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 March 31, 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
Commission and Registrant's Telephone Number, IRS Employer
File Number including area code 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 May 11, 1999, 114,950,360 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 $4,353,744,885.
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 ............................ 33
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 45
Item 6. Exhibits and Reports on Form 8-K............................... 45
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 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
ECA.......................................................Energy Cost Adjustment
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....................the business combination between PSCo and SPS
Natural Fuels..........................................Natural Fuels Corporation
NCE or Company........................................New Century Energies, Inc.
NC Enterprises..............................................NC Enterprises, Inc.
NCI..............................................New Century International, Inc.
NMPRC..........................New Mexico Public Regulation Commission formerly,
the New Mexico Public Utility Commission
NOx...............................................................Nitrogen Oxide
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.
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
March 31, December 31,
1999 1998
---- ----
Property, plant and equipment, at cost:
Electric ........................................... $7,116,116 $7,097,070
Gas ................................................ 1,220,178 1,210,605
Steam and other .................................... 115,606 111,620
Common to all departments .......................... 418,695 423,287
Construction in progress ........................... 468,825 391,100
---------- ----------
9,339,420 9,233,682
Less: accumulated depreciation ..................... 3,410,190 3,351,659
---------- ----------
Total property, plant and equipment .............. 5,929,230 5,882,023
---------- ----------
Investments, at cost:
Investment in Yorkshire Power and other unconsolidated
subsidiaries (Note 3) .............................. 347,911 340,874
Other .............................................. 71,152 64,562
---------- ----------
Total investments ................................. 419,063 405,436
---------- ----------
Current assets:
Cash and temporary cash investments ................ 84,817 56,667
Accounts receivable, less reserve for uncollectible
accounts ($4,105 at March 31, 1999; $4,842 at
December 31, 1998) ............................... 323,767 319,145
Accrued unbilled revenues .......................... 113,400 130,455
Recoverable purchased gas and electric energy
costs - net ...................................... 19,034 66,154
Materials and supplies, at average cost ............ 70,552 69,298
Fuel inventory, at average cost .................... 27,934 24,653
Gas in underground storage, at cost (LIFO) ......... 30,935 52,624
Prepaid expenses and other ......................... 86,788 83,561
---------- ----------
Total current assets .............................. 757,227 802,557
---------- ----------
Deferred charges:
Regulatory assets (Note 1) ......................... 375,476 381,632
Unamortized debt expense ........................... 28,353 27,408
Other .............................................. 185,043 172,908
---------- ----------
Total deferred charges ............................ 588,872 581,948
---------- ----------
$7,694,392 $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
March 31, December 31,
1999 1998
---- ----
Common stock ....................................... $ 1,884,687 $ 1,866,386
Retained earnings .................................. 775,016 740,677
Accumulated other comprehensive income ............. (2,856) 7,764
----------- -----------
Total common equity ............................ 2,656,847 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 .................... 2,304,985 2,205,545
----------- -----------
5,255,832 5,114,372
Noncurrent liabilities:
Employees' postretirement benefits other
than pensions................................. 58,449 61,732
Employees' postemployment benefits .............. 31,109 31,326
----------- -----------
Total noncurrent liabilities .................. 89,558 93,058
----------- -----------
Current liabilities:
Notes payable and commercial paper ............. 408,900 524,394
Long-term debt due within one year ............. 124,477 138,165
Accounts payable ............................... 255,555 285,080
Dividends payable .............................. 69,523 69,271
Recovered electric energy costs - net .......... 26,284 18,760
Customers' deposits ............................ 31,221 30,793
Accrued taxes .................................. 133,954 85,384
Accrued interest ............................... 41,854 50,229
Other .......................................... 115,294 122,747
----------- -----------
Total current liabilities ..................... 1,207,062 1,324,823
----------- -----------
Deferred credits:
Customers' advances for construction ........... 56,612 55,400
Unamortized investment tax credits ............. 99,650 100,925
Accumulated deferred income taxes .............. 954,295 947,247
Other .......................................... 31,383 36,139
----------- -----------
Total deferred credits ........................ 1,141,940 1,139,711
----------- -----------
Commitments and contingencies (Notes 4 and 5)
$ 7,694,392 $ 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
March 31,
1999 1998
---- ----
Operating revenues:
Electric........................................... $628,706 $599,988
Gas................................................ 347,688 319,707
Other.............................................. 15,029 19,809
------- ------
991,423 939,504
Operating expenses:
Fuel used in generation............................ 133,849 140,919
Purchased power.................................... 161,420 148,864
Cost of gas sold................................... 261,631 224,912
Other operating and maintenance expenses-regulated. 129,426 129,605
Other operating and maintenance expenses-nonregulated 20,683 18,076
Depreciation and amortization...................... 69,502 62,418
Taxes (other than income taxes) ................... 37,620 32,873
------- ------
814,131 757,667
------- -------
Operating income...................................... 177,292 181,837
Other income and deductions:
Equity in earnings of Yorkshire Power and other
unconsolidated subsidiaries (Note 3) ............. 15,811 3,752
Miscellaneous income and deductions - net.......... (3,542) (2,968)
------- ------
12,269 784
Interest charges and preferred dividends of subsidiaries:
Interest on long-term debt......................... 41,410 40,473
Other interest..................................... 6,889 8,494
Allowance for borrowed funds used during construction (2,916) (4,506)
Dividends on PSCo and SPS obligated mandatorily
redeemable preferred securities of subsidiary
trusts holding solely subordinated debentures of
PSCo and SPS ...................................... 5,763 1,963
Dividend requirements on preferred stock of
subsidiaries - 2,929
---- -----
51,146 49,353
------ ------
Income before income taxes............................ 138,415 133,268
Income taxes.......................................... 37,115 47,119
------- ------
Net income............................................ $101,300 $ 86,149
======== ========
Weighted average common shares outstanding:
Basic.............................................. 114,681 110,973
Diluted............................................ 114,743 111,134
Basic and diluted earnings per share of common stock
outstanding ........................................ $ 0.88 $ 0.78
====== ======
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 SHAREHOLDERS' EQUITY
(Unaudited)
(Thousands of Dollars, Except Share Information)
Three Months Ended March 31, 1999 and 1998
<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:
Net income.......... - - - 86,149 - 86,149
Foreign currency translation
adjustment......... - - - - 5,260 5,260
-------
Comprehensive income (Note 1) 91,409
Dividends declared on common stock - - - (64,533) - (64,533)
Issuance of common stock:
Employees' Savings Plan 217,690 218 10,150 - - 10,368
Dividend Reinvestment Plan 211,723 212 9,485 - - 9,697
Incentive Compensation Plans 60,816 61 1,831 - - 1,892
------ ------ ------- ------- ------- -------
Balance at March 31, 1998 111,239,530 $ 111,240 $1,604,912 $ 680,666 $9,402 $2,406,220
=========== ========== ========== ========= ====== ==========
Balance at December 31, 1998 114,490,772 $ 114,491 $1,751,895 $ 740,677 $7,764 $2,614,827
Comprehensive income:
Net income.......... - - - 101,300 - 101,300
Foreign currency translation
adjustment......... - - - - (10,620) (10,620)
-------
Comprehensive income (Note 1) 90,680
Dividends declared on common stock - - - (66,662) - (66,662)
Issuance of common stock:
Employees' Savings Plan 200,880 201 8,266 - - 8,467
Dividend Reinvestment Plan 195,440 195 8,050 - - 8,245
Incentive Compensation Plans 37,890 38 1,551 - - 1,589
Other .............. - - - (299) - (299)
------- ------ ------- ------- ------ -------
Balance at March 31, 1999 114,924,982 $ 114,925 $1,769,762 $ 775,016 $(2,856) $2,656,847
=========== ========== ========== ========= ======= ==========
</TABLE>
Authorized shares of common stock were 260 million at March 31, 1999 and 1998.
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)
Three Months Ended
March 31,
1999 1998
---- ----
Operating activities:
Net income......................................... $101,300 $86,149
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................... 73,027 64,887
Amortization of investment tax credits........... (1,275) (1,279)
Deferred income taxes............................ (3,428) (6,433)
Equity in earnings of Yorkshire Power and other
unconsolidated subsidiaries, net .............. (15,811) (3,756)
Allowance for funds used during construction..... (173) 3
Change in accounts receivable.................... (4,622) 15,373
Change in inventories............................ 17,154 36,913
Change in other current assets................... 70,338 34,040
Change in accounts payable....................... (29,525) (70,216)
Change in other current liabilities.............. 46,037 45,221
Change in deferred amounts....................... (17,440) 5,192
Change in noncurrent liabilities................. (3,500) 1,738
------- -------
Net cash provided by operating activities...... 232,082 207,832
Investing activities:
Construction expenditures.......................... (116,753) (127,989)
Allowance for equity funds used during construction 173 (3)
Proceeds from disposition of property, plant and
equipment ....................................... 715 441
Purchase of other investments...................... (3,740) (214)
Sale of other investments.......................... 5,181 5,458
------- -------
Net cash used in investing activities.......... (114,424) (122,307)
Financing activities:
Proceeds from sale of common stock................. 8,789 13,038
Proceeds from sale of long-term debt............... 149,118 -
Redemption of long-term debt....................... (65,212) (51,854)
Short-term borrowings - net........................ (115,494) 20,418
Dividends on common stock.......................... (66,709) (63,745)
------- -------
Net cash used in financing activities.......... (89,508) (82,143)
------- -------
Net increase in cash and temporary cash
investments ................................ 28,150 3,382
Cash and temporary cash investments at beginning
of period .................................. 56,667 72,623
------ ------
Cash and temporary cash investments at end
of period ................................. $ 84,817 $76,005
========= =======
The accompanying notes to consolidated financial statements
are an integral part of these financial statements
5
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars)
ASSETS
March 31, December 31,
1999 1998
---- ----
Property, plant and equipment, at cost:
Electric .......................................... $4,382,476 $4,369,134
Gas................................................ 1,180,826 1,171,198
Steam and other.................................... 71,973 71,986
Common to all departments.......................... 413,892 418,484
Construction in progress........................... 322,273 264,752
------- -------
6,371,440 6,295,554
Less: accumulated depreciation .................... 2,285,493 2,241,165
--------- ---------
Total property, plant and equipment.............. 4,085,947 4,054,389
--------- ---------
Investments, at cost:
Note receivable from affiliate (Note 3)............ 192,620 192,620
Other.............................................. 18,123 22,664
------- ------
Total investments................................. 210,743 215,284
------- -------
Current assets:
Cash and temporary cash investments................ 30,039 19,926
Accounts receivable, less reserve for uncollectible
accounts ($1,999 at March 31, 1999; $2,254 at
December 31, 1998) .............................. 159,007 172,587
Accrued unbilled revenues ......................... 87,146 119,856
Recoverable purchased gas and electric energy
costs - net ..................................... 17,692 62,761
Materials and supplies, at average cost............ 48,559 47,881
Fuel inventory, at average cost.................... 25,640 22,361
Gas in underground storage, at cost (LIFO)......... 30,526 51,779
Prepaid expenses and other......................... 40,204 46,523
------- ------
Total current assets.............................. 438,813 543,674
------- -------
Deferred charges:
Regulatory assets (Note 1)......................... 261,547 269,112
Unamortized debt expense .......................... 18,289 17,874
Other.............................................. 85,274 77,303
------- ------
Total deferred charges............................ 365,110 364,289
------- -------
$5,100,613 $5,177,636
========== ==========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
6
<PAGE>
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars)
CAPITAL AND LIABILITIES
March 31, December 31,
1999 1998
---- ----
Common stock.......................................... $1,302,119 $1,302,119
Retained earnings..................................... 344,650 325,213
------- -------
Total common equity............................... 1,646,769 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........................................ 1,637,925 1,643,130
--------- ---------
3,478,694 3,464,462
--------- ---------
Noncurrent liabilities:
Employees' postretirement benefits other than
pensions ....................................... 51,677 55,537
Employees' postemployment benefits................. 27,195 27,195
------- -------
Total noncurrent liabilities...................... 78,872 82,732
------- -------
Current liabilities:
Notes payable and commercial paper................. 339,400 402,795
Long-term debt due within one year................. 33,520 44,481
Accounts payable................................... 181,575 226,712
Dividends payable.................................. 46,502 46,461
Customers' deposits................................ 24,209 23,902
Accrued taxes...................................... 105,277 57,848
Accrued interest................................... 31,140 36,729
Current portion of accumulated deferred income taxes 2,022 8,142
Other.............................................. 63,693 68,729
------- -------
Total current liabilities......................... 827,338 915,799
------- -------
Deferred credits:
Customers' advances for construction............... 55,493 54,260
Unamortized investment tax credits ................ 93,265 94,459
Accumulated deferred income taxes.................. 543,094 538,581
Other.............................................. 23,857 27,343
------- -------
Total deferred credits............................ 715,709 714,643
------- -------
Commitments and contingencies (Notes 4 and 5)......... ------- --------
$5,100,613 $5,177,636
========== ==========
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 STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars)
Three Months Ended
March 31,
1999 1998
---- ----
Operating revenues:
Electric........................................... $401,871 $375,446
Gas................................................ 254,171 265,483
Other.............................................. 3,377 3,713
------- -------
659,419 644,642
Operating expenses:
Fuel used in generation............................ 51,865 50,629
Purchased power.................................... 134,775 124,057
Gas purchased for resale........................... 172,842 176,482
Other operating and maintenance expenses........... 94,511 93,945
Depreciation and amortization...................... 48,540 42,896
Taxes (other than income taxes) ................... 23,487 19,969
Income taxes ..................................... 29,214 36,818
------- -------
555,234 544,796
------- -------
Operating income...................................... 104,185 99,846
Other income and deductions:
Equity earnings in Yorkshire Power (Note 3)........ - 3,446
Miscellaneous income and deductions - net.......... (1,566) (2,885)
------- -------
(1,566) 561
Interest charges:
Interest on long-term debt......................... 29,883 28,578
Other interest..................................... 5,220 5,653
Allowance for borrowed funds used during construction (2,223 (2,721)
Dividends on PSCo obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely subordinated debentures of PSCo (Note 7) 3,800 -
----- ----
36,680 31,510
------ ------
Net income............................................ 65,939 68,897
Dividend requirements on preferred stock.............. - 2,929
------- -------
Earnings available for common stock................... $65,939 $65,968
======= =======
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 STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of Dollars)
Three Months Ended
March 31,
1999 1998
---- ----
Operating activities:
Net income......................................... $65,939 $68,897
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................... 50,507 44,124
Amortization of investment tax credits........... (1,194) (1,197)
Deferred income taxes............................ 251 (801)
Equity in earnings of Yorkshire Power............ - (3,446)
Change in accounts receivable.................... 13,580 10,165
Change in inventories............................ 17,296 36,546
Change in other current assets................... 84,098 32,739
Change in accounts payable....................... (45,137) (46,326)
Change in other current liabilities.............. 37,111 39,889
Change in deferred amounts....................... (9,683) (2,194)
Change in noncurrent liabilities................. (3,860) (732)
------- -------
Net cash provided by operating activities...... 208,908 177,664
Investing activities:
Construction expenditures.......................... (86,857) (107,298)
Proceeds from disposition of property, plant and
equipment 10,532 1,393
Purchase of other investments...................... (321) (152)
Sale of other investments.......................... 4,861 5,026
------- -------
Net cash used in investing activities.......... (71,785) (101,031)
Financing activities:
Proceeds from the sale of long-term debt........... 47,909 -
Redemption of long-term debt....................... (65,063) (51,800)
Short-term borrowings - net........................ (63,395) 16,899
Dividends on common stock.......................... (46,461) (38,047)
Dividends on preferred stock....................... - (2,929)
------- -------
Net cash used in financing activities.......... (127,010) (75,877)
-------- -------
Net increase in cash and temporary cash
investments ................................. 10,113 756
Cash and temporary cash investments at beginning
of period ................................... 19,926 18,909
------ ------
Cash and temporary cash investments at end
of period ................................... $ 30,039 $ 19,665
========= ========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
9
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars)
ASSETS
March 31, December 31,
1999 1998
---- ----
Property, plant and equipment, at cost:
Electric........................................... $2,670,586 $2,665,115
Construction in progress........................... 140,381 121,407
------- -------
2,810,967 2,786,522
Less: accumulated depreciation..................... 1,072,367 1,057,183
--------- ----------
Total property, plant and equipment............... 1,738,600 1,057,183
--------- ---------
Investments, at cost:
Notes receivable from affiliate.................... 119,036 119,036
Other.............................................. 5,645 5,591
------- -------
Total investments................................. 124,681 124,627
------- -------
Current assets:
Cash and temporary cash investments................ 17,064 1,350
Accounts receivable, less reserve for uncollectible
accounts ($1,382 at March 31, 1999; $1,695 at
December 31, 1998)................................ 67,176 76,190
Accrued unbilled revenues.......................... 25,528 9,373
Materials and supplies, at average cost............ 17,247 16,970
Fuel inventory, at average cost.................... 2,294 2,293
Current portion of accumulated deferred income taxes 9,390 6,113
Prepaid expenses and other......................... 3,165 5,248
------- -------
Total current assets.............................. 141,864 117,537
------- -------
Deferred charges:
Regulatory assets (Note 1)......................... 113,420 111,971
Unamortized debt expense........................... 9,282 8,767
Other.............................................. 41,364 37,623
------- -------
Total deferred charges............................ 164,066 158,361
------- -------
$2,169,211 $2,129,864
========== ==========
The accompanying notes to condensed financial statements are
an integral part of these financial statements.
10
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars)
CAPITAL AND LIABILITIES
March 31, December 31,
1999 1998
---- ----
Common stock.......................................... $348,402 $348,402
Retained earnings..................................... 393,184 389,818
------- -------
Total common equity............................... 741,586 738,220
SPS obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
subordinated debentures of SPS (Note 7) ............ 100,000 100,000
Long-term debt........................................ 630,498 530,618
------- -------
1,472,084 1,368,838
--------- ---------
Noncurrent liabilities:
Employees' postretirement benefits other than
pensions ........................................ 6,534 5,941
Employees' postemployment benefits................. 3,354 3,571
------- -------
Total noncurrent liabilities...................... 9,888 9,512
------- -------
Current liabilities:
Notes payable and commercial paper................. - 85,162
Note payable to affiliate.......................... 9,000 9,000
Long-term debt due within one year................. 90,113 90,113
Accounts payable................................... 73,354 64,275
Dividends payable.................................. 20,025 20,007
Recovered electric energy costs - net.............. 26,284 18,760
Customers' deposits................................ 6,055 5,904
Accrued taxes...................................... 43,001 37,646
Accrued interest................................... 8,969 12,273
Other.............................................. 19,480 18,011
------- -------
Total current liabilities......................... 296,281 361,151
------- -------
Deferred credits:
Unamortized investment tax credits................. 5,156 5,219
Accumulated deferred income taxes.................. 381,393 380,655
Other.............................................. 4,409 4,489
------- -------
Total deferred credits............................ 390,958 390,363
------- -------
Commitments and contingencies (Notes 4 and 5)......... ---------- ----------
$2,169,211 $2,129,864
========== ==========
The accompanying notes to condensed financial statements are
an integral part of these financial statements.
11
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars)
Three Months Ended
March 31,
1999 1998
---- ----
Operating revenues.................................... $202,552 $199,732
Operating expenses:
Fuel used in generation............................ 82,053 90,290
Purchased power.................................... 5,105 2,641
Other operating & maintenance expenses............. 33,804 34,396
Depreciation and amortization...................... 18,472 17,776
Taxes (other than income taxes).................... 13,384 12,065
Income taxes....................................... 14,365 11,225
------- -------
167,183 168,393
------- -------
Operating income...................................... 35,369 31,339
Other income and deductions - net..................... 2,080 1,075
Interest charges:
Interest on long-term debt......................... 11,195 11,504
Other interest..................................... 1,589 2,579
Allowance for borrowed funds used during construction (689) (1,771)
Dividends on SPS obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely subordinated debentures of SPS ........... 1,963 1,963
----- -----
14,058 14,275
------ ------
Net income............................................ $23,391 $18,139
======= =======
The accompanying notes to condensed financial statements are
an integral part of these financial statements.
12
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of Dollars)
Three Months Ended
March 31,
1999 1998
---- ----
Operating activities:
Net income......................................... $23,391 $18,139
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................... 19,611 18,859
Amortization of investment tax credits........... (63) (63)
Deferred income taxes............................ (3,460) (4,969)
Allowance for funds used during construction..... (173) 3
Change in accounts receivable.................... 9,014 16,008
Change in inventories............................ (278) (305)
Change in other current assets................... (14,072) 6,008
Change in accounts payable....................... 9,079 (9,140)
Change in other current liabilities.............. 11,195 (1,359)
Change in deferred amounts....................... (4,853) 10,438
Change in noncurrent liabilities................. 376 (279)
------- -------
Net cash provided by operating activities...... 49,767 53,340
Investing activities:
Construction expenditures.......................... (27,170) (18,601)
Allowance for equity funds used during construction 173 (3)
Cost of disposition of property, plant and equipment (1,029) (1,013)
Purchase of other investments...................... (54) (62)
------- -------
Net cash used in investing activities.......... (28,080) (19,679)
Financing activities:
Proceeds from sale of long-term debt............... 99,196 -
Short-term borrowings - net........................ (85,162) (2,982)
Dividends on common stock.......................... (20,007) (22,546)
------- -------
Net cash used in financing activities.......... (5,973) (25,528)
------- -------
Net increase in cash and temporary cash
investments ................................. 15,714 8,133
Cash and temporary cash investments at
beginning of period ......................... 1,350 986
------- ------
Cash and temporary cash investments at end
of period $ 17,064 $ 9,119
========= =======
The accompanying notes to condensed financial statements
are an integral part of these financial statements
13
<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 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.
Approximately 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. The Company
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 have a material adverse effect on NCE's,
PSCo's and 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):
March 31, 1999 NCE PSCo SPS
------ ------ ------
Income taxes........................ $147,554 $68,011 $80,037
Nuclear decommissioning costs....... 67,215 67,215 -
Employees' postretirement benefits
other than pensions............... 56,343 53,488 2,855
Employees' postemployment benefits
(Note 4) ......................... 24,768 24,320 -
Demand-side management costs........ 35,622 30,742 4,880
Unamortized debt reacquisition costs 32,718 15,739 16,424
Other............................... 11,256 2,032 9,224
------ ------ ------
Total............................. $375,476 $261,547 $113,420
======== ======== ========
14
<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
(Note 4) ......................... 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 March 31, 1999 and December 31, 1998 are
reflected in rates charged to customers over periods ranging from two to thirty
years. The recovery of regulatory assets over the next five years is estimated
to exceed $200 million. Refer to the discussion below or the Notes to
Consolidated Financial Statements included herein and in the NCE, PSCo and SPS
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 benefit costs 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 the postemployment benefits cost 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).
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, non-regulated energy services, including gas and power
marketing, 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 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.
15
<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
income from its unconsolidated investments accounted for under the equity method
of accounting. All intercompany items and transactions have been eliminated.
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. Other
comprehensive income for NCE was reported in the consolidated Statements of
Shareholders' Equity for the three months ending March 31, 1999 and March 31,
1998 and consists of foreign currency translation adjustments related to the
investment in Yorkshire Power.
For the three months ending March 31, 1999, PSCo and SPS had no other
comprehensive income items, therefore, comprehensive income equals net income.
For the three months ended March 31, 1998, SPS had no other comprehensive income
items, therefore, comprehensive income equals net income. During that same
period, PSCo had other comprehensive loss of $4.1 million, which consisted of
foreign currency translation adjustments related to the investment in Yorkshire
Power. 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 other comprehensive income of $5.3 million at March 31,
1998. As a result of this sale, PSCo had no Accumulated Other Comprehensive
Income at March 31, 1998.
Basic and Diluted Earnings Per Share
Basic earnings per share is based upon the weighted average common shares
outstanding during the year. 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 each year. Employee stock options are the Company's only
common stock equivalents. There are no other potentially dilutive securities.
During the first quarter of 1999 and 1998, the Company had 62,000 shares
and 161,000 shares, respectively, of potentially dilutive securities. These
shares had no impact on the Company's reported earnings per share information.
Approximately 1,098,000 common shares are issuable under stock option
grants as of March 31, 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 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 March 31, 1998, PSCo sold its common stock investment in NCI to
NC Enterprises, an NCE subsidiary. PSCo received as consideration a 20-year
promissory note from NC Enterprises in the amount of
16
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
approximately $292.6 million (see Note 3. Investment in Yorkshire Power) of
which $192.6 million remains outstanding at March 31, 1999.
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 Northern States Power Company, a Minnesota
corporation ("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 (the "NCE/NSP Merger")
and a holding company for the combined assets and operations. Just before or at
the time the NCE/NSP Merger is complete, NSP will contribute all of its 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 NSP common stock, par value $2.50 per share ("NSP Common Stock"). Cash
will be paid in lieu of any fractional shares of NSP Common Stock which holders
of NCE Common Stock would otherwise receive. Based on outstanding common stock
of NCE and NSP at March 31, 1999, the NCE/NSP Merger would result in the common
shareholders of NCE owning 54% of the common equity of the combined company and
the common shareholders of NSP owning 46% of the common equity of the combined
company. 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.
It is anticipated that the combined company 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 the combined
company.
Based on reported 1998 results, the combined company would have revenues
approximately of $6.7 billion (including earnings from equity investments of
$116 million), earnings of approximately $619 million and assets totaling
approximately $15.1 billion. 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 will be deferred and amortized
to expense in periods subsequent to the consummation of the merger consistent
with the anticipated recovery in rates.
Consummation of the NCE/NSP Merger is subject to certain closing
conditions, including, among others, approval by the shareholders of NCE and
NSP, approval or 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. NCE and NSP have each
17
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
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 from 12 to 18 months to complete.
NCE expects to hold a special shareholders' meeting during late June 1999
to vote on the NCE/NSP Merger. All shareholders will receive a detailed proxy
statement prior to the meeting, which will explain in detail the terms of the
NCE/NSP Merger, membership on the Board of Directors, employment arrangements
and other matters related to the NCE/NSP Merger.
3. Investment in Yorkshire Power (NCE and PSCo)
Merger Rate Filings
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, an 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.
Effective March 31, 1998, PSCo sold its common stock investment in NCI to
NC Enterprises, an 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 March 31, 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%. 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. In October 1998,
NCE contributed $100 million to NC Enterprises, which was used to reduce the
principle balance of the promissory note to PSCo.
Summarized income statement information for the three months ended March
31, 1999 and 1998, respectively is presented below (in millions):
1999 1998
(NCE and
(NCE) PSCo)
----- -----
Yorkshire Power:
Operating revenues....................... $ 652.0 $ 663.2
-------- --------
Operating income......................... 113.5 89.7
-------- --------
Net income............................... $ 34.6 $ 6.9
======== ========
NCI's equity in earnings of Yorkshire Power $ 17.3 $ 3.4
======== ========
NCI's equity in earnings of Yorkshire Power increased by approximately
$13.9 million for the three months ended March 31, 1999, when compared to the
same period in 1998, primarily due an increase in gas supply business margins.
In addition during 1998, Yorkshire Power recognized a penalty, which was
applicable to all United Kingdom regional electricity utilities, designed to
recognize the effects of the delay in implementation of full competition
(Yorkshire Power's portion was $8.3 million).
The unaudited pro forma financial information, for the three months ended
March 31, 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 three months ended March 31, 1998 (in millions):
18
<PAGE>
PSCo Earnings
1998
----
Net income............................................... $ 68.9
Pro forma adjustments:
NCI's net income....................................... (2.8)
Interest income from promissory note, net of tax....... 3.3
-----
Pro forma result......................................... $ 69.4
======
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. 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 has 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 a customer refund
obligation of $15.1 million for the 1997 earnings test and an estimated refund
obligation of $8 million for the 1998 earnings test. In July 1998, PSCo began
refunding the 1997 earnings test refund obligation to customers through bill
credits.
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.
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 for one-half of the measured
non-fuel operation and maintenance expense savings associated with the PSCo/SPS
19
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
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. As a result of amendments during 1998 to contracts
between the coal supplier to SPS and the railroad company it employs, coal
transportation costs are projected to decline significantly for the period from
November 1998 through December 2002. These savings will be passed on to
customers.
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
also requested the prospective sharing of margins from wholesale non-firm sales.
Intervening parties are contesting a portion of the recovery of fuel costs, to
which SPS is providing rebuttal testimony. SPS has entered into a settlement
agreement with the General Counsel at the PUCT, which if approved, would provide
for the recovery of these fuel costs. The final outcome of this fuel
reconciliation proceeding is pending.
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 to collect
portions of the Thunder Basin judgment from wholesale customers from the FERC
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.
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 settlement agreement with the General
Coounsel's office at the PUCT, the General Counsel has agreed with SPS's
proposed recovery of the Thunder Basin costs.
20
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
The PUCT authorized SPS to reduce its fixed fuel factor for SPS's Texas
retail jurisdiction, effective in April 1999, 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 $16.5
million fuel refund, including interest, will be 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. Previously, New Mexico's retail
jurisdictional electric rates applied a monthly fuel factor. In January 1999,
SPS implemented new annual fixed fuel cost recovery factors to reflect lower
fuel costs primarily as a result of the aforementioned 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 rate reduction 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 of 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 connection with these settlements during 1998, subsequent to the first
quarter of 1998, SPS recorded $16.9 million of additional revenues and $7.6
million of additional depreciation expense.
Deregulation Legislation
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. 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
21
<PAGE>
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.
Several electric restructuring measures have been introduced during the
current Texas legislative session. Substantial negotiation has been required to
develop a bill which meets the diverse needs of the state. An electric
restructuring bill has not yet been passed by both the Senate and the House
during this legislative session, which is scheduled to continue through early
June 1999. The changes resulting from this legislative session, if any, can
not be determined at this time.
Gas Utility Matters
PSCo Rate Cases
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 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 1999.
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% return on equity and the recovery of incremental year 2000 costs (see Note
5. Commitments and Contingencies - Year 2000 Costs). Hearings were held during
April 1999. Intervening parties proposed an annual reduction in rates, which
PSCo is contesting. New rates, if approved, would become effective July 1, 1999.
PSCo Unbundling and Deregulation of the Retail Natural Gas Supply Business
On April 26, 1999, the Colorado legislature approved a bill, which will
allow natural gas public utilities to voluntarily submit plans to the CPUC to
open their markets and enable customers to choose their natural gas supplier.
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 would continue to
be regulated, with delivery companies required to offer nondiscriminatory
pipeline access to competitors. The bill must be approved by the governor by
June 4, 1999, in order for it to be enacted. PSCo is currently evaluating this
legislation.
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
22
<PAGE>
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 U.S. 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
$9.7 million ($7.7 million attributable to the Barter judgment). In July 1997,
the Colorado Court of Appeals overturned the previously awarded $7.7 million
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 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, although the matter is still pending. In
addition, in August 1996, PSCo filed a lawsuit against four PRPs seeking
recovery of certain Barter related costs. Settlement has been achieved with two
smaller PRPs. In December 1997, the U. S. District Court awarded summary
judgment in favor of the remaining PRPs, on the basis that PSCo failed to follow
CERCLA guidelines in the cleanup. In January 1998, PSCo appealed the summary
judgment to the U.S. Court of Appeals, which is still pending. In March 1998,
PSCo sold the remaining Barter properties, and the total proceeds were $1.1
million.
PCB presence was identified in the basement of an historic office building
located in downtown Denver. The Company was negotiating the future cleanup with
the current owners; however, in October 1993, the owners filed a civil action
against PSCo in the Denver District Court. The action alleged that PSCo was
responsible for the PCB releases and additionally claimed other damages in
unspecified amounts. In August 1994, the Denver District Court entered a
judgment approving a $5.3 million offer of settlement between PSCo and the
building owners resolving all claims. In December 1995, PSCo filed complaints
against all applicable insurance carriers in the Denver District Court. In June
1997, the Court ruled in favor of the carriers on summary judgment motions
addressing late notice and other issues. In August 1997, PSCo filed an appeal of
the decision with the Colorado Court of Appeals. In March 1999, the Court
affirmed the trial court's decision. A petition for rehearing was denied. PSCo
may file a petition for certiorari to the Colorado Supreme Court. One carrier
was excluded from the summary judgment; subsequently, that carrier received
approval to be dismissed on the same basis as the other carriers. In March 1998,
PSCo reached a settlement with another carrier who was not part of the Denver
District Court action. In December 1998, the CPUC approved recovery of the
electric jurisdictional net costs totaling approximately $3.1 million through
PSCo's electric department earnings test over a five-year amortization period.
In addition to these sites, 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
23
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
to meet the Phase II emission standards placed on SO2 through the combination
of: a) the use of low sulfur coal, b) the operation of air quality control
equipment on certain generation facilities, and c) allowances issued by the EPA
and purchased from other companies. In addition, PSCo will be required to modify
certain boilers by the year 2000 toreduce the NOx emissions in order to comply
with Phase II requirements. The estimated Phase II costs for these future plant
modifications to meet NOx requirements total approximately $2.5 million and
pertain to PSCo's Cherokee Unit 1 and 2 and Arapahoe Unit 3.
PSCo has announced its intention 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, but will
only do so if the following three conditions are met: 1) the Colorado General
Assembly and the CPUC approve recovery of these costs, 2) PSCo obtains
flexibility in operating the plants, and 3) PSCo is assured the emission
reduction plan is sufficient to meet future state requirements for 15 years.
Legislation was passed and signed into law during the second quarter of 1998.
During the third quarter of 1998, PSCo and the CDPHE entered into a voluntary
emissions reduction agreement under the legislation. In November 1998, PSCo
filed for recovery of these costs with the CPUC. The voluntary emissions
reduction agreement will be effective only if the CPUC approves a cost recovery
mechanism acceptable to PSCo. The CPUC has set this matter for hearing on May
17, 1999.
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 this emission control equipment is 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. The
joint owners began the tie-in of the Unit 2 control equipment in March 1999.
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 U. S. District Court set a pretrial conference
for June 1999 and ordered the parties to participate in a settlement conference.
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.
24
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
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 DOE entered into an agreement to
resolving all the defueling issues, as discussed in the Notes to Consolidated
Financial Statements in the NCE and PSCo 1998 Annual Report on Form 10-K. The
NRC is reviewing a final request to transfer the title of the ISFSI to the NRC
and PSCo anticipates approval in mid-1999.
Leyden Gas Storage Facility
During August 1998, a Jefferson County, Colorado District Court jury found
PSCo liable for approximately $1.8 million for the reduction in land value and
related damages resulting from the allegations that natural gas had migrated
from the Leyden Gas Storage facility. PSCo appealed the judgment and recorded a
liability for estimated costs related to this issue. The affected land is
located north of, but not immediately adjacent to, the storage facility.
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 the 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.
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. As of March 31,
1999, approximately 98% of the remediation and testing phases for all critical
IT systems has been completed. The remaining work is planned to be completed by
June 30, 1999. For non-IT systems, which exist primarily in the generation,
transmission and distribution areas of the business, the inventory and
assessment phases have been
25
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
completed. Remediation and testing for non-IT systems are approximately 76%
completed as of March 31, 1999. The remainder is expected to be completed by the
end of the third quarter of 1999. Systems critical to the generation and
delivery of energy are expected to be completed by the end of the second quarter
of 1999.
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 total costs of approximately $25
million of 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. Furthermore, the Company
expects to spend approximately $15 million in operating and capital expenditures
for the accelerated replacement of certain non-compliant IT systems. The
majority of these costs will be incurred by PSCo and SPS. A significant portion
of the costs incurred to address the Company's Y2K issues will represent the
redeployment of existing information technology resources. The table below
details the actual costs incurred during 1998 and prior periods; the actual
costs incurred during the first quarter of 1999; and the total estimated costs
to be incurred. A significant portion of the remaining costs to be incurred
consists of replacement systems and contingency planning costs, a portion of
which may not ultimately be incurred.
<TABLE>
<CAPTION>
Actual Actual Remaining Estimated
Costs Costs Estimated Total
1998 First Costs to Project
and Prior Quarter 1999 be Incurred Costs
--------- ------------ ----------- -----
(in millions)
<S> <C> <C> <C> <C>
Operating expenses ..... $8.0 $1.1 $8.7 $17.8
Capital for automated
system components ... 0.7 0.3 6.1 7.1
IT replacement projects:
Operating............ 0.2 0.5 0.3 1.0
Capital.............. 6.4 2.8 4.7 13.9
----- --- --- ------
Total.............. $15.3 $ 4.7 $ 19.8 $ 39.8
===== ===== ====== ======
</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 the loss of a portion of the communication system
that is critical to generation and distribution control. The overall blackout
recovery plan for NCE is designed so that this most reasonably likely worst case
scenario would be addressed and electricity restored. NCE is able to isolate its
systems and facilities from the national power grid in the case of a severe grid
disruption. Isolation from the national grid is considered a last resort
strategy in the Company's emergency response procedures that would be employed
for severe system disruptions, regardless of Y2K issues. The Company intends to
remain interconnected to the national grid at the millennium changeover. Being
interconnected provides the additional security of having redundant sources of
electric power supply. 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.
If correction or replacement of non-compliant systems is not completed on
a timely basis, the Y2K issues may have a material impact on the operations of
the Company and its subsidiaries. Management, however, does
26
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
not anticipate these activities 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 (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.
Planergy has been consolidated as a subsidiary of NC Enterprises in the
Company's consolidated financial statements.
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.
27
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
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 state 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 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):
Electric Gas Inter- All
March 31, 1999 Utility Utility national Other Total
-------- -------- -------- -------- --------
Revenues:
External customers. $614,695 $259,384 $ - $117,344 $991,423
Intersegment....... 155 1,959 - 16,686 18,800
Segment profit...... 66,820 18,211 18,140 4,721 107,892
Electric Gas Inter- All
March 31, 1998 Utility Utility national Other Total
-------- -------- -------- -------- --------
Revenues:
External customers. $584,624 $271,243 $ - $ 83,637 $939,504
Intersegment....... 159 1,200 - 17,169 18,528
Segment profit...... 61,231 25,164 2,799 6,634 95,828
Reconciliations: 1999 1998
-------- --------
Profit or Loss
Total profit for reportable segments $103,171 $ 89,194
Other profit.................... 4,721 6,634
Other unallocated amounts....... (6,592) (9,679)
-------- --------
Net income................... $101,300 $ 86,149
======== ========
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 effective March 31, 1998, PSCo sold NCI to NC
Enterprises (see Note 3. Investment in Yorkshire Power).
28
<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):
Electric Gas Inter- All
March 31, 1999 Utility Utility national Other Total
-------- -------- -------- -------- --------
Revenues from
external customers. $401,871 $254,171 $ - $ 3,377 $659,419
Segment profit...... 44,466 17,989 - 6,865 69,320
Electric Gas Inter- All
March 31, 1998 Utility Utility national Other Total
-------- -------- -------- -------- --------
Revenues from
external customers. $375,446 $265,483 $ - $ 3,713 $644,642
Segment profit...... 44,710 24,878 2,799 2,167 74,544
Reconciliations: 1999 1998
-------- --------
Profit or Loss
Total profit or loss for
reportable segments $ 62,455 $ 72,387
Other profit.................... 6,865 2,167
Other unallocated amounts....... (3,381) (8,586)
-------- --------
Net income................... $ 65,939 $ 65,968
======== ========
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
$202.6 million and $199.7 million for the quarters ended March 31, 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 March 31, 1999 and December 31, 1998 and the results of
operations for the three months ended March 31, 1999 and 1998 and cash flows for
the three months ended March 31, 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 months ended March 31, 1999 should not be taken as an indication of
earnings for all or any part of the balance of the year.
29
<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 March 31,
1999, and the related consolidated condensed statements of income, shareholders'
equity and cash flows for the three-month periods ended March 31, 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 statement
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,
May 13, 1999
30
<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
March 31, 1999, and the related consolidated condensed statements of income and
cash flows for the three-month periods ended March 31, 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 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,
May 13, 1999
31
<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 March 31, 1999, and the related
condensed statements of income and cash flows for the three-month periods ended
March 31, 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 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 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,
May 13, 1999
32
<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 March 31, 1999 Compared to the Three Months Ended March 31,
1998
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 and shareholder approval and is
expected to take from 12 to 18 months to complete. The NCE/NSP Merger would
create a top 10 gas and electric energy company in the U.S. The combined company
would 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 $0.88 for the first quarter of
1999 as compared to $0.78 per share (basic and diluted) for the first quarter of
1998. Higher earnings were primarily attributed to increased electric sales
resulting from continued customer growth and an increased contribution from the
Company's investment in Yorkshire Power. Electric customer growth in the
Colorado region was approximately 2.6% over the prior year, with growth in
natural gas customers rising 3.4%. Mild winter weather during the first quarter
1999, more than offset the favorable impact of this growth. Temperatures were
approximately 14% warmer during the first quarter of 1999 when compared to prior
year first quarter, lowering demand and reducing earnings by approximately $0.04
per share.
Electric Operations
The following table details the change in electric operating revenues and
energy costs for the first quarter of 1999 as compared to the same period in
1998 (thousands of dollars).
Increase (Decrease)
Electric operating revenues:
Retail............................................... $ (827)
Wholesale............................................ 24,290
Non-regulated power marketing........................ (1,353)
Other (including unbilled revenues and provision for
rate refunds) ..................................... 6,608
-----
Total revenues...................................... 28,718
Fuel used in generation............................... (7,070)
Purchased power....................................... 12,556
-------
Net increase in electric margin..................... $23,232
=======
33
<PAGE>
The following table compares electric Kwh sales by major customer classes
for the first quarter of 1999 and 1998.
Millions of Kwh Sales
1999 1998 % Change *
---- ---- ----------
Residential................................ 2,711 2,680 1.1%
Commercial and Industrial.................. 6,660 6,592 1.0
Public Authority........................... 182 181 0.5
----- -----
Total Retail............................. 9,553 9,453 1.1
Wholesale.................................. 3,589 2,736 31.2
Non-regulated power marketing.............. 647 823 (21.3)
--- ---
Total...................................... 13,789 13,012 6.0
====== ======
* Percentages are calculated using unrounded amounts
Electric margin increased in the first quarter of 1999, when compared to
the first quarter of 1998, due primarily to a 6% increase in total sales
resulting from total customer growth of 2.2%. PSCo's higher wholesale electric
sales, reflecting increased marketing activities for economy, short-term firm
and off-system sales, contributed to increased operating revenues, but the
margin on such sales was minimal. SPS's higher retail and wholesale sales
resulted primarily due to higher delivered but not billed wholesale and retail
revenues.
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. In
connection with the ICA, which allows for a 50%/50% sharing of certain fuel and
energy cost increases and decreases among customers and shareholders, PSCo
recognized cost savings of approximately $3.5 million during the first quarter
1999. The ICA did not significantly impact electric margin for the first quarter
of 1998.
Fuel used in generation expense decreased $7.1 million during the first
quarter of 1999, as compared to the same quarter in 1998, due primarily to lower
coal and gas costs at SPS. This decrease in coal costs is primarily due to
negotiations with a new supplier in mid-1998 and lower transportation costs,
while the decrease in gas costs is attributable to lower per-unit gas prices.
This decrease was offset in part by an increase in expense by PSCo due to
increased generation levels at its power plants.
Purchased power expense increased $12.6 million during the first quarter
of 1999, as compared to the same quarter in 1998, primarily due to purchases
related to increased wholesale marketing activities at PSCo ($10.7 million).
Purchased power expense at SPS increased $2.5 million primarily due to a 41%
increase in wholesale purchases and higher spot market prices. 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
purchases low-cost non-firm energy when available.
34
<PAGE>
Gas Operations
The following table details the change in gas revenues and gas purchased
for resale for the first quarter of 1999 as compared to the same period in 1998
(thousands of dollars).
Increase (Decrease)
-------------------
Revenues from gas sales (including unbilled revenues). $26,688
Gas purchased for resale.............................. 36,719
-------
Net decrease in gas sales margin..................... (10,031)
Transportation revenues............................... 1,293
-------
Decrease in net gas margin........................... $(8,738)
=======
The following table compares gas Dth deliveries by major customer classes
for the first quarter of 1999 and 1998.
Millions of Dth Deliveries
1999 1998 % Change *
---- ---- ----------
Residential................................ 39.0 39.9 (2.4)%
Commercial................................. 18.0 19.3 (6.6)
Non-regulated gas marketing................ 39.5 16.4 **
----- -----
Total Sales.............................. 96.5 75.6 27.7
Transportation............................. 31.3 27.5 14.0
----- -----
Total.................................... 127.8 103.1 24.0
===== =====
* Percentages are calculated using unrounded amounts
** Percentage change is significant, but presentation of the amount is not
meaningful
Gas sales margin decreased during the first quarter of 1999, when compared
to the first quarter of 1998, primarily due to lower sales at PSCo resulting
from the effects of mild winter weather in 1999, despite a 3.4% increase in
customers. As previously noted, weather during the first quarter of 1999 was
approximately 14% warmer than the first quarter of 1998. Although sales
increased at the Company's non-regulated subsidiaries the margin on such sales
decreased primarily due to lower average market sales prices.
Gas transportation revenues increased approximately $1.3 million during
the first quarter of 1999, when compared to the first quarter of 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,
some of which become retail customers of the Company's non-regulated
subsidiaries.
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 first quarter of 1999, as compared to the first 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
Other operating revenues decreased approximately $4.8 million due to lower
revenues from diversified energy businesses, primarily engineering, design and
construction management, offset in part by an increase in energy management and
consulting services.
35
<PAGE>
Non-Fuel Operating Expenses and Other Income and Deductions
Other operating and maintenance expense-regulated decreased $0.2 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
$2.6 million primarily due to increased operating cost due to the acquisition of
Planergy, effective April 1, 1998.
Depreciation and amortization expense increased $7.1 million primarily due
to higher depreciation expense from property additions.
Equity in earnings of Yorkshire Power and other unconsolidated
subsidiaries increased $12.1 million primarily due to increased earnings of
Yorkshire Power. NCI's equity in earnings of Yorkshire Power increased by
approximately $13.9 million for the first quarter 1999, when compared to the
same period in 1998, primarily due an increase in gas supply business margins.
In addition, during 1998 Yorkshire Power recognized a penalty, applicable to all
United Kingdom regional electricity utilities, designed to recognize the effects
of the delay in implementation of full competition (NCI's portion was $4.2
million).
Interest charges and preferred dividends of subsidiaries increased $1.8
million during the first quarter of 1999, when compared to the same quarter in
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. 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 $10.0 million during the first quarter of 1999, when
compared to the same quarter in 1998 primarily due to lower pre-tax income from
non-regulated operations, 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.
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
36
<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. As of March 31,
1999, approximately 98% of the remediation and testing phases for all critical
IT systems has been completed. The remaining work is planned to be completed by
June 30, 1999. For non-IT systems, which exist primarily in the generation,
transmission and distribution areas of the business, the inventory and
assessment phases have been completed. Remediation and testing for non-IT
systems are approximately 76% completed as of March 31, 1999. The remainder is
expected to be completed by the end of the third quarter of 1999. Systems
critical to the generation and delivery of energy are expected to be completed
by the end of the second quarter of 1999.
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 total costs of approximately $25
million of 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. Furthermore, the Company
expects to spend approximately $15 million in operating and capital expenditures
for the accelerated replacement of certain non-compliant IT systems. The
majority of these costs will be incurred by PSCo and SPS. A significant portion
of the costs incurred to address the Company's Y2K issues will represent the
redeployment of existing information technology resources. The table below
details the actual costs incurred during 1998 and prior periods; the actual
costs incurred during the first quarter of 1999; and the total estimated costs
to be incurred. A significant portion of the remaining costs to be incurred
consists of replacement systems and contingency planning costs, a portion of
which may not ultimately be incurred.
<TABLE>
<CAPTION>
Actual Actual Remaining Estimated
Costs Costs Estimated Total
1998 First Costs to Project
and Prior Quarter 1999 be Incurred Costs
--------- ------------ ----------- -----
(in millions)
<S> <C> <C> <C> <C>
Operating expenses .... $8.0 $1.1 $8.7 $17.8
Capital for automated
system components .. 0.7 0.3 6.1 7.1
IT replacement projects:
Operating........... 0.2 0.5 0.3 1.0
Capital............. 6.4 2.8 4.7 13.9
--- ---- --- ----
Total............. $15.3 $ 4.7 $19.8 $39.8
===== ===== ===== =====
</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. The overall blackout
recovery plan for NCE is designed so that this most reasonably likely worst case
scenario would be addressed and electricity restored. NCE
37
<PAGE>
is able to isolate its systems and facilities from the national power grid in
the case of a severe grid disruption. Isolation from the national grid is
considered a last resort strategy in the Company's emergency response procedures
that would be employed for severe system disruptions, regardless of Y2K issues.
The Company intends to remain interconnected to the national grid at the
millennium changeover. Being interconnected provides the additional security of
having redundant sources of electric power supply. 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.
If correction or replacement of non-compliant systems is not completed on
a timely basis, the Y2K issues may have a material impact on the operations of
the Company and its subsidiaries. Management, however, does not anticipate these
activities 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 first quarter of 1999. 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 - Three Months Ended March 30
1999 1998 Increase
---- ---- --------
Net cash provided by operating activities
(in millions) $232.1 $207.8 $24.2
Cash provided by operating activities increased during the first three
months of 1999, when compared to the first three months of 1998, primarily due
to higher earnings from regulated utility operations and collection of purchase
gas and electric energy costs.
1999 1998 Decrease
---- ---- --------
Net cash used in investing activities
(in millions) $(114.4) $(122.3) $(7.9)
Cash used in investing activities decreased during 1999, when compared to
1998, primarily due to the decrease in construction expenditures.
1999 1998 Increase
---- ---- --------
Net cash used in financing activities
(in millions) $(89.5) $(82.1) $(7.4)
Cash used in financing activities increased during 1999, when compared to
1998, primarily due to the reduction of short-term debt offset, in part, by the
issuance of medium term notes at SPS.
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 will be
used initially for the repayment of certain short-term debt, pending the
retirement of $90 million of SPS 6 7/8% First Mortgage Bonds due December 1,
1999 and for other general corporate purposes.
38
<PAGE>
PSCo Obligated Mandatorily Redeemable Preferred Securities
In May 1998, PSCo Capital Trust I, a wholly-owned trust of PSCo, issued in
a public offering $194 million of its 7.60% Trust Originated Preferred
Securities. The sole asset of the trust is $200 million principal amount of
PSCo's 7.60% Deferrable Interest Subordinated Debentures due June 30, 2038. The
proceeds from the sale of the 7.60% Trust Originated Preferred Securities were
used to redeem all of PSCo's outstanding preferred stock totaling $181.8 million
on June 10, 1998, and for general corporate purposes.
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 enlarge 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 evaluate utility regulations with respect to
competition. A summary of recent developments in 1999 is discussed below. The
Company is unable to predict what financial impact or effect the implementation
of these legislative changes or the adoption of other proposals might have on
its operations.
New Mexico
On April 8, 1999, New Mexico enacted the Electric Utility Restructuring
Act of 1999, which allows customer choice for residential and small commercial
customers beginning January 1, 2001. All remaining customers will be allowed
customer choice on January 1, 2002. 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-bypassable 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.
Colorado
On April 26, 1999, the Colorado legislature approved a bill, which will
allow natural gas public utilities to voluntarily submit plans to the CPUC to
open their markets and enable customers to choose their natural gas supplier.
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 would continue to
be regulated, with delivery companies required to offer nondiscriminatory
pipeline access to competitors. The bill must be approved by the governor by
June 4, 1999, in order for it to be enacted. PSCo is currently evaluating this
legislation.
New Accounting Standard
Effective January 1, 1999, the Company and its subsidiaries adopted
Emerging Issues Task Force 98-10 ("EITF"), "Accounting for Energy Trading and
Risk Management Activities." This EITF provides guidance for accounting for
energy contracts as part of energy and risk management activities. The adoption
of EITF did not have a material impact on the Company's consolidated financial
statements.
39
<PAGE>
PSCo's Management's Discussion and Analysis of Financial Condition and Results
of Operations
Earnings Available for Common Stock
Earnings were $65.9 million for the first quarter of 1999, as compared to
$66.0 million for the first quarter of 1998. An increase in electric margin
resulting from strong customer growth of 2.6% was offset by a decrease in gas
margin, resulting from unseasonably warm weather in the current quarter, despite
customer growth of 3.4%.
Electric Operations
The following table details the change in electric operating revenues and
energy costs for the three months ended March 31, 1999, as compared to the same
period in 1998 (in thousands of dollars).
Increase (Decrease)
-------------------
Electric operating revenues:
Retail....................................... $ 9,133
Wholesale.................................... 26,675
Other (including unbilled revenues).......... (9,383)
-------
Total revenues.............................. 26,425
Fuel used in generation....................... 1,236
Purchased power............................... 10,718
-------
Net increase in electric margin............. $14,471
=======
The following table compares electric Kwh sales by major customer classes
for the three months ended March 31, 1999 and 1998.
Millions of Kwh Sales
---------------------
1999 1998 % Change *
---- ---- ----------
Residential ..................... 1,932 1,856 4.1%
Commercial and Industrial ....... 3,922 3,755 4.5
Public Authority ................ 48 47 1.3
------ ------
Total Retail................... 5,902 5,658 4.3
Wholesale........................ 2,255 1,494 51.1
------ ------
Total............................ 8,157 7,152 14.1
====== ======
* Percentages are calculated using unrounded amounts
Electric margin increased in the first quarter of 1999, when compared to
the first quarter of 1998, primarily due to higher retail sales of 4.3%
resulting primarily from customer growth of approximately 2.6% and the positive
impact of a lower 1999 provision for estimated customer refunds (approximately
$2.5 million) in connection with the earnings sharing in excess of 11% return on
equity (see Note 4. Regulatory Matters in Item 1. FINANCIAL STATEMENTS). Higher
wholesale electric sales, reflecting increased marketing activities for economy,
short-term firm and off-system sales, also contributed to increased operating
revenues; however, the margin on such sales is minimal.
PSCo has 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. In connection with the ICA,
which allows for a 50%/50% sharing of certain fuel and energy cost increases and
decreases among customers and shareholders, PSCo recognized cost savings of
approximately $3.5 million during the first quarter 1999. The ICA did not
significantly impact electric margin for the first quarter of 1998.
Fuel used in generation expense increased approximately $1.2 million
during the first quarter of 1999, as compared to the same quarter in 1998,
primarily due to increased generation levels at PSCo's power plants.
40
<PAGE>
Purchased power expense increased $10.7 million during the first quarter
of 1999, as compared to the same quarter in 1998, primarily due to higher
purchases related to wholesale marketing activities.
Gas Operations
The following table details the change in revenues from gas sales and gas
purchased for resale for the first quarter of 1999, as compared to the same
period in 1998 (in thousands of dollars).
Increase (Decrease)
-------------------
Revenues from gas sales (including unbilled revenues) $(12,603)
Gas purchased for resale........................ (3,640)
-------
Net decrease in gas sales margin.............. (8,963)
Transportation revenues......................... 1,291
-------
Decrease in net gas margin.................... $(7,672)
=======
The following table compares gas Dth deliveries by major customer classes
for the first quarter of 1999 and 1998.
Millions of Dth Deliveries
--------------------------
1999 1998 % Change *
---- ---- ----------
Residential................... 37.9 38.9 (2.5)%
Commercial.................... 17.1 18.4 (6.9)
------- --------
Total Sales ............... 55.0 57.3 (3.9)
Transportation................ 26.5 23.3 14.1
------- --------
Total....................... 81.5 80.6 1.3
======= ========
* Percentages are calculated using unrounded amounts
Gas sales margin decreased during the first quarter of 1999, when compared
to the first quarter of 1998, despite a 3.4% increase in customers, primarily
due to a 3.9% decrease in retail gas sales, which resulted from mild winter
weather, with temperatures 14% warmer than the prior year.
Gas transportation revenues increased $1.3 million during the first
quarter of 1999, compared to the first quarter of 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
first quarter of 1999, as compared to the first 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. The decrease
in the quantity of gas purchased in the first quarter of 1999 was the primary
contributor to the overall decrease in the total cost of gas purchased for
resale.
Non-Fuel Operating Expenses and Other Income and Deductions
Depreciation and amortization increased $5.6 million during the first
quarter of 1999, as compared to the first quarter of 1998, primarily due to the
depreciation of property additions.
Income taxes decreased approximately $7.6 million during the first quarter
of 1999, as compared to the first quarter of 1998, primarily due to lower
pre-tax income, the recognition of additional Colorado state tax
41
<PAGE>
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 $2.1 million during the first
quarter of 1999, as compared to the first quarter 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
quarter of 1999 includes approximately $3.2 million of interest income on the
promissory note, excluding income taxes, compared to the recognition of equity
earnings associated with PSCo's investment in Yorkshire Power of approximately
$3.4 million in the first quarter of 1998. In addition, other non-utility income
decreased $1.4 million.
Interest charges and dividend requirements on preferred stock increased
approximately $2.2 million during the first quarter of 1999, as compared to the
first quarter 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.
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).
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.
42
<PAGE>
SPS's Management's Discussion and Analysis of Financial Condition and Results of
Operations
Earnings Available for Common Stock
Earnings available for common stock increased $5.3 million during the
first quarter of 1999 as compared to the same quarter in 1998. Earnings
increased primarily due to an increase in electric margin and the absence of
SPS/PSCo merger and business integration expenses in 1999.
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 March 31, 1999,
as compared to the same period in 1998 (thousands of dollars).
Increase (Decrease)
-------------------
Electric operating revenues:
Retail.............................. $(10,875)
Wholesale........................... (2,385)
Other (including unbilled revenues). 16,080
-------
Total revenues.................... 2,820
Fuel used in generation.............. (8,237)
Purchased power...................... 2,464
-------
Net increase in electric margin... $ 8,593
=======
The following table compares electric Kwh sales by major customer classes
for the three months ended March 31, 1999 and 1998.
Millions of Kwh Sales
---------------------
1999 1998 % Change*
---- ---- ---------
Residential ............ 717 764 (6.2)%
Commercial ............ 669 663 0.9
Industrial ............ 1,905 2,014 (5.4)
Public Authority ....... 133 132 0.3
----- -----
Total Retail.......... 3,424 3,573 (4.2)
Wholesale............... 1,333 1,243 7.3
----- -----
Total................... 4,757 4,816 (1.2)
===== =====
* Percentages are calculated using unrounded amounts.
Electric operating revenues increased $2.8 million or 1.4% during the
first quarter in 1999, when compared to the same period in 1998, primarily due
to higher unbilled revenues offset, in part, by lower revenues related to the
recovery of fuel costs totaling $12.6 million. 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. In addition, the Company has
made additional non-firm wholesale sales as a result of the Company's lower fuel
costs.
Fuel used in generation expense decreased $8.2 million or 9.1% during the
first quarter of 1999, when compared to the same period in 1998, primarily due
to lower coal and gas costs for the quarter offset, in part, by a slight
increase in generation levels required to serve retail and wholesale 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
43
<PAGE>
gas used in generation decreased $3.8 million during the first quarter of 1999
primarily due to lower gas prices offset, in part, by increased gas generation
at Cunningham Station during the current period.
Purchased power increased $2.5 million during the first quarter of 1999,
when compared to the same period in 1998, due to higher spot market prices 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 first quarter of 1999, when
compared to the first quarter of 1998, had little impact on net income.
Non-Fuel Operating Expenses
Other operating and maintenance expenses decreased $0.6 million from the
continued deployment of cost saving programs instituted as part of the PSCo/SPS
Merger.
Taxes other than income taxes increased $1.3 million during the first
quarter of 1999, as compared to the same period in 1998, primarily due to higher
property and franchise taxes.
Income taxes increased $3.1 million during the first 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 first quarter of 1999 and
1998 were 38.1% and 38.2%, respectively.
Other Income and Deductions - Net
Other income and deductions-net increased $1.0 million during the first
quarter of 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 in 1998).
Interest Charges
Other interest expense decreased $1.0 million during the first quarter of
1999, as compared to the same period in 1998, primarily due to lower short-term
borrowing costs resulting from lower interest rates. This decrease was offset by
a decrease in the allowance for funds used during construction of approximately
$1.1 million resulting from lower construction in progress balances.
Financial Condition
Discussions relating to material changes in SPS's financial condition are
covered under "Liquidity and Capital Resources" and "Financing Activities" in
NCE's Management's Discussion and Analysis of Financial Condition and Results of
Operations.
44
<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
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).
10(a) Senior Executive Severance Policy, effective March 24, 1999,
between New Century Energies, Inc. and Senior Executives.
10(b) The employment agreement, dated March 24, 1999, among Northern
States Power Company, New Century Energies, Inc., and Wayne H.
Brunetti.
12(a) Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges for PSCo is set forth at page 49 herein.
12(b) Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges for SPS is set forth at page 50 herein.
15(a) Letter from Arthur Andersen LLP regarding unaudited interim
information is set forth at page 51 herein for NCE.
15(b) Letter from Arthur Andersen LLP regarding unaudited interim
information is set forth at page 52 herein for PSCo.
15(c) Letter from Arthur Andersen LLP regarding unaudited interim
information is set forth at page 53 herein for SPS.
27(a) Financial Data Schedule for NCE as of March 31, 1999.
27(b) Financial Data Schedule for PSCo as of March 31, 1999.
27(c) Financial Data Schedule for SPS as of March 31, 1999.
99 Unaudited Pro Forma Combined Condensed Financial Information of
New Century Energies, Inc. and Northern States Power Company.
* Previously filed as indicated and incorporated herein by reference.
45
<PAGE>
(b) Reports on Form 8-K
The following reports on Form 8-K were filed since the beginning of the first
quarter of 1999:
- - A combined report on Form 8-K dated February 23, 1999, was filed
separately by NCE, PSCo and SPS on February 23, 1999.
The item reported was Item 5. Other Events: Filing of audited financial
statements of NCE and its subsidiaries, PSCo and its subsidiaries and SPS
for the year ended December 31, 1998.
- - A report on Form 8-K dated February 25, 1999, was filed by SPS on February
25, 1999.
The item reported was Item 5. Other Events: Filing of consent of Arthur
Andersen LLP and Letter on unaudited financial information of Arthur
Andersen LLP.
- - A report on Form 8-K dated February 25, 1999, was filed by SPS on March 9,
1999.
The item reported was item 5. Other Events: Filing of the Purchase
Agreement, the Indenture and the First Supplemental Indenture related to
the sale of Series A Senior Notes.
- - A report on Form 8-K dated March 24, 1999, was filed by NCE on March 25,
1999.
The item reported was Item 5. Other Events: Filing of an Agreement
and Plan of Merger dated March 24, 1999, between New Century Energies,Inc.
and Northern States Power Company and a joint press release announcing the
proposed merger.
- - A report on Form 8-K dated March 26, 1999, was filed by NCE on March 29,
1999.
The item reported was Item 5. Other Events: Filing of the slide
presentation for a joint meeting New Century Energies and Northern States
Power Company held with financial analysts.
46
<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
13th day of May, 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 13th day of May, 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 13th day of May, 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
47
<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).
10(a) Senior Executive Severance Policy, effective March 24, 1999, between the
Company and Senior Executives.
10(b) The employment agreement, dated March 24, 1999, among Northern States
Power Company., New Century Energies, Inc., and Wayne H. Brunetti.
12(a) Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges for PSCo is set forth at page 49 herein.
12(b) Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges for SPS is set forth at page 50 herein.
15(a) Letter from Arthur Andersen LLP regarding unaudited interim information is
set forth at page 51 herein for NCE.
15(b) Letter from Arthur Andersen LLP regarding unaudited interim information is
set forth at page 52 herein for PSCo.
15(c) Letter from Arthur Andersen LLP regarding unaudited interim information is
set forth at page 53 herein for SPS.
27(a) Financial Data Schedule for NCE as of March 31, 1999.
27(b) Financial Data Schedule for PSCo as of March 31, 1999.
27(c) Financial Data Schedule for SPS as of March 31, 1999.
99 Unaudited Pro Forma Combined Condensed Financial Information of New
Century Energies, Inc. and Northern States Power Company.
* Previously filed as indicated and incorporated herein by reference.
48
<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)
Three Months Ended
March 31,
1999 1998
---- ----
(Thousands of Dollars, except ratios)
Fixed charges:
Interest on long-term debt................... $ 28,800 $27,600
Interest on borrowings against corporate-owned
life insurance contracts.................. 13,704 11,671
Other interest............................... 5,220 5,653
Amortization of debt discount and expense less
premium .................................. 1,083 978
Interest component of rental expense......... 2,339 2,061
Dividends on PSCo obligated mandatorily
redeemable preferred securities........... 3,800 -
------- ------
Total ..................................... $ 54,946 $ 47,963
======== ========
Earnings (before fixed charges and taxes on income):
Net income................................... $ 65,939 $ 68,897
Fixed charges as above....................... 54,946 47,963
Provisions for Federal and state taxes on income,
net of investment tax credit amortization.... 29,214 36,818
------ ------
Total...................................... $150,099 $153,678
======== ========
Ratio of earnings to fixed charges.............. 2.73 3.20
====== ======
<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)
Three Months Ended
March 31,
1999 1998
---- ----
(Thousands of Dollars, except ratios)
Fixed charges:
Interest on long-term debt................... $10,643 $10,943
Other interest............................... 1,590 2,579
Amortization of debt discount and expense less
premium .................................. 552 561
Interest component of rental expense......... 191 202
Dividends on SPS obligated mandatorily redeemable
preferred securities...................... 1,963 1,963
------ ------
Total ..................................... $14,939 $16,248
======= =======
Earnings (before fixed charges and taxes on income):
Net income................................... $23,391 $18,139
Fixed charges as above....................... 14,939 16,248
Provisions for Federal and state taxes on
income, net of investment tax credit
amortization.... ......................... 14,365 11,225
------ ------
Total...................................... $52,695 $45,612
======= =======
Ratio of earnings to fixed charges.............. 3.53 2.81
====== ======
50
<PAGE>
EXHIBIT 15(a)
May 13, 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 and its
Registration Statements (Form S-3, File Nos. 333-40361 and 333-64067) pertaining
to the registration of NCE Common Stock; 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 and its Form 10-Q for the quarter
ended March 31, 1999, which includes our report dated May 13, 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 LLP
51
<PAGE>
EXHIBIT 15(b)
May 13, 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 Form 10-Q for the quarter ended March 31, 1999, which
includes our report dated May 13, 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 LLP
52
<PAGE>
EXHIBIT 15(c)
May 13, 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 and its Form 10-Q for the quarter ended March 31, 1998, which
includes our report dated May 13, 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 LLP
53
<PAGE>
EXHIBIT 99
UNAUDITED PROFORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed balance sheet at March
31, 1999 gives effect to the NCE/NSP Merger as if it had occurred at March 31,
1999. The unaudited pro forma combined condensed statements of income for the
three months ended March 31, 1999 and 1998 and for each of the three years in
the period ended December 31, 1998 give effect to the NCE/NSP Merger as if it
had occurred on January 1, 1996. These statements are prepared on the basis of
accounting as required under a pooling of interests and do not reflect any cost
savings anticipated by Management as a result of the NCE/NSP Merger.
Accordingly, the pro forma information is not necessarily indicative of the
financial position or results of operations that would have occurred had the
NCE/NSP Merger been consummated for the periods for which it is given effect,
nor is it necessarily indicative of future operating results or financial
condition.
54
<PAGE>
Unaudited Pro Forma Combined Condensed Statement of Income
Reflecting Completion of the NCE/NSP Merger
Three Months ended March 31, 1999
(Thousands of Dollars, Except per Share Data)
<TABLE>
<CAPTION>
Northern New Century Reporting
States Power Energies Adjustments Pro Forma Pro Forma
(as Reported) (as Reported) (Note 2) Adjustments Combined
------------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Operating revenues:
Electric................. $556,856 $628,706 $(14,011) $ $1,171,551
Gas...................... 186,327 347,688 (88,304) 445,711
Nonregulated and other revenues - 15,029 164,750 179,779
Earnings from equity investments - - 23,842 23,842
------ ----- ------- ------ ------
Total operating revenues 743,183 991,423 86,277 1,820,883
Operating expenses:
Electric fuel and purchased power 168,028 295,269 (13,627) 449,670
Cost of gas sold and transported 112,178 261,631 (83,495) 290,314
Other operation and maintenance 193,918 150,109 (20,683) 323,344
Depreciation and amortization 87,485 69,502 (2,124) 154,863
Taxes other than income taxes 57,632 37,620 (592) 94,660
Income taxes - utility... 36,288 - (36,288) -
Nonregulated operating expenses - - 199,147 199,147
------ ------- ------- ------ -------
Total operating expenses 655,529 814,131 42,338 1,511,998
Operating income............ 87,654 177,292 43,939 308,885
Other income (expense):
Income from nonregulated businesses
before interest and taxes...... (7,353) - 7,353 -
Equity earnings from unconsolidated
subsidiaries............ - 15,811 (15,811) -
Other income (deductions) - net (1,836) (3,542) 807 (4,571)
Income taxes on nonregulated and
nonoperating items - benefit...... 16,142 - (16,142) -
-------- ------ ------- ------- ------
Total other income (expense) 6,953 12,269 (23,793) (4,571)
Financing costs
Interest charges......... 38,348 45,383 - 83,731
Distributions on mandatorily
redeemable preferred securities
of subsidiary trusts ............. 3,938 5,763 - 9,701
----- ----- ------ ------ -----
Total financing costs............ 42,286 51,146 - 93,432
Income before income taxes............ 52,321 138,415 20,146 210,882
Income taxes.......................... - 37,115 20,146 57,261
------ ------ ------- ------- ------
Net income............................ 52,321 101,300 - 153,621
Preferred dividends & redemption
premiums of NSP..................... 1,060 - - 1,060
------ ------ ------- ------- -----
Earnings available for common
shareholders ....................... $51,261 $101,300 $ - $ - $ 152,561
======= ======== ======= ======= ==========
Average common shares outstanding
(Note 1) ........................... 152,392 114,681 63,075 330,148
Average common and potentially diluted
shares outstanding (Note 1)........ 152,553 114,743 63,109 330,405
Basic and diluted earnings per share $0.34 $0.88 $0.46
===== ===== =====
</TABLE>
See accompanying notes to Unaudited Pro Forma
Combined Condensed Financial Statements.
55
<PAGE>
Unaudited Pro Forma Combined Condensed Statement of Income
Reflecting Completion of the NCE/NSP Merger
Three Months ended March 31, 1998
(Thousands of Dollars, Except per Share Data)
<TABLE>
<CAPTION>
Northern New Century Reporting
States Power Energies Adjustments Pro Forma Pro Forma
(as Reported) (as Reported) (Note 2) Adjustments Combined
------------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Operating revenues:
Electric......................... $521,571 $599,988 $(15,364) $ $1,106,195
Gas.............................. 179,831 319,707 (48,476) 451,062
Nonregulated and other revenues . - 19,809 106,463 126,272
Earnings from equity investments - - 19,080 19,080
------ ------- ------- ------ ------
Total operating revenues 701,402 939,504 61,703 1,702,609
Operating expenses:
Electric fuel and purchased power 148,162 289,783 (15,142) 422,803
Cost of gas sold and transported 113,582 224,912 (43,348) 295,146
Other operation and maintenance . 189,990 147,681 (18,076) 319,595
Depreciation and amortization ... 84,100 62,418 (1,466) 145,052
Taxes other than income taxes ... 55,960 32,873 (595) 88,238
Income taxes - utility........... 30,558 - (30,558) -
Nonregulated operating expenses - - 131,413 131,143
------ ------- ------- ------ -------
Total operating expenses 622,352 757,667 22,228 1,402,247
Operating income..................... 79,050 181,837 39,475 300,362
Other income (expense):
Income from nonregulated businesses
before interest and taxes......... 4,380 - (4,380) -
Equity earnings from unconsolidated
subsidiaries...................... - 3,752 (3,752) -
Other income (deductions) - net ... 2,450 (2,968) (785) (1,303)
Income taxes on nonregulated and
nonoperating items - benefit...... 14,026 - (14,026) -
------ ------ ------- ------- ------
Total other income (expense) 20,856 784 (22,943) (1,303)
Financing costs:
Interest charges.................... 38,851 44,461 - 83,312
Distributions on mandatorily
redeemable preferred securities
of subsidiary trusts .............. 3,938 1,963 - 5,901
Dividends & redemption premiums on
preferred stock of subsidiaries.... - 2,929 - 2,929
------ ------ ------- ------- ------
Total financing costs............ 42,789 49,353 - 92,142
Income before income taxes............ 57,117 133,268 16,532 206,917
Income taxes.......................... - 47,119 16,532 63,651
------ ------ ------- ------- ------
Net income............................ 57,117 86,149 - 143,266
Preferred dividends & redemption
premiums of NSP..................... 2,367 - - 2,367
----- ------ ------- ------- -----
Earnings available for common
shareholders ....................... $54,750 $86,149 $ - $ - $140,889
======= ======= ======= ======= ========
Average common shares outstanding
(Note 1) ............................. 149,214 110,973 61,035 321,222
Average common and potentially diluted
shares outstanding (Note 1)........... 149,467 111,134 61,124 321,725
Basic and diluted earnings per share .. $0.37 $0.78 $0.44
===== ===== =====
</TABLE>
See accompanying notes to Unaudited Pro Forma
Combined Condensed Financial Statements.
56
<PAGE>
Unaudited Pro Forma Combined Condensed Statement of Income
Reflecting Completion of the NCE/NSP Merger
Year ended December 31, 1998
(Thousands of Dollars, Except per Share Data)
<TABLE>
<CAPTION>
Northern New Century Reporting
States Power Energies Adjustments Pro Forma Pro Forma
(as Reported) (as Reported) (Note 2) Adjustments Combined
------------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Operating revenues:
Electric........................ $2,362,351 $2,697,486 $ (74,518) $ $4,985,319
Gas............................. 456,823 841,276 (188,095) 1,110,004
Nonregulated and other revenues - 72,143 444,843 516,986
Earnings from equity investments - - 115,985 115,985
------ ------- ------- ------- -------
Total operating revenues 2,819,174 3,610,905 298,215 6,728,294
Operating expenses:
Electric fuel and purchased power 689,275 1,357,198 (72,709) 1,973,764
Cost of gas sold and transported . 267,050 562,583 (170,140) 659,493
Other operation and maintenance .. 794,332 637,743 (90,607) 1,341,468
Depreciation and amortization .... 338,225 268,743 (8,055) 598,913
Taxes other than income taxes .... 220,620 134,137 (2,175) 352,582
Income taxes - utility............ 145,383 - (145,383) -
Nonregulated operating expenses - - 592,106 592,106
------- --------- ------- ------- -------
Total operating expenses 2,454,885 2,960,404 103,037 5,518,326
Operating income..................... 364,289 650,501 195,178 1,209,968
Other income (expense):
Income from nonregulated businesses
before interest and taxes......... 51,171 - (51,171) -
Equity earnings from unconsolidated
subsidiaries...................... - 36,101 (36,101) -
Other income (deductions) - net 4,812 (4,250) 37,477 38,039
Income taxes on nonregulated and
nonoperating items - benefit...... 40,588 - (40,588) -
------ ------ ------- ------- ------
Total other income (expense) 96,571 31,851 (90,383) 38,039
Financing costs:
Interest charges................... 162,737 181,906 - 344,643
Distributions on mandatorily
redeemable preferred securities
of subsidiary trusts ............. 15,750 17,561 - 33,311
Dividends & redemption premiums on
preferred stock of subsidiaries... - 5,332 - 5,332
------ ------ ------- ------- ------
Total financing costs............ 178,487 204,799 - 383,286
Income before income taxes............ 282,373 477,553 104,795 864,721
Income taxes.......................... - 135,596 104,795 240,391
-------- ------- ------- ------- -------
Net income............................ 282,373 341,957 - 624,330
Preferred dividends & redemption
premiums of NSP..................... 5,548 - - 5,548
-------- ------ ------- ------- ------
Earnings available for common
shareholders ....................... $ 276,825 $341,957 $ - $ - $ 618,782
========= ======== ======= ======= ==========
Average common shares outstanding
(Note 1) ............................ 150,502 111,859 61,522 323,883
Average common and potentially
diluted shares outstanding (Note 1). 150,743 112,008 61,604 324,355
Basic earnings per share.............. $1.84 $3.06 $1.91
===== ===== =====
Diluted earnings per share............ $1.84 $3.05 $1.91
===== ===== =====
</TABLE>
See accompanying notes to Unaudited Pro Forma
Combined Condensed Financial Statements.
57
<PAGE>
Unaudited Pro Forma Combined Condensed Statement of Income
Reflecting Completion of the NCE/NSP Merger
Year ended December 31, 1997
(Thousands of Dollars, Except per Share Data)
<TABLE>
<CAPTION>
Northern New Century Reporting
States Power Energies Adjustments Pro Forma Pro Forma
(as Reported) (as Reported) (Note 2) Adjustments Combined
------------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Operating revenues:
Electric................. $2,218,550 $2,473,359 $ (22,861) $ $4,669,048
Gas...................... 515,196 816,596 (179,257) 1,152,535
Nonregulated and other revenues - 52,570 425,689 478,259
Earnings from equity investments - - 52,766 52,766
------ ------- ------- ------ ------
Total operating revenues 2,733,746 3,342,525 276,337 6,352,608
Operating expenses:
Electric fuel and purchased power 596,238 1,203,292 (21,938) 1,777,592
Cost of gas sold and transported . 331,296 543,291 (167,902) 706,685
Other operation and maintenance .. 745,828 594,359 (57,268) 1,282,919
Depreciation and amortization .... 325,880 243,078 (9,414) 559,544
Taxes other than income taxes .... 227,893 129,280 (2,007) 355,166
Income taxes - utility... ........ 144,855 - (144,855) -
Nonregulated operating expenses .. - - 525,668 525,668
------ ----- ------- ----- ------
Total operating expenses 2,371,990 2,713,300 122,284 5,207,574
Operating income..................... 361,756 629,225 154,053 1,145,034
Other income (expense):
Income from nonregulated businesses
before interest and taxes........ 12,078 - (12,078) -
Equity earnings from unconsolidated
subsidiaries..................... - 34,166 (34,166) -
Merger costs...................... (29,005) (34,088) - (63,093)
Other income (deductions) 3,515 (27,267) 37,046 13,294
Income taxes on nonregulated
and nonoperating items - benefit.. 48,145 - (48,145) -
-------- ------ ------- ------ ------
Total other income (expense) 34,733 (27,189) (57,343) (49,799)
Financing costs:
Interest charges.................. 144,732 187,028 - 331,760
Distributions on mandatorily
redeemable preferred securities
of subsidiary trusts ............ 14,437 7,850 - 22,287
Dividends & redemption premiums
on preferred stock of subsidiaries - 11,752 - 11,752
-------- ------ ------- ------- ------
Total financing costs........... 159,169 206,630 - 365,799
Income before income taxes and
extraordinary item ................ 237,320 395,406 96,710 729,436
Income taxes......................... - 133,919 96,710 230,629
-------- ------- ------- ------- -------
Income before extraordinary item .... 237,320 261,487 - 498,807
Extraordinary item - U.K.windfall tax - (110,565) - (110,565)
------ -------- ------- ------- ------
Net income........................... 237,320 150,922 - 388,242
Preferred dividends & redemption
premiums of NSP.................... 11,071 - - 11,071
-------- ------ ------- ------- ------
Earnings available for common
shareholders ...................... $226,249 $150,922 $ - $ - $ 377,171
======== ======== ======= ======= ==========
Average common shares outstanding
(Note 1) ........................... 140,594 104,805 57,643 303,042
Average common and potentially
diluted shares outstanding (Note 1) 140,870 104,872 57,680 303,422
Earnings per share - basic and diluted:
Income before extraordinary item $1.61 $2.50 $1.61
Extraordinary item................ - (1.06) (0.37)
--- ----- -----
Total............................ $1.61 $1.44 $1.24
==== ===== =====
</TABLE>
See accompanying notes to Unaudited Pro Forma
Combined Condensed Financial Statements.
58
<PAGE>
Unaudited Pro Forma Combined Condensed Statement of Income
Reflecting Completion of the NCE/NSP Merger
Year ended December 31, 1996
(Thousands of Dollars, Except per Share Data)
<TABLE>
<CAPTION>
Northern New Century Reporting
States Power Energies Adjustments Pro Forma Pro Forma
(as Reported) (as Reported) (Note 2) Adjustments Combined
------------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Operating revenues:
Electric....................... $2,127,413 $2,416,539 $ (7,806) $ $4,536,146
Gas............................ 526,793 640,497 (68,880) 1,098,410
Nonregulated and other revenues - 39,998 380,589 420,587
Earnings from equity investments - - 31,057 31,057
------ ------- ------- ------ ------
Total operating revenues ..... 2,654,206 3,097,034 334,960 6,086,200
Operating expenses:
Electric fuel and purchased power 544,763 1,145,862 (7,649) 1,682,976
Cost of gas sold and transported 335,453 393,163 (61,257) 667,359
Other operation and maintenance 707,280 568,581 (35,389) 1,240,472
Depreciation and amortization 306,432 224,865 (7,561) 523,736
Taxes other than income taxes 232,824 128,980 (1,429) 360,375
Income taxes - utility.......... 161,410 - (161,410) -
Nonregulated operating expenses - - 455,163 455,163
------ -------- ------- ------ ------
Total operating expenses ..... 2,288,162 2,461,451 180,468 4,930,081
Operating income................... 366,044 635,583 154,492 1,156,119
Other income (expense):
Income from nonregulated businesses
before interest and taxes...... 18,543 - (18,543) -
Equity earnings from unconsolidated
subsidiaries................... - 389 (389) -
Merger costs.................... - (21,107) - (21,107)
Other income (deductions) - net 6,051 (13,775) 25,850 18,126
Income taxes on nonregulated and
nonoperating items - benefit.... 14,600 - (14,600) -
------ ------ ------- ------ ------
Total other income (expense) 39,194 (34,493) (7,682) (2,981)
Financing costs:
Interest charges................. 130,699 161,601 - 292,300
Distributions on mandatorily
redeemable preferred securities
of subsidiary trusts ............ - 1,526 - 1,526
Dividends & redemption premiums
on preferred stock of subsidiaries - 11,969 - 11,969
-------- ------ ------- ------- ------
Total financing costs.......... 130,699 175,096 - 305,795
Income before income taxes.......... 274,539 425,994 146,810 847,343
Income taxes........................ - 153,653 146,810 300,463
-------- ------- ------- ------- -------
Net income.......................... 274,539 272,341 - 546,880
Preferred dividends & redemption
premiums of NSP................... 12,245 - - 12,245
-------- ------- ------- ------- ------
Earnings available for common
shareholders ..................... $262,294 $272,341 $ - $ - $ 534,635
======== ======== ======== ======= =========
Average common shares outstanding
(Note 1) ......................... 137,121 103,059 56,682 296,862
Average common and potentially
diluted shares outstanding (Note 1) 137,358 103,102 56,706 297,166
Basic and diluted earnings per share $1.91 $2.64 $1.80
===== ===== =====
</TABLE>
See accompanying notes to Unaudited Pro Forma
Combined Condensed Financial Statements.
59
<PAGE>
Unaudited Pro Forma Combined Condensed Balance Sheet
Reflecting Completion of the NCE/NSP Merger
March 31, 1999
(Thousands of Dollars)
<TABLE>
<CAPTION>
Northern New Century Reporting
States Power Energies Adjustments Pro Forma Pro Forma
(as Reported) (as Reported) (Note 2) Adjustments Combined
------------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Property, plant and equipment:
Electric..................... $7,258,627 $7,116,116 $ (121,849) $ $14,252,894
Gas.......................... 885,730 1,220,178 (7,709) 2,098,199
Other........................ 370,401 1,003,126 542,316 1,915,843
-------- ---------- ------- ------- ----------
Total property, plant and
equipment ................. 8,514,758 9,339,420 412,758 18,266,936
Accumulated provision for
depreciation .............. (4,236,127) (3,410,190) (127,511) (7,773,828)
Nuclear fuel - net........... 103,510 - 103,510
-------- ------ ------- ------- -------
Net property, plant and equipment 4,382,141 5,929,230 285,247 10,596,618
Current assets:
Cash and cash equivalents ..... 58,280 84,817 143,097
Accounts receivable - net ..... 326,174 323,767 649,941
Accrued unbilled utility
revenues .................... 102,585 113,400 215,985
Fuel and gas inventories....... 45,306 58,869 104,175
Material and supplies inventories 112,455 70,552 183,007
Prepayments and other.......... 49,219 105,822 155,041
------- ------- ------- ------- -------
Total current assets.......... 694,019 757,227 1,451,246
Other assets:
Equity investments............. 874,414 347,911 1,222,325
External decommissioning fund
and other investments......... 503,400 71,152 574,552
Regulatory assets.............. 311,694 375,476 687,170
Non-regulated property - net .. 285,247 - (285,247) -
Other........................ 328,462 213,396 - 541,858
-------- ------- ------- ------- -------
Total other assets............ 2,303,217 1,007,935 (285,247) 3,025,905
--------- --------- -------- ------- ---------
Total assets...................... $7,379,377 $7,694,392 $ - $ - $15,073,769
========== ========== ========= ======= ===========
LIABILITIES AND EQUITY
Capitalization:
Common stock (Note 1).......... $ 382,985 $ 114,925 $ $330,409 $ 828,319
Other stockholders' equity (Note 1) 2,113,171 2,541,922 (330,409) 4,324,684
--------- --------- ------- ------- -----------
Total common stockholders equity 2,496,156 2,656,847 - 5,153,003
Preferred stockholders' equity 105,340 - 105,340
Mandatorily redeemable preferred
securities of subsidiary trusts 200,000 294,000 494,000
Long-term debt................. 1,844,071 2,304,985 4,149,056
--------- --------- ------- ------- ---------
Total capitalization.......... 4,645,567 5,255,832 9,901,399
Current liabilities:
Current portion of long-term debt 168,731 124,477 293,208
Short-term debt................ 369,632 408,900 778,532
Accounts payable............... 256,839 255,555 512,394
Taxes accrued.................. 226,497 133,954 360,451
Other accrued liabilities ..... 166,364 284,176 450,540
------- ------- ------- ------- -------
Total current liabilities 1,188,063 1,207,062 2,395,125
Other liabilities:
Deferred income taxes.......... 814,355 954,295 1,768,650
Deferred investment tax credits 125,993 99,650 225,643
Regulatory liabilities......... 392,285 - 392,285
Other.......................... 213,114 177,553 390,667
-------- -------- ------- ------- -------
Total other liabilities....... 1,545,747 1,231,498 2,777,245
--------- --------- ------- ------- ---------
Total liabilities and equity $7,379,377 $7,694,392 $ - $ - $15,073,769
========== ========== ======= ======= ===========
</TABLE>
See accompanying notes to Unaudited Pro Forma
Combined Condensed Financial Statements.
60
<PAGE>
<PAGE>
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
1. The unaudited pro forma combined condensed financial statements reflect the
conversion of each share of NCE common stock, par value $1.00 per share, into
1.55 share of common stock of the combined company and the continuation of
each share of NSP common stock, par value $2.50 per share, as one share of
common stock of the combined company ($2.50 par value), as provided in the
NCE/NSP Merger Agreement. The unaudited pro forma combined condensed
financial statements are presented as if the companies were combined during
all periods included therein.
2. The unaudited pro forma combined condensed income statements reflect certain
reclassifications to conform the presentation of operating results. These
reporting adjustments include: (a) separate presentation of nonregulated
revenues and equity earnings in operating revenues; (b) separate presentation
of all nonregulated expenses, including project write-downs, in operating
expenses; (c) presentation of nonregulated interest and other income,
including gains for project sales, in other income (deductions) - net; and
(d) presentation of all income taxes (regulated and nonregulated) on a single
line before arriving at net income.
3. The unaudited pro forma combined condensed balance sheet at March 31, 1999
reflects reporting adjustments to conform the presentation of: (a)
investments and deferred charges (in other assets); (b) nonregulated
property (in property, plant and equipment); and (c) construction work in
progress (in other property, plant and equipment).
4. The allocation of the estimated costs savings resulting from the merger to
NCE, NSP and their customers, net of the costs incurred to achieve such
savings, will be subject to regulatory review and approval. At the time the
merger agreement was signed, cost savings resulting from the merger were
estimated to be approximately $1.1 billion over a ten-year period, net of
transaction costs (including fees for financial advisors, attorneys,
accountants, filings and printing) and net of costs to achieve the savings.
None of the estimated cost savings, the costs to achieve such savings, or the
transaction costs have been reflected as pro forma adjustments in the
unaudited pro forma combined financial statements. Nonrecurring costs
directly attributable to the merger are expected to be deferred and amortized
to expense in periods subsequent to the consummation of the merger consistent
with the anticipated recovery in rates. Accordingly, no pro forma adjustments
have been made to retained earnings.
5. Intercompany transactions (including purchased and exchanged power
transactions) between NCE and NSP during the periods presented were not
material and, accordingly, no pro forma adjustments were made to eliminate
such transactions.
61
<PAGE>
EXHIBIT 10(a)
THE NCE 1999 SENIOR EXECUTIVE SEVERANCE POLICY
Introduction
Northern States Power Company, a Minnesota corporation ("NSP") and
New Century Energies, Inc., a Delaware corporation ("NCE") have entered into an
Agreement and Plan of Merger dated as of March 24, 1999 (the "Merger
Agreement"), whereby the NSP and NCE organizations will engage in a
merger-of-equals transaction (the "Combination"). The Board of Directors of NCE
recognizes that the pendency of the Combination, and the inevitable adjustments
that will occur during the transition period following the Combination, may
result in the loss or distraction of employees of the Corporation and its
Subsidiaries to the detriment of the Corporation and its shareholders.
The Board considers the avoidance of such loss and distraction to be
essential to protecting and enhancing the best interests of the Corporation and
its shareholders. The Board also believes that during the pendency of the
Combination and the transition period thereafter, the Board should be able to
receive and rely on disinterested service from employees without concern that
employees might be distracted or concerned by personal uncertainties and risks.
In addition, the Board believes that it is consistent with the
Corporation's employment practices and policies and in the best interests of the
Corporation and its shareholders to treat fairly its employees whose employment
terminates in connection with or following the Combination.
Accordingly, the Board has determined that appropriate steps should
be taken to assure the Corporation of the continued employment and attention and
dedication to duty of its employees and to seek to ensure the availability of
their continued service, notwithstanding the Combination.
Therefore, in order to fulfill the above purposes, the following
plan has been developed and is hereby adopted.
ARTICLE I
ESTABLISHMENT OF PLAN
As of the Effective Date, the Corporation hereby establishes,
subject to Section 7.4 hereof, a separation compensation plan known as the NCE
1999 Senior Executive Severance Policy, as set forth in this document.
<PAGE>
ARTICLE II
DEFINITIONS
As used herein the following words and phrases shall have the
following respective meanings unless the context clearly indicates otherwise.
(a) Annual Incentive Award. The highest amount a Participant
received as an annual cash incentive award in any of the three calendar years
prior to a termination of employment entitling the Participant to a Separation
Benefit.
(b) Annual Salary. The Participant's regular annual base
salary immediately prior to his or her termination of employment, including
compensation converted to other benefits under a flexible pay arrangement
maintained by the Corporation or deferred pursuant to a written plan or
agreement with the Corporation, but excluding overtime pay, allowances, premium
pay, compensation paid or payable under any Corporation long-term or short-term
incentive plan or any similar payment.
(c) Board. The Board of Directors of NCE.
(d) Code. The Internal Revenue Code of 1986, as amended from
time to time.
(e) Committee. The Compensation Committee of the Board.
(f) Corporation. NCE and any successor thereto.
(g) Date of the Combination. The Effective Time, as defined in
the Merger Agreement.
(h) Date of Termination. The date on which a Participant
ceases to be an Employee.
(i) Effective Date. The date of the Merger Agreement.
(j) Employee. Any full-time, regular-benefit, non-bargaining
employee of an Employer. The term shall exclude all individuals employed as
independent contractors, temporary employees, other benefit employees,
non-benefit employees, leased employees, even if it is subsequently determined
that such classification is incorrect.
(k) Employer. The Corporation or a Subsidiary which has
adopted the Plan pursuant to Article V hereof.
2
<PAGE>
(l) Long-Term Incentive Award. For Stock Awards, the highest
aggregate Value granted (or deemed to have been granted as determined under the
definition of Value) to a Participant during any of the three calendar years
prior to a termination of employment entitling the Participant to a Separation
Benefit. For Non-Stock Awards, the highest target opportunity for any cycle
which begins during the 36 month period prior to a termination of employment
entitling the Participant to a Separation Benefit.
(m) Multiple. For each Participant, the number set forth
opposite the Participant's name on Schedule 1 hereto.
(n) Non-Stock Award. The opportunity to receive a cash payment
under the "value creation plan" component of the Corporation's long-term
incentive program, which long-term incentive program is incorporated into the
Corporation's omnibus incentive plan.
(o) Participant. An individual who is designated as such
pursuant to Section 3.1.
(p) Plan. The NCE 1999 Senior Executive Severance Policy.
(q) Release Agreement. An agreement substantially in the form
set forth in Exhibit A to this Plan, with such amendments as the Committee may
determine to be necessary in order for such agreement to constitute a valid
release by the Participant in question of all claims described therein.
(r) Separation Benefits. The payments and benefits described
in Section 4.3 that are provided to qualifying Participants under the Plan.
(s) Separation Period. The period beginning on a Participant's
Date of Termination and ending upon expiration of a number of years equal to the
Participant's Multiple.
(t) Stock Award. An award of stock options, stock appreciation
rights (other than in conjunction with a stock option) or restricted stock or a
performance award, in each case granted pursuant to the Corporation's long-term
incentive program incorporated into the Corporation's omnibus incentive plan or
any predecessor, successor or similar plan of the Corporation.
(u) Subsidiary. Any corporation in which the Corporation,
directly or indirectly, holds a majority of the voting power of such
corporation's outstanding shares of capital stock.
3
<PAGE>
(v) Target Annual Incentive. The Annual Incentive Award that
the Participant would have received for the year in which his or her Date of
Termination occurs, if the target goals had been achieved.
(w) Value. The Value of a Stock Award shall be the dollar
value of such award at the time of grant, as determined by the Committee in
connection with the grant of such Stock Award; it being understood that the
Committee's practice, as of the date of adoption of this Plan, is to determine
(i) the value of a Stock Award that is a stock option, stock appreciation right
or similar right that derives its value from the appreciation of the value of
equity securities using a modified version of the Black-Scholes option valuation
method; provided, however, that the value of stock options shall be prorated
over the period of time the grant was intended to cover and the grant will be
deemed to have been made proportionately in each calender year of such period,
and (ii) the value of other Stock Awards based upon the fair market value of the
underlying equity securities.
ARTICLE III
ELIGIBILITY
3.1 Participation. Each of the individuals named on Schedule 1
hereto shall be a Participant in the Plan. Schedule 1 may be amended by the
Board from time to time to add individuals as Participants.
3.2 Duration of Participation. A Participant shall only cease to be
a Participant in the Plan as a result of an amendment or termination of the Plan
complying with Article VII of the Plan, or when he ceases to be an Employee of
any Employer, unless, at the time he ceases to be an Employee, such Participant
is entitled to payment of a Separation Benefit as provided in the Plan or there
has been an event or occurrence described in Section 4.2(a) which would enable
the Participant to terminate his employment and receive a Separation Benefit. A
Participant entitled to payment of a Separation Benefit or any other amounts
under the Plan shall remain a Participant in the Plan until the full amount of
the Separation Benefit and any other amounts payable under the Plan have been
paid to the Participant.
ARTICLE IV
SEPARATION BENEFITS
4.1 Right to Separation Benefit. A Participant shall be entitled to
receive Separation Benefits in accordance with Section 4.3 if the Participant
ceases to be an Employee for any reason specified in Section 4.2(a).
4.2 Termination of Employment.
4
<PAGE>
(a) Terminations Which Give Rise to Separation Benefits Under
This Plan. Except as set forth in subsection (b) below, a Participant shall be
entitled to Separation Benefits if, at any time before the third anniversary of
the Date of the Combination:
(i) the Participant ceases to be an Employee by action
of the Employer or any of its affiliates (excluding any
transfer to another Employer);
(ii) the Participant's Annual Salary is reduced below
the higher of (x) the amount in effect on the Effective Date
and (y) the highest amount in effect at any time thereafter,
and the Participant ceases to be an Employee by his or her own
action within 130 days after the occurrence of such reduction;
(iii) the Participant's duties and responsibilities are
materially and adversely diminished in comparison to the
duties and responsibilities enjoyed by the Participant on the
Effective Date, and the Participant ceases to be an Employee
by his or her own action within 130 days after the occurrence
after such reduction;
(iv) the program of incentive compensation and
retirement and welfare benefits offered to the Participant
(determined in the aggregate) is materially and adversely
diminished in comparison to the program of benefits enjoyed by
the Participant on the Effective Date, and the Participant
ceases to be an Employee by his or her own action within 130
days after the occurrence after such reduction; or
(v) an Employer or any affiliate of an Employer sells
or otherwise distributes or disposes of the subsidiary, branch
or other business unit in which the Participant was employed
before such sale, distribution or disposition and the
requirements of subsection (b)(iv) of this Section 4.2 are not
met, and the Participant ceases to be an Employee upon or
within 130 days after such sale, distribution or disposition.
With respect to a termination by the Participant pursuant to clause (ii), (iii),
(iv), or (v) of this Section 4.2(a), such termination shall be effective if and
only if the Participant has given written notice to his or her Employer of his
or her intent to terminate for such reason (stating the event(s) relied upon for
such termination and the provisions of this Section 4.2(a) relied upon) within
90 days of the date on which the event(s) first occurred, and the Employer or an
affiliate of the Employer, as the case may be, has failed to remedy such event
within the 30 day period following receipt of such notice.
5
<PAGE>
(b) Terminations Which Do Not Give Rise to Separation Benefits
Under This Plan. If a Participant's employment is terminated for Cause, death,
disability, retirement, or a qualified sale of business (as those terms are
defined below), or voluntarily by the Participant in the absence of an event
described in subsection (a)(ii), (iii) or (iv) of this Section 4.2, the
Participant shall not be entitled to Separation Benefits under the Plan.
(i) A termination for disability shall have occurred
where a Participant is terminated because of an illness or
injury and the Participant has become eligible to receive
long-term disability benefits under, or would have become so
eligible if such Participant were covered by, the
Corporation's long-term disability plan, as it exists at the
time of termination of employment.
(ii) A termination by retirement shall have occurred
where a Participant's termination is due to his voluntary
late, normal or early retirement under a pension plan
sponsored by his Employer or its affiliates, as defined in
such plan.
(iii) A termination for Cause shall have occurred where
a Participant is terminated because of:
(A) the willful and continued failure of the
Participant to perform substantially the
Participant's duties with the Corporation or one of
its affiliates (other than any such failure resulting
from incapacity due to physical or mental illness),
after a written demand for substantial performance is
delivered to the Participant by the Board or an
elected officer of the Corporation which specifically
identifies the manner in which the Board or the
elected officer believes that the Participant has not
substantially performed the Participant's duties, or
(B) the willful engaging by the Participant in
illegal conduct or gross misconduct which is
materially and demonstrably injurious to the
Corporation.
6
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For purposes of this provision, no act or failure to act, on
the part of the Participant, shall be considered "willful"
unless it is done, or omitted to be done, by the Participant
in bad faith or without reasonable belief that the
Participant's action or omission was in the best interests of
the Corporation. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the
Board, or upon the advice of counsel for the Corporation,
shall be conclusively presumed to be done, or omitted to be
done, by the Participant in good faith and in the best
interests of the Corporation.
(iv) A termination due to a qualified sale of business
shall have occurred where an Employer or an affiliate of an
Employer has sold, distributed or otherwise disposed of the
subsidiary, branch or other business unit in which the
Participant was employed before such sale, distribution or
disposition and the Participant has been offered employment
with the purchaser of such subsidiary, branch or other
business unit or the corporation or other entity which is the
owner thereof on substantially the same terms and conditions
under which he worked for the Employer (including, without
limitation, duties and responsibilities, and the aggregate of
the Participant's base salary and program of benefits). Such
terms and conditions shall also include, without limitation, a
legally binding agreement or plan covering such Participant,
providing that upon a qualifying termination of employment
with the subsidiary, branch or business unit (or the
corporation or other entity which is the owner thereof) or any
successor thereto of the kind described in Article VI of this
Plan, at any time before the third anniversary of the Date of
the Combination, the Participant's employer or any successor
will pay to each such former Participant an amount equal to
the separation benefit and other benefits that such former
Participant would have received under the Plan had he been a
Participant at the time of such termination. For purposes of
this subsection, the new employer plan or agreement must treat
service with any Employer (irrespective of whether the
Employer was an affiliate of the Corporation or the Employee
was a Participant at the time of such service) and the new
employer as continuous service for purposes of calculating
separation benefits.
7
<PAGE>
4.3 Separation Benefits.
(a) If a Participant's employment is terminated in
circumstances entitling him to a separation benefit as provided in Section
4.2(a), and the Participant executes and does not revoke a Release Agreement,
the Participant's Employer shall pay such Participant within fifteen days of the
Date of Termination or, if later, upon the date such Release Agreement becomes
irrevocable, a cash lump sum as set forth in subsection (b) below and the
continued benefits set forth in subsection (c) below, subject to Section 4.6
below. For purposes of determining the benefits set forth in subsection (b) and
(c), if the termination of the Participant's employment is based upon a
reduction of the Participant's Annual Salary or benefits as described in
subsection (ii) or (iii) of Section 4.2, such reduction shall be ignored.
(b) The cash lump sum referred to in Section 4.3(a) shall
equal the aggregate of the following amounts:
(i) the sum of (1) the Participant's Annual Salary
through the Date of Termination to the extent not theretofore
paid, (2) the product of (x) the sum of the Target Annual
Incentive plus the Long-Term Incentive and (y) a fraction, the
numerator of which is the number of days in such year through
the Date of Termination, and the denominator of which is 365,
and (3) any compensation previously deferred by the
Participant (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in each case to the
extent not theretofore paid and in full satisfaction of the
rights of the Participant thereto;
(ii) an amount equal to the product of (1) the
Participant's Multiple and (2) the sum of (x) the
Participant's Annual Salary, (y) the higher of the Target
Annual Incentive or the Annual Incentive Award, and (z) the
Long-Term Incentive Award;
(iii) an amount equal to the difference between (a) the
actuarial equivalent of the benefit under the Corporation's
qualified defined benefit retirement plan (the "Retirement
Plan") and any excess or supplemental retirement plans in
which the Participant participates and/or other supplemental
retirement benefits to which the Participant may be entitled
under any contract or agreement (together, the "SERP") which
the Participant would receive if his or her employment
continued during the Separation Period, assuming that the
Participant's compensation during the Separation Period would
have been equal to his or her compensation as in effect
immediately before the termination or, if higher, on the
Effective Date, and (b) the actuarial equivalent of the
Participant's actual benefit (paid or payable), if any, under
the Retirement Plan and the SERP as of the Date of
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<PAGE>
Termination. The actuarial assumptions used for purposes of
determining actuarial equivalence shall be no less favorable
to the Participant than the most favorable of those in effect
under the Retirement Plan and the SERP on the Date of
Termination and the Effective Date; and
(iv) The sum of the additional contributions (other
than pre-tax salary deferral contributions by the Participant)
that would have been made or credited by the Company to the
Participant's accounts under each qualified defined
contribution plan and non-qualified supplemental executive
savings plan, if any, that covered the Participant on the date
the termination of employment occurred, determined by assuming
that:
(A)The Participant's employment had continued
for the Separation Period;
(B) The Participant's rate of compensation
being recognized by each plan immediately prior to
the Date of Termination had continued in effect
during the Separation Period;
(C) In the case of matching contributions, the
Participant's rate of pre-tax salary deferral
contributions in effect for the last plan year
beginning prior to the Date of Termination had
remained in effect throughout the Separation Period;
and
(D) In the case of discretionary contributions
by the Company, the Company continued to make such
contributions during the Separation Period at the
rate that applied to the most recent plan year that
ended prior to the Date of Termination.
(c) The continued benefits referred to above shall be as
follows.
(i) During the Separation Period, the Participant and
his family shall be provided with medical, dental and life
insurance benefits as if the Participant's employment had not
been terminated; provided, however, that if the Participant
becomes reemployed with another employer and is eligible to
receive medical or other welfare benefits under another
employer-provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under
such other plan during such applicable period of eligibility;
and for purposes of determining eligibility (but not the time
of commencement of benefits) of the Participant for retiree
9
<PAGE>
medical, dental and life insurance benefits under the
Corporation's plans, practices, programs and policies, the
Participant shall be considered to have remained employed
during the Separation Period and to have retired on the last
day of such period;
(ii) The Corporation shall, at its sole expense as
incurred, provide the Participant with outplacement services
the scope and provider of which shall be selected by the
Participant in his or her sole discretion (but at a cost to
the Corporation of not more than $30,000);
(iii) The Corporation shall continue to provide the
Participant with financial planning counseling benefits
through the second anniversary of the Date of Termination, on
the same terms and conditions as were in effect immediately
before the termination or, if more favorable, on the Effective
Date; and
(iv) the Corporation will continue to provide the
Executive with his or her "flexible perquisite allowance"
through the Separation Period.
To the extent any benefits described in this Section 4.3(c) cannot be provided
pursuant to the appropriate plan or program maintained for Employees, the
Employer shall provide such benefits outside such plan or program at no
additional cost (including without limitation tax cost) to the Participant.
Notwithstanding the foregoing, if a group insurance carrier refuses to provide
the coverage described in this Section 4.3(c) under its contract issued to the
Company, or if the Company reasonably determines that the coverage required
under this Section 4.3(c) would cause a welfare plan sponsored by the Company to
violate any provision of the Code prohibiting discrimination in favor of highly
compensated employees or key employees, the Company will use its best efforts to
obtain for the Participant an individual insurance policy providing comparable
coverage. However, if the Company determines in good faith that comparable
coverage cannot be obtained for less than two times the premium or premium
equivalent for such coverage under the Company welfare plan or plans, the
Company's sole obligation under this Section 4.3(c) with respect to that
coverage will be limited to paying the Participant a monthly amount equal to two
times the monthly premium or premium equivalent for that coverage under the
Company's plans.
10
<PAGE>
4.4 Other Benefits Payable. The cash lump sum and continuing
benefits described in Section 4.3 above shall be payable in addition to, and not
in lieu of, all other accrued or vested or earned but deferred compensation,
rights, options or other benefits which may be owed to a Participant upon or
following termination, including but not limited to accrued vacation or sick
pay, amounts or benefits payable under any bonus or other compensation plans,
stock option plan, stock ownership plan, stock purchase plan, life insurance
plan, health plan, disability plan or similar or successor plan, except as
provided in Section 4.6 below.
4.5 Certain Additional Payments by the Corporation.
(a) Anything in this Plan to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Corporation or its affiliates to or for the benefit of
the Participant (whether paid or payable or distributed or distributable
pursuant to the terms of this Plan or otherwise, but determined without regard
to any additional payments required under this Section 4.5) (a "Payment") would
be subject to the excise tax imposed by Section 4999 of the Code or any interest
or penalties are incurred by the Participant with respect to such excise tax
(such excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Participant shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Participant of all taxes (including any interest
or penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Participant retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments. If a Gross-Up Payment is made as discussed above, as calculated under
Internal Revenue Service regulations, it shall be exclusive of all amounts
attributable to any cash payment based on a Stock Award. Notwithstanding the
foregoing provisions of this Section 4.5(a), if it shall be determined that the
Participant is entitled to a Gross-Up Payment, but that the Payments do not
exceed 110% of the greatest amount (the "Reduced Amount") that could be paid to
the Participant such that the receipt of Payments would not give rise to any
Excise Tax, then no Gross-Up Payment shall be made to the Participant and the
Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 4.5(c), all
determinations required to be made under this Section 4.5, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by a nationally recognized accounting firm selected by the Corporation (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
the Corporation and the Participant within 15 business days of the receipt of
notice from the Participant that there has been a Payment, or such earlier time
as is requested by the Corporation. All fees and expenses of the Accounting Firm
shall be borne solely by the Corporation. Any Gross-Up Payment, as determined
pursuant to this Section 4.5, shall be paid by the Corporation to the
11
<PAGE>
Participant within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Corporation and the Participant. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Corporation should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Corporation exhausts its remedies pursuant to
Section 4.5(c) and the Participant thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid
by the Corporation to or for the benefit of the Participant.
(c) The Participant shall notify the Corporation in writing of
any claim by the Internal Revenue Service that, if successful, would require the
payment by the Corporation of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Participant is informed in writing of such claim and shall apprise the
Corporation of the nature of such claim and the date on which such claim is
requested to be paid. The Participant shall not pay such claim prior to the
expiration of the 30-day period following the date on which it gives such notice
to the Corporation (or such shorter period ending on the date that any payment
of taxes with respect to such claim is due). If the Corporation notifies the
Participant in writing prior to the expiration of such period that it desires to
contest such claim, the Participant shall:
(i) give the Corporation any information reasonably
requested by the Corporation relating to such claim,
(ii) take such action in connection with contesting
such claim as the Corporation shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by
an attorney reasonably selected by the Corporation,
(iii) cooperate with the Corporation in good faith in
order effectively to contest such claim, and
(iv) permit the Corporation to participate in any
proceedings relating to such claim;
provided, however, that the Corporation shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Participant
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 4.5(c), the Corporation shall control all
proceedings taken in connection with such contest and, at its sole option, may
12
<PAGE>
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Participant to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Participant
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Corporation shall determine; provided, however, that if the
Corporation directs the Participant to pay such claim and sue for a refund, the
Corporation shall advance the amount of such payment to the Participant, on an
interest-free basis and shall indemnify and hold the Participant harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Participant with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Corporation's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Participant shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Participant of an amount
advanced by the Corporation pursuant to Section 4.5(c), the Participant becomes
entitled to receive any refund with respect to such claim, the Participant shall
(subject to the Corporation's complying with the requirements of Section 4.5(c))
promptly pay to the Corporation the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Participant of an amount advanced by the Corporation pursuant to
Section 4.5(c), a determination is made that the Participant shall not be
entitled to any refund with respect to such claim and the Corporation does not
notify the Participant in writing of its intent to contest such denial of refund
prior to the expiration of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
4.6 Conditions to Payment Obligations.
(a) Except as provided in Section 4.6(b) below, the
obligations of the Corporation and the Employers to pay the Separation Benefits
and the Gross-Up Payment and other payments described in Section 4.5 shall be
absolute and unconditional and shall not be affected by any circumstances,
including, without limitation, any set-off, counterclaim, recoupment, defense or
other right which the Corporation or any of its Subsidiaries may have against
any Participant.
(b) Notwithstanding any other provision of this Plan or any
other plan, program, practice or policy of any Employer: (i) any cash Separation
Benefits that a Participant becomes entitled to receive under Section 4.3(b) of
13
<PAGE>
this Plan shall be reduced (but not below zero) by the aggregate amount of cash
severance, separation, or similar benefits that the Participant may be entitled
to receive under any other plan, program, policy, contract, agreement or
arrangement of any Employer (including without limitation the NCE Senior
Executive Severance Policy), except to the extent the Participant waives his or
her right thereto, and by the aggregate amount of such cash benefits or pay in
lieu of notice that the Participant may be entitled to receive under applicable
law; and (ii) any continued benefits that a Participant becomes entitled to
receive under Section 4.3(c) of this Plan shall be provided concurrently (not
consecutively) with any such benefits that such Participant may be entitled to
receive under any other plan, program, policy, contract, agreement or
arrangement of any Employer or applicable law (including without limitation the
health continuation coverage required by Section 4980B of the Code and Section
601 et seq. of the Employee Retirement Income Security Act of 1974, as amended).
In no event shall a Participant be obligated to seek other employment or take
any other action by way of mitigation of the amounts payable to a Participant
under any of the provisions of this Plan, nor shall the amount of any payment
hereunder be reduced by any compensation earned by a Participant as a result of
employment by another employer, except as specifically provided in Section
4.3(c)(i).
ARTICLE V
PARTICIPATING EMPLOYERS
This Plan may be adopted by any Subsidiary of the Corporation. Upon
such adoption, the Subsidiary shall become an Employer hereunder and the
provisions of the Plan shall be fully applicable to the Employees of that
Subsidiary who are Participants pursuant to Section 3.1.
ARTICLE VI
SUCCESSOR TO CORPORATION
This Plan shall bind any successor of the Corporation, its assets or
its businesses (whether direct or indirect, by purchase, merger, consolidation
or otherwise), in the same manner and to the same extent that the Corporation
would be obligated under this Plan if no succession had taken place.
In the case of any transaction in which a successor would not by the
foregoing provision or by operation of law be bound by this Plan, the
Corporation shall require such successor expressly and unconditionally to assume
and agree to perform the Corporation's obligations under this Plan, in the same
14
<PAGE>
manner and to the same extent that the Corporation would be required to perform
if no such succession had taken place. The term "Corporation," as used in this
Plan, shall mean the Corporation as hereinbefore defined and any successor or
assignee to the business or assets which by reason hereof becomes bound by this
Plan.
ARTICLE VII
DURATION, AMENDMENT AND TERMINATION
7.1 Duration. If the Combination has not occurred, this Plan shall
expire five years from the Effective Date, unless extended for an additional
period or periods by resolution adopted by the Board. If the Combination occurs,
this Plan shall continue in full force and effect and shall not terminate or
expire until after all Participants who become entitled to any payments
hereunder shall have received such payments in full and all payments and
adjustments required to be made pursuant to Section 4.5 have been made.
7.2 Amendment. Except as provided in Section 7.1, the Plan shall not
be subject to amendment, change, substitution, deletion, revocation or
termination in any respect which adversely affects the rights of Participants.
7.3 Form of Amendment. The form of any amendment of the Plan shall
be a written instrument signed by a duly authorized officer or officers of the
Corporation, certifying that the amendment has been approved by the Board.
7.4 Pooling-of-Interests. Notwithstanding any other provision
contained in this Plan to the contrary, if any action taken or required to be
taken pursuant to the terms of this Plan would preclude the use of the "pooling
of interests" accounting method with respect to the Combination, this Plan and
any rights created hereunder shall be deemed null and void ab initio and of no
further force or effect.
ARTICLE VIII
MISCELLANEOUS
8.1 Indemnification. If a Participant institutes any legal action in
seeking to obtain or enforce, or is required to defend in any legal action the
validity or enforceability of, any right or benefit provided by this Plan, the
Corporation or the Employer will pay for all reasonable legal fees and expenses
incurred (as incurred) by such Participant, regardless of the outcome of such
action.
15
<PAGE>
8.2 Employment Status. This Plan does not constitute a contract of
employment or impose on the Participant or the Participant's Employer any
obligation to retain the Participant as an Employee, to change the status of the
Participant's employment, or to change the Corporation's policies or those of
its Subsidiaries regarding termination of employment.
8.3 Claim Procedure. If an Employee or former Employee makes a
written request alleging a right to receive benefits under this Plan or alleging
a right to receive an adjustment in benefits being paid under the Plan, the
Corporation shall treat it as a claim for benefit. All claims for benefit under
the Plan shall be sent to the Human Resources Department of the Corporation and
must be received within 30 days after termination of employment. If the
Corporation determines that any individual who has claimed a right to receive
benefits, or different benefits, under the Plan is not entitled to receive all
or any part of the benefits claimed, it will inform the claimant in writing of
its determination and the reasons therefor in terms calculated to be understood
by the claimant. The notice will be sent within 90 days of the claim unless the
Corporation determines additional time, not exceeding 90 days, is needed. The
notice shall make specific reference to the pertinent Plan provisions on which
the denial is based, and describe any additional material or information is
necessary. Such notice shall, in addition, inform the claimant what procedure
the claimant should follow to take advantage of the review procedures set forth
below in the event the claimant desires to contest the denial of the claim. The
claimant may within 90 days thereafter submit in writing to the Corporation a
notice that the claimant contests the denial of his or her claim by the
Corporation and desires a further review. The Corporation shall within 60 days
thereafter review the claim and authorize the claimant to appear personally and
review pertinent documents and submit issues and comments relating to the claim
to the persons responsible for making the determination on behalf of the
Corporation. The Corporation will render its final decision with specific
reasons therefor in writing and will transmit it to the claimant within 60 days
of the written request for review, unless the Corporation determines additional
time, not exceeding 60 days, is needed, and so notifies the Participant. If the
Corporation fails to respond to a claim filed in accordance with the foregoing
within 60 days or any such extended period, the Corporation shall be deemed to
have denied the claim.
8.4 Validity and Severability. The invalidity or unenforceability of
any provision of the Plan shall not affect the validity or enforceability of any
other provision of the Plan, which shall remain in full force and effect, and
any prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
8.5 Governing Law. The validity, interpretation, construction and
performance of the Plan shall in all respects be governed by the laws of
Colorado, without reference to principles of conflict of law, except to the
extent preempted by federal law.
16
<PAGE>
8.6 Withholding. The Corporation may withhold from any and all
amounts payable under this Plan all federal, state, local, and foreign taxes
that may be required to be withheld by applicable laws or regulations.
New Century Energies, Inc.
/s/ Bill D. Helton
---------------------------
By : Bill D. Helton
Its Chairman and
Chief Executive Officer
17
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SCHEDULE I
Participants
Name Multiple
---- --------
Paul J. Bonavia 2.5
Doyle R. Bunch II 2.5
Henry H. Hamilton 2.5
Brian P. Jackson 2.5
Richard C. Kelly 2.5
James T. Petillo 2.5
David M. Wilks 2.5
Gary L. Gibson 2.5
Cathy J. Hart 2
Ross C. King 2
Teresa S. Madden 2
John McAfee 2
Marilyn E. Taylor 2
Patricia Vincent 2
<PAGE>
- 1 -
EXHIBIT A
FORM OF RELEASE AGREEMENT
THIS AGREEMENT is entered into this ___ day of ________, 19___ by
and between New Century Energies, Inc. (the "Company"), a Delaware corporation,
and ________________ ("Participant").
WHEREAS, the Participant has become entitled to receive Separation
Benefits under the NCE 1999 Senior Executive Severance Policy (the "Policy") on
the condition that the Participant enter into this Release Agreement.
NOW, THEREFORE, in consideration of the Covenant Consideration, the
Participant, intending to be legally bound, agrees as follows:
1. Acknowledgment.
(a) The Participant understands and agrees that, in addition to the
Participant's below-described exposure to the Company's Confidential Information
or Trade Secrets, the Participant may, in his capacity as an employee, at times
meet with the Company's customers and suppliers, and that as a consequence of
using and associating with the Company's name, goodwill, and professional
reputation, the Participant will be in a position to develop personal and
professional relationships with the Company's past, current, and prospective
customers and suppliers. The Participant further acknowledges that during the
course and as a result of employment by the Company, the Participant may be
provided certain specialized training or know-how. The Participant understands
and agrees that this goodwill and reputation, as well as the Participant's
knowledge of Confidential Information or Trade Secrets and specialized training
and know-how, could be used unfairly in competition against the Company.
(b) Accordingly, the Participant agrees that during the period of
one year after the Date of Termination (the "Covenant Period"), the Participant
shall not:
(i) Directly or indirectly solicit, service, contract with, or
otherwise engage any past (one (1) year prior), existing or
prospective customer, client, or account who then has a relationship
with the Company for current or prospective business on behalf of an
individual or entity that is engaged in a Competing Business (as
defined below), or on the Participant's own behalf for a Competing
Business; the term "Competing Business" meaning for purposes of this
clause (i) a business or enterprise that is engaged in the business
of generation, purchase, transmission, distribution, or sale of
electricity, or in the purchase, transmission, distribution, sale or
transportation of natural gas within the States of Colorado, Kansas,
Minnesota, New Mexico, North Dakota, Oklahoma, South Dakota, Texas,
Wisconsin or Wyoming; and the Participant and the Company agree that
<PAGE>
this provision is reasonably enforced with reference to the
foregoing states to the extent applicable to such relationships with
the Company;
(ii) Cause or attempt to cause any existing or prospective
customer, client, or account, who then has a relationship with the
Company for current or prospective business, to divert, terminate,
limit or in any manner modify, or fail to enter into any actual or
potential business relationship with the Company; and the
Participant and the Company agree that this clause (ii) is
reasonably enforced with reference to any geographic area applicable
to such relationships with the Company; and
(iii) Directly or indirectly solicit, employ or conspire with
others to employ any of the Company's employees; the term "employ"
for purposes of this clause (iii) meaning to enter into an
arrangement for services as a full-time or part-time employee,
independent contractor, consultant, agent or otherwise; and the
Participant and the Company agree that this clause (iii) is
reasonably enforced as to any geographic area.
(c) The Participant further agrees to inform any new employer or
other person or entity with whom the Participant enters into a business
relationship during the Covenant Period, before accepting such employment or
entering into such a business relationship, of the existence of this Agreement
and give such employer, person or other entity a copy of this Agreement.
2. Return of Property. The Participant agrees that upon the Date of
Termination, the originals and all copies of any and all documents (including
computer data, diskettes, programs, or printouts) that contain any customer
information, financial information, product information, or other information
that in any way relates to the Company, its products or services, its clients,
its suppliers, or other aspects of its business that are in the Participant's
possession shall be immediately returned to the Company. The Participant further
agrees to not retain any summary of such information.
3. Confidential Information/Trade Secrets.
(a) The Participant acknowledges that during the course and as a
result of his or her employment, the Participant may receive or otherwise have
access to, or contribute to the production of, Confidential Information or Trade
Secrets. "Confidential Information or Trade Secrets" means information that is
proprietary to or in the unique knowledge of the Company (including information
discovered or developed in whole or in part by the Participant); the Company's
business methods and practices; or information that derives independent economic
value, actual or potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use, and is the subject of efforts that are
2
<PAGE>
reasonable under the circumstances to maintain its secrecy. It includes, among
other things, strategies, procedures, manuals, confidential reports, lists of
clients, customers, suppliers, past, current or possible future products or
services, and information concerning research, development, accounting,
marketing, selling or leases and the prices or charges paid by the Company's
customers to the Company, or by the Company to its suppliers. The Participant
acknowledges his continuing agreement to abide by the terms of the Company's
Corporate Code of Conduct.
(b) The Participant further acknowledges and appreciates that any
Confidential Information or Trade Secret constitutes a valuable asset of the
Company and that the Company intends any such information to remain secret and
confidential. The Participant therefore specifically agrees that except to the
extent required by the Participant's duties to the Company or as permitted by
the express written consent of the Board of Directors, the Participant shall
never, either during employment with the Company or at any time thereafter,
directly or indirectly use, discuss or disclose any Confidential Information or
Trade Secrets of the Company or otherwise use such information to his or her own
or a third party's benefit.
4. Consideration. The Participant and the Company agree that the
above provisions of this Agreement are reasonable and necessary for the
protection of the Company and its business. In exchange for the Participant's
agreement to be bound by the terms of this Agreement, the Company has provided
the Participant the Separation Benefits under the Policy. The Participant
accepts and acknowledges the adequacy of such consideration for this Agreement.
5. Remedies for Breach. The Participant acknowledges that a breach
of the above provisions of this Agreement will cause the Company irreparable
harm that would not be fully remedied by monetary damages. Accordingly, the
Participant agrees that the Company shall, in addition to the requirement to
return the Covenant Consideration to the Company and any relief afforded by law,
be entitled to injunctive relief. The Participant agrees that both damages at
law and injunctive relief shall be proper modes of relief and are not to be
considered alternative remedies.
6. Release.
(a) In consideration of the Separation Benefits, the Participant
does hereby fully and completely release and waive any and all claims,
complaints, causes of action or demands of whatever kind which the Participant
has or may have against the Company and its predecessors, successors,
subsidiaries and affiliates and all officers, employees and agents of those
persons and companies arising out of any actions, conduct, decisions, behavior
or events occurring to the date of his or her execution of this Release of which
the Participant is or has been made aware or has been reasonably put on notice.
(b) The Participant understands and accepts that this release
specifically covers but is not limited to any and all claims, complaints, causes
of action or demands of whatever kind which the Participant has or may have
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against the above-referenced released parties relating in any way to the terms,
conditions and circumstances of his or her employment to date, whether based on
statutory, regulatory or common law claims for employment discrimination,
including but not limited to race, color, sex, age or reprisal discrimination,
arising under the Federal Civil Rights Act of 1964, as amended, Executive Order
11246, the Age Discrimination in Employment Act, as amended, the Colorado Civil
Rights Act or any other administrative order, federal or state statute or local
ordinance, wrongful discharge, breach of contract, breach of any express or
implied promise, misrepresentation, fraud, reprisal, retaliation, breach of
public policy, infliction of emotional distress, defamation, promissory
estoppel, invasion of privacy, negligence, or any other theory, whether legal or
equitable; except that this release will not impair any existing rights the
Participant may have under any presently existing pension, retirement or
employee benefit plan of the Company.
(c) By signing below, the Participant acknowledges that he or she
fully understands and accepts the terms of this release, and represents and
agrees that his or her signature is freely, voluntarily and knowingly given [and
that he or she has been provided a full opportunity to review and reflect on the
terms of this release for at least [21] [45] days and to seek the advice of
legal counsel of his or her choice, which advice the Participant has been
encouraged to obtain] [include if necessary].
7. The Participant's Acknowledgment of Review[; Right to Revoke].
[(a) ]The Participant represents that the Participant has carefully
read and fully understands all provisions of this Agreement and that the
Participant has had a full opportunity to review this Agreement before signing
and to have all the terms of this Agreement explained to him or her by counsel.
[(b) This Agreement may be revoked by the Participant by written
notice given to [insert address] within 7 business days after being signed by
the Participant.]
8. General Provisions. The Participant and the Company acknowledge
and agree as follows:
(a) This Agreement contains the entire understanding of the parties
with regard to all matters contained herein. There are no other agreements,
conditions, or representations, oral or written, express or implied, with regard
to such matters;
(b) This Agreement may be amended or modified only by a writing
signed by both parties;
(c) Waiver by either the Company or the Participant of a breach of
any provision, term or condition hereof shall not be deemed or construed as a
further or continuing waiver thereof or a waiver of any breach of any other
provision, term or condition of this Agreement;
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(d) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns. The Company shall require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would have been required to
perform it if no such succession had taken place. As used in this Agreement,
"the Company" shall mean NCE and its affiliates or assigns and any such
successor that assumes and agrees to perform this Agreement, by operation of law
or otherwise. No assignment of this Agreement shall be made by the Participant,
and any purported assignment shall be null and void;
(e) If any court finds any provision or part of this Agreement to be
unreasonable, in whole or in part, such provision shall be deemed and construed
to be reduced to the maximum duration, scope or subject matter allowable under
applicable law. Any invalidation of any provision or part of this Agreement will
not invalidate any other part of this Agreement;
(f) This Agreement will be construed and enforced in accordance with
the laws and legal principles of the State of Colorado. The Participant consents
to the jurisdiction of the Colorado courts for the enforcement of this
Agreement; and
(g) This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original, but all of which together will
constitute one and the same instrument.
THIS AGREEMENT IS INTENDED TO BE A LEGALLY BINDING DOCUMENT FULLY ENFORCEABLE IN
ACCORDANCE WITH ITS TERMS. IF IN DOUBT, SEEK COMPETENT LEGAL ADVICE BEFORE
SIGNING.
- ------------------------------------------------- ------------------------
(The Participant) Date
NCE
By_______________________________________________ ________________________
Date
Its_________________________________________
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The Participant acknowledges that he or she has received a copy of this
Agreement.
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EXHIBIT 10(b)
EMPLOYMENT AGREEMENT OF WAYNE H. BRUNETTI
THIS AGREEMENT by and between Northern States Power Company, a
Minnesota corporation (the "Company"), and New Century Energies, Inc., a
Delaware corporation ("NCE"), and Wayne H. Brunetti (the "Executive"), dated as
of the 24th day of March, 1999.
WITNESSETH THAT
WHEREAS, the Company and NCE have entered into an Agreement and Plan
of Merger dated as of March 24, 1999 (the "Merger Agreement"), whereby NCE will
merge with and into the Company (the "Merger");
WHEREAS, the Company and NCE wish to provide for the orderly
succession of management of the surviving company in the Merger (the "Company")
following the Effective Time (as defined in the Merger Agreement); and
WHEREAS, the Company and NCE further wish to provide for the
employment by the Company of the Executive, and the Executive wishes to serve
the Company, in the capacities and on the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, it is hereby agreed as follows:
1. Effect on Prior Agreements; Employment Period.
(a) The Executive is currently employed by NCE pursuant to an
Employment Agreement dated as of August 1, 1997 (the "Prior Agreement"). The
Prior Agreement shall remain in effect without amendment until the Effective
Time (as defined in the Merger Agreement), and this Agreement shall supersede
the Prior Agreement at the Effective Time. The Change in Control Agreement
between NCE and the Executive shall remain in effect from and after the date of
this Agreement, except that the Executive hereby waives any right that he might
otherwise have to receive any severance or other payment or benefit under the
Change In Control Agreement that would be duplicative of a payment or benefit to
which he is entitled under this Agreement.
(b) The Company shall employ the Executive, and the Executive shall
serve the Company, on the terms and conditions set forth in this Agreement, for
an initial period (the "Initial Period") and a further period (the "Secondary
Period") (the Initial Period and the Secondary Period are hereinafter referred
to in the aggregate as the "Employment Period"). The Initial Period shall begin
at the Effective Time and end on the first anniversary of the Effective Time.
The Secondary Period shall begin on the first day after the end of the Initial
Period and end on the third anniversary of such day; provided, that on each
anniversary of such day, the Secondary Period shall be automatically extended by
an additional year unless either the Company or the Executive shall have given
notice to the other, not less than 60 days before such anniversary, that the
Secondary Period shall not be so extended.
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(c) Notwithstanding any other provision of this Agreement, this
Agreement shall be null and void and of no force or effect unless and until the
Merger is consummated.
2. Position and Duties; Location.
(a) During the Initial Period, the Executive shall serve as Chief
Executive Officer and President of the Company. During the Second Period, the
Executive shall serve as Chief Executive Officer of the Company and Chairman of
the Board of Directors of the Company (the "Board"). The Executive shall serve
in each such case as an employee of the Company and with such duties and
responsibilities as are customarily assigned to such positions, and such other
duties and responsibilities not inconsistent therewith as may from time to time
be assigned to him by the Board. The Executive shall be a member of the Board on
the first day of the Employment Period, and the Board shall propose the
Executive for re-election to the Board throughout the Employment Period.
(b) During the Employment Period as is customary, the Executive
shall report to the Board.
(c) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive shall
devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive under this Agreement, use the
Executive's reasonable best efforts to carry out such responsibilities
faithfully and efficiently. It shall not be considered a violation of the
foregoing for the Executive to serve on corporation, industry, civic or
charitable boards or committees, so long as such activities do not significantly
interfere with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement.
(d) During the period beginning on the first day of the Employment
Period and ending as soon as practicable thereafter but in no event later than
the date of the first subsequent annual meeting of the shareholders of the
Company (the "Transition Period"), the Executive's service shall be performed at
the Company's headquarters in Minneapolis, Minnesota and at NCE's headquarters
in Denver, Colorado. After the end of the Transition Period, the Executive shall
spend the majority of his time and perform the majority of his duties at the
Company's headquarters in Minneapolis, Minnesota. No later than the end of the
Transition Period, the Executive shall relocate the residence at which he spends
the majority of his time to the Twin Cities area. The Company shall reimburse
the Executive for all of his moving expenses incurred in such relocation, and
during the period from the first day of the Employment Period through the
earlier of the end of the Transition Period and the date of such relocation, the
Company shall provide the Executive with an apartment in Minneapolis and
reimburse him for reasonable expenses of meals while in Minneapolis and travel
between Minneapolis and his principal residence, provided in each case that the
Executive complies with the policies, practices and procedures of the Company
for submission of expense reports, receipts, or similar documentation of such
expenses.
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3. Compensation.
(a) Base Salary. The Executive's compensation during the Employment
Period shall be determined by the Board upon the recommendation of the
Compensation Committee of the Board, subject to the next sentence and Section
3(b). During the Employment Period, the Executive shall receive an annual base
salary (the "Annual Base Salary") at least equal to his annual base salary as in
effect immediately before the Effective Time. The Annual Base Salary shall be
payable in accordance with the Company's regular payroll practice for its senior
executives, as in effect from time to time. During the Employment Period, the
Annual Base Salary shall be reviewed at least annually for possible increase.
Any increase in the Annual Base Salary shall not limit or reduce any other
obligation of the Company under this Agreement.
(b) Incentive Compensation. During the Employment Period, the
Executive shall participate in short-term incentive compensation plans and
long-term incentive compensation plans (the latter to consist of plans offering
stock options, restricted stock and other long-term incentive compensation)
providing him with the opportunity to earn, on a year-by-year basis, short-term
and long-term incentive compensation (the "Incentive Compensation") at least
equal to the amounts that he had the opportunity to earn under the comparable
plans of NCE as in effect immediately before the Effective Time.
(c) Other Benefits.
(i) Supplemental Executive Retirement Plan. During the
Employment Period, the Executive shall participate in a supplemental executive
retirement plan ("SERP") such that the aggregate value of the retirement
benefits that he and his spouse will receive at the end of the Employment Period
under all defined benefit plans of the Company and its affiliates (whether
qualified or not) will be not less than the aggregate value of the benefits he
and his spouse would have received (and with the same forms of benefit payments)
had he continued, through the end of the Employment Period, to accrue the
supplemental retirement benefits provided by the terms of his employment
agreement with NCE as in effect immediately before the Effective Time and those
of Public Service Company of Colorado ("PSCo") as in effect as of August 1,
1997.
(ii) During the Employment Period, the Company shall provide
the Executive with life insurance coverage providing a death benefit to such
beneficiary or beneficiaries as the Executive may designate of not less than
400% of the Executive's then-current Annual Base Salary if death occurs during
employment, and equal to 200% his final Annual Base Salary if death occurs
following termination of employment.
(iii) In addition, and without limiting the generality of the
foregoing, during the Employment Period and thereafter: (A) the Executive shall
be entitled to participate in all applicable incentive, savings and retirement
plans, practices, policies and programs of the Company and its subsidiaries to
the same extent as other senior executives of the Company; and (B) the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in, and shall receive all benefits under, all applicable welfare
benefit plans, practices, policies and programs provided by the Company and its
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subsidiaries, other than severance plans, practices, policies and programs but
including, without limitation, medical, prescription, dental, disability, sick
leave, employee life insurance, group life insurance, accidental death and
travel accident insurance plans and programs, to the same extent as other senior
executives of the Company (but excluding the Company's Senior Executive
Severance Policy and 1999 Senior Executive Severance Policy and NCE's 1999
Senior Executive Severance Policy (the "Severance Policies").
(d) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to receive fringe benefits on the same terms and conditions as
the greater of (i) the fringe benefits received by, or available to, him from
NCE immediately before the Effective Time, or (ii) the fringe benefits provided
by the Company or its subsidiaries which are available to the next highest
executive officer of the Company for the year.
4. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. The
Company shall be entitled to terminate the Executive's employment because of the
Executive's Disability during the Employment Period. "Disability" means that (i)
the Executive has been unable, for a period of 180 consecutive business days, to
perform the Executive's duties under this Agreement, as a result of physical or
mental illness or injury, and (ii) a physician selected by the Company or its
insurers, and acceptable to the Executive or the Executive's legal
representative, has determined that the Executive's incapacity is total and
permanent. A termination of the Executive's employment by the Company for
Disability shall be communicated to the Executive by written notice, and shall
be effective on the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date") unless the Executive returns to full-time
performance of the Executive's duties before the Disability Effective Date.
(b) By the Company.
(i) The Company may terminate the Executive's employment
during the Employment Period for Cause or without Cause. "Cause" means:
A. the willful and continued failure of the Executive
substantially to perform the Executive's duties under this
Agreement (other than as a result of physical or mental
illness or injury), after the Board of the Company delivers to
the Executive a written demand for substantial performance
that specifically identifies the manner in which the Board
believes that the Executive has not substantially performed
the Executive's duties; or
B. illegal conduct or gross misconduct by the Executive,
in either case that is willful and results in material and
demonstrable damage to the business or reputation of the
Company.
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No act or failure to act on the part of the Executive shall be considered
"willful" unless it is done, or omitted to be done, by the Executive in bad
faith or without reasonable belief that the Executive's action or omission was
in the best interests of the Company. Any act or failure to act that is based
upon authority given pursuant to a resolution duly adopted by the Board, or the
advice of counsel for the Company, shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best interests of
the Company.
(ii) A termination of the Executive's employment for Cause
shall be effected in accordance with the following procedures. The Company shall
give the Executive written notice ("Notice of Termination for Cause") of its
intention to terminate the Executive's employment for Cause, setting forth in
reasonable detail the specific conduct of the Executive that it considers to
constitute Cause and the specific provision(s) of this Agreement on which it
relies, and stating the date, time and place of the Special Board Meeting for
Cause. The "Special Board Meeting for Cause" means a meeting of the Board called
and held specifically for the purpose of considering the Executive's termination
for Cause, that takes place not less than ten and not more than twenty business
days after the Executive receives the Notice of Termination for Case. The
Executive shall be given an opportunity, together with counsel, to be heard at
the Special Board Meeting for Cause. The Executive's termination for Cause shall
be effective when and if a resolution is duly adopted at the Special Board
Meeting for Cause by an affirmative vote of at least the greater of (A)
two-thirds (2/3) of the entire membership of the Board (excluding the Executive
who shall not vote on this matter) or (B) ten (10) members of the Board, stating
that in the good faith opinion of the Board, the Executive is guilty of the
conduct described in the Notice of Termination for Cause, and that conduct
constitutes Cause under this Agreement.
(iii) A termination of the Executive's employment without
Cause shall be effective in accordance with the following procedures. The
Company shall give the Executive written notice ("Notice of Termination without
Cause") of its intention to terminate the Executive's employment without Cause,
stating the date, time and place of the Special Board Meeting without Cause. The
"Special Board Meeting without Cause" means a meeting of the Board called and
held specifically for the purpose of considering the Executive's termination
without Cause, that takes place not less than ten and not more than twenty
business days after the Executive receives the Notice of Termination without
Cause. The Executive shall be given an opportunity, together with counsel, to be
heard at the Special Board Meeting without Cause. The Executive's termination
without Cause shall be effective when and if a resolution is duly adopted at the
Special Board Meeting without Cause by an affirmative vote of the greater of (A)
at least two-thirds (2/3) of the entire membership of the Board (excluding the
Executive who shall not vote on this matter) or (B) ten members of the Board
stating that the Executive is terminated without Cause.
(c) Good Reason.
(i) The Executive may terminate employment for Good Reason or
without Good Reason. "Good Reason" means the occurrence (without the Executive's
express written consent) of any of the following acts by the Company, or
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failures by the Company to act, unless such act or failure to act is corrected
within thirty days of a Notice of Termination for Good Reason (as that term is
defined below) given in respect thereof:
A. the Executive's duties and responsibilities are
materially and adversely diminished in comparison to the
duties and responsibilities set forth in Section 2(a) of this
Agreement (for purposes of this Agreement, it shall be
considered a material and adverse diminishment of duties and
responsibilities if the Executive occupies the same position
but only with a non-publicly held company);
B. any failure by the Company to comply with any
provision of Section 3 of this Agreement;
C. any purported termination of the Executive's
employment by the Company for a reason or in a manner not
expressly permitted by this Agreement;
D. any failure by the Company to comply with
paragraph (c) of Section 11 of this Agreement;
E. any other substantial breach of this Agreement
by the Company; or
F. the Executive is no longer a member of the
Board or the Board fails to propose the Executive for
re-election to the Board.
The Company and the Executive, upon mutual written Agreement, may waive any of
the foregoing provisions which would otherwise constitute Good Reason.
(ii) A termination of employment by the Execute for Good
Reason shall be effectuated by giving the Company written notice ("Notice of
Termination for Good Reason") of the termination within one year (but not after
the end of the Employment Period) of the date of the event which is the basis of
the Notice of Termination for Good Reason, setting forth in reasonable detail
the specific conduct of the Company that constitutes Good Reason and the
specific provision(s) of this Agreement on which the Executive relies. A
termination of employment by the Executive for Good Reason shall be effective on
the fifth business day following the date when the Notice of Termination for
Good Reason is given, unless the notice sets forth a later date (which date
shall in no event be later than 30 days after the notice is given). For purposes
of this Section 4(c), any good faith determination of "Good Reason" made by the
Executive shall be conclusive.
(iii) A termination of the Executive's employment by the
Executive without Good Reason shall be effected by giving the Company written
notice of the termination.
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(d) No Waiver. The failure to set forth any fact or circumstance in
a Notice of Termination for Cause, a Notice of Termination without Cause or a
Notice of Termination for Good Reason shall not constitute a waiver of the right
to assert, and shall not preclude the party giving notice from asserting, such
fact or circumstance in an attempt to enforce any right under or provision of
this Agreement.
(e) Date of Termination. The "Date of Termination" means the date of
the Executive's death, the Disability Effective Date, the date on which the
termination of the Executive's employment by the Company for Cause or without
Cause or by the Executive for Good Reason is effective, or the date on which the
Executive gives the Company notice of a termination of employment without Good
Reason, as the case may be.
5. Obligations of the Company upon Termination.
(a) By the Company other than for Cause or Disability; by the
Executive for Good Reason. If, during the Employment Period, the Company
terminates the Executive's employment other than for Cause or Disability, or the
Executive terminates employment for Good Reason, the Company shall continue to
provide the Executive with the compensation and benefits set forth in paragraphs
(a), (b) and (c) of Section 3 as if he had remained employed by the Company
pursuant to this Agreement through the end of the Employment Period and then
retired (at which time he will be treated as eligible for all retiree welfare
benefits and other benefits provided to retired senior executives, as set forth
in Section 3(c)(ii) and (iii); provided, that the Incentive Compensation for
such period shall be based upon the target Incentive Compensation for the year
in which the Date of Termination occurs; provided, further, that in lieu of
stock options, restricted stock and other stock-based awards, the Executive
shall be paid cash equal to the fair market value as of the Date of Termination
(without regard to any restrictions and based upon a valuation model generally
utilized for purposes of valuing comparable stock-based compensation awards) of
the stock options, restricted stock and other stock-based awards that would
otherwise have been granted with such cash being paid within 90 days after the
Date of Termination; provided, further that, to the extent any benefits
described in paragraph (c) of Section 3 cannot be provided pursuant to the plan
or program maintained by the Company for its executives, the Company shall
provide such benefits outside such plan or program at no additional cost
(including without limitation tax cost) to the Executive and his family, and
provided, finally, that during any period when the Executive is eligible to
receive benefits of the type described in clause (B) of paragraph (c)(iii) of
Section 3 under another employer-provided plan, the benefits provided by the
Company under paragraph (a) of Section 5 may be made secondary to those provided
under another plan. In addition to the foregoing, any restricted stock
outstanding on the Date of Termination shall be fully vested as of the Date of
Termination and all options outstanding on the Date of Termination shall be
fully vested and exercisable and shall remain in effect and exercisable through
the end of their respective terms, without regard to the termination of the
Executive's employment. The payments and benefits provided pursuant to this
paragraph (a) of Section 5 are intended as liquidated damages for a termination
for the Executive's employment by the Company other than for Cause or Disability
or for the actions of the Company leading to a termination of the Executive's
employment by the Executive for Good Reason, and shall be the sole and exclusive
remedy therefor.
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(b) Death or Disability. If the Executive's employment is terminated
by reason of the Executive's death or Disability during the Employment Period,
the Company shall pay to the Executive, or in the cause of the Executive's
death, to the Executive's designated beneficiaries (or, if there is no such
beneficiary, to the Executive's estate or legal representative) in a lump sum in
cash within 30 days after the Date of Termination, the sum of the following
amounts (the "Accrued Obligations"): (1) any portion of the Executive's Annual
Base Salary through the Date of Termination that has not yet been paid; (2) an
amount representing the target Incentive Compensation for the year that includes
the Date of Termination, computed by assuming that the amount of all such target
Incentive Compensation would be equal to the amount of such target Incentive
Compensation that the Executive would have been eligible to earn for such
period, and multiplying that amount by a fraction, the numerator of which is the
number of days in such period through the Date of Termination, and the
denominator of which is the total number of days in the relevant period; (3) any
compensation previously deferred by the Executive (together with any accrued
interest or earnings thereon) that has not yet been paid; and (4) any accrued
but unpaid Incentive Compensation and vacation pay; and the Company shall have
no further obligations under this Agreement, except as specified in Section 6
below. If the Executive's employment is terminated by reason of Disability, he
shall be entitled to receive the maximum disability payments which can be
provided under the disability plans described in Section 3(c)(iii), reduced,
however, by actual disability benefits received under such plans.
(c) By the Company for Cause; by the Executive other than for Good
Reason. If the Executive's employment is terminated by the Company for Cause
during the Employment Period, the Company shall pay the Executive the Annual
Base Salary through the Date of Termination and the amount of any compensation
previously deferred by the Executive (together with any accrued interest or
earnings thereon), in each case to the extent not yet paid, and the Company
shall have no further obligations under this Agreement, except as specified in
Section 6 below. If the Executive voluntarily terminates employment during the
Employment Period, other than for Good Reason, the Company shall pay the Accrued
Obligations to the Executive in a lump sum in cash within 30 days of the Date of
Termination, and the Company shall have no further obligations under this
Agreement, except as specified in Section 6 below.
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6. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit
the Executive's continuing or future participation in any plan, program, policy
or practice provided by the Company or any of its affiliated companies for which
the Executive may qualify, nor, subject to paragraph (f) of Section 12, shall
anything in this Agreement limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Vested benefits and other amounts that the Executive
is otherwise entitled to receive under the SERP or any other plan, policy,
practice or program of, or any contract or agreement with, the Company or any of
its affiliated companies on or after the Date of Termination shall be payable in
accordance with the terms of each such plan, policy, practice, program, contract
or agreement, as the case may be, except as explicitly modified by this
Agreement.
7. Full Settlement. The Company's obligation to make the payments provided for
in, and otherwise to perform its obligations under this Agreement shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action that the Company may have against the Executive or others. In no event
shall the Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement and, except as specifically provided in
paragraph (a) of Section 5 with respect to benefits described in clause (B) of
paragraph (c)(iii) of Section 3, such amounts shall not be reduced, regardless
of whether the Executive obtains other employment.
8. Non-Competition Provision and Confidential Information.
(a) Without the prior written consent of the Company, while actively
employed, and if and only if the Executive becomes entitled to receive severance
benefits pursuant to Section 5(a) hereof, for 24 months following the
termination of the Executive's employment, the Executive shall not, as a
shareholder, officer, director, partner, consultant, or otherwise, engage
directly or indirectly in any business or enterprise which is "in competition"
with the Company or its successors or assigns; provided, however, that the
Executive's ownership of less than five percent of the issued and outstanding
voting securities of a publicly-traded company shall not be deemed to constitute
such competition. A business or enterprise is deemed to be "in competition" if
it is engaged in the business of generation, purchase, transmission,
distribution, or sale of electricity, or in the purchase, transmission,
distribution, sale or transportation of natural gas within the States of
Colorado, Kansas, Minnesota, New Mexico, North Dakota, Oklahoma, South Dakota,
Texas, Wisconsin or Wyoming.
(b) The Executive shall hold in a fiduciary capacity for the benefit
of the Company all secret or confidential information, knowledge or data
relating to the Company or any of its affiliated companies and their respective
businesses that the Executive obtains during the Executive's employment by the
Company or any of its affiliated companies and that is not public knowledge
(other than as a result of the Executive's violation of this Section 8)
("Confidential Information"). The Executive shall not communicate, divulge or
disseminate Confidential Information at any time during or after the Executive's
employment with the Company, except with the prior written consent of the
Company or as otherwise required by law or legal process. In no event shall any
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asserted violation of the provisions of this Section 8 constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the Company
to or for the benefit of the Executive (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise, but
determined with regard to any additional payments required under this Section 9)
(a "Payment") would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), or any interest or
penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes) including, without limitation, any
income taxes (and any interest and penalties imposed with respect thereto) and
Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of paragraph (c) of this Section 9,
all determinations required to be made under this Section 9, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by Arthur Andersen LLP (the "Accounting Firm"), which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the
Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ("Underpayment")
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to paragraph (c) of this Section
9 and the Executive thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to or
for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but not later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
10
<PAGE>
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested
by the Company relating to such claim;
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this paragraph (c) of Section 9, the Company shall control all proceedings taken
in connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine, provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and provided, further, that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
11
<PAGE>
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to paragraph (c) of this Section 9, the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of paragraph (c) of
this Section 9) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto). If
after the receipt by the Executive of an amount advanced by the Company pursuant
to paragraph (c) of this Section 9, a determination is made that the Executive
shall not be entitled to any refund with respect to such claim and the Company
does not notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
10. Attorney's Fees. The Company agrees to pay, as incurred, to the fullest
extent permitted by law, all legal fees and expenses that the Executive may
reasonably incur as a result of any contest regardless of the outcome by the
Company, the Executive or others of the validity or enforceability of or
liability under or otherwise involving, any provision of this Agreement,
together with interest on any delayed payment at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the Code.
11. Successors.
(a) This Agreement is personal to the Executive and, without the
prior written consent of the Company, shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean both
the Company as defined above and any such successor that assumes and agrees to
perform this Agreement, by operation of law or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Minnesota, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force and effect. This Agreement may not be amended or
modified except by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
12
<PAGE>
(b) All notices and other communications under this Agreement shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive: Wayne H. Brunetti
If to the Company: Northern States Power Company
414 Nicollet Mall
Minneapolis, Minnesota 55401
Attention: General Counsel
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph (b) of Section 12. Notices and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with law.
(d) Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under this Agreement all federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of, or to assert any right under, this Agreement
(including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to paragraph (c) of Section 4 of this
Agreement) shall not be deemed to be a waiver of such provision or right or of
any other provision of or right under this Agreement.
(f) The Executive and the Company acknowledge that this Agreement
supersedes and terminates any other severance and employment agreements between
the Executive and the Company, NCE and their respective affiliates, except as
specifically provided in Section 1 hereof. Without limiting the generality of
the foregoing, the Executive hereby expressly waived any right that he might
otherwise have to receive any payments or benefits under the Severance Policies.
(g) The rights and benefits of the Executive under this Agreement
may not be anticipated, assigned, alienated or subject to attachment,
garnishment, levy, execution or other legal or equitable process except as
required by law. Any attempt by the Executive to anticipate, alienate, assign,
sell, transfer, pledge, encumber or charge the same shall be void. Payments
13
<PAGE>
hereunder shall not be considered assets of the Executive in the event of
insolvency or bankruptcy.
(h) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute but
one and the same instrument.
14
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization of their respective Boards of Directors,
the Company and NCE have caused this Agreement to be executed in their names on
their behalf, all as of the day and year first above written.
/s/Wayne H. Brunetti
---------------------------
Wayne H. Brunetti
NORTHERN STATES POWER COMPANY
By: /s/ Grant P. Butts
Name: Grant P. Butts
Title: VP-Human Resources
NEW CENTURY ENERGIES, INC.
By: /s/Bill D. Helton
Name: Bill D. Helton
Title: Chairman and
Chief Executive Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW CENTURY
ENERGIES, INC. CONSOLIDATED CONDENSED BALANCE SHEET AS OF MARCH 31, 1999 AND
CONSOLIDATED CONDENSED STATMENTS OF INCOME AND CASH FLOWS FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 5,929,230
<OTHER-PROPERTY-AND-INVEST> 419,063
<TOTAL-CURRENT-ASSETS> 757,227
<TOTAL-DEFERRED-CHARGES> 588,872
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 7,694,392
<COMMON> 114,925
<CAPITAL-SURPLUS-PAID-IN> 1,769,762
<RETAINED-EARNINGS> 775,016
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,656,847
294,000
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<LONG-TERM-DEBT-NET> 2,269,702
<SHORT-TERM-NOTES> 69,500
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 339,400
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0
<CAPITAL-LEASE-OBLIGATIONS> 35,283
<LEASES-CURRENT> 3,184
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,905,183
<TOT-CAPITALIZATION-AND-LIAB> 7,694,392
<GROSS-OPERATING-REVENUE> 991,423
<INCOME-TAX-EXPENSE> 37,115
<OTHER-OPERATING-EXPENSES> 814,131
<TOTAL-OPERATING-EXPENSES> 814,131
<OPERATING-INCOME-LOSS> 177,292
<OTHER-INCOME-NET> 12,269
<INCOME-BEFORE-INTEREST-EXPEN> 189,561
<TOTAL-INTEREST-EXPENSE> 51,146
<NET-INCOME> 101,300
0
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 66,961
<TOTAL-INTEREST-ON-BONDS> 41,410
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<EPS-PRIMARY> 0.88
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PUBLIC
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,085,947
<OTHER-PROPERTY-AND-INVEST> 210,743
<TOTAL-CURRENT-ASSETS> 438,813
<TOTAL-DEFERRED-CHARGES> 365,110
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 5,100,613
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 1,302,119
<RETAINED-EARNINGS> 344,650
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,646,769
194,000
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<LONG-TERM-DEBT-NET> 1,602,679
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 339,400
<LONG-TERM-DEBT-CURRENT-PORT> 30,451
0
<CAPITAL-LEASE-OBLIGATIONS> 35,246
<LEASES-CURRENT> 3,069
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,248,999
<TOT-CAPITALIZATION-AND-LIAB> 5,100,613
<GROSS-OPERATING-REVENUE> 659,419
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<OTHER-OPERATING-EXPENSES> 526,020
<TOTAL-OPERATING-EXPENSES> 555,234
<OPERATING-INCOME-LOSS> 104,185
<OTHER-INCOME-NET> (1,566)
<INCOME-BEFORE-INTEREST-EXPEN> 102,619
<TOTAL-INTEREST-EXPENSE> 36,680
<NET-INCOME> 65,939
0
<EARNINGS-AVAILABLE-FOR-COMM> 65,939
<COMMON-STOCK-DIVIDENDS> 46,502
<TOTAL-INTEREST-ON-BONDS> 29,833
<CASH-FLOW-OPERATIONS> 208,908
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOUTHWESTERN
PUBLIC SERVICE COMPANY CONDENSED BALANCE SHEET AS OF MARCH 31, 1999 AND
CONDENSED STATEMENTS OF INCOME AND CASH FLOWS FOR THE THREE MONTHS ENDED MARCH
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
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</LEGEND>
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<RETAINED-EARNINGS> 393,184
<TOTAL-COMMON-STOCKHOLDERS-EQ> 741,586
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