-----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, IaK01Kbe/i9YV908Pgvk4GAAk1h9kN46TbcetKXAr50fpWqHh6/ue/mZhbIPXgZd nr3b8yefAuufW2S2q++fgQ== 0000081023-99-000007.txt : 19990512 0000081023-99-000007.hdr.sgml : 19990512 ACCESSION NUMBER: 0000081023-99-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990511 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: SEC FILE NUMBER: 001-06986 FILM NUMBER: 99617351 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 PERIOD 3/31/99 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 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 1-6986 ----------- 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 40,774,083 shares ----------------------------- ------------------------------- Class Outstanding at May 1, 1999 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 Ended March 31, 1999 and 1998........................... 4 Consolidated Statements of Comprehensive Income- Three Months Ended March 31, 1999 and 1998........................... 5 Consolidated Balance Sheets- March 31, 1999 and December 31, 1998................................. 6 Consolidated Statements of Cash Flows- Three Months Ended March 31, 1999 and 1998........................... 7 Notes to Consolidated Financial Statements........................... 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................ 9 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ......................................................... 17 PART II. OTHER INFORMATION: ITEM 1. LEGAL PROCEEDINGS............................................. 18 ITEM 5. OTHER INFORMATION............................................. 19 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................. 19 Signature ............................................................ 21 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 March 31, 1999, and the related consolidated statements of earnings, comprehensive income and cash flows for the three-month periods ended March 31, 1999 and 1998. 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, 1998 (not presented herein), and, in our report dated March 2, 1999, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1998, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ ARTHUR ANDERSEN LLP Albuquerque, New Mexico April 30, 1999 3 ITEM 1. FINANCIAL STATEMENTS PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) Three Months Ended March 31 ---------------------- 1999 1998 --------- --------- (In thousands except per share amounts) Operating revenues: Electric $184,442 $179,652 Gas 84,864 102,712 Energy Services 3,512 196 --------- --------- Total operating revenues 272,818 282,560 --------- --------- Operating expenses: Fuel and purchased power 62,153 55,032 Gas purchased for resale 48,256 64,711 Cost of sales and projects - Energy Services 2,618 330 Other operation and maintenance 82,758 81,607 Depreciation and amortization 23,081 21,074 Taxes, other than income taxes 9,321 9,436 Income taxes 9,563 13,744 --------- --------- Total operating expenses 237,750 245,934 --------- --------- Operating income 35,068 36,626 --------- --------- Other income and deductions, net of tax: 6,099 2,722 --------- --------- Income before interest charges 41,167 39,348 --------- --------- Interest charges: Interest on long-term debt 16,714 11,386 Other interest charges 1,323 2,401 --------- --------- Net interest charges 18,037 13,787 --------- --------- Net earnings from continuing operations 23,130 25,561 Discontinued operations, net of tax: Loss from operations of gas marketing - (4,347) Cumulative effect of a change in accounting principle, net of tax 3,541 - --------- --------- Net earnings 26,671 21,214 Preferred stock dividend requirements 147 147 --------- --------- Net earnings applicable to common stock $ 26,524 $ 21,067 ========= ========= Average shares of common stock outstanding 41,767 41,774 ========= ========= Net earnings (loss) per share of common stock: Earnings from continuing operations $ 0.55 $ 0.61 Loss from discontinued operations - (0.10) Cumulative effect of a change in accounting principle 0.08 - --------- --------- Net earnings per common share (Basic) $ 0.64 $ 0.50 ========= ========= Net earnings per common share (Diluted) $ 0.63 $ 0.50 ========= ========= Dividends paid per share of common stock $ 0.20 $ 0.17 ========= ========= The accompanying notes are an integral part of these financial statements. 4 PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three Months Ended March 31 ---------------------- 1999 1998 -------- --------- (In thousands) Net Earnings $ 26,671 $ 21,214 --------- --------- Other Comprehensive Income, net of tax: Unrealized gain (loss) on securities: Unrealized holding gains arising during the period 1,070 759 Less reclassification adjustment for gains included in net income (604) (98) Minimum pension liability adjustment - - --------- --------- Total Other Comprehensive Income 466 661 --------- --------- Total Comprehensive Income $ 27,137 $ 21,875 ========= ========= Note: Tax expense for Total Other Comprehensive Income for the three months ended March 31, 1999 and 1998 was $305 and $433, respectively. The accompanying notes are an integral part of these financial statements. 5 PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, December 31, 1999 1998 ------------ ------------ (Unaudited) (In thousands) ASSETS Utility plant $ 2,604,620 $ 2,591,934 Accumulated provision for depreciation and amortization (1,019,744) (998,175) ------------ ------------ Net utility plant 1,584,876 1,593,759 ------------ ------------ Other property and investments 491,702 523,834 ------------ ------------ Current assets: Cash 481 2,573 Temporary investments, at cost 78,619 58,707 Receivables 185,004 197,906 Income tax receivable - 8,266 Fuel, materials and supplies 40,869 33,137 Gas in underground storage 1,914 2,537 Other current assets 6,688 4,666 ------------ ------------ Total current assets 313,575 307,792 ------------ ------------ Deferred charges 146,113 151,403 ------------ ------------ $ 2,536,266 $ 2,576,788 ============ ============ CAPITALIZATION AND LIABILITIES Capitalization: Common stock equity: Common stock $ 206,396 $ 208,870 Additional paid-in capital 459,234 465,386 Accumulated other comprehensive income, net of tax 1,593 1,127 Retained earnings 204,389 186,220 ------------ ------------ Total common stock equity 871,612 861,603 Minority interest 13,037 13,405 Cumulative preferred stock without mandatory redemption requirements 12,800 12,800 Long-term debt, less current maturities 1,008,632 1,008,614 ------------ ------------ Total capitalization 1,906,081 1,896,422 ------------ ------------ Current liabilities: Short-term debt - 26,620 Accounts payable 73,150 113,975 Dividends payable 147 147 Accrued interest and taxes 43,135 34,289 Other current liabilities 32,993 28,308 ------------ ------------ Total current liabilities 149,425 203,339 ------------ ------------ Deferred credits 480,760 477,027 ------------ ------------ $ 2,536,266 $ 2,576,788 ============ ============ The accompanying notes are an integral part of these financial statements. 6 PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31 1999 1998 -------- -------- (In thousands) Cash Flows From Operating Activities: Net earnings $ 26,671 $ 21,214 Adjustments to reconcile net earnings to net cash flows from operating activities: Depreciation and amortization 26,070 24,156 Accumulated deferred investment tax credit (855) (1,109) Accumulated deferred income tax 718 (1,323) Cumulative effect of a change in accounting principle (5,862) - Net loss on market sensitive portfolio - 2,698 Net gain on mark to market investments (214) - Changes in certain assets and liabilities: Receivables 20,775 41,347 Fuel, materials and supplies 233 4,326 Deferred charges 5,255 (245) Accounts payable (43,660) (59,907) Accrued interest and taxes 8,846 18,400 Deferred credits 2,082 (3,205) Other (62) 378 Other, net 34 1,618 --------- --------- Net cash flows from operating activities 40,031 48,348 --------- --------- Cash Flows From Investing Activities: Utility plant additions (18,217) (25,624) (Increase) decrease in nuclear decommissioning trust 26,620 (860) Return of principal PVNGS LOBs - 4,994 Return of principal PVNGS Lessors' notes 9,029 - Purchase of investment option (2,810) - Sale of investment option 2,811 - Increase in other property and investments (1,313) (3) Increase in temporary investments, net (16,956) (4,667) --------- --------- Net cash flows from investing activities (836) (26,160) --------- --------- Cash Flows From Financing Activities: Bond redemption premium and costs - (3,479) Redemption of first mortgage bonds - (140,206) Short-term borrowings for first mortgage bonds redemption - 140,206 Return of CNA equity in Capital Trust (369) - Repayments of trust borrowing for nuclear decommissioning (26,620) 860 Repayments of short-term borrowings - (11,306) Exercise of employee stock options - (1,540) Common stock repurchase (5,848) - Dividends paid (8,450) (7,242) --------- --------- Net cash flows from financing activities (41,287) (22,707) --------- --------- Decrease in cash (2,092) (519) Cash at beginning of period 2,573 8,705 --------- --------- Cash at end of period $ 481 $ 8,186 ========= ========= Supplemental Cash Flow Disclosures: Interest paid $ 20,528 $ 10,936 ========= ========= Income taxes paid, net $ 1,475 $ 6,121 ========= ========= The accompanying notes are an integral part of these financial statements. 7 PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (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, 1998 (the "1998 Form 10-K") filed with the Securities and Exchange Commission ("SEC"). (2) Accounting Changes Effective January 1, 1999, the Company adopted Emerging Issues Task Force ("EITF") Issue No. 98-10, Accounting for Contracts Involved in Energy Trading and Risk Management Activities. EITF Issue No. 98-10 requires gains or losses resulting from the market value changes on energy trading contracts to be recorded in earnings. The effect of the initial application of EITF Issue No. 98-10 is reported as a cumulative effect of a change in accounting principle which increased the Company's consolidated net income by approximately $3.5 million (after related income tax expense of approximately $2.3 million), or $.08 per common share. In addition, the Company recorded a gain of $100,000, net of tax, resulting from market value changes with respect to these trading activities during the first quarter of 1999. (3) Segment Information The Company's principal business segments are the four regulated business units: Electric Service Business Unit ("Distribution"), Transmission Service Business Unit ("Transmission"), Bulk Power Business Unit ("Generation") and the Gas Services Business Unit ("Gas"). The Company's non operating subsidiaries and Energy Services Business Unit are not reportable segments and are included in "Other" for reconciliation purposes. Intersegment revenues are determined based on a formula mutually agreed upon between affected segments and are not based on market rates. Intersegment revenues are eliminated for consolidation purposes. Summarized financial information by business segment for the three months ended March 31, 1999 and 1998 is as follows:
Distribution Transmission Generation Gas Other Total ------------ ------------ ---------- -------- ------- -------- (In thousands) 1999: Operating revenues: External customers $129,183 $ 3,776 $ 51,483 $ 84,864 $ 3,512 $272,818 Intersegment revenues - $ 7,450 $ 77,970 - $ - $ 85,420 Segment net income (loss) $ 9,790 $ 1,315 $ 11,931 $ 4,983 $(1,348) $ 26,671 1998: Operating revenues: External customers $130,911 $ 3,817 $ 44,924 $102,712 $ 196 $282,560 Intersegment revenues - $ 7,273 $ 89,203 - $ - $ 96,476 Segment net income (loss) $ 4,254 $ 1,710 $ 13,830 $ 7,464 $(6,044) $ 21,214
8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company's 1998 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 three months ended March 31, 1999 and 1998. 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. OPENING ELECTRIC COMPETITION AND THE SUPREME COURT'S DECISION ON THE ELECTRIC RATE CASE On April 8, 1999, the Governor of New Mexico signed the Electric Utility Industry Restructuring Act of 1999 into law, opening the state's electric power market to competition in a phased approach beginning in 2001. (See PART II, ITEM 7. - "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - OTHER ISSUES FACING THE COMPANY - ELECTRIC INDUSTRY RESTRUCTURING ACT OF 1999" in the Company's 1998 Annual Report on Form 10-K and Item 5, "Other Events" in the Company's Current Report on Form 8-K dated April 14, 1999.) The law requires the Company to file a transition plan with the Public Regulation Commission ("PRC") by March 1, 2000, which will include, among other things, separating regulated and non-regulated business activities into at least two separate corporations, and proposed charges for the recovery of stranded costs and transition costs. The law allows utilities to recover at least half of their stranded costs with a provision for the recovery of more than half of their stranded costs if utilities meet certain criteria specified in the law. Utilities will also be allowed to recover through 2007 all transition costs reasonably incurred to comply with the new law. Due to uncertainties surrounding the stranded costs that the Company will be allowed to recover, the Company is currently unable to determine the ultimate financial impact the new law will have on the Company. In March 1999, the New Mexico Supreme Court ("Supreme Court") overturned the electric rate reduction order issued by the New Mexico Public Utility Commission ("NMPUC") in November 1998, and remanded the case to the PRC for further proceedings consistent with the Supreme Court's opinion. The Company now has a rate case pending before the PRC, which will likely result in a rate reduction. (See "Electric Rate Case" in Item 5, "Other Events" in the Current Report on Form 8-K dated March 30, 1999.) 9 On April 20, 1999, the PRC issued a procedural order on the remanded electric rate case. Pursuant to the order, the parties to the case have until May 19, 1999, to file a negotiated settlement of some or all of the outstanding issues with the PRC. If settlement is not reached, the case is scheduled for hearing. The PRC directed the hearing examiner to issue a recommended decision so that a final order could be issued by August 31, 1999. The Company and the parties involved in the rate case have resumed settlement discussions. The Company is currently unable to predict the ultimate outcome of this case. At the April 20, 1999 open meeting, the PRC dismissed the City of Albuquerque's petition for a retail pilot load aggregation program and closed the docket. (See "City of Albuquerque ("COA") Retail Pilot Load Aggregation Program" in Item 5, "Other Events" in the Current Report on Form 8-K dated March 30, 1999.) Also, on March 30, 1999, Residential Electric, Inc. filed a motion for rehearing with the Supreme Court, seeking dismissal of the petition for writ of mandamus. The Supreme Court had partially granted the writ on March 1, 1999, with an opinion issued March 15, 1999, ruling that the NMPUC had exceeded its authority in ordering retail electric competition (see PART II, ITEM 7. - "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - OTHER ISSUES FACING THE COMPANY - Residential Electric, Inc. ("REI")" in the 1998 Form 10-K). The Supreme Court denied the motion for rehearing on April 27, 1999. The PRC has directed REI to file a verified statement concerning the current status of its application and complaint by May 17, 1999, based on the Supreme Court's opinion. LIQUIDITY AND CAPITAL RESOURCES The projection for total capital requirements for 1999 is $176 million which includes $145 million of utility construction expenditures. During the first quarter, the Company spent approximately $32.5 million for capital requirements and anticipates spending approximately $143.5 million over the remainder of 1999. The Company expects that these cash requirements will be met primarily through internally generated cash. However, to cover the difference in the amounts and timing of cash generation and cash requirements, the Company intends to utilize short-term borrowings under its liquidity arrangements. These estimates are under continuing review and subject to on-going adjustment. As of March 31, 1999, the Company had $405 million of available liquidity arrangements, consisting of $300 million from a senior unsecured revolving credit facility, $80 million from an accounts receivable securitization and $25 million in local lines of credit. At March 31, 1999, the Company did not have any short-term borrowings and had $78.6 million in temporary investments. 10 The Company's ability to finance its construction program at a reasonable cost is dependent largely upon its earnings, credit ratings, regulatory approvals and financial market conditions. As a result of the recent passage of the electric utility industry restructuring bill and the Supreme Court's ruling on the Company's electric rate order, Duff & Phelps Credit Rating Co. removed the "Rating Watch-Down" on the Company's debt and preferred stock and reaffirmed the ratings on the Company's senior unsecured notes and first mortgage bonds. Moody's Investors Service also changed the rating outlook on all of the Company's securities to positive from stable. On April 20, 1999, the Company requested PRC authorization for the issuance of up to $11.5 million in tax-exempt pollution control revenue bonds to partially reimburse the Company for expenditures associated with its share of a recently completed upgrade of the emission control system at the San Juan Generating Station ("SJGS"). The new bond issue is also subject to approval by the City of Farmington and San Juan County. RESULTS OF OPERATIONS Net earnings applicable to common stock increased $5.5 million ($.14 per share) for the quarter ended March 31, 1999, from the corresponding period last year. The following discussion highlights significant items which affected the results of operations for the quarters ended March 31, 1999 and 1998. Continuing Operations Electric gross margin (operating revenues less fuel and purchased power expense) for the current quarter decreased $2.3 million from a year ago due to decreased retail sales attributed to milder weather this year, offset by increased wholesale sales, net of increased purchases for resale. In addition, 1998 fuel expenses were lower than 1999 due to a tax settlement credit at Four Corners Power Plant ("Four Corners") and extensive maintenance outages at SJGS Units 1 and 3 in 1998. Gas gross margin (operating revenues less gas purchased for resale) decreased $1.4 million from the corresponding period a year ago due to warmer weather conditions in the current period and a monthly customer charge (access fee) not being billed on some accounts during the first three months in 1999 as a result of the new customer billing system problems. Other operation and maintenance ("O&M") expenses increased $1.2 million for the quarter over the corresponding period a year ago due to increases in customer service related expenses, outside services and employee benefit costs, offset by decreased electric maintenance expense due to higher maintenance outage activities at SJGS in 1998. Depreciation and amortization expenses increased $2.0 million over the same period last year as a result of increases in plant balances and depreciation rates. 11 Operating income taxes for the quarter ended March 31, 1999, decreased $4.2 million from the corresponding period a year ago due to decreased pre-tax earnings from continuing operations for the current quarter. Other income and deductions, net of taxes increased $3.4 million over the same period last year due to the recording of interest income from the Palo Verde Nuclear Generating Station ("PVNGS") Capital Trust. Net interest charges increased $4.3 million over the corresponding period a year ago as a result of the issuance of $435 million of senior unsecured notes in 1998, offset by a decrease in short-term debt interest charges. Discontinued Operations In August 1998, the Company adopted a plan to discontinue the natural gas trading operations of its Energy Services Business Unit and completely discontinued these operations on December 31, 1998. As a result, the Company reclassified the losses from discontinued operations for the three month period ended March 31, 1998. Losses from discontinued operations, net of taxes, for the three months ended March 31, 1998, were $4.3 million, or $.10 per common share. Cumulative Effect of a Change in Accounting Principle Effective January 1, 1999, the Company adopted EITF Issue No. 98-10, Accounting for Contracts Involved in Energy Trading and Risk Management Activities. The effect of the initial application of the new standard is reported as a cumulative effect of a change in accounting principle. As a result, the Company recorded additional earnings, net of taxes, of approximately $3.5 million, or $.08 per common share to recognize the gain on net open physical electricity purchase and sales commitments considered to be trading activities. OTHER ISSUES FACING THE COMPANY New Customer Billing System As previously reported, in November 1998, the Company installed a new customer billing system. Due to a significant number of problems associated with the implementation of the new billing system, the Company either sent inaccurate bills or did not send bills to approximately 10% of its accounts. Under PRC rules and PRC-approved Company rules, the Company is required to issue customer bills on a monthly basis. In February 1999, the Company filed with the PRC an application for temporary variance. Subsequently, the PRC issued an order granting the Company a temporary variance through April 15, 1999, which allowed the Company to issue bills to customers that had been delayed from 60-120 days. The order further provided that a hearing examiner take evidence on whether the Company has violated or is violating PRC rules, regulations, orders or the New 12 Mexico Public Utility Act ("Utility Act"), and if so, whether sanctions or fines should be imposed. The PRC may impose penalties for violations of the Utility Act or failure to obey any lawful order of the PRC in the amount of $100 to $100,000 for each violation. Because of the problems associated with the Company's new customer billing system, the Company has been estimating revenues, customer accounts receivable and bad debt expense since its implementation in November 1998. The Company's financial, tax and regulatory reports reflect these estimates. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - OTHER ISSUES FACING THE COMPANY - NEW CUSTOMER BILLING SYSTEM" in the 1998 Form 10-K.) The hearing examiner issued an order on April 16, 1999, extending the temporary variance to April 28, 1999. On April 29, 1999, a pre-hearing conference was conducted at the PRC at which time the Company presented an oral status report to the hearing examiner, the PRC Staff and other parties on the resolution of the billing system problems. The Company advised the parties that significant progress had been made toward resolving the problems associated with the new billing system including the fact that all previously delayed bills had been sent to customers. The Company also confirmed that in accordance with the PRC Staff's recommendation adopted in the PRC's order, it would submit a report on June 1, 1999, which would include an assessment of any outstanding issues associated with the billing system and other specific data requested by the PRC Staff. Another pre-hearing conference was set for June 3, 1999. Currently, the Company is unable to predict the ultimate timing for the completion of all billing system remediation efforts and associated issues or outcome of regulatory actions regarding these problems. Kirtland Air Force Base ("KAFB") Contract The Company has been informed that the Department of Energy ("DOE") has entered into an agency agreement with the Western Area Power Administration ("Western") on behalf of KAFB, one of the Company's largest retail electric customers, by which Western will competitively procure power for KAFB. The proposed wholesale power procurement would begin at the expiration of KAFB's power service contract with the Company in December 1999. On May 4, 1999, the Company received a request for network transmission service from Western pursuant to Section 211 of the Federal Power Act to facilitate the delivery of wholesale power to KAFB over the Company's transmission system. The Company is currently reviewing the application to determine if Western is eligible to request transmission service under the Open Access Transmission Tariff on behalf of KAFB. The revenue loss to the Company, if DOE replaces the Company as the power supplier to KAFB, is presently being evaluated. In 1998, the Company recorded electric revenues of approximately $18 million from KAFB. The Company is currently unable to predict the ultimate outcome of this matter. 13 City of Gallup ("Gallup") Complaint As previously reported, in 1998, Gallup, Gallup Joint Utilities and the Pittsburg & Midway Coal Mining Co. ("Pitt-Midway") filed a joint complaint and petition ("Complaint") with the New Mexico Public Utility Commission ("NMPUC") (predecessor of the PRC), seeking an interim declaratory order stating, among other things, that Pitt-Midway is no longer an obligated customer of the Company, Gallup is entitled to serve Pitt-Midway and the Company must wheel power purchased by Gallup from other suppliers over the Company's transmission system. In September 1998, the NMPUC issued an order without conducting a hearing, granting the requests sought in the Complaint. The Company strongly disagreed with the NMPUC's decision and filed, in September 1998, a motion with the Supreme Court, requesting an emergency stay of the NMPUC order pending its appeal of the order. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - OTHER ISSUES FACING THE COMPANY - NMPUC REGULATORY ISSUES - City of Gallup ("Gallup") Complaint" in the 1998 Form 10-K.) In 1998, the Company and Pitt-Midway agreed in principle to sell to Pitt-Midway the 115 kV transmission line originating at the 115 kV Yah-Ta-Hey substation near Gallup and terminating at the coal mine properties of Pitt-Midway. The NMPUC final order directed the Company to complete the application at the FERC no later than December 31, 1998. On December 28, 1998, the Company filed an application at the FERC for an order authorizing the Company to sell the line to Pitt-Midway. On April 5, 1999, the FERC issued an order approving the sale of the transmission line to Pitt-Midway and directing Pitt-Midway to file rate schedules for the transmission services it will provide the Company as a result of obtaining ownership of the line. The closing date for the transfer of ownership of the line has not been determined. The April 5 order also sets for hearing the issue of additional transmission service to Gallup before an administrative law judge. FERC has directed the parties to appear before a settlement judge for a settlement conference. Absent settlement, the issue of transmission service to Gallup will be set for hearing. The appeal of the final order to the Supreme Court remains pending. The Year 2000 Issue As previously reported, the Year 2000 issue is a consequence of computer programs ("IT Systems") written using two digits rather than four digits to define the applicable year. As a result, computer systems could recognize the Year 2000 as the year 1900, leading potentially to systems failures or miscalculations causing disruptions in operations. Equipment that contains embedded chips ("Embedded Systems") may also be affected by the Year 2000 issue. The Company adopted a plan to address the Year 2000 issue for internal systems and external dependencies ("Year 2000 Project"). (See PART II, ITEM 7. - "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - OTHER ISSUES FACING THE COMPANY - THE YEAR 2000 ISSUE" in the Company's 1998 Form 10-K.) 14 The estimated status of each phase as of April 30 , 1999, is set out below: Estimated Status of Year 2000 Project Phase Completion* ----------------------- ----------- Awareness Phase Completed Inventory Phase 97% Assessment Phase 89% Planning and Scheduling Phase 78% Repair Phase 55% Testing Phase 33% Re-Integration/Deployment Phase 8% Company-Wide Testing Phase 2% * The stated percentages represent the status of completion as of April 30 , 1999, of all of the Company's IT Systems and Embedded Systems, including mission critical systems. For purposes of this presentation, "mission critical systems" include systems whose failures could cause an interruption in the supply of electricity or gas to the Company's customers, could interfere with the Company's ability to communicate with customers, or could interfere with the Company's cash flow. On April 9, 1999, the Company participated in a drill organized by the North American Electric Reliability Council ("NERC") to test operational preparedness of the electric power grids of the United States and Canada. The drill focused on sustaining reliable electric system operations during a simulated partial loss of voice and data communications. The drill did not involve customer electrical facilities and caused no interruption of electric service. The drill provided the Company with an understanding of how it would operate under such conditions and the issues it needs to address beforehand. The Company has a 10.2% undivided interest in PVNGS, with portions of its interests held under leases. Arizona Public Service Company ("APS"), the operating agent of PVNGS, is currently conducting testing and evaluation of the Year 2000 compliance of PVNGS. The Company's share of the PVNGS costs associated with Year 2000 activities is approximately $1.7 million. These costs have not been included in any prior Year 2000-related cost disclosures by the Company. The Company has spent approximately $3.3 million on non-PVNGS Year 2000 related activities during the first three months of 1999, and approximately $8.6 million since the project's commencement. 15 The Company is currently installing a new energy management system ("EMS") for its electric transmission system. That EMS is scheduled for a Year 2000 upgrade in the third quarter of 1999. The Company is in the process of performing Year 2000 remediation work on its current EMS and was scheduled to have the remediation completed before June 30, 1999. However, the Company has experienced delays in completing the remediation work on the current EMS. If there are further delays, the remediation of the current EMS may not be completed by June 30, 1999. The statements in this section are Year 2000 Readiness Disclosures pursuant to the Year 2000 Information and Readiness Disclosure Act, Pub. L. No. 105-271, 112 Stat. 2386 (1998). Navajo Nation Tax Issues APS, the operating agent for Four Corners, has informed the Company that in March 1999, APS initiated discussions with the Navajo Nation regarding various tax issues in conjunction with the expiration of a tax waiver in July 2001, which was granted by the Navajo Nation in 1985. The tax waver pertains to the possessory interest tax and the business activity tax associated with the Four Corners operations on the reservation. The Company believes that the resolution of these tax issues will require an extended process and could potentially affect the cost of conducting business activities on the reservation. The Company is unable to predict the ultimate outcome of discussions with Navajo Nation regarding these tax issues. 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. Words such as "estimates," "expects," "anticipates," "plans," "believes," "projects," and similar expressions identify forward-looking statements. 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 costs; (iv) the inability of the Company to successfully compete outside its traditional regulated market; (v) regional economic conditions, which could affect customer growth; (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; (x) the cost of debt and equity capital; (xi) weather conditions; and (xii) technical developments in the utility industry. 16 The costs of the Company's Year 2000 Project and the dates on which the Company believes it will complete the phases of the Project are based upon management's best estimates, which were derived using numerous assumptions regarding future events, including the continued availability of certain resources, third-party remediation plans, and other factors. There can be no assurance that these estimates will prove to be accurate and actual results could differ materially from those currently anticipated. Specific factors that could cause such material differences include, but are not limited to, the availability and cost of personnel trained in Year 2000 issues, the ability to identify, assess, remediate and test all relevant computer codes and embedded technology, and similar uncertainties. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Equity and Other Investment Return Risk On March 26, 1999, the Company entered into a "collar" to hedge the equity risks associated with its equity investments in the Company's retiree medical trusts, Rabbi trust for executive retirement programs and nuclear decommissioning trusts (collectively the "Trusts"). The "collar" utilizes exchange-traded and over-the-counter put and call option contracts on the S&P 500 Index. These option instruments are settled in cash at expiration. At the contract expiration date, the Company will make payment to the counterparty under the call options if the spot price exceeds the call exercise price or the Company will receive payment from the put options if the spot price is less than the put exercise price. These options will expire with no cash transfer if the S&P 500 Index is between the put and call exercise prices. The Company accounts for the impact of changes in the market value of these options under mark-to-market accounting on a quarterly basis. As of March 31, 1999, the Company had outstanding put and call options covering approximately $62 million in equity investments held within the Trusts. As of March 31, 1999, the Company had unrealized gains of approximately $100,000 related to the outstanding put and call options. Neither the net fair value of the derivatives outstanding nor the potential, near-term derivative losses from reasonably possible near-term changes in market prices are material to the financial position, results of operations or liquidity of the Company. 17 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Republic Savings Bank ("RSB") Litigation As previously reported, Meadows Resources Inc. ("Meadows"), a subsidiary of the Company, has a 100% direct ownership interest in Republic Holding Company ("RHC"), and RSB was a wholly-owned subsidiary of RHC. Meadows and RHC have pending before the United States Court of Federal Claims a lawsuit filed in 1992, alleging that the Federal government had breached its contractual obligations with certain thrifts in refusing to recognize the accounting practices of supervisory goodwill and capital credits. The Federal government filed a counterclaim alleging breach by RHC of its obligation to maintain RSB's net worth and moved to dismiss Meadows' claim for lack of standing. RSB filed a motion for partial summary judgment on the issue of liability under its breach of contract claim based on the United States Supreme Court's ("U.S. Supreme Court") decision in a similar case for which the U.S. Supreme Court had ruled that the Federal government breached its contractual obligations. A decision on summary judgment is pending. (See PART I, ITEM 3. "LEGAL PROCEEDINGS - OTHER PROCEEDINGS - Republic Savings Bank ("RSB") Litigation" in the 1998 Form 10-K.) On April 9, 1999, the judge issued a significant precedential opinion in another case, Glendale Federal Bank v. U.S., in which the judge awarded Glendale damages of $909 million on its restitution and reliance theories of damages. The judge expressly stated that his Glendale decision is the precedent for adjudicating damages asserted by other plaintiffs. However, a different judge of the U.S. Court of Claims issued a decision on April 16, 1999, in California Federal Bank v. U.S., denying the plaintiff's claims for reliance, restitution and lost profit damages but awarding the costs to raise new capital to replace its goodwill. At this time, it is premature to estimate the amount of recovery, if any, by Meadows and RHC. Purported Navajo Environmental Regulation In February 1999, the EPA promulgated regulations setting forth the EPA's approach to issuing Federal operating permits to covered stationary sources on reservations and in Indian country ("Federal operating permit rule"), pursuant to the Clean Air Act Amendments of 1990. On April 15, 1999, APS, the operating agent for the Four Corners Power Plant, filed a petition for review of the Federal operating permit rule in the United States Court of Appeals for the District of Columbia ("D.C. Circuit"). On April 20, 1999, the Company, the operating agent for SJGS, also filed a petition for review of the Federal operating permit rule in the D.C. Circuit. The Company cannot currently predict the outcome of this matter. 18 ITEM 5. OTHER INFORMATION Repurchase of Common Stock As previously reported, in March 1999, the Company announced plans to repurchase up to one million shares of the Company's outstanding common stock. Repurchased shares are to be immediately retired and, subject to regulatory approval, would be reissued to meet current and future requirements of options granted for certain of its employees under the Company's Performance Stock Plan. (See "Repurchase of Common Stock" in Item 5, "Other Events" in the Company's Current Report on Form 8-K dated March 30, 1999.) As of April 20, 1999, the Company purchased and retired one million shares of its common stock at an average price of $17.61 per share. The Company currently has 1,588,000 stock options outstanding to key employees at a weighted average strike price of $18.41 per share, exercisable over a ten year period. The Company believes that the buy back of Company stock at current market value and the reissuance of new shares when the options are exercised will reduce future financial exposure. 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 10.23.4** Fourth Amendment to the Restated and Amended Public Service Company of New Mexico Accelerated Management Performance Plan, as amended effective December 7, 1998 10.32.2** Second Amendment to the Supplemental Employee Retirement Agreement for Max H. Maerki, as amended effective December 7, 1998 10.32.3** First Amendment to the Supplemental Employee Retirement Agreement for John T. Ackerman, as amended effective December 7, 1998 10.45** Second Amendment to the Public Service Company of New Mexico Service Bonus Plan, as amended effective December 7, 1998 10.47.5** First Amendment to the Executive Retention Agreement for Benjamin F. Montoya 10.47.6** Second Amendment to the Pension Service Adjustment Agreement for Benjamin F. Montoya, as amended effective December 7, 1998 10.48.1** First Amendment to the Public Service Company of New Mexico OBRA `93 Retirement Plan, as amended effective December 7, 1998 10.50.1** First Amendment to the Public Service Company of New Mexico Section 415 Plan, as amended effective December 7, 1998 19 10.51.2** First Restated and Amended Executive Retention Plan, as amended effective December 7, 1998 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). ** Designates each management contract or compensatory plan or arrangement required to be identified pursuant to paragraph 3 of Item 14 (a) of Form 10-K. b. Reports on Form 8-K: Report dated April 14, 1999, and filed on April 15, 1999, relating to Electric Utility Industry Restructuring Act of 1999 and Annual Stockholders Meeting. Report dated March 30, 1999, and filed on March 31, 1999, relating to Electric Rate Case; Electric Industry Restructuring Act of 1999; San Diego Gas Electric Company Complaints; and City of Albuquerque Retail Pilot Load Aggregation Program. 20 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: May 11, 1999 /s/ Donna M. Burnett ----------------------------------- Donna M. Burnett Vice President, Corporate Controller and Chief Accounting Officer (Officer duly authorized to sign this report) 21 EX-10 2 EXHIBIT 10.23.4 TO THE FORM 10-Q FOR 3/31/99 FOURTH AMENDMENT TO THE RESTATED AND AMENDED PUBLIC SERVICE COMPANY OF NEW MEXICO ACCELERATED MANAGEMENT PERFORMANCE PLAN (1988) THIS FOURTH AMENDMENT TO THE RESTATED AND AMENDED PUBLIC SERVICE COMPANY OF NEW MEXICO ACCELERATED MANAGEMENT PERFORMANCE PLAN is effective the 7th day of December 1998 by the Public Service Company of New Mexico, a New Mexico corporation ("PNM" or the "Company"). WHEREAS, the Company established the Public Service Company of New Mexico Accelerated Management Performance Plan (the "Plan") on January 14, 1981, which was amended four times and restated and amended on August 16, 1988, and the restated and amended plan was amended on August 30, 1988, December 29, 1989, and December 8, 1992; WHEREAS, under Section 9.01 of the Plan, the Company reserved the right at any time to amend the Plan; WHEREAS, on December 7, 1998, the Compensation and Human Resources Committee of the PNM Board of Directors approved certain benefits upon a Change in Control (as defined in the First Restated and Amended Executive Retention Plan) and authorized certain amendments to affected plans, including this Plan; and WHEREAS, the Company desires to amend this Plan to incorporate the approved Change in Control benefits to provide full and sufficient funding of the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred Compensation Trust Agreement (the "Rabbi Trust") for any obligations or benefits accrued as of the date of the occurrence of a Change in Control. NOW THEREFORE, the Company hereby amends the Plan as follows: ITEM 1. A new Section 6.03, entitled Change in Control shall be added, to read as follows: 6.03. Change in Control. Upon a Change in Control as defined in the First Restated and Amended Executive Retention Plan effective December 7, 1998, and incorporated herein by reference, the Company shall sufficiently fund the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred Compensation Trust Agreement (the "Rabbi Trust") to provide in full for any benefits accrued under the Plan as of the date of the occurrence of the Change in Control. 1 ITEM 2. Except as herein above amended, the Company hereby readopts and redeclares each and every provision of the Plan. IN WITNESS WHEREOF, Public Service Company of New Mexico caused this Fourth Amendment to the Restated and Amended Public Service Company of New Mexico Accelerated Management Performance Plan to be executed by its authorized officers effective as of the date and year first above written. PUBLIC SERVICE COMPANY OF NEW MEXICO Date:_________________ By_________________________________________ BENJAMIN F. MONTOYA President and Chief Executive Officer 24870 2 EX-10 3 EXHIBIT 10.32.2 TO THE FORM 10-Q FOR 3/31/99 SECOND AMENDMENT TO THE SUPPLEMENTAL EMPLOYEE RETIREMENT AGREEMENT THIS SECOND AMENDMENT TO THE SUPPLEMENTAL EMPLOYEE RETIREMENT AGREEMENT is effective the 7th day of December, 1998, by and between Public Service Company of New Mexico, a New Mexico corporation ("PNM" or the "Company") and Max Maerki ("Maerki"). WHEREAS, PNM and Maerki entered into a Supplemental Employee Retirement Agreement ("SERP") effective August 4, 1989, and entered into a First Amendment to the SERP on August 10, 1998; WHEREAS, paragraph 9 of the SERP permits it to be amended by mutual consent. WHEREAS, on December 7, 1998, the Compensation and Human Resources Committee of the PNM Board of Directors approved certain benefits upon a Change in Control (as defined in the First Restated and Amended Executive Retention Plan) and authorized certain amendments to affected plans, including this SERP; and WHEREAS, the Company desires to amend this SERP to incorporate the approved Change in Control benefits to provide full and sufficient funding of the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred Compensation Trust Agreement (the "Rabbi Trust") for any obligations or benefits accrued as of the date of the occurrence of a Change in Control. NOW, THEREFORE, PNM and Maerki do hereby amend the SERP by this Second Amendment as follows: ITEM 1. Paragraph 7, No Trust, is hereby amended to add a new last paragraph, as follows: Notwithstanding the above, upon a Change in Control as defined in the First Restated and Amended Executive Retention Plan effective December 7, 1998 and incorporated herein by reference, the Company shall sufficiently fund the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred Compensation Trust Agreement (the "Rabbi Trust") to provide in full for any benefits accrued under this Agreement as of the date of the occurrence of the Change in Control. ITEM 2. Except as herein above amended, PNM and Maerki hereby readopt and redeclare each and every provision of the SERP. IN WITNESS WHEREOF, the parties hereto, personally or by their authorized representatives, have signed this Second Amendment to the SERP effective as of the date specified herein and by execution of this amendment hereby declare that this amendment fully and accurately represents all the supplemental retirement benefits agreed upon by PNM and Maerki. PUBLIC SERVICE COMPANY OF NEW MEXICO Date:_________________ By_________________________________________ BENJAMIN F. MONTOYA President and Chief Executive Officer Date:_________________ _________________________________________ Max H. Maerki 2 EX-10 4 EXHIBIT 10.32.3 TO THE FORM 10-Q FOR 3/31/99 FIRST AMENDMENT TO THE SUPPLEMENTAL EMPLOYEE RETIREMENT AGREEMENT THIS FIRST AMENDMENT TO THE SUPPLEMENTAL EMPLOYEE RETIREMENT AGREEMENT is effective the 7th day of December, 1998, by and between Public Service Company of New Mexico, a New Mexico corporation ("PNM" or the "Company") and John T. Ackerman ("Ackerman"). WHEREAS, PNM and Ackerman entered into a Supplemental Employee Retirement Agreement ("SERP") effective August 4, 1989; WHEREAS, paragraph 9 of the SERP permits it to be amended by mutual consent. WHEREAS, on December 7, 1998, the Compensation and Human Resources Committee of the PNM Board of Directors approved certain benefits upon a Change in Control (as defined in the First Restated and Amended Executive Retention Plan) and authorized certain amendments to affected plans, including this SERP; and WHEREAS, the Company desires to amend this SERP to incorporate the approved Change in Control benefits to provide full and sufficient funding of the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred Compensation Trust Agreement (the "Rabbi Trust") for any obligations or benefits accrued as of the date of the occurrence of a Change in Control. NOW, THEREFORE, PNM and Ackerman do hereby amend the SERP by this First Amendment as follows: ITEM 1. Paragraph 7, No Trust, is hereby amended to add a new last paragraph, as follows: Notwithstanding the above, upon a Change in Control as defined in the First Restated and Amended Executive Retention Plan effective December 7, 1998, and incorporated herein by reference, the Company shall sufficiently fund the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred Compensation Trust Agreement (the "Rabbi Trust") to provide in full for any benefits accrued under this Agreement as of the date of the occurrence of the Change in Control. ITEM 2. Except as herein above amended, PNM and Ackerman hereby readopt and redeclare each and every provision of the SERP. 1 IN WITNESS WHEREOF, the parties hereto, personally or by their authorized representatives, have signed this First Amendment to the SERP effective as of the date specified herein and by execution of this amendment hereby declare that this amendment fully and accurately represents all the supplemental retirement benefits agreed upon by PNM and Ackerman. PUBLIC SERVICE COMPANY OF NEW MEXICO Date:_________________ By_________________________________________ BENJAMIN F. MONTOYA President and Chief Executive Officer Date:_________________ _________________________________________ John T. Ackerman 2 24859 EX-10 5 EXHIBIT 10.45 TO THE FORM 10-Q FOR 3/31/99 SECOND AMENDMENT TO THE PUBLIC SERVICE COMPANY OF NEW MEXICO SERVICE BONUS PLAN THIS SECOND AMENDMENT TO THE PUBLIC SERVICE COMPANY OF NEW MEXICO SERVICE BONUS PLAN is effective the 7th day of December 1998, by the Public Service Company of New Mexico, a New Mexico corporation ("PNM" or the "Company"). WHEREAS, the Company established the Public Service Company of New Mexico Service Bonus Plan (the "Plan") on October 23, 1984, which was amended on November 20, 1985; WHEREAS, under Section 9.01 of the Plan, the Company reserved the right at any time to amend the Plan; WHEREAS, on December 7, 1998, the Compensation and Human Resources Committee of the PNM Board of Directors approved certain benefits upon a Change in Control (as defined in the First Restated and Amended Executive Retention Plan) and authorized certain amendments to affected plans, including this Plan; and WHEREAS, the Company desires to amend this Plan to incorporate the approved Change in Control benefits to provide full and sufficient funding of the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred Compensation Trust Agreement (the "Rabbi Trust") for any obligations or benefits accrued as of the date of the occurrence of a Change in Control. NOW THEREFORE, the Company hereby amends the Plan as follows: ITEM 1. A new Section 6.04, entitled Change in Control, shall be added, to read as follows: 6.04 Change in Control. Upon a Change in Control, as defined in the First Restated and Amended Executive Retention Plan effective December 7, 1998 and incorporated herein by reference, the Company shall sufficiently fund the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred Compensation Trust Agreement (the "Rabbi Trust") to provide in full for any benefits accrued under the Plan as of the date of the occurrence of the Change in Control. ITEM 2. Except as herein above amended, the Company hereby readopts and redeclares each and every provision of the Plan. 1 IN WITNESS WHEREOF, Public Service Company of New Mexico caused this Second Amendment to the Public Service Company of New Mexico Service Bonus Plan to be executed by its authorized officers effective as of the date and year first above written. PUBLIC SERVICE COMPANY OF NEW MEXICO Date:_________________ By_________________________________________ BENJAMIN F. MONTOYA President and Chief Executive Officer 2 24871 EX-10 6 EXHIBIT 10.47.5 TO THE FORM 10-Q FOR 3/31/99 FIRST AMENDMENT TO THE EXECUTIVE RETENTION AGREEMENT FOR BENJAMIN F. MONTOYA This FIRST AMENDMENT TO THE EXECUTIVE RETENTION AGREEMENT FOR BENJAMIN F. MONTOYA (the "Agreement"), by and between Public Service Company of New Mexico, a New Mexico corporation ("PNM" or the "Company") and Benjamin F. Montoya ("Montoya"), is effective as of the date Benjamin F. Montoya's name is added to the Executive Retention Plan roster and approved by the Compensation and Human Resources Committee of the PNM Board of Directors, pursuant to Section 2.13 of the Public Service Company of New Mexico First Restated and Amended Executive Retention Plan, effective December 7, 1998. WHEREAS, Montoya was newly elected as President and Chief Executive Officer of PNM when the Agreement was entered into effective November 15, 1993; WHEREAS, the Company reserved the right to amend, modify or terminate this Agreement pursuant to paragraph B of the Agreement without the consent of Montoya; WHEREAS, on December 7, 1998, the Compensation and Human Resources Committee of the PNM Board of Directors approved certain benefits upon a Change in Control (as defined in the First Restated and Amended Executive Retention Plan) and authorized certain amendments to affected plans, including this Agreement; and WHEREAS, the Company desires to amend this Agreement to incorporate the approved Change in Control benefits. The Company hereby amends this Agreement to provide that the retention benefits otherwise provided herein to Montoya, in the event Montoya's employment is involuntarily or constructively terminated with PNM following a Change in Control, shall be provided pursuant to the Public Service Company of New Mexico First Restated and Amended Executive Retention Plan. NOW THEREFORE, the Company hereby amends the Agreement as follows: ITEM 1. A new paragraph D shall be added to amend and terminate the Agreement, as follows: D. Notwithstanding anything to the contrary in this Agreement, benefits under this Agreement shall be provided pursuant to the Public Service Company of New Mexico First Restated and Amended Executive Retention Plan, effective December 7, 1998, and this Agreement shall cease providing such benefits and shall be terminated as of the date Benjamin F. Montoya's name is added to the Executive Retention Plan roster and approved by the Compensation and Human Resources Committee of the PNM Board of Directors, or its successor committee. ITEM 2. Except as herein above amended, the Company hereby supersedes this Agreement with the provisions of the First Restated and Amended Executive Retention Plan. 1 IN WITNESS WHEREOF, the Company caused this First Amendment to the Executive Retention Agreement For Benjamin F. Montoya to be executed. PUBLIC SERVICE COMPANY OF NEW MEXICO Date:_________________ By_______________________________________ JOHN T. ACKERMAN Chairman of the Board of Directors Date:_________________ _________________________________________ BENJAMIN F. MONTOYA 2 24866 EX-10 7 EXHIBIT 10.47.6 TO THE FORM 10-Q FOR 3/31/99 SECOND AMENDMENT TO THE PENSION SERVICE ADJUSTMENT AGREEMENT FOR BENJAMIN F. MONTOYA THIS SECOND AMENDMENT TO THE PENSION SERVICE ADJUSTMENT AGREEMENT is effective the 7th day of December, 1998, by and between Public Service Company of New Mexico, a New Mexico corporation ("PNM" or the "Company") and BENJAMIN F. MONTOYA ("Montoya"). WHEREAS, PNM and Montoya entered into a Pension Service Adjustment Agreement ("Agreement") effective November 15, 1993, and entered into a First Amendment to the Agreement on June 9, 1998; WHEREAS, paragraph 9 of the Agreement permits it to be amended by mutual consent. WHEREAS, on December 7, 1998, the Compensation and Human Resources Committee of the PNM Board of Directors approved certain benefits upon a Change in Control (as defined in the First Restated and Amended Executive Retention Plan) and authorized certain amendments to affected plans, including this Agreement; and WHEREAS, the Company desires to amend this Agreement to incorporate the approved Change in Control benefits to provide full and sufficient funding of the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred Compensation Trust Agreement (the "Rabbi Trust") for any obligations or benefits accrued as of the date of the occurrence of the Change in Control. NOW, THEREFORE, PNM and Montoya do hereby amend the Agreement by this Second Amendment as follows: ITEM 1. Paragraph 7, Source of Payments of Benefits, is hereby amended to add a new last paragraph, as follows: Notwithstanding the above, upon a Change in Control as defined in the First Restated and Amended Executive Retention Plan effective December 7, 1998 and incorporated herein by reference, the Company shall sufficiently fund the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred Compensation Trust Agreement (the "Rabbi Trust") to provide in full for any benefits accrued under this Agreement as of the date of the occurrence of the Change in Control. ITEM 2. Except as herein above amended, PNM and Montoya hereby readopt and redeclare each and every provision of the Agreement, as amended. 1 IN WITNESS WHEREOF, the parties hereto, personally or by their authorized representatives, have signed this Second Amendment to the Agreement effective as of the date specified herein. PUBLIC SERVICE COMPANY OF NEW MEXICO Date:_________________ By_________________________________________ JOHN T. ACKERMAN Chairman of the Board of Directors Date:_________________ _________________________________________ BENJAMIN F. MONTOYA 2 24867 EX-10 8 EXHIBIT 10.48.1 TO THE FORM 10-Q FOR 3/31/99 FIRST AMENDMENT TO THE PUBLIC SERVICE COMPANY OF NEW MEXICO OBRA `93 RETIREMENT PLAN THIS FIRST AMENDMENT TO THE PUBLIC SERVICE COMPANY OF NEW MEXICO OBRA `93 RETIREMENT PLAN is effective the 7th day of December, 1998, by the Public Service Company of New Mexico, a New Mexico corporation ("PNM" or the "Company"). WHEREAS, the Company established the Public Service Company of New Mexico OBRA `93 Retirement Plan (the "Plan") effective November 15, 1993; WHEREAS, under Article V of the Plan, the Company reserved the right at any time to amend the Plan; WHEREAS, on December 7, 1998, the Compensation and Human Resources Committee of the PNM Board of Directors approved certain benefits upon a Change in Control (as defined in the First Restated and Amended Executive Retention Plan) and authorized certain amendments to affected plans, including this Plan; and WHEREAS, the Company desires to amend this Plan to incorporate the approved Change in Control benefits to provide full and sufficient funding of the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred Compensation Trust Agreement (the "Rabbi Trust") for any obligations or benefits accrued as of the date of the occurrence of a Change in Control. NOW THEREFORE, the Company hereby amends the Plan as follows: ITEM 1. Article IV, Source of Payments, shall be amended to add a new last paragraph, as follows: Notwithstanding the above, upon a Change in Control, as defined in the First Restated and Amended Executive Retention Plan effective December 7, 1998 and incorporated herein by reference, the Company shall sufficiently fund the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred Compensation Trust Agreement (the "Rabbi Trust") to provide in full for any benefits accrued under this Plan as of the date of the occurrence of the Change in Control. ITEM 2. Except as herein above amended, the Company hereby readopts and redeclares each and every provision of the Plan. 1 IN WITNESS WHEREOF, Public Service Company of New Mexico caused this First Amendment to the Public Service Company of New Mexico OBRA `93 Retirement Plan to be executed by its authorized officers effective as of the date and year first above written. PUBLIC SERVICE COMPANY OF NEW MEXICO Date:_________________ By_________________________________________ BENJAMIN F. MONTOYA President and Chief Executive Officer 2 24873 EX-10 9 EXHIBIT 10.50.1 TO THE FORM 10-Q FOR 3/31/99 FIRST AMENDMENT TO THE PUBLIC SERVICE COMPANY OF NEW MEXICO SECTION 415 PLAN THIS FIRST AMENDMENT TO THE PUBLIC SERVICE COMPANY OF NEW MEXICO SECTION 415 PLAN is effective the 7th day of December 1998 by the Public Service Company of New Mexico, a New Mexico corporation ("PNM" or the "Company"). WHEREAS, the Company established the Public Service Company of New Mexico Section 415 Plan (the "Plan") effective January 1, 1994; WHEREAS, under Section 6.03, the Company reserved the right at any time to amend the Plan; WHEREAS, on December 7, 1998, the Compensation and Human Resources Committee of the PNM Board of Directors approved certain benefits upon a Change in Control (as defined in the First Restated and Amended Executive Retention Plan) and authorized certain amendments to affected plans, including this Plan; and WHEREAS, the Company desires to amend this Plan to incorporate the approved Change in Control benefits to provide full and sufficient funding of the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred Compensation Trust Agreement (the "Rabbi Trust") for any obligations or benefits accrued as of the date of the occurrence of a Change in Control. NOW THEREFORE, the Company hereby amends the Plan as follows: ITEM 1. Article V, Source of Benefit Payments, shall be amended to add a new Section 5.02, as follows: 5.02 Change in Control. Upon a Change in Control, as defined in the First Restated and Amended Executive Retention Plan effective December 7, 1998, and incorporated herein by reference, the Company shall sufficiently fund the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred Compensation Trust Agreement (the "Rabbi Trust") to provide in full for any benefits accrued under this Plan as of the date of the occurrence of the Change in Control. ITEM 2. Except as herein above amended, the Company hereby readopts and redeclares each and every other provision of the Plan. 1 IN WITNESS WHEREOF, Public Service Company of New Mexico caused this First Amendment to the Public Service Company of New Mexico Section 415 Plan to be executed by its authorized officers effective as of the date and year first above written. PUBLIC SERVICE COMPANY OF NEW MEXICO Date:_________________ By_________________________________________ BENJAMIN F. MONTOYA President and Chief Executive Officer 2 24872 EX-10 10 EXHIBIT 10.51.2 TO THE FORM 10-Q FOR 3/31/99 PUBLIC SERVICE COMPANY OF NEW MEXICO FIRST RESTATED AND AMENDED EXECUTIVE RETENTION PLAN The Public Service Company of New Mexico (the "Company" or "PNM") hereby adopts the following First Restated and Amended Executive Retention Plan (the "Plan"), effective December 7, 1998. WHEREAS, the Company adopted the initial Executive Retention Plan effective January 1, 1992; WHEREAS, the Company first amended the Plan on January 1, 1994, and again on August 1, 1994; WHEREAS, on December 7, 1998, the Compensation and Human Resources Committee of the PNM Board of Directors ("Board") approved certain benefits upon a Change in Control and authorized certain amendments to affected plans, including this Plan; and WHEREAS, the Company desires to amend and restate this Plan to incorporate the approved Change in Control benefits, as follows: I. PURPOSE ---------- The Company considers it essential to its best interests and the best interests of its customers and stockholders to foster the continuous employment of its key management employees. In this connection, the Company recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control may exist and that such possibility, and the uncertainty and questions which it may raise among employees, may result in the departure or distraction of key management employees to the detriment of the Company and its ability to continue to provide efficient and reliable utility services to its customers. The Company has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of the Company's key management to their assigned duties and to facilitate recruitment of future employees without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control of the Company, by providing competitive and fair compensation and benefits to employees terminated under these circumstances. In order to encourage its key management employees to remain in its employ, a Participant shall receive the retention benefits set forth in this Plan in the event such Participant's employment with the Company is terminated under the circumstances described below. 1 Notwithstanding the above, the Company does not intend to change its employment at will nature, but retains its absolute right to terminate any employee at any time. An employee Terminated or Constructively Terminated during the Protection Period shall be entitled to benefits provided herein. An employee who terminates employment from the Company for any other reason shall not be entitled to benefits herein. Notwithstanding other provisions herein, the Company does not intend to create or offer these retention benefits in the event of a corporate restructuring initiated by the Company in which a holding company and related boards of directors are formed and the Company is subsequently acquired by such holding company. II. DEFINITIONS --------------- Terms or provisions in this Plan set out in proper capitals shall have the following meanings. In construing this Plan, these terms and provisions shall be liberally construed, to effect the intentions of the Board and the Company. 2.1. "Base Compensation" shall mean the Participant's Base Salary and Lump Sum Awards plus Results Pay at fifty percent (50%) of the highest stated maximum award opportunity from the Company in effect during the Protection Period. In the event a part-time or job-share employee's Base Compensation is based upon a full-time position, such Base Compensation shall be proportionately reduced by multiplying the same by a fraction the numerator of which is the number of hours the employee is scheduled to work each week and the denominator of which is forty (40). 2.2. "Base Salary" shall mean the Participant's highest annual stated salary from the Company in effect during the Protection Period. 2.3. "Board" shall mean the Board of Directors of the Company or by delegation of authority, the Compensation and Human Resources Committee of the Board, or any successor committee. 2.4. "Cause" for purposes of Termination of a Participant's employment, shall mean: 2.4.1. the willful and continued failure of a Participant to substantially perform his or her duties with the Company after a written demand for substantial performance is delivered to the Participant which specifically identifies the manner in which the Participant has not substantially performed his or her duties, or willful failure to report to work for more than thirty (30) days; or 2.4.2. the willful engaging by the Participant in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, including acts of fraud, misappropriation, violence, or embezzlement for personal gain at the expense of the Company, conviction of a felony, or conviction of a misdemeanor involving immoral acts. 2 Provided, however, that Section 2.4.1 shall not apply if: (i) the failure results from such Participant's incapacity due to verifiable physical or mental illness substantiated by appropriate medical evidence; or (ii) it is an anticipated or actual failure after the issuance of a Notice of Termination by the Participant due to Constructive Termination. For purposes of this definition, an act or failure to act by a Participant shall not be deemed "willful" if done or omitted to be done by the Participant in good faith and with a reasonable belief that his or her action was in the best interest of the Company. Notwithstanding the foregoing, a Participant shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to such Participant a copy of a resolution duly adopted by the affirmative vote of all members of the Committee at a meeting thereof called and held for such purpose (after reasonable notice to the Participant and an opportunity for the Participant together with his or her counsel, to be heard before the Committee), finding that in the good faith opinion of the Committee, the Participant was guilty of conduct set forth in Section 2.4.1 and 2.4.2 above and specifying the particulars in detail. 2.5. "Change in Control" shall be deemed to have occurred (any required approval, including any final nonappealable regulatory order, having been obtained) subject to the exceptions and modifications set forth in this Section and in the Plan: 2.5.1. if any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes directly or indirectly the "beneficial owner" as defined in Rule 13d-3 under the Exchange Act, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; 2.5.2. if during any period of two (2) consecutive years (excluding any period prior to the effective date of this Plan), the following individuals cease, for any reason, to constitute a majority of the Board: (i) directors who were directors at the beginning of such period; and (ii) any new directors whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3rds) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved (such new directors being referred to as Approved New Directors); 2.5.3. if the shareholders of the Company approve a merger or consolidation of the Company with another company, corporation or subsidiary that is not affiliated with the Company immediately preceding the Potential Change in Control; or 2.5.4. upon the adoption of a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. 3 Section 2.5.1. shall not apply if the "person" as referred to therein is, or shall be: (i) a trustee or other fiduciary holding securities under an employee benefit plan of the Company; or (ii) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. In Section 2.5.2., the Approved New Director shall not include a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Section 2.5.1, 2.5.3 or 2.5.4 hereof. Section 2.5.3. shall not apply to a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation. 2.6. "Code" shall mean the Internal Revenue Code of 1986, as may be amended from time to time. 2.7. "Committee" shall mean a committee consisting of at least three (3) members, appointed by the Board to administer the Plan. 2.8. "Company" shall mean the Public Service Company of New Mexico. As used in this Plan, "Company" shall also mean any successor to its assets, as described in Article II, Section 2.5.3 and 2.5.4, that assumes and agrees to perform the Company's obligations hereunder, by operation of law or otherwise. "Company" shall also include any holding company owning the Company or subsidiary of such holding company. 2.9. "Constructive Termination" shall mean, without a Participant's express written consent, the occurrence after the commencement of the Protection Period of any of the following circumstances, subject to the exceptions and modifications at the end of this Section 2.9: 2.9.1. a significant reduction in the Participant's Base Salary; 2.9.2. the relocation of the Participant's principal office to a location more than fifty (50) miles from the location of such office during the Protection Period; 2.9.3. the failure of the Company, within the time period contained in Section 7.1 of the Plan, to obtain a written agreement from any successor to assume and agree to perform the Company's obligations pursuant to this Plan; the date on which any such succession becomes effective shall be then deemed the Termination Date; 2.9.4. any purported Termination of the Participant's employment by the Company which is not effected by a Notice of Termination satisfying the requirements of Section 2.15 below; 4 2.9.5. the requirement, for continued employment with the Company, that the Participant maintain a residence more than fifty (50) miles from the location of his or her residence during the Protection Period; or 2.9.6. the Participant is reassigned duties within the Company which are: (i) inconsistent with his or her employment status with the Company immediately prior to the Protection Period; or (ii) a substantial adverse alteration in the nature or status of his or her responsibilities from those in effect immediately prior to the Protection Period. Provided that the above shall not apply if such circumstances are fully corrected prior to the Termination Date specified in the Notice of Termination. Any purported Termination as set forth in Section 2.9.4 which is not effected by a Notice of Termination satisfying the requirements of Section 2.15 below, shall not be effective. A Participant's right to terminate his or her employment due to Constructive Termination shall not be affected by his or her incapacity due to a verifiable physical or mental illness substantiated by appropriate medical evidence. Provided further, that a Participant's continued employment for a period exceeding sixty (60) days following an event that constitutes Constructive Termination shall constitute Participant's consent to, or a waiver of any rights with respect to, such Constructive Termination event. Consent to or waiver of any rights with respect to one Constructive Termination event shall not constitute a waiver of Participant's rights with respect to any other event that constitutes Constructive Termination. 2.10. "Disability" shall have the same meaning as provided in the Company's long term disability plan for the provision of long term disability benefits 2.11. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 2.12. "Lump Sum Award" shall mean any cash award paid as a merit increase in lieu of an increase in base salary received during the twelve (12) month period immediately preceding the Participant's Termination Date. 2.13. "Management Committee Members" shall mean those key management employees included in the Plan membership roster beginning with the commencement of the Protection Period and ending upon a Change In Control, who are at the same time also designated by the Company as members of its Management Committee or its successor committee. 2.14. "MESP" shall mean the Public Service Company of New Mexico Master Employee Savings Plan and Trust. 5 2.15. "Notice of Termination" shall mean a notice from either the Company or a Participant, as applicable. In the event the termination is for Cause or based on Constructive Termination, the notice shall indicate the specific termination provision in this Plan relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for Termination of the Participant's employment. However, the Company retains its rights as an at will employer to terminate any employee at any time and for any reason. 2.16. "Other Participants" shall mean Executive Retention Plan Participants, excluding Management Committee Members. 2.17. "Participant" shall mean any non-union employee including a Management Committee Member who is listed on the Executive Retention Plan roster that is generally submitted to and approved no less than annually by the Compensation and Human Resources Committee of the Board, or its successor. 2.18. "Potential Change in Control of the Company," subject to the exceptions as set forth at the end of this Section 2.18, shall be deemed to have occurred if: 2.18.1. the Company enters into a letter of intent or an agreement, the consummation of which would result in the occurrence of the Change in Control of the Company; 2.18.2. a credible announcement or report is made through a filing with the Securities and Exchange Commission, a major financial publication, a Company press release, or other similar medium of an intention to take actions which if consummated would constitute a Change in Control of the Company; 2.18.3. a case is pending before an appropriate regulatory authority for approval of any transaction the consummation of which would result in a Change in Control, or, as the result of such case, an order approving such transaction is effective or an order disapproving such transaction is subject to appeal; and/or, 2.18.4. the Board adopts a resolution to the effect that, for purposes of this Plan, a Potential Change in Control of the Company has occurred. 2.19. "Protection Period" shall mean the period beginning with a Potential Change in Control and ending: 2.19.1. upon the abandonment or cessation of the intention, consideration or undertaking of activities that gave rise to the Potential Change in Control; or 2.19.2. in all other cases, twenty-four (24) months after a Change in Control. For purposes of this definition, such abandonment or cessation of an intention, consideration or undertaking of a Change in Control shall be deemed to have occurred: 6 (i) if a credible announcement or report is made (through a filing with the Securities and Exchange Commission, a major financial publication, a Company press release, or similar medium) that: (a) such intention, consideration or undertaking has been abandoned or has ceased; or (b) circumstances exist from which no reasonable person would conclude that the persons attempting the Change in Control would have a realistic possibility of success; (ii) in the case of a Potential Change in Control of the Company described in Section 2.18.2, nine (9) months have elapsed without the occurrence of additional circumstances that advance a Change in Control; (iii) in the case of a Potential Change in Control of the Company described in Section 2.18.3, the regulatory case has been withdrawn or otherwise ended without resulting in a final, nonappealable order approving a transaction the consummation of which would result in a Change in Control; or (iv) the Board rescinds an earlier resolution that a Potential Change in Control has occurred. Concurrent or overlapping Protection Periods may be triggered by the occurrence of multiple independent Potential Change in Control events. 2.20. "Results Pay" shall mean an annual incentive bonus award or any successor or other incentive plan that is intended to be in lieu of the Results Pay Program. 2.21. "Retirement Plan" shall mean the Public Service Company of New Mexico Employees' Retirement Plan, effective January 1, 1997. 2.22. "Severance Pay" shall mean the retention benefits provided to a Participant pursuant to Article V, Section 5.1 hereof. 2.23. "Termination" or "Terminated" shall mean the involuntary termination of a Participant's employment with the Company for any reason other than: (i) for Cause; (ii) Death; or (iii) Disability. 2.24. "Termination Date" shall mean, if a Participant's employment is terminated for any reason, the date specified in the Notice of Termination. In the case of a termination for Cause pursuant to Section 2.4 above, the Termination Date shall be immediately upon receipt of the Notice of Termination. In the case of a Termination as defined in Section 2.23, the Termination Date shall be not less than fifteen (15) days from the date the Notice of Termination is given. In the case of Constructive Termination, pursuant to Section 2.9, the Termination Date shall be not less than fifteen (15) nor more than sixty (60) days from the date the Notice of Termination is given. 7 III. TERM OF PLAN ----------------- The Plan shall continue in effect until terminated by the Board, provided that: (i) if the Protection Period has begun, the Plan shall continue for the Protection Period; and (ii) notwithstanding termination of this Plan, should a Potential Change in Control occur within twenty-four (24) months following such termination, this Plan shall be self-reviving and continue for the Protection Period. IV. ELIGIBILITY FOR SEVERANCE BENEFITS -------------------------------------- 4.1. Eligibility of Participant. Only those non-union employees listed on the Executive Retention Plan roster(s) at the beginning of the Protection Period through the end of the Change in Control are eligible to become Participants in the Plan. If a Participant's employment with the Company terminates for any reason (whether voluntary or involuntary) before the commencement of the Protection Period, he or she shall no longer be a Participant hereunder. 4.2. Change in Control of Company. During the Protection Period, a Participant, after signing a release agreement, shall be entitled to the benefits described herein if such Participant's employment is Terminated during this period by: (i) the Company; or (ii) the Participant due to Constructive Termination following the Participant's giving of a Notice of Termination to the Company. The requirement that a Notice of Termination be given by the Participant shall be waived, however, if such Constructive Termination occurs pursuant to Article II, Section 2.9.3 hereof. Notwithstanding the foregoing: 4.2.1. if a Participant's employment is Terminated or Constructively Terminated during the Protection Period, but such Participant is immediately reemployed by the surviving entity or the party acquiring the assets of Company, then such Participant shall not be entitled to the benefits herein, except as provided by Section 2.9.3 hereof; or 4.2.2. any Participant who without express authority actively participates in advancing a Change in Control, whether on their own behalf or on behalf of someone else, shall not be eligible for benefits herein. Participants who, by virtue of their position and duties with the Company, are involved in facilitating an orderly transition to a successor company shall remain eligible to receive the benefits provided herein; or 4.2.3. if a Participant's employment is Terminated or Constructively Terminated as a result of the acquisition of the Company by a holding company formed in connection with a corporate restructuring initiated by the Company, and the Participant is immediately re-employed by the Company or assigned to a subsidiary of such holding company, the Participant shall not be entitled to benefits herein. 4.3. Release Agreement. In order to be eligible for any benefits hereunder, a Participant otherwise satisfying the requirements of this Plan must sign and deliver to the Company a non-revoked release agreement provided by the Company, waiving claims such Participant may have against the Company. 8 4.4. No Duplication of Benefits. Notwithstanding anything herein to the contrary, the right to receive any benefits under this Plan by any Participant is specifically conditioned upon such Participant either waiving or being ineligible for any and all benefits under the: (i) Employee Retention Plan, including any amendments thereto; or (ii) any successor Change in Control severance benefit plans otherwise available to the Participant. The Company does not intend to provide any Participant with benefits under both this Plan and benefits under any other severance, retention or change in control plans or agreements sponsored by the Company or an affiliate. V. SEVERANCE BENEFITS --------------------- A Participant, who satisfies the eligibility requirements shall receive the following benefits in lieu of any other retention or severance benefits provided by the Company: 5.1. Severance Pay. The Company shall pay as retention benefits to a Participant an amount as set forth on the following schedule based upon the Participant's highest position held with the Company during the Protection Period: POSITION SEVERANCE PAY -------- ------------- Management Committee Member 2.5 times Base Compensation Other Participants 2.0 times Base Compensation 5.2. Results Pay. Upon termination, Participants shall receive a pro-rata Results Pay award of fifty percent (50%) of the highest stated maximum award opportunity in effect during the Protection Period. Notwithstanding the above, for the purposes of the retention benefits provided herein, Participants who are not terminated shall receive an annualized Results Pay award of fifty percent (50%) of the highest stated maximum award opportunity at the end of the year in which a Change in Control is approved. 5.3. Health Care, Life, Accidental Death and Dismemberment Insurance Benefits. For a period of twenty-four (24) months for Other Participants and thirty (30) months for Management Committee Members following the Participant's Termination Date, the Company shall arrange to provide the Participant with health care, term life, and accidental death and dismemberment insurance benefits substantially similar to those which the Participant was receiving immediately prior to the Notice of Termination for the Participant and his or her enrolled eligible dependents. If the Participant was receiving a monthly refund immediately prior to his or her Termination Date due to the elected level of health care benefits, he or she will continue to receive such refund during the applicable period. 5.4. Offsetting Benefits. Benefits otherwise receivable by the Participant pursuant to this Article V shall be reduced to the extent comparable benefits are actually received by the Participant from another employer of the Participant during the applicable twenty-four (24) month or thirty (30) month period following his or her Termination Date. Any such benefits actually received by the Participant from another employer shall be reported by the Participant to the Company. 9 5.5. Supplemental Retirement Benefits. As of the Termination Date, Participants shall receive the following supplemental retirement benefits: 5.5.1. cash equivalent of the present value of the incremental benefit the Participant would receive under the Retirement Plan as if his or her service and age were increased by the number of years equal to the multiplier used to determine Severance Pay in Section 5.1, above; and, 5.5.2. cash equivalent of the present value of the early retirement reduction based on the number of years equal to the multiplier used to determine Severance Pay in Section 5.1, above; and, 5.5.3. cash equivalent of Company contributions to the Participant's MESP account in the amount of seven and a half percent (7.5%) times the period which corresponds to the number of years equal to the multiplier used to determine Severance Pay in Section 5.1, above. 5.6. Full Funding of Certain Nonqualified Retirement Benefits. Upon a Change in Control, the Company shall fully fund the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred Compensation Trust Agreement (commonly known as the "Rabbi Trust") to provide for future entitlement to accrued benefits under certain plans. Such plans include, but are not limited to the following: the Accelerated Management Performance Plan, the Service Bonus Plan, the OBRA `93, the Section 415 Plan, and various individual supplemental employee retirement agreements in accordance with the requirements of specific plan documents. 5.7. Reimbursement of Legal Fees. The Company also shall pay to a Participant reasonable legal fees and expenses incurred as a result of a Termination under the terms of this Plan (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Plan or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). Such payments shall be made at the later of the: (i) applicable twenty-four (24) month or thirty (30) month period specified above; or (ii) within five (5) days after a Participant's notice of request for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. VI. ADMINISTRATION OF PLAN AND PAYMENT OF BENEFITS -------------------------------------------------- 6.1. Plan Administration. The Plan shall be generally administered by a Committee who shall be the named fiduciary for purposes of the Employee Retirement Income Security Act of 1974, and who shall have the authority to control and manage the operation of the Plan and the authority to interpret and construe the Plan and any such interpretation and construction of any provisions of this Plan shall be final. The Committee shall, in addition to the foregoing, exercise such other powers and perform such other duties as it may deem advisable in the administration of the Plan. The Committee may engage agents and assistance from the Company, including Company counsel. The Committee shall not be responsible for any action taken or omitted to be taken on the advice of such counsel. The Committee is given specific authority to allocate and revoke responsibilities among its members or designees. When the Committee has allocated authority pursuant to the foregoing, the Committee shall not be liable for the acts or omissions of the party to whom such responsibility has been allocated, except to the extent provided by law. 10 6.2. Payment Form and Date. The payments provided for herein shall be made in the form of a lump sum distribution not later than the fifth (5th) day following the Termination Date, provided however, that if the amount of such payments cannot be finally determined on or before such day, the Company shall pay to the Participant on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments together with interest at the rate provided in Section 1274(b)(2)(B) of the Code as soon as the amount thereof can be determined, but in no event later than the thirtieth (30th) day after the Termination Date. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Participant, payable by Participant on the fifth (5th) day after demand for repayment is made by the Company, together with interest at the rate provided in Section 1274(b)(2)(B) of the Code. 6.3. Benefits Payable. In the event that any payments of benefits collectively received or to be received by a Participant in connection with this Plan or any other plan, arrangement or agreement with the Company or any affiliate thereof, or any person whose actions result in a Change in Control or any affiliate of such person would be subject to any excise tax imposed by Code Sections 280G and 4999, such total payments shall be augmented to place the Participant in the same after-tax position as if the excise tax had not been imposed. VII. SUCCESSORS, BINDING AGREEMENT ---------------------------------- 7.1. Successors. The Company will negotiate to require any independent successor to all or substantially all of the assets of the Company to provide written confirmation, within thirty (30) days of the effective date of the Change in Control, of its agreement to assume and perform the Company's obligations pursuant to this Plan. 7.2. Binding Agreement. This Plan shall inure to the benefit of and be enforceable by a Participant's personal or legal representatives, executors, administrators, successors, heirs, distributees, devises and legatees. 11 VIII. NOTICE ------------ For the purpose of this Plan, notices and all other communications provided for in the Plan shall be in writing and shall be deemed to have been duly given when delivered. or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Participant at his or her last known address and to the Company at Alvarado Square, Albuquerque, New Mexico 87158, provided that all notices to the Company shall be directed to the attention of the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. IX. AMENDMENT ------------- The Plan may be amended, in whole or in part, or terminated at any time, except that: (i) no amendment shall impair or abridge the obligations of the Company already incurred pursuant to Articles IV and V; and (ii) no such Plan amendment shall become or shall be effective during the twenty-four (24) month period immediately preceding the Protection Period and during the Protection Period to the extent that such amendment impairs or abridges the rights or benefits of an employee of the Company who was a Participant upon the effective date of such Plan amendment. Notwithstanding the foregoing, the Plan may be amended at will at any time and from time to time by the Company, or to reflect changes necessary due to revisions to, or interpretations of: (i) the Employee Retirement Income Security Act of 1974, as amended; (ii) Code Section 280G; or (iii) any other provision of applicable state or federal law. X. MISCELLANEOUS ---------------- 10.1. Governing Law. The validity, interpretation, construction and performance of this Plan shall be governed by the laws of the State of New Mexico. 10.2. Code and Exchange Act References. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. 10.3. Withholding. Any payments provided for hereunder shall be paid subject to any applicable withholding required under federal, state or local law. 10.4. Survival of Rights. In addition to the limitations on termination of this Plan pursuant to Article III hereof, any obligations of the Company to make payments that have been due to Participants who have, at the time of expiration of the Plan, satisfied the eligibility requirements pursuant to Article IV above during the term hereof, shall survive the termination of this Plan. 10.5. No Employment Contract. Notwithstanding anything to the contrary contained in this Plan: (i) the execution of the Plan shall not create an express or implied contract of employment for a specified term between the Participant and the Company; and (ii) unless otherwise expressly provided, in writing, by such officer as may be specifically designated by the President, the employment relationship between the Participant and the Company shall be defined as employment at will, where either party may terminate the relationship with or without cause. If such termination occurs after the commencement of the Protection Period, Notice of Termination shall be given pursuant to Section 2.15 and the Termination Date shall be determined pursuant to Section 2.24. 12 10.6. Mitigation of Benefits. The Participant shall not be required to mitigate the amount of payment provided for in Article V by seeking other employment or otherwise, nor, except as specifically provided in Article V, shall the amount of any payment or benefit provided for in Article V be reduced by: (i) any compensation earned by the Participant as the result of employment by another employer; (ii) by retirement benefits; or (iii) offsets against any amount claimed to be owed by the Participant to the Company. 10.7. No Right of Assignment. Neither a Participant nor any person taking on behalf of a Participant may anticipate, assign or alienate (either at law or in equity) any benefit provided under the Plan and the Committee shall not recognize any such anticipation, assignment or alienation. Furthermore, a benefit under the Plan is not subject to attachment, garnishment, levy, execution or other legal or equitable process. 10.8. Service of Process. The Secretary of the Company shall be an agent for service of process in matters relating to this Plan. 10.9. Headings. The headings and subheadings in this Plan are inserted for convenience and reference only and are not to be used in construing this instrument or any provision hereof. 10.10. Gender and Number. Where the context so requires, words in the masculine gender shall include the feminine and neuter genders, the plural shall include the singular, and the singular shall include the plural. 10.11. Severance Pay Plan. Notwithstanding anything herein to the contrary, the Plan shall be interpreted as, and is intended to qualify as, a severance pay plan, pursuant to 29 CFR Section 2510.3-2(b), and therefore does not constitute an Employee Pension Benefit Plan pursuant to Section 3(2) of the Employee Retirement Income Security Act of 1974. In this regard, the following additional provisions shall apply with respect to all benefits hereunder: 10.11.1. the benefits hereunder are not contingent, directly or indirectly, upon a Participant's retirement; 10.11.2. all benefits due hereunder shall be fully paid or provided within the applicable twenty-four (24) month or thirty (30) month period after the Participant's Termination Date. 10.12. Validity. The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which shall remain in full force and effect. 13 XI. CLAIMS PROCEDURES --------------------- 11.1. Except for determination and selections specifically reserved to the Board pursuant to the Plan, the Committee shall make all determinations as to a Participant's right to a benefit pursuant to the Plan. The Committee, within ninety (90) days after receipt of Participant's written notice of objection to benefits payable or claim for benefits, shall render a written decision on the objection to the benefits payable or the claim for benefits. If the objection to benefits payable or the claim for benefits is denied, either in whole or in part, the decision shall include: (i) The specific reason or reasons for the denial; (ii) An indication of the specific Plan provisions on which the denial is based; (iii) A description of any additional material or information necessary for the claimant to perfect the claim and any explanation of why such material or information is necessary; and (iv) An explanation of the Plan's appeal procedure, indicating that the appeal of the adverse determination must be in writing addressed to the Committee, and received within sixty (60) days after the receipt by the claimant of the Committee's written denial of benefits. Failure to perfect an appeal within the sixty (60)-day period shall make the decision conclusive. 11.2. If the claimant should appeal to the Committee, he or she, or his or her duly authorized representative, must do so in writing and may submit, in writing, whatever issues and comments he or she, or his or her duly authorized representative, feel are pertinent. The claimant, or his or her duly authorized representative, may review pertinent Plan documents. The Committee shall render a written decision on the question of the benefits payable, or the claim for benefits, setting forth the specific reasons for its decision including a reference to the Plan's provisions within sixty (60) days after receipt of the request for reconsideration, unless special circumstances (such as a hearing) would make the rendering of a decision within the sixty (60) day limit unfeasible, but in no event shall the Committee render a decision respecting a denial for a claim for benefits later than one hundred twenty (120) days after its receipt of a request for a reconsideration. 11.3. Any denial by the Committee of a Participant's claim for benefits under the Plan shall be stated in writing and such notice shall be written in a manner that may be understood without legal or actuarial counsel. 14 The foregoing First Restated and Amended Executive Retention Plan was approved by the Board on December 7, 1998. PUBLIC SERVICE COMPANY OF NEW MEXICO By_________________________________________ BENJAMIN F. MONTOYA President and Chief Executive Officer 24951 15 EX-15 11 EXHIBIT 15.0 FOR 3/31/99 FORM 10-Q ARTHUR ANDERSEN ------------------------------- April 30, 1999 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, 333-03289, 333-03303, and 333-53367 its Form 10-Q for the quarter ended March 31, 1999, which includes our report dated April 30, 1999, 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, /s/ Arthur Andersen LLP EX-27 12 FDS FOR FORM 10-Q (3/31/99)
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 March 31, 1999 and is qualified in its entirety by reference to such financial statements. 0000081023 Public Service Company of New Mexico 1,000 US DOLLARS 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1 PER-BOOK 1,584,876 491,702 313,575 146,113 0 2,536,266 206,396 460,827 204,389 871,612 0 12,800 111,000 0 897,632 0 0 0 0 0 643,222 2,536,266 272,818 15,880 228,187 237,750 35,068 9,640 41,167 18,037 26,671 147 26,524 8,288 15,055 40,031 .64 .63
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