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 February 28, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to _____________________
Commission file number 1-3789
SOUTHWESTERN PUBLIC SERVICE COMPANY
(Exact name of registrant as specified in its charter)
New Mexico 75-0575400
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Tyler at Sixth, Amarillo, Texas 79101
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code (806) 378-2121
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 __
As of April 10, 1997, 40,917,908 shares of the Company's common stock
were outstanding.
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
FORM 10-Q
For the Quarter Ended February 28, 1997
TABLE OF CONTENTS
PART I. Financial Information
(Unaudited, except Condensed Consolidated Balance Sheet at
August 31, 1996)
Condensed Consolidated Balance Sheets at February 28, 1997 and
August 31, 1996
Condensed Consolidated Statements of Earnings for the three, six and
twelve months ended February 28, 1997 and February 29, 1996
Condensed Consolidated Statements of Cash Flows for the six and twelve
months ended February 28, 1997 and February 29, 1996
Notes to Condensed Consolidated Financial Statements
Independent Accountants' Report
Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. Other Information
Signatures
Exhibit 12. Statement of Computation of Ratio of Earnings
FORWARD LOOKING INFORMATION
Certain matters discussed in this 10-Q are "forward-looking statements"
intended to qualify for the safe harbors from liability established by the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements can generally be identified as such because the context of the
statement will include words such as the Company "believes," "anticipates,"
"expects" or words of similar import. Similarly, statements that describe the
Company's future plans, objectives or goals are also forward-looking statements.
Such statements address future events and conditions concerning capital
expenditures, earnings, litigation, rate and other regulatory matters, the
pending Merger, liquidity and capital resources, and accounting matters. Actual
results in each case could differ materially from those currently anticipated in
such statements, by reason of factors such as electric utility restructuring,
including the ongoing state and federal activities; future economic conditions;
developments in the legislative, regulatory and competitive markets in which the
Company operates; time and impact of pending merger; and other circumstances
affecting anticipated revenues and costs.
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SOUTHWESTERN PUBLIC SERVICE COMPANY
Condensed Consolidated Balance Sheets
Assets
<S> <C> <C>
February 28, August 31,
1997 1996
(Unaudited)
(In Thousands)
Utility plant:
Utility plant in service ........................ $ 2,517,799 $ 2,484,025
Accumulated depreciation ........................ (937,888) (911,422)
Net plant in service ................... 1,579,911 1,572,603
Construction work in progress ................... 97,202 49,143
Net utility plant ...................... 1,677,113 1,621,746
Nonutility property and investments ...................... 58,273 71,855
Current assets:
Cash and temporary investments .................. 28,835 31,223
Accounts receivable, net ........................ 73,484 77,959
Undercollected fuel and purchased power cost, net 15,697 7,193
Accrual for unbilled revenues ................... 13,091 23,152
Materials and supplies, at average cost ......... 20,464 21,513
Prepayments and other current assets ............ 4,671 7,452
Total current assets ................... 156,242 168,492
Deferred debits .......................................... 173,280 135,724
Total assets ........................... $ 2,064,908 $ 1,997,817
Continued . . .
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SOUTHWESTERN PUBLIC SERVICE COMPANY
Condensed Consolidated Balance Sheets
Capitalization and Liabilities
<S> <C> <C>
February 28, August 31,
1997 1996
(Unaudited)
(In Thousands)
Capitalization:
Common stock, $1 par value, authorized - 100,000,000 shares;
issued and outstanding - 40,917,908 shares ............ $ 40,918 $ 40,918
Premium on capital stock ....................................... 307,484 307,484
Retained earnings .............................................. 370,909 386,717
Total common shareholders' equity ................... 719,311 735,119
SPS Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust holding solely Subordinated Debentures of SPS 100,000 -
Long-term debt ................................................. 620,278 622,931
Total capitalization ................................ 1,439,589 1,358,050
Current liabilities:
Short-term debt ................................................ 89,682 69,624
Current maturities of long-term debt ........................... 229 15,176
Accounts payable ............................................... 22,435 15,979
Interest accrued ............................................... 11,257 10,962
Fuel and purchased power expense accrued ....................... 52,326 46,396
Taxes accrued .................................................. 8,542 32,486
Dividends payable on common stock .............................. 22,505 22,505
Other current liabilities ...................................... 38,480 43,441
Total current liabilities ........................... 245,456 256,569
Deferred credits:
Deferred income taxes .......................................... 363,419 365,911
Unamortized investment tax credits ............................. 5,677 5,803
Other .......................................................... 10,767 11,484
Total deferred credits .............................. 379,863 383,198
Total capitalization and liabilities ................ $2,064,908 $1,997,817
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SOUTHWESTERN PUBLIC SERVICE COMPANY
Condensed Consolidated Statements of Earnings
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended Six Months Ended Twelve Months Ended
2-28-97 2-29-96 2-28-97 2-29-96 2-28-97 2-29-96
(In Thousands, Except Per Share Amounts)
Operating revenues ................................ $ 226,155 $ 203,785 $ 440,536 $ 404,742 $ 935,190 $ 869,760
Operating expenses:
Operation:
Fuel ............................ 114,371 94,658 214,837 184,108 447,752 386,511
Purchased power ................. 5,548 3,188 8,838 4,626 22,222 7,536
Other ........................... 26,985 27,136 54,213 54,071 111,397 110,126
Maintenance .............................. 7,283 7,809 15,807 15,043 33,298 28,137
Depreciation and amortization ............ 16,598 16,459 33,699 32,847 66,300 63,337
Taxes other than property and
income taxes .................... 5,296 5,131 10,877 10,408 21,577 19,864
Property taxes ........................... 6,031 5,919 11,832 11,597 23,706 23,745
Income taxes (note 2) .................... 10,775 12,184 22,454 25,881 56,454 68,005
Total operating expenses 192,887 172,484 372,557 338,581 782,706 707,261
Operating income .................................. 33,268 31,301 67,979 66,161 152,484 162,499
Other income (expense), net:
Income taxes (note 2) .................... 5,307 (708) 4,696 (1,293) 572 (3,850)
Other, net ............................... (17,221) (425) (16,256) (544) (5,602) 6,923
Total other income
(expense), net (11,914) (1,133) (11,560) (1,837) (5,030) 3,073
Interest charges .................................. 11,659 12,087 24,383 23,075 50,894 44,692
Distributions on SPS Obligated
Mandatorily Redeemable
Preferred Securities of
Subsidiary Trust ................................ 1,963 - 2,835 - 2,835 -
Net earnings ...................................... 7,732 18,081 29,201 41,249 93,725 120,880
Dividends and premiums on
cumulative preferred stock - 1,275 - 2,494 - 4,933
Earnings applicable to
common stock ............................. $ 7,732 $ 16,806 $ 29,201 $ 38,755 $ 93,725 $ 115,947
Earnings per common share* ...........................$ 0.19 $ 0.41 $ 0.71 $ 0.95 $ 2.29 $ 2.83
Weighted average shares
outstanding .............................. 40,918 40,918 40,918 40,918 40,918 40,918
Dividends declared per
common share ............................. $ 0.55 $ 0.55 $ 1.10 $ 1.10 $ 2.20 $ 2.20
( ) Denotes deduction.
*Based on weighted average shares outstanding.
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SOUTHWESTERN PUBLIC SERVICE COMPANY
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<S> <C> <C> <C> <C>
Six Months Ended Twelve Months Ended
2-28-97 2-29-96 2-28-97 2-29-96
(In Thousands)
Operating Activities:
Cash received from customers ............................. $ 446,061 $ 424,689 $ 907,488 $ 848,235
Cash paid to suppliers and employees ..................... (305,960) (270,355) (599,727) (522,011)
Interest paid ..................................... ...... (27,090) (23,510) (51,706) (45,393)
Income taxes paid ........................................ (31,607) (42,344) (44,688) (59,550)
Taxes other than income taxes paid ....................... (31,631) (30,902) (46,329) (41,655)
Other operating cash receipts and payments, net .......... (17,993) (139) (10,611) 6,742
Cash provided by operating activities .......... 31,780 57,439 154,427 186,368
Investing Activities:
Construction expenditures ................................ (89,190) (64,401) (136,775) (114,496)
Nonutility property and investments ...................... (2,426) (2,951) (1,243) (19,530)
Acquisitions ............................................. - (29,200) - (29,200)
Net cash used in investing activities .......... (91,616) (96,552) (138,018) (163,226)
Financing Activities:
Issuance of long-term debt ............................... 82,300 - 142,300 6,204
Issuance of SPS Obligated Mandatorily Redeemable
Preferred Securities ................................... 100,000 - 100,000 -
Retirement of long-term debt ............................. (99,900) (1,610) (102,735) (2,021)
Change in short-term debt ................................ 20,058 138,834 (49,152) 138,834
Redemption of cumulative preferred stock ................ - (71,572) (3,862) (71,572)
Dividends paid (common and preferred) .................... (45,010) (47,504) (90,020) (94,953)
Net cash provided by (used in) financing activities 57,448 18,148 (3,469) (23,508)
Net Increase (Decrease) in Cash and Temporary Investments ......... (2,388) (20,965) 12,940 (366)
Cash and Temporary Investments at Beginning of Period ............. 31,223 36,860 15,895 16,261
Cash and Temporary Investments at End of Period ................... $ 28,835 $ 15,895 $ 28,835 $ 15,895
Reconciliation of Net Earnings to Net Cash Provided
by Operating Activities:
Net earnings ............................................ $ 29,201 $ 41,249 $ 93,725 $ 120,880
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization ........................... 33,699 32,847 66,300 63,337
Deferred income taxes and investment tax credits ........ 1,173 7,983 9,363 12,005
Allowance for equity funds used during construction ..... (184) (60) (184) (245)
Write-off of BCH Energy Limited Partnership ............ 16,008 - 16,008 -
Cash flows impacted by changes in:
Accounts receivable .................................. 4,475 14,261 (14,483) (3,248)
Accrual for unbilled revenues ........................ 10,061 11,467 4,068 (14,661)
Materials and supplies ............................... 1,049 854 329 (124)
Accounts payable ..................................... 6,456 (2,944) 13,192 1,025
Fuel and purchased power expense accrued ............. (15,657) (8,547) (878) 5,338
Taxes accrued ........................................ (23,944) (32,050) 835 2,339
Undercollected fuel and purchased power cost, net .... (8,504) (5,292) (16,374) (2,686)
Other, net ........................................... (22,053) (2,329) (17,474) 2,408
Net cash provided by operating activities ............ $ 31,780 $ 57,439 $ 154,427 $ 186,368
Noncash transaction .................................. $ 21,587 - $ 21,587 -
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
SOUTHWESTERN PUBLIC SERVICE COMPANY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Interim periods. The results of operations for the interim periods are not
necessarily an indication of the expected results for the fiscal year due to the
seasonal nature of Southwestern Public Service Company's (the Company) business.
The unaudited condensed consolidated financial statements included herein were
prepared from the books of the Company in accordance with generally accepted
accounting principles and reflect all adjustments (none of which are other than
normal recurring adjustments) which are, in the opinion of management, necessary
to provide a fair statement of the results of operations and financial position
for the interim periods. Such financial statements generally conform to the
presentation reflected in the Company's Annual Report to Stockholders. The
current interim period reported herein is included in the fiscal year subject to
independent audit at the end of the year.
(2) Income taxes. The components of income tax expense (benefit) are as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended Six Months Ended Twelve Months Ended
2-28-97 2-29-96 2-28-97 2-29-96 2-28-97 2-29-96
(In Thousands)
Taxes on operating income:
Federal-current ........ $ 7,525 $ 6,416 $ 15,522 $ 16,466 $ 39,247 $ 52,569
Federal-deferred ....... 3,027 5,012 6,694 8,299 15,692 13,273
Investment tax credits . (63) (63) (125) (125) (250) (250)
State-current .......... 286 819 363 1,241 1,765 2,413
10,775 12,184 22,454 25,881 56,454 68,005
Taxes on other income:
Federal-current ........ (72) 737 693 1,467 5,469 4,838
Federal-deferred ....... (5,236) (40) (5,396) (191) (6,079) (1,018)
State-current .......... 1 11 7 17 38 30
(5,307) 708 (4,696) 1,293 (572) 3,850
Total income taxes.. $ 5,468 $ 12,892 $ 17,758 $ 27,174 $ 55,882 $ 71,855
</TABLE>
(3) Merger with Public Service Company of Colorado (PSCo). The Company and
Denver-based PSCo entered into a definitive merger agreement (the Merger) on
August 22, 1995, to form a registered public utility holding company named New
Century Energies, Inc., which will be the parent company for the Company and
PSCo. The transaction is subject to various conditions, including receipt of the
approval of or the taking of other action by the Securities and Exchange
Commission (SEC), the Federal Trade Commission, the Department of Justice, the
Nuclear Regulatory Commission, the Federal Energy Regulatory Commission (FERC),
and the state public utility commissions in Texas, Colorado, New Mexico,
Wyoming, and Kansas. (See GENERAL. Merger Agreement in the Company's 1996 Annual
Report on Form 10-K.) All regulatory approvals have been received except for
approval by the SEC, although the Texas order is conditional on further review
after all other approvals have been received.
Under the various state regulatory approvals, the Company is required
to provide credits to retail customers over five years for one-half of the
measured non-fuel operation and maintenance expense savings associated with the
business combination. The Company will provide a guaranteed minimum annual
savings of $3,000,000 in Texas, $1,200,000 in New Mexico, $100,000 in Oklahoma
and $10,000 in Kansas.
The Merger, with a targeted completion date in the spring of 1997, is
conditioned on qualifying as a tax-free reorganization and being accounted for
as a pooling of interests.
(4) Issuance of securities. The Company redeemed in September 1996, the
$25,000,000 6-1/2% pollution control revenue bonds (PCRBs) due 2004 and the
$32,300,000 6-5/8% PCRBs due 2009 and replaced these series in September 1996,
with $57,300,000 5-3/4% PCRBs due 2016.
In October 1996, the Company called its $25,000,000 principal amount of
13-1/2% PCRBs and issued $25,000,000 of new variable rate PCRBs. In connection
with the new issuance of variable rate PCRBs, the Company has an interest rate
swap agreement, which, in effect, fixes the interest rate on a $25,000,000
notional amount at 6.435%. Amounts paid or received under this agreement are
accrued as interest rates change and are recognized over the life of the
agreement as an adjustment to interest expense. The Company is exposed to
interest rate risk in the event of nonperformance by the counterparty; however,
the Company does not anticipate such nonperformance.
In October 1996, Southwestern Public Service Capital I, a wholly owned
trust, issued in a public offering $100,000,000 of its 7.85% Trust Preferred
Securities, Series A. The sole asset of the trust is $103,000,000 principal
amount of the Company's 7.85% Deferrable Interest Subordinated Debentures,
Series A due September 1, 2036. The funds from this financing were used to
reduce short-term debt.
(5) Rate and regulatory matters. The Company may effect changes in its rates
only as approved by the regulatory authorities governing its jurisdictions.
Amounts ultimately realized will differ from amounts approved because
kilowatt-hour sales and other factors will vary from those used in rate
proceedings.
A Public Utility Commission of Texas (PUCT) substantive rule requires
periodic examination of the Company's fuel and purchased power costs, the
efficiency of the use of such fuel and purchased power, fuel acquisition and
management policies and purchase power commitments. On May 1, 1995, the Company
filed with the PUCT a petition for a fuel reconciliation for the months of
January 1992 through December 1994. A hearing was held in September 1995, and in
January 1996 an order was issued which required the Company to make a $3,900,000
fuel refund consisting of $2,100,000 of overrecovered fuel costs and $1,800,000
of disallowed fuel costs for the period. This refund was made in April 1996.
Additionally, the order required the Company to flow through to customers 100%
of margins from non-firm off-system opportunity sales as of January 1995. Prior
PUCT rulings had allowed the Company to retain 25% of these margins. The 100%
flow through is required by PUCT rules, absent rule waiver. The Company filed a
motion for rehearing on January 25, 1996. The PUCT issued an order on March 14,
1996, denying rehearing on the fuel disallowance (which was adjusted to
$1,900,000), and ordered the flow through of 100% of the margin effective with
the first billing cycle after the date of the order. On May 24, 1996, the
Company filed an appeal in the Travis County District Court on the PUCT's
decision with respect to the $1,900,000 of disallowed fuel costs in which the
hearing of merits was held on November 1, 1996. The District Court upheld the
PUCT's decision on the disallowed fuel costs. The District Court decision has
been appealed to the Texas Court of Appeals which has not yet ruled in the
matter. The ultimate outcome of this matter will not significantly affect
consolidated financial results. Currently the Company has approximately
$16,000,000 in underrecovered fuel costs and is surcharging customers for some
of the underrecovery. The Company anticipates requesting a continued surcharge
to collect the remaining amount of underrecovered fuel costs.
On December 19, 1989, the FERC issued its final order regarding the
1985 rate case. The Company appealed certain portions of the order that related
to recognition in rates of the reduction of the federal income tax rate from 46%
to 34%. The United States Court of Appeals for the District of Columbia Circuit
remanded the case, directing the FERC to reconsider the Company's claim of an
offsetting cost and limiting the FERC's actions. The FERC issued its Order on
Remand in July 1992, required filings were made and a hearing was completed in
February 1994. In October 1994, the administrative law judge issued a favorable
initial decision that, if approved by the FERC, would result in a substantial
recovery by the Company. Negotiated settlements with the Company's partial
requirements customers and TNP were approved by the FERC in July 1993 and
September 1993, respectively, and the Company received approximately $2,800,000,
including interest. In a settlement with the Company's New Mexico cooperative
customers the Company received approximately $7,000,000, including interest. The
FERC approved this settlement in July 1995. Resolutions of these matters with
the remaining wholesale customers, Golden Spread member cooperatives and
Lyntegar Electric Cooperative, have not been reached. The Company cannot
reasonably estimate the remaining amount recoverable from these proceedings;
however, a favorable resolution could materially improve consolidated earnings
in the year in which it is resolved.
The Company was named as a defendant in a case entitled Thunder Basin
Coal Co. v. Southwestern Public Service Co., No. 93-CV-304B (D. Wyo.). (See ITEM
3. LEGAL PROCEEDINGS in the Company's 1996 Annual Report on Form 10-K.) On
November 1, 1994, the jury returned a verdict in favor of Thunder Basin and
awarded them damages of approximately $18,800,000. The Company appealed the
judgement to the Tenth Circuit Court of Appeals and on January 7, 1997, that
Court found in favor of Thunder Basin and upheld the $18,800,000 judgement. The
Company filed a motion for rehearing which was denied. In February 1997 the
Company accrued the judgement plus interest and court costs and paid the amount
in April 1997. A noncash transaction occurred during the three-month period
resulting from the accrual of a fuel payable for the amount of the judgement
plus interest and deferring that charge to a deferred asset.
Management believes that the payment is recoverable from ratepayers,
although any such recovery would be subject to review by various regulatory
agencies. On September 17, 1996, the FERC issued an order granting the Company
conditional approval to collect the judgement from FERC jurisdictional wholesale
customers. Therefore, management believes that the ultimate resolution will not
have a material adverse effect on the Company's consolidated financial
statements.
(6) Other events. As discussed in the Company's 1996 Annual Report on Form 10-K
under BUSINESS. Nonutility Businesses, Quixx Corporation, a wholly owned
subsidiary of the Company, holds a 49% limited partnership interest in BCH
Energy Limited Partnership which owns a waste-to-energy cogeneration facility
located near Fayetteville, North Carolina. Limited commercial operation of the
BCH project began in June 1996; however, the facility did not achieve the
expected performance level. An effort was made to restructure the project but it
was not possible to achieve the required improvements on economically viable
terms; therefore, in December 1996, Quixx wrote off its investment of
approximately $16,000,000 (25 cents per common share, after tax) in this
project.
Quixx also has an equity investment of approximately $13,000,000, which
equals one-third ownership interest, in the Carolina Energy Project which is
similar to the BCH project, but with design modifications. Construction was
originally scheduled to be completed later this year but has been halted pending
an independent analysis of the project's viability. The Company is unable to
predict at this time if the project will be completed.
(7) General. See note (1) of Notes to Consolidated Financial Statements in the
Company's 1996 Annual Report on Form 10-K for a summary of the Company's
significant accounting policies.
<PAGE>
Independent Accountant's Report
Southwestern Public Service Company:
We have reviewed the accompanying condensed consolidated balance sheet of
Southwestern Public Service Company and subsidiaries as of February 28, 1997,
and the related condensed consolidated statements of earnings for the
three-month, six-month and twelve-month periods ended February 28, 1997, and
February 29, 1996, and cash flows for the six-month and twelve-month periods
ended February 28, 1997 and February 29, 1996. 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 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 such condensed consolidated financial statements 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 and statement of capitalization of
Southwestern Public Service Company and subsidiaries as of August 31, 1996, and
the related consolidated statements of income, common shareholders' equity, and
cash flows for the year then ended (not presented herein); and in our report
dated October 10, 1996, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of August 31, 1996, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
Deloitte & Touche LLP
April 11, 1997
Dallas, Texas
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Operating Revenues and Kilowatt-Hour Sales
Substantially all of the Company's operating revenues result
from the sale of electric energy. The principal factors determining revenues are
the amount and price per unit of energy sold. The following table describes the
principal components of changes in revenues.
<TABLE>
<CAPTION>
Increase (Decrease) From Corresponding Prior Period
<S> <C> <C> <C>
Three Months Six Months Twelve Months
Ended Ended Ended
2-28-97 2-28-97 2-28-97
(Dollars In Thousands)
Estimated effect on revenues of variations in:
Kilowatt-hour (kwh) sales* ................... $ 11,768 $ 13,772 $ 29,841
Rates ........................................ (2,163) (1,559) (9,558)
Fuel and purchased power cost recovery ....... 14,197 22,695 43,726
Subtotal ............................ 23,802 34,908 64,009
Non-firm kwh sales ........................... (1,432) 886 1,421
Total revenue increase .............. $ 22,370 $ 35,794 $ 65,430
Increase in kwh sales* (in millions) .................. 272 324 734
Increase (decrease) in non-firm kwh sales (in millions) (129) 3 (174)
*Comprised of retail and wholesale excluding economy and interruptible (non-firm) wholesale kwh sales.
</TABLE>
Variations in Kwh Sales. The revenue increases in the three-, six- and
twelve-month periods are attributable to increased sales to all classes of
customers. These sales increased due primarily to increased economic activity
throughout the region. Contributing to the increase for the twelve-month period
was the dry, warm weather last summer that favorably impacted air conditioning
and agriculture-related sales. Additionally the dry colder weather this fall and
winter contributed to sales in the three- and six-month periods with increases
to the retail and agriculture sectors.
Variations in Rates. The decrease for the twelve-month period is
primarily the result of last year's settlement of the 1985 Federal Energy
Regulatory Commission (FERC) rate case with the Company's New Mexico wholesale
REC customers. This settlement contributed increased revenues in the prior
period of approximately $4.0 million (and interest of $3.0 million that is
included in other income). Interruptible rates available to certain classes of
retail customers were approved and implemented in Texas and New Mexico in 1996
which acted to lower related revenues for all periods. The Company sought
approval to put into effect these new rates in compliance with settlement
agreements in the 1993 and 1994 rate cases in Texas and New Mexico,
respectively, and to respond to generation resource capacity needs.
Variations in Fuel and Purchased Power Cost Recovery. Revenue increases
for all three periods are due to increased natural gas prices and coal costs.
Variations in Non-Firm Kwh Sales. The amount of revenues arising from
non-firm sales is dependent, in large part, upon the amount and cost of power
available to the Company for sale, the demand for power, the availability of
competing hydroelectric power from the Northwest and generation from major
plants in the West. The decrease for the quarter is due to the available low
cost power throughout the region. The increases for the six- and twelve-month
periods are due primarily to increased fuel charges included in the non-firm kwh
sales. Additionally, interruptible sales to Public Service Company of New Mexico
increased for all periods.
Operating Expenses and Non-Operating Items
Fuel and purchased power expense comprised 62.2%, 60.0% and 60.0% of
total operating expenses for the three, six and twelve months ended February 28,
1997, respectively. When compared to the corresponding periods last year, these
expenses increased $22.1 million or 22.6%, $34.9 million or 18.5% and $75.9
million or 19.3%, respectively. Fuel expense (excluding purchased power
expense), per net kwh generated, increased from 1.94 to 2.30 cents, from 1.88 to
2.16 cents, and from 1.82 to 2.11 cents for the respective three-, six- and
twelve-month periods due to higher natural gas and coal costs.
Total operating expenses, excluding fuel and purchased power decreased
$1.7 million or 2.2%, $1.0 million or 0.6%, and $0.5 million or 0.2% for the
respective three-, six- and twelve-month periods. These decreases resulted
primarily from lower income tax expense as a result of lower taxable income.
During the twelve-month period this decrease was mitigated by increased
maintenance expense as a result of the 18-month maintenance cycle and additional
cooling tower repairs.
Other Income (Expense). A decline in "other income (expense)" in all
periods is due primarily to a write-off of the Quixx investment in the BCH
limited partnership and related receivables and expenses of approximately $16
million or 25 cents per share. The BCH project is a waste-to-energy cogeneration
project in North Carolina. The project experienced problems primarily related to
deficiencies in the waste-fuel handling system. For the twelve-month period the
BCH write-off was partially offset by the sale of a portion of underground water
rights held by Quixx. Additionally other income was favorably impacted in the
prior twelve-month period by the approximate $3.0 million of interest arising
from the rate case settlement with New Mexico wholesale customers.
Earnings
Current earnings applicable to common stock were negatively affected by
the one-time write-off of the Quixx investment in the BCH limited partnership
and related receivables and expenses of approximately $16 million or 25 cents
per share. During the twelve-month period the BCH write-off was partially offset
by the sale of a portion of underground water rights held by Quixx, representing
19 cents per share. Additionally, twelve-month earnings were impacted by
increased maintenance and interest expense. Maintenance expense was higher due
to the 18-month maintenance cycle and additional cooling tower maintenance.
Interest expense rose due to increased long-term and short-term debt. These
higher levels of debt were caused by the retirement of preferred stock, the
acquisition of electric properties from Texas New Mexico Power Company and
increased construction expenditures. During the prior 12-month period earnings
were favorably affected by two non-recurring items: an accounting adjustment to
delivered-not-billed revenues (13 cents per share) and settlement with New
Mexico customers of a 1985 wholesale rate case (11 cents per share). The
wholesale settlement included $3.0 million of interest that is reflected in
other income.
SPS also notes that Quixx has an equity investment of $13.2 million,
representing approximately 21 cents per SPS common share, after tax, in the
Carolina Energy Project, another waste-to-energy facility, which is a similar
project to BCH, but with design modifications. Construction at the Carolina
Energy Project, originally scheduled to be completed later this year, has been
halted pending an independent analysis of the projects viability. Quixx's
investment equals one-third ownership interest.
Assuming normal weather conditions, 1997 operating income is expected
to remain relatively flat, but net earnings for 1997 will be negatively impacted
by increased merger-related and business integration expenses as well as the BCH
write-off. A resolution of the 1985 FERC rate case with Texas wholesale REC
customers, by settlement or otherwise, would favorably affect income and
earnings in the year received.
LIQUIDITY AND CAPITAL RESOURCES
The Company's demand for capital is primarily related to the
construction of utility plant and equipment. Cash construction expenditures
excluding AFUDC for the three, six and twelve months ended February 28, 1997,
were $34.7 million, $89.2 million and $136.8 million, respectively. Also in
fiscal 1996, the Company received regulatory approval to make investments in
Quixx of up to $15 million each year beginning in fiscal 1996 and continuing for
five years. Quixx's investment in independent power projects is dependent upon
suitable investment opportunities and the availability of capital. The Company
cannot accurately forecast the portion of internally generated funds to be used
for capital expenditures, but expects that it will be approximately 40% in
fiscal 1997. To the extent the capital required in 1997 is not supplied by
internally generated funds, the Company expects to obtain such capital from
short-term borrowing or from the sale of long-term debt, preferred stock and/or
common stock. The Company's estimates of capital needs, in particular those
related to construction and the generation of internal funds are subject to
review and revision, and may vary substantially from the foregoing especially in
a more competitive environment. Additionally the completion of the merger could
significantly impact these estimates. Due to the merger, Standard & Poor's is
reviewing the Company's rated debt for possible downgrade.
The Company also has effective a shelf registration under which $220
million of debt securities and/or preferred stock are available for issuance.
OTHER MATTERS
Electric utilities have historically operated in a highly regulated
environment in which they have an obligation to provide electric service to
their customers in return for an exclusive franchise within their service
territory with an opportunity to earn a regulated rate of return. This
regulatory environment is changing. The generation sector has experienced
competition from nonutility power producers and the FERC is requiring utilities,
including the Company, to provide wholesale transmission service to others and
may order electric utilities to enlarge their transmission systems to facilitate
transmission services without impairing reliability. On July 9, 1996, the
Company filed its open access transmission tariff in compliance with FERC Order
No. 888. (See GENERAL. Competition. in the Company's 1996 Annual Report on Form
10-K.) State regulatory authorities are in the process of changing utility
regulations in response to federal and state statutory changes and evolving
markets. All of the Company's jurisdictions continue to evaluate utility
regulations with respect to competition, and legislative proposals to effect
retail wheeling are expected to be introduced in 1997. The Company is unable to
predict what financial impact or effect the adoption of these proposals would
have on its operations. In part in response to these changing conditions the
Company has entered into a definitive merger agreement with Public Service
Company of Colorado (the Merger). Consummation of the Merger is subject to
customary conditions including receiving regulatory authority approvals. The two
utilities are working toward a completion date in spring 1997. The foregoing
discussions of the Company's "Results of Operations" and "Liquidity and Capital
Resources" do not take into account any changes that could arise as a result of
the Merger.
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information.
The Company's ratio of earnings to fixed charges for the
twelve months ended February 28, 1997, was 3.61.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
12 Statement showing computations of ratio of earnings
for the twelve months ended February 28, 1997
15 Letter of Deloitte & Touche LLP regarding unaudited
condensed consolidated interim financial information
(b) Reports on Form 8-K:
Items reported - Item 5. Other Events
Financial Statements filed - None
Date of reports filed - February 7, 1997, reporting a
recorded charge related to the
write-off of the BCH project.
- February 24, 1997, reporting the
joint offer by PSCo and American
Electric Power to acquire Yorkshire
Electricity Group plc in the
United Kingdom.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SOUTHWESTERN PUBLIC SERVICE COMPANY
/s/ Doyle R. Bunch II
By
Doyle R. Bunch II
Executive Vice-President
Accounting and Corporate Development
DATE: April 10, 1997
SOUTHWESTERN PUBLIC SERVICE COMPANY
EXHIBIT 12. Statement of Computation of Ratio of Earnings
<TABLE>
<CAPTION>
Twelve Months Ended
February 28, 1997
(Dollars In Thousands)
Computation of Ratio of Earnings to Fixed Charges:
<S> <C>
Fixed charges, as defined:
Interest on long-term debt $ 49,138
Amortization of debt premium, discount and expense 660
Other interest 6,377
Estimated interest factor of rental charges 1,245
Total fixed charges $ 57,420
Earnings as defined:
Net earnings per statement of earnings $ 93,725
Fixed charges as shown 57,420
Income taxes:
Federal-current 44,716
Federal-deferred 9,613
State 1,803
Investment tax credits (250)
Earnings available for fixed charges $ 207,027
Ratio of earnings to fixed charges 3.61
</TABLE>
EXHIBIT 15.
Southwestern Public Service Company:
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited condensed
consolidated interim financial information of Southwestern Public Service
Company and subsidiaries for the periods ended February 28, 1997, and February
29, 1996, as indicated in our report dated April 11, 1997; because we did not
perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, is
incorporated by reference in Registration Statement Nos. 33-53171 and 333-05199
on Form S-3, Registration Statement No. 33-64951 on Form S-4, and Registration
Statement Nos. 33-27452 and 33-57869 on Form S-8.
We are also aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
Deloitte & Touche LLP
April 11, 1997
Dallas, Texas
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> FEB-28-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,677,113
<OTHER-PROPERTY-AND-INVEST> 58,273
<TOTAL-CURRENT-ASSETS> 156,242
<TOTAL-DEFERRED-CHARGES> 173,280
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,064,908
<COMMON> 40,918
<CAPITAL-SURPLUS-PAID-IN> 307,484
<RETAINED-EARNINGS> 370,909
<TOTAL-COMMON-STOCKHOLDERS-EQ> 719,311
0
0
<LONG-TERM-DEBT-NET> 620,278
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 89,682
<LONG-TERM-DEBT-CURRENT-PORT> 229
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 635,408
<TOT-CAPITALIZATION-AND-LIAB> 2,064,908
<GROSS-OPERATING-REVENUE> 440,536
<INCOME-TAX-EXPENSE> 22,454
<OTHER-OPERATING-EXPENSES> 350,103
<TOTAL-OPERATING-EXPENSES> 372,557
<OPERATING-INCOME-LOSS> 67,979
<OTHER-INCOME-NET> (11,560)
<INCOME-BEFORE-INTEREST-EXPEN> 56,419
<TOTAL-INTEREST-EXPENSE> 24,383
<NET-INCOME> 29,201
0
<EARNINGS-AVAILABLE-FOR-COMM> 29,201
<COMMON-STOCK-DIVIDENDS> 45,010
<TOTAL-INTEREST-ON-BONDS> 22,897
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