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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) January 13, 1994
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(December 8, 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
Framework Filing Stipulation
As previously reported, on January 11, 1993, the Company announced its
intention to file a plan with the New Mexico Public Utility Commission
("NMPUC") designed to lower electric prices by consolidating certain gas and
electric functions, restructuring assets and reducing operating expenses by
$25 million annually ("framework filing"). The Company had intended to make
the framework filing in July 1993 followed by a rate case in early 1994.
Since the January announcement, the Company has been meeting with the NMPUC
staff and primary intervenor groups (the New Mexico Attorney General, the
New Mexico Industrial Energy Consumers, the City of Albuquerque, the United
States Executive Agencies and the New Mexico Retail Association) ("interested
parties"), in an effort to develop a workable framework filing. The Company
separated the gas and electric customer service consolidation issues from the
balance of the framework filing and filed for necessary approvals for the
consolidation of such customer service functions on December 21, 1993. (See
PART I, ITEM 2.-"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--MANAGEMENT'S FOCUS ON THE FUTURE" in the Company's
quarterly report on Form 10-Q for the period ended September 30, 1993 (the
"September 1993 10-Q").)
On January 12, 1994, the Company and the interested parties entered into a
stipulation which addresses retail electric prices, generation assets and the
financial concerns of the Company. The Company filed the stipulation with
the NMPUC, recommending that electric retail rates be reduced by $30 million.
This reduction is accomplished through the Company's previously announced
cost reduction efforts, the write-down of the 22% of the beneficial interests
in the Palo Verde Nuclear Generating Station ("PVNGS") Units 1 and 2 leases
purchased by the Company and the write-off of certain regulatory assets and
other deferred costs currently recovered in rates. As a result, the Company
has charged approximately $180 million, pre-tax, to the 1993 results of
operations. Such pre-tax charge of $180 million would result in the Company
continuing to have a deficit in retained earnings as of December 31, 1993.
As a result, the Company is unable to resume payment of dividends on its
common stock. The Company evaluated the possibility of a quasi-
reorganization but does not intend to implement a quasi-reorganization at
this time.
In the stipulation, the interested parties acknowledged that PVNGS Units 1
and 2 are "used and useful" for New Mexico customers pursuant to tests
previously set forth by the NMPUC. The stipulation establishes transition
and gain allocation mechanisms to be implemented if generation assets are
sold or otherwise removed from rates. The interested parties acknowledged
that restructuring of the Company's generation mix may result in benefits to
both customers and stockholders and future generation asset sales may need to
include a mix of PVNGS and coal-fired generation. If any PVNGS unit included
in rates is sold, subleased, assigned, or removed from full cost of service
recovery for any reason, the difference between the cost of PVNGS included in
rates and its sale price would continue to be recovered through rates.
The interested parties also agreed that the reduction in cost of service
resulting from any future refinancing or restructuring of the PVNGS Units 1
and 2 leases would be allocated 60% to shareholders and 40% to customers.
The stipulation would also resolve the issues of decertification and
decommissioning of the Company's three retired fossil-fueled generating
stations, and establishes a recovery mechanism for decommissioning expense
for existing fossil-fueled generating stations. The interested parties also
agreed to use a targeted capital structure designed to meet investment grade
guidelines.
In the stipulation, the Company agreed not to seek general rate changes and
the interested parties agreed not to cause the filing of a general rate case
before January 1, 1998. However, should unforeseen circumstances occasion the
need for a review of general rate levels before January 1, 1998, the
interested parties will reconvene before seeking a change in rates.
The stipulation is subject to NMPUC approval. The Company believes that the
approval of the stipulation would result in a reduction of competitive risk
and regulatory uncertainty. However, there can be no assurance that the
stipulation will be approved by the NMPUC. If the stipulation is not approved
in its entirety, unless otherwise agreed to by all interested parties, the
stipulation shall be null and void.
On January 3, 1994, the NMPUC issued an order establishing investigations of
rates for both the Company and Southwestern Public Service Company. The
order requires the Company to file a general rate case no later than July 1,
1994. The stipulation is designed, among other things, to address and
satisfy the requirements of that order.
As the Company has previously stated, any proposal approved by the Board in
connection with a framework filing would be evaluated by the Company to
determine the extent of any resulting write-offs required under generally
accepted accounting principles. Exposures to the Company with respect to
write-offs fell into three general categories, as follows:
Assets Which the Company Has Determined to Sell
In connection with the assets which the Company has already determined to
sell (gas gathering and processing assets, water utility assets, and
PVNGS Unit 3), the Company has made on-going assessments of net
realizable values. The Company continues to evaluate its estimates of
such amounts on an ongoing basis but currently does not anticipate
additional write-downs or write-offs relating to these assets.
Recovery of PVNGS Units 1 and 2 Costs
The Company is faced with the possibility of non-recovery of some or all
of the PVNGS Units 1 and 2 costs currently being recovered in retail
rates. The stipulation provides for a write down of the 22% of the
beneficial interests in the PVNGS Units 1 and 2 leases purchased by the
Company and includes an acknowledgement of the interested parties that
PVNGS Units 1 and 2 are "used and useful" and, therefore, the related
costs would continue to be recovered in rates. As previously mentioned,
if PVNGS Units 1 and 2 are sold, subleased, assigned or removed from full
cost of service recovery for any reason, the difference between the
transaction proceeds and the cost included in rates would continue to be
recovered in rates. The Company's ability to record this difference as
a regulatory asset, for financial reporting purposes, will be subject to
the continued determination that electric operations meet the provisions
of SFAS No. 71, Accounting for the Effects of Certain Types of
Regulation.
Application of SFAS No. 71
The Company was faced with a potential write-off of electric regulatory
assets that had been deferred for financial reporting purposes if the
filed framework filing had resulted in a determination that SFAS No. 71
no longer applied. In order to achieve the $30 million rate reduction
discussed above, all significant net regulatory assets have been written
off. As a result of these write-offs, the Company believes that the
rates agreed upon under the stipulation would be adequate to recover the
cost of its services going forward. Therefore, the Company continues to
apply the provisions of SFAS No. 71 to the NMPUC regulated portion of its
electric operations.
S & P's Credit Ratings
On December 17, 1993, Standard and Poor's Inc. ("S&P") downgraded the
Company's various securities and other securities associated with the
Company's Eastern Interconnection Transmission Project and PVNGS leases.
S&P recently categorized each utility's business position as being either
"above average", "average", or "below average". The recent S&P's revised
rating outlook categorized the Company's business position as "below
average". S&P stated that such lower ratings reflect weak financial measures
relative to the Company's current below average business position. S&P also
stated that substantial uncertainties continue to exist including the
Company's ability to reach an agreement with its major intervenors on a
restructuring plan which is acceptable to the NMPUC, the ability to sell
unneeded assets at reasonable prices, and satisfactory operation of the PVNGS
units.
S&P further stated that the Company's outlook will continue to be negative
until the Company can gain regulatory approval for its restructuring plan and
demonstrate its ability to compete. S&P, however, noted that if the Company
can execute its well thought out business plan and an aggressive debt paydown
program, a stable credit outlook can be achieved and the Company should
eventually be able to improve its business position and reverse the long
slide in the Company's credit ratings. The Company believes that such
downgrade of the above securities does not affect materially the Company's
current financial condition and results of operations.
The Company advises investors that a security rating should not be viewed as
a recommendation to buy, sell or hold securities.
Liquidity Facilities
The Company's construction expenditures and other major cash requirements
have partially been met through a continuation of borrowings pursuant to the
Company's secured revolving credit facility which was scheduled to expire on
December 31, 1993.
On December 14, 1993, the Company entered into a $100 million secured
revolving credit facility (the "Revolver") with nine banks to replace the
previously existing $100 million facility. The Revolver expires on June 13,
1995 and has terms and conditions substantially the same as those of the
facility which it replaced.
On December 21, 1993, the Company entered into an additional $40 million
credit facility collateralized by the Company's electric customer accounts
receivable (the "Accounts Receivable Securitization"). The Accounts
Receivable Securitization has a term of five years.
Together with $11 million in local lines of credit, the Company thus has $151
million in liquidity arrangements, which, along with cash from operations,
are adequate for the Company's 1994 capital requirements for construction
expenditures and other major cash requirements. As of December 31, 1993,
there were no borrowings outstanding under the Revolver, the Accounts
Receivable Securitization or any of the local lines of credit.
Fuel and Purchased Power Cost Adjustment Clause
As previously reported, the Company has an electric fuel and purchased power
cost adjustment clause ("FPPCAC") through which the Company passes changes in
its fuel and purchased power costs from the amount included in base rates on
to its retail customers as a monthly surcharge on electric bills. The
Company and primary intervenors (the New Mexico Industrial Energy
Consumers,the NMPUC staff, the City of Albuquerque, the United States
Executive Agencies and the New Mexico Attorney General) have been negotiating
the possible elimination of the Company's FPPCAC following implementation of
the NMPUC's final and nonappealable order that results from the Company's
next general rate case. (See PART I, ITEM 2.-"MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--OTHER ISSUES
FACING THE COMPANY-- Fuel Adjustment Clause" in the September 1993 10-Q.)
On December 22, 1993, the Company and primary intervenors entered into a
stipulation, agreeing to eliminate the FPPCAC from the Company's retail
billings, effective with the order in the Company's next general rate case.
In return, the Company would be allowed to keep any savings it achieves by
efficient fuel management or increases in off-system sales revenues between
rate cases. In future rate cases, any fuel savings achieved by the Company
or increases in off-system sales revenues would be factored into the new
rates.
Based on the current relative stability of the Company's fuel cost, the
Company does not anticipate any material adverse impact on the Company's
financial condition and results of operations as a result of this change.
A Transmission Right-of-Way
As previously reported, the Company has easements for right-of-way with the
Navajo Nation (the "Nation") for portions of two transmission lines which
emanate from the San Juan Generating Station and connect with the Four
Corners Power Plant and with a switching station in the Albuquerque area.
One grant of easement for approximately 4.2 miles of right-of-way for
parallel 345 KV transmission lines expired on January 17, 1993. (See PART I,
ITEM 2.-"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--OTHER ISSUES FACING THE COMPANY-- A Transmission
Right-of-Way" in the September 1993 10-Q.)
On January 6, 1994, the Nation and the Company executed an agreement whereby
the Nation agreed not to object to the Company's operating and maintaining
the facilities on the easement for right-of-way until July 17, 1994 in return
for a cash payment and transfer of title to land located near the Nation.
Additionally, the Nation and the Company agreed to exert a good faith effort
to reach a long-term right-of-way renewal agreement prior to July 17, 1994.
As a result of the execution of this agreement, the Company continues to
believe that a long-term renewal agreement with the Nation will ultimately be
reached. An essential precursor to these negotiations is the completion of
a right-of-way valuation by the Nation. The Nation has informed the Company
that such study is near completion and consequently the Company expects to
begin discussion with the Nation on the long-term right-of-way renewal in the
near future.
Director Resignation
On December 8, 1993, Ms. Vickie Fisher resigned her position as a director of
the Company when she accepted a position with the City of Albuquerque. Her
resignation was not due to any disagreements on matters relating to the
Company's operations, policies or practices.
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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: January 13, 1994 /s/ Donna M. Burnett
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Donna M. Burnett
Corporate Controller and
Chief Accounting Officer
