ML17297B656
| ML17297B656 | |
| Person / Time | |
|---|---|
| Site: | Palo Verde  |
| Issue date: | 08/23/1982 |
| From: | Geist J, Schreiber G PUBLIC SERVICE CO. OF NEW MEXICO |
| To: | |
| Shared Package | |
| ML17297B653 | List: |
| References | |
| NUDOCS 8208270384 | |
| Download: ML17297B656 (38) | |
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NOTICE THE ATTACHED FILES ARE OFFICIAL RECORDS OF THE DIVISION OF DOCUMENT CONTROL.
THEY HAVE BEEN CHARGED TO YOU FOR A LIMITEDTIME PERIOD AND UST BE RETURNED TO THE RECORDS FACILITY RANCH 016.
PLEASE DO NOT SEND DOCUMENTS FHARGEO OUT THROUGH THE MAIL."REMOVALOF ANY AGE(S) FROM DOCUMENT FOR REPRODUCTION MUST E REFERRED TO FILE PERSONNEL.
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Public Service Company of New Mexico believes that each successive generation's quality of life willbe 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 electric and water service at the lowest reasonable cost; Our Shareholders A reasonable return on, with optimum 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 pro-vided through free enterprise with environmental and economic compatibility.
'Ib meet these obligations, we affirm a policy of:
Operating our Company in a responsible manner which reflects the highest corporate integrity; Providing open communications in order to achieve a high level of understanding and acceptance of our purpose and endeavors; Sharing our technical and administrative skills with all levels of government to assist in assuring the best decisions are made; and Promoting, supporting and participating in worthwhile community activities and development.
Annual Meeting The annual meeting of our shareholders is scheduled to be held on April 27, 1982. The meeting willbe held at the corporate headquarters located at Alvarado Square, Albuquerque, New Mexico. We would like to extend an invitation to our shareholders to attend our annual meeting.
A proxy form and notice of the annual meeting along with additional information willbe mailed to all shareholders on March 15, 1982.
For further information and details pertaining to the information provided in this report, please contact D.E. Peckham, Secretary, Public Service Company of New Mexico, Alvarado Square, Albuquerque, New Mexico 87158.
The Common Stock of our Company is traded on the New York Stock Exchange under the symbol PNM.
This, Annual Report and the financial statements con-tained herein are submitted for the general infor-mation of the shareholders of the Company, and are not intended for use in connection with any sale or purchase of, or any offer or solicitation of offers to buy or sell, any securities of the Company.
Form 10.K
,A copy of the Company's Annual Report IForm 10-K) filed with the Securities and Exchange Commission willbe provided to shareholders upon written request to D.E. Peckham, Secretary, Public Service Company of New Mexico, Alvarado Square, Albuquerque, New Mexico 87158.
J.D. Geist, President
Financial Highlights 1981 1980
% Change Operating revenues Operating expenses Operating income Net earnings Net earnings applicable to common stock Return on average common equity Average number of common shares outstanding Net earnings per common share Dividends paid per common share 336, 165,000 250,121,000 86,044,000 107,958,000 88,095,000 18.6'Fo 20,804,000
.423 2.68 280,516,000 208,718,000 71,798,000 71,436,000 53,602,000 14.9%
15,933,000 336 2.04 19.8 19.8 19.8 51.1 64.4 24.8 30.6 25.9 31.4 Utilityconstruction expenditures Gross investment in utilityproperty 328,342,000 283,864,000
$ 1,757,029,000
$ 1,477,744,000 15.7 18.9 Kilowatt-hour sales Number of electric customers served at year end Average kWhr usage per residential customer 5,760,574,000 217,530 5,697 5,402,098,000 213,078 5,782 6.6 2.1 (1 5)
Number of employees Number of common stockholders 3,081 47,430 2,680 34,436 15.0 37.7
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Table of Contents President's Letter Strategic Perspective 1981 Company Operations..............
Earnings Revenues and Expenses..
Financing Requirements Rates and Regulation Electric Operations Water Operations Subsidiary Companies Organization Legislative Events PNM/New Mexico Electric Service Merger Prospective Strategy Diversification New Mexico Economy and Future Load Growth.
New Mexico Generating Station..........
Financial Indicators 3-4 5-6 6
6 7
7 8
9-10 10 10 11 11 12 12 12-13 14 15 15 Financial Section 16 17 18 19 19 20-21 22 23 24 25-31 32-34 34 34 35 inside back cover Comparative Operating Statistics............
Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Responsibility for Financial Statements Accountants'eport Consolidated Balance Sheet Consolidated Statement of Earnings.........
Consolidated Statement of Capitalization.....
Consolidated Statement of Changes in Financial Position Notes to Consolidated Financial Statement..;.
Supplementary Information Concerning the Effects of Changing Prices......
Quarterly Results ofOperations....
Stock/Dividend Data Directors and Officers System Map 0OOO 0000 0
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President's Letter By the end of 1981, PNM had nearly completed its long-term strategy of converting from predominately natural gas-fired generation to less expensive coal. In the 1982 through 1983 time period, your Company's construction expenditures willbegin declining.
Significant expenditures willcontinue, but at levels lower than in the past.
The financial and operational implications of the successful conversion to coal are significant. For instance, due to the resulting reduced construction expenditures and assuming reasonable regulatory treatment, we expect the quality of earnings to be enhanced as well as a general strengthening of other financial indicators.
During the past five years, PNM has progressed from generating about 55 percent of its electricity from coal to approximately 86 percent. 'Ib achieve our conversion strategy, PNM has financed approximately $L2 billion through 21 major security issues since 1977. We report this to you with some pride because with your support PNM accomplished this major conversion during difficulteconomic times while still generally outperforming the utilityindustry.
Entering the decade of the 1980s, we are in the strong position, based on coal, to reliably meet the growing energy needs of our customers and at the same time keep our price increases at or below the rate of inflation. With the addition of San Juan Unit 4 in Aprilof 1982, PNM willbegin a new period of its history, with new strategies to meet the challenge of tomorrow.
In the 1982 session of the New Mexico State Legislature, a number of bills were proposed which were designed to end Cost of Service Indexing and halt or limityour Company's diversification plans.
Eventually, House Bill 167 did pass the Legislature and was sent to the Governor for signing. The major provisions of that bill call for the end of Cost of Service Indexing as a rate-making device after the 1982 adjustment and a 15-month moratorium on any new diversification ventures; however, it allows direct appeal to the State Supreme Court from decisions made by the New Mexico Public Service Commission.
Indexing has been a valuable tool, benefitting PNM and its customers. With our construction winding down, conventional rate making combined with direct appeal to the State Supreme Court should be adequate.
Thus, we believe the legislation as passed willprovide an orderly transition period from Indexing to traditional rate-making procedures.
With regard to diversification, we have 15 months in which to review our plans, prove the benefit of them to others, and improve the operation of activities we have in progress. This period willalso give us ample opportunity to improve our relationship in communities that we serve and to insure that we show our fellow citizens and our customers that we do not intend to compete with small business in the state, but that our intent is to bring major investment opportunities and capital to smaller communities in New Mexico. There are many skeptics; therefore performance willindeed have to be our proof.
For years utilitystocks were more attractive investments than industrial stocks. Today that situation is reversed. During the last decade, soaring fuel costs, expensive pollution control equipment and high interest rates have combined to make the electric
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A common trend today is toward politicized regulations resulting from populist responses to rising prices. It is certainly understandable for utility customers to support political movements or candidates who advocate lowering electric bills; yet, too often such movements can work their willat the expense of the customers'ong-term best interests.
Economic forces affecting the financial health of utilities are fundamentally untouched by populist responses.
Interest rates remain high; credit ratings are based on real world financial performance of companies; and operating expenses still demand aggressive and creative management in order to be kept in line. These are some of the reasons utilities nationwide are seeking new ways to maintain
. financial integrity and health.
utilityindustry an investment with low growth potential relative to other investments. These conditions have prompted other utilities to seek greater strength and more flexibilitythrough diversification. Some have succeeded.
Those electric utilities which have successfully diversified have maintained a stronger financial position than non-diversified electric utilities.
Many utilities have had diversified activities for years.
PNM is no exception. Sunbelt Mining Company, Inc.
and Paragon Resources, Inc. are examples of what may be called "traditional" utilitysubsidiary companies. What makes the current diversification efforts different is the move away from utility-related activities such as mining and land acquisitions for
future power plants to enterprises concerned mainly with the goal of strengthening earnings and which are open to a wider universe of activities, offering the potential for reducing a company's.overall risk.
Your Company has set a diversification strategy in motion from a position of relative strength. It is analogous to our coal conversion strategy of several years ago. We realize that while we performed well relative to the utilityindustry in the past, it is more prudent to seek new ways to strengthen PNM for the future than to continue "business as usual." The forces mentioned before inflation, high interest rates, regulation, environmental controls and public opinion-have changed the world in which we operate.
Yesterday's methods willnot succeed in tomorrow's world. Therefore, we must respond to that change in order to meet the dual needs of reliable, reasonably priced service to our customers with an adequate return to our shareholders.
Diversification is not a panacea nor is it the best option for every utility. For PNM, diversification is a rational strategy to strengthen your Company for the future. But there is another side to diversification that is sometimes overlooked. We strongly believe that PNM has an obligation to society that goes beyond providing electric service. Obviously, such a notion is open to many philosophical interpretations. Yet, for PNM, the issue is straightforward. PNM is one of the largest corporate entities in the state of New Mexico, complete with far-ranging skills, expertise and strengths. PNM draws its very existence from New Mexico; the men and women who manage this company are New Mexicans. Is it not right and proper that we give back to the state benefits that PNM is many years, both in generation and end-use applications. Our programs in this area range over residential and.commercial uses of solar and wind conversion systems. Our new office building, for example, is a live-in experiment with the commercial use of solar energy.
Central in any discussion of renewable energy sources is the understanding that there willbe different ways to provide service to our customers in the future.
Assisting our customers to build effective passive solar homes, for instance, may be an important option for the future. It is important that we understand the effect of such energy sources on our system and that we maintain a successful information and technology transfer program with our customers.
We have discussed at length some of the changes at PNM, some of the opportunities that our successful conversion to coal has produced. The credit for this remarkable achievement lies with the enthusiasm and hard work of our employees and with the mature judgment of our Directors and Officers who have guided PNM through difficulttimes. Our customers, the people of New Mexico and the shareholders of PNM reap the benefits of their labors.
J.D. Geist, President g.g. fi ~~
G.A. Schreiber, Chairman of the Board Q
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opportunities through diversification? We think it is.
Other opportunities are also open to PNM following its successful conversion to coal. Many utilities nationwide are still facing the conversion away from natural gas and oil and the enormous financial strain that creates. Having completed this process, PNM should increase its attractiveness as an investment opportunity.
With reduced demands from rapid construction we now have the opportunity to take additional steps in seeking cost effective methods of providing for our customers'nergy needs. PNM has been actively involved in energy research and development for
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Strategic Perspective Generation Mix (percentage of generation) 1977 19781979 1980 1981 Pp Strategic programs of the 1960s and 1970s were developed to deal with a multitude of external forces which were threats to the Company's financial integrity and its ability to provide electric service at fair and reasonable prices. Major external forces contended with included fuel price escalation, fuel availability, skyrocketing construction costs, inhibiting interest rates, double digit inflation and costly environmental regulations.
With its commitment to participate in the San Juan Generating Station in northwestern New Mexico, PNM began a program in the early 1970s that allowed it to meet a dramatically increasing growth in the population in New Mexico and an annual growth in peak demand of almost 10 percent. One key to this strategy was the acquisition in the 1960s of mining rights to a large reserve of coal immediately adjacent to the San Juan Station site.
The construction of major generating plants starts off slowly during the planning, permitting, and engineering stages and then accelerates as commitments are made to construction. PNM's increase in gross utilityplant was $ 11 million in 1970,
$74 million in 1975 and, with the third unit at San Juan nearing completion,
$318 million in 1979. In 1981, the increase was $279 million.
As a result of the coal conversion strategy, PNM's fuel mix changed from 55 percent coal in 1975 to almost 86 percent in 1981. A further objective of this strategy was to protect New Mexico's environment as we made the conversion. In order to meet stiff state and federal standards, PNM has funded over $ 530 million of pollution control facilities to construct state-of-the-art control equipment. About 14.3 percent of each residential customer's electric bill is directly attributable to environmental protection costs.
The goals we have achieved to date were not without costs. This program placed significant financial strain on the Company during a time of general economic upheaval. When compared to industry standards, PNM experienced difficulties with several key financial indicators including internal cash generation, interest coverage ratios and quality of its earnings.
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0 0000000 OQO 000 Because it is adjacent to the power plant, the San Juan Mine operation reduces the costs of coal through lower transportation costs.
To finance the needed construction program at reasonable costs, the New Mexico Public Service Commission (NMPSC) adopted a unique rate-making mechanism called the Cost of Service Index (Indexing). It was designed to provide timely rate relief and, by its regularity and responsiveness to costs, provide some assurance that our investors'isk would be reduced.
Indexing helped the Company to achieve and maintain its AA/Aa bond ratings during a period of rapidly growing construction costs. As a result, millions of dollars of capital costs were avoided.
Combined with the improved fuel mix and increased efficiencies in operations achieved by management, these capital cost savings resulted in electricity prices that rose less than the rate of inflation during the period 1979 to 1981. The decisions of the 1970s willhave an even more dramatic effect in the 1980s.
PNM's rates are expected to decline slightly in real terms even without the benefit of Indexing beyond 1982.
1981 Company Operations Earnings PNM's net earnings applicable to common stock increased from $53.6 million in 1980 to $88.1 million in 1981, a gain of 64.4 percent.
Reflecting the increase in net earnings, 1981's net earnings per average share of common stock outstanding increased 25.9 percent from $3.36 in 1980 to $4.23 in 1981. The number of average shares outstanding in 1981 was 20.8 million, an increase of 4.9 million over 1980. The return on average common equity was 18.6 percent as compared to 14.9 percent in 1980.
The Company's increased earnings reflect increased operating revenue and the effect of two major transactions. Approximately 37.5 percent of PNM's retained economic interest in certain coal leases was sold to institutional investors on December 31, 1981.
Return on Average Common Equity 1981 (percentage) 18.6 1980 1978 "
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oooooooo o o o oo o ooo o ooo o ooo oooo oooooooo ooo o ooooooooooooooo oo o ooo o ooo o ooo ooo oooooooooooooo The retained economic interest was obtained as a result of the liquidation of Western Coal Co. in November 1981. PNM's share of the proceeds from the sale were approximately
$30 million, resulting in an after-tax gain of approximately $ 18.8 million, or
$.90 per share of common stock. The balance of the retained economic interest willbe offered for sale in 1982.
Additionally, the sale of 40 MW (an 8.475 percent undivided interest) of the 472 MW San Juan Unit 4 to the City of Farmington, New Mexico was consummated on November 17, 1981, resulting in an after-tax gain of approximately
$5.1 million, or $.25 per share of common stock.
Revenues and Expenses
- 'Ibtal operating revenues grew 19.8 percent in 1981 to
$336.2 million, as compared with 1980 revenues of
$280.5 million. This growth reflects increased kilowatt-hour sales and rate relief from both the New Mexico Public Service Commission and the Federal Energy Regulatory Commission (FERC).
Operating expenses increased
$41.4 million in 1981.
This is an increase of 19.8 percent over 1980 expenses.
This growth is attributable to increased fuel and purchased power costs, higher costs of labor and related benefits and general inflationary factors.
Interest charges increased above 1980 levels due to higher levels of borrowing to finance PNM's construction program. Total interest charges and preferred dividend requirements grew 34.8 percent over 1980 levels, from $59.6 million to $80.4 million.
Financing Requirements The Company increased its gross utilityplant in 1981 by approximately
$279 million. To raise the external funds required for these additions, PNM utilized a broad spectrum of financial sources. During the year, the Company issued 7.5 million shares of common stock in two major security offerings, $60 million of 17'/z percent first mortgage bonds, and participated with the City of Farmington in the issuance of $ 130 million of pollution control revenue bonds.
Total Operating Revenues (millions of dollars) 1981 1980 1979 1978 1977 187 139 Gross Plant Investment (millions of dollars) 1981 1980 1979 1,478 1,198 1978 1977 880 682 0O0000
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0 00000000000 000 0 00 0 00000000000 000 0 000 0 00 00 0 000 0 000 0 000 0 0 0 0 000 0 000 0 000 0 000 0 O00000000000000000000e00000000000000000000000000000 Burning about 175 tons ofcoal per hour, San Juan Generating Station features state-of-the-art pollution control equipment.
Rates and Regulation PNM is subject to the regulation of the New Mexico Public Service Commission. Many activities of the Company are regulated by the NMPSC, including rates, quality of service, issuance of securities and permitting for generation and certain transmission construction. The Federal Energy Regulatory Commission has authority over rates charged by PNM for electricity sold for resale and various accounting and reporting procedures.
Rates for the FERC jurisdiction are determined based on future test year rate case filings. Approximately 74 percent of operating revenues fall under the jurisdiction of the NMPSC and the remaining 26 percent under the FERC.
A settlement was reached on major issues on May 29, 1981 between PNM and the intervenors in the Indexing rate proceeding. The NMPSC approved the settlement, thereby allowing an Indexing factor of.4 cents per kilowatt-hour. This factor increased revenues from New Mexico jurisdictional customers 6.7 percent, or by approximately
$14.5 million.
The 1982 Indexing factor has been filed with the Commission. The factor would increase the cost of a kilowatt-hour by 1.1 cents and raise revenues by
$40.6 million. Ninety percent of the factor went into effect January 1, 1982, subject to refund. Hearings will be held during the Spring, with a final factor anticipated to be in place by June of 1982.
In October 1981, the Company filed an application for a rate increase for its four supplemental power wholesale customers and the City of Gallup based on a 1982 test year. The Company participated in settlement negotiations and has reached tentative agreement with its supplemental power customers for this case and for a previously filed case based on a 1981 test year.
If the settlement is approved by FERC, the increases in rates would be 6.3 percent for the 1981 case, effective August 1981,and 15.2 percent for the 1982 case, effective May 1982. A settlement offer has also been made to the City of Gallup.
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Unit 4 /far rightj at the San Juan Generating Station willbegin commercial operation in April, 1982.
System Peak Demand (megawatts j 1980 1981 1978 1979 913 992 1977 855 715 Electric Operations PNM's generating fuel in 1981 was predominately coal, accounting for approximately 86 percent of total kilowatt-hours generated. Natural gas provided about 14 percent. PNM's forecasted system requirements in 1982 are approximately 86.3 percent coal and '6.7 percent natural gas plus 7.0 percent purchased power.
The major gas-and oil-fired generating plants in Albuquerque are being cycled. PNM is estimating that approximately $200 million willbe saved over the life of our gas-and oil-fired power plants by the use of cycling. Cycling means that the gas and oil plants are brought into service only when needed and shut down when they are not needed. These plants were originally designed for continuous operation. Cycling causes additional wear on these units. PNM has begun an aggressive maintenance program to compensate for the additional stress on the units. The savings in fuel costs are greater than the increased maintenance costs.
The electricity generated by PNM during 1981 came from generating facilities as shown in the following table:
Location and Generatin Station Coal-Fired Stations, Near Farmington Four Corners Units 4 and 5 San Juan Units 1, 2, and 3 Gas-and Oil-Fired, Albuquerque Person Station Reeves Station Gas-and Oil-Fired, Las Vegas Las Vegas Turbine PNM's Share of Capacity
~MW 208
'48 96 175 20 1,047 Through its operating divisions, PNM provides electric service to about 217,500 customers in New Mexico.
The Albuquerque Division service area includes roughly a third of the population of the entire state.
The Belen and Bernalillo Divisions serve the rapidly growing areas south and north of Albuquerque. The Santa Fe Division serves the state capital and surrounding communities. The Las Vegas Division serves the City of Las Vegas in north-central New Mexico. The Deming Division service area lies in the extreme southern portion of the state, just north of the Mexican border.
PNM-generated electricity was purchased by several other utilities, both publicly and privately owned, for distribution to their customers within the state. PNM also sold energy to out-of-state utilities. The largest such sale was to the Los Angeles Department of Water and Power, revenues from which amounted to approximately $ 13 million during the year.
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'Ibtal system requirements in 1981, including sales to wholesale customers, were 6,046,729,896 kWhr, an increase of 6.4 percent over 1980. 'Ibtal peak demand in 1981 was 992 MW. This is an increase of 8.7 percent over 1980.
'Ib supply this peak demand and maintain an adequate reserve margin for contingencies, PNM will have Unit 4 at San Juan Station on line in April 1982.
PNM sold 40 MW of its 100 percent ownership in this unit to the City of Farmington, 20 MW of which Farmington willuse during 1982. The other 20 MWwill be purchased from the City for a year, and PNM has the
option to purchase additional power from the City at a later date. Also, 236 MW from San Juan Unit 4 was previously sold as a contingent capacity to San Diego Gas and Electric Company. For 1982, the company will have a total installed capacity of 1,475 MW and a total resource capacity of 1,495 MW.
The Department of Energy, Union Geothermal Company and PNM announced the cancellation of the Baca Geothermal Project effective January 31, 1982.
Technical and economical factors were cited as the reasons for cancellation. Total expenditures by all participants in the Baca Geothermal Project are estimated to be $65 million. PNM's share of these expenditures is approximately $ 1.6 million. This could increase to a total cost of $ 3.5 million if the Company is unable to dispose of equipment purchased for the project. On February 1, 1982, the NMPSC ruled that the project's cost could not be included in the 1982 Indexing factor prior to public hearing. A great deal of information on drilling techniques and geology has been learned from this project, information that will serve PNM or other western utilities in the future.
Water Operations The water operations in Santa Fe and Las Vegas were reorganized and separated from the Company's electric operations. Named the Sangre de Cristo Water Company, the new division is headquartered in Santa Fe. Water operations are locally oriented. The split between the electric and water operations will increase Sangre de Cristo's responsiveness to the communities it serves.
Subsidiary Companies PNM has three wholly-owned subsidiary companies:
Paragon Resources, Inc., Sunbelt Mining Company, Inc., and Meadows Resources, Inc. Paragon Resources, Inc. is engaged in the acquisition of water rights and property for future power plant projects and other utility-related activities. Because New Mexico law requires water rights to be put to beneficial use or revert to the state, Paragon manages several farms and ranches to maintain water rights.
Sunbelt Mining Company, Inc. began operation in 1980. It mines coal leases and provides supplemental fuel to the San Juan Generating Station, and willmine coal for sale to other companies. It may also supply coal to New Mexico Generating Station.
Formed in October 1981, Meadows Resources, Inc. is a unique PNM subsidiary. Meadows willengage in the diversified activities that have no utilityrelationship.
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In 1981, San Juan Station burned almost 4,000,000 tons of coal. Ib supply the coal, San Juan Mine operates around the cloch.
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Organization A significant change was made in the organizational structure of your Company on April 28, 1981. The change formed five 'sectors" headed by Sector Vice Presidents to divide the major activities and responsibilities within the corporation. The Supply Sector is headed by C. David Bedford. His areas of concern are Resource Planning Activities, Corporate Services, and Information Systems. John P. Bundrant is responsible for the Demand Sector whose functions include the utilitybusiness, Division Operations, Engineering and Construction, Power Operations and Industrial Relations. The third sector is Corporate Affairs. James B. Mulcock, Jr. is responsible for the management of the corporate environment including regulatory, political, and Public Affairs area. A.J.
Robison leads the Finance Sector. Allcorporate financial functions such as Financial Planning, Treasury, Accounting and Rates are administered by this Sector. Allnon-utility business activities including diversification and subsidiaries fall under the guidance of Robert B. Rountree, Senior Vice President of the Commercial Sector.
The five Sector Vice Presidents report directly to the President of the Company, Jerry D. Geist. The new organization provides the streamlined structure needed for creative and aggressive management in both the utilityand non-utility areas of your Company.
Legislative Events A bill passed in the 1982 New Mexico Legislature temporarily limits PNM's further diversification activities and willend the Company's Cost of Service Indexing method of rate making after 1982. The bill becomes law 90 days after the end of the legislative session. Assuming approval by the Governor, the law willbecome effective in May.
The legislation places a 15-month moratorium on any new non-utility diversification project. The law also established an interim legislative committee to study utilitydiversification and report back to the Legislature in January 1983. The committee will consist of eight members appointed by the House and Senate leadership.
Further, the law provides access by the New Mexico Public Seivice Commission to records of PNM, especially in transactions with affiliates which provide goods, services, and land and water rights to the parent. The new law also provides direct appeal to the New Mexico Supreme Court of any Commission orders.
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PNM/New Mexico Electric Service Merger At the April 28, 1981 Annual Meeting the final proxy count showed 97.6 percent of the shareholders who voted favored the PNM/New Mexico Electric Service Company merger. The hearings before the NMPSC proceeded. The NMPSC approved the Hearing Examiner's recommendation that the application to merge be denied; however, PNM was permitted by the order to file a second case. A new case is being prepared by both companies because material changes have occurred since the earlier case.
Prospective Strategy Diversification Uncertainties associated with future economic and energy situations demand that PNM seek new strategies to manage its utilitybusiness.
Diversification is one strategy. Ifno steps are taken, these uncertainties together with the traditional earnings posture of a regulated utilitymay turn investors away. While still looking for the safety of a utilitytype earning, those investors willbe drawn to a utilitythat offers a potential for growth. They willmore readily invest in those utilities which have achieved a business mix that includes significant investment and earnings potential in non-regulated operations.
Furthermore, for PNM, the difficulties of additional power plant construction loom in the late 1980s.
Therefore, as PNM faces another cycle of utility construction, a primary motivation for your Company to proceed with a non-regulated venture program is to establish a business mix which can mitigate future construction, capital and cash demands. Thus, PNM has established a diversification strategy based on five strategic objectives:
- Provide new job opportunities through a New Mexico corporation;
- Broaden PNM's earnings base and potential;
- Improve long-term profitability;
- Improve long-term credit worthiness;
- Enhance the growth, development and quality of life opportunities in the state of New Mexico.
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Diversification ventures approved for development have undergone and successfully met batteries of tests. For the last two years we have been developing screening mechanisms that evaluate ventures in the light of numerous criteria. The criteria include the compatibility of the venture's goals with that of PNM's corporate mission, the strategic objectives of diversification, the favorability of the economic environment, the attractiveness of alternative investments and a host of very specific financial standards related to return and risk.
Capital funds for diversification investment originate from retained earnings and the subsidiary companies'wn lines of credit. This protection of the utility customers would seem to isolate them from any benefits diversification may have to offer. That is not the case. By concentrating on venture development within the state of New Mexico, the strategy creates jobs and increases the state and local tax bases which directly benefit the ratepayer. These direct benefits willenhance the growth, development and quality of life opportunities within the state of New Mexico.
Further, as diversification balances the business risk of PNM, enhanced credit worthiness may stabilize capital costs in the future, costs which are part of our customers'ates.
To execute this strategy, a third subsidiary, Meadows Resources, Inc., was established in October 1981. Its primary focus is to proceed with business ventures which have no connection with the utilitybusiness.
The first venture launched by Meadows is a partnership with Dale Bellamah Land Company, Inc.
called the Bellamah Community Development (BCD).
BCD owns about 9,000 acres of prime land throughout the Southwest for future development.
Meadows'hare of the BCD venture is approximately
$48.3 million which is matched in money and value by Bellamah.
Another Meadows venture is a medium density fiberboard manufacturing plant to be built in Las Vegas, New Mexico. In conjunction with another New Mexico corporation, Frontier Fiber, Inc., which will act as construction and operating manager of the plant, this $60 millionjoint venture willprovide 200 new jobs in an economically depressed area in northern New Mexico. Construction is expected to begin in 1982, with an operational date of 1984.
The Company perceives that diversification is also a wise decision from the shareholder's viewpoint.
Independent studies confirm that utilities which undertake diversification strategies from positions of strength outperform non-diversified utilities.
0 0
00000 eOOO 0 6 0 0 0 000 0 0 0 0 0 0 0 0 0 0 0.0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
)0000000000000000000000000000000000000000000000000000
>00 0 000 0 000 0 000y00000 0 000 0 000 0 000 0 000 0 00000 oeoooO OOeeoo 0@0 0 oooo0 00 0 00 The state's largest application ofsolar energy for a privately-ouned office building is located at PNM's Alvarado Square.
13
Employment willincrease commensurate with population. Average house size willcontinue to
- decrease, partially as an energy conservation response but also due to continued high housing costs, interest rates and decreasing family size. Electric appliances willcontinue to become more energy efficient. Based on the 1980 experience of deregulation of petroleum prices, natural gas is currently projected to almost double in price in the three-year period following deregulation in 1985. Due to higher assumptions of inflation, electric price projections are also higher than those of a year ago; however, the year of parity between the cost of electricity and natural gas has advanced from 1994 to 1991.
New Mexico Economy and Future Load Growth PNM's 20-year forecast of energy requirements and seasonal peak demands is dominated by expectations of substantial population and economic growth plus the shift of relative energy costs to favor electricity.
Load growth projections for the next two years are heavily influenced by the current economic recession.
Concerns over inflation, record high interest rates, a depressed housing industry and high unemployment are common concerns in PNM's operating divisions.
Almost all divisions are forecasting decreases in average residential use, citing the trend toward smaller houses and strong customer conservation action. Commercial growth is predicted to be about normal, and industrial growth in the near-term is buoyed by several large electronics manufacturing firms moving into the Albuquerque area. Uranium mining activity willremain in its depressed state in the near-term. The forecasted growth in total sales for the near-term period is approximately 6 percent which is substantially below the historical rate of nearly 10 percent.
The long-term outlook for PNM's service area is for general economic recovery in the second half of the 1980s and healthy but somewhat slower growth throughout the decade of the 1990s. Historical population growth, based on the 1980 census, has been revised upward by as much as 30 percent in parts of PNM's service area, largely reflecting increased migration to the sunbelt area. While forecasted to be somewhat lower during the next decade, continued in-migration willcontribute to population growth rates of more than double the national average.
Beyond 1986, system demands willgrow at or below the rates of sales growth, thus improving the system load factor. PNM willremain a summer peaking utilitythrough the end of the century.
PNM's load management programs are designed to reduce annual peaks in the future. The success of these programs is largely dependent on customer responses to timewf-use rates which were set in place in 1981. Programs to provide information on solar energy and the use of direct load control willalso contribute to reducing the annual peak. These programs are expected to have a nominal impact on energy sales. The peak reductions are forecasted to be 9 MW in 1982, 47 MW by 1986, 98 MW by 1991, and 163 MW by 2001.
00 oooo 00 O 0 0 0 0 0 0 0 0 000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 O
0 0
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300000000000000000000000000000000000000000000000000(
0 0
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0000 0
0 0
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00eo 0
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0 00000 00 A photovoltaic concentrator array at a test facilityin Albuquerque.
14
New Mexico Generating Station PNM's system demand projections for the 1980s are complete and the attention of the system planners is now focused on the decade of the 1990s and beyond.
As part of your Company's continuing long-range planning, the New Mexico Generating Station (NMGS) project team is currently working with the Bureau of Land Management to complete the environmental impact statement required of such projects. The plant is designed to meet the energy needs of our customers in the 1990s.
NMGS started in 1974 with a study of all New Mexico counties and three areas in west Texas for candidate power plant sites. That analysis identified the Bisti area south of Farmington, New Mexico as the prime candidate for the proposed 2,000 megawatt power plant. The prime consideration in the selection of the Bisti site was the close proximity of adequate coal fields.
Once the environmental impact statement is completed and updated studies on options to meet the future load growth of New Mexico are finished, a decision on whether to construct the New Mexico Generating Station at Bisti willbe made. Thus, it will have taken nine years of research and study to make a decision about a power plant our customers will need a decade from now.
Financial Indicators A key financial standard for PNM is the maintenance of its AA/Aa bond ratings. Acceptable growth and improvement in the quality of our earnings, as well as dividends that provide a competitive yield, make attainment of this standard possible. 'Ib earn an acceptable return for our shareholders, your Company has entered into a well planned program of diversification which should provide a level of improved earnings standards from utilityoperations.
To achieve acceptable earnings standards from utility operations, however, the Company must continue to pursue an aggressive program to control capital spending and expenses as well as receive reasonable regulatory treatment.
UtilityConstruction Expenditures (millions of dollars) 1979 198'I 323 1 980 328 284 1978 1977 152 oooooooooc 0 0 0
0 c
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0 0
ooooooo ooooooooo ooo ooooooooooo oooooooooooooooooo
>oo o ooo o ooo o ooo o ooo o ooo 15
Electric Service Energy Sales kWhr (in thousands)
Residential Commercial Industrial Other ultimate customers
'Ibtal sales to ultimate customers Sales for resale
'Ibtal energy sales 1981 1,104,827 1,483,105 858,454 186,939 3,633,325 2,127,249 5,760,574 1980 1,090,003 1,441,634 859,178 167,070 3,557,885 1,844,213 5,402,098 1979 1,067,755 1,403,282 858,533 159,396 3,488,966 1,471,485 4,960,451 1978 1,000,564 1,353,805 797,314 164,901 3,316584 1,211,242 4,527,826 1977 957,390 1,320,651 686/845 160,922 3,125,808 1,241,195 4,367,003 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 million BTU BTU per kWhr of net generation 80,627 97,699 50,111 12,170 72,596 85/480 44,524 9,750 66,262 77,806 40,467 8,704 51,414 60,125,,
28,860 7,052 39,547 45,520 18,918 5,215 240,607 86,781 212,350 59,475 193,239 44,000 147,451 32,568 109,200 23,219 327,388 2,581 271,825 2,598 237,239 2,532 180,019 2,581
>132,419 2,605 329,969 274,423 239,771 182,600 135,024 195,722 21, 164 458 180 217,524 6
217,530 8 1,047,000 992,000 191,495 20,932 466 179 213,072 6
213,078 1,080,000 913,000 184,979 20,334 485 179 205,977 5
205,982 1,082,000 855,000 175,439 19,496 482 178 195,595 5
195,600 842,000 809,000 164,803 18,374 493 182 183,852 5
183,857 858,000 715,000 11,227 10,551 10,746 10,993 11,004 1.1952 1.0961 1.2072 1.0552
.9274 Water Service Sales Gallons (in thousands)
Revenues (in thousands)
Customers at Year End 2,729,457 2,699,816 2,515,815 19,303 18,755 19,899 6,196 6,093 4,599 2,753,122 2,731,801 4,605 3,612 18,079 17,427
1981 1980 1979 1978 1977 Total operating revenues Net earnings Net earnings per common share Total assets Preferred stock with mandatory redemption requirements Long.term debt, less current maturities Common stock data:
Cash dividends declared per common share Dividend pay-out ratio Market price per common share at year end Book value per common share at year end Average number of common shares outstanding Return on average common equity 336,165 107,958 4.23
$ 1,832,315 Iln thousands except per share amounts and ratios) 280,516 244,370 187,205 138,636 71,436 54,803 37,464 24,921 3.36 2.97 2.83 2.46
$ 1,458,412
$ 1,186,446 888,747 664,449 90,000 90,000 40,000 707,472 567) 190 431,655 356(347 S
244>720 2.68 2.04 1.88 63A
'Yo 60.7 %
63.3
%%uo 1.72 60.8
'%%uo S
161 65.4
'%%uo 20,804 18.6
'Yo 15,933 14.9 %
14,363 13.6 '%0,289 13.0 %
7,569 11.6 %
23.75 19.75 18.25 19.87 S
21.50 23.89 23.36 22.26 21.85 21.61 Ratio of earnings to fixed charges (S.E.C. method)
Capitalization ratios:
Common stock equity Preferred stock:
Without mandatory redemption requirements With mandatory redemption requirements Long-term debt, less current maturities 3.00 39.5
%%uo 7.1 6.0 47A 100.0
%%uo 2.96 33.3 %
9.3 7.9 49.5 100.0 3.47 37.5
%%uo 11.5 4.3 46.7 100.0 %
3.18 37.4 %
48.2 100.0
%%uo 2.91 37.1 15.5 47.4 100.0 %
17
Liquidityand Capital Resources The Company is continuing a construction program which willmeet future customer service requirements. The Company estimates its external capital requirements for the 1982-1986 period to be approximately $646 million, including $264 million for 1982. The years 1981 and 1982 are expected to be the peak in the Company's construction program with budgeted expenditures to decline significantly during the period 1983-1986. During this same time period, internal cash generation is expected to increase substantially. Internally generated cash for the Company's capital requirements in 1982 is projected to be approximately 16 percent of total capital requirements as compared to the 1981 level of approximately 13 percent. In the 1983-1986 time frame, internally generated cash is expected to increase significantly, from 46 percent in 1983 to 74 percent in 1986, for a projected five-year average of over 48 percent of total capital requirements. Implicit in these projections of internal cash generation are assumptions of timely and adequate rate relief with respect to both retail and wholesale customers as well as contributions to internal cash from activities of the Company's subsidiaries in the later gears of the forecast.
The Company expended approximately $388 million in 1981 and estimates expending about $351 million in 1982 for its construction program. Of the 1981 and 1982 expenditures, approximately
$395 millionrelate to the construction of the Company's share of Unit 4 at the San Juan Generating Station and the Palo Verde Nuclear Generating Station.
Successful completion of the construction program is dependent on the Company's ability to obtain external financing, primarily through issuance of new debt and equity securities which are subject to meeting certain earnings tests and market conditions. During 1981, the Company issued
$ 180 million of common stock and $60 millionof first mortgage bonds, and also utilized $85 million of proceeds from pollution control financing. The Company issued 700,000 shares of cumulative preferred stock at $50 stated value per share in January 1982 and anticipates issuing up to $60 million of additional first mortgage bonds and 4.5 million shares of common stock to partially finance 1982 construction expenditures. The consolidated capitalization at December 31, 1981 consisted of 47A percent long-term debt, excluding current maturities, 6.0 percent cumulative preferred stock with mandatory redemption requirements, 7.1 percent cumulative preferred stock without mandatory redemption requirements and 39.5 percent common stock equity. The Company's capitalization ratios reflect its effort to maintain its current credit ratings.
The Company's commercial paper, which represents a primary source of short-term financing, is rated P-1/A-1 (the highest rating of Moody's Investor Services and Standard and Poor's Corporation, respectively). The Company's first mortgage bonds are rated AAby Standard and Poor's and Fitch and Aa by Moody's.
In addition to the Company's external financing activities as described above, the Company has filed for additional rate relief from the New Mexico Public Service Commission and the Federal Energy Regulatory Commission.
Results of Operations Operating revenues increased over the comparable prior periods. The principal factors contributing to these increases were increased kWhr sales, effects of higher rates and increases in fuel and purchased power costs which are passed on to customers through the fuel adjustment clause.
Principal factors contributing to the increase in operating expenses in 1981 were fuel and purchased power costs resulting from increased system requirements and rapidly rising fuel costs. The increases in maintenance and repair expenses over the comparable periods resulted primarily from scheduled overhauls of the Company's generating facilities.
Other income and deductions increased significantly over the comparable periods primarily due to increased allowance for funds used during construction (AFUDC) and the Company's completion of two major transactions. The increase in AFUDC was a result of increased construction expenditures at the San Juan Generating Station and Palo Verde Nuclear Generating Station, coupled with an increase in the rate used to the maximum allowed by the Federal Energy Regulatory Commission. In late 1981, the Company sold an 8.475 percent undivided interest in Unit 4 of the San Juan Generating Station and also sold 37.5 percent of its retained economic interest in certain coal leases. These two transactions contributed approximately
$5.1 million and $ 18.8 million, respectively, to net earnings.
See notes (8) and (11) to the Consolidated Financial Statements.
18
Due to the increased level of construction, the Company experienced increased interest charges and preferred dividends. During the period 1979-1981 the Company issued
$ 155 million of first mortgage bonds and utilized $205
~
million of pollution control revenue bond proceeds, generally at higher interest r'ates than previous issues, and issued
$90 million of cumulative preferred stock.
As a result of the items detailed above, earnings before income taxes, income taxes, net earnings and net earnings per share of common stock all increased in 1979, 1980 and 1981.
During these periods, the Company experienced high rates of inflation in the environment in which it operates. The effect of inflation on the Company is discussed within the Supplementary Information Concerning the Effects of Changing Prices on pages 32-34.
5wREanh0~
The management of Public Service Company of New Mexico is responsible for the preparation and presentation of the accompanying financial statements.
The financial statements have been prepared in conformity with generally accepted accounting principles and include amounts that are based on informed estimates and judgments of management.
Management maintains a system of internal accounting controls which it believes is dBequate to provide reasonable assurance that assets are safeguarded, transactions are executed in accordance with management authorization, and the financial records are reliable for preparing the financial statements.
The system of internal accounting controls is supported by written policies and procedures, a staff of internal auditors who conduct comprehensive internal audits, and by the selection and training of qualified personnel.
The Board of Directors, through its Audit Committee comprised entirely of outside directors, meets periodically with management, internal auditors and the Company's independent auditors to discuss auditing, internal control and financial reporting matters. 'Ib ensure their independence, both the internal auditors and independent auditors have full and free access to the Audit Committee.
The independent auditors, Peat, Marwick, Mitchell &Co., are engaged to examine the Company's financial statements in
~ accordance with generally accepted auditing standards.
Rgatl The Board of Directors and Stockholders Public Service Company of New Mexico:
We have examined the consolidated balance sheet of Public Service Company of New Mexico and subsidiaries as of December,31, 1981 and 1980 and the related consolidated statements of earnings, capitalization and changes in financial position for each of the years in the three-year period ended December 31, 1981. Our examinations were made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the aforementioned consolidated financial statements present fairlythe financial position of Public Service Company of New Mexico and subsidiaries at December 31, 1981 and 1980 and the results of their operations and changes in their financial position for each of the years in the three-year period ended December 31, 1981, in conformity with generally accepted accounting principles applied on a consistent basis.
C.'EAT, MARWICK,MITCHELL& CO.
Albuquerque, New Mexico February 19, 1982
Assets Utilityplant, at original cost (notes 4 and 8):
Electric plant in service Water plant in service Common plant in service 800,736 37,615 24,530 743,837 33,535 18,643 December 31 1981 1980 (In thousands) 862,881 796,015 Less accumulated depreciation and amortization Construction work in progress Electric plant held for future use Net utilityplant 173,989 688,892 887,100 7,048 1,583,040 152,102 643,913 680,603 1,126 1,325,642 Other property and investments:
Non-utility property, at cost, net of accumulated depreciation of $2,538,000 in 1981 and
$ 1,340,000 in 1980 Investment in fifty-percent-owned company (note ll)
Other, at cost
'Ibtal other property and investments 81,464 6,911 88,375 33,588 3,099 2,738 39,425 Current assets:
Cash Temporary cash investments Receivables:
Customers Other Allowance for doubtful receivables Fuel, materials and supplies, at average cost Prepaid expenses Deferred fuel costs
'Ibtal current assets Deferred charges 10,105 28,591 33,061 22,776 (499) 34,002 2,611 10,091 140,738 20,162
$ 1,832,315 6,012 29,794 5,320 (192) 26,353 2,220 8,536 78,043 15,302
$ 1,458,412 See accompanying notes to consolidated financial statements.
20
,C}
Capitalization and Liabilities Capitalization:
Common stock equity (note 2):
Common stock of $5 par value. Authorized 40,000,000 shares; outstanding 24,675,305 shares in 1981 and 16,330,304 shares in 1980 Additional paid-in capital Retained earnings Total common stock equity 123,377 327,625 138,514 589,516 81,652 195,026 104,847 381,525 ecem er 31 1981 1980
{In thousands)
Cumulative preferred stock. Authorized 10,000000 shares (note 3):
Without mandatory redemption requirements.
Outstanding 860,000 shares of $ 100 stated value and 800,000 shares of $25 stated value With mandatory redemption requirements.
Outstanding 900,000 shares of $ 100 stated value Long-term debt, less current maturities (note 4)
Total capitalization Current liabilities:
Short-term debt (note 5)
Accounts payable Preferred dividends declared Current maturities of long-term debt (note 4)
Accrued interest Accrued taxes Other current liabilities Total current liabilities 106,000 90,000 707,472 1,492,988 108,808 48,171 4,712 5,390 11,321 20,146 11,799 210,347 106,000 90,000 567,190 1,144,715 129,355 49,836 4,712 1,487 10,456 12,494 5,645 213,985 Deferred credits:
Accumulated deferred investment tax credits (note 6)
Accumulated deferred income taxes (note 6)
Other deferred credits Total deferred credits Commitments and contingencies (notes 8, 9, 10 and 11) 58,960 48,941 21,079 128,980
$ 1,832,315 41,037 42,357 16,318 99,712
$ 1,458,412
Operating revenues:
Electric (note 10)
Water
'Ibtal operating revenues
$ 329,969 6,196 336,165
$274,423 6,093 280,516
$239I771 4,599 244,370 ear en e
ecem er 1981 1980 1979 (In thousands except per share amounts)
Operating expenses:
Fuel and purchased power Other operation expenses Maintenance and repairs Provision for depreciation and amortization
'lhxes, other than income taxes Income taxes (note 6)
'Ibtal 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 (notes 6 and 11)
Gain on sale of equity interest in trust, net of taxes (notes 6 and 11)
Other, net of taxes (notes 6 and 8)
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 104,084 55,367 28,836 26,162 13,740 21,932 250,121 86,044 33,957 5,255 18,805 8,200 66,217 152,261 41,572 18,947
~16,216) 44,303 107,958 19,863
$ 88,095 20,804 84,125 46,017 21,201 25,003 12,299 20,073 208,718 71,798 27,236 2,953 385 30,574 102,372 29,012 12,771
~10,847) 30,936 71,436 17,834
$ 53,602 15,933 85,143 34,351 15,045 17,603 10,531 21,881 184,554 59,816 15,594 2,151 250 17,995 77,811 24,236 4,696 (5,924) 23,008 54,803 12,196
$ 42,607 14,363 Per share amounts:
Net earnings Dividends 4.23 2.68 3.36 2.97 2.04 1.88 See accompanying notes to consolidated financial statements.
22
Common stock equity:
Common stock:
Balance at beginning of year Issuance of common stock Balance at end of year Additional paid-in capital:
Balance at beginning of year Premium on common stock issued Expenses of stock issuance Balance at end of year Retained earnings:
Balance at beginning of year Net earnings 1981 81,652 41,725 123,377 195,026 138,336 (5,737) 327,625 104,847 107,958 212,805 Year ended December 31 1980
{Inthousands) 78,009 3,643 81,652 185,600 10,120 (694) 195,026 83,719 71,436 155,155 1979
- 63,211 14,798 78,009 145,433 42,466
{2,299) 185,600 67,645 54,803 122,448 Cash dividends:
Cumulative preferred stock Common stock Balance at end of year
'Ibtal common stock equity Cumulative preferred stock:
Without mandatory redemption requirements -balance at beginning and end of year With mandatory redemption requirements:
Balance at beginning of year Issuance of preferred stock Balance at end of year 19,863 54,428 74,291 138,514 589,516 39.5%%uo 106,000 7.1 90,000 90,000 6.0 17,834 32,474 50,308 104,847 381,525 33.3%
106,000 9.3 40,000 50,000 90,000 7.9 12,196 26,533 38,729 83,719 347,328 37.5%
106,000 11.5 40,000 40,000 4.3 Long-term debt, less current maturities:
Balance at beginning of year Addition to long-term debt Reduction of long-term debt Net change in unamortized discount and premium Balance at end of year
'Ibtal capitalization at end of year 567,190 148,510 (7,460)
~768) 707,472 47 4 431,655 137,837 (2,284)
(18) 567,190 49.5
$ 1,492,988 100.0Vo
$ 1,144,715 100.0%
356,347 82,763 (6,544)
~911) 431,655 46.7
$924,983 100.0%
Number of shares issued:
$ 100 stated value cumulative preferred stock Common stock e
8,345 500 729 400 2,960 See accompanying notes to consolidated financial statements.
Year ended December 31 1981 1980 1979 Funds 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 Earnings of fifty-percent-owned company Funds derived from operations Sale of common stock Sale of cumulative preferred stock Sale of first mortgage bonds Proceeds from pollution control revenue bonds Proceeds from other long-term debt Proceeds from short-term debt Dividends from fifty-percent-owned company Utilityplant retirements, net of removal costs Proceeds from sale of utilityplant, net of pre-tax gain of $ 11,005,000 Decrease in working capital, other than short-term debt Other Funds used:
Cash dividends Utilityplant additions Payment of short-term debt Reduction of long-term debt Additions to non-utility property Increase in working capital other than short-term debt Other Changes in working capital other than short. term debt:
Cash Temporary cash investments 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
$ 107,958 28,962 6,584 17,923 (33,957)
(7,275) 120,195 180,061 60,000 84,677 3,833 432,560 10,374 1,397 37,867 4,852
$935,816
$ 74 291
'290,382 453,107 7,460 48,284 45,786 16,506
$ 935,816 4,093 28,591 20,416 7,649 391 1,555 1,665 (3,903)
(865)
(7,652)
(6,154)
$ 45,786 (In thousands)
$ 71,436 26,889 9,668 10,216 (27,236)
(6,856) 84,117 13,763 50,000 78,000 57,942 1,895 308,834 9,868 141 311
$604,871
$ 50,308 254,805 275,439 2,284 16,749 2,683 2,603
$604,871 2,202 (2,481) 4,280 180 (2,786) 1,859 (1,843) 3 737 (4,879) 3,839 (1,425) 2,683
$ 54,803 n>
19,128 8,711 7,716 (15,594)
(2,216) 72,548 57,264 40,000 17,000 62,166 3,597 290,315 14,137 7,948 18,518
$583,493
$ 38,729 308,526 218,160 6,544 8,157 3,377
$583,493 1,881 443 6,058 924 (553)
(8,623)
(875)
(4,035)
(1,153)
(2,021) 6 (7,948)
See accompanying notes to consolidated financial statements.
IMz IS~ IRzllmN)IMzma0a
. December 31, 1981 1980, and 1979 (1) Summary of Significant Accounting Policies System of Accounts The Company maintains its accounting records in accordance with the uniform system of accounts prescribed by the Federal Energy Regulatory Commission (FERC) and adopted by the New Mexico Public Service Commission (Commission). As a result of the rate-making process, the application of generally accepted accounting principles by the Company differs in certain respects from the application by non-regulated businesses.
Such differences generally regard the time at which certain items enter into the determination of net earnings in order to follow the principle of matching costs and revenues.
Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Paragon Resources, Inc., Sunbelt Mining Company, Inc. and Meadows Resources, Inc. Allsignificant intercompany transactions have been eliminated.
UtilityPlant Utilityplant is stated at original cost, which includes payroll-related costs such as taxes, pensions and other fringe benefits, administrative costs and an allowance for funds used during construction.
It is Company policy to charge repairs and minor replacements of property to maintenance expense and to charge major replacements to utilityplant. Gains or losses resulting from retirements or other dispositions of operating property in the normal course of business are credited or charged to the accumulated provision for depreciation.
Depreciation Provision for depreciation of utilityplant is made at annual straight-line rates approved by the Commission. The average depreciation rates used were as follows:
1981 1980 1979 Electric plant 3.38%%uo 3.36%
3.62%
Water plant 1.94%
1.94%
1.88%
Common plant 6.74%0 7.36%
7.13%
The provision for depreciation and amortization of certain equipment, including amortization applicable to capital
- leases, is charged to clearing accounts along with other costs of operation and subsequently apportioned to operating expenses and property accounts based on the use of the equipment. Depreciation of non-utility property is computed on the straight-line method.
Allowance for Funds Used During Construction (AFUDC)
In accordance with the uniform system of accounts, AFUDC, a non-cash item, is charged to utilityplant. AFUDC represents the cost of borrowed funds (allowance for borrowed funds used during construction) and a return on other funds (allowance for equity funds used during construction). In compliance with regulatory requirements, AFUDC is limited to new electric generation construction, including pollution control devices to the extent they pertain to customers subject to the Commission, major transmission, major water plant and general plant construction to the extent it pertains to customers subject to FERC jurisdiction.
The AFUDC was computed using rates of 6i/2 percent until May 15, 1979 and 7i/z percent from then until December 31, 1979. Beginning January 1, 1980, AFUDC was computed using the maximum rate, net of taxes, permitted by FERC which was 8.65 percent for 1980 and 8.85 percent for 1981. The Commission also ordered the Company to record additional AFUDC in 1980 representing a recalculation of 1979 AFUDC based on the maximum rate allowed by FERC. The effect of this adjustment was not significant. The AFUDC was allocated between borrowed funds and equity funds for all periods based on the method required by FERC.
I,I Capitalized Interest The Company capitalizes interest costs on non-utility property in compliance with Financial Accounting Standards Board Statement No 34. Interest capitalized amounted to $4,961,000 in 1981,
$2,003,000 in 1980, and $626,000 in 1979.
25
Investment In Fifty.Percent Owned Company The Company's investment in a fifty-percent-owned company was accounted for using the equity method. The co-owner, Tucson 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 of 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 completed its adopted plan of liquidation in 1981 and has ceased operations.
See note (11).
Deferred Fuel Costs The Company uses the deferral method of accounting for the portion of fuel costs which is recoverable in subsequent periods under fuel adjustment clauses.
Amortization of Debt 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 of deferring investment tax credits and amortizes them over the estimated useful lives of the related properties.
Pursuant to 1981 orders from the Commission and FERC, the Company records investment tax credits only to the extent that they are utilized to offset current income taxes. Prior to 1981, investment tax credit carryforwards were partially recorded as reductions of deferred Federal income taxes. Prior-year figures have been reclassified to be consistent with this methodology.
Income Taxes Certain revenue and expense items in the Consolidated Statement of Earnings are recorded in a year different from the year in which they are recorded for income tax purposes. Deferred income taxes are provided on these timing differences to the extent allowed for rate-making purposes. This normalization method is used primarily for differences attributable to deferred fuel costs, the use of liberalized depreciation methods and different lives under the asset depreciation range (ADR) and the accelerated cost recovery system (ACRS) than under the guideline depreciation provisions. Certain other differences result in a reduction in income tax expense in the current year. This flow-through method is used primarily for differences between tax depreciation computed under the guideline life provisions and book depreciation and certain capitalized construction costs deducted currently for income tax purposes.
At present, rates applicable to customers subject to FERC control allow recovery of amounts necessary to provide additional tax normalization of the items described above which are accounted for under the flow-through method for other customers. Provision has been made for additional deferred income taxes attributable to amounts collected under these rates.
Non-utility deferred taxes are provided on all non-permanent differences between book and taxable income. These differences consist primarily of interest and other expenses which are capitalized for book purposes and of income which is taxable prior to the time it is recognized for financial reporting purposes.
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 of past service costs over thirty years.
(2) Common Stock Equity The Board of Directors has periodically reserved common stock for the dividend reinvestment program, the Employee Stock Purchase Plan and the Tax Reduction Act Stock Ownership Plan, of which 1,830,846 shares remained unissued at December 31, 1981.
Charter provisions relating to the cumulative preferred stock and the indenture securing the first mortgage bonds impose certain restrictions upon the payment of cash dividends on common stock of the Company. At December 31, 1981, there were no retained earnings restricted under such provisions.
26
In 1981, the Company's directors and stockholders approved a plan of merger, whereby the electric utilitybusiness of New Mexico Electric Service Company (NMESC) would be merged into the Company. The merger would involve the issuance of 562,500 shares of the Company's common stock in exchange 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 approvals by FERC and the Commission.
(3) Cumu)ative Preferred Stock Information concerning the cumulative preferred stock is as follows:
Stated Value Aggregate Shares Stated Value Outstanding (In thousands)
Stated Redemption Price (a)
Without mandatory redemption requirements:
1965 Series, 4.58%
1974 Series, 9.2%
1975 Series, 10.12%
9.16% Series 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 1,660,000
$ 13,000 17,000 10,000 20/000 20,000 26,000
$ 106,000
$ 102.516 107.00 107.00 26.70 108.48 108.80, With mandatory redemption requirements 8.75% Series (b) (c) 14.75% Series (b) (c) 100 100 400,000
$ 40,000 500,000 50,000 900,000
$ 90,000 108.75 114.75 (a) The cumulative preferred stock may be redeemed by the Company, upon thirty days notice, at stated redemption prices plus accrued and unpaid dividends. Redemption prices are at reduced premiums in future years.
(b) Redemption may not be made through certain refunding operations prior to April 1, 1982 for the 8.48% Series, April 1, 1983 for the,8.80% Series, February 1, 1984 for the 8.75% Series, or April 1, 1990 for the 14.75% Series.
(c) Beginning in 1984 for the 8.75% Series and 1986 for the 14.75% Series, the Company must annually redeem 13,000 and 20,000 shares, respectively, at a price of $ 100 per share plus accrued and'unpaid dividends.
(4) Long.Term Debt The details of the Company's outstanding long-term debt including unamortized discount and premium, less current maturities, are as follows:
Issue and Maturit Interest Rates 1981 1980 (In thousands)
First Mortgage Bonds:
1982 through 1986 1987 through 1991 1997 through 2001 2002 through 2006 2007 through 2011 2000 through 2010-pollution control series, securing pollution control revenue bonds Funds held by trustee
'Ibtal first mortgage bonds Pollution control revenue bonds, due 1984 Funds held by trustee Other Total long-term debt 3e/e% to 12.95%
4e/e% to 4~/e%
5~/e% to 8~/e%
7'/e% to 10'/e%
8'/e% to 17'/e%
6% to 8'/e%
5% to 8e/4%
$ 52,221 17,986 50,092 88,001 153,236 300,048 (60,399) 601,185 207,000 (106,641) 5,928
$707,472
$ 55,171 18,232 50,645 88,470 94,355 300,014 (121,717) 485,170 77,000 5,020
$567,190 27
Substantially all utilityplant is pledged to secure the first mortgage bonds.
Approximately 25 percent of the original principal amount of each series of first mortgage bonds willbe redeemed through sinking fund requirements prior to the aforementioned due dates. The aggregate amounts tin thousands) of maturities on all long-term debt outstanding at December 31, 1981 are as follows:
1982 5,390 1983 4,113 1984 135,087 1985 52,578 1986 3,902 In August 1977, the City of Farmington, New Mexico, issued and sold $77,045,000 principal amount of its 5.9 percent Pollution Control Revenue Refunding Bonds, Series 1977, the proceeds of which are expected to be used to retire
$77,000,000 of presently outstanding pollution control revenue bonds at their maturity in 1984. From and after such retirement, but not before, the Refunding Bonds willbe payable out of revenues received by the 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 The Company's interim financing requirements are met through issuance of unsecured notes payable to banks and commercial paper. The Company generally pays fees to compensate for bank credit commitments. The commitments consist of both lines of credit and revolving credit agreements ranging in duration from one year to three years.
Although it is not required to do so, the Company generally maintains sufficient unused bank commitments to cover all outstanding commercial paper. Details of the Company's short-term debt at December 31, 1981, 1980, and 1979 and for the years then ended are as follows:
Aggregate short-term debt outstanding:
Notes payable to banks Commercial paper 1981
$ 64,053
$ 44,755 1980 (In thousands)
$ 79,575
$ 49,780 1979
$ 37,250
$ 58,710 Weighted average interest rate on out-standing debt:
Notes payable to banks Commercial paper 15s/4%
12 o/o 18e/s%
18s/e%
14s/e%
13e/e%
Maximum outstanding during year:
Notes payable to banks Commercial paper
$ 101,107
$ 82,100
$ 80,175
$ 67,825
$ 51,835
$ 58,710 Average outstanding during year:
Notes payable to banks Commercial paper
$ 62,095
$ 70,040
$ 31,092
$ 61,437 8,747
$ 29,713 Weighted average interest rate on short-term debt outstanding during the year, computed using daily outstanding balances:
Notes payable to banks Commercial paper 17~/s%%uo 16e/s%%uo 14'/4%
12e/s%
12e/e%
11'/e%
Unused bank commitments
$222, 122
$ 76,878
$ 60,140 28
(6) Income Taxes Income taxes consist of the following components:
Current Federal income tax Current state income tax Deferred Federal income tax Deferred state income tax Amount equivalent to current investment tax credit Amortization of accumulated investment tax credit
'Ibtal income taxes Charged to operating expenses Charged to other income and deductions
'Ibtal income taxes 1981
$ 6,887 4,798 7,019 302 20,660 (1,925)
$37,741
$21,932 15,809
$37,741 1980 (In thousands)
$ 4,185 1,205 7,226 1,089 11,809
{1,802)
$23,712
$20,073 3,639
$23,712 1979
$ 3,864 1,467 7,539 677 9,655 (742)
$22,460
$21,881 579
$22,460 The Company has investment tax credit carryforwards, for tax purposes, of approximately $73 millionas of December 31, 1981 which would, ifunused, expire in 1994 through 1996.
Deferred income taxes result from certain timing differences in the recognition of income and expense for tax and accounting purposes, as described in note (1). The major sources of these differences and the tax effects of each are as follows:
1981 1980 1979 Deferred fuel costs Liberalized depreciation methods and asset class lives shorter than guideline lives Prepaid income taxes on liquidation of
~
Western Coal Co.
Other miscellaneous items 737 10,386
{In thousands)
$ (1,353) 9,386 (11,028) 7,226 282 7,321 8,315 (495) 8,049 662
$ 8,216 The current portion of deferred income taxes (included in accrued taxes) results from timing differences on deferred fuel costs.
The Company's effective income tax rate was less than the Federal income tax statutory rate for each of the years shown. The differences are attributable to the following factors:
Federal income tax statutory rate
'lhx depreciation in excess of book depreciation caused by use of guideline depreciation provisions Allowance for funds used during construction, net of depreciation adjustments Certain employee benefits and taxes capitalized for financial statements, net of depreciation adjustments Amortization of investment tax credits
'lhxes recorded at capital gains rate net of related minimum tax Other miscellaneous items Company's effective tax rate 1981 46.0'Yo (1A)
(15A)
(5)
(1.3)
(5.0) 3.5 25.9%
1980 46.0%
(1 0)
(17.8)
(6)
{1.9)
(1)
.3 24.9%
1979 46.0%
(2.7)
(12.1)
(5)
(1.0)
(6) 29.1%
(7) Pension Plan The Company and its subsidiaries have a pension plan covering substantially all of their employees, including officers.
The plan provides for monthly pension payments to participating employees upon their attaining the age of 65 or the 29
age of 62 with 30 years of service. The amounts of such payments are dependent upon length of service'and the average wage of the three most highly compensated consecutive years of employment.
0 0
The total pension cost was $6,798,000 in 1981,
$4,815,000 in 1980 and $3,058,000 in 1979 including amortization of past service cost over 30 years.
As of January 1, 1981 and 1980, the two most recent actuarial valuation dates, accumulated plan benefits and plan net assets for the Company's pension plan are as follows:
1981 1980 (In thousands)
Actuarial present value of accumulated plan benefits:
Vested Nonvested
$ 19,810 2,762
$22,572
$ 17,892 1,825
$ 19,717 Net assets available for benefits (market value)
$22,354
$21,539 The weighted average assumed rate of return used in determining the actuarial present value of accumulated plan benefits for both years was seven percent.
(8) Construction Program and Jointly-Owned Plants The Company is participating with 'Ibcson Electric Power Company (TEP) in the construction of the steam turbo-electric San Juan Generating Station. The Company owns an undivided fifty-percent interest in the first three units of the station.
In 1979, the Company purchased TEP's fifty-percent undivided interest in the fourth and final unit, which is scheduled for completion in 1982, of the San Juan station. In November 1981, the Company sold an 8.475 percent undivided interest in San Juan Unit 4 to the City of Farmington, New Mexico. Of the approximately
$48.9 million from the sale, the Company realized a gain of $5.1 million, net of applicable income taxes.
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 1982 willapproximate
$351 million including expenditures on the jointly-owned projects. In connection therewith, substantial commitments have been made.
Details of the Company's interest in jointly-owned plants at December 31, 1981 are as follows:
Construction Share of Plant Accumulated Work in
'Ibtal In Service Depreciation Progress Plant San Juan Generating Station Palo Verde Nuclear Generating Station Four Corners Generating Station Units 4 and 5
$418,047
$ 26,479 (In thousands)
$50,186
$ 7,730
$432,193
$361,089
$ 23,294 62.4%
10.2%
13.0%
These amounts represent the Company's share of capital costs, and the Company has provided its own financing. The Company's share of direct expenses is included in the corresponding operating expenses in the Consolidated Statement of Earnings. The Company also has undivided interests in transmission facilities which are not significant.
(9) Lease Commitments The Company leases data processing, communication, office and other equipment, office space, utilitypoles (joint use) and real estate. Certain leases provide purchase options in the approximate amount of $ 1,074,000 for data processing equipment,
$335,000 for construction equipment and $ 139,000 for other equipment. The leases for office buildings provide for purchase options equal to fair market value at the end of the primary terms. Renewal options and con-tingent rental provisions were not significant.
30
c~
Leased property under capital leases at December 31, 1981 and 1980 is as follows:
1981 1980 Data processing equipment Other Less accumulated amortization Future minimum lease payments at December 31, 1981 are:
1982 1983 1984 1985 1986 Later years
'Ibtal minimum lease payments Less amount representing executory costs Net minimum lease payments Less amount representing interest Present value of net minimum lease payments
{In thousands)
$ 4,384
$ 3,888 518 543 4,902 4,431 2,921 2,209 1,981
$ 2,222 Capital Leases Operating Leases (In thousands) 1,024
$ 1,583 531 1,483 471 2,478 375 2 277 145 2,230 415 62,433 2,961
$72,484 190 2,771 631 2,140 Rents charged to operating expenses were $3,736,000 in 1981, $ 1,486,000 in 1980 and $ 1,277,000 in 1979. Rents charged to utilityplant were $362,000 in 1981, $914,000 in 1980 and $236,000 in 1979. Allsuch amounts exclude payments made on capital leases. As of December 31, 1981, the aggregate minimum rentals to be received under non-cancellable subleases are approximately
$3,132,000.
(10) Revenues Subject to Refund The Company collected revenues which were subject to refund since 1977 under wholesale rate cases filed with FERC. In 1981 the Company refunded
$ 10.2 million plus interest. Of such amount, the Company had recorded
$3.3 million in 1979, $6.3 million in 1980 and the remainder in 1981 as a provision for refund. The Company has collected approximately
$5A million of revenues subject to refund since August 1981 under a wholesale rate case filed with FERC and recorded
$ 1.6 million as a provision for possible refund.
(11) Gain on Sale of Equity Interest in Trust Prior to its liquidation, Western Coal Co. (Western), a corporation owned fifty-percent each by the Company and Tucson Electric Power Company (TEP), held a retained economic interest in a sublease covering various Federal, state and private, coal leases at the mine which is the primary source of coal for the San Juan Generating Station.
See note (8). On November 30, 1981, in completion of its liquidation, Western assigned all of its interest under the sublease to a trust, of which the Company and TEP were initiallythe sole beneficiaries. On December 31, 1981, the Company sold 37.5 percent of its 50 percent interest in the trust to institutional investors for $30 million, resulting in an after-tax gain of approximately $ 18.8 million, or $.90 per share of common stock. Unless the transfer from Western to the trust and the sale by the Company to the investors is approved by the United States Bureau of Land Management by October 31, 1982, the sale willbe rescinded and the Company willbe obligated to repay the $30 million. Management of the Company, after consultation with legal counsel, believes that the possibility of not obtaining this approval is remote.
(12) Subsequent Event On January 15, 1982, the Company sold 700,000 shares of 12.52% cumulative preferred stock, $50 stated value, for
$35 million to a trust for private investors. This series of preferred stock may not be redeemed through certain refunding operations prior to October 15, 1991 and is subject to the mandatory redemption of 46,660 shares per year beginning in 1987. The Company has also agreed to indemnify the trust and the investors against the loss of certain income tax benefits. However, the Company has the option to redeem the entire series should payments under such indemnification increase the effective dividend rate on the stock by more than one-half of one percent.
31
ll
~ QelNS@c9Szzgfhg Cbthm The following supplementary information is presented in accordance with the requirements of Statement No. 33, "Financial Reporting and Changing Prices" of the Financial Accounting Standards Board. Statement No. 33 deals with two different aspects of inflation: (1) the decline in the purchasing power of the dollar {the 'constant dollar'ethod) and (2) the effects of changes in specific prices of certain assets of the Company (the 'current cost" method).
The Company believes it is important for users of the financial statements to develop an understanding of the more significant impacts of inflation upon the Company. However, the Company advises readers that the information presented in accordance with Statement No. 33 is determined through the use of experimental techniques and is not intended to replace traditional statements based on historical cost.
The constant dollar information represents historical costs stated in terms of dollars of the same general purchasing power as measured by the average level of the Consumer Price Index for all Urban Consumers for 1981.
The current cost data reflect the change in specific prices of utilityplant and equipment from the date the property was acquired to the present, as measured primarily by the Handy-Whitman Index of Public Utility Construction Costs.
IRmCSM IRIhmm0dt tihlslhtyRlh854llhrSBmgbgl IAIIRR Year Ended December 31, 1981 Operating revenues Operating expenses (excluding depreciation and amortization)
Depreciation and amortization (note A)
Interest charges Other income and deductions, net As Reported in the Primary Statement
$336,165 223,959 26,162 44(303 (66,217) 228,207 Adjusted for General Inflation (Constant Dollars)
(In thousands)
$ 336,165 223,959 46,874 44,303 (66,217) 248,919 Adjusted for Changes in Specific Prices
{Current Cost)
$ 336,165 223,959 48,092 44,303 (66,217) 250,137 Net earnings (excluding reduction to net recoverable cost)
$ 107,958
$ 87,246'86,028 Increase in specific prices of net utilityplant Reduction to net recoverable cost (note B)
Effects of increase in the general price level
$ (117,775) 90,628 (202,712)
~4,473)
Excess of increase in the general price level over the increase in specific prices of net utility plant after reduction to net recoverable cost (116,557)
Gain from decline in purchasing power of net amounts owed (note C)
Net 82,894
$ (34,881) 82,894
$ (33,663)
'Including the reduction to net recoverable cost, the net earnings (loss) on a constant dollar basis would have been
$ (30,529) for 1981.
32
~.
~ (g gg@3Qi
~ s
. ~~) QDDQ c48zmghg Cbfhm 1981 Year ended December 31 1980 1979 1978 1977 Historical cost Information adjusted for general inflation:
Revenues Net earnings excluding reduction to net recoverable cost Net earnings per common share Net assets at year-end, at net recoverable cost
$336,165
$ 87,246 3.24
/
$666,903
$309,954
$ 60,002 2.53
$306,530 S 56,499 S
2.87
$514,505
$537,723
$261,263
$208,297 (In thousands of average 1981 dollars except per share amounts)
Current cost Information:
Net earnings excluding reduction to net recoverable cost Net earnings per common share Excess of increase in general price level over increase in specific prices after reduction to net recoverable cost Net assets at year-end, at net recoverable cost
$ 86,028 3.18
$ 116r 557
$666,903 S 59,268 2.48
$ 134,259
$514,505
$ 54,866 2.75
$ 128,525
$537,723 General Information:
Purchasing power gain on net amounts owed Cash dividends declared per common share Market price per common share at year-end Consumer price index for all urban consumers:
Average Year-end
$ 82,894 2,68 22.77 272.7'84A'96,232 2.25 20.84 246.8 258.4
$ 80,143 S
236 21.65 217.4 229.9, 2.40 26!71 195.4 202.9 2.42 31.50 181.5 186.1
'Estimated Note A-Depreciation and amortization adjusted for changing prices In adjusting historical cost income statement items for general inflation, changes were made only to the provision for depreciation and amortization. Allother revenue and expense items were considered to reflect the current average price level for the year.
Estimated utilityplant was determined under both methods by applying the indices specified to the historical cost of utilityplant by vintage year. Depreciation expense was then determined for the adjusted amounts of utilityplant by applying the same rates used to compute the historical amount of depreciation.
Note B-Reduction to net recoverable cost Under the rate making prescribed by the regulatory commissions to which the Company is subject, only historical cost of plant is recoverable in revenues as depreciation and amortization. Therefore, the excess of the cost of plant, stated in terms of constant dollars or current cost over the historical cost of plant, is not presently recoverable in rates as depreciation and amortization, and is reflected as a reduction to net recoverable cost. While the rate-making process gives no recognition to the current cost of replacing property, plant, and equipment, the Company believes it willbe allowed to earn on the increased cost of its net investment when replacement of facilities actually occurs.
Note C-Gain from decline in purchasing power of net amounts owed During periods of inflation, the holders of monetary assets suffer a loss of general purchasing power because such items willpurchase less at a future date. Alternatively, holders of monetary liabilities such as long-term debt experience a gain
- C 33
I because the amount of money required to ultimately settle the liabilities represents dollars of diminished purchasing power.
Since the Company owed net monetary liabilities during a period in which the general purchasing power of the dollar declined, the Company experienced an economic gain in purchasing power. Allassets and liabilities other than utility plant and amounts applicable to the cumulative preferred stock not subject to mandatory redemption requirements were treated as monetary items.
Qy Qo[gg(QJ Qggg (ii) 0
~ -
~
The unaudited results of operations (in thousands except per share amounts) by quarters for 1981 and 1980 are as follows:
Quarter Ended Operating Revenues Operating Income Net Earnings Net Earnings per Share December 31, 1981
$85,860
$ 15,442 September 30, 1981
$93,407
$28,317 June 30, 1981
$81,902
$21/202 March 31, 1981
$74,996
$21,083 December 31, 1980
$74,386
$ 18,429 September 30, 1980
$74,899
$21,982 June 30, 1980
$66,678
$ 15,852 March 31, 1980
$64,553
$ 15I535 In the opinion of management of the Company, all adjustments (consisting of normal fair statement of the results of operations for such periods have been included.
$42,693
$ 1.54
$25,916
$.99
$ 19,103
$.70
$20,246
$.89
$ 18,104
$.81
$22,698
$ 1.11
$ 18,090
$.84
$ 12,544
$.60 recurring accruals) necessary for a
~
D
~ -
~ QDD Common Stoclc Range of sales prices of the Company's conunon stock, on the New York Stock Exchange (Symbol: PNM), and dividends paid on common stock for fiscal 1981 and 1980, by quarters, are as follows:
Range of Sales Prices Dividends High Low Per Share Fourth Quarter, 1981 Third Quarter, 1981 Second Quarter, 1981 First Quarter, 1981 24'/z 24'/4 24~/8 21~/4 22 21'/z 203/e 19'/i
$0.67 0.67 0.67 0.67 Fiscal Year 24~/s 19'/4
$2.68 Fourth Quarter, 1980 Third Quarter, 1980 Second Quarter, 1980 First Quarter, 1980 20'/4 213/4 20~/4 18'/2 17 17~/e 16i/z 15'/4
$0.52 0.52 0.52 0.48 Fiscal Year Cumulative Preferred Stoclc 213/4 15'/4
$2.04 While isolated sales of the Company's preferred stock have occurred in the past, the Company is not aware of any active 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 1981 and 1980.
Qosgg<g gag CoOI Board of Directors A.B. Collins, Jr.
President, Reddy 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 of New Mexico C.E.
Leyendecker'resident, Mimbres Valley Bank Deming, New Mexico
~ D.W. Reeves
Chairman of the Executive Committee of the Board of Directors, Public Service Company of New Mexico R.R.
Rehder'rofessor of Management, Robert O. Anderson Graduate School of Management,
.University of New Mexico
~) Albuquerque, New Mexico s~- G.A. Schreiber" Chairman of the Board of Directors, Public Service Company of New Mexico R.H.
Stephens'tephens-Irish Agency Las Vegas, New Mexico E.R. Wood President, Santa Fe Motor Company Santa Fe, New Mexico Officers J.D. Geist President R.B. Rountree Senior Vice President, Commercial C.D. Bedford Sector Vice President, Supply J.P. Bundrant Sector Vice President, Demand J.B. Mulcock, Jr.
Sector Vice President, Corporate Affairs A.J. Robison Sector Vice President, Finance J.T. Ackerman Vice President, Division Operations B.D. Lackey Vice President and Controller R.F. Mershon Vice President, Industrial Relations R. Mullins Vice President, Operations J.L. Wilkins Group Vice President, Engineering, Construction and Operations P.J. Archibeck Treasurer and Assistant Secretary D.E. Peckham Secretary and Assistant Treasurer H.L. Hitchins, Jr.
Assistant Secretary and Assistant Treasurer B.P. Lopez Assistant Secretary P.R. Gamer tsfelder District Vice President, Las Vegas and Santa Fe Divisions F.E. Gray Vice President, Urban Development R.A. Lake District Vice President, Belen, Bernalillo and Deming Divisions D.J. Morse Albuquerque and Western Division District Manager J.L. Smith Belen Division Manager L.C. Edwards Bernalillo Division Manager F. Van Gundy Deming Division Manager A. Lujan Las Vegas Division Manager J. Godwin San Juan Plant Manager D.A. Trujillo Sangre de Cristo Water Company, Las Vegas Division Manager W.M. Hicks Sangre de Cristo Water Company, Santa Fe Division Manager
'Members of the Audit Committee "Members of the Executive Committee 35
Executive Offices Alvarado Square Albuquerque, New Mexico 87158 Transfer Agents Registrars Common Stock Public Service Company of New Mexico Stockltolder Services Alvarado Square Albuquerque, New Mexico 87158 Chemical Bank Corporate Trust Department 55 Water Street New York, New York 10041 Common and Preferred Stock First National Bank in Albuquerque Post Office Box 1305 Albuquerque, New Mexico 87103 Chemical Bank Corporate Trust Department 55 Water Street New York, New York 10041 Preferred Stock Public Service Company of New Mexico Stockholder Services Alvarado Square Albuquerque, New Mexico 87158 p<
36
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