ML18192A390
| ML18192A390 | |
| Person / Time | |
|---|---|
| Site: | Palo Verde  |
| Issue date: | 09/24/1975 |
| From: | Kidder, Peabody & Co.., Public Service Co of New Mexico |
| To: | Office of Nuclear Reactor Regulation |
| References | |
| Download: ML18192A390 (44) | |
Text
PROSPECTVS 675,000 Shares Public Service Company of New Mexico Common Stock
($ 5 Par Value)
The outstanding shares of Common Stock are, and the additional shares offered hereby will be, listed on the New York Stock Exchange. The reported last sale price on such Exchange on September 23, 1975, was $ 17.25 per share.
THESE SECURITIES HAVE,NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESEN-TATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Undenvriting Prico to Discounts and Proceeds to Public Commissions(1) Company (2)
Per Share $ 17.25 $ .70 $ 16.55 Total $ 11,643,750 $ 472,500 $ 11,171,250 (1) The Company has agreed to indemnify the several Underwriters against certain civil liabilities, in-cluding liability under the Securities Act of 1933.
(2) Before deducting expenses payable by the Company estimated at $ 65,000.
The shares of Common Stock are offered by the several Underwriters when, as and if issued b'y the Company and accepted by the Underwriters and subject to their right to reject orders in whole or in part. It is expected that certificates for such shares will be ready for delivery on or about September 30, 1975, at the office of Kidder, Peabody & Co. Incorporated, 10 Hanover Square, New York, New York 10005, against payment therefor in New York funds.
Kidder, Peabody &" Co.
Incorporated The date of this Prospectus is September 24, 1975.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZEOR MAINTAINTHE MARKET PRICE OF THE COMPANY'S COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHER-WISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COM-MENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLEINFORMATION Public Service Company of New Mexico (the "Company" ) is subject to the informational require-ments of the Securities Exchange Act of 1934 and in accordance therewith files reports and other in-formation with the Securities and Exchange Commission. Certain information, as of particular dates, concerning directors and officers, their remuneration, and any material interest of such persons in trans-actions with the Company is discussed in proxy statements of the Company distributed to shareholders of the Company and filed with the Commission. Such reports, proxy statements and other information can be inspected at the Public Reference Room of the Commission at 1100 L Street, N. W., Washington, D. C. and copies of such material can be obtained from the Commission at prescribed rates at its princi-pal oflice at 500 North Capitol Street, N. W., Washington, D. C. 20549. In addition, the Company's Common Stock is listed on the New York'Stock Exchange where reports, proxy material and other information may be inspected.
SUMMARY
OF PROSPECTUS T/te folloiving material is qualified in its entirety by the detailed information and financial state-ments (including the notes thereto) appearing elsewhere in this Prospectus.
Company Securities Offered Listed
...........675,000 THE OFFERING Public Service Company of New Mexico shares of Common Stock
..New York Stock Exchange (Symbol: PNM)
Price Range (Jan. 1, 1975-Sept. 23, 1975) .
Outstanding June 30, 1975 .......4,426,794 21N-11'hares UseofProcecds.......... To reduce short-term debt incurred principally for construction.
Business ..................THE COMPANY Generation, electricity transmission, distribution and sale of and, to a lesser extent, pumping, storage, transmission, distribution and sale of water.
Service Area . Portion of north central New Mexico including cities of Albuquerque, Santa Fe, Las Vegas, Belen and Bernalillo, and Deming in southwestern New Mexico.
Estimated Service Area Population....... 475,000 Average Number of Electric Customers Served 1975 . 164,276 Estimated 1975 and 1976 Construction Ex-penditures . $ 232,000,000 Rates.....................On April 22, 1975, the New Mexico Public Service Commission issued an Order approving the "Cost of Service Index" concept for substantially all of the Company's electric rates subject to its jurisdiction which provides for quarterly adjustments in the Com-pany's electric rates when its rate of return on com-mon equity is below 13.5% or above 14.5%. The first such adjustment became effective on August 1, 1975. (See "Business Rates and Regulation".)
FINANCIAL INFORMATION (Thousands of Dollarsh except per sharc amounts)
Twelve Months Ended Junc 30, December 31, Dcccmbcr 31, 1975 1974 1973 Statement of Earnings Data: (Unaudited)
Operating Revenues $ 74,214 $ 67,367 $ 58,106 Net Earnings 11,844 10,293 12,756
~
Net Earnings Applicable to Common Stock .............. 9,398 8,524 12,160 Earnings Per Share of Common Stock 2.13 1.95 2.81 Dividends Paid Per Share of Common Stock ............ 1.22 1.20 1.14 Balance Sheet Data:
Utility Plant (net) June 30, 1975 and December 31, 1974 . $ 295,141 $ 268,064 June 30 1975
% of Capitalization: Actual ~As Ad usted C~atlattmtlon Long-term Debt (including current maturities) ..... ~.......... $ 144,213 $ 144,213 50.3%
Cumulative Preferred Stock . 40,000 40,000 13.9 Common Stock Equity . 91,432 102,509 35.8 Total $ 275 645 $ 266722 100.0%
Short-Term Borrowtnss . $ 20,550 ~>s,4ou Adjusted io reflect Ihe esto ol the Additional Common Stock and the application of the proceeds of such sale.
See "Use of Proceeds" and "Capitalization".
THE COMPANY The Company was incorporated in the State of New Mexico in 1917, has its principal executive offices at 414 Silver Avenue, S. W., Albuquerque, New Mexico 87102 (telephone number 505-842-2700),
and is a public utility engaged principally in the generation, transmission, distribution and sale of elec-tricity within the State of New Mexico. The Company also owns facilities for the pumping, storage, trans-mission, distribution and sale of water in two communities in New Mexico.
For the twelve months ended June 30, 1975, the Company derived approximately 97.2% of its operating revenues from electric operations and 2.8% from water operations.
GENERAL PROBLEMS OF THE ELECTRIC UTILITY INDUSTRY General problems of the electric utility industry include the difficulty in obtaining an adequate return on invested capital, in financing large construction programs, in the capital markets absorbing utility debt and equity securities and in obtaining adequate supplies of fuel at reasonable prices and the restrictions on operations due to the increased costs and delays attributable 4o compliance with various environmental regulations. These problems are being experienced in varying degrees of magnitude among different companies and areas. The Company considers that its own experience to date in relation to these problems has been relatively favorable. (See "Sources of Power", "Rates and Regulation",
"Fuel and Water Supply" and "Environmental Factors" under the heading "Business" and see "Litiga-tion".)
Substantial external capital willbe required to finance the larger and more complex generating plants proposed to be constructed by the Company to meet prospective customer service requirements. The Company currently estimates its remaining external capital requirements for the 1975-1979 period to be approximately $ 450,000,000, an amount equal to 163% of its total capitalization as of June 30, 1975.
(See "Construction Program and Financing Requirements" and "Capitalization".)
USE OF PROCEEDS The net proceeds from the sale of the 675,000 shares of Common Stock offered hereby (the "Additional Common Stock" ) will be applied to the partial repayment of short-term borrowings incurred principally to defray costs of the Company's construction program. Short-term obligations amounted to
$ 20,550,000 on June 30, 1975, and are expected to be approximately $ 29,500,000 at the time'of the sale of the Additional Common Stock.
CONSTRUCTION PROGRAM AND FINANCING REQUIREMENTS The Company's construction program as presently planned for the five-year period 1975-1979 will require the expenditure of approximately $ 723 million, of which about $ 232 million is expected to be spent during 1975 and 1976. Construction of the three additional coal-fired generating units at the San Juan Generating Station, owned jointly with Tucson Gas &: Electric Company, will account for $ 391 million of the Company's budgeted expenditures. Included in the $ 391 million is $ 140 million for environmental protection equipment.
Major expenditures for electric generating stations, including associated environmental protection equipment, budgeted for the period 1975-1979 are as follows:
Estimated Company Expendi- Funds Ownership tures Expended Estimated Planned Unit Size (Thousands by the Through Cost Energy Operation (Thousands of KW aud Company Junc 30, Per Project aud Location Source Date Unit g of KW) % of Unit) 1975 1979 1975 Kilowatt (Millions) (Millions)
San Juan Coal 1976 g1 326 163 50 $ 391 $ 31.8 $ 429(2) 606(2)
San Juan County, New Mexico 1978 1980 4'3 g4 466 466 233 233 5050 658(2)
Arizona Nuclear Nuclear 1982 41 1,270 129.5 10.2% 115 4.1 525(2) power project 1984 g2 1,270 129.5 10.2%
10.2% 500(2)
Buckeye, 1986 g3 1,270 129.5 516(2)
Arizona Four Corners Units g4 Coal (1) (1) 208 13 20 1.1 210(3) and g5 San Juan County, New Mexico San Juan Unit g2 Coal (1) (1) 163 50 24 8 363 (3)
San Juan County, New Mexico (1) Environmental control additions to units in operation.
(2) Represents the estimated cost for the Company's ownership, excluding costs of related transmission t facilities and allowance for funds used during construction, but including costs of related pollution control facilities and estimated cost of the initial nuclear fuel core for thc Arizona Nuclear Power Project of $ 26.9 million.
(3) Company's actual cost plus estimated cost of additional pollution control equipment.
In addition the Company proposes to spend, during the 1975-1979 period, approximately million for additional electric and water facilities as follows: new transmission lines and substations,
$ 173
$ 80 million; additional water rights and construction of facilities for water transmission, distribution and treatment, $ 16 million; and routine construction and improvements to electric distribution systems and common plant, $ 77 million.
Reference is made to "Environmental Factors" under the heading "Business" and to "Litigation" for a discussion of matters which could delay completion, or increase the cost, of certain of the Company's projects planned or now under construction.
Financial Considerations In March 1975 the Company issued and sold $ 25 million principal amount of its First Mortgage Bonds, 9~/s% Series due 2005, and 100,000 shares of 10.12% Cumulative Preferred Stock, 1975 Series, realizing therefrom approximately $ 35 million. The proceeds from the sale of these securities were applied to the repayment of short-term borrowings incurred principally to defray costs of the Company's construction program. The Company will have available through 1977 for construction of anti-pollution equipment for Units 1 and 2 at the San Juan plant the remaining proceeds from the sale of
$ 55 million of Pollution Control Revenue Bonds 7.6% Series due 1984 issued by the City of Farming-ton, New Mexico, and guaranteed by the Company. Sec Note (3) to "Capitalization". Long term debt maturities and required sinking fund payments over thc next five and one-half years total $ 14,320,118.
See Note 4 to the Financial Statements. To the extent that new debt at higher interest costs is utilized to retire old debt, the Company will incur increased interest costs.
The proposed expenditures referred to above will require substantial additional permanent financing, the exact amount of which will depend upon the availability of funds derived from internal operations.
The Indenture under which the Company's First Mortgage Bonds may be issued and provisions contained in the Articles of Incorporation of the Company under which additional shares of its Cumulative Preferred Stock may be issued restrict the ability of the Company to issue additional bonds and additional Preferred Stock, respectively, unless certain earnings tests provided therein are met. Under the bond Indenture the Company's earnings, as defined therein, during 12 of the preceding 15 months must be at least equivalent to two times the aggregate of its annual interest requirements on all outstanding bonds plus any bonds proposed to be issued. The ratio of the Company's earnings for the 12 months ended June 30, 1975, to the annual interest requirements on all bonds then outstanding was 3.14 to 1. The Articles of Incorporation of the Company provide that new shares of Preferred Stock may not be issued without the consent of the holders of a majority of the shares of Preferred Stock then outstanding unless (a) the net income of the Company available for the payment of dividends (as defined) for 12 of the preceding 15 months has been at least two times the annual dividend requirements for all shares of Preferred Stock to be outstanding upon completion of the contemplated sale, and (b) gross income after Federal income taxes available for the payment of interest charges during the same period has been equal to at least one and one-half times the annual Preferred Stock dividend requirements and the annual interest requirements on all outstanding indebtedness of the Company maturing more than 12 months after the issuance of such additional Preferred Stock. For the 12 months ended June 30, 1975, such coverage ratios were 3.73 to 1 and 1.76 to 1, respectively. Such computations do not include interest charges on that portion of Pollution Control Revenue Bond funds not yet utilized by the Company (see Note (3) to "Capitalization" ). As of June 30, 1975, the Company could have issued $ 62,000,000 of additional First Mortgage Bonds at an assurncd interest rate of 9i/s%, subject to the availability of unfunded property additions of 166%% of such amount. If no additional First Mortgage Bonds were issued, the Company could have issued $ 22,000,000 of additional Preferred Stock with an assumed dividend rate of 10% without the consent of the holders of outstanding Preferred Stock.
t DIVIDENDS AND PRICE RANGE The Company has paid quarterly cash dividends on its Common Stock in each year commencing in 1946 when the stock first became publicly held. Dividends per share paid on the Common Stock during the last 5 years were as follows:
1970 $ .90 1973 $ 1.14 1971 $ .97'/a 1974 $ 1.20 1972 $ 1.04 During the year 1975, dividends of 30), 32< and 32< per share have been paid to holders of Common Stock on February 25, May 20 and August 19, respectively. Future dividends will depend upon earnings, the financial condition of the Company and other factors. For restrictions on the payment of dividends on the Common Stock sce "Description of Common Stock".
The reported high and low sales prices of the Common'Stock on the New York Stock Exchange since the listing thereof on September 8, 1972, has been as follows:
Year Low 1972 (after September 8) . ~ ~ ~ ~ ~ ~ ~ 26K 22'/4 1973 1st Quarter 257/s 21'/4 2nd Quarter ~ ~ ~ ~ ~ ~ ~ ~ 0 22 19'/s 3rd Quarter 21Vi 18i/4 4th Quarter ~ ~ ~ ~ ~ ~ ~ 21s/s 15s/4 1974 1st Quarter 19s/s 16s/s 2nd Quarter 17i/4 13 3rd Quarter '13 a/4 10s/s 4th Quarter 10%4 1975 1st Quarter 16 11ss 2nd Quarter . 20'/a 15'/4 3rd Quarter (through September 23) 21i/4 16'/4 On September 23, 1975 thc last reported saic price on such Exchange was $ 17.25.
CAPITALIZATION The capitalization and short-term borrowings of the Company, as of June 30, 1975, and as adjusted to reQect the estimated net proceeds from the sale of the Additional Common Stock are set forth below.
The Notes to Financial Statements herein are an integral part of this table and should be read in conjunction therewith.
Outstanding June 30, 1975 As Adlusted Amount Percent Long-Term Debt (including current portion) (1):
First Mortgage Bonds (2) $ 132,959,500 $ 132,959,500 Pollution Control Revenue Bonds (3) 55,000,000 55,000,000 Less: Funds on Deposit with Trustee ............ (44,174,044) (44,174,044) 0 ther ~ ~ ~ ~ ~ ~ ~ ~ ~ 0 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 427,115 427,115 Total Long-Term Debt . 144,212,571 144,212,571 50.3%
Cumulative Preferred Stock, without par value, 2,500,000 shares authorized, 400,000 shares outstanding, stated value $ 100 each 40,000,000 40,000,000 13.9 Common Stock Equity (Common Stock, $ 5 par value, 10,000,000 shares authorized; shares outstanding at June 30, 1975 4,426,794; as adjusted 5,101,794) (4) .......... 91,432,518 102,509,237 35.8 Total Capitalization $ 275,645,089 $ 286,721,808 100.0%
Short-term borrowings (5) $ 20,550,000 $ 18,400,000 (1) Reference is made to Note 4 to the Financial Statements.
(2) Additional bonds may be issued without limitation as to aggregate principal amount, except for property, earnings and other mortgage provisions (see "Construction Program and Financing Requirements Financial Considerations" ).
(3) In October, 1974, the City of Farmington, New Mexico (the "City") issued and sold $ 55 million principal amount of its Pollution Control Revenue Bonds 7.6% Series, due 1984 (Public Service Company of New Mexico San Juan Project) (the "Revenue Bonds" ), the proceeds of which will be made available to reimburse the Company for construction costs of anti-pollution equipmcnt at its San Juan plant. Payment of the principal of and interest on the Revenue Bonds is guaranteed by the Company, pursuant to a Guaranty Agreement entered into with Albuquerque National Bank, appointed as Trustee for the Revenue Bonds in the Ordinance adopted by the City and authorizing the issuance of the Revenue Bonds. The Ordinance provides that the proceeds from the sale of the Revenue Bonds will be deposited with the Trustee, which will make disbursements to the Company therefrom as pollution control facilities are constructed by the Company at the San Juan plant. At the time of the sale of the Revenue Bonds the Company was reimbursed for prior expenditures totaling approximately $ 5,979,000 attributable to its one-half interest in pollution control facilities at the San Juan plant and the remainder was left on deposit with the Trustee and, under the terms of the
Ordinance, invested in short-term interest bearing investmcnt securities as defined in the Ordinance.
The'ompany and the other joint owner of the San Juan plant, Tucson Gas & Electric Company, entered into an Installment Sale Agreement with the City as of December 1, 1973, under the terms of which pollution control facilities, including facilities to be constructed with the proceeds from the sale of the Revenue Bonds (and similar bonds sold by the City to defray the cost of the one-half interest of Tucson Gas &: Electric Company in such facilities), were conveyed by both companies to the. City and an undivided one-half interest therein was reconveyed by the City to each of the companies. The Installment Sale Agreement provides that each company will make payments to the City in such amounts as will be necessary to pay the principal of and premium, if any, and interest on the bonds iSsued by the City to defray the cost of each company's interest in the facilities.
(4) Since June 30, 1975 the Company has issued 29,358 shares of Common Stock pursuant to its Employee Stock Purchase Plan, not included in the above table.
(5) Short-term borrowings represent bank loans and commercial paper which are expected to aggregate $ 29,500,000 at the time of the sale of the Additional Common Stock, the proceeds of which will be applied to the payment thereof, leaving a balance of approximately $ 18,400,000.
Reference is made to Note 5 to the Financial Statements for information concerning short-term borrow-ings outstanding and compensating balance arrangements.
Reference is made to Note 8 to the Financial Statements for information with respect to the Company's lease and other commitments.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY STATEMENT OF CONSOLIDATED EARMNGS The following statement of consolidated earnings of the Company and subsidiary for the five years ended December 31, 1974 has been examined by Peat, Marwick, Mitchell k Co., independent certified public accountants, whose report thereon appears elsewhere herein. With respect to the figures for the~
twelve months ended June 30, 1975, which are unaudited, in the opinion of management of the Company~
all adjustments (consisting only of normal recurring accruals) necessary for a fair statement of the results of operations for such period have been included. In 1975 the Company adopted the deferred method of account-ing for the portion of fuel costs which is recoverable in subsequent periods (see note 1 to consolidated financial statements). This statement. should bc'read in conjunction with its notes and thc other financial statements and related notes included herein.
Twelve Months Ended Year Ended Dcccmbcr 31, Junc 309 1975 1974 1973 1972 1971 1970 (Unaudited) iVater....
Electric .................
Operating revenues:
Total operating revenues ....
$ 72,139,133 2,074,793 74,213,926
$ 65,257,905 2,109,139 67,367,044
$ 56,535,268 1,570,315 58,105,583
$ 48,345,631 1,530,012 49,875,643
$ 41,673,857 1,435,498 43,109,355
$ 38,111,906 1,418,596 39,530,502 Operating revenue deductions:
Power purchased and interchanged, net . (3,427,623) (3,171,014) (287,338) (220,922) 217,342 77,483 Operating and general expenses .... 30,582,804 28,297,353 19,888,555 16,468,887 13,985,895 12,437,541 Maintenance and repairs .......... 6,759,839 5,709,765 3,382,946 2,597,341 2,725,466 1,747,754 Provision for depreciation and amortization (note A) .......... 8,322,972 7,974,988 6,210,576 59682,019 5,437,159 5,177,502 Taxes, other than income taxes .... 4,833,956 4,451,727 3,643,430 3,268,059 3,078,585 3,089,489 Income taxes (note 6) ............ 7,463,628 6,638,499 7,734,730 7,175,543 5,751,000 6,052,579 Total operating revenue deductions .............. 54,535,576 49,901,318 40,572,899 34,970,927 31,195,447 28,582,348 Operating income .......... 19,678,350 17,465,726 17,532,684 14,904,716 11,913,908 10,948,154 Other income and deductions:
Allowance for funds used during construction (note B) .......... 1,751,720 1,042,977 2,792,601 2,046,691 574,442 435,742 Equity in earnings of fifty-percent owned company, net of taxes (note 6) 395,405 482,601 86,733 Other, net of taxes (note 6) .... ~ ~ ~ (26,006) (28,205) (40,513) 176,600 232,493 t(14,622)
Net other income and deductions .............. 2,121,119 1,497,373 2,838,821 2,032,069 751,042 668,235 Income before interest charges ................ 21,799,469 18,963,099 20,371,505 16,936,785 12,664,950 11,616,389 Interest charges:
Interest on long-term debt ......... 7,748,208 6,727,983 6,771,440 6,065,576 4,160,787 3,817,337 Amortization of debt discount, expense and premium .......... 141,825 85,565 52,082 45,164 29,301 25,806 Other interest charges ............ 2,065,564 1,857,031 792,186 310,730 724,162 734,469 Total interest charges ...... 9,955,597 8,670,579 7,615,708 6,421,470 4,914,250 4,577,612 Net earnings 11,843,872 '0,292,520 12,755,797 10,515,315 7,750,700 7,038,777 Preferred stock dividend requirements . 2,446,133 1,768,400 595,400 595,400 595,400 595,400 Net earnings applicable to common stock $ 9397739 $ 8524120 $ 12160397 $ 9919915 $ 7155,300 $ 6443377 Average number of shares outstanding 4408181 4370919 4321113 3973723 3,670265 3 551,869
'er share amounts:
Net earnings . $ 1.95 $ 2.81 $ 2.50 $ 1.95 $ 1.81 Dividends . $ 1.20 $ 1.14 ~1.04 ~7 Vi $ .90 Note: The numerical note references shown above are to notes to consolidated financial statements appearing elsewhere herein. The alphab etical refere nces are to the notes to the statement of con-sohdated earnings appearing on the following page.
10
PUBLIC SERVICE COMPANY OF NET MEXICO AND SUBSIDIARY NOTES TO STATEMENT OF CONSOLIDATED EARiNINGS (Unaudited svith respect to the tivelvc months ended June 30, 1975)
I ~ (A) Supplementary Statement of Consolidated Earnings Information Depreciation and amortization were charged to the following accounts:
Twelve Months Ended Year Ended December 31, June 30, 1975 1974 1973 1972 1971 1970 (Unaudited)
Operating revenue deductions ......... $ 8,322,972 $ 7,974,9S8 $ 6,210,576 $ 5,682,019 $ 5,437,159 $ 5,177,502 Transportation clearing............... 302,422 286,000 289,065 210,311 190,061 201,669 Other income . 55,193 50,399 28,521 37,743 38,469 37,956 Total depreciation and amor8miioo ............. $ 8.680,587 ~8, 11,387
$ $ 6,528,162 $ 5,930,073 $ 5,665,689 $ 5,417.127 The amounts charged to transportation clearing were subsequently apportioned to operating expenses and property accounts based on the use of the equipment.
Taxes, other than income, were as follows:
Twelve Months Ended Year Ended December 31, Junc 30, 1975 1974 1973 . 1972 1971 1970 (Unaudited)
Ad valorem . $ 2,870,040 $ 2,645,252 $ 2,282,796 $ 2,100,159 $ 2,129,910 $ 2,201,306 City franchise 1,020,421 943,517 818,924 721,859 612,011 550,559 Payroll . 900,233 809,502 637,880 412,147 312,275 249,459 Other . 401,870 383,819 318,229 321,172 246,256 214,272 Total taxes, other than income taxes ............. $ 5,192,564 $ 4.782,090 $ 4,057,829 $ 3,555,337 $ 3,300,452 $ 3,215,596 Amounts of these taxes charged to construction and accounts other than tax expense were not significant.
~ Rents charged to operating and general expenses were $ 1,081,420 for the twelve months ended June 30, 1975; $ 1,172,676 in 1974; $ 629,778 in 1973; $ 439,823 in 1972; $ 416,384 in 1971 and
$ 378,270 in 1970. Rents charged to utility plant were $ 457,628 for the twelve months ended June 30, 1975. Such amounts were insignificant in 1970-1974.
Advertising costs, research and development costs and royalties were not significant during these periods.
(B) Allowance for Funds Used During Construction In accordance with the Federal Power Commission uniform system of accounts, an allowance for funds used during construction (AFDC), a noncash item, is charged to utility plant and credited to, nonoperating income. The rate used from 1970 through June 30, 1975 was 6Vi% as approved by the New Mexico Public Service Commission. Changes in the amount of the AFDC during such periods in the level of the Company's construction in progress. In connection with its approval of the reflect'hanges "Cost of Service Index" for rate-making purposes (see "Business Rates and Regulation" ), the New Mexico Public Service Commission also ordered, effective April 22, 1975, that AFDC be limited to generating plant construction. The effect of the limitation on net earnings for the twelve months ended Junc 30, 1975 was not material. Assuming that the source of construction funds used was in the same ratio as the average capitalization ratio during each period (before tax effect), the portion of AFDC 11
applicable to common equity, expressed as a percentage of net earnings applicable to common stock, amounted to 6.2% in the twelve months ended June 30, 1975; 4.4% in 1974; 8.8% in 1973; 7.8%
in 1972; 2.9% in 1971 and 2.3% in 1970.
For the twelve months ended August 31, 1975, total operating revenues, operating income, net earnings and nct earnings per share were $ 78,117,345, $ 22,707,966, $ 12,199,219 and $ 2.17, respectively. In the opinion of the Company, such unaudited results include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF STATEMENT OF CONSOLIDATED EARNINGS The following factors, which may not be indicative of future operations or earnings, have had a significant elfect upon the Company's results of operations during the years 1973 and 1974 and during the twelve months ended June 30, 1975.
Electric revenues increased $ 8.2 million in 1973, $ 8.7 million in 1974 and $ 6.9 million in the twelve months ended June 30, 1975. The principal factors causing these increases were:
(a) Fuel cost adjustment natural gas fuel costs have accelerated rapidly since November, 1973. Generally, such costs are passed on to customers and revenue from the fuel cost adjustment increased $ 1.1 million in 1973 and $ 3.6 million in 1974.
(b) Rate increases the Company put into effect general rate increases for electric service under the jurisdiction of the New Mexico Public Service Commission of approximately 7% in April, 1972 and 10% in November, 1974. In addition, during the summer of 1974 the Company negotiated higher rates with certain customers whose rates are subject to the jurisdiction of the Federal power Commission, (c) KWH sales although the effect of conservation of electricity by the Company's customers has been experienced, both the number of customers and the average use per customer has increased in each of the last two calendar years and in the twelve months ended June 30, 1975. KWH sales increased 6.9% in 1973, 4.8% in 1974 and 7.9% in the twelve months ended June 30, 1975.
(d) Miscellaneous electric revenue the Company received revenue of $ 260,389 per month from June, 1973 through May, 1974 for costs related to operation of two-thirds of Tucson Gas 0 Electric Company's fifty-percent share of the San Juan generating unit.
Water revenues increased by $ .5 million or 34% in 1974, principally as a result of a 5.6% increase in volume and rate increases implemented in January, 1974 of approximately 25%.
Power purchased and interchanged, net, increased primarily because the Company's San Juan gen-erating unit, placed in service on November 30, 1973, has operated with a high level of reliability which has allowed the Company to provide more interchange energy to other utilities.
Operating and general expenses increased by $ 3.4 million in 1973 and $ 8.4 million in 1974. Principal causes were:
(a) Rapidly accelerating fuel costs. Reference is made to Note to the Financial Statements Deferred 1 Fuel Costs regarding adoption of the deferred method of accounting for fuel costs. Such adoption had the eGect of increasing net earnings for the twelve months ended June 30, 1975 by $ 525,453 or $ .12 per share.
(b) Higher costs of labor due to escalating wage rates and an increase in the number of employees necessary to operate the expanded generating and water treatment facilities.
(c) General inflationary factors.
Maintenance and repair expenses increased by $ .8 million in 1973, $ 2.3 million in 1974 and 12
$ 1.1 million in the twelve months ended June 30, 1975. The new San Juan generating unit was in opera-tion for only one month in 1973. Overhauls and inspections in 1974 at the San Juan plant and in 1974 and 1975 at the Four Corners plant accounted for $ 1.6 million of the increased costs in 1974 and $ .6 mil-lion in the twelve months ended June 30, 1975. In addition, maintenance of gas and oil fired generating plants increased $ .5 million in 1973, $ .4 million in 1974 and $ .4 million in the twelve months ended June 30, 1975.
The Company's gross utility plant increased by approximately 11% in 1973, 16% in 1974 and 9% in the six months ended June 30, 1975 as a result of expanded operations, the need to maintain reliable service and increasing environmental protection requirements. This increase in utility plant and the Company's construction program have been the primary causes of increases experienced in the following areas of operations:
(a) Depreciation and amortization in addition to increased plant, new depreciation rates approved by the New Mexico Public Service Commission increased depreciation expense in 1974 by approximately $ 380,000.
(b) Taxes, other than income taxes increases in ad valorem taxes resulted from increased plant.
(c) Allowance for funds used during construction (AFDC) the Company's construction
,.program, which was at a peak late in 1973, caused AFDC to increase in 1973 and to decrease significantly in 1974. Increased construction at the San Juan plant and 'the Arizona Nuclear Power Project resulted. in an increase in AFDC in the twelve months ended June 30, 1975.
(d) Interest charges and preferred dividends during 1972-1974 and in the first six months of 1975 the Company issued $ 45 million principal amount of First Mortgage Bonds and $ 27 million of Preferred Stock and had up to $ 37 million principal amount of short-term debt outstanding, generally at higher interest and dividend rates than previous issues.
Equity in earnings of a fifty-percent owned company, which provides coal for the San Juan generat-ing unit, increased when the first San Juan unit was placed in service late in 1973. Before the San Juan unit was placed in service, the fifty-percent owned company had no material revenue-producing operations.
As a result of items detailed above, earnings before income taxes, income taxes, net earnings and earnings per share of common stock all increased in 1973, decreased in 1974 and increased again in the twelve months ended June 30, 1975.
BUSINESS Electric Operations The Company was incorporated under the laws of New Mexico in 1917 and presently provides electric service to a large area of north central New Mexico, including the cities of Albuquerque, Santa Fe, Las Vegas, Belen and Bernalillo, and Deming in southwestern New Mexico. The distribution and sale of water by the Company is limited to Santa Fe and Las Vegas. The total population of the area served by the Company is about 475,000, of which about 73% live in the Albuquerque area. Albuquerque, the largest city in New Mexico, is the financial and commercial headquarters for much of the territory in which the Company operates and is the transportation, and industrial center of the state with diversified manufacturing and processing industries. In addition, the Company furnishes electric service at whole-sale to the City of Gallup, New Mexico, to the Energy Research and Development Administration
("ERDA") at Los Alamos, New Mexico, and to Community Public Service Company in southwestern New Mexico. The present demands of these power supply contracts, are approximately 22,000 KW to Gallup, 25,000 KW to ERDA and 30,000 KW to Community Public Service Company.
In addition, the sale of 25,000 KW by thc Company to Plains Electric Generation and Trans-mission Cooperative, Inc. in southwestern New Mexico will begin in the summer of 1976. The Com-13
pany has agreed to supply a portion of the energy requirements of the new Meson physics facility at Los Alamos. This facility, when in full operation, will have a minimum demand of 28,000 KW, the first 14,000 KW of which is to be supplied by the Colorado River Storage Project of the United States Bureau of Reclamation. The Company is constructing a new 345 KV transmission line from the San Juan Generating Plant to Ojo, New Mexico, which is scheduled to be placed in service late in 1975. It is planned that such line, together with additional 'transmission lines which'will be required, will ultimately be utilized to supply energy to the Meson facility, as well as transmission service to northern New Mexico.
~ '
The Company provides transmission service or "wheeling" for the Colorado River Storage Project from the Four Corners area in northwestern New Mexico to Ambrosia Lake and to Albuquerque, and for the Navajo Tribal Utility Authority from the Four Corners Plant to two points of inter-connection with the Authority's system located near Gallup.
During 1974 Tucson Gas & Electric Company placed in service a 345 KV transmission line con-structed primarily to deliver Tucson's share of electricity from the San Juan plant to Tucson, Arizona.
The Company has an interest in the line which entitles it to take 50 MW at a point of service near Gallup, New Mexico and, with the completion of facilities now under construction, 50 MW at a point near Greenlee, Arizona. The Company has an agreement with Community Public Service Company to build a system of two 345 KV lines from Greenlee to the Lordsburg-Deming area with the first line to be completed to the Lordsburg area by June, 1976.
The Company has long-term franchises in most of the major communities and most counties in which it operates. The Company has recently obtained a new 25 year electric franchise and a new 5 year water franchise from the City of Santa Fe. The Company is not generally in competition with any other electric utilities, but does from time to time compete for new loads with Rural Electrification Ad-ministration financed cooperatives.
Sources of Power The Company presently operates six electric generating plants: five being located in its service area, with one each in Santa Fe and Las Vegas and three in Albuquerque, and the sixth being the coal-fired generating unit (owned jointly with Tucson Gas & Electric Company) at the San Juan plant near Farm-ington, New Mexico, all providing the Company with an aggregate capability of 519,000 KW. The Company also owns 208,000 KW of capacity derived from its 13% interest in generating units 4 and 5 of the Four Corners plant located in northwestern New Mexico on land leased from the Navajo Tribe of Indians adjacent to available coal deposits. Units 4 and 5 at Four Corners are jointly owned with Southern California Edison Company, Arizona Public Service Company, the Salt River Project, Tucson Gas & Electric Company and El Paso Electric Company. The Company is the Construction and Operating Agent of the San Juan plant, which is located nine miles north of the Four Corners plant, and its 50% share of the first unit's capacity is 165,000 KW. In addition, the Company may obtain varying amounts of power, averaging 43,500 KW, under its contract with El Paso Electric Company in return for wheeling El Paso's energy entitlement from the Four Corners plant over the Company's transmission lines from Four Corners to Albuquerque. The Company's wholly-owned generating facilities located in Albuquerque, Santa Fe and Las Vegas use natural gas as a fuel and are equipped to use fuel oil in case of curtailment of the natural gas supply. The Four Corners plant and the San Juan plant utilize locally available coal of low sulphur content. (See "Fuel and Water Supply" herein.)
The Company has received the necessary permits from the New Mexico Environmental- Improve-ment Agency and the New Mexico Public Service Commission for the construction and operation of the second unit at the San Juan plant, which is to have a rated capacity of 326,000 KW and is scheduled for commercial operation in December, 1976. The third and fourth units at San Juan, each rated at 466,000 KW, are planned to be in use by 1978 and 1980, respectively, also on a 50% shared basis with Tucson Gas & Electric Company. These units are intended to meet the Company's needs for base load coal-fired
capacity through 1981. Thc Company has reccivcd from the Ncw Mexico Public Service Commission a Certificate of Convenience and Necessity for the third and fourth units at San Juan. The New Mexico Environmental Improvement Agency granted a construction permit for San Juan Unit 3, but denied a construction permit for Unit 4, which denial was appealed to the Environmental Improvement Board (the "EIB"). The EIB granted a conditional permit to construct Unit 4 pending a showing by the Company that ambient air standards for nitrogen oxides will not be violated. The Company has since compiled data which shows that thc standards will be met and the EIB has removed such condition from the permit for Unit 4.
The Four Corners plant and a portion of the facilities adjacent to the San Juan plant are located on land held under easements from the United States and also under leases from the Navajo Tribe of Indians, the enforcement of which might require Congressional consent. The risk with respect to the enforcement of these casements and leases is not deemed by the Company to be material. However, the Company is dependent in some measure upon the willingness and ability of the Navajo Tribe to protect these properties and to honor their commitments. The San Juan plant is located on private land owned by thc Company and Tucson Gas & Electric Company.
The Company's first venture into nuclear power is its participation in the three 1,270,000 KW units of the Arizona Nuclear Power Project with Arizona Public Service Company and four other companies, now in the planning stage. One of the participants, Tucson Gas & Electric Company, with an interest of 15.4%, has recently agreed to sell its interest to Southern California Edison Company. It is presently anticipated that the units will become operative in May, 1982, May, 1984 and May, 1986, respectively, subject to,obtaining all governmental permits required for the construction and operation thereof, at a total cost of approximately $ 2.5 billion, of which the Company's share will be $ 250 million. The Com-pany's 10.2% interest in this Project will amount to 129,500 KW per unit or a total of 388,500 KW.
In addition to the generating capability described above, the Company is inter-connected with Arizona Public Service Company, Colorado Ute Electric Association, El Paso Electric Company, Utah Power and Light Company, United States Bureau of Reclamation-Upper Colorado River Region, South-ern California Edison Company, the Salt River Project, Tucson Gas & Electric Company and members of the Rio Grande Power Pool, which makes possible mutual assistance in emergencies and economy energy interchange. The Rio Grande Power Pool is comprised of the Company, El Paso Electric Com-pany, Community Public Service Company, Plains Electric Generation & Transmission Cooperative and the United States Bureau of Reclamation-Rio Grande Project. The Company is a member of Western Energy Supply & Transmission Associates and the Western Systems Coordinating Council. These organizations serve as planning and coordinating agencies in the promotion of integrated regional planning and operation of generating and transmission facilities.
Prior to the 1973-74 winter, the peak demands on the Company system were about the same in the summer and winter. However, due to the effects of energy conservation, it appears that the Company now has a more pronounced summer peak. For example, the summer peak in 1973 was 533,000 KW and the winter peak was 481,000 KW. Last year, the summer peak was 583,400 KW in June, and the winter peak was 520,000 KW in January. The peak so far for 1975 was established on August 7 at 586,000 KW.
Due to the intrastate source of supply of natural gas burned in the plants generating approximately 50% of its capacity and the utilization of locally available coal deposits at its coal-fired plants, the Com-pany does not anticipate any problems in producing its energy requirements during the next few years.
Proposals for legislation by the Congress for federal regulation of intrastate gas could, if enacted, adversely affect the, intrastate gas supply of the Company. The ability of the Company to satisfy all present requests for electricity depends on thc continued availability of natural gas. The Company's ability to satisfy its estimated generating capacity requirements in the late 1970's and early 1980's will be dependent on the completion of construction of nuclear powered units presently planned and additional coal-fired generating 15
/
units as well as assuring a source of supply of coal for such units. See "Fuel and Water Supply" herein. In this connection, the Company will be required to comply in a timely manner with a variety of environ-mental restrictions and regulations and comply with the necessary licensing and operation requirements of ERDA with respect to the proposed jointly owned nuclear generating facility. See also "Fuel and Water Supply" and "Environmental Factors" herein.
Water Operations
~ I The Company owns water distribution systems together with reservoirs in the Santa Fe and Las Vegas areas. In the Santa Fe area, there are three reservoirs having dams of earth construction and a total capacity of 1.2 billion gallons. Ten water wells capable of furnishing about 8,500,000 gaHons daily are also owned by the Company and used as a source of water. The Company now plans to drill two additional water wells to bring the Company supply to 9,500,000 gallons daily on a firm basis. The ac-quisition of additional water rights will be necessary, however, in order for Santa Fe to have an adequate supply for its anticipated future needs estimated to increase from 2,270,000,000 gallons in 1975 to 2,500,000,000 gallons in 1979.
In the Las Vegas area the Company has two water reservoirs with a total capacity of approximately 184 million gallons. As an auxiliary source of water for Las Vegas, the Company has four wells which are operated when required at varying rates between 1,000,000 and 1,250,000 gallons daily. Two ad-ditional wells drilled for the Las Vegas system were non-productive and the Company is now considering what alternatives are available to secure additional water for Las Vegas. The Company has committed to install filtration facilities and a new storage tank in Las Vegas by 1976, the cost of which is estimated at $ 1,000,000. The Company anticipates )hat the water needs of the Las Vegas area will increase from 590,000,000 gallons in 1975 to 600,000,000 gallons in 1979.
Rates and Regulation The Company is subject to the jurisdiction of the New Mexico Public Service Commission (the "Commission" ) with respect to a majority of its rates, service, accounting, security issues, construction of new generating and transmission facilities and other matters. The Federal Power Commission
("FPC") has jurisdiction with respect to rates for electric energy sold for resale, accountsrecords, re-ports and other similar matters, as well as the power to require the reduction of the Company's genera-tion of electricity in conjunction with the allocation of available fuel oil by the Federal Energy Office.
The provisions of the Federal Power Act regulating security issues do not apply to the sale of the Additional Common Stock by the Company, since such issuance is regulated by the Commission.
In December 1973 the Company filed new rate schedules for all of its customers, except for street lighting, special contract and wholesale customers, which would have resulted in a 10% annual increase in electric revenues. After hearings, the Commission entered an order granting to the Company, approximately 54% of its initial request. The Company appealed the decision to the Santa Fe District Court and subsequently settled the case on terms which provided that the Commission would consider application of a "Cost of Service Index" (the "Index") and if thc Index were approved, the Company would revise its December 1973 filing to reduce the December 1973 rate increase request by $ 1 million annually. The Commission on April 22, 1975, after hearing, approved the Index which is applicable to substantially all electric rates subject to the Commission's jurisdiction. The Index provides for quarterly adjustments to rates based upon the Company's return on common equity for electric rates subject to the jurisdiction of the Commission. Rate adjustmcnts are made when thc jurisdictional return on equity is above 14.5% or below 13.5%. The first quarterly adjustment, based upon figures for the quarter ended June 30, 1975, went into effect August 1, 1975 and resulted in an increase in substantially all electric revenues subject to the jurisdiction of the Commission of $ .002688 per kilowatt hour. Based upon the Company's estimate of KWH sales it is anticipated that this adjustment will produce $ 1,947,714 in 16
revenues during the three months beginning August 1, 1975. Because of the quarterly adjustment provi-sion, the three months'rojected additional revenues cannot be annualized.
The Company has fuel adjustment clauses covering approximately 99% of KWH sales, street
. ~ lighting being the only service for which no adjustment is applicable. There is an approximate sixty day time lag in implementation of the fuel adjustment clauses for billing purposes. (See Note 1 to the Financial Statements Deferred Fuel Costs.)
On May 21, 1975 the Company filed a revised electric rate tariff with the FPC, the effect of which would increase electric revenues from the City of Gallup by approximately $ 850,000 per year, or an increase of 76%. The filing requested that the rates become effectiv on July 31, 1975. The City of Gallup contested the right of the Company to file for a unilateral rate increase and the FPC has suspended the proposed new rate pending the final outcome of hearings due to commence on November 11, 1975.
The Company has also notified the Energy Research and Development Administration (another FPC jurisdictional customer) that an increase in its basic rates will be proposed.
On July 8, 1975 the Company filed with the Commission revised electric rates for Kirtland Air Force Base which would result in an annual increase in electric revenues of $ 710,900, an increase of 35%. In addition, the revised tariff includes the "Cost of Service Index" adjustment clause. The Com-mission is now allowing the new rate to be collected subject to refund with interest of any portion of the increase later disallowed after a hearing.
On April 15, 1975 the Commission approved water rate adjustments in Santa Fe and Las Vcgas, resulting in a $ 54,146 annual increase (12%) for Las Vegas and a $ 200,242 annual increase (13%)
for Santa Fe, based upon 1973 revenues.
Fuel and Water Supply For the twelve months ended June 30, 1975, 1,544,927 MWH or 43.2% of thc energy generated by the Company was from plants burning natural gas, 1,936,823 MWH or 54.2% from coal-fired generating units and 94,940 MWH or 2.6% from fuel oil used during interruption of gas service. With the commencement of commercial operation of the second San Juan unit scheduled for December, 1976, it is estimated that 60% of the Company's generation will be coal-fired.
The following table shows the percentage of generation of electricity by the Company fueled by
, ~ coal, gas and oil, and the average cost to the Company of those fuels (in cents per million BTU) during the three years ended December 31, 1974 and the twelve months ended June 30, 1975:
Coal Gas Oil Year Ended Percent of Avcragc Percent of Average Percent of Average December 31, Generation Cost Generation Cost Generation Cost 1972 ............... 44.3% 15.6( 51.0% 26.4P 4.7% 72.2P 1973 ............... 41.8 17.5 52.7 27.2 5.5
............... 51.0 24.5 46.2 50.0 2.8 74.8'974 100.9 Twelve months ended June 30, 1975 ..... ~.... 54.2 24.7 43.2 59.7 2.6 122.9 Natural gas used as fuel for the Company's Albuquerque and Santa Fe electric generating plants is purchased from Southern Union Gas Company ("Southern Union" ) under a contract expiring in 1989. The cost of gas to the Company is based on a step rate schedule and varies according to monthly usage. Such gas is produced and sold to the Company by Southern Union in intrastate commerce and is therefore not now subject to allocation by the FPC, although legislation has recently been intro-duced in the United States Senate to make, intrastate s'ales so subject. The basic rate structure is subject to renegotiation in 1979 and thc Company's cost is subject to escalation or de-escalation depending on actual field prices for gas paid by Southern Union. The large increase in 1974 was due to 17
the substantial increase in the cost of gas at the wellhead paid by Southern Union. The contract provides that Southern Union will supply the Company's requirements but since there is no firm entitlement Southern Union may interrupt or curtail its gas deliveries to the Company for the purpose of conserving gas for oth'er consumers. During periods of high demand for gas in the winter season, Southern Union has curtailed the supply of natural gas to the Company. Such curtailments were more frequent during the winters of 1971-72 and 1972-73 than theretofore, but were less frequent these past two winters. The
~ .
Company cannot predict the frequency or duration of curtailmcnts of its gas supply in the future since past interruptions have depended on the severity of winter weather conditions. However, the Company has adequate quantities of alternative fuels in storage at its generating plants and available under contract to prevent a reduction of service to its customers during such curtailments. The Company uses diesel and residual fuel oil as a standby source when its supplies of natural gas are curtailed, and since only 49%
of its generating capacity is fueled by natural gas, the Company is realizing increased sales of cncrgy from its coal burning generating stations to other utilities whose operations are more dependent on availability of residual fuel oil supplies. The amount of fuel oil burned during the 1974-75 winter was 44% of the amount burned during the 1972-73 winter.
The Four Corners plant is supplied with coal and water under a Fuel Agreement between the owners and Utah International Inc. ("Utah" ), under which Utah has agreed to supply all the coal requirements of the plant. The sulphur content of the coal to be supplied cannot exceed an average of 1.5% or a maximum of 2.5% and to date has averaged .7%. Utah holds a permit from the New Mexico State Engineer to take water from the San Juan River and has committed a portion of the water to the Four Corners plant for the life of the Fuel Agreement. Utah holds a long-term coal mining lease, with options for renewal, from the Navajo Tribe of Indians and operates its strip mine adjacent to the Four Corners plant with the coal supply expected to be sufficient to supply the units for their estimated useful lives. The Fuel Agreement provides for certain adjustments in coal prices due to increases or decreases in the cost of labor, materials and supplies and in taxes. The average cost of fuel for thc years 1973 and 1974 at Four Corners was 16.764 and 19.8$ , respectively, per million BTU including ash disposal costs (or $ 3.02 and $ 3.51 per ton, respectively) and for the twelve months ended June 30, 1975, was 20.83( per million BTU (or $ 3.67 per ton).
The Company and Tucson Gas A Electric Company have contracted with Western Coal Co.
("Western" ) (owned 50% by each company) to supply coal for the San Juan Generating Station at prices subject to adjustment depending upon Western's costs. Average cost of fuel including ash disposal costs for the first unit at the San Juan plant for the year 1974 was 32.8P per million BTU (or $ 6.28 per ton), and for the twelve months ended June 30, 1975, was 28.42$ per million BTU (or $ 5.52 per ton). Western holds 13,768 acres of coal leases in two different areas, of which 7,353 acres (6,832 of which are leased from the United States and 128 of which from the State of New Mexico) are located adjacent to the San Juan plant with approximately 60 million tons of coal recoverablc by strip mining methods, with an average sulphur content of approximately .8%, based upon estimates of Paul Weir Company, Incorporated, mining engineers and geologists, of Chicago, Illinois. The coal is currently mined by Utah under a mining agreement with Western, which Utah has indicated it will terminate in 1979. Should the agreement be terminated, Western has the right to acquire all of Utah's mining equip-ment in place on its leases at San Juan. The remaining coal leases of Western are in the Bisti area, which is some 30 miles distant from the San Juan plant. The coal requirement for all four units of the San Juan plant during its estimated useful life is 230 million tons. A further agreement between Western and Utah provides that Western may purchase coal from Utah mined at its Four Corners site to supply the fuel requirements of the San Juan plant, so long at the mining agreement remains in effect. Should the contract between Utah and Western be terminated in 1979, the Company's supply of coal to the San 18
Juan plant would bc adversely affected. The Company and Western are currently considering several t supplemental sources of coal to meet the total requirements at the San Juan plant, including the commencement of strip mining operations on Western's Bisti leases contingent upon a determination of adequate recoverable commercially minable coal. Negotiations are also being carried on with Utah for the purchase of coal from its Four Corners mine. Western also has under consideration the purchase of coal from other sources in the area and the construction of facilities for the transportation of such off-site coal to the San Juan plant. See "Litigation" with respect to future requirements for removal of the sulphur content from stack emissions at the San Juan plant.
The Company has joined with twelve other clcctric utilities in the formation of Utility Group, Inc.,
a joint venture for the purpose of acquiring Peabody Coal Company ("Peabody" ) from the present owner, Kennecott Copper Company ("Kennecott"). Utility Group, Inc. has submitted to Kennecott a conditional bid for Peabody, subject to detailed evaluation of Peabody's coal reserves and contracts and approval of the purchase terms by the Federal Trade Commission, Kennecott and the constituent members of Utility Group, Inc. The Company has the right to participate, proportionally to its size, in the equity of Utility Group, Inc. should the acquisition be consummated; moreover, the Company has the right to withdraw from Utility Group, Inc. prior to the acquisition in the event that continued participation is determined to be detrimental to the Company's interests. In the event of the acquisition it is estimated that the Company's investment in Utility Group, Inc. will not exceed approximately $ 15,000,000, which could vary depending on the number and size of participants who ultimately remain in Utility Group, Inc.
The water for the San Juan plant was obtained by the Company when, in 1968, it executed a contract with the United States Bureau of Reclamation authorizing the diversion and consumption of 20,200 acre feet of water annually from the San Juan River for a term which expires in 2005. The contract was authorized by Federal law and approved by a special resolution of Congress. When Units 1 and 2 at the San Juan plant are fully operational, they will require 13,000 acre feet per year. However, unless the Company is able to use the 20,200 acre feet of water by January 1, 1977, all unused water rights will expire. Since Units 3 and 4 will not be in operation by such deadline, it is expected that the contract t
with the United States Bureau of Reclamation will be amended to reduce thc permissible consumptive use by the San Juan plant to 16,200 acre feet per year, which the Company believes will be adequate, with an extended deadline. Units 3 and 4 are being designed to use less water for cooling purposes and various other available alternatives are being considered by the Company.
Various measures are under consideration by governmental bodies to meet the current national energy shortage. Over half of the Company's energy requirements is derived from plants utilizing coal and as new units are constructed the Company's use of coal will be greater. New Mexico law requires reclamation of strip-mined areas and Western Coal Co. currently has in operation a state approved surface rehabilitation program in connection with its strip mining operations at the San Juan plant.
Legislation to regulate surface mining is under consideration by Congress. Severe limitations or restric-tions on strip mining or the banning of such operations altogether would have a significant adverse effect upon the availability and price of the coal used as a fuel at both the Four Corners and the San Juan plants.
Currently, the participants in the Arizona Nuclear Power Project have contractual commitments for the supply of uranium and related fuel fabrication s'ervices required for approximately" 20 of all three nuclear units, assuming the participants exercise all of the options available to them years'peration under such commitments. Contracts have been entered into with the Energy Research and Development Administration for necessary uranium enrichment services required for the lifetime operation of the units, Water necessary for the operation of the nuclear units will be obtained from sewage eNuent under agreements with various municipalities in the area. No arrangements have been made for reprocessing or off-site storage of spent fuel taken from reactors, and the extent to which such services will be required and will be available cannot be predicted.
19
Environmental Factors The Company, in common with other electric utilities, is subject to increasingly stringent regulations for protection of the environment by both federal and state authorities, particularly in regard to per-missible emissions into the air at coal-fired generating stations. The state of New Mexico has adopted emission regulations restricting the emission from coal, oil and gas-burning plants, both existing and future. Regulations adopted for coal-burning power plants require very stringent control of emissions of particulates and of oxides of nitrogen and sulphur. The existing generating units of the Company are now in compliance with all presently effective Federal and State emission control regulations. However, the recently amended (December 1974) New Mexico sulphur dioxide regulations would require 85%
removal of sulphur dioxide by July 31, 1977 and 90% removal by July 31, 1979 from aH existing coal-fired units in which thc Company'has an interest. A suit contesting the amended regulations has been filed by the Company jointly with other utilities (see "Litigation"). The Company has been granted an extension from filing a compliance schedule by the New Mexico Environmental Improvement Board until November 30, 1975 or thirty days after resolution of the suit, whichever comes first.
The Federal Environment Protection Agency (the "EPA") requires a compliance schedule for sulphur dioxide control at San Juan Unit 2. A schedule was filed in February 1974, but the EPA has never taken any action to approve or disapprove the submitted schedule. In addition, the EPA contends, based upon a mathematical formula, that the five units at Four Corners, in two of which the Company has an interest, will cause a violation of ambient air standards for sulphur dioxide under certain conditions.
Except as noted under "Litigation" all of the Company's construction projects are designed to com-ply with environmental laws and regulations. The Company anticipates that construction of Unit 1 at San Juan will be completed on schedule but that the construction of the associated sulphur dioxide removal equipment will not be available at start up, as required by State and Federal regulations. The Company will apply for a variance from applicable State regulations, and follow anticipated administrative procedures when promulgated by the EPA, in order that Unit 1 can be used for generation prior to completion of installation of the sulphur dioxide removal equipment. Unless such variances are obtained, it will be necessary to delay firm operation of the Unit until the required equipment is operative. All costs of pollution control facilities are included in thc budgeted costs for these projects, and the Company does not believe that any material additional anti-pollution equipment other than that already contemplated and included in its consrtuction program, will be required under applicable environmental laws for its existing facilities. However, costs of pollution control equipment may be higher than those presently forecast. The Company also anticipates that the operating efficiency of its present generating plants will
~
be reduced after the installation of such anti-poHution facilities.
The Arizona Nuclear Power Project is subject to thc Nuclear Regulatory Commission which has authority to issue permits and licenses and to regulate nuclear facilities in order to protect the health and safety of the public from radioactive hazards and to conduct environmental reviews pursuant to the National Environmental Policy Act. The Company is not aware of the likelihood of enactment of any pending or proposed legislation which might adversely affect the Arizona Nuclear Power Project.
To date all investments by the Company for pollution control equipment have been includable in its rate base for rate making purposes. The Company believes that the increased expenses of operation '0 resulting from its anti-pollution efforts will be recognized as operating expenses in future rate proceedings.
Employee Relations A collective bargaining agreement with the International Brotherhood of Electrical Workers Local 611, covering approximately 520 employees of thc Company, expiring April 30, 1977, was negotiated-prior to the expiration of the prior agreement on April 30, 1975. The new two year contract provides for a 5.5% wage increase for covered employees effective May 1, 1975, and a 6% wage increase effective May 1, 1976. In addition selected fringe benefits were improved.
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21
OPERATING STATISTICS Electric Department
'Avelvc Months Ended Year Ended December 31, June 30, 1915 1974 1973 1972 1971 1970 Energy Generated, Purchased and Interchanged (Thousands of KWH):
Generated Net Station Output..... 3,576,689 3,343,200 2,993,000 2,882,014 2,504,678 2,233,160 Purchased and Interchanged, net.... (275,477) (229,402) (79,169) (110,503) 29,601 39,071 Lost Unaccounted for or Used.... (177,078) (218,613) (150,344) (187,445) (158,974) (138,977)
Energy Sold 3,124,134 2,895,185 2,763,487 2,584.066 2,375 305 2.133 254 Energy Sales (Thousands of KWH):
Residential 861,215 828,243 786,108 706,973 648,626 583,136 Commercial 1,139,841 1,128,576 1,110,147 985,431 885,782 792,376 Industrial 532,424 549,622 616,405 653,761 618,695 552,117 Public Authorities 115,114 120,550 107,805 105,053 100,620 93,192 Total General Business ...... 29648,594 2,626,991 2,620,465 2,451,218 2,253,723 2,020,821 Other Electric Utilities ............. 460,042 250,901122,656 114,333 106,000 98,027 Interdepartmental 15,498 17,293 '0,366 18,515 15,582 14,406 Total Energy Sales .......... 3,124,134 2,895,185 2,763 487 2,584 066 2 375 305 2 133,254 Number of Customers (Average for Period):
Residential 147,205 146,402 139,669 131,996 124,285 117,997 Commercial 16,515 16,391 16,060 15,344 14,384 13,642 Industrial 288 292 299 303 306 290 Public Authorities 196 197 194 187 178 177 Total General Business ...... 164,204 163,282 156,222 147,830 139,153 132,106 Other Electric Utilities ............. 4 4 3 3 3 3 Interdepartmental 68 67 66 59 52 49 Total Customers ............ 164,276 163,353 156,291 147 892 139,208 132 158 Residential Service:
Average Annual KWH Sales per Customer 5,850 5,657 5,628 5,356 5,219 4,942 Average Annual Revenue per Customer $ 176.84 S 159.25 S 147.15 $ 134.55 $ 123.06 $ 117.88 Average Revenue per KWH ...:.... 3.024 2.814 2.61$ 2.514 2.364 2.39<
Electric Revenues (Thousands of Dollars):
Residential $ 26,032 $ 23,314 S 20,552 $ 17,760 S 15,295 S 13,910 Commercial 27,350 25,403 22,283 19.421 16,309 14,784 Industrial 8,550 8,349 7,210 7,229 6,549 5,963 Public Authorities ........ ~.... ..
~ 2,678 2,691 2,308 2,204 1,994 1,860 Total General Business ...... 64,610 59,757 52,353 46,614 40,147 36,517 Other Electric Utilities .....,....... 6,024 2,782 1,074 937 857 778 Interdepartmental 324 313 305 (1) (1) 197 Total from Energy Sales ..... 70,958 62,852 53,732 47,551 41,004 37,492 Miscellaneous, Electric Revenues .... 1,181 2,406 2.803 795 670 620 Total Electric Revcnucs...... S. 72739 $ 65,258 5 56 535 $ 4&,346 $ 41,674 $ 38,112 Approximate 60 Minute Peak Demand KW 566,000 583,400 533,000 491,700 458,700 400,600 (1) Reclassified Against Operating Expense.
22
OPERATING STATISTICS Water Department Twelve Months Ended 30, 'une Year Ended December 31, 1975 1974 1973 1972 1971 1970 Water Sales (Thousands of Gallons):
Customer Sales Metered and Unmetered ................. 2,862,326 3,013,508 2,855,673 2,781,854 2,563,745 2,564,580 Interdepartmental ................. 9,815 12,568 10,710 3,638 1,707 1,782 Total Water Sales ........... 2,872,141 3,026,076 2,866,383 2,785,492 2,565,452 2,566,362 Number of Customers (Average for Period):
Mctcred 16,164 16,039 15,652 15,267 14,820 14,362 Unmetered 10 10 8 10 9 10 Total Customers 16,174 16,049 15,660 15,277 14,829 14,372 Meter Service:
Average Annual 1,000 Gallon Sales per Customer .................. 178 189 183 182 173 179 Average Annual Revenue per Customer .................. $ 126.88 $ 131.31 $ 99.38 $ 99.04 $ 95.66 $ 97.47 Average Revenue per 1,000 Gallons . 71It 69it 54 it 54$ 55it 55it Water Revenues:
Metered . $ 2,045,678 $ 2,080,777 $ 1,551,989 $ 1,511,985 $ 1,417,717 $ 1,399,850 Unmetcred 21,819 20,644 13,516 16,683 15,872 15,769 Total General Business . 2,067,497 2,101,421 1,565,505 1,528,668 1,433,589 1,415,619 Interdepartmental ......,..... 5,237 5,970 3,585 (1) 813 899 Total from Water Sales . 2,072,734 2,107,391 1,569,090 1,528,668 1,434,402 1,416,518 Miscellaneous Water Revenues . 2,059 1,748 1,225 1,344 1,096 2,078 Total Water Revenues $ 2,074,793 $ 2,109,139 $ 1,570,315 $ 1,530,012 $ 1,435,498 $ 1,418,596 (1) Reclassified Against Operating Expense.
While there have been minor decreases in the Company's industrial customers, the decline in industrial energy sales since 1973, as reflected in operating statistics pertaining to the Company's electric department, is due primarily to a reclassification in April, 1974 of sales at Los Alamos from Industrial to Other Electric Utilities. The significant increase in energy sales to Other Electric Utilities since 1974 has been due partially to the above rcclassification and also due to the sale of power to the Colorado River Storage Project which began late in 1974 and thc increase in energy sold to Community Public Service in 1974.
LITIGATION The Company's coal-burning plants are now operating without sulphur removal equipment. The present deadline for attainment of the federal and state ambient air quality standards with respect to sulphur content is July 31, 1977. The construction schedule for the sulphur removal equipment, at the San Juan plant anticipated the meeting of the deadline and all applicable (at time of design) emission regulations. The system was designed to remove 90% of the sulphur content'of emissions from the average coal. burned at San Juan. However, in December 1974, the New Mexico Environmental Improvement Board ("NMEIB") promulgated a regulation which would require removal of 90%'f, the sulphur from all emissions, even those resulting from the use of coal with' very low sulphur, content.
The Company has appealed the NMEIB regulation to the New Mexico Court of Appeals contending that the regulation is unreasonable. If the appeal is unsuccessful, then the Company will be obligated to consider other alternatives with respect to compliance with such ambient air quality standards.
The U. S. Attorney for New Mexico has for several months been investigating before a Grand Jury possible violations of Federal laws relating to corporate expenditures in connection with political campaign contributions. The Company was recently advised that it and its officers are included in such investigation.
The President of thc Company appeared before the Grand Jury on September 17, 1975 and information was supplied from the Company's records pertaining to payments totaling $ 9,656 from January through November 1972 under an agreement, authorized by the President, with an unafiiliated engineering consult-ing firm with which one of the unsuccessful candidates in the 1972 Senatorial primary may have had some connection. The agreement provided that the consulting firm would make its services available to the Company upon request. However, no requests for its services were made by the Company during the period of the agreement. The Company has no knowledge of what actions, if any, the Grand Jury may take upon completion of the investigation. The. Board of Directors of the Company has appointed a committee of three outside directors, with the power to retain outside counsel and auditors and,such other services as may be needed, to make inquiry into all phases of the matter.
DESCRIPTION OF COMMON STOCK The authorized capital stock of the Company consists of 10,000,000 shares of Common Stock of the par value of $ 5 per share and 2,500,000 shares of Cumulative Preferred Stock, without par value but having a stated value equal to the involuntary liquidation price per share as determined by the Board of Directors of the Company for each series of Preferred Stock issued. With respect to each series of Preferred Stock, the Board of Directors of the Company is authorized by its Articles of Incorporation to fix the designation and number of shares of each series, the consideration to be received therefor, dividend rate, redemption rights and prices, the voluntary liquidation price, sinking fund provisions (if any), conversion provisions (if any) and the involuntary liquidation price, which shall be the stated value for the shares of such series, as required by New Mexico law. No amendmcnt to the Articles of Incorporation which would change the rights of any class of capital stock (or series of Preferred Stock) may be made unless authorized by the holders of two-thirds of the outstanding shares of the particular class or series affected by the amendment. There are presently outstanding 400,000 shares of Preferred Stock of the Company issued in three separate series, all having an involuntary liquidation price or stated value of $ 100 per share.
The Common Stock of the Company is listed on the New York Stock Exchange (Symbol: PNM).
There are no conversion rights or redemption or sinking fund provisions applicable to the Common Stock and the Common Stock is not liable to further calls or to assessmcnts by the Company.
24
The Board of Directors has authorized the Company to institute a dividend reinvestment program and has reserved 300,000 shares of Common Stock for such purpose, subject to approval of applicable regulatory authorities.
Restrictions on Common Stock Dividends 1
Dividends are payable on the Common Stock as declared by the Board of Directors from funds legally available therefor, but only after payment or provision for payment of all accumulated dividends from all past and current dividend periods on the shares of any series of Preferred Stock outstanding.
The Articles of Incorporation of the Company contains provisions which restrict the amount of dividends payable on the Common Stock (other than dividends payable in Common Stock), so long as any shares of Preferred Stock are outstanding, to (i) not more than 50% of the net income available for dividends on the Common Stock for the period of twelve consecutive calendar months ending on the last day of the calendar month next preceding the dividend declaration date when the ratio of Common Stock equity to total capitalization (outstanding indebtedness of the Company maturing one year or more after the date of issue thereof, the par or stated value of all outstanding capital stock and the surplus accounts), as defined in the Articles of Incorporation, at the end of such twelve-month period is less than 20%and (ii) not more than,75% of such income when such ratio is 20% or more but less than 25%. When the ratio is 25% or more there is no such restriction on the payment of dividends on Com-mon Stock except that such a payment shall not itself reduce the ratio below 25%. Under such provisions, approximately $ 31 million of the consolidated retained earnings at June 30, 1975 was available for payment of dividends.
The Indenture of Mortgage and Deed of Trust, under which the Company,'s First Mortgage Bonds are outstanding, and Supplemental Indentures thereto, contain provisions which restrict the aggregate amount of dividends payable on the Common Stock so long as any presently outstanding bonds remain outstanding, No amount of the retained earnings of the Company at June 30, 1975 was so restricted by virtue of any of these provisions.
The restrictions discussed above are equally applicable to the repurchase by the Company of shares of its outstanding Common Stock.
Voting Rights All voting rights are vested in the holders of the Common Stock and the holders of shares of Pre-ferred Stock have no voting rights except as provided by law und except in the event that there shall be accumulated and unpaid an amount equal to four quarterly dividends on all outstanding shares of Pre-ferred Stock, at which time the holders of the Preferred Stock shall until, but only until, all accumulated and unpaid dividends have been paid (or declared and funds set apart for payment thereof) have the following voting rights:
(1) Voting as a class, to elect all three directors to be elected at the next annual meeting and thereafter, if dividends continue to be due and unpaid, to elect two of the three directors to be elected at the next succeeding annual meeting and to continue to elect a majority of the Board of Directors in such manner; and (2) To vote on all questions including thc election of directors on the basis of one vote for each
$ 10 of stated value of each share of Preferred Stock held.
The Articles of Incorpoiation provides that all stockholders entitled to vote for the election of directors (the number of the directors of the Company being nine, three of whom are elected each year for terms of three years each) shall have the right of cumulative voting. In addition the Company must secure the approval of the holders of certain percentages of Preferred Stock outstanding prior to effecting various changes in the rights of the Preferred Stock, the issuance of additional shares of Preferred Stock and the making of certain unsecured borrowings, in the last two instances when certain conditions in the Com-pany's capital structure exist.
Liquidation Rights After payment to the holders of Preferred Stock of the full preferential amounts to which they are entitled the remaining assets, if any, upon voluntary or involuntary liquidation are distributable to the holders of Common Stock.
Pre-emptive Rights The holders of Common Stock have pre-emptive rights to purchase additional shares of Common Stock, if and when sold by the Company, unless such shares are (a) sold for a consideration other than cash, (b) publicly offered, or (c) offered solely to employees of the Company. The holders of the Pre-ferred Stock have no pre-emptive rights.
EXPERTS AND LEGAL OPINIONS The financial statements in this Prospectus, so far as they pertain to the five years ended December 31, 1974, have been included herein in reliance upon the report of Peat, Marwick, Mitchell & Co., indepen-dent certified public accountants, and upon the authority of said firm as experts in accounting and auditing.
Thc statement appearing in the fourth paragraph under "Business Fuel and Water Supply" concerning strip minable coal reserves of Western Coal Co. adjacent to the San Juan plant are based upon estimates prepared by Paul Weir Company, Incorporated, independent mining engineers and geologists, and have been included herein on the authority of such firm as experts in such matters.
The statements as to matters of law and legal conclusions under "Rates and Regulation" and under "Environmental Factors" under the heading "Business" and under the heading "Litigation" have been reviewed by Messrs. Keleher & McLeod, and statements as to legal conclusions under the heading "Description of Common Stock" have been reviewed by Messrs. Turner, Hitchins, McInerney, Webb &
Hartnett. All such statements are set forth herein in reliance upon the opinions of said firms, respec-tively, and in reliance upon their authority as experts.
Legal matters in connection with the issuance of the Additional Common Stock are being passed on for the Company by Messrs. Turner, Hitchins, McInerney, Webb & Hartnctt of Dallas, Texas, and by Messrs. Keleher & McLeod of Albuquerque, New Mexico, and for the underwriters by Messrs. Willkie Farr & Gallagher of New York, New York.
Thc Company is advised that as of Scptcmbcr 23, 1975, thc members of the firm of Turner, Hitchins, McInerney, Webb & Hartnett acting in connection with the offering owned 1,000 shares of the Common Stock of the Company and members of the finn of Keleher & McLeod acting in connection with the offcring owned 3,120 shares of the Common Stock of the Company.
26
ACCOUNTANTS'EPORT t The Board of Directors Public Service Company of New Mexico:
We have examined the consolidated balance sheet of Public Service Company of New Mexico and subsidiary as of December 31, 1974, and the related statements of consolidated earnings, retained earnings and changes in financial position for the five years then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the aforementioned financial statements present fairly the consolidated financial position of, Public Service Company of New Mexico and subsidiary at December 31, 1974, and the results of their operations and changes in their financial position for the five years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.
PEAT, MARWICK> MITCHELL Ei CO.
Albuquerque, New Mexico February 12, 1975 27
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY CONSOLIDATED BALANCE SHEET ASSETS June 30, December 31, 1975 1974 (Unaudited)
UTILITYPLANT, at original cost:
Electric plant in service $ 265,725,168 $ 258,607,327 Water plant in service . 23,857,683 '9,332,072 Common plant in service . 7,592,402 7,571,124 297,175,253 285,510,523 Less accumulated depreciation and amortization ... 63,769,228 59,781,406 233,406,025 225,729,117 Construction work in progress . 61,714,657 42,313,989 Electric plant held for future use 20,675 20,675 Net utility plant 295,141,357 268,063,781 OTHER PROPERTY AND INYBsTMBNTs:
Non-utility property, at cost, net of accumulated depreciation of
$ 172,360 at June 30, 1975 and $ 145,876 at December 31, 1974 4,214,015 3,627,191 Investment in fifty-percent owned company . .. ~ ~ ~...... ~ . ~ 1,090,220 845,009 Other, at cost 155,523 155,313 Total other property and investments .......... 5,459,758 4,627,513 CURRENT AssETs:
Cash (note 5) 3,970,774 3,856,624 Receivables:
Customers 5,569,040 5,540,263 0 thers 3,960,981 2,477,441 Allowance for doubtful receivables . (102,365) (108,466)
Materials and supplies, at average cost 10,359,491 10,683,186 Prepaid expenses .. 747,411 700,130 Deferred fuel costs ..............., .., ~ 1,060,879 Total current assets . 25,566,211 23,149,178 DEPERRBD CHARGES:
Unamortized debt expense 2,598,899 2,362,813 Other deferred charges . 2,884,273 2,677,119 Total deferred charges . 5,483,172 5,039,932
$ 331,650,498 $ 300,880,404 See accompanying notes to consolidated financial statements.
28
PUBLIC SERVICE COMPANY OF NET ME<XICO AND SUBSIDIARY CONSOLIDATED BALANCE SHEET
' STOCKHOLDERS'QUITY AND LIABILITIES June 30, December 31, 1975 1974 (Unaudited)
STocKHQLDBRs'QUITY (note 2):
Cumulative preferred stock of $ 100 stated value.
Authorized 2,500,000 shares at June 30, 1975 and 600,000 shares at December 31, 1974; outstanding:
130,000 shares 1965 Series, 4.58% ............... $ 13,000,000 $ 13,000,000 170,000 shares 1974 Series, 9.2% 17,000,000 17,000,000 100,000 shares 1975 Series, 10.12% .............. 10,000,000 Common stock of $ 5 par value. Authorized 10,000,000 shares; outstanding 4,426,794 shares at June 30, 1975 and 4,412,145 shares at December 31, 1974 .. 22,133,970 22,060,725 Premium on capital stock . 29,768,365 29,613,997 Capital stock expense . (1,527,908) (1)338,902)
Retained earnings (note 3) 41,058,091 39,223,076 Total stockholders'quity 131,432,518 119,558,896 LoNG-TERM DEBT, less maturities and sinking fund payments due within one year (note 4) . 143,472,084 115,529,484 CURRENT LIABILITIEs:
Short-term debt (note 5) . 20,550,000 31,950,000 Accounts payable 6,020,600 6,731,757 Preferred dividends .. 539,850 539,850
- ~ Sinking fund requirements for long-term debt (note 4)
Customer deposits .
Accrued interest 740,487 117,586 2,118,369 786,017 100,539 1,743,103 Accrued taxes 2,304,474 1,678,895 Other current liabilities ~... 1,671,908 1,385,821 Total current liabilities . 34,063,274 44,915,982 DEFERRED CRBDITs:
Customer advances for construction 3,162,369 2,771,728 Accumulated deferred investment tax credits ........ 5,477,190 5,173,095 Accumulated deferred income taxes (note 6) ....... 13,723,510 12,659,779 Other deferred credits 319,553 271,440 Total deferred credits 22,682,622 20,876,042 CoMMITMENTs AND CQNsTRUGTIoN PRQGRAM (note 8)
$ 331,650,498 $ 300,880,404 See accompanying notes to consolidated financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY STATEMENT OF CONSOLIDATED RETAINED EARNINGS Sh Months Ended Year Ended December 31, June 30, 1975 1974 1973 1972 1971 1970 (Unaudited)
Balance at beginning of period .............. ~ . $ 39,223,076 $ 35,943,682 $ 28,708,932 $ 22,960,355 $ 19,356,924 $ 16,110,262 Net earnings ............ 5,941,212 10,292,520 12,755,797 10,515,315 7,750,700 7,038,777 45,164,288 46,236,202 41,464,729 33,475,670 27,107,624 23,149,039 Dividends:
Cumulative preferred stock 1,366,434 1,768,400 595,400 595,400 595,400 595,400 Common stock.......... 2,739,763 5,244,726 4,925,647 4,171,338 3,551,869 3,196,715 4,106,197 7,013,126 5,521,047 4,766,738 4,147,269 3,792,115 Balance at end of period.. $ 41,058,091 $ 39,223,076 $ 35,943,682 $ 28,708,932 $ 22,960,355 $ 19,356,924 Sce accompanying notes to consolidated financial statements.
30
PUBLIC SERVICE COMPANY OF NEW MEXICO.AND SUBSIDIARY STATEMENT OF CONSOLIDATED CHANGES IN FINANCIALPOSITION Twelve Months Ended Year Ended December 31, June 30, 197$ 1974 1973 1972 1971 1970 (Unaudited)
Funds provided:
Net earnings .............. $ 11>843,872 $ 10,292,520 $ 12,755,797 $ 10,515,315 $ 7,750,700 S 7>038,777 Charges (credits) to earnings not requiring funds:
Depreciation and amortiza-tion 8,697,144 8,264,383 6,544,842 5,764,926 5,504,928 5,241,263 Provision for deferred in-come taxes, net ........ 2,316,180 2,264,763 1,961,418 737,423 727,167 831,556 Investment tax credit, net .. 772,724 708,043 1,898,463 212,892 1,709 166,870, Allowance for funds used during construction ..... (1,751,720) (1,042,977) (2,792,601) (2,046,691) (574,442) (435,742)
Undistributed earnings of fifty-percent owned com-pany .... ............
~ (427,615) (522,132) (94,002)
Gain on sale of fifty percent of subsidihry .......... (148,125)
Funds derived from op-erations 21,450,585 19,964,600 20,273,917 1$ ,183>865 13,261,937 12,842,724 Sale of first mortgage bonds .. 25,000,000 20,000,000 20,000,000 Sale of preferred stock ..... ~ 10,000,000 17,000,000 Proceeds from Pollution Con-trol Revenue Bonds ...... 10,825,956 7,145,278 Sale of common stock ...... 1,003,679 935,604 647>906 9,800,000 6,837,350 Proceeds from other long-term debt 181,840 459,726 152,470 Proceeds from short-term debt 54,400,000 38,998,500 16,121,000 1,500,000 5,090,000 Utilityplant retirements, nct of removal costs ............ 1,146,329 1,256,572 1,071,880 753,521, 418,034 485,602 Customer advances for con-struction, net of refunds ... 244,808 570,387 714,904 356,986 102,076 Proceeds from sale of fifty per-cent of subsidiary . ~...... 375,000 Decrease in working capital other than short-term debt.. 1,511,160 Other 68,480 46,325 41,336 15,138 16,614 207,064
$ 124,321,677 $ 85,806,605 $ 38,878,896 $ 49,478,588 $ 41,265,921 $ 18,727,466 Funds used:
Cash dividends ............ S 7,824,267 S 7,013,126 S $ ,521,047 S 4,766,738 S 4,147,269 S 3,792,115 Utility plant additions ...... 62,571,659 46,471,62$ 27,081,114 42)299,617 20,896,695 11,327,722 Payment of short-term debt .. 48,175,000 25,169,500 11,774,000 Reduction of long-term debt.. 1,069,691 886,016 790,864 471,775 1)830,000 874,000 Bond discount and expense .. 1,796,699 1,468,670 259,748 358,540 (continued) 31
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY STATEMENT OF CONSOLIDATED CHANGES IN FINANCIAL POSITION (Continued)
Twelve Months Ended Year Ended December 31, Junc 30, 1975 1974 1973 1972 1971 1970 (Unaudited)
Capital stock expense ....... $ 223,978 $ 267,729 $ 31,150 $ 309,998 $ 162,020 $
Additions to non-utility prop-erty 972,251 793,015 239,813 1,306,894 7,407 10,735 Investment in and advances to fifty-percent owned company 2,000 149,600 Increase in other deferred charges ................. 782,493 967,118 913,220 63,818 197,448 Increase in working capital other than short-term debt.. 881,907 2,647,616 4,289,774 2,022,849 2,375,846 Other 23 732 122,190 11,914 65,141
$ 124,321,677 $ 85,806,605 . $ 38,878,896 $ 49,478,588 $ 41,265,921 $ 18,727,466 Changes in working capital other than short-term debt: .
Increase (decrease) in current Cash......
assets:
Temporary cash investments
$ 834,146 (950,000)
$ 696,773 $ (62,858) $ (259,152) $ 914,053 (3,954,944) 3,954,944
$ 816,489 (590,163)
Receivables 2,283,192 1,318,527 1,065,629 716,865 235,029 1,389,598 Materials and supplies .... 1,143,211 4,816,922 3,441,095 408,937 572,480 288,513 Prepaid expenses ......... (194,000) 131,562 90,838 115,048 (27,402) (64,613)
Deferred fuel costs ....... 1,060,879 4,177,428 6,963,784 4,534,704 (2,973,246) 5,649,104 1,839,824 Increase (decrease) in current liabilities other than short-term debt:
Accounts payable ........ 1,685,708 2,694,517 1,410,186 (629,273) 1,660,378 751,632 Preferred dividends ....... 391,000 Sinking fund requirements for long-term debt ...... 102,597 226,127 349,890 (1,042,000) 1,064,000 (1,483,000)
Customer deposits ........ 25,250 17,421 6,826 (18,358) (5,878) (18,878)
Accrued interest ......... 595,396 250,508 145,814 47,057 125,607 54,148 Accrued taxes ........... 790,700 484,827 (1,674,766) (216,323) 637,348 176;754 Other current liabilities ... 95,870 251,768 6,980 396,811 144,800 (16,678) 3,295,521 4,316,168 244,930 (1,462,086) 3,626,255 (536,022)
Increase (decrease) in working debt...........
capital other than short-term
$ 8S1,907 $ 2,647,616 $ 4,289,774 $ (1,511,160) $ 2,022,849 $ 2,375,846 See accompanying notes to consolidated financial statements.
32
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Unaudited with respect to thc twelve months ended Junc 30, 1975)
(1) Summary of Significant Accounting Policies System of Accounts-The Company maintains its accounting records in accordance with the uniform system of accounts prescribed by the Federal Power Commission and adopted by the New Mexico Public Service Commission.
As a result, the application of generally accepted accounting principles by the Company differs in certain respects from the application by nonregulated businesses. Such differences generally regard the time at which certain items enter into the determination of net earnings in order to follow the principle of matching costs and revenues.
Principles of Consolidation-The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Public Service Land Company. All significant intercompany transactions have been eliminated.
UtilityPlant Utility plant is stated at original cost, which includes payroll related costs such as taxes, pensions and other fringe benefits, administrative costs and an allowance for funds used during construction.
It is Company policy to charge repairs and minor replaceinents of property to maintenance expense and to charge major replacements to utility plant. Gains or losses resulting from retirements or other dispositions of operating property in the normal course of business are credited or charged to the accumulated provision for depreciation.
Depreciation Provision for depreciation of utility plant is made at annual straight-line rates prescribed by the New Mexico Public Service Commission. A study of remaining lives was conducted in 1973 and approved by the Commission resulting in an adjustment of depreciation rates effective January 1974. The change increased depreciation expense by approximately $ 380,000 for 1974. The average depreciation rates used were as follows:
Twclvc Months Ended Year Ended December 31, June 30, 1975 1974 1973 1972 1971 1970 (Unaudited)
Electric plant ..... ~ 3.16% 3.16% 3.12% 3.08% 3.06% 3.09%
Water plant ....... 1.80% 1.81% 1.74% 1.62% 1.59% 1.62%
Common plant ..... 3.12% 2.96% 2.03% 2.11% 2.05% 2.09%
Depreciation of non-utility property is computed on the straight-line method.
33
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)
(Unaudited with respect to the twelve months ended June 30, 1975)
Investment in Fifty-Percent Otvned Company The Company's investment in a fifty-percent owned company is stated at equity. The co-owner, Tucson Gas &; Electric Company, is participating with the Company in the construction and opeiation of a steam turbo-electric generating plant described in note-(8). The generating plant utilizes coal from properties of the fifty-percent owned company as a source of fuel, Deferred Fuel Costs-In 1975 the Company adopted the deferred method of accounting for the portion of fuel costs which is recoverable in subsequent periods under a fuel adjustment clause. The adoption of this accounting method had the effect of increasing net earnings for the twelve months ended June 30, 1975 by $ 525,453
($ .12 per common share) above the results which would have been reported had the portion of fuel costs to be billed to customers subsequent to June 30, 1975 been recorded as an expense in the twelve months ended June 30, 1975.'he cumulative effect of the adoption of deferred fuel cost accounting applicable to prior. periods was immaterial.
Amortization of Debt Discount, Expense and Premium Discount, expense and premium incurred in the issuance of the presently outstanding debt are being amortized by charges to income over the lives of the respective issues on the debt outstanding method.
Investment Tax Credits
'he Company follows the practice of deferring investment tax credits and amortizes them over<a thirty-year period.
Income Taxes-For income tax purposes, the'Company has availed itself of accelerated amortization of emergency facilities and liberalized depreciation methods allowed by the Internal Revenue Code. Amounts equal to'the resulting tax reductions are charged to income and accumulated in the deferred income tax accounts to offset the increase in taxes which occurs when deductions are less than they are under the method used for accounting purposes (normalization method).
Generally, the Company uses guideline depreciation provisions for assets acquired prior to 1972 and the class life asset depreciation range system for assets acquired in 1972 and thereafter to compute depreciation for income tax purposes. The tax reductions related to guideline depreciation are recorded as a reduction in income tax expense in the current year (flow-through method). The reduction in income taxes attributable to asset class lives shorter than guideline lives is normalized by the method previously described.
For income tax purposes, the Company deducts the allowance for funds used during construction and certain employee benefits and taxes related to construction projects which are capitalized for accounting purposes. The income tax effects are recorded as a reduction of income taxes as incurred.
34
PUBLIC SERVICE COMPANY OF NE)V MEXICO AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Conttnued)
(Unaudited with respect to the bvelve months ended June 30, 1975)
Deferred fuel costs are deducted currently for income tax purposes. The Company accounts for the related tax bcnefits by the normalization method.
The Company deducted, for tax purposes, costs incurred in training employees in the operation of a new generating station. Such costs were capitalized for accounting purposes. The Company has adopted the normalization method of accounting for the related tax benefit.
Revenues Revenues are recognized based on cycle billings rendered to customers monthly. The Company does not accrue revenues in respect of energy sold but not billed at the end of a fiscal period.
Pension Plan-The Company's policy is to fund pension costs which are composed of normal costs and amor-tization of prior service costs over a remaining period of approximately seventeen years.
(2) Capital Stock The 1965 Series, 4.58% cumulative preferred stock may be redeemed by the Company at any time, in whole or in part, upon thirty days notice thereof, at redemption prices per share (plus accrued and unpaid dividends) as follows:
1976...... ~.....
To January 14, January 15, 1976 to January 14, 1979
~.... ~.... ~
.... . $ 103.548 103.032 t
January 15, 1979 to January 14, 1982 102.516 January 15, 1982 and thereafter . 102.000 Except that redemption may not be made through certain refunding operations prior to April 15, 1979, the 1974 Series, 9.2% cumulative preferred stock may be redeemed by the Company at any time, in whole or in part, upon thirty days notice thereof, at redemption prices per share (plus accrued and unpaid dividends) as follows:
To April 14, 1979 $ 109.20 April 15, 1979 to April 14, 1984 107.00 April 15, 1984 to April 14, 1989 104.00 April 15, 1989 and thereafter ..... 101.00 Except that redemption may not be made through certain refunding operations prior to March 15, 1980, the 1975 Series, 10.12% cumulative preferred stock may be redeemed by the Company at any time, in whole or in part, upon thirty days notice thereof, at redemption prices per share (plus accrued and unpaid dividends) as follows:
To March 14, 1980 . $ 110.12 March 15, 1980 to March 14, 1985 March 15, 1985 to March 14, 1990 March 15, 1990 and thereafter ......... . '.... 107.00 104,00 101.00 35
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)
(Unaudited with respect to the twelve months.cndcd June 30, 1975)
In 1971, the Company offered to the holders of its common stock the right to purchase one share for each ten shares held. In connection therewith, the Company sold 355,187 additional shares at $ 19.25 per sharc. In 1972, the Company sold 400,000 additional shares of common stock at $ 24.50 per share.
Under its stock purchase plan for employees, the Company issued 33,205 shares of common stock in 1973, 71,884 shares of common stock in 1974 and 14,649 shares of common stock in the six months ended June 30, 1975 from 150,000 shares reserved for issuance under the plan. Compensation accounts of the Company are charged for one-half of the market value of stock issued under the plan and the employee pays thebalance. In 1974, the Company sold 170,000 shares of its 1974 Series, 9.2% cumu-lative preferred stock at $ 100 per share. In 1975 the Company sold 100,000 shares of its 1975 Series, 10.12% cumulative preferred stock at $ 100 per share. The changes in stockholders'quity accounts were as follows:
Premium on Capital Preferred Common Capital stock stock stock stock cxpcnsc Balance at December 31, 1969 and 1970 $ 13,000,000 $ 17,759,345 $ 15,694,517 $ (568,005)
Sale of 355,187 shares common stock .. 1,775,935 5,061,415 (162,020)
Balance at December 31, 1971....... 13,000,000 19,535,280 20,755,932 (730,025)
Sale of 400,000 shares common stock .. 2,000,000 7,800,000 (309,998)
Balance at December 31, 1972.... ~;. 13,000,000 21,535,280 28,555,932 (1,040,023)
Sale of 33,205 shares common stock.. 166,025 481,881 (31,150)
Balance at December 31, Sale 1973.......
of 71,884 shares common stock...
13,000,000 21,701,305 359,420 29,037,813 576,184 (1,071, 173) ~
Sale of 170,000 shares preferred stock .. 17,000,000 (267,729)
Balance at December 31, 1974....... 30,000,000 22,060,725 29,613,997 (1,338,902)
Sale of 14,649 shares common stock... 73,245 154,368 Sale of 100,000 shares preferred stock.. 10,000,000 (189,006)
Balance at June 30, 1975.. $ 40,000,000 $ 22,133,970 $ 29,768,365 $ (1,527,908)
(3) Restrictions Charter provisions relating to the preferred stock and the indenture securing the first mortgage bonds impose certain restrictions upon the payment of cash dividends on common stock of the Company.
Under such provisions, approximately $ 31,000,000 of the consolidated retained earnings at June 30, 1975 was available for payment of dividends.
36
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)
(Unaudited with rcsI1cct to the twelve months ended Junc 30, 1975)
(4) Long-Tcrrn Debt The detail of the Company's outstanding long-term debt including unamortized discount and premium, less sinking fund payments and maturities due within one year, is as follows:
Junc 30, December 31, 1975 1974 (Unaudited)
First Mortgage Bonds:
27/s% Series, due 1977 . $ 4,831,157 $ 4,899,671 3 % Series, due 1980 . 3,900,000 3,900,000
'/4% Series, due 1982 3,120,000 3,160,000 3'%eries, due 1984 . 2,403,152 2,433,346 4'%eries, due 1988 . 9,130,000 9,130,000 4Ãs% Series, due 1991 10,362,000 10,460,000 57/s% Series, due 1997 . 19,196,349 19,402,028 7t/~% Series, due 1999 . 14,483,693 .14,631,851 8Ve% Series, due 2001 19,958,322 19,957,789 7'%eries, due 2002 ...... ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 19,958,827 19,957,232 9'/s% Series, due 2005 . 25,000,000 Pollution Control Revenue Bonds 7.6% Series due 1984
($ 55,000,000 principal amount less $ 44,174,044 at June 30, 1975 and $ 47,854,722 at December 31, 1974 held by trustee) . 10,825,956 7,145,278 Other 302,628 452,289
$ 143,472,084 5115,529,484 Approximately 25 percent of the original principal amount of each series of first mortgage bonds will be redeemed through sinking fund requirements prior to the aforementioned due dates. The aggre-gate amounts of maturities and sinking fund requirements on long-term debt outstanding for the last half of 1975 and the subsequent five years are as follows:
1975 $ 58,999 1976 1,041,488 1977 6,000;628 1978 1,118,001 1979 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 1,100,501 1980 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 5,000,501 (5) Short-Term Debt and Compensating Balance Arrangements The Company's interim financing requirements are mct through issuance of unsecured notes payable to banks and commercial paper. The Company has agreed to maintain compensating balances with certain lending banks, generally equal to 20% of the outstanding indebtedness or 10% of the lines I of credit 37
PUBLIC SERVICE COMPANY OF NET MEXICO AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)
(Unaudited with rcspcct to the twelve months ended June 30, 1975) at such banks, whichever is greater. Details of the Company's short-term debt at June 30, 1975 and December 31, 1974 and for the twelve month periods then ended were as follows:
June 30, December 31, 1975 1974 Aggregate short-term debt outstanding:
Notes payable to banks . $ 11,550,000 $ 25,450,000 Commercial paper . $ 9,000,000 $ 6,500,000 Average interest rate on outstanding debt:
Notes payable to banks . 7s/s% 10%%
Commercial paper 5s/e% 9si4%
Maximum short-term debt outstanding during period .... $ 37,275,000 $ 31,950,000 Average short-term debt outstanding during period .... $ 20,500,000 $ 17,350,000 Weighted average interest rate on short-term debt out-standing during period, computed using daily debt out-standing balances:
Stated interest rates 97/a% 10%%
Effective rate considering the effect of compensating balances 11%
Unused lines of credit (subject to cancellation at the 11'%900,000
$ 26,980,000 banks'ption)
Compensating balances at end of period .............. $ 2,200,000 $ 2,440,000 Compensating balances have been reduced by the average difference between collected bank bal-ances and book balances.
(6) Income Taxes Income taxes consist of the following components:
Twelve Months Year Ended December 31, Ended Junc 30, 1975 ,
1974 1973 1972 1971 1970 (Unaudited)
Charged to operating revenue deductions:
Federal income tax ...............
.................. $ 3,345,640 $ 3,217,600 410,027
$ 3,339,323 542,795
$ 5,603,933 621,295
$ 4,459,996 562,128
$ 4,483,525 570,628 State income tax 433,668 Deferred Federal income tax ....... 2,544,392 2,002,339 1,760,114 657,930 644,135 743,418 Deferred State income tax .......... 275,004 222,892 1943035 79,493 83,032 88,138 Amount equivalent to current invest-ment,credit 955,414 876,130 1,999,889 304,179 89,996 290,589 Amortization of accumulated invest-ment credit , (90,490) (90,489) (101,426) (91,287) (88,287) (123,719) 7,463.628 6,638,499 7,734,730 7,175,543 5.751,000 6,052,579 Charged to other income and deductions:
Federal income tax ........,......
.................. (59,331) (55,842) (72,373)
(7,530)
(22,500)
(2,500) 39,000 4,000 State income tax (6,164) (5,801)
Deferred Federal income tax ....... 29,161 35,805 6,583
,Deferred State income tax .......... 3,049 3,'727 686 Amortization of accumulated invest-ment credit . ~92199) ~77598)
(125,484) (99,709) (72,634) (25,000) 43,000 Total income taxes $ 7.338 144 $ 6,538,790 $ 7 662.096 $ 7.150,543 $ 5,794,000 $ 6,052,579 38
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)
(Unaudited with respect to the twelve nionths ended June 30, 1975)
Deferred income taxes deducted currently result from timing differences in the recognition of income and expenses for tax and accounting purposes. The sources of these differences and the tax effects of each were as follows:
Twelve Months Ended Year Ended December 31, June 30, 1975 1974 1973 1972 1971 1970 (Unaudited)
Accelerated amortization of emergency facilitics, liberalized depreciation meth-ods and asset class lives shorter than guideline lives ... $ 2,299,032 $ 2,235,272 $ 1,672,322 $ 737,423 $ 727,167 $ 831,556 Training costs ...... (15,061) (10,041) 281,827 Deferred fuel costs .................. 535,425 Undistributed earnings of fifty-percent owned company (included in other deductions) 32,210 39,532 7,269
$ 2,851,606 $ 2,264,763 $ 1,961,418 $ 737,423 $ 727,167 $ 831;556 The Company's etTective income tax rate was less than the Federal income tax statutory rate for each of the periods shown. The differences are attributable to the following factors:
Twelve Months Ended Year Ended December 31, Junc 30, 1975 1974 1973 1972 1971 1970 (Unaudited)
Fcdcral income tax statutory rate ..... 48.0% 48.0% 48.0% 48.0% 48.0% 49.2%
Tax depreciation in excess of book de-preciation caused by use of guideline depreciation provisions (2 7%) (3 3%) (3.8%) (1.9%) (2.6%) (2.2%)
Allowance for funds used during con-struction, net of depreciation adjust-ments (3.6% ) (2.1% ) (6.1% ) (5.2% ) (1.6% ) (1.2% )
Certain employee benefits and taxes capi-talized for financial statcmcnts, net of depreciation adjustments ........... (2.5%) (2.5%) (1.1%) (1.2%) (1.6%) (.5%)
State income taxes, net of Federal tax effect 1.9% 1.9% 1.9% 2.1% 2.2% 2.2%
Undistributed earnings of fifty-percent owned company .................. (.9% ) (1.3% ) (.2%%uo )
Amortization of investment tax credits.. (1.0% ) (1.0%) (.5%) (.5% ) (.7%) (.9% )
Other miscellaneous items ............ (.9%) (;9% ) (.5%) (.7%) (1.1% ) (.4% )
Company's effective income tax rate 38.3% 38.8%%uo 37.7% 40.6% 42.6% 46.2%
39
PUBLIC SERVICE COMPANY OF NET MEXICO AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAI. STATEMENTS (Continued)
(Unnuditc'd with rcspcct to thc twclvc >nonths cndcd Junc 30, 1975)
(7) Pension Plan The Company has a pension plan covering substantially all of its employees, including oAicers. Thc plan provides for monthly pension payments to participating employees upon their attaining thc age of 65 or the age of 62 with 30 years service, the amount of such payments being dependent upon length of service and the average wages of the five highest consecutive years of employment. Rctiremcnt bene-fits are 2% per year of service but not to exceed 65% of the employee's salary less a social security offset. The Company made contributions to the employees'ension plan of $ 1,009,000 in the twelve months ended June 30, 1975; $ 945,000 in 1974; $ 944,000 in 1973; $ 706,000 in 1972; $ 552,000 in 1971 and $ 541,000 in 1970 including normal costs and amortization of prior service costs. The actu-arially computed value of vcstcd benefits as of December 31, 1974, the most recent valuation date, did not exceed the total of the pension fund assets. A change, effective January 1, 1975, in the actuarial assumptions used in computing pension costs had the effect of increasing net earnings for the twelve months ended June 30, 1975 by approximately $ 48,000 ($ .01 per common share).
In addition, the employees contribute $ 3 for the first $ 400 of monthly base salary, plus 3% of that part of base salary in excess of $ 400 during each month.
The estimated amount of the unfunded prior service liability at December 31, 1974, was approxi-mately $ 1,820,000.
The Employee Retirement Income Security Act of 1974 will require amendments to the plan's participation and vesting provisions. A preliminary study indicates that the required amendments will increase the Company's contribution to the pension plan by approximately $ 320,000 in 1976. The effect on vested benefits cannot bc determined pending completion of further studies.
(8) Commitments and Construction Program The Company is participating with Tucson Gas &: Electric Company in the construction of a steam turbo-electric generating station located in San Juan County, Ncw Mexico. The Company will own an undivided 50% interest therein. Thc first unit of the station was completed and placed in service in 1973. Construction of the second unit, with the Company's sharc of the cost estimated to bc approxi-mately $ 75,000,000, commenced in 1974.
Thc Company is also participating with several other utilities in thc construction of a nuclear generating station with the first unit scheduled for completion in 1982.
It is estimated that the Company's construction cxpenditurcs for 1975 will approximate $ 79,000,000 including expenditures on thc San Juan and nuclear projects. In connection therewith, substantial com-mitments have been made. Approximately $ 32,200,000 had been expended by Junc 30, 1975.
Thc Company has noncancclable leases for data processing and office equipmcnt, utility poles (joint usc), water processing apparatus, other equipment and real estate. Certain lcascs provide purchase options in the approxirnatc amount of $ 1,700,000 for data processing equipmcnt and $ 860,000 for construction equipment and a purchase obligation in thc approximate amount of $ 1,400,000 for water processing apparatus provided it meets certain performance rcquircmcnts. Renewal options and con-40
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)
' (Unaudited svith respect to thc bvelvc months cndcd Junc 30, I975) tingent rental provisions were not significant. The effect on net earnings of not capitalizing financing leases and the present value of the minimum lease commitments on such leases were not significant. At June 30, 1975, lease commitments for the remainder of 1975 and for subsequent years were approximately:
1975 $ 754,000 1 976 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 940,000 1977 779,000 1978 660,000 1979 630,000 1980 626,000 1981-1985 . 1,436,000 1986-1990 . 118,000 1991-1995 . 96,000 1996 and thereafter 197,000 41
UNDERWRITERS Subject to thc terms and conditions contained in the Underwriting Agreement, a copy of which is filed as an exhibit to thc Registration Statement, the Underwriters named below have severally agreed to purchase, and the Company has agreed to sell to them severally, the rcspectivc numbers of shares of Additional Common Stock sct forth below.
Number of Name Shares Kidder, Peabody &: Co. Incorporated . 151,000 Blyth Eastman Dillon & Co. Incorporated . 17,000 Thc First Boston Corporation . 17,000 Dillon, Read & Co. Inc. 17,000 Drexel Burnham & Co. Incorporated 17,000 Goldman, Sachs & Co.. 17,000 Halsey, Stuart & Co. Inc 17,000 E. F. Hutton & Company Inc... 17,000 Lehman Brothers Incorporated 17,000 Loeb, Rhoadcs & Co. 17,000 Merrill Lynch, Pierce, Fenner & Smith Incorporated . 17,000 Paine, Webber, Jackson & Curtis Incorporated . 17,000 Reynolds Securities Inc... 17,000 Salomon Brothers 17,000 Smith, Barney & Co. Incorporated 17,000 Wertheim & Co., Inc. 17,000 White, Weld & Co. Incorporated . 17,000 Dean Wittcr Ec Co. Incorporated ................ 17,000 Shearson Hayden Stone Inc..................... 17,000 Bear, Stearns & Co.. 12,500 Harris, Upham & Co. Incorporated ............... 12,500 Moselcy, Hallgarten &, Estabrook Inc.. 12,500 L. F. Rothschild & Co... 12,500 Shields Model Roland Securities Incorporated 12,500 Thomson & McKinnon Auchincloss Kohlmeyer Inc... 12,500 Spencer Trask & Co. Incorporated 12,500 Warburg Paribas Becker Inc.. 12,500 Advest Co. 9,000 William Blair & Company 9,000 Dain, Kalman & Quail, Incorporated 9,000 A. G. Edwards & Sons, Inc. 9,000 McDonald & Company . 9,000 Prescott, Ball & Turben .. 9,000 Quinn & Co., Inc 9,000 Rauscher Pierce Securities Corporation 9,000 W. H. Reaves & Co., Inc.. 9,000 Rotan Mosle Inc... 9,000 First Southwest Company . 4,000 42
Number of Name Shares Foley, Warendorf & Co.. 4,000 0 Mtchum, Jones & Templeton, Inc....
H. O. Peet & Co. Inc..
Schneider, Bernet & Hickman, Inc...
4,000 4,000 4,000 Underwood, Neuhaus & Co. Incorporated . 4,000 Wagenseller & Durst, Inc....... 4,000 Total . 675,000 Kidder, Peabody & Co. Incorporated, as Representative of the several Underwriters, has advised the Company as follows:
The several Underwriters are offering the Additional Common Stock to the public at the public offering price set forth on the cover page of this Prospectus, and to Dealers at a price which rep-resents a concession of $ .50 per share under the public offering price. The Underwriters and such Dealers may reallow a concession of $ .25 per share to dealers who are members of the National Association of Securities Dealers, Inc. or certain foreign dealers who agree not to make sales of the Additional Common Stock in the United States or to nationals or residents thereof. After the initial public offering, the public offering price and the concessions may be changed.
The Underwriting Agreement provides that the several Underwriters do not have the right to pur-chase less than all the shares of Additional Common Stock offered hereby.
CONTENTS Page Available Information 2 675,000 Shares Summary of Prospectus ............... 3 The Company . 4 General Problems of the Electric Utility Industry 4 PUBLIC SERVICE COMPANY Use of Proceeds 4 Construction Program and Financing OF<
Requirements 5 Financial Considerations ....... ~.... 5 NEW MEXICO Dividends and Price Range ............ 7 Capitalization 8 Statement of Consolidated Earnings ...... 10 Management's Discussion and Analysis of Statement of Consolidated Earnings .. 12 Common Stock Business 13 Electric Operations 13 (85 'pnr value)
Sources of Power 14 Water Operations .. 16 Rates and Regulation ............... 16 Fuel and Water Supply .............. 17 Environmental Factors ............. ~ 20 Employee Relations . 20 Map . 21 Litigation ....... ..........
Operating Statistics ................
Description of Common Stock
~
22 24 24 PROSPECTUS Experts and Legal Opinions ........... 26 Financial Statements , 27 Underwriters 42 Kidder, Peabody S Co.
No person has been authori"ed to give any Incorporated information or to make any representations not contained in this Prospectus in connec-tion tvith the offering of the Additional Com-mon Stock, and if given or made such in-formation or representation must not be relied upon as having been authori-ed by Public Service Company of New Mexico or any Underwriter.
This Prospectus does not constitute an September 24, 1975 offer to sell~ or a solicitation of an offer to buy, the securities offered hereby in any slate to any person to whom it is unlawful to make such an offer or solicitation.