ML18192A376
| ML18192A376 | |
| Person / Time | |
|---|---|
| Site: | Palo Verde  |
| Issue date: | 04/21/1978 |
| From: | El Paso Electric Co |
| To: | Office of Nuclear Reactor Regulation |
| References | |
| Download: ML18192A376 (38) | |
Text
El Paso Electric Company P. 0. Box 982 El Paso, Texas 79999 Contents Page Highlights 1 Letter to Shareholders. 2 Area and Company Development ............................ 4 Construction Keyed to Growth... 5 7
System Fuel Supplies.
Regulatory Matters 8 Environment. 9 Financing.. 10 Management Changes. 10
~ J Employees .10 wgef g Conservation, Research and Development..............11 f
Communications . 12 Operations at a Glance .14
..19 1
EPE's Service Area. .16 Financial Information.. .17 Consolidated Statement of Income ..........................18 Consolidated Balance Sheet Consolidated Statement of Shareholders'quity.....20 Consolidated Statement of Changes in Financial Position. 21 Notes to Consolidated Financial Statements ...........22 Summary of Operating Data Summary of Operations.
...28 Opinion of Independent Accountants .......................27
.30 Management's Discussion and Analysis of Consolidated Statement of Income.......................32 Market Prices of Common Stock and Dividends......33 Board of Directors.. .34 Company Offices, Annual Meeting of Shareholders, Common Stock Shareholders, Transfer Agents....36 The Cover Progress is the art of converting raw land into a new business, a new sub-division or a new transmission line.
The photograph of heavy earth-moving equipment has been altered to illustrate man and his machinery creating his art.
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Highlights Per Cent Increase At December 31 1977 1976 ~Decrease Operating Revenues (000) 112,339 $ 111,188 1 0'I Operating Expenses (000) 95,002 $ 93,068 2.1%
Net Income (000) $ 11,422 $ 11,516 (0.8%)
Earnings per share $ 1.11 $ 1.29 (14 0%)
Dividends per share (Common) $ .99 $ .95 42%
Book Value per share $ 9.33 $ 9.20 1 4'I Common Shares Outstanding 8,536,818 8,448,767 1.0%
Number of Common Shareholders 19,156 17,504 94%
Number of Customers 159,924 151,334 Number of Employees 838 816 27%
Peak Load 657,000 KW 677,000 KW (3.0%)
Net Generating Capacity 982,000 KW 999,000 KW (1 7%)
Average Residential Use 6,261 KWH 6,193 KWH 1.1%
Fuel Expense (000) $ 59,442 $ 53,154 11.8%
Energy Sales (MWH) 3,242,724 3,358,662 (3 5%)
Electric Plant (000) $ 338,598 $ 274,502 23.3%
Dividend Reinvestment Purchase Plan A Dividend Reinvestment and Stock is available to holders of Common Stock. The Plan provides a convenient method of investing dividends and optional cash payments in new shares without payment of service charges or other expenses. An en-rollment card may be obtained from the Company Sec-retary.
Letter to Shareholders EI Paso Electric (EPE) and the economy of the region it serves experienced another year of decided progress and growth in 1977. This was also a year in which the Company was required to seek rate increases throughout its service area in order to meet higher expenses, to finance its construction program and to restore earnings to their historical level.
Earnings per share of common stock decreased from $ 1.29 in 1976 to $ 1.11 in 1977. The decrease in earnings resulted from loss of revenue due to delays in obtaining necessary rate increases in both the Texas and New Mexico service areas. Also contributing to the earnings decline was a 3.5 per cent decrease in kilowatt-hour sales of electricity, primarily due to the loss of the Juarez, Mexico load in March 1977, when the Mexican Federal Government began serving all the city's energy requirements and the effects of very mild weather throughout 1977. Discounting the loss of Juarez, however, peak load was up 3.1 per cent during 1977. Operating revenues for the year rose from $ 111.2 million in 1976 to $ 112.3 million in 1977. Operating expenses increased from $ 93.1 million in 1976 to $ 95.0 million in 1977.
Quarterly dividends on Company common stock were increased from 24 cents per share to 25 cents in 1977. Holders of common stock received dividends totaling 99 cents per share in 1977.
You willfind in this report, the El Paso Southwest is a dynamic region experiencing phenomenal growth and development and has even greater potential for progress in years ahead. EPE is an essential part of this growth.
The Company's service area characterizes the pattern of development being experienced throughout the "sunbelt," and El Paso is in the heart of that region. It is also evident that our economy is increasingly electric-based. As the area grows and develops, this means more jobs and an improving economic base.
Building permits in the city of El Paso increased 46 per cent over 1976, while permits in Las Cruces, New Mexico increased 35 per cent over last year. Victor Comptometer and Allen Bradley Co. are among the national companies which are in the process of moving 400 to 500 new families to this area along with their large manufacturing facilities.
A major factor in this healthy growth has been your Company's ability to provide the necessary energy to accommodate new industry and a growing population.
For this type of development to continue, new Company facilities are needed and rate increases will be necessary to cover the cost. The Company must grow and expand its facilities correspondingly to serve growing customer demands.
Your Company is now engaged in the largest construction program in its history. To keep pace with continued growth, to end its dependence on natural gas and fuel oil as generating plant boiler fuel, it is moving to nuclear power and increased use of coal.
EPE's consolidated construction additions in 1977 were $ 64.7 million, most of which was for the Company's share of the Palo Verde Nuclear Generating
Station. When completed, Palo Verde will be the largest issued unqualified approval of the nuclear project.
nuclear power station in the world. Construction Approval had been received previously from the additions for 1978 are expected to be approximately Nuclear Regulatory Commission (NRC) and the City of
$ 103.0 million. El Paso.
Effective in December, 1977 the Public Utility Meanwhile, construction on Palo Verde Unit One is Commission of Texas (PUC) authorized a rate increase about 30 per cent complete. The station, located 50 throughout the Company's Texas service area adding miles west of Phoenix, Arizona, is well within its approximately $ 7.5 million annually to Texas scheduled budget and construction plan. The Company revenues. The authorized rate increase represented owns a 15.8 per cent undivided interest in the station slightly more than half that requested. The PUC order and will receive 200 megawatts from each of three units reflected the Commission's approach to utility scheduled to go on line in 1982, 1984, and 1986, regulation in Texas. The Commission authorized the respectively. The Company is also actively participating Company to include $ 17.4 million of construction work in in NRC licensing procedures for two additional units at progress (CWIP) in rate base for Palo Verde Nuclear Palo Verde.
Generating Station. This is expected to result in One of the Company's many strengths is the long substantial savings to customers and benefit to range planning we have done by taking the steps investors. necessary to insure that reliable electric power is The New Mexico Public Service Commission available at the most reasonable cost throughout our authorized the Company to begin collecting increased service area. Coal and nuclear fuels are expected to rates in the New Mexico service area effective January, account for approximately 67 per cent of the electricity 1978. The increase is expected to produce an additional the Company will generate by 1986.
$ 2.8 million in annual revenues. The Federal Energy While our particular area was spared serious effects Regulatory Commission also authorized a rate increase of the winter of 1976-77, the severe weather in other for wholesale electric rates amounting to $ 614,000 locations again demonstrated serious deficiencies in annually, a portion of which is subject to refund. supplies of natural gas and oil and reemphasized the I want to again repeat my message of last year that, urgent need for a viable national energy policy and the it is likely that circumstances will warrant continued necessity to develop our nation's coal and nuclear resources.
requests for rate increases...to cover the increased cost of doing business and to service the debt necessary for The use of electricity continues to increase notwithstanding the effort EPE and others have put forth financing additional generating capacity to serve our working with and encouraging customers to conserve growing service area.
The Company's construction program is the electric energy.
The Company remains committed to furnishing high primary reason higher rates were needed and will be needed in the future. Electric energy continues to quality service to all its customers at the lowest rates consistent with the need to maintain the financial represent a growing proportion of the total energy used in this country. Meeting increased demands for integrity of the Company and to provide a reasonable return to Shareholders.
electricity requires construction of large, expensive Last year's Annual Report to Shareholders focused projects to provide additional generating and delivery on EPE's first 75 years of achievement and growth. This capacity creating heavy demands for new capital edition looks at the challenges and opportunities faced investment. Future rate increases are essential in order in 1977 and how your management willcontinue to meet for the Company to be able to attract new investment the challenges of the future.
capital through the adequacy and quality of earnings.
I want to personally commend EPE employees who While in 1977 earnings were not up to the levels of dedication, have continued to demonstrate prior years, the decline was not unexpected and steps perseverance and loyalty while maintaining productivity were taken to offset loss of the Juarez loadby increased and high standards of job performance in the face of sales to other utilities and by filing rate increase elemental and political problems.
requests to help improve earnings. We believe our state Continued success depends on maintaining the regulatory authorities realize that prompt attention to the confidence of our investors, customers and employees, Company's requirements are necessary and that earnings must be sufficient to attract new investment whose active support of Company objectives is necessary in order for the Company to continue to capital.
The primary goal of the Company's construction progress.
program is to reduce dependence on natural gas and oil which is being required at all levels by the states and the national government. In addition to participation in the Palo Verde Nuclear Generating Station, an interim agreement has been executed with Public Service Company of New Mexico to construct a coal-fired generating station in northwest New Mexico referred to as the New Mexico Project.
The Company received Certificates of Public Evern R. Wall Convenience and Necessity for the Palo Verde Project President from both the New Mexico Public Service Commission and and the Public Utility Commission of Texas. Both states Chief Executive Officer
Area and Company Development El Paso Electric serves one of the fastest growing regions in the country, a region which has a bright future and great potential in coming years.
El Paso, a city whose name stirs romantic images of the Old West, is now the 33rd largest city in the United States and is among the fastest growing. With a population of more than 385,000 people, located in 160.7 square miles, it is the largest community served by the Company. EPE is proud of its contribution toward making El Paso a major metropolitan center of business and commerce for the Southwest.
Las Cruces, New Mexico, 45 miles north of El Paso, also continues its rapid development and is one of the largest cities in New Mexico and the largest served by the Company in that state. Both El Paso and Las Cruces completed their most prosperous year in 1977.
g+NAtIIINN~~w'", The EPE service area has a strong and stable economy characterized by dynamic growth in the past 4
decade. The solid economic development in its service I PAN AMERICAN CENTER area is supported by a modern education base, FOR INDUSTRY abundant land, an equitable tax structure and a rapidly expanding tax base. New industry and new people are attracted to the El Paso Southwest through its combination of mild climate, and favorable economic conditions. It is an interesting place to work and live.
El Paso has a distinct international flavor, and while the Rio Grande serves as the political boundary between El Paso and Ciudad Juarez, it does not separate the culture and commerce between the two largest cities located on the U.S.-Mexico border.
One contribution to El Paso's economic stability is lip lII I) the Twin Plant concept. This system allows components tall Illa' to be assembled in Juarez and sent to El Paso for Qll )I ~~>ls packaging for worldwide distribution. Several major manufacturers have taken advantage of this situation Ef@QM including General Electric, RCA, Sylvania and General Motors.
Other manufacturing enterprises in the "Sun City" 4
include one of the largest custom smelters in the world at the El Paso plant of ASARCO Incorporated. Phelps Dodge Refining Corporation operates a large smelting plant in El Paso and El Paso Natural Gas is headquartered in EI Paso. The city is a major center of the garment manufacturing industry.
A record amount of construction occurred in El Paso in 1977, as reflected by building permit figures which totaled $ 214,789,091, compared with $ 147,303,001 in 1976. This is an increase of 25 per cent over the previous record set in 1972 of $ 172,262,818.
Residential construction accounted for nearly half the total and was nearly 40 per cent higher than in 1976.
Building permits issued in Las Cruces in 1977 likewise reached a record level with a total of
$ 25,085,897. This represented a 35 per cent increase over 1976 figures, the previous record.
In El Paso 165 subdivision applications were processed and approved by the City, 144 residential, the others primarily commercial.
Business is good in El Paso, and improved economic activity resulted in increased bank clearings,
new vehicle registrations, airline passengers, railroad cars loaded and other economic indicators. Despite an unemployment rate of nearly 10 per cent, El Paso's employment picture has improved. Significantly, total employment was up nearly 5 per cent in 1977. The manufacturing payroll increased nearly 22 per cent. The EI Paso Chamber of Commerce estimates that in recent years the dollar value of economic expansion in EI Paso has averaged about 15 per cent per year unadjusted for inflation. An important contribution to El Paso's economic activity has been a 25 per cent increase in T.
military personnel at Fort Bliss compared to the previous year.
The City's Department of Planning, Research and Development has projected nearly 60 per cent population growth by the end of this century, and the City could have well over 600,000 residents by the year 2000. An electric utilitymust be responsive to the energy needs of its customers, and EPE has kept pace with the mushrooming development throughout its service area by growing with the area it serves.
The number of customers served by EPE has increased by about 20 per cent in the past five years, to 159,924 in 1977. In addition to incorporated and rural areas, the Company serves several important military installations, including the U. S. Army Air Defense Center at Fort Bliss, White Sands Missile Range and Holloman Air Force Base.
The system peak load in 1977 was 657,000 KW and reflects a 3 per cent decrease from the 1976 all-time high of 677,000 KW. Kilowatt-hour sales of electricity decreased 3.5 per cent from a year ago. The decrease was a result of mild weather and the loss of firm sales of electricity to Juarez, which is now served entirely by recently installed generating units by the Mexican Federal Government. Juarez sales accounted for 40,000 KW in the record peak load of 1976. Eliminating the effects of the loss of the Juarez load, the 1977 peak load shows a 3.1 per cent increase in demand in the Company's service area.
Among the Company's major customer categories, residential kilowatt-hour consumption increased 7 per cent over 1976 levels, small commercial and industrial decreased 3 per cent and large commercial and industrial increased 6 per cent. The average annual consumption per residential customer in 1977 was 6,261 kilowatt-hours, compared with 6,193 in 1976.
The EPE 1977 net system capacity was 982,000 KW composed of 498,000 KW at Newman Power Station, north of El Paso; Rio Grande Power Station, near Downtown El Paso in New Mexico, with 372,000 KW; and its 7 per cent entitlement, or 112,000 KW, from the coal-fired Four Corners Power Station near Farmington, New Mexico.
Construction Keyed To Growth The electric utility industry is the most capital-intensive industry in the American economy.
Enormous amounts of money must be obtained in order to construct the facilities needed to insure an adequate and reliable source of electric energy.
The Company's 1977 construction budget was the largest in its history. EPE's consolidated construction program, during the next three years will require estimated additions of approximately $ 415 million.
Included in these additions are construction expenses for new production facilities, transmission and distribution systems, general plant and related financing costs.
The Company and four Western utilities, Arizona Public Service Company, Southern California Edison Company, Public Service Company of New Mexico, and Salt River Agricultural Improvement and Power District, are participants in the Palo Verde Nuclear Generating Station, now under construction 50 miles west of Phoenix, Arizona.
EPE owns a 15.8 per cent undivided interest in the initial three units which will provide a total net output of approximately 3,810,000 KW when completed in 1982, 1984 and 1986, respectively. EPE's entitlement from the three units is approximately 600,000 KW. As of December 31, 1977, the Company has had additions of approximately $ 55.7 million to the station. The Company's total estimated share of the nuclear plant and related fuel is approximately $ 663.0 million, including related Allowance For Funds Used During Construction (AFUDC). In addition, the Company's share of the cost of related switchyard and transmission facilities is estimated to be about $ 126.4 million including AFUDC.
All permits required for construction of the station have been issued by the Nuclear Regulatory Commission, the Public Utility Commission of Texas and the New Mexico Public Service Commission. As of December 31, the total project was 15 per cent complete.
When electric power begins flowing to West Texas and New Mexico from Palo Verde Nuclear Generating Station in 1982, uranium fuel will be added to the EPE fuel mix. One of the principal goals of the Company's construction program is to reduce its reliance on oil and natural gas to fuel its generating units. Palo Verde Nuclear Generating Station will be a major step in that direction.
A successful energy production program is based on sound planning principles. Since planning for future energy needs is growing in complexity, the Company must begin now in order to meet customers'eeds many years in the future. Schedules for new production facilities have been lengthened from four years to ten years or longer because of increased regulatory
/z'l=Hrrgg requirements at all levels of government city, state
~ ~ a and federal.
Keeping in mind the long lead time required to bring
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an electric generating unit on line today, the Company has completed initial agreements to participate in additional nuclear units and a coal-fired generating station for base load purposes after 1982.
The Company and ten other participants have announced plans to file an application with the Nuclear Regulatory Commission in April 1978 for permits to construct two replicate units at Palo Verde Nuclear Generating Station, identical to the first three units. The Company's anticipated participation in the additional
units will be about 4 per cent, or 100,000 KW.
Additionally, the Company has completed an interim agreement with Public Service Company of New Mexico whereby the Company would own 15 per cent of the first 500,000 KW unit of a proposed coal-fired generating station located about 35 miles south of (tiQ],
i Farmington, New Mexico. The proposed station tentatively will consist of four 500,000 KW units scheduled for completion in 1983, 1988 and 1990 and X~
1992, respectively. '+k>'or A 73,000 KW peaking unit in El Paso is planned to be on line in 1980, subject to regulatory approval. The
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3~~ y proposed unit will cost an estimated $ 11 million and will operate primarily on fuel oil.
System Fuel Supplies many years the Company has been exclusively dependent on natural gas, fuel oil and a small amount of coal to fuel its generating units. As oil and natural gas become more expensive and less available, and state and federal governments undertake to restrict oil and gas as industrial fuels, the Company is taking steps to use more plentiful and less expensive fuels such as uranium and coal.
The average price of fuel oil decreased 1 per cent in 1977, to $ 2.64 per million BTU, compared with $ 2.67 per million BTU in 1976. On a per barrel basis the average price of delivered fuel oil decreased from $ 15.74 per barrel to $ 1 5.48. The Company entered into a 10-year contract with the Big Bend Resources Trust in June, whereby the Trust purchased the Company's fuel oil inventory, and the Company agreed to purchase fuel oil from the Trust. The Trust agreement resulted in a change in the method of financing the Company's fuel oil and a reduction in fuel oil carrying costs.
The Company's fuel oil purchase agreement with Southern Union Refining Company was assigned to the Big Bend Trust, and the Company licensed the Trust to use Company storage facilities.
The average price of interstate natural gas increased from $ 0.82 per million BTU in 1976 to $ 1.07 per million BTU in 1977, an increase of 30 per cent, while the average price of intrastate gas increased 17 per cent from $ 1.74 to $ 2.03 per million BTU. Further increases in natural gas prices are anticipated.
Interstate gas, when available, was delivered to Rio Grande Station in New Mexico under contract provisions with EI Paso Natural Gas (EPNG) in quantities varying from 9 per cent to 65 per cent of the station's daily natural gas requirements in 1977. El Paso Natural Gas has advised the Company that it can expect to receive only minimal deliveries of interstate natural gas in the future. However, during 1978 EPNG will provide approximately 4.4 billion cubic feet of gas that was misallocated in 1975.
Intrastate natural gas requirements at Newman Power Station in Texas are currently being met under a ~ l ~
contract with EPNG. Although intrastate gas is more expensive than interstate gas, it is not regulated by the Federal Energy Regulatory Commission and supplies
are more readily available. Terms of the present contract are expected to supply the major portion of the fuel needs at Newman through 1980.
The Company owns a 7 per cent undivided interest in Units 4 and 5 at the coal-fired Four Corners Station for a total entitlement of 112,000 KW. Coal supplies for the life of the Four Corners project are being obtained under a contract with Utah Construction and Mining Company.
In 1977, 15 per cent of the kilowatt-hours supplied by the Company were generated at the Four Corners Station.
The price of coal used at the Four Corners Station in northwestern New Mexico increased 10 per cent over 1976 levels from an average of $ 0.29 per million BTU to $ .32.
Since fuel oil is the most expensive fuel used by the Company in its operations, any curtailment in natural gas deliveries results in increased overall fuel expense.
Fuel oil must be burned in the absence of natural gas.
The average fuel mix for generation in 1977 was 75 per cent natural gas, 10 per cent fuel oil, and 15 per cent coal.
Fuel purchases are continuing for Palo Verde Nuclear Generating Station, and participants have contracts extending through the late 1990's for uranium concentrate to fuel the nuclear reactors.
Coal and nuclear energy are the only available practical alternatives to utilities faced with rising costs and inadequate supplies of petroleum fuels. The Company has taken initial steps on a long-range program of developing and using the more abundant supplies of coal and uranium. This country can ill-afford to continue to rely on foreign petroleum supplies and needs a policy which encourages the full development of domestic fuel resources instead of impeding the use of coal and uranium. The Company will remain flexible and utilize all available fuels in meeting the service area's growing need for energy.
Regulatory Matters The Company filed rate increase applications in May, 1977 with regulatory authorities in its seven juris-dictional areas the four incorporated municipalities in the Texas service area, the New Mexico Public Service Commission, the Public UtilityCommission of Texas (for unincorporated areas of the state) and the Federal i Energy Regulatory Commission (for wholesale rates).
Ih The incorporated Texas communities, including El Paso, which have original jurisdiction over retail rates, denied the Company any portion of the rate increase gl Iw'gl t>
request. An immediate appeal was made to the Public 1
Utility Commission of Texas which, under the terms of the Texas Public Utility Regulatory Act, has appellate
)l y@It jurisdiction in utility rate matters. The Commission con-solidated into one order all the Company's Texas ser-gf< vice area and on October 25 granted a rate increase of g
$ 7.5 million, 9 per cent over the 1976 adjusted test year revenues of $ 84.7 million.
The Commission's order permitted the Company to include $ 17.4 million of Construction Work in Progress (CWIP) associated with Palo Verde Nuclear Generating Station in rate base, thus allowing the Company to earn a return to recover financing costs of the nuclear project.
The Texas rate order also called for elimination of the declining block rate schedule for residential custom-ers, substituting a flat rate per kilowatt-hour.
In an order dated January 12, 1978, the New Mexico Public Service Commission authorized a rate increase of approximately $ 2.8 million annually. While not allowing CWIP in rate base, the order included suffi-cient revenues to recover current financing costs in the base rate.
Although the CWIP issue remains an item of con-tention, management believes that the Public Utility Commission of Texas and the New Mexico Public Ser-vice Commission have demonstrated a sensitivity to the many problems faced by the utility industry and have done a creditable job under very difficultcircumstances of balancing the needs of the shareholder with those of the consumer. Because of the Commissions'rompt attention to this rate case, the financial integrity of the Company has been protected.
The Federal Energy Regulatory Commission au-thorized the Company to place new wholesale rates into effect, subject to refund, December 1, 1977. The issues of CWIP in rate base and return on common equity are reserved for hearing. Settlement rates resolving all out-standing issues are expected this summer.
The 1977 rate increase was only the second in the Company's history. The Company will continue to offer its customers a reliable source of electric energy at the lowest price consistent with providing a fair return to investors. Balancing the needs of customers and inves-tors requires the establishment of rates by regulatory authorities which are responsive to the needs of both.
Additional rate filings will be made in 1978 because of continued higher construction and financing costs and the effects of inflation on operating expenses.
Meeting the Company's environmental obligation is an increasingly expensive undertaking. Since 1970 the Company has spent about $ 1.3 million on envi-ronmental facilities and equipment.
An environmental dispute of more than five years at the Four Corners Station moved one step closer to resolution in 1977. The New Mexico Environmental Improvement Board voted to accept a compromise proposal submitted by the plant owners and the New Mexico Citizens for Clean Air and Water to set up an air monitoring system in the high terrain near the station.
The air monitoring program will determine whether a proposed regulation calling for removal of 67.5 per cent of sulfur dioxide would be sufficient to protect the environment. Plans are for improved flyash control in all units at the mine-mouth complex, which burns low BTU coal with less than 1 per cent sulfur but with a high ash content.
Plans for Units 4 and 5 call for a battery of 8 horizontal venturi sulfur dioxide scrubbers and upgrading flyash control from 97 per cent to 99.9 per cent, with the Company's share of the expense estimated at $ 15 million.
EPE also expects to spend approximately $ 400,000 as its share of a $ 6.0 million program to bring the Four
Corners Station into compliance with federal clean water requirements.
The Company is in compliance with present environmental regulations applicable to its operations but expects to continue spending substantial amounts for environmental control measures as construction and engineering improvements are mandated by regulatory agencies.
Financing In April, 1977, the Company received the proceeds from the sale of 100,000 shares of 8.24 per cent Preferred Stock; and a bid price of 99.501 per cent was accepted for the sale of $ 25 million principal amount of the First Mortgage Bonds, 8-1/2% Series. The nearly
$ 35 million proceeds were applied toward the reduction of short-term indebtedness incurred as a result of the sE Company's construction program. An estimated $ 225
~I million in external financing will be required to finance the Company's construction program through 1980 with the balance of the required funds expected to be obtained from internal sources.
Management Changes A number of management changes occurred in 1977 including the election of the first woman to senior officer status in the Company's history.
The Board of Directors elected Mrs. Theta S. Fields as Company Secretary. She had been assistant Secretary for three years.
Donald G. Isbell, who had been Manager of Energy Resources, was elected Vice President Energy Resource and Planning.
Board Chairman and former President and Chief Executive Officer of the Company, Dennis H. Lane, announced his retirement effective July 1, 1977. Mr.
Lane remains as a Director.
All other Officers were reelected to their respective posts.
Martin P. Kuric, Vice President for Rates and Contracts, resigned in December to accept a position as Chief Financial Officer at Montana-Dakota Utilities effective January 1978.
Employees The employment, development and retention of qualified employees is becoming increasingly important as the production and distribution of energy increases in complexity.
At year's end there were 838 employees, a 2.7 per cent increase over 1976.
The challenges of this rapidly growing business require a highly skilled and motivated work force. In that regard the Company's training program plays an impor-tant role in the overall performance of the Company.
In order to handle better the volume of customer inquiries, a program entitled "Customer Contact for
Electric Utilities" was undertaken using modern audio-visual techniques and curriculum. Most employees who deal directly with customers had completed the course by year's end. This training, in conjunction with a direct computerized system of handling customer inquiries which became operational in 1976, is enhancing the customer contact function and improving the flow of information between the customer and the Company.
A two-year contract was signed with Local Union No. 960 of the International Brotherhood of Electrical Workers beginning March 1, 1978. IBEW represents about 40 per cent of the Company's employees.
An apprenticeship training program, recognized by the Department of Labor and the Texas Education Agency, has now been expanded to over 13 crafts. The program is administered by a joint union-management committee.
A company's greatest asset is its employees, a fact most clearly demonstrated at two Service Award An-niversary Banquets held in April and October where employees are honored after completing a minimum of five years of continued service. A total of 91 employees were so recognized in 1977 with service ranging from five to 40 years with a total of 1,420 years of service among them.
In addition to other employee benefits, all eligible
,wii~ i~mm Il~aej, employees may participate in the Company's Stock Purchase Plan through payroll deductions for purchase j
of Common Stock without commissions or brokerage fees. In addition, the Company is proposing an Employee Stock Ownership Plan (ESOP) through which eligible employees may receive shares of Com-mon Stock at no cost to the employee or to the Com-pany. The plan will be submitted to shareholders for approval at the annual meeting in May, 1978.
Conservation, Research Until new energy sources are developed, conserva-and Development tion is one means of dealing with the energy crisis in America. For several years the Company has been asking its customers to eliminate energy waste. In 1977, EPE formed an Energy Utilization and Conservation Department and has developed conservation manuals, allotted much of its advertising toward the need to con-serve and participates in research programs to develop more exotic means of power generation to replace oil and natural gas.
It is a multi-faceted approach.
Employees assigned to Energy Utilization are knowledgeable in modern methods of weatherizing an existing home, business or industrial plant. Upon re-quest they will perform an energy audit with an on-site inspection of a building's insulation, caulking, weath-erstripping, windows, heating and cooling methods, etc., and then recommendations are made to bring it up to an Energy Efficient standard. A certified list of insulat-i'~~~
~srl aeea+~~
li ing contractors can be furnished on request. Once the ~ A' home is retrofitted to the specifications, an Energy Effi-cient Award is presented.
A WISE (Weatherized and Insulated to Save Energy) home program has been developed for new home construction. The Energy Utilization Department
has developed specifications covering the areas of weatherizing needed to meet prevailing standards of energy conservation. The WISE home program is con-ducted in conjunction with area home builders.
>>Q' Some advertising has been done on behalf of the Energy Efficient Home and WISE Home Programs with the inclusion of the Company's advertising slogan for the year, "Let's All Save Energy Today for a Stronger Tomorrow!"
More than 17,000 copies of the Company's booklet, "82 Ways to Help Control Your Energy Bill," had been distributed by year's end. Bill stuffers, buttons, bulletins and articles in Company publications all added to the conservation appeal.
Qfeatherired & The Company was recognized by the Federal Insulated tn Energy Administration in 1977 as having one of the best Save energy conservation action programs in the nation.
Eneigy Although the only methods of providing central station electric power during the next few decades are nuclear and coal energy sources treated elsewhere HIKIEIIOAHOMES in this report the Company has not ignored the more
, exotic fuels that may be developed in the future.
The Company is a member of the Southwest Solar Project, which is charged with developing a feasibility study of the technical, financial, regulatory and legislative factors of incorporating solar power into existing generating systems. The study is being conducted in conjunction with the Department of Energy.
Company support of the solar heated and cooled home on the campus of New Mexico State University has been substantial. The Company maintains membership in Western Energy Supply and Transmission (WEST) Associates, a 20-member utility organiztion that sponsors research on alternate energy sources. EPE is also active in the Electric Power Research Institute and the Fast Breeder Nuclear Research Project.
Significant research on nuclear fusion as an energy source has been conducted by the Texas Atomic Energy Research Foundation in conjunction with the University of Texas at Austin Engineering and Physics De-partments. EPE is one of the Texas utilities sponsoring this program.
All of these exotic sources of fuel for electric generation have yet to be proven technically and economically feasible for large-scale power generation.
When a viable plan is developed, the conversion to commercial generation could take many years.
Communications People everywhere are concerned, disturbed and frustrated over the increased cost of electricity. They are confused by the public controversy surrounding the utility industry, nuclear power, the relation between the industry and its customers and shareholders. Much of the uncertainty is due to a lack of technical understanding by the news media. This state of frustration and uncertainty makes fertile political ground.
In 1977, the Company agreed to sponsor the formation of a Political Action Committee after several
employees expressed an interest in forming the organization. Supervisory and executive personnel have submitted a statement of organization to support causes or candidates that believe in the principles of the American free enterprise system.
In order to assist better public understanding of energy economics and practical energy alternatives, the !,l yk a Company also organized a speakers'ureau in 1977 composed of volunteers from throughout the Company.
The participants undergo training in public speaking i".
from professionals and are available to speak on a variety of topics.
Public awareness of the circumstances faced by EPE in providing electric energy is a continuing challenge. The Company has continued to use mass media advertising to inform its customers of energy basics and energy conservation.
The Company also organized an educational services program in 1977 in cooperation with local public schools. This program provides teachers and R students with energy-related teaching materials and classroom presentations.
CONSTRUCTION PROGRAM ACTUAL ADDITIONS 140 ESTIMATED ADDITIONS (IN MILLIONS OF DOLLARS) 120 110 70 50 40 10 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981
Operations at a Glance OPERATING REVENUES (IN MILUONS 1968 1969 1970 0
~ 30 D
35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115 OF DOLLARS) 1971 1972 1973 1974 1975 1976 1977 0 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 OPERATING EXPENSES (IN MILUONS OF DOLLARS) 1968 1969 1970 1971 1972
~
~~n 13 1973 1974 1975 1976 1977
~~~~~~~~~~~~~~O 0 120 130 140 150 160 170 180 190 200 210 220 230 240 250 260 270 280 290 300 31 0 320 330 340 ELECTRIC 1968 KD~~C3 PLANT (IN MILLIONS OF DOLLARS) 1969 1970 1971
~~~~0 1972 1973 1974
~~~~~~~Cl 1975 1976 1977
~ ~ ~~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ C3 0 2,000 2,100 2,200 2,300 2,400 2,500 2,600 2,700 2.800 2.900 3,000 3,)00 3.200 3.300 KWH SALES 1968 (IN MILLIONS 1969 OF DOLLARS) 1970 1971 1972 1973 1974 1975 1978 1977 0 100 105 110 115 120 125 130 135 140 145 150 155 160 NUMBER OF CUSTOMERS 1969 (IN THOUSANDS) 1970 197'I isn 1973 i974 1975 1976 1977
PEAK LOAD-KW 1968 1969 1970 0
~ 400 Q
420 440 460 480 500 520 540 560 580 600 620 640 660 680 (IN THOUSANDS) 1973 1974 DIVIDENDSI SHARE 1948 1989 0
~~~~~8:3
~ ~ ~ ~ ~~
.50 .55 .60 .65 .70 75 .80 .85 90 .95 1.00
~~~~~~C (IN DOLLARS) 1879 83 1977
~E:l~~~~~~~
~~~~~~~~~83
~~~~~~~~~~
\978 3~85
~~~~~~~~~~~
1973 1974 1975 1978 1977 0 .10 .20 .30 40 .50 .60 .70 .80 .90 1.00 1.10 1.20 1.30 1.40 1.50 1.60 1.70 WEIGHTED 1968
~~CD
~~~0 AVERAGEI 1969 MMBTU 1970 (IN DOLlARS) 1971 1972 1973 1974
~ ~ ~~
~~~CD CI 1975 1976 1977 ~~~~~~~~~~~~~~~~~
NUMBER OF SHAREHOLDERS.
1968 1969 0
~~~~~8 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 COMMON (IN THOUSANDS) 1970 1971 1972 ~~~~~~EI
~~~~~~~CI 1973 1974 1975 1978 1977
~
~~~~~C ~ ~ ~ ~ ~ IC
~ IC
~ ~
II IC I
IL'C II II:III 0 4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88 92 96 100 GENERATING MIX (IN PERCENTAGES) 1972 1973 11174 n
COAL GAS~
~
1975 OIL~
7978 1977 1979
TO WEST MESA ELEPHANT 8UT'IE Irr To WEST MESA DAM CARALLO ALAMOOORDO Service Area I~HOLLOMAN El Paso Electric is an investor-owned electric utility operating in a two state area, Texas and New Mexico, HATCH I
principally engaged in the generation, transmission, ,I distribution and sale of electric energy. The Company WHITE serves approximately160,000 customers in West Texas err SANDS and South Central New Mexico in a service area of Ci lAS CRVCE ~08 about 10,000 square miles. The area extends from the ARROyO
~ SVRSTA'IION Caballo Dam in New Mexico southeasterly to Van Horn, Texas.
+ QR 8 + / +P/ M< GREGOR
)as a ~
RL ANTHONY NEWMAN STATION RID EL PASO GRANDE OO STATION I
UTAH COLORADO TEXAS O0 NEW MEXICO CIVDAD r r rrrorr AO MEXICO JVAREZ +~R~SE FARE NS Iel FOUR CORNERS STATION I
Ao ~Cy 04r CA" m4C4' Jp 4~
O+ I P Oo O~
4F'C
~ ~i COMPAHY LINES
~o ~~ Rsaa COMPANY 345 KV LINE WEST MESA (ALEVOVEROVE) OTHER SYSTEMS 8
8 lSI POWER STATIOHS 8 To ELEPHANT EUTTE DAM 8
To El PASO
Operating Revenues Fl NANCIAL Total operating revenues for 1977 were INFORMATION
$ 112,339,000, an increase of $ 1,151,000 or 1.0 per cent over 1976. Residential revenues increased by 9.8 per cent, large commercial and industrial 12.5 per cent, and Where the revenue sales to public authorities increased 21.7 per cent. dollar came from:
Decreases were experienced in small commercial and Residential .30 Commercial and industrial, small .30 industrial revenue of 0.1 per cent and in sales for resale of 62.9 per cent due to the termination on March 31, Commercial and industrial large .16
~
1977, of sales to the Comision Federal de Electricidad which supplies the city of Juarez, Mexico. Operating Sales for resale .04 revenues include $ 28,156,000 from the application of Sales to the fuel adjustment clause during 1977. ublic authorities .19 Operating Expenses Other .01 Fuel expense for 1977 was $ 59,442,000 which represents an increase of $ 6,288,000 or 11.8 per cent.
Operation, purchased and interchanged power, and maintenance expenses of $ 16,685,000 decreased 7.1 per cent from 1976.
Earnings and Dividends Net income for 1977 was $ 11,422,000, a decrease of $ 94,000 compared with 1976. After provision for preferred dividends of $ 2,037,000, the net income remaining for common stock was $ 9,385,000, equivalent to $ 1.11 per share compared with $ 1.29 per share in 1976. The weighted average number of shares increased in 1977 8.8 per cent over 1976. Dividends paid during 1977 totaled $ 0.99 per share of common stock which was paid on the basis of $ 0.24 in March and Where the revenue
$ 0.25 in June, September and December. Dividends dollar went:
paid during 1976 totaled $ 0.95 per share of common stock which were paid on the basis of $ 0.23 per share in March and $ 0.24 in June, September and December.
Financing At the beginning of 1977 there were outstanding short-term bank loans and commercial paper of
$ 25,700,000. At the end of the year short-term bank loans and commercial paper totaled $ 36,165,000.
During 1977, the Company sold 100,000 shares of
$ 8.24 dividend preferred stock and $ 25,000,000 of 8-1/2~/o First Mortgage Bonds with proceeds of approximately $ 9,832,000 and $ 24,875,000, respectively. These funds were used to pay off short-term notes and for general corporate purposes, including the financing of the Company's construction Reinvested program. earnings .01 Other operating expenses .1 3 Dividends .09 Depreciation .06 Taxes .11 Interest expense .07 Fuel expense .53
EL PASO ELECTRIC COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENT OF INCOME Years ended December 31 1977 1976 (Thousands of Dollars)
Operating revenues ~112 339 ~111 188 Operating expenses (Note L):
Fuel 59,442 53,154 Purchased and interchanged power ( 1,947) 788 Operation 13,984 12,248 Maintenance 4,648 4,918 Depreciation (Note B) 6,498 6,233 Taxes (Note I):
Federal income, current 20 2,975 Federal income, deferred 2,635 3,020 Charge equivalent to investment tax credit, net of amortization 1,894 2,147 Other 7 828 7 585 95 002 93 068 Operating income 17 337 18 120 Other income:
Allowance for other funds used during construction (Note K) 1,600 786 Other income, net of other expenses Federal income taxes (Note I) ~73 ~48 162 1 689 100 838 Income before interest charges. 19 026 18 958 Interest charges:
Interest on long-term debt 8,161 6,719 Other interest 1,554 1,611 Allowance for borrowed funds used during construction (Note K) 2 111 ~888 7 604 7 442 Net income 11,422 11,516 Preferred dividend requirements (Note E) 2 037 1 481 Net income applicable to common stock (Note F) ~9385 ~10 035 Earnings per share of common stock (Note F)
Weighted average number of common shares outstanding 8 488 340 7 800 143 The accompanying notes are an integral part of the financial statements.
EL PASO ELECTRIC COMPANY AND SUBSIDIARY CONSOLIDATED BALANCE SHEET December 31 ASSETS 1977 1976 (Thousands of Dollars)
Utility plant:
Electric plant (Notes B and G) $ 338,598 $ 274,502 Accumulated provision for depreciation ~61 451 ~55 060 277 147 219 442 Nonutility property, at cost 24 24 Current assets:
Cash (Note H) 4,347 3,004 Restricted cash (Note C) 6,600 Accounts receivable (less allowance for doubtful accounts of $ 260,000 and $ 287,000, respectively) 14,383 14,799 Federal income taxes refundable 4,027 2,034 Materials and supplies 2,618 2,712 Fuel (Note J) 6,202 8,267 Prepayments 1,516 1,289 Deferred fuel costs (Note D) 7,234 5,340 Other 837 47 764 37 445 Deferred charges and other assets:
Restricted cash (Note C) 4)000 Unamortized debt expense 662 453 Other 1 313 1 043 5975 1 496 I330 910 $ 258 407 LIABILITIESAND SHAREHOLDERS'QUITY Shareholders'quity:
Preferred stock, cumulative, no par value, 1,000,000 shares authorized, issued and outstanding 290,000 and 190,000 shares, respectively (Note E) $ 28,873 $ 19,041 Common stock, no par value, 15,000,000 shares authorized, issued and outstanding 8,536,818 and 8,448,767 shares, respectively (Note F) 41,064 40,033 Unamortized capital stock expense ( 496) ( 437)
Retained earnings (Note G) 39 056 38 132 108 497 96 769 Long-term debt (Note G) 122 171 92 290 Long-term purchase commitment (Note C) 6 600 Current liabilities:
Notes payable to banks (Note H) 10,865 3,500 Commercial paper (Note H) 25,300 22,200 Fuel purchase commitment (Note J) 6,100 Accounts payable 9,805 5,113 Customer deposits 1,997 1,693 Taxes accrued (Note I) 4,287 6,756 Deferred income taxes (Note I) 3,875 2,563 Interest accrued 2 322 1,759 Other 777 703 65 328 44 287 Deferred credits and other liabilities:
Accumulated deferred federal income taxes (Note I) 16,644 15,321 Accumulated deferred investment tax credit (Note I) 11,265 9,383 Customer advances for construction and other 405 357 28,314 25,061 Commitments and contingencies (Notes J and L)
$ 330 910 S258 407 The accompanying notes are an integral part of the financial statements.
EL PASO ELECTRIC COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENT OF SHAREHOLDERS'QUITY (Dollar Amounts in Thousands)
Unamortized Capital Preferred Stock Common Stock Stock Retained Shares Dollars Shares Dollars E~xenee Earnin<as Balance at December 31, 1975 190,000 $ 19,041 7,396,165 $ 28,646 $ 35,667 Net income for the year ended December 31, 1976 11,516 Amortization of capital stock expense $ 48 ( 48)
Cash dividends:
Preferred ( 1,481)
Common ($ 0.95 per share) ( 7,522)
Sale of shares to employee stock purchase plan participants 9,437 86 Sale of shares to dividend reinvestment plan participants 43,165 491 Sale of common stock 1,000,000 10,810 Additions to capital stock expense 485 Balance at December 31, 1976 190,000 19,041 8,448,767 40,033 ( 437) 38,132 Net income for the year ended December 31, 1977 11,422 Amortization of capital stock expense 56 ( 56)
Cash dividends:
Preferred ( 2,037)
Common ($ 0.99 per share) ( 8,405)
Sale of shares to employee stock purchase plan participants 8,967 96 Sale of shares to dividend reinvestment plan participants 79,084 935 Sale of preferred stock 100,000 9,832 Additions to capital stock expense Balance at December 31, 1977 290 000 $ 28 873 8 636 818 $ 41 064 496 39 056 The accompanying notes are an integral part of the financial statements.
EL PASO ELECTRIC COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN FINANCIALPOSITION Years ended December 31 1977 1976 (Thousands of Dollars)
Source of funds:
From operations:
Net income $ 11,422 $ 11,516 Items not requiring (providing) working capital:
Depreciation 6)682 6,366 Deferred federal income tax 1 )323 1,962 Investment tax credit 1,894 2,147 Allowance for other funds used during construction ( 1,600) ( 786)
Other 308 297 Funds provided by operations 20)029 21,502 Sale of preferred stock 9,832 Sale of common stock 1)031 11,387 Sale of first mortgage bonds 25,000 Sale of pollution control bonds 5,000 Long-term purchase commitment 6 600 67 492 32 889 Application of funds:
Gross additions to plant 64,747 23,967 Reclassification of prepayments to electric plant 1,492 Allowance for other funds used during construction ( 1,600) ( 786)
Increase in restricted cash 4)000 Dividends on preferred stock 2,037 1,481 Dividends on common stock 8,405 7,522 Reduction of long-term debt 817 Other 625 787 78 214 35 280 Decrease in working capital 10 722 2 391 Increase (decrease) in components of working capital:
Current assets:
Cash $ 1,343 ($ 1,282)
Restricted cash 6,600 Accounts receivable ( 416) 844 Federal income taxes refundable 1)993 ( 2,783)
Materials and supplies ( 94) ( 379)
Fuel ( 2,065) 1,565 Prepayments 227 ( 1,156)
Deferred fuel costs 1,894 2,204 Other 837 10 319 ~98 Current liabilities:
Notes payable 7,365 ( 5,200)
Commercial paper 3,100 7,200 Current installments of long-term debt ( 6,000)
Fuel purchase commitment 6,100 Accounts payable 4,692 1,252 Customer deposits 304 45 Taxes accrued ( 2,469) 3,460 Deferred income taxes 1 312 1,058 Interest accrued 563 ( 150)
Other 74 ~261 21 041 1 404 Decrease in working capital 10 722 2 391 The accompanying notes are an integral part of the financial statements.
EL PASO ELECTRIC COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIALSTATEMENTS A.Summary of Significant Accounting Policies: also exist. In accordance with regulatory authority General requirements provision has been made in the financial The company maintains its accounts in accordance with statements for federal income taxes deferred to future the Uniform System of Accounts prescribed for electric years as a result of these items. The company does not utilities by the Federal Energy Regulatory Commission provide deferred taxes on certain other differences (FERC) (formerly the Federal Power Commission). between financial and tax reporting since such differences are not approved as an expense in rate of return Principles of Consolidation computations by regulatory authorities. Accordingly, The consolidated financial statements include El Paso income taxes deferred to future years related primarily to Electric Company and its wholly-owned subsidiary, allowance for funds used during construction and other Franklin Land & Resources, Inc., which was organized in depreciation methods have not been recognized in the 1977. All intercompany balances and significant financial statements.
intercompany transactions have been 'eliminated in consolidation. Investment tax credits are being deferred and amortized to income over the estimated service lives of the related Utility Plant properties.
Utility plant and equipment are stated at original cost.
The company provides for depreciation on a straight-line Pension Plan basis at annual rates which will amortize the undepreciated The company has a noncontributory retirement annuity cost of depreciable property over estimated remaining plan (future participation terminable at any time) under a service lives. group annuity contract. The pension plan provides annual pensions for regular employees with more than one year of The company charges the cost of repairs and minor service, which together with social security benefits, replacements to the appropriate operating expense and approximate 70'/o of average annual earnings during the capitalizes the cost of renewals and betterments. The period of employment. The company's policy is to fund recorded cost of depreciable plant retired or sold, and the pension costs accrued. Prior service costs are being cost of removal, less salvage, is charged to accumulated amortized over a thirty-year period beginning in 1972 and provision for depreciation. are included in the determination of annual expenses.
Inventories Earnings Per Common Share Materials and supplies and fuel inventories are valued at Earnings per common share are computed using the the lower of average cost or market. w'eighted average number of common shares outstanding Unamortized Capital Stock Expense during the year. Common equivalent shares related to the amended employee stock purchase plan are not Unamortized amounts apply to outstanding issues and are being charged to retained earnings over a ten-year significant.
period.
B. Utility Plant:
Revenues Electric plant consisted of the following at December 31 Revenues are recognized based on cycle billings (amounts in thousands):
rendered to customers monthly. The company does not 1977 1976 accrue revenues in respect of energy consumed but not 50 $ 50 billed at the end of a fiscal period. Intangibles Production 130,216 128,714 Deferred Fuel Costs Transmission 30)629 30,150 Fuel costs in excess of base rates provided for by fuel Distribution 84)699 79,801 adjustment clauses in applicable authorized rate General 8,468 8,143 schedules are deferred until the related revenues are billed Plant held for which is usually in the first or second month after the costs future use 397 397 are incurred. Construction work in progress 79,762 24,928 Unamortized Expense, Premium and Discount on Nuclear fuel in Debt process 4 377 2 319 Unamortized amounts apply to outstanding issues and Total 338 598 $ 274 502 are being amortized ratably over the lives of such issues.
Federal Income Taxes and Investment Tax Credits Total depreciation was approximately $ 6,734,000 in 1977, and $ 6,403,000 in 1976, of which approximately Accelerated depreciation of utility plant and $ 236,000 and $ 170,000, respectively, was applicable to amortization of emergency facilities are used for federal transportation equipment and has been charged to other income tax reporting purposes which differs from the accounts.
methods used for financial reporting purposes. Differences in the tax and financial methods of accounting for fuel costs The average annual depreciation rate used by the
company for the years ended December 31, 1977 and Caii 1976 was 2.68. Price Per Stated Value Share at Issue 1977 1976 Dec. 31 1977 C. Restricted Cash:
15,000 shares, The company entered into a long-term utility plant
$ 4.50 dividend $ 1,534 $ 1,534 $ 109.00 purchase commitment with a trust, whereby the company 15,000 shares, will sell a turbine (currently held in construction work in 103.98
$ 4.12 dividend 1,506 1,506 progress) to the trust for an amount equal to its cost. For 20,000 shares, financial reporting purposes, debt incurred by the trust is 104.00
$ 4.72 dividend 2,001 2,001 assumed to have been incurred on behalf of the company. 40,000 shares, Accordingly, the balance sheet at December 31, 1977, 101.00
$ 4.56 dividend 4,000 4,000 includes funds borrowed by the trust in the amount of 100,000 shares,
$ 6,600,000 to be used to acquire the turbine from the 110.75
$ 10.75 dividend 10,000 10,000 company upon FERC approval of the transaction. The 100,000 shares, amount has been reflected as restricted cash and 8 832 107.52
$ 8.24 dividend long-term purchase commitment in the financial statements. 328 873 319 041 The company has approximately $ 4,000,000 in other The $ 10.75 preferred shares are entitled to the benefits restricted cash at December 31, 1977, which represents a of a sinking fund whereby on January 1 of each year, portion of the proceeds from pollution control revenue beginning with the year 1980, the company will redeem bonds issued in November 1977. The funds will be 4,000 shares annually at the sinking fund redemption price withdrawn from the escrow account as qualified of $ 100.00 per share plus accrued dividends. Sinking fund construction expenditures for pollution control facilities are requirements are cumulative and in the event they are not made. satisfied at any redemption date, the company is restricted from paying any dividends (other than dividends in D. Deferred Fuel: common stock or other class of stock ranking junior to the 23 preferred stock as to dividends and assets) on common In October 1977, the Public UtilityCommission of Texas stock. The $ 10.75 preferred shares are callable; however, ordered the company to discontinue deferring the no optional redemption of the shares may be made prior to collection of fuel costs in Texas. Accordingly, the company January 1, 1985, as a part of, or in anticipation of, any began estimating and billing fuel costs related to Texas refunding involving the issue of preferred stock or any customers, beginning in December 1977. The company other stock having an effective dividend cost of less than will be allowed to recover the existing deferred fuel costs 10.75/o per annum.
at December 31, 1977 related to Texas customers (approximately $ 5,800,000) ratably over a twelve-month F. Common Stock, Employee Stock Purchase period in the form of a fuel surcharge. Plan and Dividend Reinvestment and Stock Purchase Plan:
In February 1978, the company issued 1,500,000 E. Preferred Stock: shares of common stock. Assuming the shares had been On April 20, 1977, the company sold 100,000 shares of issued and outstanding on January 1, 1977, and the preferred stock with an annual dividend rate of $ 8.24. The proceeds of $ 17,208,000 had been used to retire new preferred shares have no provision for a sinking fund. short-term debt, the pro forma net income applicable to The shares are callable; however, no optional redemption common stock would have been approximately of the shares may be made prior to April 1, 1982, directly or $ 9,877,000 and the pro forma net income per share of indirectly as part of, or in anticipation of, any refunding common stock would have been $ .99 for the year ended involving the issue of indebtedness, preferred stock, or any December 31, 1977. The pro forma weighted average other stock having aninterest or dividend cost less than the number of common shares outstanding would have been effective dividend cost of the $ 8.24 preferred stock. 9,988,340.
All preferred stock is callable and upon voluntary Under a shareholder approved employee stock redemption or voluntary liquidation of the company is purchase plan qualified employees may purchase shares redeemable at the current call price plus accrued of the company's common stock at two specified dates dividends. The premiums reflected in the current each year for a period ending no later than June 30, 1979.
redemption prices continue to decrease, ultimately The purchase price is 90/o of the average bid price of the resulting in redemption at par. All series are redeemable at stock at the option dates. During 1977 and 1976, 8,967 and
$ 100 per share plus accrued dividends upon involuntary 9,437 shares, respectively, of common stock were liquidation. Following is a summary of the shares out- purchased at total prices of $ 95,986 and $ 86,089, standing at December 31, 1977 and 1976 (amounts in respectively, with corresponding fair market values at the thousands): purchase dates of $ 106,290 and $ 103,086, respectively.
At December 31, 1977, 84,715 shares were reserved for equal to retained earnings accumulated after December future purchases under the plan. Proceeds from 31, 1966, plus $ 4,100,000. The calculation of retained purchases are credited to common stock and no charges earnings available for dividends under the indenture of are reflected in income with respect to the plan. mortgage includes a "minimum provision for depreciation" amount (15% of operating revenues less certain credits Effective June 1976, the company instituted a Dividend and deductions) which was in excess of actual Reinvestment and Stock Purchase Plan which provides depreciation expense in 1977 and 1976, which has the holders of its common stock the option to invest cash effect of reducing the amount of retained earnings dividends and/or optional cash payments (up to $ 3,000 per available for dividends. Retained earnings in the amount of quarter) in additional shares of the company's common approximately $ 6,500,000 is unrestricted as to the stock. Since inception of the plan, a total of 122,249 shares payment of cash dividends at December 31, 1977.
of common stock have been purchased for shareholders who have reinvested dividends and cash in the amount of H. Notes Payable to Banks and
$ 1,426,500. At December 31, 1977, 627,751 shares were Commercial Paper:
reserved for future purchases under the plan. The purchase price is the average of the last bid and asked Short-term notes payable at December 31, 1977, price at the purchase date. consisted of $ 25,300,000 of commercial paper with a weighted average discount rate of 6.5% and $ 10,865,000 G. Long-Term Debt: of notes payable to banks with a weighted average interest Outstanding long-term debt at December 31, 1977, and rate of 6.4%. Short-term notes payable at December 31, 1976, is as follows (amounts in thousands): 1976, consisted of $ 22,200,000 of commercial paper with Redemption a weighted average discount rate of 5% and $ 3,500,000 of Price at notes payable to banks with a weighted average interest 1977 1976 0ee.31 1977 rate of 6.4%.
First mortgage bonds:
2-7/8% Series, due 1980 S 4,500 S 4,500 S100.40 The company has informal lines of credit with various 3-1/8% Series, due 1984 4,950 4,950 101.25 lenders whereby the lenders have agreed to provide 4-1/4% Series, due 1988 6,100 6,100 102.40 specified maximum amounts as a temporary source of 4-5/8% Series, due 1992 10,385 10,385 102.83 funds for its capital program. Certain of these 6-3/4% Series, due 1998 15,800 15,800 104.66 arrangements provide for the maintenance of 7-3/4% Series, due 2001 15,838 15,838 107.08 compensating balances of 10% of the available lines of 9% Series, due 2004 20,000 20,000 107.63 credit and 10% of the loans outstanding. At December 31, 10-1/2% Series, due 2005 15,000 15,000 110.63 8-1/2% Series, due 2007 25 000 108.75 1977, the lines of credit available under these 24 arrangements totaled $ 51,600,000 and approximately 117,573 92,573
$ 1,300,000 of the company's cash at that date was 4-1/4% pollution maintained as compensating balances.
control revenue bonds, 1977 Series A, The maximum and average amounts of aggregate due 1979 5,000 short-term borrowings outstanding at any month-end Unamortized premium during the year ended December 31, 1977, were and discount ~402 ~2$ 3 $ 36,750,000 and $ 23,598,000, respectively, and for the
$ 122 171 $92 290 year ended December 31, 1976, were $ 28,000,000 and
$ 24,210,000, respectively. The weighted average interest The company's first mortgage provides for sinking and rate was 5.5% and 5.9% during the years ended December improvement funds which require the company to make 31, 1977 and 1976, respectively, and was calculated by annual payments to the trustee equivalent to 1% dividing actual interest expense by the average aggregate
($ 1,185,000 at December 31, 1977) of the greatest month-end balances outstanding during the related period.
aggregate principal amount of bonds of the respective In November 1976, the Federal Power Commission series outstanding at any one time prior to a specified date authorized the company to issue short-term promissory preceding the sinking fund payment date, with certain notes to commercial banks in an amount not to exceed allowable credits. The company has generally satisfied $ 100,000,000 outstanding at any one time. The final these requirements in past years by relinquishing the right maturity date on the notes is to be no later than December to use a net amount of additional property for the issuance 31, 1978. The interest rates on the notes are to be at the of bonds or purchasing bonds in the open market and prime rate in effect at the time of issuance, plus in some expects to continue such practices in 1978. cases, provisions for compensating balances of 20%. The The premiums reflected in the redemption prices shown net proceeds from the issuance of the notes are to be used above continue at reduced amounts in future years, finally for construction expenditures. Commercial paper in an resulting in each case in redemption at par at maturity. amount not exceeding 25% of operating revenues for the preceding twelve months may be issued in place of notes.
Substantially all of the company's utility property is subject to a lien under the indenture of mortgage I. Federal Income Taxes:
collateralizing the company's bonds.
The provision for deferred federal income tax, which In accordance with certain provisions of the indenture arises from timing differences between financial and tax covering the first mortgage bonds, payments of cash reporting, is comprised as follows for the years 1977 and dividends on common stock are restricted to an amount 1976 (amounts in thousands):
1977 1976 interest in the construction of three units of a nuclear power Tax effect of:
plant (expected to be completed in 1986), related Excess of accelerated tax transmission lines, and nuclear fuel, including depreciation over straight- approximateiy $ 161,000,000 of estimated allowance for funds used during construction. In addition, the company is line tax depreciation $ 1,599 $ 1,893 committed at December 31, 1977, in the amount of Deferred fuel costs 909 1,058 approximately $ 27,000,000 for construction of pollution Amortization of deferred control facilities and a transmission line, including income tax related to emergency facilities approximately $ 3,000,000 of estimated allowance for
( 111) ( 111) funds used during construction.
Other 238 180
~2635 33 020 The company's fuel supply arrangements include short-term commitments under a fuel supply arrangement Federal income tax provisions for the years ended De- entered into in 1977 with a trust, whereby the company cember 31, 1977, and 1976 are less than the amounts concurrently assigned its principal long-term fuel supply computed by applying the statutory rate (48%) to book contract to the trust and agreed to purchase all fuel oil income before tax. Details are as follows (amounts in delivered to the trust by the fuel supplier. Payments to the thousands): trust for fuel oil purchases consist of the trust's cost of oil determined on an average cost basis plus related 1977 1976 administrative and carrying costs. For financial reporting Tax computed at statutory purposes, purchases of the trust are assumed to have rate on book income before been made on behalf of the company. Accordingly, the tax $ 7,701 $ 9,255 balance sheet at December 31, 1977, includes Increases (decreases): approximately $ 6,100,000, recorded as fuel and fuel Allowance for funds used purchase commitment, reflecting the company's during construction ( 1,781) ( 599) commitment to purchase the trust's fuel oil inventory as of Excess of straight-line tax December 31, 1977.
depreciation over book depreciation ( 707) ( 649) K.Allowance for Funds Used During Construction Amortization of The applicable Regulatory Uniform System of Accounts accumulated investment defines "allowance for funds used during construction" tax credit ( 297) ( 260) ("AFUDC") as an amount which includes the net cost Other, ~294 17 during a period of construction of borrowed funds used for construction purposes plus a reasonable rate on other Total income tax expense ~4622 ~7764 funds when so used. While AFUDC results in a current Effective federal income increase in utility plant for ratemaking purposes and tax rate 28.8% 40.3% represents, in this fashion, current compensation for the use of capital devoted to construction, AFUDC is not an item of current cash income. AFUDC is realized in cash Total federal income tax expense is comprised as fol- after the related plant is placed in service through the lows (amounts in thousands). allowance for depreciation charges based on the total cost of the plant, including AFUDC.
1977 1976 The amount of AFUDC is determined by applying an Federal income tax, current $ 20 $ 2,975 accrual rate to the balance of certain utility plant additions.
Income taxes associated with The company uses an accrual rate of 7-1/2%, which other income 73 48 represents the accrual rate approved by state and local Income tax credits included in regulatory authorities having primary jurisdiction over the the allowance for borrowed company's rates. In this connection, the FERC funds used during promulgated procedures for the computation (a prescribed construction 426 formula) of the accrual rate which were effective January 1, 1977. The 7-1/2% accrual rate being used by the company Federal income tax during 1977 is less than the rate permitted under the currently payable 93 2,597 prescribed FERC formula.
Deferred federal income tax 2,635 3,020 Effective January 1, 1977, the FERC also revised its Deferred investment tax credit 2,191 2,407 Uniform System of Accounts in connection with the Amortization of deferred classification of AFUDC. Accordingly, AFUDC is investment tax credit { 297) 260 presented in the statements of income as "allowance for other funds used during construction" and "allowance for 4 622 7 764 borrowed funds used during construction." The presentation of AFUDC in the income statement for the year 1976 has been reclassified to effect this change.
J. Commitments and Contingencies:
The company is committed at December 31, 1977, in In 1976 the income tax effect of the borrowed the amount of approximately $ 731,000,000 for a 15.8% component of AFUDC was allocated in the income
statement which has the effect of increasing both current The replacement costs reflected in the table below were operating income taxes and allowance for borrowed funds determined on the basis of replacing existing capacity used during construction by the same amount. The (which uses gas, oil and coal as fuels) with capacity fueled allocation of the income tax effect was not made during the by oil and coal. Due to pending federal legislation in con-year 1977. The treatment of the income tax effect in nection with a national energy policy, replacement of exist-relation to AFUDC in the two periods reflects the methods ing capacity with capacity fueled by oil may no longer be a by which the company's electric rates have been viable alternative. To the extent existing capacity must be determined by state and local regulatory authorities. replaced by capacity using coal or nuclear fuel, replace-L. Pension Plan: ment costs could be expected to increase substantially.
The company had pension expense in the years ended The difference between historical and replacement cost December 31, 1977 and 1976 of approximately $ 560,000 of net plant investment does not represent additional book and $ 490,000, respectively, after reflecting dividends value for the company's common stock; instead, it indi-earned by its pension fund. The assets of the pension fund cates the capital funds (in excess of booked depreciation exceeded the vested benefits at December 31, 1977. The and other prior capital provisions) that may have to be unfunded prior service benefits were estimated to be provided to replace existing service capacity of the plant of approximately $ 3,483,000 as of June 30, 1977 which is the the company.
date of the most current actuarial valuation.
The company's business is subject to the jurisdiction of MeQuarterly Financial Summary: regulatory commissions in the determination of fair rates of The following table sets forth the quarterly financial return on its investment in utility plant. Under current summary of the company for the years ended December ratemaking policy, the company recovers, through future 31, 1977 and 1976. depreciation charges, the historical dollars invested in pro-ductive capacity. The ratemaking process does not allow (In thousands of dollars except for per share data) the company to recover the excess of replacement cost AII uarterl data is unaudited Net Net over historical cost. However, at such time as amounts are Income Income actually expended to replace existing assets, such Applicable Per amounts will be considered in determining the company's Operating Operating operating Net to Common Common 1977 Re e ~E* t t ee e et k Share rate base for purposes of ratemaking.
1st quarter $ 28,134 $23,943 $ 4,191 $2,613 $2,242 $ .27 The company believes that the difference between de-2nd quarter 26,841 22,426 4.415 2,753 2,240 .26 preciation based on historical cost and depreciation based 3rd quarter 31,183 25,987 5,196 3,711 3,135 .37 on estimated replacement cost, which difference is not 4th quarter 26,181 22,646 3,535 2,345 1,768 .21 26 deductible in determining income tax expense, is not truly 1976 an additional amount of depreciation expense. Rather, it is 1 st quarter 24,399 20,494 3,905 2,248 1,878 .25 a measure of the extent to which the company should be 2nd quarter 28,396 23,703 4,693 2,794 2,424 .33 3rd quarter 32,036 26,348 5,688 4,017 3,647 .46 making provision in the current year for replacement of its 4th quarter 26,357 22,523 3,834 2,457 2,086 .25 existing plant, assuming no growth in demands for service and no further inflation in costs.
N. Replacement Cost Information The consolidated replacement cost information on a (Unaudited): comparative basis with historical cost is shown in the tabu-The impact of inflation experienced in recent years has lation below for the year ended December 31, 1977 and resulted in replacement costs of productive capacity that 1976 (amounts in thousands):
are significantly greater than the historical costs of such assets reported in the company's financial statements. 1977 The company's ability to maintain its productive capacity in Estimated Actual the future will be contingent upon its ability to finance the Replacement Historical needed additions. This, in turn, will depend on the com- Cost Cost pany's ability to obtain adequate and timely rate relief. The Plant investment company retained Stone 8 Webster Appraisai Corporation subject to replacement of Boston, Massachusetts ("Stone 8 Webster Appraisal" ) disclosure" $ 709,300 $ 338,598 to determine the approximate replacement cost of the Accumulated depreciation 151 640 61 451 company's productive capacity.
Net plant investment ~557 460 $ 277 147 The replacement cost information does not purport to represent the current value or reproduction costs of the Depreciation expense for assets or the amounts which could be realized if the assets the year ended were sold. Rather, replacement cost generally represents the estimated amount that would be required to replace, at December 31, 1977 $ 15 136 ~6734 today's prices, the productive capacity of certain of the company's existing assets with assets of a modern type including additional pollution control equipment presently required under environmental regulations. Such replace-ment would result in changes in fuel, operation and maintenance cost which are not reflected in the data sub-mitted.
1976 Estimated Actual Replacement Historical Cost Cost Plant investment subject to replacement disclosure* $ 601,400 $ 274,502 Accumulated depreciation 128 458 55 060 Net plant investment ~472 942 $ 219 442 Depreciation expense for the year ended December 31, 1976 $ 13 794 3 6 403
- Amounts exclude nonutility plant of approximately
$ 24,000 in 1977 and 1976 and include land, intangible assets and construction work in progress at original cost of approximately $ 86,700,000 in 1977 and $ 29,400,000 in 1976.
27 To the Shareholders and Board of Directors OPINION OF El Paso Electric Company:
INDEPENDENT ACCOUNTANTS We have examined the consolidated balance sheet of El Paso Electric Company, Inc. and Subsidiary at December 31, 1977 and 1976, and the related consolidated state-ments of income, shareholders'quity and changes in fi-nancial position for the years then ended. Our examina-tions were made in accordance with generally accepted auditing standards and accordingly included such tests of the accounting records and such other auditing proce-dures as we considered necessary in the circumstances.
In our opinion, the aforementioned consolidated finan-cial statements present fairly the consolidated financial position of EI Paso Electric Company, Inc. and Subsidiary at December 31, 1977 and 1976, and the consolidated results of operations and changes in financial position for the years then ended, in conformity with generally ac-cepted accounting principles applied on a consistent basis.
COOPERS & LYBRAND Dallas, Texas February 27, 1978
EL PASO ELECTRIC COMPANY
SUMMARY
OF OPERATING DATA 1977 1976 1975 Population served at retail, estimated (a) 532,000 520,000 505,000 Number of customers:
Residential 143,645 135,344 130,010 Commercial and industrial, small 14,518 14,203 13,294 Commercial and industrial, large 46 39 32 Other 1,715 1,748 1,663 Total 159,924 151,334 144,999 Annual system peak load, net kilowatts 657,000 677,000. 640,000 Output, net generated and purchased, thousand kilowatt-hours:
Steam 3,475,753 3,501,416 3,433,698 Purchased and interchanged ( 3,574) 51,013 15,837 Total (b) (c) 3)472,179 Sales of electricity, thousands of dollars:
Residential $ 34,484 $ 31,415 $ 27,080 Commercial and industrial, small 33,583 33,628 28,870 Commercial and industrial, large 17,666 15,709 11,816 Other 25,581 29,537 22,880 Total 111,314 $ 110,289 $ 90,646 Sales, thousand kilowatt-hours:
Residential 874,140 816,169 782,285 Commercial and industrial, small 902,699 929,556 909,967 28 Commercial and industrial, large 617,955 582,125 513,637 Other 847,930 1,030,812 1,006,311 Total (b) (c) 3)242,724 3,358,662 3,212,200 Average annual use per residential customer, kwh 6,261 6,193 6,097 Average annual revenue per residential customer $ 246.99 $ 238.36 $ 211.04 Average revenue per kwh sold, cents:
Residential (d) 3.94 3.85 3.46 Commercial and industrial, small (d) 3.72 3.62 3.17 Commercial and industrial, large (d) 3.47 2.70 2.30 Average revenue per kwh; total sales (d) 3.45 3.30 2.82 Electric line, pole miles:
Over 15,000 volts 1,811 1,759 1,706 Less than 15,000 volts (e) 2,755 2,727 2,691 Total 4,566 4,486 4,397 Total employees 838 81.6 778 (a) Restated as a result of 1970 census.
(b) Differences between total output and total sales represent company use and losses.
(c) In addition to the company's 345 kv transmission line between El Paso and Albuquerque, the company system is interconnected at Las Cruces, New Mexico, with Public Service Company of New Mexico, Community Public Service Company, Plains Electric Generation and Transmission Cooperative, Inc., and Elephant Butte Generating Station through the facilities of the United States Bureau of Reclamation under a pool agreement.
(d) Includes adjustments under existing fuel clauses.
(e) Includes small amount of line on poles owned by telephone company.
1974 1973 1972 1971 1970 1969 1968 495,000 485,000 475,000 465,000 450,000 435,000 423,000 126,760 123,653 119,170 114,640 110,308 107,284 104,708 13,163 12,816 12 333 11,666 11,279 11,129 11,063 29 27 27 23 21 19 18 1,545 1,445 1,351 1 255 1 228 1 188 1 129 141,497 137,941 132,881 127,584 122,836 119,620 116,918 638,000 618,000 543,400 500,700 469,100 448,300 400,200 3,369,606 3,450,021 3,075,013 2,705,160 2,506,048 2,460,571 2,166,682
( 13,709) ( 180,767) 112,435 43,37 360 536 3,194 3,355,897 3,269,254 2,962,578 2,661,785 2,506,408 2,461,107 2,169,876
$ 20,126 $ 16,749 $ 15,133 $ 14,081 $ 13,099 $ 12,535 $ 11,423 19,192 14,942 12,948 11,515 10,336 9,739 8,970 7,824 6,061 5,231 4,517 4,194 3,411 3,068 15,595 11,416 9,696 8,565 8,155 8,004 7,041
$ 62,737 $ 49,168 $ 43,008 $ 38,678 $ 35,784 $ 33,689 $ 30,502 765,636 755,701 694,855 643,313 598,240 571,454 518,763 853,960 799,997 696,584 610,876 540,529 526,275 469,953 508,482 536,754 487,945 440,568 426,177 374,694 330,097 29 980,175 958,252 853,978 758,769 763,597 836,802 706,286 3,108,253 3,050,704 2,733,362 2,453,526 2,328,543 2,309,225 2,025,099 6,116 6,211 5,948 5,718 5,499 5,391 5,026
$ 160.72 $ 137.59 $ 129.53 $ 125.16 $ 120.39 $ 118.25 $ 110.68 2.63 2.22 2.18 2.19 2.19 2.19 2.20 2.25 1.87 1.86 1.89 1.91 1.85 1.91 1.54 1.13 1.07 1.03 .98 .91 .93 2.02 1.61 1.57 1.58 1.54 1.46 1.51 1,647 1,581 1,539 1,503 1,442 1,343 1,055 2,673 2,616 2,565 2,507 2,457 2,394 2,356 4,320 4,197 4,104 4,010 3,899 3,737 3,411 726 704 659 629 637 621
EL PASO ELECTRIC COMPANY
SUMMARY
OF OPERATIONS (Thousands of Dollars) 12 Months Ending December 31 1977 1976 1975 Operating revenues $ 112,339 $ 111,188 91,461 Fuel 59,442 53,154 44,714 Operation and maintenance 16)685 17,954 14,516 Depreciation (a) 6)498 6,233 5,506 Taxes 12)377 15,727 11,197 Other income ( 1,689) ( 838) ( 1,423) 93,313 92,230 74,510 Income before interest charges 19,026 18,958 16,951 Total interest charges 7,604 7,442 6,853 Income before cumulative effect on prior years of change in accounting method 11,422 11,516 10,098 Cumulative effect to January 1, 1974 of change in accounting for fuel costs, net of related income taxes ($ 912,000)
Net income $ 11,422 $ 11,516 $ 10,098 Earnings per share of common stock, based on weighted average number of shares outstanding during each year:
Income applicable to common stock before cumulative effect of change in accounting method $ 1.29 $ 1.30 Cumulative effect to January 1, 1974 of change in accounting for fuel costs Net income applicable to common stock $ 1.11 $ 1.29 $ 1.30 Pro forma amounts assuming the new method of accounting for fuel costs is applied retroactively (b);
Net income applicable to common stock Earnings per share Dividends paid per share on common stock $ .99 $ .95 $ .91 Electric plant $ 338,598 $ 274,502 $ 250,375 (a) Does not include depreciation on automobiles and trucks, which was allocated to other accounts.
(b) The effect of the accounting change in years prior to January 1, 1971, is not significant.
1974 1973 1972 1971 1970 1969 1968 63,072 49,483 43,284 38,919 36,026 33,933 30,695 24,914 15,766 10,951 8,974 7,330 6,525 5,817 11,463 8,160 8,101 7,717 7,149 6,578 6,184 4,345 4,102 3,776 3,509 3,256 2,936 2,654 9,809 9,573 9,279 8,151 8,194 8,639 7,862
( 770) ( 84) ( 668) ( 699) ( 393) ( 621) ( 814) 49,761 37,517 31,439 27,652 25,536 24,057 21,703 13 311 11,966 11,845 11,267 10,490 9,876 8,992 5,280 3,962 3,591 3,450 3,073 2,768 2,290 8,031 8,004 8,254 7,817 7,417 7,108 6,702 988
$ 9,019 $ 8,004 $ 8,254 $ 7,817 $ 7,417 $ 7,108 $ 6,702
$ 1.19 $ 1.19 $ 1.22 $ 1.16 $ 1.10 $ 1.05 $ .98
.15
$ 1.34 $ 1.19 $ 1.22 $ 1.16 $ 1.10 $ 1.05 $ .98
$ 8,270 $ 8,035 $ 7,481
$ 1.29 $ 1.25 $ 1.17
$ .88 $ .86 $ .83 $ .80 $ .76 $ .72 $ .68
$ 227,196 $ 185,058 $ 174,485 $ 166,275 $ 150,859 $ 143,350 $ 134,095
EL PASO ELECTRIC COMPANY AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED STATEMENT OF INCOME The factors discussed below, which may not be indica-tive of future operations or earnings, have had an effect upon the Company's results of operations during 1976 and 1977.
Operating Revenues Following is an analysis of the changes in operating revenues for the two years ended December 31, 1977 (in thousands):
1976 Increase 1977 Increase Over 1975 Over 1976 1975 1976 Dollars Per Cent 1977 Dollars Per Cent Total Operating Revenues $ 91 461 ~111 188 ~19 727 21.6% ~112 339 ~1151 1.0%
Increase caused by:
Base Rate Increase:
Volume $ 3,402 ($ 2,814)
Price 9,061 1,305 Fuel Adjustments 7 264 2 660 Total Increase 619 727 1 151 Volume increased in 1976 due to a general overall 112,758,000 KWH's to other customers and additional increase in kilowatt-hour sales and decreased in 1977 interchange deliveries discussed below. Loss of. sales to because of a major decrease in kilowatt-hour sales for the Comision has resulted in a temporary adverse effect on 32 resale. The decrease in resale sales resulted from the operating income and earnings. This loss was partially termination of sales to the Comision Federal de offset in 1977, and the Company does not expect the loss Electricidad (the "Comision") which supplies the city of to have any long-term adverse effects.
Juarez, Mexico. Historically, approximately 8% of the Company's revenues were derived from sales to the Comision. In 1976, the Comision purchased 232,104,000 The price and fuel adjustments increases in 1976 and KWH's while in 1977 it purchased only 3,408,000 KWH's. 1977 are due to base rate increases and the escalation of This decrease was offset by additional sales of fuel costs.
Operating Expenses Following is a summary of the changes in operating expenses for the two years ended December 31, 1977 (in thousands):
1976 Increase 1977 Increase Over 1975 Over 1976 1975 1976 Dollars Per Cent 1977 Dollars Per Cent Total Operating Expenses $ 75 933 $ 93 068 617 135 22.6% $ 95 002 ~1934 2.1%
Increase caused by:
Fuel $ 8,440 $ 6,288 Purchased and Interchanged Power 539 ( 2,735)
Operations 2,594 1,736 Maintenance 305 ( 270)
Depreciation 727 265 Federal Income Taxes 2 721 (3,593)
Other Taxes 1 809 243 617 135 ~1934
Fuel expenses increased in 1976 due to escalating increase in preferred dividend requirements and an prices of generating fuel and increases in volume, while the increase of 8.8% in the weighted average number of 1977 increase was due to price escalation. common shares outstanding. EPS for 1976 decreased 1~
Purchased and interchanged power includes the net per share, despite a 13.9% increase in net income credit for power delivered to another utility, which applicable to common stock, due to an increase of 14.9%
experienced a major equipment failure, under an in the weighted average number of shares outstanding.
interchange agreement, offsetting the cost of purchased power. The power delivered under this agreement was available from the amount previously sold to the city of Juarez, Mexico.
Operations expense increased in 1977 and 1976 due to inflationary pressure on wages, employee benefits, material and other costs.
Maintenance expense decreased in 1977 and increased in 1976. The 1977 decrease was due to a reduction in expense for steam power generation maintenance, while the 1976 increase resulted from repairs at Newman Station Unit 2 and a first time inspection of Newman Station Unit 4.
Depreciation expense increased in 1977 due to general MARKET PRICES OF COMMON increases in depreciable plant. The 1976 expense STOCK AND DIVIDENDS increase resulted principally from Newman Station Unit 4 The following table indicates the high and low price of being phased into service. Effective January 1, 1978, the the common stock and dividends paid for the quarters Company's annual depreciation rate increased from indicated:
2.68% to 2.93%.
BID Total federal income tax expense increased in 1976 and PRICE RANGE decreased in 1977 primarily due to decreased AFUDC in QUARTER HIGH LOW DIVIDENDS 1976, resulting from the placing in service of Newman Station Unit 4 in 1975, and increased AFUDC in 1977, 1976 primarily as a result of increased progress payments in First quarter 11s/s 9s/4 $ 0.23 relation to the Palo Verde Nuclear Generating Station. Second quarter 11 97/e $ 0.24 33 Third quarter 11~/4 10'/e $ 0.24 AFUDC Fourth quarter 11e/e 107/e $ 0.24 Allowance for funds used during construction
("AFUDC"), segregated between borrowed and other 1977 funds, increased in 1977 due to increased construction First quarter 12Ve 11'/s $ 0.24 principally associated with the Palo Verde Station. In 1976, Second quarter 12'/s 11 $ 0.25 AFUDC decreased due primarily to Newman Station Unit 4 Third quarter 12e/s 11e/e $ 0.25 being placed in service late in 1975. Fourth quarter 12'/4 11% $ 0.25 El Paso Electric Company Common Stock is traded in Interest Charges the over-the-counter market.
Interest on long-term debt increased fn 1977, due to the The tabulation, which sets forth the high and low bid issuance of $ 25,000,000 of bonds in April and the prices and represents prices between dealers, does not realization of a full year's interest expense on $ 15,000,000 include retail markup, markdown commission.
of bonds issued during 1976. The 1976 increase was due to this issuance and a full year of expense on bonds issued in 1975.
Net Income Applicable to Common Stock Net income applicable to common stock decreased in 1977, due to increases in expenses which were not offset by increased revenues and an increase in preferred dividend requirements. The Company filed for rate increases with all regulatory bodies during 1977. Rate increases were granted late in the year, and only a small portion of the increases were reflected in 1977 revenues.
Net income increased in 1976, due principally to rate increases granted in 1975.
Earnings Per Share Earnings per share ("EPS") of common stock decreased 18~ in 1977 as compared to 1976. The decrease resulted from a decrease in net income, an
BOARD OF DIRECTORS I
(
'~~I j I(
3 J
l l
Evern R. Wall* Paul Harvey* Robert E. Honey* George G. Matkin President and Chief Honorary Chairman of Investments Chairman of the Board, 34 Executive Officer of the the Board of the Las Cruces, N. M. (29) The State National Bank Company (3) Company; Honorary of El Paso; Chairman of Vice President, El Paso the Board, PanNational National Bank; Group, Inc. (11)
Chairman of the Board, First State Bank (37)
OFFICERS Evern R. Wall President and Chief Executive Officer Rolland E. York Senior Vice President James H. Jones Vice President Harry I. Zimmer Vice President Billye E. Bostic Vice President Donald G. Isbell Vice President Ralph G. Crocker Treasurer Theta S. Fields Secretary Richard E. Farlow Assistant Treasurer Robert L. Corbin Assistant Treasurer
Tad R. Smith Dr. Joseph R. Ben L. Ivey Robert H. Cutler Dennis H.
Attorney; Partner, Smiley Farmer; Director, Vice Chairman of the Board, Lane'ormer Chairman of the Kemp, Smith, White, President Emeritus, The Chairman of the Board, illinois-California Board of the Company 35 Duncan & Hammond; University of Texas at El Bank of Ysteta (8) Express, Inc. (7) (retired July 1, 1977) (6)
Counsel for the Paso; Professor of Company (17) Modern Languages, U.T.
El Paso (9)
'Members of the Executive Committee
( )Years of Service on the Board
Annual Meeting of Shareholders The 1978 Annual Meeting of Shareholders will be held at 10 A.M., El Paso time, on Monday, May 8, in the Oleander Room of the Rodeway Inn, 6201 Gateway West in El Paso. All Shareholders are cordially invited to attend and learn more about the Company. Last year 72.8 per cent of the shares were represented at the annual meeting, either in person or by proxy.
Proxies for the meeting will be solicited by the management in a communication to be mailed early in April. This Annual Report is not a part of such proxy solicitation and is not intended to be used as such.
A copy of the Company's most recent 10-K Report, including the financial statements and schedules thereto, filed by El Paso Electric Company with the Securities and Exchange Com-mission, will be made available to Shareholders without charge upon written request to:
Theta S. Fields, Secretary El Paso Electric Company Post Office Box 982 El Paso, Texas 79999 Common Stock El Paso Electric Shareholders The Common Stock of the Company is held in every Company state of the union, the District of Columbia, some U. S.
P. O. Box 982 territories and many foreign countries. The number of El Paso, Texas 79999 shareholders increased from 17,504 in 1976 to 19,156 in 1977. Many of our customers and other persons in the Southwest are shareholders as evidenced by the 4,874 shareholders in Texas and New Mexico who own 29 per cent of the outstanding shares. Our records show that 15,469 shareholders, or 81 per cent, own less than 500 shares each.
Transfer Agents Irving Trust Company One Wall Street New York, New York 10015 (Common and Preferred Stock)
The State National Bank of El Paso Post Office Box 1072 El Paso, Texas 79958 (Common Stock Only)