ML17297A649

Forwards Annual Financial Repts for 1980 for Az Public Svc Co,Southern CA Edison Co,El Paso Electric Co,Public Svc Co of Nm & Salt River Project

ML17297A649
Person / Time
Site:	Palo Verde
Issue date:	08/05/1981
From:	Van Brunt E ARIZONA PUBLIC SERVICE CO. (FORMERLY ARIZONA NUCLEAR
To:	Office of Nuclear Reactor Regulation
Shared Package
ML17297A650	List: ML17297A649 ML17297A651 ML17297A652 ML17297A653 ML17297A654 ML20037D501
References
ANPP-18567, NUDOCS 8108110400
Download: ML17297A649 (44)

Text

REGULAT INFORMATION DISTRIBUTION SYSTEM (RIDS)

ACCESSION NBR:8108110400.

DOC ~ DATE:: 81/08/05 NOT IZED NO

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FACILCSTN 50 528 Palo Ver de Nuclear Stationi Unit ii Arizona Publi STN 50 529 Palo Verde Nuclear Station~

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STN 50-530 Palo Ve'rde Nuclear Station~

Unit 3i Arizona Publi 05000530 AUTH~,NAME AUTHOR AFFIL'I ATION VAN BRUNTiK~,E, Arizona, Public Service Co ~

REC IP ~ IVAMKl RECIP IENT AFF ILLATION Office. of Nuc 1 ear Reactor Regul ati one Directors'UBJECT:

Forwards Annual Financial Repts" for 1980 for AZ Public" Svc Co,Southern CA. Edison CoiE1 Paso Electric CoiPublic SVc Co of NM 8 Salt River ProJect.

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'HOENIX'RIZONA85036 August 5, 1981 ANPP-18567 - JMA/NEM Director of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission l<ashington, D.C.

20555 Re:

Palo Verde Nuclear Generating Station

(PVNGS) Units 1, 2,.and 3

'ocket Nos. STN-50-528/529/530 AUG 10 1981~

Ihs, vaIar av~voas 17, COhVAISS IOII

Dear Sir:

Pursuant to 10 CFR Part 50.71(b), Arizona Public Ser'vice Company (APS) submits herewith two (2) copies of the 1980 financial statements for each of the Participants who jointly own the Palo Verde Nuclear Generating Station.

Very truly

ours, EEVBJr/NEM/av Attachments cc:

J. Kerrigan P. Hourihan A. C. Gehr E.

E.

Van Brunt, Jr.

APS Vice President, Nuclear Projects ANPP Project Director 8108110400 810805 PDR ADOCK 05000528 I

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D Public Service Company of New Mexico 1980 Annual Report

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PNM STATEMENT OF PRINCIPLE Public Service Company ofNew Mexico believes that each suc-cessive generation's quality of lifewillbe progressively more dependent upon the availability and reliabilityof electric and water service.

Consistent with this belief, we recognize our obligations to:

Our Customers An adequate and reliable source of clcctric and water service at the lowest reasonable cost; Our Shareholders A reasonable return on, with opti-mum security of, their investment; Our Employees An objective opportunity to progress and grow through productive and meaningful participation; and Our Future Generations A legacy of adequate electric and water service provided through free enterprise with environmental and economic compatibility.

To meet these obligations, we affirm a policy of:

Operating our Company in a respon-sible manner which reflect the highest corporate integrity; Providing open communications order to achieve a high level of t derstanding and acceptance of o purpose and endeavors; Sharing our tcchnical and admin istrative skills with all levels of government to assist in assuring best decisions arc made; and Promoting, supporting and parti pating in wortlavhile communit activities and devclopmcnt.

J.D. Geist, President The annual meeting ofstockholders is scheduled to bc held April28, 1981. A proxy form and notice of the annual meeting willbe mailed to all stockholders on March 16, 1981.

For further information and details pertaining to the information pro-vided in this rcport, contact D.E.

Peckham, Secretary, Public Service Company of New Mexico, Alvarado Square, Albuquerque, New Mexico 87158.

Thc Common Stock of this Company is traded on thc Ncw York Stock Ex-cliange under thc symbol PNM.

This Annual Report and the financial statements contained herein are sub-mitted for the general inforntation of the stockholders of the Company and arc not intcndcd for use in con-nection with any sale or purchase of, or any offer or solicitation of offers to buy or sell, any securities of thc Company.

ANCIALHIGHLIGHTS 1980 1979

% Chan e

rating revenues rating expenses rating income earnings earnings applicable to common stock rn on average common equity rage number of common shares outstanding earnings per common sharc idends aid er common share 280,516,000 208,718,000 71,798,000 71,436,000 53,602,000 14 9%

15)933,000 3.36 2.04 244,370,000 184,554,000 59,816,000 54,803,000 42,607,000 13.6%

14,363,000 2.97 1.88 14.8 13.1 20.0 30.4 25.8 9.6 10.9 13.1 8.5 struction expenditures ss investment in utilit ro ert watt-hour sales ber ofelectric customers served at year cnd a e kWhr usa e

cr residential customer:

283,864,000 323,361,000 (12.2)

$ 1 477 744 000

$ 1 197 514 000 23.4 5,402,098,000 4,960,451,000 8.9 213,000 206,000 3.4 5 782 5 929 2.5 ber of employees ber ofcommon stockholders 2,598 34 436 2,311 12.4 31 160 10.5 BLE OF CONTENTS ident's Letter enues and Expenses 0 Earnings struction Program and nancing Requirements and Regulation tricOperations er Operations idiaries nce

'sion Operations er Operations inistration

.idiary Operations ctors and Officers parative Operating atls ties cted Financial Data ncial Statements lcmentary Information Changing Prices rterly Results Operations k/Dividend Data em Map Inside Ba 4

4 5

5 5

6 8

10 11 14 16 17 18 22 34 36 36 ck Cover

PRESIDENT'S LETTER Change. It has challenged man-kind's imagination for thousands of years. But today change is no longer a philosopher's puzzle, it is an essen-tial fact of business life. What makes cltange of such concern today is that so many events arc crowded into ever smaller bits of time, making prediction and planning both ex-traordinarily difficultas well as more important.

This compression forces business to organize itself in a way tltat allows it to respond quickly to its environ-ment and bc ready to innovate as circumstances dictate. Economic conditions are in a state of flux, ex-pectations of customers and employees are clnnging, technology and information systems are con-stantly evolving. Clearly, for business managers in the 1980s, our task will be to manage cltangc or even to be agents of that change.

Recently, the business press ltas been discussing a ncw social con-tract, "the reindustrialization of America." This concept calls for a change in direction of thc country' business in order to rcvitalizc it.

Have wc been going about thc coun-try's business wrong all these years?

Or is this just sloganccring?

I think a more precise statement of affairs would be tltat thc context in which wc do business is suffering from thc strain of rapid cliange. On top of that, business is growing in complexity at an almost geometric rate; markets grow, evolving toward a climax, then decline in much shorter time periods; financial in-struments gain or lose viability quickly, demanding constant in-dcpth research; public opinion ebbs and flows around us; and those business practices that worked so well in the past somehow no longer seem adequate. It is as though busi-ness is on a moving platform shoot-ing at moving targets.

These kaleidoscopic changes in thc corporate environment force us to reconsider how to pursue our businesses. Ifwe suspend for a mo-ment the moral tone some associate with thc concept of reindustrializa-tion, we scc an extraordinary oppor-tunity in history to rcindustrialize as our predecessors in business did more than a century ago. We must move in many new directions rapid-ly and decisively, seeking new opportunities for success.

This is precisely what PNM is do-ing. As we ltave discussed in other publications, PNM has shifted from using natural gas as a boiler fuel to coal during the past decade. In 1980, about 84 percent of our generation was from coal. Such a change is more titan a matter of fuels. It also demonstrates the strength and flex-ibilitof thc open market. We nude this conversion with no mandate or assistance from government. We chose this path because ofprice and supply signals from the market-place. Furthermore, this increased use of coal was achieved without abandoning cnvironmcntal concerns.

In fact, wc actually increased our conunitmcnt to environmental protection.

Icrause of this rapid growth, PNM become skilled at adapting to ingc. A case in point is our cur-t forecast indicating a slower rate conomic growth in Ncw Mexico

• ing thc near term than occurred hc late 1970s. Uncertainties rc-ding thc uranium nurket and hcr costs of energy along with ir Company's aggressive load nagemcnt program luve lowered growth projections. But this ise in the growth rate allows us to cuvcr, seeking new business op-tunitics. Further, we arc now cfining our plans for thc future erms of energy management and merely expansion to meet a ct on the growth curve.

Iorc specifically, the purchase of Juan Unit 4 from our partner at San Juan Plant, Tucson Electric vcr Company, willadd 236 MW

'NM's 1982 capacity. The Palo e Nuclear Generating Station provide us with 130 MWfrom i of its three units in 1983, 1984, 1986. These additions have al-cd us to reschedule our Pumped

. gc Project from 1985 to

0. Thc result is we willhave an quate rcscrve margin in gencra-capacity. Thus, we can take antagc of the opportunity and kct part of this capacity to West st utilitics. These contingency cr sales benefit both our ratc-ers and slurcholders.

hc significance of these power s goes beyond revenues. In ef-

, wc arc inventorying gcncrating icity, at today's costs, for future when thc cost of adding capacity bc significantly higher. This is gy nunagement.

Additionally, our changing busi-ness environment has lcd us to sell certain assets of Wcstcrn Coal Co.

to Utah International, Inc. Jointly owned by PNM and'Ibcson Electric Power Company, Western Coal Co.

sold its coal processing cquipmcnt for 825 million. Wc arc also current-ly pursuing thc acquisition of New Mexico Electric Service Company which is headquartcred in Ffobbs, New Mexico.

Beyond these events, your Com-pany is managing the changing en-vironment in more far-reaching ways. While tile utilitybusiness will remain our main concern, we are ag-gressively seeking ncw directions for PNM. These new business oppor-tunities willstrengthen PNM's finan-cial integrity while at thc same time provide areas ofgrowth for our many talented employees.

A more current goal we Iuve set for ourselves is to keep thc growth ofelectric rates equal to or below the rate of inflation. We recently filed for ncw revenue requirements under the Cost of Service Indexing format that proposed a rate increase tlut was significantly below the rate of inflation. This indicates a decline in thc real price of electricity. 'I'he decline is due, in large measure, to various programs wc luvc in place to reduce operating expenses and in-crease productivity.

The credit for these programs belongs to the employees of PNM.

Their enthusiasm, innovation and ag-gressive commitmcnt to increased cfficicncy, combined with the leader-ship and stability of our directors and officers, has made thc difference.

But it docs not end there.

Efficiency and productivity are necessary but not sufficient. Onc could, for instance, be very efficient at manufacturing buggywhips. We luve found tlut creative, innovative employees who consciously seek new opportunities for the Company are thc kcy to success in a world characterized by clunge.

As you meet part of PNM's managcmcnt team later in this report, you willread in more detail of some of the programs put in place to enhance your Company's perform-ance. For now, it is enough to say that the cumulative effect of these programs is tlut we are not only ful-fillingour mandate for service but we are also in a strong position to seize future opportunities that may arise.

J.D. Geist President G.A. Scltreiber Chairman of the Board

REVENUES AND EXPENSES Revenues for 1980 werc S280.5 million, up 14.8 percent over 1979 revenues of $244.4 million.The in-crease in revcnucs was due primarily to rate relief secured from the New Mexico Public Service Commission and the Federal Energy Regulatory Commission, power sales to the Department of Water and Power of the City of Los Angeles, and in-creased kilowatt-hour sales. Average residential rates increased 7.25 per-cent during 1980, demonstrating the beginning of an expected trend in which PNM's rates willincrease slower than the rate of inflation.

PNM generated revenues ofapprox-imately SIO millionfrom the sale of power not needed by New Mexico customers at this time to the City of Los Angeles. Kilowatt-hour sales increased 8.9 percent, from 4,960,451,000 kWhr to 5,402,098,000 kWhr.

In 1980, fuel and purchased power expenses and other operating and maintenance expenses increased by 12.5 percent, compared to a 29.5 percent increase in 1979. These operating economies were the result of careful management of cxpenscs while simultaneously maintaining system reliability.Thc Company's operating ratio declined from 55.1 percent in 1979 to 54.0 percent in 1980.

As a result of the necessary flinanc-ing for the Company's construction program, increased borrowing costs and higher levels ofshort-term bor-rowing, the interest on short-term debt incrtmcd from $4.3 million in 1979 to $ 12.3 millionin 1980. In-terest on long-term debt also grew in 1980 from $24.2 millionin 1979 to S29.0 million. Preferred dividends increased about S5.6 million in 1980.

1980 EARNINGS The Company's incrcascd earnings reflect operating economies resulting from cost control programs, a higher rate for allowance for funds used during construction, and increased operating revenues.

During 1980, PNM's nct earnings applicable to common stock grew from approximately S42.6 millionto

$53.6 million, while thc number of average shares of common stock outstanding increased from 14.4 million shares to 15.9 millionslnrcs.

Earnings pcr average common slnre for 1980 increased to $3.36 versus S2.97 in 1979. Return on average common equity was 14.9 percent compared to 13.6 percent in 1979.

CONSTRUCTION PROGRAM AND FINANCING REQUIREMENTS Increase in utilityplant in 1980 totaled approximately $280 million, compared to S317 millionin 1979.

To finance these additions, cxtcr-nal funding for 1980 included the sale of S50 millionof prcfcrrcd stock, S50 millionin privately placed first mortgage bonds, a S28 milliontake-down from the $45 millionprivately placed first mort-gage bonds issued in October 1979,

$ 58 million in draw-downs from pollution control trust accounts, and S 14 millionin common stock raised through PNM's special stock plans including dividend reinvcstmcnt and the employee stock purclnse plan.

Including an increase in short-term debt of $ 33 million, PNM's external financing for 1980 totaled approx-imately $233 million.

Additionally, the City of Farm-ington, Ncw Mexico issued, on be-half of the Company,

$26 million principal amount ofpollution con-trol rcvcnue bonds inJune 1980 to fund the costs ofpollution control equipmcnt for Units 4 and 5 at the Four Corners Generating Station.

Thc Company's five-year construc-tion budget for thc period 1981 to 1985 provides for thc expenditure of approximately S1,077 million, including allowance for funds used during construction of S161 million.

Included in this total amount are proposed cxpcnditurcs during the five-year period ofapproximately

$72 millionfor PNM's share of nuclear fuel for the Palo Verde Nuclear Generating Station. In addi-tion, the Company forecasts expen-ditures of S100 millionby its wholly-owncd subsidiaries, Paragon Resources, Inc. and Sunbelt Mining Company, Inc. Construction expen-ditures for the years 1981 and 1982 arc estimated at $372 millionand S325 million, rcspcctivcly, and werc approxinntcly $ 284 million in 1980.

External capital requirements for 1981 to 1985 are cstimatcd to bc ap-proximately $633 million, including approximately $316 millionfor 1981.

In order to meet 1981 requircmcn and reduce short-term debt, the Company proposes to sell approx imatcly $ 173 millionofcommon stock, S60 millionof first mortgal bonds, and $25 millionof prcfcrr stock, depending on market cond tions and other factors, and also utilize S120 millionof proceeds fr pollution control financings.

RATES AND REGULATI As an electric and water utility, operating in thc state of Ncw iWe~

ico, PNM is subject to the jurisdic tion of the New Mexico Public Se vice Commission (Commission).

i Many activities of the Company a regulated by the Conimission, in-cluding rates, quality of scrvicc, i; suance ofsecurities, and pcrmittii for generation and transmission construction. The Federal Energy',

Regulatory Commission (FERC) h:

jurisdiction over rates clnrgcd by~

PNiVI for electricity sold for resale and various accounting and repor ing procedures.

Since mid-1975, rates under tht jurisdiction of the Commission h:

been adjusted using Cost of Servi<

Indexing. This method was applit, to approximately 75 pcrccnt of, PNM's equity investmcnt in 1980 Indexing provides for recovery oJ 1

operating costs for gcncrating ant distributing electricity based on tl, most recent calendar year. As originally designed, rates under jurisdiction of thc Commission w adjusted quarterly when return oi avcragc common equity fell below'r exceeded a band of 13.5 pcrce to 14.5 pcrecnt. Today, adjustmcq are made annually when thc rctui,'n year-cnd common equity vari) from the allowed 15.5 percent.

On April 16, 1980, thc Commis sion issued an order approving a stipulation allowing an Sl I millio increase in retail rates. This incrc; was based on operating results fo thc calendar year 1979. This boos rates reflecte thc increased cost providing electric service as well certain changes made by the Cog mission in thc Cost of Service Ind calculation. In carly 1981, PNM fi an updated Cost of Service Index factor applicable for the year bast on 1980 operating results. The C pany anticipates tint thc 1981 fac

ll become cffcrtive, subject to re-td, on March I, 1981. The final ision willbc reached by June 1981.

Ibward thc end of 1980, PNM sieved settlement with four oplcmcntal wholesale power stomers and the FERC staff on four of the outstanding rate pro-

.dings with these customers. Thc tlcmcnt resulted in an increase of

,8 million in 1980 settlement rates er 1979 filed rates. This settlement i been approved by the FERC and l not include the 1980 rate cases i>ding for the City of Gallup, Ncw xiro. Hearings for the test year 80 Gallup rase are scheduled to

-~in in April 1981. Final FERC ults on thc earlier cases are

<<ding.

tt ncw rate case based upon iccasts of revenues and expenses 1981 was filed in December 1980 all five customers. The new case lucsts an additional S13.9 million lncrcascd rates.

I'he Company has fuel adjustmcnt uses for both FERC and Commis-n jurisdirtional rates which allow

, pass-through of inrrrmcd fuel ts. The adjustmcnts apply to all es. A revised Commission fuel ad-tmcnt clause is currently being iewcd. The greatest rltangc auld bc the use of an estintatcd I cxpcnsc on a quarterly basis hcr than actual cost on a monthl) iis.

ELECTRIC OPERATIONS I'he Company holds 13 percent ncrship of Units 4 and 5 of thc ur Corners Generating Station, a percent ownership of San Juan its 1, 2, and 3, and 100 percent ncrship of the gas-and oil-fired tions. The Pragcr, Santa Fe and Vegas stations are used primarily meet peak loads.

In 1980, PNM's generating fuel is mostly coal, accounting for out 84 percent of total kilowatt-urs produced. Natural gas provid-15.9 percent and oil 0.1 percent.

'M forecasted generation require-

nts in 1981 are 82.8 percent coal,

,6 percent natural gas and 0.6 rrent oil.

I'hc power produced by PNM mcs from generating facilities as nvn in thc following table:

PNM's Sharc of Capacity Location and Generating Station (MW)

Coal fired Stations Near Farmington Four Corners Units 4 & 5 San Juan Units l, 2 & 3 Gas-and Oil fired Stations Albuquerque Person Station Reeves Station Prager Station Santa Fe Santa Fe Station Las Vegas Las Vegas titrbine 208 548 lt6 175 22 20

~1080 PNM, through its operating divi-sions, provides electric service to about half the people in New Mex-ico. The Albuquerque Division ser-vice area includes roughly a third of the population of the entire state.

The Helen and Bernalillo divisions serve thc rapidly growing areas south and north of Albuquerque.

Thc Santa Fc Division scrvcs thc state capital and surrounding communi-tics. Thc Las Vegas Division scrvcs Las Vcgas in north-central Ncw Mexico. The Deming Division service area lies in the extreme southern portion of the state, just north of the Mexican border. The Wcstcrn Division serves a portion of the uranium and coal-mining areas west of Albuquerque.

In addition to the operating divi-sions, PNM-generated electricity is purchased by several other utilities, both publicly and privately owned, for distribution to their customers within thc state.

Total system requirements in 1980, including sales to wholesale custom-ers, were 5,683,373 megawatt-hours, an increase of 8.8 percent over 1979. Total peak demand in 1980 was 913 megawatts. This was an increase of 6.8 percent over 1979.

Thc forecasted peak demand for the summer of 1981 is 997 megawatts.

To supply this peak demand and ntaintain an adequate rcscrvc margin for rontingcnries, PNM willltavc a total installed capacity of 1,080 megawatts and ready rapacity of 1,047 megawatts. The Company also llas rontractually arranged to purrliase an additional 190 mega-watts of capacity. This provides a total resource rapacity of 1,237 mcga tvat ts.

WATER OPERATIONS Under the terms of thc recently negotiated franchise with the City of Santa Fe, water service willnow be available in certain areas outside the city limits. The new Metropolitan Water Board willplay a lead role in determining those new service area boundaries as well as studying long-range source ofsupply and other water policy matters. Thc new Ser-vice Expansion Policy prompted franchise negotiations with the County of Santa Fe, and during 1980 those negotiations were successfully completed.

The Las Vegas Division is pro-ceeding with a review of various methods of increasing the water sup-ply to the community. Thc decision concerning what methods willbe used to incorporate this supply will bc made in the near future.

SUBSIDIARIES PNM has an interest in three sub-sidiaries: Paragon Resources, Inc.,

Sunbelt Mining Company, Inc. and Western Coal Co.

Paragon Resources, Inc. is a wholly-owned subsidiary, princi-pally engaged in the acquisition of water rights and property for the Company's various projects and business-related needs. Chief among these needs are future generating plant sites and water for both the Company's water systems and future use at generating plants.

Sunbelt Mining Company, Inc.

began operation in 1980 on a limited basis. It holds coal leases and will provide supplemental fuel to the San Juan Generating Station. It is anticipated that Sunbelt willsupply coal to the proposed New Mexico Station and, in addition, willmine coal for sale to others.

Western Coal Co. adopted a plan of liquidation in Dercmbcr 1980. All of its coal processing equipment was subsequently sold to San Juan Coal Company, a wholly-owned subsid-iary of Utah International, Inc., for

'pproximately

$ 25 million.

The surface coal leases adjacent to the San Juan plant were subleased to Utah. As part of the transaction, San Juan Coal Company contracted to provide coal to San Juan Generating Station under a 37-year fuel supply contract.

"The use of Cost ofService Indexing... has demonstrated the extent to tvhich risk can be minimized in utility operations... Indexing saved our customers millions of dollars through reduced cost ofcapital."

As we begin the 1980s, we find ourselves facing some of the familiar financial challenges with which wc wrestled in the 1970s. In the fore-front, of course, is inflation along with the ability to earn the full cost of borrowed capital. While these thcmcs remain the same, our re-

sponse, as well as the environment in which wc are operating, is clianging.

This means new opportunitics and thc need for new financial strategies to achieve our corporate mission.

During the past several years, our main concern was raising the capital necessary to fund our very hcavy construction program. There werc times when PiVM was the fastest growing utilityin the nation in terms of increasing capitalization. We arc clearl> in the top group today. Thc raising of capital in cost-effective ways has bccn paramount to us, and we have been successful chiefl because of the financial strength we ltave achieved under our unique in-dexing format for rates and through thc efforts ofour employccs work-ing to solve the complex problems facing PNM.

The use of Cost of Service Indexing during recent years has demonstrated the extent to which risk can bc mini-mized in utilityoperations. Because investors loan on risk premiums, in-dexing saved our customers millions of dollars through reduced cost of capital. Equally important, indexing allowed PNM to maintain its AA/Aa first mortgage bond rating. This financial strength gave PNM access to financial markets which at times were unavailable to most of thc utilityindustry.

Ifwe take this experience of lower-ing risk and project it into the 1980s, our next logical step is to improve profitabilityof PiVM by diversifying our risks over more activities. If PNM's financial risk can continue to be reduced, the Company's owners and ratcpayers willbenefit.

A.J. Robison Vice President, Finance In Revenue Planning, we are ad-dressing today a different environ-ment tlian wc have known in the past. The first change is in thc number of responses now required of PNM by our regulators. Wc have about twice as many reporting and filingrcquircments this year is we had last year. Much of this is the result of the National Energy Act.

Thc second major change is that all regulatory cases today are more sophisticated than they were a few years ago. When you combine in-creased complexity and increased frequency of filing, the problems can bc staggering. We are working very liard to manage the process and simplify it where we can.

Aricxiimplc is our posture with thc Federal Energy Regulatory Com-mission (I'ERC), which has jurisdic-tion over our rates for wholesale customers. Over the past few years, wc ltavc litigated a number of new-rate issues at thc FERC. This was done to protect the Company in its clianging environment and ntaintain a healthy, contemporary rate-making posture. As a result, we are now in a position where we do not have to litigate cvcry issue.

Gross Plant Investment (millions of dollars) 1,198 880 532 682 1976 1977 1978 1979 10.3 11.6 13.0 13.6 1976 1977 1978 1979 Return on Average Common Equity (percentage) 1,47l 14.91 198

Another major area we are ad-

'ssing is our rate design concepts.

are now participating in Ncw

.xico llcarings to shift our rate sign from an imbedded or histori-cost basis to a marginal cost basis.

e new rate designs willmore ror-

tly reflec the actual rost ofpro-ling a'dditional service without cr-collecting revenues, while pro-ling proper price signals to our tomcrs. These rates willthen irk in harmony with our load'agement efforts.

L.Yaryan inager, Revenue Planning because ofilicsignificant cron-ic prcssurcs PNM felt during its re-it growth period, we werc forced.

,nnovate programs to enlnnrc the inpany's financial perfornnnrc, l basically rethink the whole irept of financing. Wc werc suc-sful, and today as a company, are much better off.

)uring the past fcw years, wc re experiencing operating ratios he range of 55.1 percent to 55.5 rent; that is, the ratio of fuel, chased power, operation and intenanre expenses to total op-t.ing revenues. In mid-1979 we

<<blished a'ost Reduction hsk rc, which represented all areas of Company, to invcstigatc ways of uring expenditures.

As a result of se activities, we were able to're-c the 1980 operating ratio from I pc'rrent to about 54 p'errcnt.

I we net reduced our opirating o, PNM's return on equity for

'0 would have been about 143 cent rather than approximately

> percent.

In the planning area, we lnve developed the ability to look into the future with some very sophis-ticated computer models". These include distribution planning models used in the Company's operating divisions to make long-range predic-tions about system requirements, rcsourrc utilization models to op-timize our.generation plans, load and energy eronom'etric and end-usc mode'ls as well as corporate financial modeling systems. These capabilities allow management to make good decisions about circumstances that are going to arise not only in thc short-term biit also out into the 10-to 20-year time'horizon.

I think it is important from thc stockholders'erspective to rec-ognize tint we have some finan-cial objectives that are specifically related to them. These include main-taining financial performance lcvcls of return on equity that are adequate for those stockholders, achieving good quality of earnings, coverage ratios tint allow us to maintain pro-tection for our bondholders and to maintain the AA/Aarating. Wc arc working toward achieving a markct-to-book ratio of at least one.

M.A.Clifton Manager, Financial Planning Inflation, and the resulting high cost of capital, has created financ-ing problems which heretofore had never been experienced.

As a result, companies like PNM have had to adapt to new ideas to finance the growth in assets required to meet thc ever-increasing demands of its market.

This has been especially true in thc working capital finance area. It was not too long ago that a bank prime rate of over 10 percent was tanta-mount to economic chaos. Today, we hope to see the prime rate once more drop to 10 percent. This drastic risc in interest rates experienced in 1980 resulted in tremendous increases in the costs of financing construction projects.

Because of the large rash flow re-quirements generated by PNM's con-struction program (we expect to spend around S30 millionpcr month in 1981), cash management has quickly risen in importance. In 1980, it cost PNM approximately 13C to finance every dollar in the bank. By initiating good rash management procedures, such as zero balance accounts, we have been able to hold the cost of bank balances to a minimum.

To mimimize the impact ofbor-rowing short-term, we have expand-ed our efforts in daily cash flow forecasting. Through a better understanding ofour rash needs, we have eliminated unnecessary bor-rowing and implemented a more ag-gressive program of investing of cash. Wc lnve also expanded uur sourre of borrowings. PNM lns entered into borrowing arrangcmcnts which open up a number of money nnrket sourres of funds, such as Bankers Acceptances, Commercial Paper or Federal Funds. Thc multiple sources increase our availability of funds and allow us to borrow in whichever nnrkct has the lowest prevailing interest rate.

M.J. Marzec Director Working Capital Finance

"Tlx>p7 e>ssu7T> from inc7T>ase>d cust0777e7 de777a77ds and t/ae eco77o777y feat e spurred us tofind 77eu~ opportunities for sen>ice."

My business is people. As Vice President of Division Operations, I am thc corporate linkbetween PNM and our customers. I am responsible for thc six operating divisions which provide electricity to about half thc state's population, plus the water operations in Santa Fc and Las Vcgas.

Thus, our operating divisions are charged with providing quality scr-virc to our customers.

I3ut the world is changing, and what was quality service ycstcrday may not be pcrrcived that way today.

We arc seeing more and more groups raising new customer demands and wc are experiencing more governmental regulations in all areas of our operations. Usually, this is not a major problem because one of our niain goals is to anticipate and plan for impending regulations and customer dcniands.

A case in point is the "Consumer I3iliof Rights" issued by our state Public Service Commission. At thc time thc order was adopted, PNM already was in 90 percent to 95 per-cent compliance. Wc were doing what thc regulators required before the order was written. And wc werc providing thcsc services not because someone outside PNill insisted we do them but because we felt it was thc proper thing to do.

Overall, I think we willbe seeing in thc 1980s an expansion of thc concept of service. Customer infor-mation needs regarding electric or water bills and energy in general arc growing; even the technology of customer servirc is growing.

I3crause of the increased number of PNM customers, more advanced systems arc being put in place to manage customer information for our billingdepartment. This last fac-tor also means we ltave to pursue bcttcr ways of managing our work force in terms ofproductivity and efficiency. Wc have a Work Imrre iVIanagemcnt program in effect now to help us manage that change and growth.

Thus far, wc have surreedcd in providing high-quality servire to both our electric and water cus-tomers. Thc demands willgrow in the future and the job willberome more complex. Thc pressure from increased customer demands and the economy have spurred us to find ncw opportunities for scrvire. In this regard, my job is made cmicr because of the exceptional managers who work with me.

J. P. Bundrant Vire President Division Operations As thc number of PNM customers has grown in rercnt years, we lrave been pressed to come up with a bet-ter way to process customer infor-mation in order to provide quality service. Our Customer Service System Project is one answer to this problem. This $3.6 millionrom-putcrizcd customer accounting system replaces our present system which, while it was state of the art 15 years ago, ran no longer accom-modate the growing number of customer data rcquircd.

Total Operating Revenues (millions of dollars) 100 244 1976 1977 1978 1979 198

I'he new system automates a great ti of manual work plus provides customer service employees h instant and complete billingin-mation for each of our customers.

cans our customer service peo-can handle more telephone calls re quickly, thus increasing their cicncy. For our customers it ans they can get the information y want faster and they deal with y one person at PNM.

his Customer Service System ject is just one of several pro-ms we are pursuing to provide ter services. It is important to

>ember that the notion of tomcr service is a dynamic one.

oon as one problem is solved, volves into something else. The rid of customer information ds and demands changes con-tly. It is our job to keep up h those changes.

R. Stone erations Manager eral, State, Local and General Taxes lions of dollars) 33 36 26 19 76 1977 1978 1979 1980 mproving the management of rk force and our people has wn in importance in recent years.

ese improvements affect not only tomer service but all aspects of M. As a result of a total Company nagemcnt Audit we commis-ed in 1977, we have created a rk Force Management Program igncd to help us identify a thodology for determining when nit ofwork should be done, how long it should take, and measuring the results. This program allows us to make adjustments and reach a higher level of utilization of the day-to-day work force.

In addition, our concept of service is expanding in other areas. Working with New Mexico State University, we have a wind power project in Dcming which we hope willeven-tually be a cost-effective alternative for ranchers and farmers. Through our many solar energy projects around the state, we are gctting good data on passive and active systems as well as water heating.

I think that in the not-too-distant future, PNM willbe using some of these energy sources that today are called "exotic." Tcn years ago, we were not even thinking about wind power, solar energy, geothermal, and pumped storage; today, PNM has an exciting array of programs in these areas.

R. A. Lake District Vice President Belen, Bernalillo and Deming Divisions A consistent theme emerges in thc day-to-day management and operations of PNM: uncertainty.

Cltange is occurring (as it always has), but at a much faster rate than ever before. When economic condi-tions, human and natural resource constraints, regulatory constraints, customer expectations and, of course, expectations and dcsircs of our employees change at such a rapidly increasing rate, our daily working environment becomes heavily influenced by uncertainty.

The future has become a rapidly moving target of unknown destination.

As a result of these conditions, our ultimate challenge is not just to manage the change, but to deal with the uncertainty introduced by rapid cliange. Many of the programs already discussed and underway at PNM are attempts to address this.

These programs not only tell us how we do, they also contain prcdictivc clemcnts that enable us to look ahead and minimize some of the uncertainty.

Those of us who serve today must strive to identify the expectations

'that willbe placed upon our suc-cessors, and by doing so, help ensure a company responsive to the expec-tations of the communities we serve.

Fortunately, we are blessed with people whose dedication, vision and leadership have positioned the Company to meet this challenge.

J. T. Ackerman District Vice President Albuquerque and Western Area I think our challenges in the water business are essentially the same as the electric business, but in some cases more intense. An obvious dif-ference is that water is more of a necessity than electricity. Customers are more willingto cut down on electricity than water. In the 1970s there werc significant price increases for water, with a resulting price elasticity for the first 25 percent or 30 percent of the demand.

Because of thc semiarid climate of New Mexico, the source ofwater supply is a major concern. In Santa Fe and Las Vegas, we had been using water that was replenishable every year from the snowfall and rain in the mountains. We have now gone beyond thc capacity of river systems to supply thc total needs. Water now has to be pumped out ofwells in Santa Fe and Las Vegas. The cost of doing that is much greater than the cost of the water we used before.

P. R. Gamertsfelder District Vice President Santa Fe and Las Vegas W. M. Hicks, Jr.

Manager Water Operations, Santa Fe

"Meeting PiVM's manpower needs in energy generation and the managing of advanced dispatch systems is myfirstpriorityin the 1980s."

In recent years we have scen growth in complexity ofpower plant operations and dispatch systems. The power plants are becoming more computer directed and, in thc case of coal plants, more sophisticated pollution control equipment has gone into operation.

Dispatch systems, too, arc under-going a similar trend in complexity.

We are now installing a computerized system called the Energy Manage-ment System which willallow us to monitor and control more precisely our overall generation and transmis-sion system.

Beyond providing reliable and economic service to our customers, these growth trends mean the in-creasing need for highly skilled plant operators, craftsmen and technicians.

Meeting PNM's manpower needs in energy generation and the managing of advanced dispatch systems is my first priorityin the 1980s.

As Vice President of Operations, my other major priority is fuel. In this regard, PNM is in an enviable position; in 1975 about 55 percent of our total requirements were met with coal; in 1980 this figure grew to about 84 percent. PNM is a coal-fircd utilityoperating in a state with enormous coal reserves. Thus, unlike utilities which have to trans-port coal to their plants at significant cost, we can build and operate mine-mouth plants. This is the case with Four Corners, San Juan and the pro-posed New Mexico Generating Station.

In the long-term, we expect PNM's fuel mix to continue to be domi-nated by coal, with the addition of nuclear energy from the Palo Verde Nuclear Generating Station, geother-mal energy, hydro by way of the Pumped Storage Project, and pos-sibly gas from coal gasification proj-ects. As technology and economic conditions dictate, we willcontinue to pursue fuel operations in many areas, trying to take advantage of the enormous energy resources of New Mexico.

R. Mullins Vice President, Operations As Mr. Mullins mentioned, PNM is primarily a coal-fired utility. But we still use the natural gas-and oil-fired plants for mid-range and peaking purposes. To give you some idea of the difference in fuel costs, in 1980 we paid an average of about 82.45 per million Btu for natural gas and about $4.25 per millionBtu for residual fuel oil. In contrast, our coal cost about 790 per million Btu. Very quickly you have thc basic picture of the tremendous benefits realizablc from coal.

Furthermore, the Power Plant and Industrial Fuel Use Act mandates a

cutoff in the use of natural gas as a boiler fuel by 1990. However, there are exemptions. For instance, ifgas-fired units are used for mid-range or peaking and their retirement dates are in the 1990s, natural gas can still be used after the legislated cutoff date. Our natural gas and oil plants clearly fall within these exemptions.

Net Generating Capability (thousands of kilowatts) 1,08 1,08 858 858 842 1976 1977 1978 1979 198 55.1 59.9 63.6 67.0 84.0 43.1 38.8 34.0 31.5 15.9 Generation Mix (percentage of generation) 1.8 1976 1.3 1977 2.4 1978 1.5 1979 0.1 1980 Q coal Q naturalgas Q oil

A point to remember, particularly hen speaking of natural gas and oil, that we are moving into a transi-in stage where other fuel sources illgain ascendancy.

Granted, we illneed coal and nuclear energy r base-loaded generation. But under ch legislation as thc Synfuels Bill, can expect to scc growth in areas e coal gasification and liqucfac-in, shale oils and tar sands. Thc onomics presently do not exist for velopment of these resources but willsee tltat change in the 1980s.

Scharming pervisor erations Administration With thc growth of coal as PNM's ijor fuel source, certain oppor-

'ties have arisen in the usc of r natural gas-and oil-fired power ints. Recently we completed a idy which indicated tltat ifwe cled these older plants, PNM could e more than S100 millionin fuel sts over the remaining life of thc ints. Cycling means that wc bring r gas and oil plants into scrvicc ery morning and shut them down night. In this way, the units become d-range and peaking facilities.

fcourse, there is a price tag for cling. These older units werc signed for base loading which ans that they were designed to put on-line and run at their full edacity continuously. They were rmally brought down once a year

. maintenance. Cycling has put itional stresses on the units that y were not designed to handle.

compensate for these additional esses, we have started a main-nnce program that is much ire aggressive than normal oper-ons call for. The resulting fuel ings more titan cover the cost the program.

esides cycling, there is another ortunity that could be realized m these plants. Due to the large ntities of oil being burned by er utilities in thc West, thcrc is opportunity to scil electricity generated from PNM's gas-fired plants. Natural gas may not be as cheap as coal, but it is cheaper than oil. Assuming transmission paths are available, we can make money for PNM's ratepayers and stockholders and help people in'other states save on the high cost ofburning oil.

T. Morse Manager, Gas and Oil Plants-..

My area of responsibility is the operation of PNM's bulk.transmis-sion system. As PNM's generation facilities ltave grown in size and complexity, so too has the bulk transmission system operation. To keep pace, we have computerized our operations to monitor our own system and the array of transmission interties we have with many other western utilities.

We willhave our third generation of system dispatch computers in-scrvice this summer. Called the Energy Management System; this computer system willallow us a continuous review ofwhat is hap-pening on our bulk transmission system. It also gives us better and faster control over dispatching our generating units. That is, we go to our most economical generating units first, such as coal, and then load other units into thc system following the most economic criterion.

Through the use of new computer systems; we have economic oppor-tunitics that were unavailable 'to us in the past. For example, PNM is par-ticipating in a computerized energy brokerage system. With this system, we are able to increase our exposure to morc economic purchases or sales. This may mean that wc are buying cheaper power from another utilityor we arc selling power and ntaking money for PNM. Either way, our customers benefit.

R. Lowry Manager, Power Operations

~

<r "This sharing ofresources is not only"beneficial to our customers and shareholders, but also helps achieve our national goal ofreduced dependency on foreign oil."

As Vice Prcsidcnt ofAdministra-tion, my responsibilities range wide-ly over the corporation. They in'elude System Planning, Load Management and Forecasting, Resource Development, Environ-,

mental Affairs," Procuremcnt and Contracting,'.Infoi;mation Systems, and Methods Analysis. Allof ihese areas interact,ori Company projects and activities. In fact, such interac-tive pr'occsscs arc part of thc strength of PNM.

-As a function of Rcsohrcc Dcvil-opmcnt, PNM conducts and supports RD8cD. We have been very active in research over thc years, and ex-pect ncw solutions to some prob-lems to come out of this area. For instance, wc and the other par-ticipating utilities in the Western Energy and Supply Iiansmission Associates ltavc an elaborate net-work in the Southwest to measure solar insolation. There are more than 50 monitoring stations in this pro-gram. We have participated in many other solar research projects as well, mostly in demonstrations of technol-ogy. Wind is another area in which we have taken the initiative. Wc have several monitoring stations to measure how much of thc resource is actually available in our service territory.

The Baca Geothermal Project is demonstration of a ncw technology on a much larger scale. PNM's sltarc of thc power plant is about 820 millionto S25 million, and thc total project cost is about five times tltat amount. The contracts we arrangt:d among Union Geothermal of Ncw

'exico, thc Department of Energy (DOE) and PNM called for the con-'truction of a geothermal unit which would produce energy at a cost comparable to that produced by a

base load coal-fired unit built in the same time frame.

These research projects tend to originate from our planning process.

In this process, we begin with a load

forecast. We take econometric vari-ables into consideration. What is the population growth going to be in the service area? What is the competing fuel going to cost? Wlut rate of growth in income is cxpccted? We look at a broader range of load alter-natives tlun just a single estimate.

That way, we design our system so that we can reasonably meet a higher forecast but not have our customers paying for excess capacity ifthe fore-cast load is not actually tlut high.

Looking to the future, I expect there willbe much tighter intercon-nection with all the utilitics in the United States within five years.

Presently there are substantial quan-tities ofoil being burned on the West Coast. Wc ship that region as much coal energy as possible to displace oil, but we are constrained by the lack of transmission capacity. Such regional utilization of coal-fired elec-tricitycan materially reduce the total amount ofimported oil consumed.

This sharing of resources is not only beneficial to our customers and shareholders, but also helps achieve our national goal of reduced depen-dency on foreign oil. I expect to see morc resource sharing in the future.

C.D. Bedford Vice President, Administration PNM's load forecast is constantly shifting. In the last fcw years, we have seen softening of load growth from what we expected. Changes in the economic picture require th:

wc devise a planning envelope. Aft the explicit forecast is developed, we create a high and low around, that forecast, based on our view of how economic paramctcrs may shi In this way, wc anticipate the con-'ingency tlut the forecast envelope may be this high or that low.

Only a short time ago, load fore casting was relatively straightfor-t ward. The utilityindustry had a good understanding of how the lo:

was going to grow and how to me it. Then came 1973 and the era of.

the oil embargo. Some parts of the country had negative growth. But PNM, after a momentary lull, pickt up and had substantial growth fror 1975 to 1978. With double-digit inflation and thc uncertainty sur-rounding the uranium industry, in 1980 PNM experienced slower load growth than anticipated, although its load growth is above the national average.

PNM is required by Iaw to prov electric service to our customers.

Once we make a decision to build and funds arc committed to a proj it is pretty lurd to turn that aroun It is our position that it is prudent to go ahead and build the facilities as long as there is a market for tha surplus capacity when thc plant comes in-service. Studies show th insufficient capacity is far more costly tlun excess capacity.

W.C. Wygant Group Manager Planning and Resources R.C. Cainski Manager, System Planning Unless there are major changes in the National Environmental Policy Act (NEPA), we anticipate a continuing need for cxtcnsive en vironmcntal work. And this work must be done early in the project planning process. For instance, w have been doing environmental work for four years on the potcnti 12

.w Mexico Generating Station site.

ie plant is not scheduled for com-

tion for 10 more years. Because of many regulatory requirements, Company is put in a position iere it has to spend considerable

>ney and energy to maintain proj-t options or flexibilit.

fhis long process explains why have an extensive environmental

~airs staff. With such people, PNM s a resource of substantial skills it it can draw upon as a project angcs. Ifthe site changes, for cx-

)ple, we ltave the ability to inform

~

~

~

engineers very quickly how tltat

.inge imparts the plant and the ap-wal process. Such rcsponsivcncss es time and money. Having a skilled ffgives PNM additional flexibility ier companies may not have.

IVc cxpcct that the 1980s willsec

>rc balance among the environ-

.ntal, cnginecring and economic ics. While environmental issues llstill bc considered important, y willbe viewed in conjunction th other issues, specifically, the te of thc economy. The pendulum ll swing more toward the middle.

t many laws willbe taken offthe oks, but they willbe made morc workable or morc practical.

D. Kist nager, Environmental Affairs B. Rodney pervisor ivironmental Sciences oad management is defined as y changes to real or projected ands for electric energy rc-iremcnts. When load manage-

nt is effective, it alters the way pie consume electricity in a way ieficial to customers and FNM.

r customers, load management z mean a savings in dollars, and

. PNM, it means more efficient use its resources.

~or example, ifwe invested 000 in a coal plant, we would to ltave that coal plant run full ie, even during off-peak periods.

nomically, there is no sense in itting the coal unit down when its iable costs are relatively inexpcn-

e. By thc same token, PNM wants defer the use of electricity during ak periods to off-peak periods when electricity costs about one-quarter as much to produce.

Load management can also pro-vide a more reliable system when one considers options such as direct load control ofcnd uses. This in-cludes uses that can be dcfcrrcd for a number of hours without any customer inconvcnicncc and that have inherent storage capabilities.

Electric water heating is an example.

Ifa major generating station sud-denly broke down, under direct load control PNM could flipa fcw switches to turn offnonessential uses, protecting its system from an outage or blackout.

Basically, the primary emphasis in achieving load management is to provide our customers with a price incentive to defer or modify their consumption behavior. PNM is cur-rently in a rate hearing in which we are proposing the usc of time-of-day rates. These rates could provide our customers with a price incentive that could lead to cost-effective load management.

D. Peck Director, Load Management Thc biggest problem wc have in providing data processing service for PNM is forecasting data processing needs for the timely upgrading of computer capacity. We have to predict a demand in order to have computer capacity available when needed.

One of the strategies that we have recently adopted to mcct thc grow-ing demand for electronic informa-tion processing service is acquiring prcdcveloped systems of packaged software. We try to match these systems as closely as possible to PNM's requirements in order to save developmental costs.

In 1980, we increased our com-puter capacity by 40 pcrccnt, the minimum needed to meet growth in data processing requirements for PNM.

In our Information Systems Divi-sion, we are rapidly adopting ad-vanced computer ltardware and software strategies which willbe required to support the Company's growth expected in future years.

Major emphasis has been placed on state-of-thc-art data base and data communications strategies to sup-port the increasing requirements for rapid information retrieval and analysis for decision making and productivity improvement.

R.L. Barber Manager Information Systems Division For its size, PNM is possibly the most active utilityin the RD&Darea.

Our research, development and demonstration program is based on both internal and external research activities. The internal program is directed very specifically toward PNM's needs. The principal method of external research is through the Electric Power Research Institute (EPRI), which tailors its programs to national needs.

FNM is active in EPRI's utilityad-visory structure. The advisors deter-mine what research willbe under-taken and evaluate potential proj-ects for benefit to the industry.

PNM also has selective research and development programs with the Department of Energy (DOE).

In 1980, we werc awarded

$ 2.7 millionfor an underground coal gasification feasibility study. In previous years, we have done some large solar power generation studies for DOE.

Additionally, in the solar energy field, we have several projects underway. One example, now in the data monitoring phase, is the EPRI-SHAC (solar heating and cooling) solar home project. The goal of this multi-milliondollar program is to assess how utilities and solar homes should be interfaced and integrated to the optimum benefit of the solar customer and the utility's other customers. Another solar study is a power plant project in which we are acting as the lead utilityin the opera-tion'of a small solar plant to be built at Sandia Laboratories, Albuquerque.

This willbe among the first hands-on utilitycxperiencc with solar g'eneration of clcctricity.

D.J. Groves Resource Analysis Supervisor

"But the worldis changing and the way ofdoing business is constantly evolving...

1'ave to control and ntanage the change... and direct it where it willdo the most goodfor our customers and shareholders."

In recent years, we have seen tremendous growth in New Mexico, and we expect tltat trend to con-tinue. With growth has come changes in how we do business and how we seek opportunities as a cor-pontion. As Senior Vice President of PNM, I am charged with acquiring future resources for generation and other projects. This means water, fuel and land resources.

But because water rights, for instance, can be maintained only ifthey are used, we have been led into farming and ranching. These kinds of businesses are managed by our wholly-owned subsidiary, Paragon Resources, Inc.

Another of our subsidiaries is Sunbelt Mining Company, Inc. Its main function relates to future fuel needs of thc parent company. How-ever, Sunbelt is aggressively pur-suing other mineral-related oppor-tunities as well. We fullyexpect Sunbelt to be involved in mining beyond the immediate needs of PNM's power plants. We anticipate a number of coal opportunitics in New Mexico in the coming years, such as coal-fired power and gasification plants.

PNM's subsidiaries willexpand their operations in the years to come, providing the Company with opportunitics tltat we can only guess at today. Thc business environment in which we arc opcnting is becom-ing more complex and more dif-ficult. Thc trend is toward morc regulation, not less, and economic uncertainty willbe with us for years.

Through subsidiaries, thc parent company has thc flexibilitto adapt to change more quickly, benefiting our customers and investors.

Some people find the whole no-tion of subsidiaries confusing, par-ticularly when the parent company is a utility. But the world is changing and the way ofdoing business is constantly evolving. For us to main-tain quality service and enhance thc financial integrity of the corpontion, we have to control and manage the change that is occuring and direct it where it willdo the most good for our customers and shareholders.

R.B. Rountree Senior Vice President, PNM President Paragon Resources, Inc.,

Sunbelt MiningCompany, Inc.

and Western Coal Co.

While holding land and water resources for possible future use by PNM, Paragon is engaged in exten-sive cattle ranching and farming ac-tivities. Our major crops are alfalfa, pinto beans, potatoes and small gnins.

While the 1960s and 1970s were difficultyears for thc farmer and rancher, prices of farm products rose sltarply across thc board in 1980.

This was partially duc to the 1980 drought but, I feel, more important-ly, due to increased world demand of United States'griculture products.

14

sce this trend continuing into the iture. There may be instances here oversupply can be a problem, ut thc overall supply and demand tuation is projected to result in ighcr farm prices into the 1980s.

Thc competitive nature of agricul-irc has forced us to strive for high

'elds and quality at low cost.

other Nature is very unforgiving id docs not tolerate mistakes. If c arc going to be successful in riculturc, or any competitive vcn-

)re, wc must consistently achieve a igh-quality product or service at

)mpctitive costs.

Other areas Paragon is involved in delude construction, building main-nancc and property management.

In addition to these ongoing

>crations, Paragon is always alert ld searching for opportunities to crcasc growth and profitability.

lsorough screening of thcsc oppor-initics is critical to our future suc-ss, and that is being done. I am confident tllat we willselect one

. scvcral of the dozens of oppor-nities that are being reviewed, ith the effect that we can achieve eater growth and profitability.

G. Frank ice President aragon Resources, Inc.

Sunbelt Mining Company's first ejective is to provide a mining and iergy fuel supply service. Through

.vclopment of the De-Na-Zin Mine d establishment of Sunbelt's truck-g operations, wc have taken thc st step in meeting this objective.

oduction of crushed stone for use facilities construction is an addi-inal service business in which we e involved.

Probably thc most exciting thing out Sunbelt is our charter to seek w business opportunities and to vclop those opportunitics into ofitablc operations. It clearly is r responsibility as a management lm to cllannel Sunbelt's business jcctives into areas that can most

'cctivcly utilize our past surface ning experience in New Mexico.

Aside from the development of San Juan Basin coal resources which we currently have under our juris-diction, we are looking for ways to employ ouf engineering and produc-tion expertise in the surrounding Rocky Mountain states as well as New Mexico. Our principal search is for energy-related resources tllat might be amenable to development for PNM. However, we are also look-ing for noncncrgy resources that might be required for power produc-tion in the future, such as limestone, sand, gravel and even salt.

Because wc depend on regulatory agencies from all levels ofgovern-ment, Sunbelt Itas to continue to build bridges of understanding with them. Wc are sharing information, such as drill logs or cores used in mining but which arc also valuable in palcontological research. Wc also work with governmental agencies on wildlifeand archaeological research.

This is the collaborative approach, a mutual bcncfit approach. We stand our ground when we need to, but we also work well with groups and agencies.

Although small, Sunbelt's staff has a full range of capability in mineral exploration, mining engineering, cn-vironmcntal quality control, market-ing and mining operations. With thc dedication and resourcefulness of oui'eople, I:lm confident thilt Sunbelt Mining Company llas a bright future that willcontribute signifi-cantly to PNM's earnings for ninny years to come.

C.E. Hunter Vice President Sunbelt Mining Company, Inc.

15

DIRECTORS AND OFFICERS Board ofDirectors A.B. Collins, Jr.'resident, Rcddy Communications, Inc.

Greenwich, Connecticut H.L. Galles, Jr."

Chairman of the Board, Galles Chevrolet Company Albuquerque, New Mexico J.D. Geist" President, Public Service Company ofNcw Mexico C.E. Leyendecker President, Mimbres Valley Bank Deming, New Mexico D.W. Reeves" Chairman of the Executive Committee of the Board of Directors, Public Service Company ofYew Mexico R.R.

Rehder'rofessor of Management, Robert O. Anderson Graduate School of Management, University of New Mexico Albuquerque, Ycw Mexico G.A. Schreiber" Chairman ofthc Board of Directors Public Service Company ofNcw Mexico R.H.

Stcphcns'tephens-Irish Agency Lw Vegas, New Mexico E.R. Wood President, Santa Fc Motor Company Santa Fe, New Mexico

'Members of the Audit Committee "Members of the Exccutivc Committee Officers J.D. Geist President R.B. Rountree Senior Vice President C.D. Bedford Vice President, Administration J.P. Bundrant Vice President, Division Operations B.D. Lackey Controller R.F. Mershon Vice President, Industrial Relations J.B. Mulcock,Jr.

Vice President, Public Affairs R. Mullins Vice President, Operations D.E. Peckham Secretary and Assistant Treasurer A.J. Robison Vice President, Finance P J. Archibeck Treasurer and Assistant Secretary J.L. Wilkins Vice President, Engineering and Construction B.P. Lopez Assistant Secretary H.L. Hitchins, Jr.

Assistant Secretary and Assistant lleasurer J.T. Ackerman District Vice President, Albuquerque and Western Area P.R. Gamertsfelder District Vice President, Santa Fe and Lw Vegas F.E. Gray Vice President, Urban Dcvclopment R.A. Lake District Vice President, Bclcn, Bcrnalillo and Deming Divisions WA. Badsgard Western Division Manager L.C. Edwards Bernalillo Division Manager E.L. Fogleman Las Vcgas Division Manager R.H. Hallford Deming Division Manager W.M.Hicks, Jr.

Manager, Water Operations, Santa Fc J.L. Smith Belcn Division Manager Executive Offices Alvarado Square Albuquerque, Ncw Mexico Transfer Agents Albuquerque National Bank Albuquerque, Ncw Mexico Chemical Bank, Ncw York, Yew Yor Registrars First National Bank in Albuquerque Albuqucrquc, Ycw Mexico Chemical Bank, Ycw York, Ycw Yorl 16

OMPARATIVEOPERATING STATISTICS 1980 1979 1978 1977 1976

'lectric Service Energy Sales kWhr (in thousands)

Residential Commercial Industrial Other ultimate customers

'ibtal sales to ultimate customers Sales for resale

'ibtal energy sales 1,090,003 1,067,755 1,000,564 957,390 1,441,634 1,403,282 1,353,805 1,320,651 859,178 858,533 797,314 686,845 167 070 159 396 164 901 160 922 916,748 1,277,025 605,559

'157 694 3,557,885 3,488,966 3,316,584 3,125,808 2,957,026 1 844 213 1 471 485 1 211 242 1 241 195 638 207

~5402 0 8 4 960 451 4 527 826 4 367 003 3 595 233 Electric Revenues (in thousands)

Residential Commercial Industrial Other ultimate customers

'Ibtal revenue from ultimate customers Sales for resale

'Ibtal revenue from energy sales Miscellaneous electric revenues

'ibtal electric revenue Customers at Year End Residential Commercial Industrial Other

'Ibtal ultimate customers Sales for resale

'Ibtal customers Reliable net capabilitykW Coincidental peak demand kW Average fuel cost per millionBTU BTUper kWhr of net generation ater Service Sales Gallons (in thousands)

Revenues (in thousands)

Customers at Year End 727596 S

66,262 51,414 85,480 77,806 60,125 44,524 40,467 28,860

~750 8 704 7 052 S

39,547 S

32,423 45,520 36,198 18,918 13,070 5 215 4 168 212,350 193,239 147,451 109,200 85,859 59 475 44 000 32 568 23 219 9 340 191,495 20,932 466 264 213,157 6

184,979 20,334 4s5 264 206,062 5

175,439 19,496 4s2 263 195,680 5

164,803 18,374 493 265 183,935 5

156,116 17,483 489 250 174,338 5

213 163 206 067 195 685 183 940 174 343 1,080,000 913,000 109.614 1,082,000 855,000 120.724 842,000 809,000 105.52'58,000 715,000 92.74e 858,000 633,000 61.834 10 551 10 746 10993 11 004 11 084

~26 9 816 2 515 815 2 753 122 2 731 801 2 963 223

~560 3

S 4599 S

4605 S

3612 S

2389

~1303 18 755 18 079 17 427 16 838 271,825 237,239 180,019 132,419 95,199

~25 8

2532 2581 2605 1935 S

274 423 S

239 771 S

182 600 S

1 024 S

97 134 17

SELECTED FINANCIALDATA 1980 1979 1978 1977 1976 (In thousands except per share amounts and ratios)

Operating revenues:

As reported In average 1980 dollars 280,516 S

280,516 8

244,370 8

277,417 8187,205 8236,449

$ 138,636 8 188,514 8

99,52.'144,06C Net earnings:

As reported In average 1980 dollars:

Adjusted for general inflation'djusted for changes in specific prices'et earnings per common share:

As reported In avcragc 1980 dollars:

Adjusted for general inflation'djusted for changes in specific prices'otal assets 2.25

$ 1,458,412 8

2.49

$ 1,186,446 71,436 S

54,803 54 303 8

51,110 53,639 8

49,632 3.36 8

2.97 2.29 8

2.59 8 37,464 8

2.83

$888,747 8 24,921 8

2.46 8664,449 S 17,35) 8 2.1(

8498,94 Net assets at net recoverable cost:

As rcportcd In average 1980 dollars Preferred stock with mandatory redemption requirements Long-term debt, less current maturities 487,525 465,099 8

453,328

$382,289 8

486,652 8482,850 90,000 8

40,000 567,190 431,655 8356,347

$271,448 8214,37'369,109

$310,30 8244,720 178,43'ommon stock data:

Cash dividends declared per common share:

As reported In average 1980 dollars

'.04 8

1.88 S

1.72 S

1.61 8

1.4 2.04 8

2.13 8

2.17 8

2.19 8

2.0 Market price per common share at year end:

As reported In average 1980 dollars Dividend pay-out ratio Book value per common share at year end Average number of common shares outstanding Return on average common equity Excess of increase in general price level over increase in specific prices after reduction to net recoverable cost*

Gain from decline in purchasing power ofnet amounts owed'verage consumer price index 19.75 8

18.25 18.84 8

19.59 60.7~/o 63.3'Jo 15,933 14.9o/o 14,363 13.60/o 121,508 8

116,265 87,092 246.8 S

72,531 217.4 S

23.36 S

22 26 8

19.87 8

24.18 60.8 /o 8

21.85 10,289 13.09o 195.4 8

21.50 8

28.51 65.4W 8

21.61 7,569 11.6/o 181.5 8

240 8

33.9 657 8

21.0 6,10 10.3'70.

'See page 34 for discussion of Supplementary Information on Changing Prices.

18

NAGEMENT'S DISCUSSION ANDANALYSISOF FINANCIAL NDITIONAND RESULTS OF OPERATIONS uidityand Capital Resources e Company's five-year construction budget for the period 1981-1985 provides for the expenditure of approximate-

,077 millionincluding allowance for funds used during construction (AFUDC)of $161 million. In addition, the pany forecasts expenditures of $100 millionby the Company's wholly-owned subsidiaries, Paragon Resources, Inc.

Sunbelt Mining Company, Inc. The Company's construction expenditures for the years 1981 and 1982 are estimated 72 millionand $325 million, respectively, and were approximately $ 284 millionin 1980.

e Company conducts a continuing review of its construction program, and such program and the above estimates ubject to periodic revisions based upon changes in assumptions as to system load growth, rates of inflation, the ability and timing ofenvironmental and other regulatory approvals and the availability and costs ofoutside sources ipital. The Company has in the past revised its construction budget in light of such factors and may effect further ions in the future.

ie construction program which willbe necessary to meet prospective customer service requirements willrequire tantial external capital. The cost and availability of such additional capital may bc adversely affected unless nues and nct earnings can be maintained at levels which willattract capital on a favorable basis, and may be depen-upon conditions prevailing in the financial markets.

order to meet its external capital needs in 1980 of approximately S233 million, the Company sold 500,000 shares of ulative preferred stock, realizing therefrom approximately $ 50 million, issued S78 millionprincipal amount offirst tgage bonds, drew down approximately S58 millionfrom pollution control revenue bond financings, raised $14 on in equity capital through PNM's special stock plans, and utilized proceeds from thc sale of commercial paper as as short-term borrowings.

ie Company currently estimates its external capital requirements for the 1981-1985 period to be approximately million, including approximately $ 316 millionfor 1981. In order to meet such 1981 requirements and reduce t-term debt, the Company proposes to sell approximately $173 millionofcommon stock, $60 millionoffirst mort-bonds and $ 25 millionof cumulative preferred stock, depending on market conditions and other factors, and also

.e $120 millionofproceeds from pollution control financings.

ults ofOperations ectric revenues increased S47.6 millionin 1978, $ 57.2 millionin 1979 and $34.6 millionin 1980. The principal fac-contributing to these increases are as follows:

ase in electric revenues due to:

creased kWhr sales (a) creased base rates (b) creased (decreased) fuel cost adjustment factor (c) 1980

$ 13,915 27,711

~703 1979 (In thousands)

$ 14,660 27,597 14 963 1978 S 4,584 29,912 13 104 S34 587 357 220 347 600 kWhr sales the number of customers increased in each period while the kWhr sales increased 3.7% in 1978, 0 in 1979 and 8.9% in 1980.

) Base rates the Company bills most customers under a Cost-of-Service Index Order based upon the jurisdictional n on common equity. The Index Order, formerly a quarterly adjustment, was revised to provide for annual ad-ents to base rates effective May 15, 1979. These rates are subject to the jurisdiction of the New Mexico Public Ser-Commission (Commission). The Company has periodically negotiated higher rates with certain other customers, rates being subject to the jurisdiction of the Federal Energy Regulatory Commission.

Fuel cost adjustmcnt factorduring 1978 and 1979 the increased costs of fuels used for generation were passed the customers, increasing revenues during the respective periods. During 1980, the Company utilized coal, a less nsive fuel, for a greater proportion of its generation, reducing fuel cost adjustment revenues during this period.

19

Operation and maintenance expenses increased

$ 27.3 millionin 1978, $ 30.7 millionin 1979 and $ 16.8 millionin 1980. Principal causes are:

(a) Production of energy from the Company's own generating units decreased 14.3N in 1978, increased 16.396 in 1979 and increased 16.6/o in 1980. A boiler explosion causing the shutdown of the first unit at the San Juan Generat Station inJuly of 1977 and the return to service of the unit in May 1978, coupled with the purchase oflower-cost energy on the interchange market rather than generating from the Company's gas and oil-fireunits, resulted in the Company being a nct purchaser of 957 millionkWhr in 1978. The growth in kWhr sales in 1979 over 1978 resulted i the Company being a net purchaser of 752 millionkWhr for the year. The third San Juan unit, providing the Compar with 240 megawatts of coal-fired capacity, became operational in December 1979. This added generating capacity, coupled with increased plant efficiency, resulted in the Company being a net purchaser of 471 millionkWhr in 1980 decrease ofapproximately 281 millionkWhr from 1979.

(b) Fuel costs increased generation and rapidly rising fuel costs.

(c) Higher cost oflabor and related benefits due to higher wage rates and an increase in the number of employees necessary to operate the expanded electric generating and water facilities.

(d) General inflationary factors.

(e) Maintenance and repair expenses increased by $3.0 millionin 1978, $ 1.9 millionin 1979 and $ 6.1 millionin 19'verhauls and inspections at Las Vcgas, Person Station, Four Corners Generating Station, and the San Juan Gcneratin, Station accounted for increased costs of $2.4 millionin 1978, $1.3 millionin 1979 and $ 5.5 millionin 1980.

The Company's gross utilityplant increased by approximately 29 Jo in 1978, 36/o in 1979 and 23 Jo in 1980 as a result of expanded operations, the need to maintain reliable service, and increasing cnvironmcntal protection re-quirements. In addition, the Company purchased the fifty-percent undivided interest ofTucson Electric Power Com-pany in San Juan Unit 4 in 1979. The increase in utilityplant and the Company's construction program have been th primary causes of increases experienced in the followingareas of operations:

(a) Depreciation and amortization.

(b) Faxes, other than income taxes, primarily franchise and ad valorem taxes.

(c) AFUDCincreased construction at the San Juan Generating Station and Palo Verde Nuclear Generating Station.

increased AFUDC rates ordered by the Commission.

(d) Interest charges and preferred stock dividend requirements from December 31, 1977 through December 31, 1980 the Company has issued

$160 millionprincipal amount of First Mortgage Bonds, utilized $ 169 millionprincipal amount of Pollution Control Revenue Bonds and issued $ 116 millionofpreferred stock, generally at higher rates tlia previous issues, and had up to $ 130 millionprincipal amount ofshort-term debt outstanding.

As a result of items detailed above, earnings before income taxes, income taxes, net earnings and earnings per shar of common stock all increased in 1978, 1979 and 1980.

Sec page 34 for discussion of Supplementary Information on Changing Prices.

20

NNAGEMENT'SRESPONSIBILITY FOR FINANCIALSTATEMENTS he management of Public Service Company of New Mexico is responsible for the preparation and presentation of accompanying financial statements. The financial statements have been prepared in conformity with generally ac-ed accounting principles and include amounts that are based on informed estimates and judgments of management.

anagement maintains a system of internal accounting controls which it believes is adequate to provide reasonable rance that assets are safeguarded, transactions are executed in accordance with management authorization, and the cial records are reliable for preparing the financial statements. The system of internal accounting controls is sup-ed by written policies and procedures, a staff of internal auditors who conduct comprehensive internal audits, and e selection and training of qualified personnel.

e Board of Directors, through its Audit Committee comprised entirely of outside directors, meets periodically with agement, internal auditors, and the Company's independent public accountants to discuss auditing, internal control financial reporting matters. To ensure the auditors'ndependence, both the internal auditors and independent ic accountants have fulland free access to the Audit Committee.

e independent auditors,.Peat, Marwick, Mitchell A Co., are engaged to examine the Company's financial ments in accordance with generally accepted auditing standards.

OUNTANTS'EPORT Board of Directors and Stockholders ic Service Company of New Mexico:

'e have examined the consolidated balance sheet of Public Service Company of New Mexico and subsidiaries as of mber 31, 1980 and 1979 and the related consolidated statements of earnings, capitalization and changes in financial tion for each of the years in the three-year period ended December 31, 1980. Our examinations were made in ac-ance with generally accepted auditing standards, and accordingly included such tests of the accounting records and other auditing procedures as we considered necessary in the circumstances.

our opinion, the aforementioned consolidated financial statements present fairlythe financial position of Public ice Company of New Mexico and subsidiaries at December 31, 1980 and 1979 and the results of their operations changes in their financial position for each of the years in the three-year period ended December 31, 1980, in con-ity with generally accepted accounting principles applied on a consistent basis.

PEAT, MARWICK,MITCHELL& CO.

querque, New Mexico uary 9, 1981 21

CONSOLIDATED BALANCESHEET Assets December 31, 1980 1979 (in thousands)

Utilityplant, at original cost (notes 4 and 8):

Electric plant in service Water plant in service Common plant in service S

743,837 33,535 18 643 796,015 S

712; 31, 17

761, Less accumulated depreciation and amortization Construction work in progress Electric plant held for future use Net utilityplant 152 102 127 643,913

633, 680,603

435, 1126 1

1 325 642 1 069 Other property and investments:

Non-utilityproperty, at cost, nct of accumulated depreciation of $1,340,000 in 1980 and S757,000 in 1979 Investment in fifty-percent-owned company Other, at cost 1btal other property and investments 33,588 17, 3,099 6,

2738 1

39 425 25 Current assets:

Cash (note 5)

Receivables:

Customers Other Allowance for doubtful receivables Fuel, materials and supplies, at average cost Prepaid expenses Deferred fuel costs 6,012 29,794 5,320 (192) 26,353 2,220 8 536 23 13,

(

22'1 11

'Ibtal current assets Deferred charges 78 043 76 15 302 14 Sl 458 412 Sl 186 See accompanying notes to consolidated financial statements.

22

capitalization and Liabilities pitalization:

ommon stock equity (note 2):

Common stock of $5 par value. Authorized 40,000,000 shares; outstanding 16,330,304 shares in 1980 and 15,601,739 shares in 1979 Additional paid-in capital Retained earnings Total common stock equity

umulative preferred stock. Authorized 10,000,000 shares (note 3):

Without mandatory redemption requirements.

Outstanding 860,000 shares of S100 stated value and 800,000 shares of S25 stated value With mandatory redemption requirements.

Outstanding 900,000 shares in 1980 and 400,000 shares in 1979 of Sloo stated value ng-term debt, less current maturities (note 4)

Total capitalization ent liabilities:

tort-term debt (note 5) ccounts payable referred dividends declared urrcnt maturities oflong-term debt (note 4) crucd interest crued taxes ther current liabilities Total current liabilities erred credits:

cumulated deferred investment tax credits (note 6) cumulated deferred income taxes (note 6) ther deferred credits Total deferred credits unitments and contingencies (notes 8, 9 and 11)

December 31, 1980 1979 (ln thousands) 81,652 S

78,009 195,026 185,600 104 847 83 719 381,525 347,328 106,000 106,000 129,355 49,836 4,712 1,487 10,456 7,141 5 645 95,960 51,695 2,869 5,224 5,577 9,418 4 220 208 632 174 963 62,991 47,896 25,756 22,529 16 318 16075 105,065 86,5oo

$ 1 458 412 81 186446 90,000 40,000

~567 1

0 431655 1 144 715 924 983 23

CONSOLIDATEDSTATEMENTOF EARNINGS Year ended December 31, 1980 1979 1978 (in thousands except per share amounts Operating revenues:

Electric (note 10)

Water Total operating revenues Operating expenses:

Fuel and purchased power Other operation expenses Maintenance and repairs Provision for depreciation and amortization

'ihxes, other than income taxes Income taxes (note 6)

Total operating expenses Operating income Other income and deductions:

Allowance for equity funds used during construction Equity in earnings of fifty-percent-owned company, net of taxes (note 6)

Other, net of taxes (note 6)

Net other income and deductions Income before interest charges Interest charges:

Interest on long-term debt Other interest charges Allowance for borrowed funds used during construction Net interest charges Net earnings Preferred stock dividend requirements Net earnings applicable to common stock Average number of common shares outstanding S 274,423

~60 3

280 516

$239,771 4 599 244 370 84,125 46,017 21,201 25,003 12,299 20 073 85,143 34,351 15,045 17,603 10,531 21 881 27,236 15,594 2,953 2,151 385 ~20 30 574 17 995 102 372 77 811 29,012 12,771 10 847 24,236 4,696 5 924

~30 36 23 008 71,436 54,803 17 834 12 196 S 53602 S 42607 15 933 14 363 208 718 184 554

~71 7 8 59816 S182,6 187 2 62, 28, 13,1 14, 8,

16 143 43 10, 12, 56, 21,:

2 4

19 37 8,

S 29 10 Per share amounts:

Net earnings Dividends S

3.36 2.04 S

2.97 S

1.88 S

2 S

1 See accompanying notes to consolidated financial statements.

,24

3NSOLIDATEDSTATEMENTOF CAPITALIZATION nmon stock equity:

ommon stock:

Balance at beginning of year Issuance of common stock Balance at end of year dditional paid-in capital:

Balance at beginning of year Premium on common stock issued Expenses ofstock issuance Balance at end of year tained earnings:

Balance at beginning of year Net earnings 1980 78,009 3 643 81 652 185,600 10,120

~64 195 026 83,719 71 436 155 155 Year ended December 31, 1979 (in thousands)

S 63,211 14 798 78 009 145,433 42,466

~2299 185 600 67,645 54 803 122 448 1978 S 44,287 18 924 63 211 90,947 57,241

~275 145 433 56,213 37 464 93 677 Cash dividends:

Cumulative preferred stock Common stock Balance at end of year Total common stock equity ulative preferred stock:

ithout mandatory redemption requirements:

Balance at beginning of year Issuance ofpreferred stock Balance at end of year ith mandatory redemption requirements:

Balance at beginning of year Issuance ofpreferred stock Balance at end of year 17,834 32 474 50 308 104 847 381 525 106,000 106 000 4o,ooo 50 000 0 000 12,196 26 533 38 729 83 719 33.3%

347 328 106,000 9.3 106 000 40 000 79 40000 8,383 17 649 26 032 67645 37.5%

276 289 80,000 26 000 11.5 106 000 43 37.4%

14.4

-term debt, less current maturities:

Balance at beginning of year Addition to long-term debt Reduction oflong-term debt Net change in unamortized discount and premium Balance at end of year

'Ibtal capitalization at end of year 431,655 137,837 (2,284) 356,347 82,763 (6,544)

~567 1 0~4.5 431655 81 144715 100.0%

1924983 46.7 100.0%

244,721 114,561 (2,305) 356 347 8738 636 48.2 100.0%

ber ofshares issued:

S100 stated value cumulative preferred stock Common stock 500

~72 4oo 2 960 26o 3 785 iccompanying notes to consolidated financial statements.

25

CONSOLIDATEDSTATEMENTOF CHANGES IN FINANCIALPOSITION Year ended December 31, 1980 1979 197'unds provided:

Net earnings Charges (credits) to earnings not requiring funds:

Depreciation and amortization Provision for noncurrent deferred income taxes, net Investment tax credit, net Allowance for equity funds used during construction Undistributed earnings offifty-percent-owned company Funds derived from operations Sale offirst mortgage bonds Sale ofcumulative preferred stock Proceeds from pollution control revenue bonds Sale ofcommon stock Proceeds from other long-term debt Proceeds from short-term debt Dividends from fifty-percent-owned company Decrease in deferred charges Utilityplant retirements, net of removal costs Decrease in working capital other than short-term debt Other S 7i,436 26,889 3 227 15,095 (27,236) 82,555 78,000 50,000 57,942 i3,763 1,895 308,834 9,868 141 311 (In thousands)

S 54,803 19,128 4 549 11,672 (15,594) 72,342 17,000 40,000 62,166 57,264 3,597 290,315 12,405 14,137 8,154 6 113 S 374 15 0

1, 10,.

(10, 1

52,.

65,<

26,<

48, 76,

i42,

$603 309

$ 583 493 S416 Funds used:

Cash dividends Utilityplant additions Payment of short-term debt Reduction oflong-term debt Additions to non-utilityproperty Increase in deferred charges Increase in working capital other than short-term debt Other S

507308 254,805 275,439 2,284 16,749 966 1,121 1 637 S 38,729 308,526 218, 160 6,544 8,157 3 377 S 26t 189,.

168,4 2

22 4

3

$ 603 309 S583 493 S4 16 Changes in working capital other than short-term debt:

Cash Receivables Fuel, materials and supplies Prepaid expenses Deferred fuel costs Accounts payable Preferred dividends declared Current maturities of long-term debt Accrued interest Accrued taxes Other current liabilities Increase (decrease) in working capital other than short-term debt S

2,202 (2,481) 4,280 180 (2,786) 1,859 (1,843) 3 $737 (4,879) 27277 1 121 S

1,881 443 6,058 924 (553)

(8,623)

(875)

(4 035)

(1,153)

(2,227) 6 S

8 154 S

(3, 15, 1,

(

4 (9,

(

See accompanying notes to consolidated financial statements.

26

3TES TO CONSOLIDATED FINANCIALSTATEMENTS December 31, 1980, 1979 and 1978

) Summary ofSignificant Accounting Policies stem ofAccounts fhe Company maintains its accounting records in accordance with the uniform system of accounts prescribed by the feral Energy Regulatory Commission (FERC) and adopted by the New Mexico Public Service Commission (Commis-

'). As a result of the rate-making process, the application of generally accepted accounting principles by the Com-fy differs in certain respects from the application by nonregulated businesses.

Such differences generally regard the

.e at which certain items enter into the determination of net earnings in order to followthe principle ofmatching ts and revenues.

nciples ofConsolidation l'he consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Para-i Resources, Inc. and Sunbelt Mining Company, Inc. Allsignificant intercompany transactions have been eliminated.

lityPlant Jtilityplant is stated at original cost, which includes payroll-related costs such as taxes, pensions and other fringe befits, administrative costs and an allowance for funds used during construction.

t is Company policy to charge repairs and minor replacements ofproperty to maintenance expense and to charge or replacements to utilityplant. Gains or losses resulting from retirements or other dispositions of operating proper-n the normal course of business are credited or charged to the accumulated provision for depreciation.

preciation

'rovision for depreciation of utilityplant is made at annual straight-line rates approved by the Commission. The rage depreciation rates used were as follows:

Electric plant Water plant Common plant 1980 1979 1978 3.36%

3.62%

3 39%

1.94%

1.88%'.89%

7.36%

7. 13%

5.89%

he provision for depreciation and amortization of certain equipment, including amortization applicable to capital es, is charged to clearing accounts along with other costs ofoperation and subsequently apportioned to operating enses and property accounts based on the use of the equipment. Depreciation of non-utilityproperty is computed he straight-line method.

wance for Funds Used During Construction (AFUDC) i accordance with the uniform system of accounts, AFUDC, a non-cash item, is charged to utilityplant. AFUDC esents the cost ofborrowed funds (allowance for borrowed funds used during construction) and a return on other 1s (allowance for equity funds used during construction). The Commission, which has primary rate-making jurisdic-over the Company, has limited AFUDC to electric generation construction, including pollution control devices and r water plant construction. The allowance is charged to other construction projects to the extent they pertain to omers subject to FERC jurisdiction.

he AFUDC was computed using rates of 6 1/2 percent until May 15, 1979 and 7 1/2 percent from then until ember 31, 1979 and was allocated between borrowed funds and equity funds based on the method required by C. Beginning January 1, 1980 AFUDC was computed using the maximum rate, net of taxes, permitted by FERC ch was 8.65 percent for 1980. The Commission also ordered the Company to record additional AFUDC in 1980 esenting a recalculation of 1979 AFUDC based on the maximum rate allowed by FERC. The effect of this adjustment not significant.

27

Capitalized Interest The Company capitalizes interest costs on non-utilityproperty in compliance with Financial Accounting Standard>>

Board Statement No. 34. Interest capitalized amounted to S2,003,000 in 1980 and $626,000 in 1979.

Investment in Fifty-Percent-Owned Company The Company's investment in a fifty-percent-owned company is stated at equity. The co-owner, 'Ihcson Electric Power Company, is participating with the Company in the construction and operation of a steam turbo-electric generating plant described in note (8). Prior to December 1, 1980, the generating plant utilized coal from properties i the fifty-percent-owned company as a source of fuel. Effective December 1, 1980, the coal supply for the generating plant was restructured with an unrelated supplier. The fifty-percent-owned company has adopted a plan of liquidatic Deferred Fuel Costs The Company uses the deferral method ofaccounting for the portion of fuel costs which is recoverable in subseqr periods under fuel adjustment clauses.

Amortization ofDebt Discount, Expense and Premium Discount, expense and premium incurred in the issuance of the presently outstanding debt are being amortized by charges to income over the lives of the respective issues on the debt outstanding method.

Investment Tax Credits The Company follows the practice ofdeferring investment tax credits and amortizes them over the estimated usef lives of the related properties. Investment tax credit carryforwards are recorded, as a reduction of deferred income taxes, to the extent of the sum of the additional investment tax credits which would have been realized iftaxes paya had been based on pretax accounting income adjusted for permanent differences and the existing net deferred tax credits which would reverse during the investment tax credit carryforward period.

Income Taxes Certain revenue and expense items in the Consolidated Statement of Earnings are recorded in a year different fron the year in which they are recorded for income tax purposes. Deferred income taxes are provided on these timing d ferences to the extent allowed for rate-making purposes. This normalization method is used primarily for difference.

tributable to deferred fuel costs, the use of liberalized depreciation methods and different lives under the asset depr tion range (ADR) than under the guideline depreciation provisions. Certain other differences result in a reduction in come tax expense in the current year. This flow-through method is used primarily for differences between tax depre tion computed under the guideline lifeprovisions and book depreciation and certain capitalized construction costs, principally AFUDC, deducted currently for income tax purposes.

At present, rates applicable to certain customers subject to FERC control allow recovery of amounts necessary to vide additional tax normalization of the items described above which are accounted for under the flow-through met for other customers. Provision has been made for additional deferred income taxes attributable to amounts collecte under these rates.

Revenues Revenues are recognized based on cycle billings rendered to customers monthly. The Company does not accrue revenues for services provided but not billed at the end of a fiscal period.

Pension Plan The Company's policy is to fund pension costs which are composed of normal costs and amortization ofpast se costs over thirty years.

(2) Common Stock Equity The Board of Directors has reserved 2,700,000 shares of unissued common stock for the dividend reinvestment p gram, the Employee Stock Purchase Plan and the Tax Reduction Act Stock Ownership Plan, ofwhich 1,200,847 shar remained unissued at December 31, 1980.

Charter provisions relating to the cumulative preferred stock and the indenture securing the first mortgage bonds pose certain restrictions upon the payment of cash dividends on common stock of the Company. At December 31, 1980, there were no retained earnings restricted under such provisions.

28

Cumulative Preferred Stock ormation concerning the cumulative prcfcrrcd stock is as follows:

Series Stated Value Aggregate Stated Shares Stated Value Redemption Outstandin (In thousands)

Price a

ithout mandatory redemption requircmcnts:

1965 Series, 4.58%

1974 Series, 9.2%

1975 Series, 10.12%

9. 16% Series (b) 8.48% Series (b) 8.80% Series (b)

$ 100 100 100 25 100 100 130,000 170,000 100,000 800,000 200,000 260,000

$ 13,000 17,000 10,000 20,000 20,000 26,000

$ 102.516 107.00 107.00 27.29 108.48 108.80 1 660000 1106 PPP ith mandatory redemption requircmcnts:

8.75% Series (b) (c) 14.75% Series (b) (c) 100 400,000 100 500 000 900 000

$ 40,000 50 000 S 90000 108.75 114.75 The cumulative preferred stock may be redeemed by the Company, upon thirty days notice thereof, at stated redemption prices (plus accrued and unpaid dividends). Redemption prices are at reduced premiums in future years.

Redemption may not be made through certain refunding operations prior to June 1, 1981 for the 9.16% Series, April 1, 1982 for the 8.48% Scrics, April 1, 1983 for the 8.80% Series, February 1, 1984 for the 8.75% Series, or April 1, 1990 for the 14.75% Scrics.

Beginning in 1984 for the 8.75% Series and 1986 for the 14.75% Series, thc Company must annually redeem 13,000 and 20,000 shares, respectively, at a price of $100 per share plus accrued and unpaid dividends.

Long-Term Debt ic details of the Company's outstanding long-term debt including unamortized discount and premium, less current irities, are as follows:

Issue and Maturit Interest Rates 1980 1979 Mortgage Bonds:

81 through 1985 86 through 1990 91 through 1995 96 through 2000 01 through 2005 06 through 2010 00 through 2010pollution control series, securing pollution control revenue bonds Funds held by trustee Total first mortgage bonds ition control revenue bonds, due 1984

'i'ong-term debt 3 5/8% to 12.95%

4 3/8%

4 7/8%

5 7/8% to 7 1/4%

7 1/2% to 10 1/8%

8 1/8% to 9%

6% to 8 1/8%

5% to 7.6%

(in thousands) 55,171 8,470 9,762 31,876 107,239 94,355 5,241 8,580 9,880 32,197 79,781 94,323 300,014

~121 717 485,170 77,000 5 020 274,061

~153 660 350,403 77,000 4 252 S 567 190 S 431 655 29

Substantially all utilityplant is pledged to secure the first mortgage bonds.

Approximately 25 percent of the original principal amount of each series offirst mortgage bonds willbe redeemet through sinking fund requirements prior to the aforementioned due dates. The aggregate amounts (in thousands) of maturities on all long-term debt outstanding at December 31, 1980 are as follows:

1981 S

1,487 1982 5,566 1983 2,887 1984 4,992 1985 52 679 In August 1977 the City of Farmington, New Mexico, issued and sold S77,045,000 principal amount of its 5.9 Pollution Control Revenue Refunding Bonds, Series 1977, the proceeds of which are expected to be used to retie 7.6% Pollution Control Revenue Bonds and 5% Pollution Control Revenue Bonds at their maturity in 1984. Fro and after such retirement, but not before, the Refunding Bonds willbe payable out of revenues received by thc City from the Company. Upon such retirement the Company willalso guarantee the payment of the Series 1977 Bonds and secure its guaranty with an equal principal amount of its first mortgage bonds.

(5) Short-Term Debt and Compensating Balance Arrangements The Company's interim financing requirements are met through issuance of unsecured notes payable to banks and commercial paper. The Company has agreed to maintain compensating balances with certain lending banks or to pay fees in lieu of such balances. Compensating balances are generally equal to 20 percent of the outstanding indebtedn or 10 percent of the lines of credit at such banks, whichever is greater. Details of the Company's short-term debt at December 31, 1980, 1979 and 1978 and for the years then ended are as follows:

1980

'1979 (In thousands) 19 Aggregate short-term debt outstanding:

Notes payable to banks Commercial paper Average interest rate on outstanding debt:

Notes payable to banks Commercial paper Maximum outstanding during year:

Notes payable to banks Commercial paper Average outstanding during year:

Notes payable to banks Commercial paper Weighted average stated interest rate on debt outstanding during year, computed using daily outstanding balances:

Notes payable to banks Commercial paper Unused lines ofcredit (subject to cancellation at the banks'ption)

Compensating balances at end of year

$ 79,575

$49,780 18 3/8%

18 3/8%

$80,175

$67,825

$317092

$61,437 14 1/4 12 3/8%

$76,878 S

3 193

$37,250

$58,710 S 4,

$ 19, 14 3/4%

13 3/8%

11 1

101

$51,835

$58,710

$ 50,

S37, S 8,747

$29,713

$ 10,

$ 12, 12 5/8%

81 11 1/2%

7 1

$60,140

$ 53, S 1956 S

Compensating balances have bccn reduced by the average difference between collected bank balances and book balances.

30

Income Tmres come taxes consist of the followingcomponents:

1980 1979 1978 rent Federal income tax rent state income tax rred Federal income tax rrcd state income tax unt equivalent to current investment tax credit irtization of accumulated investment tax credit ital income taxes rged to operating expenses rgcd to other income and deductions ital income taxes

$ 4,185 1,205 2,347 1,089 16,688 1 802

$23 712

$20,073

~363

$ 23 712 (In thousands)

$ 3,864 1,609 1,467 l,o48 3,583 2,130 677 657 13,611 12,413

$22 460

$ 17 330

$21,881

$ 16,722 579 608

$22 460

$ 17 330 ie Company has investment tax credit carryforwards, for tax purposes, ofapproximately $58,000,000 as of mbcr 31, 1980 which willexpire in 1986 and 1987. Of this amount, approximately $21,954,000 has been record-

'or financial statement purposes, as a reduction ofdeferred Federal income tax credits.

fcrred income taxes result from timing differences in the recognition of income and expenses for tax and accoun-purposes. The major sources of these differences and the tax effects of each arc as follows:

1980 1979 1978 rred fuel costs lizcd depreciation methods and asset class lives orter than guideline lives r miscellaneous items

'tment tax credit carryforward 9,386 282

~4879 4,376 47

~4032 8,049 662

~3936 S 3 436 S 4 260 S 2 787 (In thousands)

$(1,353)

S (495)

S 2,396 c current portion of deferred income taxes (included in accrued taxes) results from timing differences on deferred osts. Such balances amounted to $1,529,000 as of December 31, 1980 and $1,688,000 as of December 31, 1979 reduction for investment tax credit carryforwards.

e Company's effective income tax rate was less than the Federal income tax statutory rate for each of the years

n. The differences are attributable to the followingfactors:

1980 1979 1978 ral income tax statutory rate lepreciation in excess ofbook depreciation caused by ofguideline depreciation provisions ance for funds used during construction, of depreciation adjustments in employee benefits and taxes capitalized for financial tcmcnts, net of depreciation adjustments tization of investment tax credits r miscellaneous items ompany's effective income tax rate 46.o%

(1 0)

(17.8)

(6)

(1.9)

.2 24.9%

46.o%

(2 7)

(12.1)

(5)

(1.0)

~6 29.1%

80%

(1.2)

(12.3) 31.6%

31

(7) Pension Plan The Company and its subsidiaries have a pension plan covering substantially all of their employees, including offic The plan provides for monthly pension payments to participating employees upon their attaining the age of 65 or th age of 62 with 30 years of service. The amount of such payments are depcndcnt upon length of service and the aver.

wage of the five most highly compensated consecutive years of employmcnt.

Thc total pension expense was S4,815,000 in 1980, S3,058,000 in 1979 and S2,807,000 in 1978 including amorti'ion of past service cost over 30 years.

As ofJanuary 1, 1980, the most recent valuation date, accumulated plan benefits and plan net assets (in thousands) the Company's defined benefit plan are as follows:

Actuarial present value of accumulated plan benefits:

Vested Nonvested Nct assets available for bcncfit (market value)

S 17,892 1 825

$ 19 717

$ 21 539 Thc weighted average assumed rate ofreturn used in determining the actuarial present value of accumulated plan benefits was scvcn percent.

(8) Construction Program and Jointly-Owned Plants The Company is participating with 11icson Electric Power Company in the construction of the steam turbowlectri San Juan Generating Station. The Company owns an undivided fifty-percent interest in the first three units of the st tion. The Company purchased 'Iiicson's fifty-percent undivided interest in the fourth and final unit of the San Juan S tion in 1979 and now owns all ofsuch unit. In 1980, the Company entered into a Letter of Intent regarding the pott tial sale of a 10.6 percent undivided interest in San Juan Unit 4.

The Company is also participating with several other utilities in the construction of the Palo Verde Nuclear Generating Station with the first unit scheduled for completion in 1983.

It is estimated that the Company and its subsidiaries'onstruction expenditures for 1981 willapproximate

$372,000,000 including expenditures on the jointly-owned projects. In connection, therewith, substantial com-mitments have been made.

Details of the Company's interest in jointly-owned plants at Dccembcr 31, 1980 are as follows:

Construction Plant Accumulated Work in Share o In Service De reciation Pro ress Total Pla San Juan Generating Station Palo Verde Nuclear Gcncrating Station Four Corners Generating Station Units 4 and 5

$407,165

$ 26 600 (In thousands)

$40,649

$335,411

$254,627

$ 7 062 8 866 65 10.2'I'3 These amounts reprcscnt the Company's share of capital costs, and the Company has provided its own financing.

Company's share of direct expenses is included in the corresponding operating expenses in the Consolidated State of Earnings. The Company also has undivided interests in transmission facilities which are not significant.

32

Lease Commitments

'he Company leases data processing, communication, office and other equipment, office space, utilitypoles (joint

) and real estate. Certain leases, primarily for data processing equipment, are capital leases. Allother leases are rating leases.

'ertain leases provide purchase options in thc approximate amount of $1,401,000 for data processing equipment and 9,000 for construction equipment. The lease for an office building provides for a purchase option equal to fair ket value at the end of the primary term of 35 years. Renewal options and contingent rental provisions were not

'ficant.

eased property under capital leases at December 31, 1980 and 1979 is as follows:

1980 1979 a processing equipmcnt er accumulated amortization (In thousands)

$ 3,888

$3,871 543 232 4 431 4 103

~220 1 550 42 222 42 553 uture minimum lease payments at Dcccmbcr 31, 1980 arc:

Capital Lcascs Operating Leases 81 82 83 84 85 ltef years minimum lease payments amount representing executory costs minimum lease payments amount representing interest ent value of net minimum lease payments (In thousands)

$ 1,042

$ 1,462 941 1,310 439 1,240 349 2,075 253 1,926 234 56 671 3,250 464 604 270 2,988

~79 42 409

.nts charged to operating expenses were $1,486,000 in 1980, $1,277,000 in 1979 and $1,091,000 in 1978. Such unts exclude payments made on capital lcascs. Rents charged to utilityplant werc $914,000 in 1980, $236,000 in and $577,000 in 1978.

) Revenues Subject to Refund hc Company has collected revenues subject to refund since 1977 under wholesale rate cases filed with the FERC. In 0 the Company and the FERC customers settled these rate cases, with the Company agreeing to refund approx-ely $9.6 million plus interest. The Company recorded

$3.3 millionas a provision for refund in 1979 and the rc-der was recorded in 1980.

33

(11) Subsequent Event InJanuary 1981 the Company's directors approved a plan of merger, whcrcby the electric utilitybusiness of New Mexico Electric Service Company (NMESC) willbe merged into the Company. NMESC provides electric service to the southern portion of Lea County, New Mexico, including the communitics of Hobbs, Jal and Eunice. The mcrgcr woul involve the issuance of 562,500 sltarcs of the Company's common stock in cxchangc for all of the common stock of NMESC. The Company would assume the long-term debt of NMESC. Consummation of the merger is contingent on tl issuance of a ruling by the Internal Revenue Service that it willqualify as a tax-free reorganization and is also conting on stockholder approvals and approvals by FERC and the Commission and on negotiation of formal agreements, in-cluding a fuel supply agreement for natural gas.

SUPPLEMENTARY INFORMATIONON CHANGINGPRICES Thc effect of changing prices upon thc Company's operations is supplied in accordance with the requirements of tl Financial Accounting Standards Board Statement No. 33. It should bc vicwcd as an estimate of the approximate cffcc inflation, rather than as a precise measure. Moreover, these effects of changing prices are not recognized for purpose.

rate-making or income taxation.

For these presentations, "constant dollar" and "current cost" amounts were calculated by applying indices to historical or other amounts. In the case of constant dollars, the index was the Consumer Price Index for all Urban C<

sumers (CPI-U), which approximates the upward trend ofprices in general during the indicated periods. In the case t current costs, the primary index was the Handy-Whitman Index of Public UtilityConstruction Costs, although CPI-was used for construction work in progress.

Since the utilityplant is not expected to be replaced in kind, current cost does not necessarily represent the rcplac ment cost of the Company's production capacity.

Fuel inventories, the cost of fuel used in generation, and power purchased for resale have not been restated from their historical cost. Regulation limits the rccovcry offuel through the operation of adjustment clauses. For this rcast fuel inventories are treated as monetary assets.

Cumulative preferred stock subject to mandatory redemption requirements is treated as a monetary item in calculating the gain from the decline in purchasing power of nct amounts owed.

Depreciation is determined by applying the Company's composite dcprcciation rate to the indexed plant amounts.

As prescribed in Statement No. 33, income taxes were not adjusted. Accumulated deferred investment tax credits i treated as a monetary item since it is returned to customers through adjustments in rates.

Under the rate making prescribed by the regulatory commissions to which thc Company is subject, only thc histor cost ofplant is recoverable in revenues as depreciation. Therefore, the excess of the cost ofplant, stated in terms of-constant dollars or current cost over the historical cost ofplant, is not presently recoverable in rates as depreciation, and is rcflcctcd as a reduction to net recoverable cost. While the rate-making process gives no recognition to the cur-rent cost of replacing property, plant and equipment, the Company bclicvcs it willbe allowed to earn on the incrcas cost ofits net investment when replacement of facilities actually occurs.

To properly reflect the economics of rate regulation in the Statcmcnt of Earnings from Continuing Operations Ad-justed for Changing Prices, thc reduction of net property, plant and cquipmcnt should be offset by the gain from thc decline in purchasing power of net amounts owed. During a period ofinflation, holders ofmonetary assets suffer a l of general purchasing power while holders ofmonetary liabilities experience a gain. The gain from the decline in pu chasing power of net amounts owed is primarily attributable to the substantial amount of debt which has been used t finance property, plant and equipment. Since the depreciation on this plant is limited to the recovery of historical co.

thc Company does not have the opportunity to realize a holding gain on debt and is limited to recovery only of the embedded cost of debt capital.

34

ATEMENTOF EARNINGS FROM CONTINUINGOPERATIONS JUSTED FOR CHANGINGPRICES Year Ended December 31, 1980 Adjusted for Adjusted for As Reported General Changes in in the Primary Inflation Specific Prices Statement (Constant Dollars)

(Current Cost) rating revenues I and purchased power er operation expenses ntenance and repairs reciation and amortization s, other than income taxes me taxes rest charges er income and deductions net ngs from continuing operations (excluding duction to net recoverable cost) ease in current cost ofproperty, plant d equipment held during the year uction to net recoverablc cost ct of increase in gcncral price level s of increase in general price level over increase in ecific prices after reduction to net recoverable cost from decline in purchasing power of net ounts owed 5280 516 84, 125 46,017 21,201 25,003 12,299 23,712 30,936

~34 213 209 080 S 71 436 (In thousands)

S 280516 84,125 46,017 21,201 42,136 12,299 23,712 30,936

~34 213 226 213

~S54 03'(122, 127) 87 092 S 280 516 84,125 46,017 21,201 42,800 12,299 23,712 30,936

~34 213 226 877 S

53 639

$ 198,969 (311,515)

~8,962 (121,508) 87 092

~8~0)

~834 416 luding the reduction to nct recoverable cost, the earnings (loss) from continuing operations on a constant lar basis would have been

$(67,824) for 1980.

35

QUARTERLYRESULTS OF OPERATIONS The unaudited results of operations (in thousands except pcr sltare amounts) by quarters for 1980 and 1979 are as follows:

Quarter Ended December 31, 1980 September 30, 1980 June 30, 1980 March 31, 1980 December 31, 1979 September 30, 1979 June 30, 1979 March 31, 1979 Operating Rcvenucs

$74,386

$74,899 S66,678

$64,553

$64,335

$66,725

$56,475

$56,835 Operating Income

$ 18,429

$21,982

$ 15,852 S15,535

$ 16,378

$ 18,998

$ 13,192 S11,248 Nct Earnin s

$ 18, 104

$22,698

$ 18,090 S12,544

$ 16,623

$ 16,661

$ 11,504

$ 10,015 Net Earnings Per Share S

.81

$ 1.11 S

.84 s.6o S.87 S.88 S

.61 S.57 In the opinion of management of the Company, all adjustmcnts (consisting of normal recurring accruals) necessary for a fair statement of the results of operations for such periods ltave been included.

STOCK/DIVIDENDDATA Common Stock:

Range of sales prices of the Company's common stock, on the New York Stock Exchange (Symbol: PNM), and dividends paid on common stock for fiscal 1980 and 1979, by quarters, are as follows:

Range ofSales Prices High Low Dividends Pcr Share Fourth Quarter, 1980 Third Quarter, 1980 Second Quarter, 1980 First Quarter, 1980 Fiscal Year 20 1/4 21 3/4 2o 3/4 18 1/2 21 3/4 17 17 5/8 16 1/2 15 1/4 15 1/4

$0.52 0.52 0.52 0.48 s2.o4 Fourth Quarter, 1979 Third Quarter, 1979 Second Quarter, 1979 First Quarter, 1979 Fiscal Year 20 1/4 21 1/2 21 1/4 20 5/8 21 1/2 17 1/2 17 3/8 19 19 1/8 17 3/8

$0.48 0.48 0.48 o.44

$ 1.88 On January 14, 1981, the Board of Directors of the Company declared a dividend of S.67 per share ofcommon st payable February 27, 1981 to stockholders of record February 6, 1981.

Cumulative Preferred Stock:

While isolated sales of the Company's preferred stock have occurred in thc past, the Company is not aware of any tive trading market for its preferred stock.

Quarterly cash dividends were paid on each series of the Company's preferred stock at their stated rates during 19 and 1979.

36

(STEM MAP San Juan Farmington Four Corners Ojo G~

Ambrosia Lake Los Alamos Algodones NortonjSanta Fe

~ Zia Las Vegas

~

Bernalillo Albuquerque Sandia Belen Hobbs Mimbres Luna y peming Las Cruces El Paso 30 60 miles flicService Company of New Mexico 115 and 230 kV owned by PNM 345 kV owned by PNM 345 kV owned by PNM and others 230 kV and above owned by others Generation Switching station Cities served by PNM

~t

't t

(

l L