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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'I 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 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 master switch used in the Fisk Apartments in 1911.

complex as those of today, but workability was still At right, turbine generators Circa 1914, looking well a requisite. Good examples are the meters, fuses and maintained, were steam driven from coal-fired boilers.

CONTENTS Page The area served. 3 Operating results in brief. 5 Message to shareholders ..... ........ 6 Area development. 8 Company development. 9 Fuel. 10 National energy situation and research and development.. 11 Rates and regulations.. 12 Palo Verde nuclear generating station ........ ...13 Environmental matters. 14 The Barry report. 15 Customer and employee services ............... ...16 Financing. 17 Management changes.. 17 Financial information. 18 Comparative statement of income............... ...20 Comparative balance sheet. 21 Statement of capitalization. 22 Statement of changes in financial position.. ...23 Notes to financial statements. 24 Auditor's opinion 27 Summary of operating data .. 28 Summary of operations. .30 Management's discussion and analysis of the statements of income. ......... .32 Market prices of common stock and dividends........33 Board of directors. ..34 Administrative personnel.. .......35 Company offices, annual meeting of shareholders, common stock shareholders, transfer agents ..36

Both of the above photographs were undated when remodeled. The early Company picnic, at which the acquired although the "flivvers" indicate the period in park scene was photographed in the 1920's, is still an American life. Headqu'arters Building hasn't changed annual event.

much on the outside, but the inside has been completely EL PASO ELECTRIC COMPANY OPERATING RESULTS IN BRIEF December 31, 1976 and 1975 Year's Income: 1976 1975 From sales of electricity $ 110,288,752 $ 90,645,559

-From rentals, interests and incidental activities 2>384,193 3,199,020 Total $ 112>672>945 $ 93,844,579 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) $ 8,139)846 $ 6,385,530 Cost of fuel 53)153>638 44,714,369 Purchased power 787,852 249,444 Depreciation 6>233)465 5,506,085 Maintenance materials, supplies and services 3,152,291 3,266,322 Other materials, supplies and services, etc. 6,009,565 4,757,298 Total operation, maintenance and depreciation ?7>476) 657 64,879,048 Taxes for support of government:

Federal income taxes 2,975,292 ( 205,035)

Federal income taxes applicable to AFUDC 377>672) ( 695,256)

Provision for deferred federal income taxes 5,166,685 5,626,623 Other federal taxes 446,114 355,321 Property, other state, local and miscellaneous 7,139,045 5,419,649 Total taxes for support of government 15) 349,464 10,501,302 For security holders:

Interest and amortization on bonds, etc. 8,330,326 8,366,339 For holders of preferred stock 1,481,100 1,289,989 For holders of common stock 7,521,770 6,291,726 For reinvestment in the business 2>513,628 2,516,175 Total for security holders 19,846)824 18,464,229 Total $ 112>672,945 $ 93,844,579

MESSAGE TO SHAREHOLDERS "75 Years on the Scene and Looking Ahead!" Your management recognizes that fuel costs is the theme of this 1976 El Paso Electric Company are high and is constantly taking all steps that Annual Report to Shareholders. Last Year, your are within its power to keep the cost to customers Company celebrated its Diamond Anniversary 75 as low as possible. Additionally, management is years of operation. convinced that the national energy situation is very Back in 1901, the Company was small basi- serious and is concerned with the country's con-cally a transportation oriented firm. There have tinued reliance on foreign fuel. A comprehensive been many challenges and changes through the national energy policy is of paramount importance years, as we have grown to meet the needs of our to provide leadership at all levels of government, service area reliably and efficiently. Today, the and to industry and the general public.

Company provides electric service to more than ,Increased operating costs plus the pressure 151,000 customers in West Texas and South of inflation over the past two years since the Com-Central New Mexico. pany's first general rate increase have contributed Looking to the future which is the business to the need for additional rate relief. The Com-of every electric utility your Company expects pany's financial forecasts indicate the need for equally challenging times ahead. With the same additional revenues to meet increased capital ser-spirit of dedication that has marked 75 years of vice requirements for construction funds invested El Paso Electric progress, the Company is plan- in the Palo Verde Nuclear Generating Station. In ning ahead to meet the needs and requirements management's view, timely rate relief is essen-of both its customers and shareholders. tial to an electric utility in order for it to obtain During 1976 kilowatt-hour sales of electricity additional capital required for construction and 6 by the Company increased 4.6 per cent over 1975. to recover reasonable costs incurred in providing Operating revenues for the year were $ 111,188,000. adequate and reliable service to its customers.

At the same time, operating expenses increased It is likely that circumstances will warrant re-from $ 75,933,000 in 1975 to $ 93,068,000 of which quests for rate increases sometime during the first

$ 53,154,000 was spent for fuel. The major factor half of 1977 to cover the increased costs of doing involved in the increased expenses was the con- business and to service the debt necessary for tinuing escalation in the price of fuel. financing the Palo Verde Project.

Net income for the year was $ 11,516,000. An application for increased rates in Anthony, Earnings per share based on the average number Texas, was turned down by town officials on of shares of Common Stock outstanding for the February 22, 1977. Anthony represents 520 electric 12 months ended December 31, 1976, were $ 1.29 customers out of the system total of approximately compared with $ 1.30 in 1975. 151,000. The Company has filed an appeal with the The Company sold one million shares of Texas Public Utilities Commission.

additional Common Stock in 1976 and used the Construction was started on the three gen-funds to reduce its short-term indebtedness in- erating units at Palo Verde Nuclear Generating curred by the Company's construction program. Station, near Phoenix, Arizona, following the is-Quarterly dividends to the holders of Com- suance of a construction permit by the Nuclear pany Common Stock were increased from 23 cents Regulatory Commission in May, 1976. The Com-per share to 24 cents in June, 1976. The Share- pany will receive 200 megawatts from each of the holders received dividends totaling 95 cents per three units with the first unit scheduled for com-share in 1976. pletion in 1982.

Increased fuel costs continued to be a In February the El Paso City Council, acting serious problem for the Company and the electric as the regulatory body, selected Theodore Barry utility industry as a whole. The cost of each of and Associates, management consultants, to con-the fuels used by the Company natural gas, coal duct an in-depth evaluation of the Company. Your and fuel oil increased considerably in 1976, and management was generally pleased with the find-the fuel cost in excess of that provided for in the ings. The evaluation concluded that in most base rate was passed on to customers through a respects the Company has served its customers fuel adjustment clause. prudently and with their best interests in mind. The overall performance of the Company compares

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 sa supervised election.

~4 5% 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-favorably with other utilities of comparable size ness of the Company.

and character. The study indicated the Company The active support of Shareholders, custom-was doing a good job in most areas. As with any ers and employees is greatly appreciated and their large organization there are some problems and continued support is essential for the Company to opportunities for improvement. A number of com- meet its commitment.

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. Evem R. Wall The City Council also held hearings in 1976 President to review results after the first full year of opera- and tion following the implementation of the Com- Chief Executive Officer 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- D.H. Lane pany management was presented during the hear- Chairman of the Board

Vests worn by EI Paso Electric Railway Co. office per- requirement. Illumination, as today, was excellent and sonnel at Santa Fe Generating Station in 1923 have typewriters are still necessary, but two things have returned to men's fashions. Testing of water for disappeared steam radiators and spittoons.

the boilers where steam is made is still very much a Expansion continued in most respects dur- El Paso's sister city of Ciudad Juarez, Mexico, ing 1976 throughout the Company's service area. also continued to grow, with the latest population Allowing for the effects of inflation, the El figure of approximately 498,000, which when com-Paso economy has grown at an average rate of bined with El Paso makes up a metropolitan area 13 per cent per year during the past five years. of nearly one million inhabitants.

The population of the El Paso Standard Las Cruces, New Mexico, located 45 miles Metropolitan Statistical Area is 410,037 and over north of El Paso, is one of the fastest growing the past five years has averaged 2.39 per cent cities in New Mexico, with a population of more growth per year. The land area is 160.7 square than 44,000. It is the largest community served by miles with El Paso being one of the fastest grow- the Company in New Mexico.

ing cities in the state. The value of construction in Las Cruces in A total of 2,794 new dwelling units were con- 1976 increased 59 per cent over 1975. A total of structed in El Paso in 1976, compared with 2,012 1,131 building permits were issued valued at $ 18.6 in 1975, according to the City Department of million compared with $ 11.7 million in 1975.

Planning and Research. Single family dwellings New Mexico State University, in Las Cruces, lead the way with 2,084, followed by 104 duplexes is a leader in the field of solar energy research.

and 606 multifamily dwelling units. White Sands Missile Range, 25 miles east of There were 120 new residential subdivision Las Cruces; Holloman Air Force Base near Alamo-applications processed and approved by city gordo, New Mexico; and the Department of the authorities including 13 outside the city limits Army at Fort Bliss, northeast of El Paso, are only but within the five-mile extraterritorial jurisdiction three of the large governmental and military in-of the City of El Paso. stallations served by the Company's system.

The growth in construction activity was the A problem for the local economy was two result of the general economic recovery through- devaluations of the Mexican peso in 1976 result-out the nation in 1976 and the increasing popula- ing in serious effects on some local business and tion of the Southwest. Total value of all building commerce. Some retail firms which are dependent permits issued in El Paso in 1976 was $ 147,303,000 on trade from Mexico experienced as much as a compared with $ 112,684,000 the previous year, a 60 per cent decline in business.

31 per cent increase. Construction was completed However, with additional growth of the eco-on the new Special Events Center and Engineering- nomy in the area served by the Company and the Science Complex at the University of Texas at El severe inflation being experienced in Mexico, re-Paso. Construction, however, was not the only area tail sales to Mexico residents should soon increase to show a trend of increase. Airline passenger resulting in a continued growth ih demand for boardings, air freight and railroad car loadings electric service from the Company's customers in were among business indicators also showing an Texas and New Mexico.

increase.

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

COMP%MY DEVEILOPMEM7 Sales of electricity were greater during the the amount was spent for construction work on past year than ever before. the Palo Verde Nuclear Generating Station.

The Company's peak load in 1976 was 677,000 Other construction activity was concentrated kilowatts, a 5.8 per cent increase over 1975. on several system expansion programs and sub-Kilowatt-hour sales of electricity increased 4.6 per station improvements. New autotransformers were cent over a year ago. installed in two major substations and numerous Residential customers increased their con- additional substation and distribution improve-sumption four per cent over the 1975 level; small ments were completed in 1976.

commercial and industrial customers experienced The Company's Mesilla Valley Division was a two per cent increase; large commercial and in- also quite active in 1976 adding a total load to dustrial customers used 13 per cent more than the system for the year of 13,400 kilowatts. The in 1975. large load growth is expected to continue during The 1976 net capability was 999,000 kilowatts. 1977.

Making up this total are Newman Power Station, Construction was virtually completed on the north of El Paso in Texas, with 510,000 kilowatts; underground distribution system for all customers Rio Grande Power Station, near downtown El in a 42-block area of the downtown Las Cruces Paso in New Mexico, with 377,000 kilowatts; Urban Renewal area. The Company has been in-and the coal-fired Four Corners Power Station, volved in the project for the past 7~/2 years.

near Farmington, New Mexico, from which the Four cooling towers were improved and up-Company receives seven per cent of the total graded at Rio Grande Station and a test scrubber generating capacity, or 112,000 kilowatts. unit will soon be completed on Unit No. 4 at the Company officials and Mexican power autho- Four Corners Station.

rities have agreed to a termination date for the Also in 1976, the Company initiated an ex-long standing contract between the Company and tensive load research program to facilitate the the Comision Federal de Electricidad de Mexico determination of demand and energy usage char-for electric service to Ciudad Juarez. The contract acteristics of its customers. The program incor-is due to be terminated March 31, 1977, after which porates monitoring all magnetic tape metered cus-the Mexican government will provide total elec- tomers in the system as well as installing test tric requirements to serve Juarez through recently meters on a scientific sampling of residential installed local generating units. While the Com- customers.

pany will lose the revenues from sales to this The load research program will provide in-source, the generating capacity will be used to formation to the Company on pricing of electric serve other customers and will delay the need for service as well as a data base for use in load fore-future additional generating capacity. casting, marketing research, engineering, rate case The Company's 1976 construction expendi- applications and cost of service and rate design.

tures amounted to $ 23,005,421. More than half of

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

vehicles were line service trucks and the smalle l one IFUEL The price of fuel used for generation con- use of more expensive fuel oil. While there was tinued to increase rapidly in 1976 following the slightly less curtailment of natural gas at Rio general fuel price surge after the Arab Oil Embargo Grande in 1976, the cost of fuel oil used at the of 1973 when the cost of oil and natural gas more p lant was more expensive than in 1975. Curtail-than quadrupled. ments of natural gas at Rio Grande Station rang ed The average price of fuel oil increased 17 per from 91 per cent in December to 35 per cent in cent in 1976 to $ 2.67 per million BTU compared July.

with $ 2.29 per million BTU in 1975. On a per-barrel Newman Power Station's intrastate natural basis the average price of delivered fuel oil in- ga s requirements are being adequately provided creased from $ 13.47 per barrel to $ 15.74. under terms of a contract, also with El Paso N at-The average price of interstate natural gas ural Gas Company. The contract was amended increased from 69 cents per million BTU in 1975 as of June 28, 1976, to provide for the purchase to 82 cents per million BTU in 1976, an increase and delivery of 70,000 mcf of intrastate gas per 0 f 18 per cent, while the average price of intra- day through 1980, subject to approval by the state gas increased 70 per cent from $ 1.04 to $ 1.77

. Texas Railroad Commission. A hearing has been per million BTU. scheduled for May, 1977.

Coal used at the Four Corners Station in Fuel oil is provided under contract by South-Northwestern New Mexico increased in price 26 ern Union Oil Products Company from its Loving-per cent over the 1975 level from an average of ton, New Mexico, refinery. The contract expires in 23 cents per million BTU to 29 cents per million November, 1978, with a series of one-year exten-BTU. sions available at the Company's option through The average fuel mix for generation in 1976 November, 1984.

was 74 per cent natural gas, 11 per cent fuel oil Fifteen per cent of the Company's generation and 15 per cent coal. was received from the coal-fired Four Corners Historicallyl the Company has relied on nat- Station, located on land leased from the Navajo ural gas as its primary fuel at Rio Grande an d Indian Tribe in Northern New Mexico. The Com-Newman Power Stations. A purchase agreement pany owns 7 per cent of the 1,600 megawatt facility has been in effect with El Paso Natural Gas Com- for a total of 112 megawatts. Coal is supplied under pany to fulfill interstate natural gas requirements an agreement with Utah Construction and Mining of the Rio Grande Station, located close to down- Company until the year 2004 with extensions town El Paso across the state line in New Mexico. possible for an additional 15 years. The coal is However, since October, 1971, El Paso Nat- obtained by surface mining from the largest open ural Gas has been required to curtail deliveries pit mine in the United States.

of interstate gas pursuant to a schedule of priorities A comprehensive Energy Resource Depart-established by the Federal Power Commission. ment was" established by the Company in 1976 to Consequently, the fuel mix at Rio Grande plan, monitor and coordinate the use of all types of Station has been heavily weighted toward the fuel for present and future generation of electricity.

Winner of the El Paso Electric Railway Purse at the Company executive. A number of the spectators may Juarez Racetrack in 1925 was Jockey C. Yates as he have traveled to the track by mule drawn streetcars, was presented with the victory wreath by an attractive similar to old Number 1 on the right.

young lady, unidentified but probably the wife of a MA7lloMAILEMER RESEARCH AM Your management is convinced the national and development programs in 1976 seeking alter-energy situation is very serious and is concerned nate energy sources.

that the country's reliance on foreign fuel supplies The Company was active with other groups in continued to increase in 1976, even after the its service area in seeking to attract the $ 50 million serious effects of the Arab oil embargo. In addi- National Solar Energy Research Institute to El Paso.

tion, the nation is experiencing a serious lack of The Company has offered 300 acres of unused direction on energy matters at all legislative levels land near Newman Station for the site and to fur-which, unless corrected, could mean increasing nish the necessary expertise to integrate solar difficulties in future years. generation into a conventional electrical system.

Most governmental efforts thus far, including The site is among 19 finalists from across the national regulatory activities, have complicated nation identified by the Energy Research and De-the problem of developing a cohesive national velopment Administration for further consideration.

energy policy which is needed to give direction The Company is also a member of the South-to this top priority concern at all levels of govern- west Solar Project along with other utilities to ment, industry and citizenry. study the feasibility of commercial solar power in Conservation is an essential part of solving the Southwest. The study, sponsored by the Fed-the nation's energy problem. For this reason the eral Energy Administration, will evaluate technical, Company placed increased emphasis during 1976 financial, regulatory and legislative factors of in-on the wise and efficient use of electricity and corporating solar power into generating systems.

other forms of energy by our customers. Ground- The Company has also made significant financial work was completed last year for an extensive contributions toward construction of the solar-energy conservation program which started early powered home at New Mexico State University.

in 1977 emphasizing the efficient use of electricity, The Company maintains membership in and proper insulation and elimination of energy waste. contributes $ 11,000 per year to Western Energy In the long term, energy conservation and Supply and Transmission (WEST), a 21-member economic well-being are compatible but the un- regional organization which sponsors research on certainty over future energy costs makes public solar, geothermal and wind energy for electrical commitment to conservation difficult. Since a great generation.

portion of the American public lacks information The Texas Atomic Energy Research Founda-about the costs and benefits of conservation mea- tion receives an annual contribution of $ 11,000 sures, the Company's program is designed to pro- from the Company which is used in development vide specific information to assure the customer of nuclear fusion for electrical generation.

that his investment in conservation will actually The Company also contributed $ 30,000 to the provide long term savings. Electric Power Research Institute's general re-In line with conservation of existing energy search program and $ 50,000 to the Fast Breeder resources is the development of alternatives. The Nuclear Research Project.

Company increased its support of several research

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

tion, at left, was coal fired when this picture was taken The Company sought no significant rate ad- The Company's operating costs indicate the justments for retail sales in Texas or New Mexico need for additional rate relief to offset increases in 1976. of the past two years. Concurrently, the Company's Rates for Sales for Resale customers were financial forecast indicates the need to meet ca-increased in 1976 pursuant to an application filed pital service requirements, during the construction in late 1975. Settlement rates were negotiated period, of funds invested in the Palo Verde Nuclear between the Company, the three customers and Generating Station.

the Federal Power Commission with the rate in- Accordingly, the Company will seek rate ad-crease effective March 1, 1976, providing annual justments to recoup increased costs and to service increased revenues of $ 344,000. the capitalization necessary for financing its con-Export of electric energy to Juarez, Mexico, struction program.

was contracted for termination on November 24, The rates of the Company in Texas (73 per cent 1976. The contract was extended at the request of the 1976 system KWH sales, excluding Juarez) of Mexican power authorities until March 31, 1977, are currently subject to the original jurisdiction of and was accompanied by an increased rate municipal authorities in four incorporated areas.

adjustment. The newly created Texas Public Utilities Commis-An application for increased rates in the sion assumed rate regulation responsibility for un-town of Anthony, Texas, to furnish the town with incorporated areas in Texas on September 1, 1976.

its own rate schedule apart from those in other The Commission has passed procedural and sub-Texas communities in the system, was denied on stantive rules and has issued orders for service February 22, 1977. Even though the town repre- area certificates of public convenience and neces-sents less than one per cent of the total system sity to telephone, electric, water and sewer utilities.

KWH sales, the Company has filed an appeal to The Commission has begun hearing cases and the Texas Public Utilities Commission. will play a major role in the state regulatory In 1976, the El Paso City Council in its role climate during the coming years. After September as regulatory body for much of the Company's 1, 1977, a municipality may elect to transfer regula-Texas service area, conducted extensive hearings tion of electric utilities to the Commission.

to review operating results after the 1975 general The New Mexico Public Service Commission rate increase and the Company's participation in regulates rates for sales to retail customers in that the Palo Verde Nuclear Generating Station. The state (16 per cent of 1976 system KWH sales). Sales City found the 1975 rate increase did not provide for resale to other utilities (3 per cent of 1976 sys-the Company a greater rate of return than allowed. tem KWH sales) are regulated by the Federal Power The City also endorsed continued participation in Commission.

the Palo Verde Project as being in the best inte-rests of the customers.

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

refrigeration as shown on the left. Turbine maintenance Construction was begun in June on the Palo ticipation in the Palo Verde Project. The New Verde Nuclear Generating Station following exten- Mexico Public Service Commission also endorsed sive hearings before various regulatory bodies, the project by issuing a Certificate of Public Con-and the issuance of a construction permit by the venience and Necessity on February 8, 1977.

Nuclear Regulatory Commission. An initiative placed on the November, 1976, The Company is a participant with four other ballot in Arizona, which would have caused sub-utilities in the Palo Verde Project located approx- stantial delay or termination of the Palo Verde imately 45 miles west of Phoenix, Arizona. Other Project, was soundly defeated by Arizona voters participants in the project are Arizona Public Ser- as were similar initiatives in several other states.

vice Company, Salt River Project Agricultural Im- Following the issuance of the Nuclear provement and Power District, Southern California Regulatory Commission permit, construction Edison Company and Public Service Company of was started on all common facilities for the three New Mexico. units, and reactors for Units 1 and 2, as well as The Company owns an undivided 15.8 per components for the nuclear steam supply systems, cent (600 megawatts) interest in the station, which including reactor containment vessels for each will consist of three pressurized water nuclear re- unit, and their six steam generators. By the end of actor generating units with a total capacity of 1976 more than 1,000 persons were employed at 3,810 megawatts. Completion of the first unit is the Palo Verde site.

scheduled for 1982 with Unit No's. 2 and 3 sched- The participants in the Palo Verde Project uled for completion in 1984 and 1986, respectively. have contracts for the supply of uranium concen-The Company's present estimate of its share trate to fuel the nuclear reactor units extending of the cost of participation in the nuclear project in- through the late 1990's.

cluding fuel is $ 658,766,000 which also includes ap- In addition, the participants have bid to enter proximately $ 145,650,000 for Allowance For Funds into a joint venture agreement for purchase of Used During Construction (AFUDC). The estimated 25,000 acres of uranium property near Casper, cost of related transmission lines and switchyard Wyoming. Uranium ore from the mine is expected is $ 104,683,000 including $ 18,093,000 AFUDC. The to provide at least a two-year supply of uranium Company intends to finance the project in its tra- concentrate for use at the Palo Verde Nuclear ditional manner using common equity, preferred Generating Station in 1988 and 1989 at a reason-stock and first mortgages bonds in their historical able cost to the participants.

ratios. Arizona Public Service Company is the pro-ject manager during the construction phase and Total cost to the Company of the Palo Verde will operate the station when construction and Project in 1976 was $ 15,216,303 making the cumu- testing are completed.

lative total $ 24,962,000, including $ 2,106,300 for The Palo Verde Project is incorporating the nuclear fuel enrichment prepayment. latest in design components and materials which The El Paso City Council passed a resolution will contribute to greater reliability, safety and on July 12, 1976, endorsing the Company's par- efficiency of the station.

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

The Company is aware of the necessity to weight. The oil presently being burned at Rio protect the environment and conserve natural re- Grande Station contains an average of 0.34 per sources while carrying out its responsibility to cent sulphur by weight.

provide electric energy to its service area. A long-term coal contract covering require-Increasing federal, state and local regulations ments of the Four Corners Station provides for pertaining to environmental controls, especially coal with a maximum of 1.5 per cent sulphur by regarding air and water protection, continue to re- weight, with coal presently being burned contain-quire increased attention. While much is being ing an average of 0.55 per cent sulphur by weight.

done by the Company to protect the environment, The Four Corners Station is facing more pollution control measures are expensive and do stringent air pollution standards which must be not produce new revenue. The cost of these mea- complied with by July 31, 1977, or approval of sures must then be passed along to customers in an acceptable program of meeting the standards the form of increased rates. must be obtained by then. The Four Corners par-The gas-fired Newman Power Station cur- ticipants have prepared a compliance schedule rently complies with the air and water quality intended to bring the project up to its prescribed standards of the State of Texas. A portion of the standards by 1981 on which official action by the water discharged from cooling towers at Newman New Mexico Environmental Improvement Agency is channeled to on-site evaporation ponds; the is pending. The Company's share of expenditures balance of the discharge water is applied by a in connection with the improved environmental sprinkler system to foliage for cattle feeding on controls is estimated at $ 9,920,000 through 1981, adjacent property, eliminating the need for con- of which $ 147,219 was expended in 1976.

struction of additional evaporation ponding and The New Mexico State Water Quality Control resulting. in considerable savings. Commission has set forth certain standards per-Certain standards of air quality control, in- taining to contamination of public water bodies cluding acceptable amounts of sulphur dioxide, which include minimal amounts of return from a nitrogen oxides and particulate discharges, have large man-made lake at Four Corners to the San been established by the New Mexico Environ- Juan River. The Four Corners participants have mental Improvement Agency. filed an appeal from the standards because hf The Company believes that operations at Rio their over-restrictive requirements. The Rio Grande Grande Station are in compliance with New Mexico Power Station utilizes cooling towers which dis-regulations pertaining to nitrogen oxides, but re- charge only a small amount of water into the Rio cent tests indicate that neither of Four Corners Unit Grande under an Environmental Protection Agency No.'s. Four or Five is in full compliance. The Com- permit.

pany expects that the units will continue operating Construction improvements are continually pending completion of corrective action. A long- being made to insure that all facilities are in satis-term fuel oil contract provides for residual fuel oil factory compliance with environmental regulatory blend having a maximum of 0.4 per cent sulphur by requirements.

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The backyard chicken brooder, electrically energized right, is of a group of female Company employees in of course, is shown on display in the Company's dis- their western togs on opening day of the 1947 South-play windows on Stanton Street, and was especially western International Rodeo in EI Paso.

significant in 1943 during World War II. The picture, at THE BAIRIRY IREPOIRT The Company underwent a careful examina- the overall operation of the Company was reviewed tion during 1976 in the form of a management re- and then potential problem areas were more view and audit by Theodore Barry and Associates, thoroughly analyzed.

management consultants. Operations and Company resources were The 14-week review by the Barry firm was studied and evaluated in light of industry per-ordered by the EI Paso City Council as part of the formance standards. Based on the findings and Council's general review of Company operations conclusions, specific recommendations were de-for 1975. veloped for areas in which the Barry firm felt The primary objectives of the Barry study were policies and operations could be improved.

to assess the efficiency and effectiveness of the The study found that the Company's'overall Company's operations and to establish the advis- performance compares most favorably with other ability of continued participation in the Palo Verde utilities of the same size. It recognizes that Com-Nuclear Generating Station. The study was com- pany management is aware of the areas where pleted and copies sent to regulatory authorities improvements are possible and that appropriate in both Texas and New Mexico in July, 1976. Copies action is being taken. Generally, the study indi-of the final report were also furnished to the Board cated the Company was doing a good job in most of Directors, the news media and other interested areas and that in most respects it has served its parties. customers well. Many of the recommendations The study verified and reaffirmed the Com- were already being implemented as a result of pany's earlier decision to participate in the Palo prior Company analyses.

Verde Nuclear Generating Station and stated that The report provided management with continued participation was in the best interests another point of view of the Company and com-of the Company's customers. The recommendation pared its overall operations with the industry as considered projected load growth in the future, a whole. Similar overall studies of individual elec-alternate generating sources, and projected costs tric utilities are being ordered throughout the of electricity to customers. nation by various regulatory authorities as the The evaluation also considered the Com- price of fuel, and thereby electricity, continues pany's organizational structure; planning; financial to increase.

operations; engineering and construction; utility lt is felt by many that such studies may be operations; utility services; and personnel and required periodically of all utilities in the future employee relations. to assure maximum efficiency in operations.

The study was conducted in two phases. First,

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Operation and maintenance of the complex communi- tions of the system in use at Santa Fe Center. On the cation systems of today require extensive knowledge right is a photograph of all eight units installed at Rio of electronics. This technician is checking out opera- Grande Generating Station, now mostly fired by fuel oil.

A direct computerized system of handling A trend of longevity has become evident customer inquiries became operational during throughout the Company work force indicated by 1976. The Customer Information Control System a decrease in the turnover rate from 21 per cent provides almost instant retrieval of all information in 1974 to 12.8 per cent in 1976. The average work regarding a customer's account at the push of a force for the year was 800 representing a ratio of button. approximately 5.4 employees per 1,000 customers.

Forty-six display station video screens with Between March 12, 1958, and December 31, input keyboards, strategically located throughout 1976, the Company's New Business Department the Company, have been installed along with a surpassed one million manhours worked without computer system that combines all customer ac- loss of time due to accident or injury.

counting data on a disc record which can be The Company and Local Union No. 960 of the viewed on the video monitor. International Brotherhood of Electrical Workers Inquiries may be made into the computer for completed negotiations in February, 1976, on a retrieval of billing information, billing history, credit new labor contract which provided for a 7.2 per information, merchandise information, area lamp cent across-the-board wage increase in 1976, a data, or any adjustments made to a customer' 5 per cent wage increase March 1, 1977, and 4 account. per cent September 1, 1977. IBEW represents 41 A one-year summary of the customer' per cent of the Company's employees.

account may be displayed to reveal quickly the In addition, the Company and the Union customer's pattern of energy consumption for operate one of the top joint apprenticeship train-examination and analysis. ing programs in Texas, covering 12 apprenticeship In addition to the various customer informa- training programs, all recognized by the Texas tion services, the system is designed to carry out Education Agency and the U. S. Department of several nonaccounting functions of benefit to the Labor.

Company in maintaining orderly internal operations. All eligible employees may participate in the Your management is particularly pleased with Company's Stock Purchase Plan which allows par-the new customer inquiry system and expects it to ticipants to invest regularly by payroll deduction.

be of special value in providing accurate customer Twice each year the deductions are used to pur-information, and increased efficiency in customer chase Common Stock of the Company. Employees record keeping. may authorize payroll deductions of up to 15 per The Company views its employees as its cent of their regular pay for participation in the greatest asset and strength and compliments them Plan. A total of 57,389 shares have been sold for continuing efforts to maintain good customer under the Plan since 1959.

relations in all areas of operations.

The Collins Solar Demonstration House, constructed becomes practical, other forms of energy must be used on New Mexico State University property in Las Cruces, and the Palo Verde Nuclear Generating Station is under N. M., is actually a laboratory operated by science stu- construction near Phoenix, Arizona.

dents. However, until solar generation of electricity FIIMAMCllMG In 1976 the Company sold an additional one The Board of Directors elected Evern R. Wall million shares of its Common Stock, no par value. President and Chief Executive Officer of the Com-The proceeds from the sale of this New Com- pany at its meeting in May, 1976.

mon Stock of $ 10,809,900 were applied toward the Dennis H. Lane, Chairman of the Board of reduction of short-term debts incurred as a result Directors, had been serving as Chief Executive of the Company's construction program. Officer and Mr. Wall as Chief Operating Officer.

Proceeds from the sale reduced the short- Mr. Lane was re-elected Board Chairman. 17 term debt to $ 17,200,000. Billye E. Bostic, who had served as Controller The Dividend Reinvestment and Stock Pur- during the past year, was elected Vice President.

chase Plan, approved by the Board of Directors All other Officers were re-elected to their in 1975, became functional in 1976. The purpose respective posts.

of the plan is to provide holders of the Com- Vice President James H. Jones assumed man-pany's Common Stock with a convenient method agement of the Mesilla Valley Division in June, of investing cash dividends and optional cash 1976, succeeding Senior Vice President John F.

payments in new shares of Common Stock at a Armstrong who retired on December 31, 1976.

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.

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 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 THE 1976 REVENUE DOLLAR of total revenue, increased 16.5 percent. Large commercial and industrial accounts comprised 14.1 percent of the total and increased 32.9 per-5%tuB SB Oi89RB d4RP KKiiBQiKie cent, and sales for resale, accounting for 11.0 INt4iILjj @3 percent of total revenue, increased 38.7 percent.

emsm8MI a@6 lhx3sQhlh4 Ihsgs 0% Revenues include approximately $ 11,708,000 MtOe ez@s 0%i from the application of the fuel adjustment 9RKGHicf58 GIBE flR$95l@4%RKN 8G~

clause during 1976 for residential and small Ateymklllhm0heSIKI .'tlI commercial customers. Fuel clause revenue B) from other sales amounted to approximately aoO'%m Se 8aaamsdh6hv mS $ 13,428,000.

QE4 sp~R$ 5$

litem o98 Operating Expenses:

I]giijgi 8~3 Fuel expense for 1976 was approximately

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- - ~ CKI'QRIKI o $ 53,154,000 which represents an increase of al5gg JN approximately $ 8,440,000 or 18.9 percent. Op-D- ~

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. eration and maintenance expenses of approx-IbReBS 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 COMPARATIVE STATEMENT OF INCOME For the Years Ended December 31, 1976 and 1975 I 976 1975 Operating revenues $ 111,188,345 $ 91,460,725 Operating expenses (Note I):

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

Federal income, current 2,975,292 ( 205,035)

Federal income, deferred 3,019,911 1,052,391 Charge equivalent to net reduction in federal income tax relative to investment tax credit 2,146,774 4,574,232 Other 7,585,159 5,774,970 Total operating expenses and taxes 93,067,869- 75,933,299 Operating income 18,120,476 15,527,426 Other income:

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

Long-term debt 6,719,441 5,665,919 Other 1,610,881 2,700,420 Total interest charges 8,330)322 8,366,339 Net income 11,516,498 10,097,890 Preferred dividend requirements (Note D) 1,481,100 1,289,989 Net income applicable to common stock $ 10,035,398 $ 8,807,901 Earnings per share of common stock 1.29 $ 1.30 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 BALANCE SHEET December 31, 1976 and 1975 ASSETS 1976 1975 Utility plant and other investments (Notes B and E):

Electric plant, at original cost $ 274,501,928 $ 250,374,841 Less accumulated depreciation 55,060,305 49,692,031 0

2'I 9,441,623 200,682,810 Nonutility property, at cost 231580 23,580 Total plant and other investments 219,465,203 200,706,390 Current assets:

Cash (Note F) 3,004,347 4,286,111 Accounts receivable 14,798,478 13,954,666 Federal income tax refundable 4,816,713 Materials and supplies 2,711,648 3,090,759 Fuel 8)267,417 6,703,043 Prepayments 1,289,435 2,445,228 Deferred fuel costs 5,340,313 3,135,673 Total current assets 35,411,638 38,432,193 Deferred debits:

Unamortized debt expense 452)653 41 7,546 Other 1,043,268 1,102,530 Total deferred debits 1,495)921 1,520,076

$ 256,372,762 $ 240,658,659 LIABILITIES AND 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) $ 40,033,140 .$ 28,645,997 Preferred stock, no par value, authorized 1,000,000 shares, issued and outstanding 190,000 shares in 1976 and 1975 (Note D) 19,040,750 19,040,750 Unamortized capital stock expense ( 436,692)

Retained earnings (Note E) 3.8,131,711 35,666,593 Total 96,769,009 83,353,340 Long-term debt 92) 289) 818 93,104,282 Current liabilities:

Notes payable to bank (Note F) 3)500,000 8,700,000 Commercial paper (Note F) 22,200,000 15,000,000 Portion of long-term debt due within one year 6,000,000 Accounts payable 5,113,077 3,861,468 Customers'eposits 1)693,314 1,647,697 Taxes accrued (Note G) 4,722,162 3,295,911 Deferred income taxes (Note G) 2,563,350 1,505,123 Interest accrued 1,759,280 1,908,676 Other 703,196 963,759 Total current liabilities 42) 254,379 42,882,634 Deferred credits:

Customers'dvances for construction 336,609 461,272 Accumulated deferred federal income taxes 15,320,521 13,358,837 Accumulated deferred investment tax credit 9,382,715 7,472,155 Other 19,811 26,139 Total deferred credits 25) 059,556 21,318,403 Commitments (Notes H and I)

$ 256,372,762 $ 240,658,659 The accompanying notes are an integral part of the financial statements.

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 $ 35,666,593 $ 33,150,41 8 Net income 11) 516,498 10,097,890 Capital stock expense amortization ( 48,510) 47,134,581 43,248,308 Dividends on capital stock:

Preferred 1,481,100 1,289,989 Common 7,52'I,770 6,291,726

9) 002) 870 7,581,715 Retained earnings at end of year (Note E) $ 38,131,711 $ 35,666,593 PREFERRED STOCK, COMMON STOCK, LONG-TERM DEBT December 31, 1976 (Notes C, D and E)

Preferred stock, no par value: Common stock, no par value:

1,000,000 shares authorized for issuance in Authorized 15,000,000 series: Issued and outstanding 8,448,767

'2 Issued and outstanding:

15,000 shares, $ 4.50 dividend $ 1,533,750 Dividends:

Quarterly cash dividends were paid during 1976 at the rate of 23/ per share for the 15,000 shares, $ 4.12 dividend 1,506,000 first quarter and 24/ per share for the last 20,000 shares, $ 4.72 dividend 2,001,000 three quarters of 1976 40,000 shares, $ 4.56 dividend 4,000,000 100,000 shares, )10.75 dividend 10,000,000 First mortgage bonds:

100,000 $ 19,040,750 Caii Price Outstanding Due Redemption-liquidation, per share:

Voluntary: 2r/8/o series $ 100.60 $ 4,500,000 1980

$ 4.50 dividend-$ 109.00 3 t/8 lo series 101.45 4,950,000 1984

$ 4.12 dividend-103.98 4~/4 /o series 102.60 6, l00,000 1988

$ 4.72 dividend $ 104.00

$ 4.56 dividend-$ 101.00 through June 30, 45/8 /0 series 103.03 10,385,000 1992 1978 and $ 100.00 on or after July 1, 1978 63/4 lo series 104.89 15,800,000 1998

$ 10.75 dividend-$ 110.75 through Decem-ber 31, 1979; reduced amounts there- 7~/4 '/o series 107.39 15,838,000 2001 after to $ 101.00 on or after January 1, 9 lo series 107.92 20,000,000 2004 1995, with the annual redemption of 4,000 shares per year commencing with Jan- 10'/2 /o series 111.02 15,000,000 2005 uary 1, 1980, at the redemption rate of Total first

$ 100.00 mortgage bonds 92,573,000 Unamortized premium Involuntary: on long-term debt 105,452 All series $ 100.00 plus accrued dividends Unamortized discount Dividends: on long-term debt ( 388,634)

Cumulative, payable first of January, April, Total long-term debt $ 92,289,818 July and October 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 $ 11,516,498 $ 10,097,890 Items not requiring outlay of working capital in the current period:

Depreciation 6,402)596 5,680,906 Deferred federal income taxes 1,961)684 1,487,100 Investment tax credit 2,146,774 4,574,232 Salvage (net of removal costs) 297,488 186,842 Allowance for funds used during construction ( 1,247,701) ( 2,210,310)

Funds provided by operations 21,077,339 19,816,660 Other sources:

Long-term debt 15,000,000 Sale of common stock 11,387,143 9,513,035 Sale of preferred stock 10,000,000 32,464,482 54,329,695 Application of funds:

Gross additions to plant 23,966,838 23,680,898 Reclassification of prepayments to electric plant 1,492)059 Allowance for funds used during construction ( 1,247,701) ( 2,210,31 0)

Dividends on preferred stock 1,481,100 1,289,989 Dividends on common stock 7,521,770 6,291,726 Capital stock expense 485,102 23 Reduction of long-term debt 817,000 7,731,000 Advances and contributions for construction 124,763 112,827 Other 215)851 160,408 34,856,782 37,056,538 Increase (decrease) in working capital ($ 2)392,300) $ 17,273,157 Increase (decrease) in components of working capital:

Current assets:

Cash ($ 1,281,764) $ 2,021,237 Accounts receivable 843,812 6,908,914 Federal income tax refundable ( 4,816,713) 4,816,713 Materials and supplies ( 379,089) ( 318,832)

Fuel 1,564,352 2,419,826 Deferred fuel costs 2)204,640 ( 905,644)

Other ( 1,155,793) 1,323,032

( 3,020,555) 16,265,246 Current liabilities:

Notes payable ( 5,200,000) ( 12,200,000)

Commercial paper 7)200,000 4,050,000 Current maturities of long-term debt ( 6,000,000) 6,000,000 Accounts payable 1,251,609 ( 1,219,978)

Taxes accrued 1,426,251 2,574,959 Deferred income taxes 1,058,227 ( 434,709)

Other ( 364,342) 221,817

( 628,255) ( 1,007,911)

Increase (decrease) in working capital ($ 2) 392,300) $ 17,273,157 The accompanying notes are an integral part of the financial statements.

EL PASO ELECTRIC COMPANY NOTES TO FINANCIALSTATEMENTS A. Summary of Significant Accounting Policies: Amounts equal to the reduction in federal income General taxes resulting from investment tax credits are being The Company maintains its accounts in accor- charged to income and concurrently credited to dance with the Uniform System of Accounts pre- accumulated deferred investment tax credits. The scribed for electric utilities by the Federal Power Company amortizes the deferred credits over the Commission. useful lives of the related properties.

Utility Plant and Other Investments Pension Plan Utility plant and equipment are stated at original The Company has a noncontributory retirement cost. The Company provides for depreciation on a annuity plan (future participation terminable at any straight-line basis at annual rates which will amortize time) under a group annuity contract. The pension the undepreciated costs of depreciable property over plan provides annual pensions for regular employees estimated remaining service lives. with more than one year of service, which together with social security benefits, approximate 70/o of The Company charges the cost of repairs and average annual earnings during the period of em-minor replacements to the appropriate operating ployment. The Company's policy is to fund pension expense and capitalizes the cost of renewals and casts accrued. Prior service costs are being amor-betterments. The recorded cost of depreciable plant tized over thirty years beginning in 1972 and are in-retired or sold, and the cost of removal, less salvage, cluded in the determination of annual expenses.

is charged to accumulated provision for depreciation.

Earnings Per Common Share Inventories Earnings per common share are computed using Materials, supplies and fuel inventories are valued the weighted average number of common shares out-at the lower of average cost or market.

standing during the year. Common equivalent shares Deferred Fuel Costs related to the amended employee stock purchase Fuel costs in excess of base rates authorized by and dividend reinvestment plans are not significant.

fuel adjustment clauses in applicable regulatory rate Allowance for Funds Used During Construction schedules are deferred until the related revenues are The applicable regulatory uniform system of billed which is usually in the first or second month accounts defines allowance for funds used during after the costs are incurred. construction ("AFUDC") as including the net cost 24 Unamortized Capital Stock Expense (during the period of construction) of borrowed funds Amounts apply to outstanding issues and are used for construction purposes and a reasonable rate being amortized ratably over ten years. on other funds when so used. The Company uses an AFUDC accrual rate of 7~/2~/o. Such accrual rate is Revenues based on the estimated cost of incremental capital Revenues are recognized based on cycle billings employed to finance the Company's construction pro-rendered to customers monthly. The Company does grams and is determined using the assumption that not accrue revenues in respect of energy sold but funds required for construction were supplied 55/o not billed at the end of a fiscal period. from funded debt, 10/o from preferred stock and 35/0 Unamortized Exp'ense, Premium and Discount from common stock equity. On this basis (without on Debt giving tax effect to interest on debt) the AFUDC attrib-utable to funds provided by common equity amounted Amounts apply to outstanding issues and are be- to 6.1'/o and 8.6/o of net income applicable to com-ing amortized ratably over the lives of such issues. mon stock for 1976 and 1975.

Federal Income Taxes B. Utility Plant:

Accelerated depreciation of utility plant and Electric plant consisted of the following at amortization of emergency facilities are principally December 31: 1976 1975 used for federal income tax purposes. Differences in the tax and financial methods of accounting for fuel Intangibles 50,540 $ 50,540 costs also exist. In accordance with regulatory au- Production 128,713,751 124,326,796 thority requirements provision has been made in the Transmission 30,149) 835 29,150,109 financial statements for federal income taxes defer- Distribution 79,800) 613 73,258,856 red to future years as a result of these items. The General 8,143,143 7,633,744 Company does not provide deferred taxes on certain Plant held other differences between financial and tax reporting for future use 396)819 396,819 since such differences are not approved as an ex- Construction work pense in rate of return computations by regulatory in progress authorities. Accordingly, income taxes deferred to (Note H) 24,928,065 15,557,977 future years related primarily to allowance for funds Nuclear fuel used during construction and other depreciation in process 2I319,162 methods have not been reflected in the financial Total $ 274)501,928 $ 250,374,841 statements.

EL PASO ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS Total depreciation was approximately $ 5,681,000 accrued dividends. Sinking fund requirements are in 1975 and $ 6,403,000 in 1976, of which approx- cumulative and in the event they are not satisfied imately $ 175,000 and $ 170,000, respectively,'was at any redemption date, the Company is restricted applicable to transportation equipment and has been from paying any dividends (other than dividends in charged to other expense accounts. common stock or other class of stock ranking junior The average annual depreciation rate used by to the preferred stock as to dividends and assets) on the Company for the years ended December 31, 1975 common stock. The $ 10.75 preferred shares are call-and 1976 was 2.68. able; however, no optional redemption of the shares may be made prior to January 1, 1985, as a part of, or C. Common Stock: in anticipation of, any refunding by indebtedness or On August 12, 1976, the Company issued 1,000,000 stock having an interest or dividend cost less than shares of common stock. Assuming the shares had 10.75/o per annum.

been outstanding as of January 1, 1976, net income In May 1976, the Company's Articles of Incorpo-applicable to common stock and earnings per share ration were amended to increase the number of au-of common stock would have been $ 10,367,046 and thorized preferred shares from 300,000 to 1,000,000.

$ 1.23, respectively, for the year ended December 31, 1976. These amounts are based on the assumption E. Long-Term Debt:

that the net proceeds of $ 10,809,900 from the sale The Company's first mortgage provides for sink-would have been applied to retire a like amount of ing and improvement funds which require the Com-short-term indebtedness. Assuming all of the stock pany to make annual payments to the trustee had been issued on January 1, 1976, the weighted equivalent to 1o/o ($ 925,730 at December 31, 1976) of average number of shares would have been 8,412,165 the greatest aggregate principal amount of bonds for the year ended December 31, 1976. of the respective series outstanding at any one time prior to a specified date preceding the sinking fund Under a shareholder approved employee stock payment date, with certain allowable credits. The purchase plan, qualified employees may purchase Company has satisfied these requirements in past shares of the Company's common stock at two spec- years by relinquishing the right to use a net amount ified dates each year for a period ending no later of additional property for the issuance of bonds or than June 30, 1979. The purchase price is 90/o of purchasing bonds in the open market and expects the average bid price of the stock at the purchase to be able to continue such practices in 1977. 25 dates. During 1976 and 1975, 9,437 shares and 8,650 shares, respectively, were issued under the plan. At The premiums reflected in the redemption prices December 31, 1976, 93,682 shares were reserved for of the bonds continue at reduced amounts in future future purchases under the plan. Proceeds from pur- years, finally resulting in each case in redemption chases are credited to common stock and no charges at par at maturity.

are reflected in income with respect to the plan. The mortgage and supplements thereto collater-Effective June 1976, the Company instituted a alizing first mortgage bonds issued by the Company Dividend Reinvestment and Stock Purchase Plan constitute a direct first mortgage lien on substantially which provides holders of its common stock the all of the Company's utility property.

option to invest cash dividend and/or optional cash In accordance with certain provisions of the in-payments (up to $ 3,000 per quarter) in additional denture covering the first mortgage bonds, no cash shares of the Company's common stock. At Decem- dividends on common stock are to be paid except ber 31, 1976, 706,835 shares were reserved for future from retained earnings accumulated after December purchases under the plan. The purchase price is the 31, 1966, plus $ 4,100,000. Retained earnings in the average of the last bid and asked price at the is- amount of approximately $ 11,000,000 are unrestricted suance date. as to the payment of cash dividends at December 31, 1976.

D. Preferred Stock:

F. Notes Payable to Banks and Commercial Paper:

The preferred stock is callable and upon volun-tary redemption or voluntary liquidation of the Com- Short-term notes payable at December 31, 1976, pany is redeemable at the current call price plus consisted of $ 22,200,000 of commercial paper with accrued dividends. The premiums reflected in the an average discount rate of 5/o and $ 3,500,000 of current redemption prices continue to reduce with notes payable to banks with an average interest rate passage of time, ultimately resulting in redemption at of 6.4/o. Short-term notes payable at December 31, par. All series are redeemable at $ 100 per share plus 1975, consisted of $ 15,000,000 of commercial paper accrued dividends upon involuntary liquidation. with an average discount rate of 5.4/o and $ 8,700,000 of notes payable to banks with an average interest The $ 10.75 preferred shares are entitled to the rate of 7.3/o.

benefits of a sinking fund whereby on January 1 of each year, commencing with the year 1980, the Com- The Company has informal lines of credit with pany will redeem 4,000 shares annually at the sinking various lenders whereby the lenders have agreed to fund redemption price of $ 100.00 per share plus provide specified maximum amounts as a temporary

EL PASO ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS source of funds for its capital program. Certain of The provision for deferred taxes for the years these arrangements provide for the maintenance of 1976 and 1975 results from the following timing compensating balances of 10/e of the available lines differences:

of credit and 10/e of the loans outstanding. At De- 19?6 1975 cember 31, 1976, the lines of credit available under Accelerated these arrangements totaled $ 36,800,000 and approx- depreciation $ 1)892,700 $ 1,598,400 imately $ 2,225,000 of the Company's cash at that Deferred date was maintained as compensating balances. fuel costs 1,058,227 ( 434,709)

Subsequent to December 31, 1976, the Company in- Accelerated creased its informal line of credit with various lenders amortization of to $ 49,600,000. emergency The maximum and average amounts, respectively, facilities ( 111>300) ( 111,300) of aggregate short-term borrowings outstanding at Other 180>284 any month-end during the twelve months ended De- $ 3,019 911 $ 1 052 391 cember 31, 1976, were $ 28,000,000 and $ 24,210,000 and for the twelve months ended December 31, 1975, Total federal income tax expense is comprised were $ 40,800,000 and $ 34,200,000. The weighted av- as follows:

erage interest rate was 5.9/e and 7.6/c during 1976 1976 1975 and 1975, respectively. Federal income tax In November 1976, the Federal Power Commis- currently payable sion authorized the Company to issue short-term (receivable) $ 2,597,620 ($ 900,291) promissory notes to commercial banks in an amount Deferred federal not to exceed $ 100,000,000 outstanding at any one income tax 3,019,911 1,052,391 time. The final maturity date on the notes is to be Deferred investment no later than December 31, 1978. The interest rates tax credit 2,407,200 4,683,300 on the notes are to be at the prime rate in effect at Amortization of the time of issuance, plus in some cases, provisions deferred investment for compensating balances of 20/c. The net proceeds tax credit ( 260,426) ( 109,068) 26 from the issuance of the notes are to be used for $ 7>764>305 $ 4,726,332 construction expenditures. Commercial paper in an amount not exceeding 25/c of operating revenues H. Commitments:

for the preceding twelve months may be issued in The Company is committed at December 31, place of notes. 1976, in the amount of approximately $ 763,000,000 G. Federal Income Taxes: for future construction of a nuclear power plant (ex-pected to be completed in 1986), related transmis-The amounts reported as federal income tax ex- sion lines, and nuclear fuel, including approximately pense for 1976 and 1975 were less than the amounts $ 163,000,000 of estimated allowances for funds used computed by applying the federal income tax during construction. At December 31, 1976, ap-statutory rate of 48/c to book income before tax. proximately $ 25,000,000 has been expended by the The reasons for the differences are as follows: Company in connection with the construction of the 1976 l975 plant.

Percent Percent Amount of of Book Amount cf cf Book I. Pension Plan:

Federal Income Federal Income Income Tax at 484/4 Before Taxes Income Tax at 484/4 Before Taxes The Company made contributions of approx-Tax computed at imately $ 490,000 in 1976 and $ 387,000 in 1975 to its statutory rate on pension plan. Such amounts are net of dividends book income 48 0 /4 earned on the plan assets. Amortization of prior ser-before taxes $ 9>254>785 48 0 /e $ 7>1 15>627 Decreases In tax vice costs is included in the determination of annual resulting from: expenses. The assets of the pension fund exceeded Allowance for the vested benefits at December 31, 1976, and the funds used during unfunded prior service benefits are estimated to be construction approximately $ 3,437,000 as of June 30, 1976, which not Includible in taxable is the latest date actuarial valuation is available.

income ( 598>895) ( 3.1 ) ( 1,060,949) ( 7.2 )

Excess of tax depreciation over book depreciation ( 649,021) ( 3.4 ) ( 991,488) ( 6.7 )

Amortization of investment tax credits ( 260,426) ( 1.3 ) ( 109,068) ( .7 )

Other 17,662 .1 ( 227,790> I >.5

$ 7>764>305 40 3/4 $ 4>726>332 31 9/4

EL PASO ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS J. Quarterly Financial Summary: AUDITORS'PINION The following table sets forth the quarterly finan-cial summary of the Company for the year ended To the Shareholders of December 31, 1976: El Paso Electric Company:

We have examined the balance sheet of El Paso (In Thousands of Dollars Except for Per Share Data) tAll Quarterly Data is Unaudited) Electric Company as of December 31, 1976 and 1975, 1st 2nd 3rd 4th and the related statements of income, capitalization Quarter Quarter Quarter Quarter Total Operating and changes in financial position for the years then revenue $ 24,399 $ 28,396 $ 32,036 $ 26,357 $ 111,188 ended. Our examinations were made in accordance Operating with generally accepted auditing standards, and expenses 20,494 23,703 26,348 22,523 93,068 Operating accordingly included such tests of the accounting income records and such other auditing procedures as we Net income Net income considered necessary in the circumstances.

applicable to In our opinion, the aforementioned financial state-common stock 1,878 2,424 3,647 2,086 10,035 ments present fairly the financial position of EI Paso Net income per common Electric Company as of December 31, 1976 and 1975, share $ .25 $ .33 $ .46 $ .25 $ 1.29 and the results of its operations and changes in financial position for the years then ended, in con-K. Replacement Cost Information (Unaudited): formity with generally accepted accounting principles The impact of inflation experienced in recent applied on a consistent basis.

years has resulted in replacement costs of productive capacity that are significantly greater than the his- COOPERS 8L LYBRAND 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- Dallas, Texas tions. This, in turn, will depend on the Company's February 18, 1977 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.

EL PASO ELECTRIC COMPANY

SUMMARY

OF OPERATlNG DATA 1976 1975 1974 Population served at retail, estimated (a) 520,000 505,000 495,000 Number of customers:

Residential 135,344 130,010 126,760 Commercial and industrial, smail 141203 13,294 13, I 63 Commercial and industrial, large 39 32 29 Other 1,748 1,663 1,545 Total 151,334 144,999 141,497 Gross capability at time of firm peak load, kilowatts 1 026 400 1 026 400 796 400 Annual system peak load, net kilowatts 677,000 640,000 638,000 Output, net generated and purchased, thousand kilowatt-hours:

Steam 3,501,416 3,433,698 3,369,606 Purchased 51 013 15 837 13 709 Total (b) (c) 3 552 429 3 449 535 3 355 897 Sales of electricity, dollars:

Residential $ 31,414,807 $ 27,079,407 $ 20,126,048 Commercial and industrial, smail 33,627,820 28,869,770 19,192,065 Commercial and industrial, large 15,709,090 11,816,132 7,824,441 Other 29 537 033 ~ 22 880 250 15 594 598 Total $ 110,288,750 $ 90,645,559 $ 62,737,152 Sales, thousand kilowatt-hours:

28 Residential 816,169 782,285 765,636 Commercial and industrial, small 929,556 909,967 853,960 Commercial and industrial, large 582,125 5 l3,637 508,482 Other 1 030 812 1 006 311 980 175 Total (b) (c) 3 358 662 3 212 200 3 108 253 Average annual use per residential customer, kwh 6,193 6,097 6,116 Average annual revenue per residential customer $ 238.36 $ 211.04 $ 160.72 Average revenue per kwh sold, cents:

Residential (d) 3.85 3.46 2.63 Commercial and industrial, small (d) 3.62 3.17 2.25 Commercial and industrial, large (d) 2.70 2.30 1.54 Average revenue per kwh; total sales (d) 3.30 2.82 2.02 Electric line, pole miles:

15,000 volt or over 1,759 1,706 1,647 Less than 15,000 volts (e) 2,727 2,691 2,673 Total C 4 486 4 397 4 320 Total employees 816 778 726 (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 1972 1971 1970 1969 1968 1967 485 000 475 000 465 000 450 000 435 000 423 000 410 000 123,653 I19,170 114,640 110,308 107,284 104,708 101,394 12,816 12 333 11,666 11,279 11,129 11,063 11,012 27 27 23 21 19 18 18 1 445 1 351 1 255 1 228 1 188 1 129 1 083 137 941 132 881 127 584 'I 22 836 119 620 116 918 113 507 796 400 796 400 641 300 641 300 585 600 529 900 529 900 618 000 543 400 500 700 469 100 448 300 400 200 360 700 3,450,021 3,075,013 2,705,160 2,506,048 2,460,571 2,166,682 1,943,758 180 767 l12 435 43 375 360 536 3 194 797 3 269 254 2 962 578 2 661 785 2 506 408 2 461 107 2 169 876 1 944 555

$ 16,748,411 $ 15,132,434 $ 14,081,095 $ 13,098,832 $ 12,534,805 $ 11,423,309 $ 10,589,627 14,941,657 12,947,975 11,514,945 10,335,940 9,739,758 8,970,239 8,556,470 6,061,358 5,231,367 4,516,382 4,193,865 3,411,099 3,067,812 2,668,757 11 416112 9 696 370 8 565 190 8 155 054 8 003 813 7 040 626 6 442 090

$ 49 167 538 43 008 146 $ 38 677 612 $ 35 783 691 $ 33 689 475 $ 30 501 986 $ 28 256 944 755,701 694,855 643,313 598,240 571,454 518,763 479,003 29 799,997 696,584 610,876 540,529 526,275 469,953 444,667 536,754 487,945 440,568 426,177 374,694 330,097 279,983 958 25 853 978 758 769 763 597 836 802 706 286 607 961 3 050 704 2 733 362 2 453 526 2 328 543 2 309 225 2 025 099 1 811 614 6,211 5,948 5,718 5,499 5,391 5,026 4,783

$ 137.59 $ 129.53 . $ 125. I 6 $ 120.39 $ 118.25 $ '10.68 $ 105.76 2.22 2.18 2.19 2.19 2.19 2.20 2.21 1.87 l.86 1.89 1.91 1.85 1.91 1.92 1.'I3 1.07 1.03 .98 .91 .93 .99 1.61 1.57 1.58 1.54 1.46 1.51 l.56 1,581 1,539 1,503 1,442 1,343 1,055 1,017 2 616 2 565 2 507 2 457 2 394 2 356 2 328 4 197 4 104 4 010 3 899 3 737 3 411 3 345

EL PASO ELECTRIC COMPANY

SUMMARY

OF OPERATIONS 12 Months Ending December 31 1976 1975 1974 Operating revenues $ 111,188,345 $ 91,460,725 $ 63,071,650 Operation and maintenance 71, I 07,268 59,230,656 36,377,678 Depreciation (a) 6,233)465 5,506,085 4,344,485 Taxes 15,727,136 11,196,558 9,808,945 Net other income ( 1,726,344) ( 2,936,803) ( 1,565,251)

Net expenses 91,341,525 72,996,496 48,965,857 Income before interest charges 19,846,820 18,464,229 14,105,793 Total interest charges 8) 330) 322 8,366,339 6,074,451 Income before cumulative effect on prior years of change in accounting method 11,516,498 10,097,890 8,031,342 Cumulative effect to January 1, 1974 of change in accounting for fuel costs, net of related 30 income taxes ($ 912,226) 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 1.29 $ 1.30 $ 1.19 Cumulative effect to January 1, 1974 of change in accounting for fuel costs .15 Net income applicable to common stock 1.29 $ 1.30 1.34 Pro forma amounts assuming the new method of accounting for fuel costs is applied retroactively (b):

Net income applicable to common stock Earnings per share Dividends paid per share on common stock $ .95 $ .91 $ .88 Electric plant at original cost $ 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 I 4,478,241 I 3,102,813 12,00'I,718 11,339,069 4,101,685 3,775,685 3,509,078 3,256,456 2,936,240 2,654,240 2,432,240 9,573,581 9,278,374 8,150,458 8,194,353 8,638,524 7,862,102 6,895,820

( 190,260) ( 933,316) ( 699,281) ( 392,832) ( 621,250) ( 814,117) ( 142,343) j 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):

1975 Increase 1976 Increase Over 1974 Over 1975 1974 1975 Dollars Percent 1976 Dollars Percent Total operating revenues $ 63,072 $ 91,461 $ 28,389 45.0 lo $ 1117188 $ 197727 21.6/o Increase caused by:

Volume $ 2,135 7.5O/o $ 4,150 21.0 /o Price:

Base rate increases 26,779 94.3 9,100 46.2 Fuel adjustments (525) (1.8) 6,477 32.8 Total increase $ 28,389 100.0'!o $ 19,727 100.0%

Volume increased in 1975 due to a general overall single customer, terminate March 31, 1977, when increase in kilowatt hour sales to all classes of cus- the Comisi6n expects to be able to provide Juarez tomers. Volume increased in 1976 due to an increase with its total power requirements. During the last in kilowatt hour sales to all classes of customers ex- quarter of 1976 and the first two months of 1977, cept for a slight decrease in sales for resale. while the Comisi6n has been phasing in its own The price increases in 1975 and 1976 are primarily power sources, kilowatt hour sales to the Comisi6n due to base rate increases which include a significant have varied on a declining basis between 60/o and increase in the fuel component included in base rates. 10/o of kilowatt hour sales to the Comisi6n for Historically, approximately 8/o of the Company's comparable prior periods. Although the loss of sales revenues have been derived from sales to the Comi- to the Comisi6n may have a temporary adverse effect si6n Federal de Electricidad (the "Comisi6n") which on operating income and earnings, the Company supplies the City of Juarez, Mexico. Sales to the does not expect this loss of sales to have an adverse Comisidn, which has been the Colnpany's largest 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):

1975 Increase 1976 Increase Over 1974 Over 1975 1974 1975 Dollars Percent 1976 Dollars Percent Total operating expenses $ 40,722 $ 64,736 $ 24,014 59.0 lo $ 777341 $ 12,605 19.5 lo Increase caused by:

Fuel $ 24,914 $ 44,714 $ 19,800 82.5O/o $ 53,154 $ 8,440 67.0 lo Operations 8,505 9,903 1,398 5.8 13,036 3,133 24.9 Maintenance 2,958 4,613 1,655 6.9 4,918 305 2.4 Depreciation 4,345 5,506 1,161 4,8 6,233 727 5.7

$ 24,014 100.0'/o $ 12,605 100.0%

Fuel expenses increased in both 1975 and 1976 higher than normal expense at the Four Corners Sta-due to escalating prices of generating fuel and in- tion and increased in 1976 due to repairs at Newman creases in volume. Station Unit No. 2 and to first time inspection ex-Operating expenses increased in both 1975 and penses at Newman Station Unit No. 4.

1976 due to the inflationary pressure on wages, em- Depreciation expense increased in 1975 and 1976 ployee benefits, material costs, and other costs. due to Newman Station Unit No. 4 being phased into Maintenance expense increased in 1975 due to 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 MARKET PRICES OF COMMON receipts t'axes. STOCK AND DIVIDENDS interest Charges BID Interest on long-term debt increased in 1975 due PRICE RANGE to the issuance of $ 15,000,000 of bonds in 1975 and QUARTER HIGH LOW DIVIDENDS a full year's interest expense on $ 20,000,000 of bonds issued in 1974. Interest on long-term debt increased 1976 in 1976 primarily due to a full year's interest expense 1st 11'/2 97/e $ 0.23 on the $ 15,000,000 of bonds issued in 1975. 2nd 11e/e 9e/4 $ 0.24 Other interest increased in 1975 due to increased 3rd 11'le 10'/e $ 0.24 short-term borrowings to finance construction. Other interest decreased in 1976 due to lower interest rates 4th 11 e/e 10>/e $ 0.24 and to lower average outstanding balances during BID the year. PRICE RANGE QUARTER HIGH I.OW DIVIDENDS AFUDC 33 The accrual of all AFUDC is in accordance with 1975 long established accounting policies of the Company 1st 10>/e 87/e $ 0.22 and regulatory agencies to which it is subject but 2nd 11 c/4 87le $ 0.23 does not represent current cash income. The Com- 3rd 10>/e 9e/e $ 0.23 pany understands that an issue has been raised in 4th litigation to which it is not a party relating to AFUDC 10e/e 9e/4 $ 0.23 as reported in another public utility's prospectus. In El Paso Electric Company Common Stock is that litigation, it is alleged by the plaintiff that actual traded in the over-the-counter market.

earnings were not properly presented because AFUDC The tabulation, which sets forth the high and low was included in "other income" without an adequate bid prices and represents prices between dealers, explanation of this item, and that AFUDC is not in does not include retail markup, markdown commis-fact income, as generally understood, but rather a sion.

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.

BQARD QF DIRECTQIRS

'I h

h

-gI g,f 34 Ben L. Ivey Tad R. Smith George 'G. Matkin* Robert H. Cutler Farmer; Director, Attorney; Partner, Chairman of the Board, Chairman of the Board, Vice President and Kemp, Smith, White, The State National Bank Illinois-California Vice Chairman of Duncan & Hammond; of El Paso; Express, Inc. (6) the Board, Counsel for Chairman of the Board, Bank of Ysleta (7) the Company (16) PanNational Group, Inc.

(10)

Robert E. Boney* Paul Harvey* Dennis H. Lane* Evern R. Wall* Dr. Joseph R. Smiley Investments Honorary Chairman of Chairman of the Board President and Chief President Emeritus, Las Cruces, N.M. (28) the Board of the of the Company (5) Executive Officer of The University of Texas Company; the Company (2) at El Paso (8)

Honorary Vice President, EI Paso National Bank; Chairman of the Board, First State Bank (36)

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

ADMINISTRATIVE PERSONNEL POWER SUPPLY EMPLOYEE SERVICES Donald G. Isbell, Manager of Energy Resources Charles Mais, Manager of Employee Services D. Craig Walling, Superintendent of Power Generation Robert Swanson, Assistant Manager, Director of Fred L. Gerth, Superintendent of Newman Industrial Relations Power Station William Clack, Safety Director Warren H. Skidmore, Superintendent of Rio Grande Everett E. Putney, Personnel Director Power Station John Duffy, Training Director Elvin L. Bowman, Maintenance Superintendent Joe B. Herrera, Claims Director TRANSMISSION AND DISTRIBUTION MESILLAVALLEYDIVISION (LAS CRUCES)

George A. Clifford, Superintendent of Transmission Parker F. Davenport, General Superintendent and Distribution Russell D. Gray, Engineering Supervisor Thomas E. Alexander, Assistant Superintendent Morris G. May, Distribution Superintendent Franklin H. Kennedy, Operations Superintendent William R. Castle, Personnel Manager Aubrey R. Bailey, Construction Superintendent Edmond R. Duke, New Business Manager Gordon J. Gregg, Superintendent of Transportation Maura Lancaster, Accounting Supervisor and Maintenance DISTRICT OFFICES SYSTEM OPERATIONS Joseph A. Jarrell, District Superintendent William L. Lyon, Jr., Manager of Systems Operations Fabens, Texas Beglar I. Merlich, District Superintendent SUBSTATION Hatch, New Mexico S. Albert Williamson, Superintendent of Substations Antonio Vasquez, District Superintendent John E. Barratt, General Foreman Anthony, Texas-New Mexico ENGINEERING Peyton Nichols, Manager of Engineering Howard L. Penley, Director of Planning 35 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

ANNUALMEETING OF THE SHAREHOLDERS The 1977 Annual Meeting of the Shareholders will be 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 ELECTRIC El Paso, Texas 79999 COMPANY Post Office Box 982 36 El Paso, Texas 79999 COMMON STOCK Branch Offices:

Las Cruces, Hatch and Anthony, New Mexico SHAREHOLDERS El Paso, Fabens, Sierra Blanca and Van Horn, Tex. 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 Irving Trust Company One Wall Street 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)