-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IyFL9FDPXRYoaf0tNDblVIUiYSU8UPKJTkEilCI3Qhm8HIU8+dWoLdJlJ2tapPz8 KC09FeXM0KF1gbGbTkEsYQ== 0000022767-99-000008.txt : 19990514 0000022767-99-000008.hdr.sgml : 19990514 ACCESSION NUMBER: 0000022767-99-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TNP ENTERPRISES INC CENTRAL INDEX KEY: 0000741612 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 751907501 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08847 FILM NUMBER: 99619383 BUSINESS ADDRESS: STREET 1: 4100 INTERNATIONAL PLZ STREET 2: PO BOX 2943 CITY: FORT WORTH STATE: TX ZIP: 76113 BUSINESS PHONE: 8177310099 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEXAS NEW MEXICO POWER CO CENTRAL INDEX KEY: 0000022767 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 750204070 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 002-97230 FILM NUMBER: 99619384 BUSINESS ADDRESS: STREET 1: 4100 INTERNATIONAL PLZ STREET 2: PO BOX 2943 CITY: FORT WORTH STATE: TX ZIP: 76113 BUSINESS PHONE: 8177310099 MAIL ADDRESS: STREET 1: 4100 INTERNATIONAL PLAZA STREET 2: PO BOX 2943 CITY: FORT WORTH STATE: TX ZIP: 76113 FORMER COMPANY: FORMER CONFORMED NAME: COMMUNITY PUBLIC SERVICE CO DATE OF NAME CHANGE: 19810617 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) (X) COMBINED QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 or ( ) 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: 1-8847 TNP ENTERPRISES, INC. (Exact name of registrant as specified in its charter) Texas 75-1907501 (State of incorporation) (I.R.S. employer identification number) 4100 International Plaza, P. O. Box 2943, Fort Worth, Texas 76113 (Address and zip code of principal executive offices) Registrant's telephone number, including area code 817-731-0099 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 \ \ TNP Enterprises, Inc. had 13,398,418 shares of common stock outstanding as of May 5, 1999. - -------------------------------------------------------------------------------- Commission File Number: 2-97230 TEXAS-NEW MEXICO POWER COMPANY (Exact name of registrant as specified in its charter) Texas 75-0204070 (State of incorporation) (I.R.S. employer identification number) 4100 International Plaza, P. O. Box 2943, Fort Worth, Texas 76113 (Address and zip code of principal executive offices) Registrant's telephone number, including area code 817-731-0099 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 \ \ TNP Enterprises, Inc. holds all 10,705 outstanding common shares of Texas-New Mexico Power Company. TNP Enterprises, Inc. And Subsidiaries Texas New-Mexico Power Company And Subsidiaries Combined Quarterly Report on Form 10-Q for the period ended March 31, 1999 This Combined Quarterly Report on Form 10-Q is filed separately by TNP Enterprises, Inc., and Texas-New Mexico Power Company. Texas-New Mexico Power Company makes no representation as to information relating to TNP Enterprises, Inc., except as it may relate to Texas-New Mexico Power Company, or to any other affiliate or subsidiary of TNP Enterprises, Inc. TABLE OF CONTENTS PART I. FINANCIAL INFORMATION
Item 1. Financial Statements. TNP Enterprises, Inc. (TNP) and Subsidiaries: Consolidated Statements of Income Three Month Periods Ended March 31, 1999, and 1998 3 Consolidated Statements of Cash Flows Three Month Periods Ended March 31, 1999, and 1998 4 Consolidated Balance Sheets March 31, 1999, and December 31, 1998 5 Texas-New Mexico Power Company (TNMP) and Subsidiaries: Consolidated Statements of Income Three Month Periods Ended March 31, 1999, and 1998 6 Consolidated Statements of Cash Flows Three Month Periods Ended March 31, 1999, and 1998 7 Consolidated Balance Sheets March 31, 1999, and December 31, 1998 8 Notes to Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings 16 Item 4. Submission of Matters to a Vote of Securities Holders. 16 Item 6. Exhibits and Reports on Form 8-K. 16 (a) Exhibit Index 16 (b) Reports on Form 8-K 16 Statement Regarding Forward Looking Information 16 Signature page 17
TNP ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended March 31, ---------------------------------------------------- 1999 1998 ---------------------- ------------------------- (In thousands except per share amounts) OPERATING REVENUES $ 118,125 $ 125,938 ---------------------- ------------------------- OPERATING EXPENSES: Purchased power and fuel 57,372 66,825 Other operating and maintenance 23,825 20,384 Depreciation 13,724 9,872 Taxes other than income taxes 8,000 7,727 Income taxes 712 2,638 ---------------------- ------------------------- Total operating expenses 103,633 107,446 ---------------------- ------------------------- NET OPERATING INCOME 14,492 18,492 --------------------- ------------------------ OTHER INCOME: Other income and deductions, net 163 364 Income taxes 118 (166) ---------------------- ------------------------- Other income, net of taxes 281 198 ---------------------- ------------------------- INCOME BEFORE INTEREST CHARGES 14,773 18,690 ---------------------- ------------------------- INTEREST CHARGES: Interest on long-term debt 10,224 12,498 Other interest and amortization of debt-related costs 1,417 1,062 ---------------------- ------------------------- Total interest charges 11,641 13,560 ---------------------- ------------------------- INCOME FROM CONTINUING OPERATIONS 3,132 5,130 Loss from discontinued nonregulated operations (Note 2) - 505 ---------------------- ------------------------- NET INCOME 3,132 4,625 Dividends on preferred stock 36 38 ---------------------- ------------------------- INCOME APPLICABLE TO COMMON STOCK $ 3,096 $ 4,587 ====================== ========================= EARNINGS PER SHARE OF COMMON STOCK Earnings from continuing operations $ 0.23 $ 0.39 Loss from discontinued nonregulated operations - (0.04) ---------------------- ------------------------- EARNINGS PER SHARE $ 0.23 $ 0.35 ====================== ========================= DIVIDENDS PER SHARE OF COMMON STOCK $ 0.29 $ 0.27 ====================== ========================= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 13,346 13,188 ====================== ========================= The accompanying notes are an integral part of these consolidated financial statements.
TNP ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31 ---------------------------------------------- 1999 1998 -------------------- ----------------------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $ 105,835 $ 130,245 Purchased power (47,366) (61,749) Fuel costs paid (15,157) (8,010) Cash paid for payroll and to other suppliers (27,935) (38,062) Interest paid, net of amounts capitalized (11,577) (15,592) Income taxes refunded (paid) 4,000 (1,739) Other taxes paid (18,147) (16,431) Other operating cash receipts and payments, net 181 375 -------------------- ----------------------- NET CASH USED IN OPERATING ACTIVITIES (10,166) (10,963) -------------------- ----------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to utility plant (11,592) (7,791) Additions to other property and nonregulated investments - 360 Withdrawals from (deposits to) escrow account 1,902 - -------------------- ----------------------- NET CASH USED IN INVESTING ACTIVITIES (9,690) (7,431) -------------------- ----------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid on preferred and common stocks (3,906) (3,607) Common stock issuances 3,091 3,104 Borrowings from (repayments to) revolving credit facilities - net (27,500) 26,500 Issuances: Senior notes, net of discount 174,164 - Deferred expenses associated with financings (1,280) - Redemptions: Secured debentures (130,000) - Other long-term debt - (105) -------------------- ----------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 14,569 25,892 -------------------- ----------------------- NET CHANGE IN CASH AND CASH EQUIVALENTS (5,287) 7,498 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,216 15,877 -------------------- ----------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,929 $ 23,375 ==================== ======================= RECONCILIATION OF NET INCOME TO NET CASH USED IN OPERATING ACTIVITIES: Net income $ 3,132 $ 4,625 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 13,724 9,872 Amortization of debt-related costs and other deferred charges 1,211 940 Allowance for borrowed funds used during construction (78) (36) Deferred income taxes (873) 3,180 Investment tax credits 678 (1,086) Cash flows impacted by changes in current assets and liabilities: Deferred fuel costs (587) (1,043) Accounts payable (6,858) (4,355) Accrued interest (1,071) (2,933) Accrued taxes (5,369) (11,322) Reserve for customer refund (8,511) - Changes in other current assets and liabilities (6,071) (8,448) Other, net 507 (357) -------------------- ----------------------- NET CASH USED IN OPERATING ACTIVITIES $ (10,166) $ (10,963) ==================== ======================= The accompanying notes are an integral part of these consolidated financial statements.
TNP ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, 1999 December 31, (Unaudited) 1998 ---------------------- ---------------------- (In thousands) ASSETS UTILITY PLANT: Electric plant $ 1,267,285 $ 1,260,147 Construction work in progress 7,641 6,294 ---------------------- ---------------------- Total 1,274,926 1,266,441 Less accumulated depreciation 353,784 343,562 ---------------------- ---------------------- Net utility plant 921,142 922,879 ---------------------- ---------------------- OTHER PROPERTY AND INVESTMENTS, at cost 8,537 10,384 ---------------------- ---------------------- CURRENT ASSETS: Cash and cash equivalents 6,929 12,216 Accounts receivable 4,813 5,955 Inventories, at lower of average cost or market: Fuel 594 677 Materials and supplies 4,535 4,567 Deferred fuel costs 2,263 1,676 Accumulated deferred income taxes 3,425 2,235 Other current assets 3,657 4,403 ---------------------- ---------------------- Total current assets 26,216 31,729 ---------------------- ---------------------- REGULATORY TAX ASSETS 686 - DEFERRED CHARGES 27,629 28,773 ---------------------- ---------------------- $ 984,210 $ 993,765 ====================== ====================== CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common shareholders' equity: Common stock - no par value per share. Authorized 50,000,000 shares; issued 13,384,016 shares in 1999 and 13,293,996 in 1998 $ 195,608 $ 192,518 Retained earnings 115,003 115,776 ---------------------- ---------------------- Total common shareholders' equity 310,611 308,294 Preferred stock 3,060 3,060 Long-term debt, less current maturities 475,681 459,000 ---------------------- ---------------------- Total capitalization 789,352 770,354 ---------------------- ---------------------- CURRENT LIABILITIES: Accounts payable 21,153 28,011 Accrued interest 3,949 5,020 Accrued taxes 8,921 14,290 Customers' deposits 3,773 3,609 Reserve for customer refunds 2,460 10,971 Other current liabilities 16,964 25,202 ---------------------- ---------------------- Total current liabilities 57,220 87,103 ---------------------- ---------------------- REGULATORY TAX LIABILITIES - 957 ACCUMULATED DEFERRED INCOME TAXES 99,306 97,346 ACCUMULATED DEFERRED INVESTMENT TAX CREDITS 21,594 20,916 DEFERRED CREDITS 16,738 17,089 COMMITMENTS AND CONTINGENCIES (Note 4) ---------------------- ---------------------- $ 984,210 $ 993,765 ====================== ====================== The accompanying notes are an integral part of these consolidated financial statements.
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of TNP Enterprises, Inc.) Consolidated Statements of Income (Unaudited) Three Months Ended March 31, ------------------------------------------ 1999 1998 ----------------- ----------------- (In thousands) OPERATING REVENUES $ 118,111 $ 125,931 ----------------- ----------------- OPERATING EXPENSES: Purchased power and fuel 57,372 66,825 Other operating and maintenance 23,023 19,270 Depreciation 13,724 9,872 Taxes other than income taxes 7,879 8,384 Income taxes 1,044 2,804 ------------------ ----------------- Total operating expenses 103,042 107,155 ------------------ ----------------- NET OPERATING INCOME 15,069 18,776 ------------------ ----------------- OTHER INCOME: Other income and deductions, net 73 195 Income taxes 142 (93) ------------------ ----------------- Other income, net of taxes 215 102 ------------------ ----------------- INCOME BEFORE INTEREST CHARGES 15,284 18,878 ------------------ ----------------- INTEREST CHARGES: Interest on long-term debt 10,054 12,498 Other interest and amortization of debt-related costs 1,417 1,061 ------------------ ----------------- Total interest charges 11,471 13,559 ------------------ ----------------- NET INCOME 3,813 5,319 Dividends on preferred stock 36 38 ------------------ ----------------- INCOME APPLICABLE TO COMMON STOCK $ 3,777 $ 5,281 ================== ================= The accompanying notes are an integral part of these consolidated financial statements.
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of TNP Enterprises, Inc.) CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31 ----------------------------------------------- 1999 1998 --------------------- ---------------------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $ 105,001 $ 125,267 Purchased power (47,366) (61,749) Fuel costs paid (15,157) (8,010) Cash paid for payroll and to other suppliers (22,504) (28,072) Interest paid, net of amounts capitalized (11,447) (15,588) Income taxes refunded (paid) 4,000 - Other taxes paid (18,089) (17,486) Other operating cash receipts and payments, net 158 193 --------------------- ---------------------- NET CASH USED IN OPERATING ACTIVITIES (5,404) (5,445) --------------------- ---------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to utility plant (11,692) (7,694) Withdrawal from (deposits to) escrow account 1,902 - --------------------- ---------------------- CASH FLOWS USED IN INVESTING ACTIVITIES (9,790) (7,694) --------------------- ---------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid on preferred and common stocks (36) (10,038) Borrowings from (repayments to) revolving credit facilities - (31,000) 26,500 net Issuances: Senior notes, net of discount 174,164 - Deferred expenses associated with financings (1,280) - Redemptions: Secured debentures (130,000) - --------------------- ---------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 11,848 16,462 --------------------- ---------------------- NET CHANGE IN CASH AND CASH EQUIVALENTS (3,346) 3,323 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,977 2,772 --------------------- ---------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,631 $ 6,095 ===================== ====================== RECONCILIATION OF NET INCOME TO NET CASH USED IN OPERATING ACTIVITIES: Net income $ 3,813 $ 5,319 Adjustments to reconcile net income to net cash used in operating activities: Depreciation of utility plant 13,724 9,872 Amortization of debt-related costs and other deferred charges 1,211 940 Allowance for borrowed funds used during construction (78) (36) Deferred income taxes (2,125) 3,846 Investment tax credits 894 (1,085) Cash flows impacted by changes in current assets and liabilities: Deferred fuel costs (587) (1,043) Accounts payable (6,310) (4,355) Accrued interest (1,112) (2,933) Accrued taxes (4,075) (8,994) Reserve for customer refund (8,511) - Changes in other current assets and liabilities (3,048) (5,099) Other, net 800 (1,877) --------------------- ---------------------- NET CASH USED IN OPERATING ACTIVITIES $ (5,404) $ (5,445) ===================== ====================== The accompanying notes are an integral part of these consolidated financial statements.
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of TNP Enterprises, Inc.) CONSOLIDATED BALANCE SHEETS March 31, 1999 December 31, (Unaudited) 1998 -------------------- ---------------------- (In thousands) ASSETS UTILITY PLANT: Electric plant $ 1,267,237 $ 1,260,099 Construction work in progress 7,641 6,294 -------------------- ---------------------- Total 1,274,878 1,266,393 Less accumulated depreciation 353,784 343,562 -------------------- ---------------------- Net utility plant 921,094 922,831 -------------------- ---------------------- OTHER PROPERTY AND INVESTMENTS, at cost 214 2,116 -------------------- ---------------------- CURRENT ASSETS: Cash and cash equivalents 4,631 7,977 Accounts receivable 303 923 Inventories, at lower of average cost or market: Fuel 594 677 Materials and supplies 4,535 4,567 Deferred fuel costs 2,263 1,676 Accumulated deferred income taxes 1,102 - Other current assets 3,396 4,093 -------------------- ---------------------- Total current assets 16,824 19,913 -------------------- ---------------------- REGULATORY TAX ASSETS 686 - DEFERRED CHARGES 27,437 28,706 -------------------- ---------------------- $ 966,255 $ 973,566 ==================== ====================== CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common shareholder's equity: Common stock, $10 par value per share. Authorized 12,000,000 shares; issued 10,705 shares $ 107 $ 107 Capital in excess of par value 222,149 222,149 Retained earnings 83,617 79,840 -------------------- ---------------------- Total common shareholder's equity 305,873 302,096 Redeemable cumulative preferred stock 3,060 3,060 Long-term debt, less current maturities 463,181 450,000 -------------------- ---------------------- Total capitalization 772,114 755,156 -------------------- ---------------------- CURRENT LIABILITIES: Accounts payable 20,578 26,888 Accrued interest 3,892 5,004 Accrued taxes 16,374 20,449 Customers' deposits 3,773 3,609 Accumulated deferred income taxes - 649 Reserve for customer refunds 2,460 10,971 Other current liabilities 12,432 17,076 -------------------- ---------------------- Total current liabilities 59,509 84,646 -------------------- ---------------------- REGULATORY TAX LIABILITIES - 957 ACCUMULATED DEFERRED INCOME TAXES 94,647 93,378 ACCUMULATED DEFERRED INVESTMENT TAX CREDITS 23,623 22,729 DEFERRED CREDITS 16,362 16,700 COMMITMENTS AND CONTINGENCIES (Note 4) -------------------- ---------------------- $ 966,255 $ 973,566 ==================== ====================== The accompanying notes are an integral part of these consolidated financial statements.
TNP Enterprises Inc. and Subsidiaries Texas-New Mexico Power Company and Subsidiaries Notes to Consolidated Financial Statements Note 1. Interim Financial Statements The interim consolidated financial statements of TNP and subsidiaries, and TNMP and subsidiaries, are unaudited and contain all adjustments (consisting primarily of normal recurring accruals) necessary for a fair statement of the results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for a full year or for previously reported periods due in part to seasonal revenue fluctuations. It is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in TNP's and TNMP's 1998 Combined Annual Report on Form 10-K. Prior period statements have been reclassified in order to be consistent with current period presentation. The reclassification had no effect on net income or common shareholders equity. Note 2. Discontinued Nonregulated Operations As discussed in TNP's and TNMP's 1998 Combined Annual Report on Form 10-K, management discontinued the remaining operations of Facility Works Inc. (FWI), TNP's wholly owned unregulated subsidiary, in late 1998. All losses incurred by FWI during 1998 have been reclassified as losses from discontinued operations. Note 3. Segment and Related Information In TNP's and TNMP's 1998 Combined Annual Report on Form 10-K, TNP reported two segments, TNMP, which provides regulated electric service in Texas and New Mexico, and FWI, which before operations were discontinued, provided integrated mechanical, electrical, plumbing and other maintenance and repair services to commercial customers in Texas metropolitan areas. The operations of TNMP have been separated into two segments, Texas and New Mexico. TNP manages the segments separately to respond to the differing operational and regulatory climates in the two states. The following tables present information about profits, losses and assets of TNP's reportable segments (in thousands):
Three Months Ended March 31, 1999 Texas New Mexico All Other Eliminations Consolidated Operating revenues $ 98,994 $ 19,117 $ 14 $ - $ 118,125 Net income (loss) 3,194 619 (681) - 3,132 Total assets at March 31, 1999 737,169 67,781 185,011 (5,751) 984,210 Three Months Ended March 31, 1998 Texas New Mexico All Other Eliminations Consolidated Operating revenues $ 105,100 $ 20,831 $ 7 $ - $ 125,938 Net income (loss) 3,517 1,802 (694) - 4,625 Total assets at December 31, 1998 738,257 64,521 191,213 (226) 993,765
Note 4. Commitments and Contingencies Legal Proceedings Clear Lake. TNMP and Clear Lake Limited Partnership ("Clear Lake") agreed in March 1999 to settle the lawsuit styled Clear Lake Cogeneration Limited Partnership vs. Texas-New Mexico Power Company, pending in the 234th District court of Harris County, Texas, and the parallel proceeding pending before the PUCT. These proceedings arose out of disagreements between TNMP and Clear Lake over the interpretation of certain terms of an agreement under which TNMP purchases cogenerated electricity from Clear Lake. Under the settlement, TNMP, Clear Lake and Calpine Power Services Company (an affiliate of Clear Lake) have entered into a revised purchased power contract, effective as of October 1, 1998, governing energy and capacity transactions between the parties. The key elements of the revised contract are: - The capacity rate under which TNMP will purchase capacity from Clear Lake is significantly reduced. The energy rate is virtually unchanged. - Clear Lake guarantees the original contract's capacity of 250 MW. The original contract provided for Clear Lake to supply 250 MW of capacity on an as available basis. Clear Lake may supply the 250 MW from multiple sources, as opposed to the single cogeneration facility specified in the original contract. In return, Clear Lake will no longer pay for or receive standby power. - TNMP will pay for the cost of transmitting power from the existing Clear Lake power plant to TNMP's load centers in the Gulf Coast Region pursuant to PUCT rules. Clear Lake will reimburse TNMP for any incremental transmission costs that TNMP would incur as a result of delivery from points other than the Clear Lake Plant. The settlement also provides that TNMP will pay Clear Lake $8 million, if the PUCT approves the overall settlement and revised purchased power contract. The settlement calls for regulatory recovery by TNMP of all payments to be made by TNMP for power and energy, as well as the $8 million settlement payment. If the PUCT approves the settlement as proposed, TNMP does not expect this settlement to have a material adverse impact on its financial position or results of operations. Phillips Petroleum. TNMP is the defendant in a suit styled Phillips Petroleum Company vs. Texas-New Mexico Power Company, filed on October 1, 1997 and pending in the 149th State District Court of Brazoria County, Texas. The suit is based on events surrounding an interruption of electricity to a petroleum refinery and related facilities that occurred in May 1997. Phillips Petroleum Company is seeking the recovery of damages arising from the interruption, and in May 1999 demanded payment in the amount of $47,145,000. TNMP claims that most, if not all of the damages Phillips alleges are barred by limitations contained within our tariff approved by the PUCT. In May 1999, TNMP filed a Third Party Petition naming Sweeny Cogeneration Limited Partnership as a defendant. The lawsuit is in the discovery stage. TNMP believes that it has insurance coverage on most of Phillips' claims up to a total of $31 million, with a $500,000 self-retention. TNMP is involved in various claims and other legal proceedings arising in the ordinary course of business. In the opinion of management, the ultimate dispositions of these matters will not have a material adverse effect on TNMP's and TNP's consolidated financial position or results of operations. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A). The following discussion should be read in conjunction with the related interim consolidated financial statements and notes. Results Of Operations As discussed in TNP's and TNMP's 1998 Combined Annual Report on Form 10-K, the Public Utility Commission of Texas (PUCT), approved TNMP's transition-to-competition plan (Transition Plan)on July 22, 1998. The Transition Plan includes a number of provisions that impact TNMP's financial results, which will be noted as necessary in the following discussion. Overall Results TNP's earnings applicable to common stock were $3.1 million for the quarter ended March 31, 1999 as compared to $4.6 million for the quarter ended March 31, 1998. Excluding the loss on FWI's discontinued operations incurred during 1998, earnings for the first quarter of 1998 were $5.1 million. Since the operations of TNMP (the principal subsidiary) currently represent most of TNP's operations, the following discussion focuses on TNMP's operations unless noted otherwise. Under the Transition Plan, TNMP's earnings on its Texas operations are capped at an 11.25% return on equity less assumed discounts on industrial rates, which are expected to be approximately $2.9 million in 1999. TNMP will apply Texas earnings in excess of the cap to recover stranded costs related to its generation investment (TNP One) or will refund them to customers, according to PUCT guidelines. During the first quarter of 1999, TNMP's Texas earnings did not exceed the cap established by the PUCT in the Transition Plan. TNMP's earnings applicable to common stock were $3.8 million for the quarter ended March 31, 1999 as compared to $5.3 million for the quarter ended March 31, 1998. The $1.5 million decrease is attributable to the factors listed below (in millions): Texas demand purchased power savings Texas demand revenue $ (1.4) Less: Texas demand purchased power expense (5.2) ------------ 3.8 Changes in base revenues (excluding Texas demand) (3.3) Transmission expenses (2.0) Depreciation expenses (3.8) Interest 2.1 All other (including income tax effects on the items above) 1.7 ------------ $ (1.5) ============ Base Revenues The following table summarizes the components of base revenues (in thousands).
Three Months Ended March 31, Increase 1999 1998 (Decrease) Operating revenues $ 118,111 $ 125,931 $ (7,820) Pass-through expenses 38,314 41,351 (3,037) ---------- ---------- --------- Base revenues $ 79,797 $ 84,580 $ (4,783) ========== ========== =========
Pass-through expenses in Texas include fuel and the energy-related portion of purchased power. In New Mexico, purchased power costs incurred to serve certain industrial customers are passed-through to those customers. Details of pass-through expenses are discussed under "Results of Operations -- Operating Expenses." The following table summarizes the components of the base revenue decrease from 1998 to 1999 (in thousands). Base revenue ------------ Weather related $ 66 Customer growth 947 Rate changes (primarily base rate reductions) (1,188) Industrial - firm rate sales (1,581) Clear Lake standby revenue (Note 4) (818) Other (782) ---------- Base revenue excluding Texas demand (3,356) Texas demand revenue (1,427) ---------- Base revenue decrease $ (4,783) ========== Current quarter base revenue decreased $4.8 million, or 5.7%, compared to the corresponding 1998 period. The decrease resulted from rate reductions in Texas pursuant to the Transition Plan, loss of a significant industrial customer, lower revenues from a second significant industrial customer, and the absence of standby revenue payments resulting from the Clear Lake settlement discussed in Note 4. The following table summarizes the components of gigawatt-hour (GWH) sales.
Three Months Ended March 31, Increase 1999 1998 (Decrease) GWH sales: Residential 492 478 14 Commercial 402 382 20 Industrial: Firm 112 175 (63) Economy 1,044 1,061 (17) Power marketing 22 113 (91) Other 26 25 1 -------- --------- -------- Total GWH sales 2,098 2,234 (136) ======== ========= ========
Current quarter sales of 2,098 GWHs decreased by 136 GWHs (or 6.1%) as compared to the corresponding 1998 quarter sales of 2,234 GWHs. The decrease resulted from the loss of a significant industrial customer and decreased off-system sales. This was partially offset by the increase in residential and commercial sales resulting from customer growth. Operating Expenses The following table summarizes the components of TNMP's total operating expenses (in thousands).
Three Months Ended March 31, Increase 1999 1998 (Decrease) Purchased power and fuel expenses: Pass through expenses: Purchased power $ 31,352 $ 33,579 $ (2,227) Fuel 6,962 7,772 (810) ---------- ---------- --------- Subtotal 38,314 41,351 (3,037) Texas demand purchased power 14,092 19,310 (5,218) New Mexico non-pass through purchased power 4,719 5,869 (1,150) Other fuel costs 247 295 (48) ---------- ---------- --------- Total 57,372 66,825 (9,453) Transmission expense 4,605 2,595 2,010 Depreciation expense 13,724 9,872 3,852 Other operating expenses 18,418 16,675 1,743 Income and other tax expenses 8,923 11,188 (2,265) ---------- ---------- --------- Operating expenses $ 103,042 $ 107,155 $ (4,113) ========== ========== =========
Purchased Power and Fuel Expenses Under the Transition Plan, TNMP will pass through to customers via the fuel adjustment clause the energy-related portion of purchased power only. The demand-related portion of purchased power will be recovered through base rates and is not subject to adjustment or future reconciliation. Therefore, any difference between the amount of demand-related purchased power recovered through TNMP's rates, and the actual cost of such, will affect operating income. In the first quarter of 1999, purchased power and fuel expenses decreased $9.5 million from the level incurred during the first quarter of 1998. Pass-through expenses accounted for $3.0 million of the decrease, while non pass-through expenses accounted for the remaining $6.5 million. The decrease reflects lower overall GWH requirements due to lower sales, and lower energy costs due to increased purchases of spot market power in 1999 as compared to 1998. In the first quarter of 1999, the cost of energy purchased in the spot market was significantly less than the cost of energy available from alternative sources of supply. In addition, demand costs have decreased, due to the replacement of purchases from Texas Utilities with purchases from lower cost providers. Demand costs have also decreased because the rate under which TNMP purchases capacity from Clear Lake has been significantly reduced under the Clear Lake settlement, as discussed in Note 4. Transmission Expenses Transmission expenses increased primarily due to discontinued reimbursements in accordance with the Clear Lake settlement, as discussed in Note 4. Depreciation Expenses Under the Transition Plan, TNMP will record $15 million of additional depreciation annually during 1999-2002 to recover stranded costs. In the first quarter of 1999, the additional depreciation accounted for substantially all of the $3.8 million increase in depreciation expense over the first quarter of 1998. Other Operating Expenses, Income and Other Tax Expenses Other operating expenses for the current quarter were $1.7 million higher than in the same quarter of 1998. This increase is primarily due to abnormally low payroll-related costs in the first quarter of 1998. Higher outside services costs and accelerated amortization of regulatory assets in the current quarter also contributed to the increase. Current quarter income and other tax expenses decreased by $2.3 million due to lower pre-tax income. Interest Expense Interest charges decreased by $2.1 million due to TNMP's January 1999 issuance of $175 million of 6.25% senior notes, which replaced $130 million of 12.5% secured debentures, and reduced debt levels of the credit facilities. Financial Condition Liquidity Currently, the main sources of liquidity for TNP are cash flow from operations, borrowings from credit facilities, and sale of additional common stock. TNP's cash flow from operations was lower for the current year quarter as compared to prior year quarter due to lower receipts from customers offset by lower payments for purchased power and interest costs. The changes in TNMP's cash flow from operations mirrored those of TNP. In January 1999, TNMP issued $175 million of 6.25% Senior Notes due in 2009 and used the proceeds to retire its 12.5% secured debentures and reduce outstanding borrowings under the credit facilities, as discussed in TNP's and TNMP's 1998 Combined Annual Report on Form 10-K. TNMP has sufficient liquidity to satisfy the possibility of any known contingencies. Management believes cash flow from operations, the new debt described above, and periodic borrowings under its revolving credit facilities should be sufficient to meet working capital requirements and planned capital expenditures at least through 1999. Regulatory Matters New Mexico During the recent session of the New Mexico Legislature, both houses passed, and the Governor signed, the Electric Utility Industry Restructuring Act of 1999 (the Act). The Act contains many provisions in common with TNMP's Community Choice(R) plan, and opens New Mexico's electric power market to consumer choice in 2001. The Act's provisions include: - Phased in competition. Public schools, residential and small business customers can choose among competing electric suppliers beginning January 2001. Choice will begin for all other customers in January 2002. The New Mexico Public Regulation Commission (NMPRC) has the authority to delay the onset of choice by one year. - Metering and billing services will be provided by the regulated distribution utility. - Utilities must unbundle the competitive parts of their business from the regulated activities through creation of at least two separate affiliates. - Utilities are guaranteed recovery of 50% of their stranded costs over a five-year period. If certain conditions are met, the NMPRC can allow up to 100% recovery of stranded costs. - Each utility must submit a transition plan to the NMPRC by March 1, 2000. Since TNMP already operates under Community Choice, the NMPRC must decide whether to leave it in place, or conform it to the provisions of the Act. In Texas, legislation establishing competition has been approved by the Senate, and is under consideration in the House of Representatives. TNMP's Transition Plan provides that the Plan will be modified to conform to any legislation enacting competition in the electric utility industry. Absent legislation implementing retail competition, at the end of the five-year transition period TNMP shall file with the PUCT a proposal to voluntarily implement retail access, contingent upon the approval of an appropriate mechanism for recovery of any remaining stranded costs. The PUCT has committed to full recovery of stranded costs if they are quantified using a market-based methodology, TNMP offers retail access, and stranded costs are allocated fairly to all customers. Year 2000 TNMP is actively addressing the Year 2000 issue (Y2K) throughout its operating and office environments. Many existing computer programs were designed and developed to use only two digits to identify a year in the date field. If not addressed, these computer systems could fail, with possible material adverse effects on TNMP's operations. In mid-1997 TNMP's information technology staff began to identify and assess corporate software applications, equipment and operating systems. In early 1998, the project was expanded to include professionals from throughout the company and to identify and assess embedded systems. TNMP's project to analyze Y2K has included the following phases: identification, assessment, remediation/implementation and testing. In its analysis to identify and assess the Y2K impact on company systems, TNMP has conducted extensive studies to analyze the impact of Y2K on all operating systems. As a result of these studies, TNMP has developed a Y2K mitigation plan. The plan requires TNMP to amend, replace, or upgrade most of its primary corporate information systems, some of which were already being replaced or upgraded pursuant to a previously approved plan to replace or upgrade such systems. The following is a brief summary of the renovation and validation, and implementation progress for the critical business areas of TNMP - generation, transmission, distribution, energy management, and corporate information systems. Generating Units. TNMP owns one power plant, TNP One, which is located in Robertson County, Texas. TNP One has two units that burn lignite as the primary fuel source to generate power. The total lignite supply is provided from a mine adjacent to the power plant. TNP plans to increase the coal supply to provide for an additional six-week supply prior to January 1, 2000. The plant is also capable of burning natural gas, as well as various waste products. Integrated testing of the Plant Control Computer, which provides for most of the computerized operations of the boiler and turbine controls, was completed on Unit 1 in February 1999, and on Unit 2 in April 1999. The integrated testing of the Plant Control Computer detected no Y2K problems. In late 1998, tests of the Continuous Emissions Monitoring System determined that only non-critical Y2K issues existed. In April 1999, upgrades to the Continuous Emissions Monitoring System software were completed. Subsequent testing of the Continuous Emissions Monitoring System detected no Y2K issues. As of May 1, 1999, the TNP One generation plant has completed the assessment of all mission-critical facilities, and is approximately 93 percent complete with the testing and remediation of those facilities. Testing and remediation of all remaining mission-critical facilities is expected to be complete by June 1999. Distribution System. TNMP is primarily a distribution company. Over 600 suspect distribution system devices have been identified and are being tested. TNMP is currently testing the devices that have external clock functions. Devices that have no external clock function are being checked with the manufacturer and TNMP is reviewing their testing of those devices. All of TNMP's critical distribution substations have designs which contain redundant relaying or bypass switching schemes to remove failed devices and equipment for normal operations, allowing for quick restoration of power to customers. As of May 1, 1999, TNMP is 98 percent complete with the assessment of all distribution system mission-critical facilities, and is approximately 94 percent complete with the testing and remediation of those facilities. Testing and remediation of all remaining mission-critical facilities is expected to be complete by June 1999. Transmission System. TNMP has transmission lines which are a part of the transmission grid comprised within the Electric Reliability Council of Texas (ERCOT). The transmission grid within ERCOT is operated by member utilities in conjunction with an Independent System Operator. TNMP has transmission lines in New Mexico which are part of the Western Systems Coordinating Council (WSCC). TNMP is participating on ERCOT's Year 2000 Technical Task Force and on the Year 2000 Operational Preparedness and Planning Task Force. TNMP is also participating in all testing, drills and contingency planning done by ERCOT, the Independent System Operator and the WSCC. Testing and remediation of transmission line electronic protective devices is approximately 97 percent complete. Testing and remediation of all remaining facilities is expected to be complete by June 1999. Supervisory Control and Data Acquisition Systems (SCADA) and Energy Management Systems. TNMP has three SCADA systems in Texas. A SCADA system reports on the status of protective devices, allows for the remote control of these same devices, and reports and tracks critical power flow information on the transmission and distribution grids. These systems are new, having been upgraded in 1997 and 1998. TNMP is in the process of replacing the SCADA system in New Mexico, which is not Year 2000 compliant. As of May 1, 1999, TNMP has completed the assessment of all SCADA and Energy Management Systems mission-critical facilities, and is approximately 94 percent complete with the testing and remediation of those facilities. All testing and remediation is expected to be complete by June 1999, except for the New Mexico SCADA system that will be complete in August 1999. Information Technology Systems. As of May 1, 1999, approximately 90% of TNMP's infrastructure supporting its business systems has been tested and verified as Y2K compliant. TNMP expects to have the remaining infrastructure Y2K compliant by June 30, 1999. TNMP has completed the upgrade of its financial and accounting system to a Y2K ready version. Integrated testing of the upgraded financial system will be completed in May 1999. A new customer information system is expected to be implemented and tested during the third quarter of 1999 and other corporate information systems directly related to TNMP's operations are expected to be installed and tested by September 1999. TNMP incorporates unit testing, system testing, integration testing and acceptance testing into the verification methodology. Y2K Remediation Cost. The costs associated with TNMP's Y2K efforts are expected to be approximately $10.2 million. Approximately $9 million of the total cost is to upgrade or replace various information technology systems, as discussed above, as well as improve the infrastructure to support those systems. TNMP does not expect these costs to have a material impact on its financial position or results of operations. TNMP continues to work with key software vendors and outside consultants to validate its Y2K compliance project. To date, TNMP has spent approximately $7.1 million on Y2K remediation. TNMP has in the past used, and expects to continue to use, cash flow from operations to fund costs associated with Y2K. Third-Party Vendors. In addition to its own mitigation plan, TNMP is actively working with its key vendors and other third parties with which TNMP has a material relationship to assist such parties in achieving compliance with respect to Y2K in those systems affecting TNMP's operations. Such parties include electric power providers in Texas and New Mexico; the fuel, ash disposal, and limestone contractors at TNP One; transmission and distribution material suppliers; and banking partners. Although TNMP believes that such persons are working diligently to properly address Y2K, TNMP cannot guarantee that these third-party systems will be timely converted, or that a failure to convert by another company or a conversion that is incompatible with TNMP's systems, would not have a material adverse effect on TNMP. Contingency Plans. The primary operating processes of TNMP's business (e.g., the production, transmission, and distribution of electric power) are subject to contingencies related to weather, equipment failure, and other factors. TNMP has drafted Y2K contingency plans by adapting previously existing contingency plans. TNMP will finalize the Y2K contingency plan by June 1999. The Risks of the Company's Year 2000 Issues. Based upon its current assessment and testing of the Y2K issue, TNMP believes the reasonably likely worst-case Y2K scenarios would have the following impacts upon it and its operations. With respect to its ability to provide energy to its customers, TNMP believes that the reasonably likely worst-case scenario is for small, localized interruptions of electrical service that are restored in a time frame that is within normal service levels. With respect to services that are essential to TNMP's operations, such as customer service, business operations, supplies and emergency response capabilities, the reasonably likely worst-case scenario is for minor disruptions of essential services with rapid recovery and all essential information and processes ultimately recovered. While risks related to the third parties' lack of Y2K readiness could materially and adversely affect TNMP's business, results of operations and financial condition, TNMP expects its Y2K readiness efforts to reduce significantly its level of uncertainty about the impact of third party Y2K issues on both its IT systems and non-IT systems. PART II - OTHER INFORMATION Item 1. Legal Proceedings. See Note 4 for information regarding material legal proceedings. Item 4. Submission of Matters to a Vote of Securities Holders. At the annual meeting of the Company's shareholders on May 3, 1999, the shareholders (i) elected John A. Fanning, Larry G. Wheeler, and Dennis H. Withers as Class 2 directors, all for three-year terms; (ii) ratified the appointment of Arthur Andersen LLP, Certified Independent Public Accountants, as independent auditors for 1999; and (iii) approved amendments to the TNP Equity Incentive Plan. The vote in the election of directors was as follows: John A. Fanning: For: 10,788,274 Withheld: 359,367 Larry G. Wheeler: For: 10,783,004 Withheld: 364,637 Dennis H. Withers: For: 10,789,508 Withheld: 358,133 The vote in the ratification of Arthur Andersen LLP, Certified Independent Public Accountants, as independent auditors was 11,068,103 for, 43,625 against, and 35,913 abstaining. The vote in the amendments to the TNP Equity Incentive Plan was 8,025,766 for, 3,007,828 against, and 114,047 abstaining. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits The following exhibits are filed with this report: 27(a) Financial Data Schedule for TNP. 27(b) Financial Data Schedule for TNMP. (b) Reports on Form 8-K - None Statement Regarding Forward Looking Information The discussions in this document that are not historical facts, including, but not limited to, the continued application of regulatory accounting principles, future cash flows and the potential recovery of stranded costs, are based upon current expectations. Actual results may differ materially. Among the facts that could cause the results to differ materially from expectations are the following: whether legislation is enacted in Texas, and its effects on TNMP's business; the effects of recently passed legislation in New Mexico on the regulation of TNMP's business; changes in regulations affecting TNP's and TNMP's businesses; PUCT or court disapproval of the Clear Lake litigation settlement; insurance coverage available for claims made in litigation; future acquisitions or strategic partnerships; general business and economic conditions, and price fluctuations in the electric power market; the effectiveness of TNMP's Y2K mitigation plan, and the timely Y2K compliance by TNP's and TNMP's vendors; and other factors described from time to time in TNP's and TNMP's reports filed with the Securities and Exchange Commission. TNP and TNMP wish to caution readers not to place undue reliance on any such forward looking statements, which are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. TNP ENTERPRISES, INC. AND SUBSIDIARIES TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES 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. (Registrant) TNP ENTERPRISES, INC. AND TEXAS-NEW MEXICO POWER COMPANY Date: May 13, 1999 By \s\ MANJIT S. CHEEMA -------------------- Manjit S. Cheema Senior Vice President and Chief Financial Officer Date: May 13, 1999 By \s\ MICHAEL J. RICKETTS ----------------------- Michael J. Ricketts Controller and as Chief Accounting Officer EX-27 2 FDS - TNP ENTERPRISES
UT 0000741612 TNP Enterprises, Inc. 1000 3-Mos DEC-31-1998 JAN-01-1999 MAR-31-1999 PER-BOOK 921,142 8,537 26,216 27,629 686 984,210 195,608 0 115,003 310,611 0 3,060 475,681 0 0 0 0 0 0 0 194,858 984,210 118,125 712 102,921 103,633 14,492 281 14,773 11,641 3,132 36 3,096 3,870 10,224 (10,166) 0.23 0.23
EX-27 3 TEXAS-NEW MEXICO POWER COMPANY
UT 0000022767 Texas-New Mexico Power Company 1000 3-Mos DEC-31-1998 JAN-01-1999 MAR-31-1999 PER-BOOK 921,094 214 16,824 27,437 686 966,255 107 222,149 83,617 305,873 0 3,060 463,181 0 0 0 0 0 0 0 194,141 966,255 118,111 1,044 101,998 103,042 15,069 215 15,284 11,471 3,813 36 3,777 0 10,054 (5,404) 0 0
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