers under this Agreement, (y) the L/C Exposure
has been reduced to zero and (z) the Issuing Bank has no further obligation to
issue Letters of Credit under this Agreement. The protection of this Section
2.12 shall be available to each Lender and the Issuing Bank regardless of any
possible contention of the invalidity or inapplicability of the law, rule,
regulation, agreement, guideline or other change or condition that shall have
occurred or been imposed.
SECTION 2.13. Change in Legality. (a) Notwithstanding any other
provision of this Agreement, if, after the date hereof, any change in any law or
regulation or in the interpretation thereof by any Governmental Authority
charged with the administration or interpretation thereof shall make it unlawful
for any Lender to make or maintain any Eurodollar Loan or to give effect to its
obligations as contemplated hereby with respect to any Eurodollar Loan, then, by
written notice to the Borrowers and to the Administrative Agent:
(i) such Lender may declare that Eurodollar Loans will not thereafter (for
the duration of such unlawfulness) be made by such Lender hereunder (or be
continued for additional Interest Periods and ABR Loans will not thereafter
(for such duration) be converted into Eurodollar Loans), whereupon any
request for a Eurodollar Borrowing (or to convert an ABR Borrowing to a
Eurodollar Borrowing or to continue a Eurodollar Borrowing for an
additional Interest Period) shall, as to such Lender only, be deemed a
request for an ABR Loan (or a request to continue an ABR Loan as such for
an additional Interest Period or to convert a Eurodollar Loan into an ABR
Loan, as the case may be), unless such declaration shall be subsequently
withdrawn; and
(ii) such Lender may require that all outstanding Eurodollar Loans made by
it be converted to ABR Loans, in which event all such Eurodollar Loans
shall be automatically converted to ABR Loans as of the effective date of
such notice as provided in paragraph (b) below.
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In the event any Lender shall exercise its rights under (i) or (ii) above,
all payments and prepayments of principal that would otherwise have been applied
to repay the Eurodollar Loans that would have been made by such Lender or the
converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans made by such Lender in lieu of, or resulting from the conversion of,
such Eurodollar Loans.
(b) For purposes of this Section 2.13, a notice to the Borrowers by any
Lender shall be effective as to each Eurodollar Loan made by such Lender, if
lawful, on the last day of the Interest Period currently applicable to such
Eurodollar Loan; in all other cases such notice shall be effective on the date
of receipt by the Borrowers.
SECTION 2.14. Indemnity. Each Borrower shall indemnify each Lender
against any loss or expense that such Lender may sustain or incur as a
consequence of (a) any event, other than a default by such Lender in the
performance of its obligations hereunder, which results in (i) such Lender
receiving or being deemed to receive any amount on account of the principal of
any Eurodollar Loan to such Borrower prior to the end of the Interest Period in
effect therefor, (ii) the conversion of any Eurodollar Loan to such Borrower to
an ABR Loan, or the conversion of the Interest Period with respect to any
Eurodollar Loan to such Borrower, in each case other than on the last day of the
Interest Period in effect therefor, or (iii) any Eurodollar Loan to be made by
such Lender to such Borrower (including any Eurodollar Loan to be made pursuant
to a conversion or continuation under Section 2.10) not being made after notice
of such Loan shall have been given by such Borrower hereunder (any of the events
referred to in this clause (a) being called a "Breakage Event") or (b) any
default by such Borrower in the making of any payment or prepayment required to
be made hereunder. In the case of any Breakage Event, such loss shall include
an amount equal to the excess, as reasonably determined by such Lender, of (i)
its cost of obtaining funds for the Eurodollar Loan that is the subject of such
Breakage Event for the period from the date of such Breakage Event to the last
day of the Interest Period in effect (or that would have been in effect) for
such Loan over (ii) the amount of interest likely to be realized by such Lender
in redeploying the funds released or not utilized by reason of such Breakage
Event for such period. A certificate of any Lender setting forth any amount or
amounts which such Lender is entitled to receive pursuant to this Section 2.14
shall be delivered to the applicable Borrower and shall be conclusive absent
manifest error.
SECTION 2.15. Pro Rata Treatment. Except as required under Section 2.13,
each Borrowing, each payment or prepayment of principal of any Borrowing, each
payment of interest on the Loans, each payment of the Commitment Fees and the
L/C Participation Fees, each reduction of the Commitments and each conversion of
any Borrowing to or continuation of any Borrowing as a Borrowing of any Type
shall be allocated pro rata among the Lenders in accordance with their
respective applicable Commitments (or, if such Commitments shall have expired or
been terminated, in accordance with the respective principal amounts of their
outstanding Loans). Each Lender agrees that in computing such Lender's portion
of any Borrowing to be made hereunder, the Administrative Agent may, in its
discretion, round each Lender's percentage of such Borrowing to the next higher
or lower whole dollar amount.
SECTION 2.16. Sharing of Setoffs. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim against
either Borrower, or pursuant to a secured claim under Section 506 of Title 11 of
the United States Code or other security or interest arising from, or in lieu
of, such secured claim, received by such Lender under any applicable bankruptcy,
insolvency or other similar law or otherwise, or by any other means, obtain
payment (voluntary or involuntary) in respect of any Loan or Loans or L/C
Disbursement as a result of which the unpaid principal portion of its Loans and
participation in L/C Disbursements shall be proportionately less than the unpaid
principal portion of the Loans and participation in L/C Disbursements of any
other Lender, it shall be deemed simultaneously to have purchased from such
other Lender at face value, and shall promptly pay to such other Lender the
purchase price for, a participation in the Loans and L/C Exposure of such other
Lender, so that the
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26
aggregate unpaid principal amount of the Loans and L/C Exposure and
participation in Loans and L/C Exposure held by each Lender shall be in the same
proportion to the aggregate unpaid principal amount of all Loans and L/C
Exposure then outstanding as the principal amount of its Loans and L/C Exposure
prior to such exercise of banker's lien, setoff or counterclaim or other event
was to the principal amount of all Loans and L/C Exposure outstanding prior to
such exercise of banker's lien, setoff or counterclaim or other event; provided,
however, that if any such purchase or purchases or adjustments shall be made
pursuant to this Section 2.16 and the payment giving rise thereto shall
thereafter be recovered, such purchase or purchases or adjustments shall be
rescinded to the extent of such recovery and the purchase price or prices or
adjustment restored without interest. Each Borrower expressly consents to the
foregoing arrangements and agrees that any Lender holding a participation in a
Loan or L/C Disbursement deemed to have been so purchased may exercise any and
all rights of banker's lien, setoff or counterclaim with respect to any and all
moneys owing by such Borrower to such Lender by reason thereof as fully as if
such Lender had made a Loan directly to such Borrower in the amount of such
participation.
SECTION 2.17. Payments. (a) Each Borrower shall make each payment
(including principal of or interest on any Borrowing or any L/C Disbursement or
any Fees or other amounts) hereunder and under any other Loan Document not later
than 12:00 (noon), New York City time, on the date when due in immediately
available dollars, without setoff, defense or counterclaim. Each such payment
(other than Issuing Bank Fees, which shall be paid directly to the Issuing Bank
if other than the Administrative Agent) shall be made to the Administrative
Agent at its offices at One Chase Manhattan Plaza, New York, New York.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts) hereunder or under any other Loan
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
interest or Fees, if applicable.
SECTION 2.18. Taxes. (a) Any and all payments by or on behalf of
either Borrower hereunder and under any other Loan Document shall be made, in
accordance with Section 2.17, free and clear of and without deduction for any
and all current or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding (i) income
taxes imposed on the net income of the Administrative Agent, any Lender or the
Issuing Bank (or any transferee or assignee thereof, including a participation
holder (any such entity a "Transferee") and (ii) franchise taxes imposed on the
net income of the Administrative Agent, any Lender or the Issuing Bank (or
Transferee), in each case by the jurisdiction under the laws of which the
Administrative Agent, such Lender or the Issuing Bank (or Transferee) is
organized or any political subdivision thereof (all such nonexcluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities, collectively
or individually, being called "Taxes". If a Borrower shall be required to
deduct any Taxes from or in respect of any sum payable hereunder or under any
other Loan Document to the Administrative Agent, any Lender or the Issuing Bank
(or any Transferee), (i) the sum payable shall be increased by the amount (an
"additional amount") necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.18) the Administrative Agent, such Lender or the Issuing Bank (or Transferee),
as the case may be, shall receive an amount equal to the sum it would have
received had no such deductions been made, (ii) such Borrower shall make such
deductions and (iii) such Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
(b) In addition, each Borrower agrees to pay to the relevant Governmental
Authority in accordance with applicable law any current or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or under any other Loan
Document or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement or any other Loan Document ("Other Taxes").
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27
(c) The Borrowers jointly and severally agree to indemnify the
Administrative Agent, each Lender and the Issuing Bank (or Transferee) for the
full amount of Taxes and Other Taxes paid by the Administrative Agent, such
Lender or the Issuing Bank (or Transferee), as the case may be, and any
liability (including penalties, interest and expenses (including reasonable
attorney's fees, charges and disbursements)) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted by the relevant Governmental Authority. A certificate as to the amount
of such payment or liability prepared by the Administrative Agent, a Lender or
the Issuing Bank (or Transferee), or the Administrative Agent on its behalf,
absent manifest error, shall be final, conclusive and binding for all purposes.
Such indemnification shall be made within 30 days after the date the
Administrative Agent, any Lender or the Issuing Bank (or Transferee), as the
case may be, makes written demand therefor.
(d) As soon as practicable after the date of any payment of Taxes or Other
Taxes by either Borrower to the relevant Governmental Authority, such Borrower
will deliver to the Administrative Agent, at its address referred to in Section
11.01, the original or a certified copy of a receipt issued by such Governmental
Authority evidencing payment thereof.
(e) Each Lender (or Transferee) that is organized under the laws of a
jurisdiction other than the United States, any State thereof or the District of
Columbia (a "Non-U.S. Lender") shall deliver to the Borrowers and the
Administrative Agent two copies of either United States Internal Revenue Service
Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption
from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code
with respect to payments of "portfolio interest", a Form W-8, or any subsequent
versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a
Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for
purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within
the meaning of Section 871(h)(3)(B) of the Code) of either Borrower and is not a
controlled foreign corporation related to either Borrower (within the meaning of
Section 864(d)(4) of the Code)), properly completed and duly executed by such
Non-U.S. Lender claiming complete exemption from, or reduced rate of, U.S.
Federal withholding tax on payments by the Borrowers under this Agreement and
the other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender
on or before the date it becomes a party to this Agreement (or, in the case of a
Transferee that is a participation holder, on or before the date such
participation holder becomes a Transferee hereunder) and on or before the date,
if any, such Non-U.S. Lender changes its applicable lending office by
designating a different lending office (a "New Lending Office"). In addition,
each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or
invalidity of any form previously delivered by such Non-U.S. Lender.
Notwithstanding any other provision of this Section 2.18(e), a Non-U.S. Lender
shall not be required to deliver any form pursuant to this Section 2.18(e) that
such Non-U.S. Lender is not legally able to deliver.
(f) Neither Borrower shall be required to indemnify any Non-U.S. Lender or
to pay any additional amounts to any Non-U.S. Lender, in respect of United
States Federal withholding tax pursuant to paragraph (a) or (c) above to the
extent that (i) the obligation to withhold amounts with respect to United States
Federal withholding tax existed on the date such Non-U.S. Lender became a party
to this Agreement (or, in the case of a Transferee that is a participation
holder, on the date such participation holder became a Transferee hereunder) or,
with respect to payments to a New Lending Office, the date such Non-U.S. Lender
designated such New Lending Office with respect to a Loan; provided, however,
that this paragraph (f) shall not apply (x) to any Transferee or New Lending
Office that becomes a Transferee or New Lending Office as a result of an
assignment, participation, transfer or designation made at the request of the
Borrowers and (y) to the extent the indemnity payment or additional amounts any
Transferee, or any Lender (or Transferee), acting through a New Lending Office,
would be entitled to receive (without regard to this paragraph (f)) do not
exceed the indemnity payment or additional amounts that the person making the
assignment, participation or transfer to such Transferee, or Lender (or
Transferee) making the designation of such New Lending Office, would have been
entitled to receive in the absence of such
<PAGE>
28
assignment, participation, transfer or designation or (ii) the obligation to pay
such additional amounts would not have arisen but for a failure by such Non-U.S.
Lender to comply with the provisions of paragraph (e) above.
(g) Nothing contained in this Section 2.18 shall require any Lender or the
Issuing Bank (or any Transferee) or the Administrative Agent to make available
any of its tax returns (or any other information that it deems to be
confidential or proprietary).
SECTION 2.19. Assignment of Commitments Under Certain Circumstances; Duty
to Mitigate. (a) In the event (i) any Lender or the Issuing Bank delivers a
certificate requesting compensation pursuant to Section 2.12, (ii) any Lender or
the Issuing Bank delivers a notice described in Section 2.13 or (iii) either
Borrower is required to pay any additional amount to any Lender or the Issuing
Bank or any Governmental Authority on account of any Lender or the Issuing Bank
pursuant to Section 2.18, the Borrowers may, at their sole expense and effort
(including with respect to the processing and recordation fee referred to in
Section 11.04(b)), upon notice to such Lender or the Issuing Bank and the
Administrative Agent, require such Lender or the Issuing Bank to transfer and
assign, without recourse (in accordance with and subject to the restrictions
contained in Section 11.04), all of its interests, rights and obligations under
this Agreement to an assignee that shall assume such assigned obligations (which
assignee may be another Lender, if a Lender accepts such assignment); provided
that (x) such assignment shall not conflict with any law, rule or regulation or
order of any court or other Governmental Authority having jurisdiction, (y)
except in connection with an assignment to another Lender or an Affiliate
thereof, the Borrowers shall have received the prior written consent of the
Administrative Agent and the Issuing Bank, which consent shall not unreasonably
be withheld, and (z) the Borrowers or such assignee shall have paid to the
affected Lender or the Issuing Bank in immediately available funds an amount
equal to the sum of the principal of and interest accrued to the date of such
payment on the outstanding Loans or L/C Disbursements of such Lender or the
Issuing Bank, respectively, plus all Fees and other amounts accrued for the
account of such Lender or the Issuing Bank hereunder (including any amounts
under Section 2.12 and Section 2.14); provided further that, if prior to any
such transfer and assignment the circumstances or event that resulted in such
Lender's or the Issuing Bank's claim for compensation under Section 2.12 or
notice under Section 2.13 or the amounts paid pursuant to Section 2.18, as the
case may be, cease to cause such Lender or the Issuing Bank to suffer increased
costs or reductions in amounts received or receivable or reduction in return on
capital, or cease to have the consequences specified in Section 2.13, or cease
to result in amounts being payable under Section 2.18, as the case may be
(including as a result of any action taken by such Lender or the Issuing Bank
pursuant to paragraph (b) below), or if such Lender or the Issuing Bank shall
waive its right to claim further compensation under Section 2.12 in respect of
such circumstances or event or shall withdraw its notice under Section 2.13 or
shall waive its right to further payments under Section 2.18 in respect of such
circumstances or event, as the case may be, then such Lender or the Issuing Bank
shall not thereafter be required to make any such transfer and assignment
hereunder.
(b) If (i) any Lender or the Issuing Bank shall request compensation under
Section 2.12, (ii) any Lender or the Issuing Bank delivers a notice described in
Section 2.13 or (iii) either Borrower is required to pay any additional amount
to any Lender or the Issuing Bank or any Governmental Authority on account of
any Lender or the Issuing Bank pursuant to Section 2.18, then such Lender or the
Issuing Bank shall use reasonable efforts (which shall not require such Lender
or the Issuing Bank to incur an unreimbursed loss or unreimbursed cost or
expense or otherwise take any action inconsistent with its internal policies or
legal or regulatory restrictions or suffer any disadvantage or burden deemed by
it to be significant) (x) to file any certificate or document reasonably
requested in writing by the Borrowers or (y) to assign its rights and delegate
and transfer its obligations hereunder to another of its offices, branches or
affiliates, if such filing or assignment would reduce its claims for
compensation under Section 2.12 or enable it to withdraw its notice pursuant to
Section 2.13 or would reduce amounts payable pursuant to Section 2.18, as the
case may be, in the future. The Borrowers hereby agree, jointly and severally,
to pay all reasonable costs and
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29
expenses incurred by any Lender or the Issuing Bank in connection with any such
filing or assignment, delegation and transfer.
SECTION 2.20. Letters of Credit. (a) General. Each of the Borrowers may
request the issuance of a Letter of Credit, in a form reasonably acceptable to
the Administrative Agent and the Issuing Bank, appropriately completed, for the
account of such Borrower, at any time and from time to time while the
Commitments remain in effect and the Trust Termination Date has not occurred.
This Section 2.20 shall not be construed to impose an obligation upon the
Issuing Bank to issue any Letter of Credit that is inconsistent with the terms
and conditions of this Agreement.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions.
In order to request the issuance of a Letter of Credit (or to amend, renew or
extend an existing Letter of Credit), the requesting Borrower shall hand deliver
or telecopy to the Issuing Bank and the Administrative Agent (reasonably in
advance of the requested date of issuance, amendment, renewal or extension) a
notice requesting the issuance of a Letter of Credit, or identifying the Letter
of Credit to be amended, renewed or extended, the date of issuance, amendment,
renewal or extension, the date on which such Letter of Credit is to expire
(which shall comply with paragraph (c) below), the amount of such Letter of
Credit, the name and address of the beneficiary thereof and such other
information as shall be necessary to prepare such Letter of Credit. A Letter of
Credit shall be issued, amended, renewed or extended for the account of the
Trustee, only if, and upon issuance, amendment, renewal or extension of each
Letter of Credit for the account of the Trustee, the Trustee shall be deemed to
represent and warrant that, after giving effect to such issuance, amendment,
renewal or extension (A) the sum of (i) the aggregate principal amount of the
Loans outstanding to the Trustee and (ii) the Trustee L/C Exposure shall not
exceed $70,000,000 and (B) the Aggregate Credit Exposure shall not exceed the
Total Commitment. A Letter of Credit shall be issued, amended, renewed or
extended for the account of El Paso only if, and upon issuance, amendment,
renewal or extension of each Letter of Credit for the account of El Paso, El
Paso shall be deemed to represent and warrant that, after giving effect to such
issuance, amendment, renewal or extension (A) the El Paso L/C Exposure shall not
exceed $20,000,000 and (B) the Aggregate Credit Exposure shall not exceed the
Total Commitment.
(c) Expiration Date. Each Letter of Credit shall expire at the close of
business on the earlier of the date one year after the date of the issuance of
such Letter of Credit and the date that is five Business Days prior to the
Maturity Date, unless such Letter of Credit expires by its terms on an earlier
date. Each Letter of Credit may, upon the request of the Trustee, include a
provision whereby such Letter of Credit shall be renewed automatically for
additional consecutive periods of 12 months or less (but not beyond the date
that is five Business Days prior to the Maturity Date) unless the Issuing Bank
notifies the beneficiary thereof at least 30 days prior to the then-applicable
expiry date that such Letter of Credit will not be renewed.
(d) Participation. By the issuance of a Letter of Credit and without any
further action on the part of the Issuing Bank or the Lenders, the Issuing Bank
hereby grants to each Lender, and each such Lender hereby acquires from the
applicable Issuing Bank, a participation in such Letter of Credit equal to such
Lender's Applicable Percentage of the aggregate amount available to be drawn
under such Letter of Credit, effective upon the issuance of such Letter of
Credit. In consideration and in furtherance of the foregoing, each Lender
hereby absolutely and unconditionally agrees to pay to the Administrative Agent,
for the account of the Issuing Bank, such Lender's Applicable Percentage of each
L/C Disbursement made by the Issuing Bank and not reimbursed by the Trustee or
El Paso, as the case may be, forthwith on the date due as provided in Section
2.02(f). Each Lender acknowledges and agrees that its obligation to acquire
participations pursuant to this paragraph in respect of Letters of Credit is
absolute and unconditional and shall not be affected by any circumstance
whatsoever, including the occurrence and continuance of a Default or an Event of
Default, and that each such payment shall be made without any offset, abatement,
withholding or reduction whatsoever.
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30
(e) Reimbursement. If the Issuing Bank shall make any L/C Disbursement in
respect of a Letter of Credit, the Trustee or El Paso, as the case may be, shall
pay to the Administrative Agent an amount equal to such L/C disbursement not
later than 4:00 p.m., New York City time on the Business Day on which the
Trustee or El Paso, as the case may be, shall have received notice from the
Issuing Bank that payment of such draft will be made, or, if the Trustee or El
Paso, as the case may be, shall have received such notice later than 10:00 a.m.,
New York City time, on any Business Day, not later than 1:00 p.m., New York City
time, on the immediately following Business Day. Any failure by the Trustee or
El Paso, as the case may be, to make a payment under this Section 2.20(e) shall
not constitute a Default or an Event of Default if the Issuing Bank shall have
been reimbursed for such L/C disbursement out of the proceeds of a deemed
Borrowing pursuant to Section 2.02(f).
(f) Obligations Absolute. The obligations of the Trustee or El Paso, as
the case may be, to reimburse L/C Disbursements as provided in paragraph (e)
above shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms of this Agreement, under any and all
circumstances whatsoever, and irrespective of:
(i) any lack of validity or enforceability of any Letter of Credit or any
other Transaction Document, or any term or provision therein;
(ii) any amendment or waiver of or any consent to departure from all or any
of the provisions of any Letter of Credit or any other Transaction
Document;
(iii) the existence of any claim, setoff, defense or other right that the
Trustee, El Paso or any other party guaranteeing, or otherwise obligated
with, the Trustee or El Paso, as the case may be, any Subsidiary or other
Affiliate thereof or any other person may at any time have against the
beneficiary under any Letter of Credit, the Issuing Bank, the
Administrative Agent or any Lender or any other person, whether in
connection with this Agreement, any other Transaction Document or any other
related or unrelated agreement or transaction;
(iv) any draft or other document presented under a Letter of Credit proving
to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect;
(v) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or other document that does not comply with the
terms of such Letter of Credit; and
(vi) any other act or omission to act or delay of any kind of the Issuing
Bank, the Lenders, the Administrative Agent or any other person or any
other event or circumstance whatsoever, whether or not similar to any of
the foregoing, that might, but for the provisions of this Section 2.20,
constitute a legal or equitable discharge of the obligations of the Trustee
or El Paso, as the case may be, hereunder.
Without limiting the generality of the foregoing, it is expressly
understood and agreed that the absolute and unconditional obligation of the
Trustee or El Paso, as the case may be, hereunder to reimburse L/C Disbursements
will not be excused by the gross negligence or willful misconduct of the Issuing
Bank. However, the foregoing shall not be construed to excuse the Issuing Bank
from liability to the Trustee or El Paso, as the case may be, to the extent of
any direct damages (as opposed to consequential damages, claims in respect of
which are hereby waived by the Trustee or El Paso, as the case may be, to the
extent permitted by applicable law) suffered by the Trustee or El Paso, as the
case may be, that are caused by the Issuing Bank's gross negligence or willful
misconduct in determining whether drafts and other documents presented under a
Letter of Credit comply with the terms thereof; it is understood that the
Issuing Bank
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31
may accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary and, in making any payment under any Letter of
Credit (i) the Issuing Bank's exclusive reliance on the documents presented to
it under such Letter of Credit as to any and all matters set forth therein,
including reliance on the amount of any draft presented under such Letter of
Credit, whether or not the amount due to the beneficiary thereunder equals the
amount of such draft and whether or not any document presented pursuant to such
Letter of Credit proves to be insufficient in any respect, if such document on
its face appears to be in order, and whether or not any other statement or any
other document presented pursuant to such Letter of Credit proves to be forged
or invalid or any statement therein proves to be inaccurate or untrue in any
respect whatsoever and (ii) any noncompliance in any immaterial respect of the
documents presented under such Letter of Credit with the terms thereof shall, in
each case, be deemed not to constitute willful misconduct or gross negligence of
the Issuing Bank.
(g) Disbursement Procedures. The Issuing Bank shall, promptly following
its receipt thereof, examine all documents purporting to represent a demand for
payment under a Letter of Credit. The Issuing Bank shall as promptly as
possible give telephonic notification, confirmed by telecopy, to the
Administrative Agent and the Trustee or El Paso, as the case may be, of such
demand for payment and whether the Issuing Bank has made or will make an L/C
Disbursement thereunder; provided that any failure to give or delay in giving
such notice shall not relieve the Trustee or El Paso, as the case may be, of its
obligation to reimburse the Issuing Bank and the Lenders with respect to any
such L/C Disbursement. The Administrative Agent shall promptly give each Lender
notice thereof.
(h) Interim Interest. If the Issuing Bank shall make any L/C Disbursement
in respect of a Letter of Credit, then, unless the Trustee or El Paso, as the
case may be, shall reimburse such L/C Disbursement in full on such date, the
unpaid amount thereof shall bear interest for the account of the Issuing Bank,
for each day from and including the date of such L/C Disbursement, to but
excluding the earlier of the date of payment by the Trustee or El Paso, as the
case may be, or the date on which the Issuing Bank is reimbursed by the Lenders
pursuant to Section 2.02(f), at the rate per annum that would apply to such
amount if such amount were an ABR Loan.
(i) Resignation or Removal of the Issuing Bank. The Issuing Bank may
resign at any time by giving 180 days' prior written notice to the
Administrative Agent, the Lenders and the Borrowers, and may be removed at any
time by the Borrowers by notice to the Issuing Bank, the Administrative Agent
and the Lenders. Subject to the next succeeding paragraph, upon the acceptance
of any appointment as the Issuing Bank hereunder by a Lender that shall agree to
serve as successor Issuing Bank, such successor shall succeed to and become
vested with all the interests, rights and obligations of the retiring Issuing
Bank and the retiring Issuing Bank shall be discharged from its obligations to
issue additional Letters of Credit hereunder. At the time such removal or
resignation shall become effective, the Borrowers shall pay all accrued and
unpaid fees pursuant to Section 2.05(c)(ii). The acceptance of any appointment
as the Issuing Bank hereunder by a successor Lender shall be evidenced by an
agreement entered into by such successor, in a form satisfactory to the
Borrowers and the Administrative Agent, and, from and after the effective date
of such agreement, (i) such successor Lender shall have all the rights and
obligations of the previous Issuing Bank under this Agreement and the other Loan
Documents and (ii) references herein and in the other Loan Documents to the term
"Issuing Bank" shall be deemed to refer to such successor or to any previous
Issuing Bank, or to such successor and all previous Issuing Banks, as the
context shall require. After the resignation or removal of the Issuing Bank
hereunder, the retiring Issuing Bank shall remain a party hereto and shall
continue to have all the rights and obligations of an Issuing Bank under this
Agreement and the other Loan Documents with respect to Letters of Credit issued
by it prior to such resignation or removal, but shall not be required to issue
additional Letters of Credit.
(j) Cash Collateralization. If any Event of Default shall occur and be
continuing or the Trust Termination Date shall occur, the Trustee or El Paso, as
the case may be, shall, on the Business Day it
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32
receives notice from the Administrative Agent or the Required Lenders thereof
and of the amount to be deposited, deposit in an account with the Collateral
Agent, for the benefit of the Lenders, an amount in cash equal to the Trustee
L/C Exposure or the El Paso L/C Exposure, as the case may be, as of such date.
Such deposit shall be held by the Collateral Agent as collateral for the payment
and performance of the Obligations. The Collateral Agent shall have exclusive
dominion and control, including the exclusive right of withdrawal, over such
account. Other than any interest earned on the investment of such deposits in
Permitted Investments, which investments shall be made at the option and sole
discretion of the Collateral Agent, such deposits shall not bear interest.
Interest or profits, if any, on such investments shall accumulate in such
account. Moneys in such account shall (i) automatically be transferred to the
Administrative Agent and be applied by the Administrative Agent to reimburse the
Issuing Bank for L/C Disbursements for which it has not been reimbursed, (ii) be
held for the satisfaction of the reimbursement obligations of the Trustee or El
Paso, as the case may be, for the Trustee L/C Exposure or the El Paso L/C
Exposure, as the case may be, at such time and (iii) if the maturity of the
Loans has been accelerated, be transferred to the Administrative Agent and be
applied to satisfy the Obligations (of both the Trustee and El Paso). If the
Trustee or El Paso, as the case may be, is required to provide an amount of cash
collateral hereunder as a result of the occurrence of an Event of Default, (x)
such amount (to the extent not applied as aforesaid) shall be returned to the
Trustee or El Paso, as the case may be, within three Business Days after all
Events of Default have been cured or waived and (y) at any time that the amount
of such cash collateral exceeds the Trustee L/C Exposure or El Paso L/C
Exposure, as the case may be, the amount of such excess shall be promptly
returned to the Trustee or El Paso, as the case may be.
SECTION 2.21. Extension of Maturity Date. (a) At least 60 days but not
more than 180 days before the Maturity Date, the Borrowers may, by giving
written notice to the Administrative Agent, request the Lenders to extend the
Maturity Date for a period of not more than one year from the then-applicable
Maturity Date, specifying the terms and conditions, including applicable fees,
to be applicable to such extension (each such request, an "Extension Request").
The Administrative Agent shall promptly furnish a copy of the Extension Request
to each Lender, and no later than 30 days from the date on which the
Administrative Agent shall have received such Extension Request, the
Administrative Agent shall notify the Borrowers of the consent or non-consent of
the Lenders to such Extension Request (and Lenders not responding to such
Extension Request within such 30-day period shall be deemed not to have
consented to such Extension Request). No Extension Request shall be effective
without the consent of all the Lenders, and each Lender shall, in its sole and
exclusive discretion, determine whether to give such consent. The Lenders'
consent to an Extension Request shall be conditional upon (i) the preparation,
execution and delivery of legal documentation in form and substance satisfactory
to the Lenders and their counsel incorporating the terms and conditions set
forth in the Extension Request (as the same may be modified by agreement between
the Borrowers and the Lenders) and (ii) the delivery by the Borrowers of such
certificates, documents and opinions of counsel as the Administrative Agent or
the Lenders may reasonably request. Notwithstanding anything to the contrary
contained herein, the Maturity Date may be extended pursuant to this Section
2.21 for a maximum of two additional one-year periods.
(b) It shall be a condition to any extension pursuant to this Section 2.21
of the Maturity Date that the First Mortgage Bonds held by the Collateral Agent
as collateral for the payment and performance of the El Paso Obligations shall
be replaced with an equivalent amount of new mortgage bonds of equal priority of
El Paso pursuant to one or more indentures reasonably satisfactory in form and
substance to the Lenders.
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ARTICLE III
Representations and Warranties
Each of El Paso and, subject to Section 11.19, the Trustee represents and
warrants to the Administrative Agent, the Collateral Agent, the Issuing Bank and
each of the Lenders that as of the Restatement Closing Date and thereafter on
each date as required by Section 4.01(b):
SECTION 3.01. Organization; Powers. (a) El Paso (i) is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Texas, (ii) has all requisite power and authority to own its property
and assets and to carry on its business as now conducted and as proposed to be
conducted, (iii) is qualified to do business in, and is in good standing in,
every jurisdiction where such qualification is required, except where the
failure so to qualify could not reasonably be expected to result in a Material
Adverse Effect, and (iv) has the corporate power and authority to execute,
deliver and perform its obligations under each of the Transaction Documents to
which it is or will be a party and each other agreement or instrument
contemplated hereby to which it is or will be a party and to borrow hereunder.
(b) CBT is a national banking association duly organized, validly existing
and in good standing under the Federal laws of the United States of America, and
in its capacity as Trustee, (i) has all requisite power and authority to own its
property and assets and to carry on its business as now conducted and as
proposed to be conducted and (ii) has all requisite power and authority to
execute, deliver and perform its obligations under each of the Loan Documents
and each other agreement or instrument contemplated hereby to which it is or
will be a party and to borrow hereunder.
SECTION 3.02. Authorization. (a) The execution, delivery and performance
by it of each of the Transaction Documents, the Trust Agreement, the Purchase
Contract and the Assigned Agreements to which it is or will be a party and (b)
the Borrowings by it hereunder, the issuance of Letters of Credit, the use by it
of the proceeds of the Loans and the Letters of Credit and the creation of the
security interests contemplated hereby and by the other Transaction Documents
(collectively, the "Transactions"), (x) have been duly authorized by all
requisite corporate, trust and, if required, stockholder action and (y) will not
(i) violate (A) any provision of law, statute, rule or regulation, or of the
articles of incorporation or other constitutive documents or by-laws of El Paso
or of the Trust Agreement, as applicable, (B) any order of any Governmental
Authority or (C) any provision of any indenture, agreement or other instrument
to which it is a party or by which it or any of its property is or may be bound,
(ii) be in conflict with, result in a breach of or constitute (alone or with
notice or lapse of time or both) a default under, or give rise to any right to
accelerate or to require the prepayment, repurchase or redemption of any
obligation under any such indenture, agreement or other instrument or (iii)
result in the creation or imposition of any Lien upon or with respect to any
property or assets now owned or hereafter acquired by it (other than any Lien
created hereunder, under the Security Agreement or under the Indenture).
SECTION 3.03. Enforceability. Each of the Transaction Documents has been
duly executed and delivered by it and constitutes its legal, valid and binding
obligation enforceable against it in accordance with such document's terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
SECTION 3.04. Governmental Approvals. Except as set forth on Schedule
3.04, (i) no action, consent or approval of, registration or filing with or any
other action by, any Governmental Authority is or will be required in connection
with the Transactions, except for such as have been made or obtained, are in
full force and effect and are not subject to any appeal or stay and (ii) no
action, consent or approval of, registration or filing with or any other action
by any Governmental Authority relating to the Securities Act, the Securities
Exchange Act, the Trust Indenture Act, the Federal Power Act, the Atomic Energy
Act, the
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Nuclear Waste Act, the Public Utility Holding Company Act of 1935, the New
Mexico Public Utility Act, the Texas Public Utility Regulatory Act, the Arizona
Public Utility Act, energy or nuclear matters, public utilities, the
environment, health and safety is or will be required in connection with the
participation by the Administrative Agent, the Collateral Agent or any Lender in
any of the transactions contemplated by this Agreement or the other Transaction
Documents, except as have been made or obtained, are in full force and effect
and shall not be subject to any appeal or stay.
SECTION 3.05. Financial Statements. El Paso has heretofore furnished to
the Lenders its consolidated balance sheets and related statements of
operations, shareholders' equity and cash flows (a) as of and for the fiscal
year ended December 31, 1997, audited by and accompanied by the opinion of KPMG
Peat Marwick, independent public accountants, and (b) as of and for the fiscal
quarter and the portion of the fiscal year ended September 30, 1998, certified
by a Financial Officer. Such financial statements present fairly the financial
condition and results of operations and cash flows of El Paso and its
consolidated Subsidiaries as of such dates and for such periods. Such balance
sheets and the notes thereto disclose all material liabilities, direct or
contingent, of El Paso and its consolidated Subsidiaries as of the dates
thereof. Such financial statements were prepared in accordance with GAAP
applied on a consistent basis (except as approved by such accountants or
officer, as the case may be, and disclosed therein).
SECTION 3.06. No Material Adverse Change. There has been no material
adverse change in the business, assets, operations, prospects, condition,
financial or otherwise, or material agreements of El Paso and the Subsidiaries,
taken as a whole, since September 30, 1998.
SECTION 3.07. Title to Properties; Possession Under Leases. (a) Each of
El Paso and the Subsidiaries has good and marketable title to, or valid
leasehold interests in, all its material properties and assets, except for minor
defects in title that do not interfere with its ability to conduct its business
as currently conducted or to utilize such properties and assets for their
intended purposes. All such material properties and assets are free and clear
of Liens, other than Liens expressly permitted by Section 6.02.
(b) Each of El Paso and the Subsidiaries has complied with all obligations
under all material leases to which it is a party and all such leases are in full
force and effect. Each of El Paso and the Subsidiaries enjoys peaceful and
undisturbed possession under all such material leases.
SECTION 3.08. Subsidiaries. As of the Restatement Closing Date, El Paso
has no Subsidiaries other than Inactive Subsidiaries.
SECTION 3.09. Litigation; Compliance with Laws. (a) Except as set forth
on Schedule 3.09, there are no actions, suits or proceedings at law or in equity
or by or before any Governmental Authority now pending or, to its knowledge,
threatened against or affecting it or, in the case of El Paso, the Subsidiaries
or any business, property or rights of any such person (i) that involve any
Transaction Document or the Transactions or (ii) that, if adversely determined,
could reasonably be expected, individually or in the aggregate, to result in a
Material Adverse Effect.
(b) Except as set forth on Schedule 3.09, neither it nor, in the case of
El Paso, any of the Subsidiaries or any of their respective material properties
or assets is in violation of, nor will the continued operation of their material
properties and assets as currently conducted violate, any law, rule or
regulation, or is in default with respect to any judgment, writ, injunction,
decree or order of any Governmental Authority, where such violation or default
could reasonably be expected to result in a Material Adverse Effect.
SECTION 3.10. Agreements. (a) Neither it nor, in the case of El Paso,
any of the Subsidiaries is a party to any agreement or instrument or subject to
any corporate restriction that has resulted or could reasonably be expected to
result in a Material Adverse Effect.
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(b) Neither it nor, in the case of El Paso, any of the Subsidiaries is in
default in any manner under any provision of any indenture or other agreement or
instrument evidencing Indebtedness, or any other material agreement or
instrument to which it is a party or by which it or any of its properties or
assets are or may be bound, where such default could reasonably be expected to
result in a Material Adverse Effect.
SECTION 3.11. Federal Reserve Regulations. (a) Neither it nor, in the
case of El Paso, any of the Subsidiaries is engaged principally, or as one of
its important activities, in the business of extending credit for the purpose of
buying or carrying Margin Stock.
(b) No part of the proceeds of any Loan made to it or any Letter of Credit
issued for its benefit will be used, whether directly or indirectly, and whether
immediately, incidentally or ultimately, for any purpose that entails a
violation of, or that is inconsistent with, the provisions of the Regulations of
the Board, including Regulation T, U or X.
SECTION 3.12. Investment Company Act; Public Utility Holding Company Act.
Neither it nor, in the case of El Paso, any of the Subsidiaries is (a) an
"investment company" as defined in, or subject to regulation under, the
Investment Company Act of 1940 or (b) a "holding company" as defined in, or
subject to regulation under, the Public Utility Holding Company Act of 1935.
SECTION 3.13. Use of Proceeds. It will use the proceeds of the Loans and
will request the issuance of Letters of Credit only for the purposes specified
in the preamble to this Agreement.
SECTION 3.14. Tax Returns. Each of El Paso and the Subsidiaries has filed
or caused to be filed all Federal, state, local and foreign tax returns or
materials required to have been filed by it and has paid or caused to be paid
all taxes due and payable by it and all assessments received by it, except taxes
that are being contested in good faith by appropriate proceedings and for which
El Paso or such Subsidiary, as applicable, shall have set aside on its books
adequate reserves.
SECTION 3.15. No Material Misstatements. The Confidential Information
Package, taken as a whole, does not contain any material misstatement of fact or
omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading; provided
that to the extent any part of such information was based upon or constitutes a
forecast or projection, El Paso represents only that it acted in good faith and
utilized reasonable assumptions and due care in the preparation of such
information.
SECTION 3.16. Employee Benefit Plans. El Paso and its ERISA Affiliates
are in compliance in all material respects with the applicable provisions of
ERISA and the Code and the regulations and published interpretations thereunder.
No ERISA Event has occurred or is reasonably expected to occur that, when taken
together with all other such ERISA Events, could reasonably be expected to
result in a Material Adverse Effect. Schedule B to the most recent annual
report filed with the United States Internal Revenue Service with respect to
each Plan is complete and accurate. Since the date of the Schedule B in effect
on the Restatement Closing Date, there has been no material adverse change in
the funded status of any Plan. None of El Paso or any of its ERISA Affiliates
has incurred any liability as a result of a Plan termination which remains
outstanding which would subject El Paso or any of its ERISA Affiliates to a
liability in excess of $5,000,000.
SECTION 3.17. Environmental Matters. Except as set forth in Schedule
3.17:
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(a) The properties owned or operated by El Paso and the Subsidiaries
(the "Properties") do not contain any Hazardous Materials in amounts or
concentrations which (i) constitute or constituted a violation of, or (ii)
could reasonably be expected to give rise to liability under, Environmental
Laws, which violations and liabilities, in the aggregate, could reasonably
be expected to result in a Material Adverse Effect;
(b) All Environmental Permits have been obtained and are in effect
with respect to the Properties and operations of El Paso and the
Subsidiaries, and the Properties and all operations of El Paso and the
Subsidiaries are in compliance with all Environmental Laws and all
necessary Environmental Permits, except to the extent that such non-
compliance or failure to obtain any necessary permits, in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect;
(c) There have been no Releases or threatened Releases at, from, under
or proximate to the Properties or otherwise in connection with the
operations of El Paso or the Subsidiaries, which Releases or threatened
Releases, in the aggregate, could reasonably be expected to result in a
Material Adverse Effect;
(d) None of El Paso and the Subsidiaries has received any notice of an
Environmental Claim in connection with the Properties or the operations of
El Paso or the Subsidiaries or with regard to any person whose liabilities
for environmental matters El Paso or any Subsidiary has retained or
assumed, in whole or in part, contractually, by operation of law or
otherwise, which, in the aggregate, could reasonably be expected to result
in a Material Adverse Effect, nor do El Paso or the Subsidiaries have
reason to believe that any such notice will be received or is being
threatened; and
(e) Hazardous Materials have not been transported from the Properties,
nor have Hazardous Materials been generated, treated, stored or disposed of
at, on or under any of the Properties in a manner that could reasonably be
expected to give rise to liability under any Environmental Law which could
reasonably be expected to result in a Material Adverse Effect, nor have El
Paso or the Subsidiaries retained or assumed any liability, contractually,
by operation of law or otherwise, with respect to the generation,
treatment, storage or disposal of Hazardous Materials, which
transportation, generation, treatment, storage or disposal, or retained or
assumed liabilities, in the aggregate, could result in a Material Adverse
Effect.
SECTION 3.18. Insurance. Schedule 3.18 sets forth a true, complete and
correct description of all insurance maintained by El Paso as of the Restatement
Closing Date. Such insurance is in full force and effect and all premiums have
been duly paid. El Paso and the Subsidiaries have insurance in such amounts and
covering such risks and liabilities as are in accordance with normal industry
practice.
SECTION 3.19. Security Documents. (a) In the case of El Paso, the
Security Agreement is effective to create in favor of the Collateral Agent, for
the ratable benefit of the Secured Parties, a legal, valid and enforceable
security interest in the Collateral (as defined in the Security Agreement), and,
when combined with the financing statements (or utility filings, as appropriate)
already filed, the Security Agreement constitutes a fully perfected Lien on, and
security interest in, all right, title and interest of the Trustee in such
Collateral, in each case prior and superior in right to any other person, other
than with respect to Liens expressly permitted by Section 6.02.
(b) In the case of the Trustee, the Collateral is free and clear of all
Trustee's Liens and, other than pursuant to the Security Agreement, the Trustee
has not granted or created a Lien on any of the Collateral.
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(c) In the case of El Paso, the Indenture creates in favor of the
Indenture Trustee for the ratable benefit of the holders of the First Mortgage
Bonds a legal, valid and enforceable security interest in the Mortgaged Property
and constitutes a fully perfected Lien on and security interest in all such
Mortgaged Property.
SECTION 3.20. Labor Matters. As of the Restatement Closing Date, there
are no strikes, lockouts or slowdowns against El Paso or the Subsidiaries
pending or, to the knowledge of El Paso, threatened. The hours worked by and
payments made to employees of El Paso and the Subsidiaries have not been in
violation of the Fair Labor Standards Act or any other applicable Federal,
state, local or foreign law dealing with such matters, except where any such
violation could not reasonably be expected to result in a Material Adverse
Effect. All payments due from El Paso or any Subsidiary, or for which any claim
may be made against El Paso or any Subsidiary, on account of wages and employee
health and welfare insurance and other benefits, have been paid in the ordinary
course of business or accrued as a liability on the books of El Paso or such
Subsidiary. The consummation of the Transactions will not give rise to any
right of termination or right of renegotiation on the part of any union under
any collective bargaining agreement to which El Paso is bound.
SECTION 3.21. Solvency. As of the Restatement Closing Date, (a) the fair
value of the assets of El Paso, at a fair valuation, will exceed its debts and
liabilities, subordinated, contingent or otherwise; (b) the present fair
saleable value of the property of El Paso will be greater than the amount that
will be required to pay the probable liability of its debts and other
liabilities, subordinated, contingent or otherwise, as such debts and other
liabilities become absolute and matured; (c) El Paso will be able to pay its
debts and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; and (d) El Paso will not have
unreasonably small capital with which to conduct the business in which it is
engaged as such business is now conducted and is proposed to be conducted
following the Restatement Closing Date.
SECTION 3.22. Capitalization. The authorized capital stock of El Paso
consists of 100,000,000 shares of common stock, no par value (the "Common
Stock"), and 2,000,000 shares of preferred stock, no par value with a
liquidation preference of $100 per share. As of the Restatement Closing Date,
up to 60,500,000 shares of Common Stock and up to 1,400,000 shares of 11.40%
Series A Preferred Stock, no par value with a liquidation preference of $100 per
share (the "Preferred Stock"), will be issued and outstanding. All such shares
of El Paso have been duly and validly issued, and are fully paid and
nonassessable. El Paso has no outstanding securities convertible into or
exchangeable for its capital stock or outstanding any rights to subscribe for or
to purchase, or any options for the purchase of, or any agreements providing for
the issuance (contingent or otherwise) of, or any calls, commitments or claims
of any character relating to, its capital stock, except for options to purchase
shares of Common Stock in connection with option and other stock incentive or
benefit plans for the benefit of employees, officers and directors of El Paso.
SECTION 3.23. Year 2000. Other than in the case of minor and immaterial
computer systems and programs, El Paso's current planning schedule anticipates
completion of all of the reprogramming required to permit the proper
functioning, in and following the year 2000, of (a) the computer systems of El
Paso and (b) equipment containing embedded microchips (including systems and
equipment supplied by others or with which El Paso's systems interface) and the
testing of all such systems and equipment, as so reprogrammed, prior to June 30,
1999. The cost to El Paso of such reprogramming and testing will not result in
a Material Adverse Effect, and the cost to El Paso of the reasonably foreseeable
consequences of the year 2000 (including reprogramming errors and the failure of
others' systems or equipment) are unlikely to result in a Material Adverse
Effect.
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ARTICLE IV
Conditions of Lending
The obligations of the Lenders to make Loans and of the Issuing Bank to
issue Letters of Credit hereunder are subject to the satisfaction of the
following conditions:
SECTION 4.01. All Credit Events. On the date of each Borrowing, including
on the date of each issuance, amendment, renewal or extension of a Letter of
Credit (each such event being called a "Credit Event"):
(a) The Administrative Agent shall have received a notice of such
Borrowing as required by Section 2.03 (or such notice shall have been
deemed given in accordance with Section 2.03) or, in the case of the
issuance, amendment, renewal or extension of a Letter of Credit, the
Issuing Bank and the Administrative Agent shall have received a notice
requesting the issuance, amendment, renewal or extension of such Letter of
Credit as required by Section 2.20(b).
(b) Except in the case of a Borrowing that does not increase the aggregate
principal amount of Loans outstanding of any Lender, the representations
and warranties set forth herein and in the other Loan Documents shall be
true and correct in all material respects on and as of the date of such
Credit Event with the same effect as though made on and as of such date,
except to the extent such representations and warranties expressly relate
to an earlier date.
(c) Each Borrower shall be in compliance with all the terms and provisions
set forth herein and in each other Loan Document on its part to be observed
or performed, and at the time of and immediately after such Credit Event,
no Event of Default or Default shall have occurred and be continuing.
Each Credit Event shall be deemed to constitute a representation and warranty by
each Borrower on the date of such Credit Event as to the matters specified in
paragraphs (b) (except as aforesaid) and (c) of this Section 4.01.
SECTION 4.02. Restatement Closing Date. On the Restatement Closing Date:
(a) The Administrative Agent shall have received, on behalf of itself, the
Lenders, the Documentation Agent, the Syndication Agent and the Issuing Bank, a
favorable written opinion of (i) Sidley & Austin, counsel for El Paso,
substantially to the effect set forth in Exhibit E-1, (ii) Scott, Hulse,
Marshall, Feuille, Finger & Thurmond, counsel for the Trustee, substantially to
the effect set forth in Exhibit E-2, (iii) Thelen, Reid & Preist LLP, Federal
regulatory counsel for the Borrowers, substantially to the effect set forth in
Exhibit E-3, (iv) each local regulatory counsel listed on Schedule 4.02(a),
substantially to the effect set forth in Exhibit E-4, and (v) the General
Counsel of El Paso substantially to the effect set forth in Exhibit E-5, in each
case (A) dated the Restatement Closing Date, (B) addressed to the Issuing Bank,
the Administrative Agent, the Collateral Agent, the Documentation Agent, the
Syndication Agent and the Lenders, and (C) covering such other matters relating
to the Loan Documents and the Transactions as the Administrative Agent shall
reasonably request, and the Borrowers hereby request such counsel to deliver
such opinions.
(b) The Administrative Agent shall have received (i) a certificate of the
Secretary or Assistant Secretary of El Paso dated the Restatement Closing Date
and certifying (A) that attached thereto is a true and complete copy of the
certificate or articles of incorporation of El Paso filed with the Secretary of
State of Texas on or prior to the Restatement Closing Date and as in effect on
the Restatement Closing Date, (B) that attached thereto is a true and complete
copy of the by-laws of El Paso as in effect on the
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39
Restatement Closing Date and at all times since a date prior to the date of the
resolutions described in clause (C) below, (C) that attached thereto is a true
and complete copy of resolutions duly adopted by the Board of Directors of El
Paso authorizing the execution, delivery and performance of this Agreement and
the borrowings hereunder, and that such resolutions have not been modified,
rescinded or amended and are in full force and effect, (D) that the Trust
Agreement has not been modified, rescinded or amended and is in full force and
effect, (E) as to the incumbency and specimen signature of each officer
executing this Agreement or any other document delivered in connection herewith
on behalf of El Paso; (ii) a certificate of another officer of El Paso as to the
incumbency and specimen signature of the Secretary or Assistant Secretary
executing the certificate pursuant to clause (i) above; (iii) a certificate of
the Secretary or Assistant Secretary of CBT dated the Restatement Closing Date
and certifying as to the incumbency and specimen signature of each officer
executing this Agreement or any other document delivered in connection herewith
on behalf of the Trustee; (iv) a certificate of another officer of the Trustee
as to the incumbency and specimen signature of the Secretary or Assistant
Secretary executing the certificate pursuant to clause (iii) above; and (v) such
other documents as the Lenders, the Issuing Bank or Cravath, Swaine & Moore,
counsel for the Administrative Agent and the Collateral Agent, may reasonably
request.
(c) The Administrative Agent shall have received a certificate, dated the
Restatement Closing Date and signed by a Financial Officer of El Paso,
confirming compliance with the conditions precedent set forth in paragraphs (b)
and (c) of Section 4.01.
(d) The Administrative Agent shall have received all Fees and other
amounts due and payable on or prior to the Restatement Closing Date, including,
to the extent invoiced, reimbursement or payment of all out-of-pocket expenses
required to be reimbursed or paid by the Borrowers hereunder or under any other
Loan Document.
(e) The Security Agreement shall be in full force and effect on such date
and each document (including each Uniform Commercial Code financing statement)
required by law or reasonably requested by the Administrative Agent to be filed,
registered or recorded in order to create in favor of the Collateral Agent for
the benefit of the Secured Parties a valid, legal and perfected first-priority
security interest in and lien on the Collateral (subject to any Lien expressly
permitted by Section 6.02) described in such agreement shall have been delivered
to the Collateral Agent.
(f) All requisite Governmental Authorities shall have approved or
consented to the Transactions to the extent required (and such approvals shall
be in full force and effect) and there shall be no action, actual or threatened,
before any Governmental Authority or arbitrator that (a) has a reasonable
likelihood of restraining, preventing or imposing burdensome conditions on the
Transactions or (b) could reasonably be expected to result in a Material Adverse
Effect.
(g) (i) El Paso shall have outstanding no Indebtedness for borrowed money
or preferred stock other than (A) Indebtedness permitted pursuant to Schedule
6.01, (B) any Loans made hereunder and (C) Preferred Stock; and (ii) the Trustee
shall have outstanding no Indebtedness or other obligations (contingent or
otherwise) other than (A) any Loans made or Letters of Credit issued hereunder,
(B) commercial paper issued pursuant to the CP Program and backed by Letters of
Credit issued hereunder and (C) obligations under the Purchase Contract or the
Assigned Agreements.
(h) The Lenders shall be reasonably satisfied as to the amount and nature
of any contingent liabilities of the Borrowers, including, but not limited to,
environmental and health and safety liabilities, and the plans of the Borrowers
with respect thereto.
(i) The Lenders shall be satisfied with the sufficiency of amounts
available under the Facility to meet the ongoing working capital requirements of
the Borrowers following the transactions contemplated hereby.
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(j) The Lenders shall not have received notice of any actual or proposed
negative change in the debt rating of any of the First Mortgage Bonds, or any
notice that El Paso or any First Mortgage Bonds shall be placed on "CreditWatch"
or "WatchList" or any similar list maintained by either Rating Agency, in each
case with negative implications.
ARTICLE V
Affirmative Covenants
Each of El Paso and, subject to Section 11.19, the Trustee covenants and
agrees with each Lender that so long as this Agreement shall remain in effect
and until the Commitments have been terminated and the principal of and interest
on each Loan, all Fees and all other expenses or amounts payable under any Loan
Document shall have been paid in full and all Letters of Credit have been
canceled or have expired and all amounts drawn thereunder have been reimbursed
in full (or sufficient cash collateral has been deposited with the Collateral
Agent in an amount equal to the then outstanding L/C Exposure), unless the
Required Lenders shall otherwise consent in writing, each of the Borrowers will,
and El Paso will cause each of the Subsidiaries to:
SECTION 5.01. Existence; Businesses and Properties. (a) Do or cause to
be done all things necessary to preserve, renew and keep in full force and
effect its legal existence.
(b) Do or cause to be done all things necessary to obtain, preserve,
renew, extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business; maintain and operate such business in
substantially the manner in which it is presently conducted and operated; comply
in all material respects with all applicable laws, rules, regulations and
decrees and orders of any Governmental Authority, whether now in effect or
hereafter enacted; and at all times maintain and preserve all property material
to the conduct of such business and keep such property in good repair, working
order and condition and from time to time make, or cause to be made, all needful
and proper repairs, renewals, additions, improvements and replacements thereto
necessary in order that the business carried on in connection therewith may be
properly conducted at all times; except in each case where the failure to do so
could not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.02. Insurance. (a) With respect to El Paso, keep its insurable
properties and the insurable properties of the Trustee adequately insured at all
times by financially sound and reputable insurers; maintain such other
insurance, to such extent and against such risks, including nuclear hazard, fire
and other risks insured against by extended coverage, as is customary with
companies in the same or similar businesses operating in the same or similar
locations, including public liability insurance (including against nuclear
energy hazards to the full limit of liability under Federal law) against claims
for personal injury or death or property damage occurring upon, in, about or in
connection with the use of any properties owned, occupied or controlled by it;
and maintain such other insurance as may be required by law.
(b) In the event that El Paso at any time or times shall fail to obtain or
maintain any of the policies of insurance required hereby or to pay any premium
in whole or part relating thereto, the Collateral Agent may, after giving
written notice thereof to El Paso, without waiving or releasing any obligation
or liability of El Paso hereunder or any Event of Default, in its sole
discretion, obtain and maintain such policies of insurance and pay such premiums
and take any other actions with respect thereto as the Collateral Agent deems
advisable. All sums disbursed by the Collateral Agent in connection with this
Section 5.02(b), including reasonable attorneys' fees, costs, expenses and other
charges relating thereto,
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shall be payable, upon demand, by El Paso to the Collateral Agent and shall be
additional El Paso Obligations.
SECTION 5.03. Obligations and Taxes. Pay its Indebtedness and other
obligations promptly and in accordance with their terms and pay and discharge
promptly when due all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or in respect of its property,
before the same shall become delinquent or in default, as well as all lawful
claims for labor, materials and supplies or otherwise that, if unpaid, might
give rise to a Lien upon such properties or any part thereof; provided, however,
that such payment and discharge shall not be required with respect to any such
tax, assessment, charge, levy or claim so long as the validity or amount thereof
shall be contested in good faith by appropriate proceedings and the applicable
Borrower shall have set aside on its books adequate reserves with respect
thereto in accordance with GAAP and such contest operates to suspend collection
of the contested obligation, tax, assessment or charge and enforcement of a
Lien.
SECTION 5.04. Financial Statements, Reports, etc. Furnish to the
Administrative Agent and each Lender:
(a) with respect to El Paso, within 120 days after the end of each fiscal
year, its consolidated balance sheet and related statements of operations,
stockholders' equity and cash flows showing its financial condition as of
the close of such fiscal year and the results of its operations during such
year, all audited by KPMG Peat Marwick or other independent public
accountants of recognized national standing and accompanied by an opinion
of such accountants (which shall not be qualified in any material respect)
to the effect that such consolidated financial statements fairly present
its financial condition and results of operations in accordance with GAAP
consistently applied;
(b) with respect to El Paso, within 60 days after the end of each of the
first three fiscal quarters of each fiscal year, its consolidated balance
sheet and related statements of operations, stockholders' equity, and cash
flows showing its financial condition as of the close of such fiscal
quarter and the results of its operations during such fiscal quarter and
the then elapsed portion of the fiscal year, all certified by one of its
Financial Officers, as fairly presenting its financial condition and
results of operations on a consolidated basis in accordance with GAAP
consistently applied, subject to normal year-end audit adjustments;
(c) with respect to El Paso, concurrently with any delivery of financial
statements under sub-paragraph (a) or (b) above, a certificate of a
Financial Officer certifying that no Event of Default or Default has
occurred or, if such an Event of Default or Default has occurred,
specifying the nature and extent thereof and any corrective action taken or
proposed to be taken with respect thereto;
(d) with respect to El Paso, promptly after the same become publicly
available, copies of all periodic and other reports, definitive proxy
statements filed by it or any Subsidiary with the Securities and Exchange
Commission, or any Governmental Authority succeeding to any or all of the
functions of said Commission, or with any national securities exchange, or
distributed to its shareholders;
(e) with respect to the Trustee, concurrently with the delivery thereof to
El Paso, copies of its periodic trust reports;
(f) with respect to El Paso, promptly after El Paso shall have received
notice thereof, notice of any actual or proposed change in the debt rating
of any of the First Mortgage Bonds, or any notice that El Paso or any First
Mortgage Bonds shall be placed on "CreditWatch" or "WatchList"
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42
or any similar list maintained by either Rating Agency, in each case with
negative implications; and
(g) promptly, from time to time, such other information regarding the
operations, business affairs and financial condition of such Borrower or
any Subsidiary, or compliance with the terms of any Loan Document, as the
Administrative Agent or any Lender may reasonably request.
SECTION 5.05. Litigation and Other Notices. Furnish to the Administrative
Agent prompt written notice of the following:
(a) any Event of Default or Default, specifying the nature and extent
thereof and the corrective action (if any) taken or proposed to be taken
with respect thereto;
(b) the filing or commencement of any action, suit or proceeding, whether
at law or in equity or by or before any Governmental Authority, against it
or, in the case of El Paso, any Subsidiary that, if adversely determined,
could reasonably be expected to result in a Material Adverse Effect; and
(c) any development that has resulted in, or could reasonably be expected
to result in, a Material Adverse Effect.
SECTION 5.06. Employee Benefits. With respect to El Paso, (a) comply in
all material respects with the applicable provisions of ERISA and the Code and
(b) furnish to the Administrative Agent (i) as soon as possible after, and in
any event within 10 days after any Responsible Officer of El Paso or any ERISA
Affiliate knows or has reason to know that, any ERISA Event has occurred that,
alone or together with any other ERISA Event could reasonably be expected to
result in liability of El Paso in an aggregate amount exceeding $5,000,000 or
requiring payments exceeding $1,000,000 in any year, a statement of a Financial
Officer of El Paso setting forth details as to such ERISA Event and the action,
if any, that El Paso proposes to take with respect thereto.
SECTION 5.07. Maintaining Records; Access to Properties and Inspections.
Keep proper books of record and account in which full, true and correct entries
in conformity with GAAP and all requirements of law are made of all dealings and
transactions in relation to its business and activities. Each Borrower will,
and El Paso will cause each Subsidiary to, permit any representatives designated
by the Administrative Agent or any Lender to visit and inspect the financial
records and the properties of such Borrower or such Subsidiary upon reasonable
notice and at reasonable times and as often as reasonably requested and to make
extracts from and copies of such financial records, and permit any
representatives designated by the Administrative Agent or any Lender to discuss
the affairs, finances and condition of such Borrower or such Subsidiary with the
officers thereof and independent accountants therefor.
SECTION 5.08. Use of Proceeds. Use the proceeds of the Loans made to it
and request the issuance of Letters of Credit only for the purposes set forth in
the preamble to this Agreement.
SECTION 5.09. Compliance with Environmental Laws. With respect to El
Paso, comply, and use commercially reasonable efforts to cause all lessees and
other persons occupying its Properties to comply, in all material respects with
all Environmental Laws and Environmental Permits applicable to its operations
and Properties; obtain and renew all material Environmental Permits necessary
for its operations and Properties; and conduct any Remedial Action in
substantial compliance with Environmental Laws.
SECTION 5.10. Further Assurances. Execute any and all further documents,
financing statements, agreements and instruments, and take all further action
(including filing Uniform Commercial Code and other financing statements) that
may be required under applicable law, or that the Required
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43
Lenders, the Administrative Agent or the Collateral Agent may reasonably
request, in order to effectuate the transactions contemplated by the Loan
Documents and in order to grant, preserve, protect and perfect the validity and
first priority of the security interests created or intended to be created
herein, by the Security Agreement or by the Indenture. El Paso shall (a) cause
any subsequently acquired or organized Subsidiary (other than any Inactive
Subsidiary) and any Inactive Subsidiary that after the date hereof no longer
qualifies as an Inactive Subsidiary to execute a guarantee of all the El Paso
Obligations and (b) cause the capital stock of any such Subsidiary referred to
in clause (a) above to be pledged to the Collateral Agent for the ratable
benefit of the Secured Parties to secure the El Paso Obligations, in each case
pursuant to documentation in form and substance reasonably satisfactory to the
Administrative Agent. Each Borrower agrees to provide such evidence as the
Collateral Agent shall reasonably request as to the perfection and priority
status of each such security interest and Lien.
ARTICLE VI
Negative Covenants
Each of El Paso and, subject to Section 11.19, the Trustee covenants and
agrees with each Lender that, so long as this Agreement shall remain in effect
and until the Commitments have been terminated and the principal of and interest
on each Loan, all Fees and all other expenses or amounts payable under any Loan
Document have been paid in full and all Letters of Credit have been canceled or
have expired and all amounts drawn thereunder have been reimbursed in full (or
sufficient cash collateral has been deposited with the Collateral Agent in an
amount equal to the then outstanding L/C Exposure), unless the Required Lenders
shall otherwise consent in writing, neither Borrower will, nor will El Paso
permit any Subsidiary to:
SECTION 6.01. Indebtedness. Incur, create, assume or permit to exist
(collectively, "incur") any Indebtedness; provided, however, that El Paso may
incur any Indebtedness if the Fixed Charge Coverage Ratio for El Paso's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred would have been at least 2.50 to 1.00 determined on a
pro forma basis (including giving a pro forma effect to the incurrence thereof
and the application of the net proceeds therefrom), as if such additional
Indebtedness had been incurred at the beginning of such four-quarter period.
Notwithstanding the foregoing, the following Indebtedness may be incurred:
(a) the First Mortgage Bonds issued and outstanding on the Restatement
Closing Date, and any refinancing thereof (in whole or in part) by El Paso,
provided that (i) any such refinancing Indebtedness is in an aggregate
principal amount not greater than the aggregate principal amount of the
First Mortgage Bonds being refinanced plus the amount of any premiums
required to be paid thereon and fees and expenses associated therewith,
(ii) such refinancing Indebtedness has a later or equal final maturity and
a longer or equal weighted average life than the First Mortgage Bonds being
refinanced, (iii) the interest rate borne by such refinancing Indebtedness
shall be less than or equal to the interest rate borne by the First
Mortgage Bonds being refinanced and (iv) each of the other covenants,
events of default and other provisions of such refinancing Indebtedness
shall be no less favorable to the Lenders and El Paso than those contained
in the First Mortgage Bonds being refinanced unless each of such provisions
is approved in writing by the Required Lenders;
(b) Indebtedness of El Paso existing on the Restatement Closing Date and
set forth in Schedule 6.01 and any extensions, renewals, refundings or
replacements of such Indebtedness, provided that any such extension,
renewal, refunding or replacement is (i) in an aggregate principal amount
not greater than the principal amount of such Indebtedness so extended,
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44
renewed, refunded or replaced plus the amount of accrued interest and
premiums, if any, thereon and the reasonable expenses incurred in
connection therewith and (ii) on terms no less favorable to the Lenders and
El Paso than the terms of such Indebtedness so extended, renewed, refunded
or replaced;
(c) Indebtedness under the Maricopa Reimbursement Agreement, the Farmington
Reimbursement Agreement, the Maricopa Loan Agreements and the Farmington
Loan Agreements, and any extensions, renewals, refundings or replacements
of any such Indebtedness, provided that any such extension, renewal,
refunding or replacement is in an aggregate principal amount not greater
than the principal amount of such Indebtedness so extended, renewed,
refunded or replaced plus (A) the amount of accrued interest and premiums,
if any, thereon and the reasonable expenses incurred in connection
therewith and (B) with respect to any extension, renewal, refunding or
replacement of the Farmington Reimbursement Agreement or the Maricopa
Reimbursement Agreement, the amount of interest coverage then required,
based on the determination of a Rating Agency, to be included in such
Indebtedness;
(d) Indebtedness created hereunder;
(e) Commercial paper of the Trustee issued pursuant to the CP Program in an
aggregate principal amount not to exceed $70,000,000 at any time
outstanding;
(f) Indebtedness of El Paso and Finsub incurred pursuant to the Receivables
Program Documents;
(g) Rate Protection Agreements, in form and with parties reasonably
acceptable to the Administrative Agent;
(h) Indebtedness of El Paso or any Subsidiary represented by Capital Lease
Obligations, mortgage financings or purchase money obligations, in each
case incurred for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of property used in the
business of El Paso or the Subsidiaries, and Indebtedness incurred to
refinance such Capital Lease Obligations, mortgage financings or purchase
money obligations, in an aggregate principal amount not to exceed
$15,000,000 at any time outstanding; provided that such Indebtedness shall
initially be incurred within 180 days of the acquisition or construction of
such property;
(i) any other unsecured Indebtedness of El Paso or any Subsidiary in an
aggregate principal amount not to exceed $15,000,000; and
(j) Indebtedness between and among El Paso and any of its Wholly Owned
Subsidiaries that guarantee the Obligations.
SECTION 6.02. Liens. Create, incur, assume or permit to exist any Lien on
any property or assets (including stock or other securities of any person,
including any Subsidiary) now owned or hereafter acquired by it or on any income
or revenues or rights in respect of any thereof, except:
(a) Liens on property or assets of El Paso existing on the date hereof and
set forth in Schedule 6.02; provided that such Liens shall secure only
those obligations which they secure on the date hereof;
(b) any Lien created under the Loan Documents;
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(c) any Lien existing on any property or asset prior to the acquisition
thereof by El Paso or any Subsidiary; provided that (i) such Lien is not
created in contemplation of or in connection with such acquisition and (ii)
such Lien does not apply to any other property or assets of either Borrower
or any Subsidiary;
(d) Liens for taxes or assessments by any Governmental Authority not yet
due or which are being contested in compliance with Section 5.03;
(e) carriers', warehousemen's, mechanics', materialmen's, repairmen's,
landlords', licensors' or other like Liens arising in the ordinary course
of business and securing obligations that are not due and payable or which
are being contested in compliance with Section 5.03;
(f) pledges and deposits made in the ordinary course of El Paso's business
in compliance with workmen's compensation, unemployment insurance and other
social security laws or regulations;
(g) deposits by El Paso to secure the performance of bids, trade contracts
(other than for Indebtedness), leases (other than Capital Lease
Obligations), statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature incurred in the ordinary
course of business;
(h) zoning restrictions, easements, rights-of-way, restrictions on use of
real property or permit or license requirements and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and do not materially detract from
the value of the property subject thereto or interfere with the ordinary
conduct of the businesses of the Borrowers or any Subsidiary;
(i) purchase money security interests in real property, improvements
thereto or equipment hereafter acquired (or, in the case of improvements,
constructed) by El Paso; provided that (i) such security interests secure
Indebtedness permitted by Section 6.01(b) or Section 6.01(i), (ii) the
Indebtedness secured thereby does not exceed 85% of the lesser of the cost
or the fair market value of such real property, improvements or equipment
at the time of the incurrence of such Indebtedness and (iii) such security
interests do not apply to any other property or assets of El Paso or any
Subsidiary;
(j) the Lien of the Indenture;
(k) Liens on the property of Finsub incurred pursuant to the Receivables
Program Documents and Liens in favor of Finsub granted by El Paso with
respect to Receivables purportedly sold to Finsub by El Paso pursuant to
the Receivables Program;
(l) the Lien in favor of the Indenture Trustee created by the Indenture and
securing the payment of its fees and expenses;
(m) one or more attachments or other similar Liens on assets of El Paso
arising in connection with court proceedings (i) in an aggregate principal
amount not in excess of $10,000,000 (so long as El Paso has set aside
adequate reserves therefor) or (ii) the execution of which has been stayed
or which has been appealed and secured, if necessary, by an appeal bond;
provided that in each case no Event of Default shall result therefrom;
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46
(n) any Lien arising by operation of law on the assets of El Paso in favor
of any Governmental Authority with respect to any franchise, grant,
license, permit or contract that affects any Mortgaged Property; and
(o) any other Liens that, in the reasonable judgment of the Required
Lenders, do not individually or in the aggregate materially impair the
Liens of each of the Security Agreement, this Agreement and the Indenture,
or the security afforded thereby for the benefit of the Secured Parties.
SECTION 6.03. Sale and Lease-Back Transactions. Enter into any
arrangement, directly or indirectly, with any person whereby it shall sell or
transfer any property, real or personal, used or useful in its business, whether
now owned or hereafter acquired, and thereafter rent or lease such property or
other property which it intends to use for substantially the same purpose or
purposes as the property being sold or transferred (a "Sale Lease-Back
Transaction"), except for Sale Lease-Back Transactions of real property and
tangible personal property with an aggregate fair market value not to exceed
$20,000,000 at any time.
SECTION 6.04. Investments, Loans and Advances. Purchase, hold or acquire
any capital stock, evidences of indebtedness or other securities of, make or
permit to exist any loans or advances to, or make or permit to exist any
investment or any other interest in, any other person, except:
(a) investments by El Paso in the capital stock of Subsidiaries; provided
that for each such Subsidiary, El Paso shall comply with Section 5.10;
(b) Permitted Investments;
(c) Investments of El Paso existing on the Restatement Closing Date and set
forth on Schedule 6.04;
(d) Investments received in connection with the bankruptcy or
reorganization of customers and suppliers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in
the ordinary course of business; and
(e) Investments in intercompany loans permitted pursuant to Section
6.01(j).
SECTION 6.05. Mergers, Consolidations and Sales of Assets and
Acquisitions. Merge into or consolidate with any other person, or permit any
other person to merge into or consolidate with it, or sell, transfer, lease or
otherwise dispose of (in one transaction or in a series of transactions) all or
any substantial part of its assets (whether now owned or hereafter acquired) or
any capital stock of any Subsidiary, or purchase, lease or otherwise acquire (in
one transaction or a series of transactions) all or any substantial part of the
assets of any other person except that (i) the Trustee may purchase and sell
Nuclear Fuel in accordance with the provisions of the Purchase Contract and (ii)
El Paso and Finsub may sell Receivables pursuant to the Receivables Program.
SECTION 6.06. Dividends and Distributions. Declare or pay, directly or
indirectly, any dividend or make any other distribution (by reduction of capital
or otherwise), whether in cash, property, securities or a combination thereof,
with respect to any shares of its capital stock or directly or indirectly
redeem, purchase, retire or otherwise acquire for value (or permit any
Subsidiary to purchase or acquire) any shares of any class of its capital stock
or set aside any amount for any such purpose, except:
(a) at any time the First Mortgage Bonds of the series having the longest
maturity then outstanding shall have attained and shall maintain an
Investment Grade Rating (and shall not have been placed on a "watch list"
for possible downgrading below Investment Grade Rating by each
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47
Rating Agency that provided the Investment Grade Rating and was so
identified in a certificate by an officer of El Paso and delivered to the
Indenture Trustee) and 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
pay dividends in cash on Preferred Stock and Common Stock;
(b) 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 (i) with respect
to Preferred Stock, make payments of dividends in additional shares of
Preferred Stock, make payments of dividends in cash and/or redeem or make
open market purchases of shares of Preferred Stock, and (ii) with respect
to Common Stock, make payments of dividends in cash in an aggregate amount
not to exceed the sum of (A) 50% of Consolidated Net Income (minus the sum
of (x) dividends, whether in cash or in kind, paid in respect of Preferred
Stock or Common Stock and (y) the amount of cash used to redeem or make
open market purchases of shares of Common Stock) from the Original Closing
Date, (B) $10,000,000 and (C) the aggregate net cash proceeds received by
El Paso from the issuance or sale of Common Stock since the Original
Closing Date;
(c) any Subsidiary may declare and pay dividends or make other
distributions to El Paso or to any other Wholly Owned Subsidiary; and
(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 the 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 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 the
Subsidiaries.
SECTION 6.07. Transactions with Affiliates. Sell or transfer any property
or assets to, or purchase or acquire any property or assets from, or otherwise
engage in any other transactions with, any of its Affiliates (other than its
Wholly Owned Subsidiaries), except that El Paso or any Subsidiary may engage in
any of the foregoing transactions in the ordinary course of business at prices
and on terms and conditions not less favorable to El Paso or such Subsidiary
than could be obtained on an arm's-length basis from unrelated third parties.
SECTION 6.08. Businesses of Borrowers and Subsidiaries. Engage at any
time in any business or business activity other than (a) with respect to El Paso
and the Subsidiaries, the business currently conducted by them and business
activities reasonably incidental thereto, including in the case of Finsub the
activities contemplated in the Receivables Program, and (b) with respect to the
Trustee, purchasing, holding title to, making payments with respect to and
selling Nuclear Fuel pursuant to, and on the terms set forth in, the Trust
Agreement and the Purchase Contract.
SECTION 6.09. Other Indebtedness and Agreements. (a) Except as expressly
permitted pursuant to Section 6.01, permit any waiver, supplement, modification,
amendment, termination or release of any indenture, instrument or agreement
pursuant to which any Indebtedness or preferred stock of either Borrower or any
Subsidiary is outstanding in an aggregate outstanding principal amount in excess
of $5,000,000, to the extent that any such waiver, supplement, modification,
amendment, termination or release would be adverse to the Lenders in any
material respect.
(b) Permit any waiver, supplement, modification, amendment, termination or
release of the Indenture to the extent that any such waiver, supplement,
modification, amendment, termination or release
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48
would, in the reasonable judgment of the Required Lenders, be adverse to the
interests of the Lenders in any material respect, without the consent of the
Required Lenders.
(c) Permit any waiver, supplement, modification, amendment, termination or
release of (i) the Trust Agreement, the Purchase Contract or the Assigned
Agreements, (ii) the documents constituting the CP Program or (iii) the
Receivables Program Documents, in each case to the extent that any such waiver,
supplement, modification, amendment, termination or release would be adverse to
the Lenders in any material respect.
SECTION 6.10. Prohibition of Prepayments, Redemptions and Repurchases of
Indebtedness. Make any distribution, whether in cash, property, securities or a
combination thereof, other than scheduled (or with respect to senior
Indebtedness held by a person that is not an Affiliate of the obligor,
mandatory) payments of principal and interest as and when due (to the extent not
prohibited by applicable subordination provisions), in respect of, or pay, or
offer or commit to pay, or directly or indirectly redeem, repurchase, retire or
otherwise acquire for consideration, or set apart any sum for the aforesaid
purposes, any Indebtedness for borrowed money of either Borrower or any
Subsidiary in an outstanding principal amount exceeding $1,000,000, except for
(i) optional or mandatory redemptions of First Mortgage Bonds pursuant to the
terms of the Indenture or open market purchases of First Mortgage Bonds, (ii)
commercial paper pursuant to the CP Program, (iii) the Loans or (iv) in
connection with refinancings, refundings or replacements of Indebtedness
permitted pursuant to Section 6.01.
SECTION 6.11. Release of Collateral. El Paso shall not effect or seek the
release of any of the Mortgaged Property from the lien of the Indenture unless
such release would have been permitted by the Indenture as in effect on the
Restatement Closing Date without the consent of any holder of First Mortgage
Bonds.
SECTION 6.12. Net Debt Ratio. Permit the ratio of (i) Net Debt to (ii)
Total Capital as of the last day of any fiscal quarter to be in excess of 0.70
to 1.00.
SECTION 6.13. Interest Coverage Ratio. Permit the Consolidated Interest
Coverage Ratio for any period of four consecutive fiscal quarters to be less
than 2.50 to 1.00.
SECTION 6.14. Consolidated Capital Expenditures. In the case of El Paso
and the Subsidiaries, incur Consolidated Capital Expenditures in any fiscal year
in an aggregate amount in excess $70,000,000.
SECTION 6.15. Fiscal Year. Change the end of its fiscal year from
December 31 to any other date.
ARTICLE VII
Events of Default
In case of the happening of any of the following events ("Events of
Default"):
(a) any representation or warranty made or deemed made in or in connection
with any Loan Document or the borrowings or issuances of Letters of Credit
hereunder, or any representation, warranty, statement or information contained
in any report, certificate, financial statement or other instrument furnished
pursuant to any Loan Document, shall prove to have been false or misleading in
any material respect when so made, deemed made or furnished;
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49
(b) default shall be made in the payment of any principal of any Loan or
the reimbursement with respect to any L/C Disbursement when and as the same
shall become due and payable, whether at the due date thereof or at a date fixed
for prepayment thereof or by acceleration thereof or otherwise;
(c) default shall be made in the payment of any interest on any Loan or any
Fee or L/C Disbursement or any other amount (other than an amount referred to in
(b) above) due under any Loan Document, when and as the same shall become due
and payable, and such default shall continue unremedied for a period of five
Business Days;
(d) default in any material manner shall be made in the due observance or
performance by either Borrower or any Subsidiary of any covenant, condition or
agreement contained in Section 5.01(a), 5.05 or 5.08 or in Article VI;
(e) default shall be made in the due observance or performance by either
Borrower or any Subsidiary of any covenant, condition or agreement contained in
any Loan Document (other than those specified in (b), (c) or (d) above) and such
default shall continue unremedied for a period of 30 days after notice thereof
from the Administrative Agent or any Lender to the Borrowers;
(f) either Borrower or any Subsidiary shall (i) fail to pay any principal
or interest, regardless of amount, due in respect of any Indebtedness in a
principal amount in excess of $10,000,000, when and as the same shall become due
and payable, or (ii) fail to observe or perform any other term, covenant,
condition or agreement contained in any agreement or instrument evidencing or
governing any such Indebtedness if the effect of any failure referred to in this
clause (ii) is to cause, or to permit the holder or holders of such Indebtedness
or a trustee on its or their behalf (with or without the giving of notice, the
lapse of time or both) to cause, such Indebtedness to become due prior to its
stated maturity;
(g) an involuntary proceeding shall be commenced or an involuntary petition
shall be filed in a court of competent jurisdiction seeking (i) relief in
respect of either Borrower or any Subsidiary (other than an Inactive Subsidiary)
or of a substantial part of the property or assets of either Borrower or any
such Subsidiary, under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal, state or foreign bankruptcy,
insolvency, receivership or similar law, (ii) the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for either
Borrower or any Subsidiary (other than an Inactive Subsidiary) or for a
substantial part of the property or assets of either Borrower or any such
Subsidiary or (iii) the winding-up or liquidation of either Borrower or any
Subsidiary (other than an Inactive Subsidiary); and such proceeding or petition
shall continue undismissed for 60 days or an order or decree approving or
ordering any of the foregoing shall be entered;
(h) either Borrower or any Subsidiary (other than an Inactive Subsidiary)
shall (i) voluntarily commence any proceeding or file any petition seeking
relief under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other Federal, state or foreign bankruptcy, insolvency,
receivership or similar law, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or the filing of any
petition described in (g) above, (iii) apply for or consent to the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar official
for either Borrower or any such Subsidiary or for a substantial part of the
property or assets of either Borrower or any such Subsidiary, (iv) file an
answer admitting the material allegations of a petition filed against it in any
such proceeding, (v) make a general assignment for the benefit of creditors,
(vi) become unable, admit in writing its inability or fail generally to pay its
debts as they become due or (vii) take any action for the purpose of effecting
any of the foregoing;
(i) one or more judgments for the payment of money in an aggregate amount
in excess of $10,000,000 shall be rendered against either Borrower or any
Subsidiary and the same shall remain undischarged for a period of 30 consecutive
days during which execution shall not be effectively stayed, or
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50
any action shall be legally taken by a judgment creditor to levy upon assets or
properties of either Borrower or any Subsidiary to enforce any such judgment;
(j) an ERISA Event shall have occurred that, in the opinion of the Required
Lenders, when taken together with all other such ERISA Events, could reasonably
be expected to result in liability of El Paso and its ERISA Affiliates in an
aggregate amount exceeding $10,000,000 or requires payments exceeding $5,000,000
in any year;
(k) any security interest purported to be created hereby or by the Security
Agreement shall cease to be, or shall be asserted by either Borrower not to be,
a valid, perfected, first priority (except as otherwise expressly provided in
this Agreement or the Security Agreement) security interest in the assets or
properties covered thereby;
(l) there shall have occurred a Change in Control;
(m) a Purchase Contract Default shall have occurred and be continuing;
then, and in every such event (other than an event with respect to either
Borrower described in paragraph (g) or (h) above), and at any time thereafter
during the continuance of such event, the Administrative Agent may, and at the
request of the Required Lenders shall, by notice to the Borrowers, take either
or both of the following actions, at the same or different times: (i) terminate
forthwith the Commitments and (ii) declare the Loans then outstanding to be
forthwith due and payable in whole or in part, whereupon the principal of the
Loans so declared to be due and payable, together with accrued interest thereon
and any unpaid accrued Fees and all other liabilities of each Borrower accrued
hereunder and under any other Loan Document, shall become forthwith due and
payable, without presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived by each Borrower, anything contained
herein or in any other Loan Document to the contrary notwithstanding; and in any
event with respect to either Borrower described in paragraph (g) or (h) above,
the Commitments shall automatically terminate and the principal of the Loans
then outstanding, together with accrued interest thereon and any unpaid accrued
Fees and all other liabilities of each Borrower accrued hereunder and under any
other Loan Document, shall automatically become due and payable, without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived by each Borrower, anything contained herein or in any
other Loan Document to the contrary notwithstanding.
ARTICLE VIII
The Administrative Agent and the Collateral Agent
In order to expedite the transactions contemplated by this Agreement, The
Chase Manhattan Bank is hereby appointed to act as Administrative Agent and
Collateral Agent on behalf of the Lenders and the Issuing Bank (for purposes of
this Article VIII, the Administrative Agent and the Collateral Agent are
referred to collectively as the "Agents"). Each of the Lenders and each
assignee of any such Lender hereby irrevocably authorizes the Agents to take
such actions on behalf of such Lender or assignee or the Issuing Bank and to
exercise such powers as are specifically delegated to the Agents by the terms
and provisions hereof and of the other Loan Documents, together with such
actions and powers as are reasonably incidental thereto. The Administrative
Agent is hereby expressly authorized by the Lenders and the Issuing Bank,
without hereby limiting any implied authority, (a) to receive on behalf of the
Lenders and the Issuing Bank all payments of principal of and interest on the
Loans, all payments in respect of L/C Disbursements and all other amounts due to
the Lenders hereunder, and promptly to distribute to each Lender or the Issuing
Bank its proper share of each payment so received; (b) to give notice on behalf
of each of the Lenders to the Borrowers of any Event of Default specified in
this Agreement of which the
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51
Administrative Agent has actual knowledge acquired in connection with its agency
hereunder; and (c) to distribute to each Lender copies of all notices, financial
statements and other materials delivered by either Borrower pursuant to this
Agreement or the other Loan Documents as received by the Administrative Agent.
Without limiting the generality of the foregoing, the Agents are hereby
expressly authorized to execute any and all documents (including releases) with
respect to the Collateral and the rights of the Secured Parties with respect
thereto, as contemplated by and in accordance with the provisions of this
Agreement and the Security Agreement.
Neither the Agents nor any of their respective directors, officers,
employees or agents shall be liable as such for any action taken or omitted by
any of them except for its or his own gross negligence or willful misconduct, or
be responsible for any statement, warranty or representation herein or the
contents of any document delivered in connection herewith, or be required to
ascertain or to make any inquiry concerning the performance or observance by
each Borrower or any other Loan Party of any of the terms, conditions, covenants
or agreements contained in any Transaction Document. The Agents shall not be
responsible to the Lenders for the due execution, genuineness, validity,
enforceability or effectiveness of this Agreement, any other Transaction
Document, or any other document, instrument or agreement. The Agents shall in
all cases be fully protected in acting, or refraining from acting, in accordance
with written instructions signed by the Required Lenders and, except as
otherwise specifically provided herein, such instructions and any action or
inaction pursuant thereto shall be binding on all the Lenders. Each Agent
shall, in the absence of knowledge to the contrary, be entitled to rely on any
instrument or document believed by it in good faith to be genuine and correct
and to have been signed or sent by the proper person or persons. Neither the
Agents nor any of their respective directors, officers, employees or agents
shall have any responsibility to either Borrower on account of the failure of or
delay in performance or breach by any Lender or the Issuing Bank of any of its
obligations hereunder or to any Lender or the Issuing Bank on account of the
failure of or delay in performance or breach by any other Lender or the Issuing
Bank or either Borrower of any of their respective obligations hereunder or
under any other Loan Document or in connection herewith or therewith. Each of
the Agents may execute any and all duties hereunder by or through agents or
employees and shall be entitled to rely upon the advice of legal counsel
selected by it with respect to all matters arising hereunder and shall not be
liable for any action taken or suffered in good faith by it in accordance with
the advice of such counsel.
The Lenders hereby acknowledge that neither Agent shall be under any duty
to take any discretionary action permitted to be taken by it pursuant to the
provisions of this Agreement unless it shall be requested in writing to do so by
the Required Lenders.
Subject to the appointment and acceptance of a successor Agent as provided
below, either Agent may resign at any time by notifying the Lenders and the
Borrowers. Upon any such resignation, the Required Lenders shall have the right
to appoint a successor reasonably satisfactory to Borrower. If no successor
shall have been so appointed by the Required Lenders and shall have accepted
such appointment within 30 days after the retiring Agent gives notice of its
resignation, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent which shall be a bank with an office in New York, New York,
having a combined capital and surplus of at least $500,000,000 or an Affiliate
of any such bank. Upon the acceptance of any appointment as Agent hereunder by a
successor bank, such successor shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent and the retiring
Agent shall be discharged from its duties and obligations hereunder. After the
Agent's resignation hereunder, the provisions of this Article and Section 11.05
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as Agent.
With respect to the Loans made by it hereunder, each Agent in its
individual capacity and not as Agent shall have the same rights and powers as
any other Lender and may exercise the same as though it were not an Agent, and
the Agents and their Affiliates may accept deposits from, lend money to and
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52
generally engage in any kind of business with either Borrower or any Subsidiary
or other Affiliates thereof as if it were not an Agent.
Each Lender agrees (a) to reimburse the Agents, on demand, in the amount of
its pro rata share (based on its Commitment hereunder) of any expenses incurred
for the benefit of the Lenders by the Agents, including counsel fees and
compensation of agents and employees paid for services rendered on behalf of the
Lenders, that shall not have been reimbursed by the Borrowers and (b) to
indemnify and hold harmless each Agent and any of its directors, officers,
employees or agents, on demand, in the amount of such pro rata share, from and
against any and all liabilities, taxes, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever that may be imposed on, incurred by or asserted against it in
its capacity as Agent or any of them in any way relating to or arising out of
this Agreement or any other Transaction Document or any action taken or omitted
by it or any of them under this Agreement or any other Transaction Document, to
the extent the same shall not have been reimbursed by the Borrowers, provided
that no Lender shall be liable to an Agent or any such other indemnified person
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements that are determined
by a court of competent jurisdiction to have resulted from the gross negligence
or willful misconduct of such Agent or any of its directors, officers, employees
or agents.
Each Lender acknowledges that it has, independently and without reliance
upon the Agents or any other Lender and based on such documents and information
as it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Lender also acknowledges that it will, independently
and without reliance upon the Agents or any other Lender and based on such
documents and information as it shall from time to time deem appropriate,
continue to make its own decisions in taking or not taking action under or based
upon this Agreement or any other Loan Document, any related agreement or any
document furnished hereunder or thereunder.
ARTICLE IX
Guarantee
As a result of the arrangements contemplated by the Trust Agreement and the
Purchase Contract for the financing by the Trustee of Nuclear Fuel, El Paso
acknowledges that it will derive substantial benefit from the commitments of the
Lenders to make Loans to the Trustee and the commitment of the Issuing Bank to
issue Letters of Credit for the account of the Trustee. To induce the Lenders
to make the Loans and the Issuing Bank to issue Letters of Credit and to enter
into this Agreement, El Paso agrees with each Lender, the Issuing Bank, the
Administrative Agent and the Collateral Agent (each such person, together with
its successors and assigns, a "Guaranteed Party") as follows:
SECTION 9.01. Guarantee. El Paso unconditionally guarantees, as a primary
obligor and not merely as a surety, (a) the due and punctual payment of (i) the
principal of and premium, if any, and interest (including interest accruing
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding) on
the Loans made to the Trustee, when and as due, whether at maturity, by
acceleration, upon one or more dates set for prepayment or otherwise, (ii) each
payment required to be made by the Trustee under this Agreement in respect of
any Letter of Credit, when and as due, including payments in respect of
reimbursement of disbursements, interest thereon and obligations to provide cash
collateral and (iii) all other monetary obligations, including fees, costs,
expenses and indemnities, whether primary, secondary, direct, contingent, fixed
or otherwise (including monetary obligations incurred during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding, regardless of
whether allowed or allowable in such proceeding), of the Trustee to the
Guaranteed Parties under this Agreement and the other
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53
Loan Documents and (b) the due and punctual performance of all covenants,
agreements, obligations and liabilities of the Trustee under or pursuant to this
Agreement and the other Loan Documents (all the monetary and other obligations
referred to in the preceding clauses (a) and (b) being collectively called the
"Trust Obligations"). El Paso further agrees that the Trust Obligations may be
extended or renewed, in whole or in part, without notice to or further assent
from it, and that it will remain bound upon its guarantee notwithstanding any
extension or renewal of any Trust Obligation.
SECTION 9.02. Obligations Not Waived. To the fullest extent permitted by
applicable law, El Paso waives presentment to, demand of payment from and
protest to the Trustee of any of the Trust Obligations, and also waives notice
of acceptance of its guarantee and notice of protest for nonpayment. To the
fullest extent permitted by applicable law, the obligations of El Paso hereunder
shall not be affected by (a) the failure of the Collateral Agent or any other
Guaranteed Party to assert any claim or demand or to enforce or exercise any
right or remedy against the Trustee, (b) any rescission, waiver, amendment or
modification of, or any release from any of the terms or provisions of this
Agreement, any other Transaction Document, any Guarantee or any other agreement,
including with respect to any other guarantor of the Obligations, or (c) the
failure to perfect any security interest in, or the release of, any of the
security held by or on behalf of the Collateral Agent or any other Guaranteed
Party.
SECTION 9.03. Security. El Paso authorizes the Collateral Agent and each
of the other Guaranteed Parties to (a) take and hold security for the payment of
this guarantee and the Trust Obligations and exchange, enforce, waive and
release any such security, (b) apply such security and direct the order or
manner of sale thereof as they in their sole discretion may determine and (c)
release or substitute any one or more endorsees, other guarantors or other
obligors.
SECTION 9.04. Guarantee of Payment. El Paso further agrees that its
guarantee constitutes a guarantee of payment when due and not of collection, and
waives any right to require that any resort be had by the Collateral Agent or
any other Guaranteed Party to any of the security held for payment of the Trust
Obligations or to any balance of any deposit account or credit on the books of
the Collateral Agent or any other Guaranteed Party in favor of the Trustee or
any other person.
SECTION 9.05. No Discharge or Diminishment of Guarantee. The obligations
of El Paso hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason (other than the payment in full in cash
of the Trust Obligations), including any claim of waiver, release, surrender,
alteration or compromise of any of the Trust Obligations, and shall not be
subject to any defense or setoff, counterclaim, recoupment or termination
whatsoever by reason of the invalidity, illegality or unenforceability of the
Trust Obligations or otherwise. Without limiting the generality of the
foregoing, the obligations of El Paso hereunder shall not be discharged or
impaired or otherwise affected by the failure of the Collateral Agent or any
other Guaranteed Party to assert any claim or demand or to enforce any remedy
under this Agreement, any other Transaction Document or any other agreement, by
any waiver or modification of any provision of any thereof, by any default,
failure or delay, willful or otherwise, in the performance of the Trust
Obligations, or by any other act or omission that may or might in any manner or
to any extent vary the risk of El Paso or that would otherwise operate as a
discharge of El Paso as a matter of law or equity (other than the payment in
full in cash of all the Trust Obligations).
SECTION 9.06. Defenses of the Trustee Waived. To the fullest extent
permitted by applicable law, El Paso waives any defense based on or arising out
of any defense of the Trustee or the unenforceability of the Trust Obligations
or any part thereof from any cause, or the cessation from any cause of the
liability of the Trustee, other than the payment in full in cash of the Trust
Obligations. The Collateral Agent and the other Guaranteed Parties may, at
their election, foreclose on any security held by one or more of them by one or
more judicial or nonjudicial sales, accept an assignment of any such security in
lieu of foreclosure, compromise or adjust any part of the Trust Obligations,
make any other accommodation with the Trustee or any other guarantor or exercise
any other right or remedy available to
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them against the Trustee or any other guarantor, without affecting or impairing
in any way the liability of El Paso hereunder except to the extent the Trust
Obligations have been fully, finally paid in cash. To the fullest extent
permitted by applicable law, El Paso waives any defense arising out of any such
election even though such election operates, pursuant to applicable law, to
impair or to extinguish any right of reimbursement or subrogation or other right
or remedy of El Paso against the Trustee or any other guarantor, as the case may
be, or any security.
SECTION 9.07. Agreement to Pay; Subrogation. In furtherance of the
foregoing and not in limitation of any other right that the Collateral Agent or
any other Guaranteed Party has at law or in equity against El Paso by virtue
hereof, upon the failure of the Trustee to pay any Trust Obligation when and as
the same shall become due, whether at maturity, by acceleration, after notice of
prepayment or otherwise, El Paso hereby promises to and will forthwith pay, or
cause to be paid, to the Collateral Agent or such other Guaranteed Party as
designated thereby in cash the amount of such unpaid Trust Obligations. Upon
payment by El Paso of any sums to the Collateral Agent or any Guaranteed Party
as provided above, all rights of El Paso against the Trustee arising as a result
thereof by way of right of subrogation, contribution, reimbursement, indemnity
or otherwise shall in all respects be subordinate and junior in right of payment
to the prior payment in full in cash of all the Trust Obligations. In addition,
any indebtedness of the Trustee now or hereafter held by El Paso is hereby
subordinated in right of payment to the prior payment in full of the Trust
Obligations. If any amount shall erroneously be paid to El Paso on account of
(i) such subrogation, contribution, reimbursement, indemnity or similar right or
(ii) any such indebtedness of the Trustee, such amount shall be held in trust
for the benefit of the Guaranteed Parties and shall forthwith be paid to the
Collateral Agent to be credited against the payment of the Trust Obligations,
whether matured or unmatured, in accordance with the terms of the Loan
Documents.
SECTION 9.08. Information. El Paso assumes all responsibility for being
and keeping itself informed of the Trustee's financial condition and assets, and
of all other circumstances bearing upon the risk of nonpayment of the Trust
Obligations and the nature, scope and extent of the risks that El Paso assumes
and incurs hereunder, and agrees that none of the Collateral Agent or the other
Guaranteed Parties will have any duty to advise El Paso of information known to
it or any of them regarding such circumstances or risks.
SECTION 9.09. Termination. The guarantee made hereunder (a) shall
terminate when all the Trust Obligations have been indefeasibly paid in full and
the Lenders have no further commitment to lend to the Trustee under this
Agreement, the Trustee L/C Exposure has been reduced to zero and the Issuing
Bank has no further obligation to issue Letters of Credit under this Agreement
and (b) shall continue to be effective or be reinstated, as the case may be, if
at any time payment, or any part thereof, of any Trust Obligation is rescinded
or must otherwise be restored by any Guaranteed Party or El Paso upon the
bankruptcy or reorganization of the Trustee, El Paso or otherwise.
ARTICLE X
Security
SECTION 10.01. First Mortgage Bonds. As security for the payment and
performance of (i) the due and punctual payment of (A) the principal of and
premium, if any, and interest (including interest accruing during the pendency
of any bankruptcy, insolvency, receivership or other similar proceeding,
regardless of whether allowed or allowable in such proceeding) on the Loans made
to El Paso, when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment or otherwise, (B) all monetary obligations of El
Paso pursuant to the Guarantee in Article IX hereof, (C) each payment required
to be made by El Paso under this Agreement in respect of any Letter of Credit,
when and as due, including payments in respect of reimbursement of
disbursements, interest thereon and obligations to provide cash
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55
collateral and (D) all other monetary obligations, including fees, costs,
expenses and indemnities, whether primary, secondary, direct, contingent, fixed
or otherwise (including monetary obligations incurred during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding, regardless of
whether allowed or allowable in such proceeding), of El Paso to the
Administrative Agent, the Collateral Agent and the Lenders under this Agreement
and the other Loan Documents and (ii) the due and punctual performance of all
covenants, agreements, obligations and liabilities of El Paso under or pursuant
to this Agreement and the other Loan Documents (all the monetary and other
obligations referred to in the preceding clauses (i) and (ii) being collectively
called the "El Paso Obligations"), El Paso has delivered to the Collateral
Agent, for the ratable benefit of the Secured Parties, $100,000,000 principal
amount of First Mortgage Bonds - Collateral Series H, duly executed and issued
by El Paso and authenticated by the Indenture Trustee and entitling the
Collateral Agent and the Secured Parties to the benefits of the Indenture with
respect to the El Paso Obligations.
SECTION 10.02. Application of Funds. The Collateral Agent shall remit any
funds received on account of the First Mortgage Bonds - Collateral Series H to
the Administrative Agent for application against the El Paso Obligations as well
as any Collateral consisting of cash, as follows:
FIRST, to the payment of all costs and expenses incurred by the
Administrative Agent or the Collateral Agent (in its capacity as such
hereunder or under any other Loan Document) in connection with such
collection or sale or otherwise in connection with this Agreement or any of
the El Paso Obligations, including all court costs and the reasonable fees
and expenses of its agents and legal counsel, the repayment of all advances
made by the Collateral Agent or the Administrative Agent hereunder or under
any other Loan Document and any other reasonable costs or expenses incurred
in connection with the exercise of any right or remedy hereunder or under
any other Loan Document;
SECOND, to the payment in full of the El Paso Obligations (the amounts so
applied to be distributed among the Secured Parties pro rata in accordance
with the amounts of the El Paso Obligations owed to them on the date of any
such distribution); and
THIRD, to El Paso, its successors or assigns, or as a court of competent
jurisdiction may otherwise direct.
The Administrative Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. To the extent that funds recovered under the First Mortgage Bonds -
Collateral Series H are insufficient to pay in full the El Paso Obligations, El
Paso shall remain liable under the terms of this Agreement and the other Loan
Documents for any such deficiency.
SECTION 10.03. Rights of Bondholders. The Collateral Agent, as the holder
on behalf of the Secured Parties of the First Mortgage Bonds - Collateral Series
H, shall have only such rights with respect thereto as provided in the
Indenture.
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56
ARTICLE XI
Miscellaneous
SECTION 11.01. Notices. Notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by telecopy, as follows:
(a) if to either Borrower, to it in care of El Paso Electric Company,
Kayser Bldg., 100 N. Stanton, El Paso, Texas 79901, Attention of: Gary R.
Hedrick, Chief Financial Officer (Telecopy No. (915) 521-4728));
(b) if to the Administrative Agent, to The Chase Manhattan Bank Loan and
Agency Services Group, One Chase Manhattan Plaza, New York, New York 10081,
Attention of Daniel Fischer (Telecopy No. (212) 552-5777), with a copy to
The Chase Manhattan Bank, at 270 Park Avenue, New York, New York 10017,
Attention of Mr. Peter Bickford (Telecopy No. (212) 270-2101); and
(c) if to a Lender, to it at its address (or telecopy number) set forth on
Schedule 2.01 or in the Assignment and Acceptance pursuant to which such
Lender shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy or on the date five Business Days after dispatch by certified or
registered mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 11.01 or in accordance with
the latest unrevoked direction from such party given in accordance with this
Section 11.01.
SECTION 11.02. Survival of Agreement. All covenants, agreements,
representations and warranties made by each Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and the Issuing Bank and shall survive the
making by the Lenders of the Loans and the issuance of Letters of Credit by the
Issuing Bank, regardless of any investigation made by the Lenders or the Issuing
Bank or on their behalf, and shall continue in full force and effect as long as
the principal of or any accrued interest on any Loan or any Fee or any other
amount payable under this Agreement or any other Loan Document is outstanding
and unpaid or any Letter of Credit is outstanding (for which sufficient cash
collateral has not been deposited with the Collateral Agent) and so long as the
Commitments have not been terminated. The provisions of Sections 2.12 (except
as expressly limited therein), 2.14, 2.18 and 11.05 shall remain operative and
in full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the expiration of the Commitments, the expiration
of any Letter of Credit, the invalidity or unenforceability of any term or
provision of this Agreement or any other Transaction Document, or any
investigation made by or on behalf of the Administrative Agent, the Collateral
Agent, any Lender or the Issuing Bank.
SECTION 11.03. Binding Effect. This Agreement shall become effective when
it shall have been executed by each Borrower and the Administrative Agent and
when the Administrative Agent shall have received counterparts hereof which,
when taken together, bear the signatures of each of the other parties hereto,
and thereafter shall be binding upon and inure to the benefit of the parties
hereto and their respective permitted successors and assigns.
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57
SECTION 11.04. Successors and Assigns. (a) Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the permitted successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of each Borrower, the Administrative
Agent, the Issuing Bank or the Lenders that are contained in this Agreement
shall bind and inure to the benefit of their respective successors and assigns.
(b) Each Lender may assign to one or more assignees all or a portion of
its interests, rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it); provided,
however, that (i) except in the case of an assignment to a Lender or an
Affiliate of such Lender, (x) each Borrower and the Administrative Agent (and,
in the case of any assignment of a Commitment, the Issuing Bank) must give their
prior written consent to such assignment (which consent shall not be
unreasonably withheld) and (y) the amount of the Commitment of the assigning
Lender subject to each such assignment (determined as of the date the Assignment
and Acceptance with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $5,000,000 (or, if less, the entire
remaining amount of such Lender's Commitment), provided further that during the
continuation of an Event of Default, the consent of the Borrowers shall not be
required for such assignment, (ii) each such assignment shall be of a constant,
and not a varying, percentage of all the assigning Lender's rights and
obligations under this Agreement, (iii) the parties to each such assignment
shall execute and deliver to the Administrative Agent an Assignment and
Acceptance, together with a processing and recordation fee of $3,500, and (iv)
the assignee, if it shall not be a Lender, shall deliver to the Administrative
Agent an Administrative Questionnaire. Upon acceptance and recording pursuant
to paragraph (e) of this Section 11.04, from and after the effective date
specified in each Assignment and Acceptance, which effective date shall be at
least five Business Days after the execution thereof, (A) the assignee
thereunder shall be a party hereto and, to the extent of the interest assigned
by such Assignment and Acceptance, have the rights and obligations of a Lender
under this Agreement and (B) the assigning Lender thereunder shall, to the
extent of the interest assigned by such Assignment and Acceptance, be released
from its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto but shall continue to be entitled to the benefits of Sections 2.12
(except as expressly limited therein), 2.14, 2.18 and 11.05, as well as to any
Fees accrued for its account and not yet paid).
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
its Commitment, and the outstanding balance of its Loans, in each case without
giving effect to assignments thereof which have not become effective, are as set
forth in such Assignment and Acceptance, (ii) except as set forth in (i) above,
such assigning Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement, or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement,
any other Loan Document or any other instrument or document furnished pursuant
hereto, or the financial condition of the Borrowers or the performance or
observance by either Borrower of any of its obligations under this Agreement,
any other Loan Document or any other instrument or document furnished pursuant
hereto; (iii) such assignee represents and warrants that it is legally
authorized to enter into such Assignment and Acceptance; (iv) such assignee
confirms that it has received a copy of this Agreement, together with copies of
the most recent financial statements referred to in Section 3.05 or delivered
pursuant to Section 5.04 and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
such Assignment and Acceptance; (v) such assignee will independently and without
reliance upon the Administrative Agent, the Collateral Agent, such assigning
Lender or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (vi) such assignee appoints
and authorizes the Administrative Agent and the Collateral Agent to take such
action as agent on its behalf and
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to exercise such powers under this Agreement as are delegated to the
Administrative Agent and the Collateral Agent, respectively, by the terms
hereof, together with such powers as are reasonably incidental thereto; and
(vii) such assignee agrees that it will perform in accordance with their terms
all the obligations which by the terms of this Agreement are required to be
performed by it as a Lender.
(d) The Administrative Agent, acting for this purpose as an agent of the
Borrowers, shall maintain at one of its offices in The City of New York a copy
of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the "Register"). The entries in the Register shall be
conclusive and the Borrowers, the Administrative Agent, the Issuing Bank, the
Collateral Agent and the Lenders may treat each person whose name is recorded in
the Register pursuant to the terms hereof as a Lender hereunder for all purposes
of this Agreement, notwithstanding notice to the contrary. The Register shall
be available for inspection by each Borrower, the Issuing Bank, the Collateral
Agent and any Lender, at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, an Administrative Questionnaire
completed in respect of the assignee (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) above and, if required, the written consent of each Borrower, the Issuing
Bank and the Administrative Agent to such assignment, the Administrative Agent
shall (i) accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register and (iii) give prompt notice thereof to the
Lenders and the Issuing Bank. No assignment shall be effective unless it has
been recorded in the Register as provided in this paragraph (e).
(f) Each Lender may without the consent of the Borrowers, the Issuing Bank
or the Administrative Agent sell participation interests to one or more banks or
other entities in all or a portion of its rights and obligations under this
Agreement (including all or a portion of its Commitment and the Loans owing to
it); provided, however, that (i) such Lender's obligations under this Agreement
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, (iii) the
participating banks or other entities shall be entitled to the benefit of the
cost protection provisions contained in Sections 2.12, 2.14 and 2.18 to the same
extent as if they were Lenders, provided, however, the right of each holder of a
participation to receive payment under such sections shall be limited to the
lesser of (a) the amounts actually incurred by such holder for which payment is
provided under said sections and (b) the amounts that would have been payable
under said sections by the applicable Borrower to the Lender granting the
participation to such holder had such participation not been granted, and (iv)
the Borrowers, the Administrative Agent, the Issuing Bank and the Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement, and such Lender shall
retain the sole right to enforce the obligations of the Borrowers relating to
the Loans or L/C Disbursements and to approve any amendment, modification or
waiver of any provision of this Agreement (other than amendments, modifications
or waivers decreasing any fees payable hereunder or the amount of principal of
or the rate at which interest is payable on the Loans, extending any scheduled
principal payment date or date fixed for the payment of interest on the Loans or
increasing or extending the Commitments).
(g) Any Lender or participant may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
11.04, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrowers furnished to such Lender
by or on behalf of the Borrowers; provided that, prior to any such disclosure of
information designated by the Borrowers as confidential, each such assignee or
participant or proposed assignee or participant shall execute an agreement
whereby such assignee or participant shall agree (subject to customary
exceptions) to
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preserve the confidentiality of such confidential information on terms no less
restrictive than those applicable to the Lenders pursuant to Section 11.16.
(h) Any Lender may at any time assign all or any portion of its rights
under this Agreement to a Federal Reserve Bank to secure extensions of credit by
such Federal Reserve Bank to such Lender; provided that no such assignment shall
release a Lender from any of its obligations hereunder or substitute any such
Bank for such Lender as a party hereto. In order to facilitate such an
assignment to a Federal Reserve Bank, each Borrower shall, at the request of the
assigning Lender, duly execute and deliver to the assigning Lender a promissory
note or notes evidencing the Loans made to such Borrower by the assigning Lender
hereunder.
(i) Neither Borrower shall assign or delegate any of its rights or duties
hereunder without the prior written consent of the Administrative Agent, the
Issuing Bank and each Lender, and any attempted assignment without such consent
shall be null and void.
(j) In the event that S&P, Moody's and Thompson's BankWatch (or
InsuranceWatch Ratings Service, in the case of Lenders that are insurance
companies (or Best's Insurance Reports, if such insurance company is not rated
by Insurance Watch Ratings Service)) shall, after the date that any Lender
becomes a Lender, downgrade the long-term certificate of deposit ratings of such
Lender, and the resulting ratings shall be below BBB-, Baa3 and C (or BB, in the
case of a Lender that is an insurance company (or B, in the case of an insurance
company not rated by InsuranceWatch Ratings Service)), then the Issuing Bank
shall have the right, but not the obligation, at its own expense, upon notice to
such Lender and the Administrative Agent, to replace (or to request the
Borrowers to use their reasonable efforts to replace) such Lender with an
assignee (in accordance with and subject to the restrictions contained in
paragraph (b) above), and such Lender hereby agrees to transfer and assign
without recourse (in accordance with and subject to the restrictions contained
in paragraph (b) above) all its interests, rights and obligations in respect of
its Commitment to such assignee; provided, however, that (i) no such assignment
shall conflict with any law, rule and regulation or order of any Governmental
Authority and (ii) the Issuing Bank or such assignee, as the case may be, shall
pay to such Lender in immediately available funds on the date of such assignment
the principal of and interest accrued to the date of payment on the Loans made
by such Lender hereunder and all other amounts accrued for such Lender's account
or owed to it hereunder.
SECTION 11.05. Expenses; Indemnity. (a) Each Borrower jointly and
severally agrees to pay all reasonable out-of-pocket expenses incurred by the
Administrative Agent, the Collateral Agent and the Issuing Bank in connection
with the syndication of the credit facilities provided for herein and the
preparation and administration of this Agreement and the other Loan Documents or
in connection with any amendments, modifications or waivers of the provisions
hereof or thereof (whether or not the transactions hereby or thereby
contemplated shall be consummated) or incurred by the Administrative Agent, the
Collateral Agent or any Lender in connection with the enforcement or protection
of its rights in connection with this Agreement and the other Loan Documents or
in connection with the Loans made or Letters of Credit issued hereunder,
including the reasonable fees, charges and disbursements of Cravath, Swaine &
Moore, counsel for the Administrative Agent and the Collateral Agent, and, in
connection with any such enforcement or protection, the reasonable fees, charges
and disbursements of any other counsel for the Administrative Agent, the
Collateral Agent or any Lender.
(b) Each Borrower jointly and severally agrees to indemnify the
Administrative Agent, the Collateral Agent, each Lender and the Issuing Bank,
each Affiliate of any of the foregoing persons and each of their respective
directors, officers, employees and agents (each such person being called an
"Indemnitee") against, and to hold each Indemnitee harmless from, any and all
losses, claims, damages, liabilities and related expenses, including reasonable
counsel fees, charges and disbursements, incurred by or asserted against any
Indemnitee arising out of, in any way connected with, or as a result of (i) the
execution or delivery of this Agreement or any other Loan Document or any
agreement or instrument
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contemplated thereby, the performance by the parties thereto of their respective
obligations thereunder or the consummation of the Transactions and the other
transactions contemplated thereby, (ii) the use of the proceeds of the Loans or
issuance of Letters of Credit, (iii) any claim, litigation, investigation or
proceeding relating to any of the foregoing, whether or not any Indemnitee is a
party thereto, (iv) any actual or alleged presence or Release of Hazardous
Materials on any property owned or operated by either Borrower or any
Subsidiary, or any Environmental Claim related in any way to either Borrower or
any Subsidiary or (v) any strict liability or liability without fault or other
liability of an owner or vendor relating in any way to the Nuclear Fuel, whether
arising out of statute, judicial decision or otherwise; provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses are determined by a
court of competent jurisdiction to have resulted from the gross negligence or
willful misconduct of such Indemnitee.
(c) The provisions of this Section 11.05 shall remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the expiration of the Commitments, the expiration
of any Letter of Credit, the invalidity or unenforceability of any term or
provision of this Agreement or any other Transaction Document, or any
investigation made by or on behalf of the Administrative Agent, the Collateral
Agent, any Lender or the Issuing Bank. All amounts due under this Section 11.05
shall be payable on written demand therefor.
SECTION 11.06. Right of Setoff. If an Event of Default shall have
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, to the extent not prohibited by applicable law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by such
Lender to or for the credit or the account of either Borrower against any of and
all the Obligations now or hereafter existing under this Agreement and the other
Loan Documents held by such Lender, irrespective of whether or not such Lender
shall have made any demand under this Agreement or such other Loan Document and
although such obligations may be unmatured. The rights of each Lender under
this Section 11.06 are in addition to other rights and remedies (including other
rights of setoff) which such Lender may have.
SECTION 11.07. Applicable Law. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS (OTHER THAN LETTERS OF CREDIT) SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. EACH LETTER OF
CREDIT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS
OR RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO SUCH LAWS OR RULES ARE
DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993
REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500 (THE "UNIFORM
CUSTOMS") AND, AS TO MATTERS NOT GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF
THE STATE OF NEW YORK.
SECTION 11.08. Waivers; Amendment. (a) No failure or delay of the
Administrative Agent, the Collateral Agent, any Lender or the Issuing Bank in
exercising any power or right hereunder or under any other Loan Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and remedies of the
Administrative Agent, the Collateral Agent, the Issuing Bank and the Lenders
hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver
of any provision of this Agreement or any other Loan Document or consent to any
departure by either Borrower therefrom shall in any event be effective unless
the same shall be permitted by paragraph (b) below, and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given. No notice or demand on the Borrowers in any case shall entitle
either Borrower to any other or further notice or demand in similar or other
circumstances.
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(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by the Borrowers and the Required Lenders; provided, however, that no such
agreement shall (i) decrease the principal amount of, or extend the maturity of
or any scheduled principal payment date or date for the payment of any interest
on any Loan or any date for reimbursement of an L/C Disbursement, or waive or
excuse any such payment or any part thereof, or decrease the rate of interest on
any Loan or L/C Disbursement, without the prior written consent of each Lender
affected thereby, (ii) increase or extend the Commitment of any Lender without
the prior written consent of such Lender, (iii) decrease the Commitment Fees or
L/C Participation Fees of any Lender, or extend the date of payment of such
fees, without the prior written consent of such Lender or (iv) amend or modify
the pro rata sharing requirements of Section 2.15, the provisions of this
Section 11.08 or Section 11.04(i), the definition of the term "Required
Lenders", release El Paso from its guarantee hereunder, release any Subsidiary
from any guarantee that such Subsidiary shall execute, after the date hereof,
pursuant to Section 5.10, or release all or any substantial part of the
Collateral, without the prior written consent of each Lender; provided further,
however, that no such agreement shall amend, modify or otherwise affect the
rights or duties of the Administrative Agent, the Collateral Agent or the
Issuing Bank hereunder or under any other Loan Document without the prior
written consent of the Administrative Agent, the Collateral Agent or the Issuing
Bank, respectively.
SECTION 11.09. Interest Rate Limitation. Notwithstanding anything herein
to the contrary, if at any time the interest rate applicable to any Loan or L/C
Disbursement, together with all fees, charges and other amounts which are
treated as interest on such Loan or L/C Disbursement under applicable law
(collectively the "Charges"), shall exceed the maximum lawful rate (the "Maximum
Rate") which may be contracted for, charged, taken, received or reserved by the
Lender holding such Loan or the Issuing Bank in accordance with applicable law,
the rate of interest payable in respect of such Loan or L/C Disbursement
hereunder, together with all Charges payable in respect thereof, shall be
limited to the Maximum Rate and, to the extent lawful, the interest and Charges
that would have been payable in respect of such Loan or L/C Disbursement but
were not payable as a result of the operation of this Section 11.09 shall be
cumulated and the interest and Charges payable to such Lender in respect of
other Loans or L/C Disbursements or periods shall be increased (but not above
the Maximum Rate therefor) until such cumulated amount, together with interest
thereon at the Federal Funds Effective Rate to the date of repayment, shall have
been received by such Lender; provided that at any time Texas law shall
establish the Maximum Rate, the Maximum Rate shall be the "indicated rate
ceiling" (as defined in Chapter One of the Texas Credit Code, V.T.C.S. Art.
5069-1.04 et seq.) as in effect from time to time.
SECTION 11.10. Entire Agreement. THIS AGREEMENT, THE FEE LETTER AND THE
OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE CONTRACT BETWEEN THE PARTIES RELATIVE
TO THE SUBJECT MATTER HEREOF. ANY OTHER PREVIOUS AGREEMENT AMONG THE PARTIES
WITH RESPECT TO THE SUBJECT MATTER HEREOF IS SUPERSEDED BY THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS. NOTHING IN THIS AGREEMENT OR IN THE OTHER LOAN
DOCUMENTS, EXPRESSED OR IMPLIED, IS INTENDED TO CONFER UPON ANY PARTY OTHER THAN
THE PARTIES HERETO AND THERETO ANY RIGHTS, REMEDIES, OBLIGATIONS OR LIABILITIES
UNDER OR BY REASON OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
SECTION 11.11. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
<PAGE>
62
(B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.11.
SECTION 11.12. Severability. In the event any one or more of the
provisions contained in this Agreement or in any other Loan Document should be
held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby (it being understood that
the invalidity of a particular provision in a particular jurisdiction shall not
in and of itself affect the validity of such provision in any other
jurisdiction). The parties shall endeavor in good-faith negotiations to replace
the invalid, illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 11.13. Counterparts. This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original but all of which when taken together shall
constitute a single contract, and shall become effective as provided in Section
11.03. Delivery of an executed signature page to this Agreement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Agreement.
SECTION 11.14. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 11.15. Jurisdiction; Consent to Service of Process. (a) Each
Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that the
Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender may
otherwise have to bring any action or proceeding relating to this Agreement or
the other Loan Documents against either Borrower or its respective properties in
the courts of any jurisdiction.
(b) Each Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 11.01. Nothing in this
Agreement or any other Loan Document will affect the right of any party to this
Agreement to serve process in any other manner permitted by law.
SECTION 11.16. Confidentiality. The Administrative Agent, the Collateral
Agent, the Issuing Bank and each of the Lenders agrees to keep confidential (and
to use its best efforts to cause its respective agents and representatives to
keep confidential) the Information (as defined below) and all copies thereof,
extracts therefrom and analyses or other materials based thereon, except that
the Administrative Agent, the
<PAGE>
63
Collateral Agent, the Issuing Bank or any Lender shall be permitted to disclose
Information (a) to such of its respective officers, directors, employees,
agents, affiliates and representatives as need to know such Information, (b) to
the extent requested by any regulatory authority, (c) to the extent otherwise
required by applicable laws and regulations or by any subpoena or similar legal
process, (d) in connection with any suit, action or proceeding relating to the
enforcement of its rights hereunder or under the other Loan Documents, (e) to
the extent such Information (i) becomes publicly available other than as a
result of a breach of this Section 11.16 or (ii) becomes available to the
Administrative Agent, the Issuing Bank, any Lender or the Collateral Agent on a
nonconfidential basis from a source other than the Borrowers, or (f) to the
extent permitted by Section 11.04(g). For the purposes of this Section 11.16,
"Information" shall mean all financial statements, certificates, reports,
agreements and information (including all analyses, compilations and studies
prepared by the Administrative Agent, the Collateral Agent, the Issuing Bank or
any Lender based on any of the foregoing) that are received from the Borrowers
and related to the Borrowers, any shareholder of El Paso or any employee,
customer or supplier of either Borrower, other than any of the foregoing that
were available to the Administrative Agent, the Collateral Agent, the Issuing
Bank or any Lender on a nonconfidential basis prior to its disclosure thereto by
either Borrower, and which are in the case of Information provided after the
date hereof, clearly identified at the time of delivery as confidential. The
provisions of this Section 11.16 shall remain operative and in full force and
effect regardless of the expiration and term of this Agreement.
SECTION 11.17. Texas Revolving Credit Statute. If, notwithstanding the
provisions of Section 11.07, Texas law shall be applied by any Governmental
Authority to this Agreement, the other Loan Documents or the obligations of
either Borrower hereunder or thereunder, each Borrower hereby agrees that,
pursuant to Tex. Rev. Civ. Stat. Ann. art. 5069-15.10(b), Chapter 15 of Title 79
of the Revised Civil Statutes of Texas, as amended, shall not govern or in any
manner apply to its obligations hereunder or thereunder.
SECTION 11.18. No Recourse. CBT has entered into this Agreement and the
other Loan Documents solely in its capacity as Trustee and not in its individual
capacity. CBT shall not be liable for the obligations or liabilities of the
Trustee hereunder or under any other Loan Document, except to the extent such
obligations or liabilities result from CBT's gross negligence or willful
misconduct.
SECTION 11.19. Limited Representations, Warranties and Covenants of
Trustee. With respect to representations and warranties contained in Article
III, the affirmative covenants contained in Article V and the negative covenants
contained in Article VI, it is understood and agreed that (a) the Trustee has
made no independent inquiry as to (i) the assets placed in trust into the Rio
Grande Resources Trust II, (ii) any facts concerning El Paso and the
Subsidiaries or as to the status or condition of any of their assets or any
disclosures made by them or (iii) the existence of any Liens on the Collateral
in existence before the Trustee became or becomes the owner of such property
pursuant to the Purchase Contract and (b) the Trustee's representations,
warranties and covenants are limited to itself and those matters within its
control. The Trustee has no actual knowledge of any facts that would indicate
that any such representations or warranties by El Paso or the Subsidiaries are
untrue.
<PAGE>
64
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
El PASO ELECTRIC COMPANY,
by
/s/ Gary R. Hedrick
-------------------------------------------
Name: Gary R. Hedrick
Title: Vice President, Treasurer,
and Chief Financial Officer
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, not in
its individual capacity, but solely in its
capacity as Trustee,
by
/s/ Kathryn M. Houston
--------------------------------------------
Name: Kathryn M. Houston
Title: Vice President
THE CHASE MANHATTAN BANK, individually and as
Administrative Agent, Collateral Agent and Issuing
Bank,
by
/s/ Robert W. Mathews
------------------------------------------
Name: Robert W. Mathews
Title: Vice President
UNION BANK OF CALIFORNIA, N.A., individually and
as Documentation Agent,
by
/s/ David Musicant
--------------------------------------------
Name: David Musicant
Title: Vice President
BARCLAYS BANK PLC, NEW YORK BRANCH, individually
and as Syndication Agent,
by
/s/ Sydney G. Dennis
--------------------------------------------
Name: Sydney G. Dennis
Title: Director
<PAGE>
65
ABN AMRO BANK N.V.,
by
/s/ Kevin S. McFadden
-------------------------------------------
Name: Kevin S. McFadden
Title: Vice President and Director
by
/s/ Kris A. Grosshans
--------------------------------------------
Name: Kris A. Grosshans
Title: Vice President and Director
BANKBOSTON, N.A.,
by
/s/ Michael Kane
--------------------------------------------
Name: Michael Kane
Title: Managing Director
CREDIT LYONNAIS NEW YORK BRANCH,
by
/s/ Robert Ivosevich
--------------------------------------------
Name: Robert Ivosevich
Title: Senior Vice President
GUARANTY BANK, F.S.B.,
by
/s/ Mark L. Wayne
--------------------------------------------
Name: Mark L. Wayne
Title: Vice President
<PAGE>
EXHIBIT 10.24-01
- --------------------------------------------------------------------------------
El Paso Electric Company
Chase Bank of Texas, National Association
not in its individual capacity,
but solely in its capacity as trustee of the
Rio Grande Resources Trust II
Amendment Agreement
dated as of
February 8, 1999,
to the
$100,000,000 Credit Agreement
dated as of
February 12, 1996,
as amended and restated as of
February 8, 1999,
The Chase Manhattan Bank
as Administrative Agent,
Collateral Agent
and Issuing Bank
Union Bank of California, N.A.
as Documentation Agent
Barclays Bank PLC, New York Branch
as Syndication Agent
______________
Chase Securities Inc.
as Book Manager and Lead Arranger
- --------------------------------------------------------------------------------
CHASE
<PAGE>
CONFORMED COPY
AMENDMENT AGREEMENT dated as of February 8, 1999 (this
"Amendment Agreement"), among EL PASO ELECTRIC COMPANY, a Texas
corporation ("El Paso"), CHASE BANK OF TEXAS, 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"; each of El Paso and
the Trustee are referred to individually herein as a "Borrower"
and collectively as the "Borrowers"), the lenders listed on the
signature pages hereof under the captions "Departing Lenders"
(the "Departing Lenders"), "Continuing Lenders" (the "Continuing
Lenders") and "Additional Lenders" (the "Additional Lenders",
and, together with the Continuing Lenders, the "Lenders"), THE
CHASE MANHATTAN BANK, a New York banking corporation ("Chase"),
as issuing bank (in such capacity, the "Issuing Bank"), as
administrative agent (in such capacity, the "Administrative
Agent") and as collateral agent (in such capacity, the
"Collateral Agent") for the Lenders, UNION BANK OF CALIFORNIA,
N.A., as documentation agent (the "Documentation Agent"), and
BARCLAYS BANK PLC, NEW YORK BRANCH, as syndication agent (the
"Syndication Agent").
A. The Borrowers, the Departing Lenders, the Continuing Lenders, the
Administrative Agent, the Collateral Agent and the Issuing Bank are parties to a
Credit Agreement dated as of February 12, 1996, as amended as of February 12,
1996 and July 31, 1997 (the "Original Credit Agreement").
B. The Departing Lenders and certain Continuing Lenders wish to assign all
or a portion of their interests in (i) the outstanding Loans and (ii) the
outstanding Letters of Credit under the Original Credit Agreement to the
Additional Lenders and certain other Continuing Lenders, and the Additional
Lenders and such Continuing Lenders are willing to accept such assignments.
C. The Borrowers have requested, and the other parties hereto have agreed,
upon the terms and subject to the conditions set forth or referred to herein,
that the Original Credit Agreement be amended and restated upon the
effectiveness of the assignments referred to in paragraph B above in the form of
the Amended and Restated Credit Agreement set forth as Exhibit A hereto (the
"Restated Credit Agreement").
D. Accordingly, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the sufficiency and receipt of which
are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Defined Terms. Capitalized terms used and not defined herein
shall have the meanings assigned to such terms in the Restated Credit Agreement.
SECTION 2. Assignments. (a) On and as of the Restatement Closing Date,
subject to the conditions set forth in Section 7 hereof, each of the Departing
Lenders, Continuing Lenders and Additional Lenders shall sell, assign and
transfer, or purchase and assume, as the case may be, such interests in (i) the
Commitments (as defined in the Original Credit Agreement), (ii) the outstanding
Loans (as defined in the Original Credit Agreement), and (iii) the
participations in the Letters of Credit outstanding as of the Restatement
Closing Date (the "Existing Letters of Credit"), in each case as shall be
necessary in order that, after giving effect to all such assignments and
purchases, the Commitments, the Loans and the participations in the Existing
Letters of Credit will be held by the Continuing Lenders and Additional Lenders
ratably in accordance with their Commitments as set forth in Schedule 2.01 to
the Restated Credit
<PAGE>
2
Agreement. Each Lender purchasing interests of any type under this Section 2
shall be deemed to have purchased such interests from each Departing Lender and
Continuing Lender selling interests of such type ratably in accordance with the
amounts of such interests sold by them. The assignments and purchases provided
for in this Section 2 shall be without recourse, warranty or representation,
except that each assigning Lender shall be deemed to have represented that it is
the legal and beneficial owner of the interests assigned by it and that such
interests are free and clear of any adverse claim, and the purchase price for
each such assignment and purchase shall equal the principal amount of the Loans
purchased. Concurrently with the effectiveness of the assignments and purchases
provided for above, the Departing Lenders shall cease to be parties to the
Original Credit Agreement and shall be released from all further obligations
thereunder and shall have no further rights to or interest in any of the
Collateral (as defined in the Original Credit Agreement); provided, however,
that the Departing Lenders shall continue to be entitled to the benefits of
Sections 2.12, 2.14, 2.18 and 11.05 of the Original Credit Agreement as in
effect immediately prior to the Restatement Closing Date.
(b) On the Restatement Closing Date, (i) each Additional Lender and each
Continuing Lender that is purchasing interests in the Commitments and the
outstanding Loans pursuant to paragraph (a) above shall pay the purchase price
for the interests purchased by it pursuant to such paragraph (a) by wire
transfer of immediately available funds to the Administrative Agent in New York,
New York, not later than 12:00 (noon), New York City time, and (ii) the
Administrative Agent shall pay to each Departing Lender and each Continuing
Lender that is assigning interests in outstanding Loans pursuant to paragraph
(a) above, out of the amounts received by the Administrative Agent from each
Additional Lender and Continuing Lender pursuant to clause (i) of this paragraph
(b), the purchase price for the interests assigned by it pursuant to such
paragraph (a) by wire transfer of immediately available funds not later than
3:00 p.m., New York City time.
(c) Each of the parties hereto hereby consents to the assignments and
purchases provided for in paragraphs (a) and (b) above and agrees that (i) each
Additional Lender and each Continuing Lender that is purchasing interests in the
Commitments and the outstanding Loans pursuant to paragraph (a) above are
assignees of the Departing Lenders and certain Continuing Lenders permitted
under Section 11.04 of the Original Credit Agreement and (ii) each Additional
Lender and each Continuing Lender shall have all the rights and obligations of a
Lender under the Restated Credit Agreement with respect to the interests
purchased by it pursuant to such paragraphs. The Borrowers further agree that if
any Lender shall default in the payment of any amount due from it under
paragraph (b) above, the Borrowers shall promptly pay the defaulted amount to
the Administrative Agent by wire transfer of immediately available funds,
together with interest on such amount at the Alternate Base Rate from the
Restatement Closing Date to the date of payment. Upon any such payment by the
Borrowers, (i) the Borrowers shall be subrogated to all rights of the assigning
Lender against the defaulting Lender and (ii) the Borrowers shall have the
right, at the defaulting Lender's expense, upon notice to the defaulting Lender
and to the Administrative Agent, to require such defaulting Lender to transfer
and assign without recourse all its interests, rights and obligations under the
Restated Credit Agreement to another financial institution which shall assume
such interests, rights and obligations; provided that (A) no such assignment
shall conflict with any law, rule or regulation or order of any Governmental
Authority, (B) the assignee shall pay to the defaulting Lender, in immediately
available funds on the date of such assignment, the outstanding principal of and
interest accrued to the date of payment on the Loans made or deemed made by such
defaulting Lender under the Restated Credit Agreement, if any, and all other
amounts accrued for such defaulting Lender's account or owed to it under the
Restated Credit Agreement and (C) if the defaulting Lender shall not have
reimbursed the Borrowers for the defaulted amount paid by the Borrowers pursuant
to paragraph (b) above, the assignee shall pay to the Borrowers, in immediately
available funds on the date of such assignment, the amount of and interest
accrued to the date of payment on, such defaulted amount.
SECTION 3. Amendment and Restatement of the Original Credit Agreement. (a)
The Borrowers, the Additional Lenders, the Continuing Lenders, the Issuing Bank,
the Administrative Agent, the Collateral
<PAGE>
3
Agent, the Documentation Agent and the Syndication Agent agree that the Original
Credit Agreement (including all Exhibits and Schedules thereto) is hereby
amended and restated, effective as of the Restatement Closing Date, to read in
its entirety as set forth in Exhibit A hereto. As used in the Restated Credit
Agreement, the terms "Agreement", "this Agreement", "herein", "hereinafter",
"hereto", "hereof" and words of similar import shall, unless the context
otherwise requires and except as provided above, mean the Original Credit
Agreement as amended and restated by this Amendment Agreement.
(b) On the Restatement Closing Date, upon the effectiveness of the Restated
Credit Agreement, (i) each Loan outstanding under the Original Credit Agreement
shall be deemed to be a Loan under the Restated Credit Agreement and (ii) each
Existing Letter of Credit shall be deemed to be a Letter of Credit issued under
the Restated Credit Agreement, and the amount of the unused Commitments shall be
adjusted accordingly.
(c) Schedule I hereto sets forth the principal amount and type of each Loan
held by each Lender on the Restatement Closing Date, after giving effect to the
transactions contemplated by Section 2 above and this Section 3. The Borrowers
shall cause all Borrowings outstanding immediately prior to the Restatement
Closing Date to be ABR Borrowings.
SECTION 4. Amendment of the Purchase Contract. The Additional Lenders and
the Continuing Lenders hereby consent to the amendment of the Purchase Contract
as set forth in Exhibit B hereto.
SECTION 5. Representations and Warranties. The Borrowers hereby make to
each of the other parties hereto, on the date hereof and on the Restatement
Closing Date, each of the representations and warranties contained in Article
III of the Restated Credit Agreement, and each of such representations and
warranties is hereby incorporated by reference herein.
SECTION 6. Fees; Interest. (a) On the Restatement Closing Date,
simultaneously with the making of the assignments provided for in Section 2, the
Borrowers shall pay (i) to the Administrative Agent, for the accounts of the
Departing Lenders and Continuing Lenders, the fees payable pursuant to Section
2.05 of the Original Credit Agreement which have accrued for the period from the
last date such fees were paid to but excluding the Restatement Closing Date and
(ii) for the account of the Administrative Agent and the Lenders entitled
thereto, the fees and expenses referred to in Section 4.02(d) of the Restated
Credit Agreement. The fees and expenses described in this Section 6 shall be
payable in immediately available funds. Once paid, such fees shall not be
refundable under any circumstances.
(b) On the Restatement Closing Date, simultaneously with the making of the
assignments provided for in Section 2, the Borrowers shall pay to the
Administrative Agent, for the accounts of the Departing Lenders and the
Continuing Lenders, all unpaid interest accrued to but excluding the Restatement
Closing Date on the Loans (as defined in the Original Credit Agreement) of each
such Lender.
SECTION 7. Conditions Precedent. The obligation of each Continuing Lender
and each Additional Lender to purchase the assignments provided for in Section 2
hereof, the amendment and restatement of the Original Credit Agreement provided
for in Section 3 hereof and the consent to the amendment of the Purchase
Agreement provided for in Section 4 hereof on the Restatement Closing Date shall
be subject to the satisfaction of all of the conditions precedent contained in
Article IV of the Restated Credit Agreement, and each of such conditions
precedent is hereby incorporated by reference herein.
SECTION 8. Applicable Law. THIS AMENDMENT AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
4
SECTION 9. No Novation. Neither this Amendment Agreement nor the execution,
delivery or effectiveness of the Restated Credit Agreement shall extinguish the
obligations for the payment of money outstanding under the Original Credit
Agreement or discharge or release the Lien or priority of any security
agreement, any pledge agreement or any other security therefor. Nothing herein
contained shall be construed as a substitution or novation of the Obligations
outstanding under the Original Credit Agreement or instruments securing the
same, which shall remain in full force and effect, except as modified hereby or
by instruments executed concurrently herewith. Nothing expressed or implied in
this Amendment Agreement, the Restated Credit Agreement or any other document
contemplated hereby or thereby shall be construed as a release or other
discharge of either of the Borrowers under the Original Credit Agreement or any
Guarantor under any Loan Document (as defined in the Original Credit Agreement)
from any of its obligations and liabilities thereunder. Each of the Original
Credit Agreement and the other Loan Documents (as defined in the Original Credit
Agreement) shall remain in full force and effect, until and except as modified
hereby or thereby in connection herewith or therewith. This Amendment Agreement
shall constitute a Loan Document for all purposes of the Original Credit
Agreement and the Restated Credit Agreement.
SECTION 10. Notices. All notices hereunder shall be given in accordance
with the provisions of Section 11.01 of the Restated Credit Agreement and in the
case of the Departing Lenders to the addresses referred to in Section 11.01 of
the Original Credit Agreement.
SECTION 11. Counterparts. This Amendment Agreement may be executed in two
or more counterparts, each of which when taken together shall constitute but one
contract, and shall become effective as provided in Section 13 hereof. Delivery
of an executed signature page to this Amendment Agreement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
hereof.
SECTION 12. Headings. The headings of this Amendment Agreement are for
convenience of reference only, are not part of this Amendment Agreement and are
not to be taken into consideration in interpreting this Amendment Agreement.
SECTION 13. Effectiveness; Amendment. Subject to the conditions of Section
7 hereof, this Amendment Agreement shall become effective on the Restatement
Closing Date if (a) it shall have been executed by each Borrower and the
Administrative Agent and (b) the Administrative Agent shall have received
counterparts hereof which, when taken together, bear the signatures of each of
the parties hereto. This Amendment Agreement may not be amended nor may any
provision hereof be waived except pursuant to a writing signed by each of the
parties hereto.
<PAGE>
5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement
to be duly executed by their duly authorized officers, all as of the date and
year first above written.
El PASO ELECTRIC COMPANY,
by
/s/ Gary R. Hedrick
-----------------------------------------
Name: Gary R. Hedrick
Title: Vice President, Treasurer,
and Chief Financial Officer
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, not in
its individual capacity, but solely in its
capacity as Trustee,
by
/s/ Kathryn M. Houston
-----------------------------------------
Name: Kathryn M. Houston
Title: Vice President
THE CHASE MANHATTAN BANK, individually and as
Administrative Agent, Collateral Agent and Issuing
Bank,
by
/s/ Robert W. Mathews
-----------------------------------------
Name: Robert W. Mathews
Title: Vice President
UNION BANK OF CALIFORNIA, N.A., individually and
as Documentation Agent,
by
/s/ David Musicant
-----------------------------------------
Name: David Musicant
Title: Vice President
BARCLAYS BANK PLC, NEW YORK BRANCH, individually
and as Syndication Agent,
by
/s/ Sydney G. Dennis
-----------------------------------------
Name: Sydney G. Dennis
Title: Director
<PAGE>
6
Continuing Lenders
------------------
CREDIT LYONNAIS NEW YORK BRANCH,
by
/s/ Robert Ivosevich
-----------------------------------------
Name: Robert Ivosevich
Title: Senior Vice President
GUARANTY BANK, F.S.B.,
by
/s/ Mark L. Wayne
-----------------------------------------
Name: Mark L. Wayne
Title: Vice President
Additional Lenders
------------------
ABN AMRO BANK N.V.,
by
/s/ Kevin S. McFadden
-----------------------------------------
Name: Kevin S. McFadden
Title: Vice President and Director
by
/s/ Kris A. Grosshans
-----------------------------------------
Name: Kris A. Grosshans
Title: Vice President and Director
BANKBOSTON, N.A.,
by
/s/ Michael Kane
-----------------------------------------
Name: Michael Kane
Title: Managing Director
Departing Lenders
-----------------
COMMERCIAL LOAN FUNDING TRUST I, by Lehman
Commercial Paper Inc., not in its individual
capacity but solely as administrative agent,
by
/s/ Michele Swanson
-----------------------------------------
Name: Michele Swanson
Title: Authorized Signatory
<PAGE>
7
OCTAGON LOAN TRUST,
by
/s/ Joyce C. DeLucca
-----------------------------------------
Name: Joyce C. DeLucca
Title: Managing Director
SPS SWAPS,
by
/s/ Anna Maria Beissel
----------------------------------------
Name: Anna Maria Beissel
Title: Vice President
<PAGE>
Schedule I
<TABLE>
<CAPTION>
Loans
===================================================================================
Lender Type of Loan Principal Amount
===================================================================================
<S> <C> <C>
The Chase Manhattan Bank ABR Loan $7,223,520.00
- -----------------------------------------------------------------------------------
Barclays Bank PLC, New York Branch ABR Loan $7,223,520.00
- -----------------------------------------------------------------------------------
Union Bank of California, N.A. ABR Loan $7,223,520.00
- -----------------------------------------------------------------------------------
ABN AMRO Bank ABR Loan $7,223,520.00
- -----------------------------------------------------------------------------------
Credit Lyonnais, New York Branch ABR Loan $5,417,640.00
- -----------------------------------------------------------------------------------
Guaranty Federal Bank, F.S.B ABR Loan $5,417,640.00
- -----------------------------------------------------------------------------------
BankBoston, N.A. ABR Loan $5,417,640.00
===================================================================================
</TABLE>
<PAGE>
EXHIBIT 10.38
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), effective as of January 11, 1999,
by and between El Paso Electric Company, a Texas corporation ("Company"), and
Earnest A. Lehman ("Executive").
WITNESSETH:
-----------
WHEREAS, the Board of Directors of the Company desires to employ Executive
as its Vice President - Energy Services Business Unit; and
WHEREAS, Executive is willing, on the terms and subject to the conditions
provided in this Agreement, to undertake the management responsibilities
contemplated herein, to furnish services to Company as provided herein, and to
be subject to certain employment restrictions and obligations;
NOW, THEREFORE, in consideration of the premises and the covenants herein
contained and other good, valuable, and binding consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
Article I. Employment
----------
1.1 Responsibilities and Authority. Company hereby employs Executive to
------------------------------
serve as its Vice President - Energy Services Business Unit. The duties of
Executive shall be those duties which can reasonably be expected to be performed
by a person with the title of Vice President - Energy Services Business Unit.
Executive shall report directly to the Senior Vice President - Customer &
Corporate Services of the Company and shall perform such other duties as may be
assigned to him by the Senior Vice President - Customer & Corporate Services or
the Board of Directors as are not inconsistent with Executive's position as Vice
President - Energy Services Business Unit.
1.2 Acceptance of Employment. Executive accepts employment by Company on
------------------------
the terms and conditions herein provided and agrees, subject to the terms of
this Agreement, to devote substantially all of his business time to advance the
business of the Company. Nothing contained in this Agreement shall be construed
so as to prevent Executive from investing his personal assets in such a manner
and otherwise engaging in business transactions that are not inconsistent with
the interests of the Company and that will not require a substantial portion of
Executive's business time or otherwise interfere with the performance of his
duties hereunder.
1.3 Employment Term. Company hereby employs Executive for an employment
---------------
term of two years, beginning January 11, 1999 -and terminating on January 10,
2001 (the "Employment Term").
<PAGE>
1.4 Termination. This Agreement may be terminated, subject to the
-----------
provisions of Article V below, at the option of either party upon the giving of
at least thirty (30) days written notice to the other party.
Article II. Compensation and Incentives
---------------------------
As compensation for his services hereunder, Executive shall be paid the
following:
2.1 Base Compensation. Commencing on January 11, 1999, Company shall pay
-----------------
Executive a base cash salary at the aggregate initial rate of $130,000.00 per
annum. Thereafter, the base salary amount will be reviewed annually by the
Board of Directors, which may, in its discretion, make appropriate annual merit
increases, provided, however, Executive's base cash salary shall never be less
than $130,000.00 per annum. The compensation paid to Executive pursuant to this
Section 2.1 is hereinafter referred to as "Base Compensation." The Base
Compensation shall be paid to Executive in accordance with the Company's
existing payroll policy.
2.2 Options. (a) As additional inducement for Executive to enter into
-------
this Agreement, Company hereby grants to Executive nontransferable Options to
purchase 100,000 shares of Common Stock (the "Options") for an amount per share
equal to the closing price of the Common Stock on the American Stock Exchange on
January 8, 1999. The Options will be issued under the El Paso Electric Company
1996 Long-Term Incentive Plan and will be evidenced by a separate Stock Option
Agreement (the "Stock Option Agreement") between Executive and the Company which
agreement will provide that the maximum number of Options will be incentive
stock options (the "Qualified Options") and the remainder of the Options will be
non-qualified stock options (the "Non-Qualified Options").
(b) The Stock Option Agreement will provide that twenty per cent (20%) of
the Qualified Options and twenty per cent (20%) of the Non-Qualified Options
shall vest in Executive each year for five (5) successive years beginning on
January 2, 2000, and continuing each and every January 2 thereafter, until all
such are fully vested on January 2, 2004; provided, however, that all such shall
vest immediately in the event of a Triggering Event (as described in Section 6.3
below). Executive (or his legal representative) may exercise such Options any
time after vesting subject to such reasonable terms and conditions as are
contained in the Stock Option Agreement. All Options granted and not earlier
exercised shall expire ten years from the date of the grant.
Article III. Relocation Expenses
-------------------
3.1 Residence. For so long as this Agreement shall remain in effect,
---------
Executive shall reside within the Company's retail electric service territory.
3.2 Purchase of Topeka Residence. (a) In order to facilitate Executive's
----------------------------
move from Topeka, Kansas to the Company's retail electric service territory,
Company hereby
2
<PAGE>
agrees, subject to the provisions of this Section 3.2, to purchase (through a
relocation firm or otherwise) Executive's residence located at 3517 SW Avalon
Lane, Topeka, Kansas 66604-2503 (the "Topeka Residence", the legal description
of which is contained on Exhibit 3.2 attached hereto and made a part hereof for
its "Appraised Value," determined in accordance with Section 3.2(b) below.
Company understands that Executive has listed the Topeka Residence for sale with
Prudential Realty Company, Topeka, Kansas, which listing arrangement will be
honored by the Company in connection with this Section 3.2. Executive shall use
his best efforts to sell the Topeka Residence during the period up to and
including the date ninety (90) days from the date of execution of this Agreement
(the 'Listing Period'). If the Topeka Residence is sold by Executive during the
Listing Period, Company shall pay all reasonable commissions payable to
Prudential Realty pursuant to the listing arrangement referenced above. If the
Topeka Residence is not sold by Executive during the Listing Period, the
Appraised Value shall be paid to Executive in cash, as soon as reasonably
practicable after the conclusion of the Listing Period. Simultaneously with such
payment, Executive agrees to convey the Topeka Residence to Company free of all
mortgages and liens and to execute and deliver such title documents and
instruments of transfer as the Company may reasonably require in connection with
the disposition of the Topeka Residence.
(b) The Appraised Value of the Topeka Residence shall be the average of two
appraisals, each submitted by a certified real estate appraiser acceptable to
both Company and Executive, if, and only if, the higher of the two appraisals
does not exceed 110% of the value of the lower appraisal. If the two appraisals
differ by more than this permitted amount, a third certified real estate
appraiser acceptable to both the Company and Executive shall submit an appraisal
and the Appraised Value of the Topeka Residence shall be equal to the median
value of the three appraisals.
3.3 Reimbursement of Moving Costs. Company shall reimburse Executive for
-----------------------------
all reasonable costs incurred by Executive in moving household furnishings and
related personal property from his Topeka Residence, to his new residence within
the Company's retail electric service territory. Executive shall submit a
written estimate of the cost of such move to Mr. Michael Blough, Vice President
- - Administration, for prior approval. Company shall promptly reimburse
Executive for all such costs upon submission by Executive of a final expense
report detailing such expenses.
3.4 Lease of Corporate Apartment. Upon Executive's relocation to the
----------------------------
Company's retail electric service territory, Company shall reimburse Executive
for the cost of a stay (up to sixty days) in a corporate apartment acceptable to
Company and Executive, if it is necessary for Executive to utilize such a
service.
Article IV. Benefits
--------
4.1 Benefits. In addition to the Base Compensation required to be paid to
--------
Executive hereunder, Executive shall receive the benefits (the "Benefits")
described on Exhibit 4.1 attached hereto and made a part hereof for all
purposes.
3
<PAGE>
4.2 Beneficiaries. Executive shall have the absolute right to designate
-------------
the beneficiary or beneficiaries to receive all payments and employee benefits
described in this Agreement which may be payable or available in the event of
Executive's death.
4.3 Reimbursement of Expenses. Executive will be promptly reimbursed by
-------------------------
Company for all reasonable and necessary expenses incurred by Executive on
behalf of, and in connection with, the business of Company.
Article V. Termination
-----------
5.1 Acceleration of Payments. In the event of the occurrence of a
------------------------
"Triggering Event" (as defined in Section 6.3 below), Company shall pay to
Executive upon the fifth business day after the giving of written demand from
the Executive to Company, a lump sum cash payment equal to the sum of (i) the
greater of (x) the balance of the Base Compensation due to Executive for the
remainder of the Employment Term and (y) the product obtained by multiplying
Executive's then current monthly Base Compensation by six (6) (including in each
case, without limitation, accrued but unused vacation time), plus (ii) earned
but unpaid bonuses, plus (iii) any other payments due to Executive pursuant to
any Benefits. Executive will forfeit the unvested Options described in Section
2.2 above, and Executive will have not less than 90 days to exercise the vested
Qualified Options and not less than 120 days to exercise the vested Non-
Qualified Options.
5.2 Continuation of Benefits. In the event of any termination of this
------------------------
Agreement, except voluntary termination by Executive which is not for "Good
Reason" prior to January 11, 2001, for a period of two years from the date of
such termination the Company shall maintain full coverage for Executive and his
surviving spouse, if any, under all group medical and dental plans in which
Executive was entitled to participate immediately prior to the termination,
provided that his continued participation is possible under the general terms
and provisions of such plans. In the event that Executive's participation in
any such plan or program is barred, Company shall arrange to provide Executive
and such surviving spouse with benefits substantially similar to those which
they are entitled to receive under such plans. While Executive continues to
participate in any such plan or receive any such benefit, he shall continue to
pay employee premiums at the level of such premiums in force at the time of such
termination. Executive and Company hereby expressly acknowledge that all
eligibility periods under the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") shall run from the termination of this Agreement and provision of
benefits by the Company during the two year period following termination shall
not extend the period during which Executive can elect to participate under
COBRA.
5.3 Termination Upon Death. In the event of Executive's death, this
----------------------
Agreement will terminate upon the first day of the month following Executive's
date of death, and his surviving spouse, if any, shall be entitled to the
benefits described in Section 5.2 above and to all other benefits described in
this Agreement or otherwise available to Executive which may be payable or
available in the event of Executive's death. Any unvested
4
<PAGE>
Options described in Section 2.2 above shall be forfeited, and Executive's
surviving spouse or legal representative shall have not less than 90 days to
exercise the vested Qualified Options and not less than 120 days to exercise
vested Non-Qualified Options.
5.4 Termination Upon Total Disability. (a) Company may terminate this
---------------------------------
Agreement by reason of Executive's "Total Disability" upon at least 30 days'
written notice to Executive, in which event Company shall pay Executive the
amounts set forth in Section 5.1 above and, subject to the standards and
restrictions governing employee disabilities in general under the Company's
medical plans, Executive shall be entitled to the benefits set forth in Section
5.2 above. As used herein, "Total Disability" means illness or other physical
or mental disability of Executive which shall continue for a period aggregating
at least six months during any 12-month period, which such illness or disability
shall make it impossible or impracticable for Executive to substantially perform
his duties and responsibilities hereunder with whatever reasonable accommodation
may be required by applicable law. If a disagreement arises between Executive
and Company as to whether Executive is suffering from "Total Disability," as
defined herein, the question of Executive's disability shall be determined by a
physician designated by a majority of the Board of Directors.
(b) In the event of a termination of this Agreement by Company pursuant to
subparagraph (a) above, Executive will forfeit any right to unvested Options
described in Section 2.2 above, and Executive will be paid those benefits
provided by Company's disability insurance coverage as described on Exhibit 4.1.
Executive shall have not less than 90 days to exercise vested Qualified Options
and not less than 120 days to exercise vested Non-Qualified Options.
5.5 Constructive Termination by Company. As used herein, "constructive
-----------------------------------
termination" shall mean any one or more of the events constituting "Good Reason"
if not remedied by Company within 15 business days after receipt by Company of
written notice from Executive of such event of constructive termination.
Executive's continued employment with Company shall not constitute consent to,
or a waiver of rights with respect to, any circumstances constituting
constructive termination hereunder.
5.6 Termination by Company for Cause. Pursuant to the procedure set forth
--------------------------------
in the definition of "Cause" in Section 6.1 below, Company shall be entitled to
terminate Executive's employment for Cause, in which event Executive will no
longer be entitled to his Base Compensation, will forfeit the unvested Options
as described in Section 2.2 above, and, if such termination occurs before July
11, 1999, will forfeit the benefits described in Section 5.2 above.
Notwithstanding the foregoing, if Executive disputes such termination for Cause,
Executive may require the Company to resolve the dispute pursuant to the
procedure set forth in Article VII of this Agreement. As provided in Section
7.4 below, Executive's Base Compensation, the grant of Options described in
Section 2.2 above, and all Benefits to which Executive would otherwise be
entitled, including but not limited to group medical and dental coverage, shall
continue to be made currently available to Executive pending final resolution of
the dispute.
5
<PAGE>
Article VI. Definitions
-----------
For purposes of this Agreement and in addition to any other defined terms
herein, the following terms shall have the indicated meanings:
6.1 Cause. (a) "Cause" shall mean any act of dishonesty, commission of a
-----
felony, significant activities harmful to the reputation of the Company,
repeated refusal to perform or substantial disregard of duties properly assigned
by the Senior Vice President - Customer & Corporate Services or the Board of
Directors (following notice thereof to the Executive), or significant violation
of any statutory or common law duty of loyalty to the Company.
(b) Notwithstanding the foregoing and subject to the resolution of any
disputes pursuant to Articles V and VII, the Executive shall in no event be
deemed to have been terminated for Cause unless and until there shall have been
delivered to him a termination notice in the form of a copy of a resolution duly
adopted by the affirmative vote of not less than a majority of the entire
membership of the Board of Directors specifying the reason for such termination
at a meeting of such Board duly called and held.
6.2 Good Reason. "Good Reason" shall mean the occurrence of any of the
-----------
following events without Executive's express written consent:
(a) A substantial and adverse change in the Executive's duties,
control, authority, status or position, or the assignment to the Executive of
any duties or responsibilities which are inconsistent with such status or
position, or a reduction in the duties and responsibilities previously exercised
by the Executive, or a loss of title, loss of office, relocation of Executive's
office to a location more than 100 miles from Executive's original office with
Company, loss of significant authority, power or control, or any removal of him
from or any failure to reappoint or reelect him to such positions, except in
connection with the termination of his employment for "Cause" (as defined in
Section 6.1 (a)) or "Total Disability" (as defined in Section 5.4), or as a
result of his death;
(b) A reduction by Company for any reason in Executive's Base
Compensation or in the grants of Options described in section 2.2 above, or a
substantial and adverse change in Executive's Benefits; or
(c) Any material breach by Company of any provisions of this
Agreement.
6.3 Triggering Event. "Triggering Event" shall mean the termination by
----------------
Executive of Executive's employment hereunder after the occurrence of Good
Reason; or the actual or constructive termination of this Agreement by the
Company for any other reason other than:
(a) Executive's voluntary termination (except a voluntary termination
for "Good Reason" as defined in Section 6.2 above); or
6
<PAGE>
(b) Termination of employment in the event of Executive' s death
(under Section 5.3 above); or in the event of Executive's "Total Disability"
under Section 5.4 above; or
(c) Termination of employment for "Cause" as defined in Section 6.1
above.
Article VII. Arbitration and Mediation
-------------------------
7.1 Mediation. Any dispute arising hereunder between Executive and
---------
Company (including any dispute over whether Company has properly terminated
Executive for Cause) which cannot be resolved by them to their mutual
satisfaction within a period of fourteen days, unless mutually extended, shall
first be submitted to mediation in El Paso, Texas, to a mediator selected
pursuant to the rules of the American Arbitration Association ("AAA"). All
costs of mediation incurred by Executive will be paid by the Company.
7.2 Arbitration. If such mediation shall not result in an agreed
-----------
settlement between the parties, the dispute will be promptly submitted
to binding arbitration (conducted in El Paso, Texas, by a panel of
three arbitrators) in accordance with the rules of the AAA then in
effect. The results of such arbitration shall be binding and
conclusive upon the parties hereto, and judgment on the award may be
entered at the instance of either party in any court of competent
jurisdiction. The dispute resolution procedure set forth in this
Section 7.2 may be initiated by either party upon five business days
prior written notice to the other and after failure to resolve the
dispute after the expiration of the 14 day time period referred to in
Section 7.l.
7.3 Proceedings. Unless otherwise expressly agreed in writing by the
-----------
parties to the arbitration proceedings:
(a) The arbitration proceedings shall be conducted in accordance with
the Commercial Arbitration Rules of the AAA, as amended from time to time;
(b) Any procedural issues not determined under the arbitral rules
selected pursuant to item (a) above shall be determined by the law of the place
of arbitration, other than those laws which would refer the matter to another
jurisdiction;
(c) All costs of the arbitration proceedings incurred by Executive
(including the fees of attorneys and expert witnesses and all other costs) shall
be borne by the Company regardless of the outcome of the proceeding; and
(d) The decision of the arbitrators shall be reduced to writing; final
and binding without the right of appeal; the sole and exclusive remedy regarding
any claims, counterclaims, issues or accounting presented to the arbitrators;
made and promptly paid
7
<PAGE>
in United States dollars free of any deduction or offset; and any costs or fees
incident to enforcing the award shall, to the maximum extent permitted by law,
be charged against the party resisting such enforcement.
7.4 Continuation of Payments/Benefits. Until final resolution of any
---------------------------------
dispute between Company and Executive, the Company shall continue to pay to
Executive the Base Compensation under Section 2.1, and the Options shall
continue to vest in Executive pursuant to Section 2.2 above.
7.5 Acknowledgement of Parties. Each party acknowledges that he or
--------------------------
it has voluntarily and knowingly entered into an agreement to arbitration under
this Section by executing this Agreement.
Article VIII. Miscellaneous
-------------
8.1 Notices. Any notice, demand or request to be given hereunder to
-------
either party hereto shall be deemed given and effective only if in writing and
either (1) delivered personally to Executive or (in case of a notice to Company)
to the Secretary of the Company, or (2) sent by certified or registered mail,
postage prepaid, to the addresses set forth on the signature page hereof or to
such other address as either party may hereafter specify to the other by notice
similarly served.
8.2 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with the laws of the State of Texas.
8.3 Modification. No modification or waiver of any provision hereof
------------
shall be made unless it be in writing and signed by both of the parties hereto.
8.4 Scope of Agreement. This Agreement constitutes the whole of the
------------------
agreement between the parties on the subject matter, superseding all prior oral
and written conversations, negotiations, understandings, and agreements in
effect as of the date of this Agreement.
8.5 Indemnification. The Company shall provide Executive with the
---------------
same indemnification and insurance protection provided by Company from time to
time to all of its officers and directors, whether pursuant to that Indemnity
Agreement attached hereto as Exhibit 8.5 or otherwise.
8.6 Tax Payments, Withholdings and Reporting. Executive recognizes
----------------------------------------
that the payments and benefits provided under this Agreement may result in
taxable income to him which Company and its affiliates will report to the
appropriate taxing authorities. Company shall have the right to deduct from any
payment made under this Agreement to Executive, any federal, state, local or
foreign income, employment or other taxes it determines are required by law to
be withheld with respect to such payments or benefits
8
<PAGE>
provided thereunder or to require payment from Executive which he agrees to pay
upon demand, for the purpose of satisfying any such withholding requirement.
8.7 Separate Counsel. Executive acknowledges that he has been
----------------
advised by Company that before he signs this Agreement he should consult with an
attorney.
8.8 Successors and Assigns. The terms and provisions of this
----------------------
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
____________________, _______________.
EL PASO ELECTRIC COMPANY
123 W. Mills St.
El Paso, Texas 79901
By:
-------------------------
Authorized Officer
COMPANY
EARNEST A. LEHMAN
3517 SW Avalon Lane
Topeka, Kansas 66604-2503
----------------------------
EXECUTIVE
9
<PAGE>
EXHIBIT 4.1
SCHEDULE OF BENEFITS
FOR
EARNEST A. LEHMAN
. Participation in the El Paso Electric Company Retirement Income Plan, as
amended from time to time and other qualified plans covering executive
officers of the Company from time to time.
. All other insurance coverages, including without limitations, any disability,
life and accident coverage, extended to non-bargaining employees from time to
time.
. Annual physical coverage as previously structured for senior management of
the Company.
. Waiver of waiting periods for health insurance coverage for Executive and
Executive's family.
. Annual paid vacation of four (4) weeks per year or such greater vacation
benefits as may be provided generally to executive officers of the company.
. Personal use of cellular phone and related service.
. Car allowance of $250 per month.
. All other benefits to which executive officers of the company are entitled
from time to time.
EL PASO ELECTRIC COMPANY EARNEST A. LEHMAN
By:
--------------------- -----------------
Authorized Officer
COMPANY EXECUTIVE
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
El Paso Electric Company
Computation of Earnings Per Share
(In Thousands Except for Share Data)
Period From | Period From
February 12 | January 1
Year Ended December 31, to | to
------------------------ December 31, | February 11,
1998 1997 1996 | 1996
----------- ----------- ----------- | -----------
<S> <C> <C> <C> | <C>
Net income applicable to common stock: |
Income before extraordinary items............................. $ 42,366 $ 41,424 $ 31,431 | $ 118,198
Extraordinary gain on discharge of debt, net of income |
tax expense................................................. 3,343 - - | 264,273
Extraordinary loss on repurchases of debt, net of federal |
income tax benefit.......................................... - (2,775) - | -
----------- ----------- ------------ | ------------
Net income applicable to common stock....................... $ 45,709 $ 38,649 $ 31,431 | $ 382,471
=========== =========== =========== | ===========
|
Basic earnings per common share: |
Weighted average number of common shares |
outstanding................................................. 60,168,234 60,128,505 60,073,808 | 35,544,330
=========== =========== =========== | ===========
|
Net income per common share: |
Income before extraordinary items........................... $ 0.704 $ 0.689 $ 0.523 | $ 3.325
Extraordinary gain on discharge of debt, net of |
income tax expense........................................ 0.056 - - | 7.435
Extraordinary loss on repurchases of debt, net of |
federal income tax benefit................................ - (0.046) - | -
----------- ----------- ------------ | ------------
Net income................................................ $ 0.760 $ 0.643 $ 0.523 | $ 10.760
=========== =========== =========== | ===========
|
Diluted earnings per common share: |
Weighted average number of common shares |
outstanding................................................. 60,168,234 60,128,505 60,073,808 | 35,544,330
----------- ----------- ----------- | -----------
Effect of dilutive potential common stock options based on |
the treasury stock method using average market price: |
Quarter ended March 31.................................... 65,750 90,200 - | -
Quarter ended June 30..................................... 134,746 72,847 4,564 |
Quarter ended September 30................................ 114,476 55,103 16,826 | -
Quarter ended December 31................................. 119,783 74,936 17,599 | -
Effect of dilutive potential restricted common stock based |
on the treasury stock method using average market price: |
Quarter ended March 31.................................... 3,624 4,773 - | -
Quarter ended June 30..................................... 7,960 3,985 563 | -
Quarter ended September 30................................ 8,867 3,159 1,651 | -
Quarter ended December 31................................. 9,858 4,124 1,698 | -
----------- ----------- ----------- | ------------
Net effect of dilutive potential common stock............ 465,064 309,127 42,901 | -
----------- ----------- ----------- | ------------
Weighted average number of common shares and dilutive |
potential common shares outstanding......................... 60,633,298 60,437,632 60,116,709 | 35,544,330
=========== =========== =========== | ===========
|
Net income per common share: |
Income before extraordinary items........................... $ 0.699 $ 0.685 $ 0.523 | $ 3.325
Extraordinary gain on discharge of debt, net of |
income tax expense........................................ 0.055 - - | 7.435
Extraordinary loss on repurchases of debt, net of |
federal income tax benefit................................ - (0.046) - | -
----------- ----------- ------------ | ------------
Net income................................................ $ 0.754 $ 0.639 $ 0.523 | $ 10.760
=========== =========== =========== | ===========
</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 5,
1999, relating to the balance sheets of El Paso Electric Company as of December
31, 1998 and 1997 and the related statements of operations, comprehensive
operations, changes in common stock equity (deficit), and cash flows for the
years ended December 31, 1998 and 1997, the period February 12, 1996 to December
31, 1996, and the period January 1, 1996 to February 11, 1996, which report
appears in the December 31, 1998 annual report on the Form 10-K of El Paso
Electric Company.
KPMG LLP
El Paso, Texas
March 26, 1999
101
<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 1998 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 28, 1999.
IN WITNESS WHEREOF, I have hereunto set my hand and have affixed the seal
of the Company this 19th day March, 1999.
/s/ GUILLERMO SILVA, JR.
--------------------------
Guillermo Silva, Jr.
Secretary
(Corporate Seal)
<PAGE>
EL PASO ELECTRIC COMPANY
BOARD OF DIRECTORS
RESOLUTION
JANUARY 28, 1999
FURTHER RESOLVED, that James S. Haines, Jr., Eduardo A. Rodriguez,
Gary R. Hedrick, Terry 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, 1998 (the "1998 Form 10-K"), and in
any and all amendments thereto, and to file such 1998 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, 1998 AND THE RELATED
STATEMENTS OF INCOME AND CASH FLOWS FOR THE TWELVE MONTHS ENDED DECEMBER 31,
1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,454,536
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 338,318
<TOTAL-DEFERRED-CHARGES> 75,226
<OTHER-ASSETS> 23,139
<TOTAL-ASSETS> 1,891,219
<COMMON> 60,270
<CAPITAL-SURPLUS-PAID-IN> 240,714
<RETAINED-EARNINGS> 116,294
<TOTAL-COMMON-STOCKHOLDERS-EQ> 417,278
135,744
0
<LONG-TERM-DEBT-NET> 872,213
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 36,122
0
<CAPITAL-LEASE-OBLIGATIONS> 24,849
<LEASES-CURRENT> 27,695
<OTHER-ITEMS-CAPITAL-AND-LIAB> 377,318
<TOT-CAPITALIZATION-AND-LIAB> 1,891,219
<GROSS-OPERATING-REVENUE> 602,221
<INCOME-TAX-EXPENSE> 31,225
<OTHER-OPERATING-EXPENSES> 439,682
<TOTAL-OPERATING-EXPENSES> 470,907
<OPERATING-INCOME-LOSS> 131,314
<OTHER-INCOME-NET> 7,524
<INCOME-BEFORE-INTEREST-EXPEN> 138,838
<TOTAL-INTEREST-EXPENSE> 81,765
<NET-INCOME> 60,416<F1>
14,707
<EARNINGS-AVAILABLE-FOR-COMM> 45,709
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 74,398
<CASH-FLOW-OPERATIONS> 233,235
<EPS-PRIMARY> 0.760<F2>
<EPS-DILUTED> 0.754<F2>
<FN>
<F1>Net Income includes an extraordinary gain on discharge of debt (net of income
tax expense) of $3,343.
<F2>Primary and Fully Diluted Earnings Per Share are no longer being calculated.
The amounts shown represent Basic and Diluted Earnings per Share, respectively,
per SFAS No. 128.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99.31
BEFORE THE NEW MEXICO PUBLIC UTILITY COMMISSION
IN THE MATTER OF THE COMPLAINTS OF )
J. DERALD MORGAN AND JOE LUJAN )
AGAINST EL PASO ELECTRIC COMPANY )
AND THE INVESTIGATION OF EL PASO )
ELECTRIC COMPANY'S RATES, )
) Case No. 2722
EL PASO ELECTRIC COMPANY, )
)
Respondent. )
)
FINAL ORDER
THIS MATTER comes before the New Mexico Public Utility Commission ("NMPUC"
or "Commission") upon the Stipulation and Settlement Agreement ("Stipulation")
filed by El Paso Electric Company ("EPE"), the Large Power Users Coalition
("LPUC"), the Attorney General of the State of New Mexico ("Attorney General"),
the Department of Defense ("DOD") and Commission Advocacy Staff ("Staff") on
July 15, 1998, the statement in opposition filed July 20, 1998, by the City of
Las Cruces ("CLC"), the agreements in support of the Stipulation filed by Dona
Ana County on July 22, 1998 and Complainants J. Derald Morgan and Joe Lujan on
August 7, 1998, the non-objection filed by Plains Electric Generation and
Transmission Cooperative, Inc. ("Plains") on August 18, 1998, and the Hearing on
Stipulation conducted by the Commission on September 2, 1998. Having reviewed
the pleadings and the testimony presented at hearing, and being fully informed
of the premises, the Commission issues this Final Order.
<PAGE>
STATEMENT OF THE CASE
The Commission adopts the Statement of the Case set forth in the
Commission's Interim Order issued June 1, 1998. After the issuance of our
Interim Order, the Hearing Examiner set a procedural schedule to hear this
matter on the merits. During the course of that schedule, some of the parties
and Staff entered into settlement negotiations which culminated in the filing of
a Stipulation and Settlement Agreement by EPE, LPUC, the AG, DOD and Staff on
July 15, 1998. The Stipulation was opposed by the City of Las Cruces. On July
22, 1998, Dona Ana County ("County") filed an Agreement to Stipulation and
Settlement indicating its agreement to and acceptance of the Stipulation, even
though the County never formally intervened in this proceeding. The County's
filing was accompanied by Resolution No. 98-35 of the Board of County
Commissioners of the County, dated July 15, 1998. On August 7, 1998, Messrs.
Morgan and Lujan filed a statement in support of the Stipulation dated July 31,
1998. Plains filed its non-objection to the Stipulation on August 18, 1998.
Thereafter, the Commission revoked its appointment of the Hearing Examiner,
and set a procedural schedule for a hearing on the merits of the Stipulation.
Pursuant to the Commission's Procedural Order Regarding Stipulation issued July
23, 1998, the parties and Staff filed summary statements of pre-stipulation
positions and summaries of the Stipulation, together with pre-filed testimony
and legal positions regarding various issues raised by the Stipulation.
On September 2, 1998, the Commission presided at hearings on the
Stipulation. Prior to the commencement of the evidentiary portion of the
hearing, public comments in support of the Stipulation were presented by the
following: Mr. John Shaefer, Diana
2
Final Order
Case No. 2722
<PAGE>
Bustamante-Barrios, Lorenzo Dorado and Ruben Nunez of the Colonias Development
Council; Mayor Gilbert Bartlett and Trustee Joe Lewis of the Village of Hatch;
and Joseph Beedler of the Greater Las Cruces Chamber of Commerce. Other written
comments presented at the hearing are included in the transcript of proceedings.
Additionally, written comments supporting the Stipulation were filed with
the Commission by the following: the Greater Las Cruces Chamber of Commerce, the
Berino Mutual Domestic Water Consumers Association, the Desert Sands Mutual
Domestic Water Consumers Association, the Board of Trustees of the Town of
Mesilla (Resolution No. 98-09), members of the Board of Directors and of the
Staff of the Ben Archer Health Center (Hatch Facility), the patients of the Ben
Archer Health Center (Dona Ana/Hill facility), Lake Section Water Company, Las
Cruces Home Builders Association, the Board of County Commissioners of Sierra
County (Resolution No. 87-007), the Board of Directors of the Rincon Water Users
Cooperative, the Brazito Mutual Domestic Water Consumers Association, the Dona
Ana Mutual Domestic Water Consumers Association, and the New Mexico Farm and
Livestock Bureau.
During the evidentiary proceedings on September 2, 1998, the following
appearances were entered at hearing:
For EPE
David S. Cohen, Esq.;
For CLC:
Nann Houliston, Esq;
For LPCC:
Steven Michael, Esq.;
3
Final Order
Case No. 2722
<PAGE>
For Attorney General:
Charles Noble, Esq;
Department of Army
David A. McCormick, Esq.;
For Staff:
Maryanne Reilly, Esq.
The following witnesses testified at hearing in support of the Stipulation: Gary
R. Hedrick on behalf of EPE and, John E. Curl and Gary L. Brenner on behalf of
Staff. Testimony opposing the Stipulation was presented by Robert E. Pender on
behalf of CLC.
STIPULATION SUMMARY
For ease of reference, the Commission provides the following summarization
of the substance of the Stipulation. For the actual language agreed upon, the
record proper contains not only the Stipulation but each Signatory's summary
thereof.
The Stipulation contemplates a five million-dollar rate reduction,
beginning the first full billing cycle after September 30, 1998 or 30 days after
entry of a final order in this case. The Signatories have agreed to a
$3,295,000 reduction for the residential class, including a Low Income Rider
("LIR") under which $400,000 of that class reduction will be used to waive the
customer charge for customers eligible for food stamps. Stipulation, Paragraph
1. The Signatories have provided that in the event the LIR is determined to be
illegal, EPE will commit to fund an equal annual amount during the 30 month
Moratorium Period to an agreed upon social services agency in Dona Ana County.
Paragraph 18. The Military Research and Development ("MR&D") class would
4
Final Order
Case No. 2722
<PAGE>
receive a $500,000 rate reduction. Paragraph 1. All other rate classes would
get a $1,205,000 reduction, distributed pro rata. Id. In addition, EPE will
offer interruptible services comparable to those offered in Texas. EPE will be
allowed to enter into special rate contracts with individual customers (such as
that for Sara Lee Hosiery already approved by the Commission in NMPUC Case No.
2841), subject to approval by the Commission. In future rate cases, EPE will
have the burden of proving why revenue shortfalls from such rates should be
allocated to other customers. Id. If the Commission requires unbundling of
rates during the Moratorium Period, the Commission will set them in a manner so
as to recover the same revenues as provided in the Stipulation. Paragraph 17.
The rates set by the Stipulation will be fixed for a Moratorium Period of
30 months. Paragraph 2. EPE and the Signatories may file to modify tariffs,
riders and terms of existing rate schedules or add new tariffs or riders, so
long as there is no increase or reduction to the stipulated rates. Id. Unless
otherwise agreed to, the Signatories will not institute any proceedings
requesting a change in EPE's rates which would take effect before the end of the
Moratorium Period. If a non-signatory files a complaint to reduce rates, the
Signatories will support enforcement of the Stipulation. If the Commission
institutes an investigation or other proceeding that directly or indirectly
would review the reasonableness of EPE's rates and seek a change in those rates
during the Moratorium Period, the Signatories agree that EPE's rate base will
include the generating assets at the specified Original Cost Less Depreciation
values (less additional depreciation to date) rather than the revalued amounts
agreed to in the Stipulation. If the Commission reduces EPE's rates during the
Moratorium, the
5
Final Order
Case No. 2722
<PAGE>
agreement to permanently revalue EPE's assets will be void; however, EPE cannot
seek to retroactively recover any of the reduced revenues from the rate
reduction. The Signatories also support excluding EPE from any "legislatively
proposed rate decrease" during the Moratorium Period and support crediting the
five million-dollar rate decrease against any decrease the legislature in fact
mandates.
The revaluation provisions provide for permanent revaluation for
jurisdictional ratemaking purposes of Palo Verde Nuclear Generating Station
("PVNGS") downward and of other generation serving New Mexico upward. Paragraph
4. The plant will thereafter be depreciated on a straight-line basis over the
specified remaining lives of the plants. In the event that a retail competitive
market develops which would otherwise prevent full recovery or provide for over
recovery, EPE would be entitled to 100% recovery of its investment in the
revalued assets. Economic used and useful issues, plus prudence issues,
relating to EPE's existing generation investments as of the date of the
Stipulation, are also resolved. Paragraph 5. However, future plant investment
is subject to Commission review, and the Signatories have not waived any rights
to argue operational used and usefulness.
The Signatories' intent is to have the Stipulation preclude further
revaluations based on differences between the revalued asset values and market
or replacement costs or other economic used and useful theories and resolve all
issues relating to value of existing generation for ratemaking now and in the
future. Stipulation, para. 7. In the event of "legislative or administrative
restructuring," the Stipulation evidences the Signatories' support of EPE's
right to I 00% recovery and their opposition to any
6
Final Order
Case No. 2722
<PAGE>
restructuring that does not protect EPE's recovery per the Stipulation. Id. EPE
further agrees to support any reasonable legislative or administrative
restructuring.
Paragraph 9 essentially replaces the NMPUC Case No. 2009 Stipulation with
an agreement that PVNGS Unit 3 and related commons shall be excluded from cost
of service and rate base. It further provides for decertification and
abandonment of Unit 3; however, EPE would be permitted to provide capacity or
energy from Unit 3 to meet jurisdictional needs, with such capacity or energy
priced at the lowest equivalent firm capacity and energy available to EPE.
Similarly, any additional firm capacity or energy acquired by EPE would be
included in rates at the lowest market price available to EPE.
The prudence of EPE's PVNGS investment to date is permanently resolved by
the Stipulation, subject to permanent exclusion of Unit 3. Paragraph 10. EPE
reserves its right to seek inclusion in rates of Capital Betterments and
Improvements associated with EPE's investment in other generation.
Paragraph 11 terminates EPE's FPPCAC and PVNGS performance incentives
collected thereunder. EPE's pending request in NMPUC Case No. 2802 for a FPPCAC
of 24.5 mills will be reduced by 22% to 19.49 mills and rolled into base rates,
and fuel costs will be collected through base rates until retail generation
competition is implemented. EPE would be allowed to enter into fuel purchase
hedging transactions, but is required to give notice to the Commission and to
prove the reasonableness of hedging costs if they are to be included in rates
after the Moratorium Period. Paragraph 12 allows EPE to create a regulatory
asset in the amount of $6,991,000 to collect its current FPPCAC under-recovery
through a cost of service amortization over 60 months from the date of the final
order approving this Stipulation. Paragraph 13
7
Final Order
Case No. 2722
<PAGE>
provides that NMPUC Case No. 2802 will be dismissed and purchased power and fuel
practices will be deemed just and reasonable from January 1, 1997, through time
that current rates are replaced by Stipulation rates.
The Signatories agreed to a schedule of decommissioning costs to be allowed
in EPE's cost of service through 2025, subject to adjustments in future rate
cases to reflect the higher of NRC established decommissioning costs or ANPP
adopted costs. Paragraph 14. Subsequent to implementation of retail generation
competition, recovery of decommissioning costs shall be governed by applicable
law and regulation. EPE agrees to find such amounts pursuant to its contractual
obligations under the ANPP agreement. The Stipulation would also eliminate the
investment restrictions set in NMPUC Case No. 1833 and implement a "prudent
investor" standard.
EPE will file an agreed-upon proposed "Voluntary Renewable Energy Tariff,"
subject to Commission approval, which not require EPE to acquire renewable
resources before subscription by customers. Paragraph 15. In acquiring future
long-term capacity and energy, EPE shall give preference to New Mexico renewable
resources if priced comparably to non-renewable resources. Pricing for
renewable energy shall include in any premium the fixed cost of existing
revalued jurisdictional generation to the extent not recoverable from non-
jurisdictional customers, and EPE shall be allowed to market renewable energy
under tariff as a utility function within the utility. Paragraph 16.
EPE also commits to separate its transmission and distribution from other
aspects of its business, through divestiture or lease/purchase to independent
entity, consistent with the other investor owned electric utilities in the state
by the time that (a) all customers of investor-owned utilities have open access
to the transmission and
8
Final Order
Case No. 2722
<PAGE>
distribution systems; (b) all such customers may choose their power suppliers in
a competitive energy market; and (3) the investor-owned utilities either agree
or are required by law to divest or otherwise separate transmission and
distribution from other aspects of their businesses. Paragraph 16. In the event
of these prerequisites, EPE will have the discretion to decide which parts of
the business it retains, and that consummation of divestiture may depend upon
approvals of EPE's bondholders, shareholders and the Texas commission. If those
approval cannot be obtained, EPE will make reasonable efforts to divest,
lease/purchase or spin off assets to ensure transmission and distribution assets
are not connected with EPE's non-transmission and distribution assets.
DISCUSSION
The New Mexico Supreme Court has repeatedly recognized that the Commission
may accept resolution of disputes through stipulation among the parties to a
case and Staff. Attorney General v. Public Service Comm'n, 111 N.M. 636, 808
P.2d 606 (1991); New Mexico Indus. Energy Consumers v. New Mexico Pub. Serv.
Comm'n, 104 N.M. 565, 725 P.2d 244 (1986). The Commission appreciates the
diligent efforts of the parties in transforming a lengthy, contentious
proceeding into a cooperative resolution of complex disputes for the benefit of
ratepayers. The Commission also appreciates the thoughtful public comments it
has received in the course of these proceedings. The Commission must determine
whether the Stipulation, which is contested by the City of Las Cruces, resolves
the disputes in a way that is fair, just and reasonable and in the public
interest. See 111 N.M. at 640, 808 P.2d at 610. The parties must present the
Commission with sufficient evidence and legal argument to allow the Commission
to
9
Final Order
Case No. 2722
<PAGE>
approve a contested stipulation. NMPUC Rule 110.85(d). In determining whether a
stipulation which encompasses a change in rates should be approved, the
Commission specifically must meet its statutory obligations to fix just and
reasonable rates. See NMSA 1978, (S)62-8-7(D) (I 993).
The Commission has determined that the Stipulation, in most instances,
should be approved. We find that there is substantial evidence in the record to
support most of the provisions in the Stipulation. We also find that the City
of Las Cruces has not provided substantial evidence in the record of this
proceeding to conclude that the Stipulation generally is not fair, just and
reasonable and not in the public interest. However, in some instances the
Commission has determined that the Stipulation may be construed as an improper
attempt to bind future Commissions. We will discuss only those portions of the
Stipulation which we are not approving.
Low Income Rate Rider
First, the Signatories have agreed to commit $400,000 of the rate
reduction for residential customers to an LIR, to be used to waive the customer
charge for customers eligible for food stamps. Stipulation, Paragraph 1. The
Signatories have tacitly acknowledged that the proposed LIR tariff may be
legally deficient, because the Stipulation provides that in the event the LIR is
determined to be illegal, EPE will commit to fund an equal annual amount during
the 30 month Moratorium Period to an agreed upon social services agency in Dona
Ana County. Stipulation, Paragraph 18. The evidence in support of the LIR
attempts to circumvent the legal roadblock raised by Mountain States Legal
Foundation v. New Mexico State Corporation Commission, 101 N.M. 657, 687 P.2d 92
(1984), by providing testimony that the program is voluntary
10
Final Order
Case No. 2722
<PAGE>
and the funds would not otherwise be applied to further reduce residential
rates. EPE Exhibit 1, Testimony of Gary R. Hedrick, pages 11-12.
The Commission does not find that the Signatories have adequately answered
the Court's holding in Mountain States Legal Foundation that establishing a rate
program "Which differentiates between economically needy individuals who receive
the same service is unjustly discriminatory." 101 N.M. at 659, 687 P.2d at 94.
The proposed LIR asks the Commission to create a special, preferential rate for
a sub-group of the residential class of customers which the Signatories believe
to be deserving, in direct contravention of the Court's decision. Id. The
Commission lacks the authority to effect this social agenda through its rate
making process. Id. Therefore, we will not approve the proposed Low Income
Rider.
Staff's Authority to Lobby
Several of the provisions in the Stipulation relate to actions or positions
the Signatories will undertake in relation to the State Legislature and
legislative activities. For example, in Paragraph 2(e), the Signatories support
excluding EPE from any legislatively proposed rate decrease and support
legislation that provides a rate decrease credit against a legislative decrease.
Similar provisions requiring the Signatories to take specific positions relating
to legislative restructuring appear in Paragraph 7. The Staff of the Commission
has signed the Stipulation within its capacity to appear in proceedings before
the Commission. Attorney General v. Public Service Comm'n, supra; NMPUC Rule
110.85.
However, the duties conferred by the Commission upon its Staff are not
solely restricted to appearances in matters adjudicated before the Commission.
NMSA 1978,
11
Final Order
Case No. 2722
<PAGE>
Section 62-5-8 (I 993). Staff's autonomy does not extend to legislative policy
or other lobbying positions. Only the Commission may take such positions, which
we decline to do in this instance. The Commission disapproves all portions of
the Stipulation which commit Staff to take. or withhold from taking specific
actions or positions under the Stipulation with regard to the Legislature or
legislative activities.
Binding Effect on Future Commissions
At hearing and in pleadings filed in support of the Stipulation, the
parties have expressed their opinions regarding their intent (in some instances,
their hope) to have this Commission bind future Commissions through the approval
of the Stipulation. The Commission is expressly authorized to change past
practices or procedures in making determinations involving the rates or service
of utility, provided that substantial evidence on the record justifies its
decision. NMSA 1978, Section 62-6-14(C) (I 993); Cf Hobbs Gas Company v. Public
Service Comm'n, 115 N.M. 678, 858 P.2d 54 (1993). We can not and will not
approve any terms which attempt to restrict the Commission's lawful
jurisdiction, nor which seek to interfere with the Commission fulfilling its
obligations as required by law. Further, to the extent that the Signatories are
seeking protection from the Legislature or legislative activity through our
final approval of the Stipulation, we can not prospectively place the Commission
at odds with future legislative policy-making actions. Unless the Commission
explicitly provides otherwise, the approval of a stipulation does not constitute
Commission approval of or establish precedent regarding any principle or issue
in the proceeding. NMPUC Rule 110.87. We decline to so rule otherwise and
disapprove any agreed-to provisions by the Signatories which attempt to bind
future Commissions through our approval of this Stipulation.
12
Final Order
Case No. 2722
<PAGE>
THE COMMISSION FINDS AND CONCLUDES:
1. The foregoing Statement of the Case, Stipulation Summary, Discussion,
and all findings and conclusions contained therein, whether or not numbered or
designated as such, are incorporated herein as findings of fact and conclusions
of law.
2. EPE is a public utility as defined by NMSA 1978, Section 62-3-3(G)
(1993) and is subject to the jurisdiction of the Commission pursuant to the
Public Utility Act, NMSA 1978, Sections 62-1-1 et seq., (1993 and 1997).
-- ----
3. The Commission has jurisdiction over the parties to this case and the
subject matter thereof.
4. Reasonable, proper and adequate notice of this case has been given.
5. Certain parties and Staff filed a Stipulation in this case which
proposes to resolve all outstanding matters in this Docket, in accordance with
NMPUC Rule 110.85(a).
6. The City of Las Cruces timely filed its Statement in Opposition to the
Stipulation in accordance with NNTUC Rule 110.85(b).
7. A hearing on the Stipulation was conducted by the Commission pursuant
to NMSA 1978, Section 62-10-1 et seq. and NMPUC Rule 110.85 on September 2, 199,
and record of the hearing was made pursuant to NMSA 1978, Section 62-10-15.
8. The proponents of the Stipulation have met their burden of supporting
the Stipulation with sufficient evidence and legal argument to allow the
Commission to approve the Stipulation to the extent set forth in the Discussion
above.
13
Final Order
Case No. 2722
<PAGE>
9. Substantial evidence in the record as a whole supports the approval of
the Stipulation by the Commission, consistent with the findings and conclusions,
whether or not numbered, contained in this Order.
10. The City of Las Cruces did not present substantial evidence in the
record as a whole to refute a finding that the Stipulation is fair, just and
reasonable and in the public interest, as determined by the Commission in the
Discussion above.
11. It is in the public interest for the Commission to disapprove or
reserve its determinations on certain portions of the Stipulation as directed in
the Discussion above.
12. The Commission should approve the Stipulation, except where
inconsistent with this Order.
13. The proposed Low Income Rate Rider should not be approved, based on
the Commission's application of Mountain States Legal Foundation v. New Mexico
State Corporation Commission, 101 N.M. 657,687 P.2d 92 (1984).
14. EPE should be required to file rates consistent with this Order,
effective for the first available billing cycle no later than the November
billing cycle, which are consistent with the Stipulation and Proof of Revenue
Analysis attached thereto, subject to review by Staff and the Commission for
compliance with this Order.
15. The Commission's approval of this Stipulation as set forth in this
Order should not constitute Commission approval of or establish precedent
regarding any principle or issue in the proceeding.
16. The City of Las Cruces' Motion for Expedited Discovery filed on
September 10, 1998, is untimely and not well taken and should be denied.
14
Final Order
Case No. 2722
<PAGE>
17. EPE's pending fuel and purchased power clause case, docketed as NMPUC
Case No. 2802, should be dismissed pursuant to the Stipulation and this Order.
18. Staffs request for further investigation of EPE's rates pending in
NMPUC Case No. 2846 is rendered moot by this Order and should be dismissed
without prejudice.
IT IS THEREFORE ORDERED:
A. The findings, conclusions, decisions, rulings and determinations made
and contained herein, whether or not numbered, contained in the Discussion and
Findings and Conclusions above are adopted as the orders of the Commission.
B. The Stipulation is hereby approved, except where otherwise
inconsistent with this Order.
C. On or before September 30, 1998, EPE shall file an Advice Notice
containing the rates approved in this Order, subject to review by Staff and the
Commission for compliance with this Order, to be effective beginning with EPE's
next available billing cycle, and no later than its November billing cycle.
D. The proposed Low Income Rider is disapproved.
E. Approval of the Stipulation and Amendment to Stipulation does not
constitute Commission approval of or precedent regarding any principle or issue
in this proceeding.
F. The City of Las Cruces' Motion for Expedited Discovery is denied.
G. NMPUC Case Nos. 2802 and 2846 shall be dismissed in accordance with
the determinations contained in this Order.
15
Final Order
Case No. 2722
<PAGE>
H. Any outstanding matter not specifically ruled on is disposed of
consistent with this Order.
I. Copies of this Order shall be mailed to all persons listed on the
official service list for this case and for NMPUC Case Nos. 2802 and 2846.
J. This Order is effective immediately.
K. This Docket is closed.
ISSUED under the Seal of the Commission at Santa Fe, New Mexico, this 24th
day of September, 1998.
NEW MEXICO PUBLIC UTILITY COMMISSION
/s/ WAYNE SHIRLEY
---------------------------------------
WAYNE SHIRLEY, CHAIRMAN
/s/ BEATRIZ RIVERA
---------------------------------------
BEATRIZ RIVERA, COMMISSIONER
/s/ ROBERT M. SCHWARTZ
---------------------------------------
ROBERT M. SCHWARTZ, COMMISSONER
16
<PAGE>
BEFORE THE NEW MEXICO PUBLIC UTILITY COMMISSION
IN THE MATTER OF THE COMPLAINTS OF )
J. DERALD MORGAN AND JOE LUJAN )
AGAINST EL PASO ELECTRIC COMPANY )
AND THE INVESTIGATION OF EL PASO )
ELECTRIC COMPANY'S RATES, )
) Case No. 2722
EL PASO ELECTRIC COMPANY, )
)
Respondent. )
)
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing Final Order,
issued September 24, 1998, was mailed first-class mail, postage prepaid, to each
of the following:
David S. Cohen, Esq. Mr. Thomas L. Newsom
Cohen & Cohen., P.A. El Paso Electric Company
121 Sandoval Street, Suite 300 P.O. Box 982
Santa Fe, NM 87501-2140 El Paso, TX 79901
Mr. J. Derald Morgan Mr. Joe Lujan
2425 Janet Ann Lane 1200 Lujan-Hill Road
Las Cruces, NM 88005 Las Cruces, NM 88005
Charles F. Noble, Esq. Mr. Michael Dirineier
Assistant Attorney General Georgetown Consulting Group
P.O. Drawer 1508 456 Main Street
Santa Fe, NM 87504-1508 Ridgefield, CT 06877
Steven S. Michel, Esq. Mr. Ray Stanley
320 Galisteo Street, Suite 301 R.J. Stanley & Associates
Santa Fe, NM 87501 1750 N. Collins Blvd., Suite 209
Richardson, TX 75080-3625
Nann Houliston, Esq.
City of Las Cruces Mr. Jerry Trojan
Utility Counsel Assistant City Manager
P.O. Box 2248 P.O. Box 20000
Albuquerque, NM 87103 Las Cruces, NM 88004
<PAGE>
Peter Q. Nyce, Jr., Esq. Mr. I. David Rosenstein
General Attorney, Regulatory Law Office Lundberg, Marshall & Associates
U.S. Army Legal Services Agency P.O. Box 429349
Department of the Army Cincinnati, OH 45242-9349
901 N. Stuart St., Suite 713
Arlington, VA 22203-1837 Mr. Jeffrey D. Rudolph
Manager of Rates and Regulatory
Mr. John Schaefer Affairs
2605 South Espina Plains Electric Generation &
Las Cruces, NM 88005 Transmission
Cooperative, Inc.
Randy E. Lovato, Esq. P.O. Box 6551
Staff Counsel Albuquerque, NM 87197-6551
Plains Electric Generation &
Transmission Cooperative, Inc. Richard N. Carpenter, Esq.
P.O. Box 6551 Carpenter & Nixon, LLP
Albuquerque, NM 87197-6551 P.O. Box 1837
Santa Fe, NM 87504-1837
Mr. Joseph A. Biedron
President/CEO Thomas A. Figart, Esq.
Great Las Cruces Chamber of Commerce Assistant County Attorney
Post Office Drawer 519 County of Dona Ana
Las Cruces, NM 88004-0519 180 W. Amador
Las Cruces, NM 88001
and hand-delivered to:
Maryanne Reilly, Esq.
Staff Counsel
NMPUC
224 East Palace Avenue
Santa Fe, NM 87501
DATED this 24th day of September, 1998.
NEW MEXICO PUBLIC UTILITY COMMISSION
/s/ STACEY J. GOODWIN
--------------------------------------
Stacey J. Goodwin
Commission Counsel
2
Certificate of Service
Case No. 2722
<PAGE>
BEFORE THE NEW MEXICO PUBLIC UTILITY COMMISSION
IN THE MATTER OF THE COMPLAINTS OF )
J. DERALD MORGAN AND JOE LUJAN )
AGAINST EL PASO ELECTRIC COMPANY )
AND THE INVESTIGATION OF EL PASO )
ELECTRIC COMPANY'S RATES, )
)
EL PASO ELECTRIC COMPANY, )
)
Respondent. ) Case No. 2722
)
STIPULATION AND SETTLEMENT AGREEMENT
WHEREAS, on July 10, 1996, J. Derald Morgan and on August 9, 1996, Joe
Lujan filed complaints with the New Mexico Public Utility Commission ("NMPUC")
against El Paso Electric Company ("EPE" or "Company") ; and
WHEREAS, pursuant to the NMPUC's Order Docketing Formal Complaint
Proceeding, issued October 7, 1996, and subsequent Orders of the NMPUC, EPE made
its Compliance Filing in the above-styled and numbered proceeding on March 3,
1997; and
WHEREAS, on August 1, 1997, the NMPUC issued its Order requiring EPE to
make a Continuation Filing pursuant to NMPUC Rules 550.12 and 550.13 docketed as
NMPUC Case No. 2802; and
WHEREAS, on November 24, 1997, the NMPUC issued its Order Suspending Fuel
Clause in NMPUC Case No. 2802, under which the Company's existing Fuel and
<PAGE>
Purchased Power Cost Adjustment Clause ("FPPCAC") was to remain in effect until
further order of the NMPUC; and
WHEREAS, on January 30, 1998, the Company made its 1997 Fuel Reconciliation
and Palo Verde Performance Evaluation filing which was consolidated by the NMPUC
with NMPUC Case No. 2802; and
WHEREAS, on June 1, 1998, the NMPUC issued its Phase I Order in NMPUC Case
No. 2722 making Findings of Fact and Conclusions of Law by the NMPUC regarding
the effect and interpretation of the Stipulation and Final Order in NMPUC Case
No. 2009; and
WHEREAS, the Company filed its Notice of Appeal with the New Mexico Supreme
Court on the NMPUC's Phase I order which was docketed as Case No. 25,259; and
WHEREAS, the NMPUC Staff filed Staff's Petition for Investigation of Rates
on June 12, 1998, in NMPUC Case No. 2846; and
WHEREAS, the Signatories desire to resolve the above-referenced regulatory
matters and appeals on a comprehensive basis; and
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<PAGE>
WHEREAS, the Signatories' intent by entering into this Stipulation is to
serve the public interest because the Stipulation provides, based upon
revaluation of EPE's generating assets, for the immediate implementation of
lower rates for all customer classes that are just and reasonable for the
Company and its New Mexico customers, provides EPE rate certainty for thirty
months, provides for present and future benefits resulting from lower asset
values agreed to in this Stipulation, promotes the adequate and efficient
provision of electric service, provides a transition to electric restructuring
for EPE and its customers, provides power from renewable resources located in
New Mexico, eliminates EPE's fuel and purchase power cost adjustment clause and
is in accordance with applicable law; and
WHEREAS, it is the intent of the Signatories that in the event that retail
competition restructuring legislation is enacted by the New Mexico State
Legislature, the provisions of this Stipulation constitute a partial plan for
accommodating the Company's transition to competition; and
WHEREAS, resolution on a stipulated basis of the matters set forth herein
would conserve resources, avoid the uncertainties inherent in future litigation,
and reduce rate case expenses now and in the future;
NOW, THEREFORE, in consideration of the mutual agreements and covenants
herein contained, the parties (the "Signatories") to this Stipulation and
Settlement
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Agreement (the "Stipulation"), through their undersigned authorized
representatives, stipulate and agree as follows:
1. (a) The Company will implement a Five Million Dollar ($5,000,000)
annual base rate reduction effective pursuant to Paragraph 1. (b)
herein. NMPUC Case No. 2722 shall serve as the vehicle for
implementation and approval of the rate terms of this Stipulation, and
NMPUC Case No. 2846 shall be dismissed. Rate design for the revenue
decrease included in this Stipulation shall be implemented pursuant to
Paragraph 1.(c) below.
(b) The Signatories agree that the Company shall implement rates
consistent with this Stipulation effective with the first full billing
cycle occurring after September 30, 1998, or thirty (30) days after
entry of a final order in NMPUC Case No. 2722 approving this
Stipulation, whichever is later.
(c) Except as otherwise specifically provided in this subparagraph, the
Signatories agree that the rate design and cost allocation for EPE's
rate decrease shall remain consistent with the Company's current
tariffs.
(i) The Company's Residential Rate Schedule No. 01 shall receive a
Three Million Two Hundred Ninety-Five Thousand Dollar
($3,295,000) rate reduction. This reduction shall include Four
Hundred Thousand Dollars ($400,000) for the implementation of a
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Low Income Rider ("LIR"), similar to the LIR in place for Texas
customers. Low income customers who qualify for food stamps
under New Mexico law shall be eligible to receive a waiver of
the Company's customer charge. The remaining reduction shall be
applied to all residential customers. The Company shall use its
best efforts to inform its customers of the availability of the
LIR and will coordinate its implementation with the appropriate
New Mexico state agency. Within thirty (30) days after entry of
a final order approving this Stipulation, EPE shall file with
and obtain approval from the NMPUC or its successor
("Commission") of an LIR tariff.
(ii) The Company shall offer its New Mexico Military Research and
Development ("MR&D") customers an interruptible rate similar to
that offered its Texas military installation, as described in
Paragraph 1.(d)(i), and a reduction in the annual revenue
allocation associated with the Company's MR&D rate of Five
Hundred Thousand Dollars ($500,000).
(iii) All remaining rate classes not addressed in Paragraphs 1.(c)(i)
or 1.(c)(ii) shall receive a reduction of One Million Two
Hundred Five Thousand Dollars ($1,205,000), to be allocated to
the classes on a pro rata basis as shown on Exhibit 1 to this
Stipulation.
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(d) In addition to the rate reduction provided in Paragraph 1.(c) above,
the Company shall offer the following:
(i) The Company shall offer interruptible service to qualified
customers in New Mexico comparable to the interruptible service
offered by the Company to its Texas customers. Within thirty
(30) days after entry of a final order approving this
Stipulation, EPE shall file with and obtain approval from the
Commission for interruptible rate schedules consistent with this
Stipulation.
(ii) The Company shall be allowed to enter into mutually agreeable
special rate contracts with its nonresidential customers. Each
contract shall include a term of up to three (3) years or the
effective date of open access, whichever is later. This contract
term limitation shall not apply to the MR&D rate class. All
contracts executed pursuant to this provision shall be filed
with and approved by the Commission before they become
effective. This Stipulation and the Signatories' support for the
Stipulation is contingent upon the Commission's granting of the
Motion to Approve Load Retention Contract on an Expedited Basis
and Dismiss Complaint filed in NMPUC Case No. 2841 on or before
the date a final order approving this Stipulation is entered. In
any future rate proceeding to review the Company's rates
effective after the Moratorium Period (as described in Paragraph
2.(a)), EPE shall have the burden of
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proof to demonstrate why any revenue shortfall resulting from
special contracts should be allocated to other customers.
2. (a) Subject to the terms of this Stipulation, during the thirty (30)
months immediately following implementation of rates consistent with
this Stipulation (the "Moratorium Period") , the Company' s New Mexico
rates shall be fixed and will not increase or decrease. During the
Moratorium Period, the Company's rates shall be deemed to fully
recover its cost of service.
(b) During the Moratorium Period, and to the extent consistent with rates
established by the final order in NMPUC Case No. 2722, the Company and
Signatories may make filings, subject to Commission approval, that:
(i) modify tariffs, riders and terms and conditions of existing rate
schedules, or (ii) add new tariffs or riders, and terms and conditions
to address competitive conditions or secure additional load so long as
there is no increase or reduction to the rates reflected in the New
Mexico retail rate schedules charged any rate class and implemented
pursuant to this Stipulation. Miscellaneous tariff filings, such as
for incentive and load retention rates or special services, are not
subject to the rate moratorium, but are subject to Commission
approval. Nothing in this paragraph shall be construed as a
predetermination of the appropriate ratemaking treatment of any such
changes.
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(c) Except as otherwise provided in Paragraphs 2.(b) and 2.(f) herein,
neither the Company nor any successor in interest or assignee may
request from its New Mexico regulatory authorities or support an
increase in rates above the level established by the final order in
NMPUC Case No. 2722 which would take effect prior to the expiration of
the Moratorium Period.
(d) Except as otherwise provided in Paragraphs 2.(b) and 2.(f) herein, the
Signatories agree not to institute on their own motion or encourage or
condone another to seek or institute during the Moratorium Period any
proceeding requesting a change in the Company's rates which would take
effect prior to the end of the Moratorium Period. This provision does
not prohibit any party from filing a rate change request with the
Commission during the Moratorium Period which is not to take effect
until after the Moratorium Period. If a complaint is filed with the
Commission or any other New Mexico regulatory authority requesting an
inquiry into the reasonableness of the Company's rates, and the
Commission or any other regulatory authority institutes such an
inquiry, the Signatories commit to support the provisions of this
Stipulation. In the course of any such investigation or proceeding,
the Company shall be entitled to defend against a rate reduction in
any manner necessary and appropriate under the terms of this
Stipulation.
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(e) All Signatories understand and agree that it is the reasonable
expectation and intention of the Signatories that during the
Moratorium Period the Company's rates will not be changed regardless
of any circumstances that could otherwise increase or decrease rates.
By entering into and executing this Stipulation, the Signatories
express their support for:
(i) Excluding EPE from any legislatively proposed rate decrease
effective during the Moratorium Period; and
(ii) The legislature providing credit for the rate decrease in this
Stipulation against any decrease provided for by the legislature
during the Moratorium Period.
The Signatories understand and agree that the support referred to
herein is limited to support prior to legislative enactment and no
Signatory is obligated to violate or actively oppose the terms of
enacted legislation as a result of this Stipulation.
(f) The Signatories agree that in the event any Commission investigation
or other Commission proceeding is instituted during the Moratorium
Period, directly or indirectly, both to review the reasonableness of
the Company's rates and to seek a change in those rates that would
become effective prior to the expiration of the Moratorium Period, the
Company's rate base
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shall include, for determination in that case, instead of the revalued
assets otherwise agreed to in this Stipulation, the original cost less
depreciation ("OCLD") asset values depicted on Exhibit 2 less the
additional applicable straight-line depreciation accumulated for those
assets. If in such a proceeding the Commission does not order a rate
change effective prior to the termination of the Moratorium Period,
then the revalued asset values, as contained in this Stipulation,
shall be employed for rate making purposes. If the Company's rates are
reduced by the Commission effective at any time prior to the end of
the Moratorium Period, then the Signatories agree that the Company's
agreement to the revaluation of these assets is void and the asset
values will revert to their OCLD values for the remainder of the
Moratorium Period, after which this Stipulation shall no longer govern
the Company's generation asset values. The Company agrees that it
cannot seek retroactive recovery of any portion of the reduced
revenues resulting from the rate decrease provided for in Paragraph
1.(a) of this Stipulation.
3. The Company has given valuable consideration and assumed substantial
business risks in exchange for the expectation and assurances contained in
this Stipulation that its rates will not be reduced during the Moratorium
Period.
4. The Signatories agree that the Company shall, within thirty (30) days after
a final order approving this Stipulation, for New Mexico jurisdictional
ratemaking
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purposes only, and subject to Paragraph 2.(f) , permanently revalue its
investment in its existing generating assets dedicated to New Mexico public
service as detailed on Exhibit 2. The revalued plant investment shall be
depreciated on a straight-line basis over the applicable remaining useful
life of each asset in order to reflect the Signatories' intent and
agreement and the Company's reasonable expectation by means of this
Stipulation, to recover its remaining investment in those assets over the
assets' useful lives. In the event that a retail competitive generation
market develops in New Mexico which otherwise prevents full recovery, or
would provide for over-recovery, over the remaining useful lives of those
assets listed in Exhibit 2, the Signatories agree that EPE shall be
entitled to receive 100% recovery, no more and no less, of the remaining
undepreciated balance of its revalued generating assets as determined or
projected by the Commission or as otherwise required by applicable law or
regulation. In the event of over-recovery, EPE agrees that ratepayers are
entitled to receive the benefits of any recovery above the revalued
jurisdictional generation investment, net of applicable depreciation. The
Signatories acknowledge and agree that this revaluation of EPE's New Mexico
jurisdictional assets represents a significant reduction from the New
Mexico jurisdictional OCLD value of these assets and represents a
significant regulatory write-off of strandable costs. Subject to Paragraph
2.(f) , EPE agrees to forbear and relinquish any of its rights to seek cost
of service ratemaking treatment of this revaluation write-down now or in
the future. The Signatories agree to forbear and relinquish any and all of
their rights to seek any further revaluation of these
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assets for any reason including changed circumstances. The Signatories
further acknowledge and agree that the revaluation of EPE's assets on a New
Mexico jurisdictional basis is intended to irrevocably establish EPE's
right to 100% recovery of its revalued investment in existing generating
assets, net of applicable depreciation, as detailed in Exhibit 2, now and
in the future, notwithstanding any future differences between the revalued
assets and the replacement costs of the assets, the market price of the
assets or any other valuation methodologies or economic used and useful
arguments or theories.
5. The Signatories agree that all economic used and useful and prudence issues
related to EPE's existing generation investments as of the date of this
Stipulation, consistent with Paragraph 7 herein, are hereby settled.
Future investments in generation shall be subject to Commission review
consistent with Commission rules, precedent and applicable law. The
Signatories do not agree pursuant to this Stipulation to waive any rights
to argue operational used and usefulness consistent with Commission rules,
precedent and applicable law.
6. Nothing contained in this Stipulation shall have any precedential effect on
any party in any state or federal proceeding related to any attempt to
acquire the distribution assets of EPE. This Stipulation is not intended
in any way to effect or otherwise impact any party's rights or abilities in
the previously filed and currently pending stranded cost case brought in
Docket No. SC97-2-000 before the
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<PAGE>
Federal Energy Regulatory Commission or in any existing or future
condemnation lawsuit instituted concerning EPE's distribution property.
7. The Signatories agree that the revaluation satisfies and settles any and
all issues related to the value of EPE's existing generating assets for New
Mexico jurisdictional ratemaking purposes now and in the future. In the
event of legislative or administrative restructuring in New Mexico, the
Stipulation herein evidences the Signatories' support for protection of
EPE's right to 100% recovery of EPE's revalued investment in generating
assets, net of applicable depreciation, as detailed on Exhibit 2, and their
opposition to any legislative or administrative restructuring which does
not protect EPE's recovery agreed to under this Stipulation. EPE agrees to
support any legislative or administrative restructuring which EPE believes
will result in a reasonable restructuring of the retail electric market in
New Mexico.
8. Subject to the rate moratorium provisions of this Stipulation, the
Signatories agree that EPE shall maintain an appropriate capacity reserve
margin and that EPE shall be allowed to recover in rates the prudently
incurred costs of that appropriate reserve margin capacity. During the
Moratorium Period, EPE shall be deemed to have recovered all its reserve
margin capacity costs through the rates set by this Stipulation.
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<PAGE>
9. A final order approving this Stipulation shall supersede the NMPUC Case No.
2009 Stipulation and Final order and that Stipulation and Final Order shall
be of no further force and effect. EPE shall, within five (5) days of a
non-appealable Commission final order approving this Stipulation, move to
withdraw its appeal to the New Mexico Supreme Court in Case No. 25,259, of
the NMPUC Phase I Order entered by the Commission in this proceeding on
June 1, 1998. The Signatories agree that Palo Verde Unit No. 3 and one-
third of the related Common Facilities and any other costs associated with
Unit No. 3, shall continue to be excluded from EPE's cost of service and/or
rate base or for any other cost of service purpose during the remaining
life of that generating plant, and that Palo Verde Unit No. 3 shall be
decertified and EPE's investment in Palo Verde Unit No. 3 shall be
abandoned. Provided, however, EPE in its discretion may use Palo Verde
Unit No. 3 to provide capacity or energy needed to serve EPE's New Mexico
customers, including reserve margins as provided in Paragraph 7, and to the
extent Palo Verde Unit No. 3 is so used, such firm capacity and energy
shall be valued at the market price for the lowest equivalent firm capacity
and related energy available to EPE. In such event, EPE shall be allowed
to recover the equivalent market price for firm capacity and related energy
in base rates as a purchase power expense. Such use of Palo Verde Unit 3
in no way commits any party to its continuing use, nor does such use
preclude EPE from entering into any agreement or contract which otherwise
makes the capacity and energy related to Palo Verde Unit 3 unavailable to
EPE's New Mexico jurisdictional customers. Subject to Paragraph 14 of this
Stipulation, the
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Signatories further agree that any additional firm capacity or energy
acquired by EPE to serve New Mexico customers, if not provided by Palo
Verde Unit No. 3, shall be included in EPE's rates at the lowest market
price available to EPE. To the extent any such additional firm capacity or
energy is obtained during the Moratorium Period, EPE's rates as established
by this Stipulation shall be deemed to have recovered the cost of such firm
capacity and energy.
10. The Signatories agree that, subject to the provision of this Stipulation
which permanently excludes Palo Verde Unit No. 3 from rate base and
authorizes the abandonment of EPE's investment in Palo Verde Unit 3, the
prudence of EPE's Palo Verde investment to the date of this Stipulation is
permanently resolved and can no longer be the basis for rate disallowance
or penalties except as reflected by the agreement excluding Palo Verde Unit
No. 3. The Signatories recognize that there are likely to be Capital
Betterments and Improvements ("CBI") associated with EPE's investment in
generation assets. Except for CBI's associated with plant that is excluded
from rate base and abandoned pursuant to this Stipulation, EPE preserves
its right to request, and the Signatories preserve their right to oppose,
that CBI's associated with generating plant be allowed into rate base
consistent with New Mexico law.
11. The Signatories agree that EPE's FPPCAC approved in NMPUC Case No. 1833,
and the performance standards contained therein, shall become inapplicable
for all future ratemaking purposes. EPE agrees to cancel and eliminate its
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FPPCAC. Prior to the implementation of retail generation competition in
New Mexico, EPE's fuel and purchased power costs shall be collected
exclusively as part of the Company's base rates. Subsequent to the
implementation of retail generation competition in New Mexico, recovery of
such costs shall be governed by applicable law and regulation. For
purposes of rates established by this Stipulation, and subject to Paragraph
11, EPE shall reduce its currently proposed FPPCAC of 24.5 mills, requested
in NMPUC Case No. 2802, by 22% and EPE's existing New Mexico composite
FPPCAC factor of 19.49 mills shall be rolled into the base rates
established by this Stipulation and allocated to each customer class as
shown in Exhibit 4. The Signatories agree that EPE shall be authorized by
the Commission in the final order approving the Stipulation to enter into
fuel purchase hedging transactions in order to limit the financial risk to
EPE of eliminating its FPPCAC. In the event EPE enters into any hedging
transactions, EPE shall file notice of the transaction with the Commission
and the Signatories with an affidavit from a duly authorized officer
attesting that the transaction complies with the statutory requirements of
the New Mexico Public Utility Act or its successor. In any proceeding to
review EPE's rates that would become effective after the Moratorium Period,
EPE shall have the burden of proof to affirmatively establish the
reasonableness of any costs associated with such hedging transactions
before they are included in rates.
12. The Signatories further acknowledge and agree that EPE is entitled
to fully collect from its New Mexico jurisdictional customers the
remaining
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undercollection resulting from its existing FPPCAC, estimated to be Six
Million Nine Hundred Ninety-one Thousand Dollars ($6,991,000) as of
September 30, 1998. EPE shall be allowed to create a regulatory asset in
that amount which shall be included in its cost of service and EPE shall
amortize the remaining balance over a sixty (60) month period from the date
of a final order approving this Stipulation. It is expressly recognized
that a revenue stream equal to a sixty (60) month amortization, with return
at EPE's actual debt cost, is allocated to the recovery of this asset and
includable in any subsequent cost of service calculation. In the event any
future rate proceeding is docketed within this sixty (60) month period, EPE
shall be entitled to collect any remaining unamortized balance of this
regulatory asset in its rates.
13. NMPUC Case No. 2802 shall be dismissed upon entry of a final order
approving this Stipulation and EPE's purchased power and fuel costs and
purchasing practices for the period of January 1, 1997 to the end of the
month preceding the month of the implementation of rates pursuant to
Paragraph 1.(b) are deemed to have been just and reasonable.
14. The Signatories agree that the amounts of decommissioning expense allowed
on an annual basis in the Company's cost of service shall be as described
in Exhibit 3. Prior to the implementation of retail generation competition
in New Mexico, such amounts shall be adjusted in any future rate proceeding
or earnings monitoring report as necessary to reflect the higher of the
then current
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Nuclear Regulatory Commission or any successor agency ("NRC") established
decommissioning cost for Palo Verde, exclusive of Palo Verde Unit 3 and
related Common Facilities, or the most recent decommissioning study adopted
by the Palo Verde Participants, if such costs are approved by the
Commission, and to enable the Company to secure an exemption pursuant to
(S)468A of the Internal Revenue Code of 1986 from federal income tax
liability in connection with its nuclear decommissioning trusts. Subsequent
to the implementation of retail generation competition in New Mexico,
recovery of such costs shall be governed by applicable law and regulation.
The Company agrees to fund such amounts pursuant to its contractual
obligations under the Arizona Nuclear Power Project Participation
Agreement. In no event will such funding be below the minimum amounts
established by the NRC. Such decommissioning expense shall be recognized as
a reasonable and necessary expense in any rate proceeding or earnings
monitoring report initiated during the Moratorium Period and, during such
period, no Signatory shall contest the inclusion of such amounts in the
Company's cost of service. The decommissioning investment restrictions
established in NMPUC Case No. 1833 are hereby rescinded. With respect to
investment limitations, the Decommissioning Fund's Investment Manager must
exercise the standard of care, whether in investing or otherwise, that a
prudent investor would use in the same circumstances. The term "prudent
investor" means a prudent investor as described in RESTATEMENT (THIRD) OF
TRUSTS (S)227 (1992).
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15. (a) Within sixty (60) days after a final order approving this Stipulation,
EPE shall, in cooperation with Staff and other interested persons,
file a "Voluntary Renewable Energy Tariff," subject to Commission
approval, establishing among other items, procedures for determining
pricing and availability of capacity or energy from renewable
resources. The tariff shall include options for wind power only,
solar power only, geothermal power only, and a blend of renewable
resources. Preference shall be given to New Mexico resources.
Provided, however, nothing herein shall require EPE to acquire
resources prior to the subscription by customers of any available
resource. For purposes of the Stipulation and the tariff to be filed
by EPE, renewable energy resources shall be defined as solar, wind and
geothermal, but shall exclude hydropower. Pricing for renewable
energy shall include in any premium the fixed cost of existing
revalued jurisdictional generation to the extent not otherwise
recoverable from nonjurisdictional customers. EPE shall be allowed to
market renewable energy under the tariff within the utility as a
utility function. Nothing contained herein shall be construed as a
prior determination by any Signatory as to the prudency or
reasonableness of the marketing costs incurred by EPE.
(b) In acquiring future long term capacity and energy to meet its
jurisdictional customer's load requirements, EPE shall prefer the
acquisition of capacity and energy from renewable resources within New
Mexico if that capacity
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and energy is comparably priced on a net levelized capacity cost basis
for equivalent non-renewable resource capacity. Nothing contained
herein shall limit the ability of EPE to purchase capacity or energy
from renewable resources at comparable prices for the equivalent
capacity or energy from non-renewable resources as part of EPE's
capacity and energy procurement obligations for its jurisdictional
customers.
16. EPE commits to separate its transmission and distribution assets and
operations from all other EPE entities involved in non-transmission and
non-distribution aspects of the utility business, either through
divestiture or lease/purchase to an independent entity, in a manner
consistent with other investor owned utilities doing business in New
Mexico, by the time that: (a) all customers of all such investor owned
public utilities doing business in New Mexico have open access to the
transmission and distribution systems of such entities, and, (b) all such
customers may choose their source of electric power suppliers in a
competitive energy market, and (c) all investor owned public utilities, not
having entered into a commitment to separate assets when other utilities
have committed to separate their assets, as of the date of a final order
approving this Stipulation, agree or are required by law to divest, or
separate by lease/purchase to an independent entity, such assets from their
non-transmission and non-distribution assets. EPE shall have the sole
discretion as to which segment of its business to retain so long as there
is separation of the regulated and non-regulated business functions. The
Signatories acknowledge that in such an event, EPE may be
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required to seek the approval of its shareholders and bondholders, and the
Public Utility Commission of Texas (the "PUCT") to undertake such
divestiture and that the ability to consummate such divestiture, and the
terms and conditions and timing of such divestiture, may be subject to
approval by its shareholders and bondholders and the PUCT. In the event EPE
is not able to obtain a required approval of its shareholders, bondholders
or the PUCT, or is unable to obtain such approval at the time of the
foregoing required divestiture in New Mexico, EPE shall make reasonable
efforts to divest, lease/purchase or spin-off assets such that the New
Mexico transmission and distribution assets are not directly or indirectly
connected with any non-transmission and non-distribution assets of EPE.
17. The Signatories agree that if during the Moratorium Period the Commission
orders the unbundling of rates to accomplish the separation of assets as
described in Paragraph 15 above, the components of the rates to the
Company' s customers will be set at levels which will collect neither more
nor less than the rates established pursuant to this Stipulation
notwithstanding the unbundling.
18. The Signatories agree that they will use their best efforts to obtain
expeditious implementation of this Stipulation by the entry of appropriate
final orders in NMPUC Case Nos. 2722, 2802, 2846, and, if necessary, 2841.
This Stipulation assumes the legality and enforceability of the rates,
methodologies, and agreements set forth in this Stipulation. Should any
rate, methodology, or
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agreement set forth in this Stipulation be rejected, modified or is
directly or indirectly rendered inoperable by either the Commission, a
court, or by an act of the New Mexico legislature, any Signatory who is a
party to Case No. 2722 shall have the right to withdraw from this
Stipulation and declare this Stipulation void. However, the Signatories
agree to negotiate in good faith to substitute a rate, methodology, or
agreement with the same economic effect as that rejected, modified or is
directly or indirectly rendered inoperable by the Commission, a Court, or
the New Mexico Legislature. In the event that the Stipulation is not
approved in its entirety by the Commission, this Stipulation shall be
voidable by any Signatory who is a party to NMPUC Case No. 2722. However,
the Signatories agree that in the event that the LIR is determined to be
illegal, EPE will commit to fund an equal annual amount over the Moratorium
Period to a social services agency in Dona Ana County acceptable to the
Signatories.
19. It is recognized and agreed by the Signatories that this Stipulation is
made and filed solely in connection with the compromise and settlement of
rate matters related to the Company and is subject to the specific approval
of the Commission of the matters herein stipulated. It is the result of a
unique fact situation, and its resolution is special to the circumstances
presented. This Stipulation shall not prejudice, bind, or affect any
Signatory, or be viewed as an admission, except to the extent necessary to
give effect to or enforce the terms of this Stipulation or unless otherwise
specifically stated herein. In the event this Stipulation is not approved
by the Commission and implemented, nothing in the Stipulation or
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negotiations leading up to its execution shall be construed as an admission
of a Signatory's position on any issue and shall not be used or offered
into evidence in this or any other proceeding.
20. Other Signatories may agree to the terms of this Stipulation through the
execution of a separate signature page.
DATED this 15th day of July, 1998.
/s/ GARY R. HEDRICK /s/ DAVID A. MCCORMICK
- ------------------------------- ---------------------------------
EL PASO ELECTRIC COMPANY DEPARTMENT OF DEFENSE
/s/ CHARLES F. NOBLE /s/ MARYANNE REILLY, ESQ.
- ------------------------------- ---------------------------------
ATTORNEY GENERAL COMMISSION STAFF
/s/ STEVEN S. MICHEL
- -------------------------------
LARGE POWER USERS COALITION
(LPUC) / NEW MEXICO INDUSTRIAL
ENERGY CONSUMERS (NMIEC)
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BEFORE THE NEW MEXICO PUBLIC UTILITY COMMISSION
IN THE MATTER OF THE COMPLAINTS OF )
J. DERALD MORGAN AND JOE LUJAN )
AGAINST EL PASO ELECTRIC COMPANY )
AND THE INVESTIGATION OF EL PASO )
ELECTRIC COMPANY'S RATES, )
)
EL PASO ELECTRIC COMPANY, )
)
Respondent. ) Case No. 2722
)
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on July 15, 1998 a true and correct copy of the
foregoing Stipulation and Settlement Agreement was mailed first class, postage
prepaid, or hand delivered as indicated, or faxed as indicated, to each of the
following:
David S. Cohen Mr. Thomas L. Newsom
Cohen & Cohen, P.A. El Paso Electric Company
121 Sandoval, Suite 300 123 W. Mills
Santa Fe, NM 87501 El Paso, TX 79901
Mr. J. Derald Morgan Mr. Joe Lujan
2426 Janet Ann Lane 1200 Lujan-Hill Road
Las Cruces NM 88005 Las Cruces, NM 88005
Charles F. Noble, Esq. Mr. Robert J. Henkes
Assistant Attorney General Georgetown Consulting Group
P.O. Drawer 1508 456 Main Street
Santa Fe, NM 87504-1508 Ridgefield, CT 06877
Steven S. Michel Mr. Ray Stanley
320 Galisteo Street, R.J. Stanley & Associates
Suite 301 1750 N. Collins Blvd., Suite 209
Santa Fe, NM 87501 Richardson, TX 75080-3625
<PAGE>
Nann Houliston, Esq. Mr. Jeffrey D. Rudolph
City of Las Cruces Manager of Rates and
Utility Counsel Regulatory Affairs
P.O. Box 2248 Plains Electric Generation
Albuquerque, NM 87103 & Transmission Cooperative
P.O. Box 6551
Albuquerque, NM 87197-6551
Peter Q. Nyce Jr. Esq. Mr. Jerry Trojan
General Attorney Assistant City Manager
Regulatory Law Office P.O. Box 20000
U.S. Army Legal Services Agency Las Cruces, NM 88004
Department of the Army
901 N. Stuart St., Suite 713
Arlington, VA 22203-1837
Richard N. Carpenter
Carpenter & Nixon
Randy E. Lovato, Esq. P.O. Box 1837
Staff Counsel Santa Fe, NM 87504-1837
Plains Electric Generation
& Transmission Cooperative Charles Johnson
P.O. Box 6551 1338 Foothill Drive #234
Albuquerque, NM 87197-6551 Salt Lake City, UT 84018
David A. McCormick Mr. I. David Rosenstein
Department of the Army Lundberg Marshall & Associate
U.S. Army Legal Services Agency P.O. Box 429349
901 N. Stuart Street Cincinnati, OH 45242-9349
Arlington, VA 22203-1837
HAND DELIVERY HAND DELIVERY
Michael Barlow Maryanne Reilly, Esq.
Hearing Examiner Steve Hattenbach, Esq.
NMPUC NMPUC
224 East Palace 224 East Palace Ave.
Santa Fe, NM 87501 Santa Fe, NM 87501
HAND DELIVERY
John Curl
NMPUC
224 East Palace Ave.
Santa Fe, NM 87501
-2-
<PAGE>
Respectfully submitted,
COHEN & COHEN, P.A.
/s/ RANDALL W. CHILDRESS
------------------------------
David S. Cohen
Jane C. Cohen
Randall W. Childress
121 Sandoval, Suite 300
Santa Fe, NM 87501
(505) 983-9277
(505) 986-9663 [fax]
ATTORNEYS FOR EL PASO
ELECTRIC COMPANY
<PAGE>
New Mexico Jurisdictional Base Revenues Exhibit 1
Twelve Months Ended May 1998
Rate Current Base Dollar Adjusted
Schedule Revenues Reduction Base Revenues
- -------- ------------ ------------ -------------
01 Residential $ 32,950,971 $ 3,295,097 $ 29,655,874
02 Water Heating 1,764,575 56,084 1,708,491
03 Small Commercial 9,602,033 305,185 9,296,848
04 General Service 8,252,719 262,299 7,990,420
05 Irrigation Service 1,240,616 39,431 1,201,185
07 City/County 3,604,270 114,556 3,489,714
08 Municipal Pumping 1,110,767 35,304 1,075,463
09 Large Power 8,837,969 280,901 8,557,068
10 M, R&D 8,521,830 500,000 8,021,830
11 Municipal Lighting 459,054 14,590 444,464
12 Private Area Lighting 562,353 17,873 544,480
14 Subdivision Lighting 2,018 64 1,954
19 Seasonal Agriculture 308,167 9,795 298,372
25 Recreational Lighting 35,867 1,140 34,727
26 NMSU 2,129,457 67,681 2,061,776
------------ ------------ ------------
Total Base Revenues $ 79,382,666 $ 5,000,000 $ 74,382,666
============ ============ ============
<PAGE>
Exhibit 2
Revaluation Of Generation Assets
<TABLE>
<CAPTION>
Average Years
($000) ($000) ($000) Of Remaining
OCLD Dollars Per Revaluation Revalued Basis Dollars Per Service Life
Description mW (b) 9/30/96 Installed kW Adjustment 9/30/96 Installed kW 9/30/96
- ----------- ----- ------- ------------ ---------- --------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Nuclear:
- -------
PVNGS Unit 1 200 $ 347,194 $ 1,735.97 $ (174,055) $ 173,139 $ 865.70 28.67
PVNGS Unit 2 200 431,711 2,158.56 (216,426) 215,285 1,076.43 29.58
---- --------- ---------- ----------- --------- ----------
Total Nuclear (a) 400 778,905 1,947.26 (390,481) 388,424 971.06
Non-Nuclear:
- -----------
Newman 482 46,192 95.83 28,237 74,429 154.42 21.65
Rio Grande 246 10,030 40.77 1,642 11,672 47.45 18.55
Copper 68 14,415 211.99 1,858 16,273 239.31 10.95
Four Corners 104 36,178 347.87 68,138 104,316 1,003.04 13.05
---- --------- ---------- ----------- --------- -----------
Total Non-Nuclear 900 106,815 118.68 99,875 206,690 229.66
---- --------- ---------- ----------- --------- -----------
Total Generation - NM Basis 1300 $ 885,720 $ 681.32 $ (290,606) $ 595,114 $ 457.78
==== ========= ========== =========== ========= ===========
</TABLE>
The rate base effect of the net write down in plant values as of September 30,
1996, reflecting values established at February 12, 1996 upon emergence from
bankruptcy, is offset by deferred federal income taxes of $101,712 (in
thousands) reflecting EPE's intention of avoiding a normalization violation of
the U.S. Internal Revenue Code. The Signatories have accepted the ADFIT
adjustment in this particular case without precedent as part of the settlement
in this case.
Notes:
(a) Including asociated common facilities
(b) Nominal name plate rating
<PAGE>
EL PASO ELECTRIC COMPANY EXHIBIT 3
NEW MEXICO CASE NO. 2722 COMPLIANCE FILING
PROOF OF REVENUE ANALYSIS
FOR THE MONTH ENDED MAY, 1998
<TABLE>
<CAPTION>
--------------------------------------------------------
VOLTAGE UNIT RATES
RATE ADJUSTED INCLUDING
LINE DESCRIPTION DESIGN FUEL FACTOR FUEL
------- ------------------------------------------------ --------------------------------------------------
<S> <C> <C> <C> <C>
1 RATE 01 - RESIDENTIAL SERVICE
2 Customer Charge $6.00 $6.00
3 Energy Charge (KWH) $0.07198 $0.01975 $0.09173
4 Energy Over 650 (Nov-April) $0.04085 $0.01975 $0.06060
5 TOTAL WATER HEATING
6 Meters $1.50 $1.50
7 Total KWH
8 Residential KWH $0.04472 $0.01975 $0.06447
9 Small Commercial KWH $0.04472 $0.01975 $0.06447
10 General Service KWH
11 RATE 03 - SMALL COMMERCIAL SERVICE
12 Customer Charge 11.50 $11.50
13 Energy Charge (KWH)
14 First Block (0-150 Hrs.) $0.02841 $0.01975 $0.04816
15 Second Block (151-300 Hrs.) $0.02157 $0.01975 $0.04132
16 Third Block (Above 300 Hrs.) $0.01145 $0.01975 $0.03120
17 Demand Charge (KW) 12.70 $12.70
18 Alternate: Customer Charge 11.50 $11.50
19 First Block (0-1500 KWH) $0.09054 $0.01975 $0.11029
20 Second Block (Above 1500 KWH) $0.07103 $0.01975 $0.09078
</TABLE>
<PAGE>
EL PASO ELECTRIC COMPANY EXHIBIT 3
NEW MEXICO CASE NO. 2722 COMPLIANCE FILING
PROOF OF REVENUE ANALYSIS
FOR THE MONTH ENDED MAY, 1998
<TABLE>
<CAPTION>
--------------------------------------------------------
VOLTAGE UNIT RATES
RATE ADJUSTED INCLUDING
LINE DESCRIPTION DESIGN FUEL FACTOR FUEL
------- ------------------------------------------------ --------------------------------------------------
<S> <C> <C> <C> <C>
21 RATE 04 - GENERAL SERVICE
22 Customer Charge $ 26.22 $26.22
23 Energy Charge (KWH)
24 Demand Charge (KW) $ 10.87 $10.87
25 First Block Primary $0.04521 $0.01883 $0.06404
26 Second Block Primary $0.01881 $0.01883 $0.03764
27 Third Block Primary $0.00582 $0.01883 $0.02465
28 First Block Secondary $0.04521 $0.01975 $0.06496
29 Second Block Secondary $0.01881 $0.01975 $0.03856
30 Third Block Secondary $0.00582 $0.01975 $0.02557
31 RATE 05 - IRRIGATION SERVICE
32 Customer Charge $15.00 $15.00
33 Energy Charge (KWH)
34 Summer Block (May-Oct)
35 First Block (0-75 Hrs.) $0.07567 $0.01975 $0.09542
36 Second Block (76-150 Hrs.) $0.06327 $0.01975 $0.08302
37 Third Block (Above 150 Hrs.) $0.05245 $0.01975 $0.07220
38 Winter Block (Nov-April) $0.02749 $0.01975 $0.04724
39 RATE 07 - CITY & COUNTY SERVICE
40 Customer Charge $18.00 $18.00
41 Demand Charge (KW) $15.00 $15.00
42 Energy Charge (KWH) $0.00102 $0.01975 $0.02077
43 RATE 08 - MUNICIPAL PUMPING
44 Customer Charge $15.75 $15.75
45 Energy Charge (KWH) Total $0.05853
46 KWH (Primary) $0.05853 $0.01883 $0.07736
47 KWH (Secondary) $0.05853 $0.01975 $0.07828
</TABLE>
<PAGE>
EL PASO ELECTRIC COMPANY EXHIBIT 3
NEW MEXICO CASE NO. 2722 COMPLIANCE FILING
PROOF OF REVENUE ANALYSIS
FOR THE MONTH ENDED MAY, 1998
<TABLE>
<CAPTION>
--------------------------------------------------------
VOLTAGE UNIT RATES
RATE ADJUSTED INCLUDING
LINE DESCRIPTION DESIGN FUEL FACTOR FUEL
------- ------------------------------------------------ --------------------------------------------------
<S> <C> <C> <C> <C>
48 RATE 09 - LARGE POWER
49 Customer Charge $0.00 $0.00
50 Demand Charge (KW) $19.30 $19.30
51 Energy Charge (KWH) Total $0.00828
52 KWH (Primary) $0.00828 $0.01883 $0.02711
53 KWH (Secondary) $0.00828 $0.01975 $0.02803
54 RATE 10 - MILITARY RESEARCH & DEVELOPMENT
55 Customer Charge $510.00 $510.00
56 Demand Charge (KW) $19.50 $19.50
57 Energy Charge (KWH) $0.00257 $0.01854 $0.02111
58 O&M Charges $0.00257 $0.00257
59 RATE 11 - MUNICIPAL STREET LIGHTING
60 7000 L-MV 195 Watts $12.97 $0.01975 $14.29
61 11000 L-MV 275 Watts $15.19 $0.01975 $17.05
62 20000 L-MV 450 Watts $19.05 $0.01975 $22.09
63 20000 L-MV-DBL 900 Watts $29.06 $0.01975 $35.15
64 60000 L-MV 1050 Watts $32.97 $0.01975 $40.07
65 14400 L-SV 175 Watts $14.83 $0.01975 $16.01
66 23200 L-SV 300 Watts $16.99 $0.01975 $19.02
67 45000 L-SV 475 Watts $23.06 $0.01975 $26.27
68 45000 L-SV 475 Watts $38.59 $0.01975 $41.80
69 11000 L-MV 275 Watts $42.43 $0.01975 $44.29
70 23200 L-MV 300 Watts $44.09 $0.01975 $46.12
71 7000 L-MV 195 Watts $3.94 $0.01975 $5.26
72 11000 L-MV 275 Watts $5.31 $0.01975 $5.97
73 20000 L-MV 450 Watts $8.31 $0.01975 $11.35
74 14400 L-SV 175 Watts $3.60 $0.01975 $4.78
75 19800 L-SV 250 Watts $4.88 $0.01975 $5.49
76 23200 L-SV 300 Watts $5.73 $0.01975 $7.76
77 33000 L-SV 365 Watts $6.86 $0.01975 $7.71
78 45000 L-SV 475 Watts $8.74 $0.01975 $11.95
</TABLE>
<PAGE>
EL PASO ELECTRIC COMPANY EXHIBIT 3
NEW MEXICO CASE NO. 2722 COMPLIANCE FILING
PROOF OF REVENUE ANALYSIS
FOR THE MONTH ENDED MAY, 1998
<TABLE>
<CAPTION>
--------------------------------------------------------
VOLTAGE UNIT RATES
RATE ADJUSTED INCLUDING
LINE DESCRIPTION DESIGN FUEL FACTOR FUEL
------- ------------------------------------------------ --------------------------------------------------
<S> <C> <C> <C> <C>
79 RATE 12 - PRIVATE AREA LIGHTING
80 7000 L-MV 195 Watts $13.14 $0.01975 $14.49
81 11000 L-MV 275 Watts $14.72 $0.01975 $16.62
82 20000 L-MV 430 Watts $19.03 $0.01975 $21.99
83 8500 L-HPSV 124 Watts $13.07 $0.01975 $13.92
84 23200 L-HPSV 313 Watts $17.52 $0.01975 $19.68
85 7000 L-MV 195 Watts (exst pl) $6.02 $0.01975 $7.37
86 11000 L-MV 275 Watts (exst pl) $7.46 $0.01975 $9.36
87 20000 L-MV 430 Watts (exst pl) $11.32 $0.01975 $14.28
88 8500 L-HPSV 124 Watts (exst pl) $5.32 $0.01975 $6.17
89 23200 L-HPSV 313 Watts (exst pl) $9.66 $0.01975 $11.82
90 RATE 14 - PRIV. RESD. SUBD. LIGHT
91 14400 L-SV 193 Watts $8.14 $0.01975 $9.50
92 RATE 19 - SEASONAL AGRICULTURAL
93 Customer Charge $7.25 $7.25
94 Energy Charge (KWH)
95 First Block (0-50 Hrs.) $0.11604 $0.01975 $0.13579
96 Second Block (51-150 Hrs.) $0.10490 $0.01975 $0.12465
97 Third Block (Above 150 Hrs.) $0.05054 $0.01975 $0.07029
98 RATE 25 - OUTDOOR RECREATIONAL LIGHTING
99 Customer Charge $18.00 $18.00
100 Energy Charge (KWH) $0.05518 $0.01975 $0.07493
</TABLE>
<PAGE>
EL PASO ELECTRIC COMPANY EXHIBIT 3
NEW MEXICO CASE NO. 2722 COMPLIANCE FILING
PROOF OF REVENUE ANALYSIS
FOR THE MONTH ENDED MAY, 1998
<TABLE>
<CAPTION>
--------------------------------------------------------
VOLTAGE UNIT RATES
RATE ADJUSTED INCLUDING
LINE DESCRIPTION DESIGN FUEL FACTOR FUEL
------- ------------------------------------------------ --------------------------------------------------
<S> <C> <C> <C> <C>
101 RATE 26 - STATE UNIVERSITY
102 Cogeneration - Applicable Rate (Rate 26)
103 KVAR and Primary Voltage Discounts
104 Demand Charge (KW)
105 Energy Charge (KWH)
106 Cogeneration - Applicable Rate (Rate 09)
107 Customer Charge $100.00 $0.00
108 Energy Charge (KWH) $0.00828 $0.01883 $0.02711
109 Energy Charge (Maintenance Only)
110 Demand Charge (KW) $19.30 $19.30
111 Monthly Reservation Fee (KW*10%/month) $19.30 $19.30
</TABLE>
<PAGE>
EL PASO ELECTRIC COMPANY EXHIBIT 4
NM DECOMMISSIONING COS
ASSUMPTIONS:
EARNINGS: 5.8900%
ESCALATION: 4.3000%
COST STUDY: 1995
<TABLE>
<CAPTION>
-------------------------- --------------------------------------------
Total 1/3 Unit 1 1/3 Total
Spent Fuel Spent Fuel Decommissioning Spent Fuel Unit 1
-------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Projected: 1997 822,891 274,297 2,152,009 274,297 2,426,306
1998 822,891 274,297 2,152,009 274,297 2,426,306
1999 822,891 274,297 2,152,009 274,297 2,426,306
2000 822,891 274,297 2,152,009 274,297 2,426,306
2001 822,891 274,297 2,152,009 274,297 2,426,306
2002 822,891 274,297 2,152,009 274,297 2,426,306
2003 822,891 274,297 2,152,009 274,297 2,426,306
2004 822,891 274,297 2,152,009 274,297 2,426,306
2005 822,891 274,297 2,152,009 274,297 2,426,306
2006 822,891 274,297 2,152,009 274,297 2,426,306
2007 822,891 274,297 2,152,009 274,297 2,426,306
2008 822,891 274,297 2,152,009 274,297 2,426,306
2009 822,891 274,297 2,152,009 274,297 2,426,306
2010 822,891 274,297 2,152,009 274,297 2,426,306
2011 822,891 274,297 2,152,009 274,297 2,426,306
2012 822,891 274,297 2,152,009 274,297 2,426,306
2013 822,891 274,297 2,152,009 274,297 2,426,306
2014 822,891 274,297 2,152,009 274,297 2,426,306
2015 822,891 274,297 2,152,009 274,297 2,426,306
2016 822,891 274,297 2,152,009 274,297 2,426,306
2017 822,891 274,297 2,152,009 274,297 2,426,306
2018 822,891 274,297 2,152,009 274,297 2,426,306
2019 822,891 274,297 2,152,009 274,297 2,426,306
2020 822,891 274,297 2,152,009 274,297 2,426,306
2021 822,891 274,297 2,152,009 274,297 2,426,306
2022 822,891 274,297 2,152,009 274,297 2,426,306
2023 822,891 274,297 2,152,009 274,297 2,426,306
2024 822,891 274,297 2,152,009 274,297 2,426,306
2025 - - - - -
2026 - - - - -
2027 - - - - -
----------- ---------- ----------- ---------- -----------
23,040,948 7,680,316 60,256,252 7,680,316 67,936,568
=========== ========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------- ------------------------
Unit 2 1/3 Total TOTAL
Decommissioning Spent Fuel Unit 2 DECOMMISSIONING
--------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
Projected: 1997 2,211,285 274,297 2,485,582 4,911,888
1998 2,211,285 274,297 2,485,582 4,911,888
1999 2,211,285 274,297 2,485,582 4,911,888
2000 2,211,285 274,297 2,485,582 4,911,888
2001 2,211,285 274,297 2,485,582 4,911,888
2002 2,211,285 274,297 2,485,582 4,911,888
2003 2,211,285 274,297 2,485,582 4,911,888
2004 2,211,285 274,297 2,485,582 4,911,888
2005 2,211,285 274,297 2,485,582 4,911,888
2006 2,211,285 274,297 2,485,582 4,911,888
2007 2,211,285 274,297 2,485,582 4,911,888
2008 2,211,285 274,297 2,485,582 4,911,888
2009 2,211,285 274,297 2,485,582 4,911,888
2010 2,211,285 274,297 2,485,582 4,911,888
2011 2,211,285 274,297 2,485,582 4,911,888
2012 2,211,285 274,297 2,485,582 4,911,888
2013 2,211,285 274,297 2,485,582 4,911,888
2014 2,211,285 274,297 2,485,582 4,911,888
2015 2,211,285 274,297 2,485,582 4,911,888
2016 2,211,285 274,297 2,485,582 4,911,888
2017 2,211,285 274,297 2,485,582 4,911,888
2018 2,211,285 274,297 2,485,582 4,911,888
2019 2,211,285 274,297 2,485,582 4,911,888
2020 2,211,285 274,297 2,485,582 4,911,888
2021 2,211,285 274,297 2,485,582 4,911,888
2022 2,211,285 274,297 2,485,582 4,911,888
2023 2,211,285 274,297 2,485,582 4,911,888
2024 2,211,285 274,297 2,485,582 4,911,888
2025 2,211,285 - 2,211,285 2,211,285
2026 - - - -
2027 - - - -
----------- ---------- ---------- ------------
64,127,265 7,680,316 71,807,581 139,744,149
=========== ========== ========== ============
</TABLE>
<PAGE>
EL PASO ELECTRIC COMPANY EXHIBIT 5
TYPICAL BILL COMPARISON
RESIDENTIAL SERVICE RATE 1
<TABLE>
<CAPTION>
Case No 2279 Case No 2722 Percent
Line Consumption (KWH) Rates Rates Decrease
- ------ ----------------- ----------------- ------------------ ----------------
<S> <C> <C> <C> <C>
1 Customer $6.00 $6.00
2 KWH $0.08117 $0.09173
3 KWH Fuel $0.01975
4 100 $16.09 $15.17 5.71%
5 200 $26.18 $24.35 7.02%
6 300 $36.28 $33.52 7.60%
7 400 $46.37 $42.69 7.93%
8 500 $56.46 $51.87 8.14%
9 600 $66.55 $61.04 8.29%
10 700 $76.64 $70.21 8.39%
11 800 $86.74 $79.38 8.48%
12 900 $96.83 $88.56 8.54%
13 1,000 $106.92 $97.73 8.60%
14 1,500 $157.38 $143.60 8.76%
15 2,000 $207.84 $189.46 8.84%
16 2,500 $258.30 $235.33 8.89%
17 3,000 $308.76 $281.19 8.93%
18 3,500 $359.22 $327.06 8.95%
19 4,000 $409.68 $372.92 8.97%
20 4,500 $460.14 $418.79 8.99%
21 5,000 $510.60 $464.65 9.00%
</TABLE>
<PAGE>
EL PASO ELECTRIC COMPANY EXHIBIT 5
TYPICAL BILL COMPARISON
RESIDENTIAL SERVICE RATE 1
WITH LOW INCOME RIDER
<TABLE>
<CAPTION>
Case No 2279 Case No 2722 Percent
Line Consumption (KWH) Rates Rates Decrease
- ------ ----------------- ----------------- ------------------ ----------------
<S> <C> <C> <C> <C>
1 Customer $6.00 $0.00
2 KWH $0.08117 $0.09173
3 KWH Fuel $0.01975
4 100 $16.09 $9.17 43.00%
5 200 $26.18 $18.35 29.93%
6 300 $36.28 $27.52 24.14%
7 400 $46.37 $36.69 20.87%
8 500 $56.46 $45.87 18.77%
9 600 $66.55 $55.04 17.30%
10 700 $76.64 $64.21 16.22%
11 800 $86.74 $73.38 15.39%
12 900 $96.83 $82.56 14.74%
13 1,000 $106.92 $91.73 14.21%
14 1,500 $157.38 $137.60 12.57%
15 2,000 $207.84 $183.46 11.73%
16 2,500 $258.30 $229.33 11.22%
17 3,000 $308.76 $275.19 10.87%
18 3,500 $359.22 $321.06 10.62%
19 4,000 $409.68 $366.92 10.44%
20 4,500 $460.14 $412.79 10.29%
21 5,000 $510.60 $458.65 10.17%
</TABLE>
<PAGE>
EL PASO ELECTRIC COMPANY EXHIBIT 5
TYPICAL BILL COMPARISON
SMALL COMMERCIAL SERVICE RATE 3
<TABLE>
<CAPTION>
Case No 2279 | Case No 2722
Line Unit Type Units Rates Extended | Rates Extended
- --------- -------------------- ---------------- ---------------- ---------------- | --------------------- ---------------------
<S> <C> <C> <C> <C> | <C> <C>
ALTERNATE RATE |
100% Load Factor |
1 Customer 1 $11.50 $11.50 | $11.50 $11.50
2 KWH Total 18,250 |
3 KWH 1 1,500 $0.09364 $140.46 | $0.11029 $165.43
4 KWH 2 16,750 $0.07413 $1,241.68 | $0.09078 $1,520.56
5 KW 25 $0.00 $0.00 | $0.00 $0.00
6 KWH Fuel 18,250 $0.01975 $360.44 | $0.00000 $0.00
---------- | ----------
--------------- |
Load Factor 100% |
--------------- |
7 Total Bill $1,754.08 | $1,697.49
========== | ==========
| Decrease -3.23%
| ==========
|
75 % Load Factor |
8 Customer 1 $11.50 $11.50 | $11.50 $11.50
9 KWH Total 13,688 |
10 KWH 1 1,500 $0.09364 $140.46 | $0.11029 $165.43
11 KWH 2 12,188 $0.07413 $903.46 | $0.09078 $1,106.37
12 KW 25 $0.00 $0.00 | $0.00 $0.00
13 KWH Fuel 13,688 $0.01975 $270.33 | $0.00000 $0.00
---------- | ----------
--------------- |
Load Factor 75% |
--------------- |
14 Total Bill $1,325.75 | $1,283.31
========== | ==========
| Decrease -3.20%
| ==========
50% Load Factor |
15 Customer 1 $11.50 $11.50 | $11.50 $11.50
16 KWH Total 9,125 |
17 KWH 1 1,500 $0.09364 $140.46 | $0.11029 $165.43
18 KWH 2 7,625 $0.07413 $565.24 | $0.09078 $692.19
19 KW 25 $0.00 $0.00 | $0.00 $0.00
20 KWH Fuel 9,125 $0.01975 $180.22 | $0.00000 $0.00
---------- | ----------
--------------- |
Load Factor 50% |
--------------- |
21 Total Bill $897.42 | $869.13
========== | ==========
| Decrease -3.15%
| ==========
25% Load Factor |
22 Customer 1 $11.50 $11.50 | $11.50 $11.50
23 KWH Total 4,563 |
24 KWH 1 1,500 $0.09364 $140.46 | $0.11029 $165.43
25 KWH 2 3,063 $0.07413 $227.02 | $0.09078 $278.01
26 KW 25 $0.00 $0.00 | $0.00 $0.00
27 KWH Fuel 4,563 $0.01975 $90.11 | $0.00000 $0.00
---------- | ----------
--------------- |
Load Factor 25% |
--------------- |
28 Total Bill $469.09 | $454.95
========== | ==========
| Decrease -3.02%
| ==========
</TABLE>
<PAGE>
EL PASO ELECTRIC COMPANY EXHIBIT 5
TYPICAL BILL COMPARISON
SMALL COMMERCIAL SERVICE RATE 3
<TABLE>
<CAPTION>
Case No 2279 | Case No 2722
Line Unit Type Units Rates Extended | Rates Extended
- --------- --------------------- ---------------- ---------------- ---------------- | --------------------- ---------------------
|
<S> <C> <C> <C> <C> | <C> <C>
100% Load Factor |
1 Customer 1 $11.50 $11.50 | $11.50 $11.50
2 KWH Total 18,250 |
3 KWH 1 3,750 $0.03087 $115.76 | $0.04816 $180.61
4 KWH 2 3,750 $0.02403 $90.11 | $0.04132 $154.96
5 KWH 3 10,750 $0.01391 $149.53 | $0.03120 $335.44
6 KW 25 $12.75 $318.75 | $12.70 $317.50
7 KWH Fuel 18,250 $0.01975 $360.44 | $0.00000 $0.00
---------- | -----------
--------------- |
8 Load Factor 100% |
--------------- |
9 Total Bill $1,046.10 | $1,000.01
========== | ===========
| Decrease -4.41%
| ===========
75% Load Factor |
10 Customer 1 $11.50 $11.50 | $11.50 $11.50
11 KWH Total 13,688 |
12 KWH 1 3,750 $0.03087 $115.76 | $0.04816 $180.61
13 KWH 2 3,750 $0.02403 $90.11 | $0.04132 $154.96
14 KWH 3 6,188 $0.01391 $86.07 | $0.03120 $193.07
15 KW 25 $12.75 $318.75 | $12.70 $317.50
16 KWH Fuel 13,688 $0.01975 $270.33 | $0.00000 $0.00
---------- | -----------
--------------- |
17 Load Factor 75% |
--------------- |
18 Total Bill $892.52 | $857.65
========== | ===========
| Decrease -3.91%
| ===========
50% Load Factor |
19 Customer 1 $11.50 $11.50 | $11.50 $11.50
20 KWH Total 9,125 |
21 KWH 1 3,750 $0.03087 $115.76 | $0.04816 $180.61
22 KWH 2 3,750 $0.02403 $90.11 | $0.04132 $154.96
23 KWH 3 1,625 $0.01391 $22.60 | $0.03120 $50.71
24 KW 25 $12.75 $318.75 | $12.70 $317.50
25 KWH Fuel 9,125 $0.01975 $180.22 | $0.00000 $0.00
---------- | -----------
--------------- |
26 Load Factor 50% |
--------------- |
27 Total Bill $738.95 | $715.28
========== | ===========
| Decrease -3.20%
| ===========
25% Load Factor |
28 Customer 1 $11.50 $11.50 | $11.50 $11.50
29 KWH Total 4,563 |
30 KWH 1 3,750 $0.03087 $115.76 | $0.04816 $180.61
31 KWH 2 813 $0.02403 $19.52 | $0.04132 $33.58
32 KWH 3 0 $0.01391 $0.00 | $0.03120 $0.00
33 KW 25 $12.75 $318.75 | $12.70 $317.50
34 KWH Fuel 4,563 $0.01975 $90.11 | $0.00000 $0.00
---------- | -----------
--------------- |
35 Load Factor 25% |
--------------- |
36 Total Bill $555.65 | $543.19
========== | ===========
| Decrease -2.24%
===========
</TABLE>
<PAGE>
EL PASO ELECTRIC COMPANY EXHIBIT 5
TYPICAL BILL COMPARISON
GENERAL SERVICE RATE CLASS RATE 4
<TABLE>
<CAPTION>
Case No 2279 | Case No 2722
Line Unit Type Units Rates Extended | Rates Extended
- ----------- ------------------- ----------------- ------------------- ------------------- | ---------------- -------------------
<S> <C> <C> <C> <C> | <C> <C>
1 Customer 1 $26.22 $26.22 | $26.22 $26.22
2 KWH Total 146,000 |
3 KWH 1 30,000 $0.04434 $1,330.20 | $0.06496 $1,948.80
4 KWH 2 30,000 $0.02606 $781.80 | $0.03856 $1,156.80
5 KWH 3 86,000 $0.00581 $499.66 | $0.02557 $2,199.02
6 KW 200 $10.87 $2,174.00 | $10.87 $2,174.00
7 KWH Fuel 146,000 $0.01975 $2,883.50 | $0.00000 $0.00
------------ | -----------
---------------- |
8 Load Factor 100.00% |
---------------- |
9 Total Bill $7,695.38 | $7,504.84
============ | ===========
| Decrease 2.48%
| ===========
|
10 Customer 1 $26.22 $26.22 | $26.22 $26.22
11 KWH Total 109,500 |
12 KWH 1 30,000 $0.04434 $1,330.20 | $0.06496 $1,948.80
13 KWH 2 30,000 $0.02606 $781.80 | $0.03856 $1,156.80
14 KWH 3 49,500 $0.00581 $287.60 | $0.02557 $1,265.72
15 KW 200 $10.87 $2,174.00 | $10.87 $2,174.00
16 KWH Fuel 109,500 $0.01975 $2,162.63 | $0.00000 $0.00
------------ | -----------
---------------- |
17 Load Factor 75.00% |
---------------- |
18 Total Bill $6,762.44 | $6,571.54
============ | ===========
| Decrease 2.82%
| ===========
|
19 Customer 1 $26.22 $26.22 | $26.22 $26.22
20 KWH Total 73,000 |
21 KWH 1 30,000 $0.04434 $1,330.20 | $0.06496 $1,948.80
22 KWH 2 30,000 $0.02606 $781.80 | $0.03856 $1,156.80
23 KWH 3 13,000 $0.00581 $75.53 | $0.02557 $332.41
24 KW 200 $10.87 $2,174.00 | $10.87 $2,174.00
25 KWH Fuel 73,000 $0.01975 $1,441.75 | $0.00000 $0.00
------------ | -----------
---------------- |
26 Load Factor 50.00% |
---------------- |
27 Total Bill $5,829.50 | $5,638.23
============ | ===========
| Decrease 3.28%
| ===========
|
28 Customer 1 $26.22 $26.22 | $26.22 $26.22
29 KWH Total 36,500 |
30 KWH 1 30,000 $0.04434 $1,330.20 | $0.06496 $1,948.80
31 KWH 2 6,500 $0.02606 $169.39 | $0.03856 $250.64
32 KWH 3 0 $0.00581 $0.00 | $0.02557 $0.00
33 KW 200 $10.87 $2,174.00 | $10.87 $2,174.00
34 KWH Fuel 36,500 $0.01975 $720.88 | $0.00000 $0.00
------------ | -----------
---------------- |
35 Load Factor 25.00% |
---------------- |
36 Total Bill $4,420.69 | $4,399.66
============ | ===========
| Decrease 0.48%
| ===========
</TABLE>
<PAGE>
EXHIBIT 5
EL PASO ELECTRIC COMPANY
TYPICAL BILL COMPARISON
CITY COUNTY RATE 7
<TABLE>
<CAPTION>
Typical New Mexico Consumption
Case No 2279 | Case No 2722
Line Unit Type Units Rates Extended | Rates Extended
- -------- ------------------ --------- ------------ --------- | -------------------------
<S> <C> <C> <C> | <C>
1 Customer 1 $18.00 $18.00 | $18.00 $18.00
2 KWH Total 8,278 $0.00291 $24.09 | $0.02077 $171.94
3 KW 27 $15.00 $405.00 | $15.00 $405.00
4 KWH Fuel 8,278 $0.01975 $163.49 |
--------- --------- | ---------
5 Load Factor 42% |
--------- |
6 Total Bill $610.58 | $594.94
========= | =========
|
| =========
7 Percent Decrease | 2.56%
| =========
|
|
Typical New Mexico Consumption |
Case No 2279 | Case No 2722
Line Unit Type Units Rates Extended | Rates Extended
- -------- ------------------ --------- ------------ --------- | -------------------------
|
8 Customer 1 $18.00 $18.00 | $18.00 $18.00
9 KWH Total 19,710 $0.00291 $57.36 | $0.02077 $409.38
10 KW 27 $15.00 $405.00 | $15.00 $405.00
11 KWH Fuel 19,710 $0.01975 $389.27 |
---------- | ---------
--------- |
12 Load Factor 100% |
--------- |
13 Total Bill $869.63 | $832.38
========= | =========
|
| =========
14 Percent Decrease | 4.28%
| =========
|
Case No 2279 | Case No 2722
Line Unit Type Units Rates Extended | Rates Extended
- -------- ------------------ --------- ------------ --------- | -------------------------
|
15 Customer 1 $18.00 $18.00 | $18.00 $18.00
16 KWH Total 14,783 $0.00291 $43.02 | $0.02077 $307.03
17 KW 27 $15.00 $405.00 | $15.00 $405.00
18 KWH Fuel 14,783 $0.01975 $291.95 |
--------- --------- | ---------
19 Load Factor 75% |
--------- |
20 Total Bill $757.97 | $730.03
========= | =========
|
| =========
21 Percent Decrease | 3.69%
| =========
|
|
Case No 2279 | Case No 2722
Line Unit Type Units Rates Extended | Rates Extended
- -------- ------------------- -------- ------------ --------- | -------------------------
|
22 Customer 1 $18.00 $18.00 | $18.00 $18.00
23 KWH Total 9,855 $0.00291 $28.68 | $0.02077 $204.69
24 KW 27 $15.00 $405.00 | $15.00 $405.00
25 KWH Fuel 9,855 $0.01975 $194.64 |
--------- | ---------
--------- |
26 Load Factor 50% |
--------- |
27 Total Bill $646.31 | $627.69
========= | =========
|
| =========
28 Percent Decrease | 2.88%
| =========
|
|
Case No 2279 | Case No 2722
Line Unit Type Units Rates Extended | Rates Extended
- -------- ------------------ --------- ------------ --------- | -------------------------
|
29 Customer 1 $18.00 $18.00 | $18.00 $18.00
30 KWH Total 4,928 $0.00291 $14.34 | $0.02077 $102.34
31 KW 27 $15.00 $405.00 | $15.00 $405.00
32 KWH Fuel 4,928 $0.01975 $97.32 |
--------- | ---------
--------- |
33 Load Factor 25% |
--------- |
34 Total Bill $534.66 | $525.34
========= | =========
|
| =========
35 Percent Decrease | 1.74%
| =========
</TABLE>
<PAGE>
EL PASO ELECTRIC COMPANY EXHIBIT 5
TYPICAL BILL COMPARISON
LARGE POWER SERVICE RATE 9
<TABLE>
<CAPTION>
Typical New Mexico Consumption Case No 2279 | Case No 2722
Line Unit Type Units Rates Extended | Rates Extended
- --------- ------------------ ------------------ ---------------- ------------------| ------------------------------------
<S> <C> <C> <C> <C> | <C> <C>
1 Customer 1 $100.00 $100.00 | $0.00 $0.00
2 KWH Total 322,899 $0.01000 $3,228.99 | $0.02803 $9,050.86
3 KW 684 $19.30 $13,201.20 | $19.30 $13,201.20
4 KWH Fuel 322,899 $0.01975 $6,377.26 |
-------------- | ---------------
5 Load Factor 65% |
6 Total Bill $22,907.45 | $22,252.06
============== | ===============
7 Percent Decrease | 2.86%
| ===============
|
Typical New Mexico Consumption |
Case No 2279 | Case No 2722
Line Unit Type Units Rates Extended | Rates Extended
- --------- ------------------ ------------------ ---------------- ------------------| ------------------------------------
|
8 Customer 1 $100.00 $100.00 | $0.00 $0.00
9 KWH Total 499,320 $0.01000 $4,993.20 | $0.02803 $13,995.94
10 KW 684 $19.30 $13,201.20 | $19.30 $13,201.20
11 KWH Fuel 499,320 $0.01975 $9,861.57 |
-------------- | ---------------
------------------ |
12 Load Factor 100% |
------------------ |
13 Total Bill $28,155.97 | $27,197.14
============== | ===============
14 Percent Decrease | 3.41%
| ===============
|
Case No 2279 | Case No 2722
Line Unit Type Units Rates Extended | Rates Extended
- --------- ------------------ ------------------ ---------------- ------------------| ------------------------------------
|
15 Customer 1 $100.00 $100.00 | $0.00 $0.00
16 KWH Total 374,490 $0.01000 $3,744.90 | $0.02803 $10,496.95
17 KW 684 $19.30 $13,201.20 | $19.30 $13,201.20
18 KWH Fuel 374,490 $0.01975 $7,396.18 |
-------------- | ---------------
------------------ |
19 Load Factor 75% |
------------------ |
20 Total Bill $24,442.28 | $23,698.15
============== | ===============
21 Percent Decrease | 3.04%
| ===============
|
Case No 2279 | Case No 2722
Line Unit Type Units Rates Extended | Rates Extended
- --------- ------------------ ------------------ ---------------- ------------------| ------------------------------------
|
22 Customer 1 $100.00 $100.00 | $0.00 $0.00
23 KWH Total 249,660 $0.01000 $2,496.60 | $0.02803 $6,997.97
24 KW 684 $19.30 $13,201.20 | $19.30 $13,201.20
25 KWH Fuel 249,660 $0.01975 $4,930.79 |
-------------- | ---------------
------------------ |
26 Load Factor 50% |
------------------ |
27 Total Bill $20,728.59 | $20,199.17
============== | ===============
28 Percent Decrease | 2.55%
| ===============
|
Case No 2279 | Case No 2722
Line Unit Type Units Rates Extended | Rates Extended
- --------- ------------------ ------------------ ---------------- ------------------| ------------------------------------
|
29 Customer 1 $100.00 $100.00 | $0.00 $0.00
30 KWH Total 124,830 $0.01000 $1,248.30 | $0.02803 $3,498.98
31 KW 684 $19.30 $13,201.20 | $19.30 $13,201.20
32 KWH Fuel 124,830 $0.01975 $2,465.39 |
-------------- | ---------------
------------------ |
33 Load Factor 25% |
------------------ |
34 Total Bill $17,014.89 | $16,700.18
============== | ===============
35 Percent Decrease | 1.85%
| ===============
</TABLE>
<PAGE>
EL PASO ELECTRIC COMPANY EXHIBIT 5
TYPICAL BILL COMPARISON
MILITARY RESEARCH AND DEVELOPMENT RATE 10
<TABLE>
<CAPTION>
Case No 2279 | Case No 2722
Line Unit Type Units Rates Extended | Rates Extended
- --------- ----------------------- ---------------- --------------- --------------------- | ------------ -----------------
<S> <C> <C> <C> <C> | <C> <C>
1 Customer 1 $510.00 $510.00 | $510.00 $510.00
2 KWH 5,051,000 $0.00400 $20,204.00 | $0.02111 $106,626.61
3 KWH O & M 5,051,000 $0.00400 $20,204.00 | $0.00257 $12,981.07
4 KW 10,424 $19.50 $203,268.00 | $19.50 $203,268.00
5 KWH Fuel 5,051,000 $0.01854 $93,645.54 |
-------------- | -----------
6 Load Factor 66% |
|
7 Total Bill $337,831.54 | $323,385.68
============== | ===========
8 Total Percent Decrease | 4.28%
| ===========
</TABLE>
