- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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 1-3280
Public Service Company of Colorado
(Exact name of registrant as specified in its charter)
Colorado 84-0296600
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1225 17th Street, Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (303) 571-7511
--------------------------------------------
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
At November 8, 1996, 64,774,397 shares of the registrant's Common Stock,
$5.00 par value (the only class of common stock), were outstanding.
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Table of Contents
PART I - FINANCIAL INFORMATION
Item l. Financial Statements ............................................. 1
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................. 26
Item 6. Exhibits and Reports on Form 8-K.................................. 26
SIGNATURE.................................................................. 27
EXHIBIT INDEX.............................................................. 28
EXHIBIT 12(a).............................................................. 29
EXHIBIT 12(b).............................................................. 30
EXHIBIT 15 ................................................................ 31
In addition to the historical information contained herein, this report
contains a number of "forward-looking statements", within the meaning of the
Securities Exchange Act of 1934. Such statements address future events and
conditions concerning capital expenditures, resolution and impact of litigation,
regulatory matters, liquidity and capital resources, and accounting matters.
Actual results in each case could differ materially from those projected in such
statements due to a variety of factors including, without limitation,
restructuring of the utility industry; future economic conditions; earnings
retention and dividend payout policies; developments in the legislative,
regulatory and competitive environments in which the Company operates; and other
circumstances that could affect anticipated revenues and costs, such as
compliance with laws and regulations. These and other factors are discussed in
the Company's filings with the Securities and Exchange Commission including this
report.
i
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Thousands of Dollars)
ASSETS
September 30, December 31,
1996 1995
(Unaudited)
Property, plant and equipment, at cost:
Electric .......................................... $3,887,589 $3,751,321
Gas................................................ 1,011,274 989,215
Steam and other.................................... 78,197 88,446
Common to all departments.......................... 423,296 380,809
Construction in progress........................... 150,189 192,580
--------- ---------
5,550,545 5,402,371
Less: accumulated depreciation .................... 2,011,606 1,921,659
--------- ---------
Total property, plant and equipment.............. 3,538,939 3,480,712
--------- ---------
Investments, at cost, and receivables................. 35,912 24,282
--------- ---------
Current assets:
Cash and temporary cash investments................ 15,540 14,693
Accounts receivable, less reserve for uncollectible
accounts ($4,296 at September 30, 1996; $3,630 at
December 31, 1995) .......... .................... 142,498 124,731
Accrued unbilled revenues ......................... 72,879 96,989
Materials and supplies, at average cost............ 51,450 56,525
Fuel inventory, at average cost.................... 22,446 35,654
Gas in underground storage, at cost (LIFO)......... 50,105 44,900
Current portion of accumulated deferred income taxes 16,669 19,229
Regulatory assets recoverable within one year (Note 1) 43,535 40,247
Prepaid expenses and other......................... 30,800 35,619
--------- ---------
Total current assets.............................. 445,922 468,587
--------- ---------
Deferred charges:
Regulatory assets (Note 1)......................... 300,354 321,797
Unamortized debt expense .......................... 10,506 10,460
Other.............................................. 73,996 48,457
--------- ---------
Total deferred charges............................ 384,856 380,714
--------- ---------
$4,405,629 $4,354,295
========== ==========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
1
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Thousands of Dollars)
CAPITAL AND LIABILITIES
September 30, December 31,
1996 1995
(Unaudited)
Common stock.......................................... $1,040,831 $ 997,106
Retained earnings..................................... 374,690 346,539
--------- --------
Total common equity............................... 1,415,521 1,343,645
Preferred stock:
Not subject to mandatory redemption................ 140,008 140,008
Subject to mandatory redemption at par............. 39,913 41,289
Long-term debt........................................ 1,270,716 1,195,553
--------- ---------
2,866,158 2,720,495
Noncurrent liabilities:
Employees' postretirement benefits other
than pensions ................................... 55,052 51,704
Employees' postemployment benefits................. 23,500 23,500
Defueling and decommissioning liability (Note 2)... - 23,115
--------- ---------
Total noncurrent liabilities...................... 78,552 98,319
--------- ---------
Current liabilities:
Notes payable and commercial paper ................ 258,150 288,050
Long-term debt due within one year................. 69,988 82,836
Preferred stock subject to mandatory redemption
within one year ................................. 2,576 2,576
Accounts payable................................... 159,806 156,109
Dividends payable.................................. 36,860 35,284
Recovered purchased gas and electric energy
costs - net (Note 1) ............................ 45,357 9,508
Customers' deposits................................ 20,556 17,462
Accrued taxes...................................... 38,963 55,393
Accrued interest................................... 24,160 32,071
Current portion of defueling and decommissioning
liability (Note 2) .............................. 15,182 24,055
Other.............................................. 60,021 78,451
-------- -------
Total current liabilities......................... 731,619 781,795
-------- -------
Deferred credits:
Customers' advances for construction............... 56,710 99,519
Unamortized investment tax credits ................ 109,463 113,184
Accumulated deferred income taxes ................ 533,589 508,143
Other.............................................. 29,538 32,840
-------- -------
Total deferred credits............................ 729,300 753,686
-------- -------
Commitments and contingencies (Note 4)................ -------- -------
$4,405,629 $4,354,295
=========== ==========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
2
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars Except per Share Data)
Three Months Ended
September 30,
1996 1995
---- ----
Operating revenues:
Electric.......................................... $385,370 $378,241
Gas............................................... 81,364 81,946
Other............................................. 10,127 8,266
-------- --------
476,861 468,453
Operating expenses:
Fuel used in generation........................... 54,486 46,770
Purchased power................................... 122,557 123,634
Gas purchased for resale.......................... 35,655 37,219
Other operating expenses.......................... 82,689 82,514
Maintenance....................................... 14,732 16,109
Depreciation and amortization..................... 38,987 35,442
Taxes (other than income taxes)................... 21,708 20,461
Income taxes...................................... 17,825 23,568
-------- -------
388,639 385,717
-------- -------
Operating income..................................... 88,222 82,736
Other income and deductions:
Allowance for equity funds used during construction 62 952
Miscellaneous income and deductions - net (Note 1) (10,899) (1,198)
-------- --------
(10,837) (246)
Interest charges:
Interest on long-term debt........................ 24,320 21,367
Amortization of debt discount and expense
less premium ................................... 854 816
Other interest.................................... 13,696 15,312
Allowance for borrowed funds used during construction (741) (824)
-------- -------
38,129 36,671
-------- -------
Net income........................................... 39,256 45,819
Dividend requirements on preferred stock............. 2,962 2,991
-------- -------
Earnings available for common stock.................. $ 36,294 $42,828
======== =======
Weighted average common shares outstanding (thousands) 64,324 63,077
======== =======
Earnings per weighted average
share of common stock outstanding................. $ 0.56 $ 0.68
======== ========
Dividends per share declared on common stock......... $ 0.525 $ 0.51
======== ========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
3
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars Except per Share Data)
Nine Months Ended
September 30,
1996 1995
---- ----
Operating revenues:
Electric.......................................... $1,113,251 $1,086,340
Gas............................................... 440,987 474,815
Other............................................. 30,327 26,593
--------- ---------
1,584,565 1,587,748
Operating expenses:
Fuel used in generation........................... 145,499 137,890
Purchased power................................... 364,048 363,095
Gas purchased for resale.......................... 268,762 307,518
Other operating expenses.......................... 240,613 258,959
Maintenance....................................... 44,809 46,969
Depreciation and amortization..................... 113,895 105,635
Taxes (other than income taxes)................... 65,301 64,964
Income taxes...................................... 75,284 65,556
--------- ---------
1,318,211 1,350,586
--------- ---------
Operating income..................................... 266,354 237,162
Other income and deductions:
Allowance for equity funds used during construction 765 2,810
Miscellaneous income and deductions - net (Note 1) (17,627) (5,083)
--------- ---------
(16,862) (2,273)
Interest charges:
Interest on long-term debt........................ 68,102 64,210
Amortization of debt discount and expense
less premium ................................... 2,696 2,413
Other interest.................................... 42,929 43,023
Allowance for borrowed funds used during construction (2,457) (2,475)
--------- ---------
111,270 107,171
--------- ---------
Net income........................................... 138,222 127,718
Dividend requirements on preferred stock............. 8,905 8,992
--------- ---------
Earnings available for common stock.................. $129,317 $118,726
========= =========
Weighted average common shares outstanding (thousands) 64,001 62,812
========= =========
Earnings per weighted average
share of common stock outstanding................. $ 2.02 $ 1.89
========= =========
Dividends per share declared on common stock......... $ 1.575 $ 1.53
========= =========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
4
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of Dollars)
Nine Months Ended
September 30,
1996 1995
---- ----
Operating activities:
Net income........................................ $138,222 $127,718
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................... 118,133 108,611
Amortization of investment tax credits........... (3,721) (3,731)
Deferred income taxes............................ 32,187 13,369
Allowance for equity funds used during construction (765) (2,810)
Change in accounts receivable.................... (13,047) 28,006
Change in inventories............................ 13,078 2,939
Change in other current assets................... 24,610 40,868
Change in accounts payable....................... (5,976) (47,982)
Change in other current liabilities.............. (24,373) 71,119
Change in deferred amounts....................... (8,882) (8,446)
Change in noncurrent liabilities................. (14,663) (9,939)
Other............................................ 1,876 (393)
-------- --------
Net cash provided by operating activities..... 256,679 319,329
-------- --------
Investing activities:
Construction expenditures......................... (226,067) (209,096)
Allowance for equity funds used during construction 765 2,810
Proceeds from disposition of property, plant
and equipment (Note 5) 22,220 297
Payment for purchase of companies, net of cash
acquired (Note 5) .............................. 3,649 -
Purchase of other investments..................... (1,823) (7,280)
Sale of other investments......................... 1,702 5,588
-------- --------
Net cash used in investing activities......... (199,554) (207,681)
-------- --------
Financing activities:
Proceeds from sale of common stock................ 22,295 21,145
Proceeds from sale of long-term debt.............. 143,214 22,135
Redemption of long-term debt...................... (82,121) (39,405)
Short-term borrowings - net....................... (29,900) (9,600)
Redemption of preferred stock..................... (1,376) (1,376)
Dividends on common stock......................... (99,475) (95,141)
Dividends on preferred stock...................... (8,915) (9,002)
------- --------
Net cash used in financing activities......... (56,278) (111,244)
------- --------
Net increase in cash and temporary cash investments 847 404
Cash and temporary cash investments at
beginning of period ........................ 14,693 5,883
------- --------
Cash and temporary cash investments at
end of period .............................. $ 15,540 $ 6,287
======== ========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
5
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Accounting Policies
Business, utility operations and regulation
The Company is an operating public utility engaged, together with its
utility subsidiaries, principally in the generation, purchase, transmission,
distribution and sale of electricity and in the purchase, transmission,
distribution, sale and transportation of natural gas. The Company is subject to
the jurisdiction of The Public Utilities Commission of the State of Colorado
("CPUC") with respect to its retail electric and gas operations and the Federal
Energy Regulatory Commission ("FERC") with respect to its wholesale electric
operations and accounting policies and practices. Approximately 90% of the
Company's electric and gas revenues are subject to CPUC jurisdiction. Cheyenne
Light, Fuel and Power Company ("Cheyenne") is subject to the jurisdiction of the
Public Service Commission of Wyoming ("WPSC"). WestGas Interstate, Inc. ("WGI")
and Texas-Ohio Pipeline, Inc. are subject to the jurisdiction of the FERC.
Regulatory assets and liabilities
The Company and its regulated subsidiaries prepare their financial
statements in accordance with the provisions of Statement of Financial
Accounting Standards No. 71 - "Accounting for the Effects of Certain Types of
Regulation" ("SFAS 71"). In general, SFAS 71 recognizes that accounting for rate
regulated enterprises should reflect the relationship of costs and revenues
introduced by rate regulation. As a result, a regulated utility may defer
recognition of a cost (a regulatory asset) or recognize an obligation (a
regulatory liability) if it is probable that, through the ratemaking process,
there will be a corresponding increase or decrease in revenues.
In response to the increasingly competitive environment for utilities, the
regulatory climate also is changing. The Company continues to participate in
regulatory and legislative proceedings which could change or impact current
regulation. However, the Company believes it will continue to be subject to rate
regulation that will allow for the recovery of all of its deferred costs.
Although the Company does not currently anticipate such an event, to the extent
the Company concludes in the future that collection of such revenues (or payment
of liabilities) is no longer probable, through changes in regulation and/or the
Company's competitive position, the Company may be required to recognize as
expense, at a minimum, all deferred costs currently recognized as regulatory
assets on the consolidated condensed balance sheet.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of" ("SFAS 121"). SFAS
121 imposes stricter criteria for the continued recognition of regulatory assets
on the balance sheet by requiring that such assets be probable of future
recovery at each balance sheet date. The Company adopted this standard on
January 1, 1996, the effective date of the new statement, and such adoption did
not have a material impact on the Company's results of operations, financial
position or cash flows.
6
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
The following regulatory assets are reflected in the Company's
consolidated condensed balance sheets:
September 30, December 31, Recovery
1996 1995 Through
---- ---- -------
(Thousands of Dollars)
Nuclear decommissioning costs (Note 2).... $91,645 $97,801 2005
Income taxes ............................. 100,346 110,617 2006
Employees' postretirement benefits
other than pensions..................... 52,737 47,600 2013
Early retirement costs.................... 17,721 24,366 1998
Employees' postemployment benefits........ 23,211 23,500 Undetermined
Demand-side management costs.............. 33,167 30,188 2002
Unamortized debt reacquisition costs...... 20,421 21,940 2024
Other..................................... 4,641 6,032 1999
------- ------
Total................................... 343,889 362,044
Classified as current..................... 43,535 40,247
------- -------
Classified as noncurrent.................. $300,354 $321,797
======== ========
Certain costs associated with the Company's Demand Side Management ("DSM")
programs are deferred and recovered in rates over five to seven year periods
through the Demand Side Management Cost Adjustment ("DSMCA"). Non-labor
incremental expenses, carrying costs associated with deferred DSM costs and
incentives associated with approved DSM programs are recovered on an annual
basis.
Costs incurred to reacquire debt prior to scheduled maturity dates are
deferred and amortized over the life of the debt issued to finance the
reacquisition or as approved by the applicable regulatory authority.
Recovered/Recoverable purchased gas and electric energy costs - net
The Company and Cheyenne tariffs contain clauses which allow recovery of
certain purchased gas and electric energy costs in excess of the level of such
costs included in base rates. Currently, these cost adjustment tariffs are
revised periodically, as prescribed by the appropriate regulatory agencies, for
any difference between the total amount collected under the clauses and the
recoverable costs incurred. The cumulative effects are recognized as a current
asset or liability until adjusted by refunds or collections through future
billings to customers. The CPUC issued an oral decision related to the Company's
merger rate filing which provides for the modification of the Company's Energy
Cost Adjustment ("ECA"), effective with the issuance of the final decision, to
allow for a 50/50 sharing (among customers and shareholders) of certain fuel and
energy cost increases or decreases (see Note 4. Commitments and Contingencies -
Regulatory Matters).
Other Property
Property, plant and equipment includes approximately $18.4 million and
$25.4 million, respectively, for costs associated with the engineering design of
a planned future Pawnee 2 generating station and certain water rights located in
southeastern Colorado, also obtained for a future generating station. The
Company is earning a return on these investments based on the Company's weighted
average cost of debt and preferred stock in accordance with a CPUC rate order.
Miscellaneous Income and Deductions - net
Miscellaneous income and deductions - net includes items which are
non-operating in nature or, in general, are not considered in the ratemaking
process. Such items include, among other things, merger related costs,
7
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
contributions, gains and losses on the sale of property and certain litigation,
severance and environmental accruals. Individually, these amounts did not have a
material impact on the Company's results of operations.
Statements of Cash Flows - Non-cash Transactions
Shares of common stock (274,934 in 1996 and 310,546 in 1995), valued at
the market price on date of issuance (approximately $9 million in 1996 and $10
million in 1995), were issued to the Employees' Savings and Stock Ownership Plan
of Public Service Company of Colorado and Participating Subsidiary Companies.
The estimated issuance values were recognized in other operating expenses during
the respective preceding years. Shares of common stock (6,573 in 1996 and 3,891
in 1995), valued at the market price on the date of issuance ($0.2 million in
1996 and $0.1 million in 1995), were issued to certain executives pursuant to
the applicable provisions of the executive compensation plans.
During the third quarter of 1996, the Company exchanged 317,748 shares
of common stock (valued at approximately $11.3 million) as well as cash for
the acquisition of Texas-Ohio Gas, Inc. and Texas-Ohio Pipeline, Inc. (see
Note 5. Acquisition and Divestiture of Assets). Cash flows from operating
activities reflect the changes in assets and liabilities, net of the effects
from these acquisitions.
The stock issuances referenced above were non-cash financing activities
and are not reflected in the consolidated condensed statements of cash flows.
General
See Note 1. of the Notes to Consolidated Financial Statements in the
Company's 1995 Annual Report on Form 10-K for a summary of the Company's
significant accounting policies. Certain prior year amounts have been
reclassified to conform to the current year's presentation.
2. Fort St. Vrain
Overview
In 1989, the Company announced its decision to end nuclear operations at
the Fort St. Vrain Nuclear Generating Station ("Fort St. Vrain") and to proceed
with the defueling and decommissioning of the reactor. While the defueling of
the reactor to the Independent Spent Fuel Storage Facility ("ISFSI") was
completed in June 1992, several issues related to the ultimate storage/disposal
of Fort St. Vrain's spent nuclear fuel remained unresolved. However, as
described below, on February 9, 1996, the Company and the Department of Energy
("DOE") entered into a contract resolving all issues related to this matter.
Additionally, on March 22, 1996, the Company and the decommissioning contractors
engaged to complete such activities announced the completion of the physical
decommissioning work at the facility with only Nuclear Regulatory Commission
("NRC") site release remaining to be obtained. Moreover, site release activities
were completed in late October 1996 and the Company believes that the NRC Part
50 license will be terminated in early 1997.
Fort St. Vrain is being repowered as a gas fired combined cycle steam
plant consisting of two combustion turbines and two heat recovery steam
generators totaling 471 Mw. The certificate of public convenience and necessity,
which was received in July 1994, provides for the repowering of Fort St. Vrain
in a phased approach as follows: Phase 1A - 130 Mw in 1996, Phase 1B - 102 Mw in
1998 and Phase 2 - 239 Mw in 2000. The repowering of Phase 1A has been completed
and commercial operation commenced on May 1, 1996. The phased repowering allows
the Company flexibility in timing the addition of this generation supply to meet
future load growth.
8
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
Defueling
On February 9, 1996, the Company and the DOE entered into an agreement
relating to the disposal of Fort St. Vrain's spent nuclear fuel. As part of this
agreement, the Company has agreed to the following: 1) the DOE assumed title to
the fuel currently stored in the ISFSI, 2) the DOE will assume title to the
ISFSI and will be responsible for the future defueling and decommissioning of
the facility, 3) the DOE agreed to pay the Company $16 million for the
settlement of claims associated with the ISFSI, 4) ISFSI operating and
maintenance costs, including licensing fees and other regulatory costs, will be
the responsibility of the DOE, and 5) the Company provided to the DOE a full and
complete release of claims against the DOE resolving all contractual disputes
related to storage/disposal of Fort St. Vrain spent nuclear fuel.
As a result of the DOE settlement, coupled with a complete review of
expected remaining decommissioning costs and establishment of the anticipated
refund to customers discussed below, pre-tax earnings for the first quarter of
1996 were positively impacted by approximately $16 million. In accordance with
the 1991 CPUC approval to recover certain decommissioning costs described below,
50% of any cash amounts received from the DOE as part of a settlement, net of
costs incurred by the Company, including legal fees, is to be refunded or
credited to customers. While the amount to be refunded to customers has not yet
been finally determined, the Company established an $8 million liability for
such refunds.
Decommissioning
Following the 1991 CPUC approval, effective July 1, 1993 the Company began
collecting from customers decommissioning costs which are expected to total
approximately $124.4 million (plus a 9% carrying cost). Such amount, which is
expected to be collected over a twelve year period, represented the
inflation-adjusted estimated remaining cost of decommissioning activities not
previously recognized as expense at the time of CPUC approval. At September 30,
1996, approximately $91.6 million of such amount remains to be collected from
customers and, therefore, is reflected as a regulatory asset on the consolidated
condensed balance sheet. The amount recovered from customers each year is
approximately $13.9 million.
As previously noted, on March 22, 1996, the Company and the
decommissioning contractors announced that the physical decommissioning
activities at the facility have been completed. Additionally, the final site
survey was completed in late October 1996 with only the NRC site release
remaining to be obtained. At September 30, 1996, approximately $335 million had
been spent for defueling and decommissioning activities with a remaining $15.2
million defueling and decommissioning liability reflected on the consolidated
condensed balance sheet. The Company believes this remaining decommissioning
liability is adequate to complete all final decommissioning activities.
Funding
Under NRC regulations, the Company is required to make filings with, and
obtain the approval of, the NRC regarding certain aspects of the Company's
decommissioning proposals, including funding. On January 27, 1992, the NRC
accepted the Company's funding aspects of the decommissioning plan. The Company
has also obtained an unsecured irrevocable letter of credit totaling $125
million that meets the NRC's stipulated funding guidelines including those
proposed on August 21, 1991 that address decommissioning funding requirements
for nuclear power reactors that have been prematurely shut down. In accordance
with the NRC funding guidelines, the Company is allowed to reduce the balance of
the letter of credit based upon milestone payments made under the fixed-price
decommissioning contract. As a result of such payments, at September 30, 1996,
the letter of credit had been reduced to $26 million.
Nuclear Insurance
During commercial operation and defueling, the Company participated in a
federally mandated program to provide funding in the event public liability
claims arose from a nuclear incident which exceeded available commercial
9
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
insurance capacity. Under the requirements of the Price-Anderson Act, the
Company remains subject to potential assessments of up to $79 million per
incident, in amounts not to exceed $10 million per incident per year. The
Company was granted an NRC waiver from participation in this program on February
17, 1994 and, therefore, remains subject to assessments levied in response to
incidents prior to such date. The Company continues to maintain primary
commercial nuclear liability insurance of $100 million for the Fort St. Vrain
site and the adjoining ISFSI.
On June 7, 1995, the NRC granted the Company an exemption from the
requirement to purchase nuclear property damage and decontamination coverage
following an environmental assessment and finding of no significant impact. The
Company maintains coverage of $10 million to provide property damage and
decontamination protection in the event of an accident involving the ISFSI.
3. Merger
On August 22, 1995, the Company, Southwestern Public Service Company
("SPS"), a New Mexico corporation, and New Century Energies, Inc. ("NCE"), a
newly formed Delaware corporation, entered into an Agreement and Plan of
Reorganization ("Merger Agreement") providing for a business combination as peer
firms involving the Company and SPS in a "merger of equals" transaction (the
"Merger"). Based on outstanding common stock of the Company and SPS at September
30, 1996, the Merger would result in the common shareholders of the Company
owning 62% of the common equity of NCE and the common shareholders of SPS owning
38% of the common equity of NCE. In January 1996, NCE filed its application with
the Securities and Exchange Commission ("SEC") to be a registered public utility
holding company and the parent company for the Company and SPS.
The shareholders of the Company and SPS approved the Merger Agreement on
January 31, 1996. Additionally, the Merger is subject to customary closing
conditions, including the receipt of all necessary governmental approvals and
the making of all necessary governmental filings, including approvals and
findings of state utility regulators in Colorado, Texas, New Mexico, Wyoming and
Kansas as well as the approval of the FERC, the NRC, the SEC, the Federal Trade
Commission and the U.S. Department of Justice. The required authorizations from
the WPSC, the Kansas Corporation Commission the NRC and the U.S. Department of
Justice have been obtained. On August 23, 1996, the CPUC issued an oral decision
approving the Company's merger settlement agreement. Hearings have been held in
Texas and New Mexico, however, final decisions have not been received. Related
to FERC approval, a non-unanimous settlement agreement has been reached and
hearings were held in late September 1996. The FERC has indicated that an
initial decision will be issued no later than January 31, 1997. See Note 4.
Commitments and Contingencies - Regulatory Matters. The Company expects that the
SEC will make its ruling on the Merger within 30-60 days following the FERC
decision. While timing of the effective date of the Merger is primarily
dependent on the regulatory process, it is currently expected that the Merger
will be completed no later than the spring of 1997.
A transition management team, consisting of executives from each company,
is working toward the common goal of creating one company with integrated
operations to achieve a more efficient and economic utilization of facilities
and resources. It is management's intention that the consolidated company begin
realizing certain savings upon the consummation of the Merger and, accordingly,
costs associated with the Merger and the transition planning and implementation
are expected to negatively impact earnings during 1996 and 1997. The Company
recognized approximately $5.5 and $1.8 million of costs associated with the
Merger during the first nine months of 1996 and 1995, respectively. The Merger
is expected to qualify as a tax-free reorganization and as a pooling of
interests for accounting purposes.
The Company recognizes that the divestiture of its existing gas business
or certain non-utility ventures is a possibility under the new registered
holding company structure, but is seeking approval from the SEC to maintain
these businesses. If divestiture is ultimately required, the SEC has
historically allowed companies sufficient time to accomplish divestitures in a
manner that protects shareholder value. Additionally, in the event that
divestiture of the gas business is required, the Company intends to pursue an
alternative corporate organizational structure designed to permit retention of
the gas business.
10
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
4. Commitments and Contingencies
Regulatory Matters
1995 Merger Rate Filings
In connection with the Merger with SPS, in November 1995 the Company filed
comprehensive proposals with the CPUC, the WPSC and the FERC to obtain approval
of such Merger and the associated comprehensive proposals from such regulatory
agencies.
On August 23, 1996, the CPUC issued an oral decision approving the Merger
as well the major provisions of a stipulation and agreement entered into among
the Company, the CPUC Staff, the Colorado Office of Consumer Counsel ("OCC"),
and substantially all other parties. A final written order is expected in the
near future. The decision establishes a five year performance based regulatory
plan and acknowledges that the Merger is in the public interest. The major
provisions of the decision include:
-a $6 million electric rate reduction which was instituted October 1,
1996; to be followed by an additional $12 million electric rate reduction
effective with the implementation of new gas rates resulting from the
recently filed general gas rate case, or June 1, 1997, whichever is
earlier;
-an annual electric department earnings test with the sharing of earnings
in excess of an 11% return on equity for the calendar years 1997-2001 as
follows:
Electric Department Sharing of Excess Earnings
------------------- --------------------------
Return on Equity Customers Shareholders
---------------- --------- ------------
11-12% 65% 35%
12-14% 50% 50%
14-15% 35% 65%
over 15% 100% 0%;
-the termination of the Qualifying Facilities Capacity Cost Adjustment
("QFCCA") earnings test which was to become effective on October 1, 1996;
-a freeze in base electric rates for the period through December 31, 2001
with the flexibility to make certain other rate changes, including those
necessary to allow for the recovery of DSM, Qualifying Facility ("QF") and
decommissioning costs;
-a modification to the Company's ECA to allow for a 50/50 sharing of
certain fuel and energy cost increases or decreases among customers and
shareholders; and
-the implementation of a Quality of Service Plan ("QSP") which provides
for penalties totaling up to $5 million in year one and increasing to $11
million in year five, if the Company does not achieve certain performance
measures relating to electric reliability, customer complaints and
telephone response to inquiries. A new docket is expected to be opened to
address the implementation of a reward structure for performance above
certain standards.
The rate reductions, the earnings sharing, the QSP and the modification to
the ECA will remain in effect even if the Merger is not consummated. The freeze
in base electric rates does not prohibit the Company from filing a general rate
case or deny any party the opportunity to initiate a complaint or show cause
proceeding.
Approval of the Merger was received from the WPSC on August 16, 1996.
Hearings in the FERC proceedings were held on September 24-26, 1996 and a
settlement agreement with all but one intervenor was negotiated and presented at
the hearings before an Administrative Law Judge (ALJ). An ALJ decision is
expected during the fourth quarter of 1996. The FERC has indicated that an
initial decision will be issued by January 31, 1997. Separately, in early 1996,
11
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
the FERC issued a Notice of Inquiry in which it requested comments on whether it
should revise its criteria and policies for evaluating utility mergers in light
of the fundamental changes in the electric industry and the regulation of the
industry. The FERC Order indicated that the Merger will be subject to any
additional criteria or changes in policy as a result of this Notice of Inquiry.
Electric and Gas Cost Adjustment Mechanisms
The Company's QFCCA allows for the recovery of purchased capacity costs
from new QF projects not reflected in base rates. In January 1996, the CPUC
issued a final decision which required the following: 1) an earnings test be
implemented with a 50/50 sharing between the ratepayers and shareholders of
earnings in excess of 11%, the Company's authorized rate of return on regulated
common equity; 2) the calculation will be based on the Company's electric
department earnings only; and 3) implementation will be on a prospective basis
effective October 1, 1996, utilizing a test period for the prior twelve months
ended June 30, 1996, unless superseded by a CPUC decision prior to the effective
date. The stipulation and agreement discussed above, which was approved by the
CPUC, resulted in the termination of the QFCCA earnings test before
implementation.
During 1994 and 1995, the CPUC conducted several proceedings to review
issues related to the ECA. The CPUC opened a docket to review whether the ECA
should be maintained in its present form, altered or eliminated, and on January
8, 1996, combined this docket with the merger docket discussed above. The CPUC
decision on the Merger modified and replaced the ECA with an Incentive Cost
Adjustment (ICA). The ICA, which will become effective with the CPUC final
order, allows for a 50/50 sharing of certain fuel and energy cost increases and
decreases among customers and shareholders.
The CPUC approved the recovery of certain energy efficiency credits from
retail jurisdiction customers through the DSMCA in June 1994. In December 1994,
the OCC filed an appeal of the CPUC's decision in the District Court in and for
the City and County of Denver ("the Denver District Court"). The Denver District
Court approved the collection of these credits in June 1995, subject to refund.
Accordingly, effective July 1, 1995, the Company began collection of the
December 31, 1994 balance of unbilled revenue related to these credits. To date,
the Company has recognized approximately $11.8 million of revenue related to
these credits ($3.8 million unbilled). On April 9, 1996, the Denver District
Court issued an order affirming the CPUC's decision, however, the OCC appealed
this issue to the Colorado Supreme Court. On August 20, 1996, the OCC filed a
motion for voluntary dismissal with prejudice with the Colorado Supreme Court
which was accepted and effectively resolved this matter.
Rate Cases
On June 5, 1996, the Company filed a retail rate case with the CPUC
requesting an annual increase in its jurisdictional gas department revenues of
approximately $34 million, with new rates expected to become effective in early
1997. Intervenor testimony was recently filed with the primary issue being
authorized rate of return on common equity. Hearings have been scheduled for
December 1996.
The Company filed a rate case with the FERC on December 29, 1995,
requesting a slight overall rate increase (less than 1%) from its wholesale
electric customers. This filing, among other things, requested approval for
recovery of Other Postretirement Employee Benefits ("OPEB") costs under
Statement of Financial Accounting Standards No. 106 - "Employers' Accounting for
Postretirement Benefits Other Than Pensions", postemployment benefit costs under
Statement of Financial Accounting Standards No. 112 - "Employers' Accounting for
Postemployment Benefits" and new depreciation rates based on the Company's most
recent depreciation study. On March 29, 1996, the FERC issued an order accepting
for filing and suspending certain proposed rate changes. Settlement agreements
have been reached with all parties and filed with the FERC, which, overall,
results in a slight decrease in rates. A final order is expected to be issued in
late 1996 or early 1997.
12
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
Federal Energy Regulatory Commission
On April 24, 1996, the FERC issued Order No. 888, Order No. 889 and a
Notice of Proposed Rulemaking ("NOPR"). Order No. 888 requires jurisdictional
utilities owning, controlling, or operating transmission facilities to file
non-discriminatory open-access tariffs that satisfy the comparability standard--
i.e., that offer transmission services consistent with what is provided for in
their own operations. The FERC required that all such utilities file the single
pro forma tariff (combined network and point-to-point tariff) by July 9, 1996.
Order No. 888 also provides for the recovery of legitimate, prudent, and
verifiable stranded investment costs incurred when existing wholesale
requirements customers and retail customers leave utilities' generation systems
through FERC jurisdictional open-access tariffs and obtain their electric power
from other energy suppliers. The FERC will permit utilities to seek extra
contractual recovery of stranded costs associated with wholesale requirements
contracts executed prior to July 11, 1994. The FERC is to be the primary forum
for utilities seeking to recover stranded costs arising where retail customers
become wholesale transmission customers of a utility. In addition, the FERC will
allow utilities to seek to recover stranded costs resulting from retail
wheeling, but only in circumstances where a state regulator does not have the
authority to address retail stranded costs at the time when retail wheeling is
required.
Order No. 889 requires utilities to implement standards of conduct and an
Open Access Same-time Information System ("OASIS") to ensure that owners of
transmission facilities, including the Company and its affiliates, do not have
an unfair competitive advantage in using transmission facilities to market their
power. In summary, it requires that utilities completely separate their
wholesale power marketing and transmission operations functions. The NOPR on
Capacity Reservation Open Access Transmission Tariffs specifies filing
requirements to be followed by public utilities in making transmission tariff
filings based on capacity reservations for all transmission users. If adopted,
the capacity reservation open access tariff would replace the pro forma tariff
implemented in Order No. 888.
As required by Order No. 888, the Company filed a compliance tariff on
behalf of itself and Cheyenne on July 9, 1996. The Company is also taking
other necessary measures to ensure timely compliance with the various other
requirements of Order Nos. 888 and 889.
On March 29, 1996, following several filings during 1995 and early 1996,
the FERC accepted the transmission tariffs filed by the Company and Cheyenne.
The terms and conditions were subject to any changes required by Order No. 888
and the rates subject to the outcome of a separate rate proceeding. In the same
order, the FERC accepted the request of e prime, inc. ("e prime"), a
non-regulated subsidiary, for authorization to act as a power marketer, subject
to certain conditions. On April 8, 1996, the Company and Cheyenne filed an Offer
of Settlement in the rate proceeding, which is currently pending. On April 15,
1996, e prime filed a compliance filing and a request for rehearing on one of
the conditions approved by the FERC in its order authorizing e prime to act as a
marketer. The FERC accepted the compliance filing and the request for rehearing
is still pending.
Environmental Issues
Environmental Site Cleanup
As described below, the Company has been or is currently involved with the
clean-up of contamination from certain hazardous substances. In all situations,
the Company is pursuing or intends to pursue insurance claims and believes it
will recover some portion of these costs through such claims. Additionally,
where applicable, the Company intends to pursue recovery from other potentially
responsible parties. To the extent such costs are not recovered, the Company
currently believes it is probable that such costs will be recovered through the
rate regulatory process. To the extent any costs are not recovered through the
options listed above, the Company would be required to recognize an expense for
such unrecoverable amounts.
Under the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), the U.S. Environmental Protection Agency ("EPA") has identified,
and a Phase II environmental assessment has revealed, low level, widespread
13
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
contamination from hazardous substances at the Barter Metals Company properties
located in central Denver. For an estimated 30 years, the Company sold scrap
metal and electrical equipment to Barter for reprocessing. The Company has
completed the cleanup of this site at a cost of approximately $9 million. On
January 3, 1996, in a lawsuit by the Company against its insurance providers,
the Denver District Court entered final judgment in favor of the Company in the
amount of $5.6 million for certain cleanup costs at Barter. Several appeals and
cross appeals have been filed by one of the insurance providers and the Company
in the Colorado Court of Appeals. The insurance provider has posted supersedeas
bonds in the amount of $9.7 million ($7.7 million attributable to the Barter
judgment). Previously, the Company had received certain insurance settlement
proceeds from other insurance providers for Barter and other contaminated sites
and a portion of those funds remains to be allocated to this site by the trial
court. In addition, the Company expects to recoup additional expenditures beyond
insurance proceeds through the sale of the Barter property and from other
Potentially Responsible Parties.
Polychlorinated biphenyl ("PCB") presence was identified in the basement
of an historic office building located in downtown Denver. The Company was
negotiating the future cleanup with the current owners; however, on October 5,
1993, the owners filed a civil action against the Company in the Denver District
Court. The action alleged that the Company was responsible for the PCB releases
and additionally claimed other damages in unspecified amounts. On August 8,
1994, the Denver District Court entered a judgment approving a $5.3 million
offer of settlement between the Company and the building owners resolving all
claims. In December 1995, complaints were filed by the Company against all
applicable insurance carriers in the Denver District Court. A trial date
regarding the insurance carriers has been established for August, 1997.
The Ramp Industries disposal facility, located in Denver, Colorado has
been designated by the EPA as a Superfund hazardous substance site pursuant to
CERCLA and, on November 29, 1995, the Company received from the EPA a Notice of
Potential Liability and Request for Information related to such site. The EPA is
conducting an investigation of the contamination at this site and is in the
process of identifying the nature and quantities of hazardous wastes delivered
to, processed and currently stored at the site by Potentially Responsible
Parties. The Company has responded to the EPA's request. The estimated cost to
investigate and remediate site contamination is not available as the EPA is
still in the process of conducting its investigation. At this time, the Company
cannot estimate the amount, if any, of its potential liability related to this
matter.
In addition to these sites, the Company has identified several sites where
cleanup of hazardous substances may be required. While potential liability and
settlement costs are still under investigation and negotiation, the Company
believes that the resolution of these matters will not have a material effect on
its financial position, results of operations or cash flows. The Company fully
intends to pursue the recovery of all significant costs incurred for such
projects through insurance claims and/or the rate regulatory process.
Environmental Matters Related to Air Quality and Pollution Control
Under the Clean Air Act Amendments of 1990, coal burning power plants are
required to reduce sulfur dioxide ("SO2") and nitrogen oxide ("NOx") emissions
to specified levels through a phased approach. The Company is currently meeting
Phase I emission standards placed on SO2 through the use of low sulfur coal and
the operation of pollution control equipment on certain generation facilities.
The Company will be required to modify certain boilers by the year 2000 to
reduce NOx emissions in order to comply with Phase II requirements. The
estimated costs for future plant modifications total approximately $51.4
million. The Company is studying its options to reduce SO2 emissions and
currently does not anticipate that these regulations will significantly impact
its operations.
The Company believes that, consistent with historical regulatory
treatment, any costs for pollution control equipment to comply with pollution
control regulations would be recovered from its customers. However, no assurance
can be given that this practice will continue in the future.
14
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
Hayden Steam Electric Generating Station
On August 18, 1993, a conservation organization filed a complaint in the
U.S. District Court for the District of Colorado ("U.S. District Court")
pursuant to provisions of the Federal Clean Air Act, against the joint owners of
the Hayden Steam Electric Generating Station. The Company is the operator and
owns an average undivided interest of approximately 53% of the station's two
generating units. The complaint alleged, among other things, that the station
exceeded the 20% opacity limitations during a period extending from 1988-1993
and that the owners failed to operate the station in a manner consistent with
good air pollution control practices. The complaint sought, among other things,
civil monetary penalties and injunctive relief. On July 21, 1995, the U.S.
District Court entered partial summary judgment on liability issues in favor of
the plaintiff. Additionally, the Company had received and responded to a request
from the EPA for information related to the plant and, on January 18, 1996, the
EPA issued a notice of violation stating that the plant had exceeded the 20%
opacity limitations during the mid-1993 to mid-1995 period.
On May 21, 1996, the Company and the other joint owners of the Hayden
station reached an agreement with the conservation organization, the Colorado
Department of Public Health and Environment ("CDPHE") and the EPA which provides
for a complete and final release of all civil claims for the violations alleged
in the complaints filed by the conservation organization, the EPA and the CDPHE
through the date of the agreement and further addresses future environmental
compliance requirements and issues. The primary provisions of the agreement
include: 1) the installation of pollution control equipment on both generating
units to reduce future particulate (opacity), SO2 and NOx emissions to be
completed by December 31, 1998 and December 31, 1999 or conversion of the
facility to natural gas as a primary fuel supply, 2) a payment of $2 million to
be paid to the U. S. Treasury, 3) a contribution of $2 million to a "Land Trust
Fund" to be used for the purchase of land and/or conservation easements in the
Yampa Valley to protect and enhance the air quality in the region, 4) a
contribution of $250,000 to be used for the conversion of vehicles and/or wood
burning appliances to natural gas in the Yampa Valley, and 5) stipulated future
penalties for failure to comply with the terms of the agreement, including
specific provisions related to meeting construction deadlines associated with
the installation of additional pollution control equipment and complying with
particulate, SO2 and NOx emissions limitations. Additionally, the joint owners
have agreed that these limitations will be determined using data from the
continuous emissions monitors installed on each generating unit. The Company is
responsible for approximately 53% of the costs described above in items 2 - 4
and, in anticipation of such settlement, the Company made provision for such
amounts in the first quarter of 1996. In August 1996, the U. S. District Court
entered the settlement agreement which effectively resolved the litigation. The
payments discussed above were made shortly thereafter and the Company's portion
of the above costs, totaling approximately $2.3 million, were reclassified from
operating expenses to miscellaneous income and deductions-net.
In late October, 1996 the joint owners completed an evaluation of
alternative fuel sources which concluded that the Hayden station's primary fuel
source should remain coal and that the conversion of the facility to natural gas
would not be pursued as continuing the use of low-sulfur coal is the least cost
alternative for the Company and its customers. The installation of the pollution
control equipment will begin in the spring of 1997. The joint owners estimate
that the cost of installing pollution control equipment capable of reducing the
emissions to the levels required under the agreement, consisting of fabric
filter dust collectors, lime spray dryers and low NOx burners on both units, is
approximately $130 million, with the Company's portion totaling approximately
$70 million. Approximately $46 million of this amount was included in the
Company's five year construction estimates at December 31, 1995.
Valmont Steam Electric Generating Station
On July 1, 1996, the Company received a Notice of Violation ("NOV") from
the CDPHE which alleges inadequate reporting of NOx and SO2 information and
excess NOx emissions at the Valmont Steam Electric Generating Station for the
period January 1, 1995 through August 22, 1995. The Company has responded to the
NOV and believes that the amount of penalties, if any, that may result from such
alleged violations would not have a material impact on the Company's results of
operations, financial position or cash flows.
15
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
Craig Steam Electric Generating Station
On October 9, 1996, a conservation organization filed a complaint in the
U.S. District Court pursuant to provisions of the Federal Clean Air Act ("the
Act") against the joint owners of the Craig Steam Electric Generating Station.
Tri-State Generation and Transmission Association is the operator of the Craig
station and the Company owns an undivided interest (acquired in April 1992) in
each of two units at the station totaling approximately 9.7%. The plaintiff
alleged that: 1) the station exceeded the 20% opacity limitations in excess of
14,000 six minute intervals during the period extending from the first quarter
of 1991 through second quarter of 1996, and 2) the owners failed to operate the
station in a manner consistent with good air pollution control practices. The
complaint seeks, among other things, civil monetary penalties and injunctive
relief. The Act provides for penalties of up to $25,000 per day per violation,
but the level of penalties imposed in any particular instance is discretionary.
The Company does not believe that its potential liability or the future impact
of this litigation on plant operations will have a material impact on the
Company's results of operations, financial position or cash flows.
Employee Litigation
Several employee lawsuits have been filed against the Company involving
alleged sexual/age/race/disability discrimination, breach of alleged employment
contracts and termination related issues.
On July 19, 1996, a class action complaint was filed by fourteen
plaintiffs allegedly on behalf of all non-managerial, non-clerical women in the
Company's regional facilities. The complaint asserts that the Company has
engaged in company-wide pattern and practice of sexual discrimination, including
sexual harassment and retaliation. A previous class complaint filed by some of
these plaintiffs along with other named plaintiffs, was withdrawn after the
Company filed its response. It is too early to predict the outcome of the class
action complaint. The Company intends to actively contest the class action and
all other employee lawsuits and believes the ultimate outcome of the individual
plaintiffs' cases will not have a material impact on the Company's results of
operations, financial position or cash flows.
Certain named employees terminated as part of the Company's 1991/1992
organizational analysis have asserted breach of contract and promissory estoppel
with respect to job security and breach of the covenant of good faith and fair
dealing. Of the 21 actions filed, the trial court directed verdicts in favor of
the Company in 19 cases. Two cases went to a jury, which entered verdicts
adverse to the Company. All 21 decisions are currently on appeal, but the
Company believes its liability, if any, will not have a material impact on the
Company's results of operations, financial position or cash flows.
Union Contracts
In early December 1995, the Company's contracts with the International
Brotherhood of Electrical Workers, Local 111 (IBEW Local 111) expired.
Approximately 2,150 employees, or 45% of the Company's total workforce, are
represented by IBEW Local 111. Previously, an arbitrator had rejected the
Company's attempt to terminate the contracts on the expiration dates. Therefore,
negotiation of limited issues was reopened. The parties were unable to reach
agreement on the contract issues reopened through the negotiation process and,
as a result, the Company and IBEW Local 111 entered into binding arbitration on
March 20, 1996, as required under the contracts. On June 4, 1996, the arbitrator
ruled that the Operations, Production and Maintenance (OP&M) collective
bargaining agreement with the Union would continue until May 31, 1997 and that
the employees covered by the agreement would receive a wage increase of 3.5%
retroactive to December 1995. Such amount had been previously accrued.
Subsequent to the arbitrator's decision on the OP&M agreement, the Company
and the IBEW Local 111 came to an agreement on the Meter Reader, Order Reader
and Field Credit Representative contract with a contract term and a wage
increase consistent with the OP&M agreement. In addition, IBEW Local 111 has
filed several grievances relating to the employment of certain non-union
personnel to perform services for the Company. A decision has been entered on
16
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
two of the multiple grievances, requiring that the Company pay union wage rates
on new construction jobs performed by outside vendors.
On June 21, 1996, the National Labor Relations Board ordered the Company
to reinstate approximately 150 union employees laid off or moved to other
positions in the 1994 restructuring. The Company was ordered to make whole, with
interest, any net loss of earnings or other benefits since the layoff.
Thirty-two employees were reinstated and, while the final costs associated with
the order have not been determined, the Company accrued $1.5 million during the
third quarter of 1996 related to this obligation.
5. Acquisition and Divestiture of Assets
Acquisition of Texas-Ohio Gas, Inc. and Texas-Ohio Pipeline, Inc.
Effective September 1, 1996, the Company and e prime, a wholly-owned
subsidiary, acquired all of the outstanding stock of Texas-Ohio Gas, Inc. and
Texas-Ohio Pipeline, Inc. in exchange for a combination of common stock of
the Company and cash. Such acquisitions were accounted for using the
purchase method. These companies are primarily engaged in gas brokering and
marketing activities and are subsidiaries of e prime.
Divestiture of Fuel Resources Development Co.
Since 1993, the Company has been pursuing the divestiture of all
properties owned by Fuel Resources Development Co. ("Fuelco"), a wholly-owned
subsidiary which was primarily involved in the exploration and production of oil
and natural gas. On July 1, 1996, Fuelco sold its last remaining properties, the
San Juan Coal Bed Methane properties, at approximately book value. Effective
October 31, 1996, Fuelco was dissolved.
International Investments
e prime has been investigating the purchase of a partial interest in a 600
Mw electric generation facility located in Kazakstan, formerly a republic of the
Soviet Union. The government of Kazakstan is in the process of privatizing a
number of its state owned generation and distribution facilities. The generation
facility provides power to local distribution companies as well as local
companies involved in the mining and metal industries. The estimated investment
in such project, which is subject to Board of Director approval, is expected to
be no greater than approximately $2-$5 million.
6. Management's Representations
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements include all adjustments necessary for the fair
presentation of the financial position of the Company and its subsidiaries at
September 30, 1996 and December 31, 1995, and the results of operations for the
three and nine months ended September 30, 1996 and 1995 and cash flows for the
nine months ended September 30, 1996 and 1995. The consolidated condensed
financial information and notes thereto should be read in conjunction with the
consolidated financial statements and notes for the years ended December 31,
1995, 1994 and 1993 included in the Company's 1995 Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
Because of seasonal and other factors, the results of operations for the
three and nine month periods ended September 30, 1996 should not be taken as an
indication of earnings for all or any part of the balance of the year.
17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
PUBLIC SERVICE COMPANY OF COLORADO
We have reviewed the accompanying consolidated condensed balance sheet of Public
Service Company of Colorado (a Colorado corporation) and subsidiaries as of
September 30, 1996, and the related consolidated condensed statements of income
for the three and nine month periods ended September 30, 1996 and 1995 and the
consolidated condensed statements of cash flows for the nine month periods ended
September 30, 1996 and 1995. These financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical 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 financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Public Service Company of Colorado
and subsidiaries as of December 31, 1995 (not presented herein), and, in our
report dated February 15, 1996, we expressed an unqualified opinion on that
statement. In our opinion, the information set forth in the accompanying
consolidated condensed balance sheet as of December 31, 1995, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
ARTHUR ANDERSEN LLP
Denver, Colorado,
November 8, 1996
18
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three Months Ended September 30, 1996 Compared to the Three Months Ended
September 30, 1995
Earnings
Earnings per share were $0.56 for the third quarter of 1996 as compared to
$0.68 for the third quarter of 1995. While operating margins from electric and
gas operations were comparable over the two periods, the lower earnings were
primarily attributable to the recognition of costs associated with various
non-recurring items, including accruals for certain severance costs and employee
litigation and environmental issues. Additionally, the Company's earnings were
positively impacted by lower labor and employee benefit costs and other general
cost reductions, reflecting the Company's continued commitment to cost
containment.
Electric Operations
The following table details the change in electric operating revenues and
energy costs for the third quarter of 1996 as compared to the same period in
1995.
Increase (Decrease)
-------------------
(Thousands of Dollars)
Electric operating revenues:
Retail............................................... $ 10,997
Wholesale............................................ 3,183
Other (including unbilled revenues).................. (7,051)
---------
Total revenues...................................... 7,129
Fuel used in generation............................... 7,716
Purchased power....................................... (1,077)
---------
Net increase in electric margin..................... $ 490
=========
The following table compares electric Kwh sales by major customer classes
for the third quarter of 1996 and 1995.
Millions of Kwh Sales
---------------------
1996 1995 %Change *
---- ---- ---------
Residential ............................... 1,655 1,564 5.9%
Commercial and Industrial ................ 4,225 4,045 4.4
Public Authority .......................... 52 48 9.0
----- -----
Total Retail............................. 5,932 5,657 4.9
Wholesale.................................. 943 715 31.8
----- -----
Total.................................... 6,875 6,372 7.9
===== =====
* Percentages are calculated using unrounded amounts
Electric operating revenues increased slightly in the third quarter of
1996, when compared to the third quarter of 1995, primarily due to higher
electric Kwh retail sales resulting from customer growth offset, in part, by
lower unbilled revenues ($7.9 million). The increase in sales to wholesale
customers is due, in part, to the power marketing activities at e prime,
initiated in the third quarter of 1996. However, such sales provide a lower
margin than other electric sales.
The Company and Cheyenne have cost adjustment mechanisms which recognize
the majority of the effects of changes in fuel used in generation and purchased
power costs and allow recovery of such costs on a timely basis. As a result, the
changes in revenues associated with these mechanisms during the third quarters
of 1996 and 1995 had little impact on net income. However, as discussed in Note
4. Commitments and Contingencies - Regulatory Matters in Item 1. FINANCIAL
STATEMENTS, as part of a stipulation and agreement among the Company, the CPUC
Staff, the OCC and other parties, which was orally approved by the CPUC on
19
<PAGE>
August 23, 1996, the Company's ECA will be modified to allow for a 50/50 sharing
among the Company and customers of certain fuel and energy cost increases or
decreases, effective with the final CPUC decision.
Fuel used in generation expense increased approximately $7.7 million or
16.5% during the third quarter of 1996, as compared to the same quarter in 1995,
due to increased generation levels at the Company's power plants and higher coal
supply costs in the third quarter of 1996.
Gas Operations
The following table details the change in gas operating revenues and gas
purchased for resale for the third quarter of 1996 as compared to the same
period in 1995.
Increase (Decrease)
-------------------
(Thousands of Dollars)
Gas operating revenues................................ $ (582)
Less: gathering, processing and transportation revenues 1,663
-------
Revenues from gas sales (including unbilled revenues) (2,245)
Gas purchased for resale.............................. (1,564)
-------
Net decrease in gas sales margin..................... $ (681)
=======
The following table compares gas Mcf deliveries by major customer classes
for the third quarter of 1996 and 1995.
Millions of Mcf Deliveries
--------------------------
1996 1995 % Change *
---- ---- ----------
Residential................................ 7.4 7.8 (4.8%)
Commercial, Industrial and Resale.......... 10.4 6.6 57.6
----- -----
Total Sales.............................. 17.8 14.4 23.7
Gathering and Processing................... 0.4 0.4 -
Transportation............................. 23.4 20.6 13.5
----- -----
Total.................................... 41.6 35.4 17.6
===== =====
* Percentages are calculated using unrounded amounts
Gas sales margin declined slightly in the third quarter of 1996, when
compared to the third quarter of 1995. The gas sales to commercial customers for
the 1996 period include 4.2 Mcf deliveries generated by e prime's expanded gas
marketing activities and the acquisition of Texas-Ohio Gas, Inc. effective
September 1, 1996. Transportation revenues increased primarily due to an
increase in transport deliveries of 13.5%. The higher transport deliveries are
attributable to the shifting of various Company commercial sales customers to
firm transport customers. Historically, this shifting has not had an impact on
gas margin and is not expected to have an impact in the future.
The Company and Cheyenne have in place GCA mechanisms for natural gas
sales, which recognize the majority of the effects of changes in the cost of gas
purchased for resale and adjust revenues to reflect such changes in cost on a
timely basis. As a result, the changes in revenues associated with these
mechanisms during the third quarters of 1996 and 1995 had little impact on net
income.
Non-Fuel Operating Expenses
Other operating and maintenance expenses during the third quarter of 1996,
as compared to the same period in 1995, were impacted by lower labor and
employee benefit costs and other general cost reductions resulting from the
Company's cost containment efforts, offset, in part, by accruals for certain
environmental issues.
20
<PAGE>
Depreciation and amortization expense increased approximately $3.5 million
or 10.0% in the third quarter of 1996, as compared to the same period in 1995,
primarily due to the depreciation of property additions and the amortization of
software costs.
Taxes other than income increased approximately $1.2 million or 6.1% in
the third quarter of 1996, as compared to the same period in 1995, primarily due
to higher estimated property tax assessments and higher use taxes.
The decrease in income taxes for the third quarter of 1996, as compared to
the same period in 1995, is primarily due to lower pre-tax income and an
adjustment made in connection with the court's final approval of the Hayden
environmental settlement which reduced the previously estimated amount of
non-deductible costs for income tax purposes.
Miscellaneous income and deductions - net decreased approximately $9.7
million primarily due to the recognition of approximately $4.0 million for
certain severance costs, the accrual of $1.5 million in estimated employee
litigation expenses and the reclassification from other operating and
maintenance expenses of $2.3 million of costs associated with the Hayden
settlement (see Note 4. Commitments and Contingencies - Environmental Issues in
Item 1. FINANCIAL STATEMENTS).
Nine Months Ended September 30, 1996 Compared to the Nine Months Ended
September 30, 1995
Earnings
Earnings per share were $2.02 for the first nine months of 1996 as
compared to $1.89 for the first nine months of 1995. The higher earnings were
primarily attributable to increased electric and gas margins due to higher
retail sales and lower operating and maintenance expenses which include the
favorable impact of the February 9, 1996 settlement agreement with the DOE
resolving all spent nuclear fuel storage and disposal issues at Fort St. Vrain
(see Note 2. Fort St. Vrain in Item 1. FINANCIAL STATEMENTS).
Electric Operations
The following table details the change in electric operating revenues and
energy costs for the first nine months of 1996 as compared to the same period in
1995.
Increase (Decrease)
-------------------
(Thousands of Dollars)
Electric operating revenues:
Retail............................................... $ 39,029
Wholesale............................................ 1,408
Other (including unbilled revenues).................. (13,526)
-------
Total revenues...................................... 26,911
Fuel used in generation............................... 7,609
Purchased power....................................... 953
-------
Net increase in electric margin..................... $ 18,349
=======
21
<PAGE>
The following table compares electric Kwh sales by major customer classes
for the first nine months of 1996 and 1995.
Millions of Kwh Sales
---------------------
1996 1995 % Change *
---- ---- ----------
Residential ............................... 4,992 4,746 5.2%
Commercial and Industrial.................. 11,838 11,320 4.6
Public Authority .......................... 146 137 7.3
------ ------
Total Retail............................. 16,976 16,203 4.8
Wholesale.................................. 2,371 2,192 8.2
------ ------
Total.................................... 19,347 18,395 5.2
====== ======
* Percentages are calculated using unrounded amounts
Electric operating revenues increased in the first nine months of 1996,
when compared to the first nine months of 1995, primarily due to an overall 4.8%
increase in electric Kwh retail sales resulting from moderate customer growth
offset, in part, by lower unbilled revenues ($14.3 million).
The Company and Cheyenne have cost adjustment mechanisms which recognize
the majority of the effects of changes in fuel used in generation and purchased
power costs and allow recovery of such costs on a timely basis. As a result, the
changes in revenues associated with these mechanisms during the first nine
months of 1996 and 1995 had little impact on net income. However, as discussed
in Note 4. Commitments and Contingencies Regulatory Matters in Item 1. FINANCIAL
STATEMENTS, as part of a stipulation and agreement among the Company, the CPUC
Staff, the OCC and other parties, which was orally approved by the CPUC on
August 23, 1996, the Company's ECA will be modified to allow for a 50/50 sharing
among the Company and customers of certain fuel and energy cost increases or
decreases, effective with the final CPUC decision.
Fuel used in generation expense increased approximately $7.6 million, or
5.5% during the first nine months of 1996, when compared to the same period in
1995, primarily due to increased generation levels at the Company's power
plants. Purchased power expense increased slightly when comparing the two
periods primarily due to an increase in economy purchases from other utilities
to meet a higher level of customer demand.
Gas Operations
The following table details the change in gas operating revenues and gas
purchased for resale for the first nine months of 1996 as compared to the same
period in 1995.
Increase (Decrease)
-------------------
(Thousands of Dollars)
Gas operating revenues................................ $(33,828)
Less: gathering, processing and transportation revenues 2,566
--------
Revenues from gas sales (including unbilled revenues) (36,394)
Gas purchased for resale.............................. (38,756)
--------
Net increase in gas sales margin..................... $ 2,362
========
22
<PAGE>
The following table compares gas Mcf deliveries by major customer classes
for the first nine months of 1996 and 1995.
Millions of Mcf Deliveries
--------------------------
1996 1995 % Change *
---- ---- ----------
Residential................................ 75.7 72.6 4.4%
Commercial, Industrial and Resale.......... 51.9 44.7 16.0
------ ------
Total Sales.............................. 127.6 117.3 8.8
Gathering and Processing................... 1.0 1.1 (6.4)
Transportation............................. 77.3 69.3 11.5
------ ------
Total.................................... 205.9 187.7 9.7
====== ======
* Percentages are calculated using unrounded amounts
Gas sales margin increased during the first nine months of 1996, when
compared to the first nine months of 1995, primarily due to higher retail gas
sales. Total gas sales increased 8.8% in the first nine months of 1996, as
compared to the same period in 1995, primarily due to moderate customer growth
and higher commercial gas sales by e prime and its subsidiaries. Transportation
revenues increased primarily due to an increase in transport deliveries of
11.5%. The higher transport deliveries are attributable to the shifting of
various Company commercial customers to firm transport customers which began
with the implementation in October 1995 of the new gas rates.
The Company and Cheyenne have in place GCA mechanisms for natural gas
sales, which recognize the majority of the effects of changes in the cost of gas
purchased for resale and adjust revenues to reflect such changes in cost on a
timely basis. As a result, the changes in revenues associated with these
mechanisms during the first nine months of 1996 and 1995 had little impact on
net income.
Increases and decreases in the per-unit cost of gas along with the
fluctuations in the amount of gas sales impact the amount of gas the Company
purchases and affect the total cost of gas purchased for resale. The $38.8
million decrease in gas purchased for resale for the nine months ended September
30, 1996, as compared to the same period in 1995, is primarily due to a lower
per unit cost of gas, which was offset, in part, by the increase in gas
purchases.
Non-Fuel Operating Expenses
Other operating and maintenance expenses decreased $20.5 million or 6.7%
during the nine months ended September 30, 1996, when compared to the same
period in 1995, primarily due to the favorable impact of the February 9, 1996
settlement agreement with the DOE resolving all spent nuclear fuel storage and
disposal issues at Fort St. Vrain (approximately $16 million; see Note 2. Fort
St. Vrain in Item 1. FINANCIAL STATEMENTS) and lower labor and employee benefit
costs resulting from the hiring freeze instituted in August 1995 and other
general cost reductions, resulting from the Company's cost containment efforts.
Depreciation and amortization expense increased approximately $8.3 million
or 7.8% in the first nine months of 1996, as compared to the same period in
1995, primarily due to higher depreciation expense from property additions and
amortization of software costs.
The increase in income taxes for the first nine months of 1996, as
compared to the same period in 1995, is primarily due to higher pre-tax income,
the tax effects of certain merger and environmental liability costs incurred in
1996 which are non-deductible for income tax purposes and the accrual of
additional tax liabilities for prior years.
Miscellaneous income and deductions - net decreased approximately $12.5
million primarily due to the recognition of approximately $4.0 million of
certain severance costs, the accrual of $2.5 million in estimated employee
litigation expenses, the recognition of $2.3 million of costs associated with
the settlement of certain environmental issues related to the operations of the
23
<PAGE>
Hayden station and higher costs incurred during the first nine months of 1996
associated with the Merger ($3.8 million). Certain of these items are discussed
further in Note 3. Merger and Note 4. Commitments and Contingencies -
Environmental Issues and Employee Litigation, respectively, in Item 1. FINANCIAL
STATEMENTS. These costs were offset, in part, by the 1995 recognition of a $2.1
million refund obligation related to the sale of WestGas Gathering, Inc. in
accordance with a 1995 settlement agreement with the OCC.
Financial Position
Recovered purchased gas and electric energy costs - net increased
approximately $35.8 million at September 30, 1996, as compared to December 31,
1995, primarily due to lower purchased gas costs charged by the Company's
suppliers. Effective April 2, 1996, as approved by the CPUC, natural gas rates
were reduced by approximately $44 million on an annual basis to lower any future
overrecovery of purchased gas costs. This reduction has had no impact on net
income. The decrease in accounts payable is also primarily attributable to lower
gas costs.
The $32.0 million decrease in the defueling and decommissioning liability
was primarily due to reduced expenditures during the nine months of 1996 coupled
with recognizing the effects of the February 9, 1996 settlement agreement with
the DOE resolving all spent nuclear fuel storage and disposal issues at Fort St.
Vrain (See Note 2. Fort St. Vrain in Item 1. FINANCIAL STATEMENTS). Customer
advances for construction decreased by approximately $42.8 million due to a 1996
transfer of amounts to property, plant and equipment, which served to reduce
such investments, after determining that these amounts would not be refunded to
customers in the future.
Commitments and Contingencies
Issues relating to the Merger with SPS, and regulatory, environmental and
employee litigation matters are discussed in Notes 3 and 4, respectively, in
Item 1. FINANCIAL STATEMENTS. These matters and the future resolution thereof
may impact the Company's future results of operations, financial position or
cash flows.
Common Stock Dividend
During the first quarter of 1996, the Company increased the quarterly
common stock dividend of $0.51 per share to $0.525 per share. The Company's
common stock dividend level is dependent upon the Company's results of
operations, financial position, cash flows and other factors. The Board of
Directors of the Company will continue to evaluate the common stock dividend
level on a quarterly basis.
Liquidity and Capital Resources
Cash Flows - Nine Months Ended September 30
1996 1995 Decrease
---- ---- --------
Net cash provided by operating activities
(in millions).............................. $256.7 $319.3 $(62.6)
Cash provided by operating activities decreased in the first nine months
of 1996, when compared to the first nine months of 1995, primarily due to a
decrease in the recovery of purchased gas and electric energy costs ($92.7
million). The decrease in recovered purchased gas and electric energy costs was
due to the reduction in the level of over-collection of these costs during the
first nine months of 1996, as compared to the first nine months of 1995, thereby
lowering cash receipts during the first nine months of 1996.
At September 30, 1996, the Company's decommissioning liability, excluding
defueling, was approximately $13.2 million. The expenditures related to this
obligation are expected to be incurred during the next twelve months. The annual
decommissioning amount being recovered from customers is approximately $13.9
million, which will continue through June 2005. At September 30, 1996,
24
<PAGE>
approximately $91.6 million remains to be collected from customers and is
reflected as a regulatory asset on the consolidated condensed balance sheet.
Accordingly, operating cash flows will continue to be negatively impacted until
the decommissioning of Fort St. Vrain is completed (see Note 2. Fort St. Vrain
in Item 1. FINANCIAL STATEMENTS ).
1996 1995 Decrease
---- ---- --------
Net cash used in investing activities
(in millions) ............................ $(199.6) $(207.7) $(8.1)
Cash used in investing activities, which substantially consists of
construction expenditures, decreased during the nine months ended September 30,
1996, when compared to the same period in 1995. Increased levels of capital
expenditures were offset, in part, by the proceeds from the sale of the
remaining properties owned by Fuelco.
1996 1995 Decrease
---- ---- --------
Net cash used in financing activities
(in millions) ............................. $(56.3) $(111.2) $(54.9)
Cash used in financing activities decreased (indicating that there were
more borrowings) in the first nine months of 1996, when compared to the first
nine months of 1995, primarily due to the issuance of $125 million First
Collateral Trust Bonds in May 1996. The proceeds from this financing were used
to fund the Company's construction program, for other general corporate purposes
and to repay short-term indebtedness incurred for such purposes.
25
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Part 1. Issues relating to decommissioning and defueling are discussed in
Note 2. Fort St. Vrain and issues relating to the recovery of energy
efficiency credits, environmental site cleanup and other
environmental matters, employee litigation and union contracts are
discussed in Note 4. Commitments and Contingencies in Item 1, Part
1.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12(a) Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges is set forth at page 29 herein.
12(b) Computation of Ratio of Consolidated Earnings to Consolidated
Combined Fixed Charges and Preferred Stock Dividends is set forth at
page 30 herein.
15 Letter from Arthur Andersen LLP regarding unaudited interim
information is set forth at page 31 herein.
27 Financial Data Schedule UT
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the third quarter of 1996.
26
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Public Service Company of Colorado has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
PUBLIC SERVICE COMPANY OF COLORADO
By /s/ R. C. Kelly
---------------------------------
R. C. KELLY
Senior Vice President,
Finance, Treasurer and
Chief Financial Officer
Dated: November 12, 1996
27
<PAGE>
EXHIBIT INDEX
12(a) Computation of Ratio of Consolidated Earnings to Consolidated
Fixed Charges is set forth at page 29 herein.
12(b) Computation of Ratio of Consolidated Earnings to Consolidated
Combined Fixed Charges and Preferred Stock Dividends is set forth at
page 30 herein.
15 Letter from Arthur Andersen LLP regarding unaudited interim
information is set forth at page 31 herein.
27 Financial Data Schedule UT.
28
<PAGE>
EXHIBIT 12(a)
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
TO CONSOLIDATED FIXED CHARGES
(not covered by Report of Independent Public Accountants)
Nine Months Ended
September 30,
1996 1995
---- ----
(Thousands of Dollars, except ratios)
Fixed charges:
Interest on long-term debt................... $68,102 $64,210
Interest on borrowings against corporate-owned
life insurance contracts................... 29,586 25,580
Other interest............................... 13,343 17,443
Amortization of debt discount and expense less
premium ................................... 2,696 2,413
Interest component of rental expense......... 7,991 5,024
------ ------
Total ..................................... $121,718 $114,670
======== ========
Earnings (before fixed charges and taxes on income):
Net income................................... $138,222 $127,718
Fixed charges as above....................... 121,718 114,670
Provisions for Federal and state taxes on income,
net of investment tax credit amortization.. 75,284 65,556
-------- --------
Total...................................... $335,224 $307,944
======== ========
Ratio of earnings to fixed charges.............. 2.75 2.69
====== ======
29
<PAGE>
EXHIBIT 12(b)
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
TO CONSOLIDATED COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(not covered by Report of Independent Public Accountants)
Nine Months Ended
September 30,
1996 1995
---- ----
(Thousands of Dollars, except ratios)
Fixed charges and preferred stock dividends:
Interest on long-term debt.................. $68,102 $64,210
Interest on borrowings against corporate-owned
life insurance contracts.................. 29,586 25,580
Other interest.............................. 13,343 17,443
Amortization of debt discount and expense
less premium ............................. 2,696 2,413
Interest component of rental expense........ 7,991 5,024
Preferred stock dividend requirement........ 8,905 8,992
Additional preferred stock dividend requirement 4,850 4,616
------ -------
Total .................................... $135,473 $128,278
======== ========
Earnings (before fixed charges and taxes on income):
Net income.................................. $138,222 $127,718
Interest on long-term debt.................. 68,102 64,210
Interest on borrowings against corporate-owned
life insurance contracts.................. 29,586 25,580
Other interest.............................. 13,343 17,443
Amortization of debt discount and expense
less premium 2,696 2,413
Interest component of rental expense........ 7,991 5,024
Provisions for Federal and state taxes on income,
net of investment tax credit amortization... 75,284 65,556
------- -------
Total..................................... $335,224 $307,944
======== ========
Ratio of earnings to fixed charges
and preferred stock dividends................ 2.47 2.40
======== ========
30
<PAGE>
EXHIBIT 15
November 8, 1996
Public Service Company of Colorado:
We are aware that Public Service Company of Colorado has incorporated by
reference in its Registration Statement (Form S-3, File No. 33-62233) pertaining
to the Automatic Dividend Reinvestment and Common Stock Purchase Plan; the
Company's Registration Statement (Form S-3, File No. 33-37431), as amended on
December 4, 1990, pertaining to the shelf registration of the Company's First
Mortgage Bonds; the Company's Registration Statement (Form S-8, File No.
33-55432) pertaining to the Omnibus Incentive Plan; the Company's Registration
Statement (Form S-3, File No. 33-51167) pertaining to the shelf registration of
the Company's First Collateral Trust Bonds; the Company's Registration Statement
(Form S-3, File No. 33-54877) pertaining to the shelf registration of the
Company's First Collateral Trust Bonds and Cumulative Preferred Stock; and the
Company's Registration Statement (Form S-3, File No. 333-14727) pertaining to
the shelf registration of the Company's First Collateral Trust Bonds (being one
or more series of secured medium-term notes), its Form 10-Q for the quarter
ended September 30, 1996, which includes our report dated November 8, 1996,
covering the unaudited consolidated condensed financial statements contained
therein. Pursuant to Regulation C of the Securities Act of 1933, that report is
not considered a part of the registration statement prepared or certified by our
Firm or a report prepared or certified by our Firm within the meaning of
Sections 7 and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
31
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial
information extracted from Public Service Company
of Colorado and Subsidiaries consolidated balance
sheet as of September 30,1996 and consolidated statements
of income and cash flows for the nine months ended
September 30, 1996 and is qualified in its entirety by
reference to such financial statements
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,538,939
<OTHER-PROPERTY-AND-INVEST> 35,912
<TOTAL-CURRENT-ASSETS> 445,922
<TOTAL-DEFERRED-CHARGES> 384,856
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 4,405,629
<COMMON> 323,032
<CAPITAL-SURPLUS-PAID-IN> 717,799
<RETAINED-EARNINGS> 374,690
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,415,521
39,913
140,008
<LONG-TERM-DEBT-NET> 1,270,716
<SHORT-TERM-NOTES> 12,425
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 245,725
<LONG-TERM-DEBT-CURRENT-PORT> 69,988
2,576
<CAPITAL-LEASE-OBLIGATIONS> 45,660
<LEASES-CURRENT> 4,648
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,208,757
<TOT-CAPITALIZATION-AND-LIAB> 4,405,629
<GROSS-OPERATING-REVENUE> 1,584,565
<INCOME-TAX-EXPENSE> 75,284
<OTHER-OPERATING-EXPENSES> 240,613
<TOTAL-OPERATING-EXPENSES> 1,318,211
<OPERATING-INCOME-LOSS> 266,354
<OTHER-INCOME-NET> (16,862)
<INCOME-BEFORE-INTEREST-EXPEN> 249,492
<TOTAL-INTEREST-EXPENSE> 111,270
<NET-INCOME> 138,222
8,905
<EARNINGS-AVAILABLE-FOR-COMM> 129,317
<COMMON-STOCK-DIVIDENDS> 101,080
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 256,679
<EPS-PRIMARY> 2.02
<EPS-DILUTED> 2.02
</TABLE>
