ML18192A382

El Paso Electric Company 1976 Annual Report

ML18192A382
Person / Time
Site:	Palo Verde
Issue date:	06/21/1977
From:	El Paso Electric Co
To:	Office of Nuclear Reactor Regulation
References
Download: ML18192A382 (38)

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THE COVER El Paso Electric Company's headquarters building is shown as it looked in the 1920's. The building, except for some minor changes, looks essentially the same today. Located in the heart of downtown EI Paso the Company building symbolizes the strength and stability of EI Paso Electric which completed 75 years of operations in 1976.

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I,li Kl )ii'I3 The theme of El Paso Electric Company's 1976 Annual Report is "75 Years on the Scene and Looking Aheadt" Throughout the next few pages some of the Company's his-tory is traced photographically from its early days through TO WEST MESA TEJHANT RUTTE N TO WEST MESA DAM s

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the present. At left, the downtown El Paso skyline, center is a downtown Juarez street scene and right, a view of Texas

Street, in 1921. El Paso looks much different today and is one of the fastest growing metropolitan areas in the state.

THE AIREA SEIRVED El Paso Electric Company distributes electricity to approximately 151,000 customers in West Texas and South Central New Mexico. The territory covers approximately 10,000 square miles and extends 110 miles northwesterly from El Paso to the Caballo Dam in New Mexico and 120 miles southeasterly from El Paso to Van Horn, Texas.

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I Early day equipment and installations weren't nearly as complex as those of today, but workability was still a requisite. Good examples are the meters, fuses and master switch used in the Fisk Apartments in 1911.

At right, turbine generators Circa 1914, looking well maintained, were steam driven from coal-fired boilers.

CONTENTS The area served.

Operating results in brief.

Message to shareholders Area development.

Company development.

Fuel.

National energy situation and research and development..

Rates and regulations..

Palo Verde nuclear generating station........

Environmental matters.

The Barry report.

Customer and employee services...............

Financing.

Management changes..

Financial information.

Comparative statement of income...............

Comparative balance sheet.

Statement of capitalization.

Statement of changes in financial position..

Notes to financial statements.

Auditor's opinion Summary of operating data..

Summary of operations.

Management's discussion and analysis Page 3

5

........ 6 8

9 10 11 12

...13 14 15

...16 17 17 18

...20 21 22

...23 24 27 28

.30 of the statements of income.

.32 Market prices of common stock and dividends........33 Board of directors.

..34 Administrative personnel..

Company offices, annual meeting

.......35 of shareholders, common stock shareholders, transfer agents

..36

Both of the above photographs were undated when acquired although the "flivvers" indicate the period in American life. Headqu'arters Building hasn't changed much on the outside, but the inside has been completely remodeled.

The early Company picnic, at which the park scene was photographed in the 1920's, is still an annual event.

EL PASO ELECTRIC COMPANY OPERATING RESULTS IN BRIEF December 31, 1976 and 1975 Year's Income:

From sales of electricity

-From rentals, interests and incidental activities Total Disposition of year's income:

For operation, maintenance and depreciation:

Wages and salaries (excluding $1,812,183 and

$1,757,927 charged to construction and other accounts in 1976 and 1975, respectively)

Cost of fuel Purchased power Depreciation Maintenance materials, supplies and services Other materials, supplies and services, etc.

Total operation, maintenance and depreciation Taxes for support of government:

Federal income taxes Federal income taxes applicable to AFUDC Provision for deferred federal income taxes Other federal taxes Property, other state, local and miscellaneous Total taxes for support of government For security holders:

Interest and amortization on bonds, etc.

For holders of preferred stock For holders of common stock For reinvestment in the business Total for security holders Total 1976

$110,288,752 2>384,193

$112>672>945 8,139)846 53)153>638 787,852 6>233)465 3,152,291 6,009,565

?7>476) 657 2,975,292 377>672) 5,166,685 446,114 7,139,045 15)349,464 8,330,326 1,481,100 7,521,770 2>513,628 19,846)824

$112>672,945 1975

$90,645,559 3,199,020

$93,844,579

$ 6,385,530 44,714,369 249,444 5,506,085 3,266,322 4,757,298 64,879,048

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205,035)

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695,256) 5,626,623 355,321 5,419,649 10,501,302 8,366,339 1,289,989 6,291,726 2,516,175 18,464,229

$93,844,579

MESSAGE TO SHAREHOLDERS "75 Years on the Scene and Looking Ahead!"

is the theme of this 1976 El Paso Electric Company Annual Report to Shareholders.

Last Year, your Company celebrated its Diamond Anniversary 75 years of operation.

Back in 1901, the Company was smallbasi-cally a transportation oriented firm. There have been many challenges and changes through the years, as we have grown to meet the needs of our service area reliably and efficiently. Today, the Company provides electric service to more than 151,000 customers in West Texas and South Central New Mexico.

Looking to the futurewhich is the business of every electric utilityyour Company expects equally challenging times ahead.

With the same spirit of dedication that has marked 75 years of El Paso Electric progress, the Company is plan-ning ahead to meet the needs and requirements of both its customers and shareholders.

During 1976 kilowatt-hour sales of electricity 6

by the Company increased 4.6 per cent over 1975.

Operating revenues for the year were $111,188,000.

At the same time, operating expenses increased from $75,933,000 in 1975 to $93,068,000 of which

$53,154,000 was spent for fuel. The major factor involved in the increased expenses was the con-tinuing escalation in the price of fuel.

Net income for the year was

$11,516,000.

Earnings per share based on the average number of shares of Common Stock outstanding for the 12 months ended December 31, 1976, were $1.29 compared with $1.30 in 1975.

The Company sold one million shares of additional Common Stock in 1976 and used the funds to reduce its short-term indebtedness in-curred by the Company's construction program.

Quarterly dividends to the holders of Com-pany Common Stock were increased from 23 cents per share to 24 cents in June, 1976. The Share-holders received dividends totaling 95 cents per share in 1976.

Increased fuel costs continued to be a

serious problem for the Company and the electric utility industry as a whole. The cost of each of the fuels used by the Companynatural gas, coal and fuel oilincreased considerably in 1976, and the fuel cost in excess of that provided for in the base rate was passed on to customers through a fuel adjustment clause.

Your management recognizes that fuel costs are high and is constantly taking all steps that are within its power to keep the cost to customers as low as possible.

Additionally, management is convinced that the national energy situation is very serious and is concerned with the country's con-tinued reliance on foreign fuel. A comprehensive national energy policy is of paramount importance to provide leadership at all levels of government, and to industry and the general public.

,Increased operating costs plus the pressure of inflation over the past two years since the Com-pany's first general rate increase have contributed to the need for additional rate relief. The Com-pany's financial forecasts indicate the need for additional revenues to meet increased capital ser-vice requirements for construction funds invested in the Palo Verde Nuclear Generating Station.

In management's view, timely rate relief is essen-tial to an electric utility in order for it to obtain additional capital required for construction and to recover reasonable costs incurred in providing adequate and reliable service to its customers.

It is likely that circumstances will warrant re-quests for rate increases sometime during the first half of 1977 to cover the increased costs of doing business and to service the debt necessary for financing the Palo Verde Project.

An application for increased rates in Anthony, Texas, was turned down by town officials on February 22, 1977. Anthony represents 520 electric customers out of the system total of approximately 151,000. The Company has filed an appeal with the Texas Public Utilities Commission.

Construction was started on the three gen-erating units at Palo Verde Nuclear Generating

Station, near Phoenix, Arizona, following the is-suance of a construction permit by the Nuclear Regulatory Commission in May, 1976. The Com-pany will receive 200 megawatts from each of the three units with the first unit scheduled for com-pletion in 1982.

In February the El Paso City Council, acting as the regulatory body, selected Theodore Barry and Associates, management consultants, to con-duct an in-depth evaluation of the Company. Your management was generally pleased with the find-ings. The evaluation concluded that in most respects the Company has served its customers prudently and with their best interests in mind. The overall performance of the Company compares

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favorably with other utilities of comparable size and character.

The study indicated the Company was doing a good job in most areas.

As with any large organization there are some problems and opportunities for improvement. A number of com-mendations and recommendations were made by the Barry organization. Among the recommenda-tions was that the Company should continue its participation in the construction of the Palo Verde Nuclear Generating Station, such a project being in the best interests of its customers.

Many of the other recommendations were already being effected by the Company as a result of prior in-ternal analyses.

The City Council also held hearings in 1976 to review results after the first full year of opera-tion following the implementation of the Com-pany's first general rate increase which became effective January 1, 1975. The rate of return on common book equity as calculated by the City was 13.52 per cent for the 1975 test year com-pared with the 15.5 per cent authorized. The difference was the result of reduction in sales of kilowatt-hours under that projected by the Com-pany due mainly to mild weather and conservation of energy by customers.

Testimony from industry experts and Com-pany management was presented during the hear-ings after which the City Council granted un-qualified endorsement of the Company's participa-tion in Palo Verde Nuclear Generating Station. The New Mexico Public Service Commission issued a

Certificate of Public Convenience and Necessity on February 8, 1977, approving participation in the Palo Verde Project.

On April 21, 1976, efforts by Local Union 960, International Brotherhood of Electrical Workers, to organize nonprofessional and nonsupervisory Company employees were defeated by a two-to-one margin in a National Labor Relations Board supervised election.

The Company is committed to furnishing high quality service to its customers at the lowest rates consistent with the need to maintain the financial integrity of the Company and to provide a reason-able return to Shareholders.

The Company's first 75 years have been exciting, marked by healthy growth. Your manage-ment is looking forward to meeting the future challenges by continuing to maintain adequate and 7

reliable service through continued financial sound-ness of the Company.

The active support of Shareholders, custom-ers and employees is greatly appreciated and their continued support is essential for the Company to meet its commitment.

Evem R. Wall President and Chief Executive Officer D.H. Lane Chairman ofthe Board

Vests worn by EI Paso Electric Railway Co. office per-sonnel at Santa Fe Generating Station in 1923 have returned to men's fashions. Testing of water for the boilers where steam is made is still very much a requirement.

Illumination, as today, was excellent and typewriters are still necessary, but two things have disappeared steam radiators and spittoons.

Expansion continued in most respects dur-ing 1976 throughout the Company's service area.

Allowing for the effects of inflation, the El Paso economy has grown at an average rate of 13 per cent per year during the past five years.

The population of the El Paso Standard Metropolitan Statistical Area is 410,037 and over the past five years has averaged 2.39 per cent growth per year. The land area is 160.7 square miles with El Paso being one of the fastest grow-ing cities in the state.

A total of 2,794 new dwelling units were con-structed in El Paso in 1976, compared with 2,012 in 1975, according to the City Department of Planning and Research.

Single family dwellings lead the way with 2,084, followed by 104 duplexes and 606 multifamily dwelling units.

There were 120 new residential subdivision applications processed and approved by city authorities including 13 outside the city limits but within the five-mile extraterritorial jurisdiction of the City of El Paso.

The growth in construction activity was the result of the general economic recovery through-out the nation in 1976 and the increasing popula-tion of the Southwest.

Total value of all building permits issued in El Paso in 1976 was $147,303,000 compared with $112,684,000 the previous year, a 31 per cent increase. Construction was completed on the new Special Events Center and Engineering-Science Complex at the University of Texas at El Paso. Construction, however, was not the only area to show a trend of increase. Airline passenger boardings, air freight and railroad car loadings were among business indicators also showing an increase.

El Paso's sister city of Ciudad Juarez, Mexico, also continued to grow, with the latest population figure of approximately 498,000, which when com-bined with El Paso makes up a metropolitan area of nearly one million inhabitants.

Las Cruces, New Mexico, located 45 miles north of El Paso, is one of the fastest growing cities in New Mexico, with a population of more than 44,000. It is the largest community served by the Company in New Mexico.

The value of construction in Las Cruces in 1976 increased 59 per cent over 1975. A total of 1,131 building permits were issued valued at $18.6 million compared with $11.7 million in 1975.

New Mexico State University, in Las Cruces, is a leader in the field of solar energy research.

White Sands Missile Range, 25 miles east of Las Cruces; Holloman Air Force Base near Alamo-gordo, New Mexico; and the Department of the Army at Fort Bliss, northeast of El Paso, are only three of the large governmental and military in-stallations served by the Company's system.

A problem for the local economy was two devaluations of the Mexican peso in 1976 result-ing in serious effects on some local business and commerce. Some retail firms which are dependent on trade from Mexico experienced as much as a 60 per cent decline in business.

However, with additional growth of the eco-nomy in the area served by the Company and the severe inflation being experienced in Mexico, re-tail sales to Mexico residents should soon increase resulting in a continued growth ih demand for electric service from the Company's customers in Texas and New Mexico.

The interconnecting traffic between El Paso and Ciudad Juarez has been significant almost from the days of the Conquistadors.

The view, at left is toward Juarez across the Rio Grande from the El Paso side of the Santa Fe Street bridge in 1930. The Santa Fe Street and the Stanton Street bridges in the picture on the right were built by The Company when it was known as EI Paso Electric Railway Company.

COMP%MY DEVEILOPMEM7 Sales of electricity were greater during the past year than ever before.

The Company's peak load in 1976 was 677,000 kilowatts, a 5.8 per cent increase over 1975.

Kilowatt-hour sales of electricity increased 4.6 per cent over a year ago.

Residential customers increased their con-sumption four per cent over the 1975 level; small commercial and industrial customers experienced a two per cent increase; large commercial and in-dustrial customers used 13 per cent more than in 1975.

The 1976 net capability was 999,000 kilowatts.

Making up this total are Newman Power Station, north of El Paso in Texas, with 510,000 kilowatts; Rio Grande Power Station, near downtown El Paso in New Mexico, with 377,000 kilowatts; and the coal-fired Four Corners Power Station, near Farmington, New Mexico, from which the Company receives seven per cent of the total generating capacity, or 112,000 kilowatts.

Company officials and Mexican power autho-rities have agreed to a termination date for the long standing contract between the Company and the Comision Federal de Electricidad de Mexico for electric service to Ciudad Juarez. The contract is due to be terminated March 31, 1977, after which the Mexican government will provide total elec-tric requirements to serve Juarez through recently installed local generating units. While the Com-pany will lose the revenues from sales to this

source, the generating capacity will be used to serve other customers and will delay the need for future additional generating capacity.

The Company's 1976 construction expendi-tures amounted to $23,005,421.

More than half of the amount was spent for construction work on the Palo Verde Nuclear Generating Station.

Other construction activity was concentrated on several system expansion programs and sub-station improvements. New autotransformers were installed in two major substations and numerous additional substation and distribution improve-ments were completed in 1976.

The Company's Mesilla Valley Division was also quite active in 1976 adding a total load to the system for the year of 13,400 kilowatts. The large load growth is expected to continue during 1977.

Construction was virtually completed on the underground distribution system for all customers in a 42-block area of the downtown Las Cruces Urban Renewal area. The Company has been in-volved in the project for the past 7~/2 years.

Four cooling towers were improved and up-graded at Rio Grande Station and a test scrubber unit will soon be completed on Unit No. 4 at the Four Corners Station.

Also in 1976, the Company initiated an ex-tensive load research program to facilitate the determination of demand and energy usage char-acteristics of its customers.

The program incor-porates monitoring all magnetic tape metered cus-tomers in the system as well as installing test meters on a scientific sampling of residential customers.

The load research program will provide in-formation to the Company on pricing of electric service as well as a data base for use in load fore-casting, marketing research, engineering, rate case applications and cost of service and rate design.

In 1924, empIoyees of the Line, Underground and Meter Sections of the Distribution Department assembled with th 'ehicles for the above picture. The three larger vehicles were line service trucks and the smalle l one was used for trouble shooting. The soft headgear is noticeable if shown today the men would be wearing safety helmets.

IFUEL The price of fuel used for generation con-tinued to increase rapidly in 1976 following the general fuel price surge after the Arab Oil Embargo of 1973 when the cost of oil and natural gas more than quadrupled.

The average price of fuel oil increased 17 per cent in 1976 to $2.67 per million BTU compared with $2.29 per million BTU in 1975. On a per-barrel basis the average price of delivered fuel oil in-creased from $13.47 per barrel to $15.74.

The average price of interstate natural gas increased from 69 cents per million BTU in 1975 to 82 cents per million BTU in 1976, an increase 0f 18 per cent, while the average price of intra-state gas increased 70 per cent from $1.04 to $

.1.77 per million BTU.

Coal used at the Four Corners Station in Northwestern New Mexico increased in price 26 per cent over the 1975 level from an average of 23 cents per million BTU to 29 cents per million BTU.

The average fuel mix for generation in 1976 was 74 per cent natural gas, 11 per cent fuel oil and 15 per cent coal.

Historically the Company has relied on nat-ural gas as its primary fuel at Rio Grande an l

d Newman Power Stations. A purchase agreement has been in effect with El Paso Natural Gas Com-pany to fulfill interstate natural gas requirements of the Rio Grande Station, located close to down-town El Paso across the state line in New Mexico.

However, since October,

1971, El Paso Nat-ural Gas has been required to curtail deliveries of interstate gas pursuant to a schedule of priorities established by the Federal Power Commission.

Consequently, the fuel mix at Rio Grande Station has been heavily weighted toward the use of more expensive fuel oil. While there was slightly less curtailment of natural gas at Rio Grande in 1976, the cost of fuel oil used at the plant was more expensive than in 1975. Curtail-ments of natural gas at Rio Grande Station rang ed from 91 per cent in December to 35 per cent in July.

Newman Power Station's intrastate natural ga s requirements are being adequately provided under terms of a contract, also with El Paso Nat-ural Gas Company.

The contract was amended as of June 28, 1976, to provide for the purchase and delivery of 70,000 mcf of intrastate gas per day through 1980, subject to approval by the Texas Railroad Commission. A hearing has been scheduled for May, 1977.

Fuel oil is provided under contract by South-ern Union Oil Products Company from its Loving-ton, New Mexico, refinery. The contract expires in

November, 1978, with a series of one-year exten-sions available at the Company's option through

November, 1984.

Fifteen per cent of the Company's generation was received from the coal-fired Four Corners Station, located on land leased from the Navajo Indian Tribe in Northern New Mexico. The Com-pany owns 7 per cent of the 1,600 megawatt facility for a total of 112 megawatts. Coal is supplied under an agreement with Utah Construction and Mining Company until the year 2004 with extensions possible for an additional 15 years.

The coal is obtained by surface mining from the largest open pit mine in the United States.

A comprehensive Energy Resource Depart-ment was" established by the Company in 1976 to plan, monitor and coordinate the use of all types of fuel for present and future generation of electricity.

Winner of the El Paso Electric Railway Purse at the Juarez Racetrack in 1925 was Jockey C. Yates as he was presented with the victory wreath by an attractive young lady, unidentified but probably the wife of a MA7lloMAILEMER RESEARCH AM Your management is convinced the national energy situation is very serious and is concerned that the country's reliance on foreign fuel supplies continued to increase in 1976, even after the serious effects of the Arab oil embargo.

In addi-tion, the nation is experiencing a serious lack of direction on energy matters at all legislative levels which, unless corrected, could mean increasing difficulties in future years.

Most governmental efforts thus far, including national regulatory activities, have complicated the problem of developing a cohesive national energy policy which is needed to give direction to this top priority concern at all levels of govern-ment, industry and citizenry.

Conservation is an essential part of solving the nation's energy problem. For this reason the Company placed increased emphasis during 1976 on the wise and efficient use of electricity and other forms of energy by our customers.

Ground-work was completed last year for an extensive energy conservation program which started early in 1977 emphasizing the efficient use of electricity, proper insulation and elimination of energy waste.

In the long term, energy conservation and economic well-being are compatible but the un-certainty over future energy costs makes public commitment to conservation difficult.Since a great portion of the American public lacks information about the costs and benefits of conservation mea-sures, the Company's program is designed to pro-vide specific information to assure the customer that his investment in conservation will actually provide long term savings.

In line with conservation of existing energy resources is the development of alternatives.

The Company increased its support of several research Company executive. A number of the spectators may have traveled to the track by mule drawn streetcars, similar to old Number 1 on the right.

and development programs in 1976 seeking alter-nate energy sources.

The Company was active with other groups in its service area in seeking to attract the $50 million National Solar Energy Research Institute to El Paso.

The Company has offered 300 acres of unused land near Newman Station for the site and to fur-nish the necessary expertise to integrate solar generation into a conventional electrical system.

The site is among 19 finalists from across the nation identified by the Energy Research and De-velopment Administration for further consideration.

The Company is also a member of the South-west Solar Project along with other utilities to study the feasibility of commercial solar power in the Southwest. The study, sponsored by the Fed-eral Energy Administration, will evaluate technical, financial, regulatory and legislative factors of in-corporating solar power into generating systems.

The Company has also made significant financial contributions toward construction of the solar-powered home at New Mexico State University.

The Company maintains membership in and contributes

$11,000 per year to Western Energy Supply and Transmission (WEST), a 21-member regional organization which sponsors research on solar, geothermal and wind energy for electrical generation.

The Texas Atomic Energy Research Founda-tion receives an annual contribution of $11,000 from the Company which is used in development of nuclear fusion for electrical generation.

The Company also contributed $30,000 to the Electric Power Research Institute's general re-search program and

$50,000 to the Fast Breeder Nuclear Research Project.

The electricity manufactured by the Company has been derived from much the same energy sources since the beginning 75 years ago. The Santa Fe Generating Sta-tion, at left, was coal fired when this picture was taken in 1928. The Rio Grande Generating Station, which was far out of town when it was completed in 1930, was fired by natural gas.

The Company sought no significant rate ad-justments for retail sales in Texas or New Mexico in 1976.

Rates for Sales for Resale customers were increased in 1976 pursuant to an application filed in late 1975. Settlement rates were negotiated between the Company, the three customers and the Federal Power Commission with the rate in-crease effective March 1, 1976, providing annual increased revenues of $344,000.

Export of electric energy to Juarez,

Mexico, was contracted for termination on November 24, 1976. The contract was extended at the request of Mexican power authorities until March 31, 1977, and was accompanied by an increased rate adjustment.

An application for increased rates in the town of Anthony, Texas, to furnish the town with its own rate schedule apart from those in other Texas communities in the system, was denied on February 22, 1977. Even though the town repre-sents less than one per cent of the total system KWH sales, the Company has filed an appeal to the Texas Public Utilities Commission.

In 1976, the El Paso City Council in its role as regulatory body for much of the Company's Texas service area, conducted extensive hearings to review operating results after the 1975 general rate increase and the Company's participation in the Palo Verde Nuclear Generating Station. The City found the 1975 rate increase did not provide the Company a greater rate of return than allowed.

The City also endorsed continued participation in the Palo Verde Project as being in the best inte-rests of the customers.

The Company's operating costs indicate the need for additional rate relief to offset increases of the past two years. Concurrently, the Company's financial forecast indicates the need to meet ca-pital service requirements, during the construction period, of funds invested in the Palo Verde Nuclear Generating Station.

Accordingly, the Company will seek rate ad-justments to recoup increased costs and to service the capitalization necessary for financing its con-struction program.

The rates of the Company in Texas (73 per cent of the 1976 system KWH sales, excluding Juarez) are currently subject to the original jurisdiction of municipal authorities in four incorporated areas.

The newly created Texas Public Utilities Commis-sion assumed rate regulation responsibility for un-incorporated areas in Texas on September 1, 1976.

The Commission has passed procedural and sub-stantive rules and has issued orders for service area certificates of public convenience and neces-sity to telephone, electric, water and sewer utilities.

The Commission has begun hearing cases and will play a major role in the state regulatory climate during the coming years. After September 1, 1977, a municipality may elect to transfer regula-tion of electric utilities to the Commission.

The New Mexico Public Service Commission regulates rates for sales to retail customers in that state (16 per cent of 1976 system KWH sales). Sales for resale to other utilities (3 per cent of 1976 sys-tem KWHsales) are regulated by the Federal Power Commission.

Traveling billboards on the Company's fleet of street-cars in 1935 were a big asset in advertising the convenience and economy of electric cooking and refrigeration as shown on the left. Turbine maintenance is continuous, and has always been as revealed in this 1940 photo ot employees lifting the casing on Unit Number 2 at Rio Grande Station.

Construction was begun in June on the Palo Verde Nuclear Generating Station following exten-sive hearings before various regulatory

bodies, and the issuance of a construction permit by the Nuclear Regulatory Commission.

The Company is a participant with four other utilities in the Palo Verde Project located approx-imately 45 miles west of Phoenix, Arizona. Other participants in the project are Arizona Public Ser-vice Company, Salt River Project Agricultural Im-provement and Power District, Southern California Edison Company and Public Service Company of New Mexico.

The Company owns an undivided 15.8 per cent (600 megawatts) interest in the station, which will consist of three pressurized water nuclear re-actor generating units with a total capacity of 3,810 megawatts.

Completion of the first unit is scheduled for 1982 with Unit No's. 2 and 3 sched-uled for completion in 1984 and 1986, respectively.

The Company's present estimate of its share of the cost of participation in the nuclear project in-cluding fuel is $658,766,000 which also includes ap-proximately $145,650,000 for Allowance For Funds Used During Construction (AFUDC). The estimated cost of related transmission lines and switchyard is $104,683,000 including $18,093,000 AFUDC. The Company intends to finance the project in its tra-ditional manner using common equity, preferred stock and first mortgages bonds in their historical ratios.

Total cost to the Company of the Palo Verde Project in 1976 was $15,216,303 making the cumu-lative total $24,962,000, including $2,106,300 for nuclear fuel enrichment prepayment.

The El Paso City Council passed a resolution on July 12, 1976, endorsing the Company's par-ticipation in the Palo Verde Project.

The New Mexico Public Service Commission also endorsed the project by issuing a Certificate of Public Con-venience and Necessity on February 8, 1977.

An initiative placed on the November,

1976, ballot in Arizona, which would have caused sub-stantial delay or termination of the Palo Verde Project, was soundly defeated by Arizona voters as were similar initiatives in several other states.

Following the issuance of the Nuclear Regulatory Commission permit, construction was started on all common facilities for the three units, and reactors for Units 1 and 2, as well as components for the nuclear steam supply systems, including reactor containment vessels for each unit, and their six steam generators.

By the end of 1976 more than 1,000 persons were employed at the Palo Verde site.

The participants in the Palo Verde Project have contracts for the supply of uranium concen-trate to fuel the nuclear reactor units extending through the late 1990's.

In addition, the participants have bid to enter into a joint venture agreement for purchase of 25,000 acres of uranium property near

Casper, Wyoming. Uranium ore from the mine is expected to provide at least a two-year supply of uranium concentrate for use at the Palo Verde Nuclear Generating Station in 1988 and 1989 at a reason-able cost to the participants.

Arizona Public Service Company is the pro-ject manager during the construction phase and will operate the station when construction and testing are completed.

The Palo Verde Project is incorporating the latest in design components and materials which will contribute to greater reliability, safety and efficiency of the station.

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'oooooo oo e o ao It requires a long memory to recall women using appliances such as those shown above, which were popular during the 1930's and performed faithfully and well. Appliance manufacturers still make advantageous promotional use of the cooking school and still present prizes to happy winners, as shown on the right.

The Company is aware of the necessity to protect the environment and conserve natural re-sources while carrying out its responsibility to provide electric energy to its service area.

Increasing federal, state and local regulations pertaining to environmental controls, especially regarding air and water protection, continue to re-quire increased attention.

While much is being done by the Company to protect the environment, pollution control measures are expensive and do not produce new revenue. The cost of these mea-sures must then be passed along to customers in the form of increased rates.

The gas-fired Newman Power Station cur-rently complies with the air and water quality standards of the State of Texas. A portion of the water discharged from cooling towers at Newman is channeled to on-site evaporation ponds; the balance of the discharge water is applied by a sprinkler system to foliage for cattle feeding on adjacent property, eliminating the need for con-struction of additional evaporation ponding and resulting. in considerable savings.

Certain standards of air quality control, in-cluding acceptable amounts of sulphur dioxide, nitrogen oxides and particulate discharges, have been established by the New Mexico Environ-mental Improvement Agency.

The Company believes that operations at Rio Grande Station are in compliance with New Mexico regulations pertaining to nitrogen oxides, but re-cent tests indicate that neither of Four Corners Unit No.'s. Four or Five is in full compliance. The Com-pany expects that the units will continue operating pending completion of corrective action. A long-term fuel oil contract provides for residual fuel oil blend having a maximum of 0.4 per cent sulphur by weight. The oil presently being burned at Rio Grande Station contains an average of 0.34 per cent sulphur by weight.

A long-term coal contract covering require-ments of the Four Corners Station provides for coal with a maximum of 1.5 per cent sulphur by weight, with coal presently being burned contain-ing an average of 0.55 per cent sulphur by weight.

The Four Corners Station is facing more stringent air pollution standards which must be complied with by July 31, 1977, or approval of an acceptable program of meeting the standards must be obtained by then. The Four Corners par-ticipants have prepared a compliance schedule intended to bring the project up to its prescribed standards by 1981 on which official action by the New Mexico Environmental Improvement Agency is pending. The Company's share of expenditures in connection with the improved environmental controls is estimated at $9,920,000 through 1981, of which $147,219 was expended in 1976.

The New Mexico State Water Quality Control Commission has set forth certain standards per-taining to contamination of public water bodies which include minimal amounts of return from a large man-made lake at Four Corners to the San Juan River. The Four Corners participants have filed an appeal from the standards because hf their over-restrictive requirements. The Rio Grande Power Station utilizes cooling towers which dis-charge only a small amount of water into the Rio Grande under an Environmental Protection Agency permit.

Construction improvements are continually being made to insure that all facilities are in satis-factory compliance with environmental regulatory requirements.

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The backyard chicken brooder, electrically energized of course, is shown on display in the Company's dis-play windows on Stanton

Street, and was especially significant in 1943 during World War II. The picture, at right, is of a group of female Company employees in their western togs on opening day of the 1947 South-western International Rodeo in EI Paso.

THE BAIRIRY IREPOIRT The Company underwent a careful examina-tion during 1976 in the form of a management re-view and audit by Theodore Barry and Associates, management consultants.

The 14-week review by the Barry firm was ordered by the EI Paso City Council as part of the Council's general review of Company operations for 1975.

The primary objectives of the Barry study were to assess the efficiency and effectiveness of the Company's operations and to establish the advis-ability of continued participation in the Palo Verde Nuclear Generating Station. The study was com-pleted and copies sent to regulatory authorities in both Texas and New Mexico in July, 1976. Copies of the final report were also furnished to the Board of Directors, the news media and other interested parties.

The study verified and reaffirmed the Com-pany's earlier decision to participate in the Palo Verde Nuclear Generating Station and stated that continued participation was in the best interests of the Company's customers. The recommendation considered projected load growth in the future, alternate generating sources, and projected costs of electricity to customers.

The evaluation also considered the Com-pany's organizational structure; planning; financial operations; engineering and construction; utility operations; utility services; and personnel and employee relations.

The study was conducted in two phases.

First, the overall operation of the Company was reviewed and then potential problem areas were more thoroughly analyzed.

Operations and Company resources were studied and evaluated in light of industry per-formance standards.

Based on the findings and conclusions, specific recommendations were de-veloped for areas in which the Barry firm felt policies and operations could be improved.

The study found that the Company's'overall performance compares most favorably with other utilities of the same size. It recognizes that Com-pany management is aware of the areas where improvements are possible and that appropriate action is being taken. Generally, the study indi-cated the Company was doing a good job in most areas and that in most respects it has served its customers well. Many of the recommendations were already being implemented as a result of prior Company analyses.

The report provided management with another point of view of the Company and com-pared its overall operations with the industry as a whole. Similar overall studies of individual elec-tric utilities are being ordered throughout the nation by various regulatory authorities as the price of fuel, and thereby electricity, continues to increase.

lt is felt by many that such studies may be required periodically of all utilities in the future to assure maximum efficiency in operations.

til 7j Operation and maintenance of the complex communi-cation systems of today require extensive knowledge of electronics. This technician is checking out opera-

"~

tions of the system in use at Santa Fe Center. On the right is a photograph of all eight units installed at Rio Grande Generating Station, now mostly fired by fuel oil.

A direct computerized system of handling customer inquiries became operational during 1976. The Customer Information Control System provides almost instant retrieval of all information regarding a customer's account at the push of a button.

Forty-six display station video screens with input keyboards, strategically located throughout the Company, have been installed along with a computer system that combines all customer ac-counting data on a disc record which can be viewed on the video monitor.

Inquiries may be made into the computer for retrieval of billing information, billing history, credit information, merchandise information, area lamp data, or any adjustments made to a customer' account.

A one-year summary of the customer' account may be displayed to reveal quickly the customer's pattern of energy consumption for examination and analysis.

In addition to the various customer informa-tion services, the system is designed to carry out several nonaccounting functions of benefit to the Company in maintaining orderly internal operations.

Your management is particularly pleased with the new customer inquiry system and expects it to be of special value in providing accurate customer information, and increased efficiency in customer record keeping.

The Company views its employees as its greatest asset and strength and compliments them for continuing efforts to maintain good customer relations in all areas of operations.

A trend of longevity has become evident throughout the Company work force indicated by a decrease in the turnover rate from 21 per cent in 1974 to 12.8 per cent in 1976. The average work force for the year was 800 representing a ratio of approximately 5.4 employees per 1,000 customers.

Between March 12, 1958, and December 31, 1976, the Company's New Business Department surpassed one million manhours worked without loss of time due to accident or injury.

The Company and Local Union No. 960 of the International Brotherhood of Electrical Workers completed negotiations in February,

1976, on a new labor contract which provided for a 7.2 per cent across-the-board wage increase in 1976, a

5 per cent wage increase March 1, 1977, and 4 per cent September 1, 1977. IBEW represents 41 per cent of the Company's employees.

In addition, the Company and the Union operate one of the top joint apprenticeship train-ing programs in Texas, covering 12 apprenticeship training programs, all recognized by the Texas Education Agency and the U. S. Department of Labor.

All eligible employees may participate in the Company's Stock Purchase Plan which allows par-ticipants to invest regularly by payroll deduction.

Twice each year the deductions are used to pur-chase Common Stock of the Company. Employees may authorize payroll deductions of up to 15 per cent of their regular pay for participation in the Plan. A total of 57,389 shares have been sold under the Plan since 1959.

The Collins Solar Demonstration

House, constructed on New Mexico State University property in Las Cruces, N. M., is actually a laboratory operated by science stu-dents.

However, until solar generation of electricity becomes practical, other forms of energy must be used and the Palo Verde Nuclear Generating Station is under construction near Phoenix, Arizona.

FIIMAMCllMG In 1976 the Company sold an additional one million shares of its Common Stock, no par value.

The proceeds from the sale of this New Com-mon Stock of $10,809,900 were applied toward the reduction of short-term debts incurred as a result of the Company's construction program.

Proceeds from the sale reduced the short-term debt to $17,200,000.

The Dividend Reinvestment and Stock Pur-chase Plan, approved by the Board of Directors in 1975, became functional in 1976. The purpose of the plan is to provide holders of the Com-pany's Common Stock with a convenient method of investing cash dividends and optional cash payments in new shares of Common Stock at a price equal to market value without payment of service charges or other expenses.

Under the plan 750,000 shares of Common Stock were registered for purchase.

As of year end 43,165 shares had been purchased under the plan for a total amount of $483,641. There were 1,415 participants in the plan at the end of 1976 representing 8 per cent of the total number of Common Stock Shareholders.

The Board of Directors elected Evern R. Wall President and Chief Executive Officer of the Com-pany at its meeting in May, 1976.

Dennis H. Lane, Chairman of the Board of Directors, had been serving as Chief Executive Officer and Mr. Wall as Chief Operating Officer.

17 Mr. Lane was re-elected Board Chairman.

Billye E. Bostic, who had served as Controller during the past year, was elected Vice President.

All other Officers were re-elected to their respective posts.

Vice President James H. Jones assumed man-agement of the Mesilla Valley Division in June, 1976, succeeding Senior Vice President John F.

Armstrong who retired on December 31, 1976.

If Cabeza De Vaca, the Spanish explorer who in the 16th Century was the first Caucasian to travel through the Pass of the North, or Ei Paso, could somehow re-turn to the site today, he would be amazed at the FINANCIALINFORMATION THE 1976 REVENUE DOLLAR

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Operating Revenues:

Total operating revenues for 1976 were

$111,188,345, an increase of $ 1 9,727,345 or 21.6 percent over 1975. All classes of customers con-tributed to the increase.

Residential revenues increased by 16.0 percent and accounted for 28.3 percent of the total. Small commercial and industrial accounts, accounting for 30.3 percent of total revenue, increased 16.5 percent.

Large commercial and industrial accounts comprised 14.1 percent of the total and increased 32.9 per-cent, and sales for resale, accounting for 11.0 percent of total revenue, increased 38.7 percent.

Revenues include approximately

$11,708,000 from the application of the fuel adjustment clause during 1976 for residential and small commercial customers.

Fuel clause revenue from other sales amounted to approximately

$13,428,000.

Operating Expenses:

Fuel expense for 1976 was approximately

$53,154,000 which represents an increase of approximately

$8,440,000 or 18.9 percent.

Op-eration and maintenance expenses of approx-imately $17,954,000 increased 23.7 percent over 1975.

changes wrought since his explorations the people, the buildings, the transportation, the lights and the electrical energy required to serve them.

Earnings and Dividends:

Net income for 1976 was approximately

$ 11,516,000, an increase of approximately

$1,418,000 over 1975. After provision for prefer-red dividends of approximately

$1,481,000, the net income remaining for common stock was approximately

$10,035,000, equivalent to $1.29 per share compared to $1.30 per share in 1975.

Dividends paid during 1976 totaled

$.95 per share of common stock which was paid on the basis of $.23 in March and $.24 in June, Sep-tember and December.

Dividends paid during 1975 totaled

$.91 per share of common stock which were paid on the basis of $.22 per share in March and $.23 in June, September and December.

Financing:

At the beginning of 1976 there were out-standing short-term bank loans and commercial paper of $23,700,000.

At the end of the year short-term bank loans and commercial paper totaled $25,700,000.

During 1976, the Company sold 1,000,000 shares of common stock with proceeds of $10,809,900. These funds were used to pay off a portion of the short-term notes and for general corporate

purposes, including the financing of the Company's construction program.

EL PASO ELECTRIC COMPANY COMPARATIVESTATEMENT OF INCOME For the Years Ended December 31, 1976 and 1975 I976 1975 Operating revenues

$111,188,345

$ 91,460,725 Operating expenses (Note I):

Fuel Operation Maintenance Depreciation (Note B) 53,153,638 13,036,214 4,917,416 6,233,465 44,714,369 9,902,920 4,613,367 5,506,085 Taxes (Note G):

, Federal income, current Federal income, deferred Charge equivalent to net reduction in federal income tax relative to investment tax credit Other 2,146,774 7,585,159 4,574,232 5,774,970 2,975,292

(

205,035) 3,019,911 1,052,391 Total operating expenses and taxes Operating income 93,067,869-75,933,299 18,120,476 15,527,426 Other income:

Allowance for funds used during construction Federal income taxes applicable to other income Other income, net of other expenses 1,247,701 377,672 100,971 2,210,310 695,256 31 237 20 Total other income Income before interest charges 1,726,344 2,936,803 19,846)820 18,464,229 Interest charges:

Long-term debt Other 6,719,441 1,610,881 5,665,919 2,700,420 Total interest charges Net income Preferred dividend requirements (Note D)

Net income applicable to common stock Earnings per share of common stock 8,330)322 8,366,339 11,516,498 10,097,890 1,481,100 1,289,989 1.29 1.30

$ 10,035,398 8,807,901 Allowance for funds used during construction included in earnings per share

.16

.33 Weighted average number of common shares outstanding 7,800,143 6,786,660 The accompanying notes are an integral part of the financial statements.

EL PASO ELECTRIC COMPANY COMPARATIVE BALANCESHEET December 31, 1976 and 1975 ASSETS Utility plant and other investments (Notes B and E):

Electric plant, at original cost Less accumulated depreciation 0

Nonutility property, at cost Total plant and other investments Current assets:

Cash (Note F)

Accounts receivable Federal income tax refundable Materials and supplies Fuel Prepayments Deferred fuel costs Total current assets Deferred debits:

Unamortized debt expense Other Total deferred debits LIABILITIESAND SHAREHOLDERS'QUITY Shareholders'quity:

Common stock, no par value, authorized 15,000,000

shares, issued and outstanding 8,448,767 shares in 1976 and 7,396,165 shares in 1975 (Note C)

Preferred

stock, no par value, authorized 1,000,000

shares, issued and outstanding 190,000 shares in 1976 and 1975 (Note D)

Unamortized capital stock expense Retained earnings (Note E)

Total Long-term debt 1976

$274,501,928 55,060,305 2'I9,441,623 231580 219,465,203 3,004,347 14,798,478 2,711,648 8)267,417 1,289,435 5,340,313 35,411,638 452)653 1,043,268 1,495)921

$256,372,762

$ 40,033,140 19,040,750

(

436,692) 3.8,131,711 96,769,009 92)289) 818 1975

$250,374,841 49,692,031 200,682,810 23,580 200,706,390 4,286,111 13,954,666 4,816,713 3,090,759 6,703,043 2,445,228 3,135,673 38,432,193 41 7,546 1,102,530 1,520,076

$240,658,659

.$ 28,645,997 19,040,750 35,666,593 83,353,340 93,104,282 Current liabilities:

Notes payable to bank (Note F)

Commercial paper (Note F)

Portion of long-term debt due within one year Accounts payable Customers'eposits Taxes accrued (Note G)

Deferred income taxes (Note G)

Interest accrued Other Total current liabilities Deferred credits:

Customers'dvances for construction Accumulated deferred federal income taxes Accumulated deferred investment tax credit Other Total deferred credits Commitments (Notes H and I) 3)500,000 22,200,000 5,113,077 1)693,314 4,722,162 2,563,350 1,759,280 703,196 42)254,379 336,609 15,320,521 9,382,715 19,811 25)059,556 8,700,000 15,000,000 6,000,000 3,861,468 1,647,697 3,295,911 1,505,123 1,908,676 963,759 42,882,634 461,272 13,358,837 7,472,155 26,139 21,318,403

$256,372,762 The accompanying notes are an integral part of the financial statements.

$240,658,659

EL PASO ELECTRIC COMPANY STATEMENT OF CAPITALIZATION RETAINED EARNINGS for the years ended December 31, 1976 and 1975 1976 1975 Retained earnings at beginning of year Net income Capital stock expense amortization Dividends on capital stock:

Preferred Common Retained earnings at end of year (Note E)

$35,666,593 11)516,498

(

48,510) 47,134,581 1,481,100 7,52'I,770 9)002) 870

$38,131,711

$33,150,41 8 10,097,890 43,248,308 1,289,989 6,291,726 7,581,715

$35,666,593 PREFERRED STOCK, COMMON STOCK, LONG-TERM DEBT December 31, 1976 (Notes C, D and E)

'2 Issued and outstanding:

15,000 shares,

$ 4.50 dividend 15,000 shares,

$ 4.12 dividend 20,000 shares, $ 4.72 dividend 40,000 shares, $ 4.56 dividend 100,000 shares, )10.75 dividend 100,000

$ 1,533,750 1,506,000 2,001,000 4,000,000 10,000,000

$19,040,750 Redemption-liquidation, per share:

Voluntary:

$4.50 dividend-$ 109.00

$4.12 dividend-103.98

$4.72 dividend$104.00

$4.56 dividend-$ 101.00 through June 30, 1978 and $100.00 on or after July 1, 1978

$10.75 dividend-$ 110.75 through Decem-ber 31, 1979; reduced amounts there-after to $101.00 on or after January 1,

1995, with the annual redemption of 4,000 shares per year commencing with Jan-uary 1, 1980, at the redemption rate of

$100.00 Involuntary:

All series $100.00 plus accrued dividends Dividends:

Cumulative, payable first of January, April, July and October Preferred stock, no par value:

1,000,000 shares authorized for issuance in series:

First mortgage bonds:

Caii Price 2r/8/o series

$100.60 3 t/8 lo series 101.45 4~/4 /o series 102.60 45/8 /0 series 103.03 63/4 lo series 104.89 7~/4 '/o series 107.39 9 lo series 107.92 10'/2 /o series 111.02 Total first mortgage bonds Unamortized premium on long-term debt Unamortized discount on long-term debt Total long-term debt Outstanding Due

$ 4,500,000 1980 4,950,000 1984 6, l00,000 1988 10,385,000 1992 15,800,000 1998 15,838,000 2001 20,000,000 2004 15,000,000 2005 92,573,000 105,452

(

388,634)

$92,289,818 Common stock, no par value:

Authorized 15,000,000 Issued and outstanding 8,448,767 Dividends:

Quarterly cash dividends were paid during 1976 at the rate of 23/ per share for the first quarter and 24/ per share for the last three quarters of 1976 The accompanying notes are an integral part of the financial statements.

EL PASO ELECTRIC COMPANY STATEMENT OF CHANGES IN FINANCIALPOSITION For the Years Ended December 31, 1976 and 1975 1976 1975 Source of funds:

From operations:

Net income Items not requiring outlay of working capital in the current period:

Depreciation Deferred federal income taxes Investment tax credit Salvage (net of removal costs)

Allowance for funds used during construction Funds provided by operations Other sources:

Long-term debt Sale of common stock Sale of preferred stock Application of funds:

Gross additions to plant Reclassification of prepayments to electric plant Allowance for funds used during construction Dividends on preferred stock Dividends on common stock Capital stock expense Reduction of long-term debt Advances and contributions for construction Other Increase (decrease) in working capital Increase (decrease) in components of working capital:

Current assets:

Cash Accounts receivable Federal income tax refundable Materials and supplies Fuel Deferred fuel costs Other Current liabilities:

Notes payable Commercial paper Current maturities of long-term debt Accounts payable Taxes accrued Deferred income taxes Other Increase (decrease) in working capital

$11,516,498 6,402)596 1,961)684 2,146,774 297,488

(

1,247,701) 21,077,339 11,387,143 32,464,482 23,966,838 1,492)059

(

1,247,701) 1,481,100 7,521,770 485,102 817,000 124,763 215)851 34,856,782

($ 2)392,300)

($ 1,281,764) 843,812

(

4,816,713)

(

379,089) 1,564,352 2)204,640

(

1,155,793)

(

3,020,555)

(

5,200,000) 7)200,000

(

6,000,000) 1,251,609 1,426,251 1,058,227

(

364,342)

(

628,255)

($ 2)392,300)

$10,097,890 5,680,906 1,487,100 4,574,232 186,842

(

2,210,310) 19,816,660 15,000,000 9,513,035 10,000,000 54,329,695 23,680,898

(

2,210,31 0) 1,289,989 6,291,726 7,731,000 112,827 160,408 37,056,538

$17,273,157

$ 2,021,237 6,908,914 4,816,713

(

318,832) 2,419,826

(

905,644) 1,323,032 16,265,246

( 12,200,000) 4,050,000 6,000,000

(

1,219,978) 2,574,959

(

434,709) 221,817

(

1,007,911)

$17,273,157 23 The accompanying notes are an integral part of the financial statements.

EL PASO ELECTRIC COMPANY NOTES TO FINANCIALSTATEMENTS A. Summary of Significant Accounting Policies:

General The Company maintains its accounts in accor-dance with the Uniform System of Accounts pre-scribed for electric utilities by the Federal Power Commission.

UtilityPlant and Other Investments Utilityplant and equipment are stated at original cost. The Company provides for depreciation on a straight-line basis at annual rates which will amortize the undepreciated costs of depreciable property over estimated remaining service lives.

The Company charges the cost of repairs and minor replacements to the appropriate operating expense and capitalizes the cost of renewals and betterments.

The recorded cost of depreciable plant retired or sold, and the cost of removal, less salvage, is charged to accumulated provision for depreciation.

Inventories Materials, supplies and fuel inventories are valued at the lower of average cost or market.

Deferred Fuel Costs Fuel costs in excess of base rates authorized by fuel adjustment clauses in applicable regulatory rate schedules are deferred until the related revenues are billed which is usually in the first or second month 24 after the costs are incurred.

Unamortized Capital Stock Expense Amounts apply to outstanding issues and are being amortized ratably over ten years.

Revenues Revenues are recognized based on cycle billings rendered to customers monthly. The Company does not accrue revenues in respect of energy sold but not billed at the end of a fiscal period.

Unamortized Exp'ense, Premium and Discount on Debt Amounts apply to outstanding issues and are be-ing amortized ratably over the lives of such issues.

Federal Income Taxes Accelerated depreciation of utility plant and amortization of emergency facilities are principally used for federal income tax purposes.

Differences in the tax and financial methods of accounting for fuel costs also exist. In accordance with regulatory au-thority requirements provision has been made in the financial statements for federal income taxes defer-red to future years as a result of these items. The Company does not provide deferred taxes on certain other differences between financial and tax reporting since such differences are not approved as an ex-pense in rate of return computations by regulatory authorities.

Accordingly, income taxes deferred to future years related primarily to allowance for funds used during construction and other depreciation methods have not been reflected in the financial statements.

Intangibles Production Transmission Distribution General Plant held for future use Construction work in progress (Note H)

Nuclear fuel in process Total 50,540 128,713,751 30,149) 835 79,800) 613 8,143,143 50,540 124,326,796 29,150,109 73,258,856 7,633,744 396)819 396,819 24,928,065 15,557,977 2I319,162

$274)501,928

$250,374,841 Amounts equal to the reduction in federal income taxes resulting from investment tax credits are being charged to income and concurrently credited to accumulated deferred investment tax credits.

The Company amortizes the deferred credits over the useful lives of the related properties.

Pension Plan The Company has a noncontributory retirement annuity plan (future participation terminable at any time) under a group annuity contract. The pension plan provides annual pensions for regular employees with more than one year of service, which together with social security benefits, approximate 70/o of average annual earnings during the period of em-ployment. The Company's policy is to fund pension casts accrued.

Prior service costs are being amor-tized over thirty years beginning in 1972 and are in-cluded in the determination of annual expenses.

Earnings Per Common Share Earnings per common share are computed using the weighted average number of common shares out-standing during the year. Common equivalent shares related to the amended employee stock purchase and dividend reinvestment plans are not significant.

Allowance for Funds Used During Construction The applicable regulatory uniform system of accounts defines allowance for funds used during construction

("AFUDC") as including the net cost (during the period of construction) of borrowed funds used for construction purposes and a reasonable rate on other funds when so used. The Company uses an AFUDC accrual rate of 7~/2~/o. Such accrual rate is based on the estimated cost of incremental capital employed to finance the Company's construction pro-grams and is determined using the assumption that funds required for construction were supplied 55/o from funded debt, 10/o from preferred stock and 35/0 from common stock equity. On this basis (without giving tax effect to interest on debt) the AFUDC attrib-utable to funds provided by common equity amounted to 6.1'/o and 8.6/o of net income applicable to com-mon stock for 1976 and 1975.

B. UtilityPlant:

Electric plant consisted of the following at December 31:

1976 1975

EL PASO ELECTRIC COMPANY NOTES TO FINANCIALSTATEMENTS Total depreciation was approximately $5,681,000 in 1975 and

$6,403,000 in 1976, of which approx-imately $175,000 and

$170,000, respectively,'was applicable to transportation equipment and has been charged to other expense accounts.

The average annual depreciation rate used by the Company for the years ended December 31, 1975 and 1976 was 2.68.

C. Common Stock:

On August 12, 1976, the Company issued 1,000,000 shares of common stock. Assuming the shares had been outstanding as of January 1, 1976, net income applicable to common stock and earnings per share of common stock would have been $10,367,046 and

$1.23, respectively, for the year ended December 31, 1976. These amounts are based on the assumption that the net proceeds of $10,809,900 from the sale would have been applied to retire a like amount of short-term indebtedness.

Assuming all of the stock had been issued on January 1, 1976, the weighted average number of shares would have been 8,412,165 for the year ended December 31, 1976.

Under a shareholder approved employee stock purchase plan, qualified employees may purchase shares of the Company's common stock at two spec-ified dates each year for a period ending no later than June 30, 1979. The purchase price is 90/o of the average bid price of the stock at the purchase dates. During 1976 and 1975, 9,437 shares and 8,650

shares, respectively, were issued under the plan. At December 31, 1976, 93,682 shares were reserved for future purchases under the plan. Proceeds from pur-chases are credited to common stock and no charges are reflected in income with respect to the plan.

Effective June 1976, the Company instituted a Dividend Reinvestment and Stock Purchase Plan which provides holders of its common stock the option to invest cash dividend and/or optional cash payments (up to $3,000 per quarter) in additional shares of the Company's common stock. At Decem-ber 31, 1976, 706,835 shares were reserved for future purchases under the plan. The purchase price is the average of the last bid and asked price at the is-suance date.

D. Preferred Stock:

The preferred stock is callable and upon volun-tary redemption or voluntary liquidation of the Com-pany is redeemable at the current call price plus accrued dividends.

The premiums reflected in the current redemption prices continue to reduce with passage of time, ultimately resulting in redemption at par. All series are redeemable at $100 per share plus accrued dividends upon involuntary liquidation.

The $10.75 preferred shares are entitled to the benefits of a sinking fund whereby on January 1 of each year, commencing with the year 1980, the Com-pany will redeem 4,000 shares annually at the sinking fund redemption price of $100.00 per share plus accrued dividends.

Sinking fund requirements are cumulative and in the event they are not satisfied at any redemption date, the Company is restricted from paying any dividends (other than dividends in common stock or other class of stock ranking junior to the preferred stock as to dividends and assets) on common stock. The $10.75 preferred shares are call-able; however, no optional redemption of the shares may be made prior to January 1, 1985, as a part of, or in anticipation of, any refunding by indebtedness or stock having an interest or dividend cost less than 10.75/o per annum.

In May 1976, the Company's Articles of Incorpo-ration were amended to increase the number of au-thorized preferred shares from 300,000 to 1,000,000.

E. Long-Term Debt:

The Company's first mortgage provides for sink-ing and improvement funds which require the Com-pany to make annual payments to the trustee equivalent to 1o/o ($925,730 at December 31, 1976) of the greatest aggregate principal amount of bonds of the respective series outstanding at any one time prior to a specified date preceding the sinking fund payment

date, with certain allowable credits.

The Company has satisfied these requirements in past years by relinquishing the right to use a net amount of additional property for the issuance of bonds or purchasing bonds in the open market and expects to be able to continue such practices in 1977.

The premiums reflected in the redemption prices of the bonds continue at reduced amounts in future years, finally resulting in each case in redemption at par at maturity.

The mortgage and supplements thereto collater-alizing first mortgage bonds issued by the Company constitute a direct first mortgage lien on substantially all of the Company's utility property.

In accordance with certain provisions of the in-denture covering the first mortgage bonds, no cash dividends on common stock are to be paid except from retained earnings accumulated after December 31, 1966, plus $4,100,000.

Retained earnings in the amount of approximately $11,000,000 are unrestricted as to the payment of cash dividends at December 31, 1976.

F.

Notes Payable to Banks and Commercial Paper:

Short-term notes payable at December 31, 1976, consisted of $22,200,000 of commercial paper with an average discount rate of 5/o and

$3,500,000 of notes payable to banks with an average interest rate of 6.4/o. Short-term notes payable at December 31, 1975, consisted of $15,000,000 of commercial paper with an average discount rate of 5.4/o and $8,700,000 of notes payable to banks with an average interest rate of 7.3/o.

The Company has informal lines of credit with various lenders whereby the lenders have agreed to provide specified maximum amounts as a temporary 25

EL PASO ELECTRIC COMPANY NOTES TO FINANCIALSTATEMENTS source of funds for its capital program.

Certain of these arrangements provide for the maintenance of compensating balances of 10/e of the available lines of credit and 10/e of the loans outstanding. At De-cember 31, 1976, the lines of credit available under these arrangements totaled $36,800,000 and approx-imately $2,225,000 of the Company's cash at that date was maintained as compensating balances.

Subsequent to December 31, 1976, the Company in-creased its informal line of credit with various lenders to $49,600,000.

The maximum and average amounts, respectively, of aggregate short-term borrowings outstanding at any month-end during the twelve months ended De-cember 31, 1976, were $28,000,000 and $24,210,000 and for the twelve months ended December 31, 1975, were $40,800,000 and $34,200,000. The weighted av-erage interest rate was 5.9/e and 7.6/c during 1976 and 1975, respectively.

In November 1976, the Federal Power Commis-sion authorized the Company to issue short-term promissory notes to commercial banks in an amount not to exceed

$100,000,000 outstanding at any one time. The final maturity date on the notes is to be no later than December 31, 1978. The interest rates on the notes are to be at the prime rate in effect at the time of issuance, plus in some cases, provisions for compensating balances of 20/c. The net proceeds 26 from the issuance of the notes are to be used for construction expenditures.

Commercial paper in an amount not exceeding 25/c of operating revenues for the preceding twelve months may be issued in place of notes.

G. Federal Income Taxes:

The amounts reported as federal income tax ex-pense for 1976 and 1975 were less than the amounts computed by applying the federal income tax statutory rate of 48/c to book income before tax.

The reasons for the differences are as follows:

1976 l975 The provision for deferred taxes for the years 1976 and 1975 results from the following timing differences:

19?6 1975 Accelerated depreciation Deferred fuel costs Accelerated amortization of emergency facilities Other

$1)892,700

$1,598,400 1,058,227

(

434,709)

(

111>300)

(

111,300) 180>284

$3,019 911

$1 052 391 Total federal income tax expense is comprised as follows:

1976 1975 Federal income tax currently payable (receivable)

Deferred federal income tax Deferred investment tax credit Amortization of deferred investment tax credit

$2,597,620

($

900,291) 3,019,911 1,052,391 2,407,200 4,683,300

(

260,426) (

109,068)

$7>764>305

$4,726,332 H. Commitments:

The Company is committed at December 31, 1976, in the amount of approximately $763,000,000 for future construction of a nuclear power plant (ex-pected to be completed in 1986), related transmis-sion lines, and nuclear fuel, including approximately

$163,000,000 of estimated allowances for funds used during construction. At December 31, 1976, ap-proximately $25,000,000 has been expended by the Company in connection with the construction of the plant.

Tax computed at statutory rate on book income before taxes Decreases In tax resulting from:

Allowance for funds used during construction not Includible in taxable income Excess of tax depreciation over book depreciation Amortization of investment tax credits Other Amount of Federal Income Tax at 484/4 Percent of Book Income Before Taxes Percent Amount cf cf Book Federal Income Income Tax Before at 484/4 Taxes

$9>254>785 48 0 /e

$7>1 15>627 48 0 /4

(

649,021)

( 3.4

) (

991,488)

( 6.7

)

(

260,426)

( 1.3

) (

109,068)

(

.7

)

17,662

.1

(

227,790> I >.5

$7>764>305 40 3/4

$4>726>332 31 9/4

(

598>895) ( 3.1

) ( 1,060,949)

( 7.2

)

I.

Pension Plan:

The Company made contributions of approx-imately $490,000 in 1976 and $387,000 in 1975 to its pension plan. Such amounts are net of dividends earned on the plan assets.

Amortization of prior ser-vice costs is included in the determination of annual expenses.

The assets of the pension fund exceeded the vested benefits at December 31, 1976, and the unfunded prior service benefits are estimated to be approximately $3,437,000 as of June 30, 1976, which is the latest date actuarial valuation is available.

EL PASO ELECTRIC COMPANY NOTES TO FINANCIALSTATEMENTS J.

Quarterly Financial Summary:

The following table sets forth the quarterly finan-cial summary of the Company for the year ended December 31, 1976:

(In Thousands of Dollars Except for Per Share Data) tAll Quarterly Data is Unaudited) 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Total Operating revenue

$24,399

$28,396

$32,036

$26,357

$111,188 Operating expenses Operating income Net income Net income applicable to common stock 1,878 2,424 3,647 2,086 10,035 Net income per common share

$.25

$.33

$.46

$.25

$1.29 20,494 23,703 26,348 22,523 93,068 K. Replacement Cost Information (Unaudited):

The impact of inflation experienced in recent years has resulted in replacement costs of productive capacity that are significantly greater than the his-torical costs of such assets reported in the Company's financial statements.

The Company's ability to main-tain its productive capacity in the future will be con-tingent upon its ability to finance the needed addi-tions. This, in turn, will depend on the Company's ability to obtain adequate and timely rate relief. In compliance with reporting requirements estimated replacement cost information is disclosed in the Company's annual report to the Securities and Ex-change Commission on Form 12K.

AUDITORS'PINION To the Shareholders of El Paso Electric Company:

We have examined the balance sheet of El Paso Electric Company as of December 31, 1976 and 1975, and the related statements of income, capitalization and changes in financial position for the years then ended. Our examinations were made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the aforementioned financial state-ments present fairly the financial position of EI Paso Electric Company as of December 31, 1976 and 1975, and the results of its operations and changes in financial position for the years then ended, in con-formitywith generally accepted accounting principles applied on a consistent basis.

COOPERS 8L LYBRAND Dallas, Texas February 18, 1977

EL PASO ELECTRIC COMPANY

SUMMARY

OF OPERATlNG DATA 28 Population served at retail, estimated (a)

Number of customers:

Residential Commercial and industrial, smail Commercial and industrial, large Other Total Gross capability at time of firm peak load, kilowatts Annual system peak load, net kilowatts Output, net generated and purchased, thousand kilowatt-hours:

Steam Purchased Total (b) (c)

Sales of electricity, dollars:

Residential Commercial and industrial, smail Commercial and industrial, large Other Total

Sales, thousand kilowatt-hours:

Residential Commercial and industrial, small Commercial and industrial, large Other Total (b) (c)

Average annual use per residential

customer, kwh Average annual revenue per residential customer Average revenue per kwh sold, cents:

Residential (d)

Commercial and industrial, small (d)

Commercial and industrial, large (d)

Average revenue per kwh; total sales (d)

Electric line, pole miles:

15,000 volt or over Less than 15,000 volts (e)

Total C

Total employees 1976 520,000 135,344 141203 39 1,748 151,334 1 026 400 677,000 3,501,416 51 013 3 552 429

$ 31,414,807 33,627,820 15,709,090 29 537 033

$110,288,750 816,169 929,556 582,125 1 030 812 3 358 662 6,193 238.36 3.85 3.62 2.70 3.30 1,759 2,727 4 486 816 1975 505,000 130,010 13,294 32 1,663 144,999 1 026 400 640,000 3,433,698 15 837 3 449 535

$ 27,079,407 28,869,770 11,816,132

~

22 880 250

$ 90,645,559 782,285 909,967 5 l3,637 1 006 311 3 212 200 6,097 211.04 3.46 3.17 2.30 2.82 1,706 2,691 4 397 778 1974 495,000 126,760 13, I 63 29 1,545 141,497 796 400 638,000 3,369,606 13 709 3 355 897

$ 20,126,048 19,192,065 7,824,441 15 594 598

$ 62,737,152 765,636 853,960 508,482 980 175 3 108 253 6,116 160.72 2.63 2.25 1.54 2.02 1,647 2,673 4 320 726 (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.

1973 485 000 1972 475 000 1971 465 000 1970 450 000 1969 435 000 1968 423 000 1967 410 000 123,653 12,816 27 1 445 137 941 796 400 618 000 I19,170 12 333 27 1 351 132 881 796 400 543 400 114,640 11,666 23 1 255 127 584 641 300 500 700 110,308 11,279 21 1 228

'I22 836 641 300 469 100 107,284 11,129 19 1 188 119 620 585 600 448 300 104,708 11,063 18 1 129 116 918 529 900 400 200 101,394 11,012 18 1 083 113 507 529 900 360 700 3,450,021 180 767 3 269 254 3,075,013 l12 435 2 962 578 2,705,160 43 375 2 661 785 2,506,048 360 2 506 408 2,460,571 536 2 461 107 2,166,682 3 194 2 169 876 1,943,758 797 1 944 555

$ 16,748,411 14,941,657 6,061,358 11 416112

$ 15,132,434 12,947,975 5,231,367 9 696 370

$ 14,081,095 11,514,945 4,516,382 8 565 190

$ 13,098,832

$ 12,534,805 10,335,940 9,739,758 4,193,865 3,411,099 8 155 054 8 003 813

$ 11,423,309

$ 10,589,627 8,970,239 8,556,470 3,067,812 2,668,757 7 040 626 6 442 090

$ 49 167 538 43 008 146

$ 38 677 612

$ 35 783 691

$ 33 689 475

$ 30 501 986

$ 28 256 944 755,701 799,997 536,754 958 25 694,855 696,584 487,945 853 978 3 050 704 2 733 362 6,211 5,948 137.59 129.53 643,313 610,876 440,568 758 769 2 453 526 5,718 125. I 6 598,240 540,529 426,177 763 597 571,454 526,275 374,694 836 802 2 328 543 2 309 225 5,499 5,391 120.39 118.25 518,763 469,953 330,097 706 286 479,003 444,667 279,983 607 961 2 025 099 1 811 614 5,026 4,783

$ '10.68 105.76 29 2.22 1.87 1.'I3 1.61 2.18 l.86 1.07 1.57 2.19 1.89 1.03 1.58 2.19 1.91

.98 1.54 2.19 1.85

.91 1.46 2.20 1.91

.93 1.51 2.21 1.92

.99 l.56 1,581 2 616 4 197 1,539 2 565 4 104 1,503 2 507 4 010 1,442 2 457 3 899 1,343 2 394 3 737 1,055 2 356 3 411 1,017 2 328 3 345

EL PASO ELECTRIC COMPANY

SUMMARY

OF OPERATIONS 12 Months Ending December 31 1976 1975 1974 Operating revenues Operation and maintenance Depreciation (a)

Taxes Net other income Net expenses 6,233)465 15,727,136 5,506,085 11,196,558 4,344,485 9,808,945

(

1,726,344)

(

2,936,803)

(

1,565,251) 91,341,525 72,996,496 48,965,857

$111,188,345

$ 91,460,725

$ 63,071,650 71, I07,268 59,230,656 36,377,678 30 Income before interest charges Total interest charges Income before cumulative effect on prior years of change in accounting method Cumulative effect to January 1, 1974 of change in accounting for fuel costs, net of related income taxes

($912,226) 19,846,820 8)330) 322 11,516,498 18,464,229 8,366,339 10,097,890 14,105,793 6,074,451 8,031,342 988,244 Net income

$ 11,516,498 I 0,097,890 9,019,586 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 Cumulative effect to January 1, 1974 of change in accounting for fuel costs Net income applicable to common stock 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 1.29 1.29 1.30 1.30 1.19

.15 1.34 Dividends paid per share on common stock Electric plant at original cost

.95

.91

.88

$274,501,928

$250,374,841

$227,196,064 I

(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.

)

1973 1972 1971 1970 1969 1968 1967

$ 49,482,958

$ 43,283,939

$ 38,919,405

$ 36,025,906

$ 33,932,708

$ 30,695,462

$ 28,425,811 23,926,079 I 9,052,882 16,691,504 I4,478,241 I3,102,813 12,00'I,718 11,339,069 4,101,685 9,573,581 3,775,685 9,278,374 3,509,078 3,256,456 8,150,458 8,194,353 8,638,524 7,862,102 6,895,820 2,936,240 2,654,240 2,432,240

(

190,260)

(

933,316)

(

j 699,281)

(

392,832)

(

621,250)

(

814,117)

(

142,343) 37,411,085 31,173,625 27,651,759 25,536,218 24,056,327 21,703,943 20,524,786 j

12,071,873 12,110,314 11,267,646 10,489,688 9,876,381 8,991,519 7,901,025 4,068,079 3,856,119 3,450,093 3,072,668 2,768,538 2,289,889 1,648,505 8,003,794 8,254,195 7,817,553 7,417,020 7,107,843 6,701,630 6,252,520 8,003,794 8,254,195 7,817,553 7,417,020 7,107,843 6,701,630 6,252,520 1.19 1.22 1.16 1 ~10 l.05

.98

~92 1.19 1.22 1.16 1.10 1.05

.98

~92 8,269,608 8,035,102 7,481,252 1.29 1.25 1.17

.86

.83 80

.76

.72

.68

.64

$185,058,192

$174,485,201

$166,275,092

$150,858,905

$143,350,486

$134,094,676

$119,687,015

EL PASO ELECTRIC COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE STATEMENTS OF INCOME The factors discussed below, which may not be indicative of future operations or earnings, have had an effect upon the Company's results of operations during 1975 and 1976.

Operating Revenues Following is an analysis of the changes in operat-ing revenues for the two years ended December 31, 1976 (in thousands):

1974 1975 Total operating revenues

$63,072

$91,461 Increase caused by:

Volume Price:

Base rate increases Fuel adjustments Total increase Volume increased in 1975 due to a general overall increase in kilowatt hour sales to all classes of cus-tomers. Volume increased in 1976 due to an increase in kilowatt hour sales to all classes of customers ex-cept for a slight decrease in sales for resale.

The price increases in 1975 and 1976 are primarily due to base rate increases which include a significant increase in the fuel component included in base rates.

Historically, approximately 8/o of the Company's revenues have been derived from sales to the Comi-si6n Federal de Electricidad (the "Comisi6n") which supplies the City of Juarez, Mexico. Sales to the Comisidn, which has been the Colnpany's largest 1975 Increase 1976 Increase Over 1974 Over 1975 Dollars Percent 1976 Dollars Percent

$28,389 45.0 lo

$1117188

$197727 21.6/o

$ 2,135 7.5O/o

$ 4,150 21.0 /o 26,779 94.3 (525)

(1.8) 9,100 46.2 6,477 32.8

$28,389 100.0'!o

$19,727 100.0%

single customer, terminate March 31,

1977, when the Comisi6n expects to be able to provide Juarez with its total power requirements.

During the last quarter of 1976 and the first two months of 1977, while the Comisi6n has been phasing in its own power sources, kilowatt hour sales to the Comisi6n have varied on a declining basis between 60/o and 10/o of kilowatt hour sales to the Comisi6n for comparable prior periods. Although the loss of sales to the Comisi6n may have a temporary adverse effect on operating income and earnings, the Company does not expect this loss of sales to have an adverse long-term effect.

Operating Expenses Following is a summary of the changes in operat-ing expenses for the two years ended December 31, 1976 (in thousands):

1974 1975 1975 Increase Over 1974 Dollars Percent 1976 1976 Increase Over 1975 Dollars Percent Total operating expenses Increase caused by:

Fuel Operations Maintenance Depreciation

$24,914

$44,714 8,505 9,903 2,958 4,613 4,345 5,506

$19,800 1,398 1,655 1,161

$24,014 82.5O/o 5.8 6.9 4,8 100.0'/o

$53,154

$ 8,440 67.0 lo 13,036 3,133 24.9 4,918 305 2.4 6,233 727 5.7

$12,605 100.0%

$40,722

$64,736

$24,014 59.0 lo

$777341

$12,605 19.5 lo Fuel expenses increased in both 1975 and 1976 due to escalating prices of generating fuel and in-creases in volume.

Operating expenses increased in both 1975 and 1976 due to the inflationary pressure on wages, em-ployee benefits, material costs, and other costs.

Maintenance expense increased in 1975 due to higher than normal expense at the Four Corners Sta-tion and increased in 1976 due to repairs at Newman Station Unit No. 2 and to first time inspection ex-penses at Newman Station Unit No. 4.

Depreciation expense increased in 1975 and 1976 due to Newman Station Unit No. 4 being phased into service during 1975 and 1976.

Other tncome Allowance for funds used during construction (AFUDC) increased in 1975 and decreased in 1976 primarily due to Newman Station Unit No. 4 being placed into service late in 1975.

Taxes Current and deferred federal income taxes and investment tax credits fluctuate with increased plant cohstruction and its placement into service. The plac-ing in service of Newman Station Unit No. 4 in 1975 caused current and deferred federal income taxes to decrease in 1975 and to increase in 1976.

It also caused investment tax credit to increase in 1975 and decrease in 1976. The increase in 1975 and 1976 in other taxes results from increased property taxes and the effect that increased revenues have on gross receipts t'axes.

interest Charges Interest on long-term debt increased in 1975 due to the issuance of $15,000,000 of bonds in 1975 and a full year's interest expense on $20,000,000 of bonds issued in 1974. Interest on long-term debt increased in 1976 primarily due to a full year's interest expense on the $15,000,000 of bonds issued in 1975.

Other interest increased in 1975 due to increased short-term borrowings to finance construction. Other interest decreased in 1976 due to lower interest rates and to lower average outstanding balances during the year.

AFUDC The accrual of all AFUDC is in accordance with long established accounting policies of the Company and regulatory agencies to which it is subject but does not represent current cash income. The Com-pany understands that an issue has been raised in litigation to which it is not a party relating to AFUDC as reported in another public utility's prospectus.

In that litigation, it is alleged by the plaintiff that actual earnings were not properly presented because AFUDC was included in "other income" without an adequate explanation of this item, and that AFUDC is not in fact income, as generally understood, but rather a projection of future earnings not reflecting any actual yield on assets or any revenue during any period and not in fact earned upon completion of construction.

Although the Company cannot predict the outcome of that litigation, the Company believes, but has no assurance, that the outcome will have no material adverse effect upon the Company, its accounting procedures, or the computation of earnings cover-ages under its Restated Articles of Incorporation and Mortgage provisions.

The Federal Power Commission has promulgated revisions in its Uniform System of Accounts which establish a procedure for the determination of the rate for computing AFUDC. The Company believes that these revisions will have no material adverse affect upon the Company, its accounting procedures, or the computation of earnings coverage under its Restated Articles of Incorporation and Mortgage provisions.

MARKETPRICES OF COMMON STOCK AND DIVIDENDS QUARTER BID PRICE RANGE HIGH LOW DIVIDENDS 1976 1st 2nd 3rd 4th 11'/2 97/e 11e/e 9e/4 11'le 10'/e 11 e/e 10>/e BID PRICE RANGE

$0.23

$0.24

$0.24

$0.24 QUARTER HIGH I.OW DIVIDENDS 1975 1st 10>/e 87/e

$0.22 2nd 11 c/4 87le

$0.23 3rd 10>/e 9e/e

$0.23 4th 10e/e 9e/4

$0.23 El Paso Electric Company Common Stock is traded in the over-the-counter market.

The tabulation, which sets forth the high and low bid prices and represents prices between

dealers, does not include retail markup, markdown commis-sion.

33

BQARD QF DIRECTQIRS h

'I h

-gI g,f 34 Ben L. Ivey Farmer;

Director, Vice President and Vice Chairman of the Board, Bank of Ysleta (7)

Tad R. Smith Attorney; Partner, Kemp, Smith, White, Duncan

& Hammond; Counsel for the Company (16)

George

'G. Matkin*

Robert H. Cutler Chairman of the Board, Chairman of the Board, The State National Bank Illinois-California of El Paso;

Express, Inc. (6)

Chairman of the Board, PanNational

Group, Inc.

(10)

Robert E. Boney*

Paul Harvey*

Investments Honorary Chairman of Las Cruces, N.M. (28) the Board of the Company; Honorary Vice President, EI Paso National Bank; Chairman of the Board, First State Bank (36)

Dennis H. Lane*

Chairman of the Board of the Company (5)

'Members of the

(

) Years of Service Executive Committee on the Board Evern R. Wall*

Dr. Joseph R. Smiley President and Chief President

Emeritus, Executive Officer of The University of Texas the Company (2) at El Paso (8)

QIFIFICEIRS Dennis H. Lane Chairman of the Board Evern R. Wall President and Chief Executive Officer Rolland E. York Senior Vice President James H. Jones Vice President Martin P. Kuric Vice President Harry I. Zimmer Vice President Billye E. Bostic Vice President Ralph G. Crocker Secretary-Treasurer Theta S. Fields Assistant Secretary Richard E. Farlow Assistant Treasurer Robert L. Corbin Assistant Treasurer

ADMINISTRATIVE PERSONNEL POWER SUPPLY Donald G. Isbell, Manager of Energy Resources D. Craig Walling, Superintendent of Power Generation Fred L. Gerth, Superintendent of Newman Power Station Warren H. Skidmore, Superintendent of Rio Grande Power Station Elvin L. Bowman, Maintenance Superintendent TRANSMISSION AND DISTRIBUTION George A. Clifford, Superintendent of Transmission and Distribution Thomas E. Alexander, Assistant Superintendent Franklin H. Kennedy, Operations Superintendent Aubrey R. Bailey, Construction Superintendent Gordon J. Gregg, Superintendent of Transportation and Maintenance SYSTEM OPERATIONS William L. Lyon, Jr., Manager of Systems Operations SUBSTATION S. Albert Williamson, Superintendent of Substations John E. Barratt, General Foreman ENGINEERING Peyton Nichols, Manager of Engineering Howard L. Penley, Director of Planning Robert C. Murray, Administrative Engineer Jesse T. Sadler, Distribution Engineering Supewisor Ignacio R. Troncoso, Systems Engineer Supervisor CONSUMER AFFAIRS C. J. Barrett, Administrator of Consumer Affairs Lawrence M. Downum, Manager of Public Affairs Fred Williams, Director of News and Information Charles W. Leverett, Director of Publications and Community Relations Eldon J. Lawrence, New Business Manager Arthur H. Martin Assistant New Business Manager and Manager of Commercial Sewice Ralph Erwin, Industrial Service Manager ACCOUNTING Irene Roberson, Manager of Customer Accounting Dean Jacobson, Manager of Data Processing Robert W. Osborne, Purchasing Agent Thelma M. Brafford, Supervisor of General Accounting Harry M. Clark, Manager of Taxes, Statistics, and Payroll Raymond N. Sewell, Manager of Financial Planning Georgia Chapin, Credit Manager Betty J. Taylor, Manager of Word Processing Center RATES AND CONTRACTS Harry A. Wilson, Jr., Manager of Contracts Edward Lucero, Rate Engineer EMPLOYEE SERVICES Charles Mais, Manager of Employee Services Robert Swanson, Assistant

Manager, Director of Industrial Relations William Clack, Safety Director Everett E. Putney, Personnel Director John Duffy, Training Director Joe B. Herrera, Claims Director MESILLAVALLEYDIVISION(LAS CRUCES)

Parker F. Davenport, General Superintendent Russell D. Gray, Engineering Supervisor Morris G. May, Distribution Superintendent William R. Castle, Personnel Manager Edmond R. Duke, New Business Manager Maura Lancaster, Accounting Supervisor DISTRICT OFFICES Joseph A. Jarrell, District Superintendent

Fabens, Texas Beglar I. Merlich, District Superintendent Hatch, New Mexico Antonio Vasquez, District Superintendent Anthony, Texas-New Mexico 35

EL PASO ELECTRIC COMPANY Post Office Box 982 36 El Paso, Texas 79999 Branch Offices:

Las Cruces, Hatch and Anthony, New Mexico El Paso, Fabens, Sierra Blanca and Van Horn, Tex.

ANNUALMEETING OF THE SHAREHOLDERS The 1977 Annual Meeting of the Shareholders willbe held at 10:00 a.m., El Paso time on Monday, May 9, 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 your Company.

Last year 74.3 per cent of the shares were represented at the 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 to be used as such.

A copy of the Company's most recent 12K Report, including the financial statements and schedules thereto, filed by El Paso Electric Company with the Securities and Exchange Commission, will be furnished without charge by writing: Ralph G. Crocker, Secretary El Paso Electric Company Post Office Box 982 El Paso, Texas 79999 COMMON STOCK SHAREHOLDERS The Common Stock of the Company is held in all States of the Union, the District of Columbia, some U. S. Territories and several foreign coun-tries. The number of owners has increased from 14,027 in 1975 to 17,504 in 1976. Many customers and other persons in the Southwest are holders as evidenced by 4,842 Shareholders in Texas and New Mexico who own 30 per cent of the stock.

The records show that 14,050 stockholders or 80 per cent own less than 500 shares each.

TRANSFER AGENTS IrvingTrust Company One WallStreet New York, New York10015 (Common and Preferred Stock)

The State National Bank of EI Paso Post Office Box1072 El Paso, Texas 79958 (Common Stock Only)