-----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, BeXKhpXUEFM8HDXKkzSZVSXjEhtv2GnLaJITet+IUu9rMWzZvdey01BAl1A0AEFN HX1W/G175pR1QYKXGoIINQ== 0000081023-97-000007.txt : 19970804 0000081023-97-000007.hdr.sgml : 19970804 ACCESSION NUMBER: 0000081023-97-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970801 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBLIC SERVICE CO OF NEW MEXICO CENTRAL INDEX KEY: 0000081023 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 850019030 STATE OF INCORPORATION: NM FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06986 FILM NUMBER: 97649600 BUSINESS ADDRESS: STREET 1: ALVARADO SQUARE, MS2706 CITY: ALBUQUERQUE STATE: NM ZIP: 87158 BUSINESS PHONE: 5058482700 10-Q 1 TEXT OF FORM 10-Q FOR JUNE 30, 1997 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 period ended June 30, 1997 ----------------------- 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 1-6986 ---------- PUBLIC SERVICE COMPANY OF NEW MEXICO --------------------------------------------- (Exact name of registrant as specified in its charter) New Mexico 85-0019030 ------------------- ------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Alvarado Square, Albuquerque, New Mexico 87158 ---------------------------------------------- (Address of principal executive offices) (Zip Code) (505) 241-2700 --------------------- (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) 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 --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock--$5.00 par value 41,774,083 shares ----------------------------- ---------------------------- Class Outstanding at July 31, 1997 PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES INDEX Page No. PART I. FINANCIAL INFORMATION: Report of Independent Public Accountants....................... 3 ITEM 1. FINANCIAL STATEMENTS Consolidated Statements of Earnings-- Three Months and Six Months Ended June 30, 1997 and 1996....... 4 Consolidated Balance Sheets-- June 30, 1997 and December 31, 1996............................ 5 Consolidated Statements of Cash Flows-- Six Months Ended June 30, 1997 and 1996........................ 6 Notes to Consolidated Financial Statements..................... 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................. 8 PART II. OTHER INFORMATION: ITEM 1. LEGAL PROCEEDINGS.......................................... 15 ITEM 5. OTHER INFORMATION.......................................... 16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................... 18 Signature ........................................................... 19 2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Public Service Company of New Mexico: We have reviewed the accompanying condensed consolidated balance sheet of Public Service Company of New Mexico (a New Mexico corporation) and subsidiaries as of June 30, 1997, and the related condensed consolidated statements of earnings for the three-month and six-month periods ended June 30, 1997 and 1996, and the condensed consolidated statements of cash flows for the six-month periods ended June 30, 1997 and 1996. These financial statements are the responsibility of the company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Public Service Company of New Mexico and subsidiaries as of December 31, 1996 (not presented herein), and, in our report dated February 13, 1997, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1996, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. ARTHUR ANDERSEN LLP Albuquerque, New Mexico July 31, 1997 3 ITEM 1. FINANCIAL STATEMENTS PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
Three Months Ended Six Months Ended June 30 June 30 ---------------------- ----------------------- 1997 1996 1997 1996 --------- ---------- --------- ---------- (In thousands except per share amounts) Operating revenues: Electric $ 166,390 $ 154,438 $ 327,651 $ 306,540 Gas 53,138 43,093 177,074 132,823 Energy Services 19,214 66 32,839 138 ---------- ---------- ---------- ---------- Total operating revenues 238,742 197,597 537,564 439,501 ---------- ---------- ---------- ---------- Operating expenses: Fuel and purchased power 52,337 40,848 99,455 80,573 Gas purchased for resale 27,386 19,197 109,046 65,656 Gas purchased for resale - energy marketing 20,093 17 33,495 47 Other operation and maintenance 78,120 78,582 154,666 151,482 Depreciation and amortization 20,484 18,555 40,937 38,585 Taxes, other than income taxes 8,536 8,598 18,289 17,828 Income taxes 5,792 6,454 18,989 21,509 ---------- ---------- ---------- ---------- Total operating expenses 212,748 172,251 474,877 375,680 ---------- ---------- ---------- ---------- Operating income 25,994 25,346 62,687 63,821 ---------- ---------- ---------- ---------- Other income and deductions, net of taxes 4,680 1,036 7,117 1,853 ---------- ---------- ---------- ---------- Income before interest charges 30,674 26,382 69,804 65,674 ---------- ---------- ---------- ---------- Interest charges: Interest on long-term debt 11,561 12,118 23,684 24,203 Other interest charges 3,546 722 5,657 1,481 ---------- ---------- ---------- ---------- Net interest charges 15,107 12,840 29,341 25,684 ---------- ---------- ---------- ---------- Net earnings 15,567 13,542 40,463 39,990 Preferred stock dividend requirements 146 146 293 293 ---------- ---------- ---------- ---------- Net earnings applicable to common stock $ 15,421 $ 13,396 $ 40,170 $ 39,697 ========== ========== ========== ========== Average shares of common stock outstanding 41,774 41,774 41,774 41,774 ========== ========== ========== ========== Net earnings per share of common stock $ 0.37 $ 0.32 $ 0.96 $ 0.95 ========== ========== ========== ========== Dividends paid per share of common stock $ 0.17 $ 0.12 $ 0.29 $ 0.12 ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 4 PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, December 31, 1997 1996 ---------- ----------- (Unaudited) (In thousands) ASSETS Utility plant $2,533,991 $2,489,921 Accumulated provision for depreciation and amortization (976,535) (937,228) ----------- ----------- Net utility plant 1,557,456 1,552,693 ----------- ----------- Other property and investments 274,208 254,268 ----------- ----------- Current assets: Cash 3,526 11,125 Temporary investments, at cost 22,550 9,128 Receivables 163,655 197,025 Income taxes receivable 5,939 18,825 Fuel, materials and supplies 42,655 41,260 Gas in underground storage 6,075 2,679 Other current assets 8,346 6,632 ----------- ----------- Total current assets 252,746 286,674 ----------- ----------- Deferred charges 140,475 136,679 ----------- ----------- $2,224,885 $2,230,314 =========== =========== CAPITALIZATION AND LIABILITIES Capitalization: Common stock equity: Common stock $ 208,870 $ 208,870 Additional paid-in capital 470,271 470,358 Excess pension liability, net of tax (1,840) (2,102) Retained earnings since January 1, 1989 103,152 77,185 ----------- ----------- Total common stock equity 780,453 754,311 Cumulative preferred stock without mandatory redemption requirements 12,800 12,800 Long-term debt, less current maturities 714,183 713,919 ----------- ----------- Total capitalization 1,507,436 1,481,030 ----------- ----------- Current liabilities: Short-term debt 103,000 100,400 Accounts payable 106,993 130,661 Dividends payable 7,248 5,159 Current maturities of long-term debt 340 14,970 Accrued interest and taxes 21,961 23,356 Other current liabilities 25,578 25,477 ----------- ----------- Total current liabilities 265,120 300,023 ----------- ----------- Deferred credits 452,329 449,261 ----------- ----------- $2,224,885 $2,230,314 =========== =========== The accompanying notes are an integral part of these financial statements. 5 PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30 ---------------------- 1997 1996 --------- --------- (In thousands) Cash Flows From Operating Activities: Net earnings $ 40,463 $ 39,990 Adjustments to reconcile net earnings to net cash flows from operating activities: Depreciation and amortization 46,329 47,219 Accumulated deferred investment tax credit (2,238) (2,332) Accumulated deferred income tax 3,564 20 Changes in certain assets and liabilities: Receivables 49,846 10,996 Fuel, materials and supplies (4,791) 3,726 Deferred charges (1,917) 4,515 Accounts payable (23,695) (9,436) Accrued interest and taxes (1,395) (140) Deferred credits 1,261 (5,601) Other (1,602) (7,447) Other, net 5,336 2,958 ---------- ---------- Net cash flows from operating activities 111,161 84,468 ---------- ---------- Cash Flows From Investing Activities: Utility plant additions (55,592) (40,655) Increase in nuclear decommissioning trust (23,000) - Return of principal PVNGS LOBs 820 - Increase in other property and investments (687) (3,089) Temporary investments, net (13,422) (33,159) ---------- ---------- Net cash flows from investing activities (91,881) (76,903) ---------- ---------- Cash Flows From Financing Activities: Bond redemption premium and costs (2,319) (196) Repayments of other long-term debt - (179) Trust borrowing for nuclear decommissioning 23,000 - Repayments of short-term borrowings (35,180) - Dividends paid (12,380) (5,261) ---------- ---------- Net cash flows from financing activities (26,879) (5,636) ---------- ---------- Increase (Decrease) in cash (7,599) 1,929 Cash at beginning of period 11,125 4,228 ---------- ---------- Cash at end of period $ 3,526 $ 6,157 ========== ========== Supplemental Cash Flow Disclosures: Interest paid $ 30,036 $ 25,205 ========== ========== Income taxes paid, net $ 22,250 $ 25,500 ========== ========== The accompanying notes are an integral part of these financial statements. 6 PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) General Accounting Policy In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the consolidated financial statements. The significant accounting policies followed by Public Service Company of New Mexico (the "Company") are set forth in note (1) of notes to the Company's consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (the "1996 Form 10-K") filed with the Securities and Exchange Commission ("SEC"). (2) Nuclear Decommissioning Costs The Company's share of the Palo Verde Nuclear Generating Station ("PVNGS") decommissioning costs will be approximately $147.5 million in 1995 dollars. The Company makes regular payments under agreements approved by the New Mexico Public Utility Commission ("NMPUC") to external tax qualified and non-qualified trusts over the estimated useful life of each unit. A portion of the non-qualified trust funds is invested in life insurance policies. The remaining trust funds are invested primarily in equities, a municipal bond fund and a money market fund. Decommissioning costs are charged to expense over the license term and decommissioning costs for Units 1 and 2 are currently recovered in rates. As of June 30, 1997, the nuclear decommissioning trusts had net assets with a market value of $26.8 million. (3) Refinancing On February 21, 1997, the Company completed the refinancing of $190 million of pollution control revenue bonds issued by the City of Farmington, all maturing in April 2022. The $60 million 1978 Series A Pollution Control Revenue Bonds and the $40 million 1979 Series A Pollution Control Revenue Bonds were refinanced as variable rate bonds (Pollution Control Revenue Refunding Bonds, $40 million 1997 Series A, $37 million 1997 Series B and $23 million 1997 Series C). The initial variable rates were 3.35% for $40 million 1997 Series A and $37 million 1997 Series B, and 3.30% for $23 million 1997 Series C. The remaining $90 million 1979 Series A Pollution Control Revenue Bonds were refinanced with a fixed rate of 6.375% (Pollution Control Revenue Refunding Bonds, 1997 Series D). 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company's 1996 Form 10-K PART II, ITEM 7. -- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" discussed management's assessment of the Company's financial condition, results of operations and other issues facing the Company. The following discussion and analysis by management focuses on those factors that had a material effect on the Company's financial condition and results of operations during the first six months of 1997 and 1996. It should be read in conjunction with the Company's consolidated financial statements. Trends and contingencies of a material nature are discussed to the extent known and considered relevant. LIQUIDITY AND CAPITAL RESOURCES The capital requirements for 1997 of $214.0 million include utility construction expenditures, purchases of PVNGS Lease Obligation Bonds ("LOBs") and cash dividend requirements for both common and preferred stock. The Company spent approximately $68.0 million for capital requirements during the first half of 1997 and anticipates spending approximately $146.0 million during the remainder of 1997. The Company expects that such cash requirements will be met primarily through internally generated cash. However, to cover the differences in the amounts and timing of cash generation and cash requirements, the Company intends to utilize short-term borrowings under its liquidity arrangements. At June 30, 1997, the Company had $80 million of short-term borrowings against its liquidity arrangements and had $140 million in unused liquidity capacity. Included in this capacity were $100 million under a secured revolving credit facility ("Facility"), $20 million of the credit facility collateralized by the Company's utility customer accounts receivable and certain amounts being recovered from gas customers relating to certain gas contract settlements and $20 million under local lines of credit. The Facility will expire in June 1998 and the Company expects to renew the Facility before its expiration date. As of June 30, 1997, the Company had approximately $22.6 million in temporary investments. The Company continues to evaluate its investment and debt retirement options to optimize its financing strategy and earnings potential. Dividends On June 3, 1997, the Company's board of directors ("Board") declared a quarterly cash dividend of 17 cents per common share, payable August 22, 1997, to the common stockholders of record as of August 1, 1997. The Company's Board reviews the Company's dividend policy on a continuing basis. The declaration of common dividends is dependent upon a number of factors including earnings and financial condition of the Company and market conditions. 8 RESULTS OF OPERATIONS Net earnings applicable to common stock increased $2.0 million ($.05 per share) for the quarter ended June 30, 1997 over the same quarter of last year. Net earnings applicable to common stock for the six months ended June 30, 1997 increased $.5 million ($.01 per share) over the same period of last year. The following discussion highlights significant items which affected the results of operations for the quarter and six months ended June 30, 1997 and 1996. Electric gross margin (electric operating revenues less fuel and purchased power expense) increased $.5 million and $2.2 million for the quarter and six months ended June 30, 1997, respectively, over the corresponding periods a year ago. These increases were attributable to retail load growth for the quarter and increased off-system sales margin for the six month period. Gas gross margin (gas operating revenues less gas purchased for resale) increased $1.9 million and $.9 million for the quarter and six months ended June 30, 1997, respectively, over the corresponding periods a year ago. The main contributor to these increases was the implementation of a new monthly customer charge (access fee) starting February 1997 pursuant to a gas rate order. The increase in Energy Services operating revenues and gas purchased for resale reflects the activities related to the buying, selling, transporting and storing of natural gas by the Company's Energy Services Business Unit. Other operation and maintenance ("O&M") expenses decreased $.5 million and increased $3.2 million for the quarter and six months ended June 30, 1997, respectively, from the corresponding periods a year ago. The increase in O&M expenses for the six months ended June 30, 1997 were due to increases in (i) administrative and general ("A&G") labor expense of $2.1 million resulting from a 1997 recording of compensation expense stemming from the exercise of stock options, (ii) office supplies and expenses of $1.9 million resulting from increased computer related costs, (iii) customer related service expenses of $1.5 million and (iv) employee benefit expenses of $1.0 million. Such increased expenses were offset by lower electric maintenance expenses of $3.3 million resulting from lower scheduled maintenance outages at the PVNGS, San Juan Generating Station ("SJGS") and Four Corners Generating Station ("Four Corners"), lower PVNGS property tax and the 1996 incentive pay accrual. Other income and deductions, net of taxes increased $3.6 million and $5.3 million for the quarter and the six months ended June 30, 1997, respectively, over the corresponding periods of last year due to increased interest income from the investment in the PVNGS LOBs and settlement of a litigated case. Interest charges increased $2.3 million and $3.7 million for the quarter and the six months ended June 30, 1997, respectively, over the same periods last year due to increased short-term borrowings for the purchase of the $200 million of PVNGS LOBs and interest accruals on the balance due customers related to the gain associated with the 1995 gas asset sale. 9 OTHER ISSUES FACING THE COMPANY Collaborative Effort on the Electric Industry Restructuring As previously reported, the NMPUC issued an order in May 1997, accepting the Company's proposal on the collaborative efforts intended to introduce competition into the state's retail electric power market. The Company had proposed a series of meetings including all interested parties to draft legislation for consideration by the New Mexico Legislature in 1998. In order to facilitate the collaborative process, the NMPUC suspended its earlier order requiring the Company to file an electric rate case in June 1997. The NMPUC indicated in its order that it would order the Company to file an electric rate case by September 1, 1997, if the parties in the negotiation failed to reach consensus on an industry restructuring plan by August 1, 1997, or thirty days after the collaborative was terminated due to lack of consensus. (See Part I, Item 2. -- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- OTHER ISSUES FACING THE COMPANY -- Filings Relating to Electric Rate Case and Electric Industry Restructuring" in the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1997.) The Company and interested parties, including a number of customer organizations, an industrial energy users group, the state Attorney General ("AG"), the staff of the NMPUC, power marketers, environmental groups and regulated utility companies have held extensive meetings for drafting proposed legislation on restructuring the electric industry for the 1998 state legislative session. On June 18, 1997, certain consumer groups announced that the collaborative effort to draft legislation had reached an impasse and requested the NMPUC to declare the process terminated and order the electric rate case to be filed. The consumer groups had demanded that the Company and other regulated utilities in the state either lease or divest their electric distribution systems to an independent operator, or divest their generation and energy services businesses. The groups also opposed stranded cost recovery in the absence of divestiture. The Company and other regulated utilities participating in the collaborative process found that position unacceptable. The Company and certain other interested parties requested the NMPUC to order the process to continue with additional guidelines and authority granted to the facilitators. On July 1, 1997, the NMPUC ordered the Company and the interested parties involved in the discussions on electric restructuring to resume negotiations. In ordering resumption of the discussions, the NMPUC revised its original rules regarding the collaborative process. Under the new rules, the NMPUC will work closely with the two facilitators who are to guide the discussions to resolve intractable issues. By rescinding its definition of consensus as unanimity and giving the facilitators more control over the process, the NMPUC encouraged the parties to reach a mutually satisfactory agreement. The NMPUC ordered a Final Report on the collaborative process to be filed no later than September 15, 1997, and thereafter, the NMPUC will report the results of the collaborative process to the legislative interim committee charged with studying the electric industry restructuring in New Mexico. The schedule for the Company's electric rate case has been postponed to October 1, 1997. Depending on the outcome of the collaborative process, the NMPUC will determine at a later date whether the rate case is necessary. 10 Gas Rate Case As previously reported, on February 13, 1997, the NMPUC issued a final order in the gas rate case, ordering a rate decrease of approximately $6.9 million. In the order, the NMPUC disallowed, among other things, the recovery of certain regulatory assets. The Company had requested a $13.3 million increase in its retail natural gas sales and transportation rates. The Company strongly disagrees with the NMPUC's final order and has appealed it to the New Mexico Supreme Court ("Supreme Court"). (See PART II, ITEM 7. -- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- OTHER ISSUES FACING THE COMPANY -- GAS RATE CASE" in the 1996 Form 10-K.) The AG also filed a notice of appeal of the gas rate case on March 17, 1997. On June 11, 1997, the Company and the AG filed their briefs-in-chief with the Supreme Court. The Company's brief challenged (i) the NMPUC's disallowance of loss on reacquired debt, reservation fees and transportation discount amounts, (ii) the NMPUC's rejection of a reliability cost surcharge on sales and transportation customers, (iii) cost of capital issues, and (iv) the cumulative error of the order, including the NMPUC's refusal to hear a proposed settlement of the case stipulated among certain of the interested parties. The AG's brief challenged the NMPUC's rate design and refusal to implement the reliability cost surcharge on sales and transportation customers. Response briefs by participants in the case are due on August 29, 1997; reply briefs by all participants are due on September 22, 1997. Oral argument will be held before the Supreme Court at an as-yet unspecified date. The Company is unable to predict the date that the Supreme Court will subsequently issue its decision. While the appeal is pending, the NMPUC's final order remains in effect. NMPUC Order on the Cost of Gas Case As previously reported, the NMPUC issued a final order in this case on February 13, 1997 ("February 13 order"). In the order, the NMPUC imposed, but suspended, a fine of $2.2 million to the Company due to an allegedly incorrect cost factor (too low) that was filed in November 1996. In addition, the NMPUC disallowed collection of $1.6 million of gas costs and ordered an independent audit to be conducted to review the Company's gas cost factor calculations for the period of December 1995 through January 1997. In the order, the NMPUC accused the Company of intentionally filing an inaccurate gas cost factor to avoid a hearing, thus impairing the NMPUC's ability to investigate rising gas prices. The NMPUC also ordered the docketing of three new proceedings. The first required a Company filing by March 15, 1997 as to whether the Company should exit the merchant function. The second investigated the prudence of the Company's portfolio strategies and gas supply procurement practices. In the third, the NMPUC ordered the Company to file a new gas rate case by August 1, 1997. (See PART II, ITEM 7. - -- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- OTHER ISSUES FACING THE COMPANY -- NMPUC ORDER -- THE COMPANY'S JANUARY 1997 PGAC FACTOR VARIANCE REQUEST; ORDER TO FILE NEW RETAIL ELECTRIC AND GAS RATE CASES" in the 1996 Form 10-K.) 11 On March 5, 1997, the NMPUC issued an order reopening the proceeding to, among other things, take additional testimony regarding the allegedly incorrect gas cost factor. The reopening order specifically left all of the findings and conclusions in the February 13 order in place, but ruled that the February 13 order was now an interim order and established a procedural schedule for the Company to present additional testimony and for additional hearings. On March 14, 1997, the Company filed a motion for rehearing of the reopening order asking the NMPUC to withdraw the February 13 order and enter a new order. On April 2, 1997, the NMPUC issued an order, partially granting the Company's rehearing motion and agreeing to withdraw and vacate portions of the February 13 order. In the April 2 order, the NMPUC (i) withdrew the finding that, because the veracity of the Company's filings has been brought into question, rate cases for both gas and electric operations were necessary, (ii) withdrew the requirement that the Company must pay for the NMPUC to conduct an independent audit of its gas cost filings, (iii) suspended the imposition of the $2.2 million fine and the order prohibiting the Company from recovering $1.6 million in gas costs incurred in December 1996, and (iv) reaffirmed the March 5 order reopening the proceeding for additional testimony. The Board established an ad hoc committee of outside directors to investigate the assertions of misconduct made by the NMPUC in its February 13 order. The committee retained independent counsel to assist in the investigation. On May 8, 1997, the report of the independent counsel was completed and sent to the NMPUC. The report concluded that the Company neither falsified nor deliberately misled the NMPUC in its gas cost factor statement that was filed in November 1996. The report concluded that reliance on witnesses who had only secondary and general information regarding the November 1996 filing after the resignation of a key employee contributed to the finding by the NMPUC that the filing was false or misleading. However, the report also concluded that the unusual procedural setting of the proceeding including short notice of the issues to be considered, dispensing with prefiled testimony and normal discovery and the fact that the November 1996 filing became a focal point only after the hearing began contributed significantly to the Company's inability to respond with appropriate witnesses and evidence concerning the November 1996 filing. On May 23, June 5, and July 9, 1997, the Company filed testimony in the reopened proceeding. Hearings were held before the NMPUC on June 24, June 25 and July 16, 1997. The Company believes that it has presented unrebutted evidence that the November 1996 gas cost filing contained no false or misleading information. The NMPUC has not yet issued an order on rehearing. In addition, the Company filed for an extension of time to file the new gas rate case. On July 15, 1997, the NMPUC, without discussion, granted the Company an extension until September 2, 1997 to file the new case. 12 Filing Relating to Termination of Gas Merchant Function As previously reported, in the February 13 order in the cost of gas case, the NMPUC ordered the Company to make a separate filing addressing the terms and conditions under which the Company would consider exiting the merchant function and to identify any compelling issues that should be brought to the attention of the NMPUC relating to exiting the merchant function. Since the cost of gas is passed through to customers, the Company does not make a profit or loss on this service. On March 31, 1997, the Company filed its response in NMPUC Case No. 2760. In the filing, the Company asserted that all customers should have the option to choose their natural gas supplier, advocating that, ultimately, customer choice should dictate whether the Company's gas operation retains its merchant function. In addition, the Company apprised the NMPUC of its intent to file for approval of a defined target purchased gas adjustment clause, similar to an incentive mechanism, by September 1, 1997, to be in effect by the winter of 1998/1999. Currently, all customers may choose to become transportation customers on the Company's distribution system, but nearly all residential and most small commercial customers receive bundled sales service. (See Part I, Item 2. -- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- OTHER ISSUES FACING THE COMPANY -- Filing Relating to Termination of Gas Merchant Function" in the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1997.) On June 1, 1997, the Company formed a working group, consisting of customers, the AG, the NMPUC staff, the Company and gas marketers, to determine what is needed to increase competition and more fully develop supplier choice for sales customers. As a result, on June 30, 1997, the Company filed a Stipulation entered into with several customers that outlined interim measures to facilitate the choice of transportation service by small commercial and residential customers to be in place by next winter. The Company has also proposed that long-term solutions to issues raised by the working group be addressed by a long-term working group on the Company's new gas rate case. The NMPUC staff and AG opposed the Stipulation, principally based on concerns with proper gas cost allocation. A hearing was held with the NMPUC on the Stipulation on July 17, 1997, but was recessed until August 1, 1997, to enable the parties to attempt resolution of the contested issues. Investigation of Gas Supply Procurement Practices As previously reported, in the February 13 order in the cost of gas case, the NMPUC established a docket in NMPUC Case No. 2759 to review the gas procurement practices and policies of the Company's gas operations. On April 14, 1997, the Company filed testimony supporting the prudence of its practices and policies. The Company asserted that its procurement practices and policies were conducted in accordance with the rules and regulations of the NMPUC and industry standards, and all gas costs billed to customers were prudently incurred. (See Part I, Item 2. -- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- OTHER ISSUES FACING THE COMPANY -- Investigation of Gas Supply Procurement Practices" in the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1997.) Hearings on the review were held on June 9 through June 11, 1997. At the conclusion of the hearing, the NMPUC issued an oral ruling that the Company was not imprudent in its gas procurement practices for the 1996-97 winter season. Looking forward to the coming winter heating season, the NMPUC expressed its view that the Company should utilize appropriate contracting and hedging tools to reach a reasonable balance between low cost and mitigation of price volatility in its gas procurement practices. The Company has requested that the NMPUC issue a final written order, but such an order has not yet been entered. 13 Purchased Gas Adjustment Clause ("PGAC") On July 3, 1997, the Company submitted a filing with the NMPUC seeking approval to modify the method pursuant to which it recovers its gas costs through the PGAC. The Company proposed two options; the first option, a more levelized mechanism, similar to the current monthly PGAC, establishes a projected weighted average cost of gas to be used to recover gas costs from customers for up to a four month period. The second option, which will be limited to the first 20,000 customers who request the option, offers one fixed price which will remain in effect for one year, regardless of market conditions. Both options include the use of financial instruments to provide moderation in gas prices. No hearing date has been established for this case. Transmission Right-of-Way As previously reported, the Company has easements for right-of-way with the Navajo Nation for portions of several transmission lines and other associated facilities that facilitate delivery of the Company's generation resources to the Albuquerque metropolitan area. One grant of easement for approximately 4.2 miles of right-of-way for two parallel 345 Kv transmission lines expired in 1993. In 1995, the Company reached a tentative agreement with the Navajo Nation for a twenty-year renewal of the transmission easement and resolution of all other major right-of-way issues. Prior to execution of the agreement, another agency of the Navajo Nation notified the Company that it was contesting certain water rights at the SJGS, which, among other things, delayed resolution of the transmission right-of-way issues. (See PART II, ITEM 7. -- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- OTHER ISSUES FACING THE COMPANY -- Transmission Right-of-Way" in the 1996 Form 10-K.) In mid-July 1997, the settlement documents for the renewal of the right-of-way issues were approved by the Bureau of Indian Affairs ("Bureau") and finalized. Pursuant to the settlement, the Company paid approximately $14.4 million to the Navajo Nation, of which a portion will be billed to Tucson Electric Power Company for their respective share, and the Bureau issued the various right-of-way grants. The settlement resulted in the Navajo Nation receiving $3 million of the $14.4 million in the Company's common stock as partial payment for the right-of-way grants. The Company arranged for the purchase of the stock in the open market. The Company will amortize its share of the settlement over the twenty year term of the agreement. 14 Disclosure Regarding Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their companies without fear of litigation so long as those statements are identified as forward-looking and are accompanied by meaningful, cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the statement. Accordingly, the Company hereby identifies the following important factors which could cause the Company's actual financial results to differ materially from any such results which might be projected, forecasted, estimated or budgeted by the Company in forward-looking statements: (i) adverse actions of utility regulatory commissions, (ii) utility industry restructuring, (iii) failure to recover stranded assets, (iv) failure to obtain new customers or retain existing customers, (v) inability to carry out marketing and sales plans, (vi) adverse impacts resulting from environmental regulations, (vii) loss of favorable fuel supply contracts, (viii) failure to obtain water rights and rights-of-way, (ix) operational and environmental problems at generating stations and (x) failure to obtain and maintain adequate transmission capacity. Many of the foregoing factors discussed have been addressed in the Company's previous filings with the SEC pursuant to the Securities Exchange Act of 1934. The foregoing review of factors pursuant to the Act should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by the Company prior to the effective date of the Act. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Federal Deposit Insurance Corporation ("FDIC") Litigation, formerly Resolution Trust Corporation ("RTC") Litigation ("MDL-995") As previously reported, in April 1993, the Company and certain current and former employees of the Company or Meadows Resources, Inc., a wholly-owned subsidiary of the Company ("Meadows") ("BCD parties"), were named as defendants in an action filed in the United States District Court ("Court") for the District of Arizona by the RTC, as receiver for Western Savings and Loan Association ("Western"). Three of the individuals sued by the RTC have indemnity agreements with the Company. The claims related to alleged actions of the Company's or Meadows' employees in 1987 in connection with a loan procured by Bellamah Community Development ("BCD"), whose general partners include Meadows, from Western and the purchase by that partnership of property owned by Western. The FDIC (the FDIC was substituted for the RTC as plaintiff in MDL-995 in early 1996) apparently claims that the Company's liability stems from the actions of a former employee who allegedly acted on behalf of the Company for the Company's benefit. The FDIC is claiming in excess of $40 million in actual damages from the BCD/Western transactions and is also claiming damages substantially exceeding that amount on Arizona racketeering, civil conspiracy and aiding and abetting theories. These allegations involve claims against the Company for damages to Western caused by other defendants and from other transactions to which BCD was not a party. The Company is sued only on the Arizona racketeering claims. The FDIC claims that damages under the Arizona racketeering statute would be trebled under applicable law. The prevailing parties on the Arizona racketeering claims could seek fees and costs from the parties who do not prevail. 15 In April 1996, representatives of the BCD parties and the FDIC met with a mediator to continue settlement discussions. The mediation session resulted in an agreement to settle the case for approximately $5.8 million, approximately $3.1 million of which would be paid by the Company and the remainder to be paid by insurance covering the BCD parties. (See PART I, ITEM 3. -- "LEGAL PROCEEDINGS -- OTHER PROCEEDINGS" in the 1996 Form 10-K.) Settlement documents were executed as of July 3, 1997, and a motion seeking Court approval of the settlement was filed on July 23, 1997. Other parties have thirty days to object to the settlement. Delays have occurred due in part to reassignment of attorneys for the FDIC. After consideration of established reserves, there will be no material adverse effect on the Company's financial condition or results of operations. The Company continues to believe that all of the claims made by the FDIC in this case are without merit but, for business reasons, believes that the settlement is in the best interest of the Company. The Company did not concede to any wrongdoing in the settlement. For a discussion of other legal proceedings, see PART 1, ITEM 2. -- "MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- OTHER ISSUES FACING THE COMPANY". ITEM 5. OTHER INFORMATION Four Corners As previously reported, Four Corners is located on land held under easements from the Federal government and also under leases from the Navajo Nation. Arizona Public Service Company ("APS") is the operating agent of the plant and the Company owns a 13% ownership interest in Units 4 and 5. The lease for Four Corners contains a waiver until 2001 of the requirement that APS pay certain taxes to the Navajo Nation. APS and the Navajo Nation have negotiated a settlement agreement that would settle certain issues regarding this waiver and other matters, including the computation of royalties due on the sales of coal and possessory interest taxes paid by the Four Corners coal supplier. (See PART II, ITEM 5. -- "OTHER INFORMATION -- Four Corners Generating Station ("Four Corners")" in the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1997.) The settlement agreement has been approved by all participants at Four Corners but remains subject to approval of the Navajo Nation Tribal Council and various committees of the tribe. The Company anticipates approval by the Navajo Nation but is unable to predict the exact timing of such approval. Under the agreement, the Company will receive a refund of approximately $3.2 million and will be committed to making certain future payments to the Navajo Nation in lieu of certain taxes that were in dispute. The payment obligation extends through the term of the lease and is approximately sixty percent of the previous tax payment made under protest in escrow by the Company. 16 Water Supply As previously reported, the Company initiated the process for renewal and extension of a contract with the United States Bureau of Reclamation ("USBR") for 16,200 acre feet of water for SJGS through the year 2025. The Navajo Nation requested the USBR to delay renewal of the USBR contract due to claimed water shortages of the Navajo Indian Irrigation Project. (See PART 1, ITEM 1. -- "BUSINESS -- ELECTRIC OPERATIONS -- Fuel and Water Supply" in the 1996 Form 10-K.) The Company has continued its discussions with the Navajo Nation to resolve their concerns relating to the Company's proposed renewal of the water contract with the USBR for SJGS. On March 27, 1997, the Resource Committee of the Navajo Nation Tribal Council approved an agreement that commits the parties to good faith negotiations on the water supply for SJGS for a period of ninety days. The agreement also acknowledges that the water supply issues must be resolved in connection with the Company's support of the resolution of the issues raised by BHP Minerals International, Inc., concerning the Navajo Nation's proposed selection of certain mining properties within San Juan and La Plata mines pursuant to the Navajo-Hopi Land Settlement Act of 1974. The Company and counsel for the Navajo Nation have recently agreed to continue negotiations for a period of sixty days, which would conclude on August 26, 1997. The Company is currently unable to predict the outcome of these discussions. On July 15, 1997, the Company was notified by the USBR that the USBR had received from the Solicitor of the U.S. Department of Interior a Memorandum Opinion concluding that the Company's contract extension with the USBR would require Congressional approval pursuant to Section 11 of the Navajo Indian Irrigation Project and San Juan-Chama Project Authorization Act of 1962. The Company intends to pursue such an approval once the contract is negotiated with the USBR. Diversification Plan On June 10, 1997, the NMPUC hearing examiner issued a recommended decision for approval, with a number of conditions, of the Company's request for authorization to create three energy-related subsidiaries. (See PART II, Item 7. - -- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- OVERVIEW -- Competitive Strategy" in the 1996 Form 10-K.) In the Company's 1995 filing for approval, the Company requested permission to invest a maximum of $50 million in the subsidiaries. The hearing examiner's recommendation indicated that any capital infusion or financial assistance to its proposed subsidiaries beyond the $50 million will require prior approval from the NMPUC. The recommendation also directed that all investments made in the subsidiaries and their operations should not adversely affect the Company's ratepayers. Exceptions to the recommended decision were filed by the Company, AG and the New Mexico Industrial Energy Consumers. The NMPUC will review the recommendation and can accept, reject, or modify the hearing examiner's recommendation. The Company is currently unable to predict the outcome of the NMPUC's final decision. 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits: 3.1* Restated Articles of Incorporation of the Company, as amended through May 10, 1985 3.2* By-laws of Public Service Company of New Mexico With All Amendments to and including December 5, 1994 10.52 Memorandum of Agreement between the Navajo Nation and Public Service Company of New Mexico (Nine-Mile Transmission R-O-W) 15.0 Letter Re: Unaudited Interim Financial Information 27 Financial Data Schedule *The Company hereby incorporates the exhibits by reference pursuant to Exchange Act Rule 12b-32 and Regulation S-K, Section 10, paragraph (d). b. Reports on Form 8-K: None. 18 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. PUBLIC SERVICE COMPANY OF NEW MEXICO ------------------------------------ (Registrant) Date: July 31, 1997 ------------------------------------ Donna M. Burnett Corporate Controller and Chief Accounting Officer (Officer duly authorized to sign this report) 19 EX-10 2 EXHIBIT 10.52 TO FORM 10-Q FOR 6/30/97 MEMORANDUM OF AGREEMENT between THE NAVAJO NATION and PUBLIC SERVICE COMPANY OF NEW MEXICO THIS AGREEMENT is made and entered into this _____ day of June, 1997, by and between THE NAVAJO NATION, a federally-recognized Indian nation, hereinafter called the "Navajo Nation," whose address is P. O. Box 9000, Window Rock, Navajo Nation (Arizona) 86515, and PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation, hereinafter called "PNM," whose address is Alvarado Square MS.2101, Albuquerque, New Mexico 87158. RECITALS WHEREAS, on January 17, 1973, the Secretary granted a right-of-way to PNM for a term of twenty (20) years, which ended on January 17, 1993, for the Nine Mile Tap; and WHEREAS, on or about January 1, 1973, without the consent of the Navajo Nation or the Secretary, PNM constructed the Deza Bluff Microwave Communication Tower on Navajo Nation-owned lands; and WHEREAS, on July 9, 1971, the Navajo Nation entered into the San Juan Diversion Weir Lease with PNM and Tucson Gas & Electric Company, now known as Tucson Electric Power Company, for a term of fifty (50) years for a portion of the San Juan Generating Station diversion weir across the San Juan River; and WHEREAS, on June 7, 1968, the Secretary granted a right-of-way to PNM for a term of fifty (50) years, ending June 7, 2018, for the FW Line; and WHEREAS, on August 1, 1969, the Secretary granted a right-of-way to PNM for a term of fifty (50) years, ending June 26, 2018, for the WW Line; and WHEREAS, the Navajo Nation and PNM have negotiated tentative agreements providing for a renewed grant of right-of-way for the Nine Mile Tap electric transmission lines, a grant of lease for the Deza Bluff Microwave Communication Tower site, amendment of the San Juan Diversion Weir Lease to increase the annual rental thereunder, and compensation to the Navajo Nation for the remainder of the 50-year terms of the FW Line and WW Line electric transmission line rights-of-way, which the parties now wish to reduce to writing and formalize by this Memorandum of Agreement; NOW, THEREFORE, in consideration of the foregoing and the covenants, promises, terms and conditions contained herein, the parties hereto hereby mutually agree as follows: OPERATIVE PROVISIONS 1. DEFINITIONS. (A) "Deza Bluff Microwave Communication Tower" means that microwave communication tower on 0.0194 acres, more or less, of Navajo Nation-owned lands within projected Township 19 North, Range 18 West, NMPM, more particularly described in Exhibit "B," attached hereto. (B) "FW Line" means a 345 kV electric transmission line from the Four Corners Power Plant, also known as the "West Mesa S.W. STA-A.P.S. 4 Corners" line, over 525.975 acres, more or less, of Navajo Nation-owned lands commencing in section 36, Township 29 North, Range 16 West, NMPM, and running to a point within section 10, Township 10 North, Range 2 East, NMPM. (C) "Nine Mile Tap" means two 345 kV electric transmission lines between the Four Corners Power Plant and the San Juan Generating Station, over 100.606 acres, more or less, of Navajo Nation-owned lands within Township 29 North, Range 15 West, NMPM, more particularly described in Exhibit "A," attached hereto. (D) "NMPM" means New Mexico Principal Meridian. (E) "San Juan Diversion Weir Lease" means that Lease No. SR-71-61, dated July 9, 1971, between the Navajo Nation as Lessor and PNM and Tucson Gas & Electric Company, now known as Tucson Electric Power Company, as Lessees, for a portion of the San Juan Generating Station diversion weir across the San Juan River, on 9.376 acres, more or less, of Navajo Nation-owned lands within Township 29 North, Range 15 West, NMPM. (F) "Secretary" means the Secretary of the United States Department of the Interior or his duly authorized representative or successor. (G) "WW Line" means a 345 kV electric transmission line from the San Juan Generating Station, over 386.949 acres, more or less, of Navajo Nation-owned lands commencing in section 10, Township 10 North, Range 2 East, NMPM, and running to a point within section 36, Township 29 North, Range 16 East, NMPM. 2. GRANT OF RIGHT-OF-WAY. Simultaneously with the approval of this Agreement by the Navajo Nation, the Navajo Nation shall approve and consent to the grant of a right-of-way to PNM for a term of twenty (20) years, beginning September 1, 1995, and ending August 31, 2015, for the Nine Mile Tap, subject to the terms and conditions attached hereto as Exhibit "C." 3. GRANT AND AMENDMENT OF LEASES. (A) Simultaneously with the execution of this Agreement by the parties, the parties shall enter into and execute the lease agreement between the Navajo Nation and PNM, a copy of which is attached hereto as Exhibit "D," for a term of twenty (20) years, beginning September 1, 1995, and ending August 31, 2015, for the Deza Bluff Microwave Communication Tower. (B) Simultaneously with the execution of this Agreement by the parties, the parties shall enter into and execute an amendment to section 4 of the San Juan Diversion Weir Lease, a copy of which amendment is attached hereto as Exhibit "E." 4. FEDERAL APPROVALS AND GRANT. The Navajo Nation and PNM will cooperate fully with one another in submitting to the Secretary the application by PNM for the Nine Mile Tap right-of-way consented to pursuant to Paragraph 2 of this Agreement, securing the grant by the Secretary of said right-of-way in accordance with this Agreement, securing approval by the Secretary of the Deza Bluff Microwave Communication Tower lease entered into pursuant to Paragraph 3 of this Agreement, and securing approval by the Secretary of the amendment of the San Juan Diversion Weir Lease entered into pursuant to Paragraph 3 of this Agreement. Each party shall use its best efforts and shall take all such action as may reasonably be necessary to obtain as soon as possible the grant of the said right-of-way and approval of the said lease and lease amendment. 5. PAYMENT. PNM hereby agrees to pay to the Navajo Nation the sum of Thirteen Million Sixty-Eight Thousand Dollars ($13,068,000.00), together with simple interest at the rate of Five and Two-Tenths Per Cent (5.2%) per annum for the period beginning September 1, 1995, to and through the date of payment thereof, plus Sixteen Thousand One Dollars ($16,001.00)(which PNM previously paid to the Secretary on or about July 18, 1994, as compensation for the second one-half of the fifty year term of the right-of-way for the WW Line and which was subsequently returned to PNM by the Secretary on or about August 11, 1994). Such sum shall be paid in full to the Controller of the Navajo Nation, in lawful money of the United States within three (3) working days of the effective date of this Agreement, as defined in Paragraph 22 of this Agreement, in the following manner. Payment of Three Million Dollars ($3,000,000.00) of such sum shall be in the form of common stock of PNM and payment of the entire remaining balance of such sum shall be in cash, as hereinafter described. Payment in the form of PNM common stock shall be made by wire transfer by PNM of the sum of $3,000,000.00 plus related brokerage commissions to J.P. Morgan Securities, Inc., (the "Broker"), with instructions to purchase the number of shares of PNM common stock calculated as hereinafter provided in the name of the Navajo Nation and to promptly forward such common stock, along with a statement reflecting the details of said purchase, to the Controller of the Navajo Nation ("Controller"). The number of shares to be purchased shall be calculated by dividing (i) the sum of $3,000,000.00 by (ii) the purchase price per share (as hereinafter described), such number of shares to be rounded to the next lower whole share. Cash shall be paid to the Navajo Nation in lieu of such fractional share, if any, in accordance with the cash payment provisions hereof. The purchase of such shares by the Broker shall be at the lowest purchase price of PNM common stock obtainable by the Broker in making purchases on the New York Stock Exchange on the date of purchase. PNM shall bear the expense of any brokerage commissions on such purchase, as provided above. Payment of the entire cash balance shall be made by wire transfer into the bank account of the Navajo Nation identified for such purpose by the Controller. The Controller shall identify such account and provide PNM with necessary routing and other information within twenty-four (24) hours of approval of this Agreement by the Navajo Nation. The Navajo Nation shall set aside Two Hundred Sixty Thousand Dollars ($260,000.00) out of said cash payment to be used for the benefit of the Navajo Nation Chapters which are affected by the Nine Mile Tap right-of-way. 6. WAIVER OF REPAYMENT. PNM hereby irrevocably waives any right to repayment of the following monies paid to the Secretary for the benefit of the Navajo Nation, together with all interest accrued thereon: a) during or about 1979, in the amount of Seventeen Thousand Four Hundred Sixty-Eight Dollars (($17,468.00), more or less, which PNM paid in connection with an extension of the term of the right-of-way for the 230 kV transmission line from Four Corners to Ambrosia Lake; b) during or about 1979, in the amount of Four Thousand Seven Hundred Nine Dollars ($4,709.00), more or less, which PNM paid in connection with an extension of the terms of the right-of-way for the Nine Mile Tap; c) on or about March 12, 1981, in the amount of Eight Hundred Eighty-Nine Thousand Five Hundred Twenty-Two Dollars ($889,522.00), more or less, which PNM paid in connection with certain right-of-way applications which PNM filed and subsequently withdrew; d) during or about 1987, in the amount of Eight Thousand One Hundred Thirty-Two Dollars and Fifty Cents ($8,132.50), more or less, which PNM paid in connection with the Four Corners-Ambrosia-Pajarito Transmission Project; e) on or about December 6, 1990, in the amount of Forty Thousand Two Hundred Forty-Two Dollars and Forty Cents ($40,242.40), more or less, which PNM paid in connection with its application for renewal of the Nine Mile Tap right-of-way; and f) on or about May 24, 1993, in the amount of Twenty-Two Thousand Five Hundred Sixty-Four Dollars ($22,564.00), more or less, which PNM paid as compensation for the second one-half of the fifty-year term of the right-of-way for the FW Line. PNM hereby assigns all such monies, together with all interest accrued thereon, to the Navajo Nation. 7. RELEASES. (A) Subject to compliance by PNM with the payment required by Paragraph 5 of this Agreement, the Navajo Nation hereby releases, acquits and discharges PNM from any and all trespass claims, demands, warranties, debts, liabilities, damages, obligations, costs, attorneys' fees, expenses, liens, actions and causes of action, resulting from failure by PNM to have had valid rights to use, operate or develop, on or before the effective date of this Agreement, the real property subject to the Nine Mile Tap right-of-way consented to pursuant to Paragraph 2 of this Agreement and the Deza Bluff Microwave Communication Tower lease entered into pursuant to Paragraph 3 of this Agreement, from any rental obligations under the San Juan Diversion Weir Lease arising prior to the effective date of this Agreement, and from PNM's obligations to pay consideration for the use of the FW Line and WW Line through the current terms of the respective rights-of-way for said lines. (B) PNM hereby releases, acquits and discharges the Navajo Nation from any and all claims, demands, warranties, debts, liabilities, damages, obligations, costs, attorneys' fees, expenses, liens, actions and causes of action, resulting from or relating to PNM's failure to have had valid rights to use, operate or develop, on or before the effective date of this Agreement, the real property subject to the Nine Mile Tap right-of-way consented to pursuant to Paragraph 2 of this Agreement and the Deza Bluff Microwave Communication Tower lease entered into pursuant to Paragraph 3 of this Agreement, PNM's rental obligations under the San Juan Diversion Weir Lease arising prior to the effective date of this Agreement, and PNM's obligations to pay consideration for the use of the FW Line and WW Line through the current terms of the respective rights-of-way for said lines. (C) Nothing contained in this Paragraph shall be construed to constitute a release by either party of any of the following: 1) Any liability of PNM for damage to real or personal property owned by the Navajo Nation for which PNM is or becomes liable under any applicable federal, state or Navajo Nation law; 2) Any liability of PNM for use, operation or development of any Navajo Nation-owned lands other than those which are the subject of this Agreement; 3) Any obligation or liability of either party provided for under the terms and conditions of the Nine Mile Tap right-of-way consented to pursuant to Paragraph 2 of this Agreement, the Deza Bluff Microwave Communication Tower lease entered into pursuant to Paragraph 3 of this Agreement, the San Juan Diversion Weir Lease, as amended pursuant to Paragraph 3 of this Agreement, or under any other existing right-of-way, lease, contract or other agreement between the Navajo Nation and PNM; or 4) Any obligation or liability of either party arising after the effective date of this Agreement. 8. DEZA BLUFF ASSISTANCE. PNM will assist the Navajo Nation in identifying all other users of the Deza Bluff Microwave Communication Tower site and the nature of their uses. Such assistance will consist of conveying to the Navajo Nation such non-confidential and non-proprietary information concerning such users and uses as PNM currently may possess, or which may come into PNM's possession in the normal course of its use of the said site, or which may come into PNM's possession upon reasonable inquiry. As used herein, the term "non-confidential and non-proprietary information" shall include, but not necessarily be limited to, the identity and address of any such user, and any joint-use or similar agreement between PNM and such user authorizing the use of such site. 9. QUIET ENJOYMENT. (A) The Navajo Nation hereby covenants, promises and agrees that PNM peaceably and quietly may have, hold, use, occupy, possess and enjoy the rights conveyed by the right-of-way consented to pursuant to Paragraph 2 of this Agreement, the lease and lease amendment entered into pursuant to Paragraph 3 of this Agreement and the existing respective rights-of-way for the FW Line and WW Line, in accordance with and subject to the terms and conditions contained therein and applicable federal and Navajo Nation laws, without suit, molestation or interruption by the Navajo Nation or any person or entity lawfully claiming from the Navajo Nation. (B) The Navajo Nation hereby covenants, promises and agrees that it will not demand any further consideration from PNM for the FW Line and WW Line rights-of-way during the balance of the current terms of said rights-of-way. (C) The covenants, promises and agreements contained in subsections (A) and (B) of this Paragraph are given by the Navajo Nation in its proprietary capacity only, and shall not be construed to limit or impair the right of the Navajo Nation to enforce compliance with the terms and conditions of said rights-of-way and leases, nor to limit or impair the right of the Navajo Nation to enforce applicable federal and Navajo Nation laws, nor to limit or impair the otherwise lawful right or ability of the Navajo Nation to exercise governmental authority. 10. ASSIGNMENT. Neither this Agreement, nor any part hereof or interest herein, may be assigned by either party without the prior written consent of the other party and the Secretary. 11. REPRESENTATIONS AND WARRANTIES. (A) PNM hereby represents and warrants to the Navajo Nation as follows: (1) PNM is a corporation duly organized and in good standing under the laws of the State of New Mexico. (2) The execution and delivery of this Agreement by PNM and consummation by PNM of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of PNM. (3) This Agreement is a valid and legally binding obligation of PNM, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting the enforcement of creditors' rights generally and to general principles of equity, whether considered in a proceeding in equity or at law. (4) This Agreement and the execution and delivery hereof by PNM do not, and compliance with the terms and conditions hereof and consummation of the transactions contemplated hereby will not: a) Violate or conflict with any provision of the certificate of incorporation or bylaws of PNM, each as amended to date; b) Violate or conflict with, or, except as expressly contemplated within this Agreement, require any consent, authorization or approval under any provision of, any law or administrative regulation or any judicial, administrative or arbitration order, award, judgment, writ, injunction or decree applicable to or binding upon PNM; or c) Result in a breach of, constitute a default or violation under, whether with notice of lapse of time or both, or require any consent, authorization or approval under, any mortgage, contract, indenture, loan or credit agreement or any other agreement or instrument evidencing indebtedness for money borrowed to which PNM is a party or by which any of its properties or assets is bound. (B) The Navajo Nation hereby represents and warrants to PNM as follows: (1) The Navajo Nation is a federally-recognized Indian nation. (2) The execution and delivery of this Agreement by the Navajo Nation and consummation by the Navajo Nation of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Navajo Nation. (3) This Agreement is a valid and legally binding obligation of the Navajo Nation, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting the enforcement of creditors' rights generally and to general principles of equity, whether considered in a proceeding in equity or at law. (4) This Agreement and the execution and delivery hereof by the Navajo Nation do not, and compliance with the terms and conditions hereof and consummation of the transactions contemplated hereby will not: a) Violate or conflict with, or, except as expressly contemplated within this Agreement, require any consent, authorization or approval under any provision of, any law, treaty, custom or administrative regulation or any judicial, administrative or arbitration order, award, judgment, writ, injunction or decree applicable to or binding upon the Navajo Nation; or b) Result in a breach of, constitute a default or violation under, whether with notice of lapse of time or both, or require any consent, authorization or approval under, any mortgage, contract, indenture, loan or credit agreement or any other agreement or instrument evidencing indebtedness for money borrowed to which the Navajo Nation is a party or by which any of its properties or assets is bound. 12. NOTICES AND DEMANDS. (A) Any notices, demands, requests or other communications to or upon either party or the Secretary provided for in this Agreement, or given or made in connection with it, (hereinafter referred to as "notices,") shall be in writing and shall be addressed as follows: To or upon the Navajo Nation: President The Navajo Nation Office of the President/Vice-President P.O. Box 9000 Window Rock, Navajo Nation (Arizona) 86515 Fax: 1-520-871-4025 To or upon PNM: President Public Service Company of New Mexico ATTN: Right-of-Way Department Alvarado Square MS.2101 Albuquerque, New Mexico 87158 Fax: 1-505-241-2376 To or upon the Secretary: Area Director Navajo Area Office Bureau of Indian Affairs United States Department of the Interior 301 West Hill Street P.O. Box 1060 Gallup, New Mexico 87305 Fax: 1-505-863-8324. (B) All notices shall be given by personal delivery, by registered or certified mail, postage prepaid, by facsimile transmission or by telegram. Notices shall be effective and shall be deemed delivered: if by personal delivery, on the date of delivery if during normal business hours, or if not during normal business hours on the next business day following delivery; if by registered or certified mail, by facsimile transmission or by telegram, on the next business day following actual delivery and receipt. (C) Copies of all notices shall be sent to the Secretary. (D) The parties hereto and the Secretary may at any time change its address for purposes of this Section by notice. 13. GOVERNING LAW AND CHOICE OF FORUM. Except as may be prohibited by applicable federal law, the law of the Navajo Nation shall govern the construction, performance and enforcement of this Agreement. Any action or proceeding brought by PNM against the Navajo Nation in connection with or arising out of the terms and conditions of this Agreement shall be brought only in the courts of the Navajo Nation, and no such action or proceeding shall be brought by PNM against the Navajo Nation in any court or administrative body of any state. 14. CONSENT TO JURISDICTION. PNM hereby consents to the legislative, executive and judicial jurisdiction of the Navajo Nation in connection with all activities conducted by PNM within the Navajo Nation. Nothing contained in this Paragraph shall be construed to abrogate or impair any right of PNM created or recognized by any valid, prior contract, lease, grant of right-of-way or other agreement between the Navajo Nation and PNM. 15. NO WAIVER OF SOVEREIGN IMMUNITY. Nothing in this Agreement shall be interpreted as constituting a waiver, express or implied, of the sovereign immunity of the Navajo Nation. 16. ENTIRE AGREEMENT; AMENDMENT. (A) This Agreement, and the Exhibits attached hereto, supersede all prior agreements between the parties, whether written or oral, with respect to the subject matter hereof and are intended as a complete and exclusive statement of the terms of the agreement between the parties with respect to said subject matter. (B) This Agreement may be modified or amended only by an agreement signed by both parties and approved by the Secretary. Any modification of or amendment to this Agreement shall not be valid or binding upon either party until it is approved by the Secretary. 17. SEVERABILITY. If any term or condition of this Agreement is held invalid, illegal or incapable of being enforced for any reason by any court of competent jurisdiction, such term or condition shall be deemed severed from this Agreement and all other terms and provisions of this Agreement shall remain in full force and effect, so long as the economic and legal substance of the transactions contemplated hereby are not affected in any manner adverse to either party. 18. WAIVER. No term or condition of this Agreement may be waived by either party except by a writing signed by both parties. 19. HEADINGS. The headings contained in this Agreement are for reference only and shall not affect in any way the meaning or interpretation of this Agreement. 20. COUNTERPARTS. This Agreement may be executed in any number of counterparts, and by different parties in separate counterparts, each of which shall be deemed to be an original, but all of which together shall constitute only one and the same agreement. 21. SUCCESSORS AND ASSIGNS. The terms and conditions contained herein shall extend to and be binding upon the successors, assigns, employees and agents, including all contractors and subcontractors, of the parties. Except as the context otherwise requires, the terms "Public Service Company of New Mexico" and "PNM," as used in this Agreement, shall be deemed to include all successors, assigns, employees and agents, including contractors and subcontractors, of PNM. 22. EFFECTIVE DATE; VALIDITY. This Agreement shall take effect on the later of the date of approval by the Secretary of this Agreement, the grant by the Secretary of the right-of-way consented to pursuant to Paragraph 2 of this Agreement, and the approval by the Secretary of the Deza Bluff Microwave Communication Tower lease and the amendment of the San Juan Diversion Weir Lease entered into pursuant to Paragraph 3 of this Agreement. This Agreement shall not be valid or binding upon either party until it is approved by the Secretary. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. THE NAVAJO NATION By: ______________________________ Albert A. Hale, President PUBLIC SERVICE COMPANY OF NEW MEXICO By: ______________________________ Benjamin F. Montoya, President & Chief Executive Officer APPROVED pursuant to Secretarial Redelegation 209 DM 8, Secretarial Redelegation Order Nos. 3150 and 3177, and 10 BIAM Bulletin 13, as amended. Date : ______________________________ By: _________________________________ Acting Area Director Navajo Area Office Bureau of Indian Affairs United States Department of the Interior EX-15 3 EXHIBIT 15.0 TO FORM 10-Q FOR 6/30/97 ARTHUR ANDERSEN ARTHUR ANDERSEN LLP July 31, 1997 Arthur Andersen LLP Suite 400 6501 Americas Parkway NE Albuquerque, NM 87110-5372 (505) 889-4700 Public Service Company of New Mexico: We are aware that Public Service Company of New Mexico has incorporated by reference in its Registration Statement Nos. 33-65418, 333-03303, and 333-03289 its Form 10-Q for the quarter ended June 30, 1997, which includes our report dated July 31, 1997, covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered a part of the registration statement prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, Arthur Andersen LLP EX-27 4 FDS TO FORM 10-Q FOR PERIOD 6-30-97
UT This schedule contains summary financial information extracted from the Company's Consolidated Statement of Earnings, Consolidated Balance Sheets and Consolidated Statement of Cash Flows for the period ended June 30, 1997 and is qualified in its entirety by reference to such financial statements. 1,000 US DOLLARS 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 1 PER-BOOK 1,557,456 274,208 252,746 140,475 0 2,224,885 208,870 468,431 103,152 780,453 0 12,800 714,183 103,000 0 0 340 0 0 0 614,109 2,224,885 537,564 23,653 455,888 474,877 62,687 7,117 69,804 29,341 40,463 293 40,170 12,114 23,683 111,161 0.96 0.96
-----END PRIVACY-ENHANCED MESSAGE-----