-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CQDzSxcOQGvX/tGVmnDzUAaxJG+pAjvg73Yy+HZiOwyqhlFG2EI9qad0SOh0ZyAU rp9/DgwWTC1PC7G4ZehfiQ== 0001004858-98-000016.txt : 19980518 0001004858-98-000016.hdr.sgml : 19980518 ACCESSION NUMBER: 0001004858-98-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW CENTURY ENERGIES INC CENTRAL INDEX KEY: 0001004858 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 841334327 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12927 FILM NUMBER: 98626167 BUSINESS ADDRESS: STREET 1: 1225 17TH ST CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3035717511 MAIL ADDRESS: STREET 1: 1225 17TH ST CITY: DENVER STATE: CO ZIP: 80202 10-Q 1 NCE, PSCO & SPS 10Q FOR 1ST QUARTER 98 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ____________ Exact name of registrant as specified in its charter, State or other jurisdiction of incorporation or organization, Address of Commission principal executive offices and Registrant's IRS Employer File Number Telephone Number, including area code Identification No. - ----------- ------------------------------------- ------------------ 1-12927 NEW CENTURY ENERGIES, INC. 84-1334327 (a Delaware Corporation) 1225 17th Street Denver, Colorado 80202 Telephone (303) 571-7511 1-3280 PUBLIC SERVICE COMPANY OF COLORADO 84-0296600 (a Colorado Corporation) 1225 17th Street Denver, Colorado 80202 Telephone (303) 571-7511 1-3789 SOUTHWESTERN PUBLIC SERVICE COMPANY 75-0575400 (a New Mexico Corporation) Tyler at Sixth Amarillo, Texas 79101 Telephone (303) 571-7511 ------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No On May 11, 1998, 111,266,057 shares of the Registrant's Common Stock were outstanding. The aggregate market value of this common stock held by nonaffiliates based on the closing price on the New York Stock Exchange was approximately $5,215,596,422. Southwestern Public Service Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format specified in General Instruction H (2) to such Form 10-Q. Table of Contents PART I - FINANCIAL INFORMATION Item l. Financial Statements ............................................. 1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................ 29 PART II - OTHER INFORMATION Item 1. Legal Proceedings................................................. 39 Item 6. Exhibits and Reports on Form 8-K.................................. 39 This combined Form 10-Q is separately filed by New Century Energies, Inc., Public Service Company of Colorado and Southwestern Public Service Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each registrant makes representations only as to itself and makes no other representations whatsoever as to information relating to the other registrants. This report should be read in its entirety. No one section of the report deals with all aspects of the subject matter. FORWARD-LOOKING INFORMATION The following discussions include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Investors and prospective investors are cautioned that the forward-looking statements contained herein with respect to the revenues, earnings, capital expenditures, resolution and impact of litigation, competitive performance, or other prospects for the business of New Century Energies, Inc., Public Service Company of Colorado and/or Southwestern Public Service Company or their affiliated companies, including any and all underlying assumptions and other statements that are other than statements of historical fact, may be influenced by factors that could cause actual outcomes and results to be materially different than projected. Such factors include, but are not limited to, the effects of weather, future economic conditions, the performance of generating units, fuel prices and availability, regulatory decisions and the effects of changes in state and federal laws, the pace of deregulation of domestic retail natural gas and electricity markets, the timing and extent of change in commodity prices for all forms of energy, capital spending requirements, the evolution of competition, earnings retention and dividend payout policies, changes in accounting standards, and other factors. From time to time, New Century Energies, Inc., Public Service Company of Colorado and Southwestern Public Service Company may publish or otherwise make available forward-looking statements. All such subsequent forward-looking statements, whether written or oral and whether made by or on behalf of each company, are also expressly qualified by these cautionary statements. i TERMS The abbreviations or acronyms used in the text and notes are defined below: Abbreviation or Acronym Term - ----------------------- ---- AEP.....................................................American Electric Power CDPHE......................................Colorado Department of Public Health and Environment Cheyenne.................................Cheyenne Light, Fuel and Power Company CPUC...................The Public Utilities Commission of the State of Colorado Denver District Court ................................District Court in and for the City and County of Denver DOE........................................................Department of Energy DSM......................................................Demand Side Management DSMCA....................................Demand Side Management Cost Adjustment Dth...................................................................Dekatherm ECA......................................................Energy Cost Adjustment e prime..........................................e prime, inc. and subsidiaries FERC.......................................Federal Energy Regulatory Commission Fort St. Vrain ......................Fort St. Vrain Electric Generating Station, formerly a nuclear generating station Fuelco ..........................................Fuel Resources Development Co., a dissolved Colorado Corporation GCA.........................................................Gas Cost Adjustment ICA...................................................Incentive Cost Adjustment Kwh...............................................................kilowatt-hour Merger............................the business combination between PSCo and SPS Natural Fuels.........................................Natural Fuels Corporation NCE or Company.......................................New Century Energies, Inc. NC Enterprises.............................................NC Enterprises, Inc. NCI.............................................New Century International, Inc. NMPUC......................................New Mexico Public Utility Commission NOx..............................................................Nitrogen Oxide PSCo.........................................Public Service Company of Colorado PUHCA................................Public Utility Holding Company Act of 1935 PSCCC............................................PS Colorado Credit Corporation PUCT.........................................Public Utility Commission of Texas QF..........................................................Qualifying Facility Quixx........................................Quixx Corporation and subsidiaries SEC..........................................Securities and Exchange Commission SO2..............................................................Sulfur Dioxide SPS.........................................Southwestern Public Service Company SFAS 71....................Statement of Financial Accounting Standards No. 71 - "Accounting for the Effects of Certain Types of Regulation" SFAS 112..................Statement of Financial Accounting Standards No. 112 - "Employers' Accounting for Postemployment Benefits" SFAS 121..................Statement of Financial Accounting Standards No. 121 - "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of" Thunder Basin........................................Thunder Basin Coal Company UE.............................Utility Engineering Corporation and subsidiaries WGI....................................................WestGas InterState, Inc. Yorkshire Electricity..........................Yorkshire Electricity Group plc Yorkshire Power......................................Yorkshire Power Group Ltd. ii NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Thousands of Dollars) ASSETS March 31, December 31, 1998 1997 ---- ---- (Unaudited) Property, plant and equipment, at cost: Electric ........................................ $6,735,650 $6,703,863 Gas.............................................. 1,152,410 1,136,231 Steam and other.................................. 107,570 120,322 Common to all departments........................ 469,054 437,636 Construction in progress......................... 374,063 318,124 ------- ------- 8,838,747 8,716,176 Less: accumulated depreciation .................. 3,237,807 3,182,800 --------- --------- Total property, plant and equipment............ 5,600,940 5,533,376 --------- --------- Investments, at cost: Investment in Yorkshire Power and other unconsolidated subsidiaries (Note 2)......... 299,077 295,316 Other............................................ 66,123 71,411 ------- ------ Total investments........................... ... 365,200 366,727 ------- ------- Current assets: Cash and temporary cash investments................ 76,005 72,623 Accounts receivable, less reserve for uncollectible accounts ($5,143 at March 31, 1998; $5,355 at December 31, 1997) .... ......................... 300,166 315,539 Accrued unbilled revenues.......................... 103,830 110,877 Recoverable purchased gas and electric energy costs - net .......................................... 101,765 129,292 Materials and supplies, at average cost............ 65,037 68,411 Fuel inventory, at average cost.................... 22,094 23,162 Gas in underground storage, at cost (LIFO)......... 14,923 47,394 Prepaid expenses and other......................... 57,402 56,868 ------ ------ Total current assets.............................. 741,222 824,166 ------- ------- Deferred charges: Regulatory assets (Note 1)......................... 417,918 430,475 Unamortized debt expense .......................... 20,276 20,833 Other.............................................. 144,337 134,704 ------- ------- Total deferred charges............................ 582,531 586,012 ------- ------- $7,289,893 $7,310,281 ========== ========== The accompanying notes to consolidated condensed financial statements are an integral part of these financial statements. 1 NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Thousands of Dollars) CAPITAL AND LIABILITIES March 31, December 31, 1998 1997 ---- ---- (Unaudited) Common stock ........................................ $1,716,152 $1,694,195 Retained earnings.................................... 680,667 659,050 ------- ------- Total common equity.............................. 2,396,819 2,353,245 Preferred stock of subsidiaries: Not subject to mandatory redemption............... 140,002 140,002 Subject to mandatory redemption at par............ 39,253 39,253 SPS obligated mandatorily redeemable preferred securities of subsidiary trust holding solely subordinated debentures of SPS ................... 100,000 100,000 Long-term debt of subsidiaries ...................... 1,986,183 1,987,955 --------- --------- 4,662,257 4,620,455 Noncurrent liabilities: Employees' postretirement benefits other than pensions ....................................... 65,089 62,716 Employees' postemployment benefits ............... 27,319 27,953 ------ ------ Total noncurrent liabilities..................... 92,408 90,669 ------ ------ Current liabilities: Notes payable and commercial paper ............... 608,761 588,343 Long-term debt due within one year................ 207,486 257,469 Preferred stock subject to mandatory redemption within one year ................................ 2,576 2,576 Accounts payable.................................. 228,253 298,469 Dividends payable................................. 69,083 68,296 Customers' deposits............................... 29,153 27,993 Accrued taxes..................................... 121,668 66,587 Accrued interest.................................. 36,456 52,615 Current portion of accumulated deferred income taxes .......................................... 23,773 27,391 Other............................................. 83,602 87,380 ------ ------ Total current liabilities........................ 1,410,811 1,477,119 --------- --------- Deferred credits: Customers' advances for construction.............. 52,778 53,041 Unamortized investment tax credits ............... 104,868 106,147 Accumulated deferred income taxes................. 918,057 922,341 Other............................................. 48,714 40,509 ------- ------ Total deferred credits........................... 1,124,417 1,122,038 --------- --------- Commitments and contingencies (Notes 3 and 4)........ --------- --------- $7,289,893 $7,310,281 ========== ========== The accompanying notes to consolidated condensed financial statements are an integral part of these financial statements. 2 NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) (Thousands of Dollars) Three Months Ended March 31, 1998 1997 ---- ---- Operating revenues: Electric........................................... $ 599,988 $ 588,357 Gas................................................ 319,707 291,624 Other.............................................. 19,809 10,030 ------- ------ 939,504 890,011 Operating expenses: Fuel used in generation............................ 140,919 148,879 Purchased power.................................... 148,864 127,833 Cost of gas sold................................... 224,912 206,989 Other operating and maintenance expenses........... 147,681 135,121 Depreciation and amortization...................... 62,418 61,167 Taxes (other than income taxes) ................... 32,873 34,022 ------- ------ 757,667 714,011 Operating income..................................... 181,837 176,000 Other income and deductions: Merger expenses.................................... (785) (4,058) Equity in earnings of Yorkshire Power and other unconsolidated subsidiaries (Note 2)............. 3,752 253 Miscellaneous income and deductions - net.......... (2,183) (1,534) ------ ------ 784 (5,339) Interest charges and preferred dividends of subsidiaries: Interest on long-term debt......................... 40,473 39,421 Other interest..................................... 8,494 4,917 Allowance for borrowed funds used during construction (4,506) (2,301) Dividends on SPS obligated mandatorily redeemable preferred securities of subsidiary trust holding solely subordinated debentures of SPS ........... 1,963 1,963 Dividend requirements on preferred stock of subsidiaries 2,929 2,943 ----- ----- 49,353 46,943 Income before income taxes............................ 133,268 123,718 Income taxes.......................................... 47,119 45,562 ------- ------- Net income............................................ $86,149 $78,156 ======= ======= Weighted average common shares outstanding............ 110,973 103,994 ======= ======= Basic and diluted earnings per share of common stock outstanding ......................................... $ 0.78 $0.75 ====== ===== The accompanying notes to consolidated condensed financial statements are an integral part of these financial statements. 3 NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (Thousands of Dollars) Three Months Ended March 31, 1998 1997 ---- ---- Operating activities: Net income......................................... $ 86,149 $ 78,156 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................... 64,887 62,162 Amortization of investment tax credits........... (1,279) (1,314) Deferred income taxes............................ (6,433) 18,490 Equity in earnings of Yorkshire Power and other unconsolidated subsidiaries, net............... (3,756) - Allowance for funds used during construction..... 3 (5) Change in accounts receivable.................... 15,373 18,139 Change in inventories............................ 36,913 24,221 Change in other current assets................... 34,040 (7,015) Change in accounts payable....................... (70,216) (107,695) Change in other current liabilities.............. 45,221 6,414 Change in deferred amounts....................... 5,192 (10,766) Change in noncurrent liabilities................. 1,738 (574) Other............................................ - (296) ------- -------- Net cash provided by operating activities...... 207,832 79,917 Investing activities: Construction expenditures.......................... (127,989) (89,904) Allowance for equity funds used during construction (3) 5 Proceeds from disposition from property, plant and equipment ....................................... 441 1,244 Purchase of other investments...................... (214) (1,125) Sale of other investments.......................... 5,458 4,205 ------ ----- Net cash used in investing activities.......... (122,307) (85,575) Financing activities: Proceeds from sale of common stock................. 13,038 7,658 Proceeds from sale of long-term notes and bonds.... - 323,733 Redemption of long-term notes and bonds............ (51,854) (16,510) Short-term borrowings - net........................ 20,418 116,425 Dividends on common stock.......................... (63,745) (56,536) -------- ------- Net cash provided by (used in)financing activities .................................. (82,143) 374,770 ------- ------- Net increase in cash and temporary cash investments ................................. 3,382 369,112 Cash and temporary cash investments at beginning of period ................................... 72,623 50,015 ------ ------ Cash and temporary cash investments at end of period ...................................... $ 76,005 $419,127 ======== ======== The accompanying notes to consolidated condensed financial statements are an integral part of these financial statements 4 PUBLIC SERVICE COMPANY OF COLORADO AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Thousands of Dollars) ASSETS March 31, December 31, 1998 1997 ---- ---- (Unaudited) Property, plant and equipment, at cost: Electric .......................................... $4,113,935 $4,088,447 Gas................................................ 1,113,569 1,100,003 Steam and other.................................... 78,707 78,740 Common to all departments.......................... 454,162 432,840 Construction in progress........................... 213,160 170,503 ------- ------- 5,973,533 5,870,533 Less: accumulated depreciation .................... 2,182,818 2,145,673 --------- --------- Total property, plant and equipment.............. 3,790,715 3,724,860 --------- --------- Investments, at cost: Investment in Yorkshire Power (Note 2)............. - 286,703 Note receivable from affiliate (Note 2)............ 292,620 - Other.............................................. 23,898 43,311 ------- ------ Total investments................................. 316,518 330,014 ------- ------- Current assets: Cash and temporary cash investments................ 19,665 18,909 Accounts receivable, less reserve for uncollectible accounts ($2,006 at March 31, 1998; $2,272 at December 31, 1997) .............................. 180,611 191,155 Accrued unbilled revenues ......................... 83,243 94,284 Recoverable purchased gas and electric energy costs - net .......................................... 86,221 103,197 Materials and supplies, at average cost............ 44,569 48,030 Fuel inventory, at average cost.................... 19,792 20,862 Gas in underground storage, at cost (LIFO)......... 14,561 46,576 Prepaid expenses and other......................... 34,874 39,594 ------- ------ Total current assets.............................. 483,536 562,607 ------- ------- Deferred charges: Regulatory assets (Note 1)......................... 300,207 310,658 Unamortized debt expense .......................... 10,416 10,800 Other.............................................. 61,760 55,794 ------- ------ Total deferred charges............................ 372,383 377,252 ------- ------- $4,963,152 $4,994,733 ========== ========== The accompanying notes to consolidated condensed financial statements are an integral part of these financial statements. 5 PUBLIC SERVICE COMPANY OF COLORADO AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Thousands of Dollars) CAPITAL AND LIABILITIES March 31, December 31, 1998 1997 ---- ---- (Unaudited) Common stock.......................................... $1,302,119 $1,302,119 Retained earnings..................................... 342,335 319,280 ------- ------- Total common equity............................... 1,644,454 1,621,399 Preferred stock: Not subject to mandatory redemption................ 140,002 140,002 Subject to mandatory redemption at par............. 39,253 39,253 Long-term debt........................................ 1,336,351 1,338,138 --------- --------- 3,160,060 3,138,792 Noncurrent liabilities: Employees' postretirement benefits other than pensions ........................................ 57,964 58,695 Employees' postemployment benefits................. 25,031 25,031 ------- ------- Total noncurrent liabilities...................... 82,995 83,726 ------- ------- Current liabilities: Notes payable and commercial paper................. 353,500 348,555 Long-term debt due within one year................. 207,236 257,160 Preferred stock subject to mandatory redemption within one year ................................. 2,576 2,576 Accounts payable................................... 171,238 218,773 Dividends payable.................................. 45,842 40,975 Customers' deposits................................ 22,996 21,888 Accrued taxes...................................... 94,489 42,549 Accrued interest................................... 26,658 39,177 Current portion of accumulated deferred income taxes 17,228 19,872 Other.............................................. 59,996 59,880 ------ ------ Total current liabilities......................... 1,001,759 1,051,405 --------- --------- Deferred credits: Customers' advances for construction............... 51,599 51,830 Unamortized investment tax credits ................ 98,158 99,355 Accumulated deferred income taxes.................. 532,550 534,246 Other.............................................. 36,031 35,379 ------- ------- Total deferred credits............................ 718,338 720,810 ------- ------- Commitments and contingencies (Notes 3 and 4)......... ---------- ---------- $4,963,152 $4,994,733 ========== ========== The accompanying notes to consolidated condensed financial statements are an integral part of these financial statements. 6 PUBLIC SERVICE COMPANY OF COLORADO AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) (Thousands of Dollars) Three Months Ended March 31, 1998 1997 ---- ---- Operating revenues: Electric........................................... $375,446 $373,863 Gas................................................ 265,483 291,624 Other.............................................. 3,713 3,230 ------- ------- 644,642 668,717 Operating expenses: Fuel used in generation............................ 50,629 44,261 Purchased power.................................... 124,057 122,626 Gas purchased for resale........................... 176,482 206,989 Other operating and maintenance expenses........... 93,945 98,157 Depreciation and amortization...................... 42,896 42,937 Taxes (other than income taxes) ................... 19,969 22,496 Income taxes ..................................... 36,818 35,270 ------- ------- 544,796 572,736 Operating income...................................... 99,846 95,981 Other income and deductions: Merger expenses.................................... 418 (1,280) Equity earnings in Yorkshire Power (Note 2)........ 3,446 - Miscellaneous income and deductions - net.......... (3,303) (1,508) ------- ------- 561 (2,788) Interest charges: Interest on long-term debt......................... 27,600 26,906 Amortization of debt discount and expense less premium 978 928 Other interest..................................... 5,653 3,939 Allowance for borrowed funds used during construction (2,721) (1,461) ------ ------ 31,510 30,312 ------ ------ Net income............................................ 68,897 62,881 Dividend requirements on preferred stock.............. 2,929 2,943 ------- ------- Earnings available for common stock................... $65,968 $59,938 ======= ======= The accompanying notes to consolidated condensed financial statements are an integral part of these financial statements. 7 PUBLIC SERVICE COMPANY OF COLORADO AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (Thousands of Dollars) Three Months Ended March 31, 1998 1997 ---- ---- Operating activities: Net income......................................... $68,897 $62,881 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................... 44,124 43,932 Amortization of investment tax credits........... (1,197) (1,252) Deferred income taxes............................ (801) 23,609 Equity in earnings of Yorkshire Power............ (3,446) - Change in accounts receivable.................... 10,165 14,528 Change in inventories............................ 36,546 24,592 Change in other current assets................... 32,739 (15,659) Change in accounts payable....................... (46,326) (99,862) Change in other current liabilities.............. 39,889 15,366 Change in deferred amounts....................... (2,194) 85 Change in noncurrent liabilities................. (732) 264 Other............................................ - (296) ------- -------- Net cash provided by operating activities...... 177,664 68,188 Investing activities: Construction expenditures.......................... (107,298) (57,545) Proceeds from disposition of property, plant and equipment ....................................... 1,393 1,244 Purchase of other investments...................... (152) (418) Sale of other investments.......................... 5,026 4,205 ------- ------ Net cash used in investing activities.......... (101,031) (52,514) Financing activities: Proceeds from sale of common stock................. - 7,658 Proceeds from sale of long-term notes and bonds.... - 323,733 Redemption of long-term notes and bonds............ (51,800) (1,755) Short-term borrowings - net........................ 16,899 50,675 Dividends on common stock.......................... (38,047) (34,030) Dividends on preferred stock....................... (2,929) (2,943) ------- ------- Net cash provided by (used in) financing activities ................................. (75,877) 343,338 ------- ------- Net increase in cash and temporary cash investments ................................ 756 359,012 Cash and temporary cash investments at beginning of period .................................. 18,909 9,406 Cash and temporary cash investments at end of period ..................................... $ 19,665 $368,418 ========= ======== The accompanying notes to consolidated condensed financial statements are an integral part of these financial statements. 8 SOUTHWESTERN PUBLIC SERVICE COMPANY CONDENSED BALANCE SHEETS (Thousands of Dollars) ASSETS March 31, December 31, 1998 1997 ---- ---- (Unaudited) Property, plant and equipment, at cost: Electric .......................................... $2,562,573 $2,557,579 Construction in progress........................... 157,435 144,452 2,720,008 2,702,031 Less: accumulated depreciation .................... 1,004,030 987,487 Total property, plant and equipment............... 1,715,978 1,714,544 --------- --------- Investments, at cost: Notes receivable from affiliate ................... 119,036 119,036 Other.............................................. 5,894 5,832 ------- ------- Total investments................................. 124,930 124,868 ------- ------- Current assets: Cash and temporary cash investments................ 9,119 986 Accounts receivable, less reserve for uncollectible accounts ($2,315 at March 31, 1998; $2,442 at December 31, 1997) .............................. 80,540 96,548 Accrued unbilled revenues ......................... 19,727 15,468 Recoverable electric energy costs - net............ 13,057 23,086 Materials and supplies, at average cost............ 16,641 16,337 Fuel inventory, at average cost.................... 2,302 2,301 Prepaid expenses and other......................... 3,130 3,367 ------- ------- Total current assets.............................. 144,516 158,093 ------- ------- Deferred charges: Regulatory assets (Note 1)......................... 117,164 119,244 Unamortized debt expense .......................... 9,229 9,395 Other.............................................. 53,538 55,349 ------- ------- Total deferred charges............................ 179,931 183,988 ------- ------- $2,165,355 $2,181,493 ========== ========== The accompanying notes to condensed financial statements are an integral part of these financial statements. 9 SOUTHWESTERN PUBLIC SERVICE COMPANY CONSDENSED BALANCE SHEETS (Thousands of Dollars) CAPITAL AND LIABILITIES March 31, December 31, 1998 1997 ---- ---- (Unaudited) Common stock.......................................... $ 348,402 $ 348,402 Retained earnings..................................... 343,125 349,988 ------- ------- Total common equity............................... 691,527 698,390 SPS obligated mandatorily redeemable preferred securities of subsidiary trust holding solely subordinated debentures of SPS ..................... 100,000 100,000 Long-term debt........................................ 620,667 620,598 ------- ------- 1,412,194 1,418,988 Noncurrent liabilities: Employees' postretirement benefits other than pensions ........................................ 4,153 3,800 Employees' postemployment benefits................. 1,812 2,446 ------- ------- Total noncurrent liabilities...................... 5,965 6,246 ------- ------- Current liabilities: Notes payable and commercial paper................. 158,762 154,244 Notes payable to affiliates........................ 17,660 25,160 Long-term debt due within one year................. 114 173 Accounts payable................................... 98,325 107,465 Dividends payable.................................. 25,002 22,546 Customers' deposits................................ 5,515 5,471 Accrued taxes...................................... 31,168 28,051 Accrued interest................................... 9,320 12,715 Current portion of accumulated deferred income taxes 6,174 10,740 Other.............................................. 6,291 7,415 ------- ------- Total current liabilities......................... 358,331 373,980 ------- ------- Deferred credits: Unamortized investment tax credits ................ 5,406 5,469 Accumulated deferred income taxes ................. 374,113 372,447 Other.............................................. 9,346 4,363 ------- ------- Total deferred credits............................ 388,865 382,279 ------- ------- Commitments and contingencies (Notes 3 and 4)......... $2,165,355 $2,181,493 ========== ========== The accompanying notes to condensed financial statements are an integral part of these financial statements. 10 SOUTHWESTERN PUBLIC SERVICE COMPANY CONDENSED STATEMENTS OF INCOME (Unaudited) (Thousands of Dollars) Three Months Ended March 31, 1998 1997 ---- ---- Operating revenues: Electric........................................... $199,732 $214,495 Other.............................................. - 6,800 ------- ------- 199,732 221,295 Operating expenses: Fuel used in generation............................ 90,290 104,618 Purchased power.................................... 2,641 5,207 Other operating & maintenance expenses............. 34,396 36,965 Depreciation and amortization...................... 17,776 18,230 Taxes (other than income taxes) ................... 12,065 11,526 Income taxes ...................................... 11,225 10,292 ------- ------- 168,393 186,838 ------- ------- Operating income...................................... 31,339 34,457 Other income and deductions: Merger expenses.................................... (1,203) (2,778) Miscellaneous income and deductions - net ......... 2,278 275 ------- ------- 1,075 (2,503) Interest charges: Interest on long-term debt......................... 10,943 11,025 Amortization of debt discount and expense less premium 561 562 Other interest..................................... 2,579 1,026 Allowance for borrowed funds used during construction (1,771) (840) Dividends on SPS obligated mandatorily redeemable preferred securities of subsidiary trust holding solely subordinated debentures of SPS ............ 1,963 1,963 ----- ----- 14,275 13,736 ------ ------ Net income............................................ $18,139 $18,218 ======= ======= Theaccompanying notes to condensed financial statements are an integral part of these financial statements. 11 SOUTHWESTERN PUBLIC SERVICE COMPANY CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (Thousands of Dollars) Three Months Ended March 31, 1998 1997 ---- ---- Operating activities: Net income......................................... $18,139 $18,218 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................... 18,859 18,230 Amortization of investment tax credits........... (63) (62) Deferred income taxes............................ (4,969) (5,119) Allowance for funds used during construction..... 3 (5) Change in accounts receivable.................... 16,008 3,611 Change in inventories............................ (305) (371) Change in other current assets................... 6,008 8,644 Change in accounts payable....................... (9,140) (7,833) Change in other current liabilities.............. (1,359) (8,952) Change in deferred amounts....................... 10,438 (10,851) Change in noncurrent liabilities................. (279) (838) ------- ------- Net cash provided by operating activities...... 53,340 14,672 Investing activities: Construction expenditures.......................... (18,601) (32,359) Allowance for equity funds used during construction (3) 5 Cost of disposition of property, plant and equipment (1,013) - Purchase of other investments...................... (62) (707) ------- ------- Net cash used in investing activities.......... (19,679) (33,061) Financing activities: Redemption of long-term notes and bonds............ - (14,755) Short-term borrowings - net........................ (2,982) 65,750 Dividends on common stock.......................... (22,546) (22,506) ------- ------- Net cash provided by (used in) financing activities ................................. (25,528) 28,489 ------- ------ Net increase in cash and temporary cash investments ................................ 8,133 10,100 Cash and temporary cash investments at beginning of period .................................. 986 40,609 --- ------ Cash and temporary cash investments at end of period ..................................... $ 9,119 $ 50,709 ======== ======== The accompanying notes to condensed financial statements are an integral part of these financial statements 12 NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. Summary of Significant Accounting Policies (NCE, PSCo and SPS) Effective August 1, 1997, following the receipt of all required state and Federal regulatory approvals, PSCo and SPS merged in a tax-free "merger of equals" transaction and became wholly-owned subsidiaries of NCE. Each outstanding share of PSCo common stock was canceled and converted into the right to receive one share of NCE common stock, and each outstanding share of SPS common stock was canceled and converted into the right to receive 0.95 of one share of NCE common stock. Effective with the Merger, certain utility and non-utility subsidiaries were transferred within NCE's common controlled subsidiaries. The common stock of Quixx and UE, former SPS subsidiaries, were transferred through the sale by SPS of the common stock of such subsidiaries at net book value, aggregating approximately $119.0 million, to NC Enterprises in exchange for notes payable of NC Enterprises. Subsidiaries of PSCo (Cheyenne, WGI, e prime and Natural Fuels) were transferred by a declaration of a dividend of the subsidiaries' stock, at net book value, aggregating approximately $49.9 million to NCE. NCE subsequently made a capital contribution of the e prime and Natural Fuels common stock, at net book value, aggregating approximately $29.5 million to NC Enterprises. The NCE consolidated condensed financial statements reflect the accounting for the Merger as a pooling of interests. The Company's 1997 consolidated condensed statements of income and cash flows include the consolidated financial statements for both PSCo and SPS for the three months ended March 31, 1997. Business, Utility Operations and Regulation NCE is a registered holding company under the PUHCA and its utility subsidiaries (PSCo, SPS and Cheyenne) are engaged principally in the generation, purchase, transmission, distribution and sale of electricity and in the purchase, transmission, distribution, sale and transportation of natural gas. Both the Company and its subsidiaries are subject to the regulatory provisions of the PUHCA. The utility subsidiaries are subject to regulation by the FERC and state utility commissions in Colorado, Texas, New Mexico, Wyoming, Kansas and Oklahoma. Over 90% of the Company's revenues are derived from its regulated utility operations. Regulatory Assets and Liabilities The Company's regulated subsidiaries prepare their financial statements in accordance with the provisions of SFAS 71, as amended. SFAS 71 recognizes that accounting for rate regulated enterprises should reflect the relationship of costs and revenues introduced by rate regulation. A regulated utility may defer recognition of a cost (a regulatory asset) or recognize an obligation (a regulatory liability) if it is probable that, through the ratemaking process, there will be a corresponding increase or decrease in revenues. 13 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) The following regulatory assets are reflected in the accompanying condensed consolidated balance sheets (in thousands): March 31, 1998 NCE PSCo SPS ------ ------ ----- Income taxes ....................... $158,889 $80,816 $78,604 Nuclear decommissioning costs....... 75,252 75,252 - Employees' postretirement benefits other than pensions .............. 61,613 58,620 2,993 Early retirement costs.............. 5,703 4,430 1,273 Employees' postemployment benefits (Note 3) ................ 24,335 23,835 - Demand-side management costs........ 41,898 37,824 4,074 Unamortized debt reacquisition costs 35,824 17,285 17,960 Thunder Basin judgment (Note 3)..... 4,921 - 4,921 Other............................... 9,483 2,145 7,339 ------ ------ ------ Total............................. $417,918 $300,207 $117,164 ======== ======== ======== December 31, 1997 NCE PSCo SPS ------ ------ ----- Income taxes........................ $162,985 $84,356 $79,161 Nuclear decommissioning costs....... 76,881 76,881 - Employees' postretirement benefits other than pensions............... 63,023 59,995 3,028 Early retirement costs.............. 8,008 6,645 1,363 Employees' postemployment benefits (Note 3) ................ 24,455 23,932 - Demand-side management costs........ 42,503 38,518 3,985 Unamortized debt reacquisition costs 36,717 17,791 18,344 Thunder Basin judgment (Note 3)..... 5,912 - 5,912 Other............................... 9,991 2,540 7,451 ------ ------ ------ Total............................. $430,475 $310,658 $119,244 ======== ======== ======== The regulatory assets of the Company's regulated subsidiaries as of March 31, 1998 and December 31, 1997 are reflected in rates charged to customers over periods ranging from two to thirty years. The Company believes its utility subsidiaries will continue to be subject to rate regulation. In the event that a portion of the Company's operations is no longer subject to the provisions of SFAS 71, as a result of a change in regulation or the effects of competition, the Company's subsidiaries could be required to write-off their regulatory assets, determine any impairment to other assets resulting from deregulation and write-down any impaired assets to their estimated fair value, which could have a material adverse effect on NCE's, PSCo's and SPS's financial position, results of operations or cash flows. On January 27, 1997, the CPUC issued its order on PSCo's 1996 gas rate case. The CPUC allowed recovery of postemployment benefit costs on an accrual basis under SFAS 112 and denied amortization of the approximately $8.9 million regulatory asset recognized upon the adoption of SFAS 112. PSCo has appealed in the Denver District Court the decision related to this issue. PSCo believes that it will be successful on appeal and that the associated regulatory asset is realizable. On April 1, 1998, in connection with PSCo's earnings test filing, PSCo has requested approval to recover its electric jurisdictional portion of the postemployment benefit costs regulatory asset totaling approximately $15 million over three years. PSCo believes that it will be allowed recovery of SFAS 112 costs on an accrual basis. If PSCo is ultimately unsuccessful in its appeal of the gas rate case decision and/or in its request to recover its electric jurisdictional regulatory asset, all unrecoverable amounts will be written off (see Note 3. Regulatory Matters - Electric Department Earnings Test and Quality of Service Plan). 14 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) As of March 31, 1998, SPS has approximately $4.9 million in regulatory assets associated with the Thunder Basin judgment. The judgment amount paid is recoverable from customers subject to review by various regulatory agencies (see Note 3. Regulatory Matters - Electric and Gas Cost Adjustment Mechanisms). Non-utility Subsidiaries and International Investments The Company's non-utility subsidiaries are principally involved in engineering, design and construction management, non-regulated energy services, including gas and power marketing, the management of real estate and certain life insurance policies, the financing of certain current assets of PSCo and investments in cogeneration facilities, electric wholesale generators and a foreign utility company. The Company's international investments are subject to regulation in the countries in which such investments are made (see Note 2. Investment in Yorkshire Power). Financial statements of foreign subsidiaries are translated into U.S. dollars at current exchange rates, except for revenues, costs and expenses which are translated at average current exchange rates during each reporting period. Statements of Cash Flows - Non-cash Transactions: Effective February 26, 1998, the Company issued 222,362 shares of its common stock, valued at the market price on date of issuance of approximately $10 million to the Employees' Savings and Stock Ownership Plan of Public Service Company of Colorado and Participating Subsidiary Companies. Prior to the Merger, during 1997, PSCo issued 250,058 shares of its common stock to the Employees' Savings and Stock Ownership Plan of Public Service Company of Colorado and Participating Subsidiary Companies valued at the market price on date of issuance of approximately $10 million. The estimated issuance values were recognized in other operating expenses during the respective preceding years. On March 31, 1998, PSCo sold its common stock investment in NCI (at net book value of approximately $292.6 million) to NC Enterprises, a subsidiary of NCE. Consideration paid by NC Enterprises for such sale was a 20 year 7.02% promissory note (see Note 2. Investment in Yorkshire Power). Comprehensive Income The Company and its subsidiaries adopted Statement of Financial Accounting Standards No. 130 Reporting Comprehensive Income, effective January 1, 1998. The individual and cumulative components of other comprehensive income are not material to the Company and its subsidiaries. General See Note 1. of the Notes to Consolidated Financial Statements in NCE's, PSCo's and SPS' 1997 Annual Report on Form 10-K for a summary of the companies and their subsidiaries significant accounting policies. Certain prior year amounts have been reclassified to conform to the current year's classification. 2. Investment in Yorkshire Power (NCE and PSCo) During the second quarter of 1997, Yorkshire Power, a subsidiary equally owned by PSCo, through NCI, and AEP, acquired indirectly all of the outstanding ordinary shares of Yorkshire Electricity, a United Kingdom regional electricity company. NCI accounts for its investment in Yorkshire Power using the equity method. Yorkshire Power's results of operations include 100% of Yorkshire Electricity's results since April 1, 1997. NCI's equity earnings in Yorkshire Power is 50%, the same as its ownership share. The total consideration paid by Yorkshire Power was approximately $2.4 billion (1.5 billion pounds sterling). The acquisition was financed by Yorkshire Power through a combination of approximately 25% equity and 75% debt, including the assumption of the existing debt of Yorkshire Electricity. The funds for the 15 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) acquisition were obtained from PSCo's and AEP's investment in Yorkshire Power of approximately $360 million (220 million pounds sterling) each, with the remainder obtained by Yorkshire Power through the issuance of non-recourse debt. PSCo funded its entire equity investment in Yorkshire Power through $250 million of publicly issued secured medium-term notes with varying maturities and drawings of approximately $110 million on its short-term lines of credit pursuant to its short-term credit agreement with Bank of America, as agent. As approved by the SEC on May 14, 1998 under the PUHCA, effective March 31, 1998, PSCo sold its common stock investment in NCI to NC Enterprises, an NCE subsidiary. NCI's primary investment is Yorkshire Power. PSCo received as consideration a 20 year promissory note from NC Enterprises in the amount of approximately $292.6 million. Annual interest payments are required for the first three years followed by principal and interest payments for the remaining seventeen years. The interest rate on the note is 7.02%. NCE intends to make additional capital contributions to NC Enterprises to provide the necessary cash flow requirements to make payments on the promissory note to PSCo. Summarized income statement information for the three months ended March 31, 1998 is presented below (in millions): Yorkshire Power: Operating revenues....................... $ 663.2 -------- Operating income......................... 89.7 -------- Net income (1)........................... $ 6.9 ======== NCI's equity in earnings of Yorkshire Power $ 3.4 ======== (1)Includes a penalty, which was applicable to all United Kingdom regional electricity utilities, designed to recognize the effects of the delay in implementation of full competition for the period April 1998 to September 1998 (Yorkshire Power's portion was $8.3 million). The unaudited pro forma financial information presented below for NCE assumes that Yorkshire Power was acquired on January 1, 1997. The pro forma adjustments include recognition of equity in the estimated earnings of Yorkshire Power, an adjustment for interest expense on debt associated with the investment in Yorkshire Power and related income taxes. The estimated earnings of Yorkshire Power were based on historical earnings of Yorkshire Electricity, prior to its acquisition by Yorkshire Power, adjusted for the estimated effects of purchase accounting (including the amortization of goodwill), conversion to United States generally accepted accounting principles, interest expense on debt issued by Yorkshire Power associated with the acquisition and related income taxes. Sales of electricity are affected by seasonal weather patterns and, therefore, the results of Yorkshire Power/Yorkshire Electricity will not be distributed evenly during the year. Equity in earnings of Yorkshire Power has been converted at the average exchange rates for the quarter ended March 31, 1998 and March 31, 1997, of $1.646/pound and $1.632/pound, respectively. 16 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) Based on the above assumptions, shown below is unaudited pro forma financial information for the three months ended March 31, 1998 and 1997 (in millions, except per share amounts): NCE Earnings Available for common stock Per share (1) ------------ ------------- 1998 1997 1998 1997 ---- ---- ---- ---- Net income............................. $86.1 $ 78.2 $0.78 $0.75 ===== ===== Pro forma adjustments: Equity in earnings of Yorkshire Power, net of U.S. tax benefits (2)............... - (10.1) Interest expense, net of tax......... - (3.5) ----- ------ Pro forma result....................... $86.1 $ 64.6 $0.78 $0.62 ===== ====== ===== ===== (1) Based on the weighted average number of common shares outstanding for the period. (2) The first quarter of 1997 amount includes $24.0 million ($17.9 million after-tax) of write-offs related to certain computer development costs, acquisition expenses and costs incurred for the preparation for deregulation. The unaudited pro forma financial information presented below for PSCo assumes that NCI (primarily representing Yorkshire Power) was sold to NC Enterprises effective January 1, 1997. NCI was formed in connection with the investment in Yorkshire Power and had no operations during the first three months of 1997. The pro forma adjustments represent the removal of NCI's net income from PSCo for the first quarter of 1998 and the inclusion of interest income, net of tax, from the promissory note to PSCo from NC Enterprises. Based upon the above assumptions, shown below is unaudited pro forma financial information for the three months ended March 31, 1998 (in millions): PSCo Earnings 1998 ---- Net income............................................... $ 68.9 Pro forma adjustments: NCI's net income ...................................... (2.8) Interest income from promissory note, net of tax....... 3.3 ------ Pro forma result......................................... $ 69.4 ====== 3. Regulatory Matters (NCE, PSCo and SPS) Merger Rate Filings The discussion below summarizes the significant conditions imposed by the state utility regulatory commissions in Colorado, Texas, New Mexico, Wyoming, Oklahoma and Kansas in their respective approvals of the Merger. 17 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) PSCo The CPUC decision approving the Merger established a five-year performance based regulatory plan and acknowledged that the Merger was in the public interest. The major provisions of the decision include the following, some of which are discussed in other sections of this note: - a $6 million annual electric rate reduction, which was instituted October 1, 1996, followed by an additional $12 million annual electric rate reduction effective with the implementation of new gas rates on February 1, 1997; - an annual electric department earnings test with the sharing of earnings in excess of an 11% return on equity for the calendar years 1997-2001 and the implementation of a Quality of Service Plan; - a freeze in base electric rates for the period through December 31, 2001 with the flexibility to make certain other rate changes, including those necessary to allow for the recovery of DSM, QF capacity and decommissioning costs. The freeze in base electric rates does not prohibit PSCo from filing a general rate case or deny any party the opportunity to initiate a complaint or show cause proceeding; and - the replacement of the ECA with an ICA. Subsequent to the CPUC's decision approving the Merger, the CPUC approved the recovery of merger costs, amortized from the effective date of the Merger through December 31, 2001. PSCo has expensed merger costs as incurred and recovery of such costs will be reflected in the electric department earnings test, discussed below in Electric Department Earnings Test and Quality of Service Plan. Merger costs attributable to Colorado gas retail customers were included in the gas rate case approved by the CPUC, discussed below in Rate Cases- PSCo Retail Gas. SPS Under the various regulatory commission approvals, SPS is required to provide credits to customers over five years for one-half of the measured non-fuel operation and maintenance expense savings associated with the Merger. SPS will provide guaranteed minimum annual credits to retail customers of $3 million in Texas, $1.2 million in New Mexico, $100,000 in Oklahoma and $10,000 in Kansas and $1.5 million to wholesale customers. Cheyenne The WPSC approved the Merger on August 16, 1996. Cheyenne agreed not to file a retail electric rate case for two years after the Merger is consummated. Cheyenne expects to file a combined gas and electric rate case with the WPSC in 1999 after the two year moratorium expires. Rate Cases PSCo Retail - Gas On June 5, 1996, PSCo filed a retail rate case with the CPUC requesting an annual increase in its jurisdictional gas department revenues of approximately $34 million. In early 1997, the CPUC approved an overall increase of approximately $18 million with an 11.25% return on equity, effective February 1, 1997 and as modified on May 15, 1997. The CPUC disallowed the recovery of certain postemployment benefit costs under SFAS 112 and imputed anticipated merger related savings net of costs related to the gas business (see Note 1. Summary of Significant Accounting Policies). PSCo filed a petition with the Denver District Court appealing the CPUC's decision. A decision from the Denver District Court is expected in the last half of 1998. 18 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) SPS New Mexico On November 17, 1997, the NMPUC issued an order investigating SPS's rates. In the order, the NMPUC determined that because of the rapid changes occurring in the electric industry there is a need for the NMPUC to require rate case filings by the major electricity suppliers who have not adopted a plan to provide retail open access and customer choice of suppliers. SPS filed a compliance filing on May 5, 1998, proposing a $1.7 million annual rate reduction for certain retail customers in New Mexico, which incorporates the $1.2 million guaranteed minimum annual credits, discussed above. Wholesale - FERC On December 19, 1989, the FERC issued its final order regarding a 1985 wholesale rate case. SPS appealed certain portions of the order that related to recognition in rates of the reduction of the federal income tax rate from 46% to 34%. The United States Court of Appeals for the District of Columbia Circuit remanded the case directing the FERC to reconsider SPS's claim of an offsetting cost and limiting the FERC's actions. The FERC issued its Order on Remand in July 1992, the required filings were made and a hearing was completed in February 1994. In October 1994, the administrative law judge ("ALJ") issued a favorable initial decision that, if approved by the FERC, would result in a substantial revenue recovery for SPS. Negotiated settlements with SPS's partial requirements customers and TNP were approved by the FERC in July 1993 and September 1993, respectively, and SPS received approximately $2.8 million, including interest. In a settlement with SPS's New Mexico rural electric cooperative customers, SPS received approximately $7.0 million, including interest. The FERC approved this settlement in July 1995. Resolutions of these matters with the remaining wholesale customers, the Golden Spread member cooperatives and Lyntegar Electric Cooperative, have not been achieved. On May 5, 1998, the FERC issued its opinion substantially modifying the ALJ's initial decision, raising issues which may lower amounts previously expected to be recoverable from wholesale customers. SPS is evaluating the impact of the FERC's order. Cheyenne On May 12, 1997, Cheyenne filed an application with the WPSC for an overall annual increase in retail gas revenues of approximately $1.25 million. On September 23, 1997, the WPSC approved an increase in retail gas revenues of approximately $1.19 million with an 11.71% return on equity, effective October 1, 1997. Electric and Gas Cost Adjustment Mechanisms PSCo During 1994 and 1995, the CPUC conducted several proceedings to review issues related to the ECA. The CPUC opened a docket to review whether the ECA should be maintained in its then present form, altered or eliminated, and on January 8, 1996, combined this docket with the merger docket discussed above. The CPUC decision on the Merger modified and replaced the ECA with an ICA. The ICA, which became effective October 1, 1996, allows for a 50%/50% sharing of certain fuel and energy cost increases and decreases among customers and shareholders. As of March 31, 1998, PSCo has deferred approximately $1.2 million, as recoverable fuel and energy costs. Management does not believe the cost adjustment mechanism will have a significant impact on the Company's results of operations, financial position or cash flows. The CPUC had a docket to review and prescribe a standardized GCA process to determine the prudence of gas commodity and pipeline delivery service costs incurred by gas utilities. Other issues addressed in this docket included whether the GCA should be maintained in its present form, altered or eliminated. The CPUC issued an order on May 7, 1997, which provides for the current GCA to be maintained and the adoption of certain standardized filing and gas purchase reporting requirements. In early 1998, the CPUC issued another Notice of Proposed Rulemaking seeking 19 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) comments on various customer notice and reporting requirements related to changes in gas costs. On March 25, 1998, the CPUC decision was issued with no material changes to the GCA. SPS Texas A PUCT substantive rule requires periodic examination of SPS's fuel and purchased power costs, the efficiency of the use of such fuel and purchased power, fuel acquisition and management policies and purchase power commitments. Under the PUCT's regulations, SPS is required to file an application for the Commission to retrospectively review, at least every three years, the operations of a utility's electricity generation and fuel management activities. SPS will file a reconciliation in 1998 for the generation and fuel management activities totaling approximately $690 million, for the period from January 1995 through December 1997. For this same period, SPS had approximately $21.2 million in underrecovered fuel costs associated with the Texas retail jurisdiction. Currently, Texas retail customers are being surcharged for approximately $6.4 million of such underrecovered fuel costs. This surcharge does not include the Thunder Basin judgment discussed below. On May 1, 1995, SPS filed with the PUCT a petition for a fuel reconciliation for the months of January 1992 through December 1994. The PUCT issued an order in January 1996 requiring SPS to make a $3.9 million fuel refund consisting of $2.1 million of overrecovered fuel costs and $1.8 million of disallowed fuel costs for the period. This refund was made in April 1996. Additionally, the order required SPS to pass through to customers 100% of margins from non-firm off-system opportunity sales as of January 1995. Prior PUCT rulings had allowed SPS to retain 25% of these margins. The 100% flow through is required by PUCT rules, absent a waiver. A motion for rehearing on the fuel disallowance (which was adjusted to $1.9 million) was subsequently denied by the PUCT and SPS was ordered to flow through 100% of the non-firm off-system sales margin effective with the first billing cycle after the date of the order. Upon appeal by SPS to the Travis County District Court in May 1996, the PUCT's decision on the disallowed fuel costs was upheld. SPS appealed the decision and on January 29, 1998 the Texas Court of Appeals upheld the PUCT decision to disallow fuel costs. On March 16, 1998, SPS filed an appeal to the Supreme Court of Texas. SPS was named as a defendant in a case entitled Thunder Basin Coal Co. vs. Southwestern Public Service Co., No. 93-CV304B (D. Wyo.). On November 1, 1994, the jury returned a verdict in favor of Thunder Basin and awarded damages of approximately $18.8 million. SPS appealed the judgment to the Tenth Circuit Court of Appeals and, on January 7, 1997, that Court found in favor of Thunder Basin and upheld the judgment. SPS filed a motion for rehearing which was denied. In February 1997, SPS recorded the liability for the judgment including interest and court costs. The amount of approximately $22.3 million was paid in April 1997. On September 17, 1996, the FERC issued an order granting SPS conditional approval to collect the FERC jurisdictional portion of the Thunder Basin judgment from wholesale customers. On October 24, 1997, the NMPUC issued an order granting recovery of the New Mexico retail jurisdictional portion of the judgment. On May 1, 1997, SPS filed a request with the PUCT to surcharge undercollected fuel and purchased power expenses, which included $9.1 million of the Thunder Basin judgment. In November 1997, the PUCT issued a decision which denied recovery of the judgment through a surcharge, on the grounds that the costs are not classified as fuel costs. In 1997, SPS expensed approximately $12.1 million of the Texas retail jurisdictional portion of the Thunder Basin judgment and recognized an equal amount as deferred revenue in anticipation of future recovery through the fuel reconciliation proceeding. SPS believes that recovery of the Thunder Basin costs for the Texas retail jurisdiction will be approved in a fuel reconciliation proceeding in 1998, but cannot predict the ultimate outcome. Under the PUCT regulations, a utility may recover eligible fuel expenses or fuel-related expenses, which result in benefits to customers that exceed the costs that customers would otherwise have to pay. The Thunder Basin costs resulted in total net savings to customers of $8.9 million, of which $4.8 million net savings is attributable to Texas retail jurisdictional customers. 20 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) Electric Department Earnings Test and Quality of Service Plan PSCo The CPUC's decision on the Merger implemented an electric department earnings test with the sharing of earnings in excess of an 11% return on equity for the calendar years 1997-2001 as follows: Electric Department Sharing of Excess Earnings Return on Equity Customers Shareholders ---------------- --------- ------------ 11-12% 65% 35% 12-14% 50% 50% 14-15% 35% 65% over 15% 100% 0% The CPUC's decision on the Merger also implemented a QSP which provides for bill credits totaling up to $5 million in year one and increasing to $11 million in year five, if PSCo does not achieve certain performance measures relating to electric reliability, customer complaints and telephone response to inquiries. On October 15, 1997, the CPUC issued an order addressing the implementation of a reward mechanism in the QSP which provides up to $3 million of annual rewards if PSCo achieves certain performance measures relating to electric reliability. On April 1, 1998, PSCo filed with the CPUC its proposed Performanced-Based Regulatory Plan adjustment for calendar year 1997. This adjustment will provide the means for implementing the sharing mechanism for the customers' portion of earnings over PSCo's authorized return on equity threshold resulting from the 1997 electric department earnings test, net of QSP reward earned revenue. As of December 31, 1997, PSCo recorded an estimated customer refund obligation of approximately $16.4 million related to the 1997 electric department earnings test, net of QSP rewards. As of March 31, 1998, PSCo has recorded a liability of approximately $5.6 million for the 1998 electric department earnings test. 4. Commitments and Contingencies (NCE, PSCo and SPS) Environmental Issues The Company and its subsidiaries are subject to various environmental laws, including regulations governing air and water quality and the storage and disposal of hazardous or toxic wastes. The Company and its subsidiaries assess, on an ongoing basis, measures to ensure compliance with laws and regulations related to air and water quality, hazardous materials and hazardous waste compliance and remediation activities. Environmental Site Cleanup As described below, PSCo has been or is currently involved with the clean up of contamination from certain hazardous substances. In all situations, PSCo is pursuing or intends to pursue insurance claims and believes it will recover some portion of these costs through such claims. Additionally, where applicable, PSCo intends to pursue recovery from other Potentially Responsible Parties ("PRPs"). To the extent such costs are not recovered, PSCo currently believes it is probable that such costs will be recovered through the rate regulatory process. To the extent any costs are not recovered through the options listed above, PSCo would be required to recognize an expense for such unrecoverable amounts. Under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), the U.S. Environmental Protection Agency ("EPA") identified, and a Phase II environmental assessment revealed, low level, widespread contamination from hazardous substances at the Barter Metals Company ("Barter") properties located in 21 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) central Denver. For an estimated 30 years, PSCo sold scrap metal and electrical equipment to Barter for reprocessing. PSCo has completed the cleanup of this site at a cost of approximately $9 million and has received responses from the Colorado Department of Public Health and Environment ("CDPHE") indicating that no further action is required related to these properties. On January 3, 1996, in a lawsuit by PSCo against its insurance providers, the Denver District Court entered final judgment in favor of PSCo in the amount of $5.6 million for certain cleanup costs at Barter. Several appeals and cross appeals have been filed by one of the insurance providers and PSCo in the Colorado Court of Appeals. The insurance provider has posted supersedeas bonds in the amount of $9.7 million ($7.7 million attributable to the Barter judgment). On July 10, 1997, the Colorado Court of Appeals overturned the previously awarded $7.7 million judgment on the basis that the jury had not been properly instructed by the Judge regarding a narrow issue associated with certain policies. Previously, PSCo had received certain insurance settlement proceeds from other insurance providers for Barter and other contaminated sites and a portion of those funds remains to be allocated to this site by the trial court. In addition, in August 1996, PSCo filed a lawsuit against four PRPs seeking recovery of certain Barter related costs. Settlement has been achieved with two smaller PRP's. On December 16, 1997, the U. S. District Court awarded summary judgment in favor of the remaining PRPs, on the basis PSCo failed to follow CERCLA guidelines in the cleanup. On January 15, 1998, PSCo appealed the summary judgment to the U.S. Court of Appeals. In March 1998, PSCo sold the remaining Barter properties, and the total proceeds of were $1.2 million. PCB presence was identified in the basement of an historic office building located in downtown Denver. The Company was negotiating the future cleanup with the current owners; however, on October 5, 1993, the owners filed a civil action against PSCo in the Denver District Court. The action alleged that PSCo was responsible for the PCB releases and additionally claimed other damages in unspecified amounts. On August 8, 1994, the Denver District Court entered a judgment approving a $5.3 million offer of settlement between PSCo and the building owners resolving all claims. In December 1995, complaints were filed by PSCo against all applicable insurance carriers in the Denver District Court. On June 30, 1997, the Court ruled in favor of the carriers on summary judgment motions addressing late notice and other issues. On August 27, 1997, PSCo filed an appeal of the decision with the Colorado Court of Appeals. Two carriers were excluded from this proceeding; subsequently, one carrier received approval to be dismissed on the same basis as the other carriers. In March 1998, PSCo reached a settlement with the remaining carrier. The Company is pursuing the recovery of $3.3 million net costs in the electric department earnings test over a three year period. In addition to these sites, PSCo has identified several other sites where clean up of hazardous substances may be required. While potential liability and settlement costs are still under investigation and negotiation, PSCo believes that the resolution of these matters will not have a material adverse effect on PSCo's financial position, results of operations or cash flows. PSCo fully intends to pursue the recovery of all significant costs incurred for such projects through insurance claims and/or the rate regulatory process. Other Environmental Matters Under the Clean Air Act Amendments of 1990 ("CAAA"), coal fueled power plants are required to reduce SO2 and NOx emissions to specified levels through a phased approach. PSCo's and SPS's facilities must comply with the Phase II requirements, which will be effective in the year 2000. Currently, these regulations permit compliance with SO2 emission limitations by using SO2 allowances allocated to plants by the EPA, using allowances generated by reducing emissions at existing plants and by using allowances purchased from other companies. The Company expects to meet the Phase II emission standards placed on SO2 through the combination of: a) use of low sulfur coal, b) the operation of air quality control equipment on certain generation facilities, and c) allowances issued by the EPA and purchased from other companies. PSCo and SPS will be required to modify certain boilers by the year 2000 to reduce the NOx emissions in order to comply with Phase II requirements. The estimated Phase II costs for future plant modifications to meet NOx requirements is approximately $14.4 million for PSCo's Cherokee Unit 1 and 2 and Arapahoe Unit 3. SPS installed two new gas turbines at its Cunningham Station in 1997. The two gas turbine units have undergone performance testing to meet the requirements of the air quality permit. The test results indicated the units may 22 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) not be in compliance with certain emission limitations. SPS is working with the vendor and the New Mexico Environmental Department to ensure compliance with all permit limits. PSCo has announced its intention to spend approximately $211 million on its Denver and Boulder Metro area coal-fueled power plants to further reduce such emissions below the required regulatory levels discussed above, but will only do so if the following three conditions are met: 1) the Colorado General Assembly and the CPUC approve recovery of these costs, 2) PSCo obtains flexibility in operating the plants and 3) PSCo is assured the emission reduction plan is sufficient to meet future state requirements for 15 years. Hayden Steam Electric Generating Station On May 21, 1996, PSCo and the other joint owners of Hayden Station reached an agreement resolving violations alleged in complaints filed by a conservation organization, the CDPHE and the EPA against the joint owners. PSCo is the operator and owns an average undivided interest of approximately 53% of the station's two generating units. In connection with the settlement, the joint owners of the Hayden station were required to install emission control equipment of approximately $130 million (PSCo's portion is approximately $70 million). The settlement included stipulated future penalties for failure to comply with the terms of the agreement, including specific provisions related to meeting construction deadlines associated with the installation of additional emission control equipment and complying with particulate, SO2 and NOx emissions limitations. In August 1996, the U.S. District Court for the District of Colorado entered the settlement agreement which effectively resolved this litigation. The Company is completing the installation of the emission control equipment. Craig Steam Electric Generating Station On October 9, 1996, a conservation organization filed a complaint in the U.S. District Court pursuant to provisions of the Federal Clean Air Act (the "Act") against the joint owners of the Craig Steam Electric Generating Station located in western Colorado. Tri-State Generation and Transmission Association, Inc. is the operator of the Craig station and PSCo owns an undivided interest (acquired in April 1992) in each of two units at the station totaling approximately 9.7%. The plaintiff alleged that: 1) the station exceeded the 20% opacity limitations in excess of 14,000 six minute intervals during the period extending from the first quarter of 1991 through the second quarter of 1996, and 2) the owners failed to operate the station in a manner consistent with good air pollution control practices. The complaint seeks, among other things, civil monetary penalties and injunctive relief. The Act provides for penalties of up to $25,000 per day per violation, but the level of penalties imposed in any particular instance is discretionary. A settlement conference was held in February 1998, although no settlement was reached. Resolution of this matter may require installation of emission control equipment. Management does not believe that this potential liability, the future impact of this litigation on plant operations, or any related cost will have a material adverse impact on PSCo's financial position, results of operations, or cash flows. Pepsi Center Hazardous substances resulting from manufactured gas plant operations have been identified at the site of the Pepsi Center, a sports arena under construction in lower downtown Denver. The site owners have approached PSCo, seeking recovery of most of the costs of cleanup of the site. Total estimated soil cleanup costs range from $1-2 million. The estimate does not include potential costs to clean up affected ground water contamination, if any exists. PSCo's insurance carriers have been notified. Fort St. Vrain In 1989, PSCo announced its decision to end nuclear operations at Fort St. Vrain. Defueling of the reactor to the Independent Spent Fuel Storage Installation ("ISFSI") was completed in June 1992. In March 1996, PSCo and the decommissioning contractors announced that the physical decommissioning activities at the facility had been completed. The final site survey was completed in late October 1996. On August 5, 1997, the NRC approved PSCo's request to 23 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) terminate the Part 50 license. This concluded the decommissioning activities as the facilities and site were released for unrestricted use. On February 9, 1996, PSCo and the DOE entered into an agreement resolving all the defueling issues. As part of this agreement, PSCo has agreed to the following: 1) the DOE assumed title to the fuel currently stored in the ISFSI, 2) the DOE will assume title to the ISFSI and will be responsible for the future defueling and decommissioning of the facility, 3) the DOE agreed to pay PSCo $16 million for the settlement of claims associated with the ISFSI, 4) ISFSI operating and maintenance costs, including licensing fees and other regulatory costs, will be the responsibility of the DOE, and 5) PSCo provided to the DOE a full and complete release of claims against the DOE resolving all contractual disputes related to storage/disposal of Fort St. Vrain spent nuclear fuel. On December 17, 1996, the DOE submitted a request to the NRC to transfer the title of the ISFSI. This request is being reviewed by the NRC and PSCo anticipates approval in late-1998. Under the Price-Anderson Act, PSCo remains subject to potential assessments levied in response to any nuclear incidents prior to early 1994. PSCo continues to maintain primary commercial nuclear liability insurance of $100 million for the Fort St. Vrain site and the adjoining ISFSI. PSCo also maintains coverage of $20.4 million to provide property damage and decontamination protection in the event of an accident involving the ISFSI. Employee Matters Several employee lawsuits have been filed against PSCo involving alleged discrimination or workers' compensation issues which have arisen during the normal course of business. Also, lawsuits have been filed against PSCo alleging breach of certain fiduciary duties to employees. The plaintiffs lawsuits are in various stages of litigation and/or appeal(s), including settlement discussions, with the appropriate state and federal judicial courts. PSCo intends to contest, or is actively contesting, all such lawsuits, and believes the ultimate outcome will not have a material adverse impact on PSCo's financial position, results of operations or cash flows. During 1996, ninety former Information Technology and Systems ("IT&S") employees filed a lawsuit against the Company. The complaint alleged that PSCo unfairly amended its severance plan in connection with a restructuring in late 1994 to exclude the IT&S function/positions that were outsourced to a subsidiary of IBM, effective February 1, 1995. On June 16, 1997, the Denver District Court issued a decision in favor of the former IT&S employees and awarded approximately $1.6 million in severance costs and, in a judgment on October 10, 1997, the former IT&S employees were awarded interest and attorney fees as well, making the total judgment against PSCo $2.1 million. An additional case with 153 former IT&S employees was filed asserting identical claims. Settlement on both cases was achieved in early 1998. During 1997, PSCo accrued related costs, including estimated interest and attorney fees. In early 1998, two additional lawsuits, asserting identical claims, were filed on behalf of a total of 26 former IT&S employees. Year 2000 Costs The Company has further refined its initial estimates and now expects to incur costs of approximately $35-40 million during 1998 and 1999 to modify its computer software, hardware and other automated systems used in operations enabling proper data processing relating to the year 2000 and beyond. The majority of these costs will be incurred by or allocated to the Company's operating utilities, primarily PSCo and SPS. The Company continues to evaluate appropriate courses of corrective action, including the replacement of certain systems. A significant portion of these costs will represent the redeployment of existing information technology resources. If such modifications and conversions are not completed on a timely basis, the year 2000 problem may have a material impact on the operations of the Company. Management does not anticipate these activities will have a material adverse impact on the financial position, results of operations or cash flows of the Company or its subsidiaries. 24 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) 5. Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Subordinated Debentures (NCE, PSCo and SPS) In October 1996, Southwestern Public Service Capital I, a wholly-owned trust of SPS, issued in a public offering $100 million of its 7.85% Trust Preferred Securities, Series A. The sole asset of the trust is $103 million principal amount of SPS's 7.85% Deferrable Interest Subordinated Debentures, Series A due September 1, 2036. In May 1998, PSCo Capital Trust I, a wholly-owned trust of PSCo, issued in a public offering $194 million of its 7.60% Trust Originated Preferred Securities. The sole asset of the trust is $200 million principal amount of PSCo's 7.60% Deferrable Interest Subordinated Debentures due June 30, 2038. The proceeds from the issuance of the sale of the 7.60% Trust Originated Preferred Securities will be used to redeem all of PSCo's outstanding preferred stock (totaling $181.8 million at March 31, 1998) on June 10, 1998. 6. Management's Representations (NCE, PSCo and SPS) In the opinion of the registrants, the accompanying unaudited consolidated condensed financial statements for NCE, PSCo and SPS include all adjustments necessary for the fair presentation of the financial position of the Company and its subsidiaries at March 31, 1998 and December 31, 1997 and the results of operations and cash flows for the three months ended March 31, 1998 and 1997. The consolidated condensed financial information and notes thereto should be read in conjunction with the consolidated financial statements and notes included in the combined 1997 Form 10-K for NCE, PSCo and SPS. Because of seasonal and other factors, the results of operations for the three months ended March 31, 1998 should not be taken as an indication of earnings for all or any part of the balance of the year. 25 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO NEW CENTURY ENERGIES, INC.: We have reviewed the accompanying consolidated condensed balance sheet of New Century Energies, Inc. (a Delaware corporation) and subsidiaries as of March 31, 1998, and the related consolidated condensed statements of income and cash flows for the three-month periods ended March 31, 1998 and 1997. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of New Century Energies, Inc. and subsidiaries as of December 31, 1997 (not presented herein), and, in our report dated February 13, 1998, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 1997, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. ARTHUR ANDERSEN LLP Denver, Colorado, May 14, 1998 26 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO PUBLIC SERVICE COMPANY OF COLORADO: We have reviewed the accompanying consolidated condensed balance sheet of Public Service Company of Colorado (a Colorado corporation) and subsidiaries as of March 31, 1998, and the related consolidated condensed statements of income and cash flows for the three-month periods ended March 31, 1998 and 1997. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Public Service Company of Colorado and subsidiaries as of December 31, 1997 (not presented herein), and, in our report dated February 13, 1998, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 1997, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. ARTHUR ANDERSEN LLP Denver, Colorado, May 14, 1998 27 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO SOUTHWESTERN PUBLIC SERVICE COMPANY: We have reviewed the accompanying condensed balance sheet of Southwestern Public Service Company (a New Mexico corporation) as of March 31, 1998, and the related condensed statements of income and cash flows for the three-month periods ended March 31, 1998 and 1997. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the balance sheet of Southwestern Public Service Company as of December 31, 1997 (not presented herein), and, in our report dated February 13, 1998, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying condensed balance sheet as of December 31, 1997, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. ARTHUR ANDERSEN LLP Denver, Colorado, May 14, 1998 28 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (NCE, PSCo and SPS) NCE's Management's Discussion and Analysis of Financial Condition and Results of Operations Earnings Earnings per share were $0.78 for the first quarter of 1998 as compared to $0.75 for the first quarter of 1997. The higher earnings were primarily attributable to moderate increases in electric and gas sales resulting from continued customer growth. The increased sales were mitigated to a certain degree by mild weather experienced during the current period. Electric Operations The following table details the change in electric operating revenues and energy costs for the first quarter of 1998 as compared to the same period in 1997. Increase (Decrease) ------------------- (Thousands of Dollars) Electric operating revenues: Retail............................................... $ 4,065 Wholesale............................................ 471 Non-regulated power marketing........................ 9,716 Other (including unbilled revenues and provision for rate refunds) .................................... (2,621) ------ Total revenues...................................... 11,631 Fuel used in generation............................... (7,960) Purchased power....................................... 21,031 ------- Net decrease in electric margin..................... $(1,440) ======= The following table compares electric Kwh sales by major customer classes for the first quarter of 1998 and 1997. Millions of Kwh Sales 1998 1997 %Change * ---- ---- --------- Residential ............................... 2,680 2,620 2.3% Commercial and Industrial ................ 6,592 6,502 1.4 Public Authority .......................... 181 179 0.9 ----- ----- Total Retail............................. 9,453 9,301 1.6 Wholesale.................................. 2,736 2,291 19.4 Non-regulated power marketing.............. 823 367 ** ----- ----- Total...................................... 13,012 11,959 8.8 ====== ====== * Percentages are calculated using unrounded amounts ** Percentage change is significant, but presentation of the amount is not meaningful Electric margin decreased slightly in the first quarter of 1998, when compared to the first quarter of 1997, despite a 1.6% increase in total retail sales and an 8.8% increase in total sales. PSCo's recognition of an estimated customer refund obligation (approximately $5.6 million in the first quarter 1998, while no obligation was recorded in the first quarter 1997) in connection with the earnings sharing in excess of 11% return on equity which resulted for the settlement of the Merger proceedings in Colorado (see Note 3. Regulatory Matters in Item 1. FINANCIAL STATEMENTS) and PSCo's retail rate reductions (approximately $1.6 million) implemented in February 1997 were the primary contributors to the decrease. PSCo's higher non-firm wholesale electric sales contributed to increased revenues, but had little impact on electric margin. SPS for the same period had lower wholesale revenues attributable to mild wet weather during the first quarter of 1998 negating the need for irrigation. 29 The Company's regulated subsidiaries had cost adjustment mechanisms which recognize the majority of the effects of changes in fuel used in generation and purchased power costs and allow recovery of such costs on a timely basis. PSCo's ICA, which allows for a 50%/50% sharing of certain fuel and energy cost increases and decreases among customers and shareholders, did not significantly impact electric margin for the first quarter of 1998 or 1997 (see Note 3. Regulatory Matters in Item 1. FINANCIAL STATEMENTS). Fuel used in generation expense decreased approximately $8.0 million during the first quarter of 1998 as compared to the same quarter in 1997. Lower prices of coal and natural gas at SPS were offset by increased generation levels at PSCo. Purchased power expense increased during the first quarter of 1998, as compared to the same quarter in 1997, primarily due to an increase in power marketing activities at the Company's non-regulated subsidiaries. Gas Operations The following table details the change in revenues from gas sales and gas purchased for resale for the first quarter of 1998 as compared to the same period in 1997. Increase (Decrease) ------------------- (Thousands of Dollars) Revenues from gas sales (including unbilled revenues). $26,806 Gas purchased for resale.............................. 17,923 ------- Net increase in gas sales margin..................... $ 8,883 ======= The following table compares gas Dth deliveries by major customer classes for the first quarter of 1998 and 1997. Millions of Dth Deliveries -------------------------- 1998 1997 % Change * ---- ---- ---------- Residential................................ 39.9 39.6 1.0% Commercial................................. 19.3 21.3 (9.5) Non-regulated gas marketing................ 16.4 15.6 4.7 ----- ----- Total Sales.............................. 75.6 76.5 (1.2) Transportation............................. 27.5 25.2 9.3 ----- ----- Total.................................... 103.1 101.7 1.4 ===== ===== * Percentages are calculated using unrounded amounts Gas sales margin increased during the first quarter of 1998, when compared to the first quarter of 1997, primarily due to an increase in PSCo's base revenues associated with the higher rates effective February 1, 1997, resulting from the 1996 rate case (see Note 3. Regulatory Matters in Item 1. FINANCIAL STATEMENTS). Gas transportation, gathering and processing revenues increased $1.3 million during the first quarter of 1998, when compared to the first quarter of 1997, primarily due to higher transportation rates effective February 1, 1997, resulting from the Company's 1996 rate case (see Note 3. Regulatory Matters in Item 1. FINANCIAL STATEMENTS). PSCo and Cheyenne have in place a GCA mechanism for natural gas sales, which recognizes the majority of the effects of changes in the cost of gas purchased for resale and adjusts revenues to reflect such changes in cost on a timely basis. As a result, the changes in revenues associated with these mechanisms during the first quarter of 1998, as compared to the first quarter of 1997, had little impact on net income. However, the fluctuations in gas sales impact the amount of gas the Company's gas utilities must purchase and, therefore, along with the increases and decreases in the per-unit cost of gas, affect total gas purchased for resale. The higher per-unit 30 average cost of gas during the first quarter of 1998, along with an increase in the quantity of gas purchased, contributed to the increase in cost of gas purchased for resale. Non-Fuel Operating Expenses and Other Income and Deductions Other operating and maintenance expenses increased $12.6 million during the first quarter of 1998, as compared to the same period in 1997, primarily due to higher operating costs from non-regulated operations and higher advertising costs, offset, in part, by lower labor and employee benefit costs attributable to the Company's overall costs containment efforts. Other income and deductions increased approximately $6.1 million during the first quarter of 1998, when compared to the first quarter of 1997, primarily due to the recognition of equity earnings in Yorkshire Power and a decrease in merger expenses. Interest charges increased $2.4 million during the first quarter of 1998, when compared to the same quarter in 1997, primarily due to interest on borrowings utilized to finance capital expenditures and the April 1997 investment in Yorkshire Power (see Note 2 Investment in Yorkshire Power in Item 1. FINANCIAL STATEMENTS). Commitments and Contingencies Issues relating to regulatory matters, environmental issues, employee lawsuits and Year 2000 costs are discussed in Notes 3 and 4 in Item 1. FINANCIAL STATEMENTS. These matters and the future resolution thereof may impact the Company's future results of operations, financial position or cash flows. Based on a preliminary analysis, the Company expects to incur costs of approximately $35-40 million over the next two years to modify its computer software, hardware and other automated systems used in operations enabling proper data processing relating to the year 2000 and beyond. The majority of these costs will be incurred by or allocated to the Company's operating utilities, primarily PSCo and SPS. The Company continues to evaluate appropriate courses of corrective action, including the replacement of certain systems. A significant portion of these costs will represent the redeployment of existing information technology resources. If such modifications and conversions are not completed on a timely basis, the year 2000 problem may have a material impact on the operations of the Company. Management does not anticipate these activities will have a material adverse impact on the financial position, results of operations or cash flows of the Company or its subsidiaries. Common Stock Dividend During the first quarter, the Board of Directors approved a $0.58 per share dividend payable to shareholders of the Company. The Company's common stock dividend level is dependent upon the Company's results of operations, financial position, cash flows and other factors. The Board of Directors of the Company will continue to evaluate the common stock dividend on a quarterly basis. Liquidity and Capital Resources Cash Flows - Three Months Ended March 31 1998 1997 Increase ---- ---- -------- Net cash provided by operating activities (in millions) ............. $207.8 $79.9 $127.9 Cash provided by operating activities increased during the first quarter of 1998, when compared to the first quarter of 1997, primarily due to the decrease in payments to gas suppliers resulting from lower gas costs during the first quarter of 1998 as compared to the first quarter of 1997. A portion of these lower gas costs have been deferred through the GCA and have reduced the amount to be recovered from customers in the future. 31 1998 1997 Increase ---- ---- -------- Net cash used in investing activities (in millions) ............ $(122.3) $(85.6) $(36.7) Cash used in investing activities increased during 1998, when compared to 1997, primarily due to an increase in construction expenditures and the purchase of certain leased assets. 1998 1997 Decrease ---- ---- -------- Net cash provided by (used in) financing activities (in millions) ............. $ (82.1) $374.8 $(456.9) Cash provided by financing activities decreased during 1998, when compared to 1997, primarily due to PSCo's issuance of medium-term notes in January and March 1997. The proceeds from the $75 million financing by PSCo in January 1997 and the $250 million financing by PSCo in March 1997 were used to fund construction expenditures and the investment in Yorkshire POWER. See Note 2. Investment in Yorkshire Power in Item 1. FINANCIAL STATEMENTS. Financing Activities Long-Term Debt In April 1998, PSCo issued $250 million of 6% First Collateral Trust Bonds due April 15, 2003. The proceeds will be used for general corporate purposes and to repay short-term and other debt incurred for such purposes. Obligated Mandatorily Redeemable Preferred Securities In May 1998, PSCo Capital Trust I, a wholly-owned trust of PSCo, issued in a public offering $194 million of its 7.60% Trust Originated Preferred Securities. The sole asset of the trust is $200 million principal amount of PSCo's 7.60% Deferrable Interest Subordinated Debentures due June 30, 2038. The proceeds from the issuance of the sale of the 7.60% Trust Originated Preferred Securities will be used to redeem all of PSCo's outstanding preferred stock (totaling $181.8 million at March 31, 1998) on June 10, 1998. Electric Utility Industry Electric utilities have historically operated in a highly regulated environment in which they have an obligation to provide electric service to their customers in return for an exclusive franchise within their service territory with an opportunity to earn a regulated rate of return. This regulatory environment is changing. The generation sector has experienced competition from nonutility power producers and the FERC is requiring utilities, including the Company, to provide wholesale transmission service to others and may order electric utilities to enlarge their transmission systems to facilitate transmission services without impairing reliability. State regulatory authorities are in the process of changing utility regulations in response to federal and state statutory changes and evolving markets, including consideration of providing open access to retail customers. All of the Company's jurisdictions continue to evaluate utility regulations with respect to competition. The Company is unable to predict what financial impact or effect the adoption of these proposals would have on its operations. 32 PSCo's Management's Discussion and Analysis of Financial Condition and Results of Operations Merger Effective August 1, 1997, following receipt of all required state and Federal regulatory approvals, PSCo and SPS merged in a tax-free "merger of equals" transaction and became wholly-owned subsidiaries of NCE, which is a registered holding company under PUHCA. This transaction was accounted for as a pooling of interests for accounting purposes. Effective with the Merger, Cheyenne, WGI, e prime and Natural Fuels were transferred by a declaration of a dividend of the subsidiaries' stock, at net book value, aggregating approximately $49.9 million, to NCE. NCE subsequently made a capital contribution of the e prime and Natural Fuels common stock, at net book value, aggregating approximately $29.5 million, to NC Enterprises. See Note 1. Summary of Significant Accounting Policies in Item 1. FINANCIAL STATEMENTS for additional discussion regarding PSCo, the Merger and the transfer of Cheyenne, WGI, e prime and Natural Fuels. The consolidated statements of income and cash flows for the three months ended March 31, 1997 reflect the results of operations of Cheyenne, WGI, e prime and Natural Fuels. Where relevant, additional information has been presented to discuss the impact of the transfer of these subsidiaries. Earnings Available for Common Stock Earnings increased approximately 10% to $66.0 million for the first quarter of 1998, as compared to $59.9 million for the first quarter of 1997. The increase was primarily attributable to an increase in the gas margin resulting from an increase in rates which were effective February 1, 1997, and lower labor and employee benefit costs and other general reductions resulting from the Merger and continued cost containment efforts. Electric Operations The following table details the change in electric operating revenues and energy costs for the three months ended March 31, 1998, as compared to the same period in 1997 (in thousands of dollars). Increase (Decrease) ------------------- Cheyenne PSCo Only &e prime Consolidated --------- -------- ------------ Electric operating revenues: Retail..................................... $ 7,956 $ (9,612) $ (1,656) Wholesale - regulated...................... 11,719 - 11,719 Non-regulated power marketing.............. - (5,648) (5,648) Other (including unbilled revenues and provision for rate refunds).............. (2,927) 95 (2,832) ------ -- ------ Total revenues............................ 16,748 (15,165) 1,583 Fuel used in generation..................... 6,368 - 6,368 Purchased power............................. 14,115 (12,684) 1,431 ------- -------- ------- Net decrease in electric margin.......... $(3,735) $ (2,481) $ (6,216) ======== ======== ======== The following table compares electric Kwh sales by major customer classes for the three months ended March 31, 1998 and 1997. Millions of Kwh Sales % Change * -------------------- ---------- 1998 1997 Consolidated PSCo Only ---- ---- ------------ --------- Residential ..................... 1,856 1,867 (0.6)% 2.7% Commercial and Industrial ...... 3,755 3,842 (2.3) 1.9 Public Authority ................ 47 48 (1.6) .8 ----- ------ Total Retail................... 5,658 5,757 (1.7) 2.2 Wholesale - Regulated............ 1,493 850 75.6 75.6 Non-regulated Power Marketing.... - 367 ** - ----- ------ Total............................ 7,151 6,974 2.5 11.9 ===== ====== * Percentages are calculated using unrounded amounts ** Percentage change is significant, but presentation of the amount is not meaningful 33 Electric margin decreased in the first quarter of 1998, when compared to the first quarter of 1997, primarily due to the recognition of an estimated customer refund obligation (approximately $5.6 million in the first quarter of 1998 while no obligation was recognized in the first quarter of 1997) in connection with the earnings sharing in excess of 11% return on equity which resulted from the settlement of the Merger proceedings in Colorado (see Note 3. Regulatory Matters in Item 1. FINANCIAL STATEMENTS) and the retail rate reductions (approximately $1.6 million) implemented in February 1997. Electric margin, however, was favorably impacted by an overall increase in PSCo's retail sales of 2.2% resulting primarily from customer growth of approximately 2.8%. Higher wholesale electric sales also contributed to increased operating revenues, however, the margin on such sales is minimal. PSCo has cost adjustment mechanisms which recognize the majority of the effects of changes in fuel used in generation and purchased power costs and allow recovery of such costs on a timely basis. PSCo's ICA, which allows for a 50%/50% sharing of certain fuel and energy cost increases and decreases among customers and shareholders, did not significantly impact the electric margin for the first quarter of 1998 or 1997 (see Note 3. Regulatory Matters in Item 1. FINANCIAL STATEMENTS). Fuel used in generation expense increased approximately $6.4 million during the first quarter of 1998, as compared to the same quarter in 1997 due to increased generation levels at PSCo's power plants. Purchased power expense increased slightly during the first quarter of 1998, as compared to the same quarter in 1997, primarily due to purchases to meet increased wholesale requirements and other customer demands. Gas Operations The following table details the change in revenues from gas sales and gas purchased for resale for the first quarter of 1998, as compared to the same period in 1997 (in thousands of dollars). Increase (Decrease) ----------------- Cheyenne Natural Fuels WGI & PSCo Only e prime Consolidated --------- ------- ------------ Revenues from gas sales (including unbilled revenues) ...... $28,760 $ (56,055) $ (27,295) Gas purchased for resale.............. 21,926 (52,433) (30,507) ------ -------- -------- Net increase(decrease)in gas sales margin....................... $6,834 $ (3,622) $ 3,212 ====== ========= ========= The following table compares gas Dth deliveries by major customer classes for the first quarter of 1998 and 1997. Millions of Dth Deliveries % Change * 1998 1997 Consolidated PSCo Only ---- ---- ------------ --------- Residential................... 38.8 39.6 (1.8)% 0.9% Commercial.................... 18.4 21.3 (13.7) (10.4) Non-regulated gas marketing... - 15.6 ** - ----- ---- Total sales................. 57.2 76.5 (25.2) (3.0) Transportation, gathering and processing ................. 23.3 25.2 (7.6) 13.3 ----- ---- Total....................... 80.5 101.7 (20.8) 1.2 ===== ===== * Percentages are calculated using unrounded amounts ** Percentage change is significant, but presentation of the amount is not meaningful Gas sales margin increased during the first quarter of 1998, when compared to the first quarter of 1997, primarily due to an increase in PSCo's base revenues associated with the higher rates effective February 1, 1997, 34 resulting from the 1996 rate case. This increase was offset, in part, by a 3.0% decrease in sales which resulted from warmer weather during the first quarter of 1998 despite a 2.7% increase in customers. Gas transportation, gathering and processing revenues increased approximately $1.2 million during the first quarter of 1998, when compared to the first quarter of 1997, primarily due to higher transportation rates effective February 1, 1997, resulting from PSCo's 1996 rate case and an increase in transport deliveries. The increase in transport deliveries continues to be impacted by the shifting of various commercial customers to transport customers. PSCo has in place a GCA mechanism for natural gas sales, which recognizes the majority of the effects of changes in the cost of gas purchased for resale and adjusts revenues to reflect such changes in cost on a timely basis. As a result, the changes in revenues associated with these mechanisms during the first quarter of 1998, as compared to the first quarter of 1997, had little impact on net income. However, the fluctuations in gas sales impact the amount of gas PSCo must purchase and, therefore, along with the increases and decreases in the per-unit cost of gas, affect total gas purchased for resale. The lower per-unit average cost of gas during the first quarter of 1998, along with a decrease in the quantity of gas purchased, contributed to the decrease in cost of gas purchased for resale. Non-Fuel Operating Expenses and Other Income and Deductions Other operating and maintenance expenses decreased approximately $4.2 million during the first quarter of 1998, as compared to the first quarter of 1997. Excluding the effects of the sale of Cheyenne, WGI, e prime and Natural Fuels, other operating and maintenance expenses decreased approximately $3.1 million due to lower labor and employee benefit costs and other general reductions resulting from the Merger. Taxes other than income taxes decreased approximately $2.5 million during the first quarter of 1998, as compared to the first quarter of 1997. Excluding the effects of the sale of Cheyenne, WGI, e prime and Natural Fuels, taxes other than income taxes decreased approximately $2.0 million primarily due to lower property tax accruals. Other income and deductions increased approximately $3.4 million during the first quarter of 1998, when compared to the first quarter of 1997, primarily due to the recognition of equity earnings in Yorkshire Power ($3.4 million). On March 31, 1998, NCI and its subsidiaries, including Yorkshire Power, were transferred through the sale by PSCo of all the outstanding common stock at net book value (approximately $292.6 million), to NC Enterprises, an intermediate holding company for NCE, and received as consideration a promissory note from NC Enterprises. See Note 2. Investment in Yorkshire Power in Item 1. FINANCIAL STATEMENTS. Merger and business integration costs decreased approximately $1.7 million in the first quarter of 1998, as compared to the first quarter of 1997. Miscellaneous income and deductions-net, changed primarily due to a decrease in interest income as a result of higher investment balances during the first quarter of 1997 from the proceeds of financings for the Yorkshire Power investment. Interest charges increased approximately $1.2 million during the first quarter of 1998, as compared to the first quarter of 1997, primarily due to interest on borrowings utilized to finance capital expenditures and the April 1997 investment in Yorkshire Power (see Note 2. Investment in Yorkshire Power in Item 1. FINANCIAL STATEMENTS). Commitments and Contingencies See Note 4. Commitments and Contingencies in Item 1. FINANCIAL STATEMENTS. 35 Liquidity and Capital Resources Cash Flows - Three Months Ended March 31 1998 1997 Increase ---- ---- -------- Net cash provided by operating activities (in millions) .......................... $177.7 $68.2 $109.5 Cash provided by operating activities increased during the first quarter of 1998, when compared to the first quarter of 1997, primarily due to the decrease in payments to gas suppliers resulting from lower gas costs during the first quarter of 1998 as compared to the first quarter of 1997. A portion of these lower gas costs have been deferred through the GCA and have reduced the amount to be recovered from customers in the future. 1998 1997 Increase ---- ---- -------- Net cash used in investing activities (in millions) ......................... $(101.0) $(52.5) $ (48.5) Cash used in investing activities increased during the first quarter of 1998, when compared to the first quarter of 1997, primarily due to higher construction expenditures and the purchase of certain leased assets. 1998 1997 Increase ---- ---- -------- Net cash provided by(used in)financing activities (in millions) ............. $ (75.9) $343.3 $(419.2) Cash provided by financing activities decreased during the first quarter of 1998, when compared to the first quarter of 1997, primarily due to the issuance of $75 million and $250 million of medium-term notes in January and March 1997, respectively. The proceeds from these financings were used to fund PSCo's construction program and the investment in Yorkshire Power. See Note 2. Investment in Yorkshire Power in Item 1. FINANCIAL STATEMENTS. Financing Activities Subsequent to March 31, 1998 Discussion relating to PSCo's financing activities subsequent to March 31, 1998, is covered under "Financing Activities" in NCE's Management's Discussion and Analysis of Financial Condition and Results of Operations. 36 SPS's Management's Discussion and Analysis of Financial Condition and Results of Operations Merger Effective August 1, 1997, following receipt of all required state and Federal regulatory approvals, SPS and PSCo merged in a tax-free "merger of equals" transaction and became wholly-owned subsidiaries of NCE, which is a registered holding company under PUHCA. This transaction was accounted for as a pooling of interests for accounting purposes. Effective with the Merger, Quixx and UE, previously wholly-owned subsidiaries, were transferred through the sale by SPS of all of the outstanding common stock of such subsidiaries at net book value, to NC Enterprises, an intermediate holding company of NCE. The statements of income and cash flows for the three months ended March 31, 1997 reflect the results of operations of Quixx and UE. Earnings Available for Common Stock Earnings available for common stock were $18.1 million and $18.2 million during the first quarter of 1998 and 1997, respectively. Operating income decreased slightly with the sale of Quixx and UE and lower merger related costs favorably impacted net income. Operating Revenues Electric Operations Substantially all of SPS's operating revenues result from the sale of electric energy. The principal factors impacting revenues are the amount and price of energy sold. The following table details the change in electric operating revenues and energy costs for the three months ended March 31, 1998 as compared to the same period in 1997 (thousands of dollars). Increase (Decrease) ------------------ Electric operating revenues: Retail.............................. $(3,884) Wholesale........................... (11,248) Other (including unbilled revenues). 369 ------- Total revenues.................... (14,763) Fuel used in generation.............. (14,328) Purchased power...................... (2,566) ------- Net increase in electric margin... $ 2,131 ======= The following table compares electric Kwh sales by major customer classes for the three months ended March 31, 1998 and 1997. Millions of Kwh Sales 1998 1997 % Change* ---- ---- --------- Residential ............ 764 753 1.4% Commercial ............ 663 682 (2.9) Industrial ............ 2,014 1,978 1.9 Public Authority ....... 132 131 1.0 ----- ----- Total Retail.......... 3,573 3,544 0.8 Wholesale............... 1,243 1,441 (13.7) ----- ----- Total................... 4,816 4,985 (3.4) ===== ===== * Percentages are calculated using unrounded amounts. 37 Electric operating revenues decreased $14.8 million or 6.9% during the three months ended March 31, 1998, when compared to the same period in 1997, primarily due to lower wholesale revenues and $1.1 million of merger savings passed on to customers. The decrease in wholesale revenues is attributable to a lower average selling price per Kwh and a decrease in Kwh sales resulting from mild wet weather in 1998. Under the various state regulatory approvals, SPS is required to provide credits to retail customers over five years for one-half of the measured non-fuel operation and maintenance expense savings associated with the Merger. SPS will provide a guaranteed minimum annual savings to retail customers of $3.0 million in Texas, $1.2 million in New Mexico, $100,000 in Oklahoma, $10,000 in Kansas and $1.5 million to wholesale customers. Fuel used in generation expense decreased $14.3 million or 13.7% during the first quarter of 1998, when compared to the same period in 1997, primarily due to lower prices of coal and natural gas. The decrease in coal costs is primarily due to the expiration of a coal supply contract in 1997 and negotiation with a new supplier in 1998 for consumption at the Harrington generating station. Cost of natural gas used in generation decreased, largely due to the decrease in the market price of gas. Flexibility in the procurement of gas supply under the spot market has provided for lower gas costs for the first quarter of 1998. SPS purchased approximately 48% of its gas supply requirements on the spot market during this first quarter of 1998. SPS generation levels for 1998 and 1997 were comparable. SPS has fuel cost adjustment mechanisms which recognize the majority of the effects of changes in fuel used in generation and purchased power costs and allow recovery of such costs on a timely basis. As a result, the changes in revenues associated with these mechanisms during the first quarter of 1998, when compared to the first quarter of 1997, had little impact on net income. Purchased power decreased $2.6 million during the first quarter of 1998, when compared to the same period in 1997, primarily due to decreased wholesale purchases. SPS generates substantially all of its power for sale to its firm retail and wholesale customers and sells non-firm energy as the market demands. Similarly, SPS purchases low-cost non-firm energy when available. Other Operating Revenues Other operating revenues decreased $6.8 million during the first quarter of 1998, when compared to the same period in 1997, primarily due to the sale of Quixx and UE in connection with the Merger as discussed above. Non-Fuel Operating Expenses Other operating and maintenance expenses decreased $2.6 million during the first quarter of 1998 as compared to the same period in 1997. Excluding the effects of the sale of Quixx and UE, other operating and maintenance expenses increased $1.8 million, primarily due to higher operation and maintenance costs at one of SPS's steam plants that was non-operational in March 1998 and increased costs associated with demand side management programs. Income taxes increased $0.9 million during the first quarter of 1998, primarily due to higher pre-tax income, when compared to the same period in 1997. Additional income tax expense was recognized in both years for non-deductible merger costs resulting in an effective income tax for the first quarter of 38.2% in 1998 and 36.1% in 1997. Other Income and Deductions Other income and deductions increased $3.6 million during the first quarter of 1998, as compared to the same period in 1997, primarily due to lower 1998 merger and business integration expenses and higher interest income related to the note receivable from NC Enterprises for the sale of Quixx and UE. 38 PART II - OTHER INFORMATION Item 1. Legal Proceedings Part 1. See Note 4. Commitments and Contingencies in Item 1, Part 1. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 4(a) Supplemental Indenture dated as of April 1, 1998, establishing a series of PSCo First Mortgage Bonds under the Indenture dated as of December 31, 1939. 4(b) Supplemental Indenture No. 7 dated as of April 1, 1998, establishing a series of PSCo First Collateral Trust Bonds under the Indenture dated as of October 1, 1993. 12(a) Computation of Ratio of Consolidated Earnings to Consolidated Fixed Charges for PSCo is set forth at page 41 herein. 12(b) Computation of Ratio of Consolidated Earnings to Consolidated Combined Fixed Charges and Preferred Stock Dividends for PSCo is set forth at page 42 herein. 12(c) Computation of Ratio of Consolidated Earnings to Consolidated Fixed Charges for SPS is set forth at page 43 herein. 15(a) Letter from Arthur Andersen LLP regarding unaudited interim information is set forth at page 44 herein for NCE. 15(b) Letter from Arthur Andersen LLP regarding unaudited interim information is set forth at page 45 herein for PSCo. 15(c) Letter from Arthur Andersen LLP regarding unaudited interim information is set forth at page 46 herein for SPS. 27(a) Financial Data Schedule for NCE as of March 31, 1998. 27(b) Financial Data Schedule for PSCo as of March 31, 1998. 27(c) Financial Data Schedule for SPS as of March 31, 1998. (b) Reports on Form 8-K The following reports on Form 8-K were filed by PSCo since the beginning of the first quarter of 1998. - A report on Form 8-K dated April 28, 1998, was filed by PSCo on April 28, 1998. The item reported was Item 5. Other Events: Filing of Bond Purchase Contract, dated as of April 15, 1998. - A report on Form 8-K dated April 30, 1998, was filed by PSCo on April 30, 1998. The item reported was Item 5. Other Events: Selected consolidated financial information for PSCo was presented for the three months ended March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995. - A report on Form 8-K/A dated April 30, 1998, was filed by PSCo on May 1, 1998. The item reported was Item 5. Other Events: Selected consolidated financial information for PSCo was presented for the three months ended March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995. - A report on Form 8-K dated May 6, 1998 was filed by PSCo on May 14,1998. The item reported was Item 5. Other Events: Filing of an underwriting Agreement and other documents in connection with a financing. 39 NEW CENTURY ENERGIES, INC. SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, New Century Energies, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 14th day of May, 1998. NEW CENTURY ENERGIES, INC. By /s/ R. C. Kelly --------------------------------- R. C. KELLY Executive Vice President and and Chief Financial Officer PUBLIC SERVICE COMPANY OF COLORADO SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Public Service Company of Colorado has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 14th day of May, 1998. PUBLIC SERVICE COMPANY OF COLORADO By /s/Brian P. Jackson --------------------------------- Brian P. Jackson Senior Vice President, Finance and Administrative Services and Chief Financial Officer SOUTHWESTERN PUBLIC SERVICE COMPANY SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Southwestern Public Service Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 14th day of May, 1998. SOUTHWESTERN PUBLIC SERVICE COMPANY By /s/Brian P. Jackson --------------------------------- Brian P. Jackson Senior Vice President, Finance and Administrative Services and Chief Financial Officer 40 EXHIBIT INDEX 4(a) Supplemental Indenture dated as of April 1, 1998, establishing a series of PSCo First Mortgage Bonds under the Indenture dated as of December 31, 1939. 4(b) Supplemental Indenture No. 7 dated as of April 1, 1998, establishing a series of PSCo First Collateral Trust Bonds under the Indenture dated as of October 1, 1993. 12(a) Computation of Ratio of Consolidated Earnings to Consolidated Fixed Charges for PSCo is set forth at page 41 herein. 12(b) Computation of Ratio of Consolidated Earnings to Consolidated Combined Fixed Charges and Preferred Stock Dividends for PSCo is set forth at page 42 herein. 12(c) Computation of Ratio of Consolidated Earnings to Consolidated Fixed Charges for SPS is set forth at page 43 herein. 15(a) Letter from Arthur Andersen LLP regarding unaudited interim information is set forth at page 44 herein for NCE. 15(b) Letter from Arthur Andersen LLP regarding unaudited interim information is set forth at page 45 herein for PSCo. 15(c) Letter from Arthur Andersen LLP regarding unaudited interim information is set forth at page 46 herein for SPS. 27(a) Financial Data Schedule for NCE as of March 31, 1998. 27(b) Financial Data Schedule for PSCo as of March 31, 1998. 27(c) Financial Data Schedule UT for SPS as of March 31, 1998. 41 EXHIBIT 12(a) PUBLIC SERVICE COMPANY OF COLORADO AND SUBSIDIARIES COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS TO CONSOLIDATED FIXED CHARGES (not covered by Report of Independent Public Accountants) Three Months Ended March 31, 1998 1997 ---- ---- (Thousands of Dollars, except ratios) Fixed charges: Interest on long-term debt................... $27,600 $26,906 Interest on borrowings against corporate-owned life insurance contracts................... 11,671 10,736 Other interest................................ 5,653 3,939 Amortization of debt discount and expense less premium ................................... 978 928 Interest component of rental expense......... 2,061 2,583 ------ ------ Total ..................................... $47,963 $45,092 ======= ======= Earnings (before fixed charges and taxes on income): Net income................................... $68,897 $62,881 Fixed charges as above....................... 47,963 45,092 Provisions for Federal and state taxes on income, net of investment tax credit amortization............................... 36,818 35,317 ------- ------ Total...................................... $153,678 $143,290 ======== ======== Ratio of earnings to fixed charges.............. 3.20 3.18 ====== ====== 42 EXHIBIT 12(b) PUBLIC SERVICE COMPANY OF COLORADO AND SUBSIDIARIES COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS TO CONSOLIDATED COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (not covered by Report of Independent Public Accountants) Three Months Ended March 31, 1998 1997 ---- ---- (Thousands of Dollars, except ratios) Fixed charges and preferred stock dividends: Interest on long-term debt.................... $27,600 $26,906 Interest on borrowings against corporate-owned life insurance contracts................... 11,671 10,736 Other interest................................ 5,653 3,939 Amortization of debt discount and expense less premium ................................... 978 928 Interest component of rental expense.......... 2,061 2,583 Preferred stock dividend requirement.......... 2,929 2,943 Additional preferred stock dividend requirement 1,565 1,653 ----- ----- Total .................................... $52,457 $49,688 ======= ======= Earnings (before fixed charges and taxes on income): Net income.................................... $68,897 $62,881 Interest on long-term debt.................... 27,600 26,906 Interest on borrowings against corporate-owned life insurance contracts................... 11,671 10,736 Other interest................................ 5,653 3,939 Amortization of debt discount and expense less premium ................................... 978 928 Interest component of rental expense.......... 2,061 2,583 Provisions for Federal and state taxes on income, net of investment tax credit amortization..... 36,818 35,317 ------ ------- Total....................................... $153,678 $143,290 ======== ======== Ratio of earnings to fixed charges and preferred stock dividends................ 2.93 2.88 ==== ==== 43 EXHIBIT 12(c) SOUTHWESTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS TO CONSOLIDATED FIXED CHARGES (not covered by Report of Independent Public Accountants) Three Months Ended March 31, 1998 1997 ---- ---- (Thousands of Dollars, except ratios) Fixed charges: Interest on long-term debt..................... $10,943 $11,025 Dividends on SPS obligated mandatorily redeemable preferred securities........................ 1,963 1,963 Other interest................................. 2,579 1,026 Amortization of debt discount and expense less premium .................................... 561 562 Interest component of rental expense........... 202 311 ------ ------ Total ....................................... $16,248 $14,887 ======= ======= Earnings (before fixed charges and taxes on income): Net income..................................... $18,139 $18,218 Fixed charges as above......................... 16,248 14,887 Provisions for Federal and state taxes on income, net of investment tax credit amortization...... 11,225 10,292 -------- -------- Total........................................ $45,612 $43,397 ======= ======= Ratio of earnings to fixed charges................ 2.81 2.92 ====== ====== 44 EXHIBIT 15(a) May 14, 1998 New Century Energies, Inc.: We are aware that New Century Energies, Inc. has incorporated by reference in its Registration Statement (Form S-8, File No. 333-28639) pertaining to the Omnibus Incentive Plan; its Registration Statement (Form S-3, File No. 333-28637) pertaining to the Dividend Reinvestment and Cash Payment Plan and its Registration Statement (Form S-3, File No. 333-40361) pertaining to the registration of NCE Common Stock, its Form 10-Q for the quarter ended March 31, 1998, which includes our report dated May 14, 1998, covering the unaudited consolidated condensed financial statements contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered a part of the registration statement prepared or certified by our Firm or a report prepared or certified by our Firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, ARTHUR ANDERSEN LLP 45 EXHIBIT 15(b) May 14, 1998 Public Service Company of Colorado: We are aware that Public Service Company of Colorado has incorporated by reference in its Registration Statement (Form S-3, File No. 33-62233) pertaining to the Automatic Dividend Reinvestment and Common Stock Purchase Plan; its Registration Statement (Form S-3, File No. 33-37431) as amended on December 4, 1990, pertaining to the shelf registration of Public Service Company of Colorado's First Mortgage Bonds; its Registration Statement (Form S-8, File No. 33-55432) pertaining to the Omnibus Incentive Plan; its Registration Statement (Form S-3, File No. 33-51167) pertaining to the shelf registration of Public Service Company of Colorado's First Collateral Trust Bonds; its Registration Statement (Form S-3, File No. 33-54877) pertaining to the shelf registration of Public Service Company of Colorado's First Collateral Trust Bonds and Cumulative Preferred Stock and its Registration Statement (Form S-3, File No. 333-47485) pertaining to the registration of PSCo Capital Trust I's Preferred Securities, Public Service Company of Colorado's First Collateral Trust Bonds, Senior Debt Securities and Subordinated Debt Securities, its Form 10-Q for the quarter ended March 31, 1998, which includes our report dated May 14, 1998, covering the unaudited consolidated condensed financial statements contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered a part of the registration statement prepared or certified by our Firm or a report prepared or certified by our Firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, ARTHUR ANDERSEN LLP 46 EXHIBIT 15(c) May 14, 1998 Southwestern Public Service Company: We are aware that Southwestern Public Service Company has incorporated by reference in its Registration Statement (Form S-3, File No. 333-05199) pertaining to Southwestern Public Service Company's Preferred Stock and Debt Securities; its Registration Statement (Form S-8, File No. 33-27452) pertaining to Southwestern Public Service Company's 1989 Stock Incentive Plan and its Registration Statement (Form S-8, File No. 33-57869) pertaining to Southwestern Public Service Company's Employee Investment Plan and Non-Qualified Salary Deferral Plan, its Form 10-Q for the quarter ended March 31, 1998, which includes our report dated May 14, 1998, covering the unaudited condensed financial statements contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered a part of the registration statement prepared or certified by our Firm or a report prepared or certified by our Firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, ARTHUR ANDERSEN LLP 47 EX-27 2 NCE FDS FOR 1ST QTR 98 EX-27.1 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW CENTURY ENERGIES, INC. CONSOLIDATED CONDENSED BALANCE SHEET AS OF MARCH 31, 1998 AND CONSOLIDATED CONDENSED STATMENTS OF INCOME AND CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATMENTS. 1,000 3-MOS DEC-31-1998 MAR-31-1998 PER-BOOK 5,600,940 365,200 741,222 582,531 0 7,289,893 111,240 1,604,912 680,667 2,396,819 139,253 140,002 1,947,652 305,261 0 303,500 202,562 2,576 38,531 4,924 1,808,813 7,289,893 939,504 47,119 757,667 757,667 181,837 784 182,621 49,353 86,149 0 0 64,538 40,473 207,832 0.78 0.78
EX-27 3 PSCO FDS FOR 1ST QTR. 98 EX-27.2 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PUBLIC SERVICE COMPANY OF COLORADO AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET AS OF MARCH 31, 1998 AND CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 MAR-31-1998 PER-BOOK 3,790,715 316,518 483,536 372,383 0 4,963,152 0 1,302,119 342,335 1,644,454 39,253 140,002 1,297,986 50,000 0 303,500 202,414 2,576 38,365 4,822 1,239,780 4,963,152 644,642 36,818 507,978 544,796 99,846 561 100,407 31,510 68,897 2,929 65,968 42,913 27,600 177,664 0.000 0.000
EX-27 4 SPS FDS 1ST QTR 98 EX-27.3
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOUTHWESTERN PUBLIC SERVICE COMPANY CONDENSED BALANCE SHEET AS OF MARCH 31, 1998 AND CONDENSED STATEMENTS OF INCOME AND CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 MAR-31-1998 PER-BOOK 1,715,978 124,930 144,516 179,931 0 2,165,355 0 348,402 343,125 691,527 100,000 0 620,667 17,660 0 158,762 114 0 0 0 576,625 2,165,355 199,732 11,225 157,168 168,393 31,339 1,075 30,264 14,275 18,139 0 18,139 25,002 10,943 53,340 0.000 0.000
EX-99 5 SUPPLEMENTAL INDENTURES EXHIBITS 4 A & B Exhibit 4(a) SUPPLEMENTAL INDENTURE (Dated as of April 1, 1998) PUBLIC SERVICE COMPANY OF COLORADO TO U.S. BANK TRUST NATIONAL ASSOCIATION, As Trustee -------- Creating an Issue of First Mortgage Bonds, Collateral Series F -------- (Supplemental to Indenture dated as of December 1, 1939, as amended) SUPPLEMENTAL INDENTURE, dated as of April 1, 1998, between PUBLIC SERVICE COMPANY OF COLORADO, a corporation organized and existing under the laws of the State of Colorado (the "Company"), party of the first part, and U.S. BANK TRUST NATIONAL ASSOCIATION (formerly First Trust of New York, National Association), a national banking association, as successor trustee (the "Trustee") to Morgan Guaranty Trust Company of New York (formerly Guaranty Trust Company of New York), party of the second part. WHEREAS, the Company heretofore executed and delivered to the Trustee its Indenture, dated as of December 1, 1939 (the "Principal Indenture"), to secure its First Mortgage Bonds from time to time issued thereunder; and WHEREAS, the Company has heretofore executed and delivered to the Trustee the Supplemental Indentures referred to in Schedule A hereto for certain purposes, including the creation of series of bonds, the subjection to the lien of the Principal Indenture of property acquired after the execution and delivery thereof, the amendment of certain provisions of the Principal Indenture and the appointment of the successor Trustee; and WHEREAS, the Principal Indenture as supplemented and amended by all Supplemental Indentures heretofore executed by the Company and the Trustee is hereinafter referred to as the "Indenture", and, unless the context requires otherwise, references herein to Articles and Sections of the Indenture shall be to Articles and Sections of the Principal Indenture as so amended; and WHEREAS, the Company proposes to create a new series of First Mortgage Bonds to be designated as First Mortgage Bonds, Collateral Series F (the "Collateral Series F Bonds"), to be issued and delivered to the trustee under the 1993 Mortgage (as hereinafter defined) as the basis for the authentication and delivery under the 1993 Mortgage of a series of securities, all as hereinafter provided, and to vary in certain respects the covenants and provisions contained in Article V of the Indenture, to the extent that such covenants and provisions apply to the Collateral Series F Bonds; and WHEREAS, the Company, pursuant to the provisions of the Indenture, has, by appropriate corporate action, duly resolved and determined to execute this Supplemental Indenture for the purpose of providing for the creation of the Collateral Series F Bonds and of specifying the form, provisions and particulars thereof, as in the Indenture provided or permitted and of giving to the Collateral Series F Bonds the protection and security of the Indenture; and WHEREAS, the Company has acquired the additional property hereinafter described, and the Company desires that such additional property so acquired be specifically subjected to the lien of the Indenture; and WHEREAS, the Company represents that all acts and proceedings required by law and by the charter and by-laws of the Company, including all action requisite on the part of its shareholders, directors and officers, necessary to make the Collateral Series F Bonds, when executed by the Company, authenticated and delivered by the Trustee and duly issued, the valid, binding and legal obligations of the Company, and to constitute the Principal Indenture and all indentures supplemental thereto, including this Supplemental Indenture, valid, binding and legal instruments for the security of the bonds of all series, including the Collateral Series F Bonds, in accordance with the terms of such bonds and such instruments, have been done, performed and fulfilled, and the execution and delivery hereof have been in all respects duly authorized; NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH: That Public Service Company of Colorado, the Company named in the Indenture, in consideration of the premises and of One Dollar to it duly paid by the Trustee at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, and in pursuance of the direction and authority of the Board of Directors of the Company given at a meeting thereof duly called and held, and in order to create the Collateral Series F Bonds and to specify the form, terms and provisions thereof, and to make definite and certain the lien of the Indenture upon the premises hereinafter described and to subject said premises directly to the lien of the Indenture, and to secure the payment of the principal of and premium, if any, and interest, if any, on all bonds from time to time outstanding under the Indenture, including the Collateral Series F Bonds, according to the terms of said bonds, and to secure the performance and observance of all of the covenants and conditions contained in the Indenture, has executed and delivered this Supplemental Indenture and has granted, bargained, sold, warranted, aliened, remised, released, conveyed, assigned, transferred, mortgaged, pledged, set over and confirmed, and by these presents does grant, bargain, sell, warrant, alien, remise, release, convey, assign, transfer, mortgage, pledge, set over and confirm unto U.S. Bank Trust National Association, as Trustee, and its successor or successors in the trust and its and their assigns forever, the property described in Schedule B hereto (which is described in such manner as to fall within and under the headings or parts or classifications set forth in the Granting Clauses of the Principal Indenture); TO HAVE AND TO HOLD the same and all and singular the properties, rights, privileges and franchises described in the Principal Indenture and in the several Supplemental Indentures hereinabove referred to and in this Supplemental Indenture and owned by the Company on the date of the execution and delivery hereof (other than property of a character expressly excepted from the lien of the Indenture as therein set forth) unto the Trustee and its successor or successors and assigns forever; SUBJECT, HOWEVER, to permitted encumbrances as defined in the Indenture; IN TRUST, NEVERTHELESS, upon the terms and trusts set forth in the Indenture, for the equal and proportionate benefit and security of all present and future holders of the bonds and coupons issued and to be issued under the Indenture, including the Collateral Series F Bonds, without preference, priority or distinction as to lien (except as any sinking, amortization, improvement or other fund established in accordance with the provisions of the Indenture or any indenture supplemental thereto may afford additional security for the bonds of any particular series) of any of said bonds over any others thereof by reason of series, priority in the time of the issue or negotiation thereof, or otherwise howsoever, except as provided in Section 2 of Article IV of the Indenture. ARTICLE ONE CREATION AND DESCRIPTION OF THE COLLATERAL SERIES F BONDS SECTION 1. A new series of bonds to be issued under and secured by the Indenture is hereby created, the bonds of such new series to be designated First Mortgage Bonds, Collateral Series F. The Collateral Series F Bonds shall be limited to an aggregate principal amount of Two hundred fifty million dollars ($250,000,000), excluding any Collateral Series F Bonds which may be authenticated and exchanged for or in lieu of or in substitution for or on transfer of other Collateral Series F Bonds -2- pursuant to any provisions of the Indenture. The Collateral Series F Bonds shall mature on April 15, 2003. The Collateral Series F Bonds shall not bear interest. The principal of each Collateral Series F Bond shall be payable, upon presentation thereof, at the office or agency of the Company in the city in which the principal corporate trust office of the 1993 Mortgage Trustee (as hereinafter defined) is located, in any coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts. The Collateral Series F Bonds shall be issued and delivered by the Company to U.S. Bank Trust National Association, as successor trustee under the Indenture, dated as of October 1, 1993, as supplemented (the "1993 Mortgage"), of the Company to such successor trustee (the "1993 Mortgage Trustee"), as the basis for the authentication and delivery under the 1993 Mortgage of a series of securities. As provided in the 1993 Mortgage, the Collateral Series F Bonds will be registered in the name of the 1993 Mortgage Trustee or its nominee and will be owned and held by the 1993 Mortgage Trustee, subject to the provisions of the 1993 Mortgage, for the benefit of the holders of all securities from time to time outstanding under the 1993 Mortgage, and the Company shall have no interest therein. Any payment by the Company under the 1993 Mortgage of the principal of the securities which shall have been authenticated and delivered under the 1993 Mortgage on the basis of the issuance and delivery to the 1993 Mortgage Trustee of Collateral Series F Bonds (other than by the application of the proceeds of a payment in respect of such Collateral Series F Bonds) shall, to the extent thereof, be deemed to satisfy and discharge the obligation of the Company, if any, to make a payment of principal of such Collateral Series F Bonds which is then due. The Trustee may conclusively presume that the obligation of the Company to pay the principal of the Collateral Series F Bonds as the same shall become due and payable shall have been fully satisfied and discharged unless and until it shall have received a written notice from the 1993 Mortgage Trustee, signed by an authorized officer thereof, stating that the principal of specified Collateral Series F Bonds has become due and payable and has not been fully paid, and specifying the amount of funds required to make such payment. Each Collateral Series F Bond shall be dated as of the date of its authentication. The Collateral Series F Bonds shall be issued as fully registered bonds only, in denominations of $1,000 and multiples thereof. The Collateral Series F Bonds shall be registerable and exchangeable at the office or agency of the Company in the city in which the principal corporate trust office of the 1993 Mortgage Trustee is located, in the manner and upon the terms set forth in Section 5 of Article II of the Indenture; provided, however, that the Collateral Series F Bonds shall not be transferrable except to a successor trustee under the 1993 Mortgage. No service charge shall be made for any exchange or transfer of any Collateral Series F Bond. SECTION 2. The text of the Collateral Series F Bonds shall be substantially in the form attached hereto as Exhibit A. SECTION 3. The Collateral Series F Bonds may be executed by the Company and delivered to the Trustee and, upon compliance with all applicable provisions and requirements of the -3- Indenture in respect thereof, shall be authenticated by the Trustee and delivered (without awaiting the filing or recording of this Supplemental Indenture) in accordance with the written order or orders of the Company. ARTICLE TWO REDEMPTION OF THE COLLATERAL SERIES F BONDS SECTION 1. Each Collateral Series F Bond shall be redeemable at the option of the Company in whole at any time, or in part from time to time, prior to maturity, at a redemption price equal to 100% of the principal amount thereof to be redeemed. SECTION 2. The provisions of Sections 3, 4, 5, 6 and 7 of Article V of the Indenture shall be applicable to the Collateral Series F Bonds, except that (a) no publication of notice of redemption of the Collateral Series F Bonds shall be required and (b) if less than all the Collateral Series F Bonds are to be redeemed, the Collateral Series F Bonds to be redeemed shall be selected in the principal amounts designated to the Trustee by the Company, and except as such provisions may otherwise be inconsistent with the provisions of this Article Two. SECTION 3. The holder of each and every Collateral Series F Bond hereby agrees to accept payment thereof prior to maturity on the terms and conditions provided for in this Article Two. ARTICLE THREE ACKNOWLEDGMENT OF RIGHT TO VOTE OR CONSENT WITH RESPECT TO CERTAIN AMENDMENTS TO INDENTURE The Company hereby acknowledges the right of the holders of the Collateral Series F Bonds to vote or consent with respect to any or all of the modifications to the Indenture referred to in Article Three of the Supplemental Indenture, dated as of March 1, 1980, irrespective of the fact that the Bonds of the Second 1987 Series are no longer outstanding; provided, however, that such acknowledgment shall not impair (a) the right of the Company to make such modifications without the consent or other action of the holders of the Bonds of the 2020 Series or the bonds of any other series subsequently created under the Indenture with respect to which the Company has expressly reserved such right or (b) the right of the Company to reserve the right to make such modifications without the consent or other action of the holders of bonds of one or more, or any or all, series created subsequent to the creation of the Collateral Series F Bonds. ARTICLE FOUR THE TRUSTEE The Trustee accepts the trusts created by this Supplemental Indenture upon the terms and conditions set forth in the Indenture and this Supplemental Indenture. The recitals in this Supplemental -4- Indenture are made by the Company only and not by the Trustee. Each and every term and condition contained in Article XII of the Indenture shall apply to this Supplemental Indenture with the same force and effect as if the same were herein set forth in full, with such omissions, variations and modifications thereof as may be appropriate to make the same conform to this Supplemental Indenture. ARTICLE FIVE MISCELLANEOUS PROVISIONS SECTION 1. Subject to the variations contained in Article Two of this Supplemental Indenture, the Indenture is in all respects ratified and confirmed and the Principal Indenture, this Supplemental Indenture and all other indentures supplemental to the Principal Indenture shall be read, taken and construed as one and the same instrument. Neither the execution of this Supplemental Indenture nor anything herein contained shall be construed to impair the lien of the Indenture on any of the properties subject thereto, and such lien shall remain in full force and effect as security for all bonds now outstanding or hereafter issued under the Indenture. All covenants and provisions of the Indenture shall continue in full force and effect and this Supplemental Indenture shall form part of the Indenture. SECTION 2. If the date for making any payment or the last date for performance of any act or the exercising of any right, as provided in this Supplemental Indenture, shall not be a Business Day (as defined in the 1993 Mortgage), such payment may be made or act performed or right exercised on the next succeeding Business Day with the same force and effect as if done on the nominal date provided in this Supplemental Indenture. SECTION 3. The terms defined in the Indenture shall, for all purposes of this Supplemental Indenture, have the meaning specified in the Indenture except as set forth in Section 4 of this Article or otherwise set forth in this Supplemental Indenture or unless the context clearly indicates some other meaning to be intended. SECTION 4. Any term defined in Section 303 of the Trust Indenture Act of 1939, as amended, and not otherwise defined in the Indenture shall, with respect to this Supplemental Indenture and the Collateral Series F Bonds, have the meaning assigned to such term in Section 303 as in force on the date of the execution of this Supplemental Indenture. SECTION 5. This Supplemental Indenture may be executed in any number of counterparts, and all of said counterparts executed and delivered, each as an original, shall constitute but one and the same instrument. -5- IN WITNESS WHEREOF, Public Service Company of Colorado, party hereto of the first part, has caused its corporate name to be hereunto affixed, and this instrument to be signed by its President, an Executive Vice President, a Senior Vice President or a Vice President, and its corporate seal to be hereunto affixed and attested by its Secretary or an Assistant Secretary for and in its behalf; and U.S. Bank Trust National Association, the party hereto of the second part, in evidence of its acceptance of the trust hereby created, has caused its corporate name to be hereunto affixed, and this instrument to be signed and its corporate seal to be affixed by one of its Vice Presidents and attested by one of its Assistant Secretaries, for and in its behalf, all as of the day and year first above written. PUBLIC SERVICE COMPANY OF COLORADO By:/s/ Brian P. Jackson Name: Brian P. Jackson Title: Senior Vice President ATTEST:/s/ Teresa S. Madden Name: Teresa S. Madden Title: Secretary U.S. BANK TRUST NATIONAL ASSOCIATION, as Trustee By:/s/ Catherine F. Donohue Name: Catherine F. Donohue Title: Vice President ATTEST:/s/ Teresita Glasgow Name: Teresita Glasgow Title: Assistant Secretary -6- STATE OF COLORADO ) ) ss.: CITY AND COUNTY OF DENVER ) On this 20th day of April, 1998, before me, Jo Lynn R. Rife, a duly authorized Notary Public in and for said City and County in the State aforesaid, personally appeared Brian P. Jackson and Teresa S. Madden to me known to be a Senior Vice President and the Secretary, respectively, of PUBLIC SERVICE COMPANY OF COLORADO, a corporation organized and existing under the laws of the State of Colorado, one of the corporations that executed the within and foregoing instrument; and the said Senior Vice President and Secretary severally acknowledged the said instrument to be the free and voluntary act and deed of said corporation, for the uses and purposes therein mentioned, and on oath stated that they were authorized to execute said instrument and that the seal affixed thereto is the corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. Name: /s/ Jo Lynn R. Rife Notary Public, State of Colorado Commission Expires April 28, 1998 -7- STATE OF NEW YORK ) )ss.: CITY AND COUNTY OF NEW YORK ) On this 17th day of April, 1998, before me, Janet P. O'Hara, a duly authorized Notary Public in and for said City and County in the State aforesaid, personally appeared Catherine F. Donahue and Teresita Glasgow to me known to be a Vice President and an Assistant Secretary, respectively, of U.S. BANK TRUST NATIONAL ASSOCIATION, a national banking association, one of the corporations that executed the within and foregoing instrument; and the said Vice President and Assistant Secretary severally acknowledged the said instrument to be the free and voluntary act and deed of said corporation, for the uses and purposes therein mentioned, and on oath stated that they were authorized to execute said instrument and that the seal affixed thereto is the corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. Name: /s/Janet P. O'Hara Notary Public, State of New York No. 010H5087549 Qualified In Queens County Commission Expires November 3, 1999 -8- EXHIBIT A FORM OF COLLATERAL SERIES F BOND This bond is not transferable except to a successor trustee under the Indenture, dated as of October 1, 1993, as supplemented, between Public Service Company of Colorado and U.S. Bank Trust National Association (formerly First Trust of New York, National Association), as successor trustee thereunder. PUBLIC SERVICE COMPANY OF COLORADO FIRST MORTGAGE BOND, CoLLATERAL SERIES F DUE 2003 REGISTERED REGISTERED No.................. $.................. FOR VALUE RECEIVED, PUBLIC SERVICE COMPANY OF COLORADO, a corporation organized and existing under the laws of the State of Colorado (hereinafter sometimes called the "Company"), promises to pay to U.S. Bank Trust National Association (formerly known as First Trust of New York, National Association), as successor trustee (the "1993 Mortgage Trustee") under the Indenture, dated as of October 1, 1993 (the "1993 Mortgage"), of the Company, or registered assigns, Dollars on April 15, 2003, at the office or agency of the Company in the city in which the principal corporate trust office of the 1993 Mortgage Trustee is located. This bond shall not bear interest. The principal of this bond shall be payable in any coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts. Any payment by the Company under the 1993 Mortgage of the principal of securities which shall have been authenticated and delivered under the 1993 Mortgage on the basis of the issuance and delivery to the 1993 Mortgage Trustee of this bond (the "1993 Mortgage Securities") (other than by the application of the proceeds of a payment in respect of this bond) shall, to the extent thereof, be deemed to satisfy and discharge the obligation of the Company, if any, to make a payment of principal of this bond which is then due. This bond is one of an issue of bonds of the Company, issued and to be issued in one or more series under and equally and ratably secured (except as any sinking, amortization, improvement or other fund, established in accordance with the provisions of the indenture hereinafter mentioned, may afford additional security for the bonds of any particular series) by a certain indenture, dated as of December 1, 1939, made by the Company to U.S. BANK TRUST NATIONAL ASSOCIATION (formerly First Trust of New York, National Association), as successor trustee (hereinafter called the "Trustee") to Morgan Guaranty Trust Company of New York (formerly Guaranty Trust Company of New York), as amended and supplemented by several indentures supplemental thereto, including the Supplemental Indenture dated as of April 1, 1998 (said Indenture as amended and supplemented by said indentures supplemental thereto being hereinafter called the "Indenture"), to which Indenture reference is hereby made for a description of the property mortgaged, the nature and extent of the security, the rights and limitations of rights of the Company, the Trustee, and the holders of said bonds, under the Indenture, and the terms and conditions upon which said bonds are secured, to all of the provisions of which Indenture and of all indentures supplemental thereto in respect of such security, including the provisions of the Indenture permitting the issue of bonds of any series for property which, under the restrictions and limitations therein specified, may be subject to liens prior to the lien of the Indenture, the holder, by accepting this bond, assents. To the extent permitted by and as provided in the Indenture, the rights and obligations of the Company and of the holders of said bonds (including those pertaining to any sinking or other fund) may be changed and modified, with the consent of the Company, by the holders of at least 75% in aggregate principal amount of the bonds then outstanding (excluding bonds disqualified from voting by reason of the Company's interest therein as provided in the Indenture); provided, however, that without the consent of the holder hereof no such modification or alteration shall be made which will extend the time of payment of the principal of this bond or reduce the principal amount hereof or effect any other modification of the terms of payment of such principal or will reduce the percentage of bonds required for the aforesaid actions under the Indenture. The Company has reserved the right to amend the Indenture without any consent or other action by holders of any series of bonds created after October 31, 1975 (including this series) so as to change 75% in the foregoing sentence to 60% and to change certain procedures relating to bondholders' meetings. This bond is one of a series of bonds designated as the First Mortgage Bonds, Collateral Series F, of the Company. This bond shall be redeemable at the option of the Company in whole at any time, or in part from time to time, prior to maturity, at a redemption price equal to 100% of the principal amount thereof to be redeemed. The principal of this bond may be declared or may become due before the maturity hereof, on the conditions, in the manner and at the times set forth in the Indenture, upon the happening of an event of default as therein provided. This bond is not transferable except to a successor trustee under the 1993 Mortgage, any such transfer to be made at the office or agency of the Company in the city in which the principal corporate trust office of the 1993 Mortgage Trustee is located, upon surrender and cancellation of this bond, and thereupon a new bond of this series of a like principal amount will be issued to the transferee in exchange therefor, as provided in the Indenture. The Company, the Trustee, any paying agent and any registrar may deem and treat the person in whose name this bond is registered as the absolute owner hereof for the purpose of receiving payment and for all other purposes. This bond, alone or with other bonds of this series, may in like manner be exchanged at such office or agency for one or more new bonds of this series of the same aggregate principal amount, all as provided in the Indenture. No service charge shall be made to any holder of any bond of this series for any exchange or transfer of bonds. No recourse under or upon any covenant or obligation of the Indenture, or of any bonds thereby secured, or for any claim based thereon, or otherwise in any manner in respect thereof, shall be had against any incorporator, subscriber to the capital stock, shareholder, officer or director, as such, of the Company, whether former, present or future, either directly, or indirectly through the Company or the A-2 Trustee, by the enforcement of any subscription to capital stock, assessment or otherwise, or by any legal or equitable proceeding by virtue of any statute or otherwise (including, without limiting the generality of the foregoing, any proceeding to enforce any claimed liability of shareholders of the Company based upon any theory of disregarding the corporate entity of the Company or upon any theory that the Company was acting as the agent or instrumentality of the shareholders), any and all such liability of incorporators, shareholders, subscribers, officers and directors, as such, being released by the holder hereof, by the acceptance of this bond, and being likewise waived and released by the terms of the Indenture under which this bond is issued. This bond shall not be valid or become obligatory for any purpose until the certificate of authentication endorsed hereon shall have been signed by U.S. Bank Trust National Association, or its successor, as Trustee under the Indenture. IN WITNESS WHEREOF, Public Service Company of Colorado has caused this bond to be signed in its name by a [_________ Vice President] and its corporate seal to be affixed hereto and attested by its Secretary or an Assistant Secretary. Dated: PUBLIC SERVICE COMPANY OF COLORADO By:________________________________ [__________ Vice President] ATTEST:________________________ [Secretary] CERTIFICATE OF AUTHENTICATION This is one of the securities of the series designated therein referred to in the within-mentioned Supplemental Indenture. Dated: U.S. BANK TRUST NATIONAL ASSOCIATION, AS TRUSTEE By:____________________________________ Authorized Officer A-3 SCHEDULE A SUPPLEMENTAL INDENTURES Date of Principal Supplemental Principal Amount Indenture Series of Bonds Amount Issued Outstanding --------- --------------- ------------- ----------- March 14, 1941 None -- -- May 14, 1941 None -- -- April 28, 1942 None -- -- April 14, 1943 None -- -- April 27, 1944 None -- -- April 18, 1945 None -- -- April 23, 1946 None -- -- April 9, 1947 None -- -- June 1, 1947* 2-7/8% Series due 1977 $ 40,000,000 None April 1, 1948 None -- -- May 20, 1948 None -- -- October 1, 1948 3-1/8% Series due 1978 10,000,000 None April 20, 1949 None -- -- April 24, 1950 None -- -- April 18, 1951 None -- -- October 1, 1951 3-1/4% Series due 1981 15,000,000 None April 21, 1952 None -- -- December 1, 1952 None -- -- April 15, 1953 None -- -- April 19, 1954 None -- -- October 1, 1954* 3-1/8% Series due 1984 20,000,000 None April 18, 1955 None -- -- April 24, 1956 None -- -- May 1, 1957* 4-3/8% Series due 1987 30,000,000 None April 10, 1958 None -- -- May 1, 1959 4-5/8% Series due 1989 20,000,000 None April 18, 1960 None -- -- I-1 Date of Principal Supplemental Principal Amount Indenture Series of Bonds Amount Issued Outstanding --------- --------------- ------------- ----------- April 19, 1961 None -- -- October 1, 1961 4-1/2% Series due 1991 30,000,000 None March 1, 1962 4-5/8% Series due 1992 8,800,000 None June 1, 1964 4-1/2% Series due 1994 35,000,000 None May 1, 1966 5-3/8% Series due 1996 35,000,000 None July 1, 1967* 5-7/8% Series due 1997 35,000,000 None July 1, 1968* 6-3/4% Series due 1998 25,000,000 25,000,000 April 25, 1969 None -- -- April 21, 1970 None -- -- September 1, 1970 8-3/4% Series due 2000 35,000,000 None February 1, 1971 7-1/4% Series due 2001 40,000,000 None August 1, 1972 7-1/2% Series due 2002 50,000,000 None June 1, 1973 7-5/8% Series due 2003 50,000,000 None March 1, 1974 Pollution Control Series A 24,000,000 21,500,000 December 1, 1974 Pollution Control Series B 50,000,000 None October 1, 1975 9-3/8% Series due 2005 50,000,000 None April 28, 1976 None -- -- April 28, 1977 None -- -- November 1, 1977* 8-1/4% Series due 2007 50,000,000 None April 28, 1978 None -- -- October 1, 1978 9-1/4% Series due 2008 50,000,000 None October 1, 1979* Pollution Control Series C 50,000,000 None March 1, 1980* 15% Series due 1987 50,000,000 None April 28, 1981 None -- -- November 1, 1981* Pollution Control Series D 27,380,000 None December 1, 1981* 16-1/4% Series due 2011 50,000,000 None April 29, 1982 None -- -- May 1, 1983* Pollution Control Series E 42,000,000 None April 30, 1984 None -- -- March 1, 1985* 13% Series due 2015 50,000,000 None I-2 Date of Principal Supplemental Principal Amount Indenture Series of Bonds Amount Issued Outstanding --------- --------------- ------------- ----------- November 1, 1986* Pollution Control Series F 27,250,000 27,250,000 May 1, 1987* 8.95% Series due 1992 75,000,000 None July 1, 1990* 9-7/8% Series due 2020 75,000,000 75,000,000 December 1, 1990* Secured Medium-Term Notes, 191,500,000** 68,500,000 Series A March 1, 1992* 8-1/8% Series due 2004 and 100,000,000 100,000,000 8-3/4% Series due 2022 150,000,000 150,000,000 April 1, 1993* Pollution Control Series G 79,500,000 79,500,000 June 1, 1993* Pollution Control Series H 50,000,000 50,000,000 November 1, 1993* Collateral Series A 134,500,000 134,500,000 January 1, 1994* Collateral Series B due 2001 and 102,667,000 102,667,000 Collateral Series B due 2024 110,000,000 110,000,000 September 2, 1994 None -- -- (Appointment of Successor Trustee) May 1, 1996 Collateral Series C 125,000,000 125,000,000 November 1, 1996 Collateral Series D 250,000,000 250,000,000 February 1, 1997 Collateral Series E 150,000,000 50,000,000 - -------------------- * Contains amendatory provisions ** $200,000,000 authorized I-3 SCHEDULE B PROPERTY DESCRIPTION PART SECOND. (Substations) The following electric substations and substation sites of the Company, including all buildings, structures, towers, poles, lines, and all equipment, appliances and devices for transforming, converting and distributing electric energy, and all the right, title and interest of the Company in and to the land on which the same are situated, and all of the Company's lands, easements, rights-of-way, rights, franchises, privileges, machinery, equipment, appliances, devices, appurtenances and supplies forming a part of said substations or any of them, or used or enjoyed, or capable of being used or enjoyed, in conjunction or connection with any thereof, all situated in the State of Colorado and the counties thereof, more particularly described as follows: ADAMS COUNTY 1. WASHINGTON ELECTRIC SUBSTATION Lot 1, Block 1, Washington Electric Substation, Filing No. 1, County of Adams, State of Colorado DOUGLAS COUNTY 2. NEW MARCY SUBSTATION SITE A parcel of land more particularly described as follows: THAT PORTION OF SECTION 14, TOWNSHIP 6 SOUTH, RANGE 68 WEST OF THE SIXTH PRINCIPAL MERIDIAN, IN THE COUNTY OF DOUGLAS, STATE OF COLORADO, AS SHOWN ON THE LAND SURVEY PLAT RECORDED AT RECEPTION NUMBER 254255 IN THE OFFICE OF THE CLERK AND COUNTY RECORDER OF SAID COUNTY OF DOUGLAS, DESCRIBED AS FOLLOWS: COMMENCING AT THE SOUTHWEST CORNER OF SAID SECTION 14, WHENCE THE SOUTHEAST CORNER OF SAID SECTION 14 BEARS NORTH 89(Degree)58'33" EAST 5297.28 FEET; THENCE NORTH 68(Degree)07'34" EAST 2841.07 FEET TO THE TRUE POINT OF BEGINNING; THENCE NORTH 00(Degree)00'00" EAST 300.00 FEET; THENCE NORTH 90(Degree)00'00" EAST 300.00 FEET; THENCE SOUTH 00(Degree)00'00" EAST 300.00 FEET; THENCE NORTH 90(Degree)00'00" WEST 300.00 TO THE TRUE POINT OF BEGINNING, EXCEPT WATER RIGHTS AND GROUND WATER, MINERALS AND MINERAL RIGHTS CONTAINING 2.066 ACRES, MORE OR LESS. WELD COUNTY II-1 3. GREELEY SUBSTATION: ADDITIONAL LAND A tract of land lying in the Northeast Quarter of the Northeast Quarter (NE 1/4 NE 1/4) of Section Twelve (12), Township Five (5) North, Range Sixty-six (66) West of the Sixth (6th) Principal Meridian, situate, lying and being in the County of Weld, State of Colorado, more particularly described as follows: Beginning at a point on the north line and 287 feet easterly of the northwest corner of a tract of land conveyed by warranty deed dated June 10, 1930 and recorded in Book 896, Page 476, of the records of Weld County, Colorado, wherein Simon Peterson is the grantor and Public Service Company of Colorado is the grantee, thence westerly along said north line a distance of 287 feet to a point; thence southerly along west line of said tract a distance of 230 feet to a point; thence easterly and parallel to said north line of said tract a distance of 302 feet to a point; thence northerly and parallel to west line of said tract a distance of 215 feet to a point; thence northwesterly a distance of 21.2 feet more or less to the point of beginning. PART THIRD. (Miscellaneous Property) The following residences, garages, warehouses, buildings, structures, works and sites and the Company's lands on which the same are situated, and all easements, rights, rights of way, permits, franchises, consents, privileges, licenses, machinery, equipment, furniture and fixtures, appurtenances and supplies forming a part of said residences, garages, warehouses, buildings, structures, works and sites, or any of them, or used or enjoyed or capable of being used or enjoyed in connection or conjunction therewith, situated in the State of Colorado and the Counties thereof, more particularly described as follows: DENVER COUNTY 4. LIPAN SERVICE CENTER: ADDITIONAL LAND (KEYS/GRIMES TRACT) A parcel of land more particularly described as follows: PART OF THE SOUTHEAST 1/4 OF THE NORTHEAST 1/4 OF SECTION 9, TOWNSHIP 4 SOUTH, RANGE 68 WEST OF THE 6TH PRINCIPAL MERIDIAN, BEGINNING AT A POINT ON THE NORTH LINE OF WEST 3RD AVENUE WHICH IS 186.82 FEET EAST AND 378.31 FEET SOUTH OF THE NORTHWEST CORNER OF SAID SOUTHEAST 1/4 OF THE NORTHEAST 1/4 OF SAID SECTION 9; THENCE NORTH 143.00 FEET TO THE SOUTHWEST RIGHT OF WAY LINE OF DENVER AND RIO GRANDE RAILROAD; THENCE SOUTHERLY ALONG SAID RIGHT OF WAY LINE TO THE NORTH LINE OF WEST 3RD AVENUE; THENCE WEST ALONG THE NORTH LINE OF WEST 3RD AVENUE 71.38 FEET TO THE POINT OF BEGINNING, CITY AND COUNTY OF DENVER, STATE OF COLORADO. II-2 Exhibit 4(b) PUBLIC SERVICE COMPANY OF COLORADO TO U.S. BANK TRUST NATIONAL ASSOCIATION, as Trustee --------------------- Supplemental Indenture No. 7 Dated as of April 1, 1998 Supplemental to the Indenture dated as of October 1, 1993 --------------------- Establishing the Securities of Series No. 6, designated First Collateral Trust Bonds, Series No. 6 SUPPLEMENTAL INDENTURE NO. 7, dated as of April 1, 1998, between PUBLIC SERVICE COMPANY OF COLORADO, a corporation duly organized and existing under the laws of the State of Colorado (hereinafter sometimes called the "Company"), and U.S. BANK TRUST NATIONAL ASSOCIATION (formerly First Trust of New York, National Association), a national banking association, as successor trustee (hereinafter sometimes called the "Trustee") to Morgan Guaranty Trust Company of New York under the Indenture, dated as of October 1, 1993 (hereinafter called the "Original Indenture"), as previously supplemented and as further supplemented by this Supplemental Indenture No. 7. The Original Indenture and any and all indentures and all other instruments supplemental thereto are hereinafter sometimes collectively called the "Indenture". Recitals of the Company The Original Indenture was authorized, executed and delivered by the Company to provide for the issuance from time to time of its Securities (such term and all other capitalized terms used herein without definition having the meanings assigned to them in the Original Indenture), to be issued in one or more series as contemplated therein, and to provide security for the payment of the principal of and premium, if any, and interest, if any, on the Securities. The Company has heretofore executed and delivered to the Trustee the Supplemental Indentures referred to in Schedule A hereto for the purpose of establishing a series of bonds and appointing the successor Trustee. The Company desires to establish a series of Securities to be designated "First Collateral Trust Bonds, Series No. 6", such series of Securities to be hereinafter sometimes called "Series No. 6". The Company has duly authorized the execution and delivery of this Supplemental Indenture No. 7 to establish the Securities of Series No. 6 and has duly authorized the issuance of such Securities; and all acts necessary to make this Supplemental Indenture No. 7 a valid agreement of the Company, and to make the Securities of Series No. 6 valid obligations of the Company, have been performed. Granting Clauses NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE NO. 7 WITNESSETH, that, in consideration of the premises and of the purchase of the Securities by the Holders thereof, and in order to secure the payment of the principal of and premium, if any, and interest, if any, on all Securities from time to time Outstanding and the performance of the covenants contained therein and in the Indenture and to declare the terms and conditions on which such Securities are secured, the Company hereby grants, bargains, sells, releases, conveys, assigns, transfers, mortgages, pledges, sets over and confirms to the Trustee, and grants to the Trustee a security interest in, the following: Granting Clause First All right, title and interest of the Company, as of the date of the execution and delivery of this Supplemental Indenture No. 7, in and to property (other than Excepted Property), real, personal and mixed and wherever situated, in any case used or to be used in or in connection with the Electric Utility Business (whether or not such use is the sole use of such property), including without limitation (a) all lands and interests in land described or referred to in Schedule B hereto; (b) all other lands, easements, servitudes, licenses, permits, rights of way and other rights and interests in or relating to real property used or to be used in or in connection with the Electric Utility Business or relating to the occupancy or use of such real property, subject however, to the exceptions and exclusions set forth in clause (a) of Granting Clause First of the Original Indenture; (c) all plants, generators, turbines, engines, boilers, fuel handling and transportation facilities, air and water pollution control and sewage and solid waste disposal facilities and other machinery and facilities for the generation of electric energy; (d) all switchyards, lines, towers, substations, transformers and other machinery and facilities for the transmission of electric energy; (e) all lines, poles, conduits, conductors, meters, regulators and other machinery and facilities for the distribution of electric energy; (f) all buildings, offices, warehouses and other structures used or to be used in or in connection with the Electric Utility Business; (g) all pipes, cables, insulators, ducts, tools, computers and other data processing and/or storage equipment and other equipment, apparatus and facilities used or to be used in or in connection with the Electric Utility Business; (h) any or all of the foregoing properties in the process of construction; and (i) all other property, of whatever kind and nature, ancillary to or otherwise used or to be used in conjunction with any or all of the foregoing or otherwise, directly or indirectly, in furtherance of the Electric Utility Business; Granting Clause Second Subject to the applicable exceptions permitted by Section 810(c), Section 1303 and Section 1305 of the Original Indenture, all property (other than Excepted Property) of the kind and nature described in Granting Clause First which may be hereafter acquired by the Company, it being the intention of the Company that all such property acquired by the Company after the date of the execution and delivery of this Supplemental Indenture No. 7 shall be as fully embraced within and subjected to the Lien hereof as if such property were owned by the Company as of the date of the execution and delivery of this Supplemental Indenture No. 7; Granting Clause Fourth All other property of whatever kind and nature subjected or required to be subjected to the Lien of the Indenture by any of the provisions thereof; Excepted Property Expressly excepting and excluding, however, from the Lien and operation of the Indenture all Excepted Property of the Company, whether now owned or hereafter acquired; TO HAVE AND TO HOLD all such property, real, personal and mixed, unto the Trustee, its successors in trust and their assigns forever; SUBJECT, HOWEVER, to (a) Liens existing at the date of the execution and delivery of the Original Indenture (including, but not limited to, the Lien of the PSCO 1939 Mortgage), (b) as to property acquired by the Company after the date of the execution and delivery of the Original Indenture, Liens existing or placed thereon at the time of the acquisition thereof (including, but not limited to, the Lien of any Class A Mortgage and purchase money Liens), (c) Retained Interests and (d) any other Permitted Liens, it being understood that, with respect to any property which was at the date of execution and delivery of the Original Indenture or thereafter became or hereafter becomes subject to the Lien of any Class A Mortgage, the Lien of the Indenture shall at all times be junior, subject and subordinate to the Lien of such Class A Mortgage; IN TRUST, NEVERTHELESS, for the equal and proportionate benefit and security of the Holders from time to time of all Outstanding Securities without any priority of any such Security over any other such Security; -2- PROVIDED, HOWEVER, that the right, title and interest of the Trustee in and to the Mortgaged Property shall cease, terminate and become void in accordance with, and subject to the conditions set forth in, Article Nine of the Original Indenture, and if, thereafter, the principal of and premium, if any, and interest, if any, on the Securities shall have been paid to the Holders thereof, or shall have been paid to the Company pursuant to Section 603 of the Original Indenture, then and in that case the Indenture shall terminate, and the Trustee shall execute and deliver to the Company such instruments as the Company shall require to evidence such termination; otherwise the Indenture, and the estate and rights thereby granted shall be and remain in full force and effect; and THE PARTIES HEREBY FURTHER COVENANT AND AGREE as follows: ARTICLE ONE Securities of Series No. 6 There are hereby established the Securities of Series No. 6, which shall have the terms and characteristics set forth below (the lettered subdivisions set forth below corresponding to the lettered subdivisions of Section 301 of the Original Indenture): (a) the title of the Securities of such series shall be "First Collateral Trust Bonds, Series No. 6"; provided, however, that, at any time after the PSCO 1939 Mortgage shall have been satisfied and discharged, the Company shall have the right, without any consent or other action by the Holders of such Securities, to change such title in such manner as shall be deemed by the Company to be appropriate to reflect such satisfaction and discharge, such change to be evidenced in an Officer's Certificate; (b) the Securities of Series No. 6 shall be initially authenticated and delivered in the aggregate principal amount of $250,000,000; (c) interest on the Securities of Series No. 6 shall be payable to the Persons in whose names such Securities are registered at the close of business on the Regular Record Date for such interest, except as otherwise expressly provided in the form of such Securities attached as Exhibit A hereto; (d) the principal of the Securities of Series No. 6 shall be payable on April 15, 2003, the Stated Maturity. (e) the Securities of Series No. 6 shall bear interest at a rate of 6% per annum; interest shall accrue on the Securities of Series No. 6 from April 20, 1998, or the most recent date to which interest has been paid or duly provided for; the Interest Payment Dates for such Securities shall be April 15 and October 15 in each year, commencing October 15, 1998, and the Regular Record Dates with respect to the Interest Payment Dates for such Securities shall be April 1 and October 1 in each year, respectively (whether or not a Business Day); -3- (f) the Corporate Trust Office of U.S. Bank Trust National Association in New York, New York shall be the place at which (i) the principal of, premium, if any, and interest, if any, on the Securities of Series No. 6 shall be payable, (ii) registration of transfer of such Securities may be effected, (iii) exchanges of such Securities may be effected and (iv) notices and demands to or upon the Company in respect of such Securities and the Indenture may be served; and U.S. Bank Trust National Association shall be the Security Registrar for such Securities; provided, however, that the Company reserves the right to change, by one or more Officer's Certificates, any such place or the Security Registrar; and provided, further, that the Company reserves the right to designate, by one or more Officer's Certificates, its principal office in Denver, Colorado as any such place or itself as the Security Registrar; (g) the Securities of Series No. 6 shall not be redeemable prior to maturity; (h) not applicable; (i) not applicable; (j) not applicable; (k) not applicable; (l) not applicable; (m) not applicable; (n) not applicable; (o) not applicable; (p) not applicable; (q) the Securities of Series No. 6 are to be initially registered in the name of Cede & Co., as nominee for The Depository Trust Company (the "Depositary"). Such Securities shall not be transferable or exchangeable, nor shall any purported transfer be registered, except as follows: (i) such Securities may be transferred in whole, and appropriate registration of transfer effected, if such transfer is by such nominee to the Depositary, or by the Depositary to another nominee thereof, or by any nominee of the Depositary to any other nominee thereof, or by the Depositary or any nominee thereof to any successor securities depositary or any nominee thereof; and (ii) such Securities may be exchanged for definitive Securities registered in the respective names of the beneficial holders thereof, and thereafter shall be transferable without restriction, if: (A) The Depositary, or any successor securities depositary, shall have notified the Company and the Trustee that it is unwilling or unable to continue to act as securities depositary with respect to such Securities and the Trustee shall not have been notified by the Company within ninety (90) days -4- of the identity of a successor securities depositary with respect to such Securities; (B) The Company shall have delivered to the Trustee a Company Order to the effect that such Securities shall be so exchangeable on and after a date specified therein; or (C) (1) an Event of Default shall have occurred and be continuing, (2) the Trustee shall have given notice of such Event of Default pursuant to Section 1102 of the Original Indenture and (3) there shall have been delivered to the Company and the Trustee an Opinion of Counsel to the effect that the interests of the beneficial owners of such Securities in respect thereof will be materially impaired unless such owners become Holders of definitive Securities. (r) not applicable; (s) no service charge shall be made for the registration of transfer or exchange of the Securities of Series No. 6; provided, however, that the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection with the exchange or transfer; (t) not applicable; (u) (i) If the Company shall have caused the Company's indebtedness in respect of any Securities of Series No. 6 to have been satisfied and discharged prior to the Maturity of such Securities, as provided in Section 901 of the Original Indenture, the Company shall, promptly after the date of such satisfaction and discharge, give a notice to each Person who was a Holder of any of such Securities on such date stating (A)(1) the aggregate principal amount of such Securities and (2) the aggregate amount of any money (other than amounts, if any, deposited in respect of accrued interest on such Securities) and the aggregate principal amount of, the rate or rates of interest on, and the aggregate fair market value of, any Eligible Obligations deposited pursuant to Section 901 of the Original Indenture with respect to such Securities and (B) that the Company will provide (and the Company shall promptly so provide) to such Person, or any beneficial owner of such Securities holding through such Person (upon written request to the Company sent to an address specified in such notice), such other information as such Person or beneficial owner, as the case may be, reasonably may request in order to enable it to determine the federal income tax consequences to it resulting from the satisfaction and discharge of the Company's indebtedness in respect of such Securities. Thereafter, the Company shall, within forty-five (45) days after the end of each calendar year, give to each Person who at any time during such calendar year was a Holder of such Securities a notice containing(X) such information as may be necessary to enable such Person to report its income, gain or loss for federal income tax purposes with respect to such Securities or the assets held on deposit in respect thereof during such calendar year or the portion thereof during which such Person was a Holder of such Securities, as the case may be (such information to be set forth for such calendar year as a whole and for each month during such year) and (Y) a statement to the effect that the Company will provide (and the Company shall promptly so provide) -5- to such Person, or any beneficial owner of such Securities holding through such Person (upon written request to the Company sent to an address specified in such notice), such other information as such Person or beneficial owner, as the case may be, reasonably may request in order to enable it to determine its income, gain or loss for federal income tax purposes with respect to such Securities or such assets for such year or portion thereof, as the case may be. The obligation of the Company to provide or cause to be provided information for purposes of income tax reporting by any Person as described in the first two sentences of this paragraph shall be deemed to have been satisfied to the extent that the Company has provided or caused to be provided substantially comparable information pursuant to any requirements of the Internal Revenue Code of 1986, as amended from time to time (the "Code") and United States Treasury regulations thereunder. (ii) Notwithstanding the provisions of subparagraph (i) above, the Company shall not be required to give any notice specified in such subparagraph or to otherwise furnish any of the information contemplated therein if the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of such Securities will not recognize income, gain or loss for federal income tax purposes as a result of the satisfaction and discharge of the Company's indebtedness in respect of such Securities and such Holders will be subject to federal income taxation on the same amounts and in the same manner and at the same times as if such satisfaction and discharge had not occurred. (iii) Anything in this clause (u) to the contrary notwithstanding, the Company shall not be required to give any notice specified in subparagraph (i) or to otherwise furnish the information contemplated therein or to deliver any Opinion of Counsel contemplated by subparagraph (ii) if the Company shall have caused Securities of Series No. 6 to be deemed to have been paid for purposes of the Indenture, as provided in Section 901 of the Original Indenture, but shall not have effected the satisfaction and discharge of its indebtedness in respect of such Securities pursuant to such Section. (v) The Securities of Series No. 6 shall be substantially in the form attached hereto as Exhibit A and shall have such further terms as are set forth in such form. ARTICLE TWO Miscellaneous Provisions This Supplemental Indenture No. 7 is a supplement to the Original Indenture. As previously supplemented and further supplemented by this Supplemental Indenture No. 7, the Original Indenture is in all respects ratified, approved and confirmed, and the Original Indenture, all previous supplements thereto and this Supplemental Indenture No. 7 shall together constitute one and the same instrument. -6- IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture No. 7 to be duly executed as of the day and year first above written. PUBLIC SERVICE COMPANY OF COLORADO By:s/ Brian P. Jackson Name: Brian P. Jackson Title: Senior Vice President U.S. BANK TRUST NATIONAL ASSOCIATION, Trustee By:s/ Catherine F. Donohue Name: Catherine F. Donohue Title: Vice President -7- STATE OF COLORADO ) ) ss.: CITY AND COUNTY OF DENVER ) On the 20th day of April, 1998, before me personally came Brian P. Jackson to me known, who, being by me duly sworn, did depose and say that he is a Senior Vice President of Public Service Company of Colorado, one of the corporations described in and which executed the foregoing instrument; and that he signed his name thereto by authority of the Board of Directors of said corporation. s/ Martha L. Palomar Name: Martha L. Palomar Notary Public, State of Colorado Commission Expires February 29, 2000 -8- STATE OF NEW YORK ) ) ss.: CITY AND COUNTY OF NEW YORK ) On the 17th day of April, 1998, before me personally came Catherine F. Donohue, to me known, who, being by me duly sworn, did depose and say that she is a Vice President of U.S. Bank Trust National Association, the banking association described in and which executed the foregoing instrument; and that she signed her name thereto by authority of the Board of Directors of said banking association. s/ Janet O'Hara Name: Janet O'Hara Notary Public, State of New York No. 010H5087549 Qualified in Queens County Commission Expires November 3, 1999 -9- EXHIBIT A FORM OF SECURITY (See legend at the end of this Security for restrictions on transfer and change of form) PUBLIC SERVICE COMPANY OF COLORADO First Collateral Trust Bond, Series No. 6 Original Interest Accrual Date: April 20, 1998 Interest Rate: 6% Stated Maturity: April 15, 2003 Interest Payment Dates: April 15 and October 15 Regular Record Dates: April 1 and October 1 This Security is not a Discount Security within the meaning of the within-mentioned Indenture. ----------------------------------------- Principal Amount Registered No. $ CUSIP PUBLIC SERVICE COMPANY OF COLORADO, a corporation duly organized and existing under the laws of the State of Colorado (herein called the "Company," which term includes any successor corporation under the Indenture referred to below), for value received, hereby promises to pay to , or registered assigns, the principal sum of Dollars on the Stated Maturity specified above, and to pay interest thereon from the Original Interest Accrual Date specified above or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually in arrears on the Interest Payment Dates specified above in each year, commencing with the Interest Payment Date next succeeding the Original Interest Accrual Date specified above, and at Maturity, at the Interest Rate per annum specified above, until the principal hereof is paid or duly provided for. The interest so payable, and paid or duly provided for, on any Interest Payment Date shall, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date specified above (whether or not a Business Day) next preceding such Interest Payment Date. Notwithstanding the foregoing, interest payable at Maturity shall be paid to the Person to whom principal shall be paid. Except as otherwise provided in said Indenture, any such interest not so paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or A-1 more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice of which shall be given to Holders of Securities of this series not less than 15 days prior to such Special Record Date, or be paid in such other manner as permitted by the Indenture. Payment of the principal of this Security and interest hereon at Maturity shall be made upon presentation of this Security at the Corporate Trust Office of U.S. Bank Trust National Association, in New York, New York or at such other office or agency as may be designated for such purpose by the Company from time to time. Payment of interest on this Security (other than interest at Maturity) shall be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register, except that if such Person shall be a securities depositary, such payment may be made by such other means in lieu of check as shall be agreed upon by the Company, the Trustee and such Person. Payment of the principal of and interest on this Security, as aforesaid, shall be made in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and issuable in one or more series under and equally secured by an Indenture, dated as of October 1, 1993 (such Indenture as originally executed and delivered and as supplemented or amended from time to time thereafter, together with any constituent instruments establishing the terms of particular Securities, being herein called the "Indenture"), between the Company and U.S. Bank Trust National Association (formerly First Trust of New York, National Association) as successor trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the property mortgaged, pledged and held in trust, the nature and extent of the security and the respective rights, limitations of rights, duties and immunities of the Company, the Trustee and the Holders of the Securities thereunder and of the terms and conditions upon which the Securities are, and are to be, authenticated and delivered and secured. The acceptance of this Security shall be deemed to constitute the consent and agreement by the Holder hereof to all of the terms and provisions of the Indenture. This Security is one of the series designated above. If any Interest Payment Date or the Stated Maturity shall not be a Business Day (as hereinafter defined), payment of the amounts due on this Security on such date may be made on the next succeeding Business Day; and, if such payment is made or duly provided for on such Business Day, no interest shall accrue on such amounts for the period from and after such Interest Payment Date or Stated Maturity, as the case may be, to such Business Day. A-2 This Security is not subject to redemption prior to the Stated Maturity hereof. If an Event of Default shall occur and be continuing, the principal of this Security may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the Trustee to enter into one or more supplemental indentures for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, the Indenture with the consent of the Holders of not less than a majority in aggregate principal amount of the Securities of all series then Outstanding under the Indenture, considered as one class; provided, however, that if there shall be Securities of more than one series Outstanding under the Indenture and if a proposed supplemental indenture shall directly affect the rights of the Holders of Securities of one or more, but less than all, of such series, then the consent only of the Holders of a majority in aggregate principal amount of the Outstanding Securities of all series so directly affected, considered as one class, shall be required; and provided, further, that if the Securities of any series shall have been issued in more than one Tranche and if the proposed supplemental indenture shall directly affect the rights of the Holders of Securities of one or more, but less than all, of such Tranches, then the consent only of the Holders of a majority in aggregate principal amount of the Outstanding Securities of all Tranches so directly affected, considered as one class, shall be required; and provided, further, that the Indenture permits the Trustee to enter into one or more supplemental indentures for limited purposes without the consent of any Holders of Securities. The Indenture also contains provisions permitting the Holders of a majority in principal amount of the Securities then Outstanding, on behalf of the Holders of all Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange therefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. As provided in the Indenture and subject to certain limitations therein set forth, this Security or any portion of the principal amount hereof will be deemed to have been paid for all purposes of the Indenture and to be no longer Outstanding thereunder, and, at the election of the Company, the Company's entire indebtedness in respect thereof will be satisfied and discharged, if there has been irrevocably deposited with the Trustee or any Paying Agent (other than the Company), in trust, money in an amount which will be sufficient and/or Eligible Obligations, the principal of and interest on which when due, without regard to any reinvestment thereof, will provide moneys which, together with moneys so deposited, will be sufficient, to pay when due the principal of and interest on this Security when due. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office of U.S. Bank Trust National Association, in New York, New York or such other office or agency as may be designated by the Company from time to time, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series of authorized denominations and of like tenor and aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only as registered Securities, without coupons, and in denominations of $1,000 and integral multiples thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of the same series, of any authorized denominations, as requested by the Holder surrendering the same, and of like tenor upon surrender of the Security or Securities to be exchanged at the office of U.S. Bank A-3 Trust National Association, in New York, New York or such other office or agency as may be designated by the Company from time to time. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the absolute owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. The Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York. As used herein "Business Day" means any day, other than a Saturday or Sunday, which is not a day on which banking institutions or trust companies in The City of New York, New York or other city in which is located any office or agency maintained for the payment of principal or interest on this Security, are authorized or required by law, regulation or executive order to remain closed. All other terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. As provided in the Indenture, no recourse shall be had for the payment of the principal of or interest on any Securities, or any part thereof, or for any claim based thereon or otherwise in respect thereof, or of the indebtedness represented thereby, or upon any obligation, covenant or agreement under the Indenture, against, and no personal liability whatsoever shall attach to, or be incurred by, any incorporator, shareholder, officer or director, as such, past, present or future of the Company or of any predecessor or successor corporation (either directly or through the Company or a predecessor or successor corporation), whether by virtue of any constitutional provision, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly agreed and understood that the Indenture and all the Securities are solely corporate obligations and that any such personal liability is hereby expressly waived and released as a condition of, and as part of the consideration for, the execution of the Indenture and the issuance of the Securities. Unless the certificate of authentication hereon has been executed by the Trustee or an Authenticating Agent by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. A-4 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed and its corporate seal to be hereunto affixed and attested. PUBLIC SERVICE COMPANY OF COLORADO By: [Title] Attest: [Title] CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. Dated: U.S. BANK TRUST OR U.S. BANK TRUST NATIONAL ASSOCIATION, NATIONAL ASSOCIATION, as Trustee as Trustee By: By:[ ], Authorized Officer as Authenticating Agent By: Authorized Officer Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York Corporation ("DTC"), to the Company or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. This Security may not be transferred or exchanged, nor may any purported transfer be registered, except (i) this Security may be transferred in whole, and appropriate registration of transfer effected, if such transfer is by Cede & Co., as nominee for The Depository Trust Company (the "Depositary"), to the Depositary, or by the Depositary to another nominee thereof, or by any nominee of the Depositary to any other nominee thereof, or by the Depositary or any nominee thereof to any successor securities depositary or any nominee thereof; and (ii) this Security may be exchanged for definitive Securities registered in the respective names of the beneficial holders hereof, and thereafter shall be transferable without restrictions if: (A) the Depositary, or any successor securities depositary, shall have notified the Company and the Trustee that it is unwilling or unable to continue to act as securities depositary with respect to the Securities and the Trustee shall not have been notified by the Company within ninety (90) days of the identity of a successor securities depositary with respect to the Securities; (B) the Company shall have delivered to the Trustee a Company Order to the effect that the Securities shall be so exchangeable on and after a date specified therein; or (C)(1) an Event of Default shall have occurred and be continuing, (2) the Trustee shall have given notice of such Event of Default pursuant to Section 1102 of the A-5 Indenture and (3) there shall have been delivered to the Company and the Trustee an Opinion of Counsel to the effect that the interests of the beneficial owners of the Securities in respect thereof will be materially impaired unless such owners become Holders of definitive Securities. ------------------- A-6 FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto - -------------------------------------------------------------------------------- [please insert social security or other identifying number of assignee] - -------------------------------------------------------------------------------- [please print or typewrite name and address of assignee] - -------------------------------------------------------------------------------- the within Security of PUBLIC SERVICE COMPANY OF COLORADO and does hereby irrevocably constitute and appoint __________________________________ , Attorney, to transfer said Security on the books of the within-mentioned Company, with full power of substitution in the premises. Dated:__________________________ ------------------------------------------------------ Notice: The signature to this assignment must correspond with the name as written upon the face of the Security in every particular without alteration or enlargement or any change whatsoever. A-7 SCHEDULE A SUPPLEMENTAL INDENTURES Date of Principal Supplemental Principal Amount Indenture Series of Bonds Amount Issued Outstanding --------- --------------- ------------- ----------- November 1, 1993 Series No. 1 $134,500,000 $134,500,000 January 1, 1994 Series No. 2 due 2001 $102,667,000 $102,667,000 and Series No. 2 due 2024 $110,000,000 $110,000,000 September 2, 1994 None None None (Appointment of Successor Trustee) May 1, 1996 Series No. 3 $125,000,000 $125,000,000 November 1, 1996 Series No. 4 $250,000,000 $250,000,000 February 1, 1997 Series No. 5 $150,000,000 $ 50,000,000 ================================================================================ I-1 SCHEDULE B DESCRIPTION OF PROPERTY The following properties are situated in the State of Colorado and the counties thereof: ADAMS COUNTY 1. WASHINGTON ELECTRIC SUBSTATION Lot 1, Block 1, Washington Electric Substation, Filing No. 1, County of Adams, State of Colorado DENVER COUNTY 2. LIPAN SERVICE CENTER: ADDITIONAL LAND (KEYS/GRIMES TRACT) A parcel of land more particularly described as follows: PART OF THE SOUTHEAST 1/4 OF THE NORTHEAST 1/4 OF SECTION 9, TOWNSHIP 4 SOUTH, RANGE 68 WEST OF THE 6TH PRINCIPAL MERIDIAN, BEGINNING AT A POINT ON THE NORTH LINE OF WEST 3RD AVENUE WHICH IS 186.82 FEET EAST AND 378.31 FEET SOUTH OF THE NORTHWEST CORNER OF SAID SOUTHEAST 1/4 OF THE NORTHEAST 1/4 OF SAID SECTION 9; THENCE NORTH 143.00 FEET TO THE SOUTHWEST RIGHT OF WAY LINE OF DENVER AND RIO GRANDE RAILROAD; THENCE SOUTHERLY ALONG SAID RIGHT OF WAY LINE TO THE NORTH LINE OF WEST 3RD AVENUE; THENCE WEST ALONG THE NORTH LINE OF WEST 3RD AVENUE 71.38 FEET TO THE POINT OF BEGINNING, CITY AND COUNTY OF DENVER, STATE OF COLORADO. DOUGLAS COUNTY 3. NEW MARCY SUBSTATION SITE A parcel of land more particularly described as follows: THAT PORTION OF SECTION 14, TOWNSHIP 6 SOUTH, RANGE 68 WEST OF THE SIXTH PRINCIPAL MERIDIAN, IN THE COUNTY OF DOUGLAS, STATE OF COLORADO, AS SHOWN ON THE LAND SURVEY PLAT RECORDED AT RECEPTION NUMBER 254255 IN THE OFFICE OF THE CLERK AND COUNTY RECORDER OF SAID COUNTY OF DOUGLAS, DESCRIBED AS FOLLOWS: COMMENCING AT THE SOUTHWEST CORNER OF SAID SECTION 14, WHENCE THE SOUTHEAST CORNER OF SAID SECTION 14 BEARS NORTH 89(Degree)58'33" EAST 5297.28 FEET; THENCE NORTH 68(Degree)07'34" EAST 2841.07 FEET TO THE TRUE POINT OF BEGINNING; THENCE NORTH 00(Degree)00'00" EAST 300.00 FEET; THENCE NORTH 90(Degree)00'00" EAST 300.00 FEET; THENCE SOUTH 00(Degree)00'00" EAST 300.00 FEET; THENCE NORTH 90(Degree)00'00" WEST 300.00 TO THE TRUE POINT OF BEGINNING, EXCEPT WATER RIGHTS AND GROUND WATER, MINERALS AND MINERAL RIGHTS CONTAINING 2.066 ACRES, MORE OR LESS. II-1 WELD COUNTY 4. GREELEY SUBSTATION: ADDITIONAL LAND A tract of land lying in the Northeast Quarter of the Northeast Quarter (NE1/4NE1/4) of Section Twelve (12), Township Five (5) North, Range Sixty-six (66) West of the Sixth (6th) Principal Meridian, situate, lying and being in the County of Weld, State of Colorado, more particularly described as follows: Beginning at a point on the north line and 287 feet easterly of the northwest corner of a tract of land conveyed by warranty deed dated June 10, 1930 and recorded in Book 896, Page 476, of the records of Weld County, Colorado, wherein Simon Peterson is the grantor and Public Service Company of Colorado is the grantee, thence westerly along said north line a distance of 287 feet to a point; thence southerly along west line of said tract a distance of 230 feet to a point; thence easterly and parallel to said north line of said tract a distance of 302 feet to a point; thence northerly and parallel to west line of said tract a distance of 215 feet to a point; thence northwesterly a distance of 21.2 feet more or less to the point of beginning. 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