UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Exact name of registrant as specified in its charter,
State or other jurisdiction of incorporation or
organization, Address of principal executive offices
and Registrant's Telephone Number, including area code
Commission IRS Employer
File Number Identification No.
1-12927 NEW CENTURY ENERGIES, INC. 84-1334327
(a Delaware Corporation)
1225 17th Street
Denver, Colorado 80202
Telephone (303) 571-7511
1-3280 PUBLIC SERVICE COMPANY OF COLORADO 84-0296600
(a Colorado Corporation)
1225 17th Street
Denver, Colorado 80202
Telephone (303) 571-7511
1-3789 SOUTHWESTERN PUBLIC SERVICE COMPANY 75-0575400
(a New Mexico Corporation)
Tyler at Sixth
Amarillo, Texas 79101
Telephone (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
On November 10, 1999, 115,549,242 shares of the Registrant's Common Stock
were outstanding. The aggregate market value of this common stock held by
nonaffiliates based on the closing price on the New York Stock Exchange was
approximately $3,762,572,193.
Public Service Company of Colorado and Southwestern Public Service Company meet
the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and
are therefore filing this Form 10-Q with the reduced disclosure format specified
in General Instruction H (2) to such Form 10-Q.
<PAGE>
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 ...................................... 41
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................. 62
Item 6. Exhibits and Reports on Form 8-K.................................. 62
This combined Form 10-Q is separately filed by New Century Energies, Inc.,
Public Service Company of Colorado and Southwestern Public Service Company.
Information contained herein relating to any individual company is filed by such
company on its own behalf. Each registrant makes representations only as to
itself and makes no other representations whatsoever as to information relating
to the other registrants.
This report should be read in its entirety. No one section of the report deals
with all aspects of the subject matter.
FORWARD-LOOKING INFORMATION
The following discussions include "forward-looking statements"within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Investors and prospective investors are cautioned that the
forward-looking statements contained herein with respect to the revenues,
earnings, capital expenditures, resolution and impact of litigation, Year 2000
issues, competitive performance, or other prospects for the business of New
Century Energies, Inc., Public Service Company of Colorado and/or Southwestern
Public Service Company or their affiliated companies, including any and all
underlying assumptions and other statements that are other than statements of
historical fact, may be influenced by factors that could cause actual outcomes
and results to be materially different than projected. Such factors include, but
are not limited to, the effects of weather, future economic conditions, the
performance of generating units, fuel prices and availability, regulatory
decisions and the effects of changes in state and federal laws, the pace of
deregulation of domestic retail natural gas and electricity markets, the timing
and extent of change in commodity prices for all forms of energy, capital
spending requirements, the evolution of competition, earnings retention and
dividend payout policies, changes in accounting standards, the consummation of
the proposed merger with Northern States Power Company and/or other factors.
From time to time, New Century Energies, Inc., Public Service Company of
Colorado and Southwestern Public Service Company may publish or otherwise make
available forward-looking statements. All such subsequent forward-looking
statements, whether written or oral and whether made by or on behalf of each
company, are also expressly qualified by these cautionary statements.
i
<PAGE>
TERMS
The abbreviations or acronyms used in the text and notes are defined below:
Abbreviation or Acronym Term
AEP......................................................American Electric Power
CERCLA.....................................Comprehensive Environmental Response,
Compensation and Liability Act
Cheyenne..................................Cheyenne Light, Fuel and Power Company
CPUC....................The Public Utilities Commission of the State of Colorado
Denver District Court..............................District Court in and for the
City and County of Denver
DOE.........................................................Department of Energy
DSM.......................................................Demand Side Management
Dth....................................................................Dekatherm
EPA.........................................U.S. Environmental Protection Agency
e prime...........................................e prime, inc. and subsidiaries
FERC........................................Federal Energy Regulatory Commission
Fort St. Vrain.......................Fort St. Vrain Electric Generating Station,
formerly a nuclear generating station
Fuelco..........Fuel Resources Development Co., a dissolved Colorado Corporation
GCA..........................................................Gas Cost Adjustment
ICA....................................................Incentive Cost Adjustment
IRS.....................................................Internal Revenue Service
Kwh................................................................kilowatt-hour
PSCo/SPS Merger........................business combination between PSCo and SPS
Natural Fuels..........................................Natural Fuels Corporation
NCE or Company........................................New Century Energies, Inc.
NCE/NSP Merger..........................business combination between NCE and NSP
NC Enterprises..............................................NC Enterprises, Inc.
NCI..............................................New Century International, Inc.
NMPRC....................................New Mexico Public Regulation Commission
NOx...............................................................Nitrogen Oxide
NSP................................................Northern States Power Company
PCB.....................................................Polychlorinated Biphenyl
PSCo..........................................Public Service Company of Colorado
PSRI.......................................................PSR Investments, Inc.
PUHCA.....................Public Utility Holding Company Act of 1935, as amended
PRPs.............................................Potentially Responsible Parties
PSCCC.............................................PS Colorado Credit Corporation
PUCT..........................................Public Utility Commission of Texas
QF...........................................................Qualifying Facility
Quixx.........................................Quixx Corporation and subsidiaries
SEC...........................................Securities and Exchange Commission
SO2...............................................................Sulfur Dioxide
SPS..........................................Southwestern Public Service Company
SFAS 71.....................Statement of Financial Accounting Standards No. 71 -
"Accounting for the Effects of Certain Types of Regulation"
SFAS 112...................Statement of Financial Accounting Standards No. 112 -
"Employers' Accounting for Postemployment Benefits"
SFAS 121...................Statement of Financial Accounting Standards No. 121 -
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to Be Disposed Of"
Thunder Basin.........................................Thunder Basin Coal Company
UE..............................Utility Engineering Corporation and subsidiaries
WGI.....................................................WestGas InterState, Inc.
Y2K....................................................................Year 2000
Yorkshire Electricity............................Yorkshire Electricity Group plc
Yorkshire Power.......................................Yorkshire Power Group Ltd.
ii
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars)
ASSETS
September 30, December 31,
1999 1998
---- ----
Property, plant and equipment, at cost:
Electric ........................................ $7,388,462 $7,097,070
Gas.............................................. 1,283,045 1,210,605
Steam and other.................................. 108,478 111,620
Common to all departments........................ 462,408 423,287
Construction in progress......................... 393,405 391,100
------- -------
9,635,798 9,233,682
Less: accumulated depreciation .................. 3,486,585 3,351,659
--------- ---------
Total property, plant and equipment............ 6,149,213 5,882,023
--------- ---------
Investments, at cost:
Investment in Yorkshire Power and other
unconsolidated subsidiaries (Note 3)........... 358,069 340,874
Other............................................. 85,406 64,562
------- ------
Total investments................................ 443,475 405,436
------- -------
Current assets:
Cash and temporary cash investments................ 40,513 56,667
Accounts receivable, less reserve for uncollectible
accounts ($4,809 at September 30, 1999; $4,842 at
December 31, 1998). ............................. 401,029 319,145
Accrued unbilled revenues.......................... 181,955 130,455
Recoverable purchased gas and electric energy costs 28,645 66,154
Materials and supplies, at average cost............ 78,226 69,298
Fuel inventory, at average cost.................... 30,338 24,653
Gas in underground storage, at cost (LIFO)......... 54,688 52,624
Prepaid expenses and other......................... 71,997 83,561
------- ------
Total current assets.............................. 887,391 802,557
------- -------
Deferred charges:
Regulatory assets (Note 1)......................... 351,155 381,632
Unamortized debt expense........................... 28,697 27,408
Other.............................................. 240,300 172,908
------- -------
Total deferred charges............................ 620,152 581,948
------- -------
$8,100,231 $7,671,964
========== ==========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
1
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars)
CAPITAL AND LIABILITIES
September 30, December 31,
1999 1998
---- ----
Common stock.......................................... $1,905,862 $1,866,386
Retained earnings..................................... 788,613 740,677
Accumulated other comprehensive income (Note 1)....... 4,757 7,764
------- ------
Total common equity............................... 2,699,232 2,614,827
PSCo and SPS obligated mandatorily redeemable
preferred securities of subsidiary trusts holding
solely subordinated debentures of PSCo and SPS
(Note 7)............................................ 294,000 294,000
Long-term debt of subsidiaries ....................... 2,272,069 2,205,545
--------- ---------
5,265,301 5,114,372
--------- ---------
Noncurrent liabilities:
Employees' postretirement benefits other than
pensions ........................................ 56,199 61,732
Employees' postemployment benefits ................ 31,237 31,326
------ ------
Total noncurrent liabilities...................... 87,436 93,058
------ ------
Current liabilities:
Notes payable and commercial paper ................ 521,091 524,394
Long-term debt due within one year................. 333,640 138,165
Accounts payable................................... 360,410 285,080
Dividends payable.................................. 69,869 69,271
Recovered electric energy costs.................... 9,538 18,760
Customers' deposits................................ 30,590 30,793
Accrued taxes...................................... 92,016 85,384
Accrued interest................................... 45,202 50,229
Other.............................................. 121,678 122,747
------- -------
Total current liabilities......................... 1,584,034 1,324,823
--------- ---------
Deferred credits:
Customers' advances for construction............... 59,090 55,400
Unamortized investment tax credits ................ 97,099 100,925
Accumulated deferred income taxes.................. 952,742 947,247
Other.............................................. 54,529 36,139
------- ------
Total deferred credits............................ 1,163,460 1,139,711
--------- ---------
Commitments and contingencies (Notes 4 and 5)......... ---------- ----------
$8,100,231 $7,671,964
========== ==========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
2
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars)
Three Months Ended
September 30,
1999 1998
---- ----
Operating revenues:
Electric........................................... $701,483 $760,120
Gas................................................ 88,420 96,857
Other.............................................. 22,984 15,907
------- ------
812,887 872,884
Operating expenses:
Fuel used in generation............................ 190,195 200,039
Purchased power.................................... 139,817 199,340
Cost of gas sold................................... 38,911 51,385
Other operating and maintenance expenses-regulated. 124,696 135,237
Other operating and maintenance expenses-nonregulated 25,661 22,614
Depreciation and amortization...................... 70,777 65,520
Taxes (other than income taxes) ................... 31,451 34,576
------- ------
621,508 708,711
------- -------
Operating income...................................... 191,379 164,173
Other income and deductions:
Equity in earnings of Yorkshire Power and other
unconsolidated subsidiaries (Note 3)............. 2,221 10,247
Miscellaneous income and deductions - net.......... 806 905
------- ------
3,027 11,152
Interest charges and preferred dividends of subsidiaries:
Interest on long-term debt......................... 45,932 42,737
Other interest..................................... 8,321 7,602
Allowance for borrowed funds used during
construction ..................................... (3,727) (3,962)
Dividends on PSCo and SPS obligated mandatorily
redeemable preferred securities of subsidiary
trusts holding solely subordinated debentures of
PSCo and SPS...................................... 5,763 5,763
----- -----
56,289 52,140
------ ------
Income before income taxes............................ 138,117 123,185
Income taxes.......................................... 40,190 32,413
------- ------
Net income............................................ $97,927 $90,772
======= =======
Weighted average common shares outstanding:
Basic.............................................. 115,386 111,606
Diluted............................................ 115,399 111,722
Basic and diluted earnings per share of
common stock outstanding $ 0.85 $ 0.82
====== =======
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
3
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars)
Nine Months Ended
September 30,
1999 1998
---- ----
Operating revenues:
Electric........................................... $1,903,291 $1,987,778
Gas................................................ 566,727 574,640
Other.............................................. 58,398 57,442
------- ------
2,528,416 2,619,860
Operating expenses:
Fuel used in generation............................ 476,901 512,238
Purchased power.................................... 397,696 470,302
Cost of gas sold................................... 372,492 380,641
Other operating and maintenance expenses-regulated. 391,162 403,917
Other operating and maintenance expenses-nonregulated 74,652 64,582
Depreciation and amortization...................... 210,174 195,012
Taxes (other than income taxes) ................... 106,548 100,492
------- -------
2,029,625 2,127,184
--------- ---------
Operating income...................................... 498,791 492,676
Other income and deductions:
Equity in earnings of Yorkshire Power and other
unconsolidated subsidiaries (Note 3).............. 15,245 6,430
Miscellaneous income and deductions - net.......... (5,345) (1,040)
------- ------
9,900 5,390
Interest charges and preferred dividends of subsidiaries:
Interest on long-term debt......................... 131,284 125,928
Other interest..................................... 22,572 25,054
Allowance for borrowed funds used during
construction ..................................... (9,254) (12,883)
Dividends on PSCo and SPS obligated mandatorily
redeemable preferred securities of subsidiary trusts
holding solely subordinated debentures of
PSCo and SPS...................................... 17,288 11,799
Dividend requirements and redemption premium on
preferred stock of subsidiaries.................. - 5,332
---- -----
161,890 155,230
------- -------
Income before income taxes............................ 346,801 342,836
Income taxes.......................................... 98,339 109,322
------- -------
Net income............................................ $248,462 $233,514
======== ========
Weighted average common shares outstanding:
Basic.............................................. 115,053 111,320
Diluted............................................ 115,079 111,463
Basic and diluted earnings per share of common
stock outstanding $ 2.16 $ 2.10
====== =======
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
4
<PAGE>
NEW CENTURY ENERGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of Dollars)
Nine Months Ended
September 30,
1999 1998
---- ----
Operating activities:
Net income......................................... $248,462 $233,514
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................... 220,299 203,036
Amortization of investment tax credits........... (3,826) (3,836)
Deferred income taxes............................ 18,699 (12,328)
Equity in earnings of Yorkshire Power and other
unconsolidated subsidiaries, net............... (15,245) (6,430)
Allowance for equity funds used during construction (1,069) -
Change in accounts receivable.................... (81,436) 7,220
Change in inventories............................ (16,911) (7,002)
Change in other current assets................... (2,424) 67,840
Change in accounts payable....................... 72,792 (62,319)
Change in other current liabilities.............. (13,553) 50,545
Change in deferred amounts....................... (58,637) 22,398
Change in noncurrent liabilities................. (5,622) 10,347
Other............................................ (464) (8)
------- -------
Net cash provided by operating activities...... 361,065 502,977
Investing activities:
Construction expenditures.......................... (476,125) (411,778)
Allowance for equity funds used during construction 1,069 -
Proceeds from disposition of property, plant
and equipment ................................... 2,726 3,755
Acquisition and disposition of subsidiaries, net of
cash acquired or sold (Note 3)................... 13,877 (13,725)
Purchase of other investments...................... (17,217) (4,006)
Sale of other investments.......................... 13,703 6,313
------ -----
Net cash used in investing activities.......... (461,967) (419,441)
Financing activities:
Proceeds from sale of common stock................. 29,965 34,280
Proceeds from sale of PSCo obligated mandatorily
redeemable preferred securities................... - 187,700
Proceeds from sale of long-term debt............... 356,335 247,961
Redemption of long-term debt....................... (98,321) (156,838)
Short-term borrowings - net........................ (3,303) (25,036)
Redemption of preferred stock (Note 1)............. - (181,824)
Dividends on common stock.......................... (199,928) (191,575)
-------- --------
Net cash provided by (used in) financing
activities ................................ 84,748 (85,332)
------ ------
Net decrease in cash and temporary cash
investments ................................ (16,154) (1,796)
Cash and temporary cash investments at
beginning of period ........................ 56,667 72,623
------ ------
Cash and temporary cash investments at end
of period .................................. $ 40,513 $ 70,827
======== ========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements
5
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Months Ended September 30, 1999 and 1998
(Unaudited)
(Thousands of Dollars, Except Share Information)
<TABLE>
<CAPTION>
Accumulated
Paid Other
Common Stock, $1 par value in Retained Comprehensive
Shares Amount Capital Earnings Income Total
------ ------ ------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1998 111,491,918 $ 111,492 $1,615,789 $ 672,718 $ 5,624 $2,405,623
Comprehensive income (Note 1):
Net income.......... - - - 90,772 - 90,772
Foreign currency translation
adjustment......... - - - - 8,656 8,656
-----
Comprehensive income 99,428
Dividends declared on
common stock - - - (64,805) - (64,805)
Issuance of common stock 239,041 239 10,065 - - 10,304
------- ------- ------- ------- ------- ------
Balance at September 30,1998 111,730,959 $ 111,731 $1,625,854 $ 698,685 $ 14,280 $2,450,550
=========== ========== ========== ========= ========= ==========
Balance at June 30, 1999 115,242,268 $ 115,242 $1,780,974 $ 757,695 $ (9,410) $2,644,501
Comprehensive income (Note 1):
Net income.......... - - - 97,927 - 97,927
Foreign currency translation
adjustment......... - - - - 14,167 14,167
------
Comprehensive income 112,094
Dividends declared on common stock - - - (67,009) - (67,009)
Repurchase of common stock (34,360) (34) (1,207) - - (1,241)
Issuance of common stock 325,796 326 10,561 - - 10,887
------- ------- ------- ------- ------- ------
Balance at September 30,1999 115,533,704 $ 115,534 $1,790,328 $788,613 $ 4,757 $ 2,699,232
=========== ========== ========== ======== ======== ============
</TABLE>
Authorized shares of common stock were 260 million at September 30, 1999 and
1998.
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
6
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
Nine Months Ended September 1999 and 1998
(Unaudited)
(Thousands of Dollars, Except Share Information)
<TABLE>
<CAPTION>
Accumulated
Paid Other
Common Stock, $1 par value in Retained Comprehensive
Shares Amount Capital Earnings Income Total
------ ------ ------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 110,749,301 $ 110,749 $1,583,446 $659,050 $4,142 $2,357,387
Comprehensive income (Note 1):
Net income.......... - - - 233,514 - 233,514
Foreign currency translation
adjustment......... - - - - 10,138 10,138
-------
Comprehensive income 243,652
Dividends declared on common stock - - - (193,879) - (193,879)
Issuance of common stock 981,658 982 42,408 - - 43,390
------- ------- ------- ------- ------- ------
Balance at September 30,1998 111,730,959 $ 111,731 $1,625,854 $698,685 $ 14,280 $2,450,550
=========== ========== ========== ======== ======== ==========
Balance at December 31, 1998 114,490,772 $ 114,491 $1,751,895 $740,677 $ 7,764 $2,614,827
Comprehensive income (Note 1):
Net income.......... - - - 248,462 - 248,462
Foreign currency translation
adjustment......... - - - - (3,007) (3,007)
-------
Comprehensive income 245,455
Dividends declared on common stock - - - (200,526) - (200,526)
Repurchase of common stock (34,360) (34) (1,207) - - (1,241)
Issuance of common stock 1,077,292 1,077 39,640 - - 40,717
--------- ------- ------ ----- ------ ------
Balance at September 30,1999 115,533,704 $ 115,534 $1,790,328 $788,613 $ 4,757 $2,699,232
=========== ========== ========== ======== ======== ==========
</TABLE>
Authorized shares of common stock were 260 million at September 30, 1999 and
1998.
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
7
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars)
ASSETS
September 30, December 31,
1999 1998
---- ----
Property, plant and equipment, at cost:
Electric ..................................... $4,548,872 $4,369,134
Gas........................................... 1,237,877 1,171,198
Steam and other............................... 58,407 71,986
Common to all departments..................... 456,752 418,484
Construction in progress...................... 300,288 264,752
-------- --------
6,602,196 6,295,554
Less: accumulated depreciation ............... 2,327,156 2,241,165
--------- ---------
Total property, plant and equipment......... 4,275,040 4,054,389
--------- ---------
Investments, at cost:
Note receivable from affiliate (Note 3)....... 192,620 192,620
Other......................................... 11,475 22,664
-------- --------
Total investments............................ 204,095 215,284
-------- --------
Current assets:
Cash and temporary cash investments........... 14,617 19,926
Accounts receivable, less reserve for
uncollectible accounts ($3,057 at September
30, 1999; $2,254 at December 31, 1998) ..... 170,382 172,587
Accrued unbilled revenues .................... 126,775 119,856
Recoverable purchased gas and electric energy
costs ...................................... 20,590 62,761
Materials and supplies, at average cost....... 54,427 47,881
Fuel inventory, at average cost............... 28,043 22,361
Gas in underground storage, at cost (LIFO).... 53,676 51,779
Prepaid expenses and other.................... 35,350 46,523
-------- ------
Total current assets......................... 503,860 543,674
-------- -------
Deferred charges:
Regulatory assets (Note 1).................... 242,988 269,112
Unamortized debt expense ..................... 18,974 17,874
Other......................................... 84,289 77,303
-------- --------
Total deferred charges....................... 346,251 364,289
-------- --------
$5,329,246 $5,177,636
========== ==========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
8
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars)
CAPITAL AND LIABILITIES
September 30, December 31,
1999 1998
---- ----
Common stock....................................... $1,302,119 $1,302,119
Retained earnings.................................. 338,519 325,213
-------- -------
Total common equity............................ 1,640,638 1,627,332
PSCo obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
subordinated debentures of PSCo (Note 7) ........ 194,000 194,000
Long-term debt..................................... 1,619,008 1,643,130
--------- ---------
3,453,646 3,464,462
--------- ---------
Noncurrent liabilities:
Employees' postretirement benefits other than
pensions ..................................... 48,979 55,537
Employees' postemployment benefits.............. 27,195 27,195
------ ------
Total noncurrent liabilities................... 76,174 82,732
------ ------
Current liabilities:
Notes payable and commercial paper.............. 396,300 402,795
Long-term debt due within one year.............. 241,856 44,481
Accounts payable................................ 213,328 226,712
Dividends payable............................... 44,575 46,461
Recovered electric energy costs................. 9,538 -
Customers' deposits............................. 23,894 23,902
Accrued taxes................................... 45,543 57,848
Accrued interest................................ 34,010 36,729
Current portion of accumulated deferred income
taxes ........................................ 5,422 8,142
Other........................................... 69,363 68,729
-------- -------
Total current liabilities...................... 1,083,829 915,799
--------- -------
Deferred credits:
Customers' advances for construction............ 57,702 54,260
Unamortized investment tax credits ............. 90,877 94,459
Accumulated deferred income taxes............... 541,320 538,581
Other........................................... 25,698 27,343
-------- -------
Total deferred credits......................... 715,597 714,643
-------- -------
Commitments and contingencies (Notes 4 and 5)...... ---------- ----------
$5,329,246 $5,177,636
========== ==========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
9
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars)
Three Months Ended
September 30,
1999 1998
---- ----
Operating revenues:
Electric........................................... $400,892 $466,221
Gas................................................ 82,471 74,635
Other.............................................. 837 745
------- -------
484,200 541,601
Operating expenses:
Fuel used in generation............................ 60,583 61,019
Purchased power.................................... 114,004 182,852
Gas purchased for resale........................... 34,900 32,928
Other operating and maintenance expenses........... 93,098 99,529
Depreciation and amortization...................... 50,332 45,344
Taxes (other than income taxes) ................... 17,527 21,279
Income taxes ..................................... 23,172 21,816
------- -------
393,616 464,767
------- -------
Operating income...................................... 90,584 76,834
Other income and deductions - net..................... 114 3,558
Interest charges:
Interest on long-term debt......................... 32,430 30,781
Other interest..................................... 7,710 4,816
Allowance for borrowed funds used during construction (2,991) (3,020)
Dividends on PSCo obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely subordinated debentures of PSCo (Note 7) 3,800 3,800
----- -----
40,949 36,377
------ ------
Net income............................................ $49,749 $44,015
======= =======
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
10
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars)
Nine Months Ended
September 30,
1999 1998
---- ----
Operating revenues:
Electric........................................... $1,155,904 $1,211,607
Gas................................................ 477,537 473,288
Other.............................................. 5,794 5,946
------- -------
1,639,235 1,690,841
Operating expenses:
Fuel used in generation............................ 167,330 161,202
Purchased power.................................... 340,194 430,783
Gas purchased for resale........................... 295,462 293,468
Other operating and maintenance expenses........... 289,646 296,038
Depreciation and amortization...................... 147,694 135,035
Taxes (other than income taxes) ................... 64,609 62,185
Income taxes ..................................... 67,154 72,184
------- -------
1,372,089 1,450,895
--------- ---------
Operating income...................................... 267,146 239,946
Other income and deductions:
Equity earnings in Yorkshire Power (Note 3)........ - 3,446
Miscellaneous income and deductions - net.......... (621) 2,641
---- -----
(621) 6,087
Interest charges:
Interest on long-term debt......................... 92,221 90,047
Other interest..................................... 19,671 14,967
Allowance for borrowed funds used during construction (7,275) (8,712)
Dividends on PSCo obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely subordinated debentures of PSCo (Note 7).. 11,400 5,911
------- ------
116,017 102,213
------- -------
Net income............................................ 150,508 143,820
Dividend requirements and redemption premium on
preferred stock .................................... - 5,332
----- -----
Earnings available for common stock................... $150,508 $138,488
======== ========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
11
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of Dollars)
Nine Months Ended
September 30,
1999 1998
---- ----
Operating activities:
Net income......................................... $150,508 $143,820
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................... 154,207 139,227
Amortization of investment tax credits........... (3,582) (3,591)
Deferred income taxes............................ 8,333 (14,798)
Equity in earnings of Yorkshire Power............ - (3,446)
Change in accounts receivable.................... 2,205 37,457
Change in inventories............................ (14,125) (4,984)
Change in other current assets................... 46,425 60,580
Change in accounts payable....................... (13,384) (61,444)
Change in other current liabilities.............. (4,860) 18,111
Change in deferred amounts....................... (3,515) (16,389)
Change in noncurrent liabilities................. (6,558) 10,834
------- -------
Net cash provided by operating activities...... 315,654 305,377
Investing activities:
Construction expenditures.......................... (370,148) (338,663)
Proceeds from disposition of property, plant and
equipment ...................................... 13,242 6,207
Purchase of other investments...................... (1,689) (466)
Sale of other investments.......................... 12,878 4,394
------- -------
Net cash used in investing activities.......... (345,717) (328,528)
Financing activities:
Proceeds from the sale of PSCo obligated mandatorily
redeemable preferred securities.................. - 187,700
Proceeds from the sale of long-term debt........... 243,270 247,274
Redemption of long-term debt....................... (72,932) (156,414)
Short-term borrowings - net........................ (6,495) 67,600
Dividends on common stock.......................... (139,089) (121,790)
Redemption of preferred stock (Note 7)............. - (181,824)
Dividends and redemption premium on preferred stock
(Note 7) ........................................ - (8,261)
------- ------
Net cash provided by financing activities...... 24,754 34,285
------- -------
Net increase (decrease) in cash and temporary
cash investments ............................. (5,309) 11,134
Cash and temporary cash investments at
beginning of period .......................... 19,926 18,909
------ ------
Cash and temporary cash investments at end of
period ....................................... $ 14,617 $ 30,043
======== ========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
12
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars)
ASSETS
September 30, December 31,
1999 1998
---- ----
Property, plant and equipment, at cost:
Electric........................................... $2,777,837 $2,665,115
Construction in progress........................... 89,619 121,407
------ -------
2,867,456 2,786,522
Less: accumulated depreciation..................... 1,104,908 1,057,183
--------- ---------
Total property, plant and equipment............... 1,762,548 1,729,339
--------- ---------
Investments, at cost:
Notes receivable from affiliate.................... 119,036 119,036
Other.............................................. 5,717 5,591
------- -------
Total investments................................. 124,753 124,627
------- -------
Current assets:
Cash and temporary cash investments................ 12,384 1,350
Accounts receivable, less reserve for uncollectible
accounts ($1,362 at September 30,1999; $1,695 at
December 31, 1998)... ........................... 90,041 76,190
Accrued unbilled revenues.......................... 54,427 9,373
Recoverable electric energy cost................... 7,434 -
Materials and supplies, at average cost............ 18,085 16,970
Fuel inventory, at average cost.................... 2,295 2,293
Current portion of accumulated deferred income taxes - 6,113
Prepaid expenses and other......................... 4,306 5,248
------- -------
Total current assets.............................. 188,972 117,537
------- -------
Deferred charges:
Regulatory assets (Note 1)......................... 107,740 111,971
Unamortized debt expense........................... 8,854 8,767
Other.............................................. 58,111 37,623
------- -------
Total deferred charges............................ 174,705 158,361
------- -------
$2,250,978 $2,129,864
========== ==========
The accompanying notes to condensed financial statements are an
integral part of these financial statements.
13
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars)
CAPITAL AND LIABILITIES
September 30, December 31,
1999 1998
---- ----
Common stock.......................................... $348,402 $348,402
Retained earnings..................................... 415,299 389,818
------- -------
Total common equity............................... 763,701 738,220
SPS obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
subordinated debentures of SPS (Note 7) 100,000 100,000
Long-term debt........................................ 605,840 530,618
------- -------
1,469,541 1,368,838
--------- ---------
Noncurrent liabilities:
Employees' postretirement benefits other than pensions 6,823 5,941
Employees' postemployment benefits................. 3,482 3,571
------- -------
Total noncurrent liabilities...................... 10,305 9,512
------- -------
Current liabilities:
Notes payable and commercial paper................. 103,391 85,162
Note payable to affiliate.......................... - 9,000
Long-term debt due within one year................. 90,113 90,113
Accounts payable................................... 89,215 64,275
Dividends payable.................................. 20,912 20,007
Recovered electric energy costs.................... - 18,760
Customers' deposits................................ 6,105 5,904
Accrued taxes...................................... 28,303 37,646
Accrued interest................................... 10,863 12,273
Current portion of accumulated deferred income taxes 2,810 -
Other.............................................. 20,633 18,011
------- -------
Total current liabilities......................... 372,345 361,151
------- -------
Deferred credits:
Unamortized investment tax credits................. 5,031 5,219
Accumulated deferred income taxes.................. 383,805 380,655
Other.............................................. 9,951 4,489
------- -------
Total deferred credits............................ 398,787 390,363
------- -------
Commitments and contingencies (Notes 4 and 5)......... ---------- ----------
$2,250,978 $2,129,864
========== ==========
The accompanying notes to condensed financial statements are an
integral part of these financial statements.
14
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars)
Three Months Ended
September 30,
1999 1998
---- ----
Operating revenues.................................... $290,587 $284,648
Operating expenses:
Fuel used in generation............................ 130,067 139,021
Purchased power.................................... 18,019 9,946
Other operating and maintenance expenses........... 29,910 34,189
Depreciation and amortization...................... 18,450 17,754
Taxes (other than income taxes).................... 13,208 12,525
Income taxes....................................... 25,020 21,755
------- -------
234,674 235,190
------- -------
Operating income...................................... 55,913 49,458
Other income and deductions - net..................... 2,349 2,233
Interest charges:
Interest on long-term debt......................... 13,055 11,553
Other interest..................................... 1,440 2,163
Allowance for borrowed funds used during construction (730) (917)
Dividends on SPS obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely subordinated debentures of SPS 1,963 1,963
----- -----
15,728 14,762
------ ------
Net income............................................ $42,534 $36,929
======= =======
The accompanying notes to condensed financial statements are an
integral part of these financial statements.
15
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars)
Nine Months Ended
September 30,
1999 1998
---- ----
Operating revenues.................................... $717,253 $748,386
Operating expenses:
Fuel used in generation............................ 310,095 351,036
Purchased power.................................... 34,528 19,666
Other operating and maintenance expenses........... 97,572 103,650
Depreciation and amortization...................... 55,357 53,291
Taxes (other than income taxes) ................... 39,079 35,918
Income taxes ...................................... 52,868 54,709
------- -------
589,499 618,270
------- -------
Operating income...................................... 127,754 130,116
Other income and deductions - net..................... 6,809 5,571
Interest charges:
Interest on long-term debt......................... 37,889 34,654
Other interest..................................... 3,989 7,275
Allowance for borrowed funds used during construction (1,963) (4,115)
Dividends on SPS obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely subordinated debentures of SPS ............ 5,888 5,888
----- -----
45,803 43,702
------ ------
Net income............................................ $88,760 $91,985
======= =======
The accompanying notes to condensed financial statements are an
integral part of these financial statements.
16
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of Dollars)
Nine Months Ended
September 30,
1999 1998
---- ----
Operating activities:
Net income......................................... $88,760 $91,985
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................... 58,301 56,593
Amortization of investment tax credits........... (188) (188)
Deferred income taxes............................ 13,868 (1,524)
Allowance for funds used during construction..... (1,075) -
Change in accounts receivable.................... (13,851) (2,065)
Change in inventories............................ (1,117) (994)
Change in other current assets................... (51,546) 18,915
Change in accounts payable....................... 24,940 (32,346)
Change in other current liabilities.............. (26,690) 19,565
Change in deferred amounts....................... (14,111) 38,588
Change in noncurrent liabilities................. 793 (989)
------- -------
Net cash provided by operating activities...... 78,084 187,540
Investing activities:
Construction expenditures.......................... (88,247) (64,838)
Allowance for equity funds used during construction 1,075 -
Cost of disposition of property, plant and equipment (1,719) (2,345)
Purchase and sale of other investments............. (126) 186
------- -------
Net cash used in investing activities.......... (89,017) (66,997)
Financing activities:
Proceeds from sale of long-term debt............... 99,846 -
Redemption of long-term debt....................... (24,733) (58)
Short-term borrowings - net........................ 9,229 (44,297)
Dividends on common stock.......................... (62,375) (71,527)
------- -------
Net cash provided by (used in) financing activities 21,967 (115,882)
------ --------
Net increase in cash and temporary cash investments 11,034 4,661
Cash and temporary cash investments at beginning
of period ................................... 1,350 986
----- ---
Cash and temporary cash investments at end
of period ................................... $ 12,384 $ 5,647
======== =======
The accompanying notes to condensed financial statements
are an integral part of these financial statements
17
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies (NCE, PSCo and SPS)
Business, Utility Operations and Regulation
NCE is a registered holding company under the PUHCA and its domestic
utility subsidiaries (PSCo, SPS and Cheyenne) are engaged principally in the
generation, purchase, transmission, distribution and sale of electricity and in
the purchase, transportation, distribution and sale of natural gas. Both the
Company and its subsidiaries are subject to the regulatory provisions of the
PUHCA. The utility subsidiaries are subject to regulation by the FERC and state
utility commissions in Colorado, Texas, New Mexico, Wyoming, Kansas and
Oklahoma. Over 90% of the Company's revenues are derived from its regulated
utility operations.
Regulatory Assets and Liabilities
The Company's regulated subsidiaries prepare their financial statements in
accordance with the provisions of SFAS 71, as amended. SFAS 71 recognizes that
accounting for rate regulated enterprises should reflect the relationship of
costs and revenues introduced by rate regulation. 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. Accounting under
SFAS 71 is appropriate as long as: rates are established by or subject to
approval by independent, third party regulators; rates are designed to recover
an enterprise's cost-of-service; and in view of the demand for service, it is
reasonable to assume that rates are set at levels that will recover costs and
can be collected from customers.
While deregulation legislation has been enacted in certain states where
SPS operates (see Note 4. Regulatory Matters), the Company currently believes
its utility subsidiaries will continue to be subject to rate regulation. In the
event that a portion of a subsidiaries' operations is no longer subject to the
provisions of SFAS 71, as a result of a change in regulation or the effects of
competition, the Company's subsidiaries could be required to write-off their
regulatory assets, determine any impairment to other assets resulting from
deregulation and write-down any impaired assets to their estimated fair value,
which could separately have a material adverse effect on NCE's, PSCo's and/or
SPS's financial position, results of operations or cash flows.
The following regulatory assets are reflected in the Company's
consolidated balance sheets (in thousands):
September 30, 1999 NCE PSCo SPS
------ ------ ------
Income taxes........................ $138,360 $ 61,555 $ 77,321
Nuclear decommissioning costs....... 62,113 62,113 -
Employees' postretirement benefits
other than pensions............... 54,329 51,543 2,786
Employees' postemployment benefits.. 24,526 24,127 -
Demand-side management costs........ 31,699 27,414 4,285
Unamortized debt reacquisition costs 32,345 14,733 17,069
Other............................... 7,783 1,503 6,279
------ ------ ------
Total............................. $351,155 $242,988 $107,740
======== ======== ========
18
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
December 31, 1998 NCE PSCo SPS
------ ------ ------
Income taxes........................ $148,499 $ 69,868 $ 79,116
Nuclear decommissioning costs....... 69,490 69,490 -
Employees' postretirement benefits
other than pensions............... 57,350 54,461 2,889
Employees' postemployment benefits.. 24,888 24,416 -
Demand-side management costs........ 37,160 31,984 5,176
Unamortized debt reacquisition costs 33,138 15,769 16,808
Other............................... 11,107 3,124 7,982
------ ------ ------
Total............................. $381,632 $269,112 $111,971
======== ======== ========
The regulatory assets of the Company's regulated subsidiaries that are
currently being recovered as of September 30, 1999 and December 31, 1998 are
reflected in rates charged to customers. The recovery of regulatory assets over
the next three years is estimated to exceed $130 million. Refer to the
discussion below or the Notes to Consolidated Financial Statements included
herein and in the NCE, PSCo and SPS 1998 Annual Report on Form 10-K for a more
detailed discussion regarding recovery periods.
On January 27, 1997, the CPUC issued its order on PSCo's 1996 gas rate
case. The CPUC allowed recovery of postemployment benefits on an accrual basis
under SFAS 112 and denied amortization of the approximately $8.9 million
regulatory asset recognized upon the adoption of SFAS 112. PSCo has appealed in
the Denver District Court the decision related to this issue. PSCo believes that
it will be successful on appeal and that the associated regulatory asset is
realizable. On April 1, 1998, in connection with PSCo's annual electric
department earnings test filing, PSCo requested approval to recover its electric
jurisdictional portion of this regulatory asset totaling approximately $15
million over three years. In December 1998, the CPUC approved a settlement
agreement on this matter, which deferred the final determination of the
regulatory treatment of these costs pending the outcome of the current appeal of
the decision on PSCo's gas rate case. PSCo believes that it will be allowed
recovery of SFAS 112 costs on an accrual basis. If PSCo is ultimately
unsuccessful in its appeal of the gas rate case decision and/or in its request
to recover its electric jurisdictional regulatory asset, all unrecoverable
amounts will be written off (see Note 4. Regulatory Matters). PSCo recovered its
FERC jurisdictional portion of this regulatory asset.
Other Property
Property, plant and equipment includes approximately $18.4 million and
$25.4 million, respectively, for costs associated with the engineering design of
the future Pawnee 2 generating station and certain water rights located in
southeastern Colorado, also obtained for a future generating station. PSCo is
earning a return on these investments based on its weighted average cost of debt
in accordance with a CPUC rate order.
Non-utility Subsidiaries and International Investments
The Company's non-utility subsidiaries are principally involved in
energy-related businesses including the following: engineering, design and
construction management, energy marketing and trading, non-regulated energy
services, the management of real estate and certain life insurance policies, the
financing of certain current assets of PSCo and investments in cogeneration
facilities, electric wholesale generators and a foreign utility company. The
Company's international investments are subject to applicable regulation in the
countries in which such investments are made (see Note 3. Investment in
Yorkshire Power). Financial statements of foreign subsidiaries are translated
into U.S. dollars at current rates, except for revenues, costs and expenses,
which are translated at average current rates during each reporting period.
19
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Consolidation and Financial Statement Presentation
The Company follows the practice of consolidating the accounts of its
majority owned and controlled subsidiaries. The Company recognizes equity in
earnings from its unconsolidated investments accounted for under the equity
method of accounting. All intercompany items and transactions have been
eliminated.
Energy Trading Activities
The Company and its subsidiaries adopted Emerging Issues Task Force Issue
No. 98-10, "Accounting for Energy Trading and Risk Management Activities" ("EITF
98-10"), effective January 1, 1999. EITF 98-10 requires gains or losses
resulting from market value changes on energy trading contracts to be recorded
in earnings. The initial adoption of EITF 98-10 had no impact on the net income
of NCE, PSCo or SPS. For the three and nine month periods ended September 30,
1999, NCE recognized net gains of $759,000 and $208,000, respectively, and PSCo
recognized net losses of $330,000 and $252,000, respectively, for market value
changes on energy trading contracts. SPS does not currently have any trading
activities.
Revenues and purchased energy costs associated with trading activities are
presented net on the income statement in electric and gas revenues. Certain
prior year amounts have been reclassified for comparative purposes.
Comprehensive Income
The Company and its subsidiaries adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," effective January 1, 1998.
This statement establishes standards for the reporting and display of
comprehensive income (net income plus all other changes in net assets from
non-owner sources) and its components in financial statements. Comprehensive
income and its components were reported in NCE's Consolidated Condensed
Statements of Shareholders' Equity for the three and nine month periods ended
September 30, 1999. Other comprehensive income consists solely of foreign
currency translation adjustments related to the investment in Yorkshire Power.
For the three and nine month periods ended September 30, 1999, PSCo and
SPS had no comprehensive income items, therefore, comprehensive income equals
net income. For the same periods in 1998, SPS had no comprehensive income items,
therefore, comprehensive income equals net income. For the three months ended
September 30, 1998, PSCo had no comprehensive income items, therefore,
comprehensive income equals net income.
PSCo's comprehensive income for the nine months ended September 30, 1998,
was impacted solely by activity occurring in the three month period ended March
31, 1998. During the first quarter of 1998, PSCo had a foreign currency
translation adjustment of $5.3 million related to the investment in Yorkshire
Power, included in comprehensive income. On March 31, 1998, PSCo sold NCI (which
includes Yorkshire Power and related foreign currency translation adjustments)
to NC Enterprises. The amount of the sale included the accumulated other
comprehensive income of $9.4 million at March 31, 1998. As a result of this
sale, PSCo had no accumulated other comprehensive income at March 31, 1998, and
for all subsequent periods.
Basic and Diluted Earnings Per Share
Basic earnings per share is based upon the weighted average common shares
outstanding during the periods presented. Diluted earnings per share reflects
the potential dilution that could occur if securities or other agreements to
issue common stock were exercised or converted into common stock. Diluted
earnings per share is based upon the weighted average common and common
equivalent shares outstanding during periods presented.
20
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Employee stock options are the Company's only common stock equivalents. There
are no other potentially dilutive securities.
The potentially dilutive securities included in the computation of diluted
earnings per share were 13,000 and 26,000 for the three and nine month periods
ended September 30, 1999, respectively, and 116,000 and 143,000 for the three
and nine month periods ended September 30, 1998, respectively. These shares had
no impact on the Company's reported earnings per share information.
Approximately 2,130,000 common shares are issuable under stock option
grants as of September 30, 1999, but were not included in the computation of
diluted earnings per share because the options' exercise prices were greater
than the average market price of the common stock.
Statements of Cash Flows - Non-cash Transactions:
Shares of common stock (200,880 in 1999 and 222,362 in 1998), valued at
the market price on the date of issuance (approximately $10 million in 1999 and
1998), were issued to a savings plan of the Company. The estimated issuance
values were recognized in other operating expenses during the respective
preceding years. The stock issuances were non-cash financing activities and are
not reflected in the consolidated condensed statements of cash flows.
Effective July 1, 1999, the Company sold all of the outstanding common
stock of Texas-Ohio Gas, Inc. (see Note 6. Acquistions and Divestitures). The
changes in current assets, current liabilities and deferred amounts for periods
prior to this sale are reflected in operating activities on the NCE Consolidated
Condensed Statement of Cash Flows.
General
See Note 1. of the Notes to Consolidated Financial Statements in the NCE,
PSCo and SPS 1998 Annual Report on Form 10-K for a summary of the companies and
their subsidiaries significant accounting policies.
2. Proposed Merger with Northern States Power Company (NCE, PSCo and SPS)
On March 24, 1999, NCE and NSP, entered into an Agreement and Plan of
Merger (the "NCE/NSP Merger Agreement") providing for a strategic business
combination of NCE and NSP. Pursuant to the NCE/NSP Merger Agreement, NCE will
be merged with and into NSP with NSP as the surviving corporation in the merger
and the holding company for the combined assets and operations. NSP will be
renamed Xcel Energy Inc. ("Xcel Energy"). Concurrently with the closing of the
NCE/NSP Merger, NSP will contribute all of its utility assets, other than shares
that it owns in subsidiaries, to a newly formed wholly-owned subsidiary. At the
same time, the new subsidiary will assume all of NSP's liabilities associated
with the assets that it receives in the contribution. If difficulties arise in
obtaining the approvals and consents required to transfer NSP's utility assets
to a new utility subsidiary, NCE and NSP may negotiate a mutually acceptable
alternative.
Subject to the terms of the NCE/NSP Merger Agreement, at the time of the
NCE/NSP Merger, each share of NCE common stock, par value $1.00 per share ("NCE
Common Stock") (other than certain shares to be canceled), together with any
associated purchase rights, will be converted into the right to receive 1.55
shares of Xcel Energy common stock, par value $2.50 per share ("Xcel Energy
Common Stock"). Cash will be paid in lieu of any fractional shares of Xcel
Energy Common Stock which holders of NCE Common Stock would otherwise receive.
Based on outstanding common stock of NCE and NSP at September 30, 1999, the
NCE/NSP Merger would result in the common shareholders of NCE owning 54% of the
common equity of Xcel Energy and the common shareholders of NSP owning 46% of
the common equity of Xcel Energy. The NCE/NSP Merger is expected to be a
tax-free stock-for-stock exchange for shareholders of both companies and to be
accounted for as a pooling-of-interests.
21
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
It is anticipated that Xcel Energy will initially adopt the NCE dividend
payment level, adjusted for the exchange ratio, resulting in a pro forma
dividend of $1.50 per share on an annual basis, following completion of the
NCE/NSP Merger. The actual dividend level will be dependent upon the combined
company's results of operations, financial position, cash flows and other
factors, and will be evaluated by the Board of Directors of Xcel Energy.
NCE and NSP estimate regulated cost savings of approximately $1.1 billion,
net of merger costs and costs to achieve the savings, in the first 10 years
after the transaction is completed. Nonrecurring costs directly attributable to
the NCE/NSP Merger are being deferred by NCE. These costs are expected to be
amortized to expense by the Company's utility subsidiaries in periods subsequent
to the consummation of the merger consistent with the anticipated recovery in
rates.
The shareholders of the Company and NSP approved the Agreement and Plan of
Merger on June 28, 1999. Additionally, consummation of the NCE/NSP Merger is
subject to certain closing conditions, including, among others, approval or
completion of regulatory review by certain state utility regulators, the SEC
under the PUHCA, the FERC, the Nuclear Regulatory Commission, the Federal
Communications Commission and expiration or termination of the waiting period
applicable to the NCE/NSP Merger under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
Applications or submissions to the state utility regulators, where
required, and the FERC were completed in July 1999. In general, such filings
propose the sharing of cost savings among customers and shareholders for up to
five years. The required authorizations from the state utility regulators in
Kansas and Wisconsin have been obtained and orders are expected from state
regulators in Arizona and Oklahoma by year-end. Hearings have been scheduled
during the first quarter of 2000 in Colorado, Minnesota, New Mexico, North
Dakota, Texas and Wyoming and orders are expected by the end of the second
quarter of 2000. NCE and NSP are negotiating with the parties to certain
protests filed with the FERC to resolve any significant concerns and allow the
FERC's review to proceed expeditiously. NCE and NSP also have each agreed to
certain undertakings and limitations regarding the conduct of their respective
businesses prior to the closing of the transaction. The NCE/NSP Merger is
expected to take another 9 to 12 months to complete.
A merger integration team, consisting of executives from each company, was
formed and is overseeing merger-related activities and the future integration of
operations of NCE and NSP. It is Management's intention that the combined
company will begin realizing certain savings upon the consummation of the
NCE/NSP Merger.
The following unaudited summarized pro forma financial information gives
effect to the NCE/NSP Merger as if it had occurred at September 30, 1999 for
balance sheet information and at January 1, 1999 for income statement
information. This financial information should be read in conjunction with the
historical financial statements and related notes of NCE and NSP, which are
included in the Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q
of the respective companies.
The unaudited summarized pro forma financial information has been prepared
using information provided by NSP. This information does not necessarily
indicate what the combined company's financial position or operating results
would have been if the merger had been completed on the assumed completion dates
and does not necessarily indicate future operating results of the combined
company.
22
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Unaudited Summarized Pro Forma Balance Sheet information as of September 30,
1999 (in millions):
NSP NCE Adjustments Pro Forma
--- --- ----------- ---------
Utility plant - net..... $4,400 $6,149 $1,236 $11,785
Current assets.......... 892 887 - 1,779
Other assets............ 3,393 1,064 (1,236) 3,221
------ ------ ------ ------
Total assets.......... $8,685 $8,100 $ - $16,785
====== ====== ====== =======
Common equity........... $2,548 $2,699 $ - $ 5,247
Preferred securities.... 305 294 - 599
Long-term debt.......... 2,393 2,272 - 4,665
------ ------ ------ ------
Total capitalization.. 5,246 5,265 - 10,511
Current liabilities..... 1,919 1,584 - 3,503
Other liabilities....... 1,520 1,251 - 2,771
------ ------ ------ ------
Total equity and
liabilities ....... $8,685 $8,100 $ - $ 16,785
====== ====== ====== ========
The unaudited pro forma balance sheet information at September 30, 1999
reflects reporting adjustments to conform the presentation of nonregulated
property (in property, plant and equipment).
Unaudited Summarized Pro Forma Income Statement information for the nine months
ended September 30 (in millions):
1999 NSP NCE Adjustments Pro Forma
--- --- ----------- ---------
Revenues................ $2,216 $2,528 $ 357 $5,101
Operating income........ 276 499 166 941
Net income.............. 175 248 - 423
Earnings available for
common ............... 171 248 - 419
Earnings per share...... $1.12 $2.16 - $1.27
1998
Revenues................ $2,106 $2,620 $ 195 $4,921
Operating income........ 279 493 127 899
Net income.............. 194 234 - 428
Earnings available for
common ................ 189 234 - 423
Earnings per share...... $1.26 $ 2.10 - $1.31
The unaudited pro forma income statement information for the nine months
ended September 30, 1999 and 1998 reflect reporting adjustments to conform the
presentation of nonregulated revenues and equity earnings in operating revenues.
3. Investment in Yorkshire Power (NCE and PSCo)
Yorkshire Power is a joint venture initially equally owned by PSCo and
AEP, which acquired indirectly all of the outstanding ordinary shares of
Yorkshire Electricity, a United Kingdom ("U.K.") regional electricity company.
NCI accounts for its investment in Yorkshire Power using the equity method and
NCI's equity in earnings of Yorkshire Power is 50%, the same as its ownership
share.
In August 1999, the Office of Gas and Electricity Markets ("Ofgem"), the
body appointed by the U.K. government to regulate the gas and electricity
industries in the U.K., published draft price proposals for the U.K.'s regional
electric distribution businesses that would be effective for the five-year
period beginning April 1, 2000
23
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
and provide for price reductions of 15% to 20% in Yorkshire Power's distribution
revenues. Yorkshire Power filed comments on September 17, 1999 with Ofgem,
primarily dealing with Ofgem's analysis used in the development of the
recommendations included in the August price proposals. On October 8, 1999,
Ofgem issued an update to its August proposals which provided for a 15%
reduction in Yorkshire Power's distribution revenues and a further 8% transfer
of costs to Yorkshire Power's electricity supply business.
Additionally, on October 8, 1999, Ofgem issued draft electricity supply
price proposals. The proposals provide for a supply price cap for domestic U.K.
consumers which would apply for two years from April 2000 until March 2002 and
would not apply to small industrial and commercial customers, where the market
was sufficiently competitive. These new supply proposals for Yorkshire Power
provide for a real price reduction of approximately 10.7% (of which 7.3% is due
to lower distribution use of system charges arising from the distribution price
control review) on the standard domestic tariff and a nominal price freeze from
April 2001 ending in March 2002. If Yorkshire Power does not agree with Ofgem's
proposed public electricity supplier ("PES") license amendment resulting from
either the distribution or supply price control review then the regulator may
refer the proposals to the Competition Commission. Following the publication of
the Competition Commission's report, the regulator may make appropriate
modifications to Yorkshire Power's PES License.
Ofgem is expected to publish final proposals on both the distribution and
the supply businesses at the end of November 1999. Yorkshire Power's management
intends to take all available opportunities to grow revenues and reduce costs to
mitigate the impact of the final Ofgem distribution and supply price proposals.
Should Yorkshire Power be unable to grow revenues and reduce costs to the extent
required to offset the effect of the price proposals, the Company's equity
earnings from its investment in Yorkshire Power will be reduced in comparison to
its current level of earnings.
Effective March 31, 1998, PSCo sold its common stock investment in NCI to
NC Enterprises, a NCE subsidiary. NCI's primary investment is Yorkshire Power.
PSCo received as consideration a 20-year promissory note from NC Enterprises in
the amount of approximately $292.6 million of which $192.6 remains outstanding
at September 30, 1999. Annual interest payments are required for the first three
years followed by principal and interest payments for the remaining seventeen
years. The interest rate on the note is 7.02%. In October 1998, NCE contributed
$100 million to NC Enterprises, which was used to reduce the principal balance
of the promissory note to PSCo. NCE intends to make additional capital
contributions to NC Enterprises to provide the necessary cash flow requirements
to make payments on the promissory note to PSCo.
Summarized income statement information for the nine months ended
September 30, 1999 and 1998, respectively is presented below (in millions):
1999 1998
---- ----
Yorkshire Power:
Operating revenues....................... $1,679.7 $1,677.3
-------- --------
Operating income......................... 200.5 264.8
-------- -----
Net income............................... $ 38.5 $ 13.6
======== ========
NCI's equity in earnings of Yorkshire Power $ 19.2 $ 6.8
======== ========
NCI's equity in earnings of Yorkshire Power increased by approximately
$12.4 million for the nine months ended September 30, 1999, when compared to the
same period in 1998, primarily due to the impact of one-time items recognized in
1998. In the second quarter of 1998, Yorkshire Power recognized an impairment of
its investment in Ionica, a wireless telecommunications company, upon the May
22, 1998, announcement by Ionica that negotiations for release of lines of
credit from existing providers of bank finance had been unsuccessful. In
November 1998, Ionica was placed into receivership and an administrator was
appointed to oversee its operations and distribute its remaining assets. The
impairment, reflecting a write down to fair market value, was offset, in part,
by an unrelated tax adjustment. These two items reduced NCI's equity earnings in
Yorkshire Power by approximately $16 million. The investment in Ionica was
subsequently sold with no further adverse financial impact.
24
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
The unaudited pro forma financial information, for the nine months ended
September 30, 1998, presented below for PSCo assumes that NCI was sold to NC
Enterprises, effective January 1, 1998. The pro forma adjustments represent the
removal of NCI's net income from PSCo and the inclusion of interest income, net
of tax, from the promissory note to PSCo from NC Enterprises. Based upon the
above assumptions, shown below is unaudited pro forma financial information for
the nine months ended September 30, 1998 (in millions):
PSCo Earnings
1998
----
Net income............................................... $143.8
Pro forma adjustments:
NCI's net income....................................... (2.8)
Interest income from promissory note, net of tax....... 3.2
-----
Pro forma result......................................... $144.2
======
4. Regulatory Matters (NCE, PSCo and SPS)
Electric Utility Matters
PSCo Performance Based Regulatory Plan
PSCo's base electric rates are based on traditional cost of service
ratemaking principles. The CPUC established a performance based regulatory plan
in connection with the CPUC's decision to approve the PSCo/SPS Merger. The major
components of this regulatory plan include the following:
- - 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;
- - a Quality of Service Plan ("QSP") designed with performance measures to
effectively penalize or reward PSCo based on the quality of service
provided to retail customers. Subsequent to the approval of the
performance based regulatory plan, the reward structure was eliminated for
the years 1999-2001; and
- - an Incentive Cost Adjustment ("ICA") which provides for the sharing of
energy costs and savings relative to an annual target cost/delivered Kwh.
PSCo filed with the CPUC its proposed Performance Based Regulatory Plan
adjustment for calendar year 1998. This adjustment provides the means for
implementing the sharing mechanism for the customers' portion of earnings over
PSCo's authorized return on equity threshold. PSCo recorded an estimated refund
obligation of $8 million for the 1998 earnings test. Hearings related to the
final determination of sharing of 1998 earnings, by the CPUC, are scheduled for
November 1999. Since July 1998, PSCo has been refunding amounts related to its
earnings test refund obligation to customers through bill credits. PSCo's
believes that any obligations related to the sharing of earnings or the QSP will
not have a materially adverse affect on PSCo's financial condition or position.
Additionally, PSCo agreed to freeze base electric rates after the PSCo/SPS
Merger rate reductions for the period through December 31, 2001 with the
flexibility to make certain other rate changes, including those necessary for
the recovery of DSM, QF capacity costs and decommissioning costs. The freeze in
base electric rates does not prohibit PSCo from filing a general rate case or
deny any party the opportunity to initiate a complaint or show cause proceeding.
25
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
PSCo Wholesale - FERC
On March 30, 1999, PSCo received authorization from the FERC to engage in
market-based wholesale power sales. The authorization allows PSCo to sell energy
to e prime, subject to certain conditions, as well as third parties.
SPS Merger Related Rate Reductions
Under the various regulatory commission approvals, SPS is required to
provide credits to customers over five years from the date of the PSCo/SPS
Merger, August 1, 1997, for one-half of the measured non-fuel operation and
maintenance expense savings associated with the PSCo/SPS Merger. SPS will
provide guaranteed minimum annual credits to retail customers of $3 million in
Texas, $100,000 in Oklahoma and $10,000 in Kansas and $1.5 million to wholesale
customers.
Under a settlement reached with the NMPRC, effective December 30, 1998,
SPS discontinued the merger savings credit of $1.2 million per year with the
implementation of new retail rates in New Mexico as discussed below.
SPS Electric Cost Adjustment Mechanisms
Substantially all fuel and purchased power costs are recoverable from
utility customers, as determined on a jurisdictional basis, using approved cost
adjustment mechanisms.
Texas
The PUCT's regulations require periodic examination of SPS's fuel and
purchased power costs, the efficiency of the use of such fuel and purchased
power, fuel acquisition and management policies and purchase power commitments.
SPS is required to file an application for the Commission to retrospectively
review, at least every three years, the operations of a utility's electricity
generation and fuel management activities. In June 1998, SPS filed its
reconciliation for the generation and fuel management activities totaling
approximately $690 million, for the period from January 1995 through December
1997. For this same period, SPS had approximately $21.4 million in
underrecovered fuel costs associated with the Texas retail jurisdiction. SPS has
entered into a settlement agreement with the General Counsel of the PUCT, which,
if approved, would provide for the recovery of substantially all fuel costs. The
final outcome of this fuel reconciliation proceeding is pending. Various parties
in the proceedings are contesting the settlement agreement, which includes the
recovery of the Thunder Basin costs discussed below. Hearings were held in
October 1999. It is anticipated that a decision will be issued during the first
quarter of 2000.
SPS was named as a defendant in a case entitled Thunder Basin Coal Co. vs.
Southwestern Public Service Co. In November 1994, the jury returned a verdict in
favor of Thunder Basin and awarded damages of approximately $18.8 million. SPS
appealed the judgment and, in January 1997, that Court found in favor of Thunder
Basin and upheld the judgment. In February 1997, SPS recorded the liability for
the judgment including interest and court costs. The amount of approximately
$22.3 million was paid in April 1997.
During 1996 and 1997, SPS obtained conditional approval from the FERC to
collect portions of the Thunder Basin judgment from wholesale customers and the
NMPRC issued an order granting recovery of the New Mexico retail jurisdictional
portion of the judgment. In May 1997, SPS filed a request with the PUCT to
surcharge undercollected fuel and purchased power expenses, which included $9.1
million of the Thunder Basin judgment. The PUCT issued a decision, which denied
recovery of the judgment through a surcharge on the grounds that the costs were
not classified as fuel costs. In 1997, SPS expensed approximately $12.1 million
of the Texas retail jurisdictional portion of the Thunder Basin judgment and
recognized an equal amount as deferred revenue in anticipation of future
recovery through the pending fuel reconciliation proceeding.
26
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
SPS believes that recovery of the Thunder Basin costs for the Texas retail
jurisdiction will be approved in the pending fuel reconciliation proceeding.
Under the PUCT regulations, a utility may recover eligible fuel expenses or
fuel-related expenses, which result in benefits to customers that exceed the
costs that customers would otherwise have to pay. The Thunder Basin costs
resulted in total net savings to customers of approximately $8.5 million, with
approximately $4.6 million net savings attributable to Texas retail
jurisdictional customers. In the previously discussed proposed settlement
agreement with the General Counsel's office at the PUCT, the General Counsel has
agreed with SPS's proposed recovery of the Thunder Basin costs.
Effective in April 1999, the PUCT authorized SPS to reduce its fixed fuel
factor for SPS's Texas retail jurisdiction, by approximately $44 million on an
annual basis. The PUCT also authorized SPS to refund its over collected fuel
costs for the period January 1998 through January 1999. This one-time $16
million fuel refund, including interest, was applied to the monthly billings
during April 1999. This rate reduction and fuel cost refund are primarily due to
lower coal transportation costs between SPS's coal supplier and the railroad
company which began in late 1998.
New Mexico
In October 1997, the NMPRC approved a fixed fuel factor for SPS's New
Mexico retail jurisdiction, effective January 1998. This employs an over/under
fuel collection calculation made on a monthly basis. SPS is required to petition
for a change in the fixed fuel factor if the over/under recovery balance exceeds
$5 million. In addition, on an annual basis, SPS files with the NMPRC a report
of SPS's fuel and purchase power costs, which includes the current over/under
recovery balance and proposed rate changes to refund or surcharge the balance.
The methodology of the over/under calculation, plus interest, is similar to the
Texas fixed fuel factor calculation. In January 1999, SPS implemented new annual
fixed fuel cost recovery factors to reflect lower fuel costs primarily as a
result of the previously discussed coal transportation cost settlement between
SPS's coal supplier and the railroad company.
SPS Rate Cases
New Mexico
In November 1997, the NMPRC issued an order investigating SPS's rates. In
the order, the NMPRC determined that because of the rapid changes occurring in
the electric industry the NMPRC would require rate case filings by the major
electricity suppliers who have not adopted a plan to provide retail open access
and customer choice of suppliers. SPS made a compliance filing in May 1998,
which proposed a $1.7 million annual rate reduction for certain retail customers
in New Mexico and incorporated the $1.2 million guaranteed minimum annual
credits, discussed above. In October 1998, SPS entered into an uncontested
stipulation agreement settling the rate investigation case. As part of this
settlement, SPS instituted a $6 million annual reduction in base rates
(discontinuing the $1.2 million in guaranteed minimum annual credits) for
certain retail customers. Additionally, SPS implemented full normalization in
its accounting for income taxes with recovery of the New Mexico jurisdictional
portion of the tax regulatory asset over 16.8 years. On November 30, 1998, the
NMPRC approved the stipulation and the new rates became effective December 30,
1998.
Wholesale - FERC
In 1989, the FERC issued its final order regarding a 1985 wholesale rate
case. SPS appealed certain portions of that order that related to recognition of
rates for the reduction of the federal income tax rates from 46% to 34%. The
United States Court of Appeals remanded the case, directing the FERC to
reconsider SPS's claim. Negotiated settlements with certain customers were
reached, and approved by the FERC, in 1993 and 1995, with SPS receiving
approximately $10 million, including interest. Settlement agreements were
reached with the two remaining customers during 1998 and approved by the FERC.
In June 1998, SPS recorded $7.7 million of additional revenues in connection
27
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
with the settlement. For the year ended December 31, 1998, SPS recorded $16.9
million of additional revenues and $7.6 million of additional depreciation
expense.
Cheyenne Rate Case
On August 13, 1999, Cheyenne filed a combined gas and electric rate case
with the Public Service Commission of Wyoming ("WPSC") requesting a $2.3 million
increase in electric and a $1.3 million increase in gas base rates, including a
12% return on equity. This follows the expiration of the two-year moratorium on
filing rate cases in connection with the WPSC approval of the PSCo/SPS Merger.
Hearings are scheduled to begin in January 2000. Cheyenne intends to pursue
settlement discussions.
Deregulation Legislation (NCE and SPS)
New Mexico
On April 8, 1999, New Mexico enacted the Electric Utility Restructuring
Act of 1999, which allows customer choice for residential, small commercial and
educational customers beginning January 1, 2001. All remaining customers will be
allowed customer choice on January 1, 2002. Customers of a municipal utility and
customers of a distribution cooperative utility will be afforded choice only if
the respective utility elects to participate. The legislation provides for
recovery of no less than 50% of stranded costs quantified by the NMPRC.
Transition costs must be approved by the NMPRC prior to being recovered through
a non-by-passable wires charge, which must be included in a transition plan
filing. All public electric utilities operating in New Mexico must file a
transition plan with the NMPRC by March 1, 2000. Before January 1, 2001, SPS
must separate its utility operations into at least two segments: a) energy
generation services and b) transmission and distribution (including retail
operations) services either by the creation of separate affiliates that may be
owned by a common holding company or by the sale of assets to one or more third
parties. A regulated company will be prohibited from providing unregulated
services.
Texas
On June 18, 1999, an electric utility restructuring act ("SB-7") was
passed in Texas, which allows for retail competition, for most areas of the
state, beginning January 1, 2002. The legislation requires, among other things,
a rate freeze for all customers, effective September 1, 1999 until January 1,
2002 together with an annual earning test; a 6% rate reduction for those
residential and small commercial customers who choose not to switch suppliers at
the start of retail competition; the unbundling of business activities, costs
and rates relating to generation, transmission and distribution and retail
services; reductions in NOx and SO2 emissions and the recovery of stranded
costs. The PUCT can delay the date for retail competition if a power region is
unable to offer fair competition and reliable service during pilot projects
which begin for all utilities on June 1, 2001 for 5% of the utility's combined
load of all customer classes.
As part of the above Texas legislation, SPS is required to file a
separation plan, on January 10, 2000, for the unbundling of business activities
relating to 1) generation, 2) transmission and distribution and 3) retail
services. The plan is to be implemented on January 1, 2002. Also, SPS is
required to file a rate case on April 1, 2000 to set the rates for the
transmission and distribution services, which are to be unbundled and
implemented on January 1, 2002. The Company is evaluating the effect of these
filings on SPS.
The legislation specifically addresses competition in the Texas Panhandle,
where SPS operates, recognizing that certain transmission constraints exist
within the region that require full retail customer choice to develop on a more
structured schedule than the rest of the state. SPS must file a transition to
competition plan with the PUCT by December 1, 2000. SPS, with no estimated
stranded costs, must direct any excess earnings indicated in the annual earnings
tests during the period January 1, 1999 through December 31, 2001 to
improvements in transmission and distribution facilities, to capital
expenditures to improve air quality or to accelerate the amortization of
regulatory assets (subject to PUCT approval).
28
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Additionally, the Texas legislation requires that no generation company
can own and control more than 20% of the installed capacity located in or
capable of delivering electricity to a power region. Utilities owning more than
400 Mw must auction entitlements to at least 15% of the utility's installed
generation capacity used for providing electric services to Texas retail
customers. The capacity entitlement auctions are to continue for 5 years or
until 40% of the utility's residential and small commercial customers served
prior to the start date of competition are served by non-affiliated companies.
The legislation includes several possible remedies to market power abuses. These
provisions are not immediately applicable to SPS due to the existing
transmission constraints and market power issues in the Panhandle region.
In connection with the NCE/NSP Merger approval proceedings, the Company
filed supplemental testimony with the PUCT in October 1999 outlining its plan to
address the various provisions of SB-7. In general, the plan presented by the
Company provides for the transfer of ownership or control of 595 Mw of
generating capacity (either through capacity entitlement auction or divesting)
to other competitors and the addition of transmission lines to import an
additional 400 Mw from other geographic regions. The major components of this
plan include the following:
- - auction entitlements (409 Mw or 15 percent of installed generation capacity)
to capacity owned and controlled by SPS, that is dedicated to serving Texas
retail customers, by January 1, 2002. The Company would continue to own and
operate the capacity, but competitors would have the right to dispatch the
power.
- - divest 186 Mw of SPS-area generating capacity by January 1, 2002 in order to
further reduce market dominance,
- - separate SPS existing competitive functions beginning September 1, 2000,
- - unbundle SPS into three separate companies beginning January 1, 2002, and
- - implement a pilot program for retail access for at least 5 percent of its
Texas retail load in June 2001 and to expand the pilot program to 20% of
customer load in 2002. Most of the other Texas utilities will be moving to
full customer choice in 2002.
The SPS plan is designed to address the market power issues related to the
deregulation legislation and would promote further competition before the end of
2006 by allowing only competitors to build new plants in the region between now
and then, by adding even more transmission lines, and possibly by further
divesting some generation. Hearings on the NCE/NSP Merger are scheduled to begin
in late February, 2000 and the final order is expected in the second quarter of
2000.
Financial Reporting Considerations
The Emerging Issues Task Force of the Financial Accounting Standards Board
reached a consensus in Issue No. 97-4, "Deregulation of the Pricing of
Electricity" ("EITF 97-4") indicating that when deregulatory legislation is
passed or when a rate order (whichever is necessary to effect change in the
jurisdiction) that contains sufficient detail for an enterprise to reasonably
determine how the transition plan will affect the separable portion of its
business whose pricing is being deregulated is issued, the enterprise should
stop applying SFAS 71 to that separable portion of its business. While
legislation has been enacted in Texas and New Mexico, there are several
unresolved issues that will significantly impact how and when deregulation
related to the generation portion of the business, will be implemented by SPS.
It is expected that SPS will discontinue the application of SFAS 71 related to
the generation portion of the business when the provisions of EITF 97-4 have
been met.
Gas Utility Matters
PSCo Rate Cases
In November 1998, PSCo filed a retail gas rate case with the CPUC
requesting an annual increase in rates of approximately $23.4 million. The
request for a rate increase reflects revenues for additional plant investment, a
12.0%
29
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
return on equity and the recovery of incremental year 2000 costs (see Note
5. Commitments and Contingencies - Year 2000 Issue). On June 8, 1999, the CPUC
approved an increase in base rates of approximately $15 million with an 11.25%
return on equity, effective July 1, 1999. PSCo was also allowed recovery of
certain environmental costs. Prudently incurred year 2000 costs will be
recovered under a separate mechanism beginning in 2000.
On June 5, 1996, PSCo filed a retail rate case with the CPUC requesting an
annual increase in its jurisdictional gas department revenues equal to
approximately $34 million. In early 1997, the CPUC approved an overall increase
of approximately $18 million with an 11.25% return on equity, effective February
1, 1997 and as modified on May 15, 1997. The CPUC disallowed the recovery of
certain postemployment benefit costs under SFAS 112 and imputed anticipated
merger related savings net of costs (associated with the PSCo/SPS merger)
related to the gas business (see Note 1. Summary of Significant Accounting
Policies). PSCo filed a petition with the Denver District Court appealing the
CPUC's decision. PSCo anticipates a decision during late 1999.
PSCo Unbundling and Deregulation of the Retail Natural Gas Supply Business
On April 26, 1999, the Colorado legislature approved a bill, which allows
natural gas public utilities to voluntarily submit plans to the CPUC to open
their markets and enable customers to choose their natural gas supplier. This
bill was signed by the Governor on June 6, 1999. Currently, PSCo provides a
traditional bundled gas service with rates designed for the recovery of actual
gas costs through the GCA and for providing transportation and delivery
services. Delivery of natural gas will continue to be regulated, with delivery
companies required to offer nondiscriminatory pipeline access to competitors.
PSCo will continue to be subject to the reporting requirements of SFAS 71 as a
regulated distribution company.
5. Commitments and Contingencies (NCE, PSCo and SPS)
Environmental Issues
The Company and its subsidiaries are subject to various environmental
laws, including regulations governing air and water quality and the storage and
disposal of hazardous or toxic wastes. The Company and its subsidiaries assess,
on an ongoing basis, measures to ensure compliance with laws and regulations
related to air and water quality, hazardous materials and hazardous waste
compliance and remediation activities.
Environmental Site Cleanup
As described below, PSCo has been or is currently involved with the
cleanup of contamination from certain hazardous substances. In many situations,
PSCo is pursuing or intends to pursue insurance claims and believes it will
recover some portion of these costs through such claims. Additionally, where
applicable, PSCo is pursuing, or intends to pursue, recovery from other PRPs and
through the rate regulatory process. To the extent any costs are not recovered
through the options listed above, PSCo would be required to recognize an expense
for such unrecoverable amounts.
Under the CERCLA, the EPA identified, and a Phase II environmental
assessment revealed, low level, widespread contamination from hazardous
substances at the Barter Metals Company ("Barter") properties located in central
Denver. For an estimated 30 years, PSCo sold scrap metal and electrical
equipment to Barter for reprocessing. PSCo has completed the cleanup of this
site at a cost of approximately $9 million and has received responses from the
Colorado Department of Public Health and Environment ("CDPHE") indicating that
no further action is required related to these properties. In January 1996, a
lawsuit by PSCo against its insurance providers, the Denver District Court
entered final judgment in favor of PSCo 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 PSCo in the Colorado Court of
Appeals. The insurance provider has posted supersedeas bonds in the amount of
$9.8 million including the judgement and interest. In July 1997, the Colorado
Court of Appeals sent back to trial court the previously awarded judgment on the
basis that the jury had not been properly instructed by the Judge regarding a
narrow issue associated with certain policies. Previously, PSCo had received
certain insurance settlement proceeds from other insurance providers for Barter
and other
30
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
contaminated sites and a portion of those funds remains to be allocated to this
site by the trial court. Both sides of the litigation filed petitions for
certiorari to the Colorado Supreme Court, which granted a hearing on several
issues. In September 1999, the Colorado Supreme Court held that PSCo was
entitled to coverage on all policies, but that the trial court should have
allocated the damages and self-insured retentions over the entire period the
facilities were in operations. Although the Colorado Supreme Court remanded the
judgement to the trial court for additional proceedings, it suggested that its
ruling may reduce PSCo's available recovery to approximately $1.4 million.
Settlement has been achieved with two small PRPs, although the Company has been
ultimately unsuccessful recovering from the remaining has PRP's. In March 1998,
PSCo sold the remaining Barter properties, and the total proceeds were $1.1
million. PSCo requested recovery of environmental costs of approximately $7.7
million related to Barter over four years, in its proposed Performance Based
Regulatory Plan for calendar year 1998 (see Note 4. Regulatory Matters).
PSCo has identified several other sites where clean up of hazardous
substances may be required. While potential liability and settlement costs are
still under investigation and negotiation, PSCo believes that the resolution of
these matters will not have a material adverse effect on PSCo's financial
position, results of operations or cash flows. PSCo will pursue the recovery of
all significant costs incurred for such projects through insurance claims and/or
the rate regulatory process.
Other Environmental Matters
Under the Clean Air Act Amendments of 1990 ("CAAA"), coal-fueled power
plants are required to reduce SO2 and NOx emissions to specified levels through
a phased approach. PSCo and SPS's facilities must comply with the Phase II
requirements, which will be effective in the year 2000. Currently, these
regulations permit compliance with SO2 emission limitations by using SO2
allowances allocated to plants by the EPA, using allowances generated by
reducing emissions at existing plants and by using allowances purchased from
other companies. The Company expects to meet the Phase II emission standards
placed on SO2 and Nox through the combination of: (1) the use of low sulfur
coal, (2) the operation of air quality control equipment on certain generation
facilities, and (3) allowances issued by the EPA and purchased from other
companies.
PSCo has obtained all necessary conditions to proceed with its plans to
spend approximately $211 million on its Denver and Boulder Metro area
coal-fueled power plants to further reduce such emissions below the required
regulatory levels discussed above. The cost of these controls will be recovered
through rates.
Hayden Steam Electric Generating Station
In May 1996, PSCo and the other joint owners of Hayden Station reached an
agreement resolving violations alleged in complaints filed by a conservation
organization, the CDPHE and the EPA against the joint owners. PSCo is the
operator and owns an average undivided interest of approximately 53% of the
station's two generating units. In connection with the settlement, the joint
owners of the Hayden station were required to install emission control equipment
of approximately $130 million (PSCo's portion is approximately $70 million). The
settlement included 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 emission
control equipment and complying with particulate, SO2 and NOx emissions
limitations. In August 1996, the U.S. District Court for the District of
Colorado entered the settlement agreement, which effectively resolved this
litigation. Installation of certain portions of this emission control equipment
has been completed with the remaining requirements in process and on schedule in
accordance with the settlement agreement. The joint owners completed
installation and began operating the emission control equipment required for
Unit 1 on time in accordance with the settlement agreement in late 1998. In May
1999, Unit 2 began operating with the required particulate and NOx emission
control equipment. The operation of SO2 emission control equipment has been
delayed due to equipment problems. The joint owners have filed a notice of
"force majeure" to excuse any equipment related delays. The joint owners will
withdraw this notice if they resolve the equipment problems within the terms of
the settlement agreement.
31
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Craig Steam Electric Generating Station
In October 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
located in western Colorado. Tri-State Generation and Transmission Association,
Inc. is the operator of the Craig station and PSCo 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 the 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. Settlement discussions were held in 1998,
although no settlement was achieved. On March 8, 1999, the U. S. District Court
ruled on all pending motions in the case. It held that: (1) the conservation
organization has standing to bring the litigation; (2) the conservation
organization may rely on continuous opacity monitor data to demonstrate the
plant's violation of the opacity standard; (3) the Craig Station owners may
challenge the accuracy of the monitor data at trial; and (4) the conservation
organization must prove at trial that the station has not operated with good
pollution control practices. The parties, the EPA and the CDPHE entered into
mediation in an attempt to resolve all air quality matters related to the
facility. Resolution of this matter may require the installation of additional
emission control equipment. Management does not believe that any potential
liability, the future impact of this litigation on plant operations, or any
related cost will have a material adverse impact on PSCo's financial position,
results of operations or cash flows.
Fort St. Vrain
PSCo has completed all decommissioning activities at Fort St. Vrain and
the site has been released for unrestricted use. PSCo is currently operating a
gas-fired combined cycle steam generation plant at this facility. Spent nuclear
fuel is currently being stored on-site in the Independent Spent Fuel Storage
Installation ("ISFSI"). In 1996, PSCo and the DOE entered into an agreement
resolving all the defueling issues, as discussed in Notes to Consolidated
Financial Statements in NCE's and PSCo's 1998 annual report on Form 10-K.
On June 4, 1999, the Nuclear Regulatory Commission ("NRC") approved the
transfer of the ISFSI to the DOE. The NRC has been notified by the DOE that
license transfer activities have been completed. NRC has performed their final
inspection of the ISFSI. All functions, responsibilities, ownership and
liabilities now reside with the DOE.
Tax Matters
PSRI, a subsidiary of PSCo, owns and manages permanent life insurance
policies on certain past and present employees. These corporate owned life
insurance ("COLI") policies were entered into prior to July 1, 1986. In 1996,
Congress passed legislation to phase out the tax benefits with certain COLI
policies, however, PSCo's policies were grandfathered under this legislation. In
August 1998, the IRS issued a Notice of Proposed Adjustment proposing to
disallow the 1993 and 1994 deductions of interest expense related to policy
loans on the COLI policies totaling approximately $54.6 million. A Request for
Technical Advice from the IRS National Office with respect to the proposed
adjustment is pending.
Management is vigorously contesting this issue. PSCo has not recorded any
provision for income tax or interest expense related to this matter. Management
believes that PSCo's tax deduction of interest expense on life insurance policy
loans was in full compliance with IRS regulations and believes that the
resolution of this matter will not have a material adverse impact on PSCo's
financial position, results of operations or cash flows.
32
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Year 2000 Issue
The Y2K issue is a result of a universal programming standard that records
dates as six digits, e.g., mm/dd/yy, using only the last two digits for the
year. Any automated system software or firmware that uses two-digit fields could
understand the year 2000 as the year 1900 if the issue is not corrected. This
situation is not limited to computers; it has the potential to affect many
systems, components and devices, which have embedded computer chips, which may
be date sensitive. The Y2K issue could result in a major system failure or
miscalculations and does impact many NCE systems considered critical or
important to the Company's business operations. Systems posing the greatest
business risks to the Company include power generation and distribution systems,
telecommunications systems, energy trading systems and billing systems. The
Company is correcting all potential Y2K failure points identified in its
critical automated systems to maintain service to its customers and to mitigate
legal and financial risks.
In 1997, the Company established the Y2K Program Office to oversee all
corporate-wide Y2K initiatives. These initiatives encompass all computer
software, embedded systems, as well as contingency planning. Teams of internal
and external specialists were established to inventory and assess and test
critical computer programs and automated operational systems and modify those
that may not be Y2K compliant. The inventory and assessment phases for
information technology ("IT") systems were completed in 1998. Remediation and
testing phases for all critical IT systems were completed by June 30, 1999. For
critical non-IT systems, which exist primarily in the generation, transmission
and distribution areas of the business, the inventory, assessment, remediation
and testing phases were also completed by June 30, 1999. NCE has achieved "Y2K
Ready" status for all mission-critical electrical generating and transmission
facilities. Readiness was accomplished by June 30, 1999, in accordance with the
guidelines established by the North American Electric Reliability Council
("NERC"). NCE is a participant in the NERC Y2K Program that has established
reporting criteria and milestone dates for electric utilities. The final step of
this program was the submittal of a letter to the president of NERC, certifying
that the company has met the NERC Y2K goal. NCE submitted its Y2K certification
letter, without exceptions, with its June 1999 NERC report. In October 1999, NCE
successfully completed an external review of NCE's Y2K program by an independent
third party. The review criteria followed by the external review team were
developed for the independent verification and validation study that NERC is
conducting for the DOE.
The Company has identified third parties, with which it has material
business relationships including interconnected utilities, telecommunications
service providers, fuel and water suppliers, equipment suppliers, leased
facilities and financial institutions. Subject matter experts, along with
functional managers, continue to evaluate the current list of third parties and
have ongoing discussions with these and other critical suppliers about their Y2K
readiness and contingency planning efforts.
The Company currently expects to incur costs of approximately $17 million
(approximately $13 million has been spent through September 30, 1999) in
operating and capital expenditures to modify its computer software, hardware and
other automated systems used in operations enabling proper data processing
relating to the year 2000 and beyond. The Company has spent approximately $18
million in operating and capital expenditures for the accelerated replacement of
certain non-compliant IT systems. PSCo and SPS have incurred the majority of
these costs. The table below details the actual costs incurred during 1998 and
prior periods; the actual costs incurred through the nine months ended September
30, 1999; and the estimated costs to be incurred during the remainder of 1999
and the first quarter of 2000. A significant portion of the remaining costs to
be incurred consists of finalizing remaining work on nonmission-critical
systems, testing, project management and contingency planning.
33
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
Remaining Estimated
Actual Costs Actual Costs Estimated Costs Total Project
1998 and Prior 1999 to be Incurred Costs
-------------- -------- -------------- -------
(in millions)
<S> <C> <C> <C> <C>
Operating expenses.. $8.0 $3.9 $3.0 $14.9
Capital for automated
system components 0.7 0.6 0.3 1.6
IT replacement projects:
Operating...... 0.2 0.6 0.1 0.9
Capital........ 6.4 10.9 - 17.3
---- ---- ---- -----
Total........ $15.3 $16.0 $3.4 $34.7
===== ===== ==== =====
</TABLE>
Yorkshire Power has also undertaken activities to address Y2K issues. The
estimated proportionate share of Yorkshire's incremental Y2K costs (costs which
would not have been required in the normal course of business) that will flow
through to the Company's earnings as a result of such activities is not expected
to have a material impact on the financial condition or results of operations of
the Company.
The most reasonably likely worst case scenario resulting during Y2K
critical dates is a loss of production capacity from certain of the Company's
generating units, along with loss of a portion of the communication system that
is critical to generation and distribution control. If this were to occur, the
Company's operating utilities may be required to "island" (separate from
neighboring interconnected utilities) their generation and distribution systems
in their service territories. As part of this scenario, difficulty could be
encountered with the restart of generating units. The overall blackout recovery
plan for NCE is designed so that this most reasonably likely worst case scenario
would be addressed and electricity restored. Critical components of this plan
have been and continue to be tested to provide assurance that the Company will
be prepared for risks which could result from the Y2K millennium change. In
September 1999, PSCo and SPS successfully participated in an inter-control
center drill involving utilities of the Rocky Mountain Power Area and
Southwestern Power Pool respectively, simulating islanding and restoration of
generation facilities.
The Company has substantially completed all major Y2K initiatives. Based
on the results of all testing completed to date, management does not anticipate
any significant Y2K related events and, accordingly, does not believe such
matters will have a material adverse impact on the financial position, results
of operations or cash flows of the Company or its subsidiaries.
Employee Matters
The Company and its subsidiaries are engaged in certain employment related
litigation and intend to contest, or are actively contesting, all such claims,
and believe that the ultimate outcome will not have a material adverse impact on
the financial position, results of operations or cash flows of the Company or
its subsidiaries.
6. Acquisitions and Divestitures (NCE)
Acquisition of Planergy
Effective April 1, 1998, the Company acquired all of the outstanding
common stock of Falcon Seaboard Energy Services, Inc. ("Planergy") and assumed
other outstanding debt. Planergy includes Planergy, Inc. and Planergy Services
and is primarily engaged in energy consulting, energy efficiency management,
conservation programs and mass-market services. Such acquisition was accounted
for using the purchase method and the acquired assets and liabilities were
valued at their estimated fair market values as of the date of acquisition.
34
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Planergy has been consolidated as a subsidiary of NC Enterprises in the
Company's consolidated financial statements.
Sale of Texas-Ohio Gas, Inc.
Effective July 1, 1999, the Company sold all of the outstanding common
stock of Texas-Ohio Gas, Inc., a gas marketing company, including all retail gas
marketing contracts serving customers in the northeast region of the U.S.
Certain operations were retained and transferred to e prime and its
subsidiaries. This sale did not have a significant impact on the Company's
financial position, results of operations or cash flows.
7. Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts
Holding Solely Subordinated Debentures (NCE, PSCo and SPS)
In May 1998, PSCo Capital Trust I, a wholly-owned trust of PSCo, issued
7,760,000 shares of its 7.60% Trust Originated Preferred Securities for $194
million. The sole asset of the trust is $200 million principal amount of PSCo's
7.60% Deferrable Interest Subordinated Debentures, due June 30, 2038. Holders of
the securities are entitled to receive quarterly dividends at an annual rate of
7.60% of the liquidation preference value of $25. The securities are redeemable
at the option of PSCo on and after May 11, 2003 at 100% of the principal amount
outstanding plus accrued interest. In addition to PSCo's obligations under the
Subordinated Debentures, PSCo has agreed, pursuant to a guarantee issued to the
trust and the provisions of the trust agreement establishing the trust, on a
subordinated basis, payment of distributions on the preferred securities (but
not if the trust does not have sufficient funds to pay such distributions) and
to pay all of the expenses of the trust (collectively, the "Back-up
Undertakings"). Considered together, the Back-up Undertakings constitute a full
and unconditional guarantee by PSCo of the trust obligations under the preferred
securities. The proceeds from the sale of the 7.60% Trust Originated Preferred
Securities were used to redeem all $181.8 million of PSCo's outstanding
preferred stock on June 10, 1998, and for general corporate purposes.
In October 1996, Southwestern Public Service Capital I, a wholly-owned
trust of SPS, issued $100 million of its 7.85% Trust Preferred Securities,
Series A. The sole asset of the trust is $103 million principal amount of SPS's
7.85% Deferrable Interest Subordinated Debentures, Series A due September 1,
2036. The securities are redeemable at the option of SPS on and after October
21, 2001 at 100% of the principal amount plus accrued interest. In addition to
SPS's obligations under the Subordinated Debentures, SPS has agreed, pursuant to
a guarantee issued to the trust, the provisions of the trust agreement
establishing the trust and a related expense agreement to guarantee, on a
subordinated basis, payment of distributions on the preferred securities (but
not if the trust does not have sufficient funds to pay such distributions) and
to pay all of the expenses of the trust. Considered together, the Back-up
Undertakings constitute a full and unconditional guarantee by SPS of the trust
obligations under the preferred securities. The proceeds from the sale were used
to reduce short-term debt.
8. Business Segment Information (NCE, PSCo and SPS)
NCE:
NCE has three reportable segments: electric utility, gas utility and
international. The electric utility segment consists primarily of the activities
of the three regulated operating companies that provide wholesale and retail
electric service in the states of Colorado, Texas, New Mexico, Wyoming, Kansas
and Oklahoma. The gas utility segment consists primarily of the activities of
three regulated operating companies providing retail gas service in the states
of Colorado and Wyoming. The international segment consists of equity
investments in foreign operations held by NCI since 1997. Revenues from
operating segments below the quantitative thresholds are included in the all
other category. Those primarily include a company involved in non-regulated
power and gas marketing activities throughout the United States; a company that
invests in and develops cogeneration and energy related projects; a company that
is engaged in engineering, design construction management and other
35
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
miscellaneous services and a company engaged in energy consulting, energy
efficiency management, conservation programs and mass market services.
The accounting policies of the segments are the same as those described in
Note 1. Summary of Significant Accounting Policies. NCE evaluates performance by
each legal entity based on profit or loss generated from the product or service
provided. NCE segment information is as follows (in thousands):
<TABLE>
<CAPTION>
Eliminations/
Three months ended: Electric Gas All Unallocated Consolidated
September 30, 1999 Utility Utility International Other Amounts * Total
-------- ------- ------------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues:
External customers $ 701,597 $83,504 $ - $27,786 $ - $812,887
Intersegment 111 1,347 - 41,126 (42,584) -
Segment profit 89,210 (3,638) 7,974 6,921 (2,540) 97,927
September 30, 1998
Revenues:
External customers $ 759,926 $75,871 $ - $37,087 $ - $872,884
Intersegment 221 1,171 - 25,986 (27,378) -
Segment profit 86,731 (6,869) 16,321 4,389 (9,800) 90,772
Nine months ended:
September 30, 1999
Revenues:
External customers $1,903,181 $487,018 $ - $138,217 $ - $2,528,416
Intersegment 373 5,005 - 91,120 (96,498) -
Segment profit 207,338 13,465 26,049 10,299 (8,689) 248,462
September 30, 1998
Revenues:
External customers $1,987,033 $483,580 $ - $149,247 $ - $2,619,860
Intersegment 835 3,521 - 56,489 (60,845) -
Segment profit 217,004 16,748 13,161 18,458 (31,857) 233,514
</TABLE>
* Certain financing costs have been allocated to the operating segments in 1999.
PSCo:
PSCo has two reportable segments: electric utility and gas utility. During
1998, PSCo had three reportable segments: electric, gas and international. The
electric utility segment consists primarily of the activities of PSCo's
regulated operations that provide wholesale and retail electric service in the
state of Colorado. The gas utility segment consists primarily of the activities
of PSCo's regulated gas operations in Colorado. Revenues from operating segments
below the quantitative thresholds are included in the all other category. Those
segments primarily include a real estate company which owns certain real estate
interests of PSCo, a company which owns and manages permanent life insurance
policies on certain past and present employees and a finance company that
finances certain of PSCo's current assets. The International segment does not
apply to PSCo in 1999, as PSCo sold NCI to NC Enterprises effective March 31,
1998, (see Note 3. Investment in Yorkshire Power).
36
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
The accounting policies of the segments are the same as those described in
Note 1. Summary of Significant Accounting Policies. PSCo evaluates performance
by each legal entity based on profit or loss generated from the product or
service provided. PSCo segment information is as follows (in thousands):
<TABLE>
<CAPTION>
Eliminations/
Three months ended: Electric Gas All Unallocated Consolidated
September 30, 1999 Utility Utility International Other Amounts * Total
-------- ------- ------------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues from
external customers $ 400,892 $ 82,471 $ - $ 837 $ - $ 484,200
Segment profit 49,092 (3,579) - 4,236 - 49,749
September 30, 1998
Revenues from
external customers $ 466,221 $ 74,635 $ - $ 745 $ - $ 541,601
Segment profit 50,908 (7,152) - 6,095 (5,836) 44,015
Nine months ended:
September 30, 1999
Revenues from
external customers $1,155,904 $477,537 $ - $ 5,794 $ - $1,639,235
Segment profit 122,483 13,202 - 14,823 - 150,508
September 30, 1998
Revenues from
external customers $1,211,607 $473,288 $ - $ 5,946 $ - $1,690,841
Segment profit 128,812 16,077 2,799 13,407 (22,607) 138,488
</TABLE>
* Certain financing costs have been allocated to the operating segments in 1999.
SPS:
SPS operates in the regulated electric utility industry providing wholesale
and retail electric service in the states of Texas, New Mexico, Kansas and
Oklahoma. Revenues from external customers for this reportable segment were
$290.6 million and $284.6 million for the three months ended September 30, 1999
and 1998, respectively. Revenues from external customers for this reportable
segment were $717.3 million and $748.4 million for the nine months ended
September 30, 1999 and 1998, respectively.
9. Management's Representations (NCE, PSCo and SPS)
In the opinion of the registrants, the accompanying unaudited consolidated
condensed financial statements for NCE, PSCo and SPS include all adjustments
necessary for the fair presentation of the financial position of the Company and
its subsidiaries at September 30, 1999 and December 31, 1998 and the results of
operations for the three and nine months ended September 30, 1999 and 1998 and
cash flows for the nine months ended September 30, 1999 and 1998. The unaudited
consolidated condensed financial information and notes thereto should be read in
conjunction with the consolidated financial statements and notes included in the
combined 1998 Form 10-K for NCE, PSCo and SPS.
Because of seasonal and other factors, the results of operations for the
three and nine months ended September 30, 1999 should not be taken as an
indication of earnings for all or part of the balance of the year.
37
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO NEW CENTURY ENERGIES, INC.:
We have reviewed the accompanying consolidated condensed balance sheet of New
Century Energies, Inc. (a Delaware corporation) and subsidiaries as of September
30, 1999, and the related consolidated condensed statements of income and
shareholders' equity for the three and nine-month periods ended September 30,
1999 and 1998 and the consolidated condensed statements of cash flows for the
nine-month periods ended September 30, 1999 and 1998. 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 New Century Energies, Inc. and
subsidiaries as of December 31, 1998, and the related consolidated statements of
income, shareholders' equity and cash flows for the year then ended (not
presented separately herein), and in our report dated February 23, 1999, we
expressed an unqualified opinion on these financial statements. In our opinion,
the information set forth in the accompanying consolidated condensed balance
sheet as of December 31, 1998, 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 9, 1999
38
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO 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, 1999, and the related consolidated condensed statements of income
for the three and nine-month periods ended September 30, 1999 and 1998 and the
consolidated condensed statements of cash flows for the nine-month periods ended
September 30, 1999 and 1998. 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, 1998, and the related consolidated
statements of income, shareholder's equity and cash flows for the year then
ended (not presented separately herein), and in our report dated February 23,
1999, we expressed an unqualified opinion on these financial statements. In our
opinion, the information set forth in the accompanying consolidated condensed
balance sheet as of December 31, 1998, 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 9, 1999
39
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO SOUTHWESTERN PUBLIC SERVICE COMPANY:
We have reviewed the accompanying condensed balance sheet of Southwestern Public
Service Company (a New Mexico corporation) as of September 30, 1999, and the
related condensed statements of income for the three and nine-month periods
ended September 30, 1999 and 1998 and the condensed statements of cash flows for
the nine-month periods ended September 30, 1999 and 1998. 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 balance sheet of Southwestern Public Service Company as of
December 31, 1998, and the related statements of income, shareholder's equity
and cash flows for the year then ended (not presented separately herein), and in
our report dated February 23, 1999, we expressed an unqualified opinion on these
financial statements. In our opinion, the information set forth in the
accompanying condensed balance sheet as of December 31, 1998, is fairly stated,
in all material respects, in relation to the balance sheet from which it has
been derived.
ARTHUR ANDERSEN LLP
Denver, Colorado,
November 9, 1999
40
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (NCE, PSCo and SPS)
NCE's Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended September 30, 1999 Compared to the Three Months Ended
September 30, 1998
NCE/NSP Merger
On March 24, 1999, the Company and NSP entered into an Agreement and Plan
of Merger providing for a strategic business combination of the companies.
Consummation of this "merger of equals" is subject to certain closing conditions
and the obtaining of applicable regulatory approvals. Assuming all regulatory
approvals can be achieved in a timely manner, it is expected the NCE/NSP Merger
will be completed in the later half of 2000. At the special shareholder meetings
on June 28, 1999, the shareholders of NCE and NSP approved the Agreement and
Plan of Merger. The name of the merged company will be Xcel Energy Inc. The
combined company is anticipated to be one of the top 10 largest gas and electric
energy companies in the U.S. Xcel Energy Inc. will serve approximately 3 million
electricity customers and 1.5 million natural gas customers in portions of
twelve states. See Note 2. Proposed Merger with Northern States Power Company in
Item 1. FINANCIAL STATEMENTS.
Earnings
Earnings per share (basic and diluted) were $0.85 for the third quarter of
1999 as compared to $0.82 per share (basic and diluted) for the third quarter of
1998. The increase in earnings was primarily attributed to higher retail
electric and gas sales resulting from continuing customer growth in Colorado and
lower operating and maintenance expenses in the Company's regulated businesses.
Electric customer growth was approximately 2.0% over the prior year, with growth
in natural gas customers of approximately 3.4%.
Electric Operations
The following table details the change in electric operating revenues and
energy costs for the third quarter of 1999 as compared to the same period in
1998 (thousands of dollars).
Increase (Decrease)
-------------------
Electric operating revenues:
Retail................................................ $(18,085)
Wholesale............................................. (92,620)
Other (including unbilled revenues)................... 52,068
-------
Total revenues...................................... (58,637)
Fuel used in generation............................... (9,844)
Purchased power....................................... (59,523)
-------
Net increase in electric margin..................... $ 10,730
========
The following table compares electric Kwh sales by major customer classes
for the third quarter of 1999 and 1998.
Millions of Kwh Sales
1999 1998 % Change *
---- ---- ----------
Residential................................ 2,947 2,885 2.2%
Commercial and industrial.................. 7,654 7,572 1.1
Public authority........................... 203 247 (17.8)
----- -----
Total retail............................. 10,804 10,704 0.9
Wholesale.................................. 4,247 5,189 (18.2)
----- -----
Total.................................... 15,051 15,893 (5.3)
====== ======
Power marketing and trading................ 3,067 666 **
===== =====
* Percentages are calculated using unrounded amounts
** Percentage change is significant, but presentation of the amount is not
meaningful.
41
<PAGE>
Electric margin increased $10.7 million or approximately 3.0% in the third
quarter of 1999, when compared to the third quarter of 1998, primarily due to
slightly higher retail sales resulting from customer growth. This increase was
offset, in part, by an increase in PSCo's provisions for estimated customer
refunds in connection with the earnings sharing in excess of 11% return on
equity. Retail revenues decreased overall despite the higher sales due to lower
fuel cost recovery. Wholesale revenues decreased due to lower non-firm sales in
1999. Power trading activities have increased, although revenues and purchased
energy costs for these activities are presented net for financial reporting
purposes. The electric margin on power trading activities is not significant.
The Company's regulated subsidiaries 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 (see
Note 4. Regulatory Matters in Item 1. FINANCIAL Statements). PSCo has an ICA,
which allows for a 50%/50% sharing of certain fuel and energy cost increases and
decreases among customers and shareholders. PSCo recognized cost increases
associated with the ICA of approximately $5.6 million during the third quarter
1999, compared to the prior year.
Fuel used in generation expense decreased $9.8 million during the third
quarter of 1999, as compared to the same quarter in 1998, due primarily to
reduced generation and lower coal costs at SPS. This decrease in coal costs is
primarily due to negotiations with a new supplier in mid-1998 and lower
transportation costs.
Purchased power expense decreased $59.5 million during the third quarter
of 1999, as compared to the same quarter in 1998, primarily due to a lower
volume of non-firm purchases related to wholesale marketing.
Gas Operations
The following table details the change in gas revenues and gas purchased
for resale for the third quarter of 1999 as compared to the same period in 1998
(thousands of dollars).
Increase (Decrease)
-------------------
Revenues from gas sales (including unbilled revenues). $(9,200)
Gas purchased for resale.............................. (12,474)
-------
Net increase in gas sales margin..................... 3,274
Transportation revenues............................... 763
-------
Increase in net gas margin........................... $ 4,037
=======
The following table compares gas Dth deliveries by major customer classes
for the third quarter of 1999 and 1998.
Millions of Dth Deliveries
1999 1998 % Change *
---- ---- ----------
Residential................................ 7.3 6.6 11.2%
Commercial................................. 4.1 4.1 0.4
----- -----
Total sales.............................. 11.4 10.7 7.1
Transportation............................. 28.1 25.8 8.8
----- -----
Total.................................... 39.5 36.5 8.3
===== =====
Non-regulated gas marketing and trading.... 61.5 16.4 **
===== =====
* Percentages are calculated using unrounded amounts
** Percentage change is significant, but presentation of the amount is not
meaningful
Gas sales margin increased during the third quarter of 1999, when compared
to the third quarter of 1998, primarily due to higher retail sales at PSCo
resulting from customer growth of approximately 3.4% and higher gas rates
effective July 1, 1999, resulting from PSCo's 1998 rate case (approximately $1.3
million). Although
42
<PAGE>
non-regulated gas marketing and trading sales increased significantly, the
margin on such sales decreased slightly when compared to the prior year.
Gas transportation revenues increased approximately $0.8 million during
the third quarter of 1999, when compared to the third quarter of 1998, primarily
due to higher deliveries at PSCo.
PSCo and Cheyenne have in place GCA mechanisms for natural gas sales,
which recognizes the majority of the effects of changes in the cost of gas
purchased for resale and adjusts 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 quarter of 1999, as compared to the third quarter of
1998, had little impact on net income. However, the fluctuations in gas sales
impact the amount of gas the Company's gas utilities must purchase and,
therefore, along with the increases and decreases in the per-unit cost of gas,
affect total gas purchased for resale.
Other Operating Revenues and Equity in Earnings of Unconsolidated Subsidiaries
Other operating revenues increased approximately $7.1 million primarily
due to an increase in revenue from energy management and consulting services.
Corresponding increases in other operating and maintenance expenses-nonregulated
resulted from these activities.
Equity earnings from Yorkshire Power decreased $6.6 million over 1998
primarily due to lower operating earnings in 1999 which were impacted by the
removal of "pass through" energy cost recovery mechanisms, higher per unit
energy costs in the summer months with lower sales and continued competition for
customers (see Note 3. Investment in Yorkshire Power in Item 1. FINANCIAL
STATEMENTS).
Non-Fuel Operating Expenses and Other Income and Deductions
Other operating and maintenance expense-regulated decreased $10.5 million
from the continued deployment of cost saving-programs instituted as part of the
PSCo/SPS Merger. Other operating and maintenance expense-non-regulated increased
$3.0 million primarily due to increased costs in providing energy management and
consulting services.
Depreciation and amortization expense increased $5.3 million primarily due
to higher depreciation expense from property additions.
Taxes other than income taxes decreased approximately $3.1 million due to
a $7.0 million refund of business and personal property taxes in Colorado
offset, in part, by higher utility property tax accruals resulting from an
increase in plant investment and higher valuation rates.
Income taxes increased $7.8 million during the third quarter of 1999, when
compared to the same quarter in 1998, primarily due to higher pre-tax income.
Nine Months Ended September 30, 1999 Compared to the Nine Months Ended
September 30, 1998
Earnings
Earnings per share (basic and diluted) were $2.16 for the first nine
months of 1999 as compared to $2.10 per share (basic and diluted) for the first
nine months of 1998. The increase in earnings were primarily attributed to a
higher electric margin resulting from customer growth and an increased
contribution from the Company's investment in Yorkshire Power.
43
<PAGE>
Electric Operations
The following table details the change in electric operating revenues and
energy costs for the first nine months of 1999 as compared to the same period in
1998 (thousands of dollars).
Increase (Decrease)
-------------------
Electric operating revenues:
Retail................................................ $ (39,608)
Wholesale............................................. (110,081)
Other (including unbilled revenues)................... 65,202
-------
Total revenues...................................... (84,487)
Fuel used in generation............................... (35,337)
Purchased power....................................... (72,606)
-------
Net increase in electric margin..................... $23,456
=======
The following table compares electric Kwh sales by major customer classes
for the first nine months of 1999 and 1998.
Millions of Kwh Sales
1999 1998 % Change *
---- ---- ----------
Residential................................ 7,903 7,781 1.6%
Commercial and Industrial.................. 20,991 20,849 0.7
Public Authority........................... 587 625 (6.0)
----- -----
Total Retail............................. 29,481 29,255 0.8
Wholesale.................................. 10,033 11,623 (13.7)
------ ------
Total...................................... 39,514 40,878 (3.3)
====== ======
Power marketing and trading................ 7,500 2,269 **
===== =====
* Percentages are calculated using unrounded amounts
** Percentage change is significant, but presentation of the amount is not
meaningful.
Electric margin increased $23.5 million or approximately 2.3% in the first
nine months of 1999, when compared to the first nine months of 1998, due to
higher retail sales resulting primarily from overall customer growth of
approximately 2.0%. Retail revenues decreased despite the slight increase in
sales due to lower revenues related to the recovery of fuel costs. Wholesale
revenues decreased due to lower non-firm sales, but the margin on such sales is
minimal. Electric sales growth for 1999 was negatively impacted by mild spring
and early summer weather. Electric sales for 1998 were favorably impacted by hot
summer weather. Comparison of retail revenues was also impacted by an SPS 1985
FERC rate case settlement which increased margin approximately $7.7 million in
1998 and an increase in PSCo's provisions for estimated customer refunds in
connection with the earnings sharing in excess of 11% return on equity
(approximately $4.0 million) during 1999.
Fuel used in generation expense decreased $35.3 million during the first
nine months of 1999, as compared to 1998, primarily due to reduced generation
levels at SPS and lower coal and gas costs at SPS. The lower coal costs are due
to a reduction in transportation costs, while the decrease in gas costs is
attributable to lower per-unit gas prices.
Purchased power expense decreased $72.6 million during the first nine
months of 1999, as compared to 1998, primarily due to a lower volume of non-firm
purchases related to wholesale marketing activities. This decrease was partially
offset by an increase in purchased power expense at SPS resulting from an
increase in quantity of power purchased and higher capacity charges.
44
<PAGE>
Gas Operations
The following table details the change in gas revenues and gas purchased
for resale for the first nine months of 1999 as compared to the same period in
1998 (thousands of dollars).
Increase (Decrease)
-------------------
Revenues from gas sales (including unbilled revenues). $(10,682)
Gas purchased for resale.............................. (8,149)
--------
Net decrease in gas sales margin..................... (2,533)
Transportation revenues............................... 2,769
--------
Increase in net gas margin........................... $ 236
========
The following table compares gas Dth deliveries by major customer classes
for the first nine months of 1999 and 1998.
Millions of Dth Deliveries
1999 1998 % Change *
---- ---- ----------
Residential................................ 65.4 65.2 0.5%
Commercial................................. 31.5 32.8 (4.0)
----- -----
Total Sales.............................. 96.9 98.0 (1.0)
Transportation............................. 85.0 80.6 5.4
----- -----
Total.................................... 181.9 178.6 1.9
===== =====
Non-regulated gas marketing and trading ... 141.6 48.2 **
===== =====
* Percentages are calculated using unrounded amounts
** Percentage change is significant, but presentation of the amount is not
meaningful
Gas sales margin decreased $2.5 million during the first nine months of
1999, when compared to the first nine months of 1998. Lower retail sales at PSCo
resulted from the effects of mild winter weather in 1999, despite a 3.4%
increase in customers and an increase in PSCo's gas rates, effective July 1,
1999 due from the 1998 gas rate case. Although non-regulated gas marketing and
trading sales increased significantly, the margin on such sales decreased
slightly when compared to the prior year.
Gas transportation revenues increased approximately $2.8 million during
the first nine months of 1999, when compared with the same period in 1998,
primarily due to higher deliveries at PSCo. The increase in transport deliveries
continues to be impacted by the shifting of various commercial customers to
transport customers.
Other Operating Revenues and Equity in Earnings of Unconsolidated Subsidiaries
Other operating revenues increased slightly during 1999, when compared to
the prior year. An increase in revenue from energy management and consulting
services was offset, in part, by lower development fee income from non-regulated
independent power projects.
Equity in earnings of Yorkshire Power and other unconsolidated
subsidiaries increased $8.8 million primarily due to higher earnings from
Yorkshire Power. NCI's equity in earnings of Yorkshire Power increased by
approximately $12 million for the first nine months of 1999, when compared to
the same period in 1998, primarily due to Yorkshire Power's 1998 recognition of
an impairment of its investment in a U.K. telecommunications company offset, in
part, by an unrelated tax adjustment. The net effect of these items reduced 1998
earnings approximately $16.6 million. Additionally, equity losses from
independent power projects reduced earnings during 1999.
45
<PAGE>
Miscellaneous income and deductions-net decreased primarily due to delay
damage penalties incurred in development of certain independent power projects
by non-regulated subsidiaries.
Non-Fuel Operating Expenses and Other Income and Deductions
Other operating and maintenance expense-regulated decreased $12.8 million
from the continued deployment of cost saving-programs instituted as part of the
PSCo/SPS Merger. Other operating and maintenance expense-nonregulated increased
$10.1 million primarily due to increased operating cost due to the acquisition
of Planergy, effective April 1, 1998 and higher costs incurred in providing
energy management and consulting services.
Depreciation and amortization expense increased $15.2 million primarily
due to higher depreciation expense from property additions.
Taxes other than income taxes increased approximately $6.1 million due to
higher utility property tax accruals as a result of an increase in plant
investment and higher valuation rates offset, in part, by a $7.0 million refund
of business and personal property taxes in Colorado.
Interest charges and preferred dividends of subsidiaries increased $6.7
million during 1999 as compared with the same period in 1998. The increase is
primarily attributable to higher average amounts of debt outstanding used to
finance capital expenditures. Additionally, in May 1998, PSCo issued $194
million of Trust Preferred Originated Preferred Securities. The proceeds were
used to redeem all of PSCo's outstanding preferred stock (totaling $181.8
million) in June 1998 (see Note 7. PSCo Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trust Holding Solely Subordinated Debentures
in Item 1. FINANCIAL STATEMENTS).
Income taxes declined $11.0 million during the first nine months of 1999,
when compared to the same quarter in 1998, primarily due to lower pre-tax income
(before equity earnings of Yorkshire Power), the recognition of additional
Colorado state tax credits and the recognition of the favorable tax impact of
certain prior year PSCo severance costs that were previously recognized as
non-deductible.
Other Market Risks
NCE and its subsidiaries are exposed to market risks, including changes in
commodity prices, interest rates and currency exchange rates as fully disclosed
in the NCE, PSCo and SPS 1998 Annual Report on Form 10-K. NCE's regulated
subsidiaries have limited exposure to commodity price and interest rate risk due
to cost-based rate regulation. Exposure to currency exchange risk is related to
NCE's investment in Yorkshire Power (see Note 3. Investment in Yorkshire Power
in Item 1. FINANCIAL STATEMENTS). There have been no material changes in the
market risk exposures that affect the quantitative and qualitative disclosures
presented as of December 31, 1998 in the 1998 Annual Report on Form 10-K.
Commitments and Contingencies
Year 2000 Issue
The Y2K issue is a result of a universal programming standard that records
dates as six digits, e.g., mm/dd/yy, using only the last two digits for the
year. Any automated system software or firmware that uses two-digit fields could
understand the year 2000 as the year 1900 if the issue is not corrected. This
situation is not limited to computers; it has the potential to affect many
systems, components and devices, which have embedded computer chips, which may
be date sensitive. The Y2K issue could result in a major system failure or
miscalculations and does impact many NCE systems considered critical or
important to the Company's business operations. Systems posing the greatest
business risks to the Company include power generation and distribution systems,
telecommunications systems, energy trading systems and billing systems. The
Company is correcting all
46
<PAGE>
potential Y2K failure points identified in its critical automated systems to
maintain service to its customers and to mitigate legal and financial risks.
In 1997, the Company established the Y2K Program Office to oversee all
corporate-wide Y2K initiatives. These initiatives encompass all computer
software, embedded systems, as well as contingency planning. Teams of internal
and external specialists were established to inventory and assess and test
critical computer programs and automated operational systems and modify those
that may not be Y2K compliant. The inventory and assessment phases for
information technology ("IT") systems were completed in 1998. Remediation and
testing phases for all critical IT systems were completed by June 30, 1999. For
critical non-IT systems, which exist primarily in the generation, transmission
and distribution areas of the business, the inventory, assessment, remediation
and testing phases were also completed by June 30, 1999. NCE has achieved "Y2K
Ready" status for all mission-critical electrical generating and transmission
facilities. Readiness was accomplished by June 30, 1999, in accordance with the
guidelines established by the North American Electric Reliability Council
("NERC"). NCE is a participant in the NERC Y2K Program that has established
reporting criteria and milestone dates for electric utilities. The final step of
this program was the submittal of a letter to the president of NERC, certifying
that the company has met the NERC Y2K goal. NCE submitted its Y2K certification
letter, without exceptions, with its June 1999 NERC report. In October 1999, NCE
successfully completed an external review of NCE's Y2K program by an independent
third party. The review criteria followed by the external review team were
developed for the independent verification and validation study that NERC is
conducting for the DOE.
The Company has identified third parties, with which it has material
business relationships including interconnected utilities, telecommunications
service providers, fuel and water suppliers, equipment suppliers, leased
facilities and financial institutions. Subject matter experts, along with
functional managers, continue to evaluate the current list of third parties and
have ongoing discussions with these and other critical suppliers about their Y2K
readiness and contingency planning efforts.
The Company currently expects to incur costs of approximately $17 million
(approximately $13 million has been spent through September 30, 1999) in
operating and capital expenditures to modify its computer software, hardware and
other automated systems used in operations enabling proper data processing
relating to the year 2000 and beyond. The Company has spent approximately $18
million in operating and capital expenditures for the accelerated replacement of
certain non-compliant IT systems. PSCo and SPS have incurred the majority of
these costs. The table below details the actual costs incurred during 1998 and
prior periods; the actual costs incurred through the nine months ended September
30, 1999; and the estimated costs to be incurred during the remainder of 1999
and the first quarter of 2000. A significant portion of the remaining costs to
be incurred consists of finalizing remaining work on nonmission-critical
systems, testing, project management and contingency planning.
Actual Remaining Estimated
Actual Costs Costs Estimated Costs Total Project
1998 and Prior 1999 to be Incurred Costs
-------------- ---- -------------- -----
(in millions)
Operating expenses.. $8.0 $3.9 $3.0 $14.9
Capital for automated
system components 0.7 0.6 0.3 1.6
IT replacement projects:
Operating...... 0.2 0.6 0.1 0.9
Capital........ 6.4 10.9 - 17.3
---- ---- ---- -----
Total........ $15.3 $16.0 $3.4 $34.7
===== ===== ==== =====
Yorkshire Power has also undertaken activities to address Y2K issues. The
estimated proportionate share of Yorkshire's incremental Y2K costs (costs which
would not have been required in the normal course of
47
<PAGE>
business) that will flow through to the Company's earnings as a result of such
activities is not expected to have a material impact on the financial condition
or results of operations of the Company.
The most reasonably likely worst case scenario resulting during Y2K
critical dates is a loss of production capacity from certain of the Company's
generating units, along with loss of a portion of the communication system that
is critical to generation and distribution control. If this were to occur, the
Company's operating utilities may be required to "island" (separate from
neighboring interconnected utilities) their generation and distribution systems
in their service territories. As part of this scenario, difficulty could be
encountered with the restart of generating units. The overall blackout recovery
plan for NCE is designed so that this most reasonably likely worst case scenario
would be addressed and electricity restored. Critical components of this plan
have been and continue to be tested to provide assurance that the Company will
be prepared for risks which could result from the Y2K millennium change. In
September 1999, PSCo and SPS successfully participated in an inter-control
center drill involving utilities of the Rocky Mountain Power Area and
Southwestern Power Pool respectively, simulating islanding and restoration of
generation facilities.
The Company has substantially completed all major Y2K initiatives. Based
on the results of all testing completed to date, management does not anticipate
any significant Y2K related events and, accordingly, does not believe such
matters will have a material adverse impact on the financial position, results
of operations or cash flows of the Company or its subsidiaries.
Common Stock Dividend
The Board of Directors approved a $0.58 per share dividend payable to
shareholders of the Company for the third quarter of 1999 and $1.74 for the
year-to-date. The Company's common stock dividend level is dependent upon the
Company's financial position, results of operations, cash flows and other
factors, including the proposed merger with NSP. The Board of Directors of the
Company will continue to evaluate the common stock dividend on a quarterly
basis.
Liquidity and Capital Resources
Cash Flows - Nine Months Ended September 30
1999 1998 Decrease
---- ---- --------
Net cash provided by operating
activities (in millions) ............ $361.1 $503.0 $(141.9)
Cash provided by operating activities decreased during the first nine
months of 1999, when compared to the same period in 1998, primarily due to the
cash proceeds, received in 1998 by SPS and a non-regulated subsidiary, of
approximately $67 million for the recovery of deferred costs and income from the
investment in a non-regulated energy development project and the net changes in
the recovery of purchased gas and electric energy costs.
1999 1998 Increase
---- ---- --------
Net cash used in investing
activities (in millions) ............ $(462.0) $(419.4) $(42.6)
Cash used in investing activities increased during 1999, when compared to
1998, primarily due to an increase in the level of construction expenditures.
1999 1998 Increase
---- ---- --------
Net cash provided by (used in) financing
activities (in millions) ........... $84.7 $(85.3) $170.0
Cash provided by financing activities increased during 1999, when compared
to 1998, primarily due to higher net proceeds from debt financing activities in
1999. During the first quarter of 1999, PSCo refinanced approximately $48.75
million to take advantage of lower interest rates and SPS issued $100 million of
senior notes used initially for the repayment of short-term debt. PSCo issued
$200 million of long-term debt in July 1999, the
48
<PAGE>
proceeds of which were used for general corporate purposes. During 1998, PSCo
issued $250 million of long-term debt in April 1998 which was used to repay
short-term and other debt and in May 1998, PSCo issued $194 million of Trust
Originated Preferred Securities the proceeds of which were used to redeem all of
PSCo's outstanding preferred stock (totaling $181.8 million) on June 10, 1998
(see Note 7. Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trust Holding Soley Subordinated Debentures in Item 1. FINANCIAL STATEMENTS).
Financing Activities
Long-Term Debt
During the first quarter of 1999, PSCo refinanced a portion of its
pollution control bonds in the amount of $48.75 million to take advantage of
lower interest rates. The interest rate on the new bonds is 5.1% compared to 5
7/8% on $21.5 million and 7 3/8% on $27.25 million. In addition, SPS issued $100
million of 6.2% unsecured senior notes due March 1, 2009. The proceeds were used
initially for the repayment of certain short-term debt, pending the retirement
of $90 million of the SPS 6 7/8% First Mortgage Bonds due December 1, 1999 and
for other general corporate purposes.
On June 29, 1999, PSCo filed a registration statement to issue up to $500
million of unsecured debt. On July 16, 1999, PSCo issued $200 million of
unsecured senior notes, at an interest rate of 6 7/8%, due July 15, 2009.
Proceeds were used for general corporate purposes including capital
expenditures, repayment of short-term debt and refunding of long-term debt on
maturity or otherwise.
Bank Lines of Credit and Compensating Bank Balances
During the second quarter of 1999, PSCo entered into a credit facility,
which provides for $300 million in committed lines of credit, replacing an
existing $150 million credit facility. The credit facility expires June 23,
2000.
During the first quarter of 1999, SPS extended its $200 million committed
line of credit until February 25, 2000. On November 1, 1999, the NMPRC approved
SPS's request to increase its short-term debt authority by $100 million to $300
million. NCE is currently negotiating a $100 million credit facility. This
facility will be in addition to NCE's $225 million credit facility which expires
August 11, 2002.
Electric Utility Industry
Electric utilities have historically operated in a highly regulated
environment in which they have an obligation to provide electric service to
their customers in return for an exclusive franchise within their service
territory with an opportunity to earn a regulated rate of return. This
regulatory environment is changing. The generation sector has experienced
competition from nonutility power producers and the FERC is requiring utilities,
including the Company's subsidiaries, to provide wholesale transmission service
to others and may order electric utilities to expand their transmission systems
to facilitate transmission services without impairing reliability. State
regulatory authorities are in the process of changing utility regulations in
response to federal and state statutory changes and evolving markets, including
consideration of providing open access to retail customers. All of the Company's
jurisdictions continue to study and evaluate utility regulations with respect to
competition. Deregulation legislation was passed in Texas and New Mexico during
the second quarter of 1999.
New Mexico
On April 8, 1999, New Mexico enacted the Electric Utility Restructuring
Act of 1999, which allows customer choice for residential, small commercial and
educational customers beginning January 1, 2001. All remaining customers will be
allowed customer choice on January 1, 2002. Customers of a municipal utility and
customers of a distribution
49
<PAGE>
cooperative utility will be afforded choice only if the respective utility
elects to participate. The legislation provides for recovery of no less than 50%
of stranded costs quantified by the NMPRC, which has not yet been determined.
Transition costs must be approved by the NMPRC prior to being recovered through
a non-by-passable wires charge, which must be included in a transition plan
filing. All public electric utilities operating in New Mexico must file a
transition plan with the NMPRC by March 1, 2000. Before January 1, 2001, SPS
must separate its utility operations into at least two segments: a) energy
generation services and b) transmission and distribution (including retail
operations) services either by the creation of separate affiliates that may be
owned by a common holding company or by the sale of assets to one or more third
parties. A regulated company will be prohibited from providing unregulated
services.
Texas
On June 18, 1999, an electric utility restructuring act ("SB-7") was
passed in Texas, which allows for retail competition, for most areas of the
state, beginning January 1, 2002. The legislation requires, among other things,
a rate freeze for all customers, effective September 1, 1999 until January 1,
2002 together with an annual earnings test; a 6% rate reduction for those
residential and small commercial customers who choose not to switch suppliers at
the start of retail competition; the unbundling of business activities, costs
and rates relating to generation, transmission and distribution and retail
services; reductions in NOx and SO2 emissions and the recovery of stranded
costs. The PUCT can delay the date for retail competition if a power region is
unable to offer fair competition and reliable service during pilot projects
which begin for all utilities on June 1, 2001 for 5% of the utility's combined
load of all customer classes.
As part of the above Texas legislation, SPS is required to file a
separation plan on January 10, 2000, for the unbundling of business activities
relating to 1) generation, 2) transmission and distribution and 3) retail
services. The plan is to be implemented on January 1, 2002. Also, SPS is
required to file a rate case on April 1, 2000 to set the rates for the
transmission and distribution services, which are to be unbundled and
implemented on January 1, 2002. The Company is evaluating the effect of these
filings on SPS.
The legislation specifically addresses competition in the Texas Panhandle,
where SPS operates, recognizing that certain transmission constraints exist
within the region that require full retail customer choice to develop on a more
structured schedule than the rest of the state. SPS must file a transition to
competition plan with the PUCT by December 1, 2000. SPS, with no estimated
stranded costs, must direct any excess earnings indicated in the annual earnings
tests during the period January 1, 1999 through December 31, 2001 to
improvements in transmission and distribution facilities, to capital
expenditures to improve air quality or to accelerate the amortization of
regulatory assets (subject to PUCT approval).
Additionally, the Texas legislation requires that no generation company
can own and control more than 20% of the installed capacity located in or
capable of delivering electricity to a power region. Utilities owning more than
400 Mw must auction entitlements to at least 15% of the utility's installed
generation capacity used for providing electric services to Texas retail
customers. The capacity entitlement auctions are to continue for 5 years or
until 40% of the utility's residential and small commercial customers served
prior to the start date of competition are served by non-affiliated companies.
The legislation includes several possible remedies to market power abuses. These
provisions are not immediately applicable to SPS due to the existing
transmission constraints and market power issues in the Panhandle region.
In connection with the NCE/NSP Merger approval proceedings, the Company
filed supplemental testimony with the PUCT in October 1999 outlining its plan to
address the various provisions of SB-7. In general, the plan presented by the
Company provides for the transfer of ownership or control of 595 Mw of
generating capacity (either through capacity entitlement auction or divesting)
to other competitors and the addition of transmission lines to import an
additional 400 Mw from other geographic regions. The major components of this
plan include the following:
50
<PAGE>
- - auction entitlements (409 Mw or 15 percent of installed generation capacity)
to capacity owned and controlled by SPS, that is dedicated to serving Texas
retail customers, by January 1, 2002. The Company would continue to own and
operate the capacity, but competitors would have the right to dispatch the
power.
- - divest 186 Mw of SPS-area generating capacity by January 1, 2002 in order to
further reduce market dominance,
- - separate SPS existing competitive functions beginning September 1, 2000,
- - unbundle SPS into three separate companies beginning January 1, 2002, and
- - implement a pilot program for retail access for at least 5 percent of its
Texas retail load in June 2001 and to expand the pilot program to 20% of
customer load in 2002. Most of the other Texas utilities will be moving to
full customer choice in 2002.
The SPS plan is designed to address the market power issues related to the
deregulation legislation and would promote further competition before the end of
2006 by allowing only competitors to build new plants in the region between now
and then, by adding even more transmission lines, and possibly by further
divesting some generation. Hearings on the NCE/NSP Merger are scheduled to begin
in late February, 2000 and the final order is expected in the second quarter of
2000.
Financial Reporting Considerations
The Emerging Issues Task Force of the Financial Accounting Standards Board
reached a consensus in Issue No. 97-4, "Deregulation of the Pricing of
Electricity" ("EITF 97-4") indicating that when deregulatory legislation is
passed or when a rate order (whichever is necessary to effect change in the
jurisdiction) that contains sufficient detail for an enterprise to reasonably
determine how the transition plan will affect the separable portion of its
business whose pricing is being deregulated is issued, the enterprise should
stop applying SFAS 71 to that separable portion of its business. While
legislation has been enacted in Texas and New Mexico, there are several
unresolved issues that will significantly impact how and when deregulation
related to the generation portion of the business, will be implemented by SPS.
It is expected that SPS will discontinue the application of SFAS 71 related to
the generation portion of the business when the provisions of EITF 97-4 have
been met.
Accounting Pronouncements Issued But Not Yet Effective
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies to record
derivatives on the balance sheet as assets and liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. In July 1999, the FASB delayed the effective
date for one year, to fiscal years beginning after June 15, 2000. The Company is
currently evaluating the potential impact of this accounting standard and will
adopt the standard as required by January 1, 2001.
51
<PAGE>
PSCo's Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three Months Ended September 30, 1999 Compared to the Three Months Ended
September 30, 1998
Earnings Available for Common Stock
Earnings were $49.7 million for the third quarter of 1999, as compared to
$44.0 million for the third quarter of 1998, primarily due to an increase in
electric margin resulting from strong customer growth of 2.6%, an increase in
gas margin resulting from customer growth and higher rates, and lower operating
and maintenance expenses.
Electric Operations
The following table details the change in electric operating revenues and
energy costs for the three months ended September 30, 1999, as compared to the
same period in 1998 (in thousands of dollars).
Increase (Decrease)
-------------------
Electric operating revenues:
Retail....................................... $17,553
Wholesale.................................... (90,727)
Other (including unbilled revenues).......... 7,845
-------
Total revenues.............................. (65,329)
Fuel used in generation....................... (436)
Purchased power............................... (68,848)
-------
Net increase in electric margin............. $ 3,955
=======
The following table compares electric Kwh sales by major customer classes
for the three months ended September 30, 1999 and 1998.
Millions of Kwh Sales
1999 1998 % Change *
---- ---- ----------
Residential ..................... 1,905 1,779 7.1%
Commercial and Industrial ....... 4,459 4,278 4.2
Public Authority ................ 54 54 (0.1)
------ ------
Total Retail................... 6,418 6,111 5.0
Wholesale **..................... 1,063 2,389 (55.5)
------ ------
Total............................ 7,481 8,500 (12.0)
====== ======
* Percentages are calculated using unrounded amounts
** Excludes power trading activities
Electric margin increased in the third quarter of 1999, when compared to
the third quarter of 1998, primarily due to higher retail sales of 5.0%
resulting primarily from customer growth of approximately 2.6%. The higher
margin was offset, in part, by the negative impact of cost sharing under the ICA
(approximately $5.6 million). The ICA is a cost adjustment mechanism that allows
for a 50%/50% sharing of certain fuel and energy cost increases and decreases
among customers and shareholders. Provisions for estimated customer refunds in
connection with the earnings sharing in excess of 11% return on equity increased
approximately $2.9 million in 1999 (see Note 4. Regulatory Matters in Item 1.
FINANCIAL STATEMENTS). The decrease in the wholesale revenues and sales resulted
primarily from lower non-firm sales in 1999, however, overall power trading
activities increased in 1999. The revenues and purchased energy costs for such
activities are presented net for financial reporting purposes. The electric
margin on power trading activities is not significant.
52
<PAGE>
Fuel used in generation expense decreased approximately $0.4 million
during the third quarter of 1999, as compared to the same quarter in 1998,
primarily due to lower generation levels at PSCo's power plants resulting from
the milder summer temperatures.
Purchased power expense decreased $68.8 million during the third quarter
of 1999, as compared to the same quarter in 1998, primarily due to the lower
non-firm power purchases offset, in part, by higher firm power purchases under
new contracts.
Gas Operations
The following table details the change in revenues from gas sales and gas
purchased for resale for the third quarter of 1999, as compared to the same
period in 1998 (in thousands of dollars).
Increase (Decrease)
-------------------
Revenues from gas sales (including unbilled revenues) $ 7,092
Gas purchased for resale........................ 1,972
-------
Net increase in gas sales margin.............. 5,120
Transportation revenues......................... 744
-------
Increase in net gas margin.................... $ 5,864
=======
The following table compares gas Dth deliveries by major customer classes
for the third quarter of 1999 and 1998.
Millions of Dth Deliveries
1999 1998 % Change *
---- ---- ----------
Residential................... 6.7 6.4 4.6%
Commercial.................... 3.9 3.8 1.6
----- -----
Total sales................. 10.6 10.2 3.5
Transportation................ 21.0 22.2 (5.7)
----- -----
Total....................... 31.6 32.4 (2.8)
===== =====
* Percentages are calculated using unrounded amounts
Gas sales margin increased during the third quarter of 1999, when compared
to the third quarter of 1998, primarily due to a 3.5% increase in retail gas
sales resulting from customer growth of approximately 3.4%. In addition, gas
rates increased, effective July 1, 1999, as a result of the 1998 gas rate case
resulting in higher revenues of approximately $1.1 million.
Gas transportation revenues increased $0.7 million during the third
quarter of 1999, compared to the third quarter of 1998, primarily due to the
impact of the 1998 gas rate case, resulting in higher revenues of approximately
$0.2 million.
PSCo has in place a GCA mechanism for natural gas sales, which recognizes
the majority of the effects of changes in the cost of gas purchased for resale
and adjusts revenues to reflect such changes in costs on a timely basis. As a
result, the changes in revenues associated with these mechanisms during the
third quarter of 1999, as compared to the third quarter of 1998, had little
impact on net income. However, the fluctuations in gas sales impacts the amount
of gas PSCo must purchase and, therefore, along with the increases and decreases
in the per-unit cost of gas, affect total gas purchased for resale.
Non-Fuel Operating Expenses and Other Income and Deductions
Other operating and maintenance expenses decreased approximately $6.4
million primarily due to lower administrative and general costs, including a
decrease in pension costs.
53
<PAGE>
Depreciation and amortization increased $5.0 million during the third
quarter of 1999, as compared to the third quarter of 1998, primarily due to the
depreciation of property additions.
Taxes other than income taxes decreased approximately $3.8 million during
the third quarter of 1999, as compared to the third quarter of 1998, primarily
due to a $7 million refund of business and personal property tax in Colorado
offset, in part, by higher property tax accruals resulting from an increase in
plant investment and higher valuation rates.
Income taxes increased approximately $1.4 million during the third quarter
of 1999, as compared to the third quarter of 1998, primarily due to higher
pre-tax income, despite the recognition of additional Colorado state tax
credits.
Other income and deductions decreased $3.4 million during the third
quarter of 1999, as compared to the third quarter of 1998, primarily due to
higher non-utility operating expenses attributed to affiliate billings and
customer rebates.
Interest charges increased approximately $4.6 million during the third
quarter of 1999, as compared to the third quarter of 1998. The increase is
primarily attributable to costs to finance capital expenditures, including
higher interest costs on short-term debt. Additionally, in July 1999, PSCo
issued $200 million of 6 7/8% Series A Senior Notes, due in July 2009.
Nine Months Ended September 30, 1999 Compared to the Nine Months Ended
September 30, 1998
Earnings Available for Common Stock
Earnings were $150.5 million for the first nine months of 1999, as
compared to $138.5 million for the first nine months of 1998. The significant
increase is primarily attributed to an increase in electric margin resulting
from customer growth of 2.6% and lower operating and maintenance expense offset,
in part, by higher interest costs.
Electric Operations
The following table details the change in electric operating revenues and
energy costs for the nine months ended September 30, 1999, as compared to the
same period in 1998 (in thousands of dollars).
Increase (Decrease)
-------------------
Electric operating revenues:
Retail....................................... $27,683
Wholesale.................................... (92,253)
Other (including unbilled revenues).......... 8,867
-------
Total revenues.............................. (55,703)
Fuel used in generation....................... 6,128
Purchased power............................... (90,589)
-------
Net increase in electric margin............. $28,758
=======
54
<PAGE>
The following table compares electric Kwh sales by major customer classes
for the nine months ended September 30, 1999 and 1998.
Millions of Kwh Sales
1999 1998 % Change *
---- ---- ----------
Residential ..................... 5,403 5,135 5.2%
Commercial and Industrial ....... 12,180 11,754 3.6
Public Authority ................ 162 140 15.2
------ ------
Total Retail................... 17,745 17,029 4.2
Wholesale **..................... 3,530 5,291 (33.3)
------ ------
Total............................ 21,275 22,320 (4.7)
====== ======
* Percentages are calculated using unrounded amounts
** Excludes power trading activities
Electric margin increased $28.8 million or approximately 4.6% during the
first nine months of 1999, when compared to the same period in 1998, primarily
due to higher retail sales of 4.2% resulting primarily from customer growth of
approximately 2.6% and increased usage by existing customers. Provisions for
estimated customer refunds in connection with the earnings sharing in excess of
11% return on equity were $11.3 million in 1999 compared to $7.3 million in 1998
(see Note 4. Regulatory Matters in Item 1. FINANCIAL STATEMENTS). The decrease
in the wholesale revenues and sales resulted primarily from lower non-firm sales
in 1999, however, power trading activities increased in 1999. The revenues and
purchased energy costs for such activities are presented net for financial
reporting purposes. The electric margin on power trading activities is not
significant.
Fuel used in generation expense increased approximately $6.1 million
during the first nine months of 1999, as compared to the same period in 1998,
primarily due to increased generation levels at PSCo's power plants to serve
retail customers.
Purchased power expense decreased $90.6 million during the first nine
months of 1999, as compared to the same period in 1998, primarily due to the
lower non-firm power purchases offset, in part, by higher firm power purchases
under new contracts.
Gas Operations
The following table details the change in revenues from gas sales and gas
purchased for resale for the first nine months of 1999, as compared to the same
period in 1998 (in thousands of dollars).
Increase (Decrease)
-------------------
Revenues from gas sales (including unbilled revenues) $ 1,468
Gas purchased for resale........................ 1,994
-------
Net decrease in gas sales margin.............. (526)
Transportation revenues......................... 2,781
-------
Increase in net gas margin.................... $ 2,255
=======
The following table compares gas Dth deliveries by major customer classes
for the first nine months of 1999 and 1998.
Millions of Dth Deliveries
1999 1998 % Change *
---- ---- ----------
Residential................... 63.5 63.3 0.4%
Commercial.................... 29.8 31.1 (4.3)
------- --------
Total sales................. 93.3 94.4 (1.1)
Transportation................ 71.1 68.3 4.2
------- --------
Total....................... 164.4 162.7 1.1
======= ========
* Percentages are calculated using unrounded amounts
55
<PAGE>
Gas sales margin decreased slightly during the first nine months of 1999,
when compared to the same period in 1998, primarily due to a 1.1% decrease in
retail gas sales resulting from milder winter weather, with temperatures
approximately 2% warmer than the prior year.
Gas transportation revenues increased $2.8 million during the first nine
months of 1999, compared to the same period in 1998, primarily due to higher
deliveries. The increase in transport deliveries continues to be impacted by the
shifting of various commercial customers to transport customers.
PSCo has in place a GCA mechanism for natural gas sales, which recognizes
the majority of the effects of changes in the cost of gas purchased for resale
and adjusts revenues to reflect such changes in costs on a timely basis. As a
result, the changes in revenues associated with these mechanisms during the nine
months ended September 30, 1999, as compared to the same period in 1998, had
little impact on net income. However, the fluctuations in gas sales impacts the
amount of gas PSCo must purchase and, therefore, along with the increases and
decreases in the per-unit cost of gas, affect total gas purchased for resale.
The decrease in the quantity of gas purchased in 1999 lowered costs, but was
offset by the recovery of costs previously deferred through the GCA.
Non-Fuel Operating Expenses and Other Income and Deductions
Other operating and maintenance expenses decreased approximately $6.4
million primarily due to lower administrative and general costs, including a
decrease in pension costs.
Depreciation and amortization increased $12.7 million during the first
nine months of 1999, as compared to the same period in 1998, primarily due to
the depreciation of property additions.
Income taxes decreased approximately $5.0 million during the first nine
months of 1999, as compared to the same period in 1998, primarily due to the
recognition of additional Colorado state tax credits and the recognition of the
favorable tax impact of deducting certain prior year severance costs that were
previously recognized as non-deductible.
Other income and deductions decreased $6.7 million during the first nine
months of 1999, as compared to the first nine months of 1998. On March 31, 1998,
NCI and its subsidiaries were transferred through the sale by PSCo of all the
outstanding common stock of NCI at net book value (approximately $292.6
million), to NC Enterprises, an intermediate holding company of NCE, and
received as consideration a promissory note from NC Enterprises (see Note 3.
Investment in Yorkshire Power in Item 1. FINANCIAL STATEMENTS). The first nine
months of 1999 include approximately $10.1 million of interest income on the
promissory note, excluding income taxes, compared to $10.3 million of interest
income in 1998 and the recognition of equity earnings associated with PSCo's
investment in Yorkshire Power of approximately $3.4 million in the first quarter
of 1998, prior to the sale. In addition, other non-utility income decreased $3.1
million.
Interest charges and dividend requirements and redemption premiums on
preferred stock increased approximately $8.5 million during the first nine
months of 1999, as compared to the first nine months of 1998. The increase is
primarily attributable to costs to finance capital expenditures, including
higher interest costs on long-term debt resulting from the April 1998 issuance
of $250 million of long-term debt and July 1999 issuance of $200 million.
Additionally, in May 1998, PSCo issued $194 million of Trust Preferred
Originated Preferred Securities. The proceeds were used to redeem all of PSCo's
outstanding preferred stock (totaling $181.8 million) in June 1998 (see Note 7.
Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts
Holding Solely Subordinated Debentures in Item 1. FINANCIAL STATEMENTS).
56
<PAGE>
Commitments and Contingencies
See Note 5. Commitments and Contingencies in Item 1. FINANCIAL
STATEMENTS.
Financing Activities
Discussion relating to PSCo's financing activities is covered under
"Financing Activities" in NCE's Management's Discussion and Analysis of
Financial Condition and Results of Operations.
57
<PAGE>
SPS's Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended September 30, 1999 Compared to the Three Months Ended
September 30, 1998
Earnings Available for Common Stock
Earnings available for common stock were $42.5 million during the third
quarter of 1999 compared to $36.9 million for the same quarter in 1998. Earnings
increased primarily due to the effects of higher sales and lower operating and
maintenance costs.
Operating Revenues
Electric Operations
Substantially all of SPS's operating revenues result from the sale of
electric energy. The principal factors impacting revenues are the amount and
price of energy sold. The following table details the change in electric
operating revenues and energy costs for the three months ended September 30,
1999, as compared to the same period in 1998 (thousands of dollars).
Increase (Decrease)
-------------------
Electric operating revenues:
Retail.............................. $(36,815)
Wholesale........................... (816)
Other (including unbilled revenues). 43,570
-------
Total revenues.................... 5,939
Fuel used in generation.............. (8,954)
Purchased power...................... 8,073
-------
Net increase in electric margin... $ 6,820
========
The following table compares electric Kwh sales by major customer classes
for the three months ended September 30, 1999 and 1998.
Millions of Kwh Sales
1999 1998 % Change*
------- ----- ---------
Residential ............ 993 1,060 (6.2)%
Commercial and Industrial 3,025 3,133 (3.5)
Public Authority ....... 149 192 (22.8)
----- -----
Total Retail.......... 4,167 4,385 (5.0)
Wholesale............... 3,184 2,800 13.7
----- -----
Total................... 7,351 7,185 2.3
===== =====
* Percentages are calculated using unrounded amounts.
Electric operating revenues increased $5.9 million or 2.1% during the
third quarter in 1999, when compared to the same period in 1998, primarily due
to customer growth and higher unbilled revenue of approximately $9.9 million
offset by the effects of lower retail sales of 5%. Although weather in the third
quarter of 1999 was slightly above normal, the decrease in Kwh sales resulted
from the hot weather occurring in the third quarter of 1998, which served to
increase loads in 1998 as compared to the same period in 1999 for air
conditioning and irrigation. The decreases in retail and wholesale revenue
relates to lower billed revenues for the recovery of fuel costs (approximately
$27 million), which was offset by an increase of approximately $30 million in
deferred fuel revenue included in other electric operating revenues.
Fuel used in generation expense decreased $9.0 million or 6.4% during the
third quarter of 1999, when compared to the same period in 1998, primarily due
to a 5.8% decrease in generation levels required to serve
58
<PAGE>
retail customers and lower coal costs for the quarter offset, in part, by higher
gas costs as a result of higher market prices. The decrease in coal costs is
primarily due to negotiations with a new supplier in mid-1998 and lower
transportation costs.
Purchased power increased $8.1 million during the third quarter of 1999,
when compared to the same period in 1998, due to an increase in capacity costs
of $6.4 million related to new purchase power contracts and an increase in
wholesale purchases. SPS generates substantially all of its power for sale to
its firm retail and wholesale customers and sells non-firm energy as the market
demands. Similarly, SPS will purchase low-cost non-firm energy when available
and as needed to meet customer requirements.
SPS has fuel 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 quarter of 1999, when
compared to the third quarter of 1998, had little impact on net income. (See
discussion on "SPS Electric Cost Adjustment Mechanisms" Note 4.
Regulatory Matters - in Item 1. FINANCIAL STATEMENTS).
Non-Fuel Operating Expenses
Other operating and maintenance expenses decreased $4.3 million or 12.5%
during the third quarter of 1999, as compared to the same period in 1998,
primarily due to lower administrative and general expenses and other reductions
resulting from the continued deployment of cost saving programs instituted as
part of the PSCo/SPS Merger offset, in part, by higher maintenance costs.
Income taxes increased $3.3 million during the third quarter of 1999, as
compared to the same period in 1998, primarily due to the effect of higher
pre-tax income. The effective income tax rates for the quarter ended September
30, 1999 and 1998 were 37.0% and 37.1%, respectively.
Interest Charges
Interest charges increased $1.0 million during the third quarter of 1999,
as compared to the same period in 1998, primarily due to higher long-term debt
costs, resulting from the issuance of $100 million of new debt in March 1999.
The proceeds from the long-term debt issuance were initially used for the
repayment of certain short-term debt, pending the retirement of $90 million in
bonds due December 1, 1999, thus lowering other interest expense ($0.7 million).
Nine Months Ended September 30, 1999 Compared to the Nine Months Ended
September 30, 1998
Earnings Available for Common Stock
Earnings available for common stock were $88.8 million during the nine
months ended September 30, 1999 compared to $92.0 million for the same period in
1998. Earnings for 1998 were favorably impacted by the hot dry weather and a
FERC rate case settlement.
59
<PAGE>
Operating Revenues
Electric Operations
Substantially all of SPS's operating revenues result from the sale of
electric energy. The principal factors impacting revenues are the amount and
price of energy sold. The following table details the change in electric
operating revenues and energy costs for the nine months ended September 30,1999,
as compared to the same period in 1998 (thousands of dollars).
Increase (Decrease)
-------------------
Electric operating revenues:
Retail.............................. $(70,027)
Wholesale........................... (16,752)
Other (including unbilled revenues). 55,646
------
Total revenues.................... (31,133)
Fuel used in generation.............. (40,941)
Purchased power...................... 14,862
------
Net decrease in electric margin... $ (5,054)
========
The following table compares electric Kwh sales by major customer classes
for the nine months ended September 30, 1999 and 1998.
Millions of Kwh Sales
1999 1998 % Change*
-------- ------- ---------
Residential ............ 2,339 2,490 (6.1)%
Commercial and Industrial 8,322 8,621 (3.5)
Public Authority ....... 423 481 (12.2)
----- -----
Total Retail.......... 11,084 11,592 (4.4)
Wholesale............... 6,503 6,332 2.7
----- -----
Total................... 17,587 17,924 (1.9)
====== ======
* Percentages are calculated using unrounded amounts.
Electric operating revenues decreased $31.1 million or 4.2% during the
nine months ended September 30, 1999, when compared to the same period in 1998,
primarily due to lower retail Kwh sales (4.4%), lower revenues related to the
recovery of fuel costs (totaling approximately $64 million) and the $7.7 million
settlement for a 1985 FERC rate case settlement recorded in 1998. Higher
unbilled revenue of $27.7 million and higher deferred fuel revenue of
approximately $33 million offset these decreases. The decrease in Kwh sales was
primarily the result of the hot dry weather which occurred in the second and
third quarters of 1998 serving to increase air conditioning and irrigation loads
in 1998 and a decrease in oil well pumping sales in 1999. A portion of the
decrease in Kwh sales resulted from a change in the billing cycle of various
customers, which is offset by the higher level of unbilled revenues.
Fuel used in generation expense decreased $40.9 million or 11.7% during
the nine months ended September 30, 1999, when compared to the same period in
1998, primarily due to lower coal and gas costs for the current period and a
4.7% decrease in generation levels required to serve retail customers. The
decrease in coal costs is primarily due to negotiations with a new supplier in
mid-1998 and lower transportation costs. Cost of natural gas used in generation
decreased $4.6 million during the nine months ended September 30, 1999 primarily
due to lower gas purchases due to lower generation.
Purchased power increased $14.9 million during the nine months ended
September 30, 1999, when compared to the same period in 1998, due to an increase
in capacity costs of $9.9 million related to new purchase power contracts and an
increase in wholesale purchases. SPS generates substantially all of its power
for sale to its
60
<PAGE>
firm retail and wholesale customers and sells non-firm energy as the market
demands. Similarly, SPS will purchase low-cost non-firm energy when available
and as needed to meet customer requirements.
SPS has fuel 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 nine months ended September
30, 1999, when compared to the nine months ended September 30, 1998, had little
impact on net income. (See discussion on "SPS Electric Cost Adjustment
Mechanisms" Note 4. Regulatory Matters - in Item 1. FINANCIAL STATEMENTS).
Non-Fuel Operating Expenses
Other operating and maintenance expenses decreased $6.1 million during the
nine months ended September 30, 1999, when compared to the same period in 1998,
primarily due to lower general and administrative expenses, and the continued
deployment of cost saving programs instituted as part of the PSCo/SPS Merger.
These decreases were offset, in part, by higher maintenance costs.
Taxes other than income taxes increased $3.2 million during the nine
months ended September 30, 1999, as compared to the same period in 1998,
primarily due to higher property and franchise taxes.
Income taxes decreased $1.8 million during the nine months ended September
30, 1999, as compared to the same period in 1998, primarily due to the effect of
lower pre-tax income. The effective income tax rate for both the nine months
ending September 30, 1999 and 1998 was 37.3%.
Other Income and Deductions - Net
Other income and deductions-net increased $1.2 million during the nine
months ended September 30, 1999, as compared to the same period in 1998,
primarily due to the absence of PSCo/SPS Merger and business integration
expenses in 1999 ($1.2 million expensed in 1998).
Interest Charges
Interest charges increased $2.1 million during the nine months ended
September 30, 1999, as compared to the same period in 1998, primarily due to
higher long-term debt costs, resulting from the issuance of $100 million in new
debt in March of 1999 and a decrease in the allowance for funds used during
construction of approximately $2.2 million resulting from lower construction
activities. The new debt issuance was used in part to pay down short-term
borrowings, thus lowering other interest expense ($3.3 million).
Commitments and Contingencies
See Note 5. Commitments and Contingencies in Item 1. FINANCIAL
STATEMENTS.
Financing Activities
Discussion relating to SPS's financing activities is covered under
"Financing Activities" in NCE's Management's Discussion and Analysis of
Financial Condition and Results of Operations.
61
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Part 1. See Note 5. 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 for PSCo is set forth at page 65 herein.
12(b) Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges for SPS is set forth at page 66 herein.
15(a) Letter from Arthur Andersen LLP regarding unaudited interim
information is set forth at page 67 herein for NCE.
15(b) Letter from Arthur Andersen LLP regarding unaudited interim
information is set forth at page 68 herein for PSCo.
15(c) Letter from Arthur Andersen LLP regarding unaudited interim
information is set forth at page 69 herein for SPS.
27(a) Financial Data Schedule for NCE as of September 30, 1999.
27(b) Financial Data Schedule for PSCo as of September 30, 1999.
27(c) Financial Data Schedule for SPS as of September 30, 1999.
(b) Reports on Form 8-K
The following report on Form 8-K was filed since the beginning of the third
quarter of 1999.
- - A report on Form 8-K dated July 13, 1999, was filed by PSCo on July 22,
1999. The items reported were Item 5. Other Events: Documents related to
the issuance of $200,000,000 aggregate principal amount on July 16, 1999 of
Series A Senior Notes and Item 7. Financial Statements and Exhibits.
62
<PAGE>
NEW CENTURY ENERGIES, INC.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, New Century Energies, Inc. has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized on the
15th day of November, 1999.
NEW CENTURY ENERGIES, INC.
By /s/ R. C. Kelly
---------------------------------
R. C. Kelly
Executive Vice President and
Chief Financial Officer
PUBLIC SERVICE COMPANY OF COLORADO
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
on the 15th day of November, 1999.
PUBLIC SERVICE COMPANY OF COLORADO
By /s/Brian P. Jackson
---------------------------------
Brian P. Jackson
Senior Vice President, Finance and
Administrative Services,
Chief Financial Officer and
Treasurer
SOUTHWESTERN PUBLIC SERVICE COMPANY
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Southwestern Public Service Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized
on the 15th day of November, 1999.
SOUTHWESTERN PUBLIC SERVICE COMPANY
By /s/Brian P. Jackson
---------------------------------
Brian P. Jackson
Senior Vice President, Finance and
Administrative Services,
Chief Financial Officer and
Treasurer
63
<PAGE>
EXHIBIT INDEX
2(a)1* NCE/NSP Agreement and Plan of Merger dated March 24, 1999 (Form 8-K,
March 24, 1999, Exhibit 2.1).
3(a)1* NCE Restated Articles of Incorporation dated December 8, 1995
(Form S-4, Exhibit 3(a)).
3(a)2* PSCo Amended and Restated Articles of Incorporation dated July 10, 1998
(Form 10-K, December 31, 1998, Exhibit 3(a)1).
3(a)3* SPS Amended and Restated Articles of Incorporation dated September 30,
1997 (Form 10-K, December 31, 1997, Exhibit 3(a)2).
3(b)1* NCE Restated By-laws dated December 15, 1998 (Form 10-K, December
31, 1998, Exhibit 3(b)1).
3(b)2* PSCo By-laws dated November 20, 1997 (Form 10-K, December 31,
1997, Exhibit 3(b)1).
3(b)3* SPS By-laws dated September 29, 1997 (Form 10-K, December 31,
1997, Exhibit 3(b)2).
12(a) Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges for PSCo is set forth at page 65 herein.
12(b) Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges for SPS is set forth at page 66 herein.
15(a) Letter from Arthur Andersen LLP regarding unaudited interim information
is set forth at page 67 herein for NCE.
15(b) Letter from Arthur Andersen LLP regarding unaudited interim information
is set forth at page 68 herein for PSCo.
15(c) Letter from Arthur Andersen LLP regarding unaudited interim information
is set forth at page 69 herein for SPS.
27(a) Financial Data Schedule for NCE as of September 30, 1999.
27(b) Financial Data Schedule for PSCo as of September 30, 1999.
27(c) Financial Data Schedule for SPS as of September 30, 1999.
* Previously filed as indicated and incorporated herein by reference.
64
<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,
1999 1998
---- ----
(Thousands of Dollars, except ratios)
Fixed charges:
Interest on long-term debt................... $ 88,890 $ 86,899
Interest on borrowings against corporate-owned
life insurance contracts................... 43,342 38,004
Other interest............................... 19,671 14,967
Amortization of debt discount and expense
less premium .............................. 3,331 3,148
Interest component of rental expense......... 6,720 6,166
Dividends on PSCo obligated mandatorily
redeemable preferred securities............ 11,400 5,911
------ ------
Total...................................... $173,354 $155,095
======== ========
Earnings (before fixed charges and taxes on income):
Net income................................... $150,508 $143,820
Fixed charges as above....................... 173,354 155,095
Provisions for Federal and state taxes on
income, net of investment tax credit
amortization.... ........................... 67,154 72,184
------ ------
Total...................................... $391,016 $371,099
======== ========
Ratio of earnings to fixed charges.............. 2.26 2.39
====== ======
65
<PAGE>
EXHIBIT 12(b)
SOUTHWESTERN PUBLIC SERVICE COMPANY
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,
1999 1998
---- ----
(Thousands of Dollars, except ratios)
Fixed charges:
Interest on long-term debt................... $ 36,112 $ 32,972
Other interest............................... 3,989 7,275
Amortization of debt discount and expense less
premium ................................... 1,777 1,682
Interest component of rental expense......... 573 606
Dividends on SPS obligated mandatorily
redeemable preferred securities............ 5,888 5,888
------ ------
Total...................................... $ 48,339 $ 48,423
======== ========
Earnings (before fixed charges and taxes on income):
Net income................................... $ 88,760 $ 91,985
Fixed charges as above....................... 48,339 48,423
Provisions for Federal and state taxes on
income, net of investment tax credit
amortization.... .......................... 52,868 54,709
------ ------
Total...................................... $189,967 $195,117
======== ========
Ratio of earnings to fixed charges.............. 3.93 4.03
==== ====
66
<PAGE>
EXHIBIT 15(a)
November 9, 1999
New Century Energies, Inc.:
We are aware that New Century Energies, Inc. has incorporated by reference
in its Registration Statement (Form S-8, File No. 333-28639) pertaining to the
Omnibus Incentive Plan; its Registration Statement (Form S-3, File No.
333-28637) pertaining to the Dividend Reinvestment and Cash Payment Plan; its
Registration Statements (Form S-3, File Nos. 333-40361 and 333-64067) pertaining
to the registration of NCE Common Stock and its Registration Statement (Form
S-8, File No. 333-58117) pertaining to the NCE Employee Investment Plan and NCE
Employees' Savings and Stock Ownership Plan its Form 10-Q for the quarter ended
September 30, 1999, which includes our report dated November 9, 1999, 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
67
<PAGE>
EXHIBIT 15(b)
November 9, 1999
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; its
Registration Statement (Form S-3, File No. 33-37431) as amended on December 4,
1990, pertaining to the shelf registration of Public Service Company of
Colorado's First Mortgage Bonds; its Registration Statement (Form S-8, File No.
33-55432) pertaining to the Omnibus Incentive Plan; its Registration Statement
(Form S-3, File No. 33-51167) pertaining to the shelf registration of Public
Service Company of Colorado's First Collateral Trust Bonds; its Registration
Statement (Form S-3, File No. 33-54877) pertaining to the shelf registration of
Public Service Company of Colorado's First Collateral Trust Bonds and Cumulative
Preferred Stock and its Registration Statement (Form S-3, File No. 333-81791)
pertaining to the shelf registration of Public Service Company of Colorado's
Senior Debt Securities its Form 10-Q for the quarter ended September 30, 1999,
which includes our report dated November 9, 1999, 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
68
<PAGE>
EXHIBIT 15(c)
November 9, 1999
Southwestern Public Service Company:
We are aware that Southwestern Public Service Company has incorporated by
reference in its Registration Statement (Form S-3, File No. 333-05199)
pertaining to Southwestern Public Service Company's Preferred Stock and Debt
Securities; its Registration Statement (Form S-8, File No. 33-27452) pertaining
to Southwestern Public Service Company's 1989 Stock Incentive Plan and its
Registration Statement (Form S-8, File No. 33-57869) pertaining to Southwestern
Public Service Company's Employee Investment Plan and Non-Qualified Salary
Deferral Plan its Form 10-Q for the quarter ended September 30, 1999, which
includes our report dated November 9, 1999, covering the unaudited 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
69
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW CENTURY
ENERGIES, INC. CONSOLIDATED CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND CASH FLOWS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001004858
<NAME> New Century Energies, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 6,149,213
<OTHER-PROPERTY-AND-INVEST> 443,475
<TOTAL-CURRENT-ASSETS> 887,391
<TOTAL-DEFERRED-CHARGES> 620,152
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 8,100,231
<COMMON> 115,534
<CAPITAL-SURPLUS-PAID-IN> 1,790,328
<RETAINED-EARNINGS> 788,613
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,699,232
294,000
0
<LONG-TERM-DEBT-NET> 2,237,388
<SHORT-TERM-NOTES> 19,400
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 501,691
<LONG-TERM-DEBT-CURRENT-PORT> 332,145
0
<CAPITAL-LEASE-OBLIGATIONS> 34,681
<LEASES-CURRENT> 1,495
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,980,199
<TOT-CAPITALIZATION-AND-LIAB> 8,100,231
<GROSS-OPERATING-REVENUE> 2,528,416
<INCOME-TAX-EXPENSE> 98,339
<OTHER-OPERATING-EXPENSES> 2,029,625
<TOTAL-OPERATING-EXPENSES> 2,029,625
<OPERATING-INCOME-LOSS> 498,791
<OTHER-INCOME-NET> 9,900
<INCOME-BEFORE-INTEREST-EXPEN> 508,691
<TOTAL-INTEREST-EXPENSE> 161,890
<NET-INCOME> 248,462
0
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 200,526
<TOTAL-INTEREST-ON-BONDS> 131,284
<CASH-FLOW-OPERATIONS> 374,944
<EPS-BASIC> 2.16
<EPS-DILUTED> 2.16
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PUBLIC
SERVICE COMPANY OF COLORADO AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE
SHEET AS OF SEPTEMBER 30, 1999 AND CONSOLIDATED CONDENSED STATEMENTS OF INCOME
AND CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000081018
<NAME> Public Service Company of Colorado
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,275,040
<OTHER-PROPERTY-AND-INVEST> 204,095
<TOTAL-CURRENT-ASSETS> 503,860
<TOTAL-DEFERRED-CHARGES> 346,251
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 5,329,246
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 1,302,119
<RETAINED-EARNINGS> 338,519
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,640,638
194,000
0
<LONG-TERM-DEBT-NET> 1,584,327
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 396,300
<LONG-TERM-DEBT-CURRENT-PORT> 240,451
0
<CAPITAL-LEASE-OBLIGATIONS> 34,681
<LEASES-CURRENT> 1,405
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,237,444
<TOT-CAPITALIZATION-AND-LIAB> 5,329,246
<GROSS-OPERATING-REVENUE> 1,639,235
<INCOME-TAX-EXPENSE> 67,154
<OTHER-OPERATING-EXPENSES> 1,304,935
<TOTAL-OPERATING-EXPENSES> 1,372,089
<OPERATING-INCOME-LOSS> 267,146
<OTHER-INCOME-NET> (621)
<INCOME-BEFORE-INTEREST-EXPEN> 266,525
<TOTAL-INTEREST-EXPENSE> 116,017
<NET-INCOME> 150,508
0
<EARNINGS-AVAILABLE-FOR-COMM> 150,508
<COMMON-STOCK-DIVIDENDS> 137,202
<TOTAL-INTEREST-ON-BONDS> 92,221
<CASH-FLOW-OPERATIONS> 315,654
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOUTHWESTERN
PUBLIC SERVICE COMPANY CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND
CONDENSED STATEMENTS OF INCOME AND CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000092521
<NAME> Southwestern Public Service Company
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,762,548
<OTHER-PROPERTY-AND-INVEST> 124,753
<TOTAL-CURRENT-ASSETS> 188,972
<TOTAL-DEFERRED-CHARGES> 174,705
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,250,978
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 348,402
<RETAINED-EARNINGS> 415,299
<TOTAL-COMMON-STOCKHOLDERS-EQ> 763,701
100,000
0
<LONG-TERM-DEBT-NET> 605,840
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 103,391
<LONG-TERM-DEBT-CURRENT-PORT> 90,113
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 587,933
<TOT-CAPITALIZATION-AND-LIAB> 2,250,978
<GROSS-OPERATING-REVENUE> 717,253
<INCOME-TAX-EXPENSE> 52,868
<OTHER-OPERATING-EXPENSES> 536,631
<TOTAL-OPERATING-EXPENSES> 589,499
<OPERATING-INCOME-LOSS> 127,754
<OTHER-INCOME-NET> 6,809
<INCOME-BEFORE-INTEREST-EXPEN> 134,563
<TOTAL-INTEREST-EXPENSE> 45,803
<NET-INCOME> 88,760
0
<EARNINGS-AVAILABLE-FOR-COMM> 88,760
<COMMON-STOCK-DIVIDENDS> 63,280
<TOTAL-INTEREST-ON-BONDS> 37,889
<CASH-FLOW-OPERATIONS> 78,084
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
