SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 23, 1998
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(July 20, 1998)
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PUBLIC SERVICE COMPANY OF NEW MEXICO
(Exact Name of Registrant as Specified in its Charter)
Commission
New Mexico File Number 1-6986 85-0019030
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation) Identification Number)
Alvarado Square, Albuquerque, New Mexico 87158
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(Address of Principal Executive Offices) (Zip Code)
(505) 241-2700
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(Registrant's Telephone Number, Including Area Code)
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(Former Name or Former Address if Changed, Since Last Report)
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ITEM 5. Other Events
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The Company's Registration Statement on Form S-3 (Registration No. 333-53367)
was declared effective on July 20, 1998. The following "Recent Developments"
section is included in the preliminary prospectus supplement (subject to
completion, dated July 22, 1998), relating to the proposed offering of $435
million of the Company's Senior Unsecured Notes.
Recent Developments
Electric Rate Case
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In November 1997, the Company filed its electric rate case pursuant to a New
Mexico Public Utility Commission ("NMPUC") order. In the filing, the Company
stated that, although the Company could justify a $5 million rate increase, it
would not seek to increase rates, stating that rate stability is important in
preparing for industry restructuring.
In April 1998, the NMPUC Staff and intervenors in the rate case filed their
testimony. The NMPUC Staff recommended a decrease of $33.2 million in current
rates while the New Mexico Attorney General ("AG") and the City of Albuquerque
("COA") recommended decreases of $31.2 million and $45.4 million, respectively,
based on traditional cost of service rate-making.
In addition, the AG recommended that a "market" approach to valuation of the
Company's generating assets should be used in determining the Company's rates.
The AG also recommended that if stranded costs exist in the future as a result
of use of this method, the Company should only be allowed to recover 50% of such
amounts. The Company's review indicates that if the AG's revaluation proposal is
adopted, there could be an additional $105 million reduction in rates and more
than a $960 million write-down of the Company's generation assets. The New
Mexico Industrial Energy Consumers ("NMIEC") also recommended that the Company's
generation assets should be revalued for rate-making purposes to reflect a
"market" approach to valuation of the facilities. The Company's review indicates
that if NMIEC's revaluation proposal is adopted, there could be an additional
$60 million reduction in rates and more than a $550 million write-down of the
Company's generation assets. The Company reviewed the testimony of the NMPUC
Staff and intervenors and filed its rebuttal testimony in May 1998.
In rebuttal testimony, the Company stated that (1) the level of cost of service
rate reductions proposed by the NMPUC Staff, AG and COA were not justified,
although the Company accepted certain adjustments to its originally filed cost
of service, reducing the revenue requirements of the Company, and (2) the
recommendations made by the AG and NMIEC regarding the revaluation of the
Company's generation assets were highly speculative, subject to numerous highly
subjective assumptions, overly complex, contrary to law, unfair and
unreasonable, effected an unconstitutional taking of property and otherwise
improper. The Company's rebuttal testimony states that the plant revaluation
proposals submitted by the AG and NMIEC rely on the long discredited
reproduction cost method of rate base valuation associated with the fair value
concept of rate-making, which has been found to be inferior to the original cost
less depreciation method of rate base valuation long preferred by courts and
regulators. (See PART I, ITEM 2, -"MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" -"OTHER ISSUES FACING THE
COMPANY" - "Electric Rate Case" in the quarterly report on Form 10-Q for the
quarter ended March 31, 1998.)
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Hearings in the case began on May 18, 1998 and were completed on June 22, 1998.
Subsequent to the conclusion of the hearings, the NMPUC required the submission
of contemporaneous briefs in chief and proposed orders by all parties no later
than July 30, 1998 with reply briefs due no later than August 10, 1998. The
Company expects a decision to be rendered in the September/October time frame.
The Company is unable to predict the ultimate outcome of this case. Based on
traditional rate-making principles, it is possible that the NMPUC could order a
rate reduction in excess of the highest cost of service reduction recommended by
any party, since the parties recommended disallowance of different cost of
service items. To do so, however, the NMPUC would have to adopt out of period
adjustments reflecting cost decreases without considering any offsetting cost
increases and reduce the Company's requested return on common equity (ROE) of
12.6% to 9.1%, as recommended by the NMPUC Staff. In the past the NMPUC has been
critical of efforts to take advantage of selected out of period adjustments. The
Company continues to view the rate base revaluation proposals of the AG and
NMIEC as extreme, unprecedented, confiscatory, and unsupported in either law or
fact. If the NMPUC adopts one of these approaches or a variant, the Company
intends to seek immediate judicial relief to prevent unreasonable and serious
harm to the Company's financial integrity.
The Company understands that El Paso Electric Company ("EPE"), also under NMPUC
jurisdiction, has reached a settlement in its electric rate case with many of
the same parties that are parties to the Company's rate case. As part of the
settlement, EPE has agreed to revalue its investment in its existing generating
assets dedicated to New Mexico public service for New Mexico jurisdictional
ratemaking purposes only. The revaluation results in a write down on EPE's New
Mexico regulated books of account of its nuclear assets and a write up of
non-nuclear generating assets. The EPE settlement expressly states that it is
the result of a unique fact situation, and that its resolution is special to the
circumstances presented. The EPE settlement remains subject to NMPUC approval.
Although many of the same parties are involved, the Company believes that the
EPE rate settlement should not affect the Company's rate case.
Joint Proposal for Acquisition of Plains' Assets
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In May 1998, Plains Electric Generation and Transmission Cooperative, Inc.
("Plains") issued a request for proposals for the acquisition of all or a
portion of the assets of Plains, which include a 250 MW coal-fired power plant.
On July 15, 1998, the Company and Tri-State Generation and Transmission
Association, Inc. ("Tri-State") made a non-binding joint proposal for the
acquisition of all of the assets of Plains. Tri-State is a wholesale electric
power generation and transmission cooperative association headquartered near
Denver, Colorado. The consideration for the acquisition would be a combination
of cash and the assumption of debt. The Company understands that the non-binding
proposals received by Plains will be reviewed and that it is expected that
Plains will then conduct negotiations with a small number of parties making
proposals. The Company is unable to predict the outcome of this transaction.
However, the Company does not anticipate that it will have any material impact
on its financial condition or results of operations.
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The 1997 Gas Rate Case
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In October 1997, the Company filed its gas rate case with the NMPUC pursuant to
an NMPUC order issued in February 1997. In its filing, the Company requested a
rate increase of $12.6 million. The NMPUC Staff recommended a rate increase of
$2.5 million. The AG, however, recommended a rate decrease of $4.9 million.
Other parties to the rate case recommended certain adjustments to the Company's
proposed rate increase.
An uncontested stipulation settling the case was filed with the NMPUC in April
1998 for its approval. If approved, there would be no significant change in the
Company's overall revenue levels. The stipulation is still pending before the
NMPUC. Should the stipulation be rejected by the NMPUC, a hearing of the full
litigated case would be required. The Company is currently unable to predict the
ultimate outcome of this case. (See ITEM 5. - "OTHER INFORMATION" - "The 1997
Gas Rate Case" in the quarterly report on Form 10-Q for the quarter ended March
31, 1998.)
Electric Industry Restructuring in New Mexico
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The New Mexico Legislative Interim Committee on Utilities and Telecommunications
("Committee"), chaired by Senator Michael Sanchez, will be considering electric
industry restructuring, as well as other issues, during the remainder of 1998 in
preparation for possible introduction of a committee-backed bill authorizing
restructuring in the 1999 legislative session. Senator Sanchez has chaired every
interim legislative committee that has studied this issue since 1993, when a
restructuring bill was first introduced in New Mexico. The Legislature in 1996
unanimously passed a Joint Memorial at the recommendation of the interim
committee declaring that retail electric competition was not then in the public
interest of New Mexico but directed the NMPUC to monitor and evaluate
developments and report back to the Legislature. The NMPUC filed its report with
the Legislature during the 1998 session, expressing its conclusion that retail
electric competition would be beneficial. Senator Sanchez has expressed the
opinion that 1999 might very well be the appropriate time for the Legislature to
enact restructuring legislation. He has informally called upon all interested
parties to submit proposed legislation to the Committee for its consideration by
September.
In May, the Company approached the NMPUC on an informal basis to explore the
possibility of the Company filing a voluntary restructuring plan with the NMPUC
that, if accepted by the NMPUC, could be used as a model for restructuring
legislation in the 1999 session. To date, no such filing has occurred and the
Company continues to explore options for introducing retail electric competition
in New Mexico in a manner that protects the financial integrity of the Company.
On July 1, 1998, the Clinton Administration sent restructuring legislation to
Congress. The proposed legislation endorses the principle that utilities should
be able to recover prudent, legitimate, verifiable and non-mitigable stranded
costs. The legislation leaves to the states decisions regarding the pace and
shape of regulatory change, generally calling for open access to occur by 2003,
but allowing states to opt out of the federal approach.
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The Arizona Corporation Commission (the "ACC") has issued another order in its
process of opening that state to competition beginning at the end of this year.
In that order the ACC has allowed full stranded cost recovery on the condition
that generation is divested. If utilities choose not to divest generation, then
the ACC will determine the appropriate amount of stranded cost recovery. The
Arizona Legislature has passed a law confirming the ACC's authority over
electric industry restructuring and expanding restructuring to include public
power entities not subject to the ACC's jurisdiction. The Company shares joint
ownership of power plants located in Arizona and New Mexico with Arizona
utilities, is interconnected with those utilities, and competes with them in the
wholesale market. The Company is unable to predict what, if any, impact the
Arizona actions will have on the Company.
Disclosure Regarding Forward Looking Statements
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The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"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. Words
such as "estimates," "expects," "anticipates," "plans," "believes," "projects,"
and similar expressions identify forward-looking statements. 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 costs; (iv) the inability of the Company to successfully compete
outside its traditional regulated market; (v) regional economic conditions,
which could affect customer growth; (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; (x) the cost of debt and equity
capital; (xi) weather conditions; and (xii) technical development in the utility
industry.
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.
ITEM 7. Financial Statements and Exhibits
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(c) Exhibits
The Registrant hereby files the following exhibit to its Registration Statement
on Form S-3 (Registration No. 333-53367) which was declared effective on July
20, 1998.
Exhibit No. Description
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12.1 Computation of Ratio of Earnings to Fixed Charges
5
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Public Service Company of New Mexico
(Registrant)
Date: July 23, 1998 /s/ Donna M. Burnett
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Donna M. Burnett
Corporate Controller and
Chief Accounting Officer
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Line Six Months Ended Year Ended December 31,
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No. 06/30/98 06/30/97 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
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(In Thousand Except for Ratios)
Fixed charges, as defined by the Securities and
Exchange Commission:
<S> <C> <C> <C> <C> <C> <C> <C>
1 Interest on Long-term Debt $ 20,556 $ 23,683 $ 46,670 $ 49,009 $ 52,637 $ 65,511 $ 72,525
2 Amortization of Debt Premium, Discount and Expenses 513 411 880 1,115 1,299 1,751 2,472
3 Other Interest 7,300 5,257 8,677 4,696 4,129 3,710 11,473
4 Estimated Interest Factor of Lease Rental Charges 31,866 32,644 65,036 65,911 69,204 74,659 76,062
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5 Total Fixed Charges $ 60,235 $ 61,995 $121,263 $120,731 $127,269 $145,631 $162,532
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Earnings, as defined by the Securities and Exchange
Commission:
6 Consolidated Net Earnings (Loss) $ 35,992 $ 40,463 $ 80,995 $ 72,580 $ 75,562 $ 80,318 (61,486)
7 Income Taxes (Benefit) 21,155 23,653 46,718 40,494 50,793 40,871 (57,078)
8 Add Fixed Charges as Above 60,235 61,995 121,263 120,731 127,269 145,631 162,532
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9 Earnings Available for Fixed Charges $117,382 $126,111 $248,976 $233,805 $253,624 $266,820 $ 43,968
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10 Ratio of Earnings to Fixed Charges 1.949 2.034 2.053 1.937 1.993 1.832 0.271
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