10-Q

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 June 30, 2012

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _______ to _______

Commission file number 001-14206

El Paso Electric Company

(Exact name of registrant as specified in its charter)

Texas	74-0607870
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
Stanton Tower, 100 North Stanton, El Paso, Texas	79901
(Address of principal executive offices)	(Zip Code)

(915) 543-5711

(Registrant’s telephone number, including area code)

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  o

Indicate by check mark whether the registrant submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  o    NO  x

As of July 31, 2012, there were 40,114,838 shares of the Company’s no par value common stock outstanding.

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

INDEX TO FORM 10-Q

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
Consolidated Balance Sheets – June 30, 2012 and December 31, 2011		1
Consolidated Statements of Operations – Three Months, Six Months and Twelve Months Ended June 30, 2012 and 2011		3
Consolidated Statements of Comprehensive Operations – Three Months, Six Months and Twelve Months Ended June 30, 2012 and 2011		5
Consolidated Statements of Cash Flows – Six Months Ended June 30, 2012 and 2011		6
Notes to Consolidated Financial Statements		7
Report of Independent Registered Public Accounting Firm		26
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	40
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 6.	Exhibits	42

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	June 30, 2012			December 31, 2011
	(Unaudited)
ASSETS (In thousands)
Utility plant:
Electric plant in service	$	2,797,764		$	2,789,773
Less accumulated depreciation and amortization	(1,127,455		)	(1,121,653		)
Net plant in service	1,670,309			1,668,120
Construction work in progress	225,280			167,394
Nuclear fuel; includes fuel in process of $47,354 and $49,545, respectively	201,785			171,433
Less accumulated amortization	(71,378		)	(59,882		)
Net nuclear fuel	130,407			111,551
Net utility plant	2,025,996			1,947,065
Current assets:
Cash and cash equivalents	10,084			8,208
Accounts receivable, principally trade, net of allowance for doubtful accounts of $2,887 and $3,015, respectively	95,545			76,348
Accumulated deferred income taxes	19,076			13,752
Inventories, at cost	41,692			40,222
Income taxes receivable	2,214			2,269
Undercollection of fuel revenues	—			9,130
Prepayments and other	9,014			4,810
Total current assets	177,625			154,739
Deferred charges and other assets:
Decommissioning trust funds	178,279			167,963
Regulatory assets	101,554			101,027
Other	28,000			26,057
Total deferred charges and other assets	307,833			295,047
Total assets	$	2,511,454		$	2,396,851

See accompanying notes to consolidated financial statements.

1

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (Continued)

	June 30, 2012			December 31, 2011
	(Unaudited)
CAPITALIZATION AND LIABILITIES (In thousands except for share data)
Capitalization:
Common stock, stated value $1 per share, 100,000,000 shares authorized, 65,493,993 and 65,295,888 shares issued, and 112,165 and 156,185 restricted shares, respectively	$	65,606		$	65,452
Capital in excess of stated value	308,360			309,777
Retained earnings	902,578			887,174
Accumulated other comprehensive income (loss), net of tax	(69,707		)	(77,505		)
	1,206,837			1,184,898
Treasury stock, 25,492,919 shares at cost	(424,647		)	(424,647		)
Common stock equity	782,190			760,251
Long-term debt	816,524			816,497
Total capitalization	1,598,714			1,576,748
Current liabilities:
Current maturities of long-term debt	33,300			33,300
Short-term borrowings under the revolving credit facility	110,760			33,379
Accounts payable, principally trade	41,173			51,704
Taxes accrued	23,984			30,700
Interest accrued	12,127			12,123
Overcollection of fuel revenues	8,569			2,105
Other	22,696			21,921
Total current liabilities	252,609			185,232
Deferred credits and other liabilities:
Accumulated deferred income taxes	329,468			299,475
Accrued pension liability	122,097			129,627
Accrued postretirement benefit liability	104,007			100,455
Asset retirement obligation	58,290			56,140
Regulatory liabilities	21,290			21,049
Other	24,979			28,125
Total deferred credits and other liabilities	660,131			634,871
Commitments and contingencies
Total capitalization and liabilities	$	2,511,454		$	2,396,851

See accompanying notes to consolidated financial statements.

2

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands except for share data)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Operating revenues	$	228,252		$	242,605		$	396,830		$	418,717
Energy expenses:
Fuel	49,366			61,318			88,800			104,077
Purchased and interchanged power	14,522			16,297			27,081			34,771
	63,888			77,615			115,881			138,848
Operating revenues net of energy expenses	164,364			164,990			280,949			279,869
Other operating expenses:
Other operations	58,805			57,209			113,222			111,316
Maintenance	14,806			16,760			30,774			28,996
Depreciation and amortization	19,603			19,524			40,121			40,460
Taxes other than income taxes	14,638			13,376			28,278			26,503
	107,852			106,869			212,395			207,275
Operating income	56,512			58,121			68,554			72,594
Other income (deductions):
Allowance for equity funds used during construction	2,214			2,011			4,170			5,062
Investment and interest income, net	102			1,590			1,878			3,975
Miscellaneous non-operating income	131			1			201			271
Miscellaneous non-operating deductions	(421		)	(698		)	(903		)	(1,413		)
	2,026			2,904			5,346			7,895
Interest charges (credits):
Interest on long-term debt and revolving credit facility	13,605			13,526			27,168			27,024
Other interest	278			237			478			534
Capitalized interest	(1,299		)	(1,290		)	(2,668		)	(2,546		)
Allowance for borrowed funds used during construction	(1,310		)	(1,180		)	(2,463		)	(3,029		)
	11,274			11,293			22,515			21,983
Income before income taxes	47,264			49,732			51,385			58,506
Income tax expense	16,370			16,742			17,147			18,741
Net income	$	30,894		$	32,990		$	34,238		$	39,765
Basic earnings per share	$	0.77		$	0.78		$	0.85		$	0.94
Diluted earnings per share	$	0.77		$	0.78		$	0.85		$	0.94
Dividends declared per share of common stock	$	0.25		$	0.22		$	0.47		$	0.22
Weighted average number of shares outstanding	39,958,149			41,853,552			39,934,590			42,079,568
Weighted average number of shares and dilutive potential shares outstanding	40,040,776			42,076,659			40,020,143			42,298,716

See accompanying notes to consolidated financial statements.

3

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands except for share data)

	Twelve Months Ended
	June 30,
	2012			2011
Operating revenues	$	896,126		$	880,403
Energy expenses:
Fuel	208,230			204,061
Purchased and interchanged power	67,459			78,288
	275,689			282,349
Operating revenues net of energy expenses	620,437			598,054
Other operating expenses:
Other operations	231,476			233,895
Maintenance	63,870			55,584
Depreciation and amortization	80,992			82,020
Taxes other than income taxes	57,336			56,079
	433,674			427,578
Operating income	186,763			170,476
Other income (deductions):
Allowance for equity funds used during construction	7,269			10,631
Investment and interest income, net	3,567			7,352
Miscellaneous non-operating income	815			1,486
Miscellaneous non-operating deductions	(2,677		)	(3,731		)
	8,974			15,738
Interest charges (credits):
Interest on long-term debt and revolving credit facility	54,259			53,408
Other interest	933			723
Capitalized interest	(5,299		)	(4,547		)
Allowance for borrowed funds used during construction	(4,282		)	(6,599		)
	45,611			42,985
Income before income taxes and extraordinary item	150,126			143,229
Income tax expense	52,114			46,103
Income before extraordinary item	98,012			97,126
Extraordinary gain related to Texas regulatory assets, net of tax	—			10,286
Net income	$	98,012		$	107,412
Basic earnings per share:
Income before extraordinary item	$	2.42		$	2.28
Extraordinary gain related to Texas regulatory assets, net of tax	—			0.24
Net income	$	2.42		$	2.52
Diluted earnings per share:
Income before extraordinary item	$	2.41		$	2.27
Extraordinary gain related to Texas regulatory assets, net of tax	—			0.24
Net income	$	2.41		$	2.51
Dividends declared per share of common stock	$	0.91		$	0.22
Weighted average number of shares outstanding	40,285,248			42,376,298
Weighted average number of shares and dilutive potential shares outstanding	40,455,626			42,595,011

See accompanying notes to consolidated financial statements.

4

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

(Unaudited)

(In thousands)

	Three Months Ended						Six Months Ended						Twelve Months Ended
	June 30,						June 30,						June 30,
	2012			2011			2012			2011			2012			2011
Net income	$	30,894		$	32,990		$	34,238		$	39,765		$	98,012		$	107,412
Other comprehensive income (loss):
Unrecognized pension and postretirement benefit costs:
Net loss arising during period	—			—			—			—			(77,678		)	(9,874		)
Prior service benefit	—			—			—			—			—			26,605
Reclassification adjustments included in net income for amortization of:
Prior service benefit	(1,437		)	(1,450		)	(2,880		)	(2,905		)	(5,787		)	(4,282		)
Net loss	2,860			1,778			5,985			3,253			9,237			4,940
Net unrealized gains (losses) on marketable securities:
Net holding gains (losses) arising during period	(2,341		)	416			5,817			2,589			4,798			13,232
Reclassification adjustments for net (gains) losses included in net income	1,447			2			1,234			(203		)	2,795			(490		)
Net losses on cash flow hedges:
Reclassification adjustment for interest expense included in net income	95			88			189			176			374			348
Total other comprehensive income (loss) before income taxes	624			834			10,345			2,910			(66,261		)	30,479
Income tax benefit (expense) related to items of other comprehensive income (loss):
Unrecognized pension and postretirement benefit costs	(541		)	(124		)	(1,096		)	(131		)	29,169			(6,306		)
Net unrealized gains (losses) on marketable securities	189			(157		)	(1,370		)	(517		)	(1,416		)	(2,588		)
Losses on cash flow hedges	(36		)	(33		)	(81		)	(66		)	(218		)	(128		)
Total income tax benefit (expense)	(388		)	(314		)	(2,547		)	(714		)	27,535			(9,022		)
Other comprehensive income (loss), net of tax	236			520			7,798			2,196			(38,726		)	21,457
Comprehensive income	$	31,130		$	33,510		$	42,036		$	41,961		$	59,286		$	128,869

See accompanying notes to consolidated financial statements.

5

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Six Months Ended
	June 30,
	2012			2011
Cash flows from operating activities:
Net income	$	34,238		$	39,765
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of electric plant in service	40,121			40,460
Amortization of nuclear fuel	21,807			17,958
Deferred income taxes, net	18,630			12,647
Allowance for equity funds used during construction	(4,170		)	(5,062		)
Other amortization and accretion	6,804			11,772
Other operating activities	937			(216		)
Change in:
Accounts receivable	(19,197		)	(35,772		)
Inventories	(1,087		)	(2,741		)
Net overcollection (undercollection) of fuel revenues	15,594			(25,827		)
Prepayments and other	(5,456		)	(5,713		)
Accounts payable	(4,748		)	4,934
Taxes accrued	(6,661		)	6,326
Interest accrued	4			9
Other current liabilities	775			(1,412		)
Deferred charges and credits	(5,695		)	(7,547		)
Net cash provided by operating activities	91,896			49,581
Cash flows from investing activities:
Cash additions to utility property, plant and equipment	(99,929		)	(86,950		)
Cash additions to nuclear fuel	(38,155		)	(24,140		)
Capitalized interest and AFUDC:
Utility property, plant and equipment	(6,633		)	(8,091		)
Nuclear fuel	(2,668		)	(2,546		)
Allowance for equity funds used during construction	4,170			5,062
Decommissioning trust funds:
Purchases, including funding of $2.3 and $4.3 million, respectively	(64,011		)	(42,641		)
Sales and maturities	59,513			36,406
Other investing activities	978			188
Net cash used for investing activities	(146,735		)	(122,712		)
Cash flows from financing activities:
Repurchases of common stock	—			(26,320		)
Dividends paid	(18,834		)	(9,248		)
Borrowings under the revolving credit facility:
Proceeds	121,964			65,770
Payments	(44,583		)	(30,832		)
Other financing activities	(1,832		)	(317		)
Net cash provided by (used for) financing activities	56,715			(947		)
Net increase (decrease) in cash and cash equivalents	1,876			(74,078		)
Cash and cash equivalents at beginning of period	8,208			79,184
Cash and cash equivalents at end of period	$	10,084		$	5,106

See accompanying notes to consolidated financial statements.

6

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A. Principles of Preparation

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Annual Report of El Paso Electric Company on Form 10-K for the year ended December 31, 2011 (the “2011 Form 10-K”). Capitalized terms used in this report and not defined herein have the meaning ascribed for such terms in the 2011 Form 10-K. In the opinion of the Company’s management, the accompanying consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company at June 30, 2012 and December 31, 2011; the results of its operations and comprehensive operations for the three, six and twelve months ended June 30, 2012 and 2011; and its cash flows for the six months ended June 30, 2012 and 2011. The results of operations and comprehensive operations for the three and six months ended June 30, 2012 and the cash flows for the six months ended June 30, 2012 are not necessarily indicative of the results to be expected for the full calendar year.

Pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), certain financial information has been condensed and certain footnote disclosures have been omitted. Such information and disclosures are normally included in financial statements prepared in accordance with generally accepted accounting principles.

Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenues. Revenues related to the sale of electricity are generally recorded when service is rendered or electricity is delivered to customers. The billing of electricity sales to retail customers is based on the reading of their meters, which occurs on a systematic basis throughout the month. Unbilled revenues are estimated based on monthly generation volumes and by applying an average revenue/kWh to the number of estimated kWhs delivered but not billed. Accounts receivable included accrued unbilled revenues of $29.1 million and $19.6 million at June 30, 2012 and December 31, 2011, respectively. The Company presents revenues net of sales taxes in its consolidated statements of operations.

Extraordinary Item. As a regulated electric utility, the Company prepares its financial statements in accordance with the FASB guidance for regulated operations. FASB guidance for regulated operations requires the Company to show certain items as assets or liabilities on its balance sheet when the regulator provides assurance that these items will be charged to and collected from its customers or refunded to its customers. In the final order for PUCT Docket No. 37690, the Company was allowed to include the previously expensed loss on reacquired debt associated with the refinancing of first mortgage bonds in 2005 in its calculation of the weighted cost of debt to be recovered from its customers. The Company recorded the impacts of the re-application of FASB guidance for regulated operations to its Texas jurisdiction in 2006 as an extraordinary item. In order to establish this regulatory asset, the Company recorded an extraordinary gain of $10.3 million, net of income tax expense of $5.8 million, pursuant to the final order received from the PUCT, in its statements of operations for the quarter ended September 30, 2010. The regulatory asset will be amortized over the remaining life of the Company’s 6% Senior Notes due in 2035.

Supplemental Cash Flow Disclosures (in thousands)
	Six Months Ended
	June 30,
	2012		2011
Cash paid for:
Interest on long-term debt and borrowing under the revolving credit facility	$	25,106	$	24,256
Income taxes paid (refund), net	3,159		(3,101		)
Non-cash financing activities:
Grants of restricted shares of common stock	2,331		3,193
Issuance of performance shares	1,193		565
Acquisition of treasury stock for options exercised	—		500

7

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

B. New Accounting Standards

In June 2011, the FASB issued new guidance to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The new guidance required an entity to present the total of comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both presentations, an entity would have been required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. Historically, the Company used the consecutive two-statement approach; however, this new guidance would have required additional disclosure on the Company's statement of operations and related notes. In December 2011, the FASB issued new guidance to defer the effective date for amendments to the presentation of reclassification of items out of accumulated other comprehensive income. Deferring the effective date will allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the FASB is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, the Company will continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before the guidance issued in June 2011 until further guidance becomes available.

C. Regulation

General

The rates and services of the Company are regulated by incorporated municipalities in Texas, the PUCT, the NMPRC, and the FERC. The PUCT and the NMPRC have jurisdiction to review municipal orders, ordinances and utility agreements regarding rates and services within their respective states and over certain other activities of the Company. The FERC has jurisdiction over the Company's wholesale (sales for resale) transactions, transmission service and compliance with federally-mandated reliability standards. The decisions of the PUCT, NMPRC and the FERC are subject to judicial review.

Texas Regulatory Matters

2012 Texas Retail Rate Case. The Company filed a rate increase request with the PUCT, Docket No. 40094, the City of El Paso, and other Texas cities on February 1, 2012. The rate filing was made in response to a resolution adopted by the El Paso City Council (the "Council") requiring the Company to show cause why its base rates for customers in the El Paso city limits should not be reduced. The rate filing used a historical test year ended September 30, 2011. The filing at the PUCT also included a request to reconcile $356.5 million of fuel expense for the period July 1, 2009 through September 30, 2011. On November 15, 2011, the Council adopted a resolution which established current rates as temporary rates for the Company's customers residing within the city limits of El Paso.

On April 17, 2012, the Council approved the settlement of the Company's 2012 Texas retail rate case and fuel reconciliation in PUCT Docket No. 40094. The settlement reflects discussions with the PUCT, the City of El Paso and other intervenors in Docket No. 40094. The approval by the Council (i) resolves the local City of El Paso rate proceeding that commenced with the October 4, 2011 show cause order of the Council, (ii) implements new rates within the city limits of El Paso commencing with bills rendered on and after May 1, 2012, and (iii) rescinds and withdraws the temporary rate order that the Council issued on November 15, 2011.

For Texas service areas outside of the city limits of El Paso, the settlement was filed with the PUCT on April 19, 2012, and no intervenors opposed the settlement. On April 26, 2012, the administrative law judges issued an order (i) implementing the settlement rates as temporary rates effective May 1, 2012, and (ii) dismissing the case before the State Office of Administrative Hearings, sending the settlement to the PUCT for final approval. The PUCT issued a final order approving the settlement on May 23, 2012.

Under the terms of the settlement, among other things, the Company has agreed to:

• A reduction in its current non-fuel base rates of $15 million annually, with the decrease being allocated primarily to Texas retail commercial and industrial customer classes. The rate decrease was effective as of May 1, 2012 and is the same rate decrease approved by the El Paso Council described above;

• New tariffs that will include an Economic Development Rate Rider that provides discounts in the demand charge

8

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

and is intended to spur new business development in the Company's Texas service area;

• Revised depreciation rates for the Company's gas-fired generating units and for transmission and distribution plant that will lower depreciation expense by $4.1 million annually;

• Continuation of the 10.125% return on equity for the purpose of calculating the allowance for funds used during construction;

• A two-year amortization of rate case expenses, none of which will be included in future regulatory proceedings; and

• Palo Verde decommissioning funding of $3.6 million annually on a Texas jurisdictional basis, which will be subject to review and adjustment on a going-forward basis in future proceedings.

As part of the settlement, the Company agreed to withdraw its request to reconcile fuel costs for the period from July 1, 2009 through September 30, 2011. The Company will file a fuel reconciliation request covering the period beginning July 1, 2009 and ending no later than June 30, 2013 by December 31, 2013 or as part of its next rate case, if earlier.     

Fuel and Purchased Power Costs. The Company's actual fuel costs, including purchased power energy costs, are recoverable from its customers. The PUCT has adopted a fuel cost recovery rule (“Texas Fuel Rule”) that allows the Company to seek periodic adjustments to its fixed fuel factor. The Company received approval in PUCT Docket No. 37690, to implement a formula to determine its fuel factor which adjusts natural gas and purchased power to reflect natural gas futures prices. The Company can seek to revise its fixed fuel factor based upon the approved formula at least four months after its last revision except in the month of December. The Texas Fuel Rule requires the Company to request to refund fuel costs in any month when the over-recovery balance exceeds a threshold material amount and it expects fuel costs to continue to be materially over-recovered. The Texas Fuel Rule also permits the Company to seek to surcharge fuel under-recoveries in any month the balance exceeds a threshold material amount and it expects fuel cost recovery to continue to be materially under-recovered. Fuel over and under-recoveries are considered material when they exceed 4% of the previous twelve months' fuel costs. All such fuel revenue and expense activities are subject to periodic final review by the PUCT in fuel reconciliation proceedings.

The Company has filed the following petitions with the PUCT to refund recent fuel cost over-recoveries, due primarily to fluctuations in natural gas markets and consumption levels. The table summarizes the docket number assigned by the PUCT, the dates the Company filed the petitions and the dates a final order was issued by the PUCT approving the refunds to customers. The fuel cost over-recovery periods represent the months in which the over-recoveries took place, and the refund periods represent the billing month(s) in which customers received the refund amounts shown, including interest:

Docket No.	Date Filed	Date Approved	Recovery Period	Refund Period	Refund Amount (In Thousands)
38253	May 12, 2010	July 15, 2010	December 2009 – March 2010	July – August 2010	$	11,100
38802	October 20, 2010	December 16, 2010	April – September 2010	December 2010	12,800
39159	February 18, 2011	May 3, 2011	October – December 2010	April 2011	11,800
40622	August 3, 2012	Pending Approval	January 2011- June 2012	September 2012	6,600

The Company has filed the following petitions with the PUCT to revise its fixed fuel factor pursuant to the fuel factor formula authorized in PUCT Docket No. 37690:

Docket No.	Date Filed	Date Approved	Increase (Decrease) in Fuel Factor	Effective Billing Month
38895	November 23, 2010	January 6, 2011	(14.7)%	January 2011
39599	July 15, 2011	August 30, 2011	9.4%	August 2011
40302	April 12, 2012	April 25, 2012	(18.5)%	May 2012

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EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Application of El Paso Electric Company to Amend its Certificate of Convenience and Necessity ("CCN") for Five Solar Powered Generation Projects. On December 9, 2011, the Company filed a petition seeking a CCN to construct five solar powered generation projects, totaling approximately 2.6 MW, at four locations within the City of El Paso and one location in the Town of Van Horn. This case was assigned PUCT Docket No. 39973. A hearing was conducted on June 20, 2012, and a final order is expected in the fourth quarter of 2012.

Generation CCN Filing. On May 2, 2012, the Company filed a petition with the PUCT requesting a CCN to construct a new generation facility to be located at a new plant site, the Montana Power Station, in far east El Paso. The new facility will initially consist of two88 MW simple-cycle aeroderivative combustion turbines, which will be powered by natural gas. The first unit is scheduled to become operational in 2014. This case was assigned PUCT Docket No. 40301. On August 2, 2012, the administrative law judge established a September 2012 deadline for filing a settlement agreement or a request for hearing.

Energy Efficiency Cost Recovery Factor. On April 30, 2012, the Company filed an application to revise its Energy Efficiency Cost Recovery Factor ("EECRF") and to establish revised energy efficiency goals and cost caps, pursuant to Public Utility Regulatory Act ("PURA") Section 39.905 and PUC Substantive Rule 25.181. The expenditures, revised energy efficiency goals, cost caps proposed by the Company for 2013, a half year of amortization of the prior year deferred costs, and a refund of over-recovery of costs for 2011 result in a decrease in the currently effective EECRF. The State Office of Administrative Hearings established a procedural schedule designed to produce a final order in September 2012. The Company and all parties have agreed to a settlement in principle in this case and have notified the administrative law judge that they intend to file a settlement agreement on or before August 8, 2012.

Military Base Discount Recovery Factor. On July 16, 2012, the Company filed a petition to revise its Military Base Discount Recovery Factor ("MBDRF"), pursuant to PURA Section 36.354, which requires that each electric utility, in an area where customer choice is not available, provide discounted charges to military bases. The Company's rates provide for the 20% discount required by PURA for eligible customers, and assess a surcharge designed to recover the cost of the discount from all other Texas customers. The MBDRF is assessed on the base rate portion of customer bills, and the Company has proposed to increase the surcharge from 0.936% to 1.319%.

New Mexico Regulatory Matters

Application for Approval to Recover Regulatory Disincentives and Incentives. On August 31, 2010, the Company filed an application for approval of its proposed rate design methodology to recover regulatory disincentives and provide incentives associated with the Company’s energy efficiency and load management programs in New Mexico. On March 18, 2011, the Company entered into an uncontested stipulation which would provide for a rate per kWh of energy efficiency savings that would be recovered through the efficient use of energy rider. A hearing on the uncontested stipulation was held on April 26, 2011 and briefs were filed on September 26, 2011. A final order was issued on November 22, 2011 in which the NMPRC did not adopt the unopposed stipulation, but modified the structure of the energy rider to reduce the return to two percent and made the mechanism temporary.  The Company filed a Notice of Appeal with the Supreme Court of the State of New Mexico on January 20, 2012 on the grounds that the NMPRC's decision is arbitrary and without substantial evidence. However, in accordance with the final order issued on November 22, 2011, the efficient use of energy rider was implemented for New Mexico customers on February 1, 2012. The Supreme Court suspended the appeal pending further NMPRC final order in the Company's 2011 Application for rate rider.

Application for Approval of 2011 New and Modified Energy Efficiency Programs. On February 15, 2011, the Company filed an Application for Approval of New and Modified Energy Efficiency Programs for 2011 with the NMPRC. On June 22, 2011, parties to this case entered into a partial stipulation, agreeing on all issues, except for a military base free-ridership issue. On June 24, 2011, the New Mexico Attorney General filed a statement in opposition to the proposed partial stipulation. On January 25, 2012, a hearing examiner issued a recommended decision modifying the stipulation by approving the Energy Efficiency programs and budgets with the exception of the Commercial Lighting Program, approving the adder for 2011 but not for 2012 or 2013 and excluding the Military Research & Development Class from participation in the rate rider and reducing the Company's required saving goals accordingly. On February 2, 2012, the Company filed exceptions to the recommended decision and requested an interim order related to this matter. The NMPRC issued a final order approving the partial stipulation and rejecting the Company's exceptions on February 21, 2012. On March 5, 2012, the Company filed an unopposed motion to immediately implement the approved programs and to initiate further proceedings to allow the parties to supplement the record to support the stipulated adders for 2012 and 2013. On March 20, 2012 the NMPRC issued an order granting the unopposed motion. On April 4, 2012, the hearing examiner issued a procedural order requiring additional information supporting the stipulated adders and recovery of regulatory disincentives. The Company filed direct testimony on April 25, 2012 in response to the procedural order. A public hearing was held on July 5 and July 6, 2012. A final order is expected in the fourth quarter of 2012.

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EL PASO ELECTRIC COMPANY AND SUBSIDIARY

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(Unaudited)

Generation CCN Filing. On May 2, 2012, the Company filed a petition with the NMPRC requesting a CCN to construct a new generation facility to be located at a new plant site, the Montana Power Station, in far east El Paso. The new facility will initially consist of two88 MW simple-cycle aeroderivative combustion turbines, which will be powered by natural gas. The first unit is scheduled to become operational in 2014. This case was assigned NMPRC Case No. 12-00137-UT. No party has intervened in the proceeding. The procedural schedule adopted by the NMPRC established August 10, 2012 for Staff testimony, and August 13, 2012 as the deadline for protest.

Revolving Credit Facility and Guarantee of Debt. On October 13, 2011, the Company received final approval from the NMPRC in Case No. 11-00349-UT to amend and restate the Company's $200 million revolving credit facility, which includes an option, subject to lender's approval, to expand the size to $300 million, and to incrementally issue up to $300 million of long-term debt as and when needed. Obtaining the ability to issue up to $300 million of new long-term debt, from time to time, provides the Company with the flexibility to access the debt capital markets when needed and when conditions are favorable.

On November 15, 2011, the Company and Rio Grande Resources Trust ("RGRT") amended and restated the $200 million unsecured RCF with JP Morgan Chase Bank, N.A., as administrative agent and issuing bank, and Union Bank, N.A., as syndication agent, and various lending banks party thereto. The amended and restated revolving credit facility ("RCF") reduces borrowing costs and extends the maturity from September 2014 to September 2016.

On March 29, 2012, the Company and The Bank of New York Mellon Trust Company, N.A., as trustee of the Rio Grande Resources Trust, entered into the Incremental Facility Assumption Agreement (the "Assumption Agreement") related to the RCF discussed above with JPMorgan Chase Bank, N.A., as administrative agent and issuing bank, Union Bank, N.A., as syndication agent, and various lending banks party thereto. The Assumption Agreement provides for the Company's exercise in full of the accordion feature provided for under the RCF, increasing the aggregate unsecured borrowing available from $200 million to $300 million. In addition, the Assumption Agreement reflects the addition of a new lender under the RCF. No other material modifications were made to the terms and conditions of the RCF.

2012 Annual Procurement Plan Pursuant to the Renewable Energy Act. On June 29, 2012, the Company filed its application for approval of its 2012 Annual Procurement Plan pursuant to the New Mexico Renewable Energy Act and NMPRC rule 17.9.572 New Mexico Adminstrative Code ("NMAC"). The plan sets out the Company's procurement of renewable resources and estimated costs for 2013 and 2014 to meet Renewable Portfolio Standards (“RPS”) and resource diversity requirements. Concurrently, the Company filed its Annual Renewable Energy portfolio report for 2011. The Company will meet 2013 and 2014 RPS requirements using previously approved resources. Hearings are scheduled for October and a final order is expected in the fourth quarter of 2012.

2012 Integrated Resource Plan (“IRP”). On July 16, 2012, the Company filed its IRP pursuant to the requirements of the NMPRC IRP Rule, 17.7.3 NMAC. This document discusses the Company's integrated resource planning process and develops an integrated resource portfolio to cost-effectively meet the energy needs of its customers for the next twenty years and specifically identifies the Company's resource needs and plans for resource additions during the next four years. The Company's 2012 IRP and Four-Year Action Plan build upon the initial IRP and four-year action plan, submitted to the Commission on July 16, 2009.

Pollution Control Bond Refunding. On April 12, 2012, the Company filed an application with the NMPRC requesting authority for long-term securities transactions necessary to refund and reissue certain Pollution Control Refunding Revenue Bonds (the "PCBs"). On May 31, 2012, the Company received final approval from the NMPRC in case No. 12-00108-UT, which granted the Company the authority to enter into the securities transactions necessary to refund and reissue the 4.00% 2002 Series A refunding bonds in a principal amount of $33.3 million and the 4.80% 2005 Series A refunding bonds in a principal amount of $59.2 million.

Federal Regulatory Matters

Transmission Dispute with Tucson Electric Power Company (“TEP”). On August 31, 2011, the FERC issued an order approving the settlement of a long standing transmission dispute between TEP and the Company that became effective November 1, 2011. The settlement reduces TEP’s transmission rights under the Transmission Agreement from 200 MW to 170 MW and TEP and the Company have entered into two new firm transmission agreements under which TEP is purchasing from the Company new transmission service at the Company's applicable tariff rates for a total of 40 MW. Those two new service agreements were entered into and became effective November 1, 2011. Also under the terms of the settlement, TEP made a lump-sum cash payment to the Company of approximately $5.4 million for the period February 1, 2006 through September 30, 2011, including interest income. This adjustment was recorded in the three months ended September 30, 2011. The Company shared with its Texas customers 25% of the transmission revenues earned before July 1, 2010, or approximately $0.7 million, through a credit to Texas fuel recoveries.

11

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Revolving Credit Facility and Guarantee of Debt. On October 13, 2011, the Company received final approval from the FERC in Docket No. ES11-43-000 to amend and restate the Company's $200 million RCF, which includes an option, subject to lender's approval, to expand the size to $300 million, and to incrementally issue up to $300 million of long-term debt as and when needed. Obtaining the ability to issue up to $300 million of new long-term debt provides the Company with the flexibility to access the debt capital markets when needed and when conditions are favorable. The Company has two years in which to issue this newly-authorized long-term debt. As noted above, on November 15, 2011, the RCF was amended and restated, and on March 29, 2012, the aggregate unsecured borrowing available under the RCF was increased to $300 million.

Pollution Control Bond Refunding. On April 13, 2012, the Company filed an application with the FERC requesting authority for long-term securities transactions necessary to refund and reissue certain PCBs. On May 30, 2012, the Company received final approval from the FERC in Docket No. ES12-34-0000, granting authority to enter into the securities transactions necessary to refund and reissue the 4.00% 2002 Series A refunding bonds in a principal amount of $33.3 million and the 4.80% 2005 Series A refunding bonds in a principal amount of $59.2 million.

D. Common Stock

Repurchase Program.No shares of common stocks were repurchased during the first six months of 2012. Details regarding the Company’s stock repurchase program are presented below:

	Since 1999 (a)		Authorized Shares
Shares repurchased (b)	25,406,184
Cost, including commission (in thousands)	$	423,647
Total remaining shares available for repurchase at June 30, 2012			393,816

_______________________

(a) Represents repurchased shares and cost since inception of the stock repurchase program in 1999.

(b) Shares repurchased does not include 86,735 treasury shares related to employee compensation arrangements outside of the Company's repurchase programs.

The Company may in the future make purchases of its common stock pursuant to its authorized programs in open market transactions at prevailing prices and may engage in private transactions where appropriate. The repurchased shares either will be available for issuance under employee benefit and stock incentive plans, or may be retired.

Dividend Policy. On July 25, 2012, the Board of Directors declared a quarterly cash dividend of $0.25 per share payable on September 28, 2012. On June 29, 2012, the Company paid $10.0 million in dividends to shareholders. The Company paid a total of $18.8 million and $36.8 million in cash dividends during the six and twelve months ended June 30, 2012, respectively. The Company paid a total of $9.2 million in cash dividends during the six and twelve months ended June 30, 2011.

12

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Basic and Diluted Earnings Per Share. The basic and diluted earnings per share are presented below (in thousands except for share data):
	Three Months Ended June 30,
	2012			2011
Weighted average number of common shares outstanding:
Basic number of common shares outstanding	39,958,149			41,853,552
Dilutive effect of unvested performance awards	64,698			195,078
Dilutive effect of stock options	17,929			28,029
Diluted number of common shares outstanding	40,040,776			42,076,659
Basic net income per common share:
Net income	$	30,894		$	32,990
Income allocated to participating restricted stock	(83		)	(157		)
Net income available to common shareholders	$	30,811		$	32,833
Diluted net income per common share:
Net income	$	30,894		$	32,990
Income reallocated to participating restricted stock	(83		)	(157		)
Net income available to common shareholders	$	30,811		$	32,833
Basic net income per common share:
Distributed earnings	$	0.25		$	0.22
Undistributed earnings	0.52			0.56
Basic net income per common share	$	0.77		$	0.78
Diluted net income per common share:
Distributed earnings	$	0.25		$	0.22
Undistributed earnings	0.52			0.56
Diluted net income per common share	$	0.77		$	0.78

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EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	Six Months Ended June 30,
	2012			2011
Weighted average number of common shares outstanding:
Basic number of common shares outstanding	39,934,590			42,079,568
Dilutive effect of unvested performance awards	65,450			182,252
Dilutive effect of stock options	20,103			36,896
Diluted number of common shares outstanding	40,020,143			42,298,716
Basic net income per common share:
Net income	$	34,238		$	39,765
Income allocated to participating restricted stock	(104		)	(179		)
Net income available to common shareholders	$	34,134		$	39,586
Diluted net income per common share:
Net income	$	34,238		$	39,765
Income reallocated to participating restricted stock	(104		)	(178		)
Net income available to common shareholders	$	34,134		$	39,587
Basic net income per common share:
Distributed earnings	$	0.47		$	0.22
Undistributed earnings	0.38			0.72
Basic net income per common share	$	0.85		$	0.94
Diluted net income per common share:
Distributed earnings	$	0.47		$	0.22
Undistributed earnings	0.38			0.72
Diluted net income per common share	$	0.85		$	0.94

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EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	Twelve Months Ended June 30,
	2012			2011
Weighted average number of common shares outstanding:
Basic number of common shares outstanding	40,285,248			42,376,298
Dilutive effect of unvested performance awards	148,256			164,636
Dilutive effect of stock options	22,122			54,077
Diluted number of common shares outstanding	40,455,626			42,595,011
Basic net income per common share:
Net income	$	98,012		$	107,412
Income allocated to participating restricted stock	(379		)	(458		)
Net income available to common shareholders	$	97,633		$	106,954
Diluted net income per common share:
Net income	$	98,012		$	107,412
Income reallocated to participating restricted stock	(378		)	(456		)
Net income available to common shareholders	$	97,634		$	106,956
Basic net income per common share:
Distributed earnings	$	0.91		$	0.22
Undistributed earnings	1.51			2.30
Basic net income per common share	$	2.42		$	2.52
Diluted net income per common share:
Distributed earnings	$	0.91		$	0.22
Undistributed earnings	1.50			2.29
Diluted net income per common share	$	2.41		$	2.51

The amount of restricted stock awards, performance shares and stock options excluded from the calculation of the diluted number of common shares outstanding because their effect was antidilutive is presented below:
	Three Months Ended		Six Months Ended		Twelve Months Ended
	June 30,		June 30,		June 30,
	2012	2011	2012	2011	2012	2011
Restricted stock awards	32,101	69,639	45,951	81,858	63,699	79,991
Performance shares (a)	51,133	—	47,092	—	23,546	—
Stock options	—	—	—	—	—	—

______________________

(a) Performance shares excluded from the computation of diluted earnings per share, as no payouts would have been required based upon performance at the end of the corresponding period. This amount assumes a 100% performance level payout.

E. Long-Term Debt and Financing Obligations

Revolving Credit Facility. The Company maintains a revolving credit facility (“RCF”) for working capital and general corporate purposes and financing of nuclear fuel through the Rio Grande Resources Trust (the “RGRT”). RGRT is the trust through which the Company finances its portion of nuclear fuel for Palo Verde and is consolidated in the Company's financial statements. The RCF has a term ending September 2016. On March 29, 2012, the Company and the Bank of New York Mellon Trust Company, N.A., as trustee of the RGRT, entered into the Incremental Facility Assumption Agreement (the “Assumption Agreement”) related to the RCF with JP Morgan Chase Bank, N.A., as administrative agent and issuing bank, Union Bank, N.A., as syndication agent, and various lending banks party thereto. The Assumption Agreement provides for the Company's exercise in full of the accordion feature provided for under the RCF, increasing the aggregate unsecured borrowing available from $200 million to $300 million.

In addition, the Assumption Agreement reflects the addition of a new lender under the RCF. No other material modifications were made to the terms and conditions of the RCF. The total amount borrowed for nuclear fuel by RGRT was $144.8 million at June 30, 2012, of which $34.8 million had been borrowed under the RCF and $110 million was borrowed through senior notes. At

15

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 31, 2011, the total amount borrowed for nuclear fuel by RGRT was $123.4 million of which $13.4 million was borrowed under the RCF and $110 million was borrowed through senior notes. Interest costs on borrowings to finance nuclear fuel are accumulated by RGRT and charged to the Company as fuel is consumed and recovered through fuel recovery charges. At June 30, 2012, $76.0 million was outstanding under the RCF for working capital or general corporate purposes. At December 31, 2011, $20.0 million was outstanding under the RCF for working capital or general corporate purposes.

Pollution Control Bonds (“PCBs”).The Company has four series of tax exempt unsecured PCBs in aggregate principal amount of $193.1 million. The 4.00% 2002 Series A with a principal amount of $33.3 million is shown as current maturities of long-term debt on the Company's June 30, 2012 and December 31, 2011 balance sheets. On August 1, 2012, the Company completed a refunding transaction where it purchased these PCBs. The Company may remarket these PCBs at a future date depending on financing needs and market conditions.

F. Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction and in the states of Texas, New Mexico and Arizona. The Company is no longer subject to tax examination by the taxing authorities in the federal jurisdiction for years prior to 2007 and in the state jurisdictions for years prior to 1998. A deficiency notice relating to the Company’s 1998 through 2003 income tax returns in Arizona contests a pollution control credit, a research and development credit, and the sales and property apportionment factors. The Company is contesting these adjustments.

For the three months ended June 30, 2012 and 2011, the Company’s consolidated effective tax rate was 34.6% and 33.7%, respectively. For the six months ended June 30, 2012 and 2011, the Company's consolidated effective tax rate was 33.4% and 32.0%, respectively. For the twelve months ended June 30, 2012 and 2011, the Company's consolidated effective tax rate was 34.7% and 32.6%, respectively. The Company's consolidated effective tax rate for the three, six and twelve months ended June 30, 2012 differs from the federal statutory tax rate of 35.0% primarily due to the allowance for equity funds used during construction and state income taxes.

FASB guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In the second quarter of 2012, a $2.8 million decrease was made to the previous reserve for capitalized assets. The decrease is primarily a result of facts and circumstances relating to an IRS safe harbor method regarding units of property of transmission and distribution assets. Further changes to the unrecognized tax position may be recognized as the IRS releases additional guidance as it pertains to generation assets and as the IRS audits of the 2009, 2010 and 2011 tax returns progress. A reconciliation of the June 30, 2012 and 2011 amount of unrecognized tax benefits is as follows (in thousands):

	2012			2011
Balance at January 1	$	9,500		$	7,300
Additions/(reductions) based on tax positions related to the current year	200			1,100
Additions for tax positions of prior years	—			—
Reductions for tax positions of prior years	(2,800		)	—
Balance at June 30	$	6,900		$	8,400

16

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

G. Commitments, Contingencies and Uncertainties

For a full discussion of commitments and contingencies, see Note K of Notes to Consolidated Financial Statements in the 2011 Form 10-K. In addition, see Note C above and Notes C and E of Notes to Consolidated Financial Statements in the 2011 Form 10-K regarding matters related to wholesale power sales contracts and transmission contracts subject to regulation and Palo Verde, including decommissioning, spent fuel storage, disposal of low-level radioactive waste, and liability and insurance matters.

Power Purchase and Sale Contracts

To supplement its own generation and operating reserves, and to meet required renewable portfolio standards, the Company engages in firm power purchase arrangements which may vary in duration and amount based on evaluation of the Company’s resource needs, the economics of the transactions, and specific renewable portfolio requirements. For a full discussion of power purchase and sale contracts that the Company has entered into with various counterparties, see Note K of Notes to Consolidated Financial Statements in the 2011 Form 10-K. In addition to the contracts disclosed in the 2011 Form 10-K, in March 2012, the Company entered into a purchase contract with Southwestern Public Service Company for 65 MW during the months of June through August 2012.

Environmental Matters

General. The Company is subject to laws and regulations with respect to air, soil and water quality, waste disposal and other environmental matters by federal, state, regional, tribal and local authorities. Those authorities govern facility operations and have continuing jurisdiction over facility modifications. Failure to comply with these requirements can result in actions by regulatory agencies or other authorities that might seek to impose on the Company administrative, civil and/or criminal penalties or other sanctions. In addition, releases of pollutants or contaminants into the environment can result in costly cleanup liabilities. These laws and regulations are subject to change and, as a result of those changes, the Company may face additional capital and operating costs to comply. Certain key environmental issues, laws and regulations facing the Company are described further below.

Air Emissions. The U.S. Clean Air Act (“CAA”) and comparable state laws and regulations relating to air emissions impose, among other obligations, limitations on pollutants generated during the Company’s operations, including sulfur dioxide (“SO₂”), particulate matter ("PM"), nitrogen oxides (“NOx”) and mercury.

Clean Air Interstate Rule. The U.S. Environmental Protection Agency’s (“EPA”) Clean Air Interstate Rule (“CAIR”), as applied to the Company, involves requirements to limit emissions of NOx from the Company’s power plants in Texas and/or purchase allowances representing other parties’ emissions reductions starting in 2009. The U.S. Court of Appeals for the District of Columbia voided CAIR in 2008; however, the Company has complied with CAIR since 2009, and such rule is binding. The annual reconciliation to comply with CAIR is due by March 31 of the following year. The Company has purchased allowances and expensed the following costs to meet its annual requirements (in thousands):

Compliance Year	Amount
2010	$	370
2011	90

Cross-State Air Pollution Rule. In July 2011, the EPA finalized the Cross-State Air Pollution Rule (“CSAPR”) which is intended to replace CAIR. CSAPR requires 28 states, including Texas, to further reduce power plant emissions of SO₂ and NOx. Under CSAPR, reductions in annual SO₂ and NOx emissions were required to begin January 1, 2012, with further reductions required beginning January 1, 2014. On December 30, 2011, the U.S. Court of Appeals for the District of Columbia Circuit issued its ruling to stay CSAPR, including the supplemental final rule, pending judicial review, which delays CSAPR's implementation date beyond January 1, 2012. The court is scheduled to hear the cases against the rule in 2012, with a decision later in 2012. As the outcome of the judicial review and any other legal or Congressional challenges are uncertain, the Company is unable to determine what impact CSAPR may ultimately have on its operations and consolidated financial results, but it could be material. Until the legal challenges to CSAPR are resolved, the Company's obligations under CAIR remains in effect.

National Ambient Air Quality Standards. Under the CAA, the EPA sets National Ambient Air Quality Standards ("NAAQS") for six criteria emissions considered harmful to public health and the environment, including PM, NOx, CO and SO₂. Areas meeting the NAAQS are designated attainment areas while those that do not meet the NAAQS are considered nonattainment areas. Each state must develop a plan to bring nonattainment areas into compliance with the NAAQS. NAAQS must be reviewed by the

17

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

EPA at five-year intervals. In 2010, the EPA strengthened the NAAQS for both NOx and SO₂. The Company continues to evaluate what impact this could have on its operations. If the Company is required to install additional equipment to control emissions at its facilities, the revised NAAQS could have a material impact on its operations and consolidated financial results. In addition, as a result of EPA's review of the PM NAAQS, the agency proposed on June 14, 2012, to strengthen the annual health standard for fine particulate matter and set a new, separate fine particle standard to improve visibility. Also, the EPA had been in the process of revising the NAAQS for ozone, when, in September 2011, President Obama ordered the EPA to withdraw its proposal. Work, however, is underway to support EPA's planned reconsideration of the standards in 2013. The Company cannot at this time predict the impact of these possible new standards on its operations or consolidated financial results, but it could be material.

Utility MACT. The operation of coal-fired power plants, such as the Company's Four Corners plant, results in emissions of mercury and other air toxics. In December 2011, the EPA finalized Mercury and Air Toxics Standards (known as the "Utility MACT") for oil- and coal-fired power plants, which replaces the prior federal Clean Air Mercury Rule and requires significant reductions in emissions of mercury and other air toxics. Several challenges are being made to this rule, including a proposal to withdraw the rule, which was rejected by the Senate on June 20, 2012. These challenges notwithstanding, companies impacted by the new standards will have up to four (and in certain limited cases five) years to comply. Information to the Company from the Four Corners plant operator, APS, indicates that APS believes Units 4 and 5 will require no additional modifications to achieve compliance with the Utility MACT standards; however, further testing and evaluation are planned. If additional controls are needed, the cost of compliance could be material.

Climate Change. A significant portion of the Company's generation assets are nuclear or gas-fired, and as a result, the Company believes that its greenhouse gas (“GHG”) emissions are low relative to electric power companies who rely on more coal-fired generation. However, regulations governing the emission of GHGs, such as carbon dioxide, could impose significant costs or limitations on the Company. In recent years, the U.S. Congress has considered new legislation to restrict or regulate GHG emissions, although federal efforts directed at enacting comprehensive climate change legislation stalled in 2010 and appear unlikely to recommence in the near future. Nonetheless, it is possible that federal legislation related to GHG emissions will be considered by Congress in the future. The EPA has begun using the CAA to limit carbon dioxide and other GHG emissions, and other measures are being imposed or offered by individual states, municipalities and regional agreements with the goal of reducing GHG emissions.

In September 2009, the EPA adopted a rule requiring approximately 10,000 facilities comprising a substantial percentage of annual U.S. GHG emissions to inventory their emissions starting in 2010 and to report those emissions to the EPA beginning in 2011. The Company's fossil fuel-fired power generating assets are subject to this rule, and the first report containing 2010 emissions was submitted to the EPA prior to the September 30, 2011 due date. The Company also has inventoried and implemented procedures for electrical equipment containing sulfur hexafluoride ("SF6"), another GHG. The Company is tracking these GHG emissions pursuant to the EPA's new SF6 reporting rule that was finalized in late 2010 and became effective January 1, 2011. The first report to EPA under this rule was originally due on March 31, 2012, but in November 2011, EPA delayed its submittal to September 28, 2012.

The EPA has also proposed and finalized other rulemakings on GHG emissions that affect electric utilities. Under EPA regulations finalized in May 2010 (referred to as the “Tailoring Rule”), the EPA began regulating GHG emissions from certain stationary sources in January 2011. The regulations are being implemented pursuant to two CAA programs: the Title V Operating Permit program and the program requiring a permit if undergoing construction or major modifications (referred to as the “PSD” program). Obligations relating to Title V permits include recordkeeping and monitoring requirements. With respect to PSD permits, projects that cause a significant increase in GHG emissions (currently defined to be more than 75,000 tons or 100,000 tons per year, depending on various factors), will be required to implement “best available control technology,” or “BACT”. The EPA has issued guidance on what BACT entails for the control of GHGs, and individual states are now required to determine what controls are required for facilities within their jurisdiction on a case-by-case basis. The ultimate impact of these new regulations on the Company's operations cannot be determined at this time, but the cost of compliance with new regulations could be material. Also, on December 23, 2010, the EPA announced a settlement agreement with states and environmental groups regarding setting new source performance standards for GHG emissions from new and existing coal-, gas- and oil-based power plants. Pursuant to this agreement, and certain agreed upon extensions, on March 27, 2012, EPA released its proposed GHG New Source Performance Standard ("NSPS") for new and modified electric generating units. The Company is currently determining how this proposed rule may impact existing and future operations and has provided comments to EPA during the comment period ending on June 25, 2012, supporting EPA's proposed exemption for simple cycle combustion turbines. The impact of these rules on the Company is unknown at this time, but they could result in significant costs, limitations on operating hours, and/or changes in construction schedules for future generating units.

18

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In addition, almost half of the states, either individually and/or through multi-state regional initiatives, have begun to consider how to address GHG emissions and have developed, or are actively considering the development of emission inventories or regional GHG cap and trade programs.

It is not currently possible to predict with confidence how any pending, proposed or future GHG legislation by Congress, the states, or multi-state regions or regulations adopted by EPA or the state environmental agencies will impact the Company's business. However, any such legislation or regulation of GHG emissions or any future related litigation could result in increased compliance costs or additional operating restrictions or reduced demand for the power the Company generates, could require the Company to purchase rights to emit GHG, and could have a material adverse effect on the Company's business, financial condition, reputation or results of operations.

Climate change also has potential physical effects that could be relevant to the Company's business. In particular, some studies suggest that climate change could affect the Company's service area by causing higher temperatures, less winter precipitation and less spring runoff, as well as by causing more extreme weather events. Such developments could change the demand for power in the region and could also impact the price or ready availability of water supplies or affect maintenance needs and the reliability of Company equipment.

The Company believes that material effects on the Company's business or operations may result from the physical consequences of climate change, the regulatory approach to climate change ultimately selected and implemented by governmental authorities, or both. Substantial expenditures may be required for the Company to comply with such regulations in the future and, in some instances, those expenditures may be material. Given the very significant remaining uncertainties regarding whether and how these issues will be regulated, as well as the timing and severity of any physical effects of climate change, the Company believes it is impossible at present to meaningfully quantify the costs of these potential impacts.

Contamination Matters. The Company has a provision for environmental remediation obligations of approximately $0.5 million at June 30, 2012, related to compliance with federal and state environmental standards. However, unforeseen expenses associated with environmental compliance or remediation may occur and could have a material adverse effect on the future operations and financial condition of the Company.

The Company incurred the following expenditures during the three, six and twelve months ended June 30, 2012 and 2011 to comply with federal environmental statutes (in thousands):

	Three Months Ended				Six Months Ended				Twelve Months Ended
	June 30,				June 30,				June 30,
	2012		2011		2012		2011		2012		2011
Clean Air Act (1)	$	194	$	253	$	423	$	293	$	846	$	620
Clean Water Act	55		53		101		109		256		184

_________________

(1) Includes an accrual of $0.2 million, in the first quarter of 2012, related to Four Corners generating station discussed below.

Environmental Litigation and Investigations. On April 6, 2009, APS received a request from the EPA under Section 114 of the CAA seeking detailed information regarding projects and operations at Four Corners. The EPA has taken the position that many utilities have made certain physical or operational changes at their plants that should have triggered additional regulatory requirements under the New Source Review provisions of the CAA. APS responded to this request in 2009. On February 16, 2010, a group of environmental organizations filed a petition with the United States Departments of Interior and Agriculture requesting that the agencies certify to the EPA that emissions from Four Corners are causing “reasonably attributable visibility impairment” under the CAA.  If the agencies certify impairment, the EPA is required to evaluate and, if necessary, determine “best available retrofit technology" (“BART”) for Four Corners.  On January 19, 2011, a similar group of environmental organizations filed a lawsuit against the Departments of Interior and Agriculture, alleging, among other things, that the agencies failed to act on the February 2010 petition “without unreasonable delay” and requesting the court to order the agencies to act on the petition within 30 days.  Since July 2011, the U.S. Department of Justice ("DOJ"), on behalf of the EPA, and APS have been engaged in substantive settlement negotiations.  Most recently, by letter dated March 2, 2012, the DOJ submitted a revised settlement proposal.  Settlement discussions have included provisions for a civil penalty and environmental mitigation projects. The Company has determined that payment of a penalty and payment for environmental mitigation projects is likely to occur and that the current range for the Company's loss contingency exposure is $0.2 million to $0.9 million. The Company has accrued $0.2 million related to this matter. The settlement discussions have emphasized that the environment mitigation projects that address alleged harm to the Navajo Nation be spent within 5 years years of the date a decree is entered.

19

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company received notice that Earthjustice filed a lawsuit in the United States District Court for New Mexico on October 4, 2011 for alleged violations of the Prevention of Significant Deterioration provisions of the CAA related to Four Corners. Subsequent to filing its original Complaint, on January 6, 2012, Earthjustice filed a First Amended Complaint adding claims for violations of the CAA's NSPS program. Among other things, the plaintiffs seek to have the court enjoin operations at Four Corners until APS applies for and obtains any required PSD permits and complies with the NSPS. The plaintiffs further request the court to order the payment of civil penalties, including a beneficial mitigation project. APS advised that it believes the claims in this matter are without merit and will vigorously defend against them. The Company is unable to predict the outcome of this litigation.

H. Litigation

The Company is a party to various legal actions. In many of these matters, the Company has excess casualty liability insurance that covers the various claims, actions and complaints. Based upon a review of these claims and applicable insurance coverage, to the extent that the Company has been able to reach a conclusion as to its ultimate liability, it believes that none of these claims will have a material adverse effect on the financial position, results of operations or cash flows of the Company. See Note C for discussion of the effects of government legislation and regulation on the Company.

I. Employee Benefits

Retirement Plans

The net periodic benefit cost recognized for the three, six and twelve months ended June 30, 2012 and 2011 is made up of the components listed below as determined using the projected unit credit actuarial cost method (in thousands):

	Three Months Ended						Six Months Ended						Twelve Months Ended
	June 30,						June 30,						June 30,
	2012			2011			2012			2011			2012			2011
Components of net periodic benefit cost:
Service cost	$	2,189		$	1,682		$	4,414		$	3,425		$	7,839		$	6,457
Interest cost	3,400			3,499			6,778			6,994			13,771			13,808
Amendments	—			—			—			—			—			838
Expected return on plan assets	(3,611		)	(3,515		)	(7,221		)	(7,048		)	(14,268		)	(13,982		)
Amortization of:
Net loss	2,713			1,689			5,678			3,272			8,950			5,047
Prior service cost	31			31			58			58			115			115
Net periodic benefit cost	$	4,722		$	3,386		$	9,707		$	6,701		$	16,407		$	12,283

During the six months ended June 30, 2012, the Company contributed $11.5 million of its projected $19.8 million2012 annual contribution to its retirement plans.

20

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Other Postretirement Benefits

The net periodic benefit cost recognized for the three, six and twelve months ended June 30, 2012 and 2011 is made up of the components listed below (in thousands):

	Three Months Ended						Six Months Ended						Twelve Months Ended
	June 30,						June 30,						June 30,
	2012			2011			2012			2011			2012			2011
Components of net periodic benefit cost:
Service cost	$	1,119		$	756		$	2,189		$	1,494		$	3,683		$	3,273
Interest cost	1,410			1,399			2,825			2,689			5,515			6,021
Expected return on plan assets	(453		)	(454		)	(888		)	(912		)	(1,799		)	(1,676		)
Amortization of:
Prior service benefit	(1,468		)	(1,481		)	(2,938		)	(2,963		)	(5,902		)	(4,397		)
Net loss (gain)	147			89			307			(19		)	287			(107		)
Net periodic benefit cost	$	755		$	309		$	1,495		$	289		$	1,784		$	3,114

During the six months ended June 30, 2012, the Company contributed $0.6 million of its projected $2.5 million2012 annual contribution to its postretirement plan.

J. Financial Instruments and Investments

FASB guidance requires the Company to disclose estimated fair values for its financial instruments. The Company has determined that cash and temporary investments, investment in debt securities, accounts receivable, decommissioning trust funds, long-term debt, short-term borrowings under the RCF, accounts payable and customer deposits meet the definition of financial instruments. The carrying amounts of cash and temporary investments, accounts receivable, accounts payable and customer deposits approximate fair value because of the short maturity of these items. Investments in debt securities and decommissioning trust funds are carried at fair value.

Long-Term Debt and Short-Term Borrowings Under the RCF. The fair values of the Company’s long-term debt and short-term borrowings under the RCF are based on estimated market prices for similar issues and are presented below (in thousands):

	June 30, 2012				December 31, 2011
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Pollution Control Bonds	$	193,135	$	212,159	$	193,135	$	206,756
Senior Notes	546,689		679,250		546,662		700,371
RGRT Senior Notes (1)	110,000		120,190		110,000		116,985
RCF (1)	110,760		110,760		33,379		33,379
Total	$	960,584	$	1,122,359	$	883,176	$	1,057,491

_______________

(1) Nuclear fuel financing as of June 30, 2012 and December 31, 2011 is funded through the $110 million RGRT Senior Notes and $34.8 million and $13.4 million, respectively under the RCF. As of June 30, 2012 and December 31, 2011, $76.0 million and $20.0 million, respectively, were outstanding under the RCF for working capital and general corporate purposes. The interest rate on the Company’s borrowings under the RCF is reset throughout the quarter reflecting current market rates. Consequently, the carrying value approximates fair value.

21

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Marketable Securities. The Company’s marketable securities, included in decommissioning trust funds in the balance sheets, are reported at fair value which was $178.3 million and $168.0 million at June 30, 2012 and December 31, 2011, respectively. These securities are classified as available for sale under FASB guidance for certain investments in debt and equity securities and are valued using prices and other relevant information generated by market transactions involving identical or comparable securities. The reported fair values include gross unrealized losses on marketable securities whose impairment the Company has deemed to be temporary. The tables below present the gross unrealized losses and the fair value of these securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):

	June 30, 2012
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Description of Securities (1):
Federal Agency Mortgage Backed Securities	$	15	$	(1	)	$	1,048	$	(26	)	$	1,063	$	(27	)
U.S. Government Bonds	4,785		(41		)	1,175		(40		)	5,960		(81		)
Municipal Obligations	8,297		(71		)	4,938		(232		)	13,235		(303		)
Corporate Obligations	1,144		(8		)	912		(13		)	2,056		(21		)
Total Debt Securities	14,241		(121		)	8,073		(311		)	22,314		(432		)
Common Stock	5,487		(706		)	1,103		(211		)	6,590		(917		)
Total Temporarily Impaired Securities	$	19,728	$	(827	)	$	9,176	$	(522	)	$	28,904	$	(1,349	)

_________________

(1) Includes approximately 67 securities.

	December 31, 2011
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Description of Securities (2):
Federal Agency Mortgage Backed Securities	$	515	$	(8	)	$	1,233	$	(23	)	$	1,748	$	(31	)
U.S. Government Bonds	100		(1		)	2,413		(38		)	2,513		(39		)
Municipal Obligations	2,275		(31		)	4,731		(144		)	7,006		(175		)
Corporate Obligations	3,525		(118		)	1,234		(43		)	4,759		(161		)
Total Debt Securities	6,415		(158		)	9,611		(248		)	16,026		(406		)
Common Stock	10,688		(2,065		)	1,740		(489		)	12,428		(2,554		)
Total Temporarily Impaired Securities	$	17,103	$	(2,223	)	$	11,351	$	(737	)	$	28,454	$	(2,960	)

_________________

(2) Includes approximately 96 securities.

The Company monitors the length of time the security trades below its cost basis along with the amount and percentage of the unrealized loss in determining if a decline in fair value of marketable securities below recorded cost is considered to be other than temporary. In addition, the Company will research the future prospects of individual securities as necessary. As a result of these factors, as well as the Company’s intent and ability to hold these securities until their market price recovers, these securities are considered temporarily impaired. The Company will not have a requirement to expend monies held in trust before 2044 or a later period when the Company begins to decommission Palo Verde.

22

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The reported fair values also include gross unrealized gains on marketable securities which have not been recognized in the Company’s net income. The table below presents the unrecognized gross unrealized gains and the fair value of these securities, aggregated by investment category (in thousands):

	June 30, 2012				December 31, 2011
	Fair Value		Unrealized Gains		Fair Value		Unrealized Gains
Description of Securities:
Federal Agency Mortgage Backed Securities	$	22,065	$	1,206	$	25,077	$	1,220
U.S. Government Bonds	9,129		754		10,263		972
Municipal Obligations	27,017		1,621		30,310		1,792
Corporate Obligations	10,679		705		7,641		459
Total Debt Securities	68,890		4,286		73,291		4,443
Common Stock	67,252		20,885		62,479		15,681
Equity Mutual Funds	9,073		393		—		—
Cash and Cash Equivalents	4,160		—		3,739		—
Total	$	149,375	$	25,564	$	139,509	$	20,124

The Company’s marketable securities include investments in municipal, corporate and federal debt obligations. Substantially all of the Company’s mortgage-backed securities, based on contractual maturity, are due in 10 years years or more. The mortgage-backed securities have an estimated weighted average maturity which generally range from 3 years to 7 years years and reflects anticipated future prepayments. The contractual year for maturity of these available-for-sale securities as of June 30, 2012 is as follows (in thousands):

	Total		2012		2013 through 2016		2017 through 2021		2022 and Beyond
Municipal Debt Obligations	$	40,252	$	989	$	10,993	$	16,847	$	11,423
Corporate Debt Obligations	12,735		—		3,740		5,314		3,681
U.S. Government Bonds	15,089		—		4,261		8,034		2,794

The Company recognizes impairment losses on certain of its securities deemed to be other than temporary. In accordance with FASB guidance, these impairment losses are recognized in net income, and a lower cost basis is established for these securities. For the three, six and twelve months ended June 30, 2012 and 2011, the Company recognized other than temporary impairment losses on its available-for-sale securities as follows (in thousands):

	Three Months Ended						Six Months Ended						Twelve Months Ended
	June 30,						June 30,						June 30,
	2012			2011			2012			2011			2012			2011
Gross unrealized holding losses included in pre-tax income	$	(166	)	$	(199	)	$	(166	)	$	(199	)	$	(2,083	)	$	(199	)

23

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company’s marketable securities in its decommissioning trust funds are sold from time to time and the Company uses the specific identification basis to determine the amount to reclassify out of accumulated other comprehensive income and into net income. The proceeds from the sale of these securities and the related effects on pre-tax income are as follows (in thousands):

	Three Months Ended						Six Months Ended						Twelve Months Ended
	June 30,						June 30,						June 30,
	2012			2011			2012			2011			2012			2011
Proceeds from sales of available-for-sale securities	$	39,934		$	22,175		$	59,513		$	36,406		$	106,033		$	63,857
Gross realized gains included in pre-tax income	$	690		$	432		$	1,079		$	696		$	1,862		$	1,200
Gross realized losses included in pre-tax income	(1,971		)	(235		)	(2,147		)	(294		)	(2,574		)	(511		)
Gross unrealized losses included in pre-tax income	(166		)	(199		)	(166		)	(199		)	(2,083		)	(199		)
Net gains (losses) in pre-tax income	$	(1,447	)	$	(2	)	$	(1,234	)	$	203		$	(2,795	)	$	490
Net unrealized holding gains (losses) included in accumulated other comprehensive income	$	(2,341	)	$	416		$	5,817		$	2,589		$	4,798		$	13,232
Net (gains) losses reclassified out of accumulated other comprehensive income	1,447			2			1,234			(203		)	2,795			(490		)
Net gains (losses) in other comprehensive income	$	(894	)	$	418		$	7,051		$	2,386		$	7,593		$	12,742

Fair Value Measurements. FASB guidance requires the Company to provide expanded quantitative disclosures for financial assets and liabilities recorded on the balance sheet at fair value. Financial assets carried at fair value include the Company’s decommissioning trust investments and investments in debt securities which are included in deferred charges and other assets on the consolidated balance sheets. The Company has no liabilities that are measured at fair value on a recurring basis. The FASB guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

• Level 1 – Observable inputs that reflect quoted market prices for identical assets and liabilities in active markets. Financial assets utilizing Level 1 inputs include the nuclear decommissioning trust investments in active exchange-traded equity securities and U.S. treasury securities that are in a highly liquid and active market.

• Level 2 – Inputs other than quoted market prices included in Level 1 that are observable for the asset or liability either directly or indirectly. Financial assets utilizing Level 2 inputs include the nuclear decommissioning trust investments in fixed income securities. The fair value of these financial instruments is based on evaluated prices that reflect observable market information, such as actual trade information of similar securities, adjusted for observable differences.

• Level 3 – Unobservable inputs using data that is not corroborated by market data and primarily based on internal Company analysis using models and various other analyses. Financial assets utilizing Level 3 inputs include the Company’s investments in debt securities.

The securities in the Company’s decommissioning trust funds are valued using prices and other relevant information generated by market transactions involving identical or comparable securities. FASB guidance identifies this valuation technique as the “market approach” with observable inputs. The Company analyzes available-for-sale securities to determine if losses are other than temporary.

24

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The fair value of the Company’s decommissioning trust funds and investments in debt securities, at June 30, 2012 and December 31, 2011, and the level within the three levels of the fair value hierarchy defined by FASB guidance are presented in the table below (in thousands):

Description of Securities	Fair Value as of June 30, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Trading Securities:
Investments in Debt Securities	$	1,228	$	—	$	—	$	1,228
Available for sale:
U.S. Government Bonds	$	15,089	$	15,089	$	—	$	—
Federal Agency Mortgage Backed Securities	23,128		—		23,128		—
Municipal Bonds	40,252		—		40,252		—
Corporate Asset Backed Obligations	12,735		—		12,735		—
Subtotal Debt Securities	91,204		15,089		76,115		—
Common Stock	73,842		73,842		—		—
Equity Mutual Funds	9,073		9,073		—		—
Cash and Cash Equivalents	4,160		4,160		—		—
Total available for sale	$	178,279	$	102,164	$	76,115	$	—

Description of Securities	Fair Value as of December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Trading Securities:
Investments in Debt Securities	$	1,120	$	—	$	—	$	1,120
Available for sale:
U.S. Government Bonds	$	12,776	$	12,776	$	—	$	—
Federal Agency Mortgage Backed Securities	26,825		—		26,825		—
Municipal Bonds	37,316		—		37,316		—
Corporate Asset Backed Obligations	12,400		—		12,400		—
Subtotal Debt Securities	89,317		12,776		76,541		—
Common Stock	74,907		74,907		—		—
Cash and Cash Equivalents	3,739		3,739		—		—
Total available for sale	$	167,963	$	91,422	$	76,541	$	—

There were no transfers in and out of Level 1 and Level 2 fair value measurements categories during the three, six and twelve month periods ending June 30, 2012 and June 30, 2011.     

During the fourth quarter of 2011, the Company sold an investment in a debt security for $2.0 million that was categorized as a Level 3 investment. The Company realized in the consolidated statement of operations as investment and interest income a gain on the sale of the debt security of $0.4 million during the twelve month period ending June 30, 2012. There were no other purchases, sales, issuances, or settlements related to the assets in the Level 3 fair value measurement category during the three, six and twelve month periods ending June 30, 2012 and 2011.

25

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

El Paso Electric Company:

We have reviewed the consolidated balance sheet of El Paso Electric Company and subsidiary as of June 30, 2012, the related consolidated statements of operations and comprehensive operations for the three-month, six-month and twelve-month periods ended June 30, 2012 and 2011, and the related consolidated statements of cash flows for the six-month periods ended June 30, 2012 and 2011. These consolidated financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), 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 reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of El Paso Electric Company and subsidiary as of December 31, 2011, and the related consolidated statements of operations, comprehensive operations, changes in common stock equity, and cash flows for the year then ended (not presented herein); and in our report dated February 24, 2012, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2011, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ KPMG LLP

Houston, Texas

August 3, 2012

26

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information contained in this Item 2 updates, and should be read in conjunction with, the information set forth in Part II, Item 7 of our 2011 Annual Report on Form 10-K.

FORWARD-LOOKING STATEMENTS

Certain matters discussed in this Quarterly Report on Form 10-Q other than statements of historical information are “forward-looking statements.” The Private Securities Litigation Reform Act of 1995 has established that these statements qualify for safe harbors from liability. Forward-looking statements may include words like we “believe”, “anticipate”, “target”, “expect”, “pro forma”, “estimate”, “intend” and words of similar meaning. Forward-looking statements describe our future plans, objectives, expectations or goals. Such statements address future events and conditions concerning and include, but are not limited to, such things as:

• capital expenditures,

• earnings,

• liquidity and capital resources,

• ratemaking/regulatory matters,

• litigation,

• accounting matters,

• possible corporate restructurings, acquisitions and dispositions,

• compliance with debt and other restrictive covenants,

• interest rates and dividends,

• environmental matters,

• nuclear operations, and

• the overall economy of our service area.

These forward-looking statements involve known and unknown risks that may cause our actual results in future periods to differ materially from those expressed in any forward-looking statement. Factors that would cause or contribute to such differences include, but are not limited to, such things as:

• our ability to recover our costs and earn a reasonable rate of return on our invested capital through rates,

• ability of our operating partners to maintain plant operations and manage operation and maintenance costs at the Palo Verde and Four Corners plants, including costs to comply with any potential new or expanded regulatory requirements,

• reductions in output at generation plants operated by us,

• unscheduled outages including outages at Palo Verde,

• the size of our construction program and our ability to complete construction on budget and on a timely basis,

• electric utility deregulation or re-regulation,

• regulated and competitive markets,

• ongoing municipal, state and federal activities,

• economic and capital market conditions,

• changes in accounting requirements and other accounting matters,

• changing weather trends and the impact of severe weather conditions,

• rates, cost recovery mechanisms and other regulatory matters including the ability to recover fuel costs on a timely basis,

• changes in environmental laws and regulations and the enforcement or interpretation thereof, including those related to air, water or greenhouse gas emissions or other environmental matters,

• political, legislative, judicial and regulatory developments,

• the impact of lawsuits filed against us,

• the impact of changes in interest rates,

• changes in, and the assumptions used for, pension and other post-retirement and post-employment benefit liability calculations, as well as actual and assumed investment returns on pension plan and other post-retirement plan assets,

• the impact of recent U.S. health care reform legislation,

• the impact of changing cost escalation and other assumptions on our nuclear decommissioning liability for Palo Verde,

• Texas, New Mexico and electric industry utility service reliability standards,

• homeland security considerations, including those associated with the U.S./Mexico border region,

• coal, uranium, natural gas, oil and wholesale electricity prices and availability, and

• other circumstances affecting anticipated operations, sales and costs.

27

These lists are not all-inclusive because it is not possible to predict all factors. A discussion of some of these factors is included in the 2011 Annual Report on Form 10-K under the headings “Management's Discussion and Analysis” “-Summary of Critical Accounting Policies and Estimates” and “-Liquidity and Capital Resources.” This report should be read in its entirety. No one section of this report deals with all aspects of the subject matter. Any forward-looking statement speaks only as of the date such statement was made, and we are not obligated to update any forward-looking statement to reflect events or circumstances after the date on which such statement was made except as required by applicable laws or regulations.

Summary of Critical Accounting Policies and Estimates

The preparation of our financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes for the periods presented and actual results could differ in future periods from those estimates. Critical accounting policies and estimates are both important to the portrayal of our financial condition and results of operations and require complex, subjective judgments and are more fully described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2011 Annual Report on Form 10-K.

Summary

The following is an overview of our results of operations for the three, six and twelve month periods ended June 30, 2012 and 2011. Income before extraordinary item for the three, six and twelve month periods ended June 30, 2012 and 2011 is shown below:

	Three Months Ended				Six Months Ended				Twelve Months Ended
	June 30,				June 30,				June 30,
	2012		2011		2012		2011		2012		2011
Income before extraordinary item (in thousands)	$	30,894	$	32,990	$	34,238	$	39,765	$	98,012	$	97,126
Basic earnings per share before extraordinary item	0.77		0.78		0.85		0.94		2.42		2.28

The following table and accompanying explanations show the primary factors affecting the after-tax change in income before extraordinary item between the 2012 and 2011 periods presented (in thousands):

	Three Months Ended			Six Months Ended			Twelve Months Ended
June 30, 2011 income before extraordinary item	$	32,990		$	39,765		$	97,126
Change in (net of tax):
Decreased Palo Verde operations and maintenance expense (a)	1,409			729			1,976
Increased transmission wheeling revenues (b)	374			570			2,954
Increased (decreased) allowance for funds used during construction (c)	285			(1,248		)	(4,821		)
Increased retail non-fuel base revenues (d)	2			1,341			11,223
Decreased deregulated Palo Verde Unit 3 revenues (e)	(1,260		)	(2,109		)	(1,975		)
Decreased investment and interest income (f)	(1,183		)	(1,565		)	(2,943		)
Increased pensions and benefits expense (g)	(812		)	(1,553		)	(1,305		)
Increased operating and maintenance expense at fossil fuel generating plants (h)	(469		)	(2,107		)	(5,096		)
Other	(442		)	415			873
June 30, 2012 income before extraordinary item	$	30,894		$	34,238		$	98,012

______________

(a) Palo Verde non-fuel operations and maintenance expense for the three months ended June 30, 2012, compared to the same period last year, decreased primarily due to the timing of the Unit 3 spring refueling outage which began on March 17, 2012 and was completed on April 17, 2012. In 2011, the Unit 2 spring refueling outage began on April 2, 2011 and was completed on May 6, 2011. Palo Verde non-fuel operations and maintenance expense for the six and twelve months ended June 30, 2012 compared to the same period last year decreased primarily due to decreased maintenance costs as the result of reduced costs for scheduled refueling outages.

(b) Transmission revenues increased for the twelve months ended June 30, 2012, compared to the same period last year, due to a settlement agreement with Tucson Electric Power Company involving a transmission dispute that resulted in a one-time adjustment to income of $3.9 million, pre-tax.

28

(c) Allowance for funds used during construction ("AFUDC") decreased in the six and twelve months ended June 30, 2012 compared to the same periods last year primarily due to lower balances of construction work in progress subject to AFUDC reflecting the completion and placing in service the Newman Unit 5 Phase II generating plant addition.

(d) Retail non-fuel base revenues increased for the three, six and twelve months ended June 30, 2012, compared to the same periods in 2011, primarily due to a 2.4%, 2.8% and 3.1% increase, respectively, in kWh sales to retail customers reflecting 1.5% growth in the average number of retail customers served in all periods. These increases were partially offset by reduced non-fuel base rates for Texas customers which became effective May 1, 2012. Retail non-fuel base revenues exclude fuel recovered through New Mexico base rates. For a complete discussion of non-fuel rate base revenues, see page 30.

(e) Revenues from retail sales of deregulated Palo Verde Unit 3 power decreased for the three and six months ended June 30, 2012, compared to the same periods last year, due to lower proxy market prices due to the decline in natural gas prices and a 21% and 17% decrease in generation at Palo Verde Unit 3, respectively, due to a refueling outage beginning on March 17, 2012 which was completed on April 17, 2012. Revenues from retail sales of deregulated Palo Verde Unit 3 power decreased for the twelve months ended June 30, 2012 compared to the same period last year due to lower proxy market prices and increased costs of nuclear fuel.

(f) Investment and interest income decreased for the three, six, and twelve months ended June 30, 2012, compared to the same periods in 2011, primarily due to increased net unrealized and realized losses on equity investments in our decommissioning trust.

(g) Pensions and benefits expense increased for the three, six, and twelve months ended June 30, 2012, compared to the same periods in 2011, reflecting the impact of lower discount rates used to determine pension and other postretirement benefit liabilities and expense.

(h) Operations and maintenance expense increased at our fossil fuel generating plants in both the six and twelve months ended June 30, 2012, when compared to the same periods last year, primarily due to the timing of planned maintenance. In the six months ended June 30, 2012, we performed scheduled major maintenance at Rio Grande Unit 8 and at Newman Unit 1. In the twelve months ended June 30, 2012, major maintenance was performed at Newman Unit 4 and at the Four Corners generating plant.

29

Historical Results of Operations

The following discussion includes detailed descriptions of factors affecting individual line items in the results of operations. The amounts presented below are presented on a pre-tax basis.

Operating revenues

We realize revenue from the sale of electricity to retail customers at regulated rates and the sale of energy in the wholesale power market generally at market-based prices. Sales for resale (which are wholesale sales within our service territory) accounted for less than 1% of revenues.

Revenues from the sale of electricity include fuel costs that are recovered from our customers through fuel adjustment mechanisms. A significant portion of fuel costs are also recovered through base rates in New Mexico. We record deferred fuel revenues for the difference between actual fuel costs and recoverable fuel revenues until such amounts are collected from or refunded to customers. “Non-fuel base revenues” refers to our revenues from the sale of electricity excluding such fuel costs.    

No retail customer accounted for more than 4% of our non-fuel base revenues during such periods. Residential and small commercial customers comprise 75% or more of our revenues. While this customer base is more stable, it is also more sensitive to changes in weather conditions. The current rate structure in New Mexico and Texas reflects higher base rates during the peak summer season of May through October and lower base rates during November through April for our residential and small commercial and industrial customers. As a result, our business is seasonal, with higher kWh sales and revenues during the summer cooling season.

Weather significantly impacts our residential, small commercial and industrial customers, and to a lesser extent, our sales to public authorities. For the three months ended June 30, 2012, the weather in our local service territory was similar to the weather during the same period last year. Cooling degree days increased 1% when compared to the same period in 2011 and 29% above the 30-year average. For the six months ended June 30, 2012, cooling degree days were relatively unchanged when compared to the same period in 2011 and 31% above the 30-year average. For the six month period, heating degree days were 7% below the same period last year and 11% below the 30-year average. For the twelve months ended June 30, 2012, cooling degree days were 7% above the same period last year and 30% above the 30-year average. For the twelve month period heating degree days were 10% above the same period last year and 5% below the 30-year average. Heating and cooling degree days can be used to evaluate the effect of weather on energy use. For each degree that the average outdoor temperature varies from a standard of 65 degrees Fahrenheit, a degree day is recorded. The table below shows heating and cooling degree days compared to a 30-year average.

	Three Months Ended			Six Months Ended			Twelve Months Ended
	June 30,		30-Year	June 30,		30-Year	June 30,		30-Year
	2012	2011	Average	2012	2011	Average	2012	2011	Average*
Heating degree days	50	40	91	1,209	1,305	1,364	2,306	2,100	2,426
Cooling degree days	1,178	1,169	914	1,215	1,210	927	3,140	2,944	2,410

______________

* Calendar year basis.

Customer growth is a key driver of the growth of retail sales. The average number of retail customers grew 1.5% for the three, six, and twelve months ended June 30, 2012 when compared to the same periods last year. See the tables presented on pages 32 , 33 and 34 which provide detail on the average number of retail customers and the related revenues and kWh sales.

Retail non-fuel base revenues. Our rate structure effective July 1, 2010 through April 30, 2012 in Texas was based on the final order in PUCT Docket No. 37690 which approved a settlement that called for an annual increase of $17.15 million in non-fuel base rates. On April 17, 2012, the City Council (the “Council”) of El Paso, Texas approved the settlement of our 2012 Texas retail rate case and fuel reconciliation in PUCT Docket No. 40094 and on April 26, 2012, the administrative law judge issued an order implementing the settlement rates as temporary rates effective May 1, 2012. The PUCT approved the settlement on May 18, 2012. Under the terms of the settlement, among other things, we agreed to a reduction in our current non-fuel base rates of $15 million annually, with the decrease being allocated primarily to Texas retail commercial and industrial customer classes.

Retail non-fuel base revenues remained relatively flat for the three months ended June 30, 2012, when compared to the same period last year. We experienced a 2.4% increase in kWh sales to retail customers reflecting 1.5% growth in the average number of customers served. Cooling degree days were similar in the second quarters of 2012 and 2011 and as a result had a minimal impact on sales growth. However, cooling degree days in both periods were at least 28% above the 30-year average. KWh sales to residential customers increased 5.6% and non-fuel base revenues from residential customers increased 4.2%. KWh sales to other public authorities increased 6.5% and non-fuel revenues from other public authorities increased 7.0%. Non-fuel base revenues from sales to small commercial and industrial customers and large commercial and industrial customers decreased 4.1% and 15.6%, respectively, in the second quarter primarily due to a reduction in non-fuel base rates in Texas which became effective

30

May 1, 2012, increased use of lower interruptible rates and decreased consumption by several large commercial and industrial customers. KWh sales to large commercial and industrial customers decreased 6.9% for the three month period.

Retail non-fuel base revenues increased by $2.1 million, or 0.8%, for the six months ended June 30, 2012, when compared to the same period last year, primarily due to a 2.8% increase in kWh sales to retail customers reflecting 1.5% growth in the average number of customers served. KWh sales to residential customers increased 4.2% and non-fuel base revenues from residential customers increased 3.4%. KWh sales to other public authorities increased 4.7% and non-fuel revenues from other public authorities increased 4.0%. Non-fuel base revenues from sales to small commercial and industrial customers and large commercial and industrial customers decreased 1.9% and 6.4%, respectively, due to a reduction in non-fuel base rates in Texas which became effective May 1, 2012 and increased use of lower interruptible rates. KWh sales to large commercial and industrial customers decreased 0.8% for the six month period.

Retail non-fuel base revenues for the twelve months ended June 30, 2012 increased by $17.8 million or 3.2%, compared to the same period in 2011, primarily due to a 3.1% increase in kWh sales to retail customers reflecting hotter summer weather and 1.5% growth in the average number of customers served. During the twelve months ended June 30, 2012, cooling degree days were 7% above the same period in 2011 and 30% above the 30-year average. KWh sales to residential customers and other public authorities increased 5.3% and 3.4%, respectively, during the twelve months ended June 30, 2012, compared to the same period last year. KWh sales to small commercial and industrial customers increased 2.1%.

Fuel revenues. Fuel revenues consist of (i) revenues collected from customers under fuel recovery mechanisms approved by the state commissions and the FERC, (ii) deferred fuel revenues which are comprised of the difference between fuel costs and fuel revenues collected from customers, and (iii) fuel costs recovered in base rates in New Mexico. In New Mexico and with our sales for resale customer, the fuel adjustment clause allows us to recover under-recoveries or refund over-recoveries of current fuel costs above the amount recovered in base rates with a two-month lag. In Texas, fuel costs are recovered through a fixed fuel factor. We can seek to revise our fixed fuel factor based upon an approved formula at least four months after our last revision except in the month of December. In addition, if we materially over-recover fuel costs, we must seek to refund the over-recovery, and if we materially under-recover fuel costs, we may seek a surcharge to recover those costs. Fuel over and under recoveries are considered material when they exceed 4% of the previous twelve months' fuel costs.

In the three and six months ended June 30, 2012, we over-recovered our fuel costs by $3.7 million and $15.6 million, respectively, compared to a fuel under-recovery of $12.7 million and $13.7 million in the same periods in 2011. A refund of $12 million was made to our Texas customers in April 2011. In the twelve months ended June 30, 2012, we over-recovered our fuel costs by $15.4 million compared to fuel over-recoveries of $9.6 million in the same period last year. Refunds of $35.0 million were returned to our Texas customers in the twelve months ended June 30, 2011. At June 30, 2012, we had a net fuel over-recovery balance of $8.6 million, including $6.7 million in Texas, $1.8 million in New Mexico, and $0.1 million in FERC. A filing to refund over-recovered fuel costs in Texas was made in early August 2012.

Off-system sales. Off-system sales are wholesale sales into markets outside our service territory. Off-system sales are primarily made in off-peak periods when we have competitive generation capacity available after meeting our regulated service obligations. We share 90% of off-system sales margins with our Texas and New Mexico customers, and we retain 10% of off-system sales margins. We are sharing 25% of our off-system sales margins with our sales for resale customer under the terms of a contract which was effective April 1, 2008.

Typically, we realize a significant portion of our off-system sales margins in the first quarter of each calendar year when our native load is lower than at other times of the year, allowing for the sale in the wholesale market of relatively larger amounts of off-system energy generated from lower cost generating resources. Palo Verde's availability is an important factor in realizing these off-system sales margins.

Off-system sales revenues increased $3.7 million, or 22.0% for the three months ended June 30, 2012, when compared to the same period last year, as a result of higher average market prices for power and a 7.8% increase in MWh sales. Retained margins from off-system sales increased $1.2 million for the three months ended June 30, 2012, compared to the same period last year, primarily due to the negative impact of power purchases required for system reliability when wildfires in June 2011 threatened key transmission lines in eastern Arizona and western New Mexico. Off-system sales revenues decreased $0.9 million, or 2.4% for the six months ended June 30, 2012, when compared to the same period last year, as a result of lower average market prices for power and a 0.5% decline in MWh sales. However, retained margins from off-system sales increased $1.4 million for the six months ended June 30, 2012, compared to the same period last year, due to the negative impacts of power purchases required for system reliability during extremely cold weather in February 2011 and the wildfires in June 2011 mentioned above. Off-system sales revenues decreased $9.8 million, or 11.3% for the twelve months ended June 30, 2012, when compared to the same period last year, as a result of a 7.5% decline in MWh sales and a decrease in the average market price for power. However, retained margins from off-system sales increased approximately $1.2 million for the twelve months ended June 30, 2012, compared to the corresponding period in 2011, primarily due to the negative impacts of power purchases required for system reliability during extremely cold weather in February 2011 and the wildfires in June 2011 mentioned above.

31

Comparisons of kWh sales and operating revenues are shown below (in thousands):
							Increase (Decrease)
Quarter Ended June 30:	2012			2011			Amount			Percent
kWh sales:
Retail:
Residential	672,693			637,257			35,436			5.6	%
Commercial and industrial, small	641,452			634,081			7,371			1.2
Commercial and industrial, large	287,802			308,978			(21,176		)	(6.9	)
Sales to public authorities	439,957			413,258			26,699			6.5
Total retail sales	2,041,904			1,993,574			48,330			2.4
Wholesale:
Sales for resale	20,690			19,346			1,344			6.9
Off-system sales	720,810			668,420			52,390			7.8
Total wholesale sales	741,500			687,766			53,734			7.8
Total kWh sales	2,783,404			2,681,340			102,064			3.8
Operating revenues:
Non-fuel base revenues:
Retail:
Residential	$	61,388		$	58,934		$	2,454		4.2	%
Commercial and industrial, small	54,719			57,060			(2,341		)	(4.1	)
Commercial and industrial, large	10,382			12,305			(1,923		)	(15.6	)
Sales to public authorities	27,811			25,998			1,813			7.0
Total retail non-fuel base revenues	154,300			154,297			3			—
Wholesale:
Sales for resale	776			785			(9		)	(1.1	)
Total non-fuel base revenues	155,076			155,082			(6		)	—
Fuel revenues:
Recovered from customers during the period	30,969			33,672			(2,703		)	(8.0	)	(1)
Under (over) collection of fuel	(3,659		)	12,700			(16,359		)	—
New Mexico fuel in base rates	17,743			17,156			587			3.4
Total fuel revenues	45,053			63,528			(18,475		)	(29.1	)	(2)
Off-system sales:
Fuel cost	16,506			17,256			(750		)	(4.3	)
Shared margins	3,455			248			3,207			—
Retained margins	419			(793		)	1,212			—
Total off-system sales	20,380			16,711			3,669			22.0
Other	7,743			7,284			459			6.3		(3)
Total operating revenues	$	228,252		$	242,605		$	(14,353	)	(5.9	)
Average number of retail customers:
Residential	340,827			335,808			5,019			1.5	%
Commercial and industrial, small	38,081			37,096			985			2.7
Commercial and industrial, large	50			50			—			—
Sales to public authorities	4,621			4,849			(228		)	(4.7	)
Total	383,579			377,803			5,776			1.5

(1) Excludes $12.0 million of refunds in 2011 related to Texas deferred fuel revenues from prior periods.

(2) Includes deregulated Palo Verde Unit 3 revenues for the New Mexico jurisdiction of $1.9 million and $3.9 million, respectively.

(3) Represents revenues with no related kWh sales.

32

							Increase (Decrease)
Six Months Ended June 30:	2012			2011			Amount			Percent
kWh sales:
Retail:
Residential	1,228,262			1,178,539			49,723			4.2	%
Commercial and industrial, small	1,132,689			1,112,602			20,087			1.8
Commercial and industrial, large	534,160			538,210			(4,050		)	(0.8	)
Sales to public authorities	783,468			748,227			35,241			4.7
Total retail sales	3,678,579			3,577,578			101,001			2.8
Wholesale:
Sales for resale	32,497			30,999			1,498			4.8
Off-system sales	1,429,489			1,436,040			(6,551		)	(0.5	)
Total wholesale sales	1,461,986			1,467,039			(5,053		)	(0.3	)
Total kWh sales	5,140,565			5,044,617			95,948			1.9
Operating revenues:
Non-fuel base revenues:
Retail:
Residential	$	107,413		$	103,911		$	3,502		3.4	%
Commercial and industrial, small	88,520			90,274			(1,754		)	(1.9	)
Commercial and industrial, large	19,753			21,106			(1,353		)	(6.4	)
Sales to public authorities	44,751			43,018			1,733			4.0
Total retail non-fuel base revenues	260,437			258,309			2,128			0.8
Wholesale:
Sales for resale	1,174			1,335			(161		)	(12.1	)
Total non-fuel base revenues	261,611			259,644			1,967			0.8
Fuel revenues:
Recovered from customers during the period	63,503			59,535			3,968			6.7		(1)
Under (over) collection of fuel	(15,590		)	13,738			(29,328		)	—
New Mexico fuel in base rates	34,707			33,525			1,182			3.5
Total fuel revenues	82,620			106,798			(24,178		)	(22.6	)	(2)
Off-system sales:
Fuel cost	31,972			37,519			(5,547		)	(14.8	)
Shared margins	4,643			1,412			3,231			—
Retained margins	559			(854		)	1,413			—
Total off-system sales	37,174			38,077			(903		)	(2.4	)
Other	15,425			14,198			1,227			8.6		(3)
Total operating revenues	$	396,830		$	418,717		$	(21,887	)	(5.2	)
Average number of retail customers:
Residential	340,149			335,320			4,829			1.4	%
Commercial and industrial, small	38,044			37,081			963			2.6
Commercial and industrial, large	50			50			—			—
Sales to public authorities	4,587			4,693			(106		)	(2.3	)
Total	382,830			377,144			5,686			1.5

(1) Excludes $12.0 million of refunds in 2011 related to Texas deferred fuel revenues from prior periods.

(2) Includes deregulated Palo Verde Unit 3 revenues for the New Mexico jurisdiction of $4.5 million and $7.9 million, respectively.

(3) Represents revenues with no related kWh sales.

33

							Increase (Decrease)
Twelve Months Ended June 30:	2012			2011			Amount			Percent
kWh sales:
Retail:
Residential	2,683,113			2,547,997			135,116			5.3	%
Commercial and industrial, small	2,372,305			2,322,809			49,496			2.1
Commercial and industrial, large	1,091,990			1,099,915			(7,925		)	(0.7	)
Sales to public authorities	1,614,806			1,561,289			53,517			3.4
Total retail sales	7,762,214			7,532,010			230,204			3.1
Wholesale:
Sales for resale	64,154			58,121			6,033			10.4
Off-system sales	2,681,080			2,899,564			(218,484		)	(7.5	)
Total wholesale sales	2,745,234			2,957,685			(212,451		)	(7.2	)
Total kWh sales	10,507,448			10,489,695			17,753			0.2
Operating revenues:
Non-fuel base revenues:
Retail:
Residential	$	237,588		$	226,538		$	11,050		4.9	%
Commercial and industrial, small	194,339			192,227			2,112			1.1
Commercial and industrial, large	44,054			44,129			(75		)	(0.2	)
Sales to public authorities	96,103			91,376			4,727			5.2
Total retail non-fuel base revenues	572,084			554,270			17,814			3.2
Wholesale:
Sales for resale	1,961			2,404			(443		)	(18.4	)
Total non-fuel base revenues	574,045			556,674			17,371			3.1
Fuel revenues:
Recovered from customers during the period	149,098			146,842			2,256			1.5		(1)
Under (over) collection of fuel	(15,411		)	(9,578		)	(5,833		)	60.9
New Mexico fuel in base rates	74,636			71,819			2,817			3.9
Total fuel revenues	208,323			209,083			(760		)	(0.4	)	(2)
Off-system sales:
Fuel cost	69,189			81,512			(12,323		)	(15.1	)
Shared margins	7,114			5,805			1,309			22.5
Retained margins	853			(336		)	1,189			—
Total off-system sales	77,156			86,981			(9,825		)	(11.3	)
Other	36,602			27,665			8,937			32.3		(3)
Total operating revenues	$	896,126		$	880,403		$	15,723		1.8
Average number of retail customers:
Residential	338,634			334,350			4,284			1.3	%
Commercial and industrial, small	38,134			36,754			1,380			3.8
Commercial and industrial, large	50			49			1			2.0
Sales to public authorities	4,573			4,631			(58		)	(1.3	)
Total	381,391			375,784			5,607			1.5

(1) Excludes $35.0 million of refunds 2011 related to Texas deferred fuel revenues from prior periods.

(2) Includes deregulated Palo Verde Unit 3 revenues for the New Mexico jurisdiction of $11.4 million and $14.6 million, respectively.

(3) Represents revenues with no related kWh sales. Includes a one-time $3.9 million settlement of a transmission dispute with Tucson Electric Power Company recorded in the third quarter of 2011.

34

Energy expenses

Our sources of energy include electricity generated from our nuclear, natural gas and coal generating plants and purchased power. Palo Verde represents approximately 35% of our available net generating capacity and approximately 50%, 56% and 54% of our Company-generated energy for the three, six, and twelve months ended June 30, 2012, respectively. Fluctuations in the price of natural gas have had a significant impact on our cost of energy.

Energy expenses decreased $13.7 million or 17.7% for the three months ended June 30, 2012, when compared to 2011, primarily due to (i) decreased natural gas costs of $14.5 million due to a 43.1% decrease in the average price of natural gas partially offset by a 32.1% increase in MWhs generated with natural gas, and a $3.5 million adjustment recorded in the second quarter of 2011 related to Newman Unit 5 pre-commercial testing, and (ii) decreased costs of purchased power of $1.8 million due to a 15.1% decrease in the MWhs purchased partially offset by a 4.9% increase in the average market price for power. These decreases were partially offset by increased nuclear fuel costs of $2.8 million due to an 18.1% increase in the cost of nuclear fuel consumed and a 7.4% increase in MWhs generated with nuclear fuel. The table below details the sources and costs of energy for the three months ended June 30, 2012 and 2011.

	Three Months Ended June 30,
	2012					2011
Fuel Type	Cost		MWh	Cost per MWh		Cost		MWh	Cost per MWh
	(in thousands)					(in thousands)
Natural gas (a)	$	33,353	1,131,670	$	29.47	$	47,839	856,448	$	51.79
Coal	2,788		128,214	21.74		3,053		145,008	21.05
Nuclear	13,225		1,269,096	10.42		10,426		1,182,054	8.82
Total	49,366		2,528,980	19.52		61,318		2,183,510	26.49
Purchased power	14,522		423,752	34.27		16,297		499,040	32.66
Total energy	$	63,888	2,952,732	21.64		$	77,615	2,682,550	27.63

______________    

(a) Natural gas costs have been adjusted for energy expenses capitalized related to Newman Unit 5 phase II pre-commercial testing recorded in 2011.

Our energy expenses decreased $23.0 million or 16.5% for the six months ended June 30, 2012, when compared to 2011. The decrease was primarily due to decreased natural gas costs of $17.1 million primarily due to a 35.8% decrease in the average cost of natural gas. The decrease in natural gas costs was partially offset by a 14.9% increase in MWhs generated with natural gas and capitalizing $3.2 million of natural gas costs related to Newman Unit 5 pre-commercial testing in 2011. The decrease in energy expenses was also due to (i) a $7.7 million or 22.1% decrease in purchased power costs due to a 15.5% decrease in MWhs purchased and a 7.8% decrease in the average market price for power, and (ii) decreased coal costs of $1.9 million due to a $2.3 million adjustment recorded in 2011 for the amortization of final coal reclamation costs in accordance with the final order in PUCT Docket No. 38361. These decreases were partially offset by increased nuclear fuel costs of $3.8 million, or 17.7% primarily due to a 15.9% increase in the price of nuclear fuel and a 1.5% increase in MWh generated by nuclear fuel. The subsequent table details the sources and costs of energy for the six month periods ended June 30, 2012 and 2011.

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	Six Months Ended June 30,
	2012					2011
Fuel Type	Cost		MWh	Cost per MWh		Cost		MWh	Cost per MWh
	(in thousands)					(in thousands)
Natural gas (a)	$	57,034	1,694,109	$	33.67	$	74,182	1,473,782	$	52.48
Coal (b)	6,488		321,697	20.17		8,416		311,979	19.49
Nuclear	25,278		2,550,276	9.91		21,479		2,511,861	8.55
Total	88,800		4,566,082	19.45		104,077		4,297,622	24.41
Purchased power	27,081		896,504	30.21		34,771		1,060,968	32.77
Total energy	$	115,881	5,462,586	21.21		$	138,848	5,358,590	26.07

______________

(a) Natural gas costs have been adjusted for energy expenses capitalized related to Newman Unit 5 phase II pre-commercial testing recorded in 2011.

(b) Coal costs include $2.3 million adjustment for final coal reclamation amortization in accordance with PUCT Docket No. 38361 recorded in 2011.

Our energy expenses decreased $6.7 million or 2.4% for the twelve months ended June 30, 2012, when compared to 2011, primarily due to (i) decreased purchased power costs of $10.8 million due to a 16.2% decrease in the MWhs purchased partially offset by a 2.9% increase in the average cost of purchased power, (ii) decreased natural gas costs of $3.9 million due to a 18.6% decrease in the average price of natural gas partially offset by a 17.2% increase in MWhs generated with natural gas and capitalizing $3.2 million of natural gas costs related to Newman Unit 5 pre-commercial testing in 2011, and (iii) decreased coal costs of $0.3 million due to a $2.3 million adjustment recorded in 2011 for the amortization of final coal reclamation costs in accordance with the final order in PUCT Docket No. 38361 partially offset by a 20.8% increase in the average cost of coal burned. These decreases were partially offset by increased nuclear fuel costs of $8.4 million primarily due to a 13.9% increase in the average cost of nuclear fuel and a $3.3 million DOE refund recorded in the fourth quarter of 2010 with no comparable activity in the current period. The table below details the sources and costs of energy for the twelve months ended June 30, 2012 and 2011.

	Twelve Months Ended June 30,
	2012					2011
Fuel Type	Cost		MWh	Cost per MWh		Cost		MWh	Cost per MWh
	(in thousands)					(in thousands)
Natural gas (a)	$	147,112	3,567,116	$	41.24	$	151,052	3,044,515	$	50.65
Coal (b)	13,345		657,650	20.29		13,658		674,181	16.80
Nuclear (c)	47,773		4,980,470	9.59		39,351		5,064,893	8.42
Total	208,230		9,205,236	22.62		204,061		8,783,589	23.70
Purchased power	67,459		1,948,132	34.63		78,288		2,326,094	33.66
Total energy	$	275,689	11,153,368	24.72		$	282,349	11,109,683	25.79

______________

(a) Natural gas costs have been adjusted for energy expenses capitalized related to Newman Unit 5 phase II pre-commercial testing recorded in 2011.

(b) Coal costs include $2.3 million adjustment for final coal reclamation amortization in accordance with PUCT Docket No. 38361 recorded in 2011.

(c) Includes a DOE refund of $3.3 million for spent fuel storage costs recorded in the fourth quarter of 2010.

Other operations expense

Other operations expense increased $1.6 million, or 2.8% for the three months ended June 30, 2012, compared to the same period last year, primarily due to increased administrative and general expense of $1.3 million due to increased employee pension and benefits costs as a result of changes in actuarial assumptions used to calculate expenses for our pension and other postretirement benefits ("OPEB") plans. Other operations expense increased $1.9 million, or 1.7% for the six months ended June 30, 2012, compared to the same period last year, primarily due to increased administrative and general expense of $2.3 million due to increased employee pension and benefits costs as a result of changes in actuarial assumptions used to calculate expenses

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for our pension and OPEB plans partially offset by a $0.9 million decrease in the asset retirement obligation ("ARO") accretion expense. The ARO accretion expense decreased as a result of the Palo Verde license extension approved by the NRC in April 2011.

Other operations expense decreased $2.4 million, or 1.0% for the twelve months ended June 30, 2012, compared to the same period last year. The decrease is primarily due to (i) a $2.9 million decrease in the ARO accretion expense reflecting the Palo Verde license extension approved by the NRC in April 2011, (ii) decreased administrative and general expense primarily due to decreased outside services partially offset by increased employee pension and benefits costs as a result of changes in actuarial assumptions used to calculate expenses for our pension and OPEB plans, and (iii) decreased operations expense at Palo Verde. These decreases were partially offset by increased transmission operations expense of $1.0 million primarily due to increased wheeling expense.

Maintenance expense

Maintenance expense decreased $2.0 million, or 11.7%, for the three months ended June 30, 2012 compared to the same period last year, primarily due to the timing of the Palo Verde Unit 3 2012 spring refueling outage. The Palo Verde Unit 3 spring refueling outage began on March 17, 2012 and was completed by April 17, 2012. The 2011 Palo Verde Unit 2 spring refueling outage began on April 2, 2011 and was completed May 6, 2011. Maintenance expense increased $1.8 million, or 6.1%, for the six months ended June 30, 2012 due to the timing of planned maintenance at our gas-fired generating plants partially offset by decreased maintenance expense related to the 2012 spring refueling outage at Palo Verde. The 2012 spring refueling outage was performed at a reduced cost when compared to the 2011 spring refueling outage. Maintenance expense increased $8.3 million, or 14.9% for the twelve months ended June 30, 2012 compared to the same period last year primarily due to the timing of planned maintenance and freeze protection upgrades at our gas-fired generating plants partially offset by decreased maintenance expense related to spring refueling outages at Palo Verde as previously mentioned.

Depreciation and amortization expense

Depreciation and amortization expense increased $0.1 million for the three months ended June 30, 2012 due to increased depreciable plant balances offset by reduced depreciation rates for our gas-fired generation plant and our transmission and distribution plant. The recently approved Texas rate settlement allowed for the reduced depreciation rates associated with the gas-fired generating units and for transmission and distribution plant effective May 1, 2012. Depreciation and amortization expense decreased $0.3 million and $1.0 million, or 0.8% and 1.3%, for the six and twelve months ended June 30, 2012 compared to the same periods last year primarily due to a reduction in depreciation rates related to the Palo Verde plant resulting from the approval of a license extension for Palo Verde by the NRC in April 2011, partially offset by increases in depreciable plant balances including the completion of Phase II of Newman Unit 5 in April 2011.

Taxes other than income taxes

Taxes other than income taxes increased $1.3 million, $1.8 million and $1.3 million, or 9.4%, 6.7% and 2.2% for the three, six and twelve months ended June 30, 2012, compared to the same periods last year, primarily due an increase in billed revenues, taxable property and property tax rates.

Other income (deductions)

Other income (deductions) decreased $0.9 million for the three months ended June 30, 2012, compared to the same period last year, primarily due to realized losses on equity investments in our decommissioning trust of $1.4 million partially offset by increased allowance for equity funds used during construction (“AEFUDC”) resulting from higher balances of construction work in progress. Other income (deductions) decreased $2.5 million and $6.8 million for the six and twelve months ended June 30, 2012, compared to same periods last year, due to net unrealized and realized losses on equity investments in our decommissioning trust of $1.4 million and $3.3 million, and decreased AEFUDC as a result of lower balances of construction work in progress reflecting the completion of Newman Unit 5 in April 2011.

Interest charges (credits)

Interest charges (credits) remained unchanged for the three months ended June 30, 2012 when compared to the same period last year. Interest charges (credits) increased $0.5 million and $2.6 million, or 2.4% and 6.1%, for the six and twelve months ended June 30, 2012, compared to the same periods last year, primarily due to decreased allowance for borrowed funds used during construction ("ABFUDC") as a result of lower balances of construction work in progress in the 2012 periods reflecting the completion of Newman Unit 5 in April 2011.

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Income tax expense

Income tax expense decreased by $0.4 million, or 2.2%, in the three months ended June 30, 2012 compared to the same period last year, primarily due to lower pre-tax income and a decrease in the interest reserve related to FIN 48 items offset by an increase in state income taxes and other permanent items. Income tax expense decreased by $1.6 million, or 8.5% in the six months ended June 30, 2012 compared to the same period last year, primarily due to a decrease in pre-tax income offset by an increase in permanent items. Income tax expense, before extraordinary item, increased by $6.0 million, or 13.0%, in the twelve months ended June 30, 2012 compared to 2011 primarily due to increased pre-tax income, decreased non-taxable AEFUDC and decreased permanent items.

Extraordinary Item

As a regulated electric utility, we prepare our financial statements in accordance with the FASB guidance for regulated operations. FASB guidance for regulated operations requires us to show certain items as assets or liabilities on our balance sheet when the regulator provides assurance that these items will be charged to and collected from our customers or refunded to our customers. In the final order for PUCT Docket No. 37690, we were allowed to include the previously expensed loss on reacquired debt associated with the refinancing of first mortgage bonds in 2005 in our calculation of the weighted cost of debt to be recovered from our customers. We recorded the impacts of the re-application of FASB guidance for regulated operations to our Texas jurisdiction in 2006 as an extraordinary item. In order to establish this regulatory asset, we recorded an extraordinary gain of $10.3 million, net of income tax expense of $5.8 million, in our statements of operations for the quarter ended September 30, 2010. This item was recorded as a regulatory asset at September 30, 2010 pursuant to the final order received from the PUCT and will be amortized over the remaining life of our 6% Senior Notes due in 2035.

New Accounting Standards

In June 2011, the FASB issued new guidance to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The new guidance required an entity to present the total of comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both presentations, an entity would have been required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. Historically, we used the consecutive two-statement approach; however, this new guidance would have required additional disclosure on our statement of operations and related notes. In December 2011, the FASB issued new guidance to defer the effective date for amendments to the presentation of reclassification of items out of accumulated other comprehensive income. Deferring the effective date will allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the FASB is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, we will continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before the guidance issued in June 2011 until further guidance becomes available.

Inflation

For the last several years, inflation has been relatively low and, therefore, has had minimal impact on our results of operations and financial condition.

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Liquidity and Capital Resources

We continue to maintain a strong balance of common stock equity in our capital structure which supports our bond ratings, allowing us to obtain financing from the capital markets at a reasonable cost. At June 30, 2012, our capital structure, including common stock, long-term debt and current maturities of long-term debt, and short-term borrowings under the revolving credit facility, consisted of 44.9% common stock equity and 55.1% debt. At June 30, 2012, we had on hand $10.1 million in cash and cash equivalents.

Our principal liquidity requirements in the near-term are expected to consist of capital expenditures to expand and support electric service obligations, expenditures for nuclear fuel inventory, interest payments on our indebtedness, operating expenses including fuel costs, maintenance costs, dividends and taxes.

On April 17, 2012, the Council approved the settlement of our 2012 Texas retail rate case in PUCT Docket No. 40094. For Texas service areas outside of the city limits of El Paso, the settlement was filed with the PUCT, and the PUCT approved the settlement, on May 18, 2012. In the settlement, we agreed to a reduction in our non-fuel base rates of $15 million annually, with the decrease being allocated primarily to Texas commercial and industrial customer classes. The rate decrease was effective May 1, 2012, and we anticipate approximately $8.6 million in reduced base revenues for the remaining six months of 2012 as a result of these lower rates. As part of the settlement we have agreed to withdraw our request to reconcile fuel costs for the period from July 1, 2009 through September 30, 2011.

On April 12, 2012, we filed with the PUCT a request to reduce our fixed fuel factor charged to Texas retail customers. The fixed fuel factor is based upon a formula that reflects current costs of fuel for changes in prices for natural gas and the revision reflects recent declines in prices for natural gas. The expected impact of the reduction in the fuel factor will be a reduction in annual fuel revenues of approximately $30 million. On April 25, 2012, the administrative law judge issued an order approving a new fuel factor effective May 1, 2012.

Capital Requirements. During the six months ended June 30, 2012, our capital requirements primarily consisted of expenditures for the construction and purchase of electric utility plant, purchases of nuclear fuel, and payment of common stock dividends. Projected utility construction expenditures are to expand and update our transmission and distribution systems, add new generation, and make capital improvements and replacements at Palo Verde and other generating facilities. We are constructing Rio Grande Unit 9, an aeroderivative gas turbine unit with a net dependable generating capacity of 87 MW that should reach commercial operation by May 2013, at an estimated cost of approximately $83.9 million. As of June 30, 2012, we had expended $59.8 million on Rio Grande Unit 9, including $22.6 million during 2012. These amounts included AFUDC. Estimated cash construction expenditures for all capital projects for 2012 are approximately $232 million, excluding AFUDC, and we expect cash from operations and short-term borrowings from our revolving credit facility to continue to be a primary source of funds for these capital expenditures. In addition, we may issue long-term debt in the form of senior notes in late 2012 or early 2013 to repay short-term borrowings and for future construction of electric plant. See Part I, Item 1, “Business - Construction Program” in our 2011 Form 10-K. Cash capital expenditures for new electric plant were $99.9 million in the six months ended June 30, 2012 compared to $87.0 million in the six months ended June 30, 2011. Capital requirements for purchases of nuclear fuel were $38.2 million for the six months ended June 30, 2012 compared to $24.1 million for the six months ended June 30, 2011.

On June 29, 2012, we paid $10.0 million of quarterly dividends to shareholders. We have paid a total of $18.8 million in cash dividends during the six months ended June 30, 2012. At the current dividend rate, we would expect to pay cash dividends of approximately $38.9 million during 2012. In addition, while we do not currently anticipate repurchasing shares in 2012, we may repurchase common stock in the future. Since 1999, we have returned cash to stockholders through a stock repurchase program pursuant to which we have bought approximately 25.4 million shares of common stock at an aggregate cost of $423.6 million, including commissions. Under our program, purchases can be made at open market prices or in private transactions, and repurchased shares are available for issuance under employee benefit and stock incentive plans, or may be retired. No shares of common stock were repurchased during the six months ended June 30, 2012. As of June 30, 2012, a total of 393,816 shares remain eligible for purchase.

We will continue to maintain a prudent level of liquidity as well as take market conditions for debt and equity securities into account. With the initiation of a dividend in early 2011, we are moving toward primarily utilizing the dividend to maintain a balanced capital structure, supplemented by share repurchases when appropriate. Our liquidity needs can fluctuate quickly based on fuel prices and other factors and we are continuing to make investments in new electric plant and other assets in order to reliably serve our customers. In light of these factors, we expect it will be a number of years before we achieve a dividend payout equivalent to industry average.

Our cash requirements for federal and state income taxes vary from year to year based on taxable income, which is influenced by the timing of revenues and expenses recognized for income tax purposes. Due to accelerated tax deductions and net operating loss carryforwards, tax payments are expected to be minimal in 2012.

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We continually evaluate our funding requirements related to our retirement plans, other postretirement benefit plans, and decommissioning trust funds. We contributed $11.5 million of the projected $19.8 million 2012 annual contribution to our retirement plans during the six months ended June 30, 2012. In the six months ended June 30, 2012, we contributed $0.6 million of the projected $2.5 million 2012 annual contribution to our OPEB plan, and $2.3 million of the projected $4.6 million 2012 annual contribution to our decommissioning trust funds. We are in compliance with the funding requirements of the federal government for our benefit plans and decommissioning trust.

Capital Resources. Cash from operations has been impacted by the timing of the recovery of fuel costs through fuel recovery mechanisms in Texas and New Mexico and our sales for resale customer. We recover actual fuel costs from customers through fuel adjustment mechanisms in Texas, New Mexico, and from our sales for resale customer. We record deferred fuel revenues for the under-recovery or over-recovery of fuel costs until they can be recovered from or refunded to customers. In Texas, fuel costs are recovered through a fixed fuel factor. Effective July 1, 2010, we can seek to revise our fixed fuel factor at least four months after our last revision except in the month of December based upon our approved formula which allows us to adjust fuel rates to reflect changes in costs of natural gas.

During the six months ended June 30, 2012, we had increased cash from operations when compared to the same period in 2011 due primarily to the increased collection of deferred fuel revenues in 2012. During the six months ended June 30, 2012, we had an over-recovery of fuel costs, net of refunds, of $15.6 million, compared to an under-recovery, net of refunds, of $25.8 million during the six months ended June 30, 2011. At June 30, 2012, we had a net fuel over-recovery balance of $8.6 million, including $6.7 million in Texas, $1.8 million in New Mexico, and $0.1 million in FERC. A filing to refund over-recovered fuel costs in Texas was made in early August 2012.

We maintain a revolving credit facility (“RCF”) for working capital and general corporate purposes and the financing of nuclear fuel through the Rio Grande Resources Trust (“RGRT”). RGRT is the trust through which we finance our portion of nuclear fuel for Palo Verde and is consolidated in our financial statements. The RCF has a term ending in September 2016. On March 29, 2012, the Company increased the aggregate unsecured borrowing available under the RCF from $200 million to $300 million. The terms of the agreement provide that amounts we borrow under the RCF may be used for working capital and general corporate purposes. The total amount borrowed for nuclear fuel by RGRT was $144.8 million at June 30, 2012, of which $34.8 million had been borrowed under the RCF and $110 million was borrowed through senior notes. At June 30, 2011, the total amounts borrowed for nuclear fuel by RGRT was $123.6 million of which $13.6 million was borrowed under the revolving credit facility and $110 million was borrowed through senior notes. Interest costs on borrowings to finance nuclear fuel are accumulated by RGRT and charged to us as fuel is consumed and recovered from customers through fuel recovery charges. At June 30, 2012, $76.0 million was outstanding under the RCF for working capital or general corporate purposes and at June 30, 2011 $26.0 million was outstanding under the RCF for working capital or general corporate purposes.    

We currently have one series of tax exempt unsecured pollution control bonds (“PCBs”) in aggregate principal amount of $33.3 million which is shown as current maturities of long-term debt on the Company's June 30, 2012 and December 31, 2011 balance sheets. On August 1, 2012, we completed a refunding transaction where we purchased these PCBs. We also anticipate purchasing our 4.80% 2005 Series A refunding PCBs in a principal amount of $59.2 million in the third quarter of 2012. We may remarket both series of PCBs at a future date depending on financing needs and market conditions.

We believe we have adequate liquidity through our current cash balances, cash from operations, and our revolving credit facility to meet all of our anticipated cash requirements through 2012. In addition, we may issue long-term debt in the form of senior notes in late 2012 or early 2013 to repay short-term borrowings and for future construction of electric plant.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk due to changes in interest rates, equity prices and commodity prices. See our 2011 Form 10-K, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” for a complete discussion of the market risks we face and our market risk sensitive assets and liabilities. As of June 30, 2012, there have been no material changes in the market risks we face or the fair values of assets and liabilities disclosed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our 2011 Annual Report Form 10-K.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our management,

40

including our chief executive officer and our chief financial officer, we conducted an evaluation pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on that evaluation, our chief executive officer and our chief financial officer concluded that, as of June 30, 2012, our disclosure controls and procedures are effective.

Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting in connection with the evaluation required by paragraph (d) of the Securities Exchange Act of 1934 Rules 13a-15 or 15d-15, that occurred during the quarter ended June 30, 2012, that materially affected, or that were reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We hereby incorporate by reference the information set forth in Part I of this report under Notes C and H of Notes to Consolidated Financial Statements.

Item 1A. Risk Factors

Our 2011 Form 10-K includes a detailed discussion of our risk factors.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) Issuer Purchases of Equity Securities.

Period	Total Number of Shares Purchased	Average Price Paid per Share (Including Commissions)		Total Number of Shares Purchased as Part of a Publicly Announced Program	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1 to April 30, 2012	—	$	—	—	393,816
May 1 to May 31, 2012	—	—		—	393,816
June 1 to June 30, 2012	—	—		—	393,816

Item 6. Exhibits

See Index to Exhibits incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	EL PASO ELECTRIC COMPANY
By:	/s/ DAVID G. CARPENTER
	David G. Carpenter
	Senior Vice President - Chief Financial Officer
	(Duly Authorized Officer and Principal Financial Officer)

Dated: August 3, 2012

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EL PASO ELECTRIC COMPANY

INDEX TO EXHIBITS

Exhibit Number	Exhibit
†10.03	Form of Directors' Restricted Stock Award Agreement between the Company and certain directors of the Company. (Identical in all material respects to Exhibit 10.07 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999)
10.04	Separation Agreement between the Company and Richard G. Fleager, dated April 2, 2012.
10.05	Employment Agreement between the Company and Thomas V. Shockley, dated June 1, 2012.
15	Letter re Unaudited Interim Financial Information
31.01	Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Linkbase Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

†

In lieu of non-employee director cash compensation, four agreements, dated as of July 1, 2012, substantially identical in all material respects to this Exhibit, have been entered into with Catherine A. Allen; Kenneth R. Heitz; Patricia Z. Holland-Branch; and Stephen N. Wertheimer; directors of the Company.

In lieu of non-employee director cash compensation, ten agreements, dated as of May 31, 2012, substantially identical in all material respects to this Exhibit, were entered into with Catherine A. Allen; J. Robert Brown; James W. Cicconi; James W. Harris; Kenneth R. Heitz; Patricia Z. Holland‑Branch; Michael K. Parks; Eric B. Siegel; Stephen N. Wertheimer; and Charles A. Yamarone; directors of the Company.

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EX-10.04

Exhibit 10.04

EMPLOYMENT SEPARATION AGREEMENT AND RELEASE

This Employment Separation Agreement and Release ("Agreement") is a contract entered into between EI Paso Electric Company, a Texas corporation (the "Company"), and Richard G. Fleager ("Employee"), and is effective as of the Effective Date (as defined in Section 16 below) unless revoked by Employee within seven (7) days following its execution by Employee.

WHEREAS, the Company and Employee have reached an accord regarding the financial and other aspects of Employee's separation from employment, which was effective on April 2, 2012 (the “Separation Date”); and

WHEREAS, the Company and Employee desire to enter into this Agreement.

NOW, THEREFORE, in consideration of the foregoing, and the mutual promises and agreements hereinafter set forth, the Company and Employee agree as follows:

1. Separation. Employee's employment, and any other position which Employee held with the Company, its subsidiaries, and affiliates, ceased on the Separation Date. Except as provided in this Agreement, Employee agrees not to seek reemployment with the Company, its subsidiaries, and affiliates, and no payments made to Employee under the terms of this Agreement shall be construed as a continuation of Employee's employment with the Company. This provision does not prohibit Employee from working for the Company at the Company's request.

2. Severance Benefits. Subject to (i) Employee's execution and delivery of this Agreement to the Company within 21 days following the date this Agreement was first given to Employee and not revoking or otherwise withdrawing his acceptance of this Agreement for a period of seven (7) days following Executive's delivery of this executed Agreement to the Company, and (ii) Employee continuing to comply with this Agreement, the Company agrees to provide the following severance benefits to Employee (less deductions for applicable federal, state, and local taxes):

• an aggregate cash payment of $520,000, which will be paid in a lump sum payment no more than 10 business days following the Effective Date; and

3. Other Benefits.

(a) Employee will receive (or has previously received), a lump sum cash payment for any accrued and unpaid salary and any accrued hours of unused PTO through the Separation Date, subject to deductions for applicable federal, state, and/or local taxes.

(b) Employee may elect to continue, at his sole cost and expense, health care, medical and dental benefit coverage under and in accordance with the provisions of the

Company's Employee Welfare Benefit Plan, the Consolidated Omnibus Budget Reconciliation Act of 1996 ("COBRA"), and Section 4980B of the Internal Revenue Code (the "Code").

(c) Nothing in this Agreement shall affect Employee's rights (as such exist immediately prior to the Separation Date) in the Company's retirement plans which are subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). To the extent Employee is a participant in the Company's Retirement Income Plan for Employees (“RIP”) and Excess Benefit Plan (“EBP”), nothing in this Agreement shall affect Employee's rights (as such exist on the Separation Date) under the RIP and EBP. Employee is also entitled to all amounts, if any, accrued by and vested in Employee as of the Separation Date, under and in accordance with the El Paso Electric Company Savings Plan ("401(k) Plan").

(d) Except as otherwise provided in this Agreement, Employee's participation in any and all other benefit and compensation plans and arrangements of the Company (including, without limitation, accident and disability insurance programs and life insurance) ceased on the Separation Date.

(e) All unvested equity-based awards (including any restricted stock awards and performance awards) previously granted to Employee ceased vesting on the Separation Date and terminated on the Separation Date.

4. Releases and Covenant Not to Sue.

(a) Employee agrees to and does fully and completely release, discharge and waive any and all claims, complaints, causes of action, demands of whatever kind or nature which Employee has or may have against the Company, its subsidiaries, affiliates, predecessors, and successors and all of their respective directors, officers, and employees by reason of any event, matter, cause, or thing that has occurred prior to the date of execution of this Agreement (hereinafter "Employee Claims"). Employee agrees that this Agreement specifically covers, but is not limited to, any and all Employee Claims which Employee has or may have against the Company relating in any way to compensation, or to any other terms, conditions, or circumstances of Employee's employment with the Company, and to the cessation of such employment, based on statutory or common law claims for employment discrimination, including claims under the Civil Rights Act of 1964, 42 U.S.C §2000(e) et seq., the Americans with Disabilities Act, the Age Discrimination in Employment Act, the Texas Labor Code, and any other equivalent federal or state laws or statutes, and any and all discrimination or retaliation claims under state or federal law, wrongful discharge, breach of contract, defamation, intentional infliction of emotional distress, breach of fiduciary duty, or any other theory whether legal or equitable; provided, however, that this release shall not affect Employee's rights under or with respect to any retirement plan which is subject to ERISA and is qualified under Section 401 (a) of the Code. Employee further agrees and covenants that should he or any other person, organization, or other entity file, charge, claim, sue or cause or permit to be filed any charge with the EEOC, the Texas Workforce Commission

or any other agency, any civil action, suit or legal or administrative proceeding against the Company or the released parties involving any matter occurring at any time in the past, Employee will not seek or accept any personal relief (including, but not limited to, monetary award, recovery, relief or settlement) in such charge, civil action, suit or proceeding. Notwithstanding the foregoing, Employee does not waive any right he may have to enforce this Agreement, any right which may not be waived as a matter of law, or any right to indemnification in accordance with the Company's articles of incorporation or bylaws.

(b) This Agreement constitutes a general release and is not an admission of liability. The Company and any other persons released have denied liability, and the Company has agreed to pay the consideration set forth herein merely to avoid disputes or litigation and in an effort to ease the economic impact of Employee's separation from employment. To the extent any claims against the Company have not been released by this Agreement, Employee assigns those claims to the Company. Notwithstanding the foregoing, Employee does not waive any right he may have to enforce this Agreement.

(c)Employee covenants not to sue any of the released parties for any claims released in this Agreement.

5. Confidentiality, No Disparagement.

(a) Employee agrees not to cause or participate in the publication of any information concerning the facts underlying the cessation of Employee's employment with the Company or the terms and conditions of this Agreement to any person or entity, except as required by law or legal process. This provision shall not prevent Employee from disclosing such information to Employee's immediate family or to Employee's legal counsel and accountants in order to obtain professional advice; provided that each is advised as to and agree to observe the confidentiality of such information.

(b) Employee agrees that he shall not make negative statements or representations, or otherwise communicate negatively, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage or be damaging to the Company its subsidiaries, affiliates, successors or, assigns or their respective officers, directors, employees, businesses or reputations. Employee's truthful testimony pursuant to a subpoena or other legally compulsive process will not be a violation of this Section 5. However, Employee agrees that if required to testify by law or legal process, he will give written notice to the Company's General Counsel at the Company's corporate offices, as soon as practicable, of the subpoena or process or other document compelling his testimony so that Company may take whatever lawful actions it believes are appropriate to respond.

(c) The Company agrees that it shall not authorize any officer, agent, employee, or other representative of the Company to make negative statements or representations, or otherwise communicate negatively, directly or indirectly, in writing, orally or otherwise, concerning Employee or Employee's performance of his duties while employed by the Company, or in connection therewith take any action which may, directly or indirectly, in

any way disparage or be damaging to Employee. The Company does not waive its obligation, or that of its employees and agents, to testify truthfully as required by law or legal process or to comply with its disclosure and filing requirements under securities laws and other applicable laws.

6. Taxes. Except for the amounts withheld by the Company, Employee agrees to be solely and fully responsible for satisfying any federal, state, or local income tax liability that may be assessed against Employee as a result of any consideration tendered by the Company pursuant to this Agreement. Employee acknowledges the Company has provided no legal or other advice to him concerning the tax consequences, if any, of the payments or benefits under this Agreement.

7. Proprietary Information. Employee acknowledges that the Company's and its affiliates' trade secrets, data and information, including but not limited to attorney-client privileged information and other information concerning legislation, regulation, tax, litigation and other legal matters, labor, securities, customers, employees, facilities, products and their development, technical information, marketing, investment, and sales activities and procedures, promotion and pricing techniques, credit and financial data, and other information concerning the Company or its affiliates and any information of third parties made available to the Company, its subsidiaries, or affiliates (the "Proprietary Information") are valuable, special, and unique assets of the Company and its affiliates, access to and knowledge of which have been gained by virtue of Employee's position and involvement with the Company and its affiliates. Employee agrees that all Proprietary Information obtained by Employee as a result of any such position or involvement shall be considered confidential. In addition, Employee shall maintain the confidential and attorney-client privileged nature of all communications involving legal services rendered by Employee to Company, sought from Employee or the legal department by Company, or sought by Employee on behalf of the Company. In recognition of such fact, Employee agrees that Employee will not disclose any such Proprietary Information to any person or other entity for any reason or purpose whatsoever, and that Employee will not make use of any Proprietary Information for his own purposes, for the benefit of any person or other entity or to the detriment of the Company. Employee further acknowledges and agrees that only the Company can waive the privilege regarding any of the Company's attorney-client and/or work product privileged information and that Employee's unauthorized disclosure of the Company's privileged information is a breach of this Section.

8. Remedies/Liquidated Damages.

(a)Employee agrees that, in addition to any other remedy at law or in equity that Company may have upon a material breach of this Agreement, including the breach of Sections 5 or 7, that if he breaches this Agreement, (i) he will forgo his right to any amounts due under Section 2 of this Agreement not previously paid and (ii) he will repay to the Company any amounts previously paid under Section 2 of this Agreement. Employee further acknowledges and agrees that the harm caused by any breach of Section 5 or 7 of this Agreement is incapable or difficult of estimation, that the value of the payments received and to be received from Company is a reasonable forecast of just compensation as a result of any such breach, and that, in the event of such breach,

otherwise obtaining an adequate remedy will be inconvenient or non-feasible for the Company. In the event of such breach by Employee, including without limitation his legal counsel, if any, Employee shall also be liable to Company for all reasonable costs and attorneys' fees incurred by Company in enforcing the provisions of Section 5 and 7, including but not limited to the bringing of any suit to recover the liquidated damages.

(b)In addition, Employee acknowledges and agrees that the Company's remedies at law for a breach or threatened breach of any of the provisions of Section 5 and 7 would be inadequate and, in recognition of this fact, Employee agrees that, in the event of a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, will be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction and any other equitable remedy which may then be available.

9. Entire Agreement, Amendment. This Agreement shall supercede any and all existing agreements between Employee and the Company or any of its affiliates relating to the termination of Employee's employment, and contains the entire understanding of the parties with respect to the termination of Employee's employment. It may not be altered, modified, or amended except by a written agreement signed by both parties hereto.

10. No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement

11. Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal, or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected thereby.

12. Benefits of Agreement. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, representatives, successors, and assigns.

13. Attorneys' Fees. If legal or equitable action is filed to enforce the terms of this Agreement, the prevailing party shall be entitled to court costs, collection costs, and reasonable attorneys' fees in addition to any other relief to which the party may be entitled.

14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas without reference to its conflicts of law or choice of laws rules.

15. Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

16.Authority/Ownership of Claims. Each of the undersigned represents and warrants that he has full authority to bind the party represented. Further, Employee warrants and represents that he is the sole owner of the claims released in this Agreement and has not assigned or otherwise transferred to any other person or entity any interest in any claim, demand, action and/or cause of action he has, may have or may claim to have against the Company or the released parties.

17.Cooperation. Employee agrees to fully cooperate with the Company in connection with any investigations, claims, lawsuits or proceedings by any governmental regulatory or legislative body with respect to matters pertaining to the Company that arose during or relate to the period of time during which Employee was employed by the Company or any claims, lawsuits or proceedings that relate in any manner to Employee's conduct or duties at Company, including any legal matters of which Employee gained knowledge while employed by Company. The Company will reimburse Employee for all reasonable business expenses of the kind customarily reimbursed by the Company and which are incurred by Employee in connection with such cooperation.

18.Assignment. This Agreement may be assigned or transferred to any successor of the Company, and any such successor of the Company shall be deemed substituted for all purposes as the “Company” under the terms of this Agreement. As used in this Agreement, the term “successor” means any person, firm, corporation or business entity, which at any time, whether by merger, purchase or otherwise, acquires all or substantially all of the assets of the Company.

19.No Reliance. Employee agrees that he is not relying on any promise or representation not specifically and expressly made in this Agreement.

20.Company Documents, Information or Property. Employee agrees that Employee has returned to Company all documents relating to Company or its business operations (and all copies thereof, whether in paper or electronic form) and all Company property, including but not limited to, computer equipment, badges and any other Company property in Employee's possession or control. Notwithstanding the foregoing, Employee shall be permitted to retain his Company-provided phone and iPad, subject to Employee cooperating with the Company to ensure that no Company information remains on such devices. Employee represents and agrees Employee will not take, nor has Employee taken, any Company documents or property from the control or premises of Company and that if, at any time after the Separation Date, Employee comes into possession of any Company documents or property, Employee will return the documents or property to Company immediately.

21.    Acknowledgement. Employee acknowledges that he has carefully read this Agreement and fully understands and accepts all of its provisions, including without limitation the release in Section 4 hereof which specifically refers to Employee's rights and claims under the federal Age Discrimination in Employment Act, as well as to the laws of the State of Texas prohibiting age discrimination, and Employee understands that such rights and claims are irrevocably being waived by Employee. Employee further acknowledges that:

(a)Employee has been provided twenty-one (21) days to review and consider this Agreement and Employee understands and acknowledges that any changes made to this Agreement, whether material or immaterial, will not re-start this twenty-one (21) day period;

(b)Employee is aware that even if he signs this Agreement, Employee may revoke the Agreement for a period of seven (7) days following the day he signs the Agreement, and the Agreement shall not be effective or enforceable until the revocation period has expired (the “Effective Date”). Employee understands he must provide written revocation, if any, to Company, Attn: Mary Kipp, Senior Vice President, General Counsel and Chief Compliance Officer, 100 N. Stanton, El Paso, TX 79901;

(c)Employee has been advised by Company to seek the advice of legal counsel of Employee's choice;

(d)Employee signs the Agreement voluntarily and of his own free will and

(e)The consideration recited in this Agreement is adequate to make it final and binding, and is in addition to payments or benefits to which Employee would otherwise be entitled as a former employee of the Company.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement effective as of the date and year written below.

Date: April 11, 2012 /s/ Richard G. Fleager

Richard G. Fleager

Date:April 2, 2012EL PASO ELECTRIC COMPANY

By: /s/ Thomas V. Shockley

Name: Thomas V. Shockley

Title: Interim Chief Executive Officer

EX-10.05

Exhibit 10.05

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT (this “Agreement”), effective as of June 1, 2012 (the “Effective Date”), by and between El Paso Electric Company, a Texas corporation (“Company”), and Thomas V. Shockley (“Executive”).

WHEREAS, Executive has been serving as Chief Executive Officer of the Company on an interim basis since early 2012; and

WHEREAS, the Company desires Executive to serve as its permanent Chief Executive Officer, and to remain a member of its Board of Directors, on the terms and conditions set forth herein, and to replace Executive's interim CEO compensation with the compensation and benefits set forth below; and

WHEREAS, Executive is willing, on the terms and subject to the conditions provided in this Agreement, to undertake the responsibilities contemplated herein, to furnish services to the Company as provided herein, and to be subject to certain employment restrictions and obligations;

NOW, THEREFORE, in consideration of the premises and the covenants herein contained and other good, valuable, and binding consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

ARTICLE 1

EMPLOYMENT

Section 1.01. ResponsibilitiesAnd Authority. Executive shall continue to serve as the Company's Chief Executive Officer and as a member of its Board of Directors. The duties of Executive shall be those duties which can reasonably be expected to be performed by a person with the title of Chief Executive Officer. Executive shall report directly to the Board of Directors of the Company (the “Board”) and shall perform such other duties as may be assigned to him and as may be reasonably acceptable to him and consistent with carrying out his responsibilities under this Agreement.

Section 1.02. Acceptance Of Employment. Executive agrees, subject to the terms of this Agreement, to devote substantially all of his business time to advance the business of the Company.Nothing contained in this Agreement shall be construed so as to prevent Executive from investing his personal assets in such a manner and otherwise engaging in business transactions, and charitable and community service, in each case that are not inconsistent with the interests of the Company and that will not require a substantial portion of Executive's business time or otherwise interfere with the performance of his duties hereunder. Executive expressly represents and warrants to the Company that the Executive is not a party to any contract or agreement and is not otherwise obligated in any way, and is not subject to any rules or regulations, whether governmentally imposed or otherwise, which will or may restrict in any way the Executive's ability to fully perform the Executive's duties and responsibilities under this Agreement.

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Section 1.03. Agreement Term. The term of this Agreement shall be for a period from the Effective Date through the earlier of (i) December 31, 2014 and (ii) such earlier date as Executive's employment hereunder ends (such period, the “Term”). The parties may agree mutually in writing to extend the Term or to shorten the Term upon appointment of a successor.

Section 1.04.At-will Employment. Notwithstanding anything else herein, Executive's employment with Company shall be at‑will and may be terminated during or after the Term by either party at any time for any or no reason, including by the Company either with or without cause, with no further payment obligations beyond such termination date other than those specified in Section 2.07 below if applicable.

ARTICLE 2

COMPENSATION AND INCENTIVES DURING THE TERM

Section 2.01. Base Compensation. During the Term, Executive's annualized base salary shall be $600,000 per annum. This base salary amount will be reviewed annually by the Board, which may, in its discretion, make appropriate annual merit increases. The compensation paid to Executive pursuant to this Section is hereinafter referred to as “Base Compensation.” In no event will the Base Compensation be reduced without Executive's consent. The Base Compensation shall be paid to Executive in installments in accordance with the Company's payroll policy as in effect from time to time.

Section 2.02.Annual Bonus. During the Term, Executive shall be eligible for an annual performance bonus (the “Annual Bonus”) which, except as set forth below regarding treatment on termination of employment, shall be under the terms of the Company's bonus plans in place from to time. Executive's annual target bonus opportunity during the Term will be 70% of annualized Base Compensation, with actual bonus based on completion of the performance goals under the Company's bonus plan. Executive's maximum Annual Bonus will be 200% of his target opportunity. The Annual Bonus for 2012 shall be prorated for seven months of service, reflecting the period from the Effective Date through December 31, 2012. If Executive's employment terminates during the Term due to his death or Disability (as defined in the LTIP), he or his estate will receive a prorated portion of his Annual Bonus for the fiscal year in which such termination occurs, which will be paid no later than 75 days following the end of such fiscal year. In addition, for the fiscal year ending December 31, 2014, to the extent the performance goals for such period are met, Executive will not forfeit his Annual Bonus if his employment ends on December 31, 2014, which Annual Bonus will be paid, to the extent earned, no later than 75 days following the end of such fiscal year.

Section 2.03.Discretionary Bonus. For each fiscal year during the Term, the Board or a committee of the Board will consider whether to award a discretionary bonus (in an amount up to $150,000 for fiscal 2012 and up to $350,000 for each of fiscal 2013 and fiscal 2014) to Executive based on parameters set by the Board or a committee of the Board. Such discretionary bonus may be paid in cash or in stock subject to a vesting schedule, as determined by the Board or a committee of the Board in its sole discretion.

Section 2.04. Equity Awards. The Company will issue the equity awards set forth below pursuant to separate award agreements under the El Paso Electric Company 2007 Long-Term

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Incentive Plan (“LTIP”), except that the terms set forth in this Section 2.04 and Section 2.07 shall supersede the applicable terms of the LTIP. Executive shall be eligible to receive other equity awards as determined by the Board or a committee of the Board in its sole discretion.

(a)Sign-On Grant. On or promptly following the Effective Date, the Company will issue Executive a restricted stock award (the “Sign-On Grant”) under the LTIP of 10,000 shares of Company common stock. The Sign-On Grant shall vest 50% on the first anniversary of the Effective Date and 50% on the second anniversary of the Effective Date, in each case if Executive remains employed hereunder on such date.

(b)Long-Term Equity Award.

(i)On or promptly following the Effective Date, the Company will issue Executive a restricted stock award (the “Long-Term Award”) under the LTIP representing the number of shares of Company common stock determined by dividing $470,000 by the closing price of the Company common stock on the grant date as reported on the New York Stock Exchange (rounded down to the nearest whole share). The Long-Term Award shall be subject to performance conditions and become earned (between 0% and 200% of the initial number of shares) and vested based on the Company's total shareholder return over the three-year period ending December 31, 2014, under the same terms and conditions as the performance share awards granted to the Company's other executive officers in January 2012 for such three-year period; provided that to the extent the performance goals for such three-year period are met, (x) Executive's Long-Term Award will not be forfeited if his employment ends on December 31, 2014 and (y) if Executive is terminated without Cause (as defined in Section 2.07(c) below) after September 30, 2014 and signs the Release (as defined in Section 2.07(a) below), he will remain eligible to receive the earned portion of the Long-Term Award, which will become vested no later than March 15, 2015. If Executive's employment terminates during the Term due to his death or Disability (as defined in the LTIP), he or his estate will receive a prorated portion of his Long-Term Award at the 100% target level, which will be paid within 30 days following the end of the fiscal year in which such termination occurs.

(ii)Executive understands and acknowledges that the Company does not intend to grant annual long-term equity awards to Executive during 2013 and 2014.

Section 2.05. Other Benefits.

(a)During the Term, Executive shall be entitled to participate in all benefits plans available from time to time to senior executives of the Company including but not limited to the Company's Retirement Income Plan for Employees and Excess Benefit Plan, monthly car allowance, life insurance benefit coverage, and health and welfare benefit plans (including a requirement to take a Company-paid physical exam on an annual basis). In addition, Executive will have no less than 5 weeks of annual paid time-off. Executive will be reimbursed the cost of moving to the El Paso area in accordance with the Company's policies for an executive officer.

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(b)During the Term, Executive will not receive separate compensation or benefits for his service as a member of the Board.

Section 2.06. Indemnification. The Company shall provide Executive with the same indemnification and insurance protection provided by Company from time to time to all of its officers and directors.

Section 2.07.Involuntary Termination; Change of Control.

(a)Involuntary Termination. Subject to subsections (b) and (d) below, if, during the Term, Executive's employment is terminated by the Company without Cause or by Executive within 60 days after he is removed from the position of Chief Executive Officer or has his duties as Chief Executive Officer materially reduced without his consent, and if Executive signs within 21 days following his termination date, and lets become effective, the release of claims attached hereto as Exhibit A (the “Release”), then Executive shall receive the following:

(i) a lump sum cash payment equal to the lesser of (i) 12 months of Base Compensation and (ii) the Base Compensation that would have been payable hereunder to Executive from the date of termination through December 31, 2014, in either case paid within 60 days following the date of termination;

(ii) pro-rated Annual Bonus for the year in which the termination occurs, calculated following the end of the year consistent with the annual bonus calculation for the other executive officers, paid within 75 days following the end of the year in which the termination occurs;

(iii) reimbursement of COBRA premiums for continued health insurance coverage, until the earlier of (x) 12 months following termination of employment, (y) commencement of employment with another employer or (z) the date on which Executive ceases to be eligible for COBRA; provided that the Company shall have the right to pay an equivalent amount in a lump-sum cash payment within 60 days following the date of termination;

(iv) accelerated vesting of the Sign-On Grant; and

(v) if the termination occurs after September 30, 2014, the Long-Term Award shall be treated as provided in Section 2.04(b)(i)(y) above.

For the avoidance of doubt, any payments or benefits pursuant to this subsection (a) shall not be duplicative of those set forth in subsection (b) below in the event of a termination without Cause upon or following a Change of Control (as defined in subsection (c) below).

(b)     Change of Control. In the event of a Change of Control during the Term, Executive shall receive the following (in lieu of any payments and benefits set forth in subsection (a) above):

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(i)     a lump sum cash payment equal to 12 months of Base Compensation, paid on or within 15 days following the date of such Change of Control;

(ii)     pro-rated Annual Bonus calculated at “target”, paid on or within 15 days following the date of such Change of Control;

(iii)     if applicable, reimbursement of COBRA premiums for continued health insurance coverage, until the earliest of (x) 12 months following the date of such Change of Control, (y) commencement of employment with another employer or (z) the date on which Executive ceases to be eligible for COBRA; provided that the Company shall have the right to pay an equivalent amount in a lump-sum cash payment within 60 days following the date of Executive's termination of employment; and

(iv)     accelerated vesting of all Executive's then-outstanding equity awards (including the Sign-On Grant); provided that with respect to the Long-Term Award, the amount earned and vested shall be determined by the “Performance Period” thereunder being shortened to end upon such Change of Control in the manner and on the date determined by the Board or its committee in its sole discretion and the performance goals associated with such awards shall be measured based on performance achieved through the end of such shortened Performance Period and such awards shall become vested and payable (on the date of such Change of Control or such other date determined by the Board or its committee, but in no event later than 30 days following the Change of Control) on a prorated basis to reflect such shortened Performance Period, with the remaining portion of the Long-Term Award terminating.

(c)Definitions. For purposes of this Agreement and the equity awards granted hereunder, and notwithstanding any definition set forth in the LTIP or other Company plan or agreement:

(i)“Cause” shall mean the willful and continued failure by the Executive to perform his essential duties, or the engaging by the Executive in illegal conduct or misconduct in connection with Executive's employment that is materially injurious to the Company, in each case following written notice and a reasonable opportunity to respond, and a reasonable opportunity to cure the failure or cease any non-criminal misconduct. The determination that Cause exists shall be made by the vote of not less than a majority of directors who are then members of the Board.

(ii)“Change of Control” shall mean:

(A)the acquisition by any individual, entity or group (a “Person”), including any “person” within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) of beneficial ownership within the meaning of Rule 13d 3 promulgated under the Exchange Act, of 50% more of either (i) the then outstanding shares of common stock of

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the Company (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); excluding, however, the following: (A) any acquisition directly from the Company (excluding any acquisition resulting from the exercise of an exercise, conversion or exchange privilege unless the security being so exercised, converted or exchanged was acquired directly from the Company), (B) any acquisition by the Company, (C) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (3) of this definition;

(B)individuals who, as of the date of this Agreement (the “Effective Date”), constitute the Board of Directors (the “Incumbent Board”) cease for any reason to constitute at least a majority of such Board; provided that any individual who becomes a director of the Company subsequent to the Effective Date whose election, or nomination for election by the Company's stockholders, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed a member of the Incumbent Board; and provided further, that any individual who was initially elected as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a 11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall not be deemed a member of the Incumbent Board;

(C)Consummation of a shareholder-approved reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Corporate Transaction”); excluding, however, a Corporate Transaction pursuant to which (i) all or substantially all of the individual or entities who are the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 50% of, respectively, the outstanding shares of common stock, and the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or indirectly) in substantially the same proportions relative to each other as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than: the Company; any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; the corporation resulting from such Corporate Transaction; and any Person which beneficially owned, immediately prior to such Corporate Transaction, directly or indirectly, 50% or more of the

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Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) will beneficially own, directly or indirectly, 50% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors and (iii) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction; or

(D)approval by the stockholders of the Company of a plan of complete liquidation or dissolution of the Company.

Notwithstanding the foregoing, in no event shall a “Change of Control” be deemed to have occurred as a result of the formation of a Holding Company. For the purposes hereof, “Holding Company” shall mean an entity that becomes a holding company for the Company or its businesses as a part of any reorganization, merger, consolidation or other transaction, provided that the outstanding shares of common stock of such entity and the combined voting power of such entity entitled to vote generally in the election of directors is, immediately after such reorganization, merger, consolidation or other transaction, beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Voting Securities immediately prior to such reorganization, merger, consolidation or other transaction in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, consolidation or other transaction, of such Outstanding Company Voting Securities.

(d)     Succession Plan. The obligation of the Company to pay Executive the amounts due under Section 2.07(a) above is subject to the satisfaction of the requirements set forth in this Section 2.07(d). Executive shall have presented to the Board his succession plan covering succession in the event of the retirement, incapacitation or removal of any of the Company's senior officers (which shall mean Executive and each of the Company's executives who report directly to Executive and/or whose appointment is subject to the approval of the Board), and the Board shall have determined in its reasonable judgment that such plan is comprehensive and achievable. The Board and Executive shall work together to establish benchmarks and timelines for the delivery and consideration of a succession plan. Such plan shall include development plans for each senior officer, including consideration of the necessary skills for each senior officer position, the skills of the current senior officers and recommendations of methods either to recruit persons with additional skills needed to complement the senior officer group or to assist the current senior officers in developing such complementary skills. Executive and the Board will update the succession plan regularly and schedule a full review on a semi-annual basis and within 30 days following the departure of any senior officer. The Board will promptly provide Executive with any objections to the plan and will work together with Executive to remedy any deficiencies.

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ARTICLE 3

ARBITRATION AND MEDIATION

Section 3.01. Mediation. Any dispute arising hereunder between Executive and Company (including any dispute over whether Company has properly terminated Executive for Cause) which cannot be resolved by them to their mutual satisfaction within a period of 14 days, unless mutually extended, shall first be submitted to mediation in El Paso, Texas, to a mediator selected pursuant to the rules of the American Arbitration Association (“AAA”). All costs of mediation incurred by Executive will be paid by the Company.

Section 3.02. Arbitration. If such mediation shall not result in an agreed settlement between the parties, the dispute will be promptly submitted to binding arbitration (conducted in El Paso, Texas, by a panel of three arbitrators) in accordance with the rules of the AAA then in effect. The results of such arbitration shall be binding and conclusive upon the parties hereto, and judgment on the award may be entered at the instance of either party in any court of competent jurisdiction. The dispute resolution procedure set forth in this Section may be initiated by either party upon five business days prior written notice to the other and after failure to resolve the dispute after the expiration of the 14‑day time period referred to in the preceding Section.

Section 3.03. Proceedings. Unless otherwise expressly agreed in writing by the parties to the arbitration proceedings:

(a) The arbitration proceedings shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, as amended from time to time.

(b) Any procedural issues not determined under the arbitral rules selected pursuant to item (a) above shall be determined by the law of the place of arbitration, other than those laws which would refer the matter to another jurisdiction.

(c) The Company will pay all arbitration, administrative, professional services and reasonable attorney fees for Executive in connection with such proceeding.

(d) The decision of the arbitrators shall be reduced to writing; final and binding without the right of appeal; the sole and exclusive remedy regarding any claims, counterclaims, issues or accounting presented to the arbitrators; made and promptly paid in United States dollars free of any deduction or offset; and any costs or fees incident to enforcing the award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement.

Section 3.04. Acknowledgement Of Parties. Each party acknowledges that he or it has voluntarily and knowingly entered into an agreement to arbitration under this Section by executing this Agreement.

ARTICLE 4

MISCELLANEOUS

Section 4.01. Notices. Any notice, demand or request to be given hereunder to either party hereto shall be deemed given and effective only if in writing and either (1) delivered

8

personally to Executive or (in case of a notice to Company) to the Chairman of the Board of the Company with a copy to the General Counsel, or (2) sent by certified or registered mail, postage prepaid, to the address set forth on the signature page hereof or to such other address as either party may hereafter specify to the other by notice similarly served (or, in the case of Executive, to the address most recently set forth in the Company's employment records).

Section 4.02. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Texas.

Section 4.03. Modification. No modification or waiver of any provision hereof shall be made unless it be in writing and signed by both of the parties hereto.

Section 4.04. Scope Of Agreement. This Agreement constitutes the whole of the agreement between the parties on the subject matter, superseding all prior oral and written conversations, negotiations, understandings, and agreements in effect as of the date of this Agreement.

Section 4.05. Successors and Assigns. This Agreement shall not be assignable by the Company (other than to an affiliate of the Company or to any successor or assign of the Company) without the written consent of Executive; provided that no such assignment shall adversely affect Executive's rights or expectation to receive the financial benefits due him under this Agreement. The Company will require any successor to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform the obligations under this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If Executive should die or become disabled while any amount is owed but unpaid to Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid to Executive's devisee, legatee, legal guardian or other designee, or if there is no such designee, to Executive's estate. Executive's rights hereunder shall not otherwise be assignable.

Section 4.06. Tax Payments, Withholdings And Reporting.

(a)Executive recognizes that the payments and benefits provided under this Agreement may result in taxable income to him which Company and its affiliates will report to the appropriate taxing authorities. Company shall have the right to deduct from any payment made under this Agreement any federal, state, local or foreign income, employment or other taxes it determines are required by law to be withheld with respect to such payments or benefits provided thereunder or to require payment from Executive which he agrees to pay upon demand, for the purpose of satisfying any such withholding requirement.

(b)     Section 409A.

(i) The benefits hereunder are intended to qualify for the short-term deferral exception from Section 409A of the U.S. Internal Revenue Code of 1986, as amended and the final regulations and any guidance promulgated thereunder, as each may be amended from time to time (together, “Section 409A”) or, to the extent the short-term deferral exception is not available, as involuntary

9

termination payments under Section 409A. Notwithstanding the foregoing, no Deferred Compensation Separation Benefits (as defined below) payable under this Agreement will be considered due or payable until and unless Executive has a “separation from service” within the meaning of Section 409A, and if Executive is a “specified employee” within the meaning of Section 409A at the time of Executive's “separation from service” other than due to Executive's death, then any severance benefits payable pursuant to this Agreement and any other severance payments or separation benefits, that in each case when considered together may be considered deferred compensation under Section 409A (together, the “Deferred Compensation Separation Benefits”) and are otherwise due to Executive on or within the six (6) month period following Executive's “separation from service” will accrue during such six (6) month period and will instead become payable (without interest) in a lump sum payment on the date six (6) months and one (1) day following the date of Executive's “separation from service.” All subsequent Deferred Compensation Separation Benefits, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit. Each payment and benefit payable under this Agreement is intended to constitute separate payments for purposes of Section 1.409A‑2(b)(2) of the Treasury Regulations.

(ii) For purposes of Section 409A of Internal Revenue Code of 1986, as amended, all expenses eligible for reimbursement hereunder shall be paid to Executive promptly in accordance with the Company's customary practices (if any) applicable to the reimbursement of expenses of such type, but in any event by no later than the last day of Executive's taxable year following the taxable year in which the expense was incurred, and the expenses incurred by Executive in any calendar year that are eligible for reimbursement under this Agreement shall not affect the expenses incurred by Executive in any other calendar year that are eligible for reimbursement hereunder.

(iii) Notwithstanding anything herein to the contrary, if Executive dies following his “separation from service” but prior to the six (6) month anniversary of the date of his “separation from service,” then any Deferred Compensation Separation Benefits delayed in accordance with this Section will be payable in a lump sum as soon as administratively practicable after the date of Executive's death, but not later than ninety (90) days after the date of Executive's death, and all other Deferred Compensation Separation Benefits will be payable in accordance with the payment schedule applicable to each payment or benefit.

(iv) It is the intent of this Agreement to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply; provided that in no event shall this clause increase the cost to the Company of providing any payments or benefits to Executive.

Section 4.07. Separate Counsel. Executive acknowledges that he has been advised by Company that before he signs this Agreement he should consult with an attorney.

10

Section 4.08. Severability. In the event any provision of the Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included.

Section 4.09. Counterparts. This Agreement may be signed in several counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were on the same instrument.

[Signature Page Follows]

11

IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date set forth above.

EL PASO ELECTRIC COMPANY

By: /s/ Michael K. Parks

Name: Michael K. Parks

Title: Vice Chairman of the Board

Address for Notice:

100 North Stanton

El Paso, Texas 79901

EXECUTIVE

/s/ Thomas V. Shockley

Thomas V. Shockley

Address for Notice

(if different than the address most recently set

forth in the Company's employment records):

12

Exhibit A - Form of Release and Waiver

Executive agrees to and does fully and completely release, discharge and waive any and all claims, complaints, causes of action, demands of whatever kind or nature which Executive has or may have against the Company, its subsidiaries, affiliates, predecessors, and successors and all of their respective directors, officers, and employees by reason of any event, matter, cause, or thing that has occurred prior to the date hereof (hereinafter “Executive Claims”). Executive agrees that this release and waiver specifically covers, but is not limited to, any and all Executive Claims which Executive has or may have against the Company relating in any way to compensation, or to any other terms, conditions, or circumstances of Executive's employment with the Company, and to the cessation of such employment, based on statutory or common law claims for employment discrimination, including claims under Title VII, the Age Discrimination in Employment Act, Americans with Disabilities Act, the Texas Labor Code, and any and all discrimination or retaliation claims under state or federal law, wrongful discharge, breach of contract, defamation, intentional infliction of emotional distress, breach of fiduciary duty, or any other theory whether legal or equitable; provided, however, that this release shall not affect Executive's rights under or with respect to any retirement plan which is subject to ERISA and is qualified under Section 401(a) of the Code.

Executive acknowledges that he has twenty-one (21) days to review and consider this release and waiver. Executive has also been advised verbally and by this writing of his right to consult with an attorney prior to executing this release and waiver. Executive is further aware that if he signs this release and waiver, he may revoke it for a period of seven (7) days following the day he signs it, and this release and waiver shall not be effective or enforceable until the revocation period has expired.

Exh. A-1

EX-15

Exhibit 15

August 3, 2012

El Paso Electric Company

El Paso, Texas

Re: Registration Statement Nos. 333‑17971, 333‑82129, 333‑142557, and 333‑178319

With respect to the subject registration statements, we acknowledge our awareness of the use therein of our report dated August 3, 2012 related to our review of interim financial information.

Pursuant to Rule 436 under the Securities Act of 1933 (the Act), such report is not considered part of a registration statement prepared or certified by an independent registered public accounting firm, or a report prepared or certified by an independent registered public accounting firm within the meaning of Sections 7 and 11 of the Act.

/s/ KPMG LLP

Houston, Texas

EX-31.01

EXHIBIT 31.01

CERTIFICATIONS

I, Thomas V. Shockley III, certify that:

1. I have reviewed this quarterly report on Form 10-Q of El Paso Electric Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4. The Company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter (the Company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and

5. The Company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's

auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.

Dated: August 3, 2012

EL PASO ELECTRIC COMPANY
By:	/s/ Thomas V. Shockley III
	Thomas V. Shockley III
	Chief Executive Officer
	(Principal Executive Officer)

I, David G. Carpenter, certify that:

1. I have reviewed this quarterly report on Form 10-Q of El Paso Electric Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4. The Company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter (the Company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and

5. The Company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.

Dated: August 3, 2012

EL PASO ELECTRIC COMPANY
By:	/s/ David G. Carpenter
	David G. Carpenter
	Senior Vice President -
	Chief Financial Officer
	(Principal Financial Officer)

EX-32.01

EXHIBIT 32.01

August 3, 2012

The certification set forth below is being submitted in connection with the Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 (the “Report”) of El Paso Electric Company (the “Company”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

Thomas V. Shockley III and David G. Carpenter, each certifies that, to the best of his knowledge:

1.such Report fully complies with the requirements of Section 13(a) of the Exchange Act; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 /s/ Thomas V. Shockley III

Thomas V. Shockley III

Chief Executive Officer

/s/ David G. Carpenter

David G. Carpenter

Senior Vice President -

Chief Financial Officer

XML

Income Taxes Unrecognized Tax Benefits (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Income Taxes [Abstract]
Unrecognized Tax Benefits, Decreases Resulting from Prior Period Tax Positions	$ 2,800	$ 0
Reconciliation of Unrecognized Tax Benefits, Excluding Amounts Pertaining to Examined Tax Returns [Roll Forward]
Balance at January 1	9,500	7,300
Additions/(reductions) based on tax positions related to the current year	200	1,100
Additions for tax positions of prior years	0	0
Unrecognized Tax Benefits, Decreases Resulting from Prior Period Tax Positions	(2,800)	0
Balance at June 30	$ 6,900	$ 8,400

XML

Financial Instruments And Investments (Marketable Securities Fair Value And Unrealized Losses) (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended		12 Months Ended
	Jun. 30, 2012 securities		Dec. 31, 2011 securities
Schedule of Available-for-sale Securities [Line Items]
Decommissioning Fund Investments	$ 178,279		$ 167,963
Marketable Securities Fair Value Less than 12 Months	19,728	[1]	17,103	[2]
Marketable Securities Unrealized Losses Less than 12 Months	(827)	[1]	(2,223)	[2]
Marketable Securities Fair Value 12 Months or Longer	9,176	[1]	11,351	[2]
Marketable Securities Unrealized Losses 12 months or longer	(522)	[1]	(737)	[2]
Marketable Securities Fair Value Total	28,904	[1]	28,454	[2]
Marketable Securities Unrealized Losses Total	(1,349)	[1]	(2,960)	[2]
Number of investable securities	67		96
Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Marketable Securities Fair Value Less than 12 Months	14,241	[1]	6,415	[2]
Marketable Securities Unrealized Losses Less than 12 Months	(121)	[1]	(158)	[2]
Marketable Securities Fair Value 12 Months or Longer	8,073	[1]	9,611	[2]
Marketable Securities Unrealized Losses 12 months or longer	(311)	[1]	(248)	[2]
Marketable Securities Fair Value Total	22,314	[1]	16,026	[2]
Marketable Securities Unrealized Losses Total	(432)	[1]	(406)	[2]
Collateralized Mortgage Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Marketable Securities Fair Value Less than 12 Months	15	[1]	515	[2]
Marketable Securities Unrealized Losses Less than 12 Months	(1)	[1]	(8)	[2]
Marketable Securities Fair Value 12 Months or Longer	1,048	[1]	1,233	[2]
Marketable Securities Unrealized Losses 12 months or longer	(26)	[1]	(23)	[2]
Marketable Securities Fair Value Total	1,063	[1]	1,748	[2]
Marketable Securities Unrealized Losses Total	(27)	[1]	(31)	[2]
U.S. Government Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Marketable Securities Fair Value Less than 12 Months	4,785	[1]	100	[2]
Marketable Securities Unrealized Losses Less than 12 Months	(41)	[1]	(1)	[2]
Marketable Securities Fair Value 12 Months or Longer	1,175	[1]	2,413	[2]
Marketable Securities Unrealized Losses 12 months or longer	(40)	[1]	(38)	[2]
Marketable Securities Fair Value Total	5,960	[1]	2,513	[2]
Marketable Securities Unrealized Losses Total	(81)	[1]	(39)	[2]
Municipal Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Marketable Securities Fair Value Less than 12 Months	8,297	[1]	2,275	[2]
Marketable Securities Unrealized Losses Less than 12 Months	(71)	[1]	(31)	[2]
Marketable Securities Fair Value 12 Months or Longer	4,938	[1]	4,731	[2]
Marketable Securities Unrealized Losses 12 months or longer	(232)	[1]	(144)	[2]
Marketable Securities Fair Value Total	13,235	[1]	7,006	[2]
Marketable Securities Unrealized Losses Total	(303)	[1]	(175)	[2]
Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Marketable Securities Fair Value Less than 12 Months	1,144	[1]	3,525	[2]
Marketable Securities Unrealized Losses Less than 12 Months	(8)	[1]	(118)	[2]
Marketable Securities Fair Value 12 Months or Longer	912	[1]	1,234	[2]
Marketable Securities Unrealized Losses 12 months or longer	(13)	[1]	(43)	[2]
Marketable Securities Fair Value Total	2,056	[1]	4,759	[2]
Marketable Securities Unrealized Losses Total	(21)	[1]	(161)	[2]
Equity Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Marketable Securities Fair Value Less than 12 Months	5,487	[1]	10,688	[2]
Marketable Securities Unrealized Losses Less than 12 Months	(706)	[1]	(2,065)	[2]
Marketable Securities Fair Value 12 Months or Longer	1,103	[1]	1,740	[2]
Marketable Securities Unrealized Losses 12 months or longer	(211)	[1]	(489)	[2]
Marketable Securities Fair Value Total	6,590	[1]	12,428	[2]
Marketable Securities Unrealized Losses Total	$ (917)	[1]	$ (2,554)	[2]

[1] Includes approximately 67 securities.

[2] (2)Includes approximately 96 securities.

XML

Financial Instruments And Investments (Carry ing Amount and Fair Value Amounts) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012		Dec. 31, 2011
Carrying (Reported) Amount, Fair Value Disclosure [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt Instrument, Fair Value Disclosure	$ 960,584		$ 883,176
Estimate of Fair Value, Fair Value Disclosure [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt Instrument, Fair Value Disclosure	1,122,359		1,057,491
Pollution Control Bonds [Member] | Carrying (Reported) Amount, Fair Value Disclosure [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt Instrument, Fair Value Disclosure	193,135		193,135
Pollution Control Bonds [Member] | Estimate of Fair Value, Fair Value Disclosure [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt Instrument, Fair Value Disclosure	212,159		206,756
Senior Notes [Member] | Carrying (Reported) Amount, Fair Value Disclosure [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt Instrument, Fair Value Disclosure	546,689		546,662
Senior Notes [Member] | Estimate of Fair Value, Fair Value Disclosure [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt Instrument, Fair Value Disclosure	679,250		700,371
Rgrt Senior Notes | Carrying (Reported) Amount, Fair Value Disclosure [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt Instrument, Fair Value Disclosure	110,000	[1]	110,000	[1]
Rgrt Senior Notes | Estimate of Fair Value, Fair Value Disclosure [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt Instrument, Fair Value Disclosure	120,190	[1]	116,985	[1]
Revolving Credit Facility | Carrying (Reported) Amount, Fair Value Disclosure [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt Instrument, Fair Value Disclosure	110,760	[1]	33,379	[1]
Revolving Credit Facility | Estimate of Fair Value, Fair Value Disclosure [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt Instrument, Fair Value Disclosure	$ 110,760	[1]	$ 33,379	[1]

[1] Nuclear fuel financing as of June 30, 2012 and December 31, 2011 is funded through the $110 million RGRT Senior Notes and $34.8 million and $13.4 million, respectively under the RCF. As of June 30, 2012 and December 31, 2011, $76.0 million and $20.0 million, respectively, were outstanding under the RCF for working capital and general corporate purposes. The interest rate on the Company’s borrowings under the RCF is reset throughout the quarter reflecting current market rates. Consequently, the carrying value approximates fair value.

XML

Common Stock (Stock Repurchase Program) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended	162 Months Ended
	Jun. 30, 2012	Jun. 30, 2012
Shares repurchased	0	25,406,184	[1],[2]
Cost, including commission		$ 423,647	[1]
Total Remaining Shares Available For Repurchase at June 30, 2012	393,816	393,816
Treasury shares acquired outside of repurchase programs		86,735

[1] Represents repurchased shares and cost since inception of the stock repurchase program in 1999.

[2] Shares repurchased does not include 86,735 treasury shares related to employee compensation arrangements outside of the Company's repurchase programs.

XML

Financial Instruments And Investments (Tables)

6 Months Ended

Jun. 30, 2012

Financial Instruments And Investments [Abstract]

Fair Values Of Long-Term Debt And Financing Obligations

Long-Term Debt and Short-Term Borrowings Under the RCF. The fair values of the Company’s long-term debt and short-term borrowings under the RCF are based on estimated market prices for similar issues and are presented below (in thousands):

	June 30, 2012				December 31, 2011
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Pollution Control Bonds	$	193,135	$	212,159	$	193,135	$	206,756
Senior Notes	546,689		679,250		546,662		700,371
RGRT Senior Notes (1)	110,000		120,190		110,000		116,985
RCF (1)	110,760		110,760		33,379		33,379
Total	$	960,584	$	1,122,359	$	883,176	$	1,057,491

_______________

(1) Nuclear fuel financing as of June 30, 2012 and December 31, 2011 is funded through the $110 million RGRT Senior Notes and $34.8 million and $13.4 million, respectively under the RCF. As of June 30, 2012 and December 31, 2011, $76.0 million and $20.0 million, respectively, were outstanding under the RCF for working capital and general corporate purposes. The interest rate on the Company’s borrowings under the RCF is reset throughout the quarter reflecting current market rates. Consequently, the carrying value approximates fair value.

Marketable Securities Fair Value And Unrealized Losses

The tables below present the gross unrealized losses and the fair value of these securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):

	June 30, 2012
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Description of Securities (1):
Federal Agency Mortgage Backed Securities	$	15	$	(1	)	$	1,048	$	(26	)	$	1,063	$	(27	)
U.S. Government Bonds	4,785		(41		)	1,175		(40		)	5,960		(81		)
Municipal Obligations	8,297		(71		)	4,938		(232		)	13,235		(303		)
Corporate Obligations	1,144		(8		)	912		(13		)	2,056		(21		)
Total Debt Securities	14,241		(121		)	8,073		(311		)	22,314		(432		)
Common Stock	5,487		(706		)	1,103		(211		)	6,590		(917		)
Total Temporarily Impaired Securities	$	19,728	$	(827	)	$	9,176	$	(522	)	$	28,904	$	(1,349	)

_________________

(1) Includes approximately 67 securities.

	December 31, 2011
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Description of Securities (2):
Federal Agency Mortgage Backed Securities	$	515	$	(8	)	$	1,233	$	(23	)	$	1,748	$	(31	)
U.S. Government Bonds	100		(1		)	2,413		(38		)	2,513		(39		)
Municipal Obligations	2,275		(31		)	4,731		(144		)	7,006		(175		)
Corporate Obligations	3,525		(118		)	1,234		(43		)	4,759		(161		)
Total Debt Securities	6,415		(158		)	9,611		(248		)	16,026		(406		)
Common Stock	10,688		(2,065		)	1,740		(489		)	12,428		(2,554		)
Total Temporarily Impaired Securities	$	17,103	$	(2,223	)	$	11,351	$	(737	)	$	28,454	$	(2,960	)

_________________

(2) Includes approximately 96 securities.

Unrecognized Gross Unrealized Gains And the Fair Value

The table below presents the unrecognized gross unrealized gains and the fair value of these securities, aggregated by investment category (in thousands):

	June 30, 2012				December 31, 2011
	Fair Value		Unrealized Gains		Fair Value		Unrealized Gains
Description of Securities:
Federal Agency Mortgage Backed Securities	$	22,065	$	1,206	$	25,077	$	1,220
U.S. Government Bonds	9,129		754		10,263		972
Municipal Obligations	27,017		1,621		30,310		1,792
Corporate Obligations	10,679		705		7,641		459
Total Debt Securities	68,890		4,286		73,291		4,443
Common Stock	67,252		20,885		62,479		15,681
Equity Mutual Funds	9,073		393		—		—
Cash and Cash Equivalents	4,160		—		3,739		—
Total	$	149,375	$	25,564	$	139,509	$	20,124

Contractual Year For Maturity Of Available-For-Sale Securities

The contractual year for maturity of these available-for-sale securities as of June 30, 2012 is as follows (in thousands):

	Total		2012		2013 through 2016		2017 through 2021		2022 and Beyond
Municipal Debt Obligations	$	40,252	$	989	$	10,993	$	16,847	$	11,423
Corporate Debt Obligations	12,735		—		3,740		5,314		3,681
U.S. Government Bonds	15,089		—		4,261		8,034		2,794

Unrealized Holding Losses Included In Pre-Tax Income

The Company recognizes impairment losses on certain of its securities deemed to be other than temporary. In accordance with FASB guidance, these impairment losses are recognized in net income, and a lower cost basis is established for these securities. For the three, six and twelve months ended June 30, 2012 and 2011, the Company recognized other than temporary impairment losses on its available-for-sale securities as follows (in thousands):

	Three Months Ended						Six Months Ended						Twelve Months Ended
	June 30,						June 30,						June 30,
	2012			2011			2012			2011			2012			2011
Gross unrealized holding losses included in pre-tax income	$	(166	)	$	(199	)	$	(166	)	$	(199	)	$	(2,083	)	$	(199	)

Sale of Securities And The Related Effects On Pre-Tax Income

The proceeds from the sale of these securities and the related effects on pre-tax income are as follows (in thousands):

	Three Months Ended						Six Months Ended						Twelve Months Ended
	June 30,						June 30,						June 30,
	2012			2011			2012			2011			2012			2011
Proceeds from sales of available-for-sale securities	$	39,934		$	22,175		$	59,513		$	36,406		$	106,033		$	63,857
Gross realized gains included in pre-tax income	$	690		$	432		$	1,079		$	696		$	1,862		$	1,200
Gross realized losses included in pre-tax income	(1,971		)	(235		)	(2,147		)	(294		)	(2,574		)	(511		)
Gross unrealized losses included in pre-tax income	(166		)	(199		)	(166		)	(199		)	(2,083		)	(199		)
Net gains (losses) in pre-tax income	$	(1,447	)	$	(2	)	$	(1,234	)	$	203		$	(2,795	)	$	490
Net unrealized holding gains (losses) included in accumulated other comprehensive income	$	(2,341	)	$	416		$	5,817		$	2,589		$	4,798		$	13,232
Net (gains) losses reclassified out of accumulated other comprehensive income	1,447			2			1,234			(203		)	2,795			(490		)
Net gains (losses) in other comprehensive income	$	(894	)	$	418		$	7,051		$	2,386		$	7,593		$	12,742

Fair Value, Measurement Inputs, Disclosure

The fair value of the Company’s decommissioning trust funds and investments in debt securities, at June 30, 2012 and December 31, 2011, and the level within the three levels of the fair value hierarchy defined by FASB guidance are presented in the table below (in thousands):

Description of Securities	Fair Value as of June 30, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Trading Securities:
Investments in Debt Securities	$	1,228	$	—	$	—	$	1,228
Available for sale:
U.S. Government Bonds	$	15,089	$	15,089	$	—	$	—
Federal Agency Mortgage Backed Securities	23,128		—		23,128		—
Municipal Bonds	40,252		—		40,252		—
Corporate Asset Backed Obligations	12,735		—		12,735		—
Subtotal Debt Securities	91,204		15,089		76,115		—
Common Stock	73,842		73,842		—		—
Equity Mutual Funds	9,073		9,073		—		—
Cash and Cash Equivalents	4,160		4,160		—		—
Total available for sale	$	178,279	$	102,164	$	76,115	$	—

Description of Securities	Fair Value as of December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Trading Securities:
Investments in Debt Securities	$	1,120	$	—	$	—	$	1,120
Available for sale:
U.S. Government Bonds	$	12,776	$	12,776	$	—	$	—
Federal Agency Mortgage Backed Securities	26,825		—		26,825		—
Municipal Bonds	37,316		—		37,316		—
Corporate Asset Backed Obligations	12,400		—		12,400		—
Subtotal Debt Securities	89,317		12,776		76,541		—
Common Stock	74,907		74,907		—		—
Cash and Cash Equivalents	3,739		3,739		—		—
Total available for sale	$	167,963	$	91,422	$	76,541	$	—

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Financial Instruments And Investments (Contractual Year For Maturity Of Available-For-Sale Securities ) (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012
Schedule of Available-for-sale Securities [Line Items]
Contractual Maturity Due For, Mortgaged Backed Securities	10 years
Municipal Debt Obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Total	40,252
2012	989
2013 through 2016	10,993
2017 through 2021	16,847
2022 and Beyond	11,423
Corporate Debt Obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Total	12,735
2012	0
2013 through 2016	3,740
2017 through 2021	5,314
2022 and Beyond	3,681
U.S. Government Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Total	15,089
2012	0
2013 through 2016	4,261
2017 through 2021	8,034
2022 and Beyond	2,794
Minimum
Schedule of Available-for-sale Securities [Line Items]
Debt Instrument, Expected Weighted Average Maturity Year	3 years
Maximum
Schedule of Available-for-sale Securities [Line Items]
Debt Instrument, Expected Weighted Average Maturity Year	7 years

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Commitments, Contingencies And Uncertainties Commitments, Contingencies and Uncertainties (Purchase Allowance For Compliance) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010
Site Contingency [Line Items]
Purchase Allowance for Reduction of NOx Emissions	$ 90	$ 370

XML

Long-Term Debt and Financing Obligations Long term debt (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
RGRT [Member]
Debt Instrument [Line Items]
Long-term Debt	$ 144,800	$ 123,400
Pollution Control Bonds [Member]
Debt Instrument [Line Items]
Long-term Debt	193,100
Debt Instrument, Interest Rate, Stated Percentage	4.00%
Pollution Control Bonds [Member] | 4.00% 2002 Series A Refunding Bonds, due 2032 [Member]
Debt Instrument [Line Items]
Long-term Debt	$ 33,300	$ 33,300

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Financial Instruments And Investments (Sale Of Securities And The Related Effects On Pre-Tax Income ) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Financial Instruments And Investments [Abstract]
Proceeds from sales of available-for-sale securities	$ 39,934	$ 22,175	$ 59,513	$ 36,406	$ 106,033	$ 63,857
Gross realized gains included in pre-tax income	690	432	1,079	696	1,862	1,200
Gross realized losses included in pre-tax income	(1,971)	(235)	(2,147)	(294)	(2,574)	(511)
Gross unrealized holding losses included In pre-tax income	(166)	(199)	(166)	(199)	(2,083)	(199)
Net gains (losses) in pre-tax income	(1,447)	(2)	(1,234)	203	(2,795)	490
Net unrealized holding gains (losses) included in accumulated other comprehensive income	(2,341)	416	5,817	2,589	4,798	13,232
Net (gains) losses reclassified out of accumulated other comprehensive income	1,447	2	1,234	(203)	2,795	(490)
Net gains (losses) in other comprehensive income	$ (894)	$ 418	$ 7,051	$ 2,386	$ 7,593	$ 12,742

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Financial Instruments And Investments Financial Instruments and Investmens (Long-Term and Short-Term Borrowings - Narratives) (Details) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011	Aug. 18, 2010
Nuclear Fuel Financing
Schedule of Trading Securities and Other Trading Assets [Line Items]
Line of Credit Facility, Amount Outstanding	$ 34.8	$ 13.4
Working Capital and General Purpose
Schedule of Trading Securities and Other Trading Assets [Line Items]
Line of Credit Facility, Amount Outstanding	76.0	20.0
Rgrt Senior Notes [Member]
Schedule of Trading Securities and Other Trading Assets [Line Items]
Debt Instrument, Face Amount	$ 110.0	$ 110.0	$ 110.0

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New Accounting Standards

6 Months Ended

Jun. 30, 2012

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

New Accounting Standards

New Accounting Standards

In June 2011, the FASB issued new guidance to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The new guidance required an entity to present the total of comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both presentations, an entity would have been required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. Historically, the Company used the consecutive two-statement approach; however, this new guidance would have required additional disclosure on the Company's statement of operations and related notes. In December 2011, the FASB issued new guidance to defer the effective date for amendments to the presentation of reclassification of items out of accumulated other comprehensive income. Deferring the effective date will allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the FASB is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, the Company will continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before the guidance issued in June 2011 until further guidance becomes available.

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Commitments, Contingencies And Uncertainties Power Purchases and Sale Agreements (Details)	3 Months Ended
	Mar. 31, 2012 MW
Purchase Commitment, Excluding Long-term Commitment [Line Items]
Power Purchase Quantity, Short-Term	65

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Regulation (Narrative) (Details) (USD $)	0 Months Ended			3 Months Ended		6 Months Ended		12 Months Ended		27 Months Ended					0 Months Ended			0 Months Ended			68 Months Ended			0 Months Ended					0 Months Ended
	May 01, 2012	Dec. 09, 2011 Decimals	Nov. 22, 2011	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Sep. 30, 2011	Jul. 16, 2012	Mar. 29, 2012	Mar. 28, 2012	Nov. 01, 2011	Dec. 09, 2011 Solar Power Generation Projects MW	Jul. 16, 2012 Maximum	Jul. 16, 2012 Minimum	May 02, 2012 PUCT [Member] Decimals	May 02, 2012 PUCT [Member] Montana Power Station [Member] MW	Nov. 01, 2011 Tucson Electric Power Company TEP Transmission Agreement, per Judgement Maximum MW	Sep. 30, 2011 Tucson Electric Power Company TEP Transmission Agreement, per Settlement	Nov. 01, 2011 Tucson Electric Power Company TEP Transmission Agreement, per Settlement Maximum MW	Nov. 01, 2011 Tucson Electric Power Company Two TEP Transmission Agreements, 2011 Maximum MW	May 02, 2012 NMPRC Decimals	Jul. 16, 2012 NMPRC	Mar. 29, 2012 NMPRC	Mar. 28, 2012 NMPRC	Oct. 13, 2011 NMPRC	May 02, 2012 NMPRC Montana Power Station [Member] MW	Nov. 15, 2011 NMPRC Revolving Credit Facility Expiring September 2016	Mar. 29, 2012 FERC	Oct. 13, 2011 FERC	Apr. 12, 2012 4.00% 2002 Series A Refunding Bonds, due 2032 [Member] NMPRC	Apr. 13, 2012 4.00% 2002 Series A Refunding Bonds, due 2032 [Member] FERC	Apr. 12, 2012 4.80% 2005 Series A Refunding Bonds, due 2040 [Member] NMPRC	Apr. 13, 2012 4.80% 2005 Series A Refunding Bonds, due 2040 [Member] FERC
Reconcilable Fuel Expense										$ 356,500,000
Annual Nonfuel Base Rate reduction	15,000,000
Reduction In Depreciation Expense	4,100,000			19,603,000	19,524,000	40,121,000	40,460,000	80,992,000	82,020,000
Return on Equity	10.125%
Funding To Fund Decommissioning Fund	3,600,000
Fuel over and under materiality threshold percentage				4.00%		4.00%		4.00%
Electric capacity, MW															2.6				88										88
Certificate of Convenience and Necessity To Construct Number of Power Gerneration Projects																		2						2
Military Base Discount											20.00%
Percent increase in surcharge rate																1.319%	0.936%
Reduction in Return on the Energy Efficiency Expenses			2.00%
Certificate of Convenience and Necessity To Construct Number of Solar Power Gerneration Projects		5
Number of Transmission Capacity Agreements														2
Electrical Transmission Revenue Including Interest																					5,400,000
Electrical transmission revenue shared with customers																					700,000
Percentage of electrical transmission revenue																					25.00%
Line of Credit Facility																												200,000,000				200,000,000
Debt Instrument, Unused Borrowing Capacity, Amount																												300,000,000				300,000,000
Number of Years Company has Option to Issue Long-Term Debt																																2 years
Line of Credit Facility, Maximum Borrowing Capacity																												300,000,000				300,000,000
Line of Credit Facility, Current Borrowing Capacity												300,000,000	200,000,000													300,000,000	200,000,000			200,000,000	300,000,000
Number of Years the Company's Intergrated Resource Portfolio covers																									20 years
Number of Years the Company's resource needs and plans for resource addition included in the Integrated Resource Portfolio																									4 years
Debt Instrument, Interest Rate, Stated Percentage																																	4.00%	4.00%	4.80%	4.80%
Long-term Debt																																	$ 33,300,000	$ 33,300,000	$ 59,200,000	$ 59,200,000
Transmission Capacity																				200		170	40

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Principles Of Preparation (Supplemental Cash Flow Disclosures) (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Accounting Policies [Abstract]
Interest on long-term debt and borrowing under the revolving credit facility	$ 25,106	$ 24,256
Income taxes paid (refund), net	3,159	(3,101)
Grants of restricted shares of common stock	2,331	3,193
Issuance of performance shares	1,193	565
Acquisition of treasury stock for options exercised	$ 0	$ 500

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Employee Benefits (Narrative) (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2012
Retirement Income Plan
Defined Benefit Plan Disclosure [Line Items]
Company contribution	$ 11.5
Projected Annual Contribution To Retirement Plans	19.8
Other Postretirement Benefit Plans, Defined Benefit
Defined Benefit Plan Disclosure [Line Items]
Company contribution	0.6
Projected Annual Contribution To Retirement Plans	$ 2.5

XML

Regulation (Refund Fuel Cost Over Recoveries) (Details) (USD $) In Thousands, unless otherwise specified	May 12, 2010 PUCT Docket No. 38253	Oct. 20, 2010 PUCT Docket No. 38802	Feb. 18, 2011 PUCT Docket No. 39159	Aug. 03, 2012 Puct Docket No. 40622 [Member]
Refund Amount	$ 11,100	$ 12,800	$ 11,800	$ 6,600

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Regulation (Revised Fixed Fuel Factor) (Details)	Nov. 23, 2010 PUCT Docket No. 38895	Jul. 15, 2011 PUCT Docket Number 39599	Apr. 12, 2012 Puct Docket Number 40302
Increase (Decrease) in Fuel Factor	(14.70%)	9.40%	(18.50%)

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Principles Of Preparation

6 Months Ended

Jun. 30, 2012

Accounting Policies [Abstract]

Principles Of Preparation

Principles of Preparation

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Annual Report of El Paso Electric Company on Form 10-K for the year ended December 31, 2011 (the “2011 Form 10-K”). Capitalized terms used in this report and not defined herein have the meaning ascribed for such terms in the 2011 Form 10-K. In the opinion of the Company’s management, the accompanying consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company at June 30, 2012 and December 31, 2011; the results of its operations and comprehensive operations for the three, six and twelve months ended June 30, 2012 and 2011; and its cash flows for the six months ended June 30, 2012 and 2011. The results of operations and comprehensive operations for the three and six months ended June 30, 2012 and the cash flows for the six months ended June 30, 2012 are not necessarily indicative of the results to be expected for the full calendar year.

Pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), certain financial information has been condensed and certain footnote disclosures have been omitted. Such information and disclosures are normally included in financial statements prepared in accordance with generally accepted accounting principles.

Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenues. Revenues related to the sale of electricity are generally recorded when service is rendered or electricity is delivered to customers. The billing of electricity sales to retail customers is based on the reading of their meters, which occurs on a systematic basis throughout the month. Unbilled revenues are estimated based on monthly generation volumes and by applying an average revenue/kWh to the number of estimated kWhs delivered but not billed. Accounts receivable included accrued unbilled revenues of $29.1 million and $19.6 million at June 30, 2012 and December 31, 2011, respectively. The Company presents revenues net of sales taxes in its consolidated statements of operations.

Extraordinary Item. As a regulated electric utility, the Company prepares its financial statements in accordance with the FASB guidance for regulated operations. FASB guidance for regulated operations requires the Company to show certain items as assets or liabilities on its balance sheet when the regulator provides assurance that these items will be charged to and collected from its customers or refunded to its customers. In the final order for PUCT Docket No. 37690, the Company was allowed to include the previously expensed loss on reacquired debt associated with the refinancing of first mortgage bonds in 2005 in its calculation of the weighted cost of debt to be recovered from its customers. The Company recorded the impacts of the re-application of FASB guidance for regulated operations to its Texas jurisdiction in 2006 as an extraordinary item. In order to establish this regulatory asset, the Company recorded an extraordinary gain of $10.3 million, net of income tax expense of $5.8 million, pursuant to the final order received from the PUCT, in its statements of operations for the quarter ended September 30, 2010. The regulatory asset will be amortized over the remaining life of the Company’s 6% Senior Notes due in 2035.

Supplemental Cash Flow Disclosures (in thousands)
	Six Months Ended
	June 30,
	2012		2011
Cash paid for:
Interest on long-term debt and borrowing under the revolving credit facility	$	25,106	$	24,256
Income taxes paid (refund), net	3,159		(3,101		)
Non-cash financing activities:
Grants of restricted shares of common stock	2,331		3,193
Issuance of performance shares	1,193		565
Acquisition of treasury stock for options exercised	—		500

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Common Stock (Narrative) (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	0 Months Ended	3 Months Ended		6 Months Ended		12 Months Ended
	Jul. 25, 2012	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Common Stock, Dividends, Per Share, Declared	$ 0.25	$ 0.25	$ 0.22	$ 0.47	$ 0.22	$ 0.91	$ 0.22
Dividends, Common Stock, Cash		$ 10.0		$ 18.8	$ 9.2	$ 36.8	$ 9.2

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Commitments, Contingencies And Uncertainties (Narrative) (Details) (USD $)	1 Months Ended
	Jul. 31, 2011	Jun. 30, 2012	Jan. 19, 2011	Sep. 01, 2009
Number of days to act on a petition			30 days
Number of States Affected By Clean Air Transport Rule	28
Number of criteria emissions established under the Clear Air Act		6
Frequency of Review by Environmental Protection Agency		5 years
Number of facilities required to inventory emissions				10,000
Number of Clean Air Act Programs		2
Accrual for environmental loss contingencies		$ 500,000
Four Corners Generating Station
Accrual for environmental loss contingencies		200,000
Number of years to complete Environmental Mitigation Projects		5 years
Maximum
Mercury and Air Toxics Standards Required Compliance Period, in Years		5 years
Defined increase in GHG emissions per year, in tons		100,000
Maximum | Four Corners Generating Station
Loss Contingency, Estimate of Possible Loss		900,000
Minimum
Mercury and Air Toxics Standards Required Compliance Period, in Years		4 years
Defined increase in GHG emissions per year, in tons		75,000
Minimum | Four Corners Generating Station
Loss Contingency, Estimate of Possible Loss		$ 200,000

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Financial Instruments And Investments (Company's Decommissioning Trust Funds And Investments In Debt Securities) (Details) (USD $)	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Proceeds from Sale of Trading Securities Held-for-investment		$ 2,000,000
Trading Securities, Realized Gain	400,000
Decommissioning Fund Investments [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	178,279,000	167,963,000
Decommissioning Fund Investments [Member] | Debt Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments in Debt Securities	1,228,000	1,120,000
Decommissioning Fund Investments [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	102,164,000	91,422,000
Decommissioning Fund Investments [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member] | Debt Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments in Debt Securities	0	0
Decommissioning Fund Investments [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	76,115,000	76,541,000
Decommissioning Fund Investments [Member] | Significant Other Observable Inputs (Level 2) [Member] | Debt Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments in Debt Securities	0	0
Decommissioning Fund Investments [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	0	0
Decommissioning Fund Investments [Member] | Significant Unobservable Inputs (Level 3) [Member] | Debt Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments in Debt Securities	1,228,000	1,120,000
Debt Securities [Member] | Decommissioning Fund Investments [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	91,204,000	89,317,000
Debt Securities [Member] | Decommissioning Fund Investments [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	15,089,000	12,776,000
Debt Securities [Member] | Decommissioning Fund Investments [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	76,115,000	76,541,000
Debt Securities [Member] | Decommissioning Fund Investments [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	0	0
U.S. Government Bonds [Member] | Decommissioning Fund Investments [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	15,089,000	12,776,000
U.S. Government Bonds [Member] | Decommissioning Fund Investments [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	15,089,000	12,776,000
U.S. Government Bonds [Member] | Decommissioning Fund Investments [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	0	0
U.S. Government Bonds [Member] | Decommissioning Fund Investments [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	0	0
Collateralized Mortgage Backed Securities [Member] | Decommissioning Fund Investments [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	23,128,000	26,825,000
Collateralized Mortgage Backed Securities [Member] | Decommissioning Fund Investments [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	0	0
Collateralized Mortgage Backed Securities [Member] | Decommissioning Fund Investments [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	23,128,000	26,825,000
Collateralized Mortgage Backed Securities [Member] | Decommissioning Fund Investments [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	0	0
Municipal Bonds [Member] | Decommissioning Fund Investments [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	40,252,000	37,316,000
Municipal Bonds [Member] | Decommissioning Fund Investments [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	0	0
Municipal Bonds [Member] | Decommissioning Fund Investments [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	40,252,000	37,316,000
Municipal Bonds [Member] | Decommissioning Fund Investments [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	0	0
Corporate Debt Securities [Member] | Decommissioning Fund Investments [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	12,735,000	12,400,000
Corporate Debt Securities [Member] | Decommissioning Fund Investments [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	0	0
Corporate Debt Securities [Member] | Decommissioning Fund Investments [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	12,735,000	12,400,000
Corporate Debt Securities [Member] | Decommissioning Fund Investments [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	0	0
Equity Securities [Member] | Decommissioning Fund Investments [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	73,842,000	74,907,000
Equity Securities [Member] | Decommissioning Fund Investments [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	73,842,000	74,907,000
Equity Securities [Member] | Decommissioning Fund Investments [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	0	0
Equity Securities [Member] | Decommissioning Fund Investments [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	0	0
Mutual Funds - Equity [Member] | Decommissioning Fund Investments [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	9,073,000
Mutual Funds - Equity [Member] | Decommissioning Fund Investments [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	9,073,000
Mutual Funds - Equity [Member] | Decommissioning Fund Investments [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	0
Mutual Funds - Equity [Member] | Decommissioning Fund Investments [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	0
Cash and Cash Equivalents [Member] | Decommissioning Fund Investments [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	4,160,000	3,739,000
Cash and Cash Equivalents [Member] | Decommissioning Fund Investments [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	4,160,000	3,739,000
Cash and Cash Equivalents [Member] | Decommissioning Fund Investments [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	0	0
Cash and Cash Equivalents [Member] | Decommissioning Fund Investments [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	$ 0	$ 0

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Utility plant:
Electric plant in service	$ 2,797,764	$ 2,789,773
Less accumulated depreciation and amortization	(1,127,455)	(1,121,653)
Net plant in service	1,670,309	1,668,120
Construction work in progress	225,280	167,394
Nuclear fuel; includes fuel in process of $47,354 and $49,545, respectively	201,785	171,433
Less accumulated amortization	(71,378)	(59,882)
Net nuclear fuel	130,407	111,551
Net utility plant	2,025,996	1,947,065
Current assets:
Cash and cash equivalents	10,084	8,208
Accounts receivable, principally trade, net of allowance for doubtful accounts of $2,887 and $3,015, respectively	95,545	76,348
Accumulated deferred income taxes	19,076	13,752
Inventories, at cost	41,692	40,222
Income taxes receivable	2,214	2,269
Undercollection of fuel revenues	0	9,130
Prepayments and other	9,014	4,810
Total current assets	177,625	154,739
Deferred charges and other assets:
Decommissioning trust funds	178,279	167,963
Regulatory assets	101,554	101,027
Other	28,000	26,057
Total deferred charges and other assets	307,833	295,047
Total assets	2,511,454	2,396,851
Capitalization:
Common stock, stated value $1 per share, 100,000,000 shares authorized, 65,493,993 and 65,295,888 shares issued, and 112,165 and 156,185 restricted shares, respectively	65,606	65,452
Capital in excess of stated value	308,360	309,777
Retained earnings	902,578	887,174
Accumulated other comprehensive income (loss), net of tax	(69,707)	(77,505)
Total stockholders equity subtotal before treasury stock	1,206,837	1,184,898
Treasury stock, 25,492,919 shares at cost	(424,647)	(424,647)
Common stock equity	782,190	760,251
Long-term debt	816,524	816,497
Total capitalization	1,598,714	1,576,748
Current liabilities:
Current maturities of long-term debt	33,300	33,300
Short-term borrowings under the revolving credit facility	110,760	33,379
Accounts payable, principally trade	41,173	51,704
Taxes accrued	23,984	30,700
Interest accrued	12,127	12,123
Overcollection of fuel revenues	8,569	2,105
Other	22,696	21,921
Total current liabilities	252,609	185,232
Deferred credits and other liabilities:
Accumulated deferred income taxes	329,468	299,475
Accrued pension liability	122,097	129,627
Accrued postretirement benefit liability	104,007	100,455
Asset retirement obligation	58,290	56,140
Regulatory liabilities	21,290	21,049
Other	24,979	28,125
Total deferred credits and other liabilities	660,131	634,871
Commitments and contingencies
Total capitalization and liabilities	$ 2,511,454	$ 2,396,851

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Employee Benefits (Retirement Plans And Other Postretirement Benefits) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Retirement Income Plan
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 2,189	$ 1,682	$ 4,414	$ 3,425	$ 7,839	$ 6,457
Interest cost	3,400	3,499	6,778	6,994	13,771	13,808
Amendments	0	0	0	0	0	838
Expected return on plan assets	(3,611)	(3,515)	(7,221)	(7,048)	(14,268)	(13,982)
Amortization of net (gain) loss	2,713	1,689	5,678	3,272	8,950	5,047
Amortization of prior service cost	31	31	58	58	115	115
Net periodic benefit cost	4,722	3,386	9,707	6,701	16,407	12,283
Other Postretirement Benefit Plans, Defined Benefit
Defined Benefit Plan Disclosure [Line Items]
Service cost	1,119	756	2,189	1,494	3,683	3,273
Interest cost	1,410	1,399	2,825	2,689	5,515	6,021
Expected return on plan assets	(453)	(454)	(888)	(912)	(1,799)	(1,676)
Amortization of net (gain) loss	147	89	307	(19)	287	(107)
Amortization of prior service benefit	(1,468)	(1,481)	(2,938)	(2,963)	(5,902)	(4,397)
Net periodic benefit cost	$ 755	$ 309	$ 1,495	$ 289	$ 1,784	$ 3,114

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Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Cash flows from operating activities:
Net income	$ 34,238	$ 39,765
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of electric plant in service	40,121	40,460
Amortization of nuclear fuel	21,807	17,958
Deferred income taxes, net	18,630	12,647
Allowance for equity funds used during construction	(4,170)	(5,062)
Other amortization and accretion	6,804	11,772
Other operating activities	937	(216)
Change in:
Accounts receivable	(19,197)	(35,772)
Inventories	(1,087)	(2,741)
Net overcollection (undercollection) of fuel revenues	15,594	(25,827)
Prepayments and other	(5,456)	(5,713)
Accounts payable	(4,748)	4,934
Taxes accrued	(6,661)	6,326
Interest accrued	4	9
Other current liabilities	775	(1,412)
Deferred charges and credits	(5,695)	(7,547)
Net cash provided by operating activities	91,896	49,581
Cash flows from investing activities:
Cash additions to utility property, plant and equipment	(99,929)	(86,950)
Cash additions to nuclear fuel	(38,155)	(24,140)
Capitalized interest and AFUDC:
Utility property, plant and equipment	(6,633)	(8,091)
Nuclear fuel	(2,668)	(2,546)
Allowance for equity funds used during construction	4,170	5,062
Decommissioning trust funds:
Purchases, including funding of $2.3 million and $4.3 million, respectively	(64,011)	(42,641)
Sales and maturities	59,513	36,406
Other investing activities	978	188
Net cash used for investing activities	(146,735)	(122,712)
Cash flows from financing activities:
Repurchases of common stock	0	(26,320)
Dividends paid	(18,834)	(9,248)
Borrowings under the revolving credit facility:
Proceeds	121,964	65,770
Payments	(44,583)	(30,832)
Other financing activities	(1,832)	(317)
Net cash provided (used for) financing activities	56,715	(947)
Net increase (decrease) in cash and cash equivalents	1,876	(74,078)
Cash and cash equivalents at beginning of period	8,208	79,184
Cash and cash equivalents at end of period	$ 10,084	$ 5,106

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Common Stock (Antidilutive Securities Excluded From Computation Of Earnings Per Share) (Details)	3 Months Ended				6 Months Ended				12 Months Ended
	Jun. 30, 2012		Jun. 30, 2011		Jun. 30, 2012		Jun. 30, 2011		Jun. 30, 2012		Jun. 30, 2011
Performance shares payout based on performance	0		0		0		0		0		0
Performance level payout	100.00%		100.00%		100.00%		100.00%		100.00%		100.00%
Restricted Stock [Member]
Antidilutive Securities Excluded from the Computation of Diluted Earnings Per Share, Amount	32,101		69,639		45,951		81,858		63,699		79,991
Performance Shares [Member]
Antidilutive Securities Excluded from the Computation of Diluted Earnings Per Share, Amount	51,133	[1]	0	[1]	47,092	[1]	0	[1]	23,546	[1]	0	[1]
Stock Options [Member]
Antidilutive Securities Excluded from the Computation of Diluted Earnings Per Share, Amount	0		0		0		0		0		0

[1] Performance shares excluded from the computation of diluted earnings per share, as no payouts would have been required based upon performance at the end of the corresponding period. This amount assumes a 100% performance level payout.

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Income Taxes (Tables)

6 Months Ended

Jun. 30, 2012

Income Tax Contingency [Line Items]

Summary of Income Tax Contingencies [Table Text Block]

A reconciliation of the June 30, 2012 and 2011 amount of unrecognized tax benefits is as follows (in thousands):

	2012			2011
Balance at January 1	$	9,500		$	7,300
Additions/(reductions) based on tax positions related to the current year	200			1,100
Additions for tax positions of prior years	—			—
Reductions for tax positions of prior years	(2,800		)	—
Balance at June 30	$	6,900		$	8,400

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Long-Term Debt and Financing Obligations (Details) (USD $) In Millions, unless otherwise specified	Mar. 29, 2012	Mar. 28, 2012	Jun. 30, 2012 Nuclear Fuel Financing	Dec. 31, 2011 Nuclear Fuel Financing	Jun. 30, 2012 Working Capital and General Purpose	Dec. 31, 2011 Working Capital and General Purpose	Jun. 30, 2012 Revolving Credit Facility Nuclear Fuel Financing	Dec. 31, 2011 Revolving Credit Facility Nuclear Fuel Financing	Jun. 30, 2012 Revolving Credit Facility Working Capital and General Purpose	Dec. 31, 2011 Revolving Credit Facility Working Capital and General Purpose	Jun. 30, 2012 Rgrt Senior Notes [Member]	Dec. 31, 2011 Rgrt Senior Notes [Member]	Aug. 18, 2010 Rgrt Senior Notes [Member]
Line of Credit Facility [Line Items]
Line of Credit Facility, Amount Outstanding			$ 34.8	$ 13.4	$ 76.0	$ 20.0	$ 34.8	$ 13.4	$ 76.0	$ 20.0
Debt Instrument, Face Amount											110.0	110.0	110.0
Line of Credit Facility, Current Borrowing Capacity	$ 300	$ 200

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Employee Benefits (Tables)

6 Months Ended

Jun. 30, 2012

Other Postretirement Benefit Plans, Defined Benefit

Defined Benefit Plan Disclosure [Line Items]

Schedule Of Net Periodic Benefit Cost

The net periodic benefit cost recognized for the three, six and twelve months ended June 30, 2012 and 2011 is made up of the components listed below (in thousands):

	Three Months Ended						Six Months Ended						Twelve Months Ended
	June 30,						June 30,						June 30,
	2012			2011			2012			2011			2012			2011
Components of net periodic benefit cost:
Service cost	$	1,119		$	756		$	2,189		$	1,494		$	3,683		$	3,273
Interest cost	1,410			1,399			2,825			2,689			5,515			6,021
Expected return on plan assets	(453		)	(454		)	(888		)	(912		)	(1,799		)	(1,676		)
Amortization of:
Prior service benefit	(1,468		)	(1,481		)	(2,938		)	(2,963		)	(5,902		)	(4,397		)
Net loss (gain)	147			89			307			(19		)	287			(107		)
Net periodic benefit cost	$	755		$	309		$	1,495		$	289		$	1,784		$	3,114

Retirement Income Plan

Defined Benefit Plan Disclosure [Line Items]

Schedule Of Net Periodic Benefit Cost

The net periodic benefit cost recognized for the three, six and twelve months ended June 30, 2012 and 2011 is made up of the components listed below as determined using the projected unit credit actuarial cost method (in thousands):

	Three Months Ended						Six Months Ended						Twelve Months Ended
	June 30,						June 30,						June 30,
	2012			2011			2012			2011			2012			2011
Components of net periodic benefit cost:
Service cost	$	2,189		$	1,682		$	4,414		$	3,425		$	7,839		$	6,457
Interest cost	3,400			3,499			6,778			6,994			13,771			13,808
Amendments	—			—			—			—			—			838
Expected return on plan assets	(3,611		)	(3,515		)	(7,221		)	(7,048		)	(14,268		)	(13,982		)
Amortization of:
Net loss	2,713			1,689			5,678			3,272			8,950			5,047
Prior service cost	31			31			58			58			115			115
Net periodic benefit cost	$	4,722		$	3,386		$	9,707		$	6,701		$	16,407		$	12,283

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Consolidated Statements Of Cash Flows Consolidated Statements of Cash Flows Parenthetical (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Payments To Fund Decommissioning Fund	$ 2.3	$ 4.3

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Consolidated Balance Sheets Consolidated Balance Sheets Parenthetical (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Nuclear fuel; fuel in process	$ 47,354	$ 49,545
Allowance for Doubtful Accounts Receivable, Current	$ 2,887	$ 3,015
Common Stock, Par or Stated Value Per Share	$ 1.00	$ 1.00
Common Stock, Shares Authorized	100,000,000	100,000,000
Common Stock, Shares, Issued	65,493,993	65,295,888
Common stock, restricted shares	112,165	156,185
Treasury Stock, Shares	25,492,919	25,492,919

XML

Financial Instruments And Investments

6 Months Ended

Jun. 30, 2012

Financial Instruments And Investments [Abstract]

Fair Value Disclosures [Text Block]

Financial Instruments and Investments

FASB guidance requires the Company to disclose estimated fair values for its financial instruments. The Company has determined that cash and temporary investments, investment in debt securities, accounts receivable, decommissioning trust funds, long-term debt, short-term borrowings under the RCF, accounts payable and customer deposits meet the definition of financial instruments. The carrying amounts of cash and temporary investments, accounts receivable, accounts payable and customer deposits approximate fair value because of the short maturity of these items. Investments in debt securities and decommissioning trust funds are carried at fair value.

Long-Term Debt and Short-Term Borrowings Under the RCF. The fair values of the Company’s long-term debt and short-term borrowings under the RCF are based on estimated market prices for similar issues and are presented below (in thousands):

	June 30, 2012				December 31, 2011
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Pollution Control Bonds	$	193,135	$	212,159	$	193,135	$	206,756
Senior Notes	546,689		679,250		546,662		700,371
RGRT Senior Notes (1)	110,000		120,190		110,000		116,985
RCF (1)	110,760		110,760		33,379		33,379
Total	$	960,584	$	1,122,359	$	883,176	$	1,057,491

_______________

(1) Nuclear fuel financing as of June 30, 2012 and December 31, 2011 is funded through the $110 million RGRT Senior Notes and $34.8 million and $13.4 million, respectively under the RCF. As of June 30, 2012 and December 31, 2011, $76.0 million and $20.0 million, respectively, were outstanding under the RCF for working capital and general corporate purposes. The interest rate on the Company’s borrowings under the RCF is reset throughout the quarter reflecting current market rates. Consequently, the carrying value approximates fair value.

Marketable Securities. The Company’s marketable securities, included in decommissioning trust funds in the balance sheets, are reported at fair value which was $178.3 million and $168.0 million at June 30, 2012 and December 31, 2011, respectively. These securities are classified as available for sale under FASB guidance for certain investments in debt and equity securities and are valued using prices and other relevant information generated by market transactions involving identical or comparable securities. The reported fair values include gross unrealized losses on marketable securities whose impairment the Company has deemed to be temporary. The tables below present the gross unrealized losses and the fair value of these securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):

	June 30, 2012
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Description of Securities (1):
Federal Agency Mortgage Backed Securities	$	15	$	(1	)	$	1,048	$	(26	)	$	1,063	$	(27	)
U.S. Government Bonds	4,785		(41		)	1,175		(40		)	5,960		(81		)
Municipal Obligations	8,297		(71		)	4,938		(232		)	13,235		(303		)
Corporate Obligations	1,144		(8		)	912		(13		)	2,056		(21		)
Total Debt Securities	14,241		(121		)	8,073		(311		)	22,314		(432		)
Common Stock	5,487		(706		)	1,103		(211		)	6,590		(917		)
Total Temporarily Impaired Securities	$	19,728	$	(827	)	$	9,176	$	(522	)	$	28,904	$	(1,349	)

_________________

(1) Includes approximately 67 securities.

	December 31, 2011
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Description of Securities (2):
Federal Agency Mortgage Backed Securities	$	515	$	(8	)	$	1,233	$	(23	)	$	1,748	$	(31	)
U.S. Government Bonds	100		(1		)	2,413		(38		)	2,513		(39		)
Municipal Obligations	2,275		(31		)	4,731		(144		)	7,006		(175		)
Corporate Obligations	3,525		(118		)	1,234		(43		)	4,759		(161		)
Total Debt Securities	6,415		(158		)	9,611		(248		)	16,026		(406		)
Common Stock	10,688		(2,065		)	1,740		(489		)	12,428		(2,554		)
Total Temporarily Impaired Securities	$	17,103	$	(2,223	)	$	11,351	$	(737	)	$	28,454	$	(2,960	)

_________________

(2) Includes approximately 96 securities.

The Company monitors the length of time the security trades below its cost basis along with the amount and percentage of the unrealized loss in determining if a decline in fair value of marketable securities below recorded cost is considered to be other than temporary. In addition, the Company will research the future prospects of individual securities as necessary. As a result of these factors, as well as the Company’s intent and ability to hold these securities until their market price recovers, these securities are considered temporarily impaired. The Company will not have a requirement to expend monies held in trust before 2044 or a later period when the Company begins to decommission Palo Verde.

The reported fair values also include gross unrealized gains on marketable securities which have not been recognized in the Company’s net income. The table below presents the unrecognized gross unrealized gains and the fair value of these securities, aggregated by investment category (in thousands):

	June 30, 2012				December 31, 2011
	Fair Value		Unrealized Gains		Fair Value		Unrealized Gains
Description of Securities:
Federal Agency Mortgage Backed Securities	$	22,065	$	1,206	$	25,077	$	1,220
U.S. Government Bonds	9,129		754		10,263		972
Municipal Obligations	27,017		1,621		30,310		1,792
Corporate Obligations	10,679		705		7,641		459
Total Debt Securities	68,890		4,286		73,291		4,443
Common Stock	67,252		20,885		62,479		15,681
Equity Mutual Funds	9,073		393		—		—
Cash and Cash Equivalents	4,160		—		3,739		—
Total	$	149,375	$	25,564	$	139,509	$	20,124

The Company’s marketable securities include investments in municipal, corporate and federal debt obligations. Substantially all of the Company’s mortgage-backed securities, based on contractual maturity, are due in 10 years years or more. The mortgage-backed securities have an estimated weighted average maturity which generally range from 3 years to 7 years years and reflects anticipated future prepayments. The contractual year for maturity of these available-for-sale securities as of June 30, 2012 is as follows (in thousands):

	Total		2012		2013 through 2016		2017 through 2021		2022 and Beyond
Municipal Debt Obligations	$	40,252	$	989	$	10,993	$	16,847	$	11,423
Corporate Debt Obligations	12,735		—		3,740		5,314		3,681
U.S. Government Bonds	15,089		—		4,261		8,034		2,794

The Company recognizes impairment losses on certain of its securities deemed to be other than temporary. In accordance with FASB guidance, these impairment losses are recognized in net income, and a lower cost basis is established for these securities. For the three, six and twelve months ended June 30, 2012 and 2011, the Company recognized other than temporary impairment losses on its available-for-sale securities as follows (in thousands):

	Three Months Ended						Six Months Ended						Twelve Months Ended
	June 30,						June 30,						June 30,
	2012			2011			2012			2011			2012			2011
Gross unrealized holding losses included in pre-tax income	$	(166	)	$	(199	)	$	(166	)	$	(199	)	$	(2,083	)	$	(199	)

The Company’s marketable securities in its decommissioning trust funds are sold from time to time and the Company uses the specific identification basis to determine the amount to reclassify out of accumulated other comprehensive income and into net income. The proceeds from the sale of these securities and the related effects on pre-tax income are as follows (in thousands):

	Three Months Ended						Six Months Ended						Twelve Months Ended
	June 30,						June 30,						June 30,
	2012			2011			2012			2011			2012			2011
Proceeds from sales of available-for-sale securities	$	39,934		$	22,175		$	59,513		$	36,406		$	106,033		$	63,857
Gross realized gains included in pre-tax income	$	690		$	432		$	1,079		$	696		$	1,862		$	1,200
Gross realized losses included in pre-tax income	(1,971		)	(235		)	(2,147		)	(294		)	(2,574		)	(511		)
Gross unrealized losses included in pre-tax income	(166		)	(199		)	(166		)	(199		)	(2,083		)	(199		)
Net gains (losses) in pre-tax income	$	(1,447	)	$	(2	)	$	(1,234	)	$	203		$	(2,795	)	$	490
Net unrealized holding gains (losses) included in accumulated other comprehensive income	$	(2,341	)	$	416		$	5,817		$	2,589		$	4,798		$	13,232
Net (gains) losses reclassified out of accumulated other comprehensive income	1,447			2			1,234			(203		)	2,795			(490		)
Net gains (losses) in other comprehensive income	$	(894	)	$	418		$	7,051		$	2,386		$	7,593		$	12,742

Fair Value Measurements. FASB guidance requires the Company to provide expanded quantitative disclosures for financial assets and liabilities recorded on the balance sheet at fair value. Financial assets carried at fair value include the Company’s decommissioning trust investments and investments in debt securities which are included in deferred charges and other assets on the consolidated balance sheets. The Company has no liabilities that are measured at fair value on a recurring basis. The FASB guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

• Level 1 – Observable inputs that reflect quoted market prices for identical assets and liabilities in active markets. Financial assets utilizing Level 1 inputs include the nuclear decommissioning trust investments in active exchange-traded equity securities and U.S. treasury securities that are in a highly liquid and active market.

• Level 2 – Inputs other than quoted market prices included in Level 1 that are observable for the asset or liability either directly or indirectly. Financial assets utilizing Level 2 inputs include the nuclear decommissioning trust investments in fixed income securities. The fair value of these financial instruments is based on evaluated prices that reflect observable market information, such as actual trade information of similar securities, adjusted for observable differences.

• Level 3 – Unobservable inputs using data that is not corroborated by market data and primarily based on internal Company analysis using models and various other analyses. Financial assets utilizing Level 3 inputs include the Company’s investments in debt securities.

The securities in the Company’s decommissioning trust funds are valued using prices and other relevant information generated by market transactions involving identical or comparable securities. FASB guidance identifies this valuation technique as the “market approach” with observable inputs. The Company analyzes available-for-sale securities to determine if losses are other than temporary.

The fair value of the Company’s decommissioning trust funds and investments in debt securities, at June 30, 2012 and December 31, 2011, and the level within the three levels of the fair value hierarchy defined by FASB guidance are presented in the table below (in thousands):

Description of Securities	Fair Value as of June 30, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Trading Securities:
Investments in Debt Securities	$	1,228	$	—	$	—	$	1,228
Available for sale:
U.S. Government Bonds	$	15,089	$	15,089	$	—	$	—
Federal Agency Mortgage Backed Securities	23,128		—		23,128		—
Municipal Bonds	40,252		—		40,252		—
Corporate Asset Backed Obligations	12,735		—		12,735		—
Subtotal Debt Securities	91,204		15,089		76,115		—
Common Stock	73,842		73,842		—		—
Equity Mutual Funds	9,073		9,073		—		—
Cash and Cash Equivalents	4,160		4,160		—		—
Total available for sale	$	178,279	$	102,164	$	76,115	$	—

Description of Securities	Fair Value as of December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Trading Securities:
Investments in Debt Securities	$	1,120	$	—	$	—	$	1,120
Available for sale:
U.S. Government Bonds	$	12,776	$	12,776	$	—	$	—
Federal Agency Mortgage Backed Securities	26,825		—		26,825		—
Municipal Bonds	37,316		—		37,316		—
Corporate Asset Backed Obligations	12,400		—		12,400		—
Subtotal Debt Securities	89,317		12,776		76,541		—
Common Stock	74,907		74,907		—		—
Cash and Cash Equivalents	3,739		3,739		—		—
Total available for sale	$	167,963	$	91,422	$	76,541	$	—

There were no transfers in and out of Level 1 and Level 2 fair value measurements categories during the three, six and twelve month periods ending June 30, 2012 and June 30, 2011.     

During the fourth quarter of 2011, the Company sold an investment in a debt security for $2.0 million that was categorized as a Level 3 investment. The Company realized in the consolidated statement of operations as investment and interest income a gain on the sale of the debt security of $0.4 million during the twelve month period ending June 30, 2012. There were no other purchases, sales, issuances, or settlements related to the assets in the Level 3 fair value measurement category during the three, six and twelve month periods ending June 30, 2012 and 2011.

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Document And Entity Information	6 Months Ended
	Jun. 30, 2012	Jul. 31, 2012
Document and Entity Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Trading Symbol	ee
Entity Registrant Name	EL PASO ELECTRIC CO /TX/
Entity Central Index Key	0000031978
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		40,114,838

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Principles Of Preparation (Policy)

6 Months Ended

Jun. 30, 2012

Accounting Policies [Abstract]

Use Of Estimates

Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenues

Revenues. Revenues related to the sale of electricity are generally recorded when service is rendered or electricity is delivered to customers. The billing of electricity sales to retail customers is based on the reading of their meters, which occurs on a systematic basis throughout the month. Unbilled revenues are estimated based on monthly generation volumes and by applying an average revenue/kWh to the number of estimated kWhs delivered but not billed. Accounts receivable included accrued unbilled revenues of $29.1 million and $19.6 million at June 30, 2012 and December 31, 2011, respectively. The Company presents revenues net of sales taxes in its consolidated statements of operations.

Extraordinary Item

Extraordinary Item. As a regulated electric utility, the Company prepares its financial statements in accordance with the FASB guidance for regulated operations. FASB guidance for regulated operations requires the Company to show certain items as assets or liabilities on its balance sheet when the regulator provides assurance that these items will be charged to and collected from its customers or refunded to its customers. In the final order for PUCT Docket No. 37690, the Company was allowed to include the previously expensed loss on reacquired debt associated with the refinancing of first mortgage bonds in 2005 in its calculation of the weighted cost of debt to be recovered from its customers. The Company recorded the impacts of the re-application of FASB guidance for regulated operations to its Texas jurisdiction in 2006 as an extraordinary item. In order to establish this regulatory asset, the Company recorded an extraordinary gain of $10.3 million, net of income tax expense of $5.8 million, pursuant to the final order received from the PUCT, in its statements of operations for the quarter ended September 30, 2010. The regulatory asset will be amortized over the remaining life of the Company’s 6% Senior Notes due in 2035.

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Consolidated Statements Of Operations (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Operating revenues	$ 228,252	$ 242,605	$ 396,830	$ 418,717	$ 896,126	$ 880,403
Energy expenses:
Fuel	49,366	61,318	88,800	104,077	208,230	204,061
Purchased and interchanged power	14,522	16,297	27,081	34,771	67,459	78,288
Cost of services, energy services	63,888	77,615	115,881	138,848	275,689	282,349
Operating revenues net of energy expenses	164,364	164,990	280,949	279,869	620,437	598,054
Other operating expenses:
Other operations	58,805	57,209	113,222	111,316	231,476	233,895
Maintenance	14,806	16,760	30,774	28,996	63,870	55,584
Depreciation and amortization	19,603	19,524	40,121	40,460	80,992	82,020
Taxes other than income taxes	14,638	13,376	28,278	26,503	57,336	56,079
Utilities operating expense	107,852	106,869	212,395	207,275	433,674	427,578
Operating income	56,512	58,121	68,554	72,594	186,763	170,476
Other income (deductions):
Allowance for equity funds used during construction	2,214	2,011	4,170	5,062	7,269	10,631
Investment and interest income, net	102	1,590	1,878	3,975	3,567	7,352
Miscellaneous non-operating income	131	1	201	271	815	1,486
Miscellaneous non-operating deductions	(421)	(698)	(903)	(1,413)	(2,677)	(3,731)
Nonoperating income (expense)	2,026	2,904	5,346	7,895	8,974	15,738
Interest charges (credits):
Interest on long-term debt and revolving credit facility	13,605	13,526	27,168	27,024	54,259	53,408
Other interest	278	237	478	534	933	723
Capitalized interest	(1,299)	(1,290)	(2,668)	(2,546)	(5,299)	(4,547)
Allowance for borrowed funds used during construction	(1,310)	(1,180)	(2,463)	(3,029)	(4,282)	(6,599)
Interest expense	11,274	11,293	22,515	21,983	45,611	42,985
Income before income taxes and extraordinary item	47,264	49,732	51,385	58,506	150,126	143,229
Income tax expense	16,370	16,742	17,147	18,741	52,114	46,103
Income before extraordinary item					98,012	97,126
Extraordinary gain related to Texas regulatory assets, net of tax					0	10,286
Net income	$ 30,894	$ 32,990	$ 34,238	$ 39,765	$ 98,012	$ 107,412
Basic earnings per share:
Income before extraordinary item (in dollars per share)					$ 2.42	$ 2.28
Extraordinary gain related to Texas regulatory assets, net of tax (in dollars per share)					$ 0.00	$ 0.24
Net income (in dollars per share)	$ 0.77	$ 0.78	$ 0.85	$ 0.94	$ 2.42	$ 2.52
Diluted earnings per share:
Income before extraordinary item (in dollars per share)					$ 2.41	$ 2.27
Extraordinary gain related to Texas regulatory assets, net of tax (in dollars per share)					$ 0.00	$ 0.24
Net income (in dollars per share)	$ 0.77	$ 0.78	$ 0.85	$ 0.94	$ 2.41	$ 2.51
Dividends declared per share of common stock	$ 0.25	$ 0.22	$ 0.47	$ 0.22	$ 0.91	$ 0.22
Weighted average number of shares outstanding	39,958,149	41,853,552	39,934,590	42,079,568	40,285,248	42,376,298
Weighted average number of shares and dilutive potential shares outstanding	40,040,776	42,076,659	40,020,143	42,298,716	40,455,626	42,595,011

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Long-Term Debt and Financing Obligations

6 Months Ended

Jun. 30, 2012

Long-Term Debt and Financing Obligations [Abstract]

Long-term Debt [Text Block]

Long-Term Debt and Financing Obligations

Revolving Credit Facility. The Company maintains a revolving credit facility (“RCF”) for working capital and general corporate purposes and financing of nuclear fuel through the Rio Grande Resources Trust (the “RGRT”). RGRT is the trust through which the Company finances its portion of nuclear fuel for Palo Verde and is consolidated in the Company's financial statements. The RCF has a term ending September 2016. On March 29, 2012, the Company and the Bank of New York Mellon Trust Company, N.A., as trustee of the RGRT, entered into the Incremental Facility Assumption Agreement (the “Assumption Agreement”) related to the RCF with JP Morgan Chase Bank, N.A., as administrative agent and issuing bank, Union Bank, N.A., as syndication agent, and various lending banks party thereto. The Assumption Agreement provides for the Company's exercise in full of the accordion feature provided for under the RCF, increasing the aggregate unsecured borrowing available from $200 million to $300 million.

In addition, the Assumption Agreement reflects the addition of a new lender under the RCF. No other material modifications were made to the terms and conditions of the RCF. The total amount borrowed for nuclear fuel by RGRT was $144.8 million at June 30, 2012, of which $34.8 million had been borrowed under the RCF and $110 million was borrowed through senior notes. At December 31, 2011, the total amount borrowed for nuclear fuel by RGRT was $123.4 million of which $13.4 million was borrowed under the RCF and $110 million was borrowed through senior notes. Interest costs on borrowings to finance nuclear fuel are accumulated by RGRT and charged to the Company as fuel is consumed and recovered through fuel recovery charges. At June 30, 2012, $76.0 million was outstanding under the RCF for working capital or general corporate purposes. At December 31, 2011, $20.0 million was outstanding under the RCF for working capital or general corporate purposes.

Pollution Control Bonds (“PCBs”).The Company has four series of tax exempt unsecured PCBs in aggregate principal amount of $193.1 million. The 4.00% 2002 Series A with a principal amount of $33.3 million is shown as current maturities of long-term debt on the Company's June 30, 2012 and December 31, 2011 balance sheets. On August 1, 2012, the Company completed a refunding transaction where it purchased these PCBs. The Company may remarket these PCBs at a future date depending on financing needs and market conditions.

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Common Stock

6 Months Ended

Jun. 30, 2012

Class of Stock Disclosures [Abstract]

Shareholders' Equity and Share-based Payments, Including Earnings Per Share Information

Common Stock

Repurchase Program.No shares of common stocks were repurchased during the first six months of 2012. Details regarding the Company’s stock repurchase program are presented below:

	Since 1999 (a)		Authorized Shares
Shares repurchased (b)	25,406,184
Cost, including commission (in thousands)	$	423,647
Total remaining shares available for repurchase at June 30, 2012			393,816

_______________________

(a) Represents repurchased shares and cost since inception of the stock repurchase program in 1999.

(b) Shares repurchased does not include 86,735 treasury shares related to employee compensation arrangements outside of the Company's repurchase programs.

The Company may in the future make purchases of its common stock pursuant to its authorized programs in open market transactions at prevailing prices and may engage in private transactions where appropriate. The repurchased shares either will be available for issuance under employee benefit and stock incentive plans, or may be retired.

Dividend Policy. On July 25, 2012, the Board of Directors declared a quarterly cash dividend of $0.25 per share payable on September 28, 2012. On June 29, 2012, the Company paid $10.0 million in dividends to shareholders. The Company paid a total of $18.8 million and $36.8 million in cash dividends during the six and twelve months ended June 30, 2012, respectively. The Company paid a total of $9.2 million in cash dividends during the six and twelve months ended June 30, 2011.

Basic and Diluted Earnings Per Share. The basic and diluted earnings per share are presented below (in thousands except for share data):
	Three Months Ended June 30,
	2012			2011
Weighted average number of common shares outstanding:
Basic number of common shares outstanding	39,958,149			41,853,552
Dilutive effect of unvested performance awards	64,698			195,078
Dilutive effect of stock options	17,929			28,029
Diluted number of common shares outstanding	40,040,776			42,076,659
Basic net income per common share:
Net income	$	30,894		$	32,990
Income allocated to participating restricted stock	(83		)	(157		)
Net income available to common shareholders	$	30,811		$	32,833
Diluted net income per common share:
Net income	$	30,894		$	32,990
Income reallocated to participating restricted stock	(83		)	(157		)
Net income available to common shareholders	$	30,811		$	32,833
Basic net income per common share:
Distributed earnings	$	0.25		$	0.22
Undistributed earnings	0.52			0.56
Basic net income per common share	$	0.77		$	0.78
Diluted net income per common share:
Distributed earnings	$	0.25		$	0.22
Undistributed earnings	0.52			0.56
Diluted net income per common share	$	0.77		$	0.78

	Six Months Ended June 30,
	2012			2011
Weighted average number of common shares outstanding:
Basic number of common shares outstanding	39,934,590			42,079,568
Dilutive effect of unvested performance awards	65,450			182,252
Dilutive effect of stock options	20,103			36,896
Diluted number of common shares outstanding	40,020,143			42,298,716
Basic net income per common share:
Net income	$	34,238		$	39,765
Income allocated to participating restricted stock	(104		)	(179		)
Net income available to common shareholders	$	34,134		$	39,586
Diluted net income per common share:
Net income	$	34,238		$	39,765
Income reallocated to participating restricted stock	(104		)	(178		)
Net income available to common shareholders	$	34,134		$	39,587
Basic net income per common share:
Distributed earnings	$	0.47		$	0.22
Undistributed earnings	0.38			0.72
Basic net income per common share	$	0.85		$	0.94
Diluted net income per common share:
Distributed earnings	$	0.47		$	0.22
Undistributed earnings	0.38			0.72
Diluted net income per common share	$	0.85		$	0.94

	Twelve Months Ended June 30,
	2012			2011
Weighted average number of common shares outstanding:
Basic number of common shares outstanding	40,285,248			42,376,298
Dilutive effect of unvested performance awards	148,256			164,636
Dilutive effect of stock options	22,122			54,077
Diluted number of common shares outstanding	40,455,626			42,595,011
Basic net income per common share:
Net income	$	98,012		$	107,412
Income allocated to participating restricted stock	(379		)	(458		)
Net income available to common shareholders	$	97,633		$	106,954
Diluted net income per common share:
Net income	$	98,012		$	107,412
Income reallocated to participating restricted stock	(378		)	(456		)
Net income available to common shareholders	$	97,634		$	106,956
Basic net income per common share:
Distributed earnings	$	0.91		$	0.22
Undistributed earnings	1.51			2.30
Basic net income per common share	$	2.42		$	2.52
Diluted net income per common share:
Distributed earnings	$	0.91		$	0.22
Undistributed earnings	1.50			2.29
Diluted net income per common share	$	2.41		$	2.51

The amount of restricted stock awards, performance shares and stock options excluded from the calculation of the diluted number of common shares outstanding because their effect was antidilutive is presented below:
	Three Months Ended		Six Months Ended		Twelve Months Ended
	June 30,		June 30,		June 30,
	2012	2011	2012	2011	2012	2011
Restricted stock awards	32,101	69,639	45,951	81,858	63,699	79,991
Performance shares (a)	51,133	—	47,092	—	23,546	—
Stock options	—	—	—	—	—	—

______________________

(a) Performance shares excluded from the computation of diluted earnings per share, as no payouts would have been required based upon performance at the end of the corresponding period. This amount assumes a 100% performance level payout.

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Commitments, Contingencies And Uncertainties (Tables)

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies Disclosure [Abstract]

Costs Incurred To Comply With Federal Environment Statutes

The Company incurred the following expenditures during the three, six and twelve months ended June 30, 2012 and 2011 to comply with federal environmental statutes (in thousands):

	Three Months Ended				Six Months Ended				Twelve Months Ended
	June 30,				June 30,				June 30,
	2012		2011		2012		2011		2012		2011
Clean Air Act (1)	$	194	$	253	$	423	$	293	$	846	$	620
Clean Water Act	55		53		101		109		256		184

_________________

(1) Includes an accrual of $0.2 million, in the first quarter of 2012, related to Four Corners generating station discussed below.

Allowance for Emissions [Table Text Block]

The Company has purchased allowances and expensed the following costs to meet its annual requirements (in thousands):

Compliance Year	Amount
2010	$	370
2011	90

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Principles Of Preparation (Tables)

6 Months Ended

Jun. 30, 2012

Accounting Policies [Abstract]

Supplemental Cash Flow Disclosures

Supplemental Cash Flow Disclosures (in thousands)
	Six Months Ended
	June 30,
	2012		2011
Cash paid for:
Interest on long-term debt and borrowing under the revolving credit facility	$	25,106	$	24,256
Income taxes paid (refund), net	3,159		(3,101		)
Non-cash financing activities:
Grants of restricted shares of common stock	2,331		3,193
Issuance of performance shares	1,193		565
Acquisition of treasury stock for options exercised	—		500

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Litigation

6 Months Ended

Jun. 30, 2012

Litigation [Abstract]

Litigation

Litigation

The Company is a party to various legal actions. In many of these matters, the Company has excess casualty liability insurance that covers the various claims, actions and complaints. Based upon a review of these claims and applicable insurance coverage, to the extent that the Company has been able to reach a conclusion as to its ultimate liability, it believes that none of these claims will have a material adverse effect on the financial position, results of operations or cash flows of the Company. See Note C for discussion of the effects of government legislation and regulation on the Company.

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Income Taxes

6 Months Ended

Jun. 30, 2012

Components of Income Tax Expense (Benefit), Continuing Operations [Abstract]

Income Taxes

Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction and in the states of Texas, New Mexico and Arizona. The Company is no longer subject to tax examination by the taxing authorities in the federal jurisdiction for years prior to 2007 and in the state jurisdictions for years prior to 1998. A deficiency notice relating to the Company’s 1998 through 2003 income tax returns in Arizona contests a pollution control credit, a research and development credit, and the sales and property apportionment factors. The Company is contesting these adjustments.

For the three months ended June 30, 2012 and 2011, the Company’s consolidated effective tax rate was 34.6% and 33.7%, respectively. For the six months ended June 30, 2012 and 2011, the Company's consolidated effective tax rate was 33.4% and 32.0%, respectively. For the twelve months ended June 30, 2012 and 2011, the Company's consolidated effective tax rate was 34.7% and 32.6%, respectively. The Company's consolidated effective tax rate for the three, six and twelve months ended June 30, 2012 differs from the federal statutory tax rate of 35.0% primarily due to the allowance for equity funds used during construction and state income taxes.

FASB guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In the second quarter of 2012, a $2.8 million decrease was made to the previous reserve for capitalized assets. The decrease is primarily a result of facts and circumstances relating to an IRS safe harbor method regarding units of property of transmission and distribution assets. Further changes to the unrecognized tax position may be recognized as the IRS releases additional guidance as it pertains to generation assets and as the IRS audits of the 2009, 2010 and 2011 tax returns progress. A reconciliation of the June 30, 2012 and 2011 amount of unrecognized tax benefits is as follows (in thousands):

	2012			2011
Balance at January 1	$	9,500		$	7,300
Additions/(reductions) based on tax positions related to the current year	200			1,100
Additions for tax positions of prior years	—			—
Reductions for tax positions of prior years	(2,800		)	—
Balance at June 30	$	6,900		$	8,400

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Commitments, Contingencies And Uncertainties

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments, Contingencies And Uncertainties

Commitments, Contingencies and Uncertainties

For a full discussion of commitments and contingencies, see Note K of Notes to Consolidated Financial Statements in the 2011 Form 10-K. In addition, see Note C above and Notes C and E of Notes to Consolidated Financial Statements in the 2011 Form 10-K regarding matters related to wholesale power sales contracts and transmission contracts subject to regulation and Palo Verde, including decommissioning, spent fuel storage, disposal of low-level radioactive waste, and liability and insurance matters.

Power Purchase and Sale Contracts

To supplement its own generation and operating reserves, and to meet required renewable portfolio standards, the Company engages in firm power purchase arrangements which may vary in duration and amount based on evaluation of the Company’s resource needs, the economics of the transactions, and specific renewable portfolio requirements. For a full discussion of power purchase and sale contracts that the Company has entered into with various counterparties, see Note K of Notes to Consolidated Financial Statements in the 2011 Form 10-K. In addition to the contracts disclosed in the 2011 Form 10-K, in March 2012, the Company entered into a purchase contract with Southwestern Public Service Company for 65 MW during the months of June through August 2012.

Environmental Matters

General. The Company is subject to laws and regulations with respect to air, soil and water quality, waste disposal and other environmental matters by federal, state, regional, tribal and local authorities. Those authorities govern facility operations and have continuing jurisdiction over facility modifications. Failure to comply with these requirements can result in actions by regulatory agencies or other authorities that might seek to impose on the Company administrative, civil and/or criminal penalties or other sanctions. In addition, releases of pollutants or contaminants into the environment can result in costly cleanup liabilities. These laws and regulations are subject to change and, as a result of those changes, the Company may face additional capital and operating costs to comply. Certain key environmental issues, laws and regulations facing the Company are described further below.

Air Emissions. The U.S. Clean Air Act (“CAA”) and comparable state laws and regulations relating to air emissions impose, among other obligations, limitations on pollutants generated during the Company’s operations, including sulfur dioxide (“SO₂”), particulate matter ("PM"), nitrogen oxides (“NOx”) and mercury.

Clean Air Interstate Rule. The U.S. Environmental Protection Agency’s (“EPA”) Clean Air Interstate Rule (“CAIR”), as applied to the Company, involves requirements to limit emissions of NOx from the Company’s power plants in Texas and/or purchase allowances representing other parties’ emissions reductions starting in 2009. The U.S. Court of Appeals for the District of Columbia voided CAIR in 2008; however, the Company has complied with CAIR since 2009, and such rule is binding. The annual reconciliation to comply with CAIR is due by March 31 of the following year. The Company has purchased allowances and expensed the following costs to meet its annual requirements (in thousands):

Compliance Year	Amount
2010	$	370
2011	90

Cross-State Air Pollution Rule. In July 2011, the EPA finalized the Cross-State Air Pollution Rule (“CSAPR”) which is intended to replace CAIR. CSAPR requires 28 states, including Texas, to further reduce power plant emissions of SO₂ and NOx. Under CSAPR, reductions in annual SO₂ and NOx emissions were required to begin January 1, 2012, with further reductions required beginning January 1, 2014. On December 30, 2011, the U.S. Court of Appeals for the District of Columbia Circuit issued its ruling to stay CSAPR, including the supplemental final rule, pending judicial review, which delays CSAPR's implementation date beyond January 1, 2012. The court is scheduled to hear the cases against the rule in 2012, with a decision later in 2012. As the outcome of the judicial review and any other legal or Congressional challenges are uncertain, the Company is unable to determine what impact CSAPR may ultimately have on its operations and consolidated financial results, but it could be material. Until the legal challenges to CSAPR are resolved, the Company's obligations under CAIR remains in effect.

National Ambient Air Quality Standards. Under the CAA, the EPA sets National Ambient Air Quality Standards ("NAAQS") for six criteria emissions considered harmful to public health and the environment, including PM, NOx, CO and SO₂. Areas meeting the NAAQS are designated attainment areas while those that do not meet the NAAQS are considered nonattainment areas. Each state must develop a plan to bring nonattainment areas into compliance with the NAAQS. NAAQS must be reviewed by the EPA at five-year intervals. In 2010, the EPA strengthened the NAAQS for both NOx and SO₂. The Company continues to evaluate what impact this could have on its operations. If the Company is required to install additional equipment to control emissions at its facilities, the revised NAAQS could have a material impact on its operations and consolidated financial results. In addition, as a result of EPA's review of the PM NAAQS, the agency proposed on June 14, 2012, to strengthen the annual health standard for fine particulate matter and set a new, separate fine particle standard to improve visibility. Also, the EPA had been in the process of revising the NAAQS for ozone, when, in September 2011, President Obama ordered the EPA to withdraw its proposal. Work, however, is underway to support EPA's planned reconsideration of the standards in 2013. The Company cannot at this time predict the impact of these possible new standards on its operations or consolidated financial results, but it could be material.

Utility MACT. The operation of coal-fired power plants, such as the Company's Four Corners plant, results in emissions of mercury and other air toxics. In December 2011, the EPA finalized Mercury and Air Toxics Standards (known as the "Utility MACT") for oil- and coal-fired power plants, which replaces the prior federal Clean Air Mercury Rule and requires significant reductions in emissions of mercury and other air toxics. Several challenges are being made to this rule, including a proposal to withdraw the rule, which was rejected by the Senate on June 20, 2012. These challenges notwithstanding, companies impacted by the new standards will have up to four (and in certain limited cases five) years to comply. Information to the Company from the Four Corners plant operator, APS, indicates that APS believes Units 4 and 5 will require no additional modifications to achieve compliance with the Utility MACT standards; however, further testing and evaluation are planned. If additional controls are needed, the cost of compliance could be material.

Climate Change. A significant portion of the Company's generation assets are nuclear or gas-fired, and as a result, the Company believes that its greenhouse gas (“GHG”) emissions are low relative to electric power companies who rely on more coal-fired generation. However, regulations governing the emission of GHGs, such as carbon dioxide, could impose significant costs or limitations on the Company. In recent years, the U.S. Congress has considered new legislation to restrict or regulate GHG emissions, although federal efforts directed at enacting comprehensive climate change legislation stalled in 2010 and appear unlikely to recommence in the near future. Nonetheless, it is possible that federal legislation related to GHG emissions will be considered by Congress in the future. The EPA has begun using the CAA to limit carbon dioxide and other GHG emissions, and other measures are being imposed or offered by individual states, municipalities and regional agreements with the goal of reducing GHG emissions.

In September 2009, the EPA adopted a rule requiring approximately 10,000 facilities comprising a substantial percentage of annual U.S. GHG emissions to inventory their emissions starting in 2010 and to report those emissions to the EPA beginning in 2011. The Company's fossil fuel-fired power generating assets are subject to this rule, and the first report containing 2010 emissions was submitted to the EPA prior to the September 30, 2011 due date. The Company also has inventoried and implemented procedures for electrical equipment containing sulfur hexafluoride ("SF6"), another GHG. The Company is tracking these GHG emissions pursuant to the EPA's new SF6 reporting rule that was finalized in late 2010 and became effective January 1, 2011. The first report to EPA under this rule was originally due on March 31, 2012, but in November 2011, EPA delayed its submittal to September 28, 2012.

The EPA has also proposed and finalized other rulemakings on GHG emissions that affect electric utilities. Under EPA regulations finalized in May 2010 (referred to as the “Tailoring Rule”), the EPA began regulating GHG emissions from certain stationary sources in January 2011. The regulations are being implemented pursuant to two CAA programs: the Title V Operating Permit program and the program requiring a permit if undergoing construction or major modifications (referred to as the “PSD” program). Obligations relating to Title V permits include recordkeeping and monitoring requirements. With respect to PSD permits, projects that cause a significant increase in GHG emissions (currently defined to be more than 75,000 tons or 100,000 tons per year, depending on various factors), will be required to implement “best available control technology,” or “BACT”. The EPA has issued guidance on what BACT entails for the control of GHGs, and individual states are now required to determine what controls are required for facilities within their jurisdiction on a case-by-case basis. The ultimate impact of these new regulations on the Company's operations cannot be determined at this time, but the cost of compliance with new regulations could be material. Also, on December 23, 2010, the EPA announced a settlement agreement with states and environmental groups regarding setting new source performance standards for GHG emissions from new and existing coal-, gas- and oil-based power plants. Pursuant to this agreement, and certain agreed upon extensions, on March 27, 2012, EPA released its proposed GHG New Source Performance Standard ("NSPS") for new and modified electric generating units. The Company is currently determining how this proposed rule may impact existing and future operations and has provided comments to EPA during the comment period ending on June 25, 2012, supporting EPA's proposed exemption for simple cycle combustion turbines. The impact of these rules on the Company is unknown at this time, but they could result in significant costs, limitations on operating hours, and/or changes in construction schedules for future generating units.

In addition, almost half of the states, either individually and/or through multi-state regional initiatives, have begun to consider how to address GHG emissions and have developed, or are actively considering the development of emission inventories or regional GHG cap and trade programs.

It is not currently possible to predict with confidence how any pending, proposed or future GHG legislation by Congress, the states, or multi-state regions or regulations adopted by EPA or the state environmental agencies will impact the Company's business. However, any such legislation or regulation of GHG emissions or any future related litigation could result in increased compliance costs or additional operating restrictions or reduced demand for the power the Company generates, could require the Company to purchase rights to emit GHG, and could have a material adverse effect on the Company's business, financial condition, reputation or results of operations.

Climate change also has potential physical effects that could be relevant to the Company's business. In particular, some studies suggest that climate change could affect the Company's service area by causing higher temperatures, less winter precipitation and less spring runoff, as well as by causing more extreme weather events. Such developments could change the demand for power in the region and could also impact the price or ready availability of water supplies or affect maintenance needs and the reliability of Company equipment.

The Company believes that material effects on the Company's business or operations may result from the physical consequences of climate change, the regulatory approach to climate change ultimately selected and implemented by governmental authorities, or both. Substantial expenditures may be required for the Company to comply with such regulations in the future and, in some instances, those expenditures may be material. Given the very significant remaining uncertainties regarding whether and how these issues will be regulated, as well as the timing and severity of any physical effects of climate change, the Company believes it is impossible at present to meaningfully quantify the costs of these potential impacts.

Contamination Matters. The Company has a provision for environmental remediation obligations of approximately $0.5 million at June 30, 2012, related to compliance with federal and state environmental standards. However, unforeseen expenses associated with environmental compliance or remediation may occur and could have a material adverse effect on the future operations and financial condition of the Company.

The Company incurred the following expenditures during the three, six and twelve months ended June 30, 2012 and 2011 to comply with federal environmental statutes (in thousands):

	Three Months Ended				Six Months Ended				Twelve Months Ended
	June 30,				June 30,				June 30,
	2012		2011		2012		2011		2012		2011
Clean Air Act (1)	$	194	$	253	$	423	$	293	$	846	$	620
Clean Water Act	55		53		101		109		256		184

_________________

(1) Includes an accrual of $0.2 million, in the first quarter of 2012, related to Four Corners generating station discussed below.

Environmental Litigation and Investigations. On April 6, 2009, APS received a request from the EPA under Section 114 of the CAA seeking detailed information regarding projects and operations at Four Corners. The EPA has taken the position that many utilities have made certain physical or operational changes at their plants that should have triggered additional regulatory requirements under the New Source Review provisions of the CAA. APS responded to this request in 2009. On February 16, 2010, a group of environmental organizations filed a petition with the United States Departments of Interior and Agriculture requesting that the agencies certify to the EPA that emissions from Four Corners are causing “reasonably attributable visibility impairment” under the CAA.  If the agencies certify impairment, the EPA is required to evaluate and, if necessary, determine “best available retrofit technology" (“BART”) for Four Corners.  On January 19, 2011, a similar group of environmental organizations filed a lawsuit against the Departments of Interior and Agriculture, alleging, among other things, that the agencies failed to act on the February 2010 petition “without unreasonable delay” and requesting the court to order the agencies to act on the petition within 30 days.  Since July 2011, the U.S. Department of Justice ("DOJ"), on behalf of the EPA, and APS have been engaged in substantive settlement negotiations.  Most recently, by letter dated March 2, 2012, the DOJ submitted a revised settlement proposal.  Settlement discussions have included provisions for a civil penalty and environmental mitigation projects. The Company has determined that payment of a penalty and payment for environmental mitigation projects is likely to occur and that the current range for the Company's loss contingency exposure is $0.2 million to $0.9 million. The Company has accrued $0.2 million related to this matter. The settlement discussions have emphasized that the environment mitigation projects that address alleged harm to the Navajo Nation be spent within 5 years years of the date a decree is entered.

The Company received notice that Earthjustice filed a lawsuit in the United States District Court for New Mexico on October 4, 2011 for alleged violations of the Prevention of Significant Deterioration provisions of the CAA related to Four Corners. Subsequent to filing its original Complaint, on January 6, 2012, Earthjustice filed a First Amended Complaint adding claims for violations of the CAA's NSPS program. Among other things, the plaintiffs seek to have the court enjoin operations at Four Corners until APS applies for and obtains any required PSD permits and complies with the NSPS. The plaintiffs further request the court to order the payment of civil penalties, including a beneficial mitigation project. APS advised that it believes the claims in this matter are without merit and will vigorously defend against them. The Company is unable to predict the outcome of this litigation.

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Employee Benefits

6 Months Ended

Jun. 30, 2012

General Discussion of Pension and Other Postretirement Benefits [Abstract]

Employee Benefits

Employee Benefits

Retirement Plans

The net periodic benefit cost recognized for the three, six and twelve months ended June 30, 2012 and 2011 is made up of the components listed below as determined using the projected unit credit actuarial cost method (in thousands):

	Three Months Ended						Six Months Ended						Twelve Months Ended
	June 30,						June 30,						June 30,
	2012			2011			2012			2011			2012			2011
Components of net periodic benefit cost:
Service cost	$	2,189		$	1,682		$	4,414		$	3,425		$	7,839		$	6,457
Interest cost	3,400			3,499			6,778			6,994			13,771			13,808
Amendments	—			—			—			—			—			838
Expected return on plan assets	(3,611		)	(3,515		)	(7,221		)	(7,048		)	(14,268		)	(13,982		)
Amortization of:
Net loss	2,713			1,689			5,678			3,272			8,950			5,047
Prior service cost	31			31			58			58			115			115
Net periodic benefit cost	$	4,722		$	3,386		$	9,707		$	6,701		$	16,407		$	12,283

During the six months ended June 30, 2012, the Company contributed $11.5 million of its projected $19.8 million2012 annual contribution to its retirement plans.

Other Postretirement Benefits

The net periodic benefit cost recognized for the three, six and twelve months ended June 30, 2012 and 2011 is made up of the components listed below (in thousands):

	Three Months Ended						Six Months Ended						Twelve Months Ended
	June 30,						June 30,						June 30,
	2012			2011			2012			2011			2012			2011
Components of net periodic benefit cost:
Service cost	$	1,119		$	756		$	2,189		$	1,494		$	3,683		$	3,273
Interest cost	1,410			1,399			2,825			2,689			5,515			6,021
Expected return on plan assets	(453		)	(454		)	(888		)	(912		)	(1,799		)	(1,676		)
Amortization of:
Prior service benefit	(1,468		)	(1,481		)	(2,938		)	(2,963		)	(5,902		)	(4,397		)
Net loss (gain)	147			89			307			(19		)	287			(107		)
Net periodic benefit cost	$	755		$	309		$	1,495		$	289		$	1,784		$	3,114

During the six months ended June 30, 2012, the Company contributed $0.6 million of its projected $2.5 million2012 annual contribution to its postretirement plan.

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Common Stock (Basic And Diluted Earnings Per Share) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Class of Stock Disclosures [Abstract]
Basic number of common shares outstanding	39,958,149	41,853,552	39,934,590	42,079,568	40,285,248	42,376,298
Dilutive effect of unvested performance awards	64,698	195,078	65,450	182,252	148,256	164,636
Dilutive effect of stock options	17,929	28,029	20,103	36,896	22,122	54,077
Diluted number of common shares outstanding	40,040,776	42,076,659	40,020,143	42,298,716	40,455,626	42,595,011
Net income	$ 30,894	$ 32,990	$ 34,238	$ 39,765	$ 98,012	$ 107,412
Income allocated to participating restricted stock	(83)	(157)	(104)	(179)	(379)	(458)
Net income available to common shareholders, basic	30,811	32,833	34,134	39,586	97,633	106,954
Income reallocated to participating restricted stock	(83)	(157)	(104)	(178)	(378)	(456)
Net income available to common shareholders, diluted	$ 30,811	$ 32,833	$ 34,134	$ 39,587	$ 97,634	$ 106,956
Earnings Per Share, Basic, Distributed	$ 0.25	$ 0.22	$ 0.47	$ 0.22	$ 0.91	$ 0.22
Earnings Per Share, Basic, Undistributed	$ 0.52	$ 0.56	$ 0.38	$ 0.72	$ 1.51	$ 2.30
Basic net income per common share	$ 0.77	$ 0.78	$ 0.85	$ 0.94	$ 2.42	$ 2.52
Earnings Per Share, Diluted, Distributed	$ 0.25	$ 0.22	$ 0.47	$ 0.22	$ 0.91	$ 0.22
Earnings Per Sare, Diluted, Undistributed	$ 0.52	$ 0.56	$ 0.38	$ 0.72	$ 1.50	$ 2.29
Diluted net income per common share	$ 0.77	$ 0.78	$ 0.85	$ 0.94	$ 2.41	$ 2.51

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Financial Instruments And Investments (Unrealized Holding Losses Included In Pre-Tax Income) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Financial Instruments And Investments [Abstract]
Gross unrealized holding losses included In pre-tax income	$ (166)	$ (199)	$ (166)	$ (199)	$ (2,083)	$ (199)

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Common Stock (Tables)

6 Months Ended

Jun. 30, 2012

Class of Stock Disclosures [Abstract]

Stock Repurchase Program

Repurchase Program.No shares of common stocks were repurchased during the first six months of 2012. Details regarding the Company’s stock repurchase program are presented below:

	Since 1999 (a)		Authorized Shares
Shares repurchased (b)	25,406,184
Cost, including commission (in thousands)	$	423,647
Total remaining shares available for repurchase at June 30, 2012			393,816

_______________________

(a) Represents repurchased shares and cost since inception of the stock repurchase program in 1999.

(b) Shares repurchased does not include 86,735 treasury shares related to employee compensation arrangements outside of the Company's repurchase programs.

Schedule of Earnings Per Share, Basic and Diluted

Basic and Diluted Earnings Per Share. The basic and diluted earnings per share are presented below (in thousands except for share data):
	Three Months Ended June 30,
	2012			2011
Weighted average number of common shares outstanding:
Basic number of common shares outstanding	39,958,149			41,853,552
Dilutive effect of unvested performance awards	64,698			195,078
Dilutive effect of stock options	17,929			28,029
Diluted number of common shares outstanding	40,040,776			42,076,659
Basic net income per common share:
Net income	$	30,894		$	32,990
Income allocated to participating restricted stock	(83		)	(157		)
Net income available to common shareholders	$	30,811		$	32,833
Diluted net income per common share:
Net income	$	30,894		$	32,990
Income reallocated to participating restricted stock	(83		)	(157		)
Net income available to common shareholders	$	30,811		$	32,833
Basic net income per common share:
Distributed earnings	$	0.25		$	0.22
Undistributed earnings	0.52			0.56
Basic net income per common share	$	0.77		$	0.78
Diluted net income per common share:
Distributed earnings	$	0.25		$	0.22
Undistributed earnings	0.52			0.56
Diluted net income per common share	$	0.77		$	0.78

	Six Months Ended June 30,
	2012			2011
Weighted average number of common shares outstanding:
Basic number of common shares outstanding	39,934,590			42,079,568
Dilutive effect of unvested performance awards	65,450			182,252
Dilutive effect of stock options	20,103			36,896
Diluted number of common shares outstanding	40,020,143			42,298,716
Basic net income per common share:
Net income	$	34,238		$	39,765
Income allocated to participating restricted stock	(104		)	(179		)
Net income available to common shareholders	$	34,134		$	39,586
Diluted net income per common share:
Net income	$	34,238		$	39,765
Income reallocated to participating restricted stock	(104		)	(178		)
Net income available to common shareholders	$	34,134		$	39,587
Basic net income per common share:
Distributed earnings	$	0.47		$	0.22
Undistributed earnings	0.38			0.72
Basic net income per common share	$	0.85		$	0.94
Diluted net income per common share:
Distributed earnings	$	0.47		$	0.22
Undistributed earnings	0.38			0.72
Diluted net income per common share	$	0.85		$	0.94

	Twelve Months Ended June 30,
	2012			2011
Weighted average number of common shares outstanding:
Basic number of common shares outstanding	40,285,248			42,376,298
Dilutive effect of unvested performance awards	148,256			164,636
Dilutive effect of stock options	22,122			54,077
Diluted number of common shares outstanding	40,455,626			42,595,011
Basic net income per common share:
Net income	$	98,012		$	107,412
Income allocated to participating restricted stock	(379		)	(458		)
Net income available to common shareholders	$	97,633		$	106,954
Diluted net income per common share:
Net income	$	98,012		$	107,412
Income reallocated to participating restricted stock	(378		)	(456		)
Net income available to common shareholders	$	97,634		$	106,956
Basic net income per common share:
Distributed earnings	$	0.91		$	0.22
Undistributed earnings	1.51			2.30
Basic net income per common share	$	2.42		$	2.52
Diluted net income per common share:
Distributed earnings	$	0.91		$	0.22
Undistributed earnings	1.50			2.29
Diluted net income per common share	$	2.41		$	2.51

Schedule of Antidilutive Securities Excluded From Computation Of Earnings Per Share

The amount of restricted stock awards, performance shares and stock options excluded from the calculation of the diluted number of common shares outstanding because their effect was antidilutive is presented below:
	Three Months Ended		Six Months Ended		Twelve Months Ended
	June 30,		June 30,		June 30,
	2012	2011	2012	2011	2012	2011
Restricted stock awards	32,101	69,639	45,951	81,858	63,699	79,991
Performance shares (a)	51,133	—	47,092	—	23,546	—
Stock options	—	—	—	—	—	—

______________________

(a) Performance shares excluded from the computation of diluted earnings per share, as no payouts would have been required based upon performance at the end of the corresponding period. This amount assumes a 100% performance level payout.

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Principles Of Preparation (Accrued Unbilled Revenues) (Details) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Accounting Policies [Abstract]
Accrued unbilled revenues	$ 29.1	$ 19.6

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Financial Instruments And Investments (Unrecognized Gross Unrealized Gains And The Fair Value) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Fair Value	$ 149,375	$ 139,509
Unrealized Gains	25,564	20,124
Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value	68,890	73,291
Unrealized Gains	4,286	4,443
Collateralized Mortgage Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value	22,065	25,077
Unrealized Gains	1,206	1,220
U.S. Government Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value	9,129	10,263
Unrealized Gains	754	972
Municipal Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value	27,017	30,310
Unrealized Gains	1,621	1,792
Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value	10,679	7,641
Unrealized Gains	705	459
Equity Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value	67,252	62,479
Unrealized Gains	20,885	15,681
Mutual Funds - Equity [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value	9,073	0
Unrealized Gains	393	0
Cash and Cash Equivalents [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value	4,160	3,739
Unrealized Gains	$ 0	$ 0

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Commitments, Contingencies And Uncertainties (Costs Incurred To Comply With Federal Environment Statutes) (Details) (USD $)	3 Months Ended		6 Months Ended			12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012		Jun. 30, 2011	Jun. 30, 2012		Jun. 30, 2011
Four Corners Generating Station
Site Contingency [Line Items]
Cost Related to Environmental Litigation at Generation Station			$ 200,000			$ 200,000
Clean Air Act
Site Contingency [Line Items]
Environmental Remediation Expense	194,000	253,000	423,000	[1]	293,000	846,000	[1]	620,000
Clean Water Act
Site Contingency [Line Items]
Environmental Remediation Expense	$ 55,000	$ 53,000	$ 101,000		$ 109,000	$ 256,000		$ 184,000

[1] (1) Includes an accrual of $0.2 million, in the first quarter of 2012, related to Four Corners generating station discussed below.

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Consolidated Statements Of Comprehensive Operations (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Net income	$ 30,894	$ 32,990	$ 34,238	$ 39,765	$ 98,012	$ 107,412
Unrecognized pension and postretirement benefit costs:
Net loss arising during period	0	0	0	0	(77,678)	(9,874)
Prior service benefit	0	0	0	0	0	26,605
Reclassification adjustments included in net income for amortization of:
Prior service benefit	(1,437)	(1,450)	(2,880)	(2,905)	(5,787)	(4,282)
Net loss	2,860	1,778	5,985	3,253	9,237	4,940
Net unrealized gains (losses) on marketable securities:
Net holding gains (losses) arising during period	(2,341)	416	5,817	2,589	4,798	13,232
Reclassification adjustments for net (gains) losses included in net income	1,447	2	1,234	(203)	2,795	(490)
Net losses on cash flow hedges:
Reclassification adjustment for interest expense included in net income	95	88	189	176	374	348
Total other comprehensive income (loss) before income taxes	624	834	10,345	2,910	(66,261)	30,479
Income tax benefit (expense) related to items of other comprehensive income (loss):
Unrecognized pension and postretirement benefit costs	(541)	(124)	(1,096)	(131)	29,169	(6,306)
Net unrealized losses on marketable securities	189	(157)	(1,370)	(517)	(1,416)	(2,588)
Losses on cash flow hedges	(36)	(33)	(81)	(66)	(218)	(128)
Total income tax benefit (expense)	(388)	(314)	(2,547)	(714)	27,535	(9,022)
Other comprehensive income (loss), net of tax	236	520	7,798	2,196	(38,726)	21,457
Comprehensive income	$ 31,130	$ 33,510	$ 42,036	$ 41,961	$ 59,286	$ 128,869

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Regulation

6 Months Ended

Jun. 30, 2012

Public Utilities, General Disclosures [Abstract]

Regulation

Regulation

General

The rates and services of the Company are regulated by incorporated municipalities in Texas, the PUCT, the NMPRC, and the FERC. The PUCT and the NMPRC have jurisdiction to review municipal orders, ordinances and utility agreements regarding rates and services within their respective states and over certain other activities of the Company. The FERC has jurisdiction over the Company's wholesale (sales for resale) transactions, transmission service and compliance with federally-mandated reliability standards. The decisions of the PUCT, NMPRC and the FERC are subject to judicial review.

Texas Regulatory Matters

2012 Texas Retail Rate Case. The Company filed a rate increase request with the PUCT, Docket No. 40094, the City of El Paso, and other Texas cities on February 1, 2012. The rate filing was made in response to a resolution adopted by the El Paso City Council (the "Council") requiring the Company to show cause why its base rates for customers in the El Paso city limits should not be reduced. The rate filing used a historical test year ended September 30, 2011. The filing at the PUCT also included a request to reconcile $356.5 million of fuel expense for the period July 1, 2009 through September 30, 2011. On November 15, 2011, the Council adopted a resolution which established current rates as temporary rates for the Company's customers residing within the city limits of El Paso.

On April 17, 2012, the Council approved the settlement of the Company's 2012 Texas retail rate case and fuel reconciliation in PUCT Docket No. 40094. The settlement reflects discussions with the PUCT, the City of El Paso and other intervenors in Docket No. 40094. The approval by the Council (i) resolves the local City of El Paso rate proceeding that commenced with the October 4, 2011 show cause order of the Council, (ii) implements new rates within the city limits of El Paso commencing with bills rendered on and after May 1, 2012, and (iii) rescinds and withdraws the temporary rate order that the Council issued on November 15, 2011.

For Texas service areas outside of the city limits of El Paso, the settlement was filed with the PUCT on April 19, 2012, and no intervenors opposed the settlement. On April 26, 2012, the administrative law judges issued an order (i) implementing the settlement rates as temporary rates effective May 1, 2012, and (ii) dismissing the case before the State Office of Administrative Hearings, sending the settlement to the PUCT for final approval. The PUCT issued a final order approving the settlement on May 23, 2012.

Under the terms of the settlement, among other things, the Company has agreed to:

• A reduction in its current non-fuel base rates of $15 million annually, with the decrease being allocated primarily to Texas retail commercial and industrial customer classes. The rate decrease was effective as of May 1, 2012 and is the same rate decrease approved by the El Paso Council described above;

• New tariffs that will include an Economic Development Rate Rider that provides discounts in the demand charge and is intended to spur new business development in the Company's Texas service area;

• Revised depreciation rates for the Company's gas-fired generating units and for transmission and distribution plant that will lower depreciation expense by $4.1 million annually;

• Continuation of the 10.125% return on equity for the purpose of calculating the allowance for funds used during construction;

• A two-year amortization of rate case expenses, none of which will be included in future regulatory proceedings; and

• Palo Verde decommissioning funding of $3.6 million annually on a Texas jurisdictional basis, which will be subject to review and adjustment on a going-forward basis in future proceedings.

As part of the settlement, the Company agreed to withdraw its request to reconcile fuel costs for the period from July 1, 2009 through September 30, 2011. The Company will file a fuel reconciliation request covering the period beginning July 1, 2009 and ending no later than June 30, 2013 by December 31, 2013 or as part of its next rate case, if earlier.     

Fuel and Purchased Power Costs. The Company's actual fuel costs, including purchased power energy costs, are recoverable from its customers. The PUCT has adopted a fuel cost recovery rule (“Texas Fuel Rule”) that allows the Company to seek periodic adjustments to its fixed fuel factor. The Company received approval in PUCT Docket No. 37690, to implement a formula to determine its fuel factor which adjusts natural gas and purchased power to reflect natural gas futures prices. The Company can seek to revise its fixed fuel factor based upon the approved formula at least four months after its last revision except in the month of December. The Texas Fuel Rule requires the Company to request to refund fuel costs in any month when the over-recovery balance exceeds a threshold material amount and it expects fuel costs to continue to be materially over-recovered. The Texas Fuel Rule also permits the Company to seek to surcharge fuel under-recoveries in any month the balance exceeds a threshold material amount and it expects fuel cost recovery to continue to be materially under-recovered. Fuel over and under-recoveries are considered material when they exceed 4% of the previous twelve months' fuel costs. All such fuel revenue and expense activities are subject to periodic final review by the PUCT in fuel reconciliation proceedings.

The Company has filed the following petitions with the PUCT to refund recent fuel cost over-recoveries, due primarily to fluctuations in natural gas markets and consumption levels. The table summarizes the docket number assigned by the PUCT, the dates the Company filed the petitions and the dates a final order was issued by the PUCT approving the refunds to customers. The fuel cost over-recovery periods represent the months in which the over-recoveries took place, and the refund periods represent the billing month(s) in which customers received the refund amounts shown, including interest:

Docket No.	Date Filed	Date Approved	Recovery Period	Refund Period	Refund Amount (In Thousands)
38253	May 12, 2010	July 15, 2010	December 2009 – March 2010	July – August 2010	$	11,100
38802	October 20, 2010	December 16, 2010	April – September 2010	December 2010	12,800
39159	February 18, 2011	May 3, 2011	October – December 2010	April 2011	11,800
40622	August 3, 2012	Pending Approval	January 2011- June 2012	September 2012	6,600

The Company has filed the following petitions with the PUCT to revise its fixed fuel factor pursuant to the fuel factor formula authorized in PUCT Docket No. 37690:

Docket No.	Date Filed	Date Approved	Increase (Decrease) in Fuel Factor	Effective Billing Month
38895	November 23, 2010	January 6, 2011	(14.7)%	January 2011
39599	July 15, 2011	August 30, 2011	9.4%	August 2011
40302	April 12, 2012	April 25, 2012	(18.5)%	May 2012

Application of El Paso Electric Company to Amend its Certificate of Convenience and Necessity ("CCN") for Five Solar Powered Generation Projects. On December 9, 2011, the Company filed a petition seeking a CCN to construct five solar powered generation projects, totaling approximately 2.6 MW, at four locations within the City of El Paso and one location in the Town of Van Horn. This case was assigned PUCT Docket No. 39973. A hearing was conducted on June 20, 2012, and a final order is expected in the fourth quarter of 2012.

Generation CCN Filing. On May 2, 2012, the Company filed a petition with the PUCT requesting a CCN to construct a new generation facility to be located at a new plant site, the Montana Power Station, in far east El Paso. The new facility will initially consist of two88 MW simple-cycle aeroderivative combustion turbines, which will be powered by natural gas. The first unit is scheduled to become operational in 2014. This case was assigned PUCT Docket No. 40301. On August 2, 2012, the administrative law judge established a September 2012 deadline for filing a settlement agreement or a request for hearing.

Energy Efficiency Cost Recovery Factor. On April 30, 2012, the Company filed an application to revise its Energy Efficiency Cost Recovery Factor ("EECRF") and to establish revised energy efficiency goals and cost caps, pursuant to Public Utility Regulatory Act ("PURA") Section 39.905 and PUC Substantive Rule 25.181. The expenditures, revised energy efficiency goals, cost caps proposed by the Company for 2013, a half year of amortization of the prior year deferred costs, and a refund of over-recovery of costs for 2011 result in a decrease in the currently effective EECRF. The State Office of Administrative Hearings established a procedural schedule designed to produce a final order in September 2012. The Company and all parties have agreed to a settlement in principle in this case and have notified the administrative law judge that they intend to file a settlement agreement on or before August 8, 2012.

Military Base Discount Recovery Factor. On July 16, 2012, the Company filed a petition to revise its Military Base Discount Recovery Factor ("MBDRF"), pursuant to PURA Section 36.354, which requires that each electric utility, in an area where customer choice is not available, provide discounted charges to military bases. The Company's rates provide for the 20% discount required by PURA for eligible customers, and assess a surcharge designed to recover the cost of the discount from all other Texas customers. The MBDRF is assessed on the base rate portion of customer bills, and the Company has proposed to increase the surcharge from 0.936% to 1.319%.

New Mexico Regulatory Matters

Application for Approval to Recover Regulatory Disincentives and Incentives. On August 31, 2010, the Company filed an application for approval of its proposed rate design methodology to recover regulatory disincentives and provide incentives associated with the Company’s energy efficiency and load management programs in New Mexico. On March 18, 2011, the Company entered into an uncontested stipulation which would provide for a rate per kWh of energy efficiency savings that would be recovered through the efficient use of energy rider. A hearing on the uncontested stipulation was held on April 26, 2011 and briefs were filed on September 26, 2011. A final order was issued on November 22, 2011 in which the NMPRC did not adopt the unopposed stipulation, but modified the structure of the energy rider to reduce the return to two percent and made the mechanism temporary.  The Company filed a Notice of Appeal with the Supreme Court of the State of New Mexico on January 20, 2012 on the grounds that the NMPRC's decision is arbitrary and without substantial evidence. However, in accordance with the final order issued on November 22, 2011, the efficient use of energy rider was implemented for New Mexico customers on February 1, 2012. The Supreme Court suspended the appeal pending further NMPRC final order in the Company's 2011 Application for rate rider.

Application for Approval of 2011 New and Modified Energy Efficiency Programs. On February 15, 2011, the Company filed an Application for Approval of New and Modified Energy Efficiency Programs for 2011 with the NMPRC. On June 22, 2011, parties to this case entered into a partial stipulation, agreeing on all issues, except for a military base free-ridership issue. On June 24, 2011, the New Mexico Attorney General filed a statement in opposition to the proposed partial stipulation. On January 25, 2012, a hearing examiner issued a recommended decision modifying the stipulation by approving the Energy Efficiency programs and budgets with the exception of the Commercial Lighting Program, approving the adder for 2011 but not for 2012 or 2013 and excluding the Military Research & Development Class from participation in the rate rider and reducing the Company's required saving goals accordingly. On February 2, 2012, the Company filed exceptions to the recommended decision and requested an interim order related to this matter. The NMPRC issued a final order approving the partial stipulation and rejecting the Company's exceptions on February 21, 2012. On March 5, 2012, the Company filed an unopposed motion to immediately implement the approved programs and to initiate further proceedings to allow the parties to supplement the record to support the stipulated adders for 2012 and 2013. On March 20, 2012 the NMPRC issued an order granting the unopposed motion. On April 4, 2012, the hearing examiner issued a procedural order requiring additional information supporting the stipulated adders and recovery of regulatory disincentives. The Company filed direct testimony on April 25, 2012 in response to the procedural order. A public hearing was held on July 5 and July 6, 2012. A final order is expected in the fourth quarter of 2012.

Generation CCN Filing. On May 2, 2012, the Company filed a petition with the NMPRC requesting a CCN to construct a new generation facility to be located at a new plant site, the Montana Power Station, in far east El Paso. The new facility will initially consist of two88 MW simple-cycle aeroderivative combustion turbines, which will be powered by natural gas. The first unit is scheduled to become operational in 2014. This case was assigned NMPRC Case No. 12-00137-UT. No party has intervened in the proceeding. The procedural schedule adopted by the NMPRC established August 10, 2012 for Staff testimony, and August 13, 2012 as the deadline for protest.

Revolving Credit Facility and Guarantee of Debt. On October 13, 2011, the Company received final approval from the NMPRC in Case No. 11-00349-UT to amend and restate the Company's $200 million revolving credit facility, which includes an option, subject to lender's approval, to expand the size to $300 million, and to incrementally issue up to $300 million of long-term debt as and when needed. Obtaining the ability to issue up to $300 million of new long-term debt, from time to time, provides the Company with the flexibility to access the debt capital markets when needed and when conditions are favorable.

On November 15, 2011, the Company and Rio Grande Resources Trust ("RGRT") amended and restated the $200 million unsecured RCF with JP Morgan Chase Bank, N.A., as administrative agent and issuing bank, and Union Bank, N.A., as syndication agent, and various lending banks party thereto. The amended and restated revolving credit facility ("RCF") reduces borrowing costs and extends the maturity from September 2014 to September 2016.

On March 29, 2012, the Company and The Bank of New York Mellon Trust Company, N.A., as trustee of the Rio Grande Resources Trust, entered into the Incremental Facility Assumption Agreement (the "Assumption Agreement") related to the RCF discussed above with JPMorgan Chase Bank, N.A., as administrative agent and issuing bank, Union Bank, N.A., as syndication agent, and various lending banks party thereto. The Assumption Agreement provides for the Company's exercise in full of the accordion feature provided for under the RCF, increasing the aggregate unsecured borrowing available from $200 million to $300 million. In addition, the Assumption Agreement reflects the addition of a new lender under the RCF. No other material modifications were made to the terms and conditions of the RCF.

2012 Annual Procurement Plan Pursuant to the Renewable Energy Act. On June 29, 2012, the Company filed its application for approval of its 2012 Annual Procurement Plan pursuant to the New Mexico Renewable Energy Act and NMPRC rule 17.9.572 New Mexico Adminstrative Code ("NMAC"). The plan sets out the Company's procurement of renewable resources and estimated costs for 2013 and 2014 to meet Renewable Portfolio Standards (“RPS”) and resource diversity requirements. Concurrently, the Company filed its Annual Renewable Energy portfolio report for 2011. The Company will meet 2013 and 2014 RPS requirements using previously approved resources. Hearings are scheduled for October and a final order is expected in the fourth quarter of 2012.

2012 Integrated Resource Plan (“IRP”). On July 16, 2012, the Company filed its IRP pursuant to the requirements of the NMPRC IRP Rule, 17.7.3 NMAC. This document discusses the Company's integrated resource planning process and develops an integrated resource portfolio to cost-effectively meet the energy needs of its customers for the next twenty years and specifically identifies the Company's resource needs and plans for resource additions during the next four years. The Company's 2012 IRP and Four-Year Action Plan build upon the initial IRP and four-year action plan, submitted to the Commission on July 16, 2009.

Pollution Control Bond Refunding. On April 12, 2012, the Company filed an application with the NMPRC requesting authority for long-term securities transactions necessary to refund and reissue certain Pollution Control Refunding Revenue Bonds (the "PCBs"). On May 31, 2012, the Company received final approval from the NMPRC in case No. 12-00108-UT, which granted the Company the authority to enter into the securities transactions necessary to refund and reissue the 4.00% 2002 Series A refunding bonds in a principal amount of $33.3 million and the 4.80% 2005 Series A refunding bonds in a principal amount of $59.2 million.

Federal Regulatory Matters

Transmission Dispute with Tucson Electric Power Company (“TEP”). On August 31, 2011, the FERC issued an order approving the settlement of a long standing transmission dispute between TEP and the Company that became effective November 1, 2011. The settlement reduces TEP’s transmission rights under the Transmission Agreement from 200 MW to 170 MW and TEP and the Company have entered into two new firm transmission agreements under which TEP is purchasing from the Company new transmission service at the Company's applicable tariff rates for a total of 40 MW. Those two new service agreements were entered into and became effective November 1, 2011. Also under the terms of the settlement, TEP made a lump-sum cash payment to the Company of approximately $5.4 million for the period February 1, 2006 through September 30, 2011, including interest income. This adjustment was recorded in the three months ended September 30, 2011. The Company shared with its Texas customers 25% of the transmission revenues earned before July 1, 2010, or approximately $0.7 million, through a credit to Texas fuel recoveries.

Revolving Credit Facility and Guarantee of Debt. On October 13, 2011, the Company received final approval from the FERC in Docket No. ES11-43-000 to amend and restate the Company's $200 million RCF, which includes an option, subject to lender's approval, to expand the size to $300 million, and to incrementally issue up to $300 million of long-term debt as and when needed. Obtaining the ability to issue up to $300 million of new long-term debt provides the Company with the flexibility to access the debt capital markets when needed and when conditions are favorable. The Company has two years in which to issue this newly-authorized long-term debt. As noted above, on November 15, 2011, the RCF was amended and restated, and on March 29, 2012, the aggregate unsecured borrowing available under the RCF was increased to $300 million.

Pollution Control Bond Refunding. On April 13, 2012, the Company filed an application with the FERC requesting authority for long-term securities transactions necessary to refund and reissue certain PCBs. On May 30, 2012, the Company received final approval from the FERC in Docket No. ES12-34-0000, granting authority to enter into the securities transactions necessary to refund and reissue the 4.00% 2002 Series A refunding bonds in a principal amount of $33.3 million and the 4.80% 2005 Series A refunding bonds in a principal amount of $59.2 million.

XML

Principles Of Preparation (Extraordinary Gain) (Details) (USD $)	12 Months Ended		3 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Sep. 30, 2010 Company's 6% Senior Notes
Extraordinary gain, net of income tax	$ 0	$ 10,286,000	$ 10,300,000
Income tax expense related to extraordinary gain			$ 5,800,000
Debt Instrument, Interest Rate, Stated Percentage			6.00%
Debt instrument maturity year			2035

XML

Income Taxes (Effective Income Tax Rates) (Details)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Consolidated effective tax rate	34.60%	33.70%	33.40%	32.00%	34.70%	32.60%
Federal statutory tax rate	35.00%		35.00%		35.00%

XML

Regulation (Tables)

6 Months Ended

Jun. 30, 2012

Public Utilities, General Disclosures [Abstract]

Refund Fuel Cost Over Recoveries

The fuel cost over-recovery periods represent the months in which the over-recoveries took place, and the refund periods represent the billing month(s) in which customers received the refund amounts shown, including interest:

Docket No.	Date Filed	Date Approved	Recovery Period	Refund Period	Refund Amount (In Thousands)
38253	May 12, 2010	July 15, 2010	December 2009 – March 2010	July – August 2010	$	11,100
38802	October 20, 2010	December 16, 2010	April – September 2010	December 2010	12,800
39159	February 18, 2011	May 3, 2011	October – December 2010	April 2011	11,800
40622	August 3, 2012	Pending Approval	January 2011- June 2012	September 2012	6,600

Revised Fixed Fuel Factor

The Company has filed the following petitions with the PUCT to revise its fixed fuel factor pursuant to the fuel factor formula authorized in PUCT Docket No. 37690:

Docket No.	Date Filed	Date Approved	Increase (Decrease) in Fuel Factor	Effective Billing Month
38895	November 23, 2010	January 6, 2011	(14.7)%	January 2011
39599	July 15, 2011	August 30, 2011	9.4%	August 2011
40302	April 12, 2012	April 25, 2012	(18.5)%	May 2012