8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):

October 22, 2004

El Paso Electric Company

(Exact name of registrant as specified in its charter)

Texas	0-296	74-0607870
(State or other jurisdiction of incorporation)	(Commission File Number)	(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)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.02 RESULTS OF OPERATION AND FINANCIAL CONDITION

On October 22, 2004, the Company issued a news release announcing its financial results for the quarter ended September 30, 2004. In addition, the news release disclosed that the Company would restate certain of its prior period financial statements due to the discovery of an error in the balance of certain tax assets relating to alternative minimum tax (“AMT”) carryforwards. The Company has preliminarily determined that its AMT carryforward assets were overstated by $4.5 million. Such overstatement dated back to the Company’s fresh-start accounting upon its emergence from bankruptcy in 1996. The correction of this overstatement will result in the Company writing down its AMT carryforward assets by $4.5 million and writing up its reorganization-related transmission and distribution assets by the same amount. Preliminarily, the Company estimates that the annual net income effect of the restatement for each year from 1996 to the present will be to increase depreciation expense by $0.5 million and reduce net income by $0.3 million on an after-tax basis.

The aforementioned adjustments will be reflected in the Company’s restated financial statements. The Company intends to file an amended annual report on Form 10-K/A for the fiscal year ended December 31, 2003 and amended quarterly reports for the periods ended March 31, 2004 and June 30, 2004. Consequently, the first period in which the balance sheet adjustments are reflected will be for the period ending December 31, 2001. The first period in which the depreciation expense and net income adjustments are reflected in the amended financial statements will be the 2001 financial statements.

A copy of the news release containing the announcement is included as Exhibit 99.01 to this Current Report and is incorporated herein by reference. The Company does not intend for this exhibit to be incorporated by reference into future filings under the Securities Exchange Act of 1934.

The information in this Form 8-K that is furnished under “Item 2.02, Results of Operations and Financial Condition” and Exhibit 99.01 attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Act of 1934, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS

(c)    Exhibits

99.01    News Release, dated October 22, 2004

SIGNATURE

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/ Terry Bassham                            

Terry Bassham

Executive Vice President,

Chief Financial and

Administrative Officer

(Duly Authorized Officer and

Principal Financial Officer)

Dated: October 22, 2004

EX-99.01

EXHIBIT 99.01

El Paso Electric

NEWS RELEASE

For Immediate Release	Contact:	Investor
Date: October 22, 2004	Media	Relations:
	Teresa Souza	Steve Busser
	915/543-5823	915/543-5983
		Rachelle Williams
		915/543-2257

El Paso Electric Announces Third Quarter Financial Results

El Paso Electric (NYSE: EE) today reported net income for the quarter ended September 30, 2004, of $25.7 million, or $0.54 basic and diluted income per share, which includes an extraordinary item of $1.8 million, net of tax, or $0.04 basic and diluted earnings per share. Net income for the same period last year was $11.2 million, or $0.23 basic and diluted earnings per share. Both current year and prior results have been adjusted for a restatement of prior periods as discussed in the Income Tax Matters section below.

The increase in earnings for the quarter ended September 30, 2004, when compared to the quarter ended September 30, 2003, resulted primarily from the 2003 asset impairment loss on the Customer Information System (“CIS”) with no comparable loss in the current period, the recording of the benefits of the IRS settlement in the quarter ended September 30, 2004 with no comparable amounts in the previous period, and an extraordinary gain on the re-application of Statement of Financial Accounting Standards No. 71 “Accounting for the Effects of Certain Types of Regulation,” (“SFAS No. 71”) to EE’s New Mexico jurisdictional operations (see below). These increases in earnings were partially offset by decreased retail sales, increased pensions and benefits expense, increased depreciation and amortization expenses, and the loss on extinguishment of debt.

“Despite cooler weather and the resultant effect on retail sales in the quarter, our customer growth continues to be one of our strengths,” said Gary Hedrick, El Paso Electric President and CEO. “With our recent credit ratings upgrades and our cost control efforts, we have demonstrated our ability to deliver consistent returns.”

Year to Date

Net income for the nine months ended September 30, 2004 was $36.4 million, or $0.77 and $0.76 basic and diluted earnings per share, respectively, compared to net income of $57.8 million, or $1.19 and $1.18 basic and diluted earnings per share, respectively, for the same period a year ago. Prior to the inclusion of the effects of SFAS No. 143 of $39.6 million, net of tax, or $0.81 basic and diluted earnings per share, earnings were $18.1

Page 1 of 11

El Paso Electric Ÿ P.O. Box 982 Ÿ El Paso, Texas 79960

million, or $0.38 and $0.37 basic and diluted earnings per share, for the nine months ended September 30, 2003. The increase in earnings for the nine months ended September 30, 2004 prior to the consideration of the effects of SFAS No. 143 in the prior year, is related to the 2003 asset impairment loss on the CIS project with no comparable loss in the current period, the recording of the benefits of the IRS settlement, decreased non-Palo Verde maintenance expense, and the extraordinary gain related to the re-application of SFAS No. 71 to EE’s New Mexico jurisdictional operations (discussed below). These increases in earnings were partially offset by increased depreciation and amortization expenses, increased loss on extinguishment of debt, and increased pension and benefits expenses in the current year.

Re-application of SFAS No. 71 to EE’s New Mexico Jurisdiction

Regulated electric utilities typically prepare their financial statements in accordance with SFAS No. 71. Under this accounting standard, certain recoverable costs are shown as either assets or liabilities on a utility’s balance sheet if the regulator provides assurance that these costs will be charged to and collected from its customers (or has already permitted such cost recovery). The resulting regulatory assets or liabilities are amortized in subsequent periods based upon their respective amortization periods in a utility’s cost of service.

Beginning in 1991, the Company discontinued the application of SFAS No. 71 to its financial statements. This decision was based on the Company’s determination that its rates were no longer designed to recover its costs of providing service to customers. Upon emerging from bankruptcy in 1996, the Company again concluded that it did not meet the criteria for applying SFAS No. 71 because of the 10-year rate freeze in Texas and its ongoing intention not to seek changes in its New Mexico rates, which had been established in 1990.

During the quarter ended September 30, 2004, EE determined that the Company met the criteria necessary to re-apply SFAS No. 71 to its New Mexico jurisdictional operations. For the New Mexico jurisdiction, two key events transpired that, when considered together, resulted in the Company’s decision to re-apply SFAS No. 71. In late April of 2004, the Company received a final order approving a unanimous stipulation which established new base and fuel rates for its New Mexico customers. The Company’s approved rates were based upon its costs of providing service in New Mexico. That event, coupled with the repeal of New Mexico’s electric utility industry restructuring law, which occurred in April of 2003, resulted in the Company meeting the criteria for the re-application of SFAS No. 71, and as such, resulted in its re-application beginning July 1, 2004. The third quarter 2004 re-application of SFAS No. 71 to the Company’s New Mexico jurisdiction resulted in the recording of $23.5 million of regulatory assets and $21.7 million of regulatory liabilities, and the recording of a $1.8 million extraordinary gain, net of tax, or $0.04 basic and diluted earnings per share.

The Company’s Texas jurisdiction has been operating under a rate freeze since August 2, 1995. The rate freeze was for a ten-year period, and expires on July 31, 2005. Although the Company believes the rates established in 1995 were based upon its costs of service, the unusual length of the rate freeze period created substantial uncertainty as to the ultimate recovery of its costs over the entire freeze period. Consequently, the Company determined that it would not re-apply SFAS No. 71 to its Texas jurisdiction at the time it emerged from bankruptcy in February 1996. As the freeze period draws to a close, the Company will continue to evaluate whether it meets the criteria for the re-application of SFAS No. 71 to its Texas jurisdiction.

Income Tax Matters

During the quarter ended September 30, 2004, the Company recorded the effects of the settlement of the 1996-1998 IRS tax audit. The IRS settlement resulted in the recording of approximately $6.2 million of net income, or $0.13 basic and diluted earnings per share. Also during the quarter the Company determined that AMT credit carryforward assets pertaining to the pre-reorganization time period were overstated. The correction of this overstatement will be accomplished by making several adjustments to previously issued financial statements. The preliminary estimates indicate that the December 31, 2001 balance sheet related adjustments include the

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El Paso Electric Ÿ P.O. Box 982 Ÿ El Paso, Texas 79960

elimination of $4.5 million of AMT credit carryforward assets, a related increase of $4.5 million in reorganization-related transmission and distribution assets, an increase of $2.8 million in accumulated depreciation, an increase in deferred tax liabilities of $0.7 million, and a decrease of $3.5 million in retained earnings. Recurring income statement related adjustments include an annual increase of $0.5 million in depreciation expense and an annual reduction in net income of $0.3 million, net of tax. As the reorganization-related transmission and distribution assets are being depreciated over the ten-year Texas rate freeze period, approximately $0.2 million, net of tax, of additional depreciation expense will be recorded between October 1, 2004 and July 31, 2005 (when the Texas rate freeze period ends).

Stock and Debt Repurchases

During the quarter, EE repurchased approximately 200,000 shares of common stock in the open market in accordance with the previously approved stock repurchase programs. Since the inception of the stock repurchase programs in 1999, EE has repurchased 15,250,000 shares in total at an aggregate cost of $174.9 million, including commissions. EE may continue making purchases of its stock at open market prices and may engage in private transactions, where appropriate.

EE has repurchased or retired $581.8 million of first mortgage bonds with internally generated cash since inception of its deleveraging program in 1996. During the third quarter of 2004, EE repurchased $5.9 million of first mortgage bonds. Common stock equity as a percentage of capitalization, including current portion of long-term debt and financing obligations, was 47% as of September 30, 2004.

EBITDA

The change in earnings before interest, income taxes, depreciation and amortization, impairment loss, extraordinary gain on re-application of SFAS No. 71, and cumulative effect of accounting change (“EBITDA”) for the quarter and nine months ended September 30, 2004, compared to the same periods in 2003, are as follows (in thousands):

	Quarter Ended			Nine Months Ended
September 30, 2003	$	68,735		$	146,254
Changes in:
Increased (decreased) retail sales		(3,020	)		3,570
Increased pension and benefits expenses		(2,361	)		(4,352	)
Loss on extinguishment of debt		(854	)		(4,691	)
Decreased economy margins and/or sales		(71	)		(1,402	)
Decreased non-Palo Verde maintenance		335			9,891
Other		582			847
September 30, 2004	$	63,346		$	150,117

Management and some members of the investment community utilize EBITDA to measure financial performance on an ongoing basis. EBITDA is traditionally defined as earnings before interest, taxes, depreciation and amortization. As EBITDA is intended to be a measure of a firm’s operating cash flow, an adjustment was made to remove the effects of the impairment loss, extraordinary gain, and cumulative effect of accounting change. This non-GAAP measure should be considered in addition to, not as a substitute for or superior to, net income, consolidated statements of cash flows, or other measures of financial performance prepared in accordance with GAAP.

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El Paso Electric Ÿ P.O. Box 982 Ÿ El Paso, Texas 79960

Conference Call

A conference call to discuss third quarter 2004 earnings and earnings guidance is scheduled for 12 p.m. Eastern Time, Friday, October 22, 2004. The dial-in number is 888-385-9734 with a passcode of 2004. The conference leader will be Terry Bassham, Chief Financial and Administrative Officer of EE. A replay will run through November 5, 2004. The dial-in number is 866-505-6378, and a passcode is not required for the replay. The conference call will be webcast live on EE’s website found at http://www.epelectric.com and http://www.streetevents.com. A replay of the webcast will be available shortly after the call.

Safe Harbor

This news release includes statements that may constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. This information may involve risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: (i) increased prices for fuel and purchased power and the possibility that regulators may not permit EE to pass through all such increased costs to customers; (ii) determinations by regulators that may adversely affect EE’s ability to recover previously incurred fuel costs in rates; (iii) fluctuations in economy margins due to uncertainty in the economy power market; (iv) unanticipated increased costs associated with scheduled and unscheduled outages; (v) the cost of replacing steam generators for Palo Verde Units 1 and 3 and other costs at Palo Verde; (vi) the costs of legal defense and possible judgments which may accrue as the result of ongoing litigation arising out of the FERC investigation or any other regulatory proceeding; (vii) deregulation of the electric utility industry and (viii) other factors detailed by EE in its public filings with the Securities and Exchange Commission. EE’s filings are available from the Securities and Exchange Commission or may be obtained through EE’s website, www.epelectric.com. Any such forward-looking statement is qualified by reference to these risks and factors. EE cautions that these risks and factors are not exclusive. EE does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of EE except as required by law.

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El Paso Electric Ÿ P.O. Box 982 Ÿ El Paso, Texas 79960

El Paso Electric Company’s consolidated results of operations for the quarter ended September 30, 2004 and 2003, are summarized as follows (In thousands except for share data):

	Quarter Ended September 30,
	2004			2003 (1)
Operating revenues, net of energy expenses	$	128,393		$	130,543
Impairment loss on CIS project		—			17,576
Other operating expenses		87,781			84,487
Other income (deductions)		(662	)		609
Interest charges		11,554			11,443
Income tax expense		4,458			6,474
Income before extraordinary item		23,938			11,172
Extraordinary item, net (2)		1,802			—
Net income	$	25,740		$	11,172
Basic earnings per share:
Income before extraordinary item		0.50			0.23
Extraordinary item, net		0.04			—
Net income	$	0.54		$	0.23
Weighted average number of shares outstanding		47,456,759			48,034,945
Diluted earnings per share:
Income before extraordinary item		0.50			0.23
Extraordinary item, net		0.04			—
Net income	$	0.54		$	0.23
Weighted average number of shares and dilutive potential shares outstanding		48,092,572			48,441,240
	Quarter Ended September 30,
	2004			2003
Reconciliation of EBITDA to Cash Flow from Operations:
EBITDA (3)	$	63,346		$	68,735
Interest expense		(11,554	)		(11,443	)
Income tax expense		(4,458	)		(6,474	)
Other non-cash expenses		7,287			6,397
Change in:
Deferred income taxes		(6,808	)		9,411
Current assets		(4,715	)		(25,653	)
Current payables and accrued expenses		5,751			(15,012	)
Other		(8,199	)		(2,345	)
Cash Flow from Operating Activities	$	40,650		$	23,616

(1) Amounts have been adjusted to reflect the effects of the restatement.

(2) Net of income tax expense of $1.0 million.

(3) EBITDA is defined as net income before interest, income taxes, depreciation and amortization, impairment loss, and extraordinary item.

Page 5 of 11

El Paso Electric Company’s consolidated results of operations for the nine months ended September 30, 2004 and 2003, are summarized as follows (In thousands except for share data):

	Nine Months Ended September 30,
	2004			2003 (1)
Operating revenues, net of energy expenses	$	345,004		$	343,644
Impairment loss on CIS project		—			17,576
Other operating expenses		259,235			262,999
Other income (deductions)		(5,474	)		202
Interest charges		35,229			34,858
Income tax expense		10,515			10,277
Income before extraordinary item and cumulative effect		34,551			18,136
Extraordinary item, net (2)		1,802			—
Cumulative effect of accounting change, net (3)		—			39,635
Net income	$	36,353		$	57,771
Basic earnings per share:
Income before extraordinary item and cumulative effect	$	0.73		$	0.38
Extraordinary item, net		0.04			—
Cumulative effect of accounting change, net		—			0.81
Net income	$	0.77		$	1.19
Weighted average number of shares outstanding		47,469,393			48,662,323
Diluted earnings per share:
Income before extraordinary item and cumulative effect	$	0.72		$	0.37
Extraordinary item, net		0.04			—
Cumulative effect of accounting change, net		—			0.81
Net income	$	0.76		$	1.18
Weighted average number of shares and dilutive potential shares outstanding		47,991,751			49,028,404
	Nine Months Ended September 30,
	2004			2003
Reconciliation of EBITDA to Cash Flow from Operations:
EBITDA (4)	$	150,117		$	146,254
Interest expense		(35,229	)		(34,858	)
Income tax expense		(10,515	)		(10,277	)
Other non-cash expenses		19,936			18,796
Change in:
Deferred income taxes		(7,892	)		6,417
Current assets		(21,475	)		(23,048	)
Current payables and accrued expenses		13,026			(16,420	)
Other		293			1,913
Cash Flow from Operating Activities	$	108,261		$	88,777

(1) Amounts have been adjusted to reflect the effects of the restatement.

(2) Net of income tax expense of approximately $1.0 million.

(3) Net of income tax expense of approximately $25.0 million.

(4) EBITDA is defined as net income before interest, income taxes, depreciation and amortization, impairment loss, extraordinary item and cumulative effect of accounting change.

Page 6 of 11

El Paso Electric Company’s consolidated results of operations for the twelve months ended September 30, 2004 and 2003, and consolidated pro forma results of operations for the twelve months ended September 30, 2003, which reflect the application of SFAS No. 143 on a retroactive basis are summarized as follows (In thousands except for share data):

	Twelve Months Ended September 30,
	2004			2003 (1)			Pro forma 2003 (1)
Operating revenues, net of energy expenses	$	444,763		$	446,052		$	446,052
Impairment loss on CIS project		—			17,576			17,576
FERC settlements		—			15,500			15,500
Other operating expenses		342,328			350,122			350,300
Other income (deductions)		(5,333	)		(343	)		(343	)
Interest charges		46,894			49,603			47,539
Income tax expense		13,471			3,550			4,280
Income before extraordinary item and cumulative effect		36,737			9,358			10,514
Extraordinary item, net (2)		1,802			—			—
Cumulative effect of accounting change, net (3)		—			39,635			—
Net income	$	38,539		$	48,993		$	10,514
Basic earnings per share:
Income before extraordinary item and cumulative effect	$	0.77		$	0.19		$	0.22
Extraordinary item, net		0.04			—			—
Cumulative effect of accounting change, net		—			0.81			—
Net income	$	0.81		$	1.00		$	0.22
Weighted average number of shares outstanding		47,531,797			48,900,634			48,900,634
Diluted earnings per share:
Income before extraordinary item and cumulative effect	$	0.76		$	0.19		$	0.21
Extraordinary item, net		0.04			—			—
Cumulative effect of accounting change, net		—			0.80			—
Net income	$	0.80		$	0.99		$	0.21
Weighted average number of shares and dilutive potential shares outstanding		48,039,553			49,279,690			49,279,690
	Twelve Months Ended September 30,
	2004			2003			Pro forma 2003
Reconciliation of EBITDA to Cash Flow from Operations:
EBITDA (4)	$	189,138		$	167,472		$	166,380
Interest expense		(46,894	)		(49,603	)		(47,539	)
Income tax expense		(13,471	)		(3,550	)		(4,280	)
Other non-cash expenses		25,258			25,893			24,921
Change in:
Deferred income taxes		(4,246	)		(2,952	)		(2,222	)
Current assets		(1,262	)		(10,789	)		(10,789	)
Current payables and accrued expenses		4,550			1,349			1,349
Other		1,425			2,968			2,968
Cash Flow from Operating Activities	$	154,498		$	130,788		$	130,788

(1) Amounts have been adjusted to reflect the effects of the restatement.

(2) Net of income tax expense of approximately $1.0 million.

(3) Net of income tax expense of approximately $25.0 million.

(4) EBITDA is defined as net income before interest, income taxes, depreciation and amortization, impairment loss, extraordinary item and cumulative effect of accounting change.

Page 7 of 11

Quarter Ended September 30, 2004 and 2003 (In thousands):

	2004		2003			Increase (Decrease)
kWh sales:
Retail:
Residential		586,905		605,256		(3.0	)%
Commercial and industrial, small		618,039		628,261		(1.6	)%
Commercial and industrial, large		311,814		314,266		(0.8	)%
Sales to public authorities		346,887		358,152		(3.1	)%
Total retail sales		1,863,645		1,905,935		(2.2	)%
Wholesale:
Sales for resale		11,163		19,861		(43.8	)% (1)
Economy sales		536,151		409,136		31.0	% (2)
Total wholesale sales		547,314		428,997		27.6	%
Total kWh sales		2,410,959		2,334,932		3.3	%
Operating revenues:
Base revenues:
Retail:
Residential	$	52,420	$	54,323		(3.5	)%
Commercial and industrial, small		47,036		47,501		(1.0	)%
Commercial and industrial, large		11,237		11,215		0.2	%
Sales to public authorities		19,495		20,169		(3.3	)%
Total retail base revenues		130,188		133,208		(2.3	)%
Wholesale:
Sales for resale		481		926		(48.1	)% (1)
Total base revenues		130,669		134,134		(2.6	)%
Fuel revenues		47,499		42,844		10.9	% (3)
Economy sales		23,382		17,697		32.1	% (2)
Other		3,391		2,750		23.3	% (4) (5)
Total operating revenues	$	204,941	$	197,425		3.8	%
Capital Expenditures	$	16,524	$	16,810
Cash Interest Payments	$	12,309	$	12,604
Depreciation and Amortization	$	23,396	$	22,070	(6)
EBITDA	$	63,346	$	68,735

(1) Primarily due to a 2003 CFE wholesale power contract with no comparable contract in 2004 and decreased sales to the Rio Grande Electric Cooperative.

(2) Primarily due to an increase in the availability of power from Palo Verde and Four Corners.

(3) Primarily due to an increase in recoverable fuel expenses, as a result of an increase in the price and volume of natural gas burned and an increase in purchased power costs.

(4) Represents revenues with no related kWh sales.

(5) Primarily due to increased transmission revenues.

(6) Adjusted to reflect the effects of the restatement.

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Nine Months Ended September 30, 2004 and 2003 (In thousands):

	2004		2003			Increase (Decrease)
kWh sales:
Retail:
Residential		1,523,708		1,483,707		2.7	%
Commercial and industrial, small		1,629,402		1,600,965		1.8	%
Commercial and industrial, large		930,649		880,791		5.7	%
Sales to public authorities		949,559		931,600		1.9	%
Total retail sales		5,033,318		4,897,063		2.8	%
Wholesale:
Sales for resale		33,916		59,067		(42.6	)% (1)
Economy sales		1,454,125		1,442,720		0.8	%
Total wholesale sales		1,488,041		1,501,787		(0.9	)%
Total kWh sales		6,521,359		6,398,850		1.9	%
Operating revenues:
Base revenues:
Retail:
Residential	$	134,572	$	132,142		1.8	%
Commercial and industrial, small		126,483		125,624		0.7	%
Commercial and industrial, large		32,540		32,125		1.3	%
Sales to public authorities		55,098		55,232		(0.2	)%
Total retail base revenues		348,693		345,123		1.0	%
Wholesale:
Sales for resale		1,393		2,873		(51.5	)% (1)
Total base revenues		350,086		347,996		0.6	%
Fuel revenues		123,843		94,811		30.6	% (2)
Economy sales		60,873		58,367		4.3	%
Other		8,197		6,235		31.5	% (3) (4)
Total operating revenues	$	542,999	$	507,409			7.0%
Capital Expenditures	$	46,534	$	49,545
Cash Interest Payments	$	37,310	$	39,263
Depreciation and Amortization	$	69,822	$	65,407	(5)
EBITDA	$	150,117	$	146,254

(1) Primarily due to a 2003 CFE wholesale power contract with no comparable contract in 2004.

(2) Primarily due to an increase in recoverable fuel expenses, as a result of an increase in the price and volume of natural gas burned and an increase in purchased power costs.

(3) Represents revenues with no related kWh sales.

(4) Primarily due to increased transmission revenues.

(5) Adjusted to reflect the effects of the restatement.

Page 9 of 11

Twelve Months Ended September 30, 2004 and 2003 (In thousands):

	2004		2003			Increase (Decrease)
kWh sales:
Retail:
Residential		1,972,172		1,889,444		4.4	%
Commercial and industrial, small		2,125,297		2,059,691		3.2	%
Commercial and industrial, large		1,246,923		1,157,129		7.8	%
Sales to public authorities		1,242,308		1,196,550		3.8	%
Total retail sales		6,586,700		6,302,814		4.5	%
Wholesale:
Sales for resale		42,603		217,422		(80.4	)% (1)
Economy sales		1,932,287		1,787,455		8.1	%
Total wholesale sales		1,974,890		2,004,877		(1.5	)%
Total kWh sales		8,561,590		8,307,691		3.1	%
Operating revenues:
Base revenues:
Retail:
Residential	$	173,889	$	167,930		3.5	%
Commercial and industrial, small		166,293		162,745		2.2	%
Commercial and industrial, large		43,709		42,559		2.7	%
Sales to public authorities		73,003		71,407		2.2	%
Total retail base revenues		456,894		444,641		2.8	%
Wholesale:
Sales for resale		1,743		7,989		(78.2	)% (1)
Total base revenues		458,637		452,630		1.3	%
Fuel revenues		151,792		131,426		15.5	% (2)
Economy sales		79,042		68,423		15.5	% (3)
Other		10,481		8,728		20.1	% (4) (5)
Total operating revenues	$	699,952	$	661,207		5.9	%
Capital Expenditures	$	74,069	$	66,468
Cash Interest Payments	$	49,643	$	50,990
Depreciation and Amortization	$	92,036	$	87,385	(6)
EBITDA	$	189,138	$	167,472	(7)

(1) Primarily due to the expiration of a wholesale power contract with TNP on December 31, 2002 and a 2003 CFE wholesale power contract with no comparable contract in 2004.

(2) Primarily due to an increase in recoverable fuel expenses, as a result of an increase in the price and volume of natural gas burned and an increase in purchased power costs.

(3) Primarily due to higher market prices and increased sales.

(4) Represents revenues with no related kWh sales.

(5) Primarily due to increased transmission revenues partially offset by decreased MiraSol revenues.

(6) Adjusted to reflect the effects of the restatement. Pro forma depreciation and amortization would be $86,471 in 2003 assuming SFAS No. 143 had been applied on a retroactive basis.

(7) Pro forma EBITDA would be $166,380 in 2003 assuming SFAS No. 143 had been applied on a retroactive basis.

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At September 30, 2004 and 2003 (In thousands, except number of shares and book value per share):

	2004		2003 (1)
Cash and Temporary Investments	$	34,578	$	31,268
Common Stock Equity	$	533,237	$	498,481
Long-term Debt, Net of Current Portion		557,201		588,571
Financing Obligations, Net of Current Portion		—		19,866
Total Capitalization	$	1,090,438	$	1,106,918
Current Portion of Long-Term Debt and Financing Obligations	$	39,986	$	22,060
Number of Shares		47,401,765		48,181,249
Book Value Per Common Share	$	11.25	$	10.35
Number of Retail Customers		331		322

(1) Amounts have been adjusted to reflect the effects of the restatement.

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