<PAGE>
===============================================================================
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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)
<TABLE>
<S> <C>
Texas 74-0607870
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
Kayser Center, 100 North Stanton, El Paso, Texas 79901
(Address of principal executive offices) (Zip Code)
</TABLE>
(915) 543-5711
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES X NO
--- ---
As of May 5, 2000, there were 54,625,946 shares of the Company's no par value
common stock outstanding.
================================================================================
<PAGE>
EL PASO ELECTRIC COMPANY
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 2000 and December 31, 1999.................... 1
Statements of Operations - Three Months and Twelve Months
Ended March 31, 2000 and 1999............................................ 3
Statements of Comprehensive Operations - Three Months and
Twelve Months Ended March 31, 2000 and 1999.............................. 4
Statements of Cash Flows - Three Months Ended March 31, 2000
and 1999................................................................. 5
Notes to Financial Statements............................................ 6
Independent Accountants' Review Report................................... 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................. 21
Item 6. Exhibits and Reports on Form 8-K.................................. 21
</TABLE>
i
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EL PASO ELECTRIC COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS March 31,
(In thousands) 2000 December 31,
(Unaudited) 1999
--------------- ---------------
<S> <C> <C>
Utility plant:
Electric plant in service............................................ $ 1,642,218 $ 1,626,224
Less accumulated depreciation and amortization....................... 349,861 329,165
--------------- ---------------
Net plant in service............................................... 1,292,357 1,297,059
Construction work in progress........................................ 60,284 61,842
Nuclear fuel; includes fuel in process of $2,959 and
$8,994, respectively............................................... 80,534 78,891
Less accumulated amortization........................................ 43,868 39,355
--------------- ---------------
Net nuclear fuel................................................... 36,666 39,536
--------------- ---------------
Net utility plant................................................ 1,389,307 1,398,437
--------------- ---------------
Current assets:
Cash and temporary investments....................................... 31,852 37,234
Accounts receivable, principally trade, net of allowance for
doubtful accounts of $2,336 and $2,429, respectively............... 54,205 62,036
Inventories, at cost................................................. 25,548 25,963
Prepayments and other................................................ 7,083 8,832
--------------- ---------------
Total current assets............................................. 118,688 134,065
--------------- ---------------
Long-term contract receivable.......................................... 15,649 17,237
--------------- ---------------
Deferred charges and other assets:
Decommissioning trust fund........................................... 59,257 57,117
Other................................................................ 18,245 19,035
--------------- ---------------
Total deferred charges and other assets.......................... 77,502 76,152
--------------- ---------------
Total assets..................................................... $ 1,601,146 $ 1,625,891
=============== ===============
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
EL PASO ELECTRIC COMPANY
BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
CAPITALIZATION AND LIABILITIES March 31,
(In thousands except for share data) 2000 December 31,
(Unaudited) 1999
------------ -----------
<S> <C> <C>
Capitalization:
Common stock, stated value $1 per share, 100,000,000 shares
authorized, 60,265,533 and 60,200,921 shares issued,
and 272,522 and 258,788 restricted shares, respectively................... $ 60,538 $ 60,460
Capital in excess of stated value........................................... 243,358 242,702
Unearned compensation - restricted stock awards............................. (1,597) (1,149)
Retained earnings........................................................... 151,731 143,724
Accumulated other comprehensive income (net unrealized
gains on marketable securities), net of tax............................... 4,744 4,179
------------ -----------
458,774 449,916
Treasury stock, 5,917,433 and 3,199,927 shares, respectively; at cost....... (53,291) (28,658)
------------ -----------
Common stock equity....................................................... 405,483 421,258
Long-term debt.............................................................. 775,553 788,576
Financing and capital lease obligations..................................... 23,420 23,031
------------ -----------
Total capitalization.................................................. 1,204,456 1,232,865
------------ -----------
Current liabilities:
Current maturities of long-term debt and financing and
capital lease obligations................................................. 23,321 27,042
Accounts payable, principally trade......................................... 21,482 22,241
Litigation settlements payable.............................................. 17,500 16,500
Taxes accrued other than federal income taxes............................... 15,997 17,617
Interest accrued............................................................ 16,367 17,022
Net overcollection of fuel revenues......................................... 4,514 2,640
Other....................................................................... 14,040 12,946
------------ -----------
Total current liabilities............................................. 113,221 116,008
------------ -----------
Deferred credits and other liabilities:
Decommissioning liability................................................... 122,679 120,875
Accrued postretirement benefit liability.................................... 81,309 81,176
Accrued pension liability................................................... 32,370 32,476
Accumulated deferred income taxes, net...................................... 17,478 12,503
Other....................................................................... 29,633 29,988
------------ -----------
Total deferred credits and other liabilities.......................... 283,469 277,018
------------ -----------
Commitments and contingencies
Total capitalization and liabilities.................................. $ 1,601,146 $ 1,625,891
============ ===========
See accompanying notes to financial statements.
</TABLE>
2
<PAGE>
EL PASO ELECTRIC COMPANY
STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except for share data)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
------------------------------ -----------------------------
2000 1999 2000 1999
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenues.................................. $ 138,045 $ 129,552 $ 578,962 $ 594,817
----------- ----------- ----------- -----------
Energy expenses:
Fuel.............................................. 27,110 22,062 109,446 106,030
Coal mine reclamation adjustment.................. - - (6,601) -
Purchased and interchanged power.................. 3,489 752 14,737 18,198
----------- ----------- ----------- -----------
30,599 22,814 117,582 124,228
----------- ----------- ----------- -----------
Operating revenues net of energy expenses........... 107,446 106,738 461,380 470,589
----------- ----------- ----------- -----------
Other operating expenses:
Other operations.................................. 33,561 31,065 137,092 134,934
Maintenance....................................... 8,343 8,914 35,736 35,667
New Mexico Settlement charge...................... - - - 6,272
Depreciation and amortization..................... 21,789 22,805 89,918 90,391
Taxes other than income taxes..................... 10,961 11,280 41,180 44,252
----------- ----------- ----------- -----------
74,654 74,064 303,926 311,516
----------- ----------- ----------- -----------
Operating income.................................... 32,792 32,674 157,454 159,073
----------- ----------- ----------- -----------
Other income (deductions):
Investment income................................. 781 3,079 4,630 13,291
Litigation settlements............................ (1,000) - (17,500) -
Settlement of bankruptcy professional fees........ - - - 885
Other, net........................................ (863) (563) 2,466 (1,408)
----------- ----------- ----------- -----------
(1,082) 2,516 (10,404) 12,768
----------- ----------- ----------- -----------
Income before interest charges...................... 31,710 35,190 147,050 171,841
----------- ----------- ----------- -----------
Interest charges (credits):
Interest on long-term debt........................ 16,572 19,155 74,051 79,786
Other interest.................................... 1,810 2,037 7,470 7,470
Interest capitalized.............................. (881) (1,704) (2,419) (6,483)
----------- ----------- ----------- -----------
17,501 19,488 79,102 80,773
----------- ----------- ----------- -----------
Income before income taxes.......................... 14,209 15,702 67,948 91,068
Income tax expense.................................. 5,649 6,240 25,041 35,048
----------- ----------- ----------- -----------
Income before extraordinary items................... 8,560 9,462 42,907 56,020
----------- ----------- ----------- -----------
Extraordinary items:
Extraordinary loss on repurchases of debt, net of
income tax benefit............................. (553) - (3,889) -
Extraordinary gain on discharge of debt, net of
income tax expense............................. - - - 3,343
----------- ----------- ----------- -----------
Net income.......................................... 8,007 9,462 39,018 59,363
Preferred stock:
Dividend requirements............................. - 2,616 - 13,800
Redemption costs.................................. - 9,571 10 9,571
----------- ----------- ----------- -----------
Net income (loss) applicable to common stock........ $ 8,007 $ (2,725) $ 39,008 $ 35,992
=========== =========== =========== ===========
Basic earnings (loss) per common share:
Income (loss) before extraordinary items.......... $ 0.155 $ (0.045) $ 0.740 $ 0.542
Extraordinary loss on repurchases of debt, net of
income tax benefit............................. (0.010) - (0.067) -
Extraordinary gain on discharge of debt, net of
income tax expense............................. - - - 0.056
----------- ----------- ----------- -----------
Net income (loss).............................. $ 0.145 $ (0.045) $ 0.673 $ 0.598
=========== =========== =========== ===========
Diluted earnings (loss) per common share:
Income (loss) before extraordinary items.......... $ 0.153 $ (0.045) $ 0.733 $ 0.539
Extraordinary loss on repurchases of debt, net of
income tax benefit............................. (0.010) - (0.066) -
Extraordinary gain on discharge of debt, net of
income tax expense............................. - - - 0.055
----------- ----------- ----------- -----------
Net income (loss).............................. $ 0.143 $ (0.045) $ 0.667 $ 0.594
=========== =========== =========== ===========
Weighted average number of common shares
outstanding....................................... 55,299,922 60,209,960 57,994,205 60,179,129
=========== =========== =========== ===========
Weighted average number of common shares and
dilutive potential common shares outstanding...... 55,812,310 60,209,960 58,504,483 60,574,819
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
EL PASO ELECTRIC COMPANY
STATEMENTS OF COMPREHENSIVE OPERATIONS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income.............................. $ 8,007 $ 9,462 $ 39,018 $ 59,363
Other comprehensive income:
Net unrealized gains on marketable
securities, less applicable income tax
expense of $304, $344, $1,618
and $821, respectively............... 565 638 3,005 1,526
----------- ----------- ----------- -----------
Comprehensive income.................... 8,572 10,100 42,023 60,889
Preferred stock:
Dividend requirements.................. - 2,616 - 13,800
Redemption costs....................... - 9,571 10 9,571
----------- ----------- ----------- -----------
Comprehensive income (loss) applicable
to common stock........................ $ 8,572 $ (2,087) $ 42,013 $ 37,518
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
EL PASO ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
2000 1999
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income........................................................ $ 8,007 $ 9,462
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................... 21,789 22,805
Amortization of nuclear fuel.................................... 4,513 5,502
Deferred income taxes, net...................................... 5,023 5,678
Provision for rate refund....................................... - 5,855
Extraordinary loss on repurchases of debt, net of
income tax benefit........................................... 553 -
Other operating activities...................................... 1,441 1,428
Change in:
Accounts receivable............................................. 7,831 12,964
Inventories..................................................... 415 511
Prepayments and other........................................... 1,749 9,029
Long-term contract receivable................................... 1,588 1,436
Accounts payable................................................ (759) (14,633)
Taxes accrued other than federal income taxes................... (1,620) (1,312)
Interest accrued................................................ (655) (1,345)
Net overcollection of fuel revenues............................. 1,874 (450)
Other current liabilities....................................... 2,094 (1,422)
Deferred charges and credits.................................... 1,521 44
---------- ------------
Net cash provided by operating activities..................... 55,364 55,552
---------- ------------
Cash Flows From Investing Activities:
Cash additions to utility property, plant and equipment........... (15,250) (14,506)
Cash additions to nuclear fuel.................................... (1,488) (2,114)
Interest capitalized:
Utility property, plant and equipment........................... (726) (801)
Nuclear fuel.................................................... (155) (903)
Investment in decommissioning trust fund.......................... (1,271) (1,305)
Other investing activities........................................ 57 (141)
---------- ------------
Net cash used for investing activities........................ (18,833) (19,770)
---------- ------------
Cash Flows From Financing Activities:
Treasury stock purchases.......................................... (24,633) -
Repurchases of and payments on long-term debt..................... (13,734) (36,034)
Nuclear fuel financing obligations:
Proceeds........................................................ 2,308 3,017
Payments........................................................ (4,800) (5,223)
Redemption of preferred stock..................................... - (148,927)
Preferred stock dividend payment.................................. - (1,328)
Payments on capital lease obligations............................. (841) (803)
Other financing activities........................................ (213) (90)
---------- ------------
Net cash used for financing activities........................ (41,913) (189,388)
---------- ------------
Net decrease in cash and temporary investments...................... (5,382) (153,606)
Cash and temporary investments at beginning of period............... 37,234 229,150
---------- ------------
Cash and temporary investments at end of period..................... $ 31,852 $ 75,544
========== ============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENT
(Unaudited)
A. Principles of Preparation
Pursuant to the rules and regulations of the Securities and Exchange
Commission, certain financial information has been condensed and certain
footnote disclosures have been omitted. Such information and disclosures are
normally included in financial statements prepared in accordance with generally
accepted accounting principles.
These condensed financial statements should be read in conjunction with
the financial statements and notes thereto in the Annual Report of El Paso
Electric Company (the "Company") on Form 10-K for the year ended December 31,
1999 (the "1999 Form 10-K"). Capitalized terms used in this report and not
defined herein have the meaning ascribed for such terms in the 1999 Form 10-K.
In the opinion of management of the Company, the accompanying financial
statements contain all adjustments necessary to present fairly the financial
position of the Company at March 31, 2000 and December 31, 1999; the results of
operations for the three and twelve months ended March 31, 2000 and 1999; and
cash flows for the three months ended March 31, 2000 and 1999. The results of
operations for the three and twelve months ended March 31, 2000 and the cash
flows for the three months ended March 31, 2000, are not necessarily indicative
of the results to be expected for the full calendar year.
Based on a provision in the Texas Restructuring Law allowing recovery of
nuclear decommissioning costs over the lives of nuclear plants, the Company
changed the estimated useful life of the plant investment related to the
decommissioning of Palo Verde. Previously, this decommissioning portion of Palo
Verde plant costs had been depreciated over 10 years. The change in the
estimated useful life for the Texas jurisdiction resulted in a decrease in
depreciation expense and an increase in net income of $0.8 million, net of tax,
or $0.01 diluted earnings per common share for the quarter ended March 31, 2000.
Supplemental Cash Flow Disclosures (In thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------
2000 1999
---------------- ---------------
<S> <C> <C>
Cash paid for:
Interest on long-term debt (1)................... $ 16,507 $ 19,339
Other interest................................... 28 470
Non-cash investing and financing activities:
Grants of restricted shares of
common stock................................. 924 1,123
Issuance of preferred stock for
pay-in-kind dividend......................... - 3,867
</TABLE>
- --------------------
(1) Includes interest on bonds, letter of credit fees related to bonds, and
interest on nuclear fuel financing net of amounts capitalized.
6
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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>
Three Months Ended March 31,
--------------------------------------------------------------------------
2000 1999
---------------------------------- -------------------------------------
Per Per
Common Income Common
Income Shares Share (Loss) Shares Share
------------- ---------- ------- ------------- ---------- ---------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary item..... $ 8,560 $ 9,462
Less:
Preferred stock:
Dividend requirements............ - 2,616
Redemption costs................. - 9,571
------------- -------------
Basic earnings per common share:
Income (loss) before extraordinary
item applicable to common
stock.............................. 8,560 55,299,922 $ 0.155 (2,725) 60,209,960 $ (0.045)
======= =========
Effect of dilutive securities:
Unvested restricted stock........... - 20,116 - -
Stock options....................... - 492,272 - -
------------- ---------- ------------- ----------
Diluted earnings per common share:
Income (loss) before extraordinary
item applicable to common
stock.............................. $ 8,560 55,812,310 $ 0.153 $ (2,725) 60,209,960 $ (0.045)
============= ========== ======= ============= ========== =========
</TABLE>
<TABLE>
<CAPTION>
Twelve Months Ended March 31,
--------------------------------------------------------------------------
2000 1999
---------------------------------- -------------------------------------
Per Per
Common Common
Income Shares Share Income Shares Share
------------- ---------- ------- ------------- ---------- ---------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary items.... $ 42,907 $ 56,020
Less: -------------
Preferred stock:
Dividend requirements............ - 13,800
Redemption costs................. 10 9,571
------------- -------------
Basic earnings per common share:
Income before extraordinary
items applicable to common
stock.............................. 42,897 57,994,205 $ 0.740 32,649 60,179,129 $ 0.542
======= =========
Effect of dilutive securities:
Unvested restricted stock........... - 37,758 - 26,685
Stock options....................... - 472,520 - 369,005
------------- ---------- ------------- ----------
Diluted earnings per common share:
Income before extraordinary
items applicable to common
stock.............................. $ 42,897 58,504,483 $ 0.733 $ 32,649 60,574,819 $ 0.539
============= ========== ======= ============= ========== =========
</TABLE>
7
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Options that were 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) 60,000 options granted May 29, 1998 at an exercise price of $9.50 were
excluded for the second through fourth quarters of 1998, all of 1999 and
the first quarter of 2000.
2) 100,000 options granted January 11, 1999 at an exercise price of $8.75
were excluded for the first and second quarters of 1999.
3) 42,432 options granted January 1, 2000 at an exercise price of $9.81 were
excluded for the first quarter of 2000.
4) 50,000 options granted March 15, 2000 at an exercise price of $9.50 were
excluded for the first quarter of 2000.
B. Regulation
For a full discussion of the Company's regulatory matters, see Note B of
Notes to Financial Statements in the 1999 Form 10-K.
Texas Regulatory Matters
The Texas Restructuring Law specifically recognizes and preserves the
substantial benefits the Company bargained for in its Texas Rate Stipulation and
Texas Settlement Agreement. The Texas Restructuring Law exempts the Company's
Texas service area from retail competition, and preserves rates at their current
levels until the end of the Company's Freeze Period. At the end of the Freeze
Period, the Company will be subject to retail competition and will have no
further claim for recovery of stranded costs or costs of transition to
competition. The Company believes that its continued ability to provide bundled
electric service at current rates in its Texas service area will allow the
Company to collect its Texas jurisdictional stranded costs and costs of
transition to competition. The Company will recover its current decommissioning
cost estimates through its existing rates during the Freeze Period, and
thereafter under the provisions of the Texas Restructuring Law. The rate freeze
under the Texas Rate Stipulation and the rate reduction under the Texas
Settlement Agreement preclude the Company from seeking a rate increase in Texas
to recover increases in the decommissioning cost estimates during the Freeze
Period.
Although the Company is not subject to the Texas restructuring requirements
until the expiration of the Freeze Period, the Company is subject to the
restructuring requirements of the New Mexico Restructuring Law. See "New Mexico
Regulatory Matters" below.
New Mexico Regulatory Matters
The New Mexico Restructuring Law requires the Company to reorganize its
present corporate structure, separating its power generation and energy services
businesses, which will become competitive,
8
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
from its transmission and distribution business, which will remain regulated. On
March 1, 2000, the Company filed the first phase of its transition plan
("Transition Plan-Phase I") with the New Mexico Commission, requesting approval
of the Company's proposed corporate reorganization under the New Mexico
Restructuring Law. The Company initially proposed to separate its current
operations into a power generation subsidiary, a transmission and distribution
subsidiary, and an energy services subsidiary, all owned and controlled by a
common holding company. On May 2, 2000, the Company filed an amendment to its
Transition Plan-Phase I with the New Mexico Commission, requesting approval to
create a separate administrative and corporate support services subsidiary,
which will also be owned and controlled by the common holding company. The
Company will file its Transition Plan-Phase II by June 1, 2000, detailing the
Company's proposed processes and procedures to implement customer choice,
including the Company's proposal for recovery of stranded costs, in New Mexico.
Under the New Mexico Restructuring Law, retail customer choice is currently
scheduled to begin January 1, 2001 for public post-secondary educational
institutions, public schools and residential and small business customers. The
Company believes the New Mexico Commission may delay the start of competition,
but cannot predict the length of such delay, if any.
C. Common Stock Repurchase Program
In May 1999, the Company's Board of Directors approved a stock repurchase
program allowing the Company to purchase up to six million of its outstanding
shares of common stock. As of March 31, 2000, the Company had repurchased
approximately 5.9 million shares of common stock for approximately $53.3
million, including commissions. On March 23, 2000, the Company's Board of
Directors authorized a new stock repurchase program under which the Company may
purchase up to an additional six million shares. The Company will make purchases
primarily in the open market at prevailing prices and will also engage in
private transactions, if appropriate. As with the initial program, any
repurchased shares will be available for issuance under employee benefit and
stock option plans, or may be retired.
D. Commitments and Contingencies
For a full discussion of commitments and contingencies, including
environmental matters related to the Company, see Note H of Notes to Financial
Statements in the 1999 Form 10-K. In addition, see Note C of Notes to Financial
Statements in the 1999 Form 10-K regarding matters related to Palo Verde,
including decommissioning, spent fuel storage, disposal of low-level radioactive
waste and liability and insurance matters.
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. Substantial
expenditures may
9
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
be required to comply with these regulations. The Company analyzes the costs of
its obligations arising from environmental matters on an ongoing basis, and
management believes it has made adequate provision in its financial statements
to meet such obligations. However, unforeseen expenses associated with
compliance could have a material adverse effect on the future operations and
financial condition of the Company.
E. Litigation
Litigation with Las Cruces
On February 24, 2000, the Company and Las Cruces entered into a settlement
agreement ending Las Cruces' efforts to municipalize the Company's distribution
assets and other facilities used to provide electric service to customers in Las
Cruces. On May 3, 2000, the Company and Las Cruces signed the final written
settlement agreement. On May 4, 2000, the Company paid Las Cruces a one-time
lump sum payment of $21 million, $16.5 million of which was expensed in the
fourth quarter of 1999. The remaining $4.5 million related to the transfer of
Las Cruces' West Mesa Substation and related facilities to the Company. The
Company financed a portion of the payment by a draw of $10 million on its line
of credit.
Under the settlement agreement, Las Cruces and the Company entered into a
seven-year franchise agreement with a 2% annual franchise fee (approximately
$0.8 million per year currently) for the provision of electric distribution
service. This franchise agreement will expire on April 30, 2007. Las Cruces is
prohibited during this seven-year period from taking any action to condemn or
otherwise attempt to acquire the Company's distribution system, or attempt to
operate or build its own electric distribution system. Las Cruces will have a
90-day non-assignable option at the end of the Company's seven-year franchise
agreement to purchase the portion of the Company's distribution system that
serves Las Cruces at a purchase price of 130% of the Company's book value of
those facilities at that time. If Las Cruces exercises this option, it is
prohibited from reselling the distribution assets for two years. If Las Cruces
does not exercise this option, the franchise and standstill agreements are
automatically extended for an additional two years.
Las Cruces also agreed that it will not contest the calculation of the
Company's stranded costs in New Mexico, to the extent that the stranded costs
charged to Las Cruces customers do not exceed the $52.9 million amount declining
over time, as initially ordered by the FERC in the Las Cruces stranded cost
proceeding. Las Cruces also assigned all of its existing customer contracts to
the Company on May 3, 2000.
Under the terms of the settlement agreement, all existing litigation between
the Company and Las Cruces, including all litigation pending before the FERC and
the Federal District Court of New Mexico, will be dismissed.
10
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 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 November 1999, the Arizona
Supreme Court issued a decision confirming that certain groundwater rights may
be available to the federal government and Indian tribes. APS and other parties
have petitioned the United States Supreme Court for review of this decision. The
Company is unable to predict the outcome of this case.
11
<PAGE>
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Other Legal Proceedings
Subsequent to March 31, 2000, the Company settled two personal injury
lawsuits requiring the Company to pay $0.5 million in each case. In one of the
cases, however, the Company is seeking to recover its $0.5 million payment from
a co-defendant in this case.
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 flows of the Company.
12
<PAGE>
Independent Accountants' Review Report
--------------------------------------
The Shareholders and the Board of Directors
El Paso Electric Company:
We have reviewed the accompanying condensed balance sheet of El Paso Electric
Company (the Company) as of March 31, 2000, the related condensed statements of
operations and comprehensive operations for the three months and twelve months
ended March 31, 2000 and 1999, and the related condensed statements of cash
flows for the three months ended March 31, 2000 and 1999. These condensed
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed financial statements referred to above for them to be
in conformity with accounting principles generally accepted in the United
States.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of El Paso Electric Company as of December 31,
1999, and the related statements of operations, comprehensive operations,
changes in common stock equity and cash flows for the year then ended (not
presented herein); and in our report dated February 11, 2000, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed balance sheet as of December
31, 1999, is fairly stated, in all material respects, in relation to the balance
sheet from which it has been derived.
KPMG LLP
El Paso, Texas
May 4, 2000
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information contained in this Item 2 updates, and should be read in
conjunction with, the information set forth in Part II, Item 7 of the Company's
1999 Form 10-K.
Statements in this document, other than statements of historical information,
are forward-looking statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. 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 "Overview" and "Liquidity and Capital Resources," as
well as in the Company's other 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.
Overview
El Paso Electric Company is an electric utility that serves retail customers
in west Texas and southern New Mexico and wholesale customers in Texas, New
Mexico, California and Mexico. The Company owns or has substantial ownership
interests in five electrical generating facilities providing it with a total
capacity of approximately 1,500 MW. The Company's energy sources consist of
nuclear fuel, natural gas, coal and purchased power. The Company owns or has
significant ownership interests in four major 345 kV transmission lines and
three 500 kV lines to provide power from Palo Verde, and owns the distribution
network within its retail service territory. The Company is subject to
extensive regulation by the Texas and New Mexico Commissions and, with respect
to wholesale power sales, transmission of electric power and the issuance of
securities, by the FERC.
The Company faces a number of risks and challenges that could negatively
impact its operations and financial results. The most significant of these
risks and challenges arise from the deregulation of the electric utility
industry, the possibility of increased costs, especially from Palo Verde, and
the Company's high level of debt.
The electric utility industry in general and the Company in particular are
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 changes in state laws and regulatory
provisions relating to wholesale and retail service. In 1999 both Texas and New
Mexico passed legislation requiring the Company to separate its transmission and
distribution functions from its generation business and mandating competition in
the Company's retail service territory in the future. The Company faces certain
risks inherent in separating the Company into affiliates, including the possible
loss of operational and administrative efficiencies. In addition to the
operational challenges created by separating functions that have historically
operated within a single entity, there is substantial uncertainty as to whether
the New Mexico legislation will effectively permit the Company to recover its
14
<PAGE>
stranded costs, including the costs of decommissioning, in full. 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 this competition
will not adversely affect the future operations, cash flows and financial
condition of the Company.
The changing regulatory environment and the advent of customer choice have
created a substantial risk that the Company will lose important customers. The
Company's wholesale and large retail customers already 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 CFE the capacity to supply electricity to portions of northern
Chihuahua and allowed CFE to eliminate substantially all purchases of power from
the Company in 1999 and the first quarter of 2000. However, the CFE recently
agreed to purchase from the Company firm capacity and associated energy sales of
up to 80 MW from June 1, 2000 to August 31, 2000 and firm capacity and
associated energy sales of up to 100 MW from May 1, 2001 to September 30, 2001.
Additionally, American National Power, Inc., a wholly-owned subsidiary of
National Power PLC, has announced it is exploring the possibility of building a
generation plant in El Paso, Texas. 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.
Another risk to the Company is potential increased costs, including the risk
of additional or unanticipated costs at Palo Verde resulting from (i) increases
in operation and maintenance expenses; (ii) the 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 rates,
which have been reduced from previous levels as a result of the New Mexico
Settlement Agreement and the Texas Settlement Agreement, are effectively capped
through the rate freeze periods. Additionally, upon initiation of competition,
there will be competitive pressure on the Company's power generation rates. The
Company cannot assure that its revenues will be sufficient to recover any
increased costs, including any increased costs in connection with Palo Verde or
other operations, whether as a result of higher than anticipated levels of
inflation, changes in tax laws or regulatory requirements, or other causes.
Liquidity and Capital Resources
The Company's principal liquidity requirements in the near-term are expected
to consist of interest and principal payments on the Company's indebtedness,
capital expenditures related to the Company's generating facilities and
transmission and distribution systems, and include the $21 million payment made
under the settlement agreement with Las Cruces. The Company expects that cash
flows from operations will generally be sufficient for such purposes, except
that it has drawn $10 million on its line of credit to finance a portion of the
Las Cruces payment in the short-term.
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 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, including the replacement of the
Palo Verde Unit 2 steam generators.
15
<PAGE>
At March 31, 2000, the Company had approximately $31.9 million in cash and
cash equivalents. The Company also has a $100 million revolving credit facility,
which 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 March 31, 2000, approximately $45.8
million had been drawn for nuclear fuel purchases. On May 2, 2000, $10 million
was drawn to pay a portion of the Las Cruces settlement payment. Otherwise no
amounts have ever been drawn on this facility for working capital needs. The
Company anticipates repaying the $10 million drawn on the facility by the end of
the second quarter.
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 Agreement 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 continues to be a
high priority for the Company in order to gain additional financial flexibility
to address the evolving competitive market.
The Company has significantly reduced its long-term debt since its emergence
from bankruptcy in 1996. From June 1, 1996 through May 5, 2000, the Company
repurchased approximately $337.8 million of first mortgage bonds as part of an
aggressive deleveraging program. Common stock equity as a percentage of
capitalization, excluding current maturities of long-term debt, has increased
from 19% at June 30, 1996 to 34% at March 31, 2000. In addition, the Company's
bonds are now rated investment grade by all four major credit rating agencies.
In May 1999, the Company's Board of Directors approved a stock repurchase
program allowing the Company to purchase up to six million of its outstanding
shares of common stock. As of May 5, 2000, the Company had repurchased
approximately 5.9 million shares of common stock for approximately $53.9
million, including commissions. On March 23, 2000, the Company's Board of
Directors authorized a new stock repurchase program under which the Company may
purchase up to an additional six million shares. The Company will make purchases
primarily in the open market at prevailing prices and will also engage in
private transactions, if appropriate. As with the initial program, any
repurchased shares will be available for issuance under employee benefit and
stock option plans or may be retired.
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 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 higher than average 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.
16
<PAGE>
Historical Results of Operations
<TABLE>
<CAPTION>
Income (Loss) Diluted Earnings
Before Extraordinary (Loss) Before
Items Applicable to Extraordinary Items
Common Stock Per Common Share
-------------------------- --------------------------
2000 1999 2000 1999
---------- --------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Three Months Ended March 31................... $ 8,560 $ (2,725) $ 0.153 $ (0.045)
Twelve Months Ended March 31.................. 42,897 32,649 0.733 0.539
</TABLE>
Results of operations for the twelve months ended March 31, 2000 were
affected by the following unusual or infrequent items: (i) an adjustment of $4.0
million, net of tax, reducing fuel expense based on a reduction of the Company's
estimated coal mine reclamation liability; (ii) a charge to earnings of $10.1
million, net of tax, as a result of the settlement agreement with Las Cruces;
and (iii) a one-time charge to earnings of $2.5 million, net of tax, resulting
from the write-off of interest capitalized prior to 1999 on postload nuclear
fuel. Results of operations for the three and twelve months ended March 31,
1999 were affected by the following unusual or infrequent items: (i) the
recognition of certain items arising from the Texas Settlement Agreement; (ii) a
change in estimated fuel cost reserves; and (iii) the early redemption of the
Company's 11.40% Series A Preferred Stock. The results of operations for the
twelve months ended March 31, 1999 were also affected by a charge to earnings of
$3.8 million, net of tax, as a result of the New Mexico Settlement Agreement.
Operating revenues net of energy expenses increased $0.7 million and
decreased $9.2 million for the three and twelve months ended March 31, 2000,
respectively, compared to the same periods last year, as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31: 2000 1999 Increase/(Decrease)
- ---------------------------- ---- ---- -------------------
<S> <C> <C> <C>
Operating revenues net of energy expenses
before the effects of the Texas Settlement
Agreement and a change in estimated
fuel cost reserves...................... $ 107,446 $ 101,874 $ 5,572
Texas Settlement Agreement:
Palo Verde performance reward........... - 3,453 (3,453)
Retroactive base rate decrease.......... - (2,343) 2,343
Change in estimated fuel cost reserves.... - 3,754 (3,754)
---------- ---------- ----------
Total operating revenues net
of energy expenses.................. $ 107,446 $ 106,738 $ 708
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Twelve Months Ended March 31: 2000 1999 Increase/(Decrease)
- ----------------------------- ---- ---- -------------------
<S> <C> <C> <C>
Operating revenues net of energy expenses
before the effects of the Texas Settlement
Agreement, a change in estimated fuel cost
reserves and coal mine reclamation
adjustment.............................. $ 454,779 $ 462,487 $ (7,708)
Texas Settlement Agreement:
Palo Verde performance reward........... - 3,453 (3,453)
Change in estimated fuel cost reserves.... - 4,649 (4,649)
Coal mine reclamation adjustment.......... 6,601 - 6,601
---------- ---------- ----------
Total operating revenues net
of energy expenses.................. $ 461,380 $ 470,589 $ (9,209)
========== ========== =========
</TABLE>
17
<PAGE>
Excluding the effects of the unusual or infrequent items shown above, the
three month increase of $5.6 million was primarily due to increased kWh sales
and increased economy sales at higher margins. Excluding the effects of the
unusual or infrequent items shown above, the twelve month decrease of $7.7
million was primarily due to the rate reductions in Texas and New Mexico and the
December 1998 termination of the sales agreement with CFE. These decreases were
partially offset by increased economy sales at higher margins and increased ESBG
revenues.
Operating revenues from retail customers shown below include the effects of
the Texas Settlement Agreement and a change in estimated fuel cost reserves for
the three and twelve month periods ended March 31, 1999. Comparisons of kWh
sales and operating revenues are shown below (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31: 2000 1999 Increase/(Decrease)
- ---------------------------- ---- ---- -------------------
Amount Percent
------ -------
<S> <C> <C> <C> <C>
Electric kWh sales:
Retail.................................. 1,340,181 1,322,512 17,669 1.3%
Sales for resale........................ 271,730 147,260 124,470 84.5 (1)
Economy sales........................... 605,882 466,976 138,906 29.7 (2)
---------- ---------- --------
Total.................................. 2,217,793 1,936,748 281,045 14.5
========== ========== ========
Operating revenues:
Retail.................................. $ 110,365 $ 110,829 (3) $ (464) (0.4)%
Sales for resale........................ 12,911 10,645 2,266 21.3 (1)
Economy sales........................... 14,769 8,078 6,691 82.8 (2)
---------- ---------- ---------
Total.................................. $ 138,045 $ 129,552 $ 8,493 6.6
========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Twelve Months Ended March 31: 2000 1999 Increase/(Decrease)
- ----------------------------- ---- ---- -------------------
Amount Percent
------ -------
<S> <C> <C> <C> <C>
Electric kWh sales:
Retail.................................. 5,883,837 5,944,659 (60,822) (1.0)%
Sales for resale........................ 1,030,445 1,445,806 (415,361) (28.7) (4)
Economy sales........................... 1,636,786 1,148,583 488,203 42.5 (2)
---------- ---------- ---------
Total.................................. 8,551,068 8,539,048 12,020 0.1
========== ========== =========
Operating revenues:
Retail.................................. $ 488,041 $ 499,250 (3) $ (11,209) (2.2)%
Sales for resale........................ 51,707 70,697 (18,990) (26.9) (4)
Economy sales........................... 39,214 24,870 14,344 57.7 (2)
---------- ---------- ---------
Total.................................. $ 578,962 $ 594,817 $ (15,855) (2.7)
========== ========== =========
</TABLE>
- --------------------
(1) Due to increased kWh sales to IID.
(2) During the first quarter the Company entered into a firm purchase power
contract which ends December 2000, in anticipation of a major generating
plant overhaul in the summer. The increase in economy sales is partially
due to the sale of power purchased under this contract which was not needed
to serve native load in the first quarter.
(3) Includes the effects of the Texas Settlement Agreement and changes in
estimated fuel cost reserves of $4,864 and $8,102 for the three and twelve
months ended March 31, 1999, respectively.
(4) Due to the December 1998 termination of the sales agreement with CFE
partially offset by increased kWh sales to IID.
18
<PAGE>
The CFE recently agreed to purchase from the Company firm capacity and
associated energy sales of up to 80 MW from June 1, 2000 to August 31, 2000 and
firm capacity and associated energy sales of up to 100 MW from May 1, 2001 to
September 30, 2001.
Other operations and maintenance expense increased $1.9 million for the three
months ended March 31, 2000 compared to the same period last year, as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31: 2000 1999 Increase/(Decrease)
- ---------------------------- ---- ---- -------------------
<S> <C> <C> <C>
Palo Verde................................ $ 11,793 $ 10,575 $ 1,218
ESBG activity............................. 1,186 432 754
Regulatory and outside services........... 2,595 1,880 715
Pensions and benefits..................... 4,264 5,183 (919) (1)
Other..................................... 22,066 21,909 157
---------- ---------- ----------
Total other operations and
maintenance expense................. $ 41,904 $ 39,979 $ 1,925
========== ========== ==========
</TABLE>
Other operations and maintenance expense increased $2.2 million for the
twelve months ended March 31, 2000 compared to the same period last year, as
follows (in thousands):
<TABLE>
<CAPTION>
Twelve Months Ended March 31: 2000 1999 Increase/(Decrease)
- ----------------------------- ---- ---- -------------------
<S> <C> <C> <C>
Palo Verde................................ $ 50,122 $ 47,776 $ 2,346
Customer accounts expense................. 5,006 3,200 1,806 (2)
ESBG activity............................. 3,760 2,622 1,138
Pensions and benefits..................... 14,678 19,770 (5,092) (1)
Other..................................... 99,262 97,233 2,029
---------- ---------- ---------
Total other operations and
maintenance expense................. $ 172,828 $ 170,601 $ 2,227
========== ========== =========
</TABLE>
- --------------------
(1) Due to an actuarial gain resulting from a change in actuarial assumptions
due to (i) a change in Medicare credits; (ii) revised census data; and
(iii) prior experience benefit.
(2) Due to an increase in the uncollectible reserve related to a disputed
charge with a large industrial customer in 2000 and the 1999 payments by
two large industrial customers for amounts previously expensed.
Depreciation and amortization expense decreased $1.0 million and $0.5 million
for the three and twelve months ended March 31, 2000, respectively, compared to
the same periods last year due to a change in the estimated useful life of the
decommissioning portion of Palo Verde.
Taxes other than income taxes decreased $0.3 million and $3.1 million for the
three and twelve months ended March 31, 2000, respectively, compared to the same
periods last year. The twelve month decrease was primarily due to a $3.1
million reversal of sales tax reserves established in prior years.
Other income, decreased $3.6 million and $23.2 million for the three and
twelve months ended March 31, 2000, respectively, compared to the same periods
last year due to (i) decreased investment income of $2.3 million and $8.7
million, respectively, resulting from the investment of lower levels of cash and
a change in investment strategy into equity securities for decommissioning trust
funds; (ii) litigation settlements of $1.0 million for the three and twelve
months ended March 31, 2000 (see Item 1 "Notes to Financial Statements - Note E
- - Litigation - Other Legal Proceedings"); and
19
<PAGE>
(iii) the accrual of the $16.5 million settlement agreement payment to Las
Cruces for the twelve months ended March 31, 2000.
Interest charges decreased $2.0 million and $1.7 million for the three and
twelve months ended March 31, 2000, respectively, compared to the same periods
last year, primarily due to a reduction in outstanding debt as a result of open
market purchases and redemptions of the Company's first mortgage bonds. This
decrease was partially offset for the twelve months ended March 31, 2000, by
adjustments to postload nuclear fuel to (i) write-off a portion of accumulated
interest capitalized prior to 1999 and (ii) discontinue capitalizing interest in
1999.
Income tax expense, excluding the tax effect of extraordinary items,
decreased $0.6 million for the three months ended March 31, 2000, primarily due
to a decrease in pretax income. Income tax expense, excluding the tax effect of
extraordinary items, decreased $10.0 million for the twelve months ended March
31, 2000, primarily due to changes in pretax income, including the accrual for
the settlement agreement payment to Las Cruces, and certain permanent
differences including an adjustment to the cash value of Company-owned life
insurance policies and tax-exempt income.
Extraordinary loss on repurchases of debt of $0.6 million and $3.9 million
for the three and twelve months ended March 31, 2000, respectively, net of
income tax benefit of $0.4 million and $2.5 million, represents the payment of
premiums on debt repurchased and the recognition of unamortized issuance
expenses on that debt with no comparable amounts for the same periods ended in
1999.
Extraordinary gain on discharge of debt of $3.3 million for the twelve months
ended March 31, 1999, net of income tax expense of $2.1 million, represents
unclaimed and undistributed funds designated for the payment of preconfirmation
bankruptcy claims which reverted to the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk due to changes in interest rates,
equity prices and commodity prices. See the Company's 1999 Form 10-K, Item 7A,
"Quantitative and Qualitative Disclosures About Market Risk," for a complete
discussion of the market risks faced by the Company and the Company's market
risk sensitive assets and liabilities. As of March 31, 2000, there have been no
material changes in the market risks faced by the Company or the fair values of
assets and liabilities disclosed in Item 7A, "Quantitative and Qualitative
Disclosures About Market Risk," in the Company's 1999 Form 10-K.
20
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company hereby incorporates by reference the information set forth in
Part I of this report under Note E of Notes to Financial Statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Index to Exhibits incorporated herein by reference.
(b) Reports on Form 8-K:
None
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EL PASO ELECTRIC COMPANY
By: /s/ Gary R. Hedrick
-------------------
Gary R. Hedrick
Vice President, Chief Financial
Officer and Treasurer
(Duly Authorized Officer and
Principal Financial Officer)
Dated: May 12, 2000
22
<PAGE>
EL PASO ELECTRIC COMPANY
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<S> <C>
10.01 Settlement Agreement, dated as of February 24, 2000, with the City of Las
Cruces.
10.02 Franchise Agreement, dated April 3, 2000, between the Company and the City of
Las Cruces.
10.03 Stock Option Agreement, dated as of March 15, 2000, with James S. Haines, Jr.
(Identical in all material respects to Exhibit 10.05 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999)
+10.04 Form of Restricted Stock Award Agreement between the Company and certain key
officers of the Company. (Identical in all material respects to Exhibit
10.04 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999)
++10.05 Form of Stock Option Agreement between the Company and certain key officers
of the Company. (Identical in all material respects to Exhibit 10.06 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999)
+++10.06 Form of Directors' Restricted Stock Award Agreement between the Company and
certain directors of the Company. (Identical in all material respects to
Exhibit 10.07 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999)
10.07 Stock Option Agreements, dated as of January 1, 2000 and April 1, 2000, with
Wilson K. Cadman. (Identical in all material respects to Exhibit 10.08 to
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1999)
11 Statement re Computation of Per Share Earnings
15 Letter re Unaudited Interim Financial Information
27 Financial Data Schedule (EDGAR filing only)
+ Ten agreements, dated as of February 28, 2000, substantially identical in all
material respects to this Exhibit, except for the number of shares, have been
entered into with Terry D. Bassham; J. Frank Bates; Michael L. Blough; Gary
R. Hedrick; John C. Horne; Helen Williams Knopp; Earnest A. Lehman; Robert C.
McNiel; Eduardo A. Rodriguez; and Guillermo Silva; officers of the Company.
</TABLE>
<PAGE>
EL PASO ELECTRIC COMPANY
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------- -------
<S> <C>
++ Two agreements, dated as of January 3, 2000, substantially identical in all
material respects to this Exhibit, except for the number of options, have
been entered into with Terry D. Bassham and John C. Horne; officers of the
Company.
+++ In lieu of non-employee director compensation, four agreements, dated as of
January 1, 2000 and April 1, 2000, substantially identical in all material
respects to this Exhibit have been entered into with Patricia Z.
Holland-Branch and Charles Yamarone; directors of the Company.
</TABLE>
<PAGE>
EXHIBIT 10.01
SETTLEMENT AGREEMENT
This Settlement Agreement, dated as of February 24, 2000, is entered into
between the City of Las Cruces, New Mexico ("City") and El Paso Electric Company
("EPE") (collectively, "the Parties").
WHEREAS, EPE has provided electric service in and around Las Cruces for
many years;
WHEREAS, the City has undertaken an effort to condemn EPE's distribution
system in Las Cruces in order to complete the establishment of its municipal
electric utility serving all of Las Cruces;
WHEREAS, the City and EPE, for many years, have been engaged in litigation
and regulatory proceedings in various courts and regulatory agencies concerning
the City's efforts, through the formation of a municipal electric utility, to
provide electric service to all of Las Cruces;
WHEREAS, on February 21, 2000, representatives of the City and EPE reached
an agreement, pursuant to court-ordered and court-supervised settlement
negotiations, on the terms of a Settlement Proposal, attached hereto as Exhibit
A and made a part hereof by reference, subject to final approval by the City of
its Council ("City Council"), and the Board of Directors of EPE;
WHEREAS, on February 24, 2000, the City Council, at a duly convened
meeting, gave final approval to the Settlement Proposal;
WHEREAS, the Board of Directors of EPE gave final approval to the
Settlement Proposal;
WHEREAS, the approved Settlement Proposal anticipates the preparation of a
more detailed final writing reflecting its terms;
WHEREAS, this Settlement Agreement constitutes that anticipated final
agreement;
WHEREAS, on April 3, 2000, the City Council adopted, at a duly convened
meeting, an ordinance (a copy of which is attached hereto as Exhibit B)
approving the conveyance to EPE of the West Mesa Substation property and certain
other interests in real property currently owned by the City;
WHEREAS, the City Council, at the same meeting of April 3, 2000, adopted an
ordinance (a copy of which is attached hereto as Exhibit C) granting EPE a
franchise;
WHEREAS, the City Council has authorized the City's Staff to take all steps
necessary to implement and accomplish the provisions of Exhibit A, to execute
this Settlement Agreement on behalf of the City, and to execute the documents
provided for in this Settlement Agreement; and
WHEREAS, the City and EPE desire to enter into this Settlement Agreement in
order to avoid further controversy between them and the incurrence of additional
costs of litigation.
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NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the City and EPE (together the
"Parties") agree as follows:
1. Effective Date: This Settlement Agreement shall become immediately
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effective as of the date it has been executed by duly authorized representatives
of both the City and EPE (the "Effective Date"). This Settlement Agreement may
be executed in multiple counterparts, each of which shall be an original, but
all of which together shall constitute one and the same Settlement Agreement.
2. Closing Date: The Closing Date for this Settlement Agreement shall be
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three (3) days after the Effective Date of this Settlement Agreement.
3. New Franchise Agreement: The City Council adopted, at a duly convened
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meeting on April 3, 2000, an ordinance granting a franchise to EPE, which
franchise is attached hereto as Exhibit C. On or before the Closing Date, EPE
agrees to execute the Franchise Ordinance attached hereto as Exhibit C.
4. Transfer of Ownership of City Electric Utility Assets And City
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Electric Service Contracts:
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a) On or before the Closing Date, the City shall do the following:
(1) Convey to EPE, free and clear of any and all encumbrances,
except those reservations contained in the patent and those
easements and restrictive covenants of record as shown in a
title policy to be obtained by the City, all of the City's
right, title and interest in the real property listed in
Exhibit D attached hereto. In connection with said title
policy, the City shall furnish at its expense a title policy
for the real property listed in Exhibit D in the amount of
$133,000.00, which policy shall contain only the usual
printed exceptions and exceptions for reservations in the
patent and any easements of record and restrictive covenants
of record as shown in the title policy. Prior to Closing,
the City will furnish to EPE a title binder in the above
amount. EPE at its own expense may eliminate any of the
usual printed exceptions which can be eliminated.
(2) Execute a Quitclaim Deed in favor of EPE conveying all of
the City's right, title and interest in the real property
listed in Exhibit D attached hereto, subject to reservations
in the patent, easements of record, and restrictive
covenants of record, if any, as shown in the title policy.
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(3) Take any and all steps necessary to release any lis pendens
placed on any real property subject to this Settlement
Agreement.
(4) Convey to EPE, free and clear of any and all encumbrances,
all of the City's right, title and interest in the personal
property listed in Exhibit E attached hereto. In connection
with said conveyance, the City shall execute a Bill of Sale
in favor of EPE for the personal property listed in Exhibit
E attached hereto.
(5) Convey to EPE all of the City's right, title and interest in
the easements, right of way grants, and temporary use
permits listed in Exhibit F, which Exhibit the City
represents includes all of the easements, right of way
grants, and temporary use permits from third parties that
the City has been using in connection with its municipal
electric utility. In connection with said conveyance, the
City shall execute an Assignment of the Easements, an
Assignment of Right of Way Grants and Temporary Use Permits,
and a Grant Of Easements to EPE for the easements and other
interests which are listed in Exhibit F attached hereto.
(6) Execute an Assignment of all customer contracts to EPE which
are listed in Exhibit G attached hereto. The City represents
and warrants that the contracts listed in Exhibit G
constitute all of its contracts to provide electric service,
and that all such contracts are in writing. The City has
also informed EPE that it has provided electric service to
certain customers (including certain City departments and
the airport) not pursuant to contracts with these customers,
and EPE has informed the City that it intends to charge
these customers EPE's tariffed rates.
(7) Deliver to EPE copies of (A) all books and records relating
to the real and personal property and easements listed in
Exhibits D, E and F attached hereto, and (B) all books and
records relating to the customer contracts listed in Exhibit
G attached hereto. In fulfilling this commitment, the City
shall deliver to EPE records sufficient to demonstrate that
the City expended no less than FOUR MILLION, FIVE HUNDRED
THOUSAND DOLLARS ($4,500,000.00) for the construction of the
West Mesa Substation and related facilities being conveyed
hereunder to EPE, an amount that the City warrants and
represents that it in fact expended for such construction.
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(8) Take any and all reasonable steps, including executing any
documents, that may be necessary or desirable promptly to
effectuate this transfer and assignment of property and
contracts.
b) The City represents and warrants each of the following as of the
Effective Date and through the time of the conveyances and
assignments required under this Settlement Agreement:
(1) The City (A) has good and marketable title in fee simple to
all real property listed in Exhibit D, and to all buildings,
structures and other improvements thereon, free and clear of
any and all encumbrances, except as shown in the title
policy to be obtained; (B) has good and marketable title to
all of the personal property and assets listed in Exhibit E,
free and clear of any and all encumbrances, and (C) upon
transfer to EPE of the real and personal property and assets
listed in Exhibits D and E, will thereby transfer to EPE
good and marketable title to said property and assets,
subject to no encumbrances, except as shown in the title
policy to be obtained.
(2) The City's municipal electric utility has complied with all
federal and state environmental laws applicable to the
property.
(3) The City has obtained all necessary environmental permits
applicable to the real property listed in Exhibit D, and any
such permits are in good standing and the City is in
compliance with all terms and conditions of such permits.
(4) The City is not aware of any ongoing investigation relating
to its municipal electric utility, or to any of the City
property that is the subject of the conveyances and
assignments required under this Settlement Agreement, by any
governmental agency concerning (A) any environmental law,
(B) any environmental remedial action, or (C) any claim of
losses or expenses arising from the release or threatened
release of a contaminant.
(5) The City is not aware, with respect to its municipal
electric utility or any of the property that is the subject
of the conveyances and assignments required under this
Settlement Agreement, of any judicial or administrative
proceeding, order, judgment, decree or settlement alleging
or addressing a violation of or liability under any
environmental law.
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(6) The City has not received any notice or claim from any
governmental agency with respect to its municipal electric
utility, or any of the property that is the subject of the
conveyances and assignments required under this Settlement
Agreement, to the effect that the City is or may be liable
to any person as a result of the release or threatened
release of a contaminant.
(7) The City is not aware of any environmental encumbrance that
has attached to the real property listed in Exhibit D or the
buildings, structures and other improvements thereon.
(8) There is no asbestos containing material which is on or part
of the real property listed in Exhibit D or the buildings,
structures and other improvements thereon.
c) The City will inform the customers listed in Exhibit G of its
assignment of the City's rights in said contracts to EPE no later
than the Closing Date.
d) EPE shall not assume or be responsible for any liability or
obligation of the City relating to the property or customer
contracts being conveyed or assigned hereunder (as listed in
Exhibits D, E, F and G) arising from any act or omission prior to
the Closing Date, whether such liability or obligation is direct
or indirect, known or unknown, absolute or contingent. The City
agrees to indemnify and hold harmless EPE from any and all
claims, losses, expenses (including reasonable attorneys' fees),
liabilities and obligations arising from any act or omission
relating to the property or customer contracts being conveyed or
assigned hereunder (as listed in Exhibits D, E, F and G)
occurring prior to the Closing Date.
e) The City shall not assume or be responsible for any liability or
obligation of EPE relating to the property or customer contracts
being conveyed or assigned hereunder (as listed in Exhibits D, E,
F and G) arising from any act or omission after the Closing Date,
whether such liability or obligation is direct or indirect, known
or unknown, absolute or contingent. EPE agrees to indemnify and
hold harmless the City from any and all claims, losses, expenses
(including reasonable attorneys' fees), liabilities, and
obligations arising from any act or omission relating to the
property or customer contracts being conveyed or assigned
hereunder (as listed in Exhibits D, E, F and G) occurring after
the Closing Date.
5. Taxes: The City shall be responsible for any taxes for any period
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prior to the Closing Date attributable to the property and assets being conveyed
by the City pursuant to this Settlement Agreement. EPE shall be responsible for
any taxes for any
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period after the Closing Date attributable to the property and assets being
conveyed to EPE pursuant to this Settlement Agreement.
6. Payment by EPE: EPE shall pay to the City by wire transfer on the
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Closing Date the sum of TWENTY ONE MILLION DOLLARS ($21,000,000.00). The City,
prior to the Closing Date, will provide EPE with appropriate wiring
instructions.
7. Termination of Litigation and Regulatory Proceedings:
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a) The Parties are currently involved in the following lawsuits and
regulatory proceedings:
(1) EPE v. City, CIV-98-566, pending in the United States
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District Court for the District of New Mexico, which is
consolidated with CIV-99-259, described hereinafter.
(2) City v. EPE, CIV-99-259, pending in the United States
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District Court for the District of New Mexico, which is
consolidated with CIV-98-566, and which CIV-99-259,
described above.
(3) City v. EPE, SC-97-2-000, pending before the Federal Energy
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Regulatory Commission ("FERC").
(4) EPE, OA96-200-000, pending before FERC.
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(5) SPS v. EPE, EL-98-44-000, pending before FERC.
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(6) City v. EPE, EL-99-10-000, pending before FERC.
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(7) EPE, OA-97-686-000, pending before FERC.
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b) The Parties agree to do the following on or before the Closing
Date to terminate the lawsuits and regulatory matters pending
between them:
(1) In CIV-98-0566, the Parties will execute and file with the
court a joint stipulation to voluntarily dismiss the case
without prejudice, each party to bear its own costs,
expenses and attorneys' fees.
(2) With respect to CIV-99-259, the Parties will take the
following actions in the federal district court and state
district court to dismiss the case and release to the City
the deposit, including interest thereon, that the City
deposited at the commencement of the case:
(A) The Parties will first execute and file a joint motion
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for an order authorizing EPE and the City to file a
joint stipulated motion with the Third Judicial
District Court, State of New Mexico, County of Dona
Ana, stipulating that the THIRTY-SEVEN MILLION DOLLARS
($37,000,000.00) deposited by the City on February 26,
1999, together with all interest accrued thereon, be
released and returned directly to the City, and
representing that the federal district court has
granted the Parties permission to request from the
Third Judicial District such a release of funds
directly to the City;
(B) Upon receipt of an order from the federal district
court granting the Parties' joint motion as described
in the preceding subparagraph 7(b)(2)(A), the Parties
will execute and file a conforming joint stipulated
motion with the Third Judicial District Court, State of
New Mexico, County of Dona Ana; and present to the
State District Court an order closing Cause No. CV-99-
187 pending in the Third Judicial District, State of
New Mexico, and directing the Court Administrator to
pay to the City the sum of $37,000,000.00, plus accrued
interest.
(C) Upon receipt of an order from the state district court
granting the Parties' joint motion as described in
subparagraph 7(b)(2)(B), the Parties will execute and
file a joint motion in federal court, Cause No. CV-99-
259, for an order dismissing the case without
prejudice, each party to bear its own costs, expenses
and attorneys' fees, provided, however, that the court
shall maintain jurisdiction for the limited purpose of
enforcing and resolving disputes regarding this
Settlement Agreement, as provided in paragraph 21(a) of
this Settlement Agreement. The Parties shall also
present to the federal court an order consistent with
the above joint motion.
(3) In SC-97-2-000, OA-96-200-000, EL-98-44-000, EL-99-10-000,
and OA-97-686-000, pending at FERC, the Parties will execute
and file with FERC the Joint Notice attached hereto as
Exhibit H. It is understood that the City has no
reponsibility for obtaining dismissal of any pending FERC
case or vacating of any FERC order other than submitting to
FERC the Joint Notice attached hereto as Exhibit H.
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8. City's Option to Purchase EPE's Distribution System:
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a) In paragraph 4 of Exhibit A attached hereto, EPE has granted, and
does hereby grant, to the City an option to purchase the entirety
of EPE's electric distribution system within the City of Las
Cruces. This option is granted solely to the City and is not
assignable by the City.
(1) The option herein granted must be exercised by the City
within a period commencing on April 30, 2007 and ending on
July 30, 2007. The City shall exercise this option by giving
notice in writing by certified mail, return receipt
requested, to EPE at 123 W. Mills, El Paso, Texas, 79901-
1341, or such other address as EPE shall hereafter provide
to the City in writing, such notice to be effective upon the
date of mailing of said notice by the City.
(2) The City shall be required to take possession of EPE's
electric distribution system within the City of Las Cruces
pursuant to an exercise of its option no later than the
later of (A) one year from the date it provides EPE notice
hereunder of its exercise of the option, and (B) sixty (60)
days after severance of the City's distribution system from
EPE's distribution system has been completed in accordance
with the provisions of subparagraph 8(a)(5) below. The City
shall provide in writing to EPE no less than thirty (30)
days' advance notice of the date on which it will take
possession of EPE's distribution system, provided, however,
that in no event shall the date of possession be prior to
completion of severance.
(3) The property subject to the City's option hereunder and
under Exhibit A shall constitute the following, and if the
City exercises the option it must do so with respect to all
such property:
(A) the distribution system of EPE within the City of Las
Cruces as of the date the City takes possession of said
distribution system pursuant to the option herein,
including but not limited to all distribution lines and
substations within the City limits, all transmission
lines within the City limits of 115kv or above that are
necessary to operate the distribution system (subject
to receipt of all regulatory approvals necessary for
such conveyance), all real property on which such
distribution or transmission lines and substations are
located, and all fixtures on
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such real property;
(B) all office buildings within the City of Las Cruces,
warehouses within the City of Las Cruces, (including
201 N. Water and 555 S. Compress, if owned by EPE at
the time of the City's exercise of its option)all real
property on which buildings are located, and all
fixtures on such real property;
(C) all books and records used in the operation and
maintenance of the distribution system on the date the
City takes possession.
(4) In the event that the City exercises its option as provided
for in this paragraph, and EPE owns and controls the
transmission system in and around Las Cruces at that time,
EPE shall not require the City to pay any amount for such
transmission service in excess of EPE's applicable FERC
tariffed rates, which rates as applied to the City shall not
include any "stranded costs" resulting from the City's
exercise of its option. At the time of transfer of the
distribution assets, EPE's distribution company shall also
assign or transfer to the City any transmission or
generation contracts in effect to provide generation service
to customers within the City limits.
(5) After the exercise of said option, the City and EPE shall
jointly prepare a severance plan to sever the City's
distribution system from EPE's distribution system, which
plan shall provide for a complete severance (similar in
degree and scope of separation to the proposed severance
plan submitted by EPE to the New Mexico Public Regulatory
Commission in Case No. 2957 before the NMPRC) between the
two distribution systems.
(A) After the exercise of the option, the City and EPE
shall immediately begin to work together to attempt to
prepare a joint severance plan. In the event that the
City and EPE are unable to agree on a joint severance
plan within ninety (90) days of the date of the mailing
of the City's notice of exercise of its option, the
City and EPE shall each designate within 15 days one
expert to assist in preparing a severance plan. Within
21 days of their appointment, the two experts shall
agree as to a third expert to assist in preparing such
severance plan. The severance plan shall be prepared
within
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90 days of the appointment of the third expert unless
the third expert determines that additional time is
required. The severance plan adopted shall be that plan
which is agreed to by the majority vote of the three
experts. Each party will pay one-half of the third
expert's fees and costs.
(B) The City and EPE shall fully cooperate with each other
in the implementation of any severance plan. Because
severance will be for the purpose of enabling the City
to operate its own separate municipal electric utility,
all costs of construction, equipment, labor,
installation and repair necessary for implementation of
the severance plan shall be paid by the City.
(6) In the event the City exercises this option, the purchase
price shall be the book value (i.e., original cost less
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depreciation plus capital additions) of the EPE property
described in paragraphs 8(a)(3)(A) and (B) above, plus an
amount equal to thirty (30%) percent in excess of such book
value, as of the date the City provides notice of intent to
exercise the option. For property owned by EPE at the time
of the filing of its FERC Form 1 as of December 31, 2006
that has not been the subject of any subsequent capital
additions, the book value for such property to be used in
calculating the purchase price hereunder shall be the book
value used by EPE in connection with its FERC Form 1 filing.
(A) The book value shall not include any stranded costs.
(B) On July 31, 2006, EPE shall furnish to the City the
book value as of December 31, 2005 of that EPE property
subject to the option included in EPE's' most recent
FERC Form 1 filing.
(C) The purchase price above provided for shall be due and
paid by the City by wire transfer, to an account
designated by EPE at the time, on or before the date
the City takes possession of the system.
(7) In the event the City exercises its option, the City will
not transfer, assign, convey, sell, lease, rent or otherwise
cede control of the distribution system to any other
corporation, person or entity for a period commencing two
(2) years from the date the City takes possession of said
system;
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provided, however, it is expressly understood and agreed
that the City may subcontract for operation and maintenance
of said system and may contract for wholesale purchase of
electricity, including wholesale purchases of electricity
from EPE if the Parties reach agreement for such wholesale
purchase.
(8) On the date possession of said system is conveyed to the
City pursuant to this option, EPE will:
(A) Convey to the City, free and clear of all encumbrances,
except reservations contained in the patent, and those
easements and restrictive covenants of record as shown
in a title policy to be obtained by EPE, all of EPE's
right, title and interest in the real property
described in paragraph 8(a)(3) above. In connection
with said title policy, EPE shall furnish at its
expense a title policy for such real property in the
amount of the book value of such real property plus 30%
(calculated the same as for the purpose of calculating
the option purchase price hereunder), which policy
shall contain only the usual printed exceptions and
exceptions for reservation in the patent and any
easements of record and restrictive covenants of record
as shown in the title policy. EPE will furnish to the
City a title binder in such amount. The City at its own
expense may eliminate any of the usual printed
exceptions which can be eliminated.
(B) Execute a Quitclaim Deed in favor of the City conveying
all of EPE's right, title and interest in the real
property described in paragraph 8(b)(3) above, subject
to reservations in the patent, easements of record, and
restrictive covenants of record, if any, as shown in
the title policy.
(C) Execute a Bill of Sale in favor of the City for the
personal property described in paragraph 8(b)(3) above.
(D) Execute an Assignment of Easements to the City for all
easements belonging to EPE in the real property
described in paragraph 8(b)(3) above.
(E) EPE's distribution company shall execute an Assignment
to the City of all customer contracts for
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the provision of electricity in the City of Las Cruces.
(F) Deliver to the City copies of all books and records
relating to the real and personal property described in
paragraph 8(b)(3) above, and all books and records
relating to the customer contracts referred to in the
preceding subparagraph.
(G) Take any and all reasonable steps, including executing
any documents, that may be necessary or desirable
promptly to effectuate such transfer and assignment of
property and contracts.
(9) In connection with the exercise of this option, EPE, at the
time of the conveyance of the property subject to the
option, shall represent and warrant with respect to the
property being conveyed as follows, unless EPE notifies the
City to the contrary at the time of the conveyance:
(A) EPE (i) has good and marketable title in fee simple to
all conveyed real property, and to all buildings,
structures and other improvements thereon, free and
clear of any and all encumbrances, except as shown in
the title policy to be obtained; (ii) has good and
marketable title to all of the other personal property
and assets to be conveyed, free and clear of any and
all encumbrances, and (iii) upon transfer to the City
of the real and personal property and assets, will
thereby transfer to the City good and marketable title
to the property and assets, subject to no encumbrances,
except as shown in the title policy to be obtained.
(B) EPE has complied with all federal and state
environmental laws applicable to the property.
(C) EPE has obtained all necessary environmental permits
applicable to the real property, and all such permits
are in good standing and EPE is in compliance with all
terms and conditions of such permits.
(D) EPE is not aware of any ongoing investigation by any
governmental agency relating to the property to be
conveyed concerning (i) any environmental law, (ii) any
environmental remedial action, or (iii) any
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claim of losses or expenses arising from the release or
threatened release of a contaminant.
(E) EPE is not aware, with respect to the property to be
conveyed of any judicial or administrative proceeding,
order, judgment, decree or settlement alleging or
addressing a violation of or liability under any
environmental law.
(F) EPE has not received any notice or claim from any
governmental agency with respect to the property to be
conveyed to the effect that it is or may be liable to
any person as a result of the release or threatened
release of a contaminant.
(G) EPE is not aware of any environmental encumbrance that
has attached to the real property to be conveyed, or to
the buildings, structures and other improvements
thereon.
(H) There is no asbestos containing material which is on or
part of the real property to be conveyed or the
buildings, structures and other improvements thereon.
(10) At the time of conveyance pursuant to the option, the City
shall not assume or be responsible for any liability or
obligation of EPE in connection with the property being
conveyed incurred prior to the date of conveyance, whether
such liability or obligation is direct or indirect, known or
unknown, absolute or contingent, and EPE agrees to indemnify
and hold harmless the City from any and all losses and
expenses, including reasonable attorneys' fees, liabilities
and obligations arising from any act or omission occurring
prior to the date of conveyance.
(11) EPE shall not be responsible for any liability or obligation
of the City, direct or indirect, known or unknown, absolute
or contingent, that arises after the date of conveyance
pursuant to said option, and the City agrees to indemnify
and hold harmless EPE from any losses and expenses,
including reasonable attorneys' fees, liabilities and
obligations arising from any act or omission occurring prior
to the date of conveyance.
(12) EPE shall be responsible for any taxes attributable to EPE's
ownership of the property and assets transferred pursuant to
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this Settlement Agreement to the City, which taxes accrue up
to the date of conveyance pursuant to this option and which
taxes arise from EPE's ownership of the property conveyed or
the electric service provided. The City will be responsible
for all taxes from the date of conveyance pursuant to the
option and thereafter in connection with the property
transferred pursuant to said option and the providing of
electric service by the City after conveyance pursuant to
the option.
9. City's Agreement to Forego Municipalization Efforts:
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a) The City promises, covenants, and agrees that the City will take
no actions or engage in any negotiations prior to April 30, 2009
(1) to purchase, condemn, or otherwise acquire any part of the
electric distribution system owned by EPE, its successors, or
assigns, (2) to construct its own electric distribution system,
or (3) to establish a municipal electric utility, except as
provided in paragraph 8 of this Settlement Agreement.
b) Nothing in subparagraph 9(a) above is intended to alter any
rights that the City may have, to the extent provided by law, to
take advantage of retail wheeling and to be an aggregator.
10. City's Participation in New Mexico Stranded Cost Case: The City agrees
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that, in any future proceeding at the New Mexico Public Regulatory Commission
("NMPRC") to determine the amount of EPE's stranded costs attributable to EPE's
service in Las Cruces, the City shall not contest or oppose EPE's estimate of
its stranded costs, provided that the City may contest or oppose EPE's estimate
only if, and only to the extent that, EPE's estimate exceeds the amount
determined by the FERC in its May 26 Order in City of Las Cruces v. El Paso
Elec. Co., No. SC-97-2-000, including the FERC's determination that the stranded
cost amount was $52.9 million as of July 1, 1999 and has declined in time on a
daily basis since July 1, 1999. This Paragraph shall not apply to any NMPRC
proceeding that is unrelated to the determination of EPE's stranded costs. EPE
will notify the City in writing of any proceeding before the NMPRC which
involves issues of EPE's stranded cost attributable to EPE's service in Las
Cruces.
11. City's Release of EPE: The City, for itself and its successors and
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assigns, hereby releases and discharges EPE, its subsidiaries, successors,
predecessors and assigns, and their respective officers, directors, agents,
employees, consultants, attorneys and legal representatives, from any and all
claims, demands, causes of action, obligations, damages and liabilities of any
nature whatsoever, whether now known or unknown, arising from or relating in any
way to the City's past efforts to form a municipal electric utility, past
franchise agreements between the Parties, EPE's past use of right-of-ways to
provide electricity, or any acts or omissions that may have been subject to any
regulatory proceeding or litigation between the Parties; provided, however, that
up to and through April 30, 2000, EPE shall have a continuing obligation to pay
the two (2) percent fees of
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gross revenue for use of City right-of-ways presently being paid.
12. EPE's Release of the City: EPE, for itself and its successors and
-------------------------
assigns, hereby releases and discharges the City, its successors, predecessors
or assigns, and its City Council, officers, employees, consultants, attorneys
and legal representatives, from any and all claims, demands, causes of action,
obligations, damages and liabilities of any nature whatsoever, whether now known
or unknown, arising in any way from EPE's opposition to the City's formation of
a municipal electric utility, the City's past effort to form an electric
utility, the past franchise agreements between the Parties, the City's
opposition to EPE's use of right-of-ways, or any act or omission that has been
the subject of any regulatory proceeding or litigation between the Parties.
13. Authority to Execute Agreement: The individuals executing this
------------------------------
Settlement Agreement on behalf of the City and EPE each represent that they have
read and understand the terms of this Settlement Agreement, that they have had
the benefit and advice of counsel of their choice in the negotiation and
execution of this Settlement Agreement, and that they possess full power and
authority to execute and deliver the Settlement Agreement on behalf of the
stated Parties.
14. No Admission of Liability: Nothing herein shall be construed as a
-------------------------
determination or admission by any party of any liability or wrongdoing, or as a
determination or admission by any party of any issue of fact or law previously
in dispute between the Parties.
15. Breaches of Representations: Each party recognizes that one party's
---------------------------
breach of any of the representations and warranties contained in this Settlement
Agreement will cause damage to the other party, and thus agrees to compensate,
indemnify and hold harmless the other party for any breach of any representation
or warranty.
16. Entire Agreement: This Settlement Agreement, including the exhibits
----------------
attached hereto, embodies the entire agreement between the Parties concerning
the matters dealt with herein and supersedes any and all prior agreements or
understandings as may relate to the matters dealt with herein.
17. Amendment: This Settlement Agreement may be amended only by an
---------
instrument in writing executed by both Parties.
18. Governing Law: This Settlement Agreement shall be governed by and
-------------
construed under the laws of the State of New Mexico.
19. Successors: This Settlement Agreement is binding on EPE's successors
----------
and assigns, and on the City's successors.
20. Partial Invalidity: Whenever possible, each provision of this
------------------
Settlement Agreement hereof shall be interpreted in such manner as to be
effective and valid under applicable law, but in case any one or more of the
provisions contained herein shall, for any reason, be held to be invalid,
illegal, or unenforceable in any respect, such provision
15
<PAGE>
shall be ineffective to the extent, but only to the extent, of such invalidity,
illegality, or unenforceability without invalidating the remainder of such
invalid, illegal, or unenforceable provision or provisions or any other
provisions hereof, unless such a construction would be unreasonable.
21. Dispute Resolution:
------------------
a) The Parties agree that the United States District Court for the
District of New Mexico shall retain jurisdiction pursuant to this
Settlement Agreement for a period of one year from the Effective
Date for the purpose of enforcing this Settlement Agreement or
adjudicating any dispute arising out of, or relating to, this
Settlement Agreement.
b) With respect to any dispute between the Parties arising out of or
relating to this Settlement Agreement that arises more than one
year after the Effective Date, a party seeking resolution of such
dispute shall provide written notice to the other party
describing the existence and nature of the dispute. The Parties
shall then attempt to resolve the dispute within thirty (30) days
of such written notice by good faith negotiation. If the Parties
are unable to resolve a dispute by negotiation within thirty (30)
days, or such additional time as the Parties mutually agree is
appropriate to continue their efforts, the Parties shall submit
the dispute to binding arbitration before an arbitrator mutually
agreeable to the Parties who shall have expertise in the area of
dispute. In order to select the arbitrator, each party shall
submit to the other, no later than fourteen (14) days after the
termination of the negotiation period, a list of three proposed
arbitrators. Within seven (7) days thereafter, each party shall
respond to the other's list, indicating which of the proposed
arbitrators, if any, is acceptable. If more than one of the
proposed arbitrators is accepted, the Parties shall attempt to
reach an agreement regarding which of the accepted arbitrators is
to be selected; if the Parties are unable to so agree within
three (3) business days, one of the accepted arbitrators shall be
selected by lot. If none of the arbitrators on the Parties' lists
is accepted by the other party, the Parties shall repeat the
process. If the Parties remain unable to agree on an arbitrator
at that time, they shall submit the dispute to binding
arbitration administered by the American Arbitration Association,
in accordance with its Commercial Rules.
c) Judgment on any award rendered in an arbitration proceeding held
pursuant to paragraph 21(b) above may be entered in any court
having jurisdiction thereof. The arbitrator shall have the
authority to award any remedy or relief that a court of competent
jurisdiction could order or grant, including the issuance of a
mandatory
16
<PAGE>
injunction, with the exception that punitive, exemplary or other
noncompensatory damages may not be awarded.
17
<PAGE>
IN WITNESS OF THE ABOVE, the Parties have executed this Settlement
Agreement as of the date(s) indicated below.
CITY OF LAS CRUCES
By /s/ James A. Ericson
-------------------------
James A. Ericson, Interim
City Manager
APPROVED AS TO FORM:
By /s/ Fermin Rubio
-------------------
City Attorney
EL PASO ELECTRIC COMPANY
By /s/ James S. Haines
--------------------------
James S. Haines, President
18
<PAGE>
STATE OF NEW MEXICO )
ss.:
County of DONA ANA )
This instrument was acknowledged before me this 3rd day of May, 2000, by
James A. Ericson, Interim City Manager, City of Las Cruces.
/s/ Sandra H. Hiss
-------------------------------
Notary Public
My Commission Expires: 8-25-01
19
<PAGE>
STATE OF TEXAS )
ss.:
County of EL PASO )
This instrument was acknowledged before me this 3rd day of May, 2000, by
James S. Haines, President of El Paso Electric Company.
/s/ Carolina Pena
---------------------------------
Notary Public
My Commission Expires: 03-24-2003
20
<PAGE>
Exhibit 10.02
COUNCIL BILL NO. 00- 041
ORDINANCE NO. 1790
----
AN ORDINANCE GRANTING TO EL PASO ELECTRIC COMPANY, A CORPORATION ORGANIZED AND
EXISTING UNDER AND BY VIRTUE OF THE LAWS OF THE STATE OF TEXAS, ITS LEGAL
REPRESENTATIVES, SUCCESSORS, LESSEES AND ASSIGNS, CERTAIN POWERS, LICENSES,
RIGHTS OF WAY AND PRIVILEGES TO MAINTAIN, ERECT, CONSTRUCT, EQUIP, CONDUCT AND
OPERATE IN THE CITY OF LAS CRUCES, NEW MEXICO, WORKS, SYSTEMS, AND PLANTS TO
GENERATE, MANUFACTURE, USE, STORE, SELL DISTRIBUTE, CONVEY, OR OTHERWISE USE,
CONDUCT, SERVE, SUPPLY AND FURNISH SAID CITY, ITS INHABITANTS AND OTHERS
ELECTRICITY FOR LIGHT, HEAT AND POWER, AND OTHER USEFUL SERVICE, AND TO USE THE
STREETS, AVENUES, ALLEYS, HIGHWAYS, PUBLIC WAYS, SIDEWALKS, BRIDGES, AND GROUNDS
OF SAID CITY, FOR A PERIOD OF UP TO NINE (9)YEARS, AND PRESCRIBING CERTAIN TERMS
AND CONDITIONS THEREIN MENTIONED.
The City Council of the City of Las Cruces is informed that:
WHEREAS, on February 24, 2000, the City Council passed Resolution No. 00-
238, which resolution approved a global settlement agreement between the City of
Las Cruces ("City") and El Paso Electric Company ("EPE"); and
WHEREAS, as part of the Settlement Agreement, the City is required to grant
a franchise ordinance/agreement to EPE for an initial term of seven (7) years
which is to be similar to the 1983 franchise ordinance/agreement between EPE and
the City. This franchise ordinance/agreement will remain in effect and shall
automatically be extended for an additional two (2) years if the City does not
timely exercise its purchase options granted it under the Settlement Agreement
in accordance with the terms set forth therein; and
WHEREAS, the franchise ordinance/agreement partially implements the
settlement agreement between the City and EPE; and
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<PAGE>
Council Bill No. 00-041
---
Ordinance No. 00-1790
----
Page 2
WHEREAS, the franchise ordinance/agreement will assist the governing body
in bringing the settlement agreement between the City and EPE to final
completion.
NOW, THEREFORE, be it ordained by the governing body of the City of Las
Cruces that:
(I)
The Franchise Ordinance/Agreement attached hereto and incorporated herein
is hereby adopted.
(II)
City staff is hereby authorized to do all acts necessary in the
accomplishment of the hereinabove.
DONE AND APPROVED this 3rd day of April, 2000.
---
APPROVED:
/s/ RUBEN A. SMITH
-----------------------------------
Mayor
ATTEST:
/s/ SHIRLEY CLARK
- -----------------------------------
City Clerk
Mayor Smith: aye
----------
Councillor Frietze: aye
----------
Councillor Mattiace: aye
----------
Councillor Valencia: absent
----------
Councillor Trowbridge: aye
----------
Councillor Tomlin: absent
----------
Councillor Haltom: aye
----------
255
<PAGE>
Council Bill No. 00-041
---
Ordinance No. 00-1790
----
Page 3
Moved by: Frietze
-------------------
Seconded by: Haltom
-----------------
APPROVED BY:
/s/ HARRY S (PETE) CONNELLY
- -----------------------------------
Harry S. (Pete) Connelly
Deputy City Attorney
256
<PAGE>
FRANCHISE ORDINANCE/AGREEMENT
-----------------------------
SECTION 1: PURPOSE - COMPANY'S USE OF STREETS
- --------- ----------------------------------
That the City of Las Cruces, New Mexico (hereinafter called the "City"),
hereby grants unto and vests in the El Paso Electric Company, a Corporation
organized and existing under and by virtue of the laws of the State of Texas,
and authorized to transact business in the State of New Mexico, (hereinafter
called the "Company"), its legal representatives, successors, lessees and
assigns, AN ELECTRICAL FRANCHISE. This Franchise Ordinance gives the Company the
right to operate its electric plant, systems and works now installed and in
operation or hereafter installed and operated in the City of Las Cruces, New
Mexico, and the authority, license, power and privileges to promote, maintain,
construct, build, equip, conduct, or otherwise establish and operate in the
City, works or systems and plants to generate, manufacture, use, store, sell,
distribute, convey, or otherwise establish, conduct, serve, supply and furnish,
the inhabitants of the City, whenever the inhabitants of the City and others,
and/or the City shall desire to contract therefor, with electricity for light,
heat, power and other useful service, and elements and materials necessarily
incidental to the use of same, including the sale of electrical appliances. The
Company is hereby granted passage right of way and the right to continued use
and occupancy, and to occupy and use during the life of this Franchise
Ordinance, every and any and all streets, avenues, alleys, highways, public
ways, sidewalks, bridges, and other public structures and public places, and
public grounds of the City, both above and beneath the surface of the City, as
(said streets,
257
<PAGE>
avenues, alleys, highways, public ways, sidewalks, bridges, and other public
structures and public places, and public grounds of the City) they now exist, or
may be hereafter extended, or such as may be hereafter created within the
corporate limits of the City, or as same may be hereafter extended, for the
purpose of carrying out that part of its business as is authorized by the City
pursuant to the terms of this Franchise Ordinance.
SECTION 2: LICENSE - POLE RELOCATION - REPLACEMENT OF
- --------- ------------------------------------------
PAVEMENT -APPEALS - BOND - HOLD HARMLESS AGREEMENT
- --------------------------------------------------
The Company is hereby authorized, licensed and empowered to do any and all
things necessary and proper in executing the powers and utilizing the privileges
herein mentioned and granted by this Franchise Ordinance, including the making
of necessary excavations and the right to acquire, erect and maintain and
operate its poles, wires and appurtenances in and on any and all of the streets,
avenues, alleys, highways, public ways, sidewalks, bridges, and other public
structures and public places, and public grounds of the City. The Company is
hereby authorized to extend, construct, place, locate its poles, lines, wires,
connections, and appurtenances through, over, across, and under any and all of
the streets, avenues, highways, public ways, sidewalks, bridges, and other
public structures and public places, and public grounds of the City, subject,
however, to the express approval of the City's Planning Department and provided
that such installation does not conflict with existing water and/or gas and/or
sewer lines. No part of the expense of the above-described work shall be borne
by the City.
2
258
<PAGE>
Both parties acknowledge the long range importance to the City in having
appropriate coordination between various construction programs now in progress
or contemplated for some future year by the various agencies authorized to make
use of City streets, avenues, alleys, highways, public ways, sidewalks, bridges,
and other public structures and public places, and public grounds of the City.
In order that such coordination shall be effective, and that possible conflicts
between power poles and future street or City utility system improvements be
eliminated, the Company, prior to commencement of such work, will review and
coordinate the work with the City's Planning Department. It shall be considered
that projects (new construction and/or emergency replacement) consisting of four
primary in-line poles or less are not of sufficient magnitude to warrant the
review and coordination study by the City's Planning Department as above
mentioned.
Where existing poles and facilities are installed in City streets, and street
right-of-ways, alleys, highways, public ways, sidewalks, bridges, and other
public structures and public places, and public grounds of the City and it is
determined that such poles and facilities are in conflict with authorized street
widening and street improvements, the project to relocate the poles and
facilities to a mutually acceptable location shall be subject to the approval of
the City's Planning Department. All of such pole relocation work and
installation shall be performed by the Company at no expense to the City. All
work done in said streets, alleys, highways, public ways, sidewalks, bridges,
and other public structures and public places, and public grounds of the City by
the Company, shall be performed with
3
259
<PAGE>
reasonable diligence; and the Company shall, within a reasonable time, restore
such streets, alleys, and public grounds excavated by it, to their original
condition as nearly as possible; and said work shall be done subject to the
approval and acceptance of the City's Planning Department.
No trench excavations or pavement cuts in any public way shall be commenced
under the license herein granted until a permit to commence such work is secured
from the City's Planning Department.
The replacement of pavement shall be performed in accordance to City
standards and ordinances. All expenses associated with such replacement of
pavement shall be borne by the Company, whether completed by private contractors
or by City work force.
Appeals from decisions of the City's Planning Department may be taken to
the City Council. During the term of this Franchise Ordinance, the Company shall
have in force for the benefit of the City, a bond in the sum of Ten Thousand
Dollars ($10,000) securing prompt performance of all of its duties and
obligations under the terms of this Franchise Ordinance.
The City and its officers, agents and employees shall be indemnified and
held harmless for all claims, losses and damages to persons or property on
account of or resulting from the Company's operation, work, duties, and
obligations pursuant to the terms of this Franchise Ordinance.
4
260
<PAGE>
SECTION 3: COMPANY'S RIGHT TO TURN-OFF
- --------- ---------------------------
The City, acting as aforesaid, hereby grants unto the Company, its
successors, lessees and assigns, the right to operate and control all meters,
wires, appliances and/or appurtenances owned by the Company, and in case of
refusal or failure on the part of any customer to pay the Company proper charges
for electricity consumed, or to observe the established rules and regulations of
the Company to disconnect the service and wires of the Company connecting to the
premises of such consumer, and to remove all meters and other materials,
appliances or appurtenances furnished and owned by the Company.
SECTION 4: COMPANY RIGHT TO TREE-TRIM
- --------- --------------------------
The Company shall have the authority to trim trees upon and overhanging
streets, avenues, highways, public ways, sidewalks, bridges, and other public
structures, public places, and public grounds of the City so as to prevent the
branches of such trees from coming in contact with the wires of the Company. All
tree trimming to be done under the supervision and direction of the Company and
at the expense and liability of the Company.
SECTION 5: EXTENSION OF OVERHEAD WIRES
- --------- ---------------------------
Whenever an applicant for electric service shall have complied with
established rules and regulations of the Company and whenever necessary, the
Company shall, without charge, extend its overhead wires a distance of three
hundred (300) feet per customer, and provide a reasonable overhead service from
the nearest pole to the customer's building;
5
261
<PAGE>
PROVIDED, however, that the Company shall not be so required in cases where
there exists any physical obstruction within said three hundred (300) feet
making such extension impractical, or when the permission of some third party is
required and is refused.
SECTION 6: FRANCHISE TAX - EXEMPTIONS
- --------- --------------------------
The Company, its successors, lessees and assigns, for and in consideration
of the granting of this Franchise Ordinance, and as rental and/or tax for the
occupation and use or easement over, upon, and beneath the streets, avenues,
alleys, highways, public ways, sidewalks, bridges, and other public structures
and public places, and public grounds of the City, shall pay monthly to the
City, beginning with the time hereinafter set forth, and thereafter during all
the time this provision shall remain in force and effect, a total aggregate sum
of two percent (2%) of the gross receipts of the Company, its successors,
lessees and assigns, derived from (1) the sales of electricity used or consumed
within the corporate limits of the City, (2) from the lease of poles and
equipment, excepting poles used under joint use agreements by Mountain States
Telephone and Telegraph Company, Western Union Telegraph Company, New Mexico
State University, the United States Government, and Community Antenna TV (Cable)
Companies, and (3) from all revenue whatsoever from whatever source under the
Company's rate, fees or charges, in existence at the time of payment, excepting
therefrom such receipts for electricity furnished schools, colleges and
universities operated by a Governmental Agency; PROVIDED, HOWEVER, that until
such
6
262
<PAGE>
time as said two percent of the annual gross receipts of the Company shall have
exceeded sixty thousand dollars ($60,000.00) per annum, the Company shall be
obliged to make in lieu thereof to the City an annual minimum payment of sixty
thousand dollars ($60,000.00). Said payments shall be based on such gross
receipts beginning on meter reading on first day of calendar month next
following the effective date of this instrument and shall be made to the City on
or after the expiration of thirty (30) days from and after the first day of each
month of each year from and after and during all the time this Franchise
Ordinance shall remain in force and effect.
For the purpose of determining said revenue, the revenue accounts of the
Company shall at all times be subject to inspection by duly authorized City
Officials. Said payments shall be made in lieu of any and all other Franchise
Ordinance, license, privileges, pole, easement, wire or instrument, excise or
revenue taxes except municipal occupation taxes, on all sales or revenues from
any source other than electrical energy sales, and all other exactions except
general ad valorem property taxes upon business, revenues, property, poles,
wires, instruments, conduits, pipes, fixtures or other appurtenances of the
Company, and all other property or equipment of the Company or any part thereof,
in the City during the term of this Franchise Ordinance.
SECTION 7: COLLECTION OF ADDITIONAL MUNICIPAL GROSS RECEIPTS TAX
- --------- -----------------------------------------------------
The provisions of Section 6 shall not be construed to excuse the Company
from
7
263
<PAGE>
collecting from its electric service customers and paying over to the City
additional municipal gross receipts tax levied, in the event the City shall, at
any time during the term of this Franchise Ordinance, enact such additional
municipal gross receipts tax.
SECTION 8: NOTICE OF FILING
- --------- ----------------
The Company will not make application to the New Mexico Public Regulatory
Commission for a change in any of the various rate schedules applicable to
services required by the City and in effect at the time the Franchise Ordinance
becomes effective without first discussing the matter with the City. Should such
an application be presented to the New Mexico Public Regulatory Commission, the
Company agrees that reasonable advance notice of such hearing will be given the
City in order to afford the City an opportunity to intervene in the formal
hearing before the New Mexico Public Regulatory Commission. In such instance,
the Company agrees to provide the City with available engineering, statistical,
billing and other data pertinent to the rate change application.
SECTION 9: UNDERGROUND FACILITIES
- --------- ----------------------
The Company shall encourage and promote the design and use of underground
cables and facilities for the downtown redevelopment area at the request of the
City and PROVIDED, however, that the City and the property owners involved are
agreeable in supporting the cost differential for this project. The Company also
agrees to promote and encourage the use of underground facilities in new
subdivisions where the differential costs
8
264
<PAGE>
of underground versus overhead distribution is agreeable to both the Company and
the property owner. If an adjoining subdivision is served from underground
facilities, every effort will be made to design, operate and maintain these
facilities for future expansion to other subdivisions in the immediate areas.
SECTION 10: SWITCHING FACILITIES - STAND-BY AUXILIARY SERVICE
- ---------- -------------------------------------------------
The Company shall establish and shall maintain during the term of this
Franchise Ordinance such switching facilities as may be required to provide
alternate circuits to supply electrical power for emergency installations within
the City limits, limited to the following: Memorial Medical Center and such
other City-County Hospital (or hospitals) as may be constructed during the term
of this Franchise Ordinance, and at the county jail and/or City public safety
buildings and at a Civil Defense Headquarters Center as the same may be
constructed during the term of this Franchise Ordinance.
Upon written request the Company will provide standby and/or auxiliary
service to customers having other power or power generating equipment and
facilities. The service will be provided in accordance with the Company's
published RULES AND REGULATIONS and billed under approved tariff schedules on
file with the New Mexico Public Regulatory Commission.
SECTION 11: ACCEPTANCE OF FRANCHISE
- ---------- -----------------------
This Franchise Ordinance shall be accepted by the Company in writing within
30 days
9
265
<PAGE>
from the date this Franchise Ordinance is passed by the City Council. If not so
accepted this Franchise Ordinance shall be repealed and negotiation for a new
Franchise Ordinance may take place between the City and the Company; PROVIDED,
that in any such negotiation neither party shall be bound by the terms of this
Franchise Ordinance. It is hereby made an essential condition in the granting of
this Franchise Ordinance, and its use and enjoyment by the Company, its
successors, lessees, and assigns, that the acceptance by the Company, its
successors, lessees, and assigns, of the Franchise Ordinance and the rights and
privileges hereby granted shall be the acceptance by the Company, its
successors, lessees and assigns, of all the conditions, reservations and
restrictions herein provided and contained; and when this Franchise Ordinance
has been accepted as aforesaid in the space provided at the end of this
instrument, this Franchise Ordinance shall be and become a contract duly
executed by and between the City and the Company, PROVIDED, however, that
excepting for mortgages, stockholders, bondholders, or any others having any
lien or claim of whatever sort against the Company including its rights and
privileges as herein granted, the Company will make no transfer, assignment,
lease, or other succession of or to the rights herein granted, without the
approval of the City, which approval shall be granted as to any person or entity
which provides information sufficient to demonstrate that it is financially
sound and technically qualified to provide electric distribution service, and
the regulatory agencies having jurisdiction over the Company's operations.
10
266
<PAGE>
SECTION 12: REPEAL OF CONFLICTING ORDINANCES
- ---------- --------------------------------
All other ordinances or parts of ordinances in conflict herewith are hereby
repealed.
SECTION 13: SCOPE
- ---------- -----
Except for the written Settlement Agreement between the parties dated as of
February 24, 2000 (hereinafter called the "Settlement Agreement"), this
Franchise Ordinance incorporates all of the agreements, covenants and
understandings between the Parties hereto concerning the subject matter hereof,
and all such covenants, agreements, and understandings have been merged into
this written Franchise Ordinance. Except for the written Settlement Agreement,
no prior agreement or understanding, verbally or otherwise, of the parties or
their agents, shall be enforceable unless embodied in this Franchise Ordinance.
SECTION 14: AMENDMENTS
- ---------- ----------
This Franchise Ordinance shall not be altered, changed or amended except by
ordinance in writing and executed by the parties hereto.
SECTION 15: RIGHTS OF SUCCESSORS
- ---------- --------------------
This Franchise Ordinance shall be binding upon the successors, lessees and
assigns of the parties hereto.
SECTION 16: PARAGRAPH HEADINGS
- ---------- ------------------
The paragraph headings of this Franchise Ordinance are inserted only for
reference
11
267
<PAGE>
and in no way define, limit or describe the scope or intent of this Franchise
Ordinance nor affect its terms and provisions.
SECTION 17: TERM
- ---------- ----
This Franchise Ordinance shall expire on April 30, 2007, unless the City
does not timely exercise the purchase option granted it under the Settlement
Agreement in accordance with the terms set forth therein, in which event this
Franchise Ordinance shall remain in effect and shall automatically be extended
for an additional two (2) years through April 30, 2009. This Franchise Ordinance
shall take effect and be in force 30 days after the passage and adoption of this
Franchise Ordinance, the date of passage and adoption being set forth below.
However, after such passage and adoption and during the aforementioned 30 day
period, this Franchise Ordinance (1) must be published at the expense of the
Company in full, in two weekly issues of a newspaper published in the City of
Las Cruces, New Mexico, said publications not less than seven days apart; (2)
proof of such publication must be submitted by affidavit from the publisher and
placed in the appropriate City records, and (3) this Franchise Ordinance must be
accepted in writing by the Company in the space provided at the end of this
instrument; otherwise, this Franchise Ordinance shall be null and void.
SECTION 18: NON-EXCLUSIVE FRANCHISE - CITY OPTION TO PURCHASE
- ---------- -------------------------------------------------
A. The City in granting this Franchise Ordinance grants only a non-
exclusive Franchise Ordinance. Furthermore, the City in granting this Franchise
Ordinance, reserves
12
268
<PAGE>
the right, under applicable provisions of New Mexico law, to purchase
electricity from other parties on a retail basis, including being an aggregater
for its citizens or businesses operating within the City of Las Cruces.
B. This Franchise Ordinance is subject to an option to purchase by the
City of the Company's distribution system within the City of Las Cruces as
contained in the Settlement Agreement, which option to purchase is incorporated
herein by reference.
SECTION 19: SAVINGS CLAUSE - REPEAL
- ---------- -----------------------
If any section, paragraph, subdivision, clause, phrase or provision of this
Franchise Ordinance except the provision containing the Franchise Ordinance
rental or tax shall be adjudged invalid or unconstitutional, the same shall not
affect the validity of this Franchise Ordinance as a whole, or any part or
provisions thereof other than the part so decided to be invalid or
unconstitutional. If the Franchise tax or rental is declared invalid, or
unconstitutional, then this entire Franchise Ordinance shall be null and void.
DATED this 3rd day of April, 2000.
CITY OF LAS CRUCES
By /s/ RUBEN A. SMITH
-----------------------------------
Ruben A. Smith, Mayor
ATTEST:
/s/ SHIRLEY CLARK
- -----------------------------------
City Clerk
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269
<PAGE>
APPROVED AS TO FORM:
/s/ HARRY S. (PETE) CONNELLY
- -----------------------------------
Harry S.(Pete) Connelly
Deputy City Attorney
ACCEPTANCE
The above Franchise Ordinance/Agreement is hereby accepted as to all of its
terms, conditions, and provisions on this 18th day of April, 2000.
-----
EL PASO ELECTRIC COMPANY
A Texas Corporation
By /s/ JAMES HAINES
-----------------------------------
President
ATTEST:
/s/ GUILLERMO SILVA, JR.
- -----------------------------------
Secretary
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<PAGE>
Exhibit 11
El Paso Electric Company
Computation of Earnings Per Share
(In Thousands Except for Share Data)
<TABLE>
<CAPTION>
Three Months Ended March 31, Twelve Months Ended March 31,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) applicable to common stock:
Income (loss) before extraordinary items $ 8,560 $ (2,725) $ 42,897 $ 32,649
Extraordinary loss on repurchases of debt,
net of income tax benefit (553) -- (3,889) --
Extraordinary gain on discharge of debt,
net of income tax expense -- -- -- 3,343
------------ ------------ ------------ ------------
Net income (loss) applicable to common stock $ 8,007 $ (2,725) $ 39,008 $ 35,992
============ ============ ============ ============
Basic earnings (loss) per common share:
Weighted average number of common
shares outstanding 55,299,922 60,209,960 57,994,205 60,179,129
============ ============ ============ ============
Net income (loss) per common share:
Income (loss) before extraordinary items $ 0.155 $ (0.045) $ 0.740 $ 0.542
Extraordinary loss on repurchases of debt,
net of income tax benefit (0.010) -- (0.067) --
Extraordinary gain on discharge of debt,
net of income tax expense -- -- -- 0.056
------------ ------------ ------------ ------------
Net income (loss) $ 0.145 $ (0.045) $ 0.673 $ 0.598
============ ============ ============ ============
Diluted earnings (loss) per common share:
Weighted average number of common
shares outstanding 55,299,922 60,209,960 57,994,205 60,179,129
------------ ------------ ------------ ------------
Effect of dilutive potential common stock options
based on the treasury stock method using
average market price:
Quarter ended March 31 492,272 -- 492,272 --
Quarter ended June 30 -- -- 384,767 538,986
Quarter ended September 30 -- -- 498,828 457,905
Quarter ended December 31 -- -- 514,212 479,130
Effect of dilutive potential restricted common
stock based on the treasury stock method
using average market price:
Quarter ended March 31 20,116 -- 20,116 --
Quarter ended June 30 -- -- 29,186 31,840
Quarter ended September 30 -- -- 45,471 35,468
Quarter ended December 31 -- -- 56,258 39,433
------------ ------------ ------------ ------------
512,388 -- 2,041,110 1,582,762
Divided by number of quarters 1 1 4 4
------------ ------------ ------------ ------------
Net effect of dilutive potential common stock 512,388 -- 510,278 395,690
------------ ------------ ------------ ------------
Weighted average number of common shares and
dilutive potential common shares outstanding 55,812,310 60,209,960 58,504,483 60,574,819
============ ============ ============ ============
Net income (loss) per common share:
Income (loss) before extraordinary items $ 0.153 $ (0.045) $ 0.733 $ 0.539
Extraordinary loss on repurchases of debt,
net of income tax benefit (0.010) -- (0.066) --
Extraordinary gain on discharge of debt,
net of income tax expense -- -- -- 0.055
------------ ------------ ------------ ------------
Net income (loss) $ 0.143 $ (0.045) $ 0.667 $ 0.594
============ ============ ============ ============
</TABLE>
<PAGE>
Exhibit 15
El Paso Electric Company
El Paso, Texas
Ladies and Gentlemen:
Registration Statement Nos. 333-17971 and 333-82129
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated May 4, 2000 related to our
review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such a report is not
considered part of the registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
Very truly yours,
KPMG LLP
El Paso, Texas
May 11, 2000
<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 MARCH 31, 2000 AND THE RELATED
STATEMENTS OF INCOME AND CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,389,307
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 118,688
<TOTAL-DEFERRED-CHARGES> 77,502
<OTHER-ASSETS> 15,649
<TOTAL-ASSETS> 1,601,146
<COMMON> 60,538
<CAPITAL-SURPLUS-PAID-IN> 243,358
<RETAINED-EARNINGS> 154,878
<TOTAL-COMMON-STOCKHOLDERS-EQ> 405,483<F1>
0
0
<LONG-TERM-DEBT-NET> 775,553
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 93
0
<CAPITAL-LEASE-OBLIGATIONS> 23,420
<LEASES-CURRENT> 23,228
<OTHER-ITEMS-CAPITAL-AND-LIAB> 373,369
<TOT-CAPITALIZATION-AND-LIAB> 1,601,146
<GROSS-OPERATING-REVENUE> 138,045
<INCOME-TAX-EXPENSE> 5,936
<OTHER-OPERATING-EXPENSES> 105,253
<TOTAL-OPERATING-EXPENSES> 111,189
<OPERATING-INCOME-LOSS> 26,856
<OTHER-INCOME-NET> (795)
<INCOME-BEFORE-INTEREST-EXPEN> 26,061
<TOTAL-INTEREST-EXPENSE> 17,501
<NET-INCOME> 8,007<F2>
0
<EARNINGS-AVAILABLE-FOR-COMM> 8,007
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 61,335
<CASH-FLOW-OPERATIONS> 55,364
<EPS-BASIC> 0.145
<EPS-DILUTED> 0.143
<FN>
<F1>INCLUDES ($53,291) RELATED TO 5,917,433 SHARES OF TREASURY STOCK.
<F2>NET INCOME IS NET OF EXTRAORDINARY LOSS ON REPURCHASED DEBT (NET OF INCOME TAX
BENEFIT) OF ($553).
</FN>
</TABLE>
