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 period ended September 30, 1996
-----------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-6986
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PUBLIC SERVICE COMPANY OF NEW MEXICO
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(Exact name of registrant as specified in its charter)
New Mexico 85-0019030
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Alvarado Square, Albuquerque, New Mexico 87158
----------------------------------------------
(Address of principal executive offices)
(Zip Code)
(505) 241-2700
--------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock--$5.00 par value 41,774,083 shares
----------------------------- -------------------------------
Class Outstanding at October 31, 1996
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION:
Report of Independent Public Accountants.......................... 3
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Earnings--
Three Months and Nine Months Ended September 30, 1996 and 1995.... 4
Consolidated Balance Sheets--
September 30, 1996 and December 31, 1995.......................... 5
Consolidated Statements of Cash Flows--
Nine Months Ended September 30, 1996 and 1995..................... 6
Notes to Consolidated Financial Statements........................ 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................... 8
PART II. OTHER INFORMATION:
ITEM 5. OTHER INFORMATION............................................. 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................. 17
Signature .............................................................. 18
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Public Service Company of New Mexico:
We have reviewed the accompanying condensed consolidated balance sheet of Public
Service Company of New Mexico (a New Mexico corporation) and subsidiaries as of
September 30, 1996, and the related condensed consolidated statements of
earnings for the three-month and nine-month periods ended September 30, 1996 and
1995, and the condensed consolidated statements of cash flows for the nine-month
periods ended September 30, 1996 and 1995. These financial statements are the
responsibility of the company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Public Service Company of New
Mexico and subsidiaries as of December 31, 1995 (not presented herein), and, in
our report dated February 13, 1996, we expressed an unqualified opinion on that
statement. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1995, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
ARTHUR ANDERSEN LLP
Albuquerque, New Mexico
October 29, 1996
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<TABLE>
ITEM 1. FINANCIAL STATEMENTS
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------ -----------------------
1996 1995 1996 1995
---------- --------- --------- ----------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues:
Electric $ 180,214 $ 168,115 $ 486,754 $ 446,421
Gas 30,543 27,410 163,504 164,736
Water 0 61 0 6,196
--------- --------- --------- ----------
Total operating revenues 210,757 195,586 650,258 617,353
--------- --------- --------- ----------
Operating expenses:
Fuel and purchased power 47,786 40,980 128,359 105,769
Gas purchased for resale 9,877 7,480 75,580 71,476
Other operation and maintenance 80,906 71,641 232,388 230,889
Depreciation and amortization 19,835 19,767 58,420 61,019
Taxes, other than income taxes 9,079 8,321 26,907 26,859
Income taxes 10,862 12,663 32,371 27,852
--------- --------- --------- ----------
Total operating expenses 178,345 160,852 554,025 523,864
--------- --------- --------- ----------
Operating income 32,412 34,734 96,233 93,489
--------- --------- --------- ----------
Other income and deductions, net of taxes: 644 7,510 2,497 22,203
--------- --------- --------- ----------
Income before interest charges 33,056 42,244 98,730 115,692
--------- --------- --------- ----------
Interest charges:
Interest on long-term debt 12,101 12,215 36,304 40,606
Other interest charges 1,015 1,060 2,496 4,514
--------- --------- --------- ----------
Net interest charges 13,116 13,275 38,800 45,120
--------- --------- --------- ----------
Net earnings 19,940 28,969 59,930 70,572
Preferred stock dividend requirements 147 495 440 3,567
--------- --------- --------- ----------
Net earnings applicable to common stock $ 19,793 $ 28,474 $ 59,490 $ 67,005
========= ========= ========= ==========
Average shares of common stock outstanding 41,774 41,774 41,774 41,774
========= ========= ========= ==========
Net earnings per share of common stock $ 0.47 $ 0.68 $ 1.42 $ 1.60
========= ========= ========= ==========
Dividends paid per share of common stock $ 0.12 $ - $ 0.24 $ -
========= ========= ========= ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
------------ ----------
(Unaudited)
(In thousands)
ASSETS
Utility plant $2,478,017 $2,467,161
Accumulated provision for depreciation
and amortization (924,842) (892,727)
----------- -----------
Net utility plant 1,553,175 1,574,434
----------- -----------
Other property and investments 264,561 33,433
----------- -----------
Current assets:
Cash 5,130 4,228
Temporary investments, at cost 33,318 95,972
Receivables 122,926 127,642
Income taxes receivable - 4,792
Fuel, materials and supplies 42,149 44,660
Gas in underground storage 3,172 5,431
Other current assets 7,373 7,186
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Total current assets 214,068 289,911
----------- -----------
Deferred charges 134,891 137,891
----------- -----------
$2,166,695 $2,035,669
=========== ===========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity:
Common stock $ 208,870 $ 208,870
Additional paid-in capital 468,961 470,358
Excess pension liability, net of tax (2,101) (1,623)
Retained earnings since January 1, 1989 74,708 25,243
----------- -----------
Total common stock equity 750,438 702,848
Cumulative preferred stock without mandatory
redemption requirements 12,800 12,800
Long-term debt, less current maturities 712,271 728,843
----------- -----------
Total capitalization 1,475,509 1,444,491
----------- -----------
Current liabilities:
Short-term debt 114,000 -
Accounts payable 83,530 93,666
Dividends payable 293 147
Current maturities of long-term debt 16,440 146
Accrued interest and taxes 31,746 26,856
Other current liabilities 35,918 44,552
----------- -----------
Total current liabilities 281,927 165,367
----------- -----------
Deferred credits 409,259 425,811
----------- -----------
$2,166,695 $2,035,669
=========== ===========
The accompanying notes are an integral part of these financial statements.
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30
-------------------
1996 1995
-------- --------
(In thousands)
Cash Flows From Operating Activities:
Net earnings $ 59,930 $ 70,572
Adjustments to reconcile net earnings to net cash
flows from operating activities:
Depreciation and amortization 74,871 73,429
Gain on sale of plant and property - (39,055)
Accumulated deferred investment tax credit (3,498) (3,866)
Accumulated deferred income tax (1,599) (36,450)
Changes in certain assets and liabilities:
Receivables 9,509 35,285
Fuel, materials and supplies 4,771 (29,871)
Deferred charges 5,246 10,754
Accounts payable (10,192) (46,990)
Accrued interest and taxes 4,890 45,366
Deferred credits (4,860) 24,384
Other (8,400) 4,043
Other, net 4,710 6,927
---------- --------
Net cash flows from operating activities 135,378 114,528
---------- --------
Cash Flows From Investing Activities:
Utility plant additions (66,385) (76,884)
Utility plant sales - 205,968
Other property additions (14,230) (26)
Escrow for purchase of PVNGS lease obligation bonds (218,090) -
Net decrease (increase) in temporary investments 62,654 (1,793)
---------- --------
Net cash flows from investing activities (236,051) 127,265
---------- --------
Cash Flows From Financing Activities:
Redemptions of PVNGS lease obligation bonds - 132,663)
Redemptions and repurchases of preferred stock - (64,175)
Bond redemption premium and costs (295) (373)
Proceeds from asset securitization - 18,758
Repayments of other long-term debt (326) (57,768)
Net increase in short-term debt 114,000 -
Exercise of employee stock options (1,395) -
Dividends paid (10,409) (4,943)
---------- --------
Net cash flows from financing activities 101,575 241,164)
---------- --------
Increase in cash 902 629
Cash at beginning of period 4,228 21,029
---------- --------
Cash at end of period $ 5,130 $ 21,658
========== ========
Supplemental Cash Flow Disclosures:
Interest paid $ 39,949 $ 52,576
========== ========
Income taxes paid, net $ 30,617 $ 38,205
========== ========
The accompanying notes are an integral part of these financial statements.
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) General Accounting Policy
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary for a fair presentation of the
consolidated financial statements. The significant accounting policies followed
by Public Service Company of New Mexico (the "Company") are set forth in note
(1) of notes to the Company's consolidated financial statements in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995 (the "1995 Form
10-K") filed with the Securities and Exchange Commission ("SEC").
(2) Palo Verde Nuclear Generating Station ("PVNGS") Lease
Obligation Bonds ("LOBs")
On October 17, 1996, the Company purchased $200 million of PVNGS LOBs at a
premium with accrued interest. In purchasing the LOBs, the Company utilized $118
million of its cash and borrowed $100 million against the credit facility
collateralized by the Company's utility customer accounts receivable and certain
amounts being recovered from gas customers relating to certain gas contract
settlements ("Accounts Receivable Facility"). Although the PVNGS LOBs are
off-balance sheet debt, these bonds have been included in the calculation of the
Company's debt to capitalization ratio as well as various financial coverage
ratios by the major rating agencies. The purchase of the LOBs will not only
improve these ratios, but will also increase earnings in the form of interest
income.
(3) PNM Direct Plan
On September 16, 1996, the Company implemented a dividend reinvestment and stock
purchase plan for investors, including customers and employees. The plan, called
PNM Direct, also includes safekeeping services and automatic investment
features. Initially, the Company's stock will be purchased in the open market to
meet plan requirements.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's 1995 Form 10-K PART II, ITEM 7. -- "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" discussed
management's assessment of the Company's financial condition, results of
operations and other issues facing the Company. The following discussion and
analysis by management focuses on those factors that had a material effect on
the Company's financial condition and results of operations during the three
months and nine months ended September 30, 1996 and 1995. It should be read in
conjunction with the Company's consolidated financial statements. Trends and
contingencies of a material nature are discussed to the extent known and
considered relevant.
Liquidity and Capital Resources
The capital requirements for 1996 were originally projected at $207 million,
including a discretionary cash outlay for debt retirement of $90 million. During
the second quarter, the Company revised its capital requirements to $317 million
to reflect the anticipated third quarter purchase of $200 million of PVNGS LOBs
and the postponement of the planned debt retirement of $90 million. In September
1996, the New Mexico Public Utility Commission ("NMPUC") granted the Company's
request for the purchase of up to $300 million of PVNGS LOBs and Eastern
Interconnection Project secured facility bonds over the next three years. On
October 17, 1996, the Company purchased $200 million of PVNGS LOBs at a premium
with accrued interest. In purchasing the LOBs, the Company borrowed $100 million
against the Accounts Receivable Facility and utilized $118 million of its cash.
The Company spent approximately $66 million for its utility construction
expenditures during the first nine months of 1996 and anticipates it will spend
approximately $44 million for additional construction expenditures during the
remaining period of 1996. The Company expects that such cash requirements are to
be met primarily through internally generated cash. However, to cover
differences in the amounts and timing of cash generation and cash requirements,
the Company utilizes short-term borrowings under its liquidity arrangements. At
September 30, 1996, the Company had $97 million of available liquidity
arrangements, consisting of $89 million from the $100 million revolving credit
facility ("Facility") and $8 million from the $11 million in local lines of
credit. The Facility will expire in June 1998 and includes a maximum allowed
debt to capitalization ratio of 70%. As of September 30, 1996, such ratio was
62.1%.
In July 1996, the Company requested NMPUC approval to refinance the $23 million
1984 Series A Pollution Control Revenue Bonds and the $77 million 1977 Series
Pollution Control Revenue Refunding Bonds. The NMPUC issued an order on October
7, 1996, approving the refinancings. On October 9, 1996, the Company filed a
case to refinance an additional $65 million of 1978 Series A Pollution Control
Revenue Bonds. A hearing was held on October 30. If approved, the Company
expects to refinance the entire $165 million of pollution control bonds before
year end with either fixed or variable rate bonds.
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<PAGE>
As of September 30, 1996, the Company had approximately $33.3 million in
temporary investments. The Company continues to evaluate its investment and debt
retirement options to optimize its financing strategy and earnings potential.
Credit Rating and Dividends
In September 1996, Moody's Investors Service ("Moody's") and Standard & Poor's
Corporation ("S&P") upgraded the Company's credit ratings to one level below
investment grade in response to the Company's announcement of the planned
purchase of $200 million of PVNGS LOBs. The purchase represents the latest step
in the Company's efforts to improve its debt to capitalization ratio and reduce
fixed costs. The positive rating outlook by Moody's anticipates the Company's
purchase of an additional $100 million of PVNGS LOBs over the next three years,
above-average growth in energy demand within the Company's service territory,
and gradual transition to retail competition in New Mexico. S&P indicated that
"ratings could be raised during the next several years if the Company can meet
several major challenges, including the threat of retail wheeling, relatively
high electric production costs, above-average retail electric rates, potential
further write downs of high cost nuclear generation, and the need for
satisfactory Palo Verde operating performance".
The Company resumed the payment of cash dividends on common stock starting in
May 1996. On October 8, 1996, the Company's board of directors ("Board")
declared a quarterly cash dividend of 12 cents per common share, payable
November 22, 1996, to shareholders of record as of November 1, 1996. The Board
reviews the Company's dividend policy on a continuing basis. The declaration of
common dividends is dependent upon a number of factors including earnings and
financial condition of the Company and market conditions.
RESULTS OF OPERATIONS
Net earnings applicable to common stock decreased $8.7 million ($.21 per share)
and $7.5 million ($.18 per share) for the quarter and nine months ended
September 30, 1996, respectively, from the corresponding periods last year.
The following discussion highlights significant items which affected the results
of operations for the quarter and nine months ended September 30, 1996 and 1995.
Electric gross margin (electric operating revenues less fuel and purchased power
expense) increased $5.3 million and $17.7 million for the quarter and nine
months ended September 30, 1996, respectively, from the corresponding periods a
year ago. These increases were attributable to retail load growth and warmer
than normal weather in 1996 and increased off-system sales margin due to the
Company's aggressive marketing strategies aided by the warmer than normal
weather.
Gas gross margin (gas operating revenues less gas purchased for resale)
decreased $5.3 million for the nine months ended September 30, 1996 from the
corresponding period a year ago. The main contributor to this decrease was the
effect of the sale of gas gathering and processing assets in 1995, which was
partially offset by increased off-system sales margin.
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<PAGE>
The sale of the Company's water division in July 1995 resulted in a decrease in
the current year's operating revenues by $6.2 million for the nine months ended
September 30, 1996.
Other operation and maintenance ("O&M") expenses increased $9.3 million for the
quarter over the corresponding period a year ago due to increases in (i) office
supplies and expense and outside services of $4.3 million, (ii) labor expense of
$3.6 million, (iii) distribution O&M expenses of $1.8 million, and (iv)
transmission O&M expenses of $1.1 million. Such increases were offset by a $2.0
million reduction in O&M associated with the PVNGS Units 1 and 2 leases as a
result of a the change in the Arizona property tax law.
Other O&M expenses for the nine months ended September 30, 1996 increased $1.5
million from the corresponding period last year. The various 1996 expense
increases were significantly offset by the reduction in O&M expenses of $9.9
million resulting from the sales of the water division and gas gathering and
processing assets in 1995.
Depreciation and amortization expenses decreased $2.6 million for the nine
months ended September 30, 1996 from the corresponding period a year ago as a
result of the sale of the Company's water division and gas assets in 1995 and an
adjustment recorded in the second quarter of 1996 for the over amortization of
certain intangible utility plant.
Operating income taxes for the quarter ended September 30, 1996 decreased $1.8
million from the corresponding period a year ago due mainly to decreased pre-tax
earnings for the current quarter. Operating income taxes for nine months ended
September 30, 1996 increased $4.5 million over the corresponding period a year
ago due mainly to increased pre-tax earnings for the current nine months.
Other income and deductions, net of taxes, for the quarter and nine months ended
September 30, 1996 decreased $6.9 million and $19.7 million, respectively, from
the corresponding periods a year ago. Significant items, net of taxes, for the
1995 quarter included the gain of $6.8 million from the sale of the Company's
water division in July 1995. In addition, year-to-date 1995 included, net of
tax, (i) the gain of $13.1 million from the gas assets sale in June 1995, (ii)
an accrual of $2.6 million of income pertaining to the carrying costs related to
gas take-or-pay settlement amounts and (iii) income of $1.4 million related to
adjusting reclamation reserves for certain mining operations. Offsetting such
decreases were an additional 1995 regulatory reserve of $1.5 million and an
after-tax write off of debt retirement costs of $.9 million.
Net interest charges decreased $6.3 million for the nine months ended September
30, 1996 from the corresponding period a year ago as a result of the retirement
of $132.7 million PVNGS LOBs in March 1995.
Preferred stock dividend requirements decreased $3.1 million for the nine months
ended September 30, 1996 from the corresponding period a year ago due to the
retirement of $64 million of preferred stock in August 1995.
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OTHER ISSUES FACING THE COMPANY
Restructuring the Electric Industry in New Mexico
As previously reported, the electric utility industry is currently undergoing a
period of fundamental change intended to promote a competitive environment in
the retail and wholesale energy marketplaces. Legislators and regulators at both
the state and Federal level are considering whether, and how, to promote
competition among suppliers of electricity and how to provide customers with
choice among suppliers. (See ITEM 7. -- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- OVERVIEW -- Competitive
Electric Market" in the 1995 Form 10-K.)
The Integrated Water and Resource Planning Committee of the New Mexico State
Legislature (the "IWRPC") has been holding ongoing hearings during 1996 which
continue to focus on the issues related to restructuring of the electric
industry in New Mexico. The Company has participated extensively in these
hearings and, at the invitation of the IWRPC, submitted draft legislation to be
used as a starting point for the various parties to consider regarding the
electric industry restructuring. The draft legislation would allow an electric
utility to recover all of its prudently incurred transition costs, and also
provides a path for business flexibility. The office of New Mexico Attorney
General's ("AG") has testified that retail competition should not be introduced
at this time but, if it is, there should be independent ownership of generation
and transmission and distribution, due to market power concerns. To date, the
IWRPC has not articulated a formal position on either the Company's proposed
legislation or any other restructuring proposals for the restructuring of the
electric industry in New Mexico.
In addition, the NMPUC has begun a series of workshop meetings in its
"Investigation of Restructuring of Regulation of the Electric Industry in New
Mexico". The Company has actively participated in these workshops and has
presented the Company's position on various matters related to industry
restructuring. The Company has provided data and analysis in the areas of market
structure, calculation and collection of stranded costs, market power, potential
changes in Company structure and issues related to the transition phase. The
Company continues to provide information and analysis to the NMPUC in this
ongoing matter.
The Company is currently unable to predict the ultimate outcome of this
proceeding and the timing of the electric industry restructuring in New Mexico.
Santa Fe Station
As previously reported, the New Mexico Environment Department ("NMED") has been
conducting an investigation of groundwater contamination detected beneath the
former Santa Fe Generating Station ("Santa Fe Station") site to determine the
source of the contamination. The Company has been and is continuing to cooperate
with the NMED site investigation pursuant to a settlement agreement ("Settlement
Agreement") between the Company and the NMED. On June 24, 1996, the Company
received a letter from the NMED, indicating that the NMED believes that the
Company is the source of the gasoline contamination in a municipal well
supplying the City of Santa Fe and the groundwater underlying the Santa Fe
Station. Further, the NMED letter stated that the Company was required to
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proceed with the interim remediation of the contamination pursuant to the New
Mexico Water Quality Control Commission ("NMWQCC") regulations. (See PART I,
ITEM 2. -- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- OTHER ISSUES FACING THE COMPANY -- Santa Fe Station" in
the Company's quarterly report on Form 10-Q for the quarter ended June 30,
1996.)
On July 24, 1996, the Company filed an appeal with the NMWQCC regarding the
determinations and directives contained in the NMED's June 24, 1996 letter. As a
result of ongoing negotiations being conducted between the Company and the NMED
for a resolution of the groundwater contamination issue, the Company and the
NMED filed a joint motion to stay the appeal. The motion was granted by the
NMWQCC on September 10, 1996.
On October 3, 1996, the Company and the NMED signed an amendment to the
Settlement Agreement concerning the groundwater contamination. As part of the
amendment, the Company agreed to spend approximately $1.2 million ("Settlement
Amount") for certain costs related to sampling, monitoring, and development and
implementation of a remediation plan. The remediation plan is to be developed
jointly by the Company and the NMED. Since the contamination affects a municipal
well supplying the City of Santa Fe, the cooperation of the City of Santa Fe
will also be sought in the development of the plan.
The amended Settlement Agreement does not, however, provide the Company with a
full and complete release from potential liability for remediation of the
groundwater contamination. After the Company has expended the Settlement Amount,
if the NMED can establish, through binding arbitration, that the Santa Fe
Station is the source of the contamination, the Company could be required to
perform further remediation that is determined to be necessary. The Company
continues to dispute any contention that the Santa Fe Station is the source of
the groundwater contamination and believes that insufficient data exists to
identify the sources of groundwater contamination.
Coal Fuel Supply
In July 1996, the Company was notified by BHP Minerals International, Inc.
("BHP"), fuel supplier to the SJGS, that the Navajo Nation has proposed to
select certain properties within the San Juan and La Plata Mines (the "mining
properties') pursuant to the Navajo-Hopi Land Settlement Act of 1974 (the
"Act"). The mining properties are operated by BHP under leases from the Bureau
of Land Management ("BLM") and comprise a portion of the fuel supply for SJGS.
An administrative appeal by BHP is pending. In the appeal, BHP has expressed
concern that transfer of the mining properties to the Navajo Nation may subject
the mining operations to taxation and additional regulation by the Navajo
Nation, both of which could increase costs to the coal price that might
potentially be passed on to SJGS through the existing coal sales agreement. A
stay of all actions by the BLM has been ordered by the Interior Board of Land
Appeals pending resolution of the issues on appeal. The Company is monitoring
closely the appeal and other developments on this issue and will continue to
assess potential impacts to SJGS and the Company's operations. Currently, the
Company is unable to predict the outcome of this matter or its possible impact
on the Company's results of operations.
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Decommissioning Trust Funds
The Company has a program for funding its share of decommissioning costs for
PVNGS. Under this program, the Company makes a series of annual deposits to an
external trust over the estimated useful life of each unit with the trust funds
being invested under a plan which allows the accumulation of funds largely on a
tax-deferred basis through the use of life insurance policies on certain current
and former employees. A decommissioning cost study performed in 1995 indicated
that the Company's share of the PVNGS decommissioning costs will be
approximately $147.5 million (stated in 1995 dollars). The Company determined
that a supplemental investment program would be needed as a result of cost
increases identified in a 1992 study and the lower than anticipated performance
of the existing program. In 1995, the Company filed a request for permission
from the NMPUC to establish a qualified tax advantaged trust for PVNGS Units 1
and 2. Due to Internal Revenue Service regulations, PVNGS Unit 3 will remain in
a non-qualified trust. The NMPUC granted the Company's request. (See PART II,
ITEM 7. -- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- OTHER ISSUES FACING THE COMPANY" in the 1995 Form
10-K.)
Pursuant to NMPUC approval, in March and September 1996, the Company funded an
additional $12.5 million into qualified and non-qualified trusts. The estimated
market value of the trusts at the end of December 1996 is estimated to be
approximately $25.6 million, including the cash surrender value of the current
insurance policies.
Gas Rate Case
As previously reported, in August 1995, the Company filed a request for a $13.3
million increase for its retail natural gas sales and transportation rates. The
NMPUC Staff and intervenors in the case filed their testimony in January 1996.
The NMPUC Staff recommended a $2.5 million rate decrease and the AG recommended
a $13.2 million rate decrease. (See PART II, ITEM 7. -- "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- OTHER ISSUES
FACING THE COMPANY -- GAS RATE CASE" in the 1995 Form 10-K.)
On August 29, 1996, the hearing examiner in the case issued a recommended
decision, proposing a rate decrease of approximately $.5 million. The proposed
rate decrease reflects the recovery of certain regulatory assets and the
postponement of recovery of other regulatory assets to future proceedings. The
NMPUC's final order in the case is expected in November 1996. The Company is
currently unable to predict the ultimate outcome of this proceeding.
Albuquerque Franchise Issues
As previously reported, the Company's non-exclusive electric service franchise
with the City of Albuquerque ("the City") expired in 1992. The franchise
agreement provided for the Company's use of City rights-of-way for placement of
electric service facilities. The Company provides service to the area which
contributed 46% of the Company's total 1995 electric operating revenues. The
absence of a franchise does not change the Company's right and obligation to
serve those customers under state law.
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<PAGE>
In 1991, the NMPUC issued an order concluding, among other things, that the City
could bid for services to its own facilities (Albuquerque municipal loads
generated approximately $16.6 million in annual revenue for 1995), but not for
service to other customers. However, the New Mexico Supreme Court ("Court")
ruled that a city can negotiate rates for its citizens in addition to its own
facility uses. The Court also ruled that any contracts with utilities for
electric rates are a matter of statewide concern and subject to approval,
disapproval or modification by the NMPUC. In addition, the Court reaffirmed the
NMPUC's exclusive power to designate providers of utility service within a
municipality and confirmed that municipal franchises are not licenses to serve
but rather provide access to public rights-of-way.
During 1992, representatives of the Company and the City had numerous meetings
in attempts to resolve the franchise renewal issue. Since that time, no meetings
have been held. The City continues to maintain its options by advocating
industry restructuring and monitoring the municipalization activities of the
City of Las Cruces. A measure designed to start municipalization activities in
Albuquerque was defeated by the City Council. The Company continues to collect
and pay franchise fees to the City. (See PART II, ITEM 7. -- "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
OTHER ISSUES FACING THE COMPANY -- ALBUQUERQUE FRANCHISE ISSUES" in the 1995
Form 10-K.)
In an article in the October 25, 1996, Albuquerque Journal, it was reported that
the Mayor of the City had met with two NMPUC Commissioners about his concern
that State efforts regarding retail wheeling were proceeding too slowly and that
he was evaluating the City's options to implement Article XV of the City Charter
requiring competitive bids for electric franchises. The Company has taken the
position that the NMPUC does not have authority to order retail wheeling and, as
previously reported, the Legislature in 1996 unanimously adopted Senate Joint
Memorial 42, which stated that retail wheeling is not in the public interest at
this time although recognizing that industry restructuring must continue to be
studied.
In a related matter, the New Mexico Supreme Court on September 13, 1996, agreed
to decide the question of whether or not State law allows condemnation of
electric utilities in the case involving the attempt by the City of Las Cruces
to condemn El Paso Electric Company's ("EPE") distribution system and related
facilities serving Las Cruces. On August 21, 1996, the Federal Magistrate Court
ruled that the City of Las Cruces had failed to prove that condemnation would
not materially impair service by EPE to customers outside Las Cruces. This case
continues in the New Mexico Supreme Court. Although the Company believes that
State law does not allow condemnation of electric utilities, it cannot, at this
time, predict the outcome of this case or its possible effects on the City of
Albuquerque franchise issues.
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<PAGE>
PART II -- OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Purchase of 100 MW Contingent Peaking Capacity
On October 4, 1996, the Company entered into a long-term power purchase contract
with the Cobisa-Person Limited Partnership ("PLP") to purchase approximately 100
MW of unit contingent peaking capacity for a period of 20 years, with an option
to renew for an additional five years. The PLP is a partnership of subsidiaries
of Cobisa Corporation of Houston, Texas and U.S. Generating Company of Bethesda,
Maryland. The gas turbine generating unit will be located on the Company's
retired Person Generating Station site located in Albuquerque, New Mexico and
will be constructed and operated by PLP. Depending on the timing of NMPUC and
Federal Energy Regulatory Commission ("FERC") approvals and securing of
necessary permits, construction could start in August 1998 with commercial
operation beginning by May 1999. The Company believes that locating additional
peaking capacity in the Albuquerque area will not only add 100 MW of support for
the already constrained transmission system, but will also meet growing power
demands in central New Mexico. On October 11, 1996, the Company filed a request
for approval from the NMPUC.
Gas Transmission Pipeline
As previously reported, in May 1996, the Company submitted a bid for acquiring
the gas transmission pipeline from the Department of Energy ("DOE") which had
issued a request for proposal for the sale of 130 miles of transmission
pipeline. The Company currently leases the pipeline from the DOE for
transmission of natural gas to certain customers in northern New Mexico,
including the county of Los Alamos and Los Alamos National Laboratory. (See PART
I, ITEM 2. -- "PROPERTIES --NATURAL GAS" in the 1995 Form 10-K.) On June 21,
1996, the DOE accepted the Company's proposal to purchase the DOE pipeline for
$3.1 million, subject to the successful negotiations of the transfer and
transitional transportation agreements. The acquisition by the Company is
subject to the approval of the NMPUC and the DOE providing right-of-way
satisfactory to the Company. Hearings are scheduled for November 25, 1996. The
Company is currently working with the DOE to resolve the right-of-way issue
associated with the purchase.
FERC Rate Filings
As previously reported, in April 1996, the Company filed a notice of change in
rates for its firm transmission service for all point-to-point and network
customers on the Company's high voltage transmission system. The Company also
requested changes for services provided to two customers which receive
integration and transmission service for power purchased from a third party. In
addition, the Company requested that this filing be consolidated with complaint
proceedings submitted by the affected customers. The Company submitted the same
cost support in the open access tariff and anticipates that the FERC will
determine rates for its open access tariff filing based on the results of the
rate change proceeding. (See PART I, ITEM 5. -- "OTHER INFORMATION -- FERC Rate
Filings" in the Company's quarterly report on Form 10-Q for the quarter ended
March 31, 1996.)
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<PAGE>
Hearings in the cases were scheduled to begin October 21, 1996. However, due to
on-going settlement negotiations among the parties, the Administrative Law Judge
has granted a two week delay in the case. If there is no settlement reached
among the parties, hearings are scheduled to begin November 4, 1996. Although
the Company anticipates a reduction in the existing rates resulting from the
hearings or any settlement of the cases, the Company does not anticipate any
material adverse impact on the Company's financial condition or results of
operations.
Disclosure Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a new
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies without fear of litigation so long
as those statements are identified as forward-looking and are accompanied by
meaningful, cautionary statements identifying important factors that could cause
actual results to differ materially from those projected in the statement.
Accordingly, the Company hereby identifies the following important factors which
could cause the Company's actual financial results to differ materially from any
such results which might be projected, forecasted, estimated or budgeted by the
Company in forward-looking statements: (i) adverse actions of utility regulatory
commissions, (ii) utility industry restructuring, (iii) failure to recover
stranded assets, (iv) failure to obtain new customers or retain existing
customers, (v) inability to carry out marketing and sales plans, (vi) adverse
impacts resulting from environmental regulations, (vii) loss of favorable fuel
supply contracts, (viii) failure to obtain water rights and rights-of-way, (ix)
operational and environmental problems at generating stations, and (x) failure
to maintain adequate transmission capacity.
Many of the foregoing factors discussed have been addressed in the Company's
previous filings with the SEC pursuant to the Securities Exchange Act of 1934.
The foregoing review of factors pursuant to the Act should not be construed as
exhaustive or as any admission regarding the adequacy of disclosures made by the
Company prior to the effective date of the Act.
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
10.69* Refunding Agreement No. 3 dated as of September 27, 1996 between
Public Service Company of New Mexico, The Owner Participant named
therein, State Street Bank and Trust Company, as Owner Trustee, The
Chase Manhattan Bank, as Indenture Trustee, and First PV Funding
Corporation
15.0 Letter Re: Unaudited Interim Financial Information
27 Financial Data Schedule
99.21* 1996 Supplemental Indenture dated as of September 27, 1996 to Trust
Indenture, Mortgage, Security Agreement and Assignment of Rents
dated as of December 16, 1985 between State Street Bank and Trust
Company, as Owner Trustee, and The Chase Manhattan Bank, as
Indenture Trustee
*One or more additional documents, substantially identical in all material
respects to this exhibit, have been entered into, relating to one or more
additional sale and leaseback transactions. Although such additional
documents may differ in other respects (such as dollar amounts and
percentages), there are no material details in which such additional
documents differ from this exhibit.
In addition to those exhibits shown above, the Company hereby incorporates the
following exhibit pursuant to Exchange Act Rule 12b-32 and Regulation S-K,
Section 10, paragraph (d), by reference to the filing set forth below:
Description Filed as Exhibit
By-laws of Public Service Company of 3.2 to Annual Report of the
New Mexico With All Amendments to and Registrant on Form 10-K for fiscal
including December 5, 1994 year ended December 31, 1994
b. Reports on Form 8-K:
None.
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<PAGE>
Signature
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 thereunto duly authorized.
PUBLIC SERVICE COMPANY OF NEW MEXICO
------------------------------------
(Registrant)
Date: October 31, 1996 /s/ Donna M. Burnett
------------------------------------
Donna M. Burnett
Corporate Controller and
Chief Accounting Officer
(Officer duly authorized to sign
this report)
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<PAGE>
REFUNDING AGREEMENT NO. 3
REFUNDING AGREEMENT NO. 3 dated as of September 27, 1996 (this
"Refunding Agreement") between PUBLIC SERVICE COMPANY OF NEW MEXICO, a New
Mexico corporation ("PNM"), the corporation identified on Schedule I hereto as
the Owner Participant (the "Owner Participant"), STATE STREET BANK AND TRUST
COMPANY, a Massachusetts trust company ("State Street"), not in its individual
capacity but solely as owner trustee (the "Owner Trustee") under the Trust
Agreement dated as of December 16, 1985 (the "Trust Agreement") with the Owner
Participant, THE CHASE MANHATTAN BANK, a New York banking corporation (formerly
known as "Chemical Bank") ("Chase"), not in its individual capacity, but solely
as lease indenture trustee (the "Indenture Trustee") under the Trust Indenture,
Mortgage, Security Agreement and Assignment of Rents dated as of December 16,
1985 (as heretofore supplemented, the "Lease Indenture") with the Owner Trustee
and FIRST PV FUNDING CORPORATION, a Delaware corporation ("Funding
Corporation").
R E C I T A L S
A. PNM, the Owner Participant, the Owner Trustee, the
Indenture Trustee and Funding Corporation are party to the Participation
Agreement dated as of December 16, 1985 (as heretofore amended, the
"Participation Agreement"). State Street is the successor as owner trustee to
The First National Bank of Boston ("FNB"), the owner trustee originally
designated in and party to the Participation Agreement and the other Transaction
Documents (such term and the other capitalized terms used in this Refunding
Agreement without definition being defined as provided in Section 1 below) to
which FNB was party in its capacity as owner trustee.
B. Funding Corporation, PNM and Chase (formerly known as
"Chemical Bank") are parties to the Collateral Trust Indenture dated as of
December 16, 1985 (as heretofore supplemented and amended, the "Collateral Trust
Indenture").
C. Pursuant to Section 8(a) hereof, the Owner Trustee has
determined to effect a partial prepayment of a portion of one of the Notes as
specified in Schedule I hereto (the "Prepayment") on the Closing Date (as
defined below). The Note subject to Prepayment is hereinafter called the
"Subject Note".
D. Funding Corporation has determined to effect a partial
optional redemption of the securities outstanding under the Collateral Trust
Indenture (the "Redemption"). Funding Corporation intends to redeem (i)
$32,256,000 of its 10.30% Lease Obligation Bonds Series 1986A, Due January 15,
2014 (the "Series
[3][MFS-1]
<PAGE>
A Bonds") and (ii) $167,744,000 of its 10.15% Lease Obligation Bonds, Series
1986B, Due January 15, 2016 (the "Series B Bonds").
E. The Owner Trustee shall obtain the funds necessary for the
Prepayment (i) by issuing and selling to PNM an Additional Note under the Lease
Indenture (the "Issuance and Sale") in the amount and on the terms specified in
the form of note included as part of Exhibit A hereto (the "1996 Refunding
Note") and (ii) from the payment by PNM of Supplemental Rent (pursuant to
Section 3(b)(ii) of the Facility Lease) to the Owner Trustee in the amount equal
to the prepayment premium (the prepayment price less principal being prepaid and
accrued interest thereon) to be paid in connection with the Prepayment. The
purchase price for the 1996 Refunding Note (the "Purchase Price") will equal the
principal amount thereof plus interest accrued thereon from July 15, 1996.
F. Funding Corporation shall obtain certain of the funds
necessary for the Redemption from (a) the proceeds of (i) the prepayment price
of the portion of the Subject Note being prepaid and (ii) the prepayment prices
being simultaneously paid in connection with the prepayment in part of the other
Pledged Lessor Notes listed on Schedule II hereto other than the Subject Note
(the "Transaction Lessor Notes") and (b) amounts paid by PNM pursuant to Section
4(c) of this Agreement and similar provisions of the refunding agreements
relating to the other Transaction Lessor Notes.
G. The Owner Trustee, as directed and authorized by the Owner
Participant, wishes to cause the Issuance and Sale in order to effect the
Prepayment and to provide a portion of the funds needed to effect the
Redemption.
H. Section 3.5(1)(i) of the Lease Indenture provides that
Additional Notes may be issued for the purpose of refunding any previously
issued series of Notes, in whole or in part. Section 10.1(viii) of the Lease
Indenture provides that the Indenture Trustee and the Owner Trustee may, without
the consent of the Holders of Notes Outstanding, execute a supplemental
indenture to evidence the issuance of and to provide the terms of Additional
Notes to be issued under the Lease Indenture in accordance with the terms
thereof. Subject to the conditions set forth herein, the Owner Trustee and
Indenture Trustee intend to execute a 1996 Supplemental Indenture to the Lease
Indenture, dated as of September 27, 1996 (the "1996 Note Supplement"),
providing for the issuance under the Lease Indenture of the 1996 Refunding Note
as contemplated in the 1996 Note Supplement. The form of the 1996 Note
Supplement is attached as Exhibit A hereto.
I. Pursuant to the Consent described in Schedule I hereto (the
"Consent"), the Owner Participant has consented to the acquisition by PNM of
Notes, and by executing this Agreement is willing to consent to the acquisition
by PNM of the 1996 Refunding Note on the terms and conditions set forth herein.
[3][MFS-1]
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<PAGE>
J. Since the 1996 Refunding Note taken together with the
unpaid portion of the Subject Note (as reflected in the Allonge hereinbelow
described) exactly corresponds (as to interest rate, maturity and principal
amortization) to the Subject Note without giving effect to the Prepayment, PNM
and the Owner Participant have agreed that no adjustments pursuant to Section
3(e) of the Lease will be necessary in connection with the Prepayment and/or the
issuance of the 1996 Refunding Note.
NOW, THEREFORE, in consideration of the premises and of other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. Definitions; Acknowledgment; etc.
(a) For purposes hereof, capitalized terms used herein and not
otherwise defined shall have the respective meanings assigned to such terms set
forth in Appendix A to the Participation Agreement or in the Collateral Trust
Indenture, as the case may be.
(b) On October 2, 1995 (the "Transfer Date"), FNB transferred
to State Street substantially all of the corporate trust business of FNB. State
Street is a trust company incorporated in Massachusetts and doing business in
the United States of America. State Street has a combined capital and surplus of
at least $50,000,000. Pursuant to Section 9.01(d) of the Trust Agreement, on the
Transfer Date State Street became the Owner Trustee under the Trust Agreement
and, therefore, the other Transaction Documents. State Street acknowledges and
agrees that, as of the Transfer Date, it has assumed all of the duties and
obligations of FNB under the Trust Agreement and the other Transaction
Documents. The parties hereto (other than the Owner Trustee) acknowledge the
succession of State Street as Owner Trustee under and in respect of the
Transaction Documents.
(c) Simultaneously with the execution and delivery of this
Agreement, the parties hereto (other than the Owner Participant) will be
entering into six other refunding agreements substantially similar to this
Agreement (the "Other Refunding Agreements"), one with respect to each of the
Transaction Lessor Notes. In the event that the Issuance and Sale contemplated
by one or more of the Other Refunding Agreements shall not occur for any reason,
the Redemption shall be modified to reduce the respective principal amounts of
Series A Bonds and Series B Bonds to be subject to such Redemption such that the
principal amount of Subject Bonds (as defined in Section 2(a) below) to be
redeemed equals the principal amount of the Prepayment hereunder and the
Prepayments under such Other Refunding Agreements in respect of which Issuance
and Sales shall simultaneously be occurring.
[3][MFS-1]
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<PAGE>
SECTION 2. Agreements of Funding Corporation.
(a) On the Closing Date (as defined in Section 6 below),
Funding Corporation shall issue a notice of redemption to the Collateral Trust
Trustee in the form of Exhibit B hereto (the "Notice of Redemption") with
respect to the optional redemption by it of $32,256,000 of Series A Bonds and
$167,744,000 of Series B Bonds (collectively, the "Subject Bonds"). The
redemption date specified in the Notice of Redemption is October 17, 1996 (the
"Redemption Date").
(b) Promptly following the Redemption, Funding Corporation
will deliver to the Collateral Trust Trustee a Company Request under the
Collateral Trust Indenture to effect adjustments to the Sinking Fund schedules
applicable to the Bonds not redeemed as part of the Redemption.
SECTION 3. Agreements of Owner Trustee.
(a) On the Closing Date, the Owner Trustee will:
(i) execute and deliver the 1996 Note Supplement;
(ii) execute and deliver the 1996 Refunding Note;
(iii) execute and deliver an allonge (the "Allonge")
to the Subject Note in the form of Exhibit C hereto;
(iv) as required by Section 3.5(4)(b) and (d) of the Lease
Indenture, execute and deliver a certificate, request and authorization
in the form of Exhibit D hereto (the "Owner Trustee Instrument"); and
(v) cause to be delivered an opinion of its counsel in
the form of Exhibit E.1 hereto.
(b) On the Closing Date, the relevant provisions of this
Refunding Agreement shall constitute notice to the Indenture Trustee of the
Prepayment. The principal portion of the Purchase Price (the "Amount to be
Prepaid" set forth in Schedule I hereto) shall be applied to prepay on the
Closing Date the remaining installments of principal of the Subject Note as
follows: the "principal amount payable" on each "payment date" specified on
Schedule 1 to the Subject Note shall be prepaid by an amount equal to the
"principal amount payable" for such date set forth in Schedule 1 to the 1996
Refunding Note. Annexed as Schedule 1 to the Allonge is the replacement schedule
to the Subject Note which reflects the application of the proceeds of Prepayment
to the remaining installments of the Subject Note. For each date, the sum of (i)
the "principal amount payable" set forth on Schedule 1 to the Allonge for such
date and (ii) the "principal amount payable" set forth on Schedule 1 to the 1996
Refunding Note for such date equals the "principal amount payable" for such
[3][MFS-1]
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<PAGE>
date set forth on Schedule 1 to the Subject Note (without giving effect to the
Prepayment or the Allonge).
SECTION 4. Agreements of PNM.
(a) On the Closing Date, PNM shall acquire the 1996 Refunding
Note for an amount equal to the Purchase Price. The Purchase Price shall be paid
by wire transfer of immediately available funds to an account at Chase to be
designated by Chase on the day immediately preceding the Closing Date (the
"Account").
(b) On the Closing Date, PNM shall pay an amount equal to the
amount specified in item 7 on Schedule I, such payment to be made for the
benefit of the Owner Trustee as Supplemental Rent under Section 3(b)(ii) of the
Facility Lease. Such payment shall be made by wire transfer of immediately
available funds to the Account.
(c) On the Closing Date, PNM shall pay to the Account for the
benefit of Funding Corporation an amount which, together with other funds
available in the Account, will be sufficient to pay the aggregate redemption
price of the Subject Bonds on and as of the Redemption Date (the "Aggregate
Redemption Price").
(d) PNM agrees that, upon acquisition by PNM of the 1996
Refunding Note, PNM will not thereafter sell, assign, transfer or otherwise
dispose of any portion of the 1996 Refunding Note or any interest therein (i)
except in a transaction which is exempt from the registration requirements of
the Securities Act of 1933, as amended, (ii) except in a transaction which would
not involve either a prohibited transaction (other than an exempt prohibited
transaction) or an impermissible delegation of authority within the meaning of
the Employee Retirement Income Security Act of 1974, as amended, related
provisions of the Internal Revenue Code of 1986, as amended, and implementing
regulations (collectively, "ERISA") and (iii) without the consent of the Owner
Participant, to any employee benefit plan subject to ERISA.
(e) PNM acknowledges and agrees that the acquisition by it of
the 1996 Refunding Note shall constitute the purchase and acquisition by PNM of
a Note for all purposes of the Consent and reaffirms for the benefit of the
Owner Participant, each of its covenants and agreements contained therein.
(f) Without the prior written consent of the Owner
Participant, PNM agrees that neither it nor any of its Affiliates, as holder of
the 1996 Refunding Note, will give or participate in any request, demand,
authorization, direction, notice, consent or waiver or other action available to
a holder of the 1996 Refunding Note.
[3][MFS-1]
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<PAGE>
(g) PNM will continue to satisfy its obligations to pay Rent
under the Facility Lease by making cash payments at the time such Rent is due
and payable, and in no case shall PNM tender, or be permitted to tender, any
portion of the 1996 Refunding Note in satisfaction of its obligations to pay
Rent.
(h) PNM represents and warrants that on and, as of the Closing
Date, (i) PNM has obtained (A) the consent of each Equity Investor to the extent
that such consent is required to purchase the 1996 Refunding Note and (B) each
other consent that is required under any Participation Agreement and (ii) PNM is
legally entitled to purchase and hold the 1996 Refunding Note.
SECTION 5. Agreements of the Owner Participant.
(a) The Owner Participant agrees that the acquisition by PNM
of the 1996 Refunding Note is in conformity with the Consent and will not,
therefore, result in a breach by PNM of the Participation Agreement (after
giving effect to the amendment to the Participation Agreement set forth in
Section 10 hereof).
(b) The Owner Participant will make a good faith effort to
cooperate with the other parties hereto in connection with the Prepayment, the
Redemption and the Issuance and Sale, SUBJECT NEVERTHELESS, to the provisions of
the Transaction Documents, the Consent and this Agreement.
SECTION 6. Closing.
(a) On September 27, 1996 (the "Closing Date"), subject to the
satisfaction of the conditions set forth in Section 6(b), the parties hereto
shall perform their respective obligations hereunder specified to be performed
on or prior to the Closing Date.
(b) The obligation of the parties hereto to participate in the
Prepayment, the Issuance and Sale and the Redemption shall be subject to the
fulfillment on or before the Closing Date of the following conditions precedent
(each instrument, document, certificate or opinion to be in form and substance
satisfactory to each party hereto):
(i) The Owner Trustee shall have delivered to the Indenture
Trustee the Owner Trustee Instrument with the authorization and
direction subscribed thereon duly executed
by the Owner Participant.
(ii) (A) The Owner Trustee and the Indenture Trustee shall
have entered into the 1996 Supplement, (B) the Owner Trustee shall have
executed and delivered (I) the Allonge and (II) the 1996 Refunding
Note, (C) the Indenture Trustee shall have authenticated the 1996
Refunding Note and delivered the same to PNM, (D) the Funding
Corporation and the Collateral Trust Trustee shall have accepted and
[3][MFS-1]
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<PAGE>
countersigned the Allonge and caused the same to be attached to the
Subject Note and (E) the Collateral Trust Trustee shall have sufficient
funds in the Account to pay the Aggregate Redemption Price.
(iii) No Default or Event of Default or Indenture Event of
Default shall have occurred and be continuing.
(iv) All conditions precedent to the acquisition by PNM of the
1996 Refunding Note specified in the Consent shall have been fulfilled.
(v) The Collateral Trust Trustee shall have executed and
delivered a Consent and Directive (delivered in its capacity as
assignee and pledgee of Funding Corporation and as holder of all Notes)
pursuant to which, among other things, it (1) consents to Section 10
hereof, (2) consents and agrees to an amendment to the Extension Letter
to reflect the amendment to the Participation Agreement set forth in
Section 10 hereof and (3) directs the Indenture Trustee to execute and
deliver the 1996 Note Supplement.
(vi) The parties shall have received a favorable opinion of
counsel from Keleher & McLeod, P.A., New Mexico counsel for PNM, dated
the Closing Date and addressing such matters relating to the
transactions in connection with the Redemption, the Issuance and Sale
and the Prepayment as any party may reasonably have requested.
(vii) The parties shall have received a favorable opinion of
counsel from Winthrop, Stimson, Putnam & Roberts, special counsel for
PNM and counsel for the Funding Corporation, dated the Closing Date and
addressing such matters relating to the transactions in connection with
the Redemption, the Issuance and Sale and the Prepayment as any party
may reasonably have requested.
(viii) The parties shall have received favorable opinions of
counsel from (1) counsel to the Owner Trustee dated the Closing Date
and in the form of Exhibit E.1 hereto, and (2) Winthrop, Stimson,
Putnam & Roberts dated the Closing Date and in the form of Exhibit E.2
hereto.
(ix) The parties shall have received from the Owner
Participant an acceptable opinion of counsel as to the due
authorization, execution and delivery of this Agreement by, and the
legal, valid and binding effect and enforceability of this Agreement
against, the Owner Participant.
SECTION 7. Expenses. PNM agrees that the fees, expenses,
disbursements and costs of the other parties hereto and the Collateral Trust
Trustee reasonably incurred in connection with the Prepayment, the Issuance and
Sale and the Redemption are payable by PNM, as Supplemental Rent, as
contemplated by Section
[3][MFS-1]
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<PAGE>
14(b) of the Participation Agreement. For purposes of such Section 14(b), PNM
acknowledges and agrees that this Agreement and the transactions contemplated
hereby and by the Consent are within the intent and scope of Section 14(b)(ii)
of the Participation Agreement.
SECTION 8. Request and Consent.
(a) In accordance with Section 2.01 of the Trust Agreement and
Section 3.5(2) of the Lease Indenture, the Owner Participant hereby requests,
authorizes and directs the Owner Trustee and the Indenture Trustee (as
applicable) to execute, deliver and perform this Agreement, the 1996 Note
Supplement, the 1996 Refunding Note, the Allonge and the Owner Trustee
Instrument.
(b) In accordance with Article X of the Lease Indenture, the
Owner Trustee hereby requests that the Indenture Trustee execute and deliver the
1996 Note Supplement and consents to such execution and delivery.
SECTION 9. No Adjustment, etc. Anything in the Facility Lease
or the other Transaction Documents to the contrary not withstanding, Basic Rent
and the schedules to the Facility Lease will not be subject to adjustment to
reflect either (i) the inclusion in income as to the Owner Participant of
transaction expenses paid by PNM in connection with the Prepayment, the Issuance
and Sale and the Redemption or (ii) the current deduction by the Owner
Participant (in consequence of the Prepayment) of any portion of
previously-incurred transaction expenses presently being amortized on a
straight-line basis during the Basic Lease Term. PNM agrees that any net
increase in the Owner Participant's Net Economic Return in consequence of the
foregoing may be retained by the Owner Participant in connection with any future
adjustment under the Facility Lease undertaken with the intent of preserving the
Owner Participant's Net Economic Return.
SECTION 10. Amendment to Participation Agreement.
Section 10(b)(3)(ix) of the Participation Agreement (as
amended by Section 2(b) of Amendment No. 1 dated as of July 15, 1986 to the
Participation Agreement) is hereby amended and restated in its entirety as
follows:
"(ix) Notes and Bonds. Except with consent of the Owner
Participant, the Lessee will not, and will not permit any of its
Affiliates to, (A) acquire any of the Notes or, (B) except in
connection with the selection of Bonds for redemption pursuant to the
Collateral Trust Indenture (in strict accordance with the provisions of
paragraph 3 of the commitment agreement dated the Refunding Date
between PNM and the Loan Participant relating to the Lease Obligation
Bonds
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<PAGE>
Series 1986A or provisions (identical in all materials respects) of
other commitment letters relating to other series of Bonds), any of the
Bonds."
SECTION 11. Additional Provisions.
(a) The following provisions of the Participation Agreement
are incorporated herein by this reference, mutatis mutandis, and shall be
applicable to and enforceable by the relevant party or parties hereto: Sections
16, 17(b) and 18 (except that the addresses of the parties for receipt of
notices, etc., shall be as set forth on Schedule III hereto) and Sections 19(a)
through Section 19(h).
(b) Notwithstanding Section 19(g) of the Participation
Agreement (as incorporated by Section 11(a) hereof), the Consent shall survive
the execution, delivery and performance of this Agreement.
(c) The recitals contained herein shall be taken as statements
of PNM, and the other parties assume no responsibility for the correctness of
the same.
(d) Chase and State Street are entering into this agreement
solely in their respective trust capacities and not in their respective
individual capacities. Anything herein to the contrary notwithstanding, all and
each of the agreements herein made on the part of each such trustee are made and
intended not as personal agreements but are made and intended solely for the
purpose of binding the trust estate in respect of which Chase or State Street,
as the case may be, is trustee.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Refunding Agreement No. 3 to be duly executed by their respective officers
thereunto duly authorized.
PUBLIC SERVICE COMPANY
OF NEW MEXICO
By:/s/ Mitch J. Manzec
-------------------
Name: Mitch J. Manzec
Title: Treasurer
MFS LEASING CORP.
By:/s/ Kathleen A. Gallo
---------------------
Name: Kathleen A. Gallo
Title: Treasurer
FIRST PV FUNDING CORPORATION
By:/s/ Mark a. Ferrucci
--------------------
Name: Mark A. Ferrucci
Title: President
THE CHASE MANHATTAN BANK, as Indenture
Trustee
By:/s/ Patricia Kelly
------------------
Name: Patricia Kelly
Title: Vice President
STATE STREET BANK AND TRUST COMPANY,
not in its individual capacity
but solely as Owner Trustee
as aforesaid
By:/s/ Patrick Thebado
-------------------
Name: Patrick Thebado
Title: Assistant Vice President
[3][MFS-1]
-10-
<PAGE>
SCHEDULE I to
Refunding Agreement No. 3
1. Name of Owner MFS Leasing Corp., a Delaware
Participant: corporation
2. Note to be Prepaid: 10.30% Non-Recourse Promissory
Note, Fixed Rate Series (Due
January 15, 2014), dated July
17, 1986
3. Amount to be Prepaid: $32,256,000
4. Prepayment Premium: $1,993,420.80
5. 1996 Refunding Note:
(i) Interest Rate: 10.30%
(ii) Principal
Amount: $32,256,000
(iii) Stated Maturity
of Principal: January 15, 2014
(iv) Interest
payable from: July 15, 1996
(v) Interest January 15 and July 15 in each
Payment Dates: year, commencing January 15,
1997
(vi) Principal As specified in Exhibit A to
Amortization: the 1996 Note Supplement
(vii) Optional As specified in Exhibit A to
Prepayment: the 1996 Note Supplement
(viii) Other terms: As specified in Exhibit A to
the 1996 Note Supplement
6. Purchase Price for $32,256,000 plus accrued
Refunding Note: interest from July 15, 1996.
7. Supplemental Rent
Payment: $1,993,420.80
8. Consent: Consent and Related Agreements
dated as of April 22, 1996
[3][MFS-1]
Page I-1
<PAGE>
Schedule II to
Refunding Agreement No. 3
PLEDGED LESSOR NOTES
TO BE PREPAID IN PART
Collateral Trust
Pledged Lessor Notes Reference
1. Non-Recourse Promissory Note, Series A Supplemental
Fixed Rate Series (Due Indenture, Schedule 2,
January 15, 2014), Item (2)(ix)
$34,605,000, dated July 17,
1986, 10.30%
2. Non-Recourse Promissory Note, Series B Supplemental
Fixed Rate Series (Due Indenture, Schedule 2,
January 15, 2015), Item (2)(iv)
$32,873,000, dated November
25, 1986, 10.15%
3. Non-Recourse Promissory Note, Series B Supplemental
Fixed Rate Series (Due Indenture, Schedule 2,
January 15, 2016), Item (2)(ix)
$71,610,000, dated November
25, 1986, 10.15%
4. Non-Recourse Promissory Note, Series B Supplemental
Fixed Rate Series (Due Indenture, Schedule 2,
January 15, 2016), Item (2)(xv)
$40,920,000, dated November
25, 1986, 10.15%
5. Non-Recourse Promissory Note, Series B Supplemental
Fixed Rate Series (Due Indenture, Schedule 2,
January 15, 2016), Item (2)(xviii)
$34,101,000, dated November
25, 1986, 10.15%
6. Non-Recourse Promissory Note, Unit 1 Supplemental
Fixed Rate Series (Due Indenture of Pledge,
January 15, 2015), Schedule 1, Item
$48,640,000, dated December (2)(iii)
17, 1986, 10.15%
7. Non-Recourse Promissory Note, Unit 2 Supplemental
Fixed Rate Series (Due Indenture of Pledge,
January 15, 2016), Schedule 1, Item
$23,229,000, dated December (2)(iii)
17, 1986, 10.15%
[3][MFS-1]
Page II-1
<PAGE>
Schedule III to
Refunding Agreement No. 3
ADDRESSES
1. Public Service Company of New Mexico
Alvarado Square
Albuquerque, New Mexico 87158
Attention of Secretary
2. MFS Leasing Corp.
4500 New Linden Hill Road, Suite 210
Wilmington, Delaware 19808
Attention of President
3. State Street Bank and Trust Company
Two International Place, 4th Floor
Boston, Massachusetts 02110
Attention of Corporate Trust Department
4. The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, New York 10001
Attention of Corporate Trustee Administration
5. First PV Funding Corporation
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
Attention of President
[3][MFS-1]
Page III-1
<PAGE>
When Recorded, Return to: Cheryl A. Ikegami
SNELL & WILMER
One Arizona Center
Phoenix, Arizona 85004-0001
1996 SUPPLEMENTAL INDENTURE
Dated as of September 27, 1996
To
TRUST INDENTURE, MORTGAGE, SECURITY AGREEMENT AND
ASSIGNMENT OF RENTS
Dated as of December 16, 1985
between
STATE STREET BANK AND TRUST COMPANY, not
in its individual capacity, but solely
as Owner Trustee under a Trust
Agreement dated as of December 16,
1985 with MFS LEASING CORP.
and
THE CHASE MANHATTAN BANK (formerly known as "Chemical Bank"),
as Indenture Trustee
Original Indenture recorded December 31, 1985 as Instrument No.
85-623277, re-recorded April 17, 1986 as Instrument No. 86-
187652, and confirmed by document recorded April 25, 1986 as
Instrument No. 86-203240, and Supplemental Indenture No. 1
thereto dated as of July 15, 1986, recorded July 17, 1986 as
Instrument No. 86-367467 and Supplemental Indenture No. 2 thereto
dated as of November 18, 1986, recorded November 25, 1986, as
Instrument No. 86-650769, all in Maricopa County, Arizona
Recorder's Office.
[3][MFS-1]
<PAGE>
This 1996 SUPPLEMENTAL INDENTURE dated as of September 27, 1996 to
Trust Indenture, Mortgage, Security Agreement and Assignment Of Rents dated as
of December 16, 1985, between STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company (State Street), not in its individual capacity, but
solely as Owner Trustee (the Owner Trustee) under a Trust Agreement dated as of
December 16, 1985, between State Street, whose address is Two International
Place, 4th Floor, Boston, Massachusetts 02110, with MFS LEASING CORP., a
Delaware corporation (the Trust Agreement), and THE CHASE MANHATTAN BANK
(formerly known as "Chemical Bank"), a New York banking corporation (the
Indenture Trustee), whose address is 450 West 33rd Street, 15th Floor, New York,
New York 10001.
W I T N E S S E T H:
WHEREAS, the Owner Trustee (as successor owner trustee to The First
National Bank of Boston, the owner trustee originally designated in and party to
the Trust Agreement) and the Indenture Trustee have entered into a Trust
Indenture, Mortgage, Security Agreement and Assignment of Rents dated as of
December 16, 1985 (as heretofore amended and supplemented, the Indenture)
pursuant to which the Owner Trustee has issued the Fixed Rate Notes;
WHEREAS, Section 3.5(1) of the Indenture provides, among other
things, that the Fixed Rate Notes may be refunded with, in whole or in part,
Additional Notes;
WHEREAS, Section 3.5(4) of the Indenture provides, among other
things, that the Owner Trustee and the Indenture Trustee may enter into
indentures supplemental to the Indenture for, among other things, the purpose of
establishing the terms, conditions and designations of Additional Notes;
WHEREAS, the Owner Trustee has received an authorization and
request from the Owner Participant to issue an Additional Note and, as a result,
the Owner Trustee desires to issue an Additional Note to effect a refunding of a
portion of the Fixed Rate Note due January 15, 2014 and to enter into this 1996
Supplemental Indenture to establish the terms, conditions and designations of
such Additional Note;
WHEREAS, Section 10.1(viii) of the Indenture provides that, without
the consent of Holders of the Notes Outstanding, the Indenture Trustee may, with
the written consent of the Owner Trustee, from time to time and at any time
execute a supplement to the Indenture in order to evidence the issuance of and
to provide the terms of Additional Notes;
[3][MFS-1]
Page III-2
<PAGE>
WHEREAS, the Owner Trustee desires to amend the Indenture as set
forth in Section 3 hereof;
WHEREAS, Section 10.2 of the Indenture provides that, upon receipt
of a Directive, the Indenture Trustee shall execute a supplement to the
Indenture as specified in such Directive; and
WHEREAS, the Indenture Trustee has received a Directive directing
it to execute this 1996 Supplemental Indenture;
NOW, THEREFORE, in consideration of the premises and of other good
and valuable consideration, receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 6. Definitions.
For purposes hereof, capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to such terms in
Appendix A to the Indenture.
SECTION 7. Terms, Conditions and Designations of the Additional
Notes.
(a) The 1996 Refunding Note.
There is hereby created and established a separate series of Notes
of the Owner Trustee designated "Nonrecourse Promissory Note, 1996 Refunding
Series" herein referred to as the 1996 Refunding Note. The 1996 Refunding Note
shall be payable as to principal and bear interest on the principal amount
thereof as follows:
1996 Refunding Interest Rate Principal Amount
Note Due
January 15, 2014 10.30% $32,256,000
The 1996 Refunding Note shall bear interest on the principal amount thereof from
time to time Outstanding from the date thereof until paid at the rate of
interest set forth therein. The principal amount of the 1996 Refunding Note
shall be payable as set forth in Schedule 1 attached thereto. Installments of
interest on and principal of (and premium, if any, on) the 1996 Refunding Note
shall be due and payable on the dates specified in the 1996 Refunding Note. The
1996 Refunding Note shall be substantially in the form of Exhibit A hereto.
SECTION 8. Amendments.
(a) Amendment to Section 3.9(a).
[3][MFS-1]
Page III-3
<PAGE>
The following sentence is added at the end of Section 3.9(a) of the
Indenture:
"In the event that (in accordance with the applicable provisions of
a Note), the Owner Trustee determines to prepay a Note in part, the
Owner Trustee may apply the principal portion of such prepayment to
prepay such remaining installments of principal in such amounts as
the Owner Trustee shall identify in its notice of prepayment (such
notice of prepayment to be accompanied by an appropriately prepared
replacement Schedule I to the Note being prepaid)."
(b) Amendment to Section 3.9(c).
Anything in Section 3.9(c) of the Indenture and any provision of
any Note to the contrary notwithstanding, in the event of the prepayment of a
Note, (i) prior notice of such prepayment need not be given if the same Person
is both Indenture Trustee and the holder, assignee and pledgee of the Note to be
prepaid and (ii) any notice of optional prepayment may be made conditional upon
receipt by the Owner Trustee of funds sufficient to pay the prepayment price due
in connection with such prepayment.
(c) Amendment to Section 4.3.
Anything in Section 4.3 of the Indenture to the contrary
notwithstanding, at the request of the Owner Trustee, the Indenture Trustee
shall not destroy cancelled Notes but shall return the same marked "CANCELLED"
to the Owner Trustee.
(d) Amendment to Section 1.4.
Pursuant to Arizona Revised Statutes, Section 33-404, (i) the
beneficiary of the Trust Agreement is MFS Leasing Corp., a Delaware corporation
whose address is 4500 New Linden Hill Road, Suite 210, Wilmington, Delaware
19808, Attention of President and (ii) the beneficiaries of this Indenture are
(A) Public Service Company of New Mexico, a New Mexico corporation whose address
is Alvarado Square, Albuquerque, New Mexico 87158, Attention of Secretary, a
Holder of a Note, and (B)(1) First PV Funding Corporation, a Delaware
corporation whose address is Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801, Attention of President, and (2) by pledge and
assignment, the banking corporation also acting as indenture trustee hereunder
the address of which is set forth above, as their respective interests may
appear, each a Holder of a Note. Copies of the Trust Agreement and this
Indenture are available for inspection at the Indenture Trustee's Office.
SECTION 9. Miscellaneous.
(a) Effective Date of Supplemental Indenture.
[3][MFS-1]
Page III-4
<PAGE>
This 1996 Supplemental Indenture shall be and become effective upon
the execution hereof by the parties hereto.
(b) Counterpart Execution.
This 1996 Supplemental Indenture may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which, when so executed and delivered, shall be an original, but all such
counterparts shall together constitute but one and the same instrument.
(c) Execution as Supplemental Indenture.
This 1996 Supplemental Indenture is executed and shall be construed
as an indenture supplemental to the Indenture and, as provided in the Indenture,
this 1996 Supplemental Indenture forms a part thereof.
[3][MFS-1]
Page III-5
<PAGE>
IN WITNESS WHEREOF, the Owner Trustee and the Indenture Trustee
have each caused this 1996 Supplemental Indenture to be duly executed by their
respective officers thereunto duly authorized, all as of the date first set
forth above.
STATE STREET BANK AND TRUST COMPANY, not
in its individual capacity, but solely
as Owner Trustee under the Trust
Agreement dated as of December 16, 1985,
with MFS Leasing Corp.,
By /s/ Eric J. Donaghey
--------------------
Name: Eric J. Donaghey
Title: Assistant Vice President
THE CHASE MANHATTAN BANK, as Indenture
Trustee,
By:/s/ Patricia Kelly
------------------
Name: Patricia Kelly
Title: Vice President
[3][MFS-1]
Page III-6
<PAGE>
COMMONWEALTH OF MASSACHUSETTS )
) ss.:
COUNTY OF SUFFOLK )
On the 27th day of September, 1996, before me personally came Eric
J. Donaghey, to me known, who, being by me duly sworn, did acknowledge, depose
and say that he resides at ____________, Massachusetts; that he is an Assistant
Vice President of STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust
company described in and which executed the foregoing instrument; and that he
signed his name thereto on behalf of said trust company by authority of the
Board of Directors of such trust company.
---------------------------
Notary Public
[NOTARIAL SEAL] Term Expires:
[3][MFS-1]
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 27th day of September, 1996, before me personally came
Patricia Kelly, to me known, who, being by me duly sworn, did acknowledge,
depose and say that he resides at _________, New York; that she is a Vice
President of THE CHASE MANHATTAN BANK, a New York banking corporation, described
in and which executed the foregoing instrument; and that he signed his name
thereto on behalf of said corporation by authority of the Board of Directors of
such corporation.
---------------------------
Notary Public
[NOTARIAL SEAL] Term Expires:
[3][MFS-1]
<PAGE>
ARTHUR
ANDERSEN
ARTHUR ANDERSEN LLP
October 29, 1996 Arthur Andersen LLP
Suite 400
6501 Americas Parkway NE
Albuquerque, NM 87110-5372
(505) 889-4700
Public Service Company of New Mexico:
We are aware that Public Service Company of New Mexico has incorporated by
reference in its Registration Statement Nos. 33-65418, 333-03303, and 333-03289
its Form 10-Q for the quarter ended September 30, 1996, which includes our
report dated October 29, 1996, covering the unaudited interim financial
information 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
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Statement of Earnings, Consolidated Balance Sheets and
Consolidated Statement of Cash Flows for the period ended September 30, 1996 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,553,175
<OTHER-PROPERTY-AND-INVEST> 264,561
<TOTAL-CURRENT-ASSETS> 214,068
<TOTAL-DEFERRED-CHARGES> 134,891
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,166,695
<COMMON> 208,870
<CAPITAL-SURPLUS-PAID-IN> 466,860
<RETAINED-EARNINGS> 74,708
<TOTAL-COMMON-STOCKHOLDERS-EQ> 750,438
0
12,800
<LONG-TERM-DEBT-NET> 712,271
<SHORT-TERM-NOTES> 114,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 16,440
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 560,746
<TOT-CAPITALIZATION-AND-LIAB> 2,166,695
<GROSS-OPERATING-REVENUE> 650,258
<INCOME-TAX-EXPENSE> 34,430
<OTHER-OPERATING-EXPENSES> 521,654
<TOTAL-OPERATING-EXPENSES> 554,025
<OPERATING-INCOME-LOSS> 96,233
<OTHER-INCOME-NET> 2,497
<INCOME-BEFORE-INTEREST-EXPEN> 98,730
<TOTAL-INTEREST-EXPENSE> 38,800
<NET-INCOME> 59,930
440
<EARNINGS-AVAILABLE-FOR-COMM> 59,490
<COMMON-STOCK-DIVIDENDS> 10,026
<TOTAL-INTEREST-ON-BONDS> 36,304
<CASH-FLOW-OPERATIONS> 135,378
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<PAGE>
</TABLE>
EXHIBIT A to
1996 SUPPLEMENTAL INDENTURE
1996 REFUNDING NOTE
(DUE JANUARY 15, 2014)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED,
SOLD OR OFFERED FOR SALE IN VIOLATION OF SUCH ACT
NONRECOURSE PROMISSORY NOTE, 1996 REFUNDING SERIES
(DUE JANUARY 15, 2014)
Issued at: New York, New York
Issue Date: As of July 15, 1996
STATE STREET BANK AND TRUST COMPANY, not in its individual
capacity, but solely as Owner Trustee (Owner Trustee) under a Trust Agreement
dated as of December 16, 1985 with MFS LEASING CORP. (the Owner Participant),
hereby promises to pay to PUBLIC SERVICE COMPANY OF NEW MEXICO, or registered
assigns, the principal sum of $32,256,000 (Thirty Two Million Two Hundred Fifty
Six Thousand Dollars) on January 15, 2014 together with interest (computed on
the basis of a 360-day year of twelve 30- day months) on the aggregate amount of
such principal sum remaining unpaid from time to time from the Issue Date of
this 1996 Refunding Note until due and payable, in arrears, at the rate of
10.30% per annum. Payments of principal installments of this 1996 Refunding Note
shall be made in the "principal amount payable" and on the "payment dates"
specified in Schedule 1 hereto, as such Schedule may be revised from time to
time in accordance with the Indenture and the terms contained herein. Payments
of accrued interest on this 1996 Refunding Note shall be made on January 15 and
July 15 in each year, commencing January 15, 1997, to and including the last
"payment date" specified in Schedule 1 hereto.
Capitalized terms used in this 1996 Refunding Note which are not
otherwise defined herein shall have the meanings ascribed thereto in the
Indenture (as hereinafter defined).
Interest on any overdue principal and premium, if any, and (to the
extent permitted by applicable law) any overdue interest, shall be paid, on
demand, from the due date thereof at the rate per annum equal to 11.30%
(computed on the basis of a 360-day year of twelve 30-day months) for the period
during which any such principal, premium or interest shall be overdue.
[3][MFS-1]
Page III-10
<PAGE>
In the event any date on which a payment is due under this 1996
Refunding Note is not a Business Day, then payment thereof may be made on the
next succeeding Business Day with the same force and effect as if made on the
date on which such payment was due.
All payments of principal, premium, if any, and interest to be made
by the Owner Trustee hereunder and under the Trust Indenture, Mortgage, Security
Agreement and Assignment of Rents dated as of December 16, 1985, as at any time
heretofore or hereafter amended or supplemented in accordance with the
provisions thereof (the Indenture), between the Owner Trustee and The Chase
Manhattan Bank (formerly known as "Chemical Bank"), as trustee (the Indenture
Trustee), shall be made only from the Lease Indenture Estate and the Trust
Estate, and the Indenture Trustee shall have no obligation for the payment
thereof except to the extent that the Indenture Trustee shall have sufficient
income or proceeds from the Lease Indenture Estate to make such payments in
accordance with the terms of Article V of the Indenture. The Holder hereof, by
its acceptance of this 1996 Refunding Note, agrees that such Holder will look
solely to the Trust Estate and the income and proceeds from the Lease Indenture
Estate to the extent available for distribution to the Holder hereof as above
provided, and that neither the Owner Participant nor, except as expressly
provided in the Indenture, the Owner Trustee nor the Indenture Trustee is or
shall be personally liable to the Holder hereof for any amounts payable under
this 1996 Refunding Note or for any performance to be rendered under the
Indenture or any other Transaction Document or for any liability thereunder;
provided, however, that in the event the Lessee shall assume all the obligations
of the Owner Trustee hereunder and under the Indenture pursuant to Section
3.9(b) of the Indenture, then all the payments to be made under this 1996
Refunding Note shall be made only from payments made by the Lessee under this
1996 Refunding Note in accordance with the Assumption Agreement referred to in
said Section 3.9(b) and the Holder of this 1996 Refunding Note agrees that in
such event it will look solely to the Lessee for such payment.
The Holder hereof, by its acceptance of this 1996 Refunding Note,
agrees that each payment received by it hereunder shall be applied in the manner
set forth in Section 3.11 of the Indenture. The Holder of this 1996 Refunding
Note agrees, by its acceptance hereof, that it will duly note by appropriate
means all payments of principal or interest made hereon and that it will not in
any event transfer or otherwise dispose of this 1996 Refunding Note unless and
until all such notations have been duly made.
This 1996 Refunding Note is the 1996 Refunding Note referred to in
the Indenture. The Indenture permits the issuance of additional series of Notes,
as provided in Section 3.5 of the Indenture, and the several series may be for
varying aggregate principal amounts and may have different maturity dates,
interest
[3][MFS-1]
Page III-11
<PAGE>
rates, redemption provisions and other terms. The properties of the Owner
Trustee included in the Lease Indenture Estate are pledged to the Indenture
Trustee to the extent provided in the Indenture as security for the payment of
the principal of and premium, if any, and interest on this 1996 Refunding Note
and all other Notes issued and outstanding from time to time under the
Indenture. Reference is hereby made to the Indenture for a statement of the
rights of the Holders of, and the nature and extent of the security for, this
1996 Refunding Note and of the rights of, and the nature and extent of the
security for, the Holders of the other Notes and of certain rights of the Owner
Trustee, as well as for a statement of the terms and conditions of the trust
created by the Indenture, to all of which terms and conditions the Holder hereof
agrees by its acceptance of this 1996 Refunding Note.
This 1996 Refunding Note is subject to prepayment in whole as
contemplated by Section 5.2 of the Indenture and in the circumstances therein
described. In addition, this 1996 Refunding Note may, at the option of the Owner
Trustee, be prepaid in whole or in part at any time by the Owner Trustee upon
the giving by the Owner Trustee of not less than two days' notice (as provided
in the Indenture) and at the following prepayment prices (expressed as a
percentage of the unpaid principal amount hereof), together with interest
accrued to the date fixed for prepayment:
Twelve Month Redemption
Period Beginning Price
January 15, 1996 106.180%
January 15, 1997 105.768
January 15, 1998 105.356
January 15, 1999 104.944
January 15, 2000 104.532
January 15, 2001 104.120
January 15, 2002 103.708
January 15, 2003 103.296
January 15, 2004 102.884
January 15, 2005 102.472
January 15, 2006 102.060
January 15, 2007 101.648
January 15, 2008 101.236
January 15, 2009 100.824
January 15, 2010 100.412
and thereafter at the principal amount thereof, together with interest accrued
to the date fixed for prepayment. This 1996 Refunding Note is not otherwise
subject to optional prepayment in whole or in part.
[3][MFS-1]
Page III-12
<PAGE>
In case an Indenture Event of Default shall occur and be
continuing, the unpaid balance of the principal of this 1996 Refunding Note and
any other Notes, together with all accrued but unpaid interest thereon, may,
subject to certain rights of the Owner Trustee or the Owner Participant
contained or referred to in the Indenture, be declared or may become due and
payable in the manner and with the effect provided in the Indenture.
The lien upon the Lease Indenture Estate is subject to being
legally discharged prior to the maturity of this 1996 Refunding Note upon the
deposit with the Indenture Trustee of cash or certain securities sufficient to
pay this 1996 Refunding Note when due or an assumption of the obligation of the
Owner Trustee under this 1996 Refunding Note and the Indenture, in each case in
accordance with the terms of the Indenture.
There shall be maintained at the Indenture Trustee's Office a
register for the purpose of registering transfers and exchanges of Notes in the
manner provided in the Indenture. The transfer of this 1996 Refunding Note is
registrable, as provided in the Indenture, upon surrender of this 1996 Refunding
Note for registration of transfer duly accompanied by a written instrument of
transfer duly executed by or on behalf of the registered Holder hereof, together
with the amount of any applicable transfer taxes. Prior to the due presentment
for registration of transfer of this 1996 Refunding Note, the Owner Trustee and
the Indenture Trustee may treat the person in whose name this 1996 Refunding
Note is registered as the owner hereof for the purpose of receiving payments of
principal of and premium, if any, and interest on this 1996 Refunding Note and
for all other purposes whatsoever, whether or not this 1996 Refunding Note be
overdue, and neither the Owner Trustee nor the Indenture Trustee shall be
affected by notice to the contrary.
Principal, premium, if any, and interest shall be payable, in the
manner provided in the Indenture, on presentment of this 1996 Refunding Note at
the Indenture Trustee's Office, or as otherwise provided in the Indenture.
This 1996 Refunding Note shall be governed by, and construed in
accordance with, the laws of the State of New York.
[3][MFS-1]
Page III-13
<PAGE>
IN WITNESS WHEREOF, the Owner Trustee has caused this 1996
Refunding Note to be duly executed as of the date hereof.
STATE STREET BANK AND TRUST
COMPANY, not in its individual
capacity, but solely as Owner
Trustee under a Trust Agreement
dated as of December 16, 1985
with MFS Leasing Corp.
By____________________________
Name:
Title:
This Note is one of the series of Notes referred to therein and in
the within-mentioned Indenture.
THE CHASE MANHATTAN BANK,
as Indenture Trustee
By __________________________
Name:
Title:
[3][MFS-1]
Page III-14
<PAGE>
SCHEDULE 1
TO THE 1996 REFUNDING NOTE
(DUE JANUARY 15, 2014)
Schedule of Principal Amortization
$32,256,000 Principal Amount
Payment Principal Amount Principal Amount
Date Payable Paid
January 15, 1997 $ 820,000
July 15, 1997 863,000
January 15, 1998 906,000
July 15, 1998 737,000
January 15, 1999 536,000
July 15, 1999 551,000
January 15, 2000 566,000
July 15, 2000 582,000
January 15, 2001 597,000
July 15, 2001 614,000
January 15, 2002 631,000
July 15, 2002 648,000
January 15, 2003 666,000
July 15, 2003 684,000
January 15, 2004 703,000
July 15, 2004 722,000
January 15, 2005 741,000
July 15, 2005 763,000
January 15, 2006 783,000
July 15, 2006 804,000
January 15, 2007 827,000
July 15, 2007 850,000
January 15, 2008 871,000
July 15, 2008 897,000
January 15, 2009 925,000
July 15, 2009 946,000
January 15, 2010 973,000
July 15, 2010 1,006,000
January 15, 2011 1,141,000
July 15, 2011 1,173,000
January 15, 2012 1,205,000
July 15, 2012 1,540,000
January 15, 2013 2,385,000
July 15, 2013 2,507,000
January 15, 2014 1,093,000
-----------
Principal Amount $32,256,000
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