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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+ EF y P NOTICE RECORDS OF THE THE ATTACHED FILES ARE OFFICIAL HAVE BEEN DIVISION OF DOCUMENT CONTROL. THEY FOR A LIMITED TIME PERIOD AND CHARGED TO YOU BE RETURNED TO THE RECORDS FACILITY UST RANCH 016. PLEASE DO NOT SEND DOCUMENTS OF ANY FHARGEO OUT THROUGH THE MAIL."REMOVAL DOCUMENT FOR REPRODUCTION MUST AGE(S) FROM E REFERRED TO FILE PERSONNEL.
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Public Service Company of New Mexico believes that Annual Meeting each successive generation's quality of life will be The annual meeting of our shareholders is scheduled progressively more dependent upon the availability and to be held on April 27, 1982. The meeting will be held reliability of electric and water service. at the corporate headquarters located at Alvarado Consistent with this belief, we recognize our, Square, Albuquerque, New Mexico. We would like to obligations to: extend an invitation to our shareholders to attend our Our Customers annual meeting.
An adequate and reliable source of electric and water A proxy form and notice of the annual meeting along service at the lowest reasonable cost; with additional information will be mailed to all Our Shareholders shareholders on March 15, 1982.
A reasonable return on, with optimum security of, For further information and details pertaining to the their investment; information provided in this report, please contact Our Employees D.E. Peckham, Secretary, Public Service Company An objective opportunity to progress and grow of New Mexico, Alvarado Square, Albuquerque, through productive and meaningful participation; and New Mexico 87158.
Our Future Generations The Common Stock of our Company is traded on the A legacy of adequate electric and water service pro- New York Stock Exchange under the symbol PNM.
vided through free enterprise with environmental and This, Annual Report and the financial statements con-economic compatibility. tained herein are submitted for the general infor-
'Ib meet these obligations, we affirm a policy of: mation of the shareholders of the Company, and are not intended for use in connection with any sale or Operating our Company in a responsible manner purchase of, or any offer or solicitation of offers to which reflects the highest corporate integrity; buy or sell, any securities of the Company.
Providing open communications in order to achieve a high level of understanding and acceptance of our Form 10.K purpose and endeavors; Sharing our technical and administrative skills with all ,A copy of the Company's Annual Report IForm 10-K) filed with the Securities and Exchange Commission levels of government to assist in assuring the best decisions are made; and will be provided to shareholders upon written request to D.E. Peckham, Secretary, Public Service Company Promoting, supporting and participating in worthwhile of New Mexico, Alvarado Square, Albuquerque, New community activities and development. Mexico 87158.
J.D. Geist, President
Financial Highlights 1981 1980 % Change Operating revenues $ 336, 165,000 $ 280,516,000 19.8 Operating expenses $ 250,121,000 $ 208,718,000 19.8 Operating income $ 86,044,000 $ 71,798,000 19.8 Net earnings $ 107,958,000 $ 71,436,000 51.1 Net earnings applicable to common stock $ 88,095,000 $ 53,602,000 64.4 Return on average common equity 18.6'Fo 14.9% 24.8 Average number of common shares outstanding 20,804,000 15,933,000 30.6 Net earnings per common share $ .423 $ 336 25.9 Dividends paid per common share $ 2.68 $ 2.04 31.4 Utility construction expenditures $ 328,342,000 $ 283,864,000 15.7 Gross investment in utility property $ 1,757,029,000 $ 1,477,744,000 18.9 Kilowatt-hour sales 5,760,574,000 5,402,098,000 6.6 Number of electric customers served at year end 217,530 213,078 2.1 Average kWhr usage per residential customer 5,697 5,782 (1 5)
Number of employees 3,081 2,680 15.0 Number of common stockholders 47,430 34,436 37.7
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Table of Contents President's Letter 3-4 Financial Section Strategic Perspective 5-6 Comparative Operating Statistics............ 16 1981 Company Operations .............. 6 Selected Financial Data . 17 Earnings 6 Management's Discussion and Analysis of Revenues and Expenses .. 7 Financial Condition and Results Financing Requirements . 7 of Operations . 18 Rates and Regulation 8 Management's Responsibility for Electric Operations . 9-10 Financial Statements 19 Water Operations 10 Accountants'eport . 19 Subsidiary Companies . 10 Consolidated Balance Sheet 20-21 Organization . 11 Consolidated Statement of Earnings ......... 22 Legislative Events PNM/New Mexico Electric Service Merger .
11 12 Consolidated Statement of Capitalization ..... 23 Consolidated Statement of Changes in Prospective Strategy 12 Financial Position . 24 Notes to Consolidated Financial Statement ..; . 25-31 Diversification 12-13 New Mexico Economy and Supplementary Information Concerning the Future Load Growth . 14 Effects of Changing Prices ...... ......... 32-34 New Mexico Generating Station .......... 15 Quarterly Results of Operations.... 34 Financial Indicators 15 Stock/Dividend Data . 34 Directors and Officers 35 System Map inside back cover 0OOO 00000 000 0
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President's Letter In the 1982 session of the New Mexico State Legislature, a number of bills were proposed which By the end of 1981, PNM had nearly completed its were designed to end Cost of Service Indexing and long-term strategy of converting from predominately halt or limit your Company's diversification plans.
natural gas-fired generation to less expensive coal. In Eventually, House Bill 167 did pass the Legislature the 1982 through 1983 time period, your Company's and was sent to the Governor for signing. The major construction expenditures will begin declining. provisions of that bill call for the end of Cost of Significant expenditures will continue, but at levels Service Indexing as a rate-making device after the lower than in the past. 1982 adjustment and a 15-month moratorium on any new diversification ventures; however, it allows direct The financial and operational implications of the appeal to the State Supreme Court from decisions successful conversion to coal are significant. For made by the New Mexico Public Service Commission.
instance, due to the resulting reduced construction expenditures and assuming reasonable regulatory Indexing has been a valuable tool, benefitting PNM treatment, we expect the quality of earnings to be and its customers. With our construction winding enhanced as well as a general strengthening of other down, conventional rate making combined with direct financial indicators. appeal to the State Supreme Court should be adequate. Thus, we believe the legislation as passed During the past five years, PNM has progressed from will provide an orderly transition period from generating about 55 percent of its electricity from coal Indexing to traditional rate-making procedures.
to approximately 86 percent. 'Ib achieve our conversion strategy, PNM has financed approximately $ L2 billion With regard to diversification, we have 15 months in through 21 major security issues since 1977. We report which to review our plans, prove the benefit of them this to you with some pride because with your support to others, and improve the operation of activities we PNM accomplished this major conversion during have in progress. This period will also give us ample difficult economic times while still generally opportunity to improve our relationship in outperforming the utility industry. communities that we serve and to insure that we show our fellow citizens and our customers that we Entering the decade of the 1980s, we are in the strong do not intend to compete with small business in the position, based on coal, to reliably meet the growing state, but that our intent is to bring major investment energy needs of our customers and at the same time opportunities and capital to smaller communities in keep our price increases at or below the rate of New Mexico. There are many skeptics; therefore inflation. With the addition of San Juan Unit 4 in performance will indeed have to be our proof.
April of 1982, PNM will begin a new period of its history, with new strategies to meet the challenge For years utility stocks were more attractive of tomorrow. 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 0 0 0
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>00000000000000000000000000000000000O0000000000000000 0 0 0 0 0 0 0 0 0 A common trend today is toward politicized utility industry an investment with low growth regulations resulting from populist responses to rising potential relative to other investments. These prices. It is certainly understandable for utility conditions have prompted other utilities to seek customers to support political movements or greater strength and more flexibilitythrough candidates who advocate lowering electric bills; yet, diversification. Some have succeeded. Those electric too often such movements can work their will at the utilities which have successfully diversified have expense of the customers'ong-term best interests. maintained a stronger financial position than non-Economic forces affecting the financial health of diversified electric utilities.
utilities are fundamentally untouched by populist Many utilities have had diversified activities for years.
responses. Interest rates remain high; credit ratings PNM is no exception. Sunbelt Mining Company, Inc.
are based on real world financial performance of and Paragon Resources, Inc. are examples of what companies; and operating expenses still demand may be called "traditional" utility subsidiary aggressive and creative management in order to be companies. What makes the current diversification kept in line. These are some of the reasons utilities efforts different is the move away from utility-related nationwide are seeking new ways to maintain activities such as mining and land acquisitions for
. financial integrity and health.
future power plants to enterprises concerned mainly many years, both in generation and end-use with the goal of strengthening earnings and which are applications. Our programs in this area range over open to a wider universe of activities, offering the residential and.commercial uses of solar and wind potential for reducing a company's.overall risk. conversion systems. Our new office building, for Your Company has set a diversification strategy in example, is a live-in experiment with the commercial use of solar energy.
motion from a position of relative strength. It is analogous to our coal conversion strategy of several Central in any discussion of renewable energy sources years ago. We realize that while we performed well is the understanding that there will be different ways relative to the utility industry in the past, it is more to provide service to our customers in the future.
prudent to seek new ways to strengthen PNM for the Assisting our customers to build effective passive solar future than to continue "business as usual." The forces homes, for instance, may be an important option for mentioned before inflation, high interest rates, the future. It is important that we understand the regulation, environmental controls and public opinion- effect of such energy sources on our system and that have changed the world in which we operate. we maintain a successful information and technology Yesterday's methods will not succeed in tomorrow's transfer program with our customers.
world. Therefore, we must respond to that change in We have discussed at length some of the changes at order to meet the dual needs of reliable, reasonably PNM, some of the opportunities that our successful priced service to our customers with an adequate conversion to coal has produced. The credit for this return to our shareholders. remarkable achievement lies with the enthusiasm and Diversification is not a panacea nor is it the best hard work of our employees and with the mature option for every utility. For PNM, diversification is a judgment of our Directors and Officers who have rational strategy to strengthen your Company for the guided PNM through difficult times. Our customers, future. But there is another side to diversification that the people of New Mexico and the shareholders of is sometimes overlooked. We strongly believe that PNM reap the benefits of their labors.
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, J.D. Geist, President 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 g.g. fi ~~
G.A. Schreiber, Chairman of the Board Q Q 0 0 0 Q
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~~0 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
Strategic Perspective The construction of major generating plants starts off slowly during the planning, permitting, and Strategic programs of the 1960s and 1970s were engineering stages and then accelerates as developed to deal with a multitude of external forces commitments are made to construction. PNM's which were threats to the Company's financial increase in gross utility plant was $ 11 million in 1970, integrity and its ability to provide electric service at $ 74 million in 1975 and, with the third unit at San fair and reasonable prices. Major external forces Juan nearing completion, $ 318 million in 1979. In contended with included fuel price escalation, fuel 1981, the increase was $ 279 million.
availability, skyrocketing construction costs, inhibiting As a result of the coal conversion strategy, PNM's fuel interest rates, double digit inflation and costly mix changed from 55 percent coal in 1975 to almost environmental regulations. 86 percent in 1981. A further objective of this strategy With its commitment to participate in the San Juan was to protect New Mexico's environment as we Generating Station in northwestern New Mexico, made the conversion. In order to meet stiff state and PNM began a program in the early 1970s that allowed federal standards, PNM has funded over $ 530 million it to meet a dramatically increasing growth in the of pollution control facilities to construct state-of-the-population in New Mexico and an annual growth in art control equipment. About 14.3 percent of each peak demand of almost 10 percent. One key to this residential customer's electric bill is directly strategy was the acquisition in the 1960s of mining attributable to environmental protection costs.
rights to a large reserve of coal immediately adjacent The goals we have achieved to date were not without to the San Juan Station site. costs. This program placed significant financial strain on the Company during a time of general economic upheaval. When compared to industry standards, Generation Mix PNM experienced difficulties with several key (percentage of 1977 19781979 1980 1981 financial indicators including internal cash generation, generation) interest coverage ratios and quality of its earnings.
Pp coal natural gas oil 00 00000 0 00 0 0 0 0 0 0 0 0 0 OQO 000 OOOOOOOOOOO<>OOOOOOOOOOOOOOOO'00000000000000000000000000000000000000000000000000 0000000 0 0 0 0 000 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 1981 Company Operations reasonable costs, the New Mexico Public Service Commission (NMPSC) adopted a unique rate-making Earnings mechanism called the Cost of Service Index PNM's net earnings applicable to common stock (Indexing). It was designed to provide timely rate increased from $ 53.6 million in 1980 to $ 88.1 million relief and, by its regularity and responsiveness to in 1981, a gain of 64.4 percent.
costs, provide some assurance that our investors'isk Reflecting the increase in net earnings, 1981's net would be reduced. earnings per average share of common stock Indexing helped the Company to achieve and outstanding increased 25.9 percent from $ 3.36 in 1980 maintain its AA/Aa bond ratings during a period of to $ 4.23 in 1981. The number of average shares rapidly growing construction costs. As a result, outstanding in 1981 was 20.8 million, an increase of millions of dollars of capital costs were avoided. 4.9 million over 1980. The return on average common Combined with the improved fuel mix and increased equity was 18.6 percent as compared to 14.9 percent efficiencies in operations achieved by management, in 1980.
these capital cost savings resulted in electricity prices that rose less than the rate of inflation during The Company's increased earnings reflect increased the period 1979 to 1981. The decisions of the 1970s operating revenue and the effect of two major will have an even more dramatic effect in the 1980s. transactions. Approximately 37.5 percent of PNM's PNM's rates are expected to decline slightly in retained economic interest in certain coal leases was sold to institutional investors on December 31, 1981.
real terms even without the benefit of Indexing beyond 1982.
Return on Average Common Equity 1981 (percentage) 18.6 1980 1978 " 14 9
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o o ooo oo ooo o ooo o ooo o ooo o ooo ooo o ooo ooo ooo 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 will be 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 Financing Requirements
- 'Ibtal operating revenues grew 19.8 percent in 1981 to The Company increased its gross utility plant in 1981
$ 336.2 million, as compared with 1980 revenues of by approximately $ 279 million. To raise the external
$ 280.5 million. This growth reflects increased kilowatt- funds required for these additions, PNM utilized a hour sales and rate relief from both the New Mexico broad spectrum of financial sources. During the year, Public Service Commission and the Federal Energy the Company issued 7.5 million shares of common Regulatory Commission (FERC). stock in two major security offerings, $ 60 million of 17'/z percent first mortgage bonds, and participated Operating expenses increased $ 41.4 million in 1981. with the City of Farmington in the issuance of $ 130 This is an increase of 19.8 percent over 1980 expenses. million of pollution control revenue bonds.
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.
Total Operating Revenues 1981 Gross Plant Investment 1981 (millions of dollars) (millions of dollars) 1980 1980 1,478 1979 1979 1,198 1978 1978 1977 187 1977 880 139 682 000 000 0
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Burning about 175 tons of coal per hour, San Juan Generating Station features state-of-the-art pollution control equipment.
Rates and Regulation The 1982 Indexing factor has been filed with the PNM is subject to the regulation of the New Mexico Commission. The factor would increase the cost of a Public Service Commission. Many activities of the kilowatt-hour by 1.1 cents and raise revenues by Company are regulated by the NMPSC, including $ 40.6 million. Ninety percent of the factor went into rates, quality of service, issuance of securities and effect January 1, 1982, subject to refund. Hearings will permitting for generation and certain transmission be held during the Spring, with a final factor construction. The Federal Energy Regulatory anticipated to be in place by June of 1982.
Commission has authority over rates charged by PNM for electricity sold for resale and various accounting In October 1981, the Company filed an application for a rate increase for its four supplemental power and reporting procedures. Rates for the FERC jurisdiction are determined based on future test year wholesale customers and the City of Gallup based on rate case filings. Approximately 74 percent of a 1982 test year. The Company participated in operating revenues fall under the jurisdiction of settlement negotiations and has reached tentative the NMPSC and the remaining 26 percent under agreement with its supplemental power customers for the FERC. this case and for a previously filed case based on a 1981 test year.
A settlement was reached on major issues on May 29, 1981 between PNM and the intervenors in the If the settlement is approved by FERC, the increases Indexing rate proceeding. The NMPSC approved the in rates would be 6.3 percent for the 1981 case, settlement, thereby allowing an Indexing factor of .4 effective August 1981,and 15.2 percent for the 1982 cents per kilowatt-hour. This factor increased case, effective May 1982. A settlement offer has also revenues from New Mexico jurisdictional customers been made to the City of Gallup.
6.7 percent, or by approximately $ 14.5 million.
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Unit 4 /far right at the San Juan Generating Station will begin commercial operation in April, 1982.
The electricity generated by PNM during 1981 came Electric Operations from generating facilities as shown in the PNM's generating fuel in 1981 was predominately following table:
coal, accounting for approximately 86 percent of total PNM's Share kilowatt-hours generated. Natural gas provided about of Capacity 14 percent. PNM's forecasted system requirements in Location and Generatin Station ~MW 1982 are approximately 86.3 percent coal and '6.7 Coal-Fired Stations, Near Farmington percent natural gas plus 7.0 percent purchased power.
Four Corners Units 4 and 5 208 The major gas- and oil-fired generating plants in San Juan Units 1, 2, and 3 '48 Albuquerque are being cycled. PNM is estimating that Gas- and Oil-Fired, Albuquerque approximately $ 200 million will be saved over the life of our gas- and oil-fired power plants by the use Person Station 96 Reeves Station 175 of cycling. Cycling means that the gas and oil plants Gas- and Oil-Fired, Las Vegas are brought into service only when needed and shut down when they are not needed. These plants were Las Vegas Turbine 20 originally designed for continuous operation. Cycling 1,047 causes additional wear on these units. PNM has begun an aggressive maintenance program to compensate for Through its operating divisions, PNM provides electric the additional stress on the units. The savings in fuel service to about 217,500 customers in New Mexico.
costs are greater than the increased maintenance costs. The Albuquerque Division service area includes roughly a third of the population of the entire state.
The Belen and Bernalillo Divisions serve the rapidly System Peak Demand growing areas south and north of Albuquerque. The Santa Fe Division serves the state capital and (megawatts j 1980 1981 1979 surrounding communities. The Las Vegas Division 1978 913 992 1977 855 serves the City of Las Vegas in north-central New 715 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 will use during 1982. The other 20 MW will 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 Water Operations previously sold as a contingent capacity to San Diego The water operations in Santa Fe and Las Vegas were Gas and Electric Company. For 1982, the company will reorganized and separated from the Company's have a total installed capacity of 1,475 MW and a total electric operations. Named the Sangre de Cristo Water resource capacity of 1,495 MW. Company, the new division is headquartered in Santa The Department of Energy, Union Geothermal Fe. Water operations are locally oriented. The split Company and PNM announced the cancellation of the between the electric and water operations will Baca Geothermal Project effective January 31, 1982. increase Sangre de Cristo's responsiveness to the Technical and economical factors were cited as the communities it serves.
reasons for cancellation. Total expenditures by all participants in the Baca Geothermal Project are Subsidiary Companies estimated to be $ 65 million. PNM's share of these expenditures is approximately $ 1.6 million. This could PNM has three wholly-owned subsidiary companies:
increase to a total cost of $ 3.5 million if the Company Paragon Resources, Inc., Sunbelt Mining Company, is unable to dispose of equipment purchased for the Inc., and Meadows Resources, Inc. Paragon Resources, Inc. is engaged in the acquisition of water project. On February 1, 1982, the NMPSC ruled that the project's cost could not be included in the 1982 rights and property for future power plant projects Indexing factor prior to public hearing. A great deal of and other utility-related activities. Because New information on drilling techniques and geology has Mexico law requires water rights to be put to been learned from this project, information that will beneficial use or revert to the state, Paragon manages serve PNM or other western utilities in the future. 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 will mine 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 will engage in 0000 the diversified activities that have no 0000 0 utility relationship.
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Organization Legislative Events A significant change was made in the organizational A bill passed in the 1982 New Mexico Legislature structure of your Company on April 28, 1981. The temporarily limits PNM's further diversification change formed five 'sectors" headed by Sector Vice activities and will end the Company's Cost of Service Presidents to divide the major activities and Indexing method of rate making after 1982. The bill responsibilities within the corporation. The Supply becomes law 90 days after the end of the legislative Sector is headed by C. David Bedford. His areas of session. Assuming approval by the Governor, the law concern are Resource Planning Activities, Corporate will become effective in May.
Services, and Information Systems. John P. Bundrant The legislation places a 15-month moratorium on any is responsible for the Demand Sector whose functions new non-utility diversification project. The law also include the utility business, Division Operations, established an interim legislative committee to study Engineering and Construction, Power Operations and utility diversification and report back to the Industrial Relations. The third sector is Corporate Legislature in January 1983. The committee will Affairs. James B. Mulcock, Jr. is responsible for the consist of eight members appointed by the House and management of the corporate environment including Senate leadership.
regulatory, political, and Public Affairs area. A.J.
Robison leads the Finance Sector. All corporate Further, the law provides access by the New Mexico financial functions such as Financial Planning, Public Seivice Commission to records of PNM, Treasury, Accounting and Rates are administered by especially in transactions with affiliates which this Sector. All non-utility business activities including provide goods, services, and land and water rights diversification and subsidiaries fall under the guidance to the parent. The new law also provides direct appeal of Robert B. Rountree, Senior Vice President of the to the New Mexico Supreme Court of any Commercial Sector. Commission orders.
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 utility and non-utility areas of your Company.
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Prospective Strategy PNM/New Mexico Electric Service Merger At the April 28, 1981 Annual Meeting the final proxy Diversification count showed 97.6 percent of the shareholders who Uncertainties associated with future economic and voted favored the PNM/New Mexico Electric Service energy situations demand that PNM seek new Company merger. The hearings before the NMPSC strategies to manage its utility business.
proceeded. The NMPSC approved the Hearing Diversification is one strategy. If no steps are taken, Examiner's recommendation that the application to these uncertainties together with the traditional merge be denied; however, PNM was permitted by earnings posture of a regulated utility may turn the order to file a second case. A new case is being investors away. While still looking for the safety of prepared by both companies because material changes a utility type earning, those investors will be drawn to have occurred since the earlier case. a utility that offers a potential for growth. They will more 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 To execute this strategy, a third subsidiary, Meadows have undergone and successfully met batteries of Resources, Inc., was established in October 1981. Its tests. For the last two years we have been developing primary focus is to proceed with business ventures screening mechanisms that evaluate ventures in the which have no connection with the utility business.
light of numerous criteria. The criteria include the The first venture launched by Meadows is a compatibility of the venture's goals with that of PNM's partnership with Dale Bellamah Land Company, Inc.
corporate mission, the strategic objectives of called the Bellamah Community Development (BCD).
diversification, the favorability of the economic BCD owns about 9,000 acres of prime land environment, the attractiveness of alternative throughout the Southwest for future development.
investments and a host of very specific financial Meadows'hare of the BCD venture is approximately standards related to return and risk. $ 48.3 million which is matched in money and value Capital funds for diversification investment originate by Bellamah.
from retained earnings and the subsidiary companies'wn Another Meadows venture is a medium density lines of credit. This protection of the utility fiberboard manufacturing plant to be built in Las customers would seem to isolate them from any Vegas, New Mexico. In conjunction with another New benefits diversification may have to offer. That is not Mexico corporation, Frontier Fiber, Inc., which will the case. By concentrating on venture development act as construction and operating manager of the within the state of New Mexico, the strategy creates plant, this $ 60 million joint venture will provide 200 jobs and increases the state and local tax bases which new jobs in an economically depressed area in directly benefit the ratepayer. These direct benefits northern New Mexico. Construction is expected to will enhance the growth, development and quality of begin in 1982, with an operational date of 1984.
life opportunities within the state of New Mexico.
Further, as diversification balances the business risk The Company perceives that diversification is also a of PNM, enhanced credit worthiness may stabilize wise decision from the shareholder's viewpoint.
capital costs in the future, costs which are part of our Independent studies confirm that utilities which customers'ates. undertake diversification strategies from positions of strength outperform non-diversified utilities.
0000 0 000 eOOO 60 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
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>00 0 000 0 000 0 000y00000 0 000 0 000 0 000 0 000 0 00000 oeoooO OOeeoo 0@0 0 oooo 0 00 0 00 The state's largest application of solar energy for a privately-ouned office building is located at PNM's Alvarado Square.
13
Employment will increase commensurate with New Mexico Economy and Future Load Growth population. Average house size will continue to PNM's 20-year forecast of energy requirements and decrease, partially as an energy conservation response seasonal peak demands is dominated by expectations but also due to continued high housing costs, interest of substantial population and economic growth plus rates and decreasing family size. Electric appliances the shift of relative energy costs to favor electricity. will continue to become more energy efficient. Based on the 1980 experience of deregulation of petroleum Load growth projections for the next two years are prices, natural gas is currently projected to almost heavily influenced by the current economic recession. double in price in the three-year period following Concerns over inflation, record high interest rates, a deregulation in 1985. Due to higher assumptions of depressed housing industry and high unemployment inflation, electric price projections are also higher than are common concerns in PNM's operating divisions.
those of a year ago; however, the year of parity Almost all divisions are forecasting decreases in between the cost of electricity and natural gas has average residential use, citing the trend toward advanced from 1994 to 1991.
smaller houses and strong customer conservation action. Commercial growth is predicted to be about Beyond 1986, system demands will grow at or below normal, and industrial growth in the near-term is the rates of sales growth, thus improving the system buoyed by several large electronics manufacturing load factor. PNM will remain a summer peaking firms moving into the Albuquerque area. Uranium utility through the end of the century.
mining activity will remain in its depressed state in PNM's load management programs are designed to the near-term. The forecasted growth in total sales for reduce annual peaks in the future. The success of the near-term period is approximately 6 percent these programs is largely dependent on customer which is substantially below the historical rate of responses to timewf-use rates which were set in place nearly 10 percent. in 1981. Programs to provide information on solar The long-term outlook for PNM's service area is for energy and the use of direct load control will also general economic recovery in the second half of the contribute to reducing the annual peak. These 1980s and healthy but somewhat slower growth programs are expected to have a nominal impact on throughout the decade of the 1990s. Historical energy sales. The peak reductions are forecasted to be population growth, based on the 1980 census, has 9 MW in 1982, 47 MW by 1986, 98 MW by 1991, and been revised upward by as much as 30 percent in 163 MW by 2001.
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 will contribute to population growth rates of more than double the national average. 00 oooo 00 O 0 0 0 000 0 0 0 0 0 O 0 0 0 0 0 0 0 0 300000000000000000000000000000000000000000000000000( 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 <
0 0 0 0 00 0 0000 0 0 0 0
00eo ~ 0 0
000 0 0 000 00 00 A photovoltaic concentrator array at a test facility in Albuquerque.
14
New Mexico Generating Station Financial Indicators PNM's system demand projections for the 1980s are A key financial standard for PNM is the maintenance complete and the attention of the system planners is of its AA/Aa bond ratings. Acceptable growth and now focused on the decade of the 1990s and beyond. improvement in the quality of our earnings, as well as As part of your Company's continuing long-range dividends that provide a competitive yield, make planning, the New Mexico Generating Station (NMGS) attainment of this standard possible. 'Ib earn an project team is currently working with the Bureau of acceptable return for our shareholders, your Company Land Management to complete the environmental has entered into a well planned program of impact statement required of such projects. The plant diversification which should provide a level of is designed to meet the energy needs of our customers improved earnings standards from utility operations.
in the 1990s. To achieve acceptable earnings standards from utility NMGS started in 1974 with a study of all New operations, however, the Company must continue to Mexico counties and three areas in west Texas for pursue an aggressive program to control capital candidate power plant sites. That analysis identified spending and expenses as well as receive reasonable the Bisti area south of Farmington, New Mexico as regulatory treatment.
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 Utility Construction Expenditures decision on whether to construct the New Mexico (millions of dollars) 1979 198'I Generating Station at Bisti will be made. Thus, it will 323 1 980 328 have taken nine years of research and study to make 1978 284 a decision about a power plant our customers will need a decade from now. 1977 152 oooooooooooooooooo ooooooo ooooooooo ooo ooooooooooo 0 0 0 oooooooooc 0 c
>oo o ooo o ooo o ooo o ooo o ooo ooooooooo 0ooooooooc 0 0 15
1981 1980 1979 1978 1977 Electric Service Energy Sales kWhr (in thousands)
Residential 1,104,827 1,090,003 1,067,755 1,000,564 957,390 Commercial 1,483,105 1,441,634 1,403,282 1,353,805 1,320,651 Industrial 858,454 859,178 858,533 797,314 686/845 Other ultimate customers 186,939 167,070 159,396 164,901 160,922
'Ibtal sales to ultimate customers 3,633,325 3,557,885 3,488,966 3,316584 3,125,808 Sales for resale 2,127,249 1,844,213 1,471,485 1,211,242 1,241,195
'Ibtal energy sales 5,760,574 5,402,098 4,960,451 4,527,826 4,367,003 Electric Revenues (in thousands)
Residential $ 80,627 $ 72,596 $ 66,262 $ 51,414 $ 39,547 Commercial 97,699 85/480 77,806 60,125,, 45,520 Industrial 50,111 44,524 40,467 28,860 18,918 Other ultimate customers 12,170 9,750 8,704 7,052 5,215
'Ibtal revenue from ultimate customers 240,607 212,350 193,239 147,451 109,200 Sales for resale 86,781 59,475 44,000 32,568 23,219
'Ibtal revenue from energy sales 327,388 271,825 237,239 180,019 >132,419 Miscellaneous electric revenues 2,581 2,598 2,532 2,581 2,605
'Ibtal electric revenue $ 329,969 $ 274,423 $ 239,771 $ 182,600 $ 135,024 Customers at Year End Residential 195,722 191,495 184,979 175,439 164,803 Commercial 21, 164 20,932 20,334 19,496 18,374 Industrial 458 466 485 482 493 Other 180 179 179 178 182
'Ibtal ultimate customers 217,524 213,072 205,977 195,595 183,852 Sales for resale 6 6 5 5 5
'Ibtal customers 217,530 8 213,078 205,982 195,600 183,857 Reliable net capability kW 1,047,000 1,080,000 1,082,000 842,000 858,000 Coincidental peak demand kW 992,000 913,000 855,000 809,000 715,000 Average fuel cost per million BTU $ 1.1952 $ 1.0961 $ 1.2072 $ 1.0552 $ .9274 BTU per kWhr of net generation 11,227 10,551 10,746 10,993 11,004 Water Service Sales Gallons (in thousands) 2,729,457 2,699,816 2,515,815 2,753,122 2,731,801 Revenues (in thousands) $ 6,196 $ 6,093 $ 4,599 $ 4,605 $ 3,612 Customers at Year End 19,899 19,303 18,755 18,079 17,427
1981 1980 1979 1978 1977 Iln thousands except per share amounts and ratios)
Total operating revenues $ 336,165 $ 280,516 $ 244,370 $ 187,205 $ 138,636 Net earnings $ 107,958 $ 71,436 $ 54,803 $ 37,464 $ 24,921 Net earnings per common share $ 4.23 $ 3.36 $ 2.97 $ 2.83 $ 2.46 Total assets $ 1,832,315 $ 1,458,412 $ 1,186,446 $ 888,747 $ 664,449 Preferred stock with mandatory redemption requirements $ 90,000 $ 90,000 $ 40,000 Long. term debt, less current maturities $ 707,472 $ 567) 190 $ 431,655 $ 356(347 S 244>720 Common stock data:
Cash dividends declared per common share $ 2.68 $ 2.04 $ 1.88 $ 1.72 S 161 Dividend pay-out ratio 63A 'Yo 60.7 % 63.3 %%uo 60.8 '%%uo 65.4 '%%uo Market price per common share at year end $ 23.75 $ 19.75 $ 18.25 $ 19.87 S 21.50 Book value per common share at year end $ 23.89 $ 23.36 $ 22.26 $ 21.85 $ 21.61 Average number of common shares outstanding Return on average common equity 20,804 18.6 'Yo 15,933 14.9 %
14,363 13.6
'%0,289 13.0 %
7,569 11.6 %
Ratio of earnings to fixed charges (S.E.C. method) 3.00 2.96 3.47 3.18 2.91 Capitalization ratios:
Common stock equity 39.5 %%uo 33.3 % 37.5 %%uo 37.4 % 37.1 %
Preferred stock:
Without mandatory redemption requirements 7.1 9.3 11.5 15.5 With mandatory redemption requirements 6.0 7.9 4.3 Long-term debt, less current maturities 47A 49.5 46.7 48.2 47.4 100.0 %%uo 100.0 % 100.0 % 100.0 %%uo 100.0 %
17
Liquidity and Capital Resources The Company is continuing a construction program which will meet 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 million relate 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 million of 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 AA by 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.
5w REanh0 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 fairly the 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
December 31 1981 1980 (In thousands)
Assets Utility plant, at original cost (notes 4 and 8):
Electric plant in service $ 800,736 $ 743,837 Water plant in service 37,615 33,535 Common plant in service 24,530 18,643 862,881 796,015 Less accumulated depreciation and amortization 173,989 152,102 688,892 643,913 Construction work in progress 887,100 680,603 Electric plant held for future use 7,048 1,126 Net utility plant 1,583,040 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 81,464 33,588 Investment in fifty-percent-owned company (note ll) 3,099 Other, at cost 6,911 2,738
'Ibtal other property and investments 88,375 39,425 Current assets:
Cash 10,105 6,012 Temporary cash investments 28,591 Receivables:
Customers 33,061 29,794 Other 22,776 5,320 Allowance for doubtful receivables (499) (192)
Fuel, materials and supplies, at average cost 34,002 26,353 Prepaid expenses 2,611 2,220 Deferred fuel costs 10,091 8,536
'Ibtal current assets 140,738 78,043 Deferred charges 20,162 15,302
$ 1,832,315 $ 1,458,412 See accompanying notes to consolidated financial statements.
,C}
20
ecem er 31 1981 1980
{In thousands)
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 $ 123,377 $ 81,652 Additional paid-in capital 327,625 195,026 Retained earnings 138,514 104,847 Total common stock equity 589,516 381,525 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 106,000 106,000 With mandatory redemption requirements.
Outstanding 900,000 shares of $ 100 stated value 90,000 90,000 Long-term debt, less current maturities (note 4) 707,472 567,190 Total capitalization 1,492,988 1,144,715 Current liabilities:
Short-term debt (note 5) 108,808 129,355 Accounts payable 48,171 49,836 Preferred dividends declared 4,712 4,712 Current maturities of long-term debt (note 4) 5,390 1,487 Accrued interest 11,321 10,456 Accrued taxes 20,146 12,494 Other current liabilities 11,799 5,645 Total current liabilities 210,347 213,985 Deferred credits:
Accumulated deferred investment tax credits (note 6) 58,960 41,037 Accumulated deferred income taxes (note 6) 48,941 42,357 Other deferred credits 21,079 16,318 Total deferred credits 128,980 99,712 Commitments and contingencies (notes 8, 9, 10 and 11)
$ 1,832,315 $ 1,458,412
ear en e ecem er 1981 1980 1979 (In thousands except per share amounts)
Operating revenues:
Electric (note 10) $ 329,969 $ 274,423 $ 239I771 Water 6,196 6,093 4,599
'Ibtal operating revenues 336,165 280,516 244,370 Operating expenses:
Fuel and purchased power 104,084 84,125 85,143 Other operation expenses 55,367 46,017 34,351 Maintenance and repairs 28,836 21,201 15,045 Provision for depreciation and amortization 26,162 25,003 17,603
'lhxes, other than income taxes 13,740 12,299 10,531 Income taxes (note 6) 21,932 20,073 21,881
'Ibtal operating expenses 250,121 208,718 184,554 Operating income 86,044 71,798 59,816 Other income and deductions:
Allowance for equity funds used during construction 33,957 27,236 15,594 Equity in earnings of fifty-percent-owned company, net of taxes (notes 6 and 11) 5,255 2,953 2,151 Gain on sale of equity interest in trust, net of taxes (notes 6 and 11) 18,805 Other, net of taxes (notes 6 and 8) 8,200 385 250 Net other income and deductions 66,217 30,574 17,995 Income before interest charges 152,261 102,372 77,811 Interest charges:
Interest on long-term debt 41,572 29,012 24,236 Other interest charges 18,947 12,771 4,696 Allowance for borrowed funds used during construction ~16,216) ~10,847) (5,924)
Net interest charges 44,303 30,936 23,008 Net earnings 107,958 71,436 54,803 Preferred stock dividend requirements 19,863 17,834 12,196 Net earnings applicable to common stock $ 88,095 $ 53,602 $ 42,607 Average number of common shares outstanding 20,804 15,933 14,363 Per share amounts:
Net earnings $ 4.23 $ 3.36 $ 2.97 Dividends $ 2.68 $ 2.04 $ 1.88 See accompanying notes to consolidated financial statements.
22
Year ended December 31 1981 1980 1979
{In thousands)
Common stock equity:
Common stock:
Balance at beginning of year $ 81,652 $ 78,009 $ -
63,211 Issuance of common stock 41,725 3,643 14,798 Balance at end of year 123,377 81,652 78,009 Additional paid-in capital:
Balance at beginning of year 195,026 185,600 145,433 Premium on common stock issued 138,336 10,120 42,466 Expenses of stock issuance (5,737) (694) {2,299)
Balance at end of year 327,625 195,026 185,600 Retained earnings:
Balance at beginning of year 104,847 83,719 67,645 Net earnings 107,958 71,436 54,803 212,805 155,155 122,448 Cash dividends:
Cumulative preferred stock 19,863 17,834 12,196 Common stock 54,428 32,474 26,533 74,291 50,308 38,729 Balance at end of year 138,514 104,847 83,719
'Ibtal common stock equity 589,516 39.5%%uo 381,525 33.3% 347,328 37.5%
Cumulative preferred stock:
Without mandatory redemption requirements -balance at beginning and end of year 106,000 7.1 106,000 9.3 106,000 11.5 With mandatory redemption requirements:
Balance at beginning of year 90,000 40,000 Issuance of preferred stock 50,000 40,000 Balance at end of year 90,000 6.0 90,000 7.9 40,000 4.3 Long-term debt, less current maturities:
Balance at beginning of year 567,190 431,655 356,347 Addition to long-term debt 148,510 137,837 82,763 Reduction of long-term debt (7,460) (2,284) (6,544)
Net change in unamortized discount and premium ~768) (18) ~911)
Balance at end of year 707,472 47 4 567,190 49.5 431,655 46.7
'Ibtal capitalization at end of year $ 1,492,988 100.0Vo $ 1,144,715 100.0% $ 924,983 100.0%
Number of shares issued:
$ 100 stated value cumulative preferred stock 500 400 Common stock 8,345 729 2,960 e
See accompanying notes to consolidated financial statements.
Year ended December 31 1981 1980 1979 Funds provided: (In thousands)
Net earnings $ 107,958 $ 71,436 $ 54,803 Charges (credits) to earnings not requiring funds: n>
Depreciation and amortization 28,962 26,889 19,128 Provision for noncurrent deferred income taxes, net 6,584 9,668 8,711 Investment tax credit, net 17,923 10,216 7,716 Allowance for equity funds used during construction (33,957) (27,236) (15,594)
Earnings of fifty-percent-owned company (7,275) (6,856) (2,216)
Funds derived from operations 120,195 84,117 72,548 Sale of common stock 180,061 13,763 57,264 Sale of cumulative preferred stock 50,000 40,000 Sale of first mortgage bonds 60,000 78,000 17,000 Proceeds from pollution control revenue bonds 84,677 57,942 62,166 Proceeds from other long-term debt 3,833 1,895 3,597 Proceeds from short-term debt 432,560 308,834 290,315 Dividends from fifty-percent-owned company 10,374 9,868 Utilityplant retirements, net of removal costs 1,397 141 14,137 Proceeds from sale of utility plant, net of pre-tax gain of $ 11,005,000 37,867 Decrease in working capital, other than short-term debt 7,948 Other 4,852 311 18,518
$ 935,816 $ 604,871 $ 583,493 Funds used:
Cash dividends $ 74 291 $ 50,308 $ 38,729 Utilityplant additions '290,382 254,805 308,526 Payment of short-term debt 453,107 275,439 218,160 Reduction of long-term debt 7,460 2,284 6,544 Additions to non-utility property 48,284 16,749 8,157 Increase in working capital other than short-term debt 45,786 2,683 Other 16,506 2,603 3,377
$ 935,816 $ 604,871 $ 583,493 Changes in working capital other than short. term debt:
Cash $ 4,093 $ 2,202 $ 1,881 Temporary cash investments 28,591 Receivables 20,416 (2,481) 443 Fuel, materials and supplies 7,649 4,280 6,058 Prepaid expenses 391 180 924 Deferred fuel costs 1,555 (2,786) (553)
Accounts payable 1,665 1,859 (8,623)
Preferred dividends declared (1,843) (875)
Current maturities of long-term debt (3,903) 3 737 (4,035)
Accrued interest (865) (4,879) (1,153)
Accrued taxes (7,652) 3,839 (2,021)
Other current liabilities (6,154) (1,425) 6 Increase (decrease) in working capital other than short-term debt $ 45,786 $ 2,683 $ (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. All significant intercompany transactions have been eliminated.
Utility Plant 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 utility plant. 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 utility plant 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 utility plant. 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 utility business 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:
Aggregate Stated Stated Shares Stated Value Redemption Value Outstanding (In thousands) Price (a)
Without mandatory redemption requirements:
1965 Series, 4.58% $ 100 130,000 $ 13,000 $ 102.516 1974 Series, 9.2% ,100 170,000 17,000 107.00 1975 Series, 10.12% 100 100/000 10,000 107.00 9.16% Series 25 800,000 20/000 26.70 8.48% Series (b) 100 200,000 20,000 108.48 8.80% Series (b) 100 260,000 26,000 108.80, 1,660,000 $ 106,000 With mandatory redemption requirements 8.75% Series (b) (c) 100 400,000 $ 40,000 108.75 14.75% Series (b) (c) 100 500,000 50,000 114.75 900,000 $ 90,000 (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 3e/e% to 12.95% $ 52,221 $ 55,171 1987 through 1991 4e/e% to 4~/e% 17,986 18,232 1997 through 2001 5~/e% to 8~/e% 50,092 50,645 2002 through 2006 7'/e% to 10'/e% 88,001 88,470 2007 through 2011 8'/e% to 17'/e% 153,236 94,355 2000 through 2010-pollution control series, securing pollution control revenue bonds 6% to 8'/e% 300,048 300,014 Funds held by trustee (60,399) (121,717)
'Ibtal first mortgage bonds 601,185 485,170 Pollution control revenue bonds, due 1984 5% to 8e/4% 207,000 77,000 Funds held by trustee (106,641)
Other 5,928 5,020 Total long-term debt $ 707,472 $ 567,190 27
Substantially all utility plant is pledged to secure the first mortgage bonds.
Approximately 25 percent of the original principal amount of each series of first mortgage bonds will be 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 will be payable out of revenues received by the City from the Company. Upon such retirement, the Company will also 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:
1981 1980 1979 (In thousands)
Aggregate short-term debt outstanding:
Notes payable to banks $ 64,053 $ 79,575 $ 37,250 Commercial paper $ 44,755 $ 49,780 $ 58,710 Weighted average interest rate on out-standing debt:
Notes payable to banks 15s/4% 18e/s% 14s/e%
Commercial paper 12 o/o 18s/e% 13e/e%
Maximum outstanding during year:
Notes payable to banks $ 101,107 $ 80,175 $ 51,835 Commercial paper $ 82,100 $ 67,825 $ 58,710 Average outstanding during year:
Notes payable to banks $ 62,095 $ 31,092 $ 8,747 Commercial paper $ 70,040 $ 61,437 $ 29,713 Weighted average interest rate on short-term debt outstanding during the year, computed using daily outstanding balances:
Notes payable to banks 17~/s%%uo 14'/4% 12e/e%
Commercial paper 16e/s%%uo 12e/s% 11'/e%
Unused bank commitments $ 222, 122 $ 76,878 $ 60,140 28
(6) Income Taxes Income taxes consist of the following components:
1981 1980 1979 (In thousands)
Current Federal income tax $ 6,887 $ 4,185 $ 3,864 Current state income tax 4,798 1,205 1,467 Deferred Federal income tax 7,019 7,226 7,539 Deferred state income tax 302 1,089 677 Amount equivalent to current investment tax credit 20,660 11,809 9,655 Amortization of accumulated investment tax credit (1,925) {1,802) (742)
'Ibtal income taxes $ 37,741 $ 23,712 $ 22,460 Charged to operating expenses $ 21,932 $ 20,073 $ 21,881 Charged to other income and deductions 15,809 3,639 579
'Ibtal income taxes $ 37,741 $ 23,712 $ 22,460 The Company has investment tax credit carryforwards, for tax purposes, of approximately $ 73 millionas of December 31, 1981 which would, if unused, 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
{In thousands)
Deferred fuel costs $ 737 $ (1,353) $ (495)
Liberalized depreciation methods and asset class lives shorter than guideline lives 10,386 9,386 8,049 Prepaid income taxes on liquidation of
~
Western Coal Co. (11,028)
Other miscellaneous items 7,226 282 662
$ 7,321 $ 8,315 $ 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:
1981 1980 1979 Federal income tax statutory rate 46.0'Yo 46.0% 46.0%
'lhx depreciation in excess of book depreciation caused by use of guideline depreciation provisions (1A) (1 0) (2.7)
Allowance for funds used during construction, net of depreciation adjustments (15A) (17.8) (12.1)
Certain employee benefits and taxes capitalized for financial statements, net of depreciation adjustments (5) (6) (5)
Amortization of investment tax credits (1.3) {1.9) (1.0)
'lhxes recorded at capital gains rate net of related minimum tax (5.0) (1)
Other miscellaneous items 3.5 .3 (6)
Company's effective tax rate 25.9% 24.9% 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 $ 19,810 $ 17,892 Nonvested 2,762 1,825
$ 22,572 $ 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 will approximate $ 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 (In thousands)
San Juan Generating Station $ 418,047 $ 50,186 $ 432,193 62.4%
Palo Verde Nuclear Generating Station $ 361,089 10.2%
Four Corners Generating Station Units 4 and 5 $ 26,479 $ 7,730 $ 23,294 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, utility poles (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
{In thousands)
Data processing equipment $ 4,384 $ 3,888 Other 518 543 4,902 4,431 Less accumulated amortization 2,921 2,209
$ 1,981 $ 2,222 Future minimum lease payments at December 31, 1981 are:
Capital Leases Operating Leases (In thousands) 1982 $ 1,024 $ 1,583 1983 531 1,483 1984 471 2,478 1985 375 2 277 1986 145 2,230 Later years 415 62,433
'Ibtal minimum lease payments 2,961 $ 72,484 Less amount representing executory costs 190 Net minimum lease payments 2,771 Less amount representing interest 631 Present value of net minimum lease payments $ 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 utility plant were $ 362,000 in 1981, $ 914,000 in 1980 and $ 236,000 in 1979. All such 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 initially the 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 will be rescinded and the Company will be 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 utility plant 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 IRIhmm0 dt tihlslhty Rlh854llhr SBmgbgl IAIIRR Year Ended December 31, 1981 Adjusted Adjusted for for General Changes in As Reported Inflation Specific Prices in the Primary (Constant {Current Statement Dollars) Cost)
(In thousands)
Operating revenues $ 336,165 $ 336,165 $ 336,165 Operating expenses (excluding depreciation and amortization) 223,959 223,959 223,959 Depreciation and amortization (note A) 26,162 46,874 48,092 Interest charges 44(303 44,303 44,303 Other income and deductions, net (66,217) (66,217) (66,217) 228,207 248,919 250,137 Net earnings (excluding reduction to net recoverable cost) $ 107,958 $ 87,246'86,028 Increase in specific prices of net utility plant $ 90,628 Reduction to net recoverable cost (note B) $ (117,775) (202,712)
Effects of increase in the general price level ~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) 82,894 82,894 Net $ (34,881) $ (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 c48zmghg Cbfhm
~ s
- - . ~~) QDDQ Year ended December 31 1981 1980 1979 1978 1977 (In thousands of average 1981 dollars except per share amounts)
Historical cost Information adjusted for general inflation:
Revenues $ 336,165 $ 309,954 $ 306,530 $ 261,263 $ 208,297 Net earnings excluding reduction to net recoverable cost $ 87,246 $ 60,002 S 56,499 Net earnings per common share $ 3.24 $ 2.53 S 2.87 Net assets at year-end, at net /
recoverable cost $ 666,903 $ 514,505 $ 537,723 Current cost Information:
Net earnings excluding reduction to net recoverable cost $ 86,028 S 59,268 $ 54,866 Net earnings per common share $ 3.18 $ 2.48 $ 2.75 Excess of increase in general price level over increase in specific prices after reduction to net recoverable cost $ 116r 557 $ 134,259 $ 128,525 Net assets at year-end, at net recoverable cost $ 666,903 $ 514,505 $ 537,723 General Information:
Purchasing power gain on net amounts owed $ 82,894 $ 80,143 Cash dividends declared per common share $ 2,68 $ 2.25 S 236 $ 2.40 $ 2.42 Market price per common share at year-end $ 22.77 $ 20.84 - $ 21.65 $ 26!71 $ 31.50 Consumer price index for all 272.7'84A'96,232 urban consumers:
Average 246.8 217.4 195.4 181.5 Year-end 258.4 229.9, 202.9 186.1
'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. All other revenue and expense items were considered to reflect the current average price level for the year.
Estimated utility plant was determined under both methods by applying the indices specified to the historical cost of utility plant by vintage year. Depreciation expense was then determined for the adjusted amounts of utility plant 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 will be 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 will purchase less at a future date. Alternatively, holders of monetary liabilities such as long-term debt experience a gain 33
- C
Qy 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. All assets 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.
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:
Net Operating Operating Net Earnings Quarter Ended Revenues Income Earnings per Share December 31, 1981 $ 85,860 $ 15,442 $ 42,693 $ 1.54 September 30, 1981 $ 93,407 $ 28,317 $ 25,916 $ .99 June 30, 1981 $ 81,902 $ 21/202 $ 19,103 $ .70 March 31, 1981 $ 74,996 $ 21,083 $ 20,246 $ .89 December 31, 1980 $ 74,386 $ 18,429 $ 18,104 $ .81 September 30, 1980 $ 74,899 $ 21,982 $ 22,698 $ 1.11 June 30, 1980 $ 66,678 $ 15,852 $ 18,090 $ .84 March 31, 1980 $ 64,553 $ 15I535 $ 12,544 $ .60 In the opinion of management of the Company, all adjustments (consisting of normal recurring accruals) necessary for a fair statement of the results of operations for such periods have been included.
~ 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 24'/z 22 $ 0.67 Third Quarter, 1981 24'/4 21'/z 0.67 Second Quarter, 1981 24~/8 203/e 0.67 First Quarter, 1981 21~/4 19'/i 0.67 Fiscal Year 24~/s 19'/4 $ 2.68 Fourth Quarter, 1980 20'/4 17 $ 0.52 Third Quarter, 1980 213/4 17~/e 0.52 Second Quarter, 1980 20~/4 16i/z 0.52 First Quarter, 1980 18'/2 15'/4 0.48 Fiscal Year 213/4 15'/4 $ 2.04 Cumulative Preferred Stoclc 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 Officers A.B. Collins, Jr. J.D. Geist P.R. Gamer tsfelder President, President District Vice President, Reddy Communications, Inc. Las Vegas and Santa Fe Divisions R.B. Rountree Greenwich, Connecticut Senior Vice President, F.E. Gray H.L. Galles, Jr.' Commercial Vice President, Urban Development Chairman of the Board, C.D. Bedford R.A. Lake Galles Chevrolet Company Sector Vice President, Supply District Vice President, Albuquerque, New Mexico Belen, Bernalillo and J.P. Bundrant J.D. Geist' Sector Vice President, Demand Deming Divisions President, Public Service Company J.B. Mulcock, Jr. D.J. Morse of New Mexico Sector Vice President, Albuquerque and Western C.E. Division District Manager Corporate Affairs Mimbres Valley Bank Leyendecker'resident, A.J. Robison J.L. Smith Deming, New Mexico Sector Vice President, Finance Belen Division Manager
~ D.W. Reeves
Chairman of the Executive Committee J.T. Ackerman L.C. Edwards of the Board of Directors, Vice President, Division Operations Bernalillo Division Manager Public Service Company B.D. Lackey F. Van Gundy of New Mexico Vice President and Controller Deming Division Manager R.R. R.F. Mershon A. Lujan of Management, Rehder'rofessor Vice President, Industrial Relations Las Vegas Division Manager Robert O. Anderson Graduate School R. Mullins J. Godwin of Management, San Juan Plant Manager Vice President, Operations
.University of New Mexico
~) Albuquerque, New Mexico J.L. Wilkins D.A. Trujillo s~- G.A. Schreiber" Group Vice President, Sangre de Cristo Water Company, Chairman of the Board of Directors, Engineering, Construction Las Vegas Division Manager and Operations Public Service Company W.M. Hicks of New Mexico P.J. Archibeck Sangre de Cristo Water Company, R.H. Treasurer and Assistant Secretary Santa Fe Division Manager Stephens'tephens-Irish Agency D.E. Peckham Las Vegas, New Mexico Secretary and Assistant Treasurer E.R. Wood H.L. Hitchins, Jr.
President, Santa Fe Motor Company Assistant Secretary and Santa Fe, New Mexico Assistant Treasurer B.P. Lopez Assistant Secretary
'Members of the Audit Committee "Members of the Executive Committee 35
Executive Offices Alvarado Square Albuquerque, New Mexico 87158 Transfer Agents Registrars Common Stock Common and Preferred Stock Public Service Company of New Mexico First National Bank in Albuquerque Stockltolder Services Post Office Box 1305 .,
Alvarado Square Albuquerque, New Mexico 87103 Albuquerque, New Mexico 87158 Chemical Bank Chemical Bank Corporate Trust Department Corporate Trust Department 55 Water Street 55 Water Street New York, New York 10041 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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