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 June 30, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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
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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, 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
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Class Outstanding at August 1, 1998
<PAGE>
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
INDEX
Page
No.
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PART I. FINANCIAL INFORMATION:
Report of Independent Public Accountants.......................... 3
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Earnings -
Three Months and Six Months Ended June 30, 1998 and 1997.......... 4
Consolidated Statements of Comprehensive Income -
Three Months and Six Months Ended June 30, 1998 and 1997.......... 5
Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997............................... 6
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997........................... 7
Notes to Consolidated Financial Statements........................ 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................... 10
PART II. OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS............................................. 13
ITEM 5. OTHER INFORMATION............................................. 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................. 17
Signature .............................................................. 18
2
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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 consolidated balance sheet of Public Service
Company of New Mexico (a New Mexico corporation) and subsidiaries as of June 30,
1998, and the related consolidated statements of earnings and comprehensive
income for the three-month and six-month periods ended June 30, 1998 and 1997,
and the consolidated statements of cash flows for the six-month periods ended
June 30, 1998 and 1997. 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, 1997 (not presented herein), and, in
our report dated February 10, 1998, 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, 1997, 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
August 7, 1998
3
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ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
--------------------- ---------------------
1998 1997 1998 1997
--------- --------- --------- ----------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues:
Electric $ 176,503 $ 166,390 $ 356,155 $ 327,651
Gas 53,793 53,138 156,505 177,074
Energy Services 78,669 19,214 126,069 32,839
--------- --------- --------- ---------
Total operating revenues 308,965 238,742 638,729 537,564
--------- --------- --------- ---------
Operating expenses:
Fuel and purchased power 58,871 52,337 113,903 99,455
Gas purchased for resale 27,199 27,386 91,910 109,046
Gas purchased for resale and other - Energy Services 78,473 20,093 130,803 33,495
Other operation and maintenance 85,028 78,120 169,030 154,666
Depreciation and amortization 20,962 20,484 42,036 40,937
Taxes, other than income taxes 8,951 8,536 18,391 18,289
Income taxes 5,158 5,792 16,054 18,989
--------- --------- --------- ---------
Total operating expenses 284,642 212,748 582,127 474,877
--------- --------- --------- ---------
Operating income 24,323 25,994 56,602 62,687
--------- --------- --------- ---------
Other income and deductions, net of taxes 5,031 4,680 7,753 7,117
--------- --------- --------- ---------
Income before interest charges 29,354 30,674 64,355 69,804
--------- --------- --------- ---------
Interest charges:
Interest on long-term debt 9,170 11,561 20,556 23,684
Other interest charges 5,406 3,546 7,807 5,657
--------- --------- --------- ---------
Net interest charges 14,576 15,107 28,363 29,341
--------- --------- --------- ---------
Net earnings 14,778 15,567 35,992 40,463
Preferred stock dividend requirements 146 146 293 293
--------- --------- --------- ---------
Net earnings applicable to common stock $ 14,632 $ 15,421 $ 35,699 $ 40,170
========= ========= ========= =========
Average shares of common stock outstanding 41,774 41,774 41,774 41,774
========= ========= ========= =========
Net earnings per common share (Basic) $ 0.35 $ 0.37 $ 0.85 $ 0.96
========= ========= ========= =========
Net earnings per common share (Diluted) $ 0.35 $ 0.37 $ 0.85 $ 0.96
========= ========= ========= =========
Dividends paid per share of common stock $ 0.20 $ 0.17 $ 0.37 $ 0.29
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
--------------------- ---------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Net Earnings $ 14,778 $ 15,567 $ 35,992 $ 40,463
--------- --------- --------- ---------
Other Comprehensive Income, net of tax:
Unrealized gain (loss) on securities:
Unrealized holding gains (losses) arising during
the period, net of reclassification adjustment (519) 690 142 399
Minimum pension liability adjustment - - - 262
--------- --------- --------- ---------
Total other comprehensive income (loss) (519) 690 142 661
--------- --------- --------- ---------
Total Comprehensive Income $ 14,259 $ 16,257 $ 36,134 $ 41,124
========= ========= ========= =========
</TABLE>
5
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
------------ ------------
(Unaudited)
(In thousands)
ASSETS
Utility plant $ 2,612,582 $ 2,576,236
Accumulated provision for depreciation
and amortization (1,031,032) (1,003,086)
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Net utility plant 1,581,550 1,573,150
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Other property and investments 369,323 311,763
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Current assets:
Cash 5,520 8,705
Temporary investments, at cost 5,674 9,490
Receivables 180,957 216,305
Income taxes receivable 2,727 -
Fuel, materials and supplies 34,096 33,664
Gas in underground storage 9,424 13,158
Other current assets 7,020 4,509
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Total current assets 245,418 285,831
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Deferred charges 150,848 149,811
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$ 2,347,139 $ 2,320,555
============ ============
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity:
Common stock $ 208,870 $ 208,870
Additional paid-in capital 466,545 469,073
Accumulated other comprehensive income,
net of tax 628 486
Retained earnings since January 1, 1989 148,177 129,188
------------ ------------
Total common stock equity 824,220 807,617
Cumulative preferred stock without mandatory
redemption requirements 12,800 12,800
Long-term debt, less current maturities 574,346 713,995
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Total capitalization 1,411,366 1,534,412
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Current liabilities:
Short-term debt 302,700 114,100
Accounts payable 121,242 154,501
Dividends payable 8,501 7,248
Current maturities of long-term debt - 350
Accrued interest and taxes 22,382 24,161
Other current liabilities 34,579 26,102
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Total current liabilities 489,404 326,462
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Deferred credits 446,369 459,681
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$ 2,347,139 $ 2,320,555
============ ============
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30
----------------------
1998 1997
--------- ---------
(In thousands)
Cash Flows From Operating Activities:
Net earnings $ 35,992 $ 40,463
Adjustments to reconcile net earnings to net cash
flows from operating activities:
Depreciation and amortization 48,107 46,329
Accumulated deferred investment tax credit (2,218) (2,238)
Accumulated deferred income tax (2,815) 3,564
Net loss on market sensitive portfolio 3,336 -
Changes in certain assets and liabilities:
Receivables 34,556 49,846
Fuel, materials and supplies 3,302 (4,791)
Deferred charges 2,340 (1,917)
Accounts payable (33,273) (23,695)
Accrued interest and taxes (1,780) (1,395)
Deferred credits (5,648) 1,261
Other 2,640 (1,602)
Other, net (1,412) 5,336
--------- ---------
Net cash flows from operating activities 83,127 111,161
--------- ---------
Cash Flows From Investing Activities:
Utility plant additions (61,092) (55,592)
Increase in nuclear decommissioning trust (1,140) (23,000)
Purchase of PVNGS LOBs (58,000) -
Return of principal PVNGS LOBs 4,994 820
Increase in other property and investments (738) (687)
Decrease (increase) in temporary investments, net 3,816 (13,422)
--------- ---------
Net cash flows from investing activities (112,160) (91,881)
--------- ---------
Cash Flows From Financing Activities:
Bond redemption premium and costs (4,334) (2,319)
Redemption of first mortgage bonds (140,206) -
Short-term borrowings for first mortgage bonds
redemption 140,206 -
Trust borrowing for nuclear decommissioning 1,140 23,000
Net (borrowings) repayments of short-term
borrowings 47,254 (35,180)
Exercise of employee stock options (2,525) -
Dividends paid (15,687) (12,380)
--------- ---------
Net cash flows from financing activities 25,848 (26,879)
--------- ---------
Decrease in cash (3,185) (7,599)
Cash at beginning of period 8,705 11,125
--------- ---------
Cash at end of period $ 5,520 $ 3,526
========= =========
Supplemental Cash Flow Disclosures:
Interest paid $ 26,916 $ 30,036
========= =========
Income taxes paid, net $ 32,687 $ 22,250
========= =========
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
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, 1997 (the "1997 Form
10-K") filed with the Securities and Exchange Commission ("SEC").
(2) Senior Unsecured Notes and Indenture
On March 11, 1998, the Company retired $140 million principal amount of first
mortgage bonds and replaced first mortgage bonds in the principal amount of $463
million collateralizing pollution control revenue bonds ("PCBs") with senior
unsecured notes which were issued under a new indenture. While first mortgage
bonds continue to serve as collateral for $111 million of PCBs, the lien on the
mortgage has been substantially reduced to cover only the Company's ownership
interest in the Palo Verde Nuclear Generating Station ("PVNGS"). All future
long-term debt financings are expected to be issued under an indenture similar
to the new indenture.
Coincident with the above transactions, the Company established a five-year,
$300 million unsecured revolving credit facility to replace the Company's $100
million secured revolving credit facility. Funds borrowed through this new
facility were used to retire the $140 million principal amount of first mortgage
bonds.
(3) Other Comprehensive Income
The Company adopted as of January 1, 1998, Statement of Financial Accounting
Standards Board ("SFAS") No. 130, "Reporting Comprehensive Income". This
statement requires the reporting of certain changes in the common stock equity
section of the balance sheet as other comprehensive income.
Minimum Accumulated
Unrealized Pension Other
Gains on Liability Comprehensive
Securities Adjustment Income
---------- ---------- -------------
(In thousands)
Beginning Balance at January 1, 1998 $3,213 $(2,727) $ 486
Changes during six month period 142 - 142
====== ======== =====
Ending Balance at June 30, 1998 $3,353 $(2,727) $ 628
====== ======== =====
8
<PAGE>
The Company has two external trusts for funding its executive retirement program
and its share of decommissioning obligations for PVNGS, respectively. The trust
funds are invested partially in fixed income securities and domestic stock,
which are classified as available-for-sale. The Company reflects the unrealized
gains or losses on the investments for the executive retirement program and the
decommissioning trust for PVNGS Unit 3 in other comprehensive income. Such gains
or losses related to the PVNGS Units 1 and 2 trust investments are reflected in
the decommissioning reserve account.
Accumulated other comprehensive income, net of tax as of December 31, 1997, has
been revised from the previously reported amount of $23,000 in the first quarter
10-Q to reflect the proper application of the provisions of the SFAS No. 130.
All prior periods have been restated for comparability purposes.
(4) Subsequent Event
On August 4, 1998, the Company decided to phase out the non-utility gas trading
operations of its Energy Services Business Unit by the end of 1998. Based on
preliminary estimates, discontinuance of the gas trading activities will not
have a material impact on the Company's financial condition or results of
operations.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's 1997 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 first
quarter and six months ended June 30, 1998 and 1997. 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 currently estimated capital requirements for 1998 of $218.9 million included
utility construction expenditures of $141.3 million and other cash requirements
for long-term debt sinking funds, purchase of PVNGS Lease Obligation Bonds
("LOBs") and dividend payments for both common and preferred stock. These
projected capital requirements did not include funds for the retirement of $140
million of taxable first mortgage bonds completed in March 1998, or the planned
refinancing of PVNGS lease debt through the issuance of up to $435 million of
senior unsecured notes ("SUNs"). During the first half of 1998, the Company
spent approximately $81.1 million for capital requirements and anticipates
spending approximately $137.8 million over the remainder of 1998. The Company
expects that these cash requirements will be met primarily through internally
generated cash. However, to cover the difference in the amounts and timing of
cash generation and cash requirements, the Company intends to utilize short-term
borrowings under its liquidity arrangements. These estimates are under
continuing review and subject to on-going adjustment.
On July 6, 1998, the Company received a final order from the New Mexico Public
Utility Commission ("NMPUC") approving the issuance of up to $435 million
principal amount of SUNs to provide funds to refinance the lease debt associated
with the sale and leaseback portions of the Company's interests in PVNGS units 1
and 2 ("Lease Debt"). As of July 16, 1998, the Company held $271 million
principal amount of Lease Debt as an investment with the remaining $148 million
principal amount of Lease Debt held by the public in the form of Lease
Obligation Bonds (the "Public Lease Debt").
On August 6, 1998, the Company issued and sold $435 million of SUNs in two
series, the 7.10%Series A due August 1, 2005, in the principal amount of $300
million and the 7.50% Series B due August 1, 2018, in the principal amount of
$135 million. The net proceeds from the sale of the SUNs will be applied in
accordance with NMPUC authorization and will result in the repayment of certain
of the Company's short-term debt. It is expected that approximately 65% of the
proceeds will be used to effectuate the repayment of short-term loans made to
the Company under a revolving credit facility, as well as the liquidation of
amounts under an accounts receivable liquidity facility. The remaining 35% of
the net proceeds of the offering will be used to effectuate the retirement of
the Public Lease Debt including payment of expenses. The amounts being repaid
were used for general corporate purposes, including purchase of portions of the
Lease Debt which is being refinanced. Under the relevant instruments, the
amounts being repaid bear interest at variable rates and for variable short-term
periods. Currently, the interest rates are between 5.9% and 6.25%, and the
current scheduled maturities occur in August and October 1998. The interest rate
on the Public Lease Debt being retired (which the Company in effect has been
paying through its lease rental payments) is 10.30% on approximately $87 million
and 10.15% on approximately $61 million.
10
<PAGE>
The transaction is expected to save the Company an average of $2.1 million a
year over the next 18 years, of which customers will receive 40 percent of those
savings, or about $.9 million annually. The combined earnings effect of the lost
investment income on the Company-held Lease Debt, the reduction in short-term
debt interest expense and the $1.2 million shareholder portion of the annual
savings, will be approximately neutral. However, the Company will benefit from
improved liquidity resulting from the retirement of short-term debt which had
been borrowed against the revolving credit facility and from the liquidation of
amounts under the accounts receivable liquidity facility. The Company's leverage
ratios will remain essentially unchanged since the Company's various leverage
ratios have reflected the Lease Debt as debt components of the calculations.
RESULTS OF OPERATIONS
Net earnings for the quarter and six months ended June 30, 1998, decreased $0.8
million ($.02 per share) and $4.5 million ($.11 per share), respectively, from
the corresponding periods last year.
Electric gross margin (electric operating revenues less fuel and purchased power
expense) increased $3.6 million and $14.1 million for the quarter and six months
ended June 30, 1998, respectively, over the same periods of last year. These
increases were attributable to increased off-system sales in the wholesale
energy market. However, gas gross margin (gas operating revenues less gas
purchased for resale) for six months ended June 30, 1998, decreased $3.4 million
from the corresponding period a year ago as a result of changes in the rate
structure resulting from a 1997 gas rate order.
Energy Services Business Unit gross margin for the first six months of 1998 was
negative and decreased $4.1 million from a year ago due to the recording of
losses related to the gas marketing portfolio. On August 4, 1998, the Company
decided to phase out the non-utility gas trading operations of its Energy
Services Business Unit by the end of 1998. Based on preliminary estimates,
discontinuance of gas trading activities will not have a material impact on the
Company's financial condition or results of operations.
Other operation and maintenance expenses increased $6.9 million and $14.4
million for the quarter and six months ended June 30, 1998, respectively, over
the corresponding periods a year ago due to higher maintenance costs associated
with scheduled outages at the San Juan Generating Station ("SJGS"), increased
pension and benefit expense resulting from changes to the Company's pension plan
and higher costs related to gas marketing activities.
11
<PAGE>
Interest charges on long-term debt decreased $2.4 million and $3.1 million for
the quarter and six months ended June 30, 1998, respectively, from the same
periods of last year, respectively, due to the retirement of $140 million in
first mortgage bonds in March 1998. This reduction of interest charges on
long-term debt was offset by increased short-term debt interest charges
resulting from short-term debt borrowings used for the retirement of the first
mortgage bonds.
OTHER ISSUES FACING THE COMPANY
Electric Rate Case
As previously reported, in November 1997, the Company filed its electric rate
case pursuant to an NMPUC order. In the filing, the Company stated that although
it could justify a $5 million rate increase, it would not seek a rate increase
because of the importance of rate stability while 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 ratemaking.
In addition, the AG recommended that a "market" approach should be used to value
the generation portion of the Company's rates and, 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
ratemaking purposes to reflect a "market" approach to valuation. 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 was 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 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.)
12
<PAGE>
Hearings in the case began on May 18, 1998 and were completed on June 22, 1998.
Briefs-in-Chief ("Briefs") were filed by all parties and NMPUC Staff on July 30,
1998. The Briefs generally contained arguments supporting positions the parties
had taken previously during the hearings and, in some instances, adopting
additional reductions that had been proposed by other parties. The revised rate
reductions proposed by the NMPUC Staff, AG and COA were approximately $36
million, $31 million and $52 million, respectively, based on traditional
ratemaking principles. Only the AG departed from recommendations made at the
hearing regarding rate base revaluation. Although adhering to the concept of
rate base revaluation and urging NMPUC adoption of the concept, the AG also
recommended that the NMPUC consider the financial implications of the write offs
and associated rate reduction to the Company. The AG reduced his recommended
additional rate reduction to $25 million based on a $142 million after tax write
off. A final order from the NMPUC is expected sometime in the third quarter of
1998. The Company is unable to predict the ultimate outcome of this case but
intends to pursue any and all remedies available to protect its financial
integrity.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (i) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or unrecognized
firm commitment, (ii) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (iii) a hedge of the foreign currency exposure of a
net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company does not believe that the adoption of
SFAS No. 133 will have a material effect on its financial condition or results
of operations.
Disclosure Regarding Forward Looking Statements
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
13
<PAGE>
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.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Nuclear Decommissioning Trust
As previously reported, in March and April 1998, the Company and the trustee of
the Company's master decommissioning trust filed a civil complaint and an
amended complaint, respectively, against several companies and individuals for
the under-performance of a life insurance program. The program, which was
approved by the NMPUC and set up in a trust in 1987, is a type of corporate
owned life insurance, and is used to fund a portion of the Company's nuclear
decommissioning obligations for its 10.2% interest in PVNGS.
In the lawsuit, the Company asserts various tort, contract and equity theories
against the defendants. The Company is seeking, among other things, damages in
an amount that represents the difference between what the defendants represented
that the life insurance program would achieve and the amount that the Company's
experts currently project that the life insurance program will achieve. On May
29, 1998, the defendants filed a notice of removal to the Federal District
Court. On June 26, 1998, the Company and trustee filed a motion to remand the
proceeding back to State District Court. Several defendants have filed answers
and motions to dismiss the lawsuit with the Federal District Court. A defendant
has counterclaimed for indemnity based on its engagement contract with the
Company, claiming that if it has injured the trustee, then the Company must pay
the damages. On July 17, 1998, the Company denied liability under the
counterclaim and set forth numerous defenses. The Company is currently unable to
predict the ultimate outcome or amount of recovery, if any.
In April 1998, the Company filed a case before the NMPUC to relieve the Company
of the obligation of investing in the life insurance program. (See PART II, ITEM
1. - "LEGAL PROCEEDINGS - Nuclear Decommissioning Trust" in the quarterly report
on Form 10-Q for the quarter ended March 31, 1998.) On July 20, 1998, the NMPUC
issued a final order granting the Company's request.
14
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ITEM 5. OTHER INFORMATION
Joint Proposal for Acquisition of Plains' Assets
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 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.
NMPUC Rulemaking
As previously reported, in February 1998, the NMPUC issued a notice of proposed
rulemaking (the "Notice") that would require every electric utility to
separately state in each customer's bill the amounts attributable to the
generation, transmission and distribution functions. In March 1998, utility
companies under NMPUC jurisdiction, including the Company, filed their comments,
generally opposing the Notice. (See PART II, ITEM 5, - "OTHER INFORMATION -
Proposed Rulemaking" in the quarterly report on Form 10-Q for the quarter ended
March 31, 1998.)
On June 5, 1998, the NMPUC issued an order adopting the Notice. The NMPUC Staff
conducted workshops designed to facilitate required formal filings by each
utility. The filings were due by August 1, 1998 and must include a proposed
sample bill for each class, a proposed first bill insert, a customer education
plan, and a timetable for conducting informational programs. The Company filed
its proposed sample bill with the NMPUC on August 1, 1998. Any interested party
may submit written comments within 10 days of each utility's filing.
Unless otherwise ordered by the NMPUC, approved inserts will be included in
bills sent during the September 1998 billing cycle and a breakdown of amounts by
functional billing component will be shown on bills beginning with the October
1998 billing cycle. The Company does not believe implementation of the ruling's
requirements will have a material effect on its operations.
Investigation Relating to Amount of Fuel and Unaccounted for Gas Costs Passed
through the PGAC
As previously reported, the NMPUC Staff requested that the NMPUC docket an
investigation into the amount of fuel and unaccounted for gas costs that have
been charged to customers through the Company's PGAC. (See PART II, ITEM 7.
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION - OTHER ISSUES FACING THE COMPANY REGULATORY ISSUES - Investigation
Relating to Amount of Fuel and Unaccounted for Gas Costs Passed through the
PGAC" in the 1997 Form 10-K.)
15
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On April 3, 1998, the Company submitted testimony that the amount collected from
customers through the PGAC from July 1995 through December 1996 for fuel and
unaccounted for gas was appropriate and was in compliance with NMPUC orders. A
hearing was held on May 4, 1998. On July 6, 1998, the NMPUC dismissed the
investigation, finding that no harm had occurred to sales customers. In
addition, the final order required the Company to file a compliance report
covering the amounts collected for fuel and unaccounted for gas through the PGAC
during 1997. On July 16, 1998, the Company filed the compliance report. In the
report, the Company demonstrated that the amounts collected through the PGAC
during 1997 were appropriate and in compliance with NMPUC orders. The NMPUC
Staff and Intervenor have 45 days from the date of filing to challenge the
Company's compliance report.
The 1997 Gas Rate Case
As previously reported, 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 on April
3, 1998, for its approval. A hearing on the stipulation was held in May 1998.
the stipulation provides for a restructuring of residential rates, including a
decrease in the monthly access fee from $14.56 to $9.00 with an offsetting
increase in the variable rate for gas consumption. The stipulation also
establishes a mechanism for the recovery of certain costs incurred by the
Company in settlement of past gas supply contracts. Recovery of these costs
would be partially offset by revenues stemming from off-system gas sales. (See
PART II, ITEM 5. - "OTHER INFORMATION - The 1997 Gas Rate Case" in the quarterly
report on Form 10-Q for the quarter ended March 31, 1998)
On August 7, 1998, the NMPUC issued a final order, accepting the stipulation
with certain modifications. The Company is currently evaluating the order;
however, the Company believes that there would be no significant change in the
Company's overall revenue levels. Parties have 30 days to respond to the order.
Fuel and Purchased Power Cost Adjustment Clause ("FPPCAC")
As previously reported, the Company's FPPCAC for its firm-requirement wholesale
customers had been at variance with the filed Federal Energy Regulatory
Commission ("FERC") tariffs. In 1993, the Company filed a petition with FERC to
permit deviation from the filed FERC tariffs for the period of July 1985 through
January 1993. The Company's filing indicated that the four firm-requirements
wholesale customers benefited during that time period relative to the energy
costs they would have been billed under the application of the filed FERC
tariffs. (See PART I, ITEM 1. - "BUSINESS - RATES AND REGULATION Electric Rates
and Regulation - FERC" in the 1997 Form 10-K.) On July 16, 1998, FERC issued an
order accepting the Company's filing.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
3.1* Restated Articles of Incorporation of the Company, as amended
through May 10, 1985
3.2* By-laws of Public Service Company of New Mexico With All
Amendments to and including December 5, 1994
10.47.4** First Amendment to the Pension Service Adjustment Agreement
for Benjamin F. Montoya
10.75** Executive Savings Plan
15.0 Letter Re: Unaudited Interim Financial Information
27 Financial Data Schedule
* The Company hereby incorporates the exhibits by reference pursuant
to Exchange Act Rule 12b-32 and Regulation S-K, Section 10,
paragraph (d).
** Designates each management contract or compensatory plan or
arrangement required to be identified pursuant to paragraph 3 of Item
14(a) of 10-K.
b. Reports on Form 8-K:
Report dated July 20, 1998 and filed July 23, 1998 relating to the
electric rate case, joint proposal for acquisition of Plains' assets, the
1997 gas rate case, electric industry restructuring in New Mexico and
disclosure regarding forward looking statements.
Report dated August 1, 1998 and filed August 7, 1998 relating to the
underwriting agreement for the senior unsecured notes dated August 3,
1998 and the supplemental indenture dated August 1, 1998.
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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: August 12, 1998 /s/ Max H. Maerki
-----------------------------
Max H. Maerki
Senior Vice President and
Chief Financial Officer
(Officer duly authorized to
sign this report)
18
<PAGE>
FIRST AMENDMENT TO THE
PENSION SERVICE ADJUSTMENT AGREEMENT
FOR BENJAMIN F. MONTOYA
THIS FIRST AMENDMENT TO THE PENSION SERVICE ADJUSTMENT AGREEMENT is
approved as of the ______ day of _____________, 1998, by and between Public
Service Company of New Mexico, a New Mexico corporation ("PNM") and BENJAMIN F.
MONTOYA ("Montoya").
WHEREAS, PNM and Montoya entered into a Pension Service Adjustment
Agreement ("Agreement") on November 15, 1993; and
WHEREAS, on April 22, 1997, PNM amended the Public Service Company of
New Mexico Employees' Retirement Plan (the "Plan"), effective January 1, 1997,
limiting the additional accrual of credited service and freezing salaries for
purposes of pension calculations under the Plan; and
WHEREAS, Montoya acknowledges the amendment to the Plan and agrees to
incorporate the terms of the amendment, effective July 1, 1998; and
WHEREAS, paragraph 9 permits the Agreement to be amended by mutual
consent; and
WHEREAS, Montoya and PNM desire to amend the Agreement as set forth
below to incorporate the limitations pursuant to the amendment to the Plan.
NOW, THEREFORE, PNM and Montoya do hereby amend the Agreement by this
First Amendment as follows:
1. Paragraph 2(b), Calculation of Additional Retirement Benefits, is
hereby amended to read as follows:
(b) based upon the Retirement Plan in effect on January 1, 1998.
2. Except as hereinabove amended, PNM and Montoya hereby readopt and
redeclare each and every provision of the Agreement.
3. This First Amendment shall be reflected on Exhibit "A" of the Public
Service Company of New Mexico OBRA `93 Retirement Plan.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, personally or by their
authorized representatives, have signed this First Amendment to the Agreement
effective as of the date specified herein.
PUBLIC SERVICE COMPANY OF NEW
MEXICO
Date: _________________ By: ______________________________
John T. Ackerman,
Chairman
Date: _________________ __________________________________
Benjamin F. Montoya
PUBLIC SERVICE COMPANY OF NEW MEXICO
EXECUTIVE SAVINGS PLAN
The PUBLIC SERVICE COMPANY OF NEW MEXICO EXECUTIVE SAVINGS PLAN (the
"Plan") is adopted and approved on ________________________, 1998, to be
effective as of July 1, 1998. The Plan is established and maintained by the
Public Service Company of New Mexico (the "Company" or "PNM") solely for the
purpose of permitting certain of its Key Employees who participate in the Public
Service Company of New Mexico Master Employee Savings Plan ("MESP") to receive
contributions equal to amounts in excess of the limitations on contributions
imposed by the Internal Revenue Code of 1986, as amended (the "Code"), on
defined contribution plans to which that section applies.
Accordingly, the Company hereby adopts the Plan pursuant to the terms
and provisions set forth below:
ARTICLE I
DEFINITIONS
Wherever used herein the following terms shall have the meanings
hereinafter set forth:
1.1. "Board" means the Board of Directors of the Company or any
authorized committee of the Board.
1.2. "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any regulations relating thereto.
1.3. "Company" means the Public Service Company of New Mexico, a
corporation, or, to the extent provided in Section 8.8 below, any successor
corporation or other entity resulting from a merger or consolidation into or
with the Company or a transfer or sale of substantially all of the assets of the
Company.
1.4. "Compensation" as used in this Plan is defined in the Qualified
MESP, Section 2.05 ("Base Compensation," used in determining Employer
Contributions) or Section 2.19 ("Eligible Compensation," used in determining
Participant Contributions), as applicable.
1.5. "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended. This Plan is an unfunded, nonqualified plan for the benefit of a
select group of management or highly compensated employees that is not subject
to the general funding or discrimination requirements of ERISA.
1.6. "Key Employee" means an employee who meets the requirements of
Code ss. 416(i) and who is a highly compensated employee and a member of a
select group of management, as such terms are used pursuant to Section 201(2) of
ERISA.
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1.7. "Participant" means a Key Employee of the Company who is a
Participant under the Qualified MESP who earns in excess of the Code ss.
401(a)(17) limitations and to whom or with respect to whom contributions, as
defined below, may be made under the Plan.
1.8. "Plan" means the Public Service Company of New Mexico Executive
Savings Plan, as adopted herein.
1.9. "Plan Year" means the calendar year or any other
12-consecutive-month period that runs concurrent with the Plan Year designated
in the Qualified MESP.
1.10. "Qualified MESP" means the Public Service Company of New Mexico
Master Employee Savings Plan ("MESP") established effective January 1, 1975, and
Amended and Restated effective January 1, 1998, as may be further amended from
time to time.
1.11. "Qualified MESP Company Matching and Employer Contribution" means
the total of all Matching and Employer Contributions made by the Company for the
benefit of a Participant under and in accordance with the terms of Article IV of
the Qualified MESP in any Plan Year.
1.12. "Qualified MESP Salary Reduction Contribution" means the Salary
Reduction Contribution made by the Company for the benefit of a Participant
under and in accordance with the terms of Article V of the Qualified MESP in any
Plan Year.
1.13. "Qualified MESP Subaccount A (Participant's Contribution)" means
the account established for a Participant under Article VI of the Qualified
MESP, and as used in this Plan shall mean only the separate account known as the
Salary Reduction Account.
1.14. "Qualified MESP Subaccount B (Employer's Contribution)" means the
account established for a Participant under Article VI of the Qualified MESP,
and as used in this Plan shall mean only the separate accounts known as Matching
Contributions Account and Employer Contributions Account.
1.15. "Supplemental Salary Reduction Agreement" means the written
Supplemental Salary Reduction Agreement entered into by a Participant with the
Company pursuant to this Plan.
1.16. "Supplemental Company Matching and Employer Contributions" means
the Matching and Employer Contributions made by the Company for the benefit of a
Participant under and in accordance with the terms of the Plan in any Plan Year.
1.17. "Supplemental Salary Reduction Contribution" means the Salary
Reduction Contribution made by the Company for the benefit of a Participant
under and in accordance with the terms of the Plan in any Plan Year.
1.18. "Supplemental Subaccount A (Supplemental Salary Reduction
Contributions)" means the account maintained by the Company under the Plan for a
Participant that is credited with amounts contributed under Section 3.2 of the
Plan.
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<PAGE>
1.19. "Supplemental Subaccount B (Supplemental Company Matching and
Employer Contributions)" means the account maintained by the Company under the
Plan for a Participant that is credited with amounts contributed under Section
3.3 of the Plan.
1.20. "Valuation Date" shall mean the end of each calendar quarter or
any other period that runs concurrent with the Valuation Date designated in the
Qualified MESP.
ARTICLE II
ELIGIBILITY
A Participant in the Qualified MESP who has made the maximum elective
deferrals under Code ss. 402(g) or the maximum contributions under the terms of
the Qualified MESP and is a Key Employee shall be eligible to participate in the
Plan and to receive the Supplemental Salary Reduction Contributions as elected
by the Participant and Supplemental Company Matching and Employer Contributions
hereunder.
ARTICLE III
SUPPLEMENTAL CONTRIBUTIONS
3.1. Supplemental Salary Reduction Agreement. As a condition to the
Company's obligation to make a Supplemental Salary Reduction Contribution for
the benefit of a Participant pursuant to Section 3.2 below, the Participant must
execute a Supplemental Salary Reduction Agreement in the form attached hereto or
as modified by the Company from time to time. The Supplemental Salary Reduction
Agreement for any Plan Year shall be made before the beginning of that Plan Year
and shall remain in full force and effect for subsequent Plan Years unless
revoked by a Participant by written instrument delivered to the Company prior to
the beginning of the Plan Year in which such revocation is to be effective. This
Agreement is supplemental to the initial Salary Reduction Agreement made
pursuant to the Qualified MESP.
3.2. Supplemental Salary Reduction Contributions.
(a) Any Participant may elect to defer, pursuant to a Supplemental
Salary Reduction Agreement, the receipt of a portion of the compensation
otherwise payable to him or her by the Company in any Plan Year. The amount of
compensation deferred hereunder by a Participant shall be equal to:
(i) a percentage of such compensation not to exceed six
percent (6%), reduced by
(ii) the amount the Participant elects to have the Company
contribute to his or her Qualified MESP Subaccount A during
the same Plan Year, as reduced by limitations on contributions
imposed by the Code.
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<PAGE>
The amount deferred pursuant to this paragraph (a) shall be a Supplemental
Salary Reduction Contribution allocated to the Supplemental Subaccount A
maintained for the Participant for such Plan Year.
(b) Should it be determined, after completion of all nondiscrimination
testing that an additional elective contribution could have been allocated to
the Participant's Qualified MESP Subaccount A for such Plan Year, then the
Participant may elect to have the additional amount:
(i) deducted from the Participant's Supplemental Subaccount A
and transferred to the Participant's Qualified MESP Subaccount
A; or
(ii) paid directly to the Participant; or
(iii) remain in this Plan.
Any transfer or payment of such additional amount shall occur no later
than March 31 of the Plan Year following the Plan Year for which such
nondiscrimination testing is made.
(c) In no event shall any deduction from the Participant's Supplemental
Subaccount A for any Plan Year pursuant to Paragraph (b) of this Section exceed
the amount that the Participant elected to defer for such Plan Year pursuant to
Paragraph (a) of this Section. No earnings or appreciation attributable to any
amount transferred or paid under Paragraph (b) of this Section shall be
transferred or paid but shall remain in the Supplemental Subaccount A for the
benefit of the Participant.
(d) The election by which a Participant elects to defer compensation
under a Supplemental Salary Reduction Agreement and the additional election
provided in Paragraph (b), above, shall be in writing, signed by the
Participant, and delivered to the Company prior to January 1 of the Plan Year in
which the compensation to be deferred is otherwise payable to the Participant;
except that:
(i) for the Plan Year in which the Plan is initially
implemented, a Participant may make such election within 30
days after the date on which the Plan is effective; and
(ii) for the Plan Year in which a Participant first becomes
eligible to participate in the Plan, such Participant may make
such election within 30 days after the date he or she becomes
eligible.
Any deferral election made by a Participant shall be irrevocable with respect to
the Plan Year covered by such election. A Participant may, however, revoke the
election by delivering to the Company a written instrument prior to the
beginning of the Plan Year for which such revocation is to be effective.
4
<PAGE>
3.3. Supplemental Company Matching and Employer Contributions.
(a) Each Plan Year, the Company shall make Supplemental Company
Matching and Employer Contributions to this Plan on behalf of each Participant
in an amount equal to:
(i) the Qualified MESP Company Matching Contribution (as
defined in Section 4.01(a)(2) of the Qualified MESP) and
Employer Contributions (as defined in Section 4.01(a)(4) of
the Qualified MESP) that would have been allocated to the
Qualified MESP Subaccount B of the Participant for the Plan
Year with respect to the amount deferred by the Participant
pursuant to Section 3.2(a)(1), without giving effect to any
reductions required by the limitations imposed by the Code on
the Qualified MESP, reduced by
(ii) the amount of the Qualified MESP Company Matching and
Employer Contributions actually allocated to the Participant's
Qualified MESP Subaccount B for the Plan Year.
(b) If amounts are deducted from a Participant's Supplemental
Subaccount A and transferred to the Participant's Qualified MESP Subaccount A
pursuant to the Participant's election under Section 3.2(b)(i), all Supplemental
Company Matching and Employer Contributions made pursuant to this Section
relating to such transferred amounts shall be deducted from the Participant's
Supplemental Subaccount B and transferred to the Participant's Qualified MESP
Subaccount B, subject to the following:
(i) a transfer pursuant to this Section shall occur at the
same time as a transfer pursuant to Section 3.2(b)(i). Any
Supplemental Company Matching or Employer Contribution shall
be transferred to the Qualified MESP only to the extent that
the Qualified MESP, after receiving such transferred
contribution, will satisfy the nondiscrimination tests set
forth in Code ss. 401(m) for the applicable Plan Year;
(ii) no earnings or appreciation attributable to any amount
transferred pursuant to this Section shall be transferred, but
shall remain in the Supplemental Subaccount B for the benefit
of the Participant; and
(iii) if a Participant elects to have an additional elective
contribution paid to him pursuant to Section 3.2(b)(ii), any
Supplemental Company Matching or Employer Contribution
relating to such amount shall remain in the Supplemental
Subaccount B for the benefit of the Participant.
5
<PAGE>
(c) The Company shall make Supplemental Matching and Employer
Contributions in the initial year of implementation of this Plan on behalf of
any Key Employee whose compensation exceeds Code ss. 401(a)(17) limitations on
contributions during the initial year of implementation of this Plan, based on
the Key Employee's elective deferral percentage as stated in the Supplemental
Salary Reduction Agreement filed with the Company pursuant to Section 3.2(d)(i)
above, as if such Supplemental Salary Reduction Agreement had been in effect
from January 1 of the initial year of implementation of this Plan.
ARTICLE IV
INVESTMENT OF SUPPLEMENTAL
CONTRIBUTIONS
4.1. Supplemental Salary Reduction Contributions.
(a) Amounts credited hereunder to the Supplemental Subaccount A of a
Participant shall be treated as if they were actually invested in the Qualified
MESP Subaccount A of the Participant and shall be subject to the same
Participant investment elections, including the right at any time during a Plan
Year to change investment elections among the available options under the
Qualified MESP.
(b) The Participant's earnings history shall be summarized on each
Valuation Date and the investment results shall be used to adjust the
Participant's Supplemental Subaccount A to reflect any gains or losses.
4.2. Supplemental Company Matching and Employer Contributions.
(a) All amounts credited to the Supplemental Subaccount B of a
Participant for any Plan Year shall be treated as if they were actually invested
in the Qualified MESP Subaccount B of the Participant and shall be subject to
the same Participant investment elections, including the right at any time
during a Plan Year to change investment elections among the available options
under the Qualified MESP.
(b) The Participant's earnings history shall be summarized on each
Valuation Date and the investment results shall be used to adjust the
Participant's Supplemental Subaccount B to reflect any gains or losses.
ARTICLE V
DISTRIBUTIONS
5.1. Right to Receive Distribution. All amounts, including gains and
losses, credited to a Participant's Supplemental Subaccount A in accordance with
Section 4.1 of the Plan, and to his or her Supplemental Subaccount B in
accordance with Section 4.2, shall be distributed to a Participant or his or her
beneficiary only upon termination of the Participant's employment with the
Company for any reason, including death or change in control, as defined in the
Public Service Company of New Mexico Executive Retention Plan, or any successor
plan.
6
<PAGE>
5.2. Form of Distribution. All amounts distributable under the Plan
shall be made solely in the form of a single lump sum payment.
5.3. Amount of Distribution. The amount of payment due to a Participant
under any of these circumstances is equal to the account balance credited to
that Participant as of the Valuation Date next following the event that triggers
the distribution, subject to applicable tax or other withholding requirements,
if any.
5.4. Timing of Distribution. Funds will be distributed within an
administratively reasonable period of time (generally ten (10) working days)
after receiving a written request, unless prohibited by the Company cash
position.
5.5. Withdrawal of Contributions. No hardship withdrawals shall be
permitted from the Plan.
5.6. Coordination with Qualified MESP Elections. An election made by
the Participant under the Qualified MESP with respect to the distribution of the
Participant's accounts following termination of employment or the date for
commencement of payment under the Qualified MESP shall not be effective with
respect to the form of payment or date for commencement of payment of the
Subaccounts under the Plan unless such elections also conform to the terms of
the Plan.
5.7. Beneficiary Designation. If a Participant should die before
receiving distribution of his or her Supplemental Subaccounts A and B,
distribution shall be made to the beneficiary designated by the Participant. If
a Participant has not designated a beneficiary, or if no designated beneficiary
is living on the date of distribution, such amounts shall be distributed to
those persons entitled to receive distributions of the Participant's accounts
under the Qualified MESP and in the same method as distribution is made under
the Qualified MESP.
ARTICLE VI
ADMINISTRATION OF THE PLAN
6.1. Administration by the Company. The Company shall be responsible
for the general operation and administration of the Plan and for carrying out
the provisions herein.
6.2. General Powers of Administration. All provisions set forth in the
Qualified MESP with respect to the administrative powers and duties of the
Company and expenses of administration shall also be applicable with respect to
the Plan. The Company shall be entitled to rely conclusively upon all tables,
valuations, certificates, opinions and reports furnished by an actuary,
accountant, comptroller, counsel or other person employed by the Company with
respect to the Plan.
7
<PAGE>
ARTICLE VII
AMENDMENT OR TERMINATION
7.1. Amendment or Termination. The Company intends the Plan to be
permanent but reserves the right to amend or terminate the Plan when, in the
sole discretion of the Company, such amendment or termination is advisable. Any
such amendment or termination shall be made pursuant to a resolution of the
Board and shall be effective as of the date of such resolution.
7.2. Effect of Amendment or Termination. Any amendment or termination
of this Plan shall apply prospectively only and shall not directly or indirectly
reduce the balance of any Supplemental Subaccount held hereunder as of the
effective date of such amendment or termination. Upon termination of the Plan,
distribution of amounts in Supplemental Subaccounts A and B shall be made to the
Participant or his or her beneficiary in the manner and at the time described in
Article V of the Plan. No additional credits of Supplemental Salary Reduction
Contributions or Supplemental Company Matching and Employer Contributions shall
be made to the Supplemental Subaccounts of a Participant after termination of
the Plan, but the Company may continue to credit gains and losses to
Supplemental Subaccount A pursuant to Section 4.1, and to Supplemental
Subaccount B pursuant to Section 4.2, until the balance of such Supplemental
Subaccounts has been fully distributed to the Participant or his or her
beneficiary.
ARTICLE VIII
GENERAL PROVISIONS
8.1. Participant's Rights Unsecured. The Plan at all times shall be
entirely unfunded and no provision shall at any time be made with respect to
segregating any assets of the Company for payment of any distributions
hereunder. The right of a Participant or his or her designated beneficiary to
receive a distribution hereunder shall be an unsecured claim against the general
assets of the Company, and neither the Participant nor a designated beneficiary
shall have any rights in or against any specific assets of the Company. All
amounts credited to a Participant's Supplemental Subaccounts A and B shall
constitute general assets of the Company and may be disposed of by the Company
at such time and for such purposes as it may deem appropriate.
8.2. General Conditions. Except as otherwise expressly provided herein,
all terms and conditions of the Qualified MESP applicable to a Qualified MESP
Salary Reduction Contribution or a Qualified MESP Company Matching or Employer
Contribution shall also be applicable to a Supplemental Salary Reduction
Contribution or a Supplemental Company Matching or Employer Contribution to be
made hereunder. Any Qualified MESP Salary Reduction Contribution or Qualified
MESP Company Matching or Employer Contribution, or any other contributions to be
made under the Qualified MESP, shall be made solely in accordance with the terms
and conditions of the Qualified MESP and nothing in this Plan shall operate or
be construed in any way to modify, amend or affect the terms and provisions of
the Qualified MESP.
8.3. No Guaranty of Benefits. Nothing contained in the Plan shall
constitute a guaranty by the Company or any other person or entity that the
assets of the Company will be sufficient to pay any benefit hereunder.
8
<PAGE>
8.4. No Enlargement of Employee Rights. No Participant shall have any
right to receive a distribution of contributions made under the Plan except in
accordance with the terms of the Plan. Establishment of the Plan shall not be
construed to give any Participant the right to be retained in the service of the
Company.
8.5. Spendthrift Provision. No interest of any person or entity in, or
right to receive a distribution under, the Plan shall be subject in any manner
to sale, transfer, assignment, pledge, attachment, garnishment, or other
alienation or encumbrance of any kind; nor may such interest or right to receive
a distribution be taken, either voluntarily or involuntarily for the
satisfaction of the debts of, or other obligations or claims against, such
person or entity, including claims for alimony, support, separate maintenance
and claims in bankruptcy proceedings.
8.6. Applicable Law. The Plan shall be construed and administered under
the laws of the State of New Mexico.
8.7. Incapacity of Recipient. If any person entitled to a distribution
under the Plan is deemed by the Company to be incapable of personally receiving
and giving a valid receipt for such payment, then, unless and until claim
therefor shall have been made by a duly appointed guardian or other legal
representative of such person, the Company may provide for such payment or any
part thereof to be made to any other person or institution then contributing
toward or providing for the care and maintenance of such person. Any such
payment shall be a payment for the account of such person and a complete
discharge of any liability of the Company and the Plan therefor.
8.8. Successors. This Plan shall be binding upon the successors and
assigns of the Company and upon the heirs, beneficiaries and personal
representatives of those individuals who become Participants hereunder.
8.9. Unclaimed Benefit. Each Participant shall keep the Company
informed of his or her current address and the current address of his or her
designated beneficiary. The Company shall not be obligated to search for the
whereabouts of any person. If the location of a Participant is not made known to
the Company within three (3) years after the date on which payment of the
Participant's Supplemental Subaccounts A and B may first be made, payment may be
made as though the Participant had died at the end of the three (3) year period.
If, within one additional year after such three (3) year period has elapsed, or,
within three (3) years after the actual death of a Participant, the Company is
unable to locate any designated beneficiary of the Participant, then the Company
shall have no further obligation to pay any benefit hereunder to such
Participant or designated beneficiary and such benefit shall be irrevocably
forfeited.
8.10. Limitations on Liability. Notwithstanding any of the preceding
provisions of the Plan, neither the Company nor any individual acting as
employee or agent of the Company shall be liable to any Participant, former
Participant or other person for any claim, loss, liability or expense incurred
in connection with the Plan.
9
<PAGE>
8.11. Headings for Convenience Only. The headings and subheadings of
this Plan are inserted for convenience and reference only and are not to be used
in construing this instrument or any provision herein.
8.12. Severability. If any provision of this Plan is held to be illegal
or invalid, such illegalilty or invalidity shall not affect the remaining
provisions of this Plan, and the remaining provisions shall be construed and
enforced as if such illegal or invalid provision had never been inserted herein.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
its President and Chief Executive Officer ("CEO") on the date and year first
above written.
PUBLIC SERVICE COMPANY OF
NEW MEXICO
--------------------------------
BENJAMIN F. MONTOYA
President and CEO
10
<PAGE>
PUBLIC SERVICE COMPANY OF NEW MEXICO
EXECUTIVE SAVINGS PLAN
SUPPLEMENTAL SALARY REDUCTION AGREEMENT
I have reviewed the terms and conditions of the Public Service Company
of New Mexico (the "Company" or "PNM") Executive Savings Plan (the "Plan"). I
hereby agree to the terms and conditions of the Plan and acknowledge that the
Plan can be amended or terminated at the discretion of the Company pursuant to
Article VII of the Plan. As a further condition to receiving a Supplemental
Salary Reduction Contribution under the Plan, I hereby agree as follows:
|_| 1. The salary otherwise payable to me by the Company for any
calendar year, commencing with the year which begins on
January 1, _______, shall be reduced by _______ percent
(____%) (not to exceed 6%) and the amount of such reduction
shall be a Supplemental Salary Reduction Contribution
allocated to my Supplemental Subaccount A pursuant to the Plan
for such year.
|_| 2. Any deferral election I make shall be irrevocable with
respect to the Plan Year covered by such election. My deferral
election shall remain in full force and effect for subsequent
Plan Years unless I revoke the election by delivering to the
Company a written instrument prior to the beginning of the
Plan Year for which such revocation is to be effective.
|_| 3. In the event that additional contributions can be made to
my Qualified MESP Subaccount A, in accordance with Section
3.2(b) of the Plan, then no later than March 31 of such
calendar year following a calendar year for which an election
is in effect, the Company shall:
|_| Allocate from my Supplemental Subaccount A to my
Qualified MESP Subaccount A that portion (not to
exceed 100%) of my Supplemental Salary Reduction
Contribution made for my benefit equal to the maximum
amount of Salary Reduction Contributions that can be
made to my Qualified MESP Subaccount A under all
applicable limitations of the Internal Revenue Code;
or
|_| The Company shall pay such amount directly to me; or
|_| The Company shall retain such amount in my Supplemental
Subaccount A.
Dated: ________________________
------------------------------
Signature of Participant
11
<PAGE>
ARTHUR
ANDERSEN
-------------------------------
August 7, 1998 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, 333-03289 and
333-53367 its Form 10-Q for the quarter ended June 30, 1998, which includes our
report dated August 7, 1998, 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 June 30, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000081023
<NAME> Public Service Company of New Mexico
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> Jun-30-1998
<EXCHANGE-RATE> 1
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<TOTAL-NET-UTILITY-PLANT> 1,581,550
<OTHER-PROPERTY-AND-INVEST> 369,323
<TOTAL-CURRENT-ASSETS> 245,418
<TOTAL-DEFERRED-CHARGES> 150,848
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,347,139
<COMMON> 208,870
<CAPITAL-SURPLUS-PAID-IN> 467,173
<RETAINED-EARNINGS> 148,177
<TOTAL-COMMON-STOCKHOLDERS-EQ> 824,220
0
12,800
<LONG-TERM-DEBT-NET> 111,001
<SHORT-TERM-NOTES> 302,700
<LONG-TERM-NOTES-PAYABLE> 463,345
<COMMERCIAL-PAPER-OBLIGATIONS> 0
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0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 633,073
<TOT-CAPITALIZATION-AND-LIAB> 2,347,139
<GROSS-OPERATING-REVENUE> 638,729
<INCOME-TAX-EXPENSE> 21,155
<OTHER-OPERATING-EXPENSES> 566,073
<TOTAL-OPERATING-EXPENSES> 582,127
<OPERATING-INCOME-LOSS> 56,602
<OTHER-INCOME-NET> 7,753
<INCOME-BEFORE-INTEREST-EXPEN> 64,355
<TOTAL-INTEREST-EXPENSE> 28,363
<NET-INCOME> 35,992
293
<EARNINGS-AVAILABLE-FOR-COMM> 35,699
<COMMON-STOCK-DIVIDENDS> 15,456
<TOTAL-INTEREST-ON-BONDS> 13,360
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<EPS-PRIMARY> 0.85
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</TABLE>
