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 March 31, 1999
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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
(Exact name of registrant as specified in its charter)
New Mexico 85-0019030
(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 40,774,083 shares
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Class Outstanding at May 1, 1999
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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 Ended March 31, 1999 and 1998........................... 4
Consolidated Statements of Comprehensive Income-
Three Months Ended March 31, 1999 and 1998........................... 5
Consolidated Balance Sheets-
March 31, 1999 and December 31, 1998................................. 6
Consolidated Statements of Cash Flows-
Three Months Ended March 31, 1999 and 1998........................... 7
Notes to Consolidated Financial Statements........................... 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................ 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK ......................................................... 17
PART II. OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS............................................. 18
ITEM 5. OTHER INFORMATION............................................. 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................. 19
Signature ............................................................ 21
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 condensed consolidated balance sheet of Public
Service Company of New Mexico (a New Mexico corporation) and subsidiaries as of
March 31, 1999, and the related consolidated statements of earnings,
comprehensive income and cash flows for the three-month periods ended March 31,
1999 and 1998. 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, 1998 (not presented herein), and, in
our report dated March 2, 1999, we expressed an unqualified opinion on that
statement. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1998, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
/s/ ARTHUR ANDERSEN LLP
Albuquerque, New Mexico
April 30, 1999
3
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ITEM 1. FINANCIAL STATEMENTS
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended
March 31
----------------------
1999 1998
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(In thousands except
per share amounts)
Operating revenues:
Electric $184,442 $179,652
Gas 84,864 102,712
Energy Services 3,512 196
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Total operating revenues 272,818 282,560
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Operating expenses:
Fuel and purchased power 62,153 55,032
Gas purchased for resale 48,256 64,711
Cost of sales and projects - Energy Services 2,618 330
Other operation and maintenance 82,758 81,607
Depreciation and amortization 23,081 21,074
Taxes, other than income taxes 9,321 9,436
Income taxes 9,563 13,744
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Total operating expenses 237,750 245,934
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Operating income 35,068 36,626
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Other income and deductions, net of tax: 6,099 2,722
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Income before interest charges 41,167 39,348
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Interest charges:
Interest on long-term debt 16,714 11,386
Other interest charges 1,323 2,401
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Net interest charges 18,037 13,787
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Net earnings from continuing operations 23,130 25,561
Discontinued operations, net of tax:
Loss from operations of gas marketing - (4,347)
Cumulative effect of a change in accounting
principle, net of tax 3,541 -
--------- ---------
Net earnings 26,671 21,214
Preferred stock dividend requirements 147 147
--------- ---------
Net earnings applicable to common stock $ 26,524 $ 21,067
========= =========
Average shares of common stock outstanding 41,767 41,774
========= =========
Net earnings (loss) per share of common stock:
Earnings from continuing operations $ 0.55 $ 0.61
Loss from discontinued operations - (0.10)
Cumulative effect of a change in
accounting principle 0.08 -
--------- ---------
Net earnings per common share (Basic) $ 0.64 $ 0.50
========= =========
Net earnings per common share (Diluted) $ 0.63 $ 0.50
========= =========
Dividends paid per share of common stock $ 0.20 $ 0.17
========= =========
The accompanying notes are an integral part of these financial statements.
4
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
March 31
----------------------
1999 1998
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(In thousands)
Net Earnings $ 26,671 $ 21,214
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Other Comprehensive Income, net of tax:
Unrealized gain (loss) on securities:
Unrealized holding gains arising during
the period 1,070 759
Less reclassification adjustment for
gains included in net income (604) (98)
Minimum pension liability adjustment - -
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Total Other Comprehensive Income 466 661
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Total Comprehensive Income $ 27,137 $ 21,875
========= =========
Note: Tax expense for Total Other Comprehensive Income for the three months
ended March 31, 1999 and 1998 was $305 and $433, respectively.
The accompanying notes are an integral part of these financial statements.
5
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1999 1998
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(Unaudited)
(In thousands)
ASSETS
Utility plant $ 2,604,620 $ 2,591,934
Accumulated provision for depreciation
and amortization (1,019,744) (998,175)
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Net utility plant 1,584,876 1,593,759
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Other property and investments 491,702 523,834
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Current assets:
Cash 481 2,573
Temporary investments, at cost 78,619 58,707
Receivables 185,004 197,906
Income tax receivable - 8,266
Fuel, materials and supplies 40,869 33,137
Gas in underground storage 1,914 2,537
Other current assets 6,688 4,666
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Total current assets 313,575 307,792
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Deferred charges 146,113 151,403
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$ 2,536,266 $ 2,576,788
============ ============
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity:
Common stock $ 206,396 $ 208,870
Additional paid-in capital 459,234 465,386
Accumulated other comprehensive income,
net of tax 1,593 1,127
Retained earnings 204,389 186,220
------------ ------------
Total common stock equity 871,612 861,603
Minority interest 13,037 13,405
Cumulative preferred stock without mandatory
redemption requirements 12,800 12,800
Long-term debt, less current maturities 1,008,632 1,008,614
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Total capitalization 1,906,081 1,896,422
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Current liabilities:
Short-term debt - 26,620
Accounts payable 73,150 113,975
Dividends payable 147 147
Accrued interest and taxes 43,135 34,289
Other current liabilities 32,993 28,308
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Total current liabilities 149,425 203,339
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Deferred credits 480,760 477,027
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$ 2,536,266 $ 2,576,788
============ ============
The accompanying notes are an integral part of these financial statements.
6
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31
1999 1998
-------- --------
(In thousands)
Cash Flows From Operating Activities:
Net earnings $ 26,671 $ 21,214
Adjustments to reconcile net earnings to
net cash flows from operating activities:
Depreciation and amortization 26,070 24,156
Accumulated deferred investment tax credit (855) (1,109)
Accumulated deferred income tax 718 (1,323)
Cumulative effect of a change in
accounting principle (5,862) -
Net loss on market sensitive portfolio - 2,698
Net gain on mark to market investments (214) -
Changes in certain assets and liabilities:
Receivables 20,775 41,347
Fuel, materials and supplies 233 4,326
Deferred charges 5,255 (245)
Accounts payable (43,660) (59,907)
Accrued interest and taxes 8,846 18,400
Deferred credits 2,082 (3,205)
Other (62) 378
Other, net 34 1,618
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Net cash flows from operating activities 40,031 48,348
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Cash Flows From Investing Activities:
Utility plant additions (18,217) (25,624)
(Increase) decrease in nuclear decommissioning
trust 26,620 (860)
Return of principal PVNGS LOBs - 4,994
Return of principal PVNGS Lessors' notes 9,029 -
Purchase of investment option (2,810) -
Sale of investment option 2,811 -
Increase in other property and investments (1,313) (3)
Increase in temporary investments, net (16,956) (4,667)
--------- ---------
Net cash flows from investing activities (836) (26,160)
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Cash Flows From Financing Activities:
Bond redemption premium and costs - (3,479)
Redemption of first mortgage bonds - (140,206)
Short-term borrowings for first mortgage
bonds redemption - 140,206
Return of CNA equity in Capital Trust (369) -
Repayments of trust borrowing for nuclear
decommissioning (26,620) 860
Repayments of short-term borrowings - (11,306)
Exercise of employee stock options - (1,540)
Common stock repurchase (5,848) -
Dividends paid (8,450) (7,242)
--------- ---------
Net cash flows from financing activities (41,287) (22,707)
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Decrease in cash (2,092) (519)
Cash at beginning of period 2,573 8,705
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Cash at end of period $ 481 $ 8,186
========= =========
Supplemental Cash Flow Disclosures:
Interest paid $ 20,528 $ 10,936
========= =========
Income taxes paid, net $ 1,475 $ 6,121
========= =========
The accompanying notes are an integral part of these financial statements.
7
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(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, 1998 (the "1998 Form
10-K") filed with the Securities and Exchange Commission ("SEC").
(2) Accounting Changes
Effective January 1, 1999, the Company adopted Emerging Issues Task Force
("EITF") Issue No. 98-10, Accounting for Contracts Involved in Energy Trading
and Risk Management Activities. EITF Issue No. 98-10 requires gains or losses
resulting from the market value changes on energy trading contracts to be
recorded in earnings. The effect of the initial application of EITF Issue No.
98-10 is reported as a cumulative effect of a change in accounting principle
which increased the Company's consolidated net income by approximately $3.5
million (after related income tax expense of approximately $2.3 million), or
$.08 per common share. In addition, the Company recorded a gain of $100,000, net
of tax, resulting from market value changes with respect to these trading
activities during the first quarter of 1999.
(3) Segment Information
The Company's principal business segments are the four regulated business units:
Electric Service Business Unit ("Distribution"), Transmission Service Business
Unit ("Transmission"), Bulk Power Business Unit ("Generation") and the Gas
Services Business Unit ("Gas"). The Company's non operating subsidiaries and
Energy Services Business Unit are not reportable segments and are included in
"Other" for reconciliation purposes. Intersegment revenues are determined based
on a formula mutually agreed upon between affected segments and are not based on
market rates. Intersegment revenues are eliminated for consolidation purposes.
Summarized financial information by business segment for the three months ended
March 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Distribution Transmission Generation Gas Other Total
------------ ------------ ---------- -------- ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
1999:
Operating revenues:
External customers $129,183 $ 3,776 $ 51,483 $ 84,864 $ 3,512 $272,818
Intersegment revenues - $ 7,450 $ 77,970 - $ - $ 85,420
Segment net income (loss) $ 9,790 $ 1,315 $ 11,931 $ 4,983 $(1,348) $ 26,671
1998:
Operating revenues:
External customers $130,911 $ 3,817 $ 44,924 $102,712 $ 196 $282,560
Intersegment revenues - $ 7,273 $ 89,203 - $ - $ 96,476
Segment net income (loss) $ 4,254 $ 1,710 $ 13,830 $ 7,464 $(6,044) $ 21,214
</TABLE>
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's 1998 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 ended March 31, 1999 and 1998. 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.
OPENING ELECTRIC COMPETITION AND THE SUPREME COURT'S DECISION ON THE ELECTRIC
RATE CASE
On April 8, 1999, the Governor of New Mexico signed the Electric Utility
Industry Restructuring Act of 1999 into law, opening the state's electric power
market to competition in a phased approach beginning in 2001. (See PART II, ITEM
7. - "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - OTHER ISSUES FACING THE COMPANY - ELECTRIC INDUSTRY RESTRUCTURING
ACT OF 1999" in the Company's 1998 Annual Report on Form 10-K and Item 5, "Other
Events" in the Company's Current Report on Form 8-K dated April 14, 1999.)
The law requires the Company to file a transition plan with the Public
Regulation Commission ("PRC") by March 1, 2000, which will include, among other
things, separating regulated and non-regulated business activities into at least
two separate corporations, and proposed charges for the recovery of stranded
costs and transition costs. The law allows utilities to recover at least half of
their stranded costs with a provision for the recovery of more than half of
their stranded costs if utilities meet certain criteria specified in the law.
Utilities will also be allowed to recover through 2007 all transition costs
reasonably incurred to comply with the new law. Due to uncertainties surrounding
the stranded costs that the Company will be allowed to recover, the Company is
currently unable to determine the ultimate financial impact the new law will
have on the Company.
In March 1999, the New Mexico Supreme Court ("Supreme Court") overturned the
electric rate reduction order issued by the New Mexico Public Utility Commission
("NMPUC") in November 1998, and remanded the case to the PRC for further
proceedings consistent with the Supreme Court's opinion. The Company now has a
rate case pending before the PRC, which will likely result in a rate reduction.
(See "Electric Rate Case" in Item 5, "Other Events" in the Current Report on
Form 8-K dated March 30, 1999.)
9
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On April 20, 1999, the PRC issued a procedural order on the remanded electric
rate case. Pursuant to the order, the parties to the case have until May 19,
1999, to file a negotiated settlement of some or all of the outstanding issues
with the PRC. If settlement is not reached, the case is scheduled for hearing.
The PRC directed the hearing examiner to issue a recommended decision so that a
final order could be issued by August 31, 1999. The Company and the parties
involved in the rate case have resumed settlement discussions. The Company is
currently unable to predict the ultimate outcome of this case.
At the April 20, 1999 open meeting, the PRC dismissed the City of Albuquerque's
petition for a retail pilot load aggregation program and closed the docket. (See
"City of Albuquerque ("COA") Retail Pilot Load Aggregation Program" in Item 5,
"Other Events" in the Current Report on Form 8-K dated March 30, 1999.)
Also, on March 30, 1999, Residential Electric, Inc. filed a motion for rehearing
with the Supreme Court, seeking dismissal of the petition for writ of mandamus.
The Supreme Court had partially granted the writ on March 1, 1999, with an
opinion issued March 15, 1999, ruling that the NMPUC had exceeded its authority
in ordering retail electric competition (see PART II, ITEM 7. - "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - OTHER
ISSUES FACING THE COMPANY - Residential Electric, Inc. ("REI")" in the 1998 Form
10-K). The Supreme Court denied the motion for rehearing on April 27, 1999. The
PRC has directed REI to file a verified statement concerning the current status
of its application and complaint by May 17, 1999, based on the Supreme Court's
opinion.
LIQUIDITY AND CAPITAL RESOURCES
The projection for total capital requirements for 1999 is $176 million which
includes $145 million of utility construction expenditures. During the first
quarter, the Company spent approximately $32.5 million for capital requirements
and anticipates spending approximately $143.5 million over the remainder of
1999. 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.
As of March 31, 1999, the Company had $405 million of available liquidity
arrangements, consisting of $300 million from a senior unsecured revolving
credit facility, $80 million from an accounts receivable securitization and $25
million in local lines of credit. At March 31, 1999, the Company did not have
any short-term borrowings and had $78.6 million in temporary investments.
10
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The Company's ability to finance its construction program at a reasonable cost
is dependent largely upon its earnings, credit ratings, regulatory approvals and
financial market conditions. As a result of the recent passage of the electric
utility industry restructuring bill and the Supreme Court's ruling on the
Company's electric rate order, Duff & Phelps Credit Rating Co. removed the
"Rating Watch-Down" on the Company's debt and preferred stock and reaffirmed the
ratings on the Company's senior unsecured notes and first mortgage bonds.
Moody's Investors Service also changed the rating outlook on all of the
Company's securities to positive from stable.
On April 20, 1999, the Company requested PRC authorization for the issuance of
up to $11.5 million in tax-exempt pollution control revenue bonds to partially
reimburse the Company for expenditures associated with its share of a recently
completed upgrade of the emission control system at the San Juan Generating
Station ("SJGS"). The new bond issue is also subject to approval by the City of
Farmington and San Juan County.
RESULTS OF OPERATIONS
Net earnings applicable to common stock increased $5.5 million ($.14 per share)
for the quarter ended March 31, 1999, from the corresponding period last year.
The following discussion highlights significant items which affected the results
of operations for the quarters ended March 31, 1999 and 1998.
Continuing Operations
Electric gross margin (operating revenues less fuel and purchased power expense)
for the current quarter decreased $2.3 million from a year ago due to decreased
retail sales attributed to milder weather this year, offset by increased
wholesale sales, net of increased purchases for resale. In addition, 1998 fuel
expenses were lower than 1999 due to a tax settlement credit at Four Corners
Power Plant ("Four Corners") and extensive maintenance outages at SJGS Units 1
and 3 in 1998.
Gas gross margin (operating revenues less gas purchased for resale) decreased
$1.4 million from the corresponding period a year ago due to warmer weather
conditions in the current period and a monthly customer charge (access fee) not
being billed on some accounts during the first three months in 1999 as a result
of the new customer billing system problems.
Other operation and maintenance ("O&M") expenses increased $1.2 million for the
quarter over the corresponding period a year ago due to increases in customer
service related expenses, outside services and employee benefit costs, offset by
decreased electric maintenance expense due to higher maintenance outage
activities at SJGS in 1998.
Depreciation and amortization expenses increased $2.0 million over the same
period last year as a result of increases in plant balances and depreciation
rates.
11
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Operating income taxes for the quarter ended March 31, 1999, decreased $4.2
million from the corresponding period a year ago due to decreased pre-tax
earnings from continuing operations for the current quarter.
Other income and deductions, net of taxes increased $3.4 million over the same
period last year due to the recording of interest income from the Palo Verde
Nuclear Generating Station ("PVNGS") Capital Trust.
Net interest charges increased $4.3 million over the corresponding period a year
ago as a result of the issuance of $435 million of senior unsecured notes in
1998, offset by a decrease in short-term debt interest charges.
Discontinued Operations
In August 1998, the Company adopted a plan to discontinue the natural gas
trading operations of its Energy Services Business Unit and completely
discontinued these operations on December 31, 1998. As a result, the Company
reclassified the losses from discontinued operations for the three month period
ended March 31, 1998. Losses from discontinued operations, net of taxes, for the
three months ended March 31, 1998, were $4.3 million, or $.10 per common share.
Cumulative Effect of a Change in Accounting Principle
Effective January 1, 1999, the Company adopted EITF Issue No. 98-10, Accounting
for Contracts Involved in Energy Trading and Risk Management Activities. The
effect of the initial application of the new standard is reported as a
cumulative effect of a change in accounting principle. As a result, the Company
recorded additional earnings, net of taxes, of approximately $3.5 million, or
$.08 per common share to recognize the gain on net open physical electricity
purchase and sales commitments considered to be trading activities.
OTHER ISSUES FACING THE COMPANY
New Customer Billing System
As previously reported, in November 1998, the Company installed a new customer
billing system. Due to a significant number of problems associated with the
implementation of the new billing system, the Company either sent inaccurate
bills or did not send bills to approximately 10% of its accounts. Under PRC
rules and PRC-approved Company rules, the Company is required to issue customer
bills on a monthly basis. In February 1999, the Company filed with the PRC an
application for temporary variance. Subsequently, the PRC issued an order
granting the Company a temporary variance through April 15, 1999, which allowed
the Company to issue bills to customers that had been delayed from 60-120 days.
The order further provided that a hearing examiner take evidence on whether the
Company has violated or is violating PRC rules, regulations, orders or the New
12
<PAGE>
Mexico Public Utility Act ("Utility Act"), and if so, whether sanctions or fines
should be imposed. The PRC may impose penalties for violations of the Utility
Act or failure to obey any lawful order of the PRC in the amount of $100 to
$100,000 for each violation. Because of the problems associated with the
Company's new customer billing system, the Company has been estimating revenues,
customer accounts receivable and bad debt expense since its implementation in
November 1998. The Company's financial, tax and regulatory reports reflect these
estimates. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - OTHER ISSUES FACING THE COMPANY - NEW CUSTOMER BILLING
SYSTEM" in the 1998 Form 10-K.)
The hearing examiner issued an order on April 16, 1999, extending the temporary
variance to April 28, 1999. On April 29, 1999, a pre-hearing conference was
conducted at the PRC at which time the Company presented an oral status report
to the hearing examiner, the PRC Staff and other parties on the resolution of
the billing system problems. The Company advised the parties that significant
progress had been made toward resolving the problems associated with the new
billing system including the fact that all previously delayed bills had been
sent to customers. The Company also confirmed that in accordance with the PRC
Staff's recommendation adopted in the PRC's order, it would submit a report on
June 1, 1999, which would include an assessment of any outstanding issues
associated with the billing system and other specific data requested by the PRC
Staff. Another pre-hearing conference was set for June 3, 1999.
Currently, the Company is unable to predict the ultimate timing for the
completion of all billing system remediation efforts and associated issues or
outcome of regulatory actions regarding these problems.
Kirtland Air Force Base ("KAFB") Contract
The Company has been informed that the Department of Energy ("DOE") has entered
into an agency agreement with the Western Area Power Administration ("Western")
on behalf of KAFB, one of the Company's largest retail electric customers, by
which Western will competitively procure power for KAFB. The proposed wholesale
power procurement would begin at the expiration of KAFB's power service contract
with the Company in December 1999. On May 4, 1999, the Company received a
request for network transmission service from Western pursuant to Section 211 of
the Federal Power Act to facilitate the delivery of wholesale power to KAFB over
the Company's transmission system. The Company is currently reviewing the
application to determine if Western is eligible to request transmission service
under the Open Access Transmission Tariff on behalf of KAFB.
The revenue loss to the Company, if DOE replaces the Company as the power
supplier to KAFB, is presently being evaluated. In 1998, the Company recorded
electric revenues of approximately $18 million from KAFB. The Company is
currently unable to predict the ultimate outcome of this matter.
13
<PAGE>
City of Gallup ("Gallup") Complaint
As previously reported, in 1998, Gallup, Gallup Joint Utilities and the
Pittsburg & Midway Coal Mining Co. ("Pitt-Midway") filed a joint complaint and
petition ("Complaint") with the New Mexico Public Utility Commission ("NMPUC")
(predecessor of the PRC), seeking an interim declaratory order stating, among
other things, that Pitt-Midway is no longer an obligated customer of the
Company, Gallup is entitled to serve Pitt-Midway and the Company must wheel
power purchased by Gallup from other suppliers over the Company's transmission
system. In September 1998, the NMPUC issued an order without conducting a
hearing, granting the requests sought in the Complaint. The Company strongly
disagreed with the NMPUC's decision and filed, in September 1998, a motion with
the Supreme Court, requesting an emergency stay of the NMPUC order pending its
appeal of the order. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - OTHER ISSUES FACING THE COMPANY - NMPUC
REGULATORY ISSUES - City of Gallup ("Gallup") Complaint" in the 1998 Form 10-K.)
In 1998, the Company and Pitt-Midway agreed in principle to sell to Pitt-Midway
the 115 kV transmission line originating at the 115 kV Yah-Ta-Hey substation
near Gallup and terminating at the coal mine properties of Pitt-Midway. The
NMPUC final order directed the Company to complete the application at the FERC
no later than December 31, 1998. On December 28, 1998, the Company filed an
application at the FERC for an order authorizing the Company to sell the line to
Pitt-Midway.
On April 5, 1999, the FERC issued an order approving the sale of the
transmission line to Pitt-Midway and directing Pitt-Midway to file rate
schedules for the transmission services it will provide the Company as a result
of obtaining ownership of the line. The closing date for the transfer of
ownership of the line has not been determined.
The April 5 order also sets for hearing the issue of additional transmission
service to Gallup before an administrative law judge. FERC has directed the
parties to appear before a settlement judge for a settlement conference. Absent
settlement, the issue of transmission service to Gallup will be set for hearing.
The appeal of the final order to the Supreme Court remains pending.
The Year 2000 Issue
As previously reported, the Year 2000 issue is a consequence of computer
programs ("IT Systems") written using two digits rather than four digits to
define the applicable year. As a result, computer systems could recognize the
Year 2000 as the year 1900, leading potentially to systems failures or
miscalculations causing disruptions in operations. Equipment that contains
embedded chips ("Embedded Systems") may also be affected by the Year 2000 issue.
The Company adopted a plan to address the Year 2000 issue for internal systems
and external dependencies ("Year 2000 Project"). (See PART II, ITEM 7. -
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - OTHER ISSUES FACING THE COMPANY - THE YEAR 2000 ISSUE" in the
Company's 1998 Form 10-K.)
14
<PAGE>
The estimated status of each phase as of April 30 , 1999, is set out below:
Estimated Status of
Year 2000 Project Phase Completion*
----------------------- -----------
Awareness Phase Completed
Inventory Phase 97%
Assessment Phase 89%
Planning and Scheduling Phase 78%
Repair Phase 55%
Testing Phase 33%
Re-Integration/Deployment Phase 8%
Company-Wide Testing Phase 2%
* The stated percentages represent the status of completion as of
April 30 , 1999, of all of the Company's IT Systems and Embedded
Systems, including mission critical systems. For purposes of this
presentation, "mission critical systems" include systems whose
failures could cause an interruption in the supply of electricity
or gas to the Company's customers, could interfere with the
Company's ability to communicate with customers, or could
interfere with the Company's cash flow.
On April 9, 1999, the Company participated in a drill organized by the North
American Electric Reliability Council ("NERC") to test operational preparedness
of the electric power grids of the United States and Canada. The drill focused
on sustaining reliable electric system operations during a simulated partial
loss of voice and data communications. The drill did not involve customer
electrical facilities and caused no interruption of electric service. The drill
provided the Company with an understanding of how it would operate under such
conditions and the issues it needs to address beforehand.
The Company has a 10.2% undivided interest in PVNGS, with portions of its
interests held under leases. Arizona Public Service Company ("APS"), the
operating agent of PVNGS, is currently conducting testing and evaluation of the
Year 2000 compliance of PVNGS. The Company's share of the PVNGS costs associated
with Year 2000 activities is approximately $1.7 million. These costs have not
been included in any prior Year 2000-related cost disclosures by the Company.
The Company has spent approximately $3.3 million on non-PVNGS Year 2000 related
activities during the first three months of 1999, and approximately $8.6 million
since the project's commencement.
15
<PAGE>
The Company is currently installing a new energy management system ("EMS") for
its electric transmission system. That EMS is scheduled for a Year 2000 upgrade
in the third quarter of 1999. The Company is in the process of performing Year
2000 remediation work on its current EMS and was scheduled to have the
remediation completed before June 30, 1999. However, the Company has experienced
delays in completing the remediation work on the current EMS. If there are
further delays, the remediation of the current EMS may not be completed by June
30, 1999.
The statements in this section are Year 2000 Readiness Disclosures pursuant to
the Year 2000 Information and Readiness Disclosure Act, Pub. L. No. 105-271, 112
Stat. 2386 (1998).
Navajo Nation Tax Issues
APS, the operating agent for Four Corners, has informed the Company that in
March 1999, APS initiated discussions with the Navajo Nation regarding various
tax issues in conjunction with the expiration of a tax waiver in July 2001,
which was granted by the Navajo Nation in 1985. The tax waver pertains to the
possessory interest tax and the business activity tax associated with the Four
Corners operations on the reservation. The Company believes that the resolution
of these tax issues will require an extended process and could potentially
affect the cost of conducting business activities on the reservation. The
Company is unable to predict the ultimate outcome of discussions with Navajo
Nation regarding these tax issues.
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
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 developments in the
utility industry.
16
<PAGE>
The costs of the Company's Year 2000 Project and the dates on which the Company
believes it will complete the phases of the Project are based upon management's
best estimates, which were derived using numerous assumptions regarding future
events, including the continued availability of certain resources, third-party
remediation plans, and other factors. There can be no assurance that these
estimates will prove to be accurate and actual results could differ materially
from those currently anticipated. Specific factors that could cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in Year 2000 issues, the ability to identify, assess,
remediate and test all relevant computer codes and embedded technology, and
similar uncertainties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Equity and Other Investment Return Risk
On March 26, 1999, the Company entered into a "collar" to hedge the equity risks
associated with its equity investments in the Company's retiree medical trusts,
Rabbi trust for executive retirement programs and nuclear decommissioning trusts
(collectively the "Trusts"). The "collar" utilizes exchange-traded and
over-the-counter put and call option contracts on the S&P 500 Index. These
option instruments are settled in cash at expiration. At the contract expiration
date, the Company will make payment to the counterparty under the call options
if the spot price exceeds the call exercise price or the Company will receive
payment from the put options if the spot price is less than the put exercise
price. These options will expire with no cash transfer if the S&P 500 Index is
between the put and call exercise prices. The Company accounts for the impact of
changes in the market value of these options under mark-to-market accounting on
a quarterly basis. As of March 31, 1999, the Company had outstanding put and
call options covering approximately $62 million in equity investments held
within the Trusts. As of March 31, 1999, the Company had unrealized gains of
approximately $100,000 related to the outstanding put and call options. Neither
the net fair value of the derivatives outstanding nor the potential, near-term
derivative losses from reasonably possible near-term changes in market prices
are material to the financial position, results of operations or liquidity of
the Company.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Republic Savings Bank ("RSB") Litigation
As previously reported, Meadows Resources Inc. ("Meadows"), a subsidiary of the
Company, has a 100% direct ownership interest in Republic Holding Company
("RHC"), and RSB was a wholly-owned subsidiary of RHC. Meadows and RHC have
pending before the United States Court of Federal Claims a lawsuit filed in
1992, alleging that the Federal government had breached its contractual
obligations with certain thrifts in refusing to recognize the accounting
practices of supervisory goodwill and capital credits. The Federal government
filed a counterclaim alleging breach by RHC of its obligation to maintain RSB's
net worth and moved to dismiss Meadows' claim for lack of standing. RSB filed a
motion for partial summary judgment on the issue of liability under its breach
of contract claim based on the United States Supreme Court's ("U.S. Supreme
Court") decision in a similar case for which the U.S. Supreme Court had ruled
that the Federal government breached its contractual obligations. A decision on
summary judgment is pending. (See PART I, ITEM 3. "LEGAL PROCEEDINGS - OTHER
PROCEEDINGS - Republic Savings Bank ("RSB") Litigation" in the 1998 Form 10-K.)
On April 9, 1999, the judge issued a significant precedential opinion in another
case, Glendale Federal Bank v. U.S., in which the judge awarded Glendale damages
of $909 million on its restitution and reliance theories of damages. The judge
expressly stated that his Glendale decision is the precedent for adjudicating
damages asserted by other plaintiffs. However, a different judge of the U.S.
Court of Claims issued a decision on April 16, 1999, in California Federal Bank
v. U.S., denying the plaintiff's claims for reliance, restitution and lost
profit damages but awarding the costs to raise new capital to replace its
goodwill. At this time, it is premature to estimate the amount of recovery, if
any, by Meadows and RHC.
Purported Navajo Environmental Regulation
In February 1999, the EPA promulgated regulations setting forth the EPA's
approach to issuing Federal operating permits to covered stationary sources on
reservations and in Indian country ("Federal operating permit rule"), pursuant
to the Clean Air Act Amendments of 1990. On April 15, 1999, APS, the operating
agent for the Four Corners Power Plant, filed a petition for review of the
Federal operating permit rule in the United States Court of Appeals for the
District of Columbia ("D.C. Circuit"). On April 20, 1999, the Company, the
operating agent for SJGS, also filed a petition for review of the Federal
operating permit rule in the D.C. Circuit. The Company cannot currently predict
the outcome of this matter.
18
<PAGE>
ITEM 5. OTHER INFORMATION
Repurchase of Common Stock
As previously reported, in March 1999, the Company announced plans to repurchase
up to one million shares of the Company's outstanding common stock. Repurchased
shares are to be immediately retired and, subject to regulatory approval, would
be reissued to meet current and future requirements of options granted for
certain of its employees under the Company's Performance Stock Plan. (See
"Repurchase of Common Stock" in Item 5, "Other Events" in the Company's Current
Report on Form 8-K dated March 30, 1999.) As of April 20, 1999, the Company
purchased and retired one million shares of its common stock at an average price
of $17.61 per share. The Company currently has 1,588,000 stock options
outstanding to key employees at a weighted average strike price of $18.41 per
share, exercisable over a ten year period. The Company believes that the buy
back of Company stock at current market value and the reissuance of new shares
when the options are exercised will reduce future financial exposure.
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
10.23.4** Fourth Amendment to the Restated and Amended Public Service
Company of New Mexico Accelerated Management Performance Plan,
as amended effective December 7, 1998
10.32.2** Second Amendment to the Supplemental Employee Retirement
Agreement for Max H. Maerki, as amended effective December 7,
1998
10.32.3** First Amendment to the Supplemental Employee Retirement
Agreement for John T. Ackerman, as amended effective December 7,
1998
10.45** Second Amendment to the Public Service Company of New Mexico
Service Bonus Plan, as amended effective December 7, 1998
10.47.5** First Amendment to the Executive Retention Agreement for
Benjamin F. Montoya
10.47.6** Second Amendment to the Pension Service Adjustment Agreement
for Benjamin F. Montoya, as amended effective December 7, 1998
10.48.1** First Amendment to the Public Service Company of New Mexico
OBRA `93 Retirement Plan, as amended effective December 7,
1998
10.50.1** First Amendment to the Public Service Company of New Mexico
Section 415 Plan, as amended effective December 7, 1998
19
<PAGE>
10.51.2** First Restated and Amended Executive Retention Plan, as
amended effective December 7, 1998
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 Form 10-K.
b. Reports on Form 8-K:
Report dated April 14, 1999, and filed on April 15, 1999, relating to
Electric Utility Industry Restructuring Act of 1999 and Annual
Stockholders Meeting.
Report dated March 30, 1999, and filed on March 31, 1999, relating to
Electric Rate Case; Electric Industry Restructuring Act of 1999; San
Diego Gas Electric Company Complaints; and City of Albuquerque Retail
Pilot Load Aggregation Program.
20
<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: May 11, 1999 /s/ Donna M. Burnett
-----------------------------------
Donna M. Burnett
Vice President,
Corporate Controller and
Chief Accounting Officer
(Officer duly authorized to
sign this report)
21
FOURTH AMENDMENT TO THE
RESTATED AND AMENDED
PUBLIC SERVICE COMPANY OF NEW MEXICO
ACCELERATED MANAGEMENT PERFORMANCE PLAN (1988)
THIS FOURTH AMENDMENT TO THE RESTATED AND AMENDED PUBLIC SERVICE
COMPANY OF NEW MEXICO ACCELERATED MANAGEMENT PERFORMANCE PLAN is effective the
7th day of December 1998 by the Public Service Company of New Mexico, a New
Mexico corporation ("PNM" or the "Company").
WHEREAS, the Company established the Public Service Company of New
Mexico Accelerated Management Performance Plan (the "Plan") on January 14, 1981,
which was amended four times and restated and amended on August 16, 1988, and
the restated and amended plan was amended on August 30, 1988, December 29, 1989,
and December 8, 1992;
WHEREAS, under Section 9.01 of the Plan, the Company reserved the right
at any time to amend the Plan;
WHEREAS, on December 7, 1998, the Compensation and Human Resources
Committee of the PNM Board of Directors approved certain benefits upon a Change
in Control (as defined in the First Restated and Amended Executive Retention
Plan) and authorized certain amendments to affected plans, including this Plan;
and
WHEREAS, the Company desires to amend this Plan to incorporate the
approved Change in Control benefits to provide full and sufficient funding of
the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred
Compensation Trust Agreement (the "Rabbi Trust") for any obligations or benefits
accrued as of the date of the occurrence of a Change in Control.
NOW THEREFORE, the Company hereby amends the Plan as follows:
ITEM 1. A new Section 6.03, entitled Change in Control shall be added,
to read as follows:
6.03. Change in Control. Upon a Change in Control as defined in the
First Restated and Amended Executive Retention Plan effective December
7, 1998, and incorporated herein by reference, the Company shall
sufficiently fund the Public Service Company of New Mexico and Paragon
Resources, Inc. Deferred Compensation Trust Agreement (the "Rabbi
Trust") to provide in full for any benefits accrued under the Plan as
of the date of the occurrence of the Change in Control.
1
<PAGE>
ITEM 2. Except as herein above amended, the Company hereby readopts and
redeclares each and every provision of the Plan.
IN WITNESS WHEREOF, Public Service Company of New Mexico caused this
Fourth Amendment to the Restated and Amended Public Service Company of New
Mexico Accelerated Management Performance Plan to be executed by its authorized
officers effective as of the date and year first above written.
PUBLIC SERVICE COMPANY OF NEW MEXICO
Date:_________________ By_________________________________________
BENJAMIN F. MONTOYA
President and Chief Executive Officer
24870
2
SECOND AMENDMENT TO THE
SUPPLEMENTAL EMPLOYEE RETIREMENT AGREEMENT
THIS SECOND AMENDMENT TO THE SUPPLEMENTAL EMPLOYEE RETIREMENT AGREEMENT
is effective the 7th day of December, 1998, by and between Public Service
Company of New Mexico, a New Mexico corporation ("PNM" or the "Company") and Max
Maerki ("Maerki").
WHEREAS, PNM and Maerki entered into a Supplemental Employee Retirement
Agreement ("SERP") effective August 4, 1989, and entered into a First Amendment
to the SERP on August 10, 1998;
WHEREAS, paragraph 9 of the SERP permits it to be amended by mutual
consent.
WHEREAS, on December 7, 1998, the Compensation and Human Resources
Committee of the PNM Board of Directors approved certain benefits upon a Change
in Control (as defined in the First Restated and Amended Executive Retention
Plan) and authorized certain amendments to affected plans, including this SERP;
and
WHEREAS, the Company desires to amend this SERP to incorporate the
approved Change in Control benefits to provide full and sufficient funding of
the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred
Compensation Trust Agreement (the "Rabbi Trust") for any obligations or benefits
accrued as of the date of the occurrence of a Change in Control.
NOW, THEREFORE, PNM and Maerki do hereby amend the SERP by this Second
Amendment as follows:
ITEM 1. Paragraph 7, No Trust, is hereby amended to add a new last
paragraph, as follows:
Notwithstanding the above, upon a Change in Control as defined in the
First Restated and Amended Executive Retention Plan effective December
7, 1998 and incorporated herein by reference, the Company shall
sufficiently fund the Public Service Company of New Mexico and Paragon
Resources, Inc. Deferred Compensation Trust Agreement (the "Rabbi
Trust") to provide in full for any benefits accrued under this
Agreement as of the date of the occurrence of the Change in Control.
ITEM 2. Except as herein above amended, PNM and Maerki hereby readopt
and redeclare each and every provision of the SERP.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, personally or by their
authorized representatives, have signed this Second Amendment to the SERP
effective as of the date specified herein and by execution of this amendment
hereby declare that this amendment fully and accurately represents all the
supplemental retirement benefits agreed upon by PNM and Maerki.
PUBLIC SERVICE COMPANY OF NEW MEXICO
Date:_________________ By_________________________________________
BENJAMIN F. MONTOYA
President and Chief Executive Officer
Date:_________________ _________________________________________
Max H. Maerki
2
FIRST AMENDMENT TO THE
SUPPLEMENTAL EMPLOYEE RETIREMENT AGREEMENT
THIS FIRST AMENDMENT TO THE SUPPLEMENTAL EMPLOYEE RETIREMENT AGREEMENT
is effective the 7th day of December, 1998, by and between Public Service
Company of New Mexico, a New Mexico corporation ("PNM" or the "Company") and
John T. Ackerman ("Ackerman").
WHEREAS, PNM and Ackerman entered into a Supplemental Employee
Retirement Agreement ("SERP") effective August 4, 1989;
WHEREAS, paragraph 9 of the SERP permits it to be amended by mutual
consent.
WHEREAS, on December 7, 1998, the Compensation and Human Resources
Committee of the PNM Board of Directors approved certain benefits upon a Change
in Control (as defined in the First Restated and Amended Executive Retention
Plan) and authorized certain amendments to affected plans, including this SERP;
and
WHEREAS, the Company desires to amend this SERP to incorporate the
approved Change in Control benefits to provide full and sufficient funding of
the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred
Compensation Trust Agreement (the "Rabbi Trust") for any obligations or benefits
accrued as of the date of the occurrence of a Change in Control.
NOW, THEREFORE, PNM and Ackerman do hereby amend the SERP by this First
Amendment as follows:
ITEM 1. Paragraph 7, No Trust, is hereby amended to add a new last
paragraph, as follows:
Notwithstanding the above, upon a Change in Control as defined in the
First Restated and Amended Executive Retention Plan effective December
7, 1998, and incorporated herein by reference, the Company shall
sufficiently fund the Public Service Company of New Mexico and Paragon
Resources, Inc. Deferred Compensation Trust Agreement (the "Rabbi
Trust") to provide in full for any benefits accrued under this
Agreement as of the date of the occurrence of the Change in Control.
ITEM 2. Except as herein above amended, PNM and Ackerman hereby readopt
and redeclare each and every provision of the SERP.
1
<PAGE>
IN WITNESS WHEREOF, the parties hereto, personally or by their
authorized representatives, have signed this First Amendment to the SERP
effective as of the date specified herein and by execution of this amendment
hereby declare that this amendment fully and accurately represents all the
supplemental retirement benefits agreed upon by PNM and Ackerman.
PUBLIC SERVICE COMPANY OF NEW MEXICO
Date:_________________ By_________________________________________
BENJAMIN F. MONTOYA
President and Chief Executive Officer
Date:_________________ _________________________________________
John T. Ackerman
2
24859
SECOND AMENDMENT TO THE
PUBLIC SERVICE COMPANY OF NEW MEXICO
SERVICE BONUS PLAN
THIS SECOND AMENDMENT TO THE PUBLIC SERVICE COMPANY OF NEW MEXICO
SERVICE BONUS PLAN is effective the 7th day of December 1998, by the Public
Service Company of New Mexico, a New Mexico corporation ("PNM" or the
"Company").
WHEREAS, the Company established the Public Service Company of New
Mexico Service Bonus Plan (the "Plan") on October 23, 1984, which was amended on
November 20, 1985;
WHEREAS, under Section 9.01 of the Plan, the Company reserved the right
at any time to amend the Plan;
WHEREAS, on December 7, 1998, the Compensation and Human Resources
Committee of the PNM Board of Directors approved certain benefits upon a Change
in Control (as defined in the First Restated and Amended Executive Retention
Plan) and authorized certain amendments to affected plans, including this Plan;
and
WHEREAS, the Company desires to amend this Plan to incorporate the
approved Change in Control benefits to provide full and sufficient funding of
the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred
Compensation Trust Agreement (the "Rabbi Trust") for any obligations or benefits
accrued as of the date of the occurrence of a Change in Control.
NOW THEREFORE, the Company hereby amends the Plan as follows:
ITEM 1. A new Section 6.04, entitled Change in Control, shall be added,
to read as follows:
6.04 Change in Control. Upon a Change in Control, as defined in the
First Restated and Amended Executive Retention Plan effective December
7, 1998 and incorporated herein by reference, the Company shall
sufficiently fund the Public Service Company of New Mexico and Paragon
Resources, Inc. Deferred Compensation Trust Agreement (the "Rabbi
Trust") to provide in full for any benefits accrued under the Plan as
of the date of the occurrence of the Change in Control.
ITEM 2. Except as herein above amended, the Company hereby readopts and
redeclares each and every provision of the Plan.
1
<PAGE>
IN WITNESS WHEREOF, Public Service Company of New Mexico caused this
Second Amendment to the Public Service Company of New Mexico Service Bonus Plan
to be executed by its authorized officers effective as of the date and year
first above written.
PUBLIC SERVICE COMPANY OF NEW MEXICO
Date:_________________ By_________________________________________
BENJAMIN F. MONTOYA
President and Chief Executive Officer
2
24871
FIRST AMENDMENT TO THE
EXECUTIVE RETENTION AGREEMENT FOR
BENJAMIN F. MONTOYA
This FIRST AMENDMENT TO THE EXECUTIVE RETENTION AGREEMENT FOR BENJAMIN
F. MONTOYA (the "Agreement"), by and between Public Service Company of New
Mexico, a New Mexico corporation ("PNM" or the "Company") and Benjamin F.
Montoya ("Montoya"), is effective as of the date Benjamin F. Montoya's name is
added to the Executive Retention Plan roster and approved by the Compensation
and Human Resources Committee of the PNM Board of Directors, pursuant to Section
2.13 of the Public Service Company of New Mexico First Restated and Amended
Executive Retention Plan, effective December 7, 1998.
WHEREAS, Montoya was newly elected as President and Chief Executive
Officer of PNM when the Agreement was entered into effective November 15, 1993;
WHEREAS, the Company reserved the right to amend, modify or terminate
this Agreement pursuant to paragraph B of the Agreement without the consent of
Montoya;
WHEREAS, on December 7, 1998, the Compensation and Human Resources
Committee of the PNM Board of Directors approved certain benefits upon a Change
in Control (as defined in the First Restated and Amended Executive Retention
Plan) and authorized certain amendments to affected plans, including this
Agreement; and
WHEREAS, the Company desires to amend this Agreement to incorporate the
approved Change in Control benefits. The Company hereby amends this Agreement to
provide that the retention benefits otherwise provided herein to Montoya, in the
event Montoya's employment is involuntarily or constructively terminated with
PNM following a Change in Control, shall be provided pursuant to the Public
Service Company of New Mexico First Restated and Amended Executive Retention
Plan.
NOW THEREFORE, the Company hereby amends the Agreement as follows:
ITEM 1. A new paragraph D shall be added to amend and terminate the
Agreement, as follows:
D. Notwithstanding anything to the contrary in this Agreement, benefits
under this Agreement shall be provided pursuant to the Public Service
Company of New Mexico First Restated and Amended Executive Retention
Plan, effective December 7, 1998, and this Agreement shall cease
providing such benefits and shall be terminated as of the date Benjamin
F. Montoya's name is added to the Executive Retention Plan roster and
approved by the Compensation and Human Resources Committee of the PNM
Board of Directors, or its successor committee.
ITEM 2. Except as herein above amended, the Company hereby supersedes
this Agreement with the provisions of the First Restated and Amended Executive
Retention Plan.
1
<PAGE>
IN WITNESS WHEREOF, the Company caused this First Amendment to the
Executive Retention Agreement For Benjamin F. Montoya to be executed.
PUBLIC SERVICE COMPANY OF NEW MEXICO
Date:_________________ By_______________________________________
JOHN T. ACKERMAN
Chairman of the Board of Directors
Date:_________________ _________________________________________
BENJAMIN F. MONTOYA
2
24866
SECOND AMENDMENT TO THE
PENSION SERVICE ADJUSTMENT AGREEMENT
FOR BENJAMIN F. MONTOYA
THIS SECOND AMENDMENT TO THE PENSION SERVICE ADJUSTMENT AGREEMENT is
effective the 7th day of December, 1998, by and between Public Service Company
of New Mexico, a New Mexico corporation ("PNM" or the "Company") and BENJAMIN F.
MONTOYA ("Montoya").
WHEREAS, PNM and Montoya entered into a Pension Service Adjustment
Agreement ("Agreement") effective November 15, 1993, and entered into a First
Amendment to the Agreement on June 9, 1998;
WHEREAS, paragraph 9 of the Agreement permits it to be amended by
mutual consent.
WHEREAS, on December 7, 1998, the Compensation and Human Resources
Committee of the PNM Board of Directors approved certain benefits upon a Change
in Control (as defined in the First Restated and Amended Executive Retention
Plan) and authorized certain amendments to affected plans, including this
Agreement; and
WHEREAS, the Company desires to amend this Agreement to incorporate the
approved Change in Control benefits to provide full and sufficient funding of
the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred
Compensation Trust Agreement (the "Rabbi Trust") for any obligations or benefits
accrued as of the date of the occurrence of the Change in Control.
NOW, THEREFORE, PNM and Montoya do hereby amend the Agreement by this
Second Amendment as follows:
ITEM 1. Paragraph 7, Source of Payments of Benefits, is hereby amended
to add a new last paragraph, as follows:
Notwithstanding the above, upon a Change in Control as defined in the
First Restated and Amended Executive Retention Plan effective December
7, 1998 and incorporated herein by reference, the Company shall
sufficiently fund the Public Service Company of New Mexico and Paragon
Resources, Inc. Deferred Compensation Trust Agreement (the "Rabbi
Trust") to provide in full for any benefits accrued under this
Agreement as of the date of the occurrence of the Change in Control.
ITEM 2. Except as herein above amended, PNM and Montoya hereby readopt
and redeclare each and every provision of the Agreement, as amended.
1
<PAGE>
IN WITNESS WHEREOF, the parties hereto, personally or by their
authorized representatives, have signed this Second Amendment to the Agreement
effective as of the date specified herein.
PUBLIC SERVICE COMPANY OF NEW MEXICO
Date:_________________ By_________________________________________
JOHN T. ACKERMAN
Chairman of the Board of Directors
Date:_________________ _________________________________________
BENJAMIN F. MONTOYA
2
24867
FIRST AMENDMENT TO THE
PUBLIC SERVICE COMPANY OF NEW MEXICO
OBRA `93 RETIREMENT PLAN
THIS FIRST AMENDMENT TO THE PUBLIC SERVICE COMPANY OF NEW MEXICO OBRA
`93 RETIREMENT PLAN is effective the 7th day of December, 1998, by the Public
Service Company of New Mexico, a New Mexico corporation ("PNM" or the
"Company").
WHEREAS, the Company established the Public Service Company of New
Mexico OBRA `93 Retirement Plan (the "Plan") effective November 15, 1993;
WHEREAS, under Article V of the Plan, the Company reserved the right at
any time to amend the Plan;
WHEREAS, on December 7, 1998, the Compensation and Human Resources
Committee of the PNM Board of Directors approved certain benefits upon a Change
in Control (as defined in the First Restated and Amended Executive Retention
Plan) and authorized certain amendments to affected plans, including this Plan;
and
WHEREAS, the Company desires to amend this Plan to incorporate the
approved Change in Control benefits to provide full and sufficient funding of
the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred
Compensation Trust Agreement (the "Rabbi Trust") for any obligations or benefits
accrued as of the date of the occurrence of a Change in Control.
NOW THEREFORE, the Company hereby amends the Plan as follows:
ITEM 1. Article IV, Source of Payments, shall be amended to add a new
last paragraph, as follows:
Notwithstanding the above, upon a Change in Control, as defined in the
First Restated and Amended Executive Retention Plan effective December
7, 1998 and incorporated herein by reference, the Company shall
sufficiently fund the Public Service Company of New Mexico and Paragon
Resources, Inc. Deferred Compensation Trust Agreement (the "Rabbi
Trust") to provide in full for any benefits accrued under this Plan as
of the date of the occurrence of the Change in Control.
ITEM 2. Except as herein above amended, the Company hereby readopts and
redeclares each and every provision of the Plan.
1
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IN WITNESS WHEREOF, Public Service Company of New Mexico caused this
First Amendment to the Public Service Company of New Mexico OBRA `93 Retirement
Plan to be executed by its authorized officers effective as of the date and year
first above written.
PUBLIC SERVICE COMPANY OF NEW MEXICO
Date:_________________ By_________________________________________
BENJAMIN F. MONTOYA
President and Chief Executive Officer
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24873
FIRST AMENDMENT TO THE
PUBLIC SERVICE COMPANY OF NEW MEXICO
SECTION 415 PLAN
THIS FIRST AMENDMENT TO THE PUBLIC SERVICE COMPANY OF NEW MEXICO
SECTION 415 PLAN is effective the 7th day of December 1998 by the Public Service
Company of New Mexico, a New Mexico corporation ("PNM" or the "Company").
WHEREAS, the Company established the Public Service Company of New
Mexico Section 415 Plan (the "Plan") effective January 1, 1994;
WHEREAS, under Section 6.03, the Company reserved the right at any time
to amend the Plan;
WHEREAS, on December 7, 1998, the Compensation and Human Resources
Committee of the PNM Board of Directors approved certain benefits upon a Change
in Control (as defined in the First Restated and Amended Executive Retention
Plan) and authorized certain amendments to affected plans, including this Plan;
and
WHEREAS, the Company desires to amend this Plan to incorporate the
approved Change in Control benefits to provide full and sufficient funding of
the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred
Compensation Trust Agreement (the "Rabbi Trust") for any obligations or benefits
accrued as of the date of the occurrence of a Change in Control.
NOW THEREFORE, the Company hereby amends the Plan as follows:
ITEM 1. Article V, Source of Benefit Payments, shall be amended to add
a new Section 5.02, as follows:
5.02 Change in Control. Upon a Change in Control, as defined in the
First Restated and Amended Executive Retention Plan effective December
7, 1998, and incorporated herein by reference, the Company shall
sufficiently fund the Public Service Company of New Mexico and Paragon
Resources, Inc. Deferred Compensation Trust Agreement (the "Rabbi
Trust") to provide in full for any benefits accrued under this Plan as
of the date of the occurrence of the Change in Control.
ITEM 2. Except as herein above amended, the Company hereby readopts and
redeclares each and every other provision of the Plan.
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IN WITNESS WHEREOF, Public Service Company of New Mexico caused this
First Amendment to the Public Service Company of New Mexico Section 415 Plan to
be executed by its authorized officers effective as of the date and year first
above written.
PUBLIC SERVICE COMPANY OF NEW MEXICO
Date:_________________ By_________________________________________
BENJAMIN F. MONTOYA
President and Chief Executive Officer
2
24872
PUBLIC SERVICE COMPANY OF NEW MEXICO
FIRST RESTATED AND AMENDED
EXECUTIVE RETENTION PLAN
The Public Service Company of New Mexico (the "Company" or "PNM")
hereby adopts the following First Restated and Amended Executive Retention Plan
(the "Plan"), effective December 7, 1998.
WHEREAS, the Company adopted the initial Executive Retention Plan
effective January 1, 1992;
WHEREAS, the Company first amended the Plan on January 1, 1994, and
again on August 1, 1994;
WHEREAS, on December 7, 1998, the Compensation and Human Resources
Committee of the PNM Board of Directors ("Board") approved certain benefits upon
a Change in Control and authorized certain amendments to affected plans,
including this Plan; and
WHEREAS, the Company desires to amend and restate this Plan to
incorporate the approved Change in Control benefits, as follows:
I. PURPOSE
----------
The Company considers it essential to its best interests and the best
interests of its customers and stockholders to foster the continuous employment
of its key management employees. In this connection, the Company recognizes
that, as is the case with many publicly held corporations, the possibility of a
Change in Control may exist and that such possibility, and the uncertainty and
questions which it may raise among employees, may result in the departure or
distraction of key management employees to the detriment of the Company and its
ability to continue to provide efficient and reliable utility services to its
customers.
The Company has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of the Company's
key management to their assigned duties and to facilitate recruitment of future
employees without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control of the
Company, by providing competitive and fair compensation and benefits to
employees terminated under these circumstances.
In order to encourage its key management employees to remain in its
employ, a Participant shall receive the retention benefits set forth in this
Plan in the event such Participant's employment with the Company is terminated
under the circumstances described below.
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Notwithstanding the above, the Company does not intend to change its
employment at will nature, but retains its absolute right to terminate any
employee at any time. An employee Terminated or Constructively Terminated during
the Protection Period shall be entitled to benefits provided herein. An employee
who terminates employment from the Company for any other reason shall not be
entitled to benefits herein.
Notwithstanding other provisions herein, the Company does not intend to
create or offer these retention benefits in the event of a corporate
restructuring initiated by the Company in which a holding company and related
boards of directors are formed and the Company is subsequently acquired by such
holding company.
II. DEFINITIONS
---------------
Terms or provisions in this Plan set out in proper capitals shall have
the following meanings. In construing this Plan, these terms and provisions
shall be liberally construed, to effect the intentions of the Board and the
Company.
2.1. "Base Compensation" shall mean the Participant's Base Salary and
Lump Sum Awards plus Results Pay at fifty percent (50%) of the highest stated
maximum award opportunity from the Company in effect during the Protection
Period. In the event a part-time or job-share employee's Base Compensation is
based upon a full-time position, such Base Compensation shall be proportionately
reduced by multiplying the same by a fraction the numerator of which is the
number of hours the employee is scheduled to work each week and the denominator
of which is forty (40).
2.2. "Base Salary" shall mean the Participant's highest annual stated
salary from the Company in effect during the Protection Period.
2.3. "Board" shall mean the Board of Directors of the Company or by
delegation of authority, the Compensation and Human Resources Committee of the
Board, or any successor committee.
2.4. "Cause" for purposes of Termination of a Participant's
employment, shall mean:
2.4.1. the willful and continued failure of a Participant to
substantially perform his or her duties with the Company after a written demand
for substantial performance is delivered to the Participant which specifically
identifies the manner in which the Participant has not substantially performed
his or her duties, or willful failure to report to work for more than thirty
(30) days; or
2.4.2. the willful engaging by the Participant in conduct
which is demonstrably and materially injurious to the Company, monetarily or
otherwise, including acts of fraud, misappropriation, violence, or embezzlement
for personal gain at the expense of the Company, conviction of a felony, or
conviction of a misdemeanor involving immoral acts.
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Provided, however, that Section 2.4.1 shall not apply if: (i) the
failure results from such Participant's incapacity due to verifiable physical or
mental illness substantiated by appropriate medical evidence; or (ii) it is an
anticipated or actual failure after the issuance of a Notice of Termination by
the Participant due to Constructive Termination. For purposes of this
definition, an act or failure to act by a Participant shall not be deemed
"willful" if done or omitted to be done by the Participant in good faith and
with a reasonable belief that his or her action was in the best interest of the
Company. Notwithstanding the foregoing, a Participant shall not be deemed to
have been terminated for Cause unless and until there shall have been delivered
to such Participant a copy of a resolution duly adopted by the affirmative vote
of all members of the Committee at a meeting thereof called and held for such
purpose (after reasonable notice to the Participant and an opportunity for the
Participant together with his or her counsel, to be heard before the Committee),
finding that in the good faith opinion of the Committee, the Participant was
guilty of conduct set forth in Section 2.4.1 and 2.4.2 above and specifying the
particulars in detail.
2.5. "Change in Control" shall be deemed to have occurred (any required
approval, including any final nonappealable regulatory order, having been
obtained) subject to the exceptions and modifications set forth in this Section
and in the Plan:
2.5.1. if any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act) becomes directly or indirectly the "beneficial
owner" as defined in Rule 13d-3 under the Exchange Act, of securities of the
Company representing twenty percent (20%) or more of the combined voting power
of the Company's then outstanding securities;
2.5.2. if during any period of two (2) consecutive years
(excluding any period prior to the effective date of this Plan), the following
individuals cease, for any reason, to constitute a majority of the Board:
(i) directors who were directors at the beginning of such
period; and
(ii) any new directors whose election by the Board or
nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3rds)
of the directors then still in office who either were
directors at the beginning of the period or whose
election or nomination for election was previously so
approved (such new directors being referred to as
Approved New Directors);
2.5.3. if the shareholders of the Company approve a merger or
consolidation of the Company with another company, corporation or subsidiary
that is not affiliated with the Company immediately preceding the Potential
Change in Control; or
2.5.4. upon the adoption of a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
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Section 2.5.1. shall not apply if the "person" as referred to therein
is, or shall be: (i) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company; or (ii) a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company.
In Section 2.5.2., the Approved New Director shall not include a
director designated by a person who has entered into an agreement with the
Company to effect a transaction described in Section 2.5.1, 2.5.3 or 2.5.4
hereof.
Section 2.5.3. shall not apply to a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least eighty
percent (80%) of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such merger or
consolidation.
2.6. "Code" shall mean the Internal Revenue Code of 1986, as may be
amended from time to time.
2.7. "Committee" shall mean a committee consisting of at least three
(3) members, appointed by the Board to administer the Plan.
2.8. "Company" shall mean the Public Service Company of New Mexico. As
used in this Plan, "Company" shall also mean any successor to its assets, as
described in Article II, Section 2.5.3 and 2.5.4, that assumes and agrees to
perform the Company's obligations hereunder, by operation of law or otherwise.
"Company" shall also include any holding company owning the Company or
subsidiary of such holding company.
2.9. "Constructive Termination" shall mean, without a Participant's
express written consent, the occurrence after the commencement of the Protection
Period of any of the following circumstances, subject to the exceptions and
modifications at the end of this Section 2.9:
2.9.1. a significant reduction in the Participant's Base
Salary;
2.9.2. the relocation of the Participant's principal office to
a location more than fifty (50) miles from the location of such office during
the Protection Period;
2.9.3. the failure of the Company, within the time period
contained in Section 7.1 of the Plan, to obtain a written agreement from any
successor to assume and agree to perform the Company's obligations pursuant to
this Plan; the date on which any such succession becomes effective shall be then
deemed the Termination Date;
2.9.4. any purported Termination of the Participant's
employment by the Company which is not effected by a Notice of Termination
satisfying the requirements of Section 2.15 below;
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2.9.5. the requirement, for continued employment with the
Company, that the Participant maintain a residence more than fifty (50) miles
from the location of his or her residence during the Protection Period; or
2.9.6. the Participant is reassigned duties within the Company
which are: (i) inconsistent with his or her employment status with the Company
immediately prior to the Protection Period; or (ii) a substantial adverse
alteration in the nature or status of his or her responsibilities from those in
effect immediately prior to the Protection Period.
Provided that the above shall not apply if such circumstances are fully
corrected prior to the Termination Date specified in the Notice of Termination.
Any purported Termination as set forth in Section 2.9.4 which is not
effected by a Notice of Termination satisfying the requirements of Section 2.15
below, shall not be effective.
A Participant's right to terminate his or her employment due to
Constructive Termination shall not be affected by his or her incapacity due to a
verifiable physical or mental illness substantiated by appropriate medical
evidence.
Provided further, that a Participant's continued employment for a
period exceeding sixty (60) days following an event that constitutes
Constructive Termination shall constitute Participant's consent to, or a waiver
of any rights with respect to, such Constructive Termination event. Consent to
or waiver of any rights with respect to one Constructive Termination event shall
not constitute a waiver of Participant's rights with respect to any other event
that constitutes Constructive Termination.
2.10. "Disability" shall have the same meaning as provided in the
Company's long term disability plan for the provision of long term disability
benefits
2.11. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
2.12. "Lump Sum Award" shall mean any cash award paid as a merit
increase in lieu of an increase in base salary received during the twelve (12)
month period immediately preceding the Participant's Termination Date.
2.13. "Management Committee Members" shall mean those key management
employees included in the Plan membership roster beginning with the commencement
of the Protection Period and ending upon a Change In Control, who are at the
same time also designated by the Company as members of its Management Committee
or its successor committee.
2.14. "MESP" shall mean the Public Service Company of New Mexico Master
Employee Savings Plan and Trust.
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2.15. "Notice of Termination" shall mean a notice from either the
Company or a Participant, as applicable. In the event the termination is for
Cause or based on Constructive Termination, the notice shall indicate the
specific termination provision in this Plan relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
Termination of the Participant's employment. However, the Company retains its
rights as an at will employer to terminate any employee at any time and for any
reason.
2.16. "Other Participants" shall mean Executive Retention Plan
Participants, excluding Management Committee Members.
2.17. "Participant" shall mean any non-union employee including a
Management Committee Member who is listed on the Executive Retention Plan roster
that is generally submitted to and approved no less than annually by the
Compensation and Human Resources Committee of the Board, or its successor.
2.18. "Potential Change in Control of the Company," subject to the
exceptions as set forth at the end of this Section 2.18, shall be deemed to have
occurred if:
2.18.1. the Company enters into a letter of intent or an
agreement, the consummation of which would result in the occurrence of the
Change in Control of the Company;
2.18.2. a credible announcement or report is made through a
filing with the Securities and Exchange Commission, a major financial
publication, a Company press release, or other similar medium of an intention to
take actions which if consummated would constitute a Change in Control of the
Company;
2.18.3. a case is pending before an appropriate regulatory
authority for approval of any transaction the consummation of which would result
in a Change in Control, or, as the result of such case, an order approving such
transaction is effective or an order disapproving such transaction is subject to
appeal; and/or,
2.18.4. the Board adopts a resolution to the effect that, for
purposes of this Plan, a Potential Change in Control of the Company has
occurred.
2.19. "Protection Period" shall mean the period beginning with a
Potential Change in Control and ending:
2.19.1. upon the abandonment or cessation of the intention,
consideration or undertaking of activities that gave rise to the Potential
Change in Control; or
2.19.2. in all other cases, twenty-four (24) months after a
Change in Control.
For purposes of this definition, such abandonment or cessation of an
intention, consideration or undertaking of a Change in Control shall be deemed
to have occurred:
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(i) if a credible announcement or report is made (through a
filing with the Securities and Exchange Commission, a
major financial publication, a Company press release,
or similar medium) that: (a) such intention,
consideration or undertaking has been abandoned or has
ceased; or (b) circumstances exist from which no
reasonable person would conclude that the persons
attempting the Change in Control would have a realistic
possibility of success;
(ii) in the case of a Potential Change in Control of the
Company described in Section 2.18.2, nine (9) months
have elapsed without the occurrence of additional
circumstances that advance a Change in Control;
(iii) in the case of a Potential Change in Control of the
Company described in Section 2.18.3, the regulatory
case has been withdrawn or otherwise ended without
resulting in a final, nonappealable order approving a
transaction the consummation of which would result in a
Change in Control; or
(iv) the Board rescinds an earlier resolution that a
Potential Change in Control has occurred.
Concurrent or overlapping Protection Periods may be triggered by the
occurrence of multiple independent Potential Change in Control events.
2.20. "Results Pay" shall mean an annual incentive bonus award or any
successor or other incentive plan that is intended to be in lieu of the Results
Pay Program.
2.21. "Retirement Plan" shall mean the Public Service Company of New
Mexico Employees' Retirement Plan, effective January 1, 1997.
2.22. "Severance Pay" shall mean the retention benefits provided to a
Participant pursuant to Article V, Section 5.1 hereof.
2.23. "Termination" or "Terminated" shall mean the involuntary
termination of a Participant's employment with the Company for any reason other
than: (i) for Cause; (ii) Death; or (iii) Disability.
2.24. "Termination Date" shall mean, if a Participant's employment is
terminated for any reason, the date specified in the Notice of Termination. In
the case of a termination for Cause pursuant to Section 2.4 above, the
Termination Date shall be immediately upon receipt of the Notice of Termination.
In the case of a Termination as defined in Section 2.23, the Termination Date
shall be not less than fifteen (15) days from the date the Notice of Termination
is given. In the case of Constructive Termination, pursuant to Section 2.9, the
Termination Date shall be not less than fifteen (15) nor more than sixty (60)
days from the date the Notice of Termination is given.
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III. TERM OF PLAN
-----------------
The Plan shall continue in effect until terminated by the Board,
provided that: (i) if the Protection Period has begun, the Plan shall continue
for the Protection Period; and (ii) notwithstanding termination of this Plan,
should a Potential Change in Control occur within twenty-four (24) months
following such termination, this Plan shall be self-reviving and continue for
the Protection Period.
IV. ELIGIBILITY FOR SEVERANCE BENEFITS
--------------------------------------
4.1. Eligibility of Participant. Only those non-union employees listed
on the Executive Retention Plan roster(s) at the beginning of the Protection
Period through the end of the Change in Control are eligible to become
Participants in the Plan. If a Participant's employment with the Company
terminates for any reason (whether voluntary or involuntary) before the
commencement of the Protection Period, he or she shall no longer be a
Participant hereunder.
4.2. Change in Control of Company. During the Protection Period, a
Participant, after signing a release agreement, shall be entitled to the
benefits described herein if such Participant's employment is Terminated during
this period by: (i) the Company; or (ii) the Participant due to Constructive
Termination following the Participant's giving of a Notice of Termination to the
Company. The requirement that a Notice of Termination be given by the
Participant shall be waived, however, if such Constructive Termination occurs
pursuant to Article II, Section 2.9.3 hereof. Notwithstanding the foregoing:
4.2.1. if a Participant's employment is Terminated or
Constructively Terminated during the Protection Period, but such Participant is
immediately reemployed by the surviving entity or the party acquiring the assets
of Company, then such Participant shall not be entitled to the benefits herein,
except as provided by Section 2.9.3 hereof; or
4.2.2. any Participant who without express authority actively
participates in advancing a Change in Control, whether on their own behalf or on
behalf of someone else, shall not be eligible for benefits herein. Participants
who, by virtue of their position and duties with the Company, are involved in
facilitating an orderly transition to a successor company shall remain eligible
to receive the benefits provided herein; or
4.2.3. if a Participant's employment is Terminated or
Constructively Terminated as a result of the acquisition of the Company by a
holding company formed in connection with a corporate restructuring initiated by
the Company, and the Participant is immediately re-employed by the Company or
assigned to a subsidiary of such holding company, the Participant shall not be
entitled to benefits herein.
4.3. Release Agreement. In order to be eligible for any benefits
hereunder, a Participant otherwise satisfying the requirements of this Plan must
sign and deliver to the Company a non-revoked release agreement provided by the
Company, waiving claims such Participant may have against the Company.
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4.4. No Duplication of Benefits. Notwithstanding anything herein to the
contrary, the right to receive any benefits under this Plan by any Participant
is specifically conditioned upon such Participant either waiving or being
ineligible for any and all benefits under the: (i) Employee Retention Plan,
including any amendments thereto; or (ii) any successor Change in Control
severance benefit plans otherwise available to the Participant. The Company does
not intend to provide any Participant with benefits under both this Plan and
benefits under any other severance, retention or change in control plans or
agreements sponsored by the Company or an affiliate.
V. SEVERANCE BENEFITS
---------------------
A Participant, who satisfies the eligibility requirements shall receive
the following benefits in lieu of any other retention or severance benefits
provided by the Company:
5.1. Severance Pay. The Company shall pay as retention benefits to a
Participant an amount as set forth on the following schedule based upon the
Participant's highest position held with the Company during the Protection
Period:
POSITION SEVERANCE PAY
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Management Committee Member 2.5 times Base Compensation
Other Participants 2.0 times Base Compensation
5.2. Results Pay. Upon termination, Participants shall receive a
pro-rata Results Pay award of fifty percent (50%) of the highest stated maximum
award opportunity in effect during the Protection Period. Notwithstanding the
above, for the purposes of the retention benefits provided herein, Participants
who are not terminated shall receive an annualized Results Pay award of fifty
percent (50%) of the highest stated maximum award opportunity at the end of the
year in which a Change in Control is approved.
5.3. Health Care, Life, Accidental Death and Dismemberment Insurance
Benefits. For a period of twenty-four (24) months for Other Participants and
thirty (30) months for Management Committee Members following the Participant's
Termination Date, the Company shall arrange to provide the Participant with
health care, term life, and accidental death and dismemberment insurance
benefits substantially similar to those which the Participant was receiving
immediately prior to the Notice of Termination for the Participant and his or
her enrolled eligible dependents. If the Participant was receiving a monthly
refund immediately prior to his or her Termination Date due to the elected level
of health care benefits, he or she will continue to receive such refund during
the applicable period.
5.4. Offsetting Benefits. Benefits otherwise receivable by the
Participant pursuant to this Article V shall be reduced to the extent comparable
benefits are actually received by the Participant from another employer of the
Participant during the applicable twenty-four (24) month or thirty (30) month
period following his or her Termination Date. Any such benefits actually
received by the Participant from another employer shall be reported by the
Participant to the Company.
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5.5. Supplemental Retirement Benefits. As of the Termination Date,
Participants shall receive the following supplemental retirement benefits:
5.5.1. cash equivalent of the present value of the incremental
benefit the Participant would receive under the Retirement Plan as if his or her
service and age were increased by the number of years equal to the multiplier
used to determine Severance Pay in Section 5.1, above; and,
5.5.2. cash equivalent of the present value of the early
retirement reduction based on the number of years equal to the multiplier used
to determine Severance Pay in Section 5.1, above; and,
5.5.3. cash equivalent of Company contributions to the
Participant's MESP account in the amount of seven and a half percent (7.5%)
times the period which corresponds to the number of years equal to the
multiplier used to determine Severance Pay in Section 5.1, above.
5.6. Full Funding of Certain Nonqualified Retirement Benefits. Upon a
Change in Control, the Company shall fully fund the Public Service Company of
New Mexico and Paragon Resources, Inc. Deferred Compensation Trust Agreement
(commonly known as the "Rabbi Trust") to provide for future entitlement to
accrued benefits under certain plans. Such plans include, but are not limited to
the following: the Accelerated Management Performance Plan, the Service Bonus
Plan, the OBRA `93, the Section 415 Plan, and various individual supplemental
employee retirement agreements in accordance with the requirements of specific
plan documents.
5.7. Reimbursement of Legal Fees. The Company also shall pay to a
Participant reasonable legal fees and expenses incurred as a result of a
Termination under the terms of this Plan (including all such fees and expenses,
if any, incurred in contesting or disputing any such termination or in seeking
to obtain or enforce any right or benefit provided by this Plan or in connection
with any tax audit or proceeding to the extent attributable to the application
of Section 4999 of the Code to any payment or benefit provided hereunder). Such
payments shall be made at the later of the: (i) applicable twenty-four (24)
month or thirty (30) month period specified above; or (ii) within five (5) days
after a Participant's notice of request for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.
VI. ADMINISTRATION OF PLAN AND PAYMENT OF BENEFITS
--------------------------------------------------
6.1. Plan Administration. The Plan shall be generally administered by a
Committee who shall be the named fiduciary for purposes of the Employee
Retirement Income Security Act of 1974, and who shall have the authority to
control and manage the operation of the Plan and the authority to interpret and
construe the Plan and any such interpretation and construction of any provisions
of this Plan shall be final. The Committee shall, in addition to the foregoing,
exercise such other powers and perform such other duties as it may deem
advisable in the administration of the Plan. The Committee may engage agents and
assistance from the Company, including Company counsel. The Committee shall not
be responsible for any action taken or omitted to be taken on the advice of such
counsel. The Committee is given specific authority to allocate and revoke
responsibilities among its members or designees. When the Committee has
allocated authority pursuant to the foregoing, the Committee shall not be liable
for the acts or omissions of the party to whom such responsibility has been
allocated, except to the extent provided by law.
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6.2. Payment Form and Date. The payments provided for herein shall be
made in the form of a lump sum distribution not later than the fifth (5th) day
following the Termination Date, provided however, that if the amount of such
payments cannot be finally determined on or before such day, the Company shall
pay to the Participant on such day an estimate, as determined in good faith by
the Company, of the minimum amount of such payments and shall pay the remainder
of such payments together with interest at the rate provided in Section
1274(b)(2)(B) of the Code as soon as the amount thereof can be determined, but
in no event later than the thirtieth (30th) day after the Termination Date. In
the event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
the Company to the Participant, payable by Participant on the fifth (5th) day
after demand for repayment is made by the Company, together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code.
6.3. Benefits Payable. In the event that any payments of benefits
collectively received or to be received by a Participant in connection with this
Plan or any other plan, arrangement or agreement with the Company or any
affiliate thereof, or any person whose actions result in a Change in Control or
any affiliate of such person would be subject to any excise tax imposed by Code
Sections 280G and 4999, such total payments shall be augmented to place the
Participant in the same after-tax position as if the excise tax had not been
imposed.
VII. SUCCESSORS, BINDING AGREEMENT
----------------------------------
7.1. Successors. The Company will negotiate to require any independent
successor to all or substantially all of the assets of the Company to provide
written confirmation, within thirty (30) days of the effective date of the
Change in Control, of its agreement to assume and perform the Company's
obligations pursuant to this Plan.
7.2. Binding Agreement. This Plan shall inure to the benefit of and be
enforceable by a Participant's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devises and legatees.
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VIII. NOTICE
------------
For the purpose of this Plan, notices and all other communications
provided for in the Plan shall be in writing and shall be deemed to have been
duly given when delivered. or mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to the Participant at his or her
last known address and to the Company at Alvarado Square, Albuquerque, New
Mexico 87158, provided that all notices to the Company shall be directed to the
attention of the Secretary of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.
IX. AMENDMENT
-------------
The Plan may be amended, in whole or in part, or terminated at any
time, except that: (i) no amendment shall impair or abridge the obligations of
the Company already incurred pursuant to Articles IV and V; and (ii) no such
Plan amendment shall become or shall be effective during the twenty-four (24)
month period immediately preceding the Protection Period and during the
Protection Period to the extent that such amendment impairs or abridges the
rights or benefits of an employee of the Company who was a Participant upon the
effective date of such Plan amendment. Notwithstanding the foregoing, the Plan
may be amended at will at any time and from time to time by the Company, or to
reflect changes necessary due to revisions to, or interpretations of: (i) the
Employee Retirement Income Security Act of 1974, as amended; (ii) Code Section
280G; or (iii) any other provision of applicable state or federal law.
X. MISCELLANEOUS
----------------
10.1. Governing Law. The validity, interpretation, construction and
performance of this Plan shall be governed by the laws of the State of New
Mexico.
10.2. Code and Exchange Act References. All references to sections of
the Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections.
10.3. Withholding. Any payments provided for hereunder shall be paid
subject to any applicable withholding required under federal, state or local
law.
10.4. Survival of Rights. In addition to the limitations on termination
of this Plan pursuant to Article III hereof, any obligations of the Company to
make payments that have been due to Participants who have, at the time of
expiration of the Plan, satisfied the eligibility requirements pursuant to
Article IV above during the term hereof, shall survive the termination of this
Plan.
10.5. No Employment Contract. Notwithstanding anything to the contrary
contained in this Plan: (i) the execution of the Plan shall not create an
express or implied contract of employment for a specified term between the
Participant and the Company; and (ii) unless otherwise expressly provided, in
writing, by such officer as may be specifically designated by the President, the
employment relationship between the Participant and the Company shall be defined
as employment at will, where either party may terminate the relationship with or
without cause. If such termination occurs after the commencement of the
Protection Period, Notice of Termination shall be given pursuant to Section 2.15
and the Termination Date shall be determined pursuant to Section 2.24.
12
<PAGE>
10.6. Mitigation of Benefits. The Participant shall not be required to
mitigate the amount of payment provided for in Article V by seeking other
employment or otherwise, nor, except as specifically provided in Article V,
shall the amount of any payment or benefit provided for in Article V be reduced
by: (i) any compensation earned by the Participant as the result of employment
by another employer; (ii) by retirement benefits; or (iii) offsets against any
amount claimed to be owed by the Participant to the Company.
10.7. No Right of Assignment. Neither a Participant nor any person
taking on behalf of a Participant may anticipate, assign or alienate (either at
law or in equity) any benefit provided under the Plan and the Committee shall
not recognize any such anticipation, assignment or alienation. Furthermore, a
benefit under the Plan is not subject to attachment, garnishment, levy,
execution or other legal or equitable process.
10.8. Service of Process. The Secretary of the Company shall be an
agent for service of process in matters relating to this Plan.
10.9. Headings. The headings and subheadings in this Plan are inserted
for convenience and reference only and are not to be used in construing this
instrument or any provision hereof.
10.10. Gender and Number. Where the context so requires, words in the
masculine gender shall include the feminine and neuter genders, the plural shall
include the singular, and the singular shall include the plural.
10.11. Severance Pay Plan. Notwithstanding anything herein to the
contrary, the Plan shall be interpreted as, and is intended to qualify as, a
severance pay plan, pursuant to 29 CFR Section 2510.3-2(b), and therefore does
not constitute an Employee Pension Benefit Plan pursuant to Section 3(2) of the
Employee Retirement Income Security Act of 1974. In this regard, the following
additional provisions shall apply with respect to all benefits hereunder:
10.11.1. the benefits hereunder are not contingent, directly
or indirectly, upon a Participant's retirement;
10.11.2. all benefits due hereunder shall be fully paid or
provided within the applicable twenty-four (24) month or thirty (30) month
period after the Participant's Termination Date.
10.12. Validity. The invalidity or unenforceability of any provision of
this Plan shall not affect the validity or enforceability of any other provision
of this Plan, which shall remain in full force and effect.
13
<PAGE>
XI. CLAIMS PROCEDURES
---------------------
11.1. Except for determination and selections specifically reserved to
the Board pursuant to the Plan, the Committee shall make all determinations as
to a Participant's right to a benefit pursuant to the Plan. The Committee,
within ninety (90) days after receipt of Participant's written notice of
objection to benefits payable or claim for benefits, shall render a written
decision on the objection to the benefits payable or the claim for benefits. If
the objection to benefits payable or the claim for benefits is denied, either in
whole or in part, the decision shall include:
(i) The specific reason or reasons for the denial;
(ii) An indication of the specific Plan provisions on which
the denial is based;
(iii) A description of any additional material or information
necessary for the claimant to perfect the claim and any
explanation of why such material or information is
necessary; and
(iv) An explanation of the Plan's appeal procedure,
indicating that the appeal of the adverse determination
must be in writing addressed to the Committee, and
received within sixty (60) days after the receipt by
the claimant of the Committee's written denial of
benefits. Failure to perfect an appeal within the sixty
(60)-day period shall make the decision conclusive.
11.2. If the claimant should appeal to the Committee, he or she, or his
or her duly authorized representative, must do so in writing and may submit, in
writing, whatever issues and comments he or she, or his or her duly authorized
representative, feel are pertinent. The claimant, or his or her duly authorized
representative, may review pertinent Plan documents. The Committee shall render
a written decision on the question of the benefits payable, or the claim for
benefits, setting forth the specific reasons for its decision including a
reference to the Plan's provisions within sixty (60) days after receipt of the
request for reconsideration, unless special circumstances (such as a hearing)
would make the rendering of a decision within the sixty (60) day limit
unfeasible, but in no event shall the Committee render a decision respecting a
denial for a claim for benefits later than one hundred twenty (120) days after
its receipt of a request for a reconsideration.
11.3. Any denial by the Committee of a Participant's claim for benefits
under the Plan shall be stated in writing and such notice shall be written in a
manner that may be understood without legal or actuarial counsel.
14
<PAGE>
The foregoing First Restated and Amended Executive Retention Plan was
approved by the Board on December 7, 1998.
PUBLIC SERVICE COMPANY OF NEW MEXICO
By_________________________________________
BENJAMIN F. MONTOYA
President and Chief Executive Officer
24951
15
ARTHUR
ANDERSEN
-------------------------------
April 30, 1999 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, 333-03289, 333-03303, and
333-53367 its Form 10-Q for the quarter ended March 31, 1999, which includes our
report dated April 30, 1999, 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,
/s/ Arthur Andersen LLP
<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 March 31, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000081023
<NAME> Public Service Company of New Mexico
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<CURRENCY> US DOLLARS
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
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<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,536,266
<COMMON> 206,396
<CAPITAL-SURPLUS-PAID-IN> 460,827
<RETAINED-EARNINGS> 204,389
<TOTAL-COMMON-STOCKHOLDERS-EQ> 871,612
0
12,800
<LONG-TERM-DEBT-NET> 111,000
<SHORT-TERM-NOTES> 0
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0
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<OTHER-ITEMS-CAPITAL-AND-LIAB> 643,222
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<GROSS-OPERATING-REVENUE> 272,818
<INCOME-TAX-EXPENSE> 15,880
<OTHER-OPERATING-EXPENSES> 228,187
<TOTAL-OPERATING-EXPENSES> 237,750
<OPERATING-INCOME-LOSS> 35,068
<OTHER-INCOME-NET> 9,640
<INCOME-BEFORE-INTEREST-EXPEN> 41,167
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<NET-INCOME> 26,671
147
<EARNINGS-AVAILABLE-FOR-COMM> 26,524
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</TABLE>
