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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 25, 1994
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(December 15, 1993)
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PUBLIC SERVICE COMPANY OF NEW MEXICO
(Exact Name of Registrant as Specified in its Charter)
Commission
New Mexico File Number 1-6986 85-0019030
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation) Identification Number)
Alvarado Square, Albuquerque, New Mexico 87158
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(Address of Principal Executive Offices) (Zip Code)
(505) 848-2700
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(Registrant's Telephone Number, Including Area Code)
(Former Name or Former Address if Changed, Since Last Report)
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Item 5. OTHER EVENTS
Proposed Sale of Gas Gathering and Processing Assets
As previously reported, on January 11, 1993, the Company announced its
intention to dispose of the Company's natural gas gathering and natural gas
processing assets. (See PART II, ITEM 7, "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--OTHER ISSUES
FACING THE COMPANY--Natural Gas Operations" in the Company's 1992 annual
report on Form 10-K.) A purchaser has now been selected following a
competitive bidding process.
On February 12, 1994, an agreement was executed with Williams Gas Processing
- - Blanco, Inc. ("Williams"), a subsidiary of the Williams Field Services
Group, Inc. of Tulsa, Oklahoma, for the sale of substantially all of the
assets of Sunterra Gas Gathering Company and Sunterra Gas Processing Company,
subsidiaries of the Company, and for the sale of the Northwest and Southeast
gas gathering and processing facilities of Gas Company of New Mexico
("GCNM"). GCNM is an operating division of the Company. The agreement
provides for a cash selling price of $155 million, subject to certain
adjustments. In addition, the Company and Williams entered into agreements
for gas gathering and processing services, which the Company believes to be
competitively priced, to be provided by Williams on the facilities being sold
for a period up to 15 years. The transaction is subject to applicable waiting
periods under the Federal Hart-Scott-Rodino Antitrust Improvements Act of
1976 and subject to approval by the New Mexico Public Utility Commission (the
"NMPUC"). If approved, the closing is expected to take place in 1995. The
closing is also subject to other customary closing conditions, such as
obtaining necessary material consents from lenders and other third parties.
Under the sale agreement, the Company agreed to retain certain liabilities
pertaining to the assets being sold, including certain environmental
liabilities. Such retained environmental liabilities include liabilities
under environmental laws as of closing associated with (i) the mercury meter
remediation project, (ii) identified friable asbestos, (iii) environmental
permits required by various agencies, and (iv) pits at certain abandoned
compressor sites. The Company's retained environmental liabilities also
include liabilities associated with certain unlined disposal pits subject to
an existing New Mexico Oil Conservation Division order. The Company has also
agreed to retain liability for a portion of potential liabilities relating to
a contaminated landfill that has been declared a Federal superfund site.
Further, the Company agreed to indemnify Williams against other third party
environmental claims arising from pre-closing ownership, operations or
conditions and for breaches of environmental representations and warranties
for a period of five years after closing in an amount up to $10.6 million.
The Company's retained environmental liabilities described above are not
subject to the $10.6 million cap. The Company has evaluated the potential
impact of the above retained environmental liabilities. The Company
believes, after consideration of established reserves, that the ultimate
outcome of these environmental issues will not have a material adverse effect
on the Company's financial condition or results of operations.
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Under the agreement, the Company also agreed to indemnify Williams, subject
to equal sharing of the first $1.5 million, (i) against third party claims
(other than environmental) arising from pre-closing ownership, operations and
conditions for a period of two years after closing; (ii) for breaches of
other customary representations and warranties for a period of two years from
the date of closing; and (iii) for 30 days past the applicable statute of
limitations for breaches of the Company's tax representations. The Company
also agreed to indemnify Williams for three years after closing for third
party claims relating to certain property rights. Under the agreement, the
Company will, subject to prior NMPUC approval, guarantee the obligations of
its subsidiaries which are parties to the agreement.
The book value of the facilities being sold, plus regulatory assets and
deferred charges, is expected to be approximately $85 million. In addition,
the Company expects approximately $8 million to be incurred for transaction
and other ascertainable costs prior to closing. The Company anticipates that
a significant amount of income tax will become payable as a result of this
transaction.
Also, the NMPUC will determine the allocation of the resulting gain between
the Company's gas customers and shareholders. Therefore, the Company is not
able at this time to estimate the amount of any gain that would be allocated
to shareholders.
The Company believes that the sale of these assets will improve its
flexibility to take advantage of changing market conditions while maintaining
continued access to competitively priced, reliable and secure long-term gas
supplies.
Palo Verde Nuclear Generating Station
Steam Generator Tubes
On December 26, 1993, Palo Verde Nuclear Generating Station ("PVNGS")
Unit 3 returned to service at 85% power following a mid-cycle outage during
which Arizona Public Service Company ("APS"), the operating agent of PVNGS,
inspected Unit 3's steam generators. APS has informed the Nuclear Regulatory
Commission (the "NRC") that the inspection did not reveal the type of tube
degradation (axial cracking in upper bundle) experienced in Unit 2's steam
generators; however, the inspection did reveal another more common type of
tube degradation (circumferential cracking at tubesheet) in Unit 3's steam
generators which has occurred in similarly-designed steam generators at other
plants. The next regular refueling outage for Unit 3 is scheduled to begin
in March 1994, at which time APS plans to inspect and chemically clean that
unit's steam generators.
On January 8, 1994, APS removed Unit 2 from service to inspect and
chemically clean its two steam generators during a mid-cycle outage. The
initial inspection and the cleaning have been completed, and one of the steam
generators is currently being reinspected. To date the inspection has
revealed additional tube degradation of the type (axial cracking in upper
bundle) previously found in that unit's steam generators. The inspection has
also revealed the common type of tube degradation (circumferential cracking
at tubesheet) which has occurred in similarly-designed steam generators at
other plants. Based on these findings, APS has expanded the scope of the
inspection of the Unit 2 steam generators and the planned duration of the
outage until mid to late March. However, because APS's analysis of Unit 2's
steam generators is ongoing, APS cannot predict with certainty the timing of
the restart of Unit 2. APS is currently evaluating the need for an
additional mid-cycle outage for Unit 2 during 1994.
Unit 1 continues to operate at 85% power since it returned to service
in late November 1993 after its refueling outage.
APS has performed, and is continuing, certain corrective actions
including, among other things, chemical cleaning, operating the units at
reduced temperatures, and, for some period, operating the units at 85% power.
As a result of these corrective actions, all three units should be returned
to 100% power by mid 1995, and one or more of the units could be returned to
100% power during the course of 1994. So long as the three units are
involved in mid-cycle outages and are operated at 85% power, the Company will
incur replacement power costs and reduced wholesale sale incentives of
approximately $5.7 million during 1994, approximately 75% of which will be
recovered through the Company's fuel and purchased power adjustment clause.
Discrimination Allegations
As previously reported, by letter dated July 7, 1993, the NRC advised
APS that, as a result of a recommended decision and order by a Department of
Labor Administrative Law Judge (the "DOL ALJ") finding that APS discriminated
against a former contract employee at PVNGS because he engaged in "protected
activities" (as defined under Federal regulations), the NRC intended to
schedule an enforcement conference with APS (see Item 5.--"OTHER INFORMATION-
- -Palo Verde Nuclear Generating Station" in the Company's Form 10-Q for the
quarter ended September 30, 1993).
Following the DOL ALJ's finding, APS investigated various elements of
both the substantive allegations and the manner in which the U.S. Department
of Labor (the "DOL") proceedings were conducted. As a result of that
investigation, APS determined that one of its employees had falsely testified
during the proceedings, that there were inconsistencies in the testimony of
another employee, and that certain documents were requested in, but not
provided during, discovery. The two employees in question are no longer with
APS. APS provided the results of its investigation to the DOL ALJ, who
referred matters relating to the conduct of the two former employees of APS
to the U.S. Attorney's office in Phoenix, Arizona. On December 15, 1993, APS
and the former contract employee who had raised the DOL claim entered into a
settlement agreement, a part of which remains subject to approval by the
Secretary of Labor.
By letter dated August 10, 1993, APS also provided the results of its
investigation to the NRC, and advised the NRC that, as a result of APS's
investigation, APS had changed its position opposing the finding of
discrimination. The NRC is investigating this matter and APS is fully
cooperating with the NRC in this regard.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Public Service Company of New Mexico
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(Registrant)
Date: February 25, 1994 /s/ Donna M. Burnett
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Donna M. Burnett
Corporate Controller and
Chief Accounting Officer
