UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 19971998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Exact name of registrant as specified in its charter,
State or other jurisdiction of incorporation or
organization, Address of principal executive offices
Commission and Registrant's Telephone Number, Commission including area code IRS Employer
File Number including area code Identification No.
- ----------- ------------------------------------ ------------------
1-12927 NEW CENTURY ENERGIES, INC. 84-1334327
(a Delaware Corporation)
1225 17th Street
Denver, Colorado 80202
Telephone (303) 571-7511
1-3280 PUBLIC SERVICE COMPANY OF COLORADO 84-0296600
(a Colorado Corporation)
1225 17th Street
Denver, Colorado 80202
Telephone (303) 571-7511
1-3789 SOUTHWESTERN PUBLIC SERVICE COMPANY 75-0575400
(a New Mexico Corporation)
Tyler at Sixth
Amarillo, Texas 79101
Telephone (303) 571-7511
____________________--------------------
Public Service Company of Colorado and Southwestern Public Service Company meetsmeet
the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and
isare therefore filing this Form 10-K with the reduced disclosure format specified
in General Instruction I (2) to such Form 10-K.
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Registrant Title of Each Class on Which Registered
- ---------- ------------------- -------------------
New Century Energies, Inc. Common Stock, $1 par
value per share New York
Public Service Company
of Colorado Cumulative7.60% Trust Originated
Preferred Stock,
par value $100 per share
4 1/4% Series American
7.15% Series New York
Cumulative Preferred Stock ($25),
par value per share
8.40% SeriesSecurities New York
Southwestern Public
Service Company 7.85% Trust Preferred
Securities, Series A New York
Securities registered pursuant to Section 12(g) of the Act: Registrant Title of Class
- ---------- --------------
Public Service Company
of Colorado Cumulative Preferred Stock par value
$100 per share
4.20% series
4 1/2% series
4.64% series
4.90% series
4.90% 2nd series
7.50% series
8.40% seriesNone
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of February 19, 1998, 110,997,546March 24, 1999, 114,924,982 shares of New Century Energies, Inc.
Common Stock were outstanding. The aggregate market value of New Century
Energies, Inc. Common Stock, $1.00 par value (the only class of voting stock),
held by non-affiliates was $5,050,388,343$4,446,160,241 based on the last sale price of such
stock on the New York Stock Exchange on February 19,
1998.March 24, 1999. New Century Energies,
Inc. is the sole holder of the Common Stock of PSCo and SPS.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of New Century Energies, Inc. to be filed
in connection with its Annual Meeting of Shareholders, to be held May 12, 1998,11, 1999,
are incorporated by reference into Part III hereof.
TABLE OF CONTENTS
Page
Definitions Number
- ----------- ------
Part I
Item 1. Business.............................................. 1
Item 2. Properties............................................ 23
Item 3. Legal Proceedings..................................... 27
Item 4. Submission of Matters to a Vote of Securities Holders. 27
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ................................Matters................................. 27
Item 6. Selected Financial Data............................... 29
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................Operations.................. 31
Item 7A Quantitative and Qualitative Disclosures About
Market Risk ............................................... NA......................................... 42
Item 8. Financial Statements and Supplementary Data........... 3943
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. 120Disclosure.................. 127
Part III
Item 10.Directors10. Directors and Executive Officers of the Registrants... 120Registrants.. 127
Item 11.Executive11. Executive Compensation ............................... 124.............................. 133
Item 12.Security12. Security Ownership of Certain Beneficial Owners
and Management ..................................... 130...................................... 133
Item 13.Certain13. Certain Relationships and Related Transactions ....... 132Transactions....... 133
Part IV
Item 14.Exhibits,14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K ........................................ 132133
Experts ...................................................... 133........................................................... 135
Consents of Independent Public Accountants.......................... 134136
Signatures ...................................................... 136138
Exhibit Index ...................................................... 143145
This combined Form 10-K is separately filed by New Century Energies, Inc.,
Public Service Company of Colorado and Southwestern Public Service Company.
Information contained herein relating to any individual company is filed by such
company on its own behalf. Each registrant makes representations only as to
itself and makes no other representations whatsoever as to information relating
to the other registrants.
This report should be read in its entirety. No one section of the report deals
with all aspects of the subject matter.
FORWARD LOOKING INFORMATION
The following discussions include "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Investors and prospective investors are
cautioned that the forward-looking statements contained herein with respect to
the revenues, earnings, capital expenditures, resolution and impact of
litigation, competitive performance, or other prospects for the business of New
Century Energies, Inc., Public Service Company of Colorado and/or Southwestern
Public Service Company or their affiliated companies, including any and all
underlying assumptions and other statements that are other than statements of
historical fact, may be influenced by factors that could cause actual outcomes
and results to be materially different than projected. Such factors include, but
are not limited to, the effects of weather, future economic conditions, the
performance of generating units, fuel prices and availability, regulatory
decisions and the effects of changes in state and federal laws, the pace of
deregulation of domestic retail natural gas and electricity markets, the timing
and extent of change in commodity prices for all forms of energy, capital
spending requirements, the evolution of competition, earnings retention and
dividend payout policies, changes in accounting standards, and other factors.
From time to time, New Century Energies, Inc., Public Service Company of
Colorado and Southwestern Public Service Company may publish or otherwise make
available forward-looking statements. All such subsequent forward-looking
statements, whether written or oral and whether made by or on behalf of each
company, are also expressly qualified by these cautionary statements.
i
DEFINITIONS
The abbreviations or acronyms used in the text and notes are defined below:
Abbreviation or Acronym Term
- ----------------------- ----
AEP............................................American Electric Power Company
AFDC..............................Allowance for Funds Used During Construction
Arapahoe............................Arapahoe Steam Electric Generating Station
BLM .................................................Bureau of Land Management
Cameo .................................Cameo Steam Electric Generating Station
CCT3 ................................................Clean Coal Technology III
CERCLA ...Comprehensive Environmental Response, Compensation and Liability Act
Cherokee........................... Cherokee Steam Electric Generating Station
Cheyenne ...............................Cheyenne Light, Fuel and Power Company
CIG ...........................................Colorado Interstate Gas Company
Colorado Supreme Court..................Supreme Court of the State of Colorado
Comanche ...........................Comanche Steam Electric Generating Station
Company or NCE........................New Century Energies, Inc., a registrant
CPCN...........................Certificate of Public Convenience and Necessity
CPUC .....................Public Utilities Commission of the State of Colorado
Craig..................................Craig Steam Electric Generating Station
CWIP.............................................Construction Work in Progress
CWQCD..................................Colorado Water Quality Control Division
Cyprus/Amax...........................................Cyprus/Amax Coal Company
Denver District Court..District Court in and for the City and County of Denver
DOE..................................................U.S. Department of Energy
DSM.....................................................Demand Side Management
DSMCA...................................Demand Side Management Cost Adjustment
Dth..................................................................Dekatherm
e prime.........................................e prime, inc. and subsidiaries
ECA.....................................................Energy Cost Adjustment
EIS.............................................Environmental Impact Statement
EPA.......................................U.S. Environmental Protection Agency
EPAct.......................................National Energy Policy Act of 1992
EWG.................................................Exempt Wholesale Generator
FASB......................................Financial Accounting Standards Board
FERC......................................Federal Energy Regulatory Commission
FERC Order 636.................................FERC Order Nos. 636-A and 636-B
Fort St. Vrain ...........Fort....................Fort St. Vrain Electric Generating Station,
formerly a nuclear generating station
Fuelco .......Fuel Resources Development Co., a dissolved Colorado corporation
GCA .......................................................Gas Cost Adjustment
Hayden ...............................Hayden Steam Electric Generating Station
IBM .......................................................IBM Global Services
ICA..................................................Incentive Cost Adjustment
IPPF ....................................Independent Power Production Facility
IRP ..................................................Integrated Resource Plan
IRS...................................................Internal Revenue Service
ISFSI..............................Independent Spent Fuel Storage Installation
KN Energy......................................................KN Energy, Inc.
Kwh..............................................................kilowatt-hour
Merger...................... the business combination between the PSCo and SPS
Merger Agreement.............Agreement and Plan of Reorganization by and among
PSCo, SPS and NCE, as amended
ii
Mw....................................................................Megawatt
NMPUC.....................................NewNMPRC........................New Mexico Public Regulation Commission formerly,
the New Mexico Public Utility Commission
Natural Fuels .......................................Natural Fuels Corporation
NC Enterprises............................................NC Enterprises, Inc.
NCI............................................New Century International, Inc.
NCS.................................................New Century Services, Inc.
New Century Cadence..................................New Century Cadence, Inc.
NOPR.............................................Notice of Proposed Rulemakingii
New Century Centrus..................................New Century Centrus, Inc.
NOx.............................................................Nitrogen Oxide
NRC .............................................Nuclear Regulatory Commission
OCC .......................................Colorado Office of Consumer Counsel
OPEB ...................................Other Postretirement Employee Benefits
PCB...................................................Polychlorinated biphenyl
Pawnee ...............................Pawnee Steam Electric Generating Station
Pawnee 2...........Pawnee Steam Electric Generating Station, Unit 2 (proposed)
Planergy..............................................The Planergy Group, Inc.
Pool ........................................................Inland Power Pool
PRPs ..........................................Potentially Responsible Parties
PSCCC...........................................PS Colorado Credit Corporation
PSCo..........................Public Service Company of Colorado, a registrant
PSRI ....................................................PSR Investments, Inc.
PUHCA ..............................Public Utility Holding Company Act of 1935
PUCT........................................Public Utility Commission of Texas
QF.........................................................Qualifying Facility
QFCCA...........................Qualifying Facilities Capacity Cost Adjustment
QSP....................................................Quality of Service Plan
Quixx.......................................Quixx Corporation and subsidiaries
SEC.........................................Securities and Exchange Commission
SFAS...............................Statement of Financial Accounting Standards
SFAS 71...................Statement of Financial Accounting Standards No. 71 -
"Accounting for the Effects of Certain Types of Regulation"
SFAS 106................Statement of Financial Accounting Standards No. 106 -
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
SFAS 109................Statement of Financial Accounting Standards No. 109 -
"Accounting for Income Taxes"
SFAS 112................Statement of Financial Accounting Standards No. 112 -
"Employers' Accounting for Postemployment Benefits"
SFAS 123................Statement of Financial Accounting Standards No. 123 -
"Accounting for Stock-Based Compensation"
SO2.............................................................Sulfur Dioxide
SPP.......................................................Southwest Power Pool
SPS..........................Southwestern Public Service Company, a registrant
TNP.............................................Texas-New Mexico Power Company
TOG.......................................................Texas-Ohio Gas, Inc.
TOP..................................................Texas-Ohio Pipeline, Inc.
Transition PeriodFourPeriod .................Four month period September 1, 1996 through
December 31, 1996
Tri-State..............Tri-State Generation and Transmission Association, Inc.
TUCO................................................................TUCO, Inc.
UE............................Utility Engineering Corporation and subsidiaries
U.K. ...........................................................United Kingdom
Valmont .............................Valmont Steam Electric Generating Station
WGI ..................................................WestGas InterState, Inc.
WPSC......................................Public Service Commission of Wyoming
WSCC......................................Western Systems Coordinating Council
WSPP................................................Western Systems Power Pool
iii
Young Storage..................................Young Gas Storage Company, Ltd.
YGSC.................................................Young Gas Storage Company
Yorkshire Electricity..........................Yorkshire Electricity Group plc
Yorkshire Power.....................................Yorkshire Power Group Ltd.
Zuni ...................................Zuni Steam Electric Generating Station
iviii
PART I
Item l. Business
The Company
NCE, incorporated under the laws of Delaware in 1995, is a public utility
holding company registered under PUHCA. On August 1, 1997, PSCo and SPS combined
to form NCE, with PSCo and SPS becoming wholly-owned subsidiaries of NCE. The
common shareholders of PSCo and SPS received one and 0.95 of one share,
respectively, of NCE common stock, par value $1.00 per share, and became common
shareholders of NCE. The Merger was accounted for as a pooling-of-interests, and
the Consolidated Financial Statements and statistical data in this Form 10-K are
presented as if the Merger were consummated as of the beginning of the earliest
period presented.
The Company has no significant assets other than the stock of its
subsidiaries. The revenues of NCE and its subsidiaries are derived substantially
from the generation, purchase, transmission, distribution and sale of
electricity and from the purchase, transmission,transportation, distribution sale
and transportationsale of
natural gas. The utility subsidiaries serve approximately 1.6 million electric
customers and approximately 1.01.1 million gas customers in their service
territories which include portions of the states of Colorado, Texas, New Mexico,
Wyoming, Kansas and Oklahoma.
The Company owns all the outstanding common stock of PSCo, SPS, Cheyenne,
WGI, NCS, and NC Enterprises. PSCo owns certain subsidiaries as described below.
NC Enterprises, an intermediate holding company, owns the following
subsidiaries: Quixx, e prime, UE, Natural Fuels Corporation
(83.63% ownership), New Century
Cadence, Planergy, New Century Centrus and, NC Cadence.effective March 31, 1998, NCI. Refer
to the non-utility sectionoperations and foreign investments sections below for further
discussion regarding the Company's non-utility operations.
On April 22, 1997,discussion.
Disclosure about business segments of NCE, PSCo and SPS changed its fiscal year from a twelve-month
period ending August 31 to a twelve-month period ending December 31. The 1995
financial and statistical data presented in Item 1. Business combines the
historical financial and statistical data of PSCo as of and for the year
ended December 31, 1995 with the historical financial and statistical data of
SPS as of and for the year ended August 31, 1995 (See Note 1. Summary of
Significant Accounting Policies in Item 8. Financial Statements And
Supplementary Data).
Information regarding industry segments isrelated
information are set forth in Note 14. Segments of Business Segment Information in Item 8.
Financial Statements And Supplementary Data.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Recent Events - Proposed Merger
On March 24, 1999, NCE and Northern States Power Company, a Minnesota
corporation ("NSP"), entered into an Agreement and Plan of Merger (the "Merger
Agreement") providing for a strategic business combination of NCE and NSP.
Pursuant to the Merger Agreement, NCE will be merged with and into NSP with NSP
as the surviving corporation in the Merger (the "Merger"). Subject to the terms
of the Merger Agreement, at the time of the Merger, each share of NCE common
stock, par value $1.00 per share ("NCE Common Stock"), (other than certain
shares to be canceled) together with any associated purchase rights, will be
converted into the right to receive 1.55 shares of NSP common stock, par value
$2.50 per share ("NSP Common Stock"). Cash will be paid in lieu of any
fractional shares of NSP Common Stock which holders of NCE Common Stock would
otherwise receive. The Merger is expected to be a tax-free stock-for-stock
exchange for shareholders of both companies and to be accounted for as a pooling
of interests.
Consummation of the Merger is subject to certain closing conditions,
including, among others, approval by the shareholders of NCE and NSP, approval
of regulatory review by certain state utilities regulators, the SEC under the
PUHCA, as amended, the FERC, the Nuclear Regulatory Commission, the Federal
Communications Commission and expiration or termination of the waiting period
applicable to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended. Each of NCE and NSP have agreed to certain undertakings and
limitations regarding the conduct of their businesses prior to the closing of
the transaction. The Merger is expected to take from 12 to 18 months to
complete.
Pursuant to employment agreements, Mr. James J. Howard, Chairman and Chief
Executive Officer of NSP will serve as Chairman of the combined company for one
year following the Merger and Mr. Wayne H.
1
Brunetti, Vice Chairman, President and Chief Operating Officer of NCE, will
President and Chief Executive Officer following the Merger and will assume the
responsibilities of Chairman when Mr. Howard retires.
NCE expects to hold a special shareholders' meeting later this year to vote
on the Merger. all shareholders will receive a detailed proxy statement prior to
the meeting, which will explain in detail the terms of the Merger, membership on
the Board of Directors, employment arrangements and other matters related to the
Merger
Utility Operations
PSCo was incorporated through merger of predecessors under the laws of the
State of Colorado in 1924. PSCo is an operating utility engaged principally in
the generation, purchase, transmission, distribution and sale of electricity and
in the purchase, transmission,transportation, distribution sale and transportationsale of natural gas. PSCo
serves approximately 1.2 million electric customers and approximately 1.0
million gas customers in the state of Colorado. PSCo owns the following direct
subsidiaries: 1480 Welton, Inc., a real estate company which owns certain real
estate interests of PSCo; PSRI which owns and manages permanent life insurance
policies on certain past and present employees, the benefits from which are to
provide future funding for general corporate purposes; PSCCC, a finance company
that finances certain of PSCo's current assets; Green and Clear Lakes Company
which owns water rights and storage facilities for water used at PSCo's
Georgetown Hydroelectric station; and Fuelco, a dissolved Colorado corporation,
which was primarily involved in the exploration and production of oil and
natural gas. On July 1, 1996, Fuelco sold its remaining properties, the San Juan
Basin Coal Bed Methane properties, at approximately book value and, effective
October 31, 1996, Fuelco was dissolved. PSCo also holds a controlling interest
in several other relatively small ditch and water companies whose capital
requirements are not significant.
1
PSCo also ownsowned all of the outstanding common stock of NCI. NCI was formed
to hold PSCo's 50% interest in Yorkshire Electricity which was
purchased in April 1997 by Yorkshire Power (a joint venture initially
between PSCo and AEP) which purchased Yorkshire Electricity in April 1997
through Yorkshire Holdings plc. Effective March 31, 1998, PSCo sold its common
stock investment in NCI to NC Enterprises in exchange for a 20-year promissory
note. For a more detailed discussion
regarding the acquisition of Yorkshire Electricity, refer to "Foreign Investments" below and
Note 2. Acquisition ofInvestment in Yorkshire ElectricityPower and U.K. Windfall Tax in Item 8. Financial Statements And Supplementary Data.FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
SPS was incorporated in 1921 under the laws of the State of New Mexico.
SPS is an operating utility engaged primarily in the generation, transmission,
distribution and sale of electricity. SPS serves approximately 380,000385,000 electric
customers in portions of the states of Texas, New Mexico, Oklahoma and Kansas.
The 267 wholesale customers served by SPS comprise approximately 35% of total
Kwh sales.
Cheyenne was incorporated in 1900 under the laws of the State of Wyoming.
Cheyenne is an operating utility engaged in the purchase, distribution and sale
of electricity and natural gas primarily serving customers in Cheyenne, Wyoming. Cheyenne serves approximately 35,000 electric
customers and 28,000 gas customers in the state ofCheyenne, Wyoming.
WGI was incorporated in 1990 under the laws of the State of Colorado. WGI
is a natural gas transmission company engaged in transporting gas to Cheyenne,
Wyoming via a thirteen mile connecting pipeline between Chalk Bluffs, Colorado
and Cheyenne, Wyoming.
Electric Utility Operations
The Company's utility subsidiaries proposeexpect to use the following
resources to meet their net dependable system capacity requirements: 1) the
Company's electric generating stations (see Electric Generation Property in
Item 2. Properties)PROPERTIES); 2) purchases from other utilities and from QFs, EWGs,
IPPFs and IPPFs;power marketers; 3) renewables and demand-side management options
and 4) new generation alternatives, including the phased repoweringexpansion at of Fort
St. Vrain.
2
Peak Load
During 1998,1999, net firm system peak demand and the net dependable system
capacity for the Company's electric utility subsidiaries is projected to be as
follows:
19981999 Projected 19981999 Projected Net Dependable System Reserve
Operating company Net Firm System Peak Net Dependable System Capacity* Margin
- ----------------- -------------------- ---------------------------------------- ------
PSCo 4,4014,894 Mw 4,9605,171 Mw 13%6%
SPS 4,0584,043 Mw 4,5954,850 Mw 13%17%
Cheyenne 132136 Mw 149152 Mw **
- --------------
* Net dependable system capacity is the maximum net capacity available
from both owned generating units and purchased power contracts to meet
the net firm system peak demand.
** Reserve margin for Cheyenne is held by PacifiCorp.
The net firm system peak demand for each of the last three years was as
follows:
Net Firm System Peak Demand (Mw)
1995 1996 1997 1998
---- ---- ----
PSCo*...................... 4,248 4,397 4,487 4,771
SPS........................ 3,952 3,694 3,715 3,933
Cheyenne **................ - - 132 140
- --------------
* Excludes station housepower, nonfirm electric furnace load and
controlled interruptible loads. In 1998, approximately 138 Mw of
controlled interruptible loads (of which approximately 148 Mw,were interrupted at the time of the
system peak. Approximately 122 Mw and 116 Mw in the years 1995-1997,1996 and
1997, respectively, was not interrupted at the time of the system peak).peak.
** Prior to the Merger, Cheyenne was a subsidiary of PSCo; therefore,
Cheyenne's coincidental peak demand is included with PSCo in 1995
and 1996.
2
The net firm system peak demand for PSCo for the years 1995-19971996-1998 occurred
in the summer. The net firm system peak demand for 1997,1998, which occurred on July
23, 1997,13, 1998, was 4,4874,771 Mw. At that time, the net dependable system capacity totaled
5,0015,034 Mw (generating capacity of 3,3193,392 Mw, together with firm purchases of 1,6821,642
Mw), which represented a reserve margin of approximately 12%6%). With higher than
expected demand in summer 1998, PSCo revised its demand forecast, and found it
needed resources two years earlier than previously believed. The approximate 250
Mw resource need for the summer of 1999 will be filled through a solicitation
for short-term resources. The approximate 520 Mw resource need for 2000 and 2001
will be filled through a separate solicitation allowing contract terms up to 7
years.
The net firm system peak demand for SPS for the years 1995 - 1997 also1996-1998 occurred
in the summer. The net firm system peak demand for 1997,1998, which occurred on July 28, 1997,June
30, 1998, was 3,7153,933 Mw. At that time, the net dependable system capacity totaled
approximately 4,443 Mw (including firm purchases), which represented a reserve
margin of approximately 20%13%.
Purchased Power
The Company's electric utility subsidiaries have contractual arrangements
with regional utilities as well as QFs, and an IPPFEWGs, in order to meet the energy
needs of their customers. Capacity, typically measured in Kilowatts or
Megawatts, is the measure of the rate at which a particular generating source
produces electricity. Energy, typically measured in Kilowatt-hours or
Megawatt-hours, is a measure of the amount of electricity produced from a
particular generating source over a period of time. Purchase power contracts
typically provide for a charge for the capacity from a particular generating
source, together with a charge for the associated energy actually purchased from
such generating source.
3
The Company's electric utility subsidiaries have contracted with the
following sources for the firm purchase of capacity and energy at the time of
the anticipated summer 19981999 net firm system peak demand through the expiration
of the contracts:
Mw Contracted
For at the Time
of the Anticipated
Generating Summer 19981999 Net Firm Contract
Company Source System Peak Demand Expiration
- ------- ------ ------------------ ----------
PSCo Contracts:
Basin Electric Power
Coopera-Cooperative: Laramie River Station tive,175 2016
Agreements 1 and 2(a)(b)
Units 2 andAgreement 3 175 2016(a)(b) Laramie River Station 125 2004
Colorado Energy
Management (a)(c) Brush 4 Facility 50 2000
CL Six Power Sales
Agreement (a)(d) CL 6 Resource Portfolio 80 2002
El Paso Electric Power
Services (a)(e) Brush 1 & 3 Facility 75 2005
PacifiCorp (c)(f) PacifiCorp Resource Pool 176 2011
Platte River Power
Authority (a) (f)(g) Craig Units 1 and 2; 142116 2004
Rawhide Unit 1
Tri-State 525 (f)Tri-State: 475 (i)
Agreements 1, 2,
3 and 4 (a)(e)(h) Laramie River Station
Units 2 and 3;
Craig Units 1, 2 and 3Station
Agreement 5 (a) (e)(h) Laramie River Station
Units 2 and 3;
Craig Units 1, 2 and 3;Station
Nucla Units 1, 2, 3 and 4
Various OwnersStation
Other contracts
individually less
than 50Mw (a) QFs & IPPF 623496 Various dates
---------
Subtotal - PSCo 1,768
SPS Contracts:
Borger Energy
Associates (i) Blackhawk Station 230 2024
Golden Spread Electric
Cooperative (a)(j) Mustang Station 278 1999
---
Subtotal - PSCo 1,641
SPS Contract:
Borger Energy Associates (g) QF 192 2023508
Cheyenne Contract:
PacifiCorp (d)(k) PacifiCorp System 149152 2000
---
1,982------
2,428
=====
____________- ------------
(a)These contracts are contingent upon the availability of the units listed as
the generating source. These contracts are take and pay contracts. Based upon
the terms of these agreements, if the capacity is available from these units,
then PSCo is obligated to pay for capacity whether or not it takes any
energy. However, PSCo has historically satisfied the minimum energy
requirements associated with these agreements and anticipates doing so in the
future. Additionally, if these units are unavailable, the supplying company
has no obligation to furnish capacity or energy and the capacity charge to
PSCo is reduced accordingly.
(b) PSCo has entered into two agreements with Basin Electric Power
Cooperative. The first agreementAgreement 1 is for 100 Mw of capacity through March 31, 2016. The second agreementAgreement 2 is
for 75 Mw of summer season capacity through March 31, 2016 and 25 Mw of
winter season capacity through March 31, 2010. Agreement 3, dated December
14, 1998 is for 125 Mw of capacity beginning April 1, 1999 and continuing for
five years.
(c)Agreement dated November 24, 1998 is for 50 Mw of peaking capacity. The term
of the agreement is for 11 months beginning June 1, 1999.
4
(d)The Agreement between PSCo and CL Six Power Sales is for 80 Mw of capacity
during the summer season and 85 Mw during the winter season. The agreement
became effective April 2, 1998, and it terminates on August 10, 2002. This
agreement replaced an 81 Mw QF purchased power contract.
(e)Effective October 30, 1998, PSCo agreed to purchase 50 Mw of capacity from
El Paso Power Services. The term of the agreement is for 7 years beginning
January 1, 1999. This agreement replaced a 50 Mw QF purchased power contract
which was terminated in 1998.
(f)The current agreement with PacifiCorp expires October 31, 2022. However, the
agreement provides PSCo the opportunity to exercise an irrevocable option to
terminate the agreement on December 31, 2011, provided PSCo gives notice to
PacifiCorp no later than March 1, 2002.
4
(d) This contract, which expires(g)The amount of capacity to be made available from Platte River Power
Authority during the term of the agreement for each summer and winter season,
is established in 2000, calls for PacifiCorp to sell to
Cheyenne the total electric capacity and energy requirements associated
with the operation of Cheyenne's service area.
(e) Agreement.
(h)PSCo has entered into five agreements with Tri-State. Agreements 1, 2 and 5
are contracts for 100 Mw each of capacity and expire in 2001, 2017 and 2011,
respectively. Agreement 3 is a contract for 25 Mw of summer season capacity
and 75 Mw of winter season capacity and expires in 2016. Agreement 4 expires
in 2018 and the related capacity is for the following amounts: 19981999 through
2000 - 200 Mw and 2001 through 2018 - 250 Mw; however, either party may elect
to reduce the Agreement 4 capacity by up to 50 Mw each year, except for 2001,
effective in the year 1999. If the full 50 Mw reduction is taken each year,
the capacity associated with Agreement 4 from 1999 on would be as follows:
1999 - 150 Mw, 2000 through 2001 - 100 Mw, 2002 - 50 Mw with no commitments
thereafter. PSCo has notified Tri-State of its intent not to reduce thepurchase any
capacity associated withunder Agreement 4 to 150 Mw for 1999.
(f) The amount of capacity to be made available for each summer and winter
season is agreed upon prior to such season to the extent that Platte River
Power Authority has excess capacity for such season.
(g) contract period 2003 through 2018.
(i)SPS entered into ana 25 year agreement with Borger Energy Associates
in May 1997L.P.("BEA"), an affilliate of Quixx holding a 45% ownership interest, for
the purchase of capacity and energy. Power deliveries are expected to
begin on or before September 15, 1998. Power purchases from Borger Energy
Associates will beEffective October 1, 1998, BEA began
providing SPS with up to 192 MW205 Mw of capacity for the 1998 summer season andcapacity. On or about May 1, 1999, BEA
will provide SPS with up to 230 MW beginning October 1, 1998Mw of capacity through the remaining
contract term. SPS has an option to extend the term of the agreement for an
additional 10 years.
(j)SPS and Golden Spread Electric Cooperative ("Golden Spread") entered into a
Power Sales Agreement on November 16, 1998. Under the terms of the Agreement,
SPS will purchase up to 278 Mw of capacity during the simple cycle operation
of the Mustang Station, estimated to cover the period from May 1, 1999
through the end of 1999.
(k)This contract, which expires on December 31, 2000, provides for PacifiCorp
to sell to Cheyenne the total electric capacity and energy requirements
associated with the operation of Cheyenne's service area.
See Note 10. Commitments and Contingencies - Purchase Requirements in
Item 8. Financial Statements And Supplementary DataFINANCIAL STATEMENTS AND SUPPLEMENTARY DATA for information
regarding the Company's financial commitments under these contracts. See
Interconnections in Item 2. PropertiesPROPERTIES for a discussion of the Company's
interconnections with these sources.
Based on present estimates, PSCo will purchase approximately 32%31% of the
total electric system energy input for 1998.1999. In addition, based on the capacity
associated with the purchase power contracts described above, approximately 33%34%
of the total net dependable system capacity for the estimated summer 19981999 net
firm system peak demand for PSCo will be provided by purchased power.
All of the QF capacity purchased by PSCo, including approximately 4 Mw of
additional capacity scheduled to come on line in the future, is being purchased
under contracts entered into prior to January 1, 1988. TheSubject to certain
exceptions or a waiver permitted by the CPUC, PSCo is to use a complete bidding
process to make any additional purchases of additional QF and IPPF capacity are currently based on a
competitive bidding process.capacity. In 1997,1998,
approximately 14%13% of PSCo's summer net firm system peak demand was provided by
QFs.
In addition to the long-term purchases of capacity and QF and IPPF purchases,energy discussed
above PSCo also made short-term and non-firm purchases throughout the year to replace
generation from PSCo-owned units which were unavailable due to maintenance and
unplanned outages, to provide PSCo's reserve obligation to the Pool, to obtain
energy at a lower cost than that which could be produced by other resource
options, including PSCo-owned generation and/or long-term purchase power
contracts, and for various other operating requirements. Short-term and non-firm
purchases accounted forrepresented approximately 3%6% of PSCo's total energy requirement in
1997.1998.
5
Based on current projections, PSCo expects that purchased capacity will
continue to meet a significant portion of system requirements at least for
the remainder of the 1990s.requirements. Such purchases
neither require PSCo to make an investment nor afford PSCo an opportunity to
earn a return. Further discussion related to recovery of purchased capacity
costs can be found in "Regulations and Rates - Cost Recovery Mechanisms." SPS
arranged seasonal short-term purchases for the summer of 19971998 and may make
additional short-term purchases for the 19981999 summer season.
PSCo is a member of the Pool whichRocky Mountain Reserve Group ("Reserve Group"), a
new reserve sharing group. The Reserve Group is composed of members in the Rocky
Mountain area, each of which owns and/or operates electric generation and/or
transmission systems whichand are interconnected to one or more other member systems.
The Reserve Group was granted final acceptance by the FERC in January 1999. The
objective of the PoolReserve Group is to provide capacity which is categorized as: 1)as
either immediately accessible; 2)accessible or accessible within ten minutes; and 3) accessible within twelve
hours,minutes. The capacity
used by the Reserve Group members is to cover unanticipated loss of generation
as required.well as to provide a source of emergency assistance when there is a risk of
not meeting firm load. As a result of its membership in the Pool,Reserve Group, PSCo
can supply and protect its electric system with less aggregate operating reserve
capacity than otherwise would be necessary;necessary. Additionally, emergency conditions
can be met with less likelihood of curtailment or impairment of electric 5
service;service
and generation and transmission facilities and interconnections can be used more
efficiently and economically.
PSCo is in discussion with regional
utilities to create a new reserve sharing arrangement that better meets the new
FERC and WSCC requirements. This new sharing arrangement, when finalized, will
replace the current Pool arrangement.
Refer to Item 2. Properties-ElectricProperties - Electric Transmission Property for a
discussion of SPS's activities with the SPP and the WSPP.
Construction Program
At December 31, 1997, the Company's subsidiaries estimated the cost of
their total construction program, including AFDC, to be approximately $530
million in 1998, approximately $541 million in 1999, and approximately $450
million in 2000 (see Item 7. Management's Discussion And Analysis Of
Financial Condition And Results Of Operations).
Electric Fuel Supply
The following tables present the delivered cost per million Btu of each
category of fuel consumed by the system for electric generation during the years
indicated, the percentage of total fuel requirements represented by each
category of fuel and the weighted average cost of all fuels during such years:
PSCo generating plants: Weighted
Average
Coal* Gas All Fuels**
Cost $ % Cost $ % Cost $
-------------------------------------------------- ---------- ------
1998............... 0.93 95 2.46 5 1.00
1997............... 0.99 98 3.03 2 1.03
1996............... 1.03 98 2.42 2 1.05
1995............... 0.99 99 1.52 1 1.00
* The average cost per ton of coal including freight, for years 19951996 through 19971998, including
freight, shown above was $19.06, $20.17, $18.96, and $18.96,$17.41, respectively.
** Insignificant purchases of oil are included.
SPS generating plants: Weighted
Average
Coal Gas All Fuels**
Cost $ % Cost $ % Cost $
-------------------------------------------------- ---------- ------
1998............... 1.60 67 2.19 33 1.80
1997............... 1.84 69 2.55 31 2.06
1996............... 1.93 69 2.38 31 2.06
1995............... 1.81 64 1.63 36 1.75
* The average cost per ton of coal for years 1996 through 1998, including
freight and other components, for years 1995 through 1997 shown above was $31.37,
$33.26, $31.97, and
$31.97,$28.57 respectively.
**Insignificant purchases of oil, steam and hot nitrogen are included.
6
Coal
PSCo's primary fuel for its steam electric generating stations is
low-sulfur western coal. PSCo's coal requirements are purchased primarily under
eight long-term contracts with suppliers operating in Colorado 6
and Wyoming. The
largest contract tonnage is supplied by Cyprus/Amax Coal, which
operates the Belle Ayr and Eagle Butte Mines near Gillette, Wyoming and the
Foidel Creek mine in northwestern Colorado.
Long-term contracts presently in existence provide for approximately
88%percentage of 1998PSCo's 1999 coal requirements and more than 80% of future annual coal
requirements through 2000. Any shortfall for 1998 will be provided by
purchases on the spot market.supplied under these long-term
contracts varies from plant to plant as detailed herein. During the year ended
December 31, 1997,1998, PSCo's coal requirements for existing plants were
approximately 9,451,759
tons, a9,780,000 tons. A substantial portion of which was supplied
pursuant to long-term supply contracts. Coal supply inventories at December 31,
19971998, were approximately 40 days usage, based on the average burn rate for all
of PSCo's coal-fired plants.
The following table providesEnding Inventory
Tons Days
---- ----
Arapahoe 68,092 28
Cameo 6,815 8
Cherokee 229,737 36
Comanche 394,094 40
Craig-PSCo 151,069 22
Hayden-PSCo 21,534 59
Pawnee 332,702 48
Valmont 70,490 42
PSCo operates two mine-mouth generating stations: the Cameo and Hayden
Stations and has partial ownership in a summarythird mine-mouth generating station, the
Craig Station located in Colorado. PSCo has secured over 90% of Cameo Station's
coal requirements through 1999 via a contract with the nearby Powderhorn Coal
Company's Roadside mine ("Powderhorn"). Any remaining requirements may be
purchased from either the spot market or Powderhorn. PSCo is the operating agent
at the Hayden Station and all coal requirements are supplied under a long-term
agreement from the nearby Peabody-affiliated Seneca mine. Over 75% of PSCo's
Craig Station coal requirements are supplied under two long-term agreements with
Colowyo Coal Company and the nearby Trapper Mining, Inc. mine. Any remaining
Craig Station requirements for PSCo are supplied via spot market coal purchases.
PSCo has contracted for long-term coal supplies with Twentymile Coal
Company's Foidel Creek Mine and Mountain Coal Company's West Elk Mines located
in Colorado to supply approximately 70% of the basicCherokee and Valmont Station's
projected requirements through 2000. PSCo has long-term coal supply provisions
of PSCo's existing long-term contracts, which provideagreements
with Cyprus' affiliate, Amax Coal West, Inc., for a minimum delivery
of approximately 78 million tons of low-sulfur coal over their remaining life
(see Note 10. Commitments and Contingencies - Purchase Requirements in Item
8. Financial Statements And Supplementary Data ).
1998 1998 Contract
Minimum Maximum maximum
delivery delivery sulfur
Coal Supplier and Delivery Year in tons in tons content
- ------------------------------- ------- ------- -------
Cyprus/Amax (1)..................... 3,960,000 (2) (3) 0.50%
Colowyo Coal Company................ 88,571 (4) 88,571 0.70%
Twentymile Coal Company (10)........ 1,170,000 1,430,000 0.55
Mountain Coal Company............... 600,000 (5) 800,000 0.67%
Powderhorn Coal Company............. 150,000 350,000 0.69%
Seneca Coals, Ltd (6) .............. 439,800 (7) 1.00%
Trapper Mining, Inc................. 179,427 (8) 179,427 (9)
Kennecott Energy Company (10)....... 450,000 500,000 0.55
(1) The contract term is completed upon delivery of a fixed quantity
regardless of the year in which delivery is completed. From January 1,
1976 through December 31, 1997, approximately 57.6% of the obligation
has been delivered.
(2) Coal requirements of Comanche and Pawnee.
(3) Coal requirements of Pawnee and Pawnee 2 upon completion of Pawnee 2
through 2013.
(4) The contract minimum quantity varies by year duringComanche Station's
projected requirements from the agreement.
(5) The contract term is completed upon delivery of a fixed quantity. As
of December 31, 1997, approximately 62.7% of the obligation has been
delivered.
(6) The contract term is completed upon total delivery of a fixed quantity
to Hayden fromBelle Ayr and after January 1, 1983. As of December 31, 1997,
approximately 71.1% of the obligation has been delivered. Delivery is
expected to be completedEagle Butte mines located in the year 2004.
(7) Coal requirements of Hayden.
(8) The contract minimum quantity varies by year during the agreement.
(9) Not specified in the contract.
(10) The contract maximum sulfur content as presented in the table is stated
in pounds of sulfur per million Btu.
Each coal contract contains adjustment clauses which permit periodic
price increases or decreases.
Powder River Basin in Wyoming. Under the long-term agreements, specific coal
suppliesreserves at the contractually defined mine(s) have been dedicated by the
respective supplier to meet the contract quantity obligations. In addition, PSCo
has a coal supply agreement with Kennecott Energy's Antelope Coal Company to
supply approximately 66% of Arapahoe Station's projected requirements through
1999. Any remaining Arapahoe Station requirements will be obtained through spot
market purchases.
Coal is transported by rail, primarily from mines located in Colorado for
PSCo's Cherokee and Valmont Stations, and from mines located in Wyoming for
PSCo's Arapahoe, Pawnee and Comanche stationsStations, to stockpiles adjacent to the
Company's coal-burning generating stations. Powder River Basin coal supplies are
transported by the Burlington Northern SanteSanta Fe Railway Company under two contracts which have remaining
termsover distances
ranging from 368-575 miles. Transportation charges for these Powder River Basin
coal supplies comprise more than 55% of one year forthe total cost of the coal delivered to
the Arapahoe, and three years for Pawnee and Comanche.Comanche stations. Colorado origin coal supplies for PSCo's Cherokee and
7
Valmont stations are anticipated to be
transported by the Union Pacific Railroad Company to Cherokee and by a joint haul of the Union Pacific Railroad Company
and Burlington Northern
SanteSanta Fe Railway Company over a combined distance ranging approximately 250 to
300 miles. Transportation charges for these Colorado origin coal supplies make
up more than 32% of the total delivered cost of the coal to the Cherokee and
Valmont under two contracts
with remaining terms of five and two years, respectively.stations.
7
SPS purchases all of its coal requirements for Harrington and Tolk
Stationselectric generating stations from TUCO, in the form of crushed, ready-to-burn
coal delivered by coal-handling facilities owned by Wheelabrator Coal Services
Co. to the SPS's boiler bunkers located within SPS's coal-fueled stations where
it is processed for burning. The contract for the Harrington station expires in
2016 and the contract for the Tolk station expires in 2017. The coal is transported for TUCO by rail, primarily
from mines located in Wyoming, to TUCO's stockpiles, which are adjacent to SPS's
coal-burning generation stations. At December 31, 1997,1998, TUCO's coal inventories
at the Harrington and Tolk sites were approximately 41438,129 tons and 421,719 tons,
respectively, (approximately 34 and 36 days usage.supply, respectively). TUCO has
executed a long-term coal supply agreement with a subsidiary of Kennecott Energy
Company affiliated
companies to supply approximately 55% of Harrington's projected requirements
through 2001 from Cordero, Caballo Rojo and Antelope mines located in the Powder
River Basin. In addition, TUCO has contracted for approximately 33%16% of
Harrington's 19981999 projected requirements with Kennecott's affiliate, Colowyo
Coal Company, from its Colowyo mine located in western Colorado. The
Colowyo agreement provides for delivery to Harrington station viaColorado and transported
by the Union Pacific Railroad. TUCO has long term contracts with ARCOThunder Basin
Coal Company, an affiliate of Arch Coal Company, for supply of coal in
sufficient quantities to meet all of SPS's needs forthe Company's Tolk Station. Specific coal reserves
in the Powder River Basin in Wyoming have been dedicated by ARCOThunder Basin to meet the
contract quantities. The Powder River Basin coal supplies for both stations are
currently transported for TUCO by the Burlington Northern SanteSanta Fe Railway Company to Harrington Station near
Amarillo, Texas and to Tolk Station near Muleshoe, Texas.over
distances ranging from 900-1,032 miles. Transportation charges for these Powder
River Basin coalCoal supplies make up more than 50%40% of the total cost of the coal
delivered to the boiler.
See Note 10. Commitments and Contingencies - Purchase Requirements in Item
8. Financial Statements And Supplementary DataFINANCIAL STATEMENTS AND SUPPLEMENTARY DATA for information regarding
financial commitments under the coal supply contracts, as well as the coal
transportation contracts.
Natural Gas and Fuel Oil
PSCo uses both firm and interruptible natural gas and standby oil in
combustion turbines and certain boilers. Natural gas supplies for PSCo's power
plants are procured under short-short and intermediate-termintermediate term contracts on a competitive
basis to provide an adequate supply of fuel. SPS has a number of contracts of short and
intermediate termscontracts with natural gas suppliers operating in gas fields with
long life expectancies in or near its service area. SPS also utilizes firm and
interruptible transportation to minimize fuel costs during volatile market
conditions and to provide reliability of supply. To increase competition for natural gas supply, SPS attained three
new interconnections between interstate and intrastate pipelines and various
power plant supply headers during 1997. SPS maintains sufficient gas
supplies under short and intermediate term contracts to meet all power plant
requirements; however, due to flexible contract terms, approximately 40% of
SPS's gas requirements were purchased under spot agreements.
Natural Gas Utility Operations
During the period 1993-1997,1994-1998, PSCo and Cheyenne have experienced growth in
the number of residential and commercial customers ranging from 2.7% to 3.2%
annually. Since 1993,1994, residential and commercial gas volumes sold have averaged
132.9131.5 million dekatherms ("MMDth") annually. The growth of residential and
commercial sales has steadily improvedbeen strong due primarily to strongerfavorable economic conditions in
Colorado and Wyoming. PSCo and Cheyenne offer transportation services to their
large commercial and industrial customers, allowing these customers to purchase
gas directly from their suppliers. The per-unit fee charged for transportation
services, while significantly less than the per-unit fee charged for the sale of
gas to a similar customer, provides an operating margin approximately equivalent
to the margin earned on gas sold. Therefore, increases in such activities will
not have as great an impact on gas revenues as increases in deliveries from the
sale of gas, but will have a positive impact on operating margin. During 1997,1998,
transportation services generated revenues were of $32.7$35.0 million compared to $32.7 million
in 1997 and $28.5 million in 1996 and $23.8 million in 1995.
8
1996.
Natural Gas Supply and Storage
PSCo and Cheyenne have attempted to maintain low cost, reliable natural
gas supplies by optimizing a balance of long-long - and short-term gas purchase, firm
transportation and gas storage contracts. During 1997,1998, PSCo and Cheyenne
purchased 151.0140.1 MMDth from approximately 72 suppliers, including the
following major suppliers: CIG (32.0 MMDth); Western Gas Resources (14.0
MMDth); Amoco Energy Trading Co. (11.6 MMDth); Barrett Resources (11.4
MMDth); and Duke Energy Trading & Marketing (6.1 MMDth).59 suppliers. In 1997,1998, the average
delivered cost per one thousand dekatherms ("MDth") for PSCo and Cheyenne was
$2.92$1.89 compared to $2.92 per MDth in 1997 and $2.58 per MDth in 1996 and $2.22 per MDth in
1995 (see Item 7.
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations)MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
8
AND RESULTS OF OPERATIONS). Purchased gas costs are recovered from customers
through the GCA (see Note 9. Regulatory Matters in Item 8. Financial
Statements And Supplementary Data).gas cost adjustment mechanisms.
PSCo and Cheyenne have completed substantially all of their obligations
related to gas supply transportation and storage contracts which resulted from
FERC Order 636. During 1996, PSCo and Cheyenne entered into new contracts with
CIG and others for firm transportation and gas storage services with terms of
5-10 years. Adequate supplies of natural gas are currently available for
delivery within the Rocky Mountain region. PSCo and Cheyenne continually
evaluate the natural gas markets and procure supplies, as needed, to meet
current and anticipated customer demand.
Regulation and Rates
Regulation
General
The NCE system is subject to the jurisdiction of the SEC under the
PUHCA. The
rules and regulations under PUHCA generally limitslimit the operations of a registered
holding company to a single integrated public utility system, plus such additional
businesses as are functionally related to such system.energy-related businesses. PUHCA rules require that transactions between
associatedaffiliated companies in a registered holding company system be performed at
cost, with limited exceptions.
PSCo
PSCo is subject to the jurisdiction of the CPUC with respect to its
facilities, rates, accounts, services and issuance of securities. The CPUC
consists of three full-time members appointed by the Governor and approved by
the Colorado Senate. Only two members may be from the same political party.
PSCo is subject to the jurisdiction of the DOE through the FERC with
respect to its wholesale electric operations and accounting practices and
policies. PSCo has received authorization from the FERC to act as a power
marketer. PSCo is also subject to the jurisdiction of the NRC in connection with
its ownership, decommissioning and defuelingthe pending transfer of the title of Independent Spent Fuel Storage Installation
facility at Fort St. Vrain, which
has been repowered as a gas fired combined cycle steam plant.Vrain.
PSCo holds a FERC certificate which allows it to transport natural gas in
interstate commerce pursuant to the provisions of the Natural Gas Act, the
Natural Gas Policy Act of 1978 and FERC Order Nos. 436 and 500 without PSCo
becoming subject to full FERC jurisdiction.
SPS
The PUCT has jurisdiction over SPS's Texas operations as an electric
utility and original and appellate jurisdiction over its retail rates and
services. The Texas municipalities exercise original jurisdiction over rates
within their respective city limits. The NMPUC,NMPRC, the Oklahoma Corporation
Commission and the Kansas Corporation Commission have jurisdiction with respect
to retail rates and services in their respective states. The FERC has
jurisdiction over SPS's rates for sales of electricity for resale. 9
SPS has
received authorization from the FERC to act as a power marketer.
Other
Cheyenne is subject to the jurisdiction of the WPSC. WGI and TOP are
subject to FERC jurisdiction. WGI and TOP each hold a FERC certificate which
allows them to transport natural gas in interstate commerce pursuant to the
provisions of the Natural Gas Act. e prime and TOG have authorization from the
FERC to act as power marketers.
9
Cost Recovery Mechanisms
PSCo
At December 31, 1997,1998, PSCo hashad four adjustment clauses: the ICA (which
replaced the ECA in 1996), the GCA, the DSMCA and the QFCCA. These adjustment
clauses allow certain costs to be passed through to retail customers. PSCo is
required to file applications with the CPUC for approval of adjustment
mechanisms in advance of the proposed effective date.dates. The applications must be
acted upon before becoming effective.
The CPUC decision on the Merger modified and replaced the ECA with the
ICA.
The ICA, which became effective October 1, 1996, allows for a 50%/50%
sharing of certain fuel and energy cost increases and decreases among customers
and shareholders. PSCo, through its GCA, is allowed to recover the difference
between its actual costs of purchased gas and the amount of these costs
recovered under its base rates. The GCA rate is revised annually on October 1
and otherwise as needed, to coincide with changes in purchased gas costs.
Purchased gas costs and revenues received to recover such gas costs are compared
on a monthly basis and differences, including interest, are deferred. The QFCCA
was implemented on December 1, 1993. Under the QFCCA,
allprovides for recovery of purchased capacity costs from newcertain QF projects, not
otherwise reflected in base electric rates, are recoverable.rates.
PSCo, in a collaborative process with public interest groups, consumers
and industry has developed DSM programs (programs designed to reduce peak
electricity demand, shift on-peak demand to off-peak hours and provide for more
efficient operation of the electric generation system), including incentive and
cost recovery mechanisms. The CPUC approved the programs in
1993 along with a schedule to be implemented over a three-year period.
Effective July 1, 1993, PSCo implemented a DSMCA clause which permits itPSCo to recover deferred DSM costs
over five to seven years while non-labor incremental expenses, and carrying
costs associated with deferred DSM costs and certain
incentives associated with the approved DSM programs are recovered on an annual basis. The CPUC subsequently opened a separate docket to investigate issues
involving alternative annual revenue reconciliation mechanisms and incentive
mechanisms related to PSCo's DSM programs. The investigation was completed
in 1995 and a final order was issued. The major provisions of the final
order, effective December 27, 1995, included: 1) not to proceed with any of
the proposed mechanisms; 2) to reduce the recovery period for certain costs
of PSCo's DSM programs from seven to five years for expenditures made on or
after January 1, 1995; 3) not to establish DSM targets for 1997 and 1998; 4)
not to adopt a penalty for failure to achieve DSM targets; and 5) to approve
PSCo's proposal to forego incentive payments for DSM programs.
Under a separate CPUC order issued in December 1992, PSCo
also has implemented a Low-Income Energy Assistance Program. The costs of this
energy conservation and weatherization program for low-income customers are
recoverable through the DSMCA.
SPS
Fuel and purchased power costs are recoverable in Texas through a fixed
fuel factor which is part of SPS's rates. If it appears that the factor will
materially over-recover or under-recover these costs, the factor may be revised
upon application by SPS or action by the PUCT. The rule requires refunding and
surcharging under/over-recovery amounts, including interest, when they exceed 4%
of the utility's annual fuel and purchased power costs, as allowed by the PUCT,
if this condition is expected to continue. Under the PUCT's regulations, SPS is
required to file an application for the PUCT to retrospectively review at least
every three years the operations of SPS's electricity generation and fuel
management activities. In June 1998, SPS will file afiled its reconciliation in 1998
10
for the
generation and fuel management activities oftotaling approximately $690 million
for the three year period ended December 31, 1997.
On October 24, 1997, the NMPUCNMPRC approved a fixed fuel factor for SPS's New
Mexico retail jurisdiction, effective in January 1998. This will employemploys an
over/under fuel collection calculation madedetermined on a monthly basis. SPS will
petition for a change in the fixed fuel factor if the over/under recovery
balance reaches $5 million. In addition, on an annual basis SPS will filefiles an
application for the NMPRC to review the utility's electric generation and fuel
management activities. The methodology of the over/under calculation, plus
interest, is similar to the Texas fixed fuel factor calculation discussed above.
In all other jurisdictions, SPS currently recovers substantially all
increases and refunds substantially all decreases in fuel and purchased power
costs pursuant to monthly adjustment and clauses.
Cheyenne
Purchased power and gas costs are recoverable in Wyoming. Cheyenne is
required to file applications with the WPSC for approval of adjustment
mechanisms in advance of the proposed effective date. Cheyenne filed for an
increase in its ECA rates of approximately $3 million which became effective on
January 1, 1999. The increase, however, is being contested and hearings are
scheduled for March 1999.
10
See Note 9. Regulatory Matters in Item 8. Financial Statements And
Supplementary DataFINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA for additional discussion.
Environmental Matters
Certain of the Company's subsidiary facilities are regulated by federal
and state environmental agencies. These agencies have jurisdiction over air
emissions, water quality, wastewater discharges, solid wastes and hazardous
substances. Various Company activities require registrations, permits, licenses,
inspections and approvals from these agencies. The Company has received all
necessary authorizations for the construction and continued operation of its
generation, transmission and distribution systems. Company facilities have been
designed and constructed to operate in compliance with theapplicable environmental
standards. During 1997, the EPA issued new regulations
regarding particulate emissions. The Company is currently evaluating the
impact of these new regulations on its operations.
The Company's utility subsidiaries have applied for an early election
of annual NOx emission limits for eleven units including six PSCo units:
Cherokee Units 3 and 4, Valmont Unit 5, Pawnee Unit 1, and Comanche Units 1
and 2 and five SPS units: Harrington Station Units 1, 2 and 3 and Tolk
Station Units 1 and 2. In 1997, the Company met early emission limits for
these eleven units. Early election limit is applicable until the year 2008.
The Company and its subsidiaries continue to strive to achieve compliance
with all environmental regulations currently applicable to its operations.
However, it is not possible at this time to determine when or to what extent
additional facilities or modifications of existing or planned facilities will be
required as a result of changes to environmental regulations, interpretations or
enforcement policies or, generally, what effect future laws or regulations may
have upon the Company's operations. See Note 10. Commitments and Contingencies -
Environmental Issues in Item 8. Financial Statements And Supplementary DataFINANCIAL STATEMENTS AND SUPPLEMENTARY DATA for
additional discussion. At December 31, 1997,1998, the estimated 1998, 1999, 2000 and 20002001
expenditures for environmental air and water emission control facilities were
$57.9$19.1 million, $24.3$14.1 million and $14.7$38.6 million, respectively (see Item 7.
Management'sMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS).
Construction Program
Discussion and analysis of Financial Condition and Results of Operations).
11
the construction programs for each registrant is provided
within their respective Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Competition
Industry Outlook
Unprecedented change is continuing to occur in the electric utility
industry nationwide, furthering the development of a competitive
environment. In general, the economics of the electric generationThe business
have fundamentally changed with open transmission access and the increased
availability of electric supply alternatives. Such alternatives will likely
serve to lower customer prices, particularly in areas where only higher cost
energy is currently provided. Customer demands for lower prices and supplier
choices, the availability of alternative supplies (IPPFs, QFs, EWGs and power
marketers), and open access to the utility transmission grid have resulted in
a commodity market for bulk electric supply. The EPAct directly addressed
this issue by giving the FERC the authority to require utilities to provide
non-discriminatory open access to the transmission grid for purposes of
providing wholesale customers with direct access. In response to such
authority, in early 1996, the FERC issued new rules on open access
transmission services. A number of states have recently adopted or are
pursuing plans for competition in the electric utility industry.
Legislative and regulatory initiatives are likely to result in even greater
competition at both the wholesale and retail level in the future.
The presence of competition and the associated pressure on prices may
ultimately lead to the unbundling of products and services similar to what
has evolved in the natural gas industry. Today's market view of the future
envisions an unbundled electric utility industry consisting of at least four
major business segments: energy supply, transmission, distribution and energy
services.
PUHCA
The SEC has also responded to increasing competitionenvironment in the utility industry that has
existed for decades is continuing to change. Competition is increasing,
particularly in energy supply and changes in state and federal utility regulation. In June 1995,
the SEC issued its report which focused on both legislative and
administrative options for the reform of public utility holding company
regulation. The report presented three possible recommendations for
legislative reform of PUHCA: 1) conditional repeal of PUHCA, 2)
unconditional repeal of PUHCA, and 3) PUHCA remains unmodified, but grants
the SEC broader exemptive authority under PUHCA. Any changes in regulation
will be determined by Congress. In early 1997, legislation was introduced in
Congress that would have repealed PUHCA and transferred certain federal
authority to the FERC as recommendedretail energy services. Several states in the
SEC report as partU.S. have either passed or proposed legislation that provides for retail
electric competition and price deregulation of broader
legislation regarding changesenergy supply. The wholesale
electric energy market has expanded and geographic boundaries are no longer
present barriers. Increased activity by power marketers and traders has added
new dimensions of complexity and risk. A significant amount of electric
generation assets have been purchased, sold or traded in the electricU.S. during 1998
and this trend is expected to continue. Consolidation and globalization is a
continuing trend as businesses position themselves for competition in an
unbundled energy industry. This legislation is
likelyThe Company continues to be debatedlook for opportunities to
expand its customer base as an energy service provider, and on an ongoing basis,
evaluates merger, acquisition and divestiture opportunities.
Electric prices in the Company's service territories are low in comparison
to other parts of the U.S. State legislatures and state utility commissions in
the retail jurisdictions served by the Company's utility subsidiaries are
focusing on the Senate floor in April 1998. This legislation was
not passed; however, the Company expects that a number of bills regarding the
restructuring and deregulation of the electric utility industry will continueindustry;
however, no significant progress was achieved during 1998. The Company supports
a fair and orderly transition to a competitive environment and believes that any
restructuring plans should provide the Company with an opportunity to recover
its costs for prudently incurred utility investments and contractual commitments
that may be considereduneconomic in the current Congress.future. Overall, the Company believes that the
prices its utility subsidiaries charge for electricity and the quality and
reliability of their service currently place them in a position to compete
effectively in the energy market. The potential negative financial impacts of
deregulation, however, could include an impairment of assets, a loss of retail
customers, lower profit margins and increased costs of capital (see Note 1.
Summary of Significant Accounting Policies in Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA). At this time, the Company and its utility subsidiaries
cannot predict when they will be subject to changes in legislation or
11
regulation, nor can they predict the impacts of such changes on their financial
position, results of operations or cash flows.
Retail Electric Business
Today, the retail electric business faces increasing competition fromas
industrial and large commercial customers who have the ability to own or operate
facilities to generate their own electric energy requirements. In addition,
customers may have the option of substituting fuels, such as natural gas for
heating, cooling and manufacturing purposes rather than electric energy, or the
option of relocating their facilities to a lower cost environment. While each of
the Company's utility subsidiaries face these challenges, these subsidiaries
believe their rates are competitive with currently available alternatives. The
Company's utility subsidiaries are taking actions to lower operating costs and
are working with their customers to analyze the feasibility of various options,
including energy efficiency, load management and cogeneration in order to better
position the Company's utility subsidiaries to more effectively operate in a
competitive environment.
State Regulatory and Legislative Environments - Electric Business
Below is a discussion on the regulatory and legislative initiatives
currently being addressed in each of the Company's retail jurisdictions related
to the electric business.
13
Colorado - Colorado law permits the CPUC to authorize rates negotiated
with individual electric and gas customers who have threatened to discontinue
using the services of PSCo, so long as the CPUC finds that such authorization:
1) in the case of electric rates, will not adversely affect PSCo's remaining
customers and 2) in the case of gas rates, will not affect PSCo's remaining
customers as adversely as would the alternative. In response
to the increasingly competitive operating environment for utilities, the
regulatory climate is also changing. In 1996, the CPUC opened an inquiry
docket related to electric utility restructuring. PSCo submitted a response
to a CPUC sponsored restructuring questionnaire which was followed by the
CPUC issuing a report on a comprehensive survey on electric industry
restructuring. The CPUC is currently workingcontinuing to work
with the Colorado General Assembly in its investigation and implementation of
public policy. The CPUC has no electric restructuring authority without
legislative mandate.
During December 1997, PSCo submitted1998, an electric restructuring bill was passed which established a
draft bill relating30 member advisory panel to electric
utility industry restructuring and customer choice. The principlesconduct an evaluation of the proposed bill include: all customers must havepotential benefits and
possible regulatory structure of the opportunityretail electric industry. This panel is to
benefit;
the reliability of electric service must be maintained; all energy suppliers
must be subjectfinalize and report its findings to the same laws and regulations; the price of electric
energy and electric generation capacity must be determined solely by market
forces; generation, transmission and distribution may be functionally
separatedGeneral Assembly and the transmission and distribution functions will remain subjectGovernor by
November 1, 1999. NCE has one representative appointed to regulation; and each electric utility must have a good reasonable
opportunity to recover its stranded costs. PSCo will continue to participate
in regulatory proceedings which could change or impact current regulation.
PSCo believes it will continue to be subject to Colorado rate regulation that
will allow for the recovery of all of its deferred costs (see Note 1. Summary
of Significant Accounting Policies - Business, Utility Operation and
Regulation - Regulatory Assets and Liabilities and Note 9. Regulatory Matters
in Item 8. Financial Statements And Supplementary Data).this panel.
Texas - Texas legislation enacted in 1995 recognizes the movement to a
more competitive market-place by requiring the PUCT to issue new regulations
relating to, among other things, allowance of less than fully costed rates in
wholesale and retail markets; recognition of and essentially waiving all
Texas utility regulation of EWGs and power marketers; and implementation of
transmission access comparable to the owning utility's use of its
transmission system for non-FERC regulated utilities. In the 1997 session, Texas introduced legislative proposals
relating to retail wheeling; however, the Texas legislature adjourned without
adopting any legislation on this issue. The Governor submitted a proposal for
retail competition by September 2001. This and all other deregulation
legislation failed to gain the necessary support for enactment. There will bewas no
general session in 1998 in Texas. The PUCT initiated several rulemakings which
prepare for eventual electric industry restructuring, however, it has not yet
issued a final order with respect to any of them. The PUCT granted approval of
one utility company's voluntary plan to transition to retail competition. This
program provides for immediate rate reductions which will result in refunds for
all residential and commercial customers. A five-year transition plan begins
with a pilot program that evolves to customer choice for all of that utility's
customers by 2003.
A Senate Interim Committee on Electric Utility Restructuring began a
series of statewide hearings in late 1997. The hearings will continue in1997, which continued throughout 1998, in
order to solicit public input on a series of statewide issues relating to retail
competition in Texas. This information will be used by the Committee to make
recommendations on restructuring legislation for the 1999 session. In January
1999, three different electric restructuring bills were introduced in the Texas
legislative. At this time, it is impossible to determine which, if any, of the
proposals will pass. SPS believes it will continue to be subject to rate
regulation that will allow for recovery of all of its deferred costs (see Note 1.
Summary of Significant Accounting Policies - Business, Utility Operations and
Regulation - Regulatory Assets and Liabilities and Note 9. Regulatory Matters in
Item 8. Financial Statements And Supplementary Data)FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).
New Mexico - In 19971998, the NMPUC approved Case 2718, "Texas-New Mexico
Power Company's TNP's Community Choice Plan." The plan callsNMPRC allowed an electric utility to begin
offering a two-year transition test program for all TNPcustomer choice. A total of 425
residential and small commercial customers to be able to choose their energy supplierand one large
12
industrial customer may participate. A second pilot program, which was ordered
by April 1, 2003.
Thethe NMPRC, was halted by a stay order issued by the New Mexico legislature rejected all retail wheeling proposals in
1997.Supreme Court.
Following the 1997 session, the NMPUCNMPRC initiated Case 2681, the
"Investigation of Electric Utility Restructuring", which called for a
"collaborative process" that involved utilities, consumer groups, environmental
groups, and other interested stakeholders. The NMPUCNMPRC encouraged the parties to
attempt to reach a consensus on a retail choice plan for New Mexico, but the
effort was unsuccessful. On January 28, 1998, the NMPUCNMPRC issued its final report
in case 2681. The NMPUCand found that it is in the public interest for the State of New Mexico to
advance changes in the structure and regulation of the electric industry and
recommendsrecommended that restructuring proposals should continue to be brought before
the legislature. The New Mexico legislature tabled consideration of the single
electric utility restructuring bill presented during 1998. A similar proposal
has a 30 day budget sessionbeen introduced in 1998.the 1999 session. At this time, no final action has been
taken on this proposal.
Wyoming - In January 1998,There were no electric industry restructuring legislation
proposals introduced in the Joint Minerals, Business and Economic
Development Interim Committee voted against moving forward with draft
legislation entitled the "Wyoming Electric Restructuring
13
Act." The 9-5 vote inhibits the progress of the draftLegislature during the brief 1998
legislative session of 20 days, unless further acted upon by individual
legislators. The draft was a collaborative effort which included the Legislative
Subcommittee on Electric Industry Re-regulation, the WPSC, utilities and
consumer interest groups. The 1998 legislative session began in February.1998. A joint committee of the
Wyoming legislature beganheld a series of hearings on restructuring in June of 1997.
On September 15, 1997, a report entitled the "Study of the Potential Economic
Impacts of Electric Restructuring on the State of Wyoming," which was prepared for the
WPSC by an external consultant was made public. The report analyzed four
different restructuring scenarios and concluded overall that restructuring would
have only a small impact on rates. No action with respect to electric
restructuring is anticipated in 1999.
Kansas --- In December 1997, the Task Force On Retail Wheeling presented its
final report to the 1998 Kansas Legislature. The report culminated a study that
was authorized by House Bill 2600 whichand was signed by the Governor on April 26,
1996. Additionally,In general, this legislation imposed a three-year freeze on retail
electric wheeling. The task force, which consisted of
lawmakers and utility industry representatives, studied numerous issues,
includingDuring 1998, several restructuring measures were introduced
in the actions of the FERC; the obligation of electric utilities to
serve customers; the recovery of stranded costs; the unbundling of
generation, transmission, and distribution services. The report concluded
with draft legislation entitled the "Electric Utility Restructuring Act." A
90-day legislative work session, which began January 12, 1998, will also be
looking at three other comprehensive electric restructuring bills, along with
two other related measures, which were held over from the 1997 session.Legislature, but subsequently failed.
Oklahoma - The Electric Restructuring Act of 1997 was signed by the
Governor of Oklahoma on April 25, 1997. This legislation directs a series of
studies which will define the orderly transition to consumer choice of electric
energy supplier by July 1, 2002. The studies include: Taxation
Issues, Independent System Operator ("ISO"), Technical Issues, Financial
Issues, and Consumer Issues. The Joint Electric Utility Force, a legislative
entity, is in place to oversee the actions ofDuring 1998, the Oklahoma Corporation
Commission which is the state's regulatory agency. The Oklahoma Corporation
Commission has been granted the authority to work alongside electric
utilitiesbegan such studies and other industry interests and consumer groups in order to
examineheld research meetings focusing on several
key concerns. Unbundling of Rates and Services; Ceiling for
Rates; Stranded Cost Recovery; Reliability and Safety; Transition Costs are
included in the focus.restructuring issues. Results and recommendations derived from the studies and
meetings will direct any further legislative action that may be necessary in order
for the Electric Restructuring Act of 1997 to be fully implemented. The ISOAn
independent system operator ("ISO") study report, prepared by the Oklahoma
Corporation Commission, was presentedissued in January 1998. The Oklahoma Corporation
Commission Taxation Issues study and a Technical Issues study on January 27,the effects of
an ISO were concluded on December 31, 1998. The Electric Restructuring Act was
modified during 1998 to clarify terms used in the original bill, as well as
advancing timelines for studies of the Joint Electric Utility Task Force in
order to meet the stated implementation date. In December 1998, this Task Force
began the formation of groups which will examine numerous restructuring issues.
It is expected that the Taxation
Issues study, which beganto issue a report on its findings in April 1997, and the Technical Issues study will
conclude by December 31, 1998.October 1999.
Wholesale Electric
The wholesale electric business faces increasing competition in the supply
of bulk power due to provisions of the EPAct and Federal and state initiatives
with respect to providing open access to utility transmission systems. Under
theapplicable FERC rules, issued in early 1996, utilities are required to provide wholesale open-access
transmission services consistent with what is provided for in their own
operations and to unbundle wholesale merchant and transmission operations. The
Company's utility subsidiaries are operating under a joint tariff in compliance
with the tariffs approved by the FERC under these rules. To date, these provisions have not had a material impact on
the operations of the Company's utility subsidiaries operations.subsidiaries. For 1997,1998, the Company's
consolidated wholesale revenues totaled approximately 15%$607 million or 22% of
total electric revenues. A
substantial portionrevenues, an increase from approximately $435 million or 18% in
1997. Non-firm sales, including economy sales, off-system sales and
non-regulated power marketing activities have grown significantly in 1998. As a
result, only 56.3% of these revenuesthe Kwh sold related to firm sales contracts which
are expected to continue at current levels for a minimum of 10 years.in 1998, as
compared with 80.9% in 1997, despite the fact that Kwh sales under firm
contracts increased 14% in 1998 as compared with 1997.
13
Natural Gas
Changes in regulatory policies and market forces have begun to shift the
industry from traditional cost-based regulation involvingbundled gas sales transportation, storage and other related services on a bundled basis toward
market-based sales onservice to an unbundled
basis. In 1993,transportation and market based commodity service. Following the unbundling of
interstate pipeline delivery services by the FERC accelerated the
process ofin 1993, PSCo has participated
fully in state regulatory and legislative efforts to develop a framework for
extending unbundling the commodity supply component from the physical
delivery component of natural gas retail sales service. In recent years,
numerous state initiatives have been developed to continue this unbundling
process down to the residential and small commercial customers.level. The
goal of unbundling is to offer customers choice of gas suppliers. In 1996,
14
the CPUC opened an investigatory docket concerning the issue of unbundling
natural gas services. At this time, no formal actionPSCo is
expected from the CPUC
mandating the unbundling of gas utilities. PSCo expects thatcurrently supporting a gas unbundling bill, will be proposed inintroduced to the Colorado
Legislaturelegislature in 1998 providingJanuary 1999, that will grant to the CPUC the authority and
responsibility to allow for fullapprove voluntary unbundling atplans submitted by Colorado gas
utilities in the retail level.future. PSCo plans to participate fully in any such legislative
efforts and in any other regulatory proceedings which could change or impact current regulation.will affect the unbundling of
natural gas delivery services.
The natural gas delivery or transportation business has remained
competitive as industrial and large commercial customers have the ability to
"by-pass" the local gas utility through the construction of interconnections
directly with, and the purchase of gas directly from, interstate pipelines,
thereby avoiding the delivery charges added by the local gas utility. PSCo and
Cheyenne have and will continue to aggressively pursue the retention of all of
these customers on their systems.
PSCo and Cheyenne extend and operate their distribution systemsystems primarily
by virtue of non-exclusive franchises granted by the various cities and towns.
Such franchise agreements are approved by their respective state commissions.
Because the franchises are non-exclusive, PSCo and Cheyenne can be faced with
the threat of intrusion into their gas territory by third parties. PSCo and
Cheyenne hold territorial certificates for a portion of their gas service
territory giving them the exclusive right to extend their distribution system
and provide natural gas sales and transportation service. However, for the
majority of their gas service territory, no such territorial certificates exist.
PSCo has filed with the CPUC an application to certificate its gas service
territory along the front range of Colorado.
Franchises
PSCo held nonexclusive franchises to provide electric or gas service or
both services in approximately 121 incorporated cities and towns at December 31,
1997.1998. These franchises consist of 69 combined gas and electric service
franchises, 28 electric service franchises and 24 gas service franchises. In
1998,1999, PSCo expects to re-negotiate threefour of the franchise agreements which will
be expiring. PSCo's franchise with the City of Denver will expire in 2006. PSCo
supplies electric or gas service or both services in about 114 unincorporated
communities.
SPS held franchises to provide electric service in approximately 104
cities and towns at December 31, 1997.1998.
Foreign Investments
Yorkshire Electricity
On April 1,Power
During the second quarter of 1997, Yorkshire Power, a subsidiaryjoint venture
initially equally owned by PSCo and AEP, indirectly acquired substantiallyindirectly all of the
outstanding ordinary shares of Yorkshire Electricity, a United Kingdom regional
electricity company. PSCo holds its investment in Yorkshire Power through its
wholly-owned subsidiary, NCI.Effective March 31, 1998, NCI was sold to NC Enterprises,
an NCE subsidiary. The total consideration paid by Yorkshire Power for Yorkshire
Electricity in 1997 was approximately $2.4 billion (1.5 billion pounds
sterling). Yorkshire Electricity's main businesses are the distribution and
supply of electricity and the supply of gas and its service territory is one of
the region's largest with approximately 2.12 million customers.
In July 1997, the U.K. government enacted a windfall tax on certain
privatized business entities, which is payable in two installments.installments with the first in
December 1997 and the second in December 1998. The windfall tax was a
retroactive adjustment to the privatization value based on post-privatization
profits during the 1992 -to 1995
14
period. During the third quarter of 1997, Yorkshire Power recorded an
extraordinary charge of approximately $221 million (135 million pounds sterling)
for this windfall tax. PSCo'sThe Company's share of this tax iswas approximately $110.6
million.
During the second quarter of 1998, Yorkshire Electricity recognized a
$54.7 million after-tax impairment of its investment in Ionica, a wireless
telecommunications company, upon the May 22, 1998, announcement by Ionica that
negotiations for release of lines of credit from existing providers of bank
facilities had been unsuccessful. The impairment, reflecting a write-down to
fair market value, was offset, in part, by an unrelated tax adjustment of
approximately $21.5 million. In the fourth quarter of 1998, Yorkshire Power
recognized a $42.1 million after-tax gain on the sale of its generation assets.
Yorkshire Electricity is focusing its main business on the distribution and
supply of electricity and the supply of natural gas. See Note 2. Acquisition ofInvestment in
Yorkshire Electricity and U.K. Windfall Tax in Item 8. Financial Statements and Supplementary DataFINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA for summary financial information on Yorkshire Power.
15
Other foreign investments
The Company owns other foreign investments through various non-regulated
subsidiaries; however, at this time, these investments are not significant to
the Company's consolidated assets. See Non-Utility Operations
below for a more detailed discussion on the Company's non-utility
subsidiaries.assets or results of operations.
Service Company
NCS, a wholly-owned subsidiary of NCE, was incorporated in 1997 under the
laws of the State of Delaware. NCS is the service company for the NCE system and
provides a variety of administrative, management, engineering, construction,
environmental and support services. NCS provides its services to the NCE system
generally at cost, pursuant to service agreements approved by the SEC under
PUHCA.
Non-Utility Operations
NC Enterprises, a wholly-owned subsidiary of NCE, was incorporated in 1997
under the laws of the State of Delaware. NC Enterprises was incorporated to
serve as a holding company for non-utility subsidiaries and foreign operations
of NCE. NC Enterprises currently has the following five subsidiaries: NCI, Quixx, UE,
e prime, Natural Fuels, Planergy, New Century Cadence and New Century Cadence.Centrus.
The table presented below provides certain financial information regarding each
subsidiary of NC Enterprises, followed by a discussion of the operations of the
subsidiaries.
New
Natural Century
Quixx UE e prime Fuels Cadence
----- -- ------- ----- -------
(Millions of Dollars)
Operating revenues $ 14.8 $ 52.3 $196.7 $ 6.9 $ -
Total assets 79.8 55.5 73.5 10.2 2.2
NC Enterprise's Net
investment at 12/31/97 77.1 42.0 21.1 4.8 1.9
New New
Natural Century Century
NCI Quixx UE e prime Fuels Planergy Cadence Centrus
----- ----- ---- ------- ------ --------- -------- -------
(in millions)
Operating revenues $ - $14.6 $106.3 $255.4 $ 7.6 $ 9.3 $ - $ -
Total assets 353.7 88.2 58.5 81.5 10.2 31.4 2.1 0.7
NC Enterprise's Net
investment at
12/31/98 349.6 78.0 44.8 27.8 3.5 12.0 1.6 0.8
NCI: NCI was formed in 1997 to hold PSCo's 50% interest in Yorkshire
Power. For a more detailed discussion refer to "Foreign Investments" above.
Quixx: Quixx was incorporated in 1985 under the laws of the State of
Texas. Quixx's primary business is investing in and developing cogeneration and
energy-related projects. Quixx also holds water rights and certain other
nonutilitynon-utility assets. Quixx operates, as a division, Amarillo Railcar
Services, a railcar maintenance facility that provides inspection, light and
heavy maintenance, and storage for unit trains. A majority of these services
are provided for railcars that transport coal for use by SPS. Quixx also finances sales of heat pumps and markets other
non-utility goods and services. Quixx currently has the following wholly-owned
subsidiaries, most of which hold partnership interests in various energy-related
limited partnerships:
Quixx Jamaica, Inc., a wholly-owned subsidiary of Quixx, holds a 99%
limited partnership interest in KES Jamaica, L.P. which ownsowned a facility
consisting of two-oil fired combustion turbines located in Montego
15
Bay, Jamaica, W.I. This facility was completely dismantled in 1998. The
remaining 1% general partnership interest is owned by KES Montego, Inc. a
wholly-owned subsidiary of Quixx. As of December 31, 1997,1998, Quixx is in the
process of winding up operations of this subsidiary.
Quixx Jamaica Power, Inc., a wholly-owned subsidiary of Quixx, is
currently inactive.
Quixx Mustang Station, Inc., a wholly-owned subsidiary of Quixx, was
created to hold Quixx's 0.5%, general partnership interest in Denver City Energy
Associates, L.P., a partnership which owns a 50% interest in Mustang Station, a
488 MWMw combined cycle generating facility which is scheduled for completion in
1998.1999. Quixx will also holdholds a 49.5% limited partnership interest in Denver City
Energy Associates, LPL.P., through Quixx Resources, Inc. a wholly-owned subsidiary
of Quixx.
16
Quixxlin Corp, a wholly-owned subsidiary of Quixx, was created to holdholds a 0.5% general
partnership interest in Quixx Linden, L.P., which will
constructowns a 23 MWMw natural gas fired
cogeneration facility locatedunder construction in Linden, New Jersey. It is estimated
that this facility will be completed in mid-1998.early 1999. Quixx also directly holds a
49.5% limited partnership interest in Quixx Linden, L.P.
Quixx Borger Cogen, Inc., a wholly-owned subsidiary of Quixx, will holdholds a
0.5%0.45% general partnership interest in Borger Energy Associates, L.P., which will ownowns
Blackhawk Station, a cogeneration plant that will be located at the Phillips Petroleum
Refinery Complex near Borger, Texas. Quixx Resources, Inc., a wholly-owned
subsidiary of Quixx, will holdholds a 49.5%44.55% limited partnership interest in this same
partnership. This facility commenced Phase I electric operations in October
1998, and is expected to commence Phase II cogeneration operations in 1999.
Quixx WPP94, Inc., a wholly-owned subsidiary of Quixx, holds a 0.33%
general partnership interest in Windpower Partners, 1994 L.P. Windpower
Partners, 1994 L.P. owns a 35 MWMw wind generation facility in Culberson County,
Texas. Quixx also directly holds a 24.67% limited partnership interest in
Windpower Partners, 1994 L.P.
Quixx Louisville, L.L.C., a wholly-owned subsidiary of Quixx, owns a
facility consisting of two gas-fired boilers providing steam to a DuPont plant
in Louisville, Kentucky.
Quixx Power Services, Inc., a wholly-owned subsidiary of Quixx, operates
and maintains certain cogeneration facilities.
Quixx Resources, Inc., a wholly-owned subsidiary of Quixx, holds a 44.55%
limited partnership interest in Borger Energy Associates, L.P., a 49.5% limited
partnership interest in Denver City Energy Associates, L.P., and a 99% limited
partnership interest in Quixx WRR, L.P.
Quixx WRR, L.P., a wholly-owned subsidiary of Quixx, holds Quixx's water
rights located in Roberts, Gray, Hutchinson and Carson Counties, Texas. Quixx
holds a 1% general partnership interest and through Quixx Resources, Inc. a 99%
limited partnership interest in Quixx WRR, L.P.
Quixx holds a 50% interest in Mosbacher Power Group and Mosbacher Power
International, which are independent power development companies with
interests in the development stage in Cambodia and Colombia.
Quixx Carolina, Inc., a wholly-owned subsidiary of Quixx, holds a 1%
general partnership interest in Carolina Energy Limited Partnership, a
waste-to-energy cogeneration facility. Quixx also holds a 32.33% limited
partnership interest in this same partnership. In June 1997, Quixx wrote off its
investment of approximately $13.64 million in the Carolina Energy Limited
Partnership (see Note 3. AcquisitionAcquisitions and Divestiture of InvestmentsDivestitures in Item 8. Financial Statements And Supplementary Data)FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA).
Quixx holds a 49%42.2% limited partnership interest in BCH Energy Limited
Partnership, a waste-to-energy facility, locatedwhich has declared in bankruptcy near
Fayetteville, North Carolina. In December 1996, Quixx wrote off its entire
investment in this project of approximately $16 million (See Note 3.
AcquisitionAcquisitions and Divestiture
of InvestmentsDivestitures in Item 8. Financial Statements And Supplementary Data)FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA).
UE: UE was incorporated in 1985 under the laws of the State of Texas. UE
is engaged in engineering, design, construction management and other
miscellaneous services. UE currently has two wholly-owned subsidiaries - - Universal
Utility Services Company and Precision Resource Company. Universal Utility
Services
16
Company provides cooling tower maintenance and repair, certain other industrial
plant improvement services, and engineered maintenance of high voltage plant
electric equipment. Precision Resource Company provides contract professional
and technical resources for customers in the energy industrial sectors.
UE also owns a 49% interest in Vista
Environmental Services, LLC, which performs environmental consulting for
energy and industrial customers in both the private and government sectors,
primarily in the southwestern United States.
e prime: e prime was incorporated in 1995 under the laws of the stateState of
Colorado. e prime provides energy related products and services which include,
but are not limited to, electric and gas brokering, marketing and trading and
energy consulting. e prime has also pursued international
energy investment opportunities. In March of 1996, e prime received authorization from the
FERC to act as a power marketer. In September of 1996, e prime acquired TOG, a gas
marketing company, with headquarters in Houston and an office in Boston. e prime
and TOG have merged operations and together they provide value-added energy
related products and services to
17
over 2,200 end use customers and utilities
nationwide. Additionally, e prime currently owns the following subsidiaries
(subsidiaries formed, but inactive have been excluded):
TOP is a small pipeline company which connects two major interstate
pipelines.
YGSC owns a 47.5% general partnership interest in Young Storage which owns
and operates an underground gas storage facility in northeastern Colorado.
e prime Projects International, Inc. and e prime Operating, Inc. were
formed to hold and operate investments in EWG's and foreign utility
companies, which in 1997 included the purchase and subsequent sale of a 25%
interest in a 608 mw coal-fired electric power plant near Topar, Karaganda,
the Republic of Kazakstan.
e prime also holds a 50% ownership interest in Johnstown Cogeneration, a
limited liability company.
Natural Fuels: Natural Fuels was incorporated in 1990 under the laws of
the State of Colorado. Natural Fuels sells compressed natural gas as a
transportation fuel to retail markets, converts vehicles for natural gas usage,
constructs fueling facilities, and sells miscellaneous fueling facility
equipment. Natural Fuels has a 50% ownership interest in Natural/Total Limited
Liability Company, which owns and operates natural gas fueling stations located
at Total Petroleum Gas Stations in Colorado. Natural Fuels has a 25% ownership
interest in Natural/Peoples Limited Liability Company which owns and operates
one natural gas fueling station located in Castle Rock, Colorado. Additionally,
Natural Fuels has a 67% ownership interest through Natural/Total in
Natural/Total/KN Limited Partnership, a partnership which owns the profits
interest in the natural gas fueling stations located at Total Petroleum sites in
the Colorado towns of Grand Junction and Glenwood Springs.
Planergy: Planergy, which was acquired April 1, 1998 (formerly known as
Falcon Seaboard Energy Services, Inc.), was incorporated in 1990 under the laws
of the State of Texas. Planergy provides energy management, consulting and
demand side management services to commercial, industrial, utility and municipal
customers. Planergy currently has two principal wholly-owned subsidiaries,
Planergy, Inc., and Planergy Services, Inc. Planergy Inc. provides energy
consulting, energy-efficiency management, conservation programs and mass-market
services. Planergy Services, Inc. specializes in industrial energy audits, and
conservation and reliability projects. It focuses on energy services for
industrial and large commercial customers.
New Century Cadence: New Century Cadence was incorporated in 1997
under the laws of the State of Colorado. New Century Cadence was created to
hold a 1/3 interest in Cadence Network, LLC, an energy-related company which
provides energy management and consulting services, as well as brokering and
marketing of energy commodities. Specifically, Cadence Network LLC will
provide a single source for both energy management services and products
designed to lower energy costs for national companies that operate at
multiple locations. Cadence Network LLC is equally owned by New
Century Cadence, Cinergy-Cadence, Inc. (a subsidiary of Cinergy, Inc.) and
Progress Holdings, Inc. (a subsidiary of Florida Progress Holdings, Inc.).
New Century Centrus: New Century Centrus was incorporated in 1998
under the laws of the State of Colorado. New Century Centrus was created in
1998 to hold a 1/3 interest in Centrus, LLP. Centrus LLP was established to
develop products and services to meet the residential and small business
customers increasing demands for a "one-bill" utility and telecommunications
approach. Centrus LLP is equally owned by New Century Centrus,
Cinergy-Centrus, Inc. (a subsidiary of Cinergy, Inc.) and Progress-Centrus,
Inc. (a subsidiary of Florida Progress Holdings, Inc.).
17
Employees
The number of employees in the NCE system at December 31, 19971998, is presented in
the table below. Of the employees listed below, approximately 2,938,2,817, or 47%45%, are
covered under collective bargaining agreements. For further information, see
Note 10. Commitments and Contingencies - Union Contracts in Item 8. Financial Statements and Supplementary Data.FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
NCE System Employees
--------------------
PSCo 3,1603,148
SPS 1,3321,345
NCS 1,3251,229
Cheyenne 10097
NC Enterprises 373
---490
----
Total 6,2906,309
=====
18
Consolidated Electric Operating Statistics (NCE)
Year Ended December 31,
-----------------------1998 1997 1996 1995(2)
---- ---- -------
Energy Generated, Received & Sold
(Thousands of Kwh):
Net Generated:
Steam, Fossil.................. 33,278,721 32,116,961 37,067,838
Combustion Turbine............. 6,595,055 6,351,117 151,294
Pumped Storage................. 193,834 178,205 68,400
Hydro.......................... 224,898 197,660 208,104
------- ------- -------
Total Net Generation......... 40,292,508 38,843,943 37,495,636
Energy Used for Pumping........ 300,649 276,983 109,632
------- ------- -------
Total Net System Input....... 39,991,859 38,566,960 37,386,004
Purchased Power and Net Interchange 11,985,546 10,295,074 10,145,620
---------- ---------- ----------
Total System Input........... 51,977,405 48,862,034 47,531,624
Used by Company................ 77,734 88,304 1,239,914
Other (1)...................... 1,677,085 1,352,843 1,526,358
--------- --------- ---------
Total Energy Sold............ 50,222,586 47,420,887 44,765,352
========== ========== ==========
Electric Sales (Thousands of Kwh):
Residential.................... 9,730,390 9,530,275 8,991,000
Commercial..................... 13,223,936 12,832,091 12,094,269
Industrial..................... 13,789,814 13,729,777 13,433,472
Public Authorities............. 773,656 780,251 736,375
Wholesale - Regulated ......... 11,494,742 10,129,788 9,510,236
Wholesale Energy Services -
Non-Regulated .............. 1,210,048 418,705 -
--------- ------- ----
Total Energy Sold............ 50,222,586 47,420,887 44,765,352
========== ========== ==========
Number of Customers at End of Period:
Residential.................... 1,285,307 1,269,322 1,237,218
Commercial..................... 185,911 183,928 177,607
Industrial..................... 12,888 12,830 12,274
Public Authorities............. 81,994 80,486 79,819
Wholesale - Regulated ......... 279 235 191
Wholesale Energy Services -
Non-Regulated .............. 12 6 -
-- ---- ----
Total Customers ........... 1,566,391 1,546,807 1,507,109
========= ========= =========
Electric Revenues (Thousands of Dollars):
Residential.................... $ 692,886 $ 682,966 $ 638,972
Commercial..................... 735,636 738,266 701,135
Industrial..................... 532,276 521,843 526,349
Public Authorities............. 58,235 55,608 50,441
Wholesale - Regulated.......... 412,088 376,315 341,265
Wholesale Energy Services -
Non-Regulated .............. 22,861 7,806 -
Other Electric Revenues........ 19,377 33,735 25,017
------ ------ ------
Total Electric Revenues...... $2,473,359 $2,416,539 $2,283,179
========== ========== ==========
Average Annual Kwh Sales per
Residential Customer 7,570 7,508 7,267
Average Annual Revenue per
Residential Customer $539.08 $538.06 $516.46
Average Residential Revenue per Kwh .0712 .0717 .0711
Average Commercial Revenue per Kwh .0556 .0575 .0580
Average Industrial Revenue per Kwh .0386 .0380 .0392
Average Wholesale - Regulated
Revenue per Kwh .0359 .0371 .0359
_________________________
(1) Primarily includes net distribution and transmission line losses.
(2) Reflects the combined historical information of PSCo as of and for the
year ended December 31, 1995 with the historical information of SPS as of
and for the year ended August 31, 1995.
19
Consolidated Electric Operating Statistics (PSCo) (1)
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
Energy Generated, Received & Sold
(Thousands of Kwh):
Net Generated:
Steam, Fossil.................. 17,586,343 17,099,890 16,053,92833,960,532 33,278,721 32,116,961
Combustion Turbine............. 154,019 121,079 5,2518,211,645 6,595,055 6,351,117
Pumped Storage................. 222,175 193,834 178,205
68,400
Hydro.......................... 206,287 224,898 197,660
208,104
------- ------- ---------------
Total Net Generation......... 18,159,094 17,596,834 16,335,68342,600,639 40,292,508 38,843,943
Energy Used for Pumping........ 343,393 300,649 276,983
109,632
------- ------- ---------------
Total Net System Input....... 17,858,445 17,319,851 16,226,05142,257,246 39,991,859 38,566,960
Purchased Power and Net
Interchange 11,470,535 10,349,298 9,794,968................. 17,066,272 11,985,546 10,295,074
---------- ---------- -------------------
Total System Input........... 29,328,980 27,669,149 26,021,01959,323,518 51,977,405 48,862,034
Used by Company................ 45,492 57,603 64,88575,303 77,734 88,304
Other (2)(1)...................... 1,659,3471,739,911 1,677,085 1,352,843 1,526,358
--------- --------- ---------
Total Energy Sold............ 27,624,141 26,258,703 24,429,77657,508,304 50,222,586 47,420,887
========== ========== ==========
Electric Sales (Thousands of Kwh):
Residential.................... 6,662,679 6,606,601 6,281,91110,136,581 9,730,390 9,530,275
Commercial..................... 10,109,615 9,880,502 9,284,57714,135,012 13,223,936 12,832,091
Industrial..................... 5,511,722 5,791,608 5,747,53413,530,830 13,789,814 13,729,777
Public Authorities............. 189,141 200,070 188,363840,611 773,656 780,251
Wholesale - Regulated ......... 4,490,895 3,361,217 2,927,391Regulated.......... 15,948,594 11,494,742 10,129,788
Wholesale Energy Services -
Non-Regulated .............. 660,0892,916,676 1,210,048 418,705
---------- --------- ------- ------- ----
Total Energy Sold............ 27,624,141 26,258,703 24,429,77657,508,304 50,222,586 47,420,887
========== ========== ==========
Number of Customers at End
of Period:
Residential.................... 976,629 959,249 936,7591,313,075 1,285,307 1,269,322
Commercial..................... 128,593 126,426 123,277190,812 185,911 183,928
Industrial..................... 339 380 37812,956 12,888 12,830
Public Authorities............. 81,209 79,725 79,15483,775 81,994 80,486
Wholesale - Regulated ......... 33 26 17Regulated.......... 317 279 235
Wholesale Energy Services -
Non-Regulated ............................. 27 12 6
-
---- ---- ---------- -------- -------
Total Customers ........... 1,186,815 1,165,812 1,139,585Customers............ 1,600,962 1,566,391 1,546,807
========= ========= =========
Electric Revenues
(Thousands of Dollars):
Residential.................... $ 503,727720,841 $ 507,233692,886 $ 477,740682,966
Commercial..................... 563,439 571,536 552,905774,521 735,636 738,266
Industrial..................... 228,925 249,774 257,189524,645 532,276 521,843
Public Authorities............. 26,778 25,798 23,02963,249 58,235 55,608
Wholesale - Regulated.......... 145,561 120,478 114,514532,431 412,088 376,315
Wholesale Energy Services -
Non-Regulated .............. 10,448............... 74,518 22,861 7,806 -
Other Electric Revenues........ 6,318 6,365 23,719
----- ----- ------7,281 19,377 33,735
------- ------- --------
Total Electric Revenues...... $1,485,196 $1,488,990 $1,449,096$2,697,486 $2,473,359 $2,416,539
========== ========== ==========
Average Annual Kwh Sales per
Residential Customer 6,822 6,965 6,7947,818 7,613 7,508
Average Annual Revenue per
Residential Customer $515.78 $534.79 $516.70$555.94 $542.12 $538.06
Average Residential Revenue
per Kwh .0756 .0768 .0761$0.0711 $0.0712 $0.0717
Average Commercial Revenue
per Kwh .0557 .0578 .0596$0.0548 $0.0556 $0.0575
Average Industrial Revenue
per Kwh .0415 .0431 .0447$0.0388 $0.0386 $0.0380
Average Wholesale - Regulated
Revenue per Kwh .0324 .0358 .0391
_________________________$0.0334 $0.0359 $0.0371
- -------------------------
(1) Includes year-to-date amountsPrimarily includes net distribution and transmission line losses.
19
Consolidated Electric Operating Statistics (PSCo)
Year Ended December 31,
1998 1997(1) 1996(1)
-------- --------- ---------
Energy Generated, Received & Sold
(Thousands of Kwh):
Net Generated:
Steam, Fossil.................. 17,939,109 17,586,343 17,099,890
Combustion Turbine............. 636,455 154,019 121,079
Pumped Storage................. 222,175 193,834 178,205
Hydro.......................... 206,287 224,898 197,660
------- ------- --------
Total Net Generation......... 19,004,026 18,159,094 17,596,834
Energy Used for Pumping........ 343,393 300,649 276,983
------- ------- --------
Total Net System Input....... 18,660,633 17,858,445 17,319,851
Purchased Power and Net
Interchange 13,544,768 11,470,535 10,349,298
---------- ---------- ----------
Total System Input........... 32,205,401 29,328,980 27,669,149
Used by Company................ 45,857 45,492 57,603
Other (2)...................... 1,707,914 1,659,347 1,352,843
--------- --------- ---------
Total Energy Sold............ 30,451,630 27,624,141 26,258,703
========== ========== ==========
Electric Sales (Thousands of Kwh):
Residential.................... 6,760,764 6,662,679 6,606,601
Commercial..................... 10,778,116 10,109,615 9,880,502
Industrial..................... 4,831,965 5,511,722 5,791,608
Public Authorities............. 206,985 189,141 200,070
Wholesale - Regulated ......... 7,873,800 4,490,895 3,361,217
Wholesale Energy Services -
Non-Regulated - 660,089 418,705
------- -------- -------
Total Energy Sold............ 30,451,630 27,624,141 26,258,703
========== =========== ==========
Number of Customers at End
of Period:
Residential.................... 970,217 947,017 959,249
Commercial..................... 127,386 123,839 126,426
Industrial..................... 325 330 380
Public Authorities............. 82,764 81,023 79,725
Wholesale - Regulated.......... 50 33 26
Wholesale Energy Services -
Non-Regulated - - 6
------- -------- -------
Total Customers............ 1,180,742 1,152,242 1,165,812
========= ========= =========
Electric Revenues (Thousands
of Dollars):
Residential.................... $ 514,235 $ 503,727 $ 507,233
Commercial..................... 592,045 563,439 571,536
Industrial..................... 207,885 228,925 249,774
Public Authorities............. 29,546 26,778 25,798
Wholesale - Regulated.......... 250,555 145,561 120,478
Wholesale Energy Services -
Non-Regulated - 10,448 7,806
Other Electric Revenues........ 41,307 6,318 6,365
------- ------- --------
Total Electric Revenues...... $1,635,573 $1,485,196 $1,488,990
========== ========== ==========
Average Annual Kwh Sales per
Residential Customer 7,071 6,875 6,965
Average Annual Revenue per
Residential Customer $537.80 $519.08 $534.79
Average Residential Revenue
per Kwh $0.0761 $0.0756 $0.0768
Average Commercial Revenue
per Kwh $0.0549 $0.0557 $0.0578
Average Industrial Revenue
per Kwh $0.0430 $0.0415 $0.0431
Average Wholesale - Regulated
Revenue per Kwh $0.0318 $0.0324 $0.0358
- -------------------------
(1)The 1996 and 1997 information through July 31, 1997 for theinclude information
related to Cheyenne, WGI and e prime. These subsidiaries were transferred to
NCE, effective August 1, 1997, in connection with the Merger.
(2) Primarily includes net distribution and transmission line losses.
20
Consolidated Electric Operating Statistics (SPS)
Year ended September 1 -1- Year ended
December 31, December 31, Year ended August 31,
----------------------- --------------------1998 1997 1996 1996 1995
---- ---- ---- ----
Energy Generated, Received & Sold
(Thousands of Kwh):
Net Generated:
Steam, Fossil.................. 16,021,423 15,692,378 4,994,294 14,895,995
21,013,910
Combustion Turbine............. 7,575,190 6,441,036 1,747,556 6,186,155
146,043
--------- --------- --------- -----------------
Total Net Generation......... 23,596,613 22,133,414 6,741,850 21,082,150 21,159,953
Purchased Power and Net
Interchange (276,031) (402,504) 332,644 1,226,976
350,652-------- -------- ------- ---------
-------
Total System Input........... 23,320,582 21,730,910 7,074,494 22,309,126
21,510,605
Used by Company Other.........and Other...... 28,606 31,862 438,190 1,420,687
1,175,029------ ------ ------- --------- ---------
Total Energy Sold.............. 23,291,976 21,699,048 6,636,304 20,888,439
20,335,576========== ========== ========= ========== ==========
Electric Sales (Thousands of Kwh) (1):
Residential.................... 3,169,433 2,986,815 891,695 2,868,982
2,709,089
Commercial..................... 3,051,258 2,990,488 989,580 2,886,807
2,809,692
Industrial..................... 8,367,012 8,135,280 2,661,642 7,813,433
7,685,938
Public Authorities............. 629,478 582,618 190,439 571,579 548,012
Wholesale - Regulated ......... 8,074,795 7,003,847 1,902,948 6,747,638 6,582,845
--------- --------- --------- ---------
Total Energy Sold............ 23,291,976 21,699,048 6,636,304 20,888,439
20,335,576========== ========== ========= ========== ==========
Number of Customers at End of Period(1):Period:
Residential.................... 312,539 308,439 310,073 308,554
300,459
Commercial..................... 58,535 57,298 57,502 57,204
54,330
Industrial..................... 12,622 12,549 12,450 12,418
11,896
Public Authorities............. 824 785 761 750 665
Wholesale - Regulated ......... 267 246 209 197
174
--- --- --- ---------- ------- -------- -------
Total Customers ........... 384,787 379,317 380,995 379,123
367,524
======= ======= =============== =======
Electric Revenues (Thousands of Dollars)(1):
Residential.................... $ 184,372$194,535 $184,372 $ 54,109 $ 172,214 $ 161,231$172,214
Commercial..................... 168,731 166,572 54,033 154,653
148,231
Industrial..................... 305,987 298,754 95,494 274,117
269,160
Public Authorities............. 33,207 31,249 10,090 29,220
27,412
Wholesale - Regulated.......... 281,877 266,527 71,663 252,145
226,751
Other Electric Revenues........Revenues (1).... (33,150) 12,881 10,190 17,048
1,298
------ ------ ------ ------------- ------- -------- -------
Total Electric Revenues...... $ 960,355 $ 295,579 $ 899,397 $ 834,083
========== ========= ========== ============$951,187 $960,355 $295,579 $899,397
======== ======== ======== ========
Average Kwh Sales per
Residential Customer 9,68410,212 9,669 2,876 9,298 9,017
Average Revenue per
Residential Customer $597.76$626.80 $596.85 $174.50 $558.13 $536.62
Average Residential
Revenue per Kwh .0617 .0607 .0600 .0595$0.0614 $0.0617 $0.0607 $0.0600
Average Commercial
Revenue per Kwh .0557 .0546 .0536 .0528$0.0553 $0.0557 $0.0546 $0.0536
Average Industrial
Revenue per Kwh .0367 .0359 .0351 .0350$0.0366 $0.0367 $0.0359 $0.0351
Average Wholesale -
Regulated Revenue per Kwh .0381 .0377 .0374 .0344
_________________________
(1) Presentation of electric revenues by class has been changed to include
unbilled revenue in other electric revenue to conform with the current
year presentation.$0.0349 $0.0381 $0.0377 $0.0374
- -------------------------
(1)Other electric revenues is negative in 1998 primarily due to the recognition
of lower deferred fuel revenues resulting from cost reductions for fuel used
in generation.
21
Consolidated Gas Operating Statistics (NCE and PSCo)
Year Ended December 31,
NCE NCE & PSCo NCE and PSCo
1998 1997 1996 1998 1997 (3)
1996 1995
---- ---- ---- ----------- ------- ------- ------- ---------
Natural Gas Purchased and Sold
(Thousands of Dth):
Purchased from CIG............. 32,035 32,035 39,924 38,687
Purchased from Others.......... 119,652 118,128 107,374 101,259for Utility
Operations 141,887 151,687 147,298 137,402 150,163
Purchased for Non-regulated
Gas Marketing (1) ...........72,651 61,248 22,807 - 35,189
22,807 237------- ------- ------- ------ ------
------ ---
Total Purchased............ 214,538 212,935 185,352 170,105 140,183137,402 185,352
Company Use.................... 1,411 1,213 1,211 520 1,3301,397 1,211
Other (2)...................... 14,038 17,236 10,000 11,608 15,461
10,000 5,657
------ ------ ------ ------------ ------- ------- ------- --------
Total Gas Sold............... 199,089 194,486 168,680 159,585 133,196124,397 168,680
======= ======= ======= ======= ========
Gas Deliveries (Thousands of Dth):
Residential.................... 84,710 87,386 86,102 82,239 86,634
86,102 82,188
Commercial ....................Commercial..................... 42,352 47,471 46,857 51,655 50,77140,191 46,857
Non-regulated Gas Marketing (1) 70,599 59,629 35,189 21,828 237- 35,189
------ ------ ------ -------- ------
Total Gas Sold............. 197,661 194,486 159,585 122,430 168,680
159,585 133,196
Transportation................. 107,423 93,271 86,831 90,304 75,70490,746 86,831
Other Gas Deliveries........... 73- 73 1,141 1,391
-- -- ----- ------ 73
------- ------- ------- ------- --------
Total Deliveries............. 305,084 287,830 255,584 251,030 210,291213,176 255,584
======= ======= ======= ======= ========
Number of Customers at End of
Period:
Residential.................... 958,693 928,134 902,078 932,829 902,759
902,078 872,777
Commercial..................... 93,549 91,937 89,229 90,761 89,03490,858 89,229
Non-regulated Gas Marketing (1) 2,043 2,190 1,255 - 1,255 2-
----- --- ----- -------- ---- ----
Total........................ 1,054,285 1,022,261 991,988 994,094 961,8131,023,687 991,988
Transportation and Other....... 2,738 2,215 1,794 2,731 2,205
1,794 952
----- ----- ----- ---------- ------- ------- ------- --------
Total Customers.............. 1,057,023 1,024,476 995,888 1,026,418 994,193
995,888 962,765========= ========= ======= ================ =======
Gas Revenues (Thousands of Dollars):
Residential.................... $410,406$ 434,503 $ 410,406 $362,481 $ 423,875 $407,004
$362,481 $383,719
Commercial..................... 182,506 186,248 184,192 176,328 205,275175,291 184,192
Non-regulated Gas Marketing (1) 180,641 172,524 64,389 - 99,273
64,389 399
Transportation................. 34,990 32,646 32,465 28,549 23,76934,472 32,465
Other Gas Revenues............. 8,636 14,772 8,750 6,426 10,157
8,750 11,423
------ ------ ----- ------------- ------- -------- ------- --------
Total Gas Revenues......... $ 841,276 $816,596 $640,497 $ 640,064 $733,091
$640,497 $624,585========= ======== ======== ================= ========
Average Annual Dth Sales per
Residential Customer .......... 94.15 95.97........... 89.99 95.51 97.14 95.6589.81 94.70
Average Annual Revenue per
Residential Customer .......... $442.18 $450.85........... $461.60 $448.55 $408.93 $446.58$462.90 $444.91
Average Revenue per Dekatherm:
Residential ................... $4.697$5.129 $4.696 $4.210 $5.154 $4.698 $4.210 $4.669
Commercial .................... $4.309 $3.923 $3.414 $4.361 $3.931 $3.459 $3.970
Transportation ................ $0.352 $0.375$0.326 $0.350 $0.316 $0.314
_________________________$0.380 $0.374
- -------------------------
(1) Includes purchases and sales by e prime and TOG.
(2)Primarily includes distribution and transmission line losses and net changes
to gas in storage.
(3) Includes year-to-date amountsInformation through July 31, 1997 for theincludes information related to Cheyenne,
WGI, Natural Fuels and e prime. These subsidiaries were transferred to NCE,
effective August 31, 1997, in connection with the Merger.
22
Item 2. Properties
PSCo Electric Generation Property
The PSCo electric generating stations expected to be available at the time
of the anticipated 19981999 net firm system peak demand during the summer season are
as follows:
Net Dependable
Capacity
Installed (Mw)
Gross at Time of Anticipated Major
Name of Station Capacity 19981999 Net Firm System Fuel
and Location (Mw) Peak Demand* Source
------------ ---- ------------ ------
Steam:
Arapahoe-Denver....................Arapahoe - Denver.................. 262.00 246.00 Coal
Cameo-nearCameo - near Grand Junction ................ 77.00 72.70 Coal
Cherokee-Denver.................... 784.00 723.00Cherokee - Denver.................. 779.00 717.00 Coal
Comanche-near Pueblo...............Comanche - near Pueblo............. 725.00 660.00 Coal
Craig-near Craig...................Craig - near Craig................. 86.90 (a) 83.20 Coal
Hayden-near Hayden.................Hayden - near Hayden............... 259.00 (b) 237.00 Coal
Pawnee-near Brush..................Pawnee - near Brush................ 530.00 511.00 Coal
Valmont-nearValmont - near Boulder (Unit 5).......... 188.00 178.00 Coal
Zuni-Denver........................Zuni - Denver...................... 115.00 107.00 Gas/Oil
------------- ------
Total............................ 3,026.90 2,817.903,021.90 2,811.90
Fort St. Vrain Combustion TurbineTurbines
- near Platteville ......................... 141.45 126.75................... 243.45 226.75 Gas
Combustion turbines (6 units-various
locations) .......................... 209.00 171.00 Gas
Hydro (14 units-various locations) (c). 53.35 36.55 (d) Hydro
Cabin Creek Pumped Storage-near
Georgetown .......................... 324.00 (e) 162.00 Hydro
Cherokee Diesel generators (2 units)... 5.50 5.50 Oil
---- ----
Total............................ 3,760.20 3,319.703,851.70 3,408.20
======== ========
________________
* A measure of the unit capability planned to be available at the time of
the system peak load net of seasonal reductions in unit capability due to
weather, stream flow, fuel availability and station housepower, including
requirements for air and water quality control equipment.
(a) The gross maximum capability of Craig Units No. 1 and No. 2 is 894 Mw,
of which the Company has a 9.72% undivided ownership interest.
(b) The gross maximum capability of Hayden Units No. 1 and No. 2 is 202.01
Mw and 285.96 Mw, respectively, of which the Company has a 75.5% and 37.4%
undivided ownership interest, respectively.
(c) Includes one station (two units) not owned by the Company but operated
under contract.
(d) Seasonal Hydro Plant net dependable capabilities are based upon average
water conditions and limitations for each particular season. The
individual plant seasonal capabilities are sometimes limited by less than
design water flow.
(e) Capability at maximum load.- ----------------
23
SPS Electric Generation Property
The SPS electric generating stations expected to be available at the
time of the anticipated 1998 net firm system peak demand during the summer
season are as follows:
Net Dependable
Capacity
Installed (Mw)
Gross at Time of Anticipated Major
Name of Station Capacity 1998 Net Firm System Fuel
and Location (Mw) Peak Demand* Source
------------ ---- ------------ ------
Steam:
Harrington- near Amarillo, TX...... 1,137.00 1,066.00 Coal
Tolk - near Muleshoe, TX .......... 1,130.00 1,080.00 Coal
Jones - near Lubbock, TX........... 512.00 486.00 Gas
Plant X - near Earth, TX........... 465.00 444.00 Gas
Nichols - near Amarillo, TX........ 479.00 457.00 Gas
Cunningham - near Hobbs, NM........ 489.00 475.00 Gas
Maddox - near Hobbs, NM............ 123.00 118.00 Gas
CZ-2 - near Pampa, TX.............. 26.00 26.00 Purch. steam
Moore County - near Sunray, TX..... 51.00 48.00 Gas
----- -----
Total............................ 4,412.00 4,200.00
Gas Turbine:
Carlsbad - near Carlsbad, NM....... 16.00 16.00 Gas
CZ-1 - near Pampa, TX.............. 13.00 13.00 Hot nitrogen
Maddox - near Hobbs, NM............ 76.00 76.00 Gas
Riverview - near Borger, TX........ 25.00 25.00 Gas
Diesel Engine (1 unit) - Tucumcari, NM. 13.00 13.00 Diesel
----- -----
Total............................ 4,555.00 4,343.00
======== ========
________________
* A measure of the unit capability planned to be available at the time of the
system peak load net of seasonal reductions in unit capability due to weather,
stream flow, fuel availability and station housepower, including requirements
for air and water quality control equipment.
Nuclear Generation Property(a)The gross maximum capability of Craig Units No. 1 and No. 2 is 894 Mw, of
which the Company has a 9.72% undivided ownership interest.
(b)The gross maximum capability of Hayden Units No. 1 and No. 2 is 202.01 Mw
and 285.96 Mw, respectively, of which the Company has a 75.5% and 37.4%
undivided ownership interest, respectively.
(c)Includes one station (two units) not owned by the Company but operated under
contract.
(d)Seasonal Hydro Plant net dependable capabilities are based upon average
water conditions and limitations for each particular season. The individual
plant seasonal capabilities are sometimes limited by less than design water
flow.
(e) Capability at maximum load.
Fort St. Vrain, near Platteville, PSCo's only former nuclear generating station, ceased
operations on August 29, 1989, and on March 22, 1996, the physical
decommissioning of the station was completed. The initial phase of the repowered
gas fired combined cycle steam electric generating station began commercial
operations on May 1, 19961996. Phase 2 is scheduled to begin operations in May 1999.
(see Note 10. Commitments and Contingencies in Item 8. Financial Statements And Supplementary Data)FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA).
23
SPS Electric Generation Property
The SPS electric generating stations expected to be available at the time
of the anticipated 1999 net firm system peak demand during the summer season are
as follows:
Net Dependable
Capacity
Installed (Mw)
Gross at Time of Anticipated Major
Name of Station Capacity 1999 Net Firm System Fuel
and Location (Mw) Peak Demand* Source
------------ ---- ------------ ------
Steam:
Harrington - near Amarillo, TX..... 1,137.00 1,066.00 Coal
Tolk - near Muleshoe, TX .......... 1,130.00 1,080.00 Coal
Jones - near Lubbock, TX........... 512.00 486.00 Gas
Plant X - near Earth, TX........... 463.00 442.00 Gas
Nichols - near Amarillo, TX........ 479.00 457.00 Gas
Cunningham - near Hobbs, NM........ 281.00 267.00 Gas
Maddox - near Hobbs, NM............ 123.00 118.00 Gas
CZ-2 - near Pampa, TX.............. 26.00 26.00 Purch. steam
Moore County - near Sunray, TX..... 51.00 48.00 Gas
------- ------
Total............................ 4,202.00 3,990.00
Gas Turbine:
Carlsbad - near Carlsbad, NM....... 16.00 16.00 Gas
CZ-1 - near Pampa, TX.............. 13.00 13.00 Hot nitrogen
Maddox - near Hobbs, NM............ 76.00 76.00 Gas
Riverview - near Borger, TX........ 25.00 25.00 Gas
Cunningham - near Hobbs, NM........ 245.00 231.00 Gas
Diesel Engine (1 unit) - Tucumcari, NM. 15.00 15.00 Diesel
------- -------
Total............................ 4,592.00 4,366.00
======== ========
- ----------------
* A measure of the unit capability planned to be available at the time of the
system peak load net of seasonal reductions in unit capability due to weather,
stream flow, fuel availability and station housepower, including requirements
for air and water quality control equipment.
Electric Transmission Property
PSCo: On December 31, 1997,1998, PSCo's transmission system consisted of
approximately 112 circuit miles of 345 Kv overhead lines; 1,9421,936 circuit miles of
230 Kv overhead lines; 15 circuit miles of 230 Kv underground lines; 65 circuit
miles of 138 Kv overhead lines; 9991,002 circuit miles of 115 Kv overhead lines; 22
circuit miles of 115 Kv underground lines; 331330 circuit miles of 69 Kv overhead
lines; 139137 circuit miles of 44 Kv overhead lines; and 1 circuit mile of 44 Kv
underground lines. PSCo jointly owns with another utility approximately 342
circuit miles of 345 Kv overhead lines and 360359 miles of 230 Kv overhead lines,
of which PSCo's share is 112 miles and 147 miles, respectively, which shares are
included in the amounts listed above.
SPS: On December 31, 1997,1998, SPS's transmission system consisted of
approximately 319 circuit miles of 345 Kv overhead lines; 1,598 circuit miles of
230 Kv overhead lines; 2,5402,579 circuit miles of 115 Kv overhead lines; 1,7551,768
circuit miles of 69 Kv overhead lines; 1 circuit mile of 115 Kv underground
line; and 5 circuit miles of 69 Kv underground lines.
24
Interconnections
PSCo: PSCo's transmission facilities are located wholly within Colorado.
The system is interconnected with the systems of the following utilities with
which PSCo has major firm purchase power contracts; capacity and energy are
provided primarily by generating sources in the locations indicated:
Utility Location
------- --------
Basin Electric Power Cooperative................ Southeast Wyoming
PacifiCorp ..................................... West & Northwest U.S.
Northwest Colorado
Platte River Power Authority.................... Northcentral Colorado
Tri-State....................................... Southeast Wyoming and
Northwest Colorado
PSCo has wheeling agreements with the above, and with other utilities and
public power agencies, which are utilized to provide capacity and energy to
PSCo's system from time to time.
PSCo is a member of the WSCC, an interstate network of transmission
facilities which are owned by public entities and investor-owned utilities. WSCC
is the regional reliability coordinating organization for member electric power
systems in the western United States. PSCo is also a member of the Western
Systems Power Pool which is an economic power pool that operates an electronic
bulletin board and acts as a clearinghouse for bulk power transactions among
over 90 member utilities and marketers.
SPS: SPS's transmission system is located in parts of Texas, New Mexico,
Oklahoma and Kansas. SPS is connected with utilities west of its service
territory through two HVDC interconnections in New Mexico and has four
interconnecting transmission lines with utilities of the SPP. These
interconnections are described in the following table:
Utility Location
------- --------
El Paso Electric Company and Texas-New
Mexico Power Company .................................Near........................Near Artesia, NM
Public Service Company of New Mexico .............Near Clovis, NM
Public Service Company of Oklahoma................Near Oklaunion, TX
and near Elk City, OK
West Texas Utilities..............................Near Shamrock, TX
and near Groom, TX
WestPlains Energy.................................Near Guymon, OK
SPS is a member of the SPP. Transactions with the SPP are handled through
interties near Elk City and Guymon, Oklahoma,OK, and Shamrock and Oklaunion, Texas.TX. These
interties allow the Company to sell or to purchase energy from the eastern
electrical grid. HVDC interconnections link SPS with the western electrical grid
of the United States. SPS purchases and sells energy through HVDC interties near
Artesia and Clovis, New Mexico.
SPS is a participant in the FERC approved WSPP bulk power market.market This
arrangement provides for short-term energy and capacity exchanges, transmission
services, flexible pricing, and electronic bulletin board posting of available
power and energy.
It is presently anticipated that a tie line between Amarillo, Texas and
southeastern Colorado will be constructed by the year 2001. The tie line
would be approximately 300 miles and the voltage would be 345 Kv.After further evaluation during 1998, PSCo and SPS have agreed with other utilitiesrecently announced plans
to comprehensive procedures for regional
planninginterconnect their systems and build additional transmission facilities to
alleviate transmission constraints, increase reliability and provide energy
supply alternatives in anticipation of the new transmission interconnection. Following the completioncompetition. This expansion is expected
to be completed in a phased approach and will require various regulatory
approvals. This first phase is 230 miles of the345 Kv line from Amarillo, TX to
Holcomb, KS, and is expected to be completed in 2001, pending regulatory
approvals. The second phase is 100 miles of 345 Kv line from Holcomb to Lamar,
CO and a high voltage direct current
25
conversion facility, which would interconnect the PSCo and SPS systems, will be operated as a single
interconnected system.
25
well
as the WSCC and SPP regional transmission grids. This second phase is now
scheduled for completion in 2004. While not directly related to the
interconnection of the PSCo and SPS systems, the third phase of this project is
approximately 275 miles of 345 Kv line from Amarillo to Oklahoma City, OK. The
estimated completion of this line is not expected before 2006.
Electric Distribution Property
The distribution system of the Company's electric subsidiaries consists of
both overhead lines and underground distribution systems. PSCo owns
approximately 220210 substations (30 of which are jointly owned) having an
aggregate transformer capacity of 19,167,00019,390,000 Kva, of which 4,145,8274,141,000 Kva is
step-up transformer capacity at generating stations. SPS owns approximately 348316
substations having an aggregate transformer capacity of 19,277,00020,531,310 Kva, of which
5,951,000 Kva is step-up transformer capacity.
Gas Property
The gas property of PSCo at December 31, 19971998, consisted chiefly of approximately
15,36216,048 miles of distribution mains ranging in size from 0.50 to 30 inches and
related equipment. The Denver distribution system consisted of 8,8889,093 miles of
mains. Pressures in the system are varied to meet load requirements and
individual house regulators are installed on each customer's premises to provide
uniform flow of gas to appliances. PSCo also owns and operates four gas storage
facilities.
Other Property
PSCo's steam heating property at December 31, 19971998, consisted of 10.5
miles of transmission, distribution and service lines in the central business
district of Denver, CO including a steam transmission line connecting the steam
heating system with Zuni. Steam is supplied from boilers installed at PSCo's
Denver Steam Plant which has a capability of 295,000 pounds of steam per hour
under sustained load and an additional 300,000 pounds of steam per hour is
available from Zuni on a peak demand basis. An additional 80,000 pounds per hour
can be supplied as emergency backup through operation of a leased steam heat
boiler housed at the State of Colorado. PSCo also owns service and office
facilities in Denver and other communities strategically located throughout its
service territory.
As of December 31, 1998, PSCo has installed 8,500 tons of mechanical and
iced storage capacity. Approximately 3,200 feet of piping has been installed to
provide central chilled water service to the Downtown Denver area.
Property of Subsidiaries
Unregulated subsidiary property is approximately 1% of the total net
book value of the properties of the Company and consolidated subsidiaries
combined. 1480 Welton, Inc. owns two buildings that are used by PSCo.
Character of Ownership
The steam electric generating stations, the majority of major electric
substations owned by the Company and its subsidiaries are on land owned in fee.
Approximately half of the compressor stations and a limited number of town
border and meter stations are also on land owned in fee. The remaining major
electric substations, compressor stations and the majority of gas regulator
stations and town border and meter stations are wholly or partially on land
leased from others or on or along public highways or on streets or public places
within incorporated towns and cities (under franchises or other rights). PSCo's
Cabin Creek Pumped Storage Hydroelectric Generating Station, its Shoshone
Hydroelectric Generating Station and a portion of the related intake tunnel are
located on public lands of the United States. As to substantially all property
on or across public lands of the United States, the Company or its subsidiaries
hold licenses or permits issued by appropriate Federal agencies or departments.
The Leyden gas storage facility is located largely on leased property under
leases expiring December 31, 2040. The Company and its utility subsidiaries have
the power of eminent domain
26
pursuant to State law to acquire property for their electric and gas facilities.
The electric and gas transmission and distribution facilities are for the most
part located on land owned by the Company or its subsidiaries pursuant to
easements obtained from the record holders of title or are over or under
streets, public highways or other public places and on public lands under
franchises or other rights. The water rights of the Company and its subsidiaries
are owned subject to divestment to the extent of any abandonment thereof.
Substantially all of the utility plant and other physical property owned
by the Company's utility subsidiaries is subject to the liens of the respective
indentures securing the mortgage bonds of the Company's utility subsidiaries.
26
Item 3. Legal Proceedings
See Note 9. Regulatory Matters and Note 10. Commitments and
Contingencies in ItemITEM 8. Financial Statements And Supplementary Data.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Item 4. Submission of Matters to a Vote of Security Holders
NCE: None.
PSCo: None.Omitted pursuant to General Instruction I(2)(c).
SPS: Omitted pursuant to General Instruction I(2)(c).
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock, $1.00 par value per share, is listed on the
New York stock exchange.Stock Exchange. On August 1, 1997, following the receipt of all
required State and Federal regulatory approvals, PSCo and SPS combined to form
NCE with the result that the common shareholders of PSCo and SPS became the
common shareholders of NCE. Pursuant to the Merger Agreement, each outstanding
share of PSCo common stock, par value $5.00 per share, was canceled and
converted into one share of NCE common stock and each outstanding share of SPS
common stock, $1.00 par value per share, was canceled and converted into 0.95 of
one share of NCE common stock. Prior to the Merger, PSCo and SPS common stock
was listed on the New York, Chicago and Pacific Stock Exchanges. The following
table sets forth for the periods indicated the dividends declared per share of
common stock and the high and low sale prices of the common stock on the
consolidated tape as reported by The Wall Street Journal for NCE, PSCo and SPS
in 19971998 and by the National Quotations Bureau, Inc. for SPS in 1996.1997.
Dividends Price Range
NCE Year and Quarter Declared High Low
----------------------- -------- ---- ---
1998
First Quarter................................ $ 0.58 $51 3/16 $44 1/2
Second Quarter............................... 0.58 50 3/4 44 5/16
Third Quarter................................ 0.58 49 3/16 41 5/8
Fourth Quarter............................... 0.58 52 1/4 45 1/2
-------
$ 2.32
1997
Third Quarter (from August 1, 1997).......... $ .580.58 $43 3/16 $ 39
Fourth Quarter............................... .580.58 49 5/8 40 1/4
-----------
$ 1.16
27
Dividends Price Range
PSCo Year and Quarter
---------------------Declared High Low
---- -------- ---- ---
1997
First Quarter................................ $ .525$0.525 $40 1/8 $38 1/4
Second Quarter............................... .5250.525 41 3/4 37 3/4
Third Quarter (to August 1, 1997) (1)........ .1150.115 42 3/16 40 1/8
-----------
$1.165
1996
First Quarter................................ $ .525 $36 1/2 $33 3/4
Second Quarter............................... .525 36 3/4 32 3/8
Third Quarter................................ .525 36 7/8 34 3/4
Fourth Quarter............................... .525 39 1/2 35 1/4
----
$ 2.10
SPS Year and Quarter
--------------------
1997
First Quarter................................ $ .550.55 $37 1/8 $35 3/4
Second Quarter............................... .550.55 39 1/2 37 3/8
Third Quarter (to August 1, 1997) (2)........ .460.46 40 1/8 37 5/8
----------
$ 1.56
1996 - Transition Period
Fiscal Quarter ended November 30, 1996....... $ .55 $36 3/4 $31 3/4
Month ended December 31, 1996................ - 35 7/8 34 3/8
---
$ .55
27
Dividends Price Range
SPS Year and Quarter Declared High Low
-------------------- -------- ---- ---
1996 - Fiscal Year
Fiscal Quarter ended November 30, 1995....... $ .55 $33 7/8 $ 30
Fiscal Quarter ended February 29, 1996....... .55 33 7/8 32 18
Fiscal Quarter ended May 31, 1996............ .55 34 1/8 30 5/8
Fiscal Quarter ended August 31, 1996......... .55 33 3/8 30 1/4
---
$ 2.20
(1)A partial dividend payable to shareholders covering the period July 12, 1997
through July 31, 1997, the day prior to the Merger effective date, based on
the quarterly dividend rate of $0.525, but proratedpro-rated for the number of days
in the interim period.
(2)A partial dividend payable to shareholders covering the period May 16, 1997
through July 31, 1997, the day prior to the Merger effective date, based on
the quarterly dividend rate of $0.55, but proratedpro-rated for the number of days in
the interim period.
At December 31, 1997,1998, the book value of the Company's common equity was
$21.25$22.84 per share. At February 19, 1998,March 24, 1999, there were 83,12473,000 holders of record of
the Company's common stock and the market price of the stock was $45.50.
In November 1997, the Company filed a Registration Statement on Form S-3 to
sell 9 million shares of common stock. In December 1997, the$38 11/16. The
Company sold 5.9 million shares of common stock.stock in December 1997 and sold 2.5
million shares in November 1998. See NoteNOTE 4. Capital StockCAPITAL STOCK for a discussion of
the shareholders' rights plan.
The Company anticipates declaring quarterly dividends at an annualized
rate of $2.32 per share. However, the dividend level is dependent upon the Company's results of operations,
financial position and other factors and is evaluated quarterly by the Board of
Directors. See Item 7. Management's
Discussion And AnalysisMANAGEMENT'S DISCUSSION AND ANALYSIS Of Financial Condition And Results Of OperationsFINANCIAL
CONDITION AND RESULTS OF OPERATIONS (NCE).
28
Item 6. Selected Financial Data (NCE)
The NCE selected financial data for 1997 and 1996 has been prepared
from the combination of the historical information of PSCo and SPS as of and
for the years ended December 31, 1997 and 1996. The 1995, 1994, and 1993
selected financial data has been prepared from the combination of PSCo
information as of and for the years ended December 31, 1995, 1994 and 1993
with the SPS information as of and for the years ending August 31, 1995, 1994
and 1993. Income statement and cash flow information for SPS for the four
months ended December 31, 1995 is presented in SPS's Transition Period
statements in Item 8. Financial Statements and Supplementary Data. This following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the management's
discussion and analysis of financial condition and results of operations
appearing elsewhere herein. The NCE selected financial data for 1996 has been
prepared from the combination of the historical information of PSCo and SPS as
of and for the year ended December 31, 1996. The 1995 and 1994 selected
financial data has been prepared from the combination of PSCo information as of
and for the years ended December 31, 1995 and 1994 with the SPS information as
of and for the years ending August 31, 1995 and 1994.
Year ended December 31,
-----------------------1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
NCE (In Thousands,thousands, except per share data & ratio)
- ---
NCE
Operating revenues:
Electric.................. $2,473,359 $2,416,539 $2,283,179 $2,243,284 $2,146,806$ 2,697,486 $ 2,473,359 $ 2,416,539 $ 2,283,179 $ 2,243,284
Gas....................... 841,276 816,596 640,497 624,585 624,922
628,324
Other..................... 72,143 52,570 39,998 54,444 42,092
27,975------- ------- ------- ------ ------
------ ------ ------
Total.................. 3,610,905 3,342,525 3,097,034 2,962,208 2,910,298
2,803,105
Total operating expenses..... 2,960,404 2,713,300 2,461,451 2,345,264 2,413,704
2,282,714
Operating income............. 650,501 629,225 635,583 616,944 496,594
520,391
Income before extraordinary
item ...................... 341,957 261,487 272,341 281,492 255,545 244,574
Extraordinary item - U.K.
windfall tax .............. - (110,565) - - - -
Net income................... 341,957 150,922 272,341 281,492 255,545 244,574
Per share data applicable to
common stock (a):
Basic and diluted earnings per share (c) ...........$3.06 $2.50 $2.64 $2.77 $2.54
$2.48Diluted earnings per share (c) $3.05 $2.50 $2.64 $2.77 $2.54
Dividends declared (b).... $2.32 $2.53 $2.18 $2.15 $2.13 $2.13
Rate of return earned on
average common equity
(income before extraordinary
item to common) ......... 13.8% 11.6% 12.8% 14.0% 13.3%
13.4%
Total assets................. $7,310,281$7,671,964 $7,321,666 $6,617,442 $6,260,794 $6,027,106
$5,775,110
Total construction expenditures 608,972 475,497 454,968 380,407 409,485
385,830
Total common equity.......... 2,353,2452,614,827 2,357,387 2,170,040 2,064,397 1,963,654 1,873,085
Preferred stock of subsidiaries:
Not subject to mandatory
redemption ............................. - 140,002 140,008 212,688 212,688 212,688
Subject to mandatory
redemption at par(includingpar
(including amounts due
within one year) 39,253 39,913 41,289 42,665 45,454....... - 41,829 42,489 43,865 45,241
PSCo and SPS obligated
mandatorily redeemable
preferred securitiessecurities...... 294,000 100,000 100,000 - - -
Long-term debt of subsidiaries
(including amounts due
within one year) ....... 2,343,710 2,245,424 2,050,189 1,854,737 1,703,808 1,742,440
Notes payable & commercial
paper ..................... 524,394 588,343 298,561 288,050 339,794
276,875
_________________- -----------------
(a)Earnings per share are based on the weighted average number of shares of
common stock outstanding.
(b)The 1997 amount includes dividends declared by PSCo and SPS for the period
January 1, 1997 through July 31, 1997 and dividends declared by NCE for the
period August 1, 1997 through December 31, 1997. See Item 5. Market for
Registrant's Common Equity and Related Stockholder Matters.
(c)The 1997 amounts are based on the weighted average number of shares
of common stock outstanding.
(b) The 1997 amount includes dividends declared by PSCo and SPS for the
period January 1, 1997 through July 31, 1997 and dividends declared by NCE
for the period August 1, 1997 through December 31, 1997. The Company is
currently declaring quarterly dividends at an annualized rate of $2.32 per
share. See Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters.
(c) The 1997 amount is before the $1.06 extraordinary loss per share related
to the U.K. windfall tax.
29
Year ended December 31,
-----------------------
1997(a)1998(d) 1997 (e) 1996 (e) 1995 (e) 1994 1993(e)
------- ---- ---- ---- ------------ -------- -------- --------
PSCo (In Thousands,thousands, except per share data & ratio)
- ----
Operating revenues:
Electric.................. $1,635,573 $1,485,196 $1,488,990 $1,449,096 $1,399,836
$1,337,053
Gas....................... 640,064 733,091 640,497 624,585 624,922
628,324
Other..................... 8,449 11,356 7,951 7,010 7,517
11,548------- ------ ----- ----- ----------- ------
Total.................. 2,284,086 2,229,643 2,137,438 2,080,691 2,032,275
1,976,925Total operating expenses..... 1,952,068 1,892,290 1,812,902 1,784,784 1,786,592
Operating income............. 332,018 337,353 324,536 295,907 245,683
259,173
Income before extraordinary item 200,103 204,042 190,346 178,856 170,269 157,360
Extraordinary item - U.K.
windfall tax ..............- (110,565) - - -
-
Dividend requirements on
preferred stock ........... 11,752 11,848 11,963 12,014 12,031
Earnings available for common
stock ..................... 81,725 178,498 166,893 158,255 145,329
Net income................... 200,103 93,477 190,346 178,856 170,269
157,360
Total assets................. 4,994,7335,177,636 4,998,875 4,572,648 4,351,789 4,207,832
4,057,600
Total common equity.......... 1,621,3991,627,332 1,625,541 1,438,288 1,343,645 1,267,482 1,184,183
Preferred stock:
Not subject to mandatory
redemption ............................. - 140,002 140,008 140,008 140,008 140,008
Subject to mandatory
redemption at par (including
amounts due within one year) 39,253- 41,829 42,489 43,865 45,241
45,454PSCo obligated mandatorily
redeemable preferred
securities................. 194,000 - - - -
Long-term debt
(including amounts due
within one year) .............. 1,687,611 1,595,298 1,414,558 1,278,389 1,180,580 1,193,668
Notes payable & commercial paper 402,795 348,555 244,725 288,050 324,800
276,875
______________
(a) - -----------------
(d)The 1998 information includes NCI through March 31, 1998, at which time it
was sold to NC Enterprises.
(e)The 1994 through 1997 information includes Cheyenne, WGI, e prime, and
Natural Fuels through July 31, 1997. These subsidiaries were transferred by
dividend to NCE in connection with the Merger.
Year ended December 31, Transition Year Ended August 31,
1998 1997 Period 1996 1995 1994
--------- -------- -------- -------- --------- ------
SPS (f) (In thousands, except per share data & ratio)
Operating revenues:
Electric................ $ 951,187 $ 960,355 $ 295,579 $ 899,397 $ 834,083 $ 843,448
Other................... - 18,928 10,701 32,403 47,434 34,575
------- ------- ------ ------- ------- ------
Total................ 951,187 979,283 306,280 931,800 881,517 878,023
Total operating expenses... 785,508 820,002 252,299 780,758 723,485 738,304
Operating income........... 165,679 159,281 53,981 151,042 158,032 139,719
Net income................. 114,987 75,575 19,137 105,773 119,477 102,168
Total assets............... 2,129,864 2,188,736 2,044,799 1,997,817 1,909,005 1,821,235
Total common equity........ 738,220 698,390 731,752 735,119 720,752 696,172
Preferred stock, not subject
to mandatory redemption... - - - - 72,680 72,680
SPS obligated mandatorily
redeemable preferred
securities................. 100,000 100,000 100,000 100,000 - -
Long-term debt
(including amounts due
within one year)........ 620,731 620,771 635,631 638,107 582,552 523,228
Notes payable & commercial
paper .................... 94,162 179,404 53,836 69,624 - 14,944
- -----------------
SPS Selected financial data omitted pursuant(f)The 1994 through 1997 information includes UE and Quixx through July 31,
1997. These subsidiaries were transferred by sale to General Instruction I(2)(a).NC Enterprises in
connection with the Merger.
30
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (NCE,PSCo and SPS)
Competition and Industry Outlook
Electric utilitiesThe business and regulatory environment in the U. S. have historically operatedutility industry that has
existed for decades is continuing to change. Competition is increasing,
particularly in a highly
regulated environmentenergy supply and retail energy services. Several states in which they have an obligation to provide electric
service to their customers in return for an exclusive franchise within their
service territories with an opportunity to earn a regulated rate of return.
This regulatory environment is changing. Retail competition for electric
service is now a reality in a few states and many other statesthe
U.S. have either passed or proposed legislation that will allow all customers to choose theirprovides for retail
electric competition and price deregulation of energy supplier in the future. Competition within thesupply. The wholesale
electric energy market has intensified with open-access transmissionexpanded and an increasegeographic boundaries are no longer
barriers. Increased activity by power marketers and traders has added new
dimensions of complexity and risk. A significant amount of electric generation
assets have been purchased, sold or traded in marketingthe U.S. during 1998 and trading activities by utilities and power marketers.
Convergence, consolidationthis
trend is expected to continue. Consolidation and globalization of the gas and electric
industries is a continuing
trend as companiesbusinesses position themselves for deregulation
and competition in an unbundled energy
industry withindustry. The Company continues to look for opportunities to expand its customer
base as an energy supply,
transmission, distributionservice provider and energy services business segments.on an ongoing basis evaluates merger,
acquisition and divestiture opportunities.
Electric prices in the Company's service territories are relatively low in comparison
to other parts of the U.S., lessening the need for immediate
legislative and regulatory change. State legislatures and state utility commissions in
the retail jurisdictions served by the Company's utility subsidiaries have begun to addressare
focusing on the restructuring and deregulation of the electric utility industry,
but so farhowever, no actions have been takensignificant progress was achieved during 1998. The Company supports
a fair and orderly transition to a competitive environment and believes that are expectedany
restructuring plans should provide the Company with an opportunity to significantly impactrecover
its costs for prudently incurred utility investments and contractual commitments
that may be uneconomic in the Company.future. Overall, the Company believes that the
prices its utility subsidiaries charge for electricity and the quality and
reliability of their service currently place them in a position to compete
effectively in the energy market. Accomplishing a smooth transition to a
competitive electric utility industry requires the resolution of several
important and complex issues, including, but not limited to: 1) what segments
of the business will be open to competition and what will the rules of
competition be; 2) how to transition from traditional cost-of-service
regulation to performance-based regulation or market-based pricing; 3) who
will pay for the costs of prudent utility investments or past commitments
(i.e. stranded costs) that will be uneconomic in a competitive environment;
4) what environmental impacts will result from deregulation and 5) how to
ensure safe and reliable electric service. The resolution of these and other
issues will likely impact the Company and its utility subsidiaries in the
future. The potential negative financial impacts of
deregulation, however, could include an impairment of assets, a loss of retail
customers, lower profit margins and increased costs of capital (see Note 1.
Summary of Significant Accounting Policies in Item 8. Financial Statements and Supplementary Data)FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA). At this time, the Company and its utility subsidiaries
cannot predict when they will be subject to changes in legislation or
regulation, nor can they predict the impacts of such changes on their financial
position, results of operations or cash flows.
The Company agrees with the need for change in the industry and will
proactively support legislation and participate in regulatory proceedings to
protect the interests of its shareholders and its customers.
Corporate Overview - 1997
After two years1998
The Company completed its first full year of work,operations since the merger
of PSCo and SPS which was completed effective August 1, 1997, creating1997. The primary focus in 1998
has been on providing customers with reliable energy service, controlling costs
to maintain low prices for customers and to earn an adequate return for
shareholders. Customers benefited from electric rate reductions resulting from
shared savings under a largerperformance based regulatory plan in Colorado and more geographically diverse
combinedthe
pass through of lower fuel costs in several jurisdictions. Strong customer
growth in its service territoryterritories and reducing businessaggressive cost control efforts continue
to help keep gas and electric rates among the lowest in the industry. In
connection with various state regulatory and legislative initiatives, the
Company is evaluating its potentially stranded costs. The issues related to
determining stranded costs are very complex and dependent upon the future
changes in legislation or regulation. However, at this time the Company believes
that its risks related to this matter are relatively low. Risk management
initiatives were further implemented this year to better manage exposures to
changes in economic, competitive and/or climatic conditions. The Company can now beginmarket risks and to derive benefits from the more efficient and economic utilization of
combined facilities and personnel. Obtaining all of the regulatory approvals
to effect the Merger and transitioning NCE into a post-merger organization
took longer than anticipated and, accordingly,better position the Company did not realizefor the synergy savings that it had initially hopedfuture.
Additionally, Yorkshire Power provided a solid contribution to achieve in 1997.earnings for the
year demonstrating the value of some strategic international diversification.
The Company has organized into business units as part of its strategy for
future growth. TheThese business units, structured to focus on specific customer
markets, consist of: Commodity Services,consisting of Energy Supply, Retail,
Services, Delivery Services,
including transmission and distribution and International Investments. The
Company intendshave made significant progress in developing business
plans focused on the corporate priorities to build uponprofitably grow the core competencies brought together with the
Merger.
NCE expanded its international presence with its 50% investment in
Yorkshire Power, which acquired Yorkshire Electricity, a United Kingdom
regional electricity company whose service territory is one of the region's
largest with approximately 2.1 million customers. Domestically,Company. In
1999, the Company has invested in Cadence Network LLC,will continue to further develop and implement the business
unit infrastructure, including business systems and regulatory strategies. The
deployment of this strategy will be an energy-related company which will
provide a single sourceimportant step toward creating
shareholder value and preparing the Company for both energy managementthe year 2000 and beyond.
31
services and products designed to lower energy costs for national companies that
operate at multiple locations. The Company has continued to develop and expand
its gas and power marketing activities to serve customers within and outside of
markets served by its utility subsidiaries. The Company's operating priorities
in 1997 continued to focus on maintaining quality and reliable service, while
reducing costs and business risks. This approach resulted in positiveEarnings
Basic earnings
for the Company and a customer refund obligation to PSCo customers in connection
with the sharing of electric department earnings in excess of 11% return on
equity.
Earnings
Earnings per share were $3.06 (diluted earnings per share were
$3.05), $1.44 ($2.50 before the extraordinary item), and $2.64 during 1998, 1997
and $2.771996, respectively. The increase in 1998 earnings was primarily attributed
to increased electricity sales during 1997, 1996 and 1995, respectively. Earnings for 1995
include the results of SPS for its fiscal year ending August 31.hot summer months with continued
strong customer growth in Colorado. Improved earnings from NCE's investment in
Yorkshire Power, also contributed positively to the higher 1998 earnings. The
significant decrease in 1997 earnings, as compared to 1996, was primarily
attributable to the recognition of an extraordinary item related to the one-time
U.K. windfall tax of approximately $110.6 million, or $1.06 per share, for its 50% ownership in
Yorkshire Power. However,however,
ongoing operations of Yorkshire Power positively impacted the Company's 1997
earnings by approximately $25.4 million net of
borrowing costs and income taxes, or $0.24 per share.earnings. Earnings during 1997 and 1996 were negatively impacted by the
write-offs of certain investments in waste-to-energy cogeneration facilities,
higher merger and business integration costs resulting from the August 1, 1997,
closing of the Merger and electric rate decreases instituted in 19961997 and 1997. Management anticipates
that future operating results will benefit from the synergies from the Merger
and other growth initiatives discussed above. See Forward Looking
Information.1996.
Electric Operations
The following table details the annual change in electric operating
revenues and energy costs as compared to the preceding year (in thousands of
dollars)thousands).
Increase (Decrease)
From Prior Year
---------------1998 1997
1996
---- ------------ --------
Electric operating revenues:
Retail ....................................Retail...................................... $ 62,565 $ 20,350
$ 81,786
Wholesale..................................Wholesale................................... 120,343 35,773 35,050
Non-regulated power marketing..............marketing............... 51,656 15,055 7,806
Other (including unbilled revenues)................. (10,437) (14,358)
8,718
------- ------------- --------
Total revenues............................revenues............................. 224,127 56,820 133,360
Fuel used in generation.....................generation...................... (27,494) 36,525
83,233
Purchased power.............................power.............................. 181,400 20,905
23,383
------ -------------- --------
Net increase (decrease) in electric margin $ (610)70,221 $ 26,744(610)
======== ========
The following table summarizes electric Kwh sales by major customer
classes.
% Change *
Millions of Kwh Sales From Prior Year
-------------------------------------1998 1997 19961998 1997 1996
---- ---- ---- ----
Residential ............................... 10,136 9,730 9,5304.2% 2.1% 6.0%
Commercial and Industrial ................ 27,666 27,014 26,5622.4 1.7 4.1
Public Authority .......................... 841 774 7808.7 (0.8)
6.0
--- --------- -----
Total Retail............................. 38,643 37,518 36,8723.0 1.8
4.6
Wholesale.................................. 15,948 11,495 10,13038.7 13.5 6.5
Non-regulated Power Marketing.............. 2,917 1,210 419 ** **
------ -----
---
Total...................................... 57,508 50,223 47,421 5.914.5 5.9
====== ======
* Percentages are calculated using unrounded amountsamounts.
** Percentage change is significant, but presentation of the amount is not
meaningfulmeaningful.
Electric margin increased during 1998, when compared to 1997, due
primarily to a 3.0% increase in total retail sales and a 14.5% increase in total
sales resulting from customer growth of 2.2% and hotter than normal weather
during the second and third quarters of 1998. In addition, PSCo's margin was
positively impacted by lower accruals of approximately $9.6 million for the
estimated customer refund obligation associated with the sharing of earnings in
excess of 11% return on equity in Colorado (see Note 9. Regulatory Matters in
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA). Higher wholesale and
non-regulated power marketing sales, reflecting marketing activities for
economy, short-term firm and off-system sales, contributed to increased
operating revenues, however, the margin on such sales was minimal. SPS's margin
was also positively impacted by $16.9 million in revenue recognized with the
settlement of a 1985 FERC rate case.
32
Electric margin decreased slightly during 1997 when compared to 1996.
PSCo's retail rate reductions (approximately $15.4 million) implemented in
October 1996 and February 1997 and the recognition at PSCo of an estimated
customer refund obligation (approximately $16.4 million) in connection with the
earnings sharing in excess of 11% return on equity which resulted from the
settlement of the Merger proceedings in Colorado (see Note 9. Regulatory Matters
in Item 8. Financial Statements and supplementary data)FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA) were primary
contributors to the decrease. Electric margin was also negatively impacted by
the recognition at SPS of an estimated customer refund obligation (approximately
$1.8 million) related to the guaranteed merger savings as well as interruptible
rates available to certain classes of retail and wholesale customers. An overall
1.8% increase of approximately 1.8% in electric Kwh sales to retail customers, resulting primarily
from customer growth of 1.3% minimized the impact of these rate reductions.
Higher wholesale electric sales and power marketing activities by non-regulated
subsidiaries also contributed to increased operating revenues, however, the
margin on such sales is minimal. Electric margin increased in 1996, when compared to 1995,
primarily due to an overall 4.6% increase in retail sales resulting primarily
from customer growth of 2.6%. The hotter than normal late spring and early
summer 1996 in the SPS territory also favorably impacted retail and firm
wholesale sales. Customer growth and higher economy sales by the Company's
utility subsidiaries and power marketing activities of non-regulated
subsidiaries contributed to increased wholesales revenues, but had little
impact on electric margin.minimal
The Company's regulated subsidiaries have cost adjustment mechanisms which
recognize the majority of the effects of changes in fuel used in generation and
purchased power costs and allow recovery of such costs on a timely basis. As a
result, the changes in revenues associated with these mechanisms in 19971998 and
1996,1997, when compared to the respective preceding year, had little impact on net
income. In its decision on the Merger, the CPUC replaced PSCo's ECA with an ICA,
effective October 1, 1996, which allows for a 50%/50% sharing of certain fuel
and energy cost increases and decreases among customers and shareholders. For
1998 and 1997, the ICA did not significantly impact electric margin (see Note 9.
Regulatory Matters in Item 8. Financial
StatementsFINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).
Fuel used in generation expense decreased approximately 4.1% during 1998,
as compared to 1997, primarily due to lower per unit cost of coal and Supplementary data).natural
gas offset, in part, by increased generation levels at PSCo and SPS. Fuel used
in generation expense increased approximately 5.8% during 1997, as compared to
1996, primarily due to increased generation levels at PSCo and SPS, power plants and higher
natural gas costs at SPS.
Fuel used in
generation expense increased 15.1% during 1996, as compared to the prior
year, primarily due to the increased natural gas and coal costs.
Purchased power expense increased 34.1% and 4.1% during 1998 and 4.8% during 1997, and 1996,
respectively, as compared to the previous year. These increases are primarily
due to the amount of power purchased by PSCo and a non-regulated subsidiary
related to meet increasedgrowth in wholesale requirements and other customer demands, as well as an increase in
power marketing activities which were initiated in the third quarter of 1996.gas trading and
non-trading operations.
Gas Operations
The following table details the annual change in revenues from gas salesrevenues and gas
purchased for resale as compared to the preceding year (in thousands of dollars)thousands).
Increase (Decrease)
From Prior Year
---------------1998 1997
1996
---- ------------ --------
Revenues from gas sales (including
unbilled revenues) $172,340....................... $ 11,21122,500 $172,340
Gas purchased for resale.................... 19,292 150,128
483
------- ----------- --------
Net increase in gas sales margin........... 3,208 22,212
Transportation revenues..................... 2,180 3,759
-------- --------
Increase in net gas margin................ $ 22,2125,388 $ 10,72825,971
======== ========
33
The following table compares gas dekatherm (Dth) deliveries by major
customer classes.
Millions of % Change *
Dth Deliveries From Prior Year
-------------- ---------------1998 1997 19961998 1997 1996
---- ---- ---- ----
Residential............................ 84.7 87.4 86.1(3.1)% 1.5%
4.8%
Commercial............................. 42.4 47.5 51.7(10.8) (8.1) (1.7)
Non-regulated gas marketing............ 70.6 59.6 21.818.4 **
**
---- ---------- ------
Total Sales.......................... 197.7 194.5 159.61.6 21.9 19.8
Transportation, gathering and processing 107.4 93.3 91.415.2 2.1
18.6
--------- ----
Total................................ 305.1 287.8 251.06.0 14.7
19.4
===== =========== ======
* Percentages are calculated using unrounded amounts
** Percentage change is significant, but presentation of the amount is not
meaningful
Gas sales margin increased slightly in 1998, when compared to 1997,
primarily due to an increase in PSCo's base revenues associated with a rate
increase effective February 1, 1997, offset in part, by lower PSCo retail sales
which resulted from warmer weather. Gas sales margin increased in 1997, when
compared to 1996, primarily due to an increase in PSCo's base revenues
associated with the higher rates, effective February 1, 1997, resulting from the 1996 rate case and an increase in
gas marketing activities by non-regulated subsidiaries. Per-unit gas costs were
lower in 1998 than 1997, however, the total cost of gas increased due to an
increase in the quantity purchased. Gas costs were higher during 1997, as
compared to 1996, as a result of higher per-unit gas prices throughout the year. Gas sales margin increased in 1996, when
compared to 1995, primarily due to higher retail gas sales resulting from
customer growth of 3.4% and slightly colder weather.1997.
Gas transportation gathering and processing revenues increased $3.8
million during 1998 and 1997, when compared
to 1996,the respective preceding years, primarily due to an increaseincreases in deliveries and
higher transportation rates, effective February 1, 1997, resulting from PSCo's
1996 rate case. In addition, the shifting of various PSCo commercial customers
to firm transporttransportation customers, of PSCo, some of which became retail customers of the
Company's non-regulated subsidiaries, contributed to the increaseincreases in 1997both 1998
and 1996, when compared to the preceding
year.1997.
PSCo and Cheyenne have in place GCA mechanisms for natural gas sales,
which recognize the majority of the effects of changes in the cost of gas
purchased for resale and adjust revenues to reflect such changes in costcosts on a
timely basis. As a result, the changes in revenues associated with these
mechanisms during 19971998 and 19961997 had little impact on net income. However, the
fluctuations in gas sales impact the amount of gas the Company's gas utilities
must purchase and, therefore, along with the increases and decreases in the
per-unit cost of gas, affect total gas purchased for resale.
Other Operating Revenues
Other operating revenues increased approximately $19.6 million and $12.6
million during 1998 and 1997, respectively, as compared the preceding year,
primarily due to higher revenues from diversified energy related businesses,
primarily engineering, design and construction management, energy management and
consulting services.
Non-Fuel Operating Expenses and Other Income and Deductions
Other operating and maintenance expenses increased $43.4 and $25.8 million
during 1998 and 1997, respectively, as compared to 1996,the same period in the
preceding year. The increase in 1998 was primarily due to higher operating costs
from non-regulated operations (approximately $34 million). The increase in
non-regulated operating and maintenance expenses is due to the acquisition of
subsidiaries and growth of existing businesses. The increase in operating and
maintenance costs in the Company's regulated operations (approximately $9
million) was primarily due to higher labor costs from wage rate increases,
increased contract labor costs, higher data processing costs, including Year
2000 related costs and additional transmission wheeling costs. Other operating
and maintenance expenses increased during 1997 due to the recognition of the
Thunder Basin judgement (approximately $12 million). The Thunder Basin judgment
did not impact earnings as the costs were included in
34
the calculation of deferred revenue. The Company expects to recover these costs
through SPS's fixed fuel factor (see Note 9. Regulatory Matters in Item 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA). Also contributing to the 1997
increase was the favorable impact on 1996 earnings of the settlement agreement
with the DOE resolving all spent nuclear fuel storage and disposal issues at
Fort St. Vrain (approximately $16 million) and the recognition in operating and maintenance expenses of the
Texas jurisdictional portion of the Thunder Basin judgment (approximately $12
million) in accordance with the PUCT order received by SPS in December 1997.
The recognition of the Thunder Basin judgment did not impact earnings as the
costs were included in the calculation of deferred revenue. The Company
expects to recover these costs through SPS's fixed fuel factor (see Note 9.
Regulatory Matters in Item 8 Financial Statements and Supplementary data).
Higher operating costs from non-regulated operations were offset, in part, by
lower labor and employee benefit costs and other general decreases
attributable to the Merger and the Company's overall cost containment
efforts. Other operating and maintenance expenses decreased $14.0 million in
1996, primarily due to the settlement with the DOE, lower labor and employee
benefit costs resulting from the hiring freeze instituted in late 1995 and
other general cost reductions, offset, in part by higher operating costs from
certain non-regulated operations that were, for the most part, initiated
during 1996.
Depreciation and amortization expense increased $25.7 million in 1998 and
$18.2 million in 1997 and $19.3 million in 1996 primarily due to the higher depreciation expenses from
property additions and amortizationadditions. The increase in 1998 also includes $7.6 million of
software costs.
34
additional depreciation in connection with a settlement related to an SPS 1985
wholesale rate case.
Other income and deductions increased $59.0 million in 1998 and $7.3
million in 1997 and
decreased $30.5 million in 1996, when compared to the preceding year. Other
incomeThe increase in 1998 was
primarily attributable to the absence of Merger expenses and deductions was favorably impactedthe write-off of
investments in cogeneration projects and lower legal costs associated with
various employee lawsuits. The increase in 1997 by the recognitionwas primarily due to equity in
earnings of
equity earnings in Yorkshire Power ($34.9 million), of which approximately
$10 million related to the change offset, in the U.K. corporate income tax rate from
33% to 31% (see Note 2. Acquisition of Yorkshire Power and U.K. Windfall Taxpart, by increases in
Item 8. Financial Statements and supplementary data). Other income and
deductions was negatively impacted by the write-offsMerger expenses in June 1997 and
December 1996 of certain investments in waste-to-energy cogeneration
facilities and the recognition of merger and business integration costs
incurred over the past two years. Additionally in 1996, the Company
recognized a gain on the sale of water
rights by Quixx of certain water rights (see Note 3.
Acquisition and Divestiture of Investments in Item 8. Financial Statements
and supplementary data).1996.
Interest charges and preferred dividends of subsidiaries decreased $1.8
million in 1998. Proceeds from the issuance of $250 million in long-term debt in
April 1998 were used, in part, to reduce short term-debt. Proceeds from the
November 1998 issuance of $117 million in common stock were used, primarily to
reduce short-term debt and other borrowings. Higher average levels of debt were
offset by lower average interest rates. Additionally, in May 1998, PSCo issued
$194 million of Trust Originated Preferred Securities ("TOPRS"). The proceeds
were used to redeem all of PSCo's outstanding preferred stock (totaling $181.8
million) on June 10, 1998. A redemption premium totaling approximately $2.1
million was incurred as part of this refinancing, however, the after-tax
financing costs associated with the TOPRS will be lower over the long-term.
Additionally, higher AFDC was recorded in 1998 as a result of higher
construction expenditures. In 1997, interest charges and preferred dividends of
subsidiaries increased $31.5 million during
1997, as compared to 1996, primarily due to interest on borrowings
utilizedused to finance capital expenditures and the April 1997 investment in Yorkshire
Power. These financings included PSCo's issuance of medium-term notes and an
increased level of short-term borrowings by NCE and its subsidiaries.
Additionally, dividends on SPS obligated mandatorily redeemable preferred
securities of subsidiary trust increased due to the October 1996 issuance of
$100 million of these preferred securities.
Risk Management
NCE and its subsidiaries are exposed to market risks in both the energy
trading and non-trading operations. The objective of NCE's trading operations,
which were primarily initiated in 1998, is to generate profits while minimizing
the related exposure to changes in commodity prices. These operations include
the gas and power marketing and trading activities at e prime and the wholesale
power trading activities at PSCo and SPS. The objective of NCE's non-trading
activities is to protect the Company's profitability. These operations include
the retail gas business at e prime, the gas distribution and electricity load
management activities at PSCo in addition to the normal operations of the
Company. The market risks mentioned above include changes in commodity prices,
interest rates, and currency exchange rates. Due to cost-based rate regulation,
NCE's regulated subsidiaries have limited exposure to commodity price and
interest rate risk.
The Company manages these market risks through various policies and
procedures that allow for the use of various instruments in the energy and
financial markets. Risk management activities are monitored by the Company's
Risk Management Compliance Committee, whose responsibilities include reviewing
NCE and its subsidiaries' overall risk management strategy and monitoring risk
management activities to ensure compliance with risk management limitations,
policies and procedures.
Commodity Price Risk
NCE continued to develop and expand its gas and power marketing and
trading activities during 1998 and management expects to continue the growth of
these activities during 1999. As a result, the Company's exposure to changes in
commodity prices may increase and NCE may experience earnings volatility. To
manage
35
exposure to price volatility in the natural gas and electricity markets, a
variety of energy contracts, both financial and commodity based are utilized as
hedges. These contracts consist mainly of commodity futures and options, index
or fixed price swaps and basis swaps and are used by both the trading and
non-trading operations.
NCE measures its open exposure to commodity price changes separately for
the trading and non-trading operations using a Value-at-Risk ("VaR") methodology
to quantify the estimates of the magnitude and probability of potential future
losses related to open contractual positions. VaR expresses the potential loss
in fair value of all open forward contract and option positions over a
particular period of time, with a specified likelihood of occurrence. The model
employs a 95 percent confidence level based on historical price movement for a
holding period of 30 days. As of December 31, 1998, the calculated VaR was as
follows (in thousands):
NCE PSCo
--- ----
Natural gas marketing & trading activities ..... $ 29 $ -
Power marketing & trading activities ........... 307 291
Natural gas non-trading activities.............. 312 -
Power non-trading activities.................... 1,159 1,159
On a thirty-day holding period as of December 31, 1998, the VaR for NCE
does not exceed $1.3 million.
Interest Rate Risk
NCE and its subsidiaries have both long-term and short-term debt
instruments that subject the Company and certain of its subsidiaries to the risk
of loss associated with movements in market interest rates. This risk is limited
for NCE's regulated companies primarily due to cost based rate regulation.
Except for one interest rate swap agreement entered into by SPS, Obligated Mandatorily Redeemable Preferred Securitiesthe Company is
not currently utilizing financial instruments to manage its exposure to interest
rate fluctuations. In the future, management anticipates utilizing financial
instruments to manage its exposure to changes in interest rates. These
instruments may include interest rate swaps, caps, collars and exchange-traded
futures contracts and put or call options on U.S.
Treasury securities.
As of December 31 1998, a 100 basis point change in each outstanding
debt's instrument benchmark rate would impact net income of NCE, PSCo and SPS by
approximately $5.8 million, $2.9 million and $2.1 million, respectively. If
interest rates were to decline by 10% from their levels at December 31, 1998,
the corresponding increase in fair value of $69 million at NCE and its
subsidiaries, $53 million at PSCo and its subsidiaries and $15 million at SPS
would impact earnings and cash flows only if the Company and its subsidiaries
were to reacquire all or a portion of these instruments in the open market prior
to their maturity.
Currency Exchange Risk
NCE's investment in Yorkshire Power, a foreign currency denominated joint
venture, also exposes the Company to currency translation rate risk. At December
31, 1998 and 1997, the Company's exposure to changes in foreign currency
exchange rates is not material to its consolidated financial position, results
of operations or cash flows. The Company does not presently utilize financial
instruments to manage its exposures to foreign currency exchange rate movements.
Credit Risk
In addition to the risks discussed above, NCE and its subsidiaries are
exposed to credit risk in its risk management activities. Credit risk relates to
the risk of loss resulting from the nonperformance of a Subsidiary Trust. An increase in long-term debt usedcounterparty of its
contractual obligations. As the Company continues to finance capital
expendituresexpand its gas and other corporate cash requirements servedpower
marketing and trading activities, the Company's exposure to increase
interest chargescredit risk and
preferred dividends during 1996,counterparty default may increase. NCE and its subsidiaries maintain credit
policies intended to minimize overall credit risk.
36
NCE and its subsidiaries conduct standard credit reviews for all of its
counterparties. The Company employs additional credit risk control mechanisms
when compared to 1995.appropriate, such as letters of credit, parental guarantees and
standardized master netting agreements that allow for offsetting of positive and
negative exposures. The credit exposure is monitored and, when necessary, the
activity with a specific counterparty is limited until credit enhancement is
provided.
Commitments and Contingencies
Issues relating to regulatory and environmental matters are discussed in
Notes 9 and 10 in Item 8. Financial Statements and Supplementary Data.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. These
matters and the future resolution thereof may impact the Company's future
results of operations, financial position or cash flows.
Based onYear 2000 Issue
The Year 2000 ("Y2K") issue is a preliminary analysis,result of a universal programming
standard that records dates as six digits, e.g., mm/dd/yy, using only the last
two digits for the year. Any automated system software or firmware that uses
two-digit fields could understand the year 2000 as the year 1900 if the issue is
not corrected. This situation is not limited to computers; it has the potential
to affect many systems, components and devices, which have embedded computer
chips, which may be, date sensitive. The Y2K issue could result in a major
system failure or miscalculations and does impact many NCE systems considered
critical or important to the Company's business operations. Systems posing the
greatest business risks to the Company include power generation and distribution
systems, telecommunications systems, energy trading systems and billing systems.
The Company is addressing all potential Y2K failure points identified in its
critical automated systems to maintain service to its customers and to mitigate
legal and financial risks.
In 1997, the Company established the Y2K Program Office to oversee all
corporate-wide Y2K initiatives. These initiatives encompass all computer
software, embedded systems, as well as contingency planning. Teams of internal
and external specialists were established to inventory and assess and test
critical computer programs and automated operational systems and modify those
that may not be Y2K compliant. The inventory phase and assessment phase for
information technology ("IT") systems were completed in 1998. Additionally,
approximately 77% of the remediation and testing phase for all critical IT
systems was completed in 1998 with the remaining remediation and testing planned
to be completed by June 30, 1999. For non-IT systems, which exist primarily in
the generation, transmission and distribution areas of the business, the
inventory and assessment phases are complete. Remediation and testing for non-IT
systems were approximately 46% complete at December 31, 1998, with the remainder
expected to be completed by September 30, 1999. Systems critical to the
generation and delivery of energy are expected to be completed by June 30, 1999.
The Company has identified third parties, with which it has material
business relationships including interconnected utilities, telecommunications
service providers, fuel and water suppliers, equipment suppliers, leased
facilities and financial institutions. Subject matter experts, along with
functional managers, continue to evaluate the current list of third parties and
have ongoing discussions with these and other critical suppliers about their Y2K
readiness and contingency planning efforts.
The Company currently expects to incur costs of approximately $50-65$25 million over the next two years
to modify its computer software, hardware and other automated systems used in
operations enabling proper data processing relating to the year 2000 and beyond.
This includes approximately $19 million for inventory, assessment, remediation
and testing and approximately $6 million for the replacement of automated system
components. Furthermore, the Company expects to spend approximately $15 million
for the accelerated replacement of certain non-compliant IT systems, which are
expected to be implemented by September 30, 1999. The majority of theseall Y2K costs
will be incurred by or allocated to the Company's operating
utilities. The costs recognized by PSCo and SPS are anticipated to be
slightly less than two-thirds and one-third, respectively, of the total
estimated costs. The Company continues to evaluate appropriate courses of
corrective action, including the replacement of certain systems.SPS. A significant portion of thesethe costs incurred to
address the Company's Y2K issues will represent the redeployment of existing
information technology resources. The table below details the actual costs
incurred through December 31, 1998, and the estimated costs to be incurred
during 1999 (in millions).
37
Actual Costs Estimated Estimated
1998 and Prior 1999 Total
-------------- ---- -----
Operating expenses....................... $ 8.2 $11.1 $19.3
Capital expenditures .................... 7.1 13.4 20.5
Yorkshire Power has also undertaken activities to address Y2K issues. The
estimated proportionate share of Yorkshire Power's incremental Y2K costs (costs
which would not have been required in the normal course of business) that will
flow through to the Company's earnings as a result of such activities is not
expected to have a material impact on the financial condition or results of
operations of the Company.
The most reasonably likely worst case scenario resulting during Y2K
critical dates is a loss of production capacity from certain of the Company's
generating units, along with loss of a portion of the communication system that
is critical to generation and distribution control. If such modificationsthis were to occur, the
Company's operating utilities may be required to "island" (separate from
neighboring interconnected utilities) their generation and conversionsdistribution systems
in their service territories. As part of this scenario, difficulty could be
encountered with the restart of generating units. The overall blackout recovery
plan for NCE is designed so that this most reasonably likely worst case scenario
would be addressed and electricity restored. Critical components of this plan
have been and continue to be tested to provide assurance that the Company will
be prepared for risks which could result from the Y2K millennium change.
If correction or replacement of non-compliant systems are not completed on
a timely basis, the year 2000 problemY2K issues may have a material impact on the operations of
the Company.Company and its subsidiaries. Management, however, does not anticipate these
activities will have a material adverse impact on the financial position,
results of operations or cash flows of the Company or its subsidiaries.
Tax Matters
PSRI, a subsidiary of PSCo, owns and manages permanent life insurance
policies on certain past and present employees. These corporate owned life
insurance ("COLI") policies were entered into prior to July 1, 1986. In 1996,
Congress passed legislation to phase out the tax benefits with certain COLI
policies, however, the Company's policies were grandfathered under this
legislation. In August 1998, the IRS issued a Notice of Proposed Adjustment
proposing to disallow the 1993 and 1994 deductions of interest expense related
to policy loans on the COLI policies totaling approximately $54.6 million. A
Request for Technical Advice was filed with the IRS National Office on January
15, 1999, with respect to the proposed adjustment.
Management plans to vigorously contest this issue. PSCo has not recorded
any provision for income tax or interest expense related to this matter.
Management believes that the Company's tax deduction of interest expense on life
insurance policy loans was in full compliance with IRS regulations and believes
that the resolution of this matter will not have a material adverse impact on
PSCo's financial position, results of operations or cash flows.
Common Stock Dividend
During 1997,1998, the Company and its subsidiaries declared four full
quarterly dividends (two by NCE and two by PSCo and SPS prior to the Merger)
and a partial dividend by PSCo and SPS covering the stub period up through
the day prior to the Merger effective date. The partial dividends declared
by PSCo, covering the period July 12, 1997 through July 31, 1997, and SPS,
covering the period May 16, 1997 through July 31, 1997, were based on the
respective quarterly dividend rate, but prorated for the number of days in
the interim period. It is currently anticipated that the Company will pay
dividends on its common stock ofdividends totaling $2.32
per share annually.share. The Company's common stock dividend level is dependent upon the
Company's results of operations, financial position, cash flows and other
factors. The Board of Directors of the Company will continue to evaluate the
common stock dividend on a quarterly basis.
3538
Liquidity and Capital Resources
Cash Flows
1998 1997 1996 1995
---- ---- ----
Net cash provided by operating
activities (in millions) ................ $659.5 $344.4 $481.2
$558.4Cash provided by operations increased in 1998, when compared to 1997,
primarily due to higher earnings from utility operations and a decrease in
payments to gas suppliers resulting from lower gas costs during 1998.
Additionally, SPS and a non-regulated subsidiary of NCE recorded combined cash
proceeds of approximately $67 million for the recovery of deferred costs and
income from the investment in a non-regulated energy development project during
1998. Cash provided by operating activities decreased in 1997, when compared to
1996, primarily due to the SPS payment in April 1997 of the Thunder Basin judgment and an
increase in payments to gas suppliers resulting from the higher gas costs in
late 1996 and early 1997. A portion of these lower gas costs incurred in 1998
and higher gas costs incurred in 1997 have been deferred through PSCo's GCA and
will be paid to or recovered from customers in the future.
Cash provided by operating activities decreased
$77.2 million in 1996 primarily due to the undercollection of purchased gas
and electric energy costs ($62.5 million) and lower cash receipts because of
a PSCo gas refund that was applied directly to customers' accounts in late
1995.1998 1997 1996 1995
---- ---- ----
Net cash used in investing
activities (in millions) ................ $614.0 $856.4 $443.2
$407.5Cash used in investing activities decreased during 1998, when compared to
1997, primarily due to the investment in Yorkshire Power in 1997, partially
offset by higher 1998 construction expenditures and the acquisition of Planergy.
Cash used in investing activities increased during 1997, when compared to 1996,
primarily due to the acquisition of a 50% equity interestinvestment in Yorkshire Power for approximately $360
million and the 1996 sale by Quixx of certain water rights. Construction
expenditures also increased in 1997 and
1996, when compared to the preceding year.
1998 1997 1996 1995
---- ---- ----
Net cash (used in) provided by (used in)
financing activities (in millions) ...... $(61.5) $534.6 $(16.3)
$(126.0)Cash provided by financing activities decreased during 1998, when compared
to 1997, primarily due to PSCo's issuance of debt in early 1997 to finance the
investment in Yorkshire Power. In November 1998, the Company issued $117 million
in common stock and in April 1998, PSCo's issued $250 million of long-term
bonds. Proceeds from the 1998 financings were primarily used to reduce
short-term debt and other corporate purposes. In May 1998, PSCo issued $194
million of Trust Originated Preferred Securities. The proceeds were used to
redeem all of PSCo's outstanding preferred stock (totaling $181.8 million) on
June 10, 1998. Cash provided by financing activities increased during 1997, when
compared to 1996, primarily due to NCE's issuance of common stock in December
1997 and PSCo's issuance of medium-term notes. The proceeds from the $75 million
financing by PSCo in January 1997 were used to fund its construction program.
The proceeds from the issuance of $250 million medium-term notes by PSCo in
March 1997, together with additional borrowings of approximately $110 million on
its short-term lines of credit, were used to fund the investment in Yorkshire
Power. As a result of theAn increase in recoverable purchased gas and electric energy costs and
reduced cash flows resulting from lower electric rates, coupled with increased
merger and business integration costs, required PSCo has utilizedto temporarily utilize the proceeds from
additional short-term borrowings to finance ongoing construction expenditures.
With the consummation of the
Merger effective August 1, 1997, management anticipates that future operating
results and related cash flows will benefit from synergies resulting from the
Merger. Cash used in financing activities decreased in 1996, as compared to
1995, primarily due to the issuance of additional long-term debt.
Additionally, proceeds of $100 million were received in October 1996 from the
issuance of SPS obligated mandatorily redeemable preferred securities of a
subsidiary trust. These combined proceeds were used to fund the Company's
subsidiaries' construction programs, for other general corporate purposes and
to repay short-term indebtedness incurred for such purposes.
3639
Prospective Capital Requirements
The estimated cost as of December 31, 19971998 of the construction programs of
the Company and its subsidiaries and other capital requirements for the years
1998, 1999, 2000 and 20002001 are shown in the table below (in millions of
dollars)millions):
1998
1999 2000 ---- ---- ----2001
------- ------ ------
Electric
Production *........................ $ 192163 $ 128134 $ 7179
Transmission........................ 5644 107 13792
Distribution........................ 130 166 138188 170 181
Gas .................................... 84 73 70
General................................. 68 67 34
-- -- --82 82 85
General and non-utility subsidiaries.... 155 117 128
------- ------ ------
Total construction expenditures... 530 541 450632 610 565
Less: AFDC.............................. 15 13 10Allowance for funds used during
construction 20 17 18
Add: Sinking funds and debt maturities
and refinancings .................. 252 131 131
--- --- ---maturities.. 192 35 143
------- ------ ------
Total capital requirements.............. $ 767804 $ 659628 $ 571690
======= ====== ======
* Capital requirements for 19981999 Electric Production include approximately $59 million for Fort St. Vrain repowering and approximately $58$72
million for emission control equipment and environmental projects.
The construction programs of the Company's subsidiaries are subject to
continuing review and modification. In particular, actual construction
expenditures may vary from the estimates due to changes in the electric system
projected load growth, the desired reserve margin and the availability of
purchased power, as well as alternative plans for meeting the Company's
long-term energy needs. In addition, the Company's ongoing evaluation of merger,
acquisition and divestiture opportunities to support corporate strategies and
future requirements to install emission control equipment may impact actual
capital requirements (see Note 10. Commitments and Contingencies - Environmental
Issues in Item 8. Financial Statements and
Supplementary data)FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).
Capital Sources
At December 31, 1997,1998, the Company and its subsidiaries estimate that their
1998-20001999-2001 capital requirements will be met with a combination of funds from
external sources and funds from operations. The Company and its subsidiaries may
meet their external capital requirements through the sale of common stock by
NCE, the sale of utility obligated mandatorily redeemable
preferred securities, the issuance by NCE and its subsidiaries of secured and unsecured long-term
and short-term debt
including first mortgage bonds of NCE subsidiaries, and the issuancesale of short-term debt by NCE and its subsidiaries.other securities. The financing needs are
subject to continuing review and can change depending on market and business
conditions and changes, if any, in the construction programs and other capital
requirements of the Company and its subsidiaries.
Registration Statements
The Company has an effective registration statement covering the issuance
of 10 million shares of common stock to be issued under the Company's Dividend
Reinvestment and Cash Payment Plan.Plan ("Dividend Reinvestment Plan"). Any proceeds
received by the Company will be used for general corporate purposes. This
program allows for either the purchase of shares on the open market or the
issuance of new shares. The Dividend Reinvestment Plan allows the Company's
shareholders to purchase additional shares of the Company's common stock through
the reinvestment of cash dividends and the purchase of additional shares of
common stock with optional cash payments. NCE also has an effective registration statement covering the issuanceAs of 9December 31, 1998, approximately
8.8 million shares of Common Stock ($1 par value). On December 10, 1997,
NCE sold 5.9 million shares under this registration statement. The net
proceeds from this sale were approximately $251.4 million. The Company
expects to issue the remaining 3.1 million shares in late 1998.
37
available for issuance.
Subsidiary Registration Statements
In 1996 and in early 1997, PSCo established a $250 million Secured
Medium-Term Note Program, Series B and a $150 million Secured Medium-Term
Note Program, Series C pursuant to a registration statement for the issuance
of $400 million of First Collateral Trust Bonds. All securities under these
Medium-Term Note Programs have been issued.Statement
SPS has an effective shelf registration statement under which $220 million
of debt securities and/or preferred stock are available for issuance, a portion
of which is still subject to state utility commission approval.
40
Short-Term Borrowing Arrangements
NCE has a $225 million credit facility with several banks that provides
for $100$200 million of direct borrowings by NCE until the outstanding stock of
PSCCC, a wholly-owned subsidiary of PSCo, is transferred to NCE. After the
transfer NCE will have access to $225and $25 million of direct borrowings under the
credit facility.by Cheyenne.
PSCo and its subsidiaries have available committed and uncommitted lines of credit to meet
their short-term cash requirements. PSCo and its subsidiaries have a credit
facility with several banks which provides $300 million in committed bank lines
of credit and is used primarily to support the issuance of commercial paper by
PSCo and PSCCC, and to provide for direct borrowings thereunder. At December 31,
1997, $13.4 million remained unused
under1998, this facility.facility was fully drawn. Generally, the banks participating in the
credit facility would have no obligation to continue their commitments if there
has been a material adverse change in the consolidated financial condition,
operations, business or otherwise that would prevent PSCo and its subsidiaries
from performing their obligation under the credit facility. This facility
expires on November 17, 2000. PSCo also has available a $125$150 million line of
credit which expires on April 30, 1998.June 25, 1999. At December 31, 1997, the entire amount1998, approximately $47.2
million of thethis facility remained unused. In addition, PSCo
has individual arrangements for uncommitted bank lines of credit which
totaled $50 million, and all were used at December 31, 1997. These individual
arrangements expire on December 31, 1998. PSCo may borrow under uncommitted
preapproved lines of credit upon request; however, the banks have no firm
commitment to make such loans. PSCo's charter allows for unsecured
borrowings without the consent of the holders of preferred stock to the
extent the total of such borrowings does not exceed 15% of total
capitalization (as defined therein) except in the case of certain
refinancings (see Note 7. Short-term Borrowing Arrangements in Item 8.
Financial Statements and Supplementary Data).
PSCCC may periodically issue medium-term notes (in addition to the
short-term debt discussed above) to supplement the financing/financing
or purchase of PSCo's customer accounts receivable and fossil fuel inventories.
As of December 31, 1997,1998, PSCCC had issued and had outstanding $100 million in
medium-term notes. The level of financing of PSCCC is tied directly to daily
changes in the level of PSCo's outstanding customer accounts receivable and
monthly changes in fossil fuel inventories and will vary minimally from
year-to-year although seasonal fluctuations in the level of assets will cause
corresponding fluctuations in the level of associated financing.
Arrangements by SPS forhas available a $200 million committed linesline of credit, expiring
February 26, 1999. This credit facility, which provide $180
million, are maintainedis being renewed, is primarily
used to support commercial paper issued by a combination of fee payments and compensating
balances.SPS. At December 31, 1997, $1711998, SPS had
$86 million of such balances were maintained
through a feein commercial paper outstanding and $9$114 million required account deposits of 1 1/2% of the unused
portion of the loan commitment. At December 31, 1997, $24 million remained
unusedwas available under
these linesthis line of credit.
Accounting Pronouncements Issued But Not Yet Effective
SFAS No. 130, Reporting Comprehensive Income ("SFAS 130"),In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed for Internal Use". This statement requires companies to
expense costs as incurred in the preliminary project stage, training, data
conversion, internal maintenance and SFAS No.
131, Disclosure about Segments of an Enterprise and Related Information
("SFAS 131"), address disclosure issues and were issued during 1997. They
areother indirect payroll related costs. This
statement is not expected to have a material impact on the Company, PSCo or SPS.
This Statement is effective for fiscal years beginning after December 15, 1997.1998,
with earlier adoption encouraged. The Company will adopt this accounting
standard as required on January 1, 1999.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities". This statement requires companies to expense incurred costs for
start-up activities, including organizational costs. This statement is not
expected to have a material impact on the Company's consolidated financial
statements. This statement is effective for fiscal years beginning after
December 15, 1998, with earlier adoption encouraged. The Company will adopt this
accounting standard as required by January 1, 1999.
In June 1998, the FASB issued SFAS 130No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement requires disclosure of allcompanies to record
derivatives on the balance sheet as assets and liabilities, measured at fair
value. Gains or losses resulting from changes in equity that result from transactions
and other economic eventsthe values of those derivatives
would be accounted for depending on the use of the period other than transactions with owners.
SFAS 131 requires a public company to report selected information about its
reportable operating segments. Operating segments are components of an
enterprisederivative and whether it
qualifies for which discrete financial information is available, that is
evaluated regularly by the chief operating decision-maker within a company
for making operating decisions and assessing performance.hedge accounting. The Company adopted these standardsis currently evaluating the
potential impact of this new accounting standard. This statement is effective
for fiscal years beginning after June 15, 1999, with earlier adoption
encouraged. The Company will adopt this accounting standard as required by
January 1, 1998.
382000.
41
Item 7a. Quantitative and Qualitative Disclosure About Market Risk (NCE,
PSCo, and SPS)
Reference is made to the "Risk Management" section in Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (NCE,
PSCo and SPS).
42
Item 8. Financial Statements and Supplementary Data (NCE)
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Board of Directors of the Company addresses its oversight responsibility for
the consolidated financial statements through its Audit Committee. The Audit
Committee meets regularly with the independent public accountants and the
internal auditor to discuss results of their audit work and their evaluation of
the adequacy of the internal controls and the quality of financial reporting.
In fulfilling its responsibilities in 1997,1998, the Audit Committee recommended to
the Board of Directors, subject to shareholder approval, the selection of the
Company's independent public accountants. The Audit Committee reviewed the
overall scope and specific plans of the independent public accountants' and
internal auditor's respective audit plans, and discussed the independent public
accountants' management letter recommendations, approved their general audit
fees, and reviewed their non-audit services to the Company.
The committee meetings are designed to facilitate open communications among
Company management, internal auditing, independent public accountants and the
Audit Committee. To ensure auditor independence, both the independent public
accountants and internal auditor have full and free access to the Audit
Committee.
/s/ Danny H. Conklin
Danny H. Conklin, Chairman
Audit Committee
February 24, 1998
3923, 1999
43
REPORT OF MANAGEMENT
The accompanying financial statements of New Century Energies, Inc. and
subsidiaries have been prepared by Company personnel in conformity with
generally accepted accounting principles consistent with the Uniform System of
Accounts of the Federal Energy Regulatory Commission. The integrity and
objectivity of the data in these financial statements are the responsibility of
management. Financial information contained elsewhere in this Annual Report on
Form 10-K is consistent with that in the financial statements.
The accompanying financial statements have been audited by independent public
accountants. Management has made available to its independent public accountants
all the Company's and its subsidiaries' financial records and related data and
has provided to them representations we believe to be valid and appropriate.
The Company maintains a system of internal control over financial reporting,
including the safeguarding of assets against unauthorized acquisition, use or
disposition, which is designed to provide reasonable assurance to the Company's
management and Board of Directors regarding the preparation of reliable
published financial statements and such asset safeguarding. The system includes
a documented organizational structure and division of responsibility,
established policies and procedures including a code of conduct to foster a
strong ethical climate, which are communicated throughout the Company, and the
careful selection, training and development of our people. Internal auditors
monitor the operation of the internal control system and report findings and
recommendations to management and the Audit Committee of the Board of Directors,
and corrective actions are taken to address control deficiencies and other
opportunities for improving the system as they are identified. The board,
operating through its Audit Committee, which is composed entirely of directors
who are not officers or employees of the Company, provides oversight to the
financial reporting process.
There are inherent limitations in the effectiveness of any system of internal
control, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even an effective internal control system
can provide only reasonable assurance with respect to financial statement
preparation. Further, because of changes in conditions, internal control system
effectiveness may vary over time.
The Company assessed its internal control system as of December 31, 19971998 in
relation to criteria for effective internal control over financial reporting
described in "Internal Control - Integrated Framework" issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on the results of
its assessment, the Company believes that, as of December 31, 1997,1998, the
Company's system of internal control over external financial reporting,
including the safeguarding of assets against unauthorized acquisition, use or
disposition, met those criteria.
/s/ Teresa S. Madden /s/ Bill D. Helton
Teresa S. Madden Bill D. Helton
Principal Accounting Officer Chief Executive Officer
February 13, 1998
4023, 1999
44
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO NEW CENTURY ENERGIES, INC.:
We have audited the consolidated balance sheets of New Century Energies, Inc. (a
Delaware corporation) and subsidiaries as of December 31, 19971998 and 1996,1997, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1997.1998. These
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits. We did not audit
the consolidated financial statements of Southwestern Public Service Company for
the yearsyear ended December 31, 1996, and August 31, 1995, included in the consolidated financial
statements of New Century Energies, Inc., which statements reflect total
assetsrevenues constituting 31% in 1996, and
total revenues constituting 31% and 30% in 1996 and 1995, respectively, of the related consolidated totals. Those
statements were audited by other auditors whose report thereon has been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for Southwestern Public Service Company, is based solely upon
the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of New Century Energies, Inc. and its
subsidiaries as of December 31, 19971998 and 1996,1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997,1998, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 13, 1998
4123, 1999
45
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
December 31, 1998 and 1997
and 1996
ASSETS
1998 1997 1996
---- ----
Property, plant and equipment, at cost:
Electric .......................................... $7,097,070 $6,703,863
$6,448,993
Gas................................................ 1,210,605 1,136,231 1,035,394
Steam and other.................................... 111,620 120,322 115,766
Common to all departments.......................... 423,287 437,636 418,262
Construction in progress........................... 391,100 318,124 260,943
------- -------
9,233,682 8,716,176 8,279,358
Less: accumulated depreciation .................... 3,351,659 3,182,800 2,990,275
--------- ---------
Total property, plant and equipment.............. 5,882,023 5,533,376 5,289,083
--------- ---------
Investments, at cost:
Investment in Yorkshire Power and other
unconsolidated subsidiaries (Note 2) ............ 295,316 29,672............. 340,874 299,458
Other.............................................. 64,562 71,411
51,324
------------- ------
Total investments................................. 366,727 80,996405,436 370,869
------- -------------
Current assets:
Cash and temporary cash investments................ 56,667 72,623 50,015
Accounts receivable, less reserve for uncollectible
accounts ($5,3554,842 at December 31, 1997; $6,6231998; $5,355
at December 31, 1996) . 1997)............................ 319,145 315,539 285,912
Accrued unbilled revenues.......................... 130,455 110,877 106,198
Recoverable purchased gas and electric energy
costs - net ............................................................................... 66,154 129,292 47,003
Materials and supplies, at average cost............ 69,298 68,411 66,748
Fuel inventory, at average cost.................... 24,653 23,162 27,059
Gas in underground storage, at cost (LIFO)......... 52,624 47,394 42,826
Prepaid expenses and other......................... 83,561 56,868
46,773
------------- ------
Total current assets.............................. 802,557 824,166 672,534
------- -------
Deferred charges:
Regulatory assets (Note 1)......................... 381,632 430,475 466,111
Unamortized debt expense .......................... 27,408 20,833
20,839
Other.............................................. 134,704 87,879172,908 141,947
------- -------------
Total deferred charges............................ 586,012 574,829581,948 593,255
------- -------
$7,310,281 $6,617,442$7,671,964 $7,321,666
========== ==========
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
4246
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
December 31, 19971998 and 19961997
CAPITAL AND LIABILITIES
1998 1997 1996
---- ----
Common stock (Note 4)................................................................. $1,866,386 $1,694,195
$1,396,849
Retained earnings.....................................earnings.................................... 740,677 659,050
773,191Accumulated comprehensive income..................... 7,764 4,142
------- -------------
Total common equity............................... 2,353,245 2,170,040equity.............................. 2,614,827 2,357,387
Preferred stock of subsidiaries (Note 4):
Not subject to mandatory redemption................redemption............... - 140,002 140,008
Subject to mandatory redemption at par.............par............ - 39,253
39,913PSCo and SPS obligated mandatorily redeemable
preferred securities of subsidiary trusttrusts holding
solely subordinated debentures of PSCo and SPS
(Note 5) ........... 100,000.......................................... 294,000 100,000
Long-term debt of subsidiaries (Note 6)............................. 2,205,545 1,987,955 1,879,928
-
--------- ---------
4,620,455 4,329,889
--------- ---------5,114,372 4,624,597
Noncurrent liabilities:
Employees' postretirement benefits other than
pensions (Note 12) ................................ 61,732 62,716 58,551
Employees' postemployment benefits (Note 12)....... 31,326 27,953
27,551
------------- ------
Total noncurrent liabilities...................... 93,058 90,669
86,102
------------- ------
Current liabilities:
Notes payable and commercial paper (Note 7)........ 524,394 588,343 298,561
Long-term debt due within one year................. 138,165 257,469 170,261
Preferred stock subject to mandatory redemption
within one year ................................... 2,576................................. - 2,576
Accounts payable................................... 285,080 298,469 317,260
Dividends payable.................................. 69,271 68,296
36,973Recovered electric energy costs - net.............. 18,760 -
Customers' deposits................................ 30,793 27,993 27,283
Accrued taxes...................................... 85,384 66,587 78,989
Accrued interest................................... 50,229 52,615 46,948
Current portion of accumulated deferred income
taxes (Note 13) ........................................................................ 2,031 27,391
8,143
Other.............................................. 87,380 106,464120,716 94,623
------- ------ -------
Total current liabilities......................... 1,477,119 1,093,4581,324,823 1,484,362
--------- ---------
Deferred credits:
Customers' advances for construction............... 55,400 53,041 50,635
Unamortized investment tax credits ................ 100,925 106,147 111,647
Accumulated deferred income taxes (Note 13)........ 947,247 922,341
906,354
Other.............................................. 36,139 40,509
39,357
------------- ------
Total deferred credits............................ 1,139,711 1,122,038 1,107,993
--------- ---------
Commitments and contingencies (Notes 9 and 10)........ --------- ---------- $7,310,281 $6,617,442----------
$7,671,964 $7,321,666
========== ==========
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
4347
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars, Except per Share Data)
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
and 1995 (Note 1)
1997 1996 1995---- ---- ----
Operating revenues:
Electric...................................Electric................................ $2,697,486 $2,473,359 $2,416,539
$2,283,179
Gas........................................Gas..................................... 841,276 816,596 640,497
624,585
Other......................................Other................................... 72,143 52,570 39,998
54,444------- ------- ------
------ ------3,610,905 3,342,525 3,097,034 2,962,208
Operating expenses:
Fuel used in generation....................generation................... 644,311 671,805 635,280
552,047
Purchased power............................power........................... 712,887 531,487 510,582 487,199
Cost of gas sold...........................sold.......................... 562,583 543,291 393,163 392,680
Other operating and maintenance expenses...expenses.. 637,743 594,359 568,581
582,608
Depreciation and amortization..............amortization............. 268,743 243,078 224,865 205,584
Taxes (other than income taxes) ..................... 134,137 129,280 128,980 125,146
------- ------- -------
2,960,404 2,713,300 2,461,451 2,345,264
--------- --------- ---------
Operating income.............................income............................ 650,501 629,225 635,583 616,944
Other income and deductions:
Merger expenses............................expenses........................... (790) (34,088) (21,107) (4,827)
Write-off of investments in cogeneration
projects (Note 3) ............................................. - (16,052) (15,546) -
Equity in earnings of Yorkshire Power and
other unconsolidated subsidiaries (Note 2) 36,101 34,166 389 (47)
Miscellaneous income and deductions - net.. (3,460) (11,215) 1,771
930------ ------- ----- ---------
31,851 (27,189) (34,493) (3,944)
Interest charges and preferred dividends
of subsidiaries:
Interest on long-term debt................. 168,184 165,560 144,067
132,331
Other interest............................. 31,069 32,389 23,479 25,107
Allowance for borrowed funds used during
construction ............................ (17,347) (10,921) (5,945)
(5,776)
Dividends on PSCo and SPS obligated
mandatorily redeemable preferred
securities of subsidiary trusttrusts holding
solely subordinated debentures of PSCo
and SPS ........................................... 17,561 7,850 1,526
-
Dividend requirements and redemption premium
on preferred stock of subsidiaries .................................. 5,332 11,752 11,969
16,841----- ------ ------
------204,799 206,630 175,096 168,503
------- ------- -------
Income before income taxes and
extraordinary item ................................................................ 477,553 395,406 425,994 444,497
Income taxes (Note 13)........................ 135,596 133,919 153,653 163,005
------- ------- -------
Income before extraordinary item.............. 341,957 261,487 272,341
281,492
Extraordinary item -U.K.- U.K. windfall tax (Note 2). - (110,565) -
-------- -------- --- ----------
Net income.................................... $341,957 $150,922 $272,341 $281,492
======== ======== ========
Weighted average common shares outstanding....outstanding:
Basic...................................... 111,859 104,805 103,059
101,804
Basic and diluted earningsDiluted.................................... 112,008 104,872 103,102
Earnings per share of common stock outstanding:outstanding
- Basic:
Income before extraordinary item........... $ 2.50 $ 2.64 $ 2.77$3.06 $2.50 $2.64
Extraordinary item......................... - (1.06) -
---- ----- -----
Net income................................. $3.06 $1.44 $2.64
===== ===== =====
Earnings per share of common stock outstanding
- Diluted:
Income before extraordinary item........... $3.05 $2.50 $2.64
Extraordinary item......................... - (1.06) -
----- --- -------- -----
Net income................................. $ 1.44 $ 2.64 $ 2.77
======= ======= =======$3.05 $1.44 $2.64
===== ===== =====
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
4448
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Thousands of Dollars, Except Share Information)
Years ended December 31, 1998, 1997 and 1996
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Thousands of Dollars, Except Share Information)
Years ended December 31, 1997, 1996 and 1995 (Note 1)Accumulated
Other
Common Stock, $1 par value Paid in Retained Comprehensive
Shares Amount in Capital Earnings Income Total
------ ------ ---------- -------- ------ -----
Balance at January 1, 1995.. 101,026,6071996.. 102,230,141 $ 101,027 $1,205,535102,230 $1,243,278 $ 657,092 $1,963,654726,065 $ - $2,071,573
Net income..................income/Comprehensive
income ................... - - - 281,492 281,492272,341 - 272,341
Dividends declared on common
stock .................... - - - (218,606) (218,606)
Issuance of common stock
Employees' Savings Plan... 310,546 310 9,395(225,130) - 9,705
Dividend Reinvestment Plan 889,331 889 27,133 - 28,022
Management Incentive Plans 3,657 4 107 - 111
Other....................... - - - 19 19
SPS transitional period to
calendar year-end (Note 1)
Net income................ - - - 28,573 28,573
Dividends declared on common
stock .................... - - - (22,505) (22,505)
Other..................... - - 1,108 - 1,108
--- --- ----- --- -----
Balance at December 31, 1995 102,230,141 102,230 1,243,278 726,065 2,071,573
Net income.................. - - - 272,341 272,341
Dividends declared on common
stock ..................... - - - (225,130) (225,130)
Issuance of common stockstock:
Employees' Savings Plan...Plan .. 274,934 275 9,519 - - 9,794
Dividend Reinvestment Plan 809,603 810 27,818 - - 28,628
Management Incentive Compensation Plans 58,346 58 1,661 - - 1,719
Acquisitions (Note 3)..... .... 317,748 318 10,882 - - 11,200
Other....................... - - - (85) - (85)
--- --- ---- --- ---------- ------ ------- ------- ------- -------
Balance at December 31, 1996 103,690,772 103,691 1,293,158 773,191 - 2,170,040
Comprehensive income:
Net income..................income................ - - - 150,922 - 150,922
Foreign currency translation
adjustment ............. - - - - 4,142 4,142
-----
Comprehensive income
(Note 1) ............ 155,064
Dividends declared on common
stock ....................................... - - - (264,957) - (264,957)
Issuance of common stockstock:
Employees' Savings Plan...Plan .. 250,058 250 9,518 - - 9,768
Dividend Reinvestment Plan 818,783 819 32,512 - - 33,331
Management Incentive Compensation Plans 89,688 89 2,765 - - 2,854
Stock offering proceeds, net
(Note 4) .............................. 5,900,000 5,900 245,493 - - 251,393
Other.......................Other......................... - - - (106) - (106)
--- --- --- ---- ----------- ------ ------- ------- ------- -------
Balance at December 31, 1997 110,749,301 $ 110,749 $1,583,446 $1,583,446 659,050 $2,353,245
=========== ========= ========== ========= ==========
Authorized shares4,142 2,357,387
Comprehensive income:
Net income.......... - - - 341,957 - 341,957
Foreign currency translation
adjustment - - - - 3,622 3,622
-----
Comprehensive income (Note 1) 345,579
Dividends declared on common stock - - - (260,330) - (260,330)
Issuance of common stock were 260 millionstock:
Employees' Savings Plan 222,387 222 10,146 - - 10,368
Dividend Reinvestment Plan 825,005 825 37,198 - - 38,023
Incentive Compensation Plans 194,079 195 6,605 - - 6,800
Stock offering proceeds, net
(Note 4) 2,500,000 2,500 114,500 - - 117,000
--------- ----- ------- ----- ----- -------
Balance at December 31, 1997, 1996
and 1995.1998 114,490,772 $ 114,491 $1,751,895 $ 740,677 $7,764 $2,614,827
=========== ========== ========== ========= ====== ==========
Authorized shares of common stock were 260 million at December 31, 1998, 1997
and 1996.
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
4549
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
and 1995 (Note 1)
1997 1996 1995
---- ---- ---------
Operating activities:
Net income................................... $341,957 $150,922 $272,341 $281,492
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary item - U.K. windfall tax
(Note 2) ................................................................. - 110,565 - -
Depreciation and amortization.............. 279,829 253,263 225,264 206,439
Amortization of investment tax credits..... (5,222) (5,501) (7,506) (5,598)
Deferred income taxes...................... 6,248 52,211 78,962 48,887
Write-off of investments in cogeneration
projects (Note 3) ............................................... - 16,052 15,546 -
Equity in earnings of Yorkshire Power and
other unconsolidated subsidiaries, net....net (34,199) (31,168) (389) 47
Allowance for equity funds used during
construction ............................. - 1 (936) (4,011)
Change in accounts receivable.............. 2,026 (29,627) (92,600) 34,829
Change in inventories...................... (7,485) (2,334) 23,479 837
Change in other current assets............. 16,965 (97,063) (47,226) 2,475
Change in accounts payable................. (13,704) (18,791) 141,771 (21,756)
Change in other current liabilities........ 69,908 (15,356) (85,321) 33,628
Change in deferred amounts................. 740 (46,134) (34,617) (20,385)
Change in noncurrent liabilities........... 2,389 4,567 (9,725)
(5,367)
Other...................................... 87 2,832 2,139
6,858
----- ----- ------------ ------- -------
Net cash provided by operating activities 659,539 344,439 481,182 558,375
Investing activities:
Construction expenditures.................... (608,972) (475,497)(454,968)(380,407)
Allowance for equity funds used during
construction .............................. - (1) 936 4,011
Proceeds from disposition of property, plant
and equipment ............................. 9,369 2,117 24,292 2,470
Payment for purchase of companies, net of
cash acquired (Note 3) ............................................. (13,725) - 3,649 -
Investment in Yorkshire Power (Note 2)....... - (362,342) - -
Purchase of other investments................ (6,131) (32,560) (17,790) (38,468)
Sale of other investments.................... 5,466 11,844 664
4,898
------ --- ------------ ------- -------
Net cash used in investing activities.... (613,993) (856,439)(443,217)(407,496)
Financing activities:
Proceeds from sale of common stock (Note 4).. 161,823 286,869 30,115 28,030
Proceeds from sale of long-term notes and
bondsdebt (Note 6) ............................250,497 419,819 359,715 178,064
Proceeds from sale of PSCo and SPS obligated
mandatorily redeemable preferred securities
of subsidiary trusttrusts holding solely
subordinated debentures of PSCo
and SPS (Note 6)............................ 187,700 - 100,000 -
Redemption of long-term notes and bonds......debt................. (159,323) (227,577)(175,298) (61,593)
Short-term borrowings - net.................. (63,949) 289,782 (105,739)
(51,744)
RetirementRedemption of preferred stock of subsidiaries (181,824) (665) (1,636) (1,376)
Dividends on common stock.................... (256,426) (233,620)(223,413)(217,372)
-------- -------- --------------
Net cash (used in) provided by (used in) financing
activities ......................................................... (61,502) 534,608 (16,256)(125,991)
------- ------- --------------
Net (decrease) increase in cash and
temporary cash investments ....................................... (15,956) 22,608 21,709 24,888
Cash and temporary cash investments at
beginning of year ......................72,623 50,015 51,553 26,665
Net decrease in cash and temporary cash
investments for SPS for the
transition period (Note 1).................................... - - (23,247)
-
-------- ----- ------- ---
Cash and temporary cash investments at
end of year ..................................................... $ 56,667 $ 72,623 $ 50,015 $ 51,553$50,015
======== ======== ===============
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
4650
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (PSCo)
Discussion related toThe following narrative analysis discusses PSCo's Commitmentsresults of operations
comparing the changes for the years ended December 31, 1998, 1997 and Contingencies is covered
within NCE's Management's Discussion and Analysis of Financial Condition and
Results of Operations. See Forward Looking Information.
Merger
Effective1996. PSCo
merged with SPS effective August 1, 1997, following receipt of all required state and
Federal regulatory approvals, PSCo and SPS merged in a tax-free "merger of
equals" transaction and became wholly-owned subsidiaries of NCE, which is a
registered holding company under PUHCA. This transaction was accounted for
as a pooling of interests for accounting purposes.1997. Effective with the Merger, Cheyenne,
WGI, e prime and Natural Fuels were transferred by a declaration of a dividend
of the subsidiaries' stock, at net book value, aggregating approximately $49.9
million, to NCE. NCE subsequently made a capital contribution of the e prime and
Natural Fuels common stock, at net book value, aggregating approximately $29.5
million, to NC Enterprises. See
Note 1. Summary of Significant Accounting Policies in Item 8. Financial
Statements and supplementary data for additional discussion regarding PSCo,Accordingly, the Merger and the transfer of Cheyenne, WGI, e prime and Natural Fuels.
The consolidated statements of income
and cash flows for 1997 reflect the results of operations of Cheyenne, WGI, e
prime and Natural Fuels through July 31, 1997. Where relevant, additional
information has been presented to discuss the impact of the transfer of these
subsidiaries. Certain information has been omitted pursuant to General
Instructions I(2)(a). Discussion related to PSCo's Commitments and Contingencies
is covered within NCE's Management's Discussion and Analysis of Financial
Condition and Results of Operations. See FORWARD LOOKING INFORMATION.
In addition, on March 31, 1998, NCI was transferred through the sale by
PSCo of all the outstanding common stock of NCI at net book value (approximately
$292.6 million), to NC Enterprises, an intermediate holding company of NCE, and
received as consideration a promissory note from NC Enterprises. The
consolidated statements of income and cash flows for 1998 reflect the results of
NCI through March 31, 1998 (See Note 2. Investment in Yorkshire Power and U.K.
Windfall Tax in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).
Earnings Available for Common Stock
Earnings were $194.8 million, $81.7 million and $178.5 million during
1998, 1997 and $166.9 million during
1997, 1996, and 1995, respectively. The significant decrease in 1997 was
primarily attributable to the recognition of an extraordinary item related to
the one-time U.K. windfall tax of approximately $110.6 million for its 50%
ownership in Yorkshire Power. Income beforeExcluding the impact of this extraordinary item,
earnings increased slightly from 1997 to 1998 primarily due to higher 1998
electric margin resulting from customer growth and lower merger costs, offset in
part by the sale of NCI to NCT. Excluding the impact of the extraordinary
itemcharge, earnings increased $13.7 million in 1997, as compared to 1996, as a
result of continued customer growth contributing to increased electric and gas sales,
lower operating and maintenance expenses resulting from the Merger and cost containment efforts, as well as the equity earnings in ongoing operations at Yorkshire Power. Earnings in 1996 were
favorably impacted by the effects of the February 9, 1996 settlement
agreement with the DOE resolving all spent nuclear fuel storage and disposal
issues at Fort St. Vrain (see Note 10. Commitments and Contingencies - Fort
St. Vrain in Item 8. Financial Statements and Supplementary Data), increased
electric and gas sales and lower operating and maintenance expenses resulting
from PSCo's cost containment efforts.earnings.
Electric Operations
The following table details the annual change in electric operating
revenues and energy costs as compared to the preceding year (in thousands of
dollars)thousands).
1998 Increase (Decrease) From Prior Year
Cheyenne
PSCo & e prime Total
---- --------- -----
Electric operating revenues:
Retail........................... $ 40,850 $(21,492) $ 19,358
Wholesale - regulated............ 104,994 - 104,994
Non-regulated power marketing.... - (10,448) (10,448)
Other (including unbilled revenues) 36,492 (19) 36,473
------ ----- ------
Total revenues.................. 182,336 (31,959) 150,377
Fuel used in generation........... 13,478 - 13,478
Purchased power................... 121,546 (25,811) 95,735
------- ------- ------
Net increase (decrease) in
electric margin ................ $47,312 $ (6,148) $41,164
======= ======== =======
51
1997 1996
---- ----Increase (Decrease) From Prior Year
Cheyenne
PSCo & e prime Total
---- --------- -----
Electric operating revenues:
Retail........................... $(15,167) $(16,305) $(31,472)
$ 43,478
Wholesale - regulated............ 25,083 - 25,083
5,964
Non-regulated power marketing.... - 2,642 2,642 7,806
Other (including unbilled revenues) (25) (22) (47)
(17,354)
--- --- --- -------
Total revenues.................. 9,891 (13,685) (3,794) 39,894
Fuel used in generation........... 3,264 - 3,264
13,447
Purchased power................... 13,340 (9,866) 3,474
8,470
------ ------ ----- ------------ -------- --------
Net increase (decrease)decrease in electric margin .......................margin. $(6,713) $ (3,819)$(3,819) $(10,532)
$ 17,977======= ======= ======== ======== ========
47
The following table compares electric Kwh sales by major customer classes.
Millions of Kwh Sales % Change From Prior Year *
--------------------- --------------------------1998 1997
1996
---- ------------------ ---------------
Consoli PSCo Consoli PSCo
1998 1997 1996 Consolidated PSCodated Only dated Only
---- ---- ------------ -------------- ---- ----- ----
Residential .............. 6,761 6,663 6,6071.5% 3.4% 0.8% 2.1%
5.2%
Commercial and IndustrialIndustrial. 15,610 15,621 15,672(0.1) 2.3 (0.3) 1.3 4.3
Public Authority ......... 207 189 2009.4 10.8 (5.5) (4.6)
6.2
--- --------- ------
Total Retail............ 22,578 22,473 22,4790.5 2.7 - 1.5 4.5
Wholesale - Regulated..... 7,874 4,491 3,36175.3 75.3 33.6 33.6 14.8
Non-regulated Power
Marketing ............................. - 660 419** ** 57.7 -
-
--- -------- ----
Total..................... 30,452 27,624 26,25910.2 15.0 5.2 5.8 7.5
====== ======
* Percentages are calculated using unrounded amountsamounts.
** Percentage change is significant, but presentation of amount is not
meaningful.
Electric margin increased in 1998, when compared to 1997, primarily due to
higher retail sales of 2.7% resulting from customer growth of approximately 1.8%
and the positive impact of a lower 1998 accrual related to the estimated
customer refund obligation (approximately $9.6 million) in connection with the
earnings sharing in excess of 11% return on equity (see Note 9. Regulatory
Matters in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA). Higher
wholesale electric sales, reflecting increased marketing activities for economy,
short-term firm and off-system sales, contributed to increased operating
revenues; however, the margin on such sales is minimal. Electric margin revenues
decreased in 1997, when compared to 1996, primarily due to the retail rate
reductions (approximately $15.4 million) implemented in October 1996 and
February 1997 and the recognition of an estimated customer refund obligation
(approximately $16.4 million) in connection with the earnings sharing in excess
of 11% return on equity, which resulted from the
settlement of the Merger proceedings in Colorado (see Note 9. Regulatory
Matters in Item 8. Financial Statements and Supplementary Data). Electric
margin, however, was favorably impacted by an overall increase in PSCo's
retail sales of 1.5% resulting primarily from customer growth of 1.8%.
Higher wholesale electric sales also contributed to increased operating
revenues, however, the margin on such sales is minimal. Electric operating
revenues increased in 1996, when compared to 1995, primarily due to an
overall 4.5% increase in retail sales resulting primarily from customer
growth of 2.3%.equity. Higher economy sales by PSCo and power marketing
activities of non-regulated subsidiaries contributed to the increase in
wholesale revenues but had little impact on electric margin.
PSCo has cost adjustment mechanisms which recognize the majority of the
effects of changes in fuel used in generation and purchased power costs and
allow recovery of such costs on a timely basis. In its decision on the Merger,
the CPUC replaced PSCo's ECA with an ICA, effective October 1, 1996, which
allows for a 50%/50% sharing of certain fuel and energy cost increases and
decreases among customers and shareholders. For 1998 and 1997, the ICA did not
significantly impact electric margin (see Note 9. Regulatory Matters in Item 8.
Financial Statements and Supplementary Data)FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).
Fuel used in generation expense increased approximately $13.5 million
during 1998, as compared to 1997, primarily due to increased generation levels
at PSCo's power plants. Fuel used in generation expense increased slightly
during 1997, as compared to 1996,prior year, due to increased generation levels at
PSCo's power plants offset in part, by lower coal supply costs.
Fuel used in generation52
Purchased power expense increased $13.4approximately $95.7 million during 1996,1998,
as compared to the prior year,1997, primarily due to higher generation levels.purchases to meet increased wholesale
marketing activities. Purchased power expense increased slightly during 1997, and 1996, whenas
compared to the respective precedingprior year, primarily due to purchases to meet increased
wholesale requirements, other customer demands and non-regulated power marketing
sales commitments. The increase in 1997 was offset, in part, by the recognition
of only seven months of Cheyenne and e prime costs in 1997.
48
Gas Operations
The following table details the annual change in revenues from gas sales
and gas purchased for resale as compared to the preceding year (in thousands of dollars)thousands).
1998 Increase (Decrease) From Prior Year
-----------------------------------
1997 1996
---- ----
Cheyenne
Natural Fuels
WGI &
PSCo e prime Total
---- ------- -----
Revenues from gas sales (including
unbilled revenues) ........ $62,504 $26,538 $89,042 $11,211.................. $15,122 $(110,156) $ (95,034)
Gas purchased for resale............... 44,500 30,082 74,582 48314,078 (101,269) (87,191)
------ ------ ------ ----------- -------
Net increase (decrease) in gas sales
margin ............................. $18,004 $(3,544) $14,460 $10,7281,044 (8,887) (7,843)
Transportation, gathering, and
processing revenues ................. 2,464 (457) 2,007
----- ---- -----
Increase (decrease) in gas margin.... $3,508 $ (9,344) $ (5,836)
====== ========= =========
1997 Increase (Decrease) From Prior Year
Cheyenne
Natural Fuels
WGI &
PSCo e prime Total
---- ------- -----
Revenues from gas sales (including
unbilled revenues) .................. $62,504 $ 26,538 $ 89,042
Gas purchased for resale............... 44,500 30,082 74,582
------ ------ ------
Net increase (decrease) in gas sales
margin ............................ 18,004 (3,544) 14,460
Transportation, gathering, and
processing revenues .................. 4,068 (516) 3,552
----- ------- -----
Increase (decrease) in gas margin.... $22,072 $ (4,060) $ 18,012
======= ======= ======= ================ =========
The following table compares gas dekatherm (Dth)("Dth") deliveries by major
customer classes.
Millions of % Change From Prior Year*
-------------------------Year *
Dth Deliveries 1998 1997
1996
-------------- ---- ----Consoli PSCo Consoli PSCo
1998 1997 1996 Consolidated PSCodated Only dated Only
---- ---- ----------------------
Residential...................----- ---- ----- ----
Residential .............. 82.2 86.6 86.1(5.1)% (3.2)% 0.6% 1.5%
4.8%
Commercial....................Commercial................ 40.2 46.9 51.7(14.2) (11.7) (9.3) (7.1)
1.7
Non-regulated gas marketing...marketing - 35.2 21.8** - 61.2 - **
---- ----
Total sales.................sales............. 122.4 168.7 159.6(27.4) (6.2) 5.7 (1.7) 19.8
Transportation, gathering
and processing .................90.7 86.9 91.44.5 17.3 (5.0) 3.1
18.6
---- ----
Total.......................Total................... 213.1 255.6 251.0(16.6) 2.5 1.8 -
19.4
===== ===========
* Percentages are calculated using unrounded amountsamounts.
** Percentage change is significant, but presentation of the amount is not
meaningfulmeaningful.
Gas sales margin increased in 1998 and 1997, when compared to 1996,the
respective preceding year, primarily due to an increase in PSCo's base revenues
associated with the higher rates effective February 1, 1997, resulting from the
1996 rate case. This increase in 1998 was offset, in part, by a 6.2% decrease in
PSCo's retail gas sales, which resulted from warmer weather despite a 2.8%
increase in customers. Gas marketing activities by non-regulated subsidiaries
favorably contributed to the increase in gas sales margin. Gas sales margin increased during 1996, as
compared to the prior year, primarily due to higher retail gas sales
resulting from customer growth of 3.4%in 1997 and slightly colder weather.
Increased gas marketing activities by non-regulated subsidiaries also
favorably impacted gas sales margin.1996.
53
Gas transportation, gathering and processing revenues increased
approximately $2.0 million and $3.6 million, during 1997, when compared to 1997 and 1996,
respectively, primarily due to an increase in transport deliveries and higher
transportation rates effective February 1, 1997, resulting from the Company's
1996 rate case. Transportation, gathering
and processing revenues increased $4.7 million in 1996 primarily due to anThe increase in transport deliveries resulting fromcontinues to be impacted by
the shifting of various commercial customers to firm transport customers which accelerated in October
1995 with the implementation of the newas such
customers procure their unbundled gas rates.supply from other sources.
PSCo has in place a GCA mechanism for natural gas sales, which recognizes
the majority of the effects of changes in the cost of gas purchased for resale
and adjusts revenues to reflect such changes in cost on a timely basis. As a
result, the changes in revenues associated with these mechanisms in 19971998 and
1996,1997, when compared to the respective preceding year, had little impact on net
income. However, the fluctuations in gas sales impact the amount of gas PSCo
must purchase and, therefore, along with the increases and decreases in the
per-unit cost of gas, affect total gas purchased for resale. TheIn 1998, lower
quantities of gas were purchased during the year along with a decrease in the
per-unit cost of gas, served to reduce the cost of gas purchased for resale;
however, these decreases were offset in part, by the recovery of prior year
deferred gas costs. This recovery was greater than the decrease in purchases,
thereby increasing the cost of gas. During 1997, there were higher per-unit
average costcosts of gas, throughout
1997, along with an increaseincreases in the quantity of gas purchased,
which contributed to the increase in cost of gas purchased for resale.
In 1996, the increase in
the quantity of gas purchased was offset substantially by the lower per-unit
average cost of gas for the year.
49
Non-Fuel Operating Expenses
Other operating and Other Incomemaintenance expenses increased approximately $12.1
million during 1998 as compared to 1997 primarily due to electric operations,
including higher distribution costs to serve new customers and Deductionsa $5 million
reduction in the decommissioning liability during 1997. Other operating and
maintenance expenses decreased $8.8 million during 1997 as compared to 1996,the prior
year, primarily due to lower labor and employee benefit costs, the recognition
in 1997 of only seven months of costs from the subsidiaries that were
transferred to NCE effective with the Merger and other general reductions
resulting from the Merger and cost containment efforts. These decreases were
offset, in part, by the favorable impact of the February 9, 1996 settlement
agreement with the DOE resolving all spent nuclear fuel storage and disposal
issues at Fort St. Vrain (See Note 10. Commitments and Contingencies - Fort St.
Vrain in Item 8. Financial Statements and
Supplementary Data)FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA). In addition to the settlement, other operating and
maintenance expenses for 1996 were favorably impacted by lower labor and
employee benefit costs resulting from the hiring freeze instituted in August
1995 and other general cost reductions offset, in part, by higher operating
costs from non-regulated operations that were, for the most part, initiated
during 1996.
Depreciation and amortization expense increased $12.5 million in 1998 and
$13.8 million in 1997
and $13.3 million in 1996 primarily due to the depreciation of property additions
and the higher amortization of software costs.
Income taxes increased $10.7 million in 1998, as compared to 1997,
primarily due to higher pre-tax income and lower foreign tax credits as PSCo
transferred its investment in Yorkshire Power, effective March 31, 1998. Income
taxes decreased $5.5 million in 1997, as compared to 1996,prior year, primarily due
to lower pre-tax income.the recognition of foreign tax credits. Additional income tax expense was
recognized in 1997 due to higher non-deductible merger and executive severance
costs.
The increase inOther Income and Deductions
Other income taxes in 1996, asand deductions increased $3.5 million during 1998, when
compared to 1995,
was1997, primarily due to higher pre-tax income,the absence of Merger and business
integration costs and legal costs associated with various employee lawsuits. In
addition, equity in earnings from Yorkshire Power decreased as a result of the
sale of NCI to NC Enterprises in exchange for a promissory note, effective March
31, 1998. This decrease in equity earnings was offset, in part, by interest
income recognized on the write-off
of additional investment tax credits for retired propertynote receivable ($14.2 million). See Note 2. Investment
in Yorkshire Power and additional tax
benefits at PSRI.U.K. Windfall Tax in Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA. Other income and deductions increased $27.4 million during
1997, when compared to 1996,prior year, primarily due to the recognition of equity
earnings in Yorkshire Power ($34.9 million), of which approximately $10 million is
related to the change in the U.K. corporate income tax rate from 33% to 31%.
See Note 2. Acquisition of Yorkshire Electricity and U.K. Windfall Tax in
Item 8. Financial Statements and Supplementary Data. Merger and business integration
costs increased in 1997 and 1996by $7.5 million, and $7.1 million,
respectively, when compared to the preceding year.
The 1997 amount included executive severance costs and other costs which
resulted from the closing of the Merger effective August 1, 1997.
While costs associated with the Merger,
transition planning54
Interest Charges
Interest charges and implementation have negatively impacted earningsdividend requirements and redemption premium on
preferred stock decreased $4.3 million during 1997 and 1996, management anticipates that future operating results
will benefit from synergies resulting1998, when compared to 1997.
Proceeds from the Merger.issuance of $250 million of long-term debt in April 1998 were
used, in part, to reduce short-term debt. Higher interest costs on additional
long-term debt, net of retirements, were offset, in part, by lower interest
rates. Other interest expense decreased primarily due to lower short-term
borrowings. The increase in dividends on PSCo obligated mandatorily redeemable
preferred securities of subsidiary trust holding solely subordinated debentures
of PSCo which were issued in May 1998 (see Note 5. Obligated Mandatorily
redeemable Preferred Securities of subsidiary Trust Holding Solely Subordinated
Debentures in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA). Interest
charges and dividends on preferred stock increased $26.5$26.4 million during 1997,
when compared to 1996,the prior year, primarily due to interest on borrowings
utilized to finance capital expenditures and the April 1997 investment in
Yorkshire Power. These financings included the issuance of medium-term notes and
an increased level of short-term borrowings.
Liquidity and Capital Resources
Cash Flows
1997 1996 1995
---- ---- ----
Net cash provided by operating activities
(in millions) ........................... $263.9 $327.6 $385.7
Cash provided by operating activities decreased in 1997, when compared
to 1996, primarily due to the increase in payments to gas suppliers resulting
from the higher gas costs in late 1996 and early 1997. A portion of these
higher gas costs have been deferred through the GCA and will be recovered
from customers in the future. Cash provided by operating activities
decreased $58.1 million in 1996 primarily due to the undercollection of
purchased gas and electric energy costs ($40.8 million) and lower cash
receipts because of a gas refund that was applied directly to customers'
accounts in late 1995.
1997 1996 1995
---- ---- ----
Net cash used in investing activities
(in millions) ........................... $721.7 $307.1 $284.6
Cash used in investing activities increased during 1997, when compared
to 1996, primarily due to the acquisition of a 50% equity interest in
Yorkshire Power for approximately $360 million. Construction
50
expenditures also increased in 1997 and 1996, when compared to the preceding
year. Proceeds from the sale of certain Fuelco properties in 1996 reduced the
net cash used in investing activities.
1997 1996 1995
---- ---- ----
Net cash provided by (used in)
financing activities (in millions) $467.3 $(25.8) $(92.3)
Cash provided by financing activities increased during 1997, when
compared to 1996, primarily due to PSCo's issuance of medium term notes and
capital contributions by NCE. The proceeds from the $75 million financing in
January 1997 were used to fund its construction program. The proceeds from
the issuance of $250 million medium term notes in March 1997, together with
additional borrowings of approximately $110 million on its short-term lines
of credit, were used to fund the acquisition of Yorkshire Power. As a result
of the increase in recoverable purchased gas and electric energy costs and
reduced cash flows resulting from lower electric rates, coupled with
increased merger and business integration costs, PSCo has utilized the
proceeds from additional short-term borrowings to finance ongoing
construction expenditures. With the consummation of the Merger effective
August 1, 1997, management anticipates that future operating results and
related cash flows will benefit from synergies resulting from the Merger.
Cash used in financing activities decreased in 1996, as compared to 1995,
primarily due to the issuance of additional long-term debt. These combined
proceeds were used to fund PSCo's construction program, for other general
corporate purposes and to repay short-term indebtedness incurred for such
purposes.
Prospective Capital Requirements
The estimated cost as of December 31, 19971998, of the construction programs
of PSCo and its subsidiaries and other capital requirements for the years 1998, 1999,
2000 and 20002001 are shown in the table below (in millions of dollars)millions):
1998
1999 2000 ---- ---- ----2001
------- ------ ------
Electric
Production *........................Production.......................... $ 162117 $ 107117 $ 6176
Transmission........................ 2616 46 23
20
Distribution........................ 96 125 100151 108 134
Gas .................................... 79 80 70 6782
General................................. 60 60 29
-- -- --74 55 55
Non-utility............................. 4 2 1
------- ------ ------
Total construction expenditures... 424 385 277441 408 371
Less: AFDC.............................. 12 11 713 9 10
Add: Sinking funds and debt maturities
and refinancings .................. 252 41 131
---...................... 89 31 140
-- -- ---
Total capital requirements..............requirements........ $ 664517 $ 415430 $ 401501
======= ====== ======
* Capital requirements for 1998 Electric Production include approximately
$59 million for Fort St. Vrain repowering and approximately $52 million
for emission control equipment and environmental projects.
The construction programs of PSCo and its subsidiaries are subject to
continuing review and modification. In particular, actual construction
expenditures may vary from the estimates due to changes in the electric system
projected load growth, the desired reserve margin and the availability of
purchased power, as well as alternative plans for meeting PSCo's long-term
energy needs. In addition, PSCo's ongoing evaluation of merger,asset acquisition and
divestiture opportunities to support corporate strategies and future
requirements to install emission control equipment may impact actual capital
requirements (see Note 10. Commitments and Contingencies - Environmental Issues
in Item 8. Financial Statements and Supplementary Data)FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).
51
Capital Sources
At December 31, 1997,1998, PSCo and its subsidiaries estimate that their
1998-20001999-2001 capital requirements, as summarized above, and the payment of common
stock dividends to NCE will be met with a combination of funds from external
sources and funds from operations. PSCo and its subsidiaries may meet their
external capital requirements through the sale of utility
obligated mandatorily redeemable preferred securities,capital contributions by NCE, the issuance
of secured or unsecured long-term and short-term debt including first collateral trust bonds, and the issuancesale of short-term debtother
securities by PSCo and its subsidiaries. The financing needs are subject to
continuing review and can change depending on market and business conditions and
changes, if any, in the construction programs and other capital requirements of
PSCo and its subsidiaries.
Registration Statements
In 1996 and in early 1997, PSCo established a $250 million Secured
Medium-Term Note Program, Series B, and a $150 million Secured Medium-Term
Note Program, Series C, pursuant to a registration statement for the issuance
of $400 million of First Collateral Trust Bonds. All securities under these
Medium-Term Note Programs have been issued.
Indentures
PSCo's Indenture dated as of December 1, 1939 (the "1939 Indenture"),
which is a mortgage on its electric and gas properties, permits the issuance
of additional first mortgage bonds to the extent of 60% of the value of net
additions to PSCo's utility property, provided net earnings before
depreciation, taxes on income and interest expense for a recent twelve month
period are at least 2.5 times the annual interest requirements on all bonds
to be outstanding. The 1939 Indenture also permits the issuance of
additional bonds on the basis of retired first mortgage bonds, in some cases
with no requirement to satisfy such net earnings test. At December 31, 1997,
the amount of net additions would permit (and the net earnings test would not
prohibit) the issuance of approximately $455 million of new bonds at an
assumed annual interest rate of 6.70%. At December 31, 1997, the amount of
retired bonds would permit the issuance of $669.5 million of new bonds.
PSCo's Indenture dated as of October 1, 1993 (the "1993 Indenture") is
a second mortgage on its electric properties. Generally, so long as PSCo's
1939 Indenture remains in effect, first collateral trust bonds will be issued
under the 1993 Indenture on the basis of the deposit with the trustee of an
equal principal amount of first mortgage bonds issued under the 1939
Indenture. If the bonds issued under the 1939 Indenture are to be issued on
the basis of property additions, first collateral trust bonds may be issued
under the 1993 Indenture only if net earnings before depreciation, taxes on
income, interest expenses and non-recurring charges for a recent twelve-month
period are at least 2 times annual interest requirements on all first
mortgage bonds (other than bonds held by the trustee under the 1993
Indenture) and all first collateral trust bonds to be outstanding. As of
December 31, 1997, coverage under the net earnings test was 4.9 times such
annual interest requirements.
Restated Articles of Incorporation
PSCo's Restated Articles of Incorporation prohibit the issuance of
additional preferred stock without preferred shareholder approval, unless the
gross income available for the payment of interest charges for a recent
twelve month period is at least 1.5 times the total of: 1) the annual
interest requirements on all indebtedness to be outstanding for more than one
year; and 2) the annual dividend requirements on all preferred stock to be
outstanding. At December 31, 1997, gross income available under this
requirement would permit PSCo, if allowed under provisions of its Restated
Articles of Incorporation, to issue approximately $2.6 billion of additional
preferred stock at an assumed annual dividend rate of 6.00%. Coverage of
gross income to interest charges was 5.38 at December 31, 1997.
PSCo's Restated Articles of Incorporation also prohibit, without
preferred shareholder approval, the issuance or assumption of unsecured
indebtedness, other than for refunding purposes, greater than 15% of the
aggregate of: 1) the total principal amount of all bonds or other securities
representing secured indebtedness of PSCo, then outstanding; and 2) the total
of the capital and surplus of PSCo, as then recorded on its books. At
52
December 31, 1997, PSCo had outstanding unsecured indebtedness, including
subsidiary indebtedness with the credit support of PSCo, in the amount of
$261.6 million. The maximum amount permitted under this limitation was
approximately $483.6 million at December 31, 1997.
Short-Term Borrowing Arrangements
PSCo and its subsidiaries have available committed and uncommitted
lines of credit to meet their short-term cash requirements. PSCo and its
subsidiaries have a credit facility with several banks which provides $300
million in committed bank lines of credit and is used primarily to support
the issuance of commercial paper by PSCo and PSCCC, and to provide for direct
borrowings thereunder. At December 31, 1997, $13.4 million remained unused
under this facility. Generally, the banks participating in the credit
facility would have no obligation to continue their commitments if there has
been a material adverse change in the consolidated financial condition,
operations, business or otherwise that would prevent PSCo and its
subsidiaries from performing their obligation under the credit facility.
This facility expires on November 17, 2000. PSCo also has available a $125
million line of credit which expires on April 30, 1998. At December 31,
1997, the entire amount of the facility remained unused. In addition, PSCo
has individual arrangements for uncommitted bank lines of credit which
totaled $50 million, and all were used at December 31, 1997. These individual
arrangements expire on December 31, 1998. PSCo may borrow under uncommitted
preapproved lines of credit upon request; however, the banks have no firm
commitment to make such loans. PSCo's charter allows for short-term
borrowings to the extent the total of such borrowings does not exceed 15% of
total capitalization. (see Note 7. Short-term Borrowing Arrangements in Item
8. Financial Statements and Supplementary Data).
PSCCC may periodically issue medium-term notes (in addition to the
short-term debt discussed above) to supplement the financing/purchase of
PSCo's customer accounts receivable and fossil fuel inventories. As of
December 31, 1997, PSCCC had issued and had outstanding $100 million in
medium-term notes. The level of financing of PSCCC is tied directly to daily
changes in the level of PSCo's outstanding customer accounts receivable and
monthly changes in fossil fuel inventories and will vary minimally from year
to year although seasonal fluctuations in the level of assets will cause
corresponding fluctuations in the level of associated financing.
5355
Item 8. Financial Statements and Supplementary Data (PSCo)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO PUBLIC SERVICE COMPANY OF COLORADO:
We have audited the accompanying consolidated balance sheets and statements of
capitalization of Public Service Company of Colorado (a Colorado corporation)
and subsidiaries as of December 31, 19971998 and 1996,1997, and the related consolidated
statements of income, shareholder's equity and cash flows for each of the three
years in the period ended December 31, 1997.1998. These financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Public Service Company of
Colorado and subsidiaries as of December 31, 19971998 and 1996,1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997,1998, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 13, 1998
5423, 1999
56
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
December 31, 1998 and 1997
and 1996
ASSETS
1998 1997 1996
---- ----
Property, plant and equipment, at cost:
Electric .......................................... $4,369,134 $4,088,447
$3,931,413
Gas................................................ 1,171,198 1,100,003 1,035,394
Steam and other.................................... 71,986 78,740 78,225
Common to all departments.......................... 418,484 432,840 418,262
Construction in progress........................... 264,752 170,503 181,597
------- -------
6,295,554 5,870,533 5,644,891
Less: accumulated depreciation .................... 2,241,165 2,145,673 2,045,996
--------- ---------
Total property, plant and equipment.............. 4,054,389 3,724,860 3,598,895
--------- ---------
Investments, at cost:
Investment in Yorkshire Power (Note 2)............. 286,703- 290,845
Note receivable from affiliate (Note 2)............ 192,620 -
Other.............................................. 22,664 43,311
46,550
------------- ------
Total investments................................. 330,014 46,550215,284 334,156
------- -------------
Current assets:
Cash and temporary cash investments................ 19,926 18,909 9,406
Accounts receivable, less reserve for uncollectible
accounts ($2,2722,254 at December 31, 1997; $4,0491998;
$2,272 at December 31, 1996) ...............................1997) ................... 172,587 183,063 218,132
Accrued unbilled revenues ......................... 119,856 94,284 85,894
Recoverable purchased gas and electric energy costs
- net ....................................................................................... 62,761 103,197 31,288
Materials and supplies, at average cost............ 47,881 48,030 48,972
Fuel inventory, at average cost.................... 22,361 20,862 24,739
Gas in underground storage, at cost (LIFO)......... 51,779 46,576 42,826
Prepaid expenses and other......................... 46,523 47,686
41,790
------------- ------
Total current assets.............................. 543,674 562,607 503,047
------- -------
Deferred charges:
Regulatory assets (Note 1)......................... 269,112 310,658 348,566
Unamortized debt expense .......................... 17,874 10,800
10,975
Other.............................................. 77,303 55,794
64,615
------------- ------
Total deferred charges............................ 364,289 377,252 424,156
------- -------
$4,994,733 $4,572,648$5,177,636 $4,998,875
========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
55
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
December 31, 1997 and 1996
CAPITAL AND LIABILITIES
1997 1996
---- ----
Common stock (Notes 1 and 4).......................... $1,302,119 $1,048,447
Retained earnings..................................... 319,280 389,841
------- -------
Total common equity............................... 1,621,399 1,438,288
Preferred stock (Note 4):
Not subject to mandatory redemption................ 140,002 140,008
Subject to mandatory redemption at par............. 39,253 39,913
Long-term debt (Note 6)............................... 1,338,138 1,259,528
--------- ---------
3,138,792 2,877,737
--------- ---------
Noncurrent liabilities:
Employees' postretirement benefits other than
pensions (Note 12) ............................... 58,695 55,677
Employees' postemployment benefits (Note 12)....... 25,031 25,182
------ ------
Total noncurrent liabilities...................... 83,726 80,859
------ ------
Current liabilities:
Notes payable and commercial paper (Note 7)........ 348,555 244,725
Long-term debt due within one year................. 257,160 155,030
Preferred stock subject to mandatory redemption
within one year ................................. 2,576 2,576
Accounts payable................................... 189,998 254,256
Dividends payable.................................. 40,975 36,973
Customers' deposits................................ 21,888 21,441
Accrued taxes...................................... 42,549 58,990
Accrued interest................................... 39,177 33,797
Current portion of accumulated deferred income taxes
(Note 13) ....................................... 19,872 4,560
Other.............................................. 88,655 77,868
------ ------
Total current liabilities......................... 1,051,405 890,216
--------- -------
Deferred credits:
Customers' advances for construction............... 51,830 50,269
Unamortized investment tax credits ................ 99,355 105,928
Accumulated deferred income taxes (Note 13)........ 534,246 539,082
Other.............................................. 35,379 28,557
------ ------
Total deferred credits............................ 720,810 723,836
------- -------
Commitments and contingencies (Notes 9 and 10)........
---------- ----------
$4,994,733 $4,572,648
========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
56
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPTALIZATION
(Thousands of Dollars, Except Share Information)
December 31, 1997 and 1996
1997 1996
---- ----
Common shareholder's equity:
Common stock, $5 par value, authorized 100 shares
in 1997 and 160,000,000 shares in 1996,
outstanding 100 shares in 1997 and 64,818,759
shares in 1996 (Note 1) ......................... $ 1 $ 324,094
Paid in capital.................................... 1,302,118 724,353
Retained earnings.................................. 319,280 389,841
------- -------
Total common shareholder's equity................. 1,621,399 1,438,288
--------- ---------
Preferred stock (Note 4):
Shares Issued and Outstanding
-----------------------------
1997 1996
---- ----
$100 Par Value, Authorized
3,000,000 Shares
Not subject to mandatory
redemption
4.20% series 100,000 100,000 10,000 10,000
4.25% series(includes
$7,500 premium) 174,997 175,000 17,507 17,508
4.50% series 65,000 65,000 6,500 6,500
4.64% series 159,950 160,000 15,995 16,000
4.90% series 150,000 150,000 15,000 15,000
4.90% 2nd series 150,000 150,000 15,000 15,000
7.15% series 250,000 250,000 25,000 25,000
------- ------- ------ ------
1,049,947 1,050,000 105,002 105,008
--------- --------- ------- -------
Subject to mandatory redemption
7.50% series 216,000 216,000 21,600 21,600
8.40% series 202,294 208,892 20,229 20,889
------- ------- ------ ------
418,294 424,892 41,829 42,489
Less: Preferred stock
subject to mandatory
redemption within one year (25,760) (25,760) (2,576) (2,576)
------- ------- ------ ------
392,534 399,132 39,253 39,913
------- ------- ------ ------
$25 Par Value, Authorized
4,000,000 Shares
Not subject to mandatory
redemption
8.40% series 1,400,000 1,400,000 35,000 35,000
--------- --------- ------ ------
Total preferred stock 2,842,481 2,849,132 179,255 179,921
--------- --------- ------- -------
Long-term debt (Note 6):
Public Service Company of Colorado:
First Mortgage Bonds
5-7/8% retired July 1, 1997....................... - 35,000
6-3/4% due July 1, 1998........................... 25,000 25,000
6% due January 1, 2001............................ 102,667 102,667
8-1/8% due March 1, 2004.......................... 100,000 100,000
Pollution Control Series A and B, 5-7/8% due
March 1, 2004 ................................... 22,000 22,500
6-3/8% due November 1, 2005....................... 134,500 134,500
7-1/8% due June 1, 2006........................... 125,000 125,000
Pollution Control Series G, 5-5/8% due April 1, 2008 18,000 18,000
Pollution Control Series F, 7-3/8% due November
1, 2009 27,250 27,250
Pollution Control Series G, 5-1/2% due June 1, 2012 50,000 50,000
Pollution Control Series G, 5-7/8% due April 1, 2014 61,500 61,500
9-7/8% due July 1, 2020........................... 75,000 75,000
8-3/4% due March 1, 2022.......................... 150,000 150,000
7-1/4% due January 1, 2024........................ 110,000 110,000
Secured Medium-Term Notes, Series A and B, 6.02% -
9.25%, due August 1, 1997 - March 5, 2007 ........ 423,500 183,500
Unamortized premium................................ 4 13
Unamortized discount............................... (4,670) (5,032)
Capital lease obligations, 6.68% - 11.21% due in
installments through May 31, 2025............... 44,392 49,070
------ ------
$1,464,143 $1,263,968
---------- ----------
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
57
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPTALIZATION (continued)BALANCE SHEETS
(Thousands of Dollars, Except Share Information)Dollars)
December 31, 1998 and 1997
and 1996CAPITAL AND LIABILITIES
1998 1997 1996
---- ----
Common stock...................................... $1,302,119 $1,302,119
Retained earnings................................. 325,213 319,280
Accumulated comprehensive income.................. - 4,142
------- -------
Total common equity........................... 1,627,332 1,625,541
Preferred stock (Note 4):
Not subject to mandatory redemption............ - 140,002
Subject to mandatory redemption at par......... - 39,253
PSCo obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
subordinated debentures of PSCo (Note 5) ....... 194,000 -
Long-term debt (continued)
Cheyenne Light, Fuel(Note 6)........................... 1,643,130 1,338,138
--------- ---------
3,464,462 3,142,934
--------- ---------
Noncurrent liabilities:
Employees' postretirement benefits other than
pensions (Note 12) ........................... 55,537 58,695
Employees' postemployment benefits (Note 12)... 27,195 25,031
------- -------
Total noncurrent liabilities.................. 82,732 83,726
------- -------
Current liabilities:
Notes payable and Power Companycommercial paper (Note 1):
First Mortgage Bonds
7-7/8% due April 1, 2003........................... $ - $ 4,000
7-1/2% due January 1, 2024......................... - 8,000
Industrial Development Revenue Bonds, 7-1/4% due
September 1, 2021 ............................... - 7,000
PS Colorado Credit Corporation, Inc.:
Unsecured Medium-Term Notes, Series A
5.91% - 6.14%% due November 24, 1997 - December
15, 1998 ........................................ 100,000 100,000
1480 Welton, Inc.:
13.25% secured promissory note, due in installments
through October 1, 2016 .......................... 31,155 31,506
Natural Fuels Corporation (Note 1):
Capital lease obligations, 4.21% - 11.11% due in
installments through November 5, 2000............. - 84
--- --
1,595,298 1,414,558
Less: maturities7)..... 402,795 348,555
Long-term debt due within one year.................year.............. 44,481 257,160
155,030Preferred stock subject to mandatory redemption
within one year .............................. - 2,576
Accounts payable................................ 226,712 189,998
Dividends payable............................... 46,461 40,975
Customers' deposits............................. 23,902 21,888
Accrued taxes................................... 57,848 42,549
Accrued interest................................ 36,729 39,177
Current portion of accumulated deferred income
taxes (Note 13) ............................. 8,142 19,872
Other........................................... 68,729 88,655
------- -------
Total long-term debt.............................. 1,338,138 1,259,528current liabilities...................... 915,799 1,051,405
------- ---------
---------Deferred credits:
Customers' advances for construction............ 54,260 51,830
Unamortized investment tax credits ............. 94,459 99,355
Accumulated deferred income taxes (Note 13)..... 538,581 534,246
Other........................................... 27,343 35,379
------- -------
Total capitalization.................................. $3,138,792 $2,877,737deferred credits......................... 714,643 720,810
------- -------
Commitments and contingencies (Notes 9 and 10)..... ---------- ----------
$5,177,636 $4,998,875
========== ==========
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
58
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOMECAPTALIZATION
(Thousands of Dollars)
Years endedDollars, Except Share Information)
December 31, 1998 and 1997
1996 and 19951998 1997 1996 1995
---- ----
----
Operating revenues:
Electric.................................. $1,485,196 $1,488,990 $1,449,096
Gas........................................ 733,091 640,497 624,585
Other...................................... 11,356 7,951 7,010
------ ----- -----
2,229,643 2,137,438 2,080,691
Operating expenses:
Fuel usedCommon shareholder's equity:
Common stock, $0.01 par value, authorized and
outstanding 100 shares in generation.................... 198,706 195,442 181,995
Purchased power............................ 493,902 490,428 481,958
Gas purchased for resale................... 467,745 393,163 392,680
Other operating1998 and maintenance expenses... 391,177 400,008 410,095
Depreciation and amortization.............. 168,451 154,631 141,380
Taxes (other than income taxes) ........... 81,496 82,899 81,319
Income taxes (Note 13) .................... 90,813 96,331 95,357
------ ------ ------
1,892,290 1,812,902 1,784,7841997 $ - $ -
Paid in capital................................... 1,302,119 1,302,119
Retained earnings................................. 325,213 319,280
Accumulated comprehensive income.................. - 4,142
------- -------
Total common shareholder's equity................ 1,627,332 1,625,541
--------- ---------
---------
Operating income.............................. 337,353 324,536 295,907
Other incomePreferred stock (Note 4):
Shares Issued and deductions:
Merger expenses............................ (18,661) (11,210) (4,067)
Equity earnings in Yorkshire Power (Note 2) 34,926Outstanding
-----------------------------
1998 1997
---- ----
$100 Par Value,
Authorized 3,000,000 Shares
Not subject to mandatory
redemption
4.20% series - 100,000 - Miscellaneous income and deductions10,000
4.25% series (includes
$7,500 premium) - net.. (13,374) (13,260) (3,794)174,997 - 17,507
4.50% series - 65,000 - 6,500
4.64% series - 159,950 - 15,995
4.90% series - 150,000 - 15,000
4.90% 2nd series - 150,000 - 15,000
7.15% series - 250,000 - 25,000
------ ------- ------- ------
2,891 (24,470) (7,861)
Interest charges:
Interest on long-term debt................. 118,438 95,826 89,110
Other interest............................. 24,117 17,238 23,393
Allowance for borrowed funds used during
construction ............................ (6,353) (3,344) (3,313)- 1,049,947 - 105,002
------ --------- ------- -------
Subject to mandatory
redemption
7.50% series - 216,000 - 21,600
8.40% series - 202,294 - 20,229
------ ------- ------ ------
- 418,294 - 41,829
Less: Preferred stock
subject to mandatory
redemption within
one year - (25,760) - (2,576)
------ 136,202 109,720 109,190------- ------ ------
- 392,534 - 39,253
------ ------- ------ ------
$25 Par Value, Authorized
4,000,000 Shares
Not subject to mandatory
redemption
8.40% series - 1,400,000 - 35,000
------ --------- ------- ------
$0.01 Par Value, Authorized
10,000,000 Shares - - - -
------ ------ ------- ------
Total preferred stock - 2,842,481 - 179,255
------ --------- ------- -------
-------
Income before extraordinary item.............. 204,042 190,346 178,856
Extraordinary item -U.K. windfall taxPSCo obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
subordinated debentures of PSCo (Note 2) (110,565)5) ........... 194,000 -
Long-term debt (Note 6):
Public Service Company of Colorado:
First Mortgage Bonds
6-3/4% retired July 1, 1998...................... - -------- --- ---
Net income.................................... 93,477 190,346 178,856
Dividend requirements on preferred stock...... 11,752 11,848 11,96325,000
6% due January 1, 2001........................... 102,667 102,667
6% due April 15, 2003............................ 250,000 -
8-1/8% due March 1, 2004......................... 100,000 100,000
Pollution Control Series A and B, 5-7/8% due
March 1, 2004 ................................. 21,500 22,000
6-3/8% due November 1, 2005...................... 134,500 134,500
7-1/8% due June 1, 2006.......................... 125,000 125,000
Pollution Control Series G, 5-5/8%
due April 1, 2008 ............................. 18,000 18,000
Pollution Control Series F, 7-3/8%
due November 1, 2009 .......................... 27,250 27,250
Pollution Control Series G, 5-1/2%
due June 1, 2012. ............................. 50,000 50,000
Pollution Control Series G, 5-7/8%
due April 1, 2014 ............................. 61,500 61,500
9-7/8% due July 1, 2020.......................... 75,000 75,000
8-3/4% due March 1, 2022......................... 150,000 150,000
7-1/4% due January 1, 2024....................... 110,000 110,000
Secured Medium-Term Notes, Series A and B,
6.02% - 9.25%, due March 4, 1998 - March 5, 2007 296,500 423,500
Unamortized premium............................... - 4
Unamortized discount.............................. (4,616) (4,670)
Capital lease obligations, 6.68% -11.21% due in
installments through May 31, 2025 .............. 39,555 44,392
------ ------
------
Earnings available for common stock........... $ 81,725 $ 178,498 $ 166,893
========== ========== ==========$1,556,856 $1,464,143
---------- ----------
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
59
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(Thousands of Dollars, Except Share Information)
Years ended December 31, 1997, 1996 and 1995
Common Stock, $5 par value Paid in Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
Balance at January 1, 1995.. 62,154,594 $310,772 $648,496 $308,214 $1,267,482
Net income.................. - - - 178,856 178,856
Dividends declared
Common stock.............. - - - (128,587) (128,587)
Preferred stock, $100 par
value .................... - - - (9,004) (9,004)
Preferred stock, $25 par
value .................... - - - (2,940) (2,940)
Issuance of common stock
Employees' Savings Plan... 310,546 1,553 8,152 - 9,705
Dividend Reinvestment Plan 889,331 4,447 23,575 - 28,022
Management Incentive Plan. 3,657 19 92 - 111
----- -- -- --- ---
Balance at December 31, 1995 63,358,128 316,791 680,315 346,539 1,343,645
Net income.................. - - - 190,346 190,346
Dividends declared
Common stock.............. - - - (135,111) (135,111)
Preferred stock, $100 par
value .................... - - - (8,889) (8,889)
Preferred stock, $25 par
value .................... - - - (2,940) (2,940)
Issuance of common stock
Employees' Savings Plan... 274,934 1,374 8,420 - 9,794
Dividend Reinvestment Plan 809,603 4,048 24,580 - 28,628
Management Incentive Plan. 58,346 292 1,427 - 1,719
Acquisitions (Note 4)..... 317,748 1,589 9,611 - 11,200
Other....................... - - - (104) (104)
--- --- --- ---- ----
Balance at December 31, 1996 64,818,759 324,094 724,353 389,841 1,438,288
Net income.................. - - - 93,477 93,477
Dividends declared
Common stock, prior to
August 1, 1997 Merger .... - - - (76,202) (76,202)
Common stock, to NCE...... - - - (76,093) (76,093)
Preferred stock, $100 par
value .................... - - - (8,803) (8,803)
Preferred stock, $25 par
value .................... - - - (2,940) (2,940)
Issuance of common stock
Employees' Savings Plan... 250,058 1,250 8,518 - 9,768
Dividend Reinvestment Plan 488,224 2,441 16,899 - 19,340
Management Incentive Plan. 40,404 202 993 - 1,195
Merger with SPS
Exchange of common stock
for NCE stock ........... (65,597,345) (327,986) 327,986 - -
Dividend of subsidiaries'
stock to NCE ............ - - (49,912) - (49,912)
Contribution of capital by
NCE (Note 4) ............. - - 273,300 - 273,300
Other....................... - - (19) - (19)
--- --- --- --- ---
Balance at December 31, 1997 100 $ 1 $ 1,302,118 $ 319,280 $1,621,399
=== ========== =============PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPTALIZATION (continued)
(Thousands of Dollars, Except Share Information)
December 31, 1998 and 1997
1998 1997
---- ----
Long-term debt (continued)
PS Colorado Credit Corporation, Inc.:
Unsecured Medium-Term Notes, Series A,
5.86% - 6.14%, due October 13, 1998 - May 30, 2000 $100,000 $100,000
1480 Welton, Inc.:
13.25% secured promissory note, due in installments
through October 1, 2016 ........................... 30,755 31,155
------ ------
1,687,611 1,595,298
Less: maturities due within one year................. 44,481 257,160
------ -------
Total long-term debt.............................. 1,643,130 1,338,138
--------- ---------
Total capitalization.................................. $3,464,462 $3,142,934
========== ==========
Authorized shares of common stock were 100 at December 31, 1997 and 160
million at December 31, 1996 and 1995.
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
60
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWSINCOME
(Thousands of Dollars)
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996 and 1995
1997 1996 1995
---- ---- ----
Operating activities:
Net income................................... $ 93,477 $190,346 $ 178,856
Adjustments to reconcilerevenues:
Electric................................. $1,635,573 $1,485,196 $1,488,990
Gas...................................... 640,064 733,091 640,497
Other.................................... 8,449 11,356 7,951
------- ------ -----
2,284,086 2,229,643 2,137,438
Operating expenses:
Fuel used in generation.................. 212,184 198,706 195,442
Purchased power.......................... 589,637 493,902 490,428
Gas purchased for resale................. 380,554 467,745 393,163
Other operating and maintenance expenses. 403,292 391,177 400,008
Depreciation and amortization............ 180,913 168,451 154,631
Taxes (other than income taxes) ......... 83,994 81,496 82,899
Income taxes (Note 13) .................. 101,494 90,813 96,331
------- ------- -------
1,952,068 1,892,290 1,812,902
--------- --------- ---------
Operating income............................ 332,018 337,353 324,536
Other income and deductions:
Merger expenses.......................... 418 (18,661) (11,210)
Equity in earnings of Yorkshire
Power (Note 2) ........................ 3,446 34,926 -
Miscellaneous income and deductions -
net income to net
cash provided by operating activities (Note 1):15) ........................ 2,535 (13,374) (13,260)
----- ------- -------
6,399 2,891 (24,470)
Interest charges:
Interest on long-term debt............... 120,082 118,438 95,826
Other interest........................... 20,849 24,117 17,238
Allowance for borrowed funds used during
construction .......................... (12,328) (6,353) (3,344)
Dividends on PSCo obligated mandatorily
redeemable preferred securities of
subsidiary trust holding solely
subordinated debentures of PSCo (Note 5) 9,711 - -
----- ----- ----
138,314 136,202 109,720
------- ------- -------
Income before extraordinary item............ 200,103 204,042 190,346
Extraordinary item - U.K. windfall tax (Note 2) 110,565 - (110,565) -
Depreciation----- -------- -------
Net income................................... 200,103 93,477 190,346
Dividend requirements and amortization.............. 173,047 159,400 145,370
Amortization of investment tax credits..... (5,219) (7,256) (5,348)
Deferred income taxes...................... 37,390 60,899 39,170
Equity in earnings in Yorkshire Power...... (34,926) - -
Allowance for equity funds used during
construction ............................. 6 (757) (3,782)
Change in accounts receivable.............. (15,378) (88,680) 38,734
Change in inventories...................... (2,163) 20,542 4,246
Change in other current assets............. (52,914) (31,169) 7,618
Change in accounts payable................. (5,413) 88,473 (20,922)
Change in other current liabilities........ (15,870) (36,615) 24,230
Change in deferred amounts................. (21,913) (19,550) (20,385)
Change in noncurrent liabilities........... 3,367 (9,779) (5,367)
Other...................................... (144) 1,760 3,279
---- ----- -----
Net cash provided by operating activities 263,912 327,614 385,699
Investing activities:
Construction expenditures.................... (352,273) (321,162) (285,516)
Allowance for equity funds used during
construction .............................. (6) 757 3,782
Proceeds from disposition of property, plant
and equipment ............................. 3,187 20,454 2,470
Investment in Yorkshire Power (Note 2)....... (362,342) - -
Payment for purchase of companies, net of cash
acquired (Note 3) ......................... - 3,649 -
Transfer of subsidiaries to NCE (Note 1)..... (2,229) - -
Purchase of other investments................ (19,224) (11,485) (10,249)
Sale of other investments.................... 11,162 664 4,898
------ --- -----
Net cash used in investing activities.... (721,725) (307,123) (284,615)
Financing activities:
Proceeds from sale of common stock (Note 4).. 20,517 30,115 28,030
Contribution of capital by NCE............... 273,300 - -
Proceeds from sale of long-term notes and
bonds (Note 6) ............................ 412,220 217,415 101,860
Redemption of long-term notes and bonds...... (205,550) (83,356) (44,713)
Short-term borrowings - net.................. 127,530 (43,325) (36,750)
Redemption of preferred stock................ (665) (1,376) (1,376)
Dividends on common stock (Notes 4 and 15)... (148,279) (133,394) (127,352)
Dividendsredemption premium
on preferred stock................. (11,757) (11,857) (11,973)
------- ------- -------
Net cash provided by (used in) financing
activities 467,316 (25,778) (92,274)
------- ------- -------
Net increase (decrease) in cash and
temporary cash investments .............. 9,503 (5,287) 8,810
Cash and temporary cash investments at
beginning of year ....................... 9,406 14,693 5,883stock ......................... 5,332 11,752 11,848
----- ------ -----
Cash and temporary cash investments at
end of year ............................ $18,909 $ 9,406 $ 14,693------
Earnings available for common stock......... $194,771 $81,725 $178,498
======== ======= ======= =================
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
61
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(Thousands of Dollars, Except Share Information)
Years ended December 31, 1998, 1997 and 1996
Accumulated
Other
Common Stock, $1 par value Paid Retained Comprehensive
Shares Amount in Capital Earnings Income Total
------ ------ ---------- -------- ------ -----
Balance at January 1, 1996 63,358,128 $316,791 $680,315 $346,539 $ - $ 1,343,645
Net income/Comprehensive income - - - 190,346 - 190,346
Dividends declared:
Common stock........ - - - (135,111) - (135,111)
Preferred stock, $100 par value - - - (8,889) - (8,889)
Preferred stock $25 par value - - - (2,940) - (2,940)
Issuance of common stock:
Employees' Savings Plan 274,934 1,374 8,420 - - 9,794
Dividend Reinvestment Plan 809,603 4,048 24,580 - - 28,628
Management Incentive Plan 58,346 292 1,427 - - 1,719
Acquisitions (Note 4) 317,748 1,589 9,611 - - 11,200
Other................. - - - (104) - (104)
------- ------ ----- ------ ------- ------
Balance at December 31, 1996 64,818,759 324,094 724,353 389,841 - 1,438,288
Comprehensive income:
Net income.......... - - - 93,477 - 93,477
Foreign currency translation
adjustment - - - - 4,142 4,142
-----
Comprehensive income (Note 1) 97,619
Dividends declared:
Common stock, prior to
August 1, 1997 Merger - - - (76,202) - (76,202)
Common stock, to NCE - - - (76,093) - (76,093)
Preferred stock, $100 par value - - - (8,803) (8,803)
Preferred stock, $25 par value - - - (2,940) (2,940)
Issuance of common stock:
Employees' Savings Plan 250,058 1,250 8,518 - - 9,768
Dividend Reinvestment Plan 488,224 2,441 16,899 - - 19,340
Management Incentive Plan 40,404 202 993 - - 1,195
Merger with SPS:
Exchange of common stock for
NCE stock......... (65,597,345) (327,987) 327,987 - - -
Dividend of subsidiaries'
stock to NCE............ - - (49,912) - - (49,912)
Contribution of capital by
NCE (Note 4) - - 273,300 - - 273,300
Other................. - - (19) - - (19)
------ ------ ---- ------- ------- ----
Balance at December 31, 1997 100 - 1,302,119 319,280 4,142 1,625,541
Comprehensive income:
Net income.......... - - - 200,103 - 200,103
Foreign currency translation
adjustment - - - - 5,260 5,260
Sale of NCI to NC Enterprises - (9,402) (9,402)
------
Comprehensive income (Note 1) 195,961
Dividends declared
Common stock, to NCE - - - (188,845) - (188,845)
Preferred stock, $100 par value - - - (4,166) - (4,166)
Preferred stock, $25 par value - - - (1,166) - (1,166)
Other............... - - - 7 - 7
------- ------ ------- ------ ------- -----
Balance at December 31, 1998 100 $ - $1,302,119 $ 325,213 $ - $1,627,332
=== ======= ========== ========= ======= ==========
(1)Authorized shares of common stock were 100 at December 31, 1998 and 1997 and
160 million at December 31, 1996. Common stock, par value was $5 through
September 18, 1997. Effective September 19, 1997, common stock, par value was
changed to $0.01.
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
62
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
----- ---- ----
Operating activities:
Net income................................... $200,103 $ 93,477 $190,346
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary item - U.K. windfall tax
(Note 2) ................................. - 110,565 -
Depreciation and amortization.............. 186,620 173,047 159,400
Amortization of investment tax credits..... (4,896) (5,219) (7,256)
Deferred income taxes...................... 7,092 37,390 60,899
Equity in earnings of Yorkshire Power...... (3,446) (34,926) -
Allowance for equity funds used during
construction ............................. - 6 (757)
Change in accounts receivable.............. 21,540 (15,378) (88,680)
Change in inventories...................... (6,553) (2,163) 20,542
Change in other current assets............. 7,937 (52,914) (31,169)
Change in accounts payable................. 9,148 (5,413) 88,473
Change in other current liabilities........ 22,957 (15,870) (36,615)
Change in deferred amounts................. (18,289) (21,913) (19,550)
Change in noncurrent liabilities........... (995) 3,367 (9,779)
Other...................................... - (144) 1,760
------- ------- -------
Net cash provided by operating activities 421,218 263,912 327,614
Investing activities:
Construction expenditures.................... (504,727) (352,273)(321,162)
Allowance for equity funds used during
construction .............................. - (6) 757
Proceeds from disposition of property, plant
and equipment ............................. 9,102 3,187 20,454
Investment in Yorkshire Power (Note 2)....... - (362,342) -
Payment received on note receivable from NC
Enterprises (Note 2) ...................... 100,000 - -
Payment for purchase of companies, net of
cash acquired (Note 3) .................... - - 3,649
Transfer of subsidiaries to NCE (Note 1)..... - (2,229) -
Purchase of other investments................ (1,345) (19,224) (11,485)
Sale of other investments.................... 4,101 11,162 664
------- ------- -------
Net cash used in investing activities.... (392,869) (721,725)(307,123)
Financing activities:
Proceeds from sale of common stock (Note 4).. - 20,517 30,115
Contribution of capital by NCE............... - 273,300 -
Proceeds from sale of PSCo obligated mandatorily
redeemable preferred securities (Note 5)..... 187,700 - -
Proceeds from sale of long-term debt (Note 6) 247,025 412,220 217,415
Redemption of long-term debt................. (157,737) (205,550) (83,356)
Short-term borrowings - net.................. 66,195 127,530 (43,325)
Redemption of preferred stock................ (181,824) (665) (1,376)
Dividends on common stock (Notes 4 and 15)... (180,430) (148,279)(133,394)
Dividends and redemption premium on preferred
stock ..................................... (8,261) (11,757) (11,857)
------ ------- -------
Net cash (used in) provided by financing
activities ............................. (27,332) 467,316 (25,778)
------- ------- -------
Net increase (decrease) in cash and
temporary cash investments ............ 1,017 9,503 (5,287)
Cash and temporary cash investments at
beginning of year ..................... 18,909 9,406 14,693
------ ----- ------
Cash and temporary cash investments at
end of year ......................... $19,926 $18,909 $ 9,406
======= ======= =======
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
63
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (SPS)
The following narrative analysis discusses SPS's results of operations
comparing the most recent fiscal yearyears ending December 31, 1998, December 31, 1997 toand the
immediately preceding fiscal
year ending August 31, 1996. SPS merged with PSCo effective August 1, 1997.
Effective with the Merger, Quixx and UE, previously wholly-owned subsidiaries,
were transferred through the sale by SPS of all of the outstanding common stock
of such subsidiaries at net book value, to NC Enterprises, an intermediate
holding company of NCE. The 1997 statements of income and cash flows reflect the
results of operations of Quixx and UE through July 31, 1997.
SPS changed its fiscal year in early 1997 and then filed a Transition
Report on Form 10-K for the period September 1, 1996 to December 31, 1996.
Additional information has been presented where meaningful, however, certain
information has been omitted pursuant to General Instructions I(2)(a).
Discussion related to Commitments and Contingencies and Liquidity and Capital Resources is discussed incovered within NCE's
Management's Discussion and Analysis of Financial Condition and Results of
Operations. See Forward Looking Information.
Merger
Effective August 1, 1997, following receipt of all required state and
Federal regulatory approvals, SPS and PSCo merged in a tax-free "merger of
equals" transaction and became wholly-owned subsidiaries of NCE, which is a
registered holding company under PUHCA. This transaction was accounted for
as a pooling of interests for accounting purposes. Effective with the
Merger, Quixx and UE, previously wholly-owned subsidiaries, were transferred
through the sale by SPS of all of the outstanding common stock of such
subsidiaries at net book value, to NC Enterprises, an intermediate holding
company of NCE. See Note 1 in Item 8. Financial Statements and Supplementary
Data for additional discussion of SPS, the Merger and the sale of UE and
Quixx. The statements of income and cash flows reflect the results of
operations of Quixx and UE through July 31, 1997.FORWARD LOOKING INFORMATION.
Earnings Available for Common Stock
Earnings available for common stock were $115.0 million, $75.6 million and
$103.3 million during 1998, 1997 and $114.6 million during 1997, 1996, and 1995, respectively. The significant
decreaseincrease in 19971998
earnings was primarily due to higher electric sales, lower operation and
maintenance expenses, the recognition of higher merger and business integration costs
during 1997 and the June 1997 write-off of Quixx's and UE's investments in the Carolina
Energy Project in 1997. 1997 earnings were negatively impacted by the
recognition of merger and business integration costs, the write-off of Quixx's
and UE's investments in the Carolina Energy Project in 1997 and the recognition
of a $11.7 million gain on the sale of certain water rights by Quixx in 1996
(see Note 3. AcquisitionAcquisitions and Divestiture of Investments inDivestitures Item 8. Financial Statements
and Supplementary Data)FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA).
While costs associated with the Merger, transition
planning and implementation have negatively impacted earnings during 1997 and
1996, management anticipates that future operating results will benefit from
synergies resulting from the Merger.
The lower$9.4 million decrease in earnings during the Transition Period, as
compared to the same period in 1995, was primarily due to the write-off of the
BCH project in December 1996 (see Note 3. AcquisitionAcquisitions and Divestiture of InvestmentsDivestitures in Item
8. Financial Statements and Supplementary Data)FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA). Earnings applicable to
common stock decreased $11.3 million in 1996, compared to 1995, primarily due
to the recognition of merger and business integration costs and higher
operating and maintenance expenses related to utility operations.
Operating Revenues
Electric Operations
Substantially all of SPS's operating revenues result from the sale of
electric energy. The principal factors impacting revenues are the amount and
price of energy sold. The following table details the annual change in electric
operating revenues and energy costs as compared to the preceding fiscal year (thousands of dollars).
62
(in
thousands):
Increase (Decrease) From Prior Year
-----------------------------------1998 1997 1996
---- ----
Electric operating revenues:
Retail........................... $21,513 $50,743
$24,170
Wholesale........................ 15,350 14,382 25,394
Other (including unbilled revenues) (46,031) (4,167)
15,750
------------- ------
Total revenues.................. (9,168) 60,958 65,314
Fuel used in generation........... (40,972) 56,076 46,971
Purchased power................... 8,654 (3,509)
12,769
------ ------------- -------
Net increase in electric margin. $23,150 $ 8,391
$ 5,574
======= =======
64
The following table compares electric Kwh sales by major customer classes.
Millions of Kwh Sales % Change From Prior Year*
--------------------- -------------------------Year
1998 1997 19961998 1997 1996
---- ---- ---- ----
Residential .............. 3,169 2,987 2,8696.1% 4.1% 5.9%
Commercial .............. 3,051 2,990 2,8872.0 3.6 2.7
Industrial .............. 8,367 8,135 7,8132.9 4.1 1.7
Public Authority ......... 630 583 5718.1 2.1
4.2
--- --------- -----
Total Retail............ 15,217 14,695 14,1403.6 3.9
2.8
Wholesale................. 8,075 7,004 6,74815.3 3.8
2.5
----------- -----
Total..................... 23,292 21,699 20,8887.3 3.9 2.7
====== ======
* Percentages are calculated using unrounded amounts.Electric operating revenues decreased $9.2 million or 1.0% in 1998, when
compared to 1997, primarily due to lower deferred fuel revenues attributable to
the pass through to customers of lower fuel costs, the recognition in 1997 of
revenues associated with the anticipated recovery of the Thunder Basin judgment
and rate reductions for guaranteed Merger savings, $5.8 million in 1998,
compared to $1.5 million in 1997. This decrease was offset, in part, by higher
electric sales due to the hotter weather during the summer of 1998 and a 1.4%
increase in customer growth and additional revenues of approximately $16.9
million recorded in connection with the settlement of the 1985 FERC rate case
(See Note 9. Regulatory Matters in Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.).
Electric operating revenues increased $61.0 million or 6.8% in 1997, when
compared to 1996, primarily due to the pass through to customers of higher fuel
costs and the costs related to the Texas jurisdictional portion of the Thunder Basin
judgment, a portion of which were recorded as an operating expense and increased
electric sales. However, underUnder the various state regulatory approvals, SPS is required to
provide credits to retail customers over five years for one-half of the measured
non-fuel operation and maintenance expense savings associated with the Merger. SPS will provide a guaranteed minimum annual savings to
retail customers of $3.0Merger
case (See Note 9. Regulatory Matters, Merger Related Rate Reductions, in Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.).
Fuel used in generation expense decreased $41.0 million or 8.7% in Texas, $1.2 million in New Mexico,
$100,000 in Oklahoma and $10,000 in Kansas. Electric operating revenues
increased 7.8% in 1996,1998,
when compared to 1995,1997, primarily due to higher fuel
usedlower prices of coal and natural gas
offset, in part, by increased generation and increasedlevels required to serve retail and
wholesale sales, which resulted
fromcustomers. The decrease in coal costs was primarily due to the
expiration of a hotter than normal late springcoal supply contract in 1997 and early summer. Annual customer
growth overnegotiation with a new supplier
in 1998 and lower transportation costs. The cost of natural gas increased due to
generation at the past three years was approximately 1%.new Cunningham Station combustion turbine unit. Fuel used in
generation expense increased $56.1 million or 13.4% in 1997, when compared to
1996,the prior year, primarily due to increased generation levels at SPS's power
plants and higher prices of natural gas as SPS purchased approximately 40% of
its gas supply requirements on the spot market during 1997.
Fuel used in generation expensePurchased power increased $47.0$8.7 million or 12.7% in
1996,during 1998, when compared to 1995,the
same period in 1997, primarily due to increasesan increase in natural gasspot market prices and coal costsan
increase in demand requirements resulting from increased wholesale and higher electricretail
sales. Purchased power decreased $3.5 million in 1997, when compared to 1996,
primarily due to the increased availability and efficiency of SPS's power
plants. SPS generates substantially all of its power for sale to its firm retail
and wholesale customers and sells non-firm energy as the market demands.
Similarly, SPS purchases low-cost non-firm energy when available and as needed
to meet customer requirements.
SPS has fuel cost adjustment mechanisms which recognize the majority of
the effects of changes in fuel used in generation and purchased power costs and
allow recovery of such costs on a timely basis. As a result, the changes in
revenues associated with these mechanisms in 19971998 and 1996,1997, when compared to the
respective preceding year, had little impact on net income. However,The recovery of fuel
and purchase power costs is discussed further in 1996, SPS was ordered by the PUCT to refund back to customers $1.9 million
of disallowed fuel costs and $5.4 million of margin credits on non-firm sales
(see Note 9. Regulatory Matters in
Item 8. Financial Statements and
Supplementary Data).
Purchased power decreased $3.5 million in 1997, when compared to 1996,
primarily due to the increased availability and efficiency of SPS's power
plants. Purchased power increased $12.8 million in 1996, when compared to
1995, to meet the demands of its customers. SPS generates substantially all
of its power for sale to
63FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
65
its firm retail and wholesale customers and sells non-firm energy as the market
demands. Similarly, SPS purchases low-cost non-firm energy when available.
Other Operating Revenues
Other operating revenues decreased $18.9 million in 1998 and $13.5 million or 41.6%
in 1997, when compared to 1996, with the prior year, due to the August 1, 1997, sale of
Quixx and UE, in connection with the
Merger as discussed above. Other operating revenues in 1997 include only
seven months of Quixx and UE operations as compared to twelve months in 1996.
Non-Fuel Operating Expenses
Other operating revenuesand maintenance expenses decreased $15.0$28.1 million in 1996, when1998
as compared to 1995,1997. Excluding the seven months of expenses recognized in 1997
for UE and Quixx and the $12.1 million Thunder basin costs judgement costs,
other operating and maintenance expenses decreased $2.4 million. This decrease
is primarily due to UE's lower revenues for engineeringmaintenance costs at the Company's power plants and
other
services.
Non-Fuel Operating Expensesemployee benefit costs. Other operating and maintenance expenses increased $1.6
million in 1997 as compared to the prior year.1996. This increase includeswas due to the $12.1 million of Thunder Basin
judgment costs, which SPS expects to recover through its fixed
fuel factor, net ofdiscussed above, offset in part, by lower labor and employee
benefit costs attributable to staffing reductions in connection with the Merger
and SPS's cost containment efforts.
Other operatingDepreciation and maintenance expenses decreased $7.4amortization expense increased $8.3 million when compared to 1995,in 1998
primarily due to UE's lower cost$7.6 million of revenues offset,additional depreciation expense recorded in
part, by higher steam production maintenance expenses associated1998, in connection with the acquisitionsettlements related to the 1985 wholesale rate case
and the depreciation of TNP electric properties.property additions. Depreciation and amortization
expense increased $0.6 million in 1997 and $5.6 million in 1996, primarily due to the depreciation of
property additions.
The sale of Quixx and UE in connection with the Merger, resulted
in lower depreciation for those subsidiaries in 1997. The 1996 increase in
depreciation was attributable to depreciation of construction completed not
classified, amortization of the TNP acquisition adjustment and increased
depreciation for Quixx property additions.
Income taxes increased $16.9 million in 1998 and decreased $16.5 million
in 1997, and $2.4 million in 1996,as compared to the prior year, primarily due to lowerchanges in pre-tax
income. Additional incomeIncome tax expense was
recognized in both years for non-deductible1997 and 1996 include the effects of recognizing
certain merger and executive severance costs resulting in an effective income tax of 39.2% in 1997 and 38.2% in
1996.as non-deductible.
Other Income and Deductions
Other income and deductions increased $34.2 million in 1998, as compared
to 1997, primarily due to the 1997 write-off of the investments in the Carolina
Energy Project (which totaled approximately $16.1 million), the absences of
merger and business integration expenses in 1998 and lower income and deductions
attributable to Quixx and UE. Higher interest income was recognized in 1998
related to the note receivable from NC Enterprises for the sale of Quixx and UE.
Other income and deductions decreased $31.9 million in 1997, as compared to 1996,the
prior year, primarily due to the write-off of investments in the Carolina Energy
Project by Quixx and UE, totaling approximately $16.1 million, the recognition of the $11.7 million gain on the sale
of certain water rights by Quixx in 1996 and higher merger and business
integration expenses.expenses (see Note 3. AcquisitionAcquisitions and Divestiture of InvestmentsDivestitures in Item 8.
Financial
Statements and Supplementary Data)FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).
Other income and deductions decreased $14.4$15.4 million in the Transition
Period in 1996, as compared to the same period in 1995, primarily due to the
December 1996 write-off of Quixx's investment in the BCH Project of
approximately $15.5 million.
Other income and deductionsInterest Charges
Interest charges increased $1.4$1.2 million in 1996, as compared to 1995,1998 primarily due to the gainhigher
interest costs on the sale
of water rights by Quixx in 1996, reduced by the recognition of merger and
business integration expenses.
Interest Chargesshort-term debt used for general corporate requirements.
Interest charges increased $6.5 million in 1997 and $8.1 million in
1996, primarily due to interest on
borrowings used to finance capital expenditures. In October 1996, Southwestern
Public Service Capital I, a wholly owned trust, issued $100 million of 7.85%
Trust Preferred Securities, Series A, due September 1, 2036. The expense for
these securities is shown as Dividends on SPS obligated mandatorily redeemable
preferred securities of subsidiary trust holding solely subordinated debentures
of SPS. The funds from this financing were used to reduce short-term debt.
6466
Liquidity and Capital Resources
Prospective Capital Requirements
The estimated cost as of December 31, 1998, of the construction programs
of SPS and other capital requirements for the years 1999, 2000 and 2001 are
shown in the table below (in millions):
1999 2000 2001
------- ------ ------
Electric
Production.......................... $ 46 $ 17 $ 3
Transmission........................ 29 62 69
Distribution........................ 32 56 44
General................................. 12 4 4
------- ------ ------
Total construction expenditures... 119 139 120
Less: AFDC.............................. 7 8 8
Add: Sinking funds and debt maturities
and refinancings ................... 90 - -
-- -- ---
Total capital requirements.............. $ 202 $ 131 $ 112
======= ====== ======
The construction programs of SPS are subject to continuing review and
modification. In particular, actual construction expenditures may vary from the
estimates due to changes in the electric system projected load growth, the
desired reserve margin and the availability of purchased power, as well as
alternative plans for meeting SPS's long-term energy needs. In addition, SPS's
ongoing evaluation of asset acquisition and divestiture opportunities to support
corporate strategies and future requirements to install emission control
equipment may impact actual capital requirements (see Note 10. Commitments and
Contingencies - Environmental Issues in Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA).
Capital Sources
At December 31, 1998, SPS estimates that its 1999-2001 capital
requirements, as summarized above, and the payment of common stock dividends to
NCE will be met with a combination of funds from external sources and funds from
operations. SPS may meet its external capital requirements through capital
contributions by NCE, the issuance of secured or unsecured long-term and
short-term debt, and the sale of other securities. The financing needs are
subject to continuing review and can change depending on market and business
conditions and changes, if any, in the construction programs and other capital
requirements of SPS.
67
Item 8. Financial Statements and Supplementary Data (SPS)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO SOUTHWESTERN PUBLIC SERVICE COMPANY:
We have audited the accompanying consolidated balance sheetsheets and statementstatements of capitalization
of Southwestern Public Service Company (a New Mexico corporation) as of December
31, 1998 and 1997, and the related consolidated statementstatements of income, shareholder's equity
and cash flows for each of the two years in the period ended December 31, 1997.1998.
These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit.audits.
We conducted our auditaudits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit providesaudits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Southwestern Public Service
Company as of December 31, 1998 and 1997, and the results of theirits operations and
theirits cash flows for each of the two years in the period ended December 31, 1997,1998,
in conformity with generally accepted accounting principles.
Our audit wasaudits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our auditaudits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 13, 1998
6523, 1999
68
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Southwestern Public Service Company:
We have audited the consolidated balance sheet and statement of capitalization
of Southwestern Public Service Company and subsidiaries as of December 31, 1996
and the related consolidated statements of income, shareholder's equity and
cash flows for the four months ended December 31, 1996 and the yearsyear ended August
31, 1996 of Southwestern Public Service Company and 1995.subsidiaries. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provideaudit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial positionresults of operations and cash flows of Southwestern
Public Service Company and subsidiaries at December 31, 1996, and the results of their
operations and their cash flows for the above stated periods, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 28, 1997
(June 19, 1997, as to the Carolina Energy
Limited Partnership in Note 3)
6669
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONSOLIDATED
BALANCE SHEETS
(Thousands of Dollars)
December 31, 1998 and 1997
and 1996
ASSETS
1998 1997 1996
---- ----
Property, plant and equipment, at cost:
Electric ................................................................................. $2,665,115 $2,557,579 $2,517,579
Other (Note 1)..................................... - 37,542
Construction in progress...........................progress........................ 121,407 144,452
79,346
------- -------------
2,786,522 2,702,031 2,634,467
Less: accumulated depreciation ..................................... 1,057,183 987,487
944,279
---------------- -------
Total property, plant and equipment...............equipment............ 1,729,339 1,714,544 1,690,188
--------- ---------
Investments, at cost:
Notes receivable from affiliate (Note 1)...........4)........ 119,036 -
Other..............................................119,036
Other........................................... 5,591 5,832
34,446
----- -------------
Total investments.................................investments.............................. 124,627 124,868
34,446
------- -------------
Current assets:
Cash and temporary cash investments................investments............. 1,350 986 40,610
Accounts receivable, less reserve for
uncollectible accounts ($2,4421,695 at
December 31, 1997; $2,5741998; $2,442 at December 31, 1996) ...............................1997) 76,190 96,548 67,779
Accrued unbilled revenues ............................................... 9,373 15,468 20,304
Recoverable electric energy costs - net............net......... - 23,086 15,715
Materials and supplies, at average cost............cost......... 16,970 16,337 17,776
Fuel inventory, at average cost....................cost................. 2,293 2,301
2,320Current portion of accumulated deferred income
taxes (Note 13) ............................. 6,113 -
Prepaid expenses and other.........................other...................... 5,248 3,367
4,984
----- ------------
Total current assets..............................assets........................... 117,537 158,093 169,488
------- -------
Deferred charges:
Regulatory assets (Note 1)............................................... 111,971 119,244 117,546
Unamortized debt expense ................................................. 8,767 9,395
9,864
Other.............................................. 55,349 23,262Other........................................... 37,623 62,592
------ -------------
Total deferred charges............................ 183,988 150,672charges......................... 158,361 191,231
------- -------
$2,181,493 $2,044,794$2,129,864 $2,188,736
========== ==========
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
6770
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONSOLIDATED
BALANCE SHEETS
(Thousands of Dollars)
December 31, 19971998 and 19961997
CAPITAL AND LIABILITIES
1998 1997 1996
---- ----
Common stock (Notes 1 and 4)..........................stock....................................... $ 348,402 $ 348,402
Retained earnings.....................................earnings.................................. 389,818 349,988 383,350
------- -------
Total common equity...............................equity............................ 738,220 698,390 731,752
SPS obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
subordinated debentures of SPS (Note 5) ...................... 100,000 100,000
Long-term debt (Note 6)........................................................... 530,618 620,598 620,400
------- -------
1,368,838 1,418,988 1,452,152
--------- ---------
Noncurrent liabilities:
Employees' postretirement benefits other than
pensions (Note 12) ........................................................... 5,941 3,800 2,874
Employees' postemployment benefits (Note 12)........... 3,571 2,446 2,369
----- -----
Total noncurrent liabilities......................liabilities................... 9,512 6,246 5,243
----- -----
Current liabilities:
Notes payable and commercial paper (Note 7)............. 85,162 154,244 53,836
Notes payable to affiliates (Note 7)........................... 9,000 25,160 -
Long-term debt due within one year.................year.............. 90,113 173
15,231
Accounts payable...................................payable................................ 64,275 107,465
63,004
Dividends payable..................................payable............................... 20,007 22,546
Recovered electric energy costs - net........... 18,760 -
Customers' deposits................................deposits............................. 5,904 5,471
5,842
Accrued taxes......................................taxes................................... 37,646 28,051
19,999
Accrued interest...................................interest................................ 12,273 12,715 13,151
Current portion of accumulated deferred income
taxes (Note 13) ............................................................... - 10,740
3,583
Other.............................................. 7,415 28,596
-----Other........................................... 18,011 14,658
------ -------
Total current liabilities......................... 373,980 203,242liabilities...................... 361,151 381,223
------- -------
Deferred credits:
Unamortized investment tax credits ............................. 5,219 5,469 5,719
Accumulated deferred income taxes (Note 13)............. 380,655 372,447
367,272
Other..............................................Other........................................... 4,489 4,363
11,166
----- -------------
Total deferred credits............................credits......................... 390,363 382,279 384,157
------- -------
Commitments and contingencies (Notes 9 and 10)............. ---------- ----------
$2,181,493 $2,044,794$2,129,864 $2,188,736
========== ==========
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
6871
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONSOLIDATED
STATEMENTS OF CAPITALIZATION
(Thousands of Dollars, Except Per Share Information)
December 31, 1998 and 1997
and 19961998 1997 1996
---- ----
Common shareholder's equity:
Common stock,$1 $1 par value, authorized 200 shares
in 19971998 and 100,000,000 shares in 1996,1997, outstanding 100 shares in
19971998 and 40,917,908
shares in 1996 ....................................1997........ ........................ $ - $ 40,918-
Paid in capital.................................... 348,402 307,484348,402
Retained earnings.................................. 389,818 349,988 383,350
------- -------
Total common shareholders equity..................shareholder's equity................. 738,220 698,390 731,752
------- -------
Preferred stock (Note 4):
$1 par value, 10 million shares authorized; no
shares outstanding ............................... - -
--- ---------- -------
SPS obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely subordinated
debentures of SPS, 4 million shares outstanding,
7.85% (Note 5)......................... ...................................... 100,000 100,000
------- -------
Long-term debt (Note 6):
First Mortgage Bonds:
5.70% retired February 1, 1997..................... - 15,000
6-7/8% due December 1, 1999........................ 90,000 90,000
7-1/4% due July 15, 2004........................... 135,000 135,000
6-1/2% due March 1, 2006........................... 60,000 60,000
8-1/4% due July 15, 2022........................... 40,000 40,000
8-1/5% due December 1, 2022........................ 100,000 100,000
8-1/2% due February 15, 2025....................... 70,000 70,000
Pollution control obligations, securing pollution
control revenue bonds:
Not collateralized by First Mortgage Bonds:
variable rate (4.30% and 3.95% at December 31, 19971998 and 1996, respectively)1997)
due July 1, 2011..........2011 ................................. 44,500 44,500
variable rate (6.435% effective December 31, 19971998
and 1996, respectively)1997) due July 1, 2016..........2016 ....................... 25,000 25,000
5-3/4% series, due September 1, 2016.............. 57,300 57,300
LessLess: funds held by Trustee.........................Trustee........................ (168) (161)
(417)
Other................................................. 112 286 527
Unamortized discount and premium-net.................. (1,013) (1,154)
(1,279)
------ ------------- -------
620,731 620,771 635,631
Less: maturities due within one year.................. 90,113 173
15,231
--- ------------- -------
Total long-term debt.............................. 530,618 620,598 620,400
------- -------
Total capitalization.................................. $1,368,838 $1,418,988 $1,452,152
========== ==========
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
6972
SOUTHWESTERN PUBLIC SERVICE COMPANY
AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(Thousands of Dollars)
Years ended December 31, 1998, 1997 and August 31, 1996 and 1995 (Note 1)
1998 1997 1996
1995
---- ---- ----------- ------- -------
Operating revenues:
Electric.................................... $ 960,355 $ 899,397 $ 834,083
Other.......................................Electric..................................... $951,187 $960,355 $899,397
Other........................................ - 18,928 32,403
47,434
------ ------ ------------- ------- -------
951,187 979,283 931,800 881,517
Operating expenses:
Fuel used in generation.....................generation...................... 432,127 473,099 417,023
370,052
Purchased power.............................power.............................. 23,155 14,501 18,010 5,241
Other operating & maintenance expenses......expenses....... 138,679 166,761 165,129
172,513
Depreciation and amortization...............amortization................ 78,592 70,331 69,781 64,204
Taxes (other than income taxes) ......................... 47,259 46,515 45,518 43,827
Income taxes (Note 13) ........................................... 65,696 48,795 65,297
67,648
------ ------ ------------- ------- -------
785,508 820,002 780,758 723,485
------- ------- -------
Operating income...............................income................................ 165,679 159,281 151,042 158,032
Other income and deductions:
Merger expenses.............................expenses.............................. (1,208) (15,427) (7,878) -
Write-off of investment in Carolina Energy
Project (Note 3) ..................................................... - (16,052) - -
Miscellaneous income and deductions - net
(Note 3) .............................(Notes 3 and 15) .......................... 8,819 4,877 13,226
3,917----- ----- ------
-----7,611 (26,602) 5,348 3,917
Interest charges:
Interest on long-term debt..................debt................... 46,471 46,356 47,045
43,221
Other interest..............................interest............................... 8,925 7,444 6,088 1,714
Allowance for borrowed funds used during
construction .............................. (4,943) (4,546) (2,516) (2,463)
Dividends on SPS obligated mandatorily
redeemable preferred securities of
subsidiary trust holding solely subordinated
debentures of SPS .......................... 7,850 -7,850 -
----- --- -------- ------
58,303 57,104 50,617
42,472
------ ------ ------------- ------- -------
Net income.....................................income...................................... 114,987 75,575 105,773 119,477
Dividend requirements on preferred stock.......stock........ - - 2,494
4,878
--- ----- ------------ ------- -------
Earnings available for common stock............ $ 75,575stock............. $114,987 $75,575 $103,279
$114,599
======== =============== ========
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
7073
SOUTHWESTERN PUBLIC SERVICE COMPANY
AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(Thousands of Dollars)
For the four months ended December 31, 1996 and 1995 (Note 1)
1996 1995
---- ----
(Unaudited)
Operating revenues:
Electric.......................................... $295,579 $267,427
Other............................................. 10,701 11,055
------ -------------- -------
306,280 278,482
Operating expenses:
Fuel used in generation........................... 141,896 119,081
Purchased power................................... 4,900 2,756
Other operating & maintenance expenses............ 55,582 52,134
Depreciation and amortization..................... 23,782 23,329
Taxes (other than income taxes)................... 15,152 14,590
Income taxes (Note 13)............................ 10,987 18,963
------ -------------- -------
252,299 230,853
------- -------
Operating income..................................... 53,981 47,629
Other income and deductions, net:
Merger expenses................................... (2,019) (2,171)
Write-off of investment in BCH project (Note 3)... (15,546) -
Miscellaneous income and deductions - net......... 759 737
--- ----------- -------
(16,806) (1,434)
Interest charges:
Interest on long-term debt........................ 16,302 15,106
Other interest.................................... 1,102 950
Allowance for borrowed funds used during
construction ................................... (892) (807)
Dividends on SPS obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely subordinated debentures of SPS ...................... 1,526 -
----- -------
18,038 15,249
------ ------
Net income........................................... 19,137 30,946
Dividend requirements on preferred stock............. - 2,373
--- ------------- -------
Earnings available for common stock.................. $ 19,137 $28,573$ 28,573
======== ===============
The accompanying notes to consolidated financial statements
are an integral part of these financial statements
7174
SOUTHWESTERN PUBLIC SERVICE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
(Thousands of Dollars, Except Share Information)
Year ended December 31, 1998, 1997, four months ended December 31, 1996 and
year ended August 31, 1996 (Note 1)
SOUTHWESTERN PUBLIC SERVICE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(Thousands of Dollars, Except Share Information)
Year ended December 31, 1997, four months ended December 31, 1996 and
years ended August 31, 1996 and 1995 (Note 1)
Common Stock, $1 par value Paid in Retained
Shares Amount Paid in Capital Earnings Total
------ ------ ---------------------- -------- -----
Balance at September 1, 1994 40,917,908 $ 40,918 $ 306,376 $ 348,878 $ 696,172
Net income.................. - - - 119,477 119,477
Dividends declared
Common stock.............. - - - (90,019) (90,019)
Cumulative preferred stock - - - (4,878) (4,878)
--- --- --- ------ ------
Balance at August 31, 1995.. 40,918,90840,917,908 40,918 306,376 373,458 720,752
Net income.................. - - - 105,773 105,773
Retirements of cumulative
preferred stock ........... - - 1,108 (921) 187
Dividends declared
Common stock.............. - - - (90,020) (90,020)
Cumulative preferred stock - - - (1,573) (1,573)
--- --- ----------- ------ ------- ------ -------
Balance at August 31, 1996.. 40,917,908 40,918 307,484 386,717 735,119
Net income ................. - - - 19,137 19,137
Dividends declared on
common stock ................................... - - - (22,504) (22,504)
--- --- --------- ------- ------ ------- -------
Balance at December 31, 1996 40,917,908 40,918 307,484 383,350 731,752
Net income.................. - - - 75,575 75,575
Dividends declared
Common stock, prior to
August 1, 1997 Merger .............. - - - (63,845) (63,845)
Common stock, to NCE...... - - - (45,092) (45,092)
Merger with PSCo
Exchange of common shares
for NCE stock ....................... (40,917,808) (40,918) 40,918 - -
----------- ------- ------ --- ---------- -------
Balance at December 31, 1997 100 - 348,402 349,988 698,390
Net income.................. - - - 114,987 114,987
Dividends declared
Common stock, to NCE...... - - - (75,157) (75,157)
-------- ------ ------- ------- -------
Balance at December 31, 1998 100 $ - $ 348,402 $ 349,988389,818 $ 698,390
===738,220
====== ======= ========== ========== ============= ========= Authorized shares of common stock were 200 at December 31, 1997 and 100
million at December 31, 1996, August 31, 1996 and 1995.==========
Authorized shares of common stock were 200 at December 31, 1998 and 1997 and 100
million at December 31, 1996 and August 31, 1996.
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
7275
SOUTHWESTERN PUBLIC SERVICE COMPANY
AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Thousands of Dollars, Except Share Information) Years
ended December 31, 1998, 1997, and August 31, 1996 and 1995 (Note 1)
1998 1997 1996
1995
---- --------- ----
Operating activities:
Net income................................... $75,575$114,987 $ 75,575 $105,773 $119,477
Adjustments to reconcile net income to net
cash provided by operating activities
(Note 1):
Depreciation and amortization.............. 83,103 76,929 65,448
61,069
Write offWrite-off of investment in Carolina Energy
Project (Note 3) ................................................... - 16,052 - -
Amortization of investment tax credits..... (250) (250) (250)
Deferred income taxes...................... (8,600) 3,587 16,423 9,717
Allowance for equity funds used during
construction ............................. - (5) (60) (229)
Change in accounts receivable.............. 20,358 (39,842) (4,697) (3,905)
Change in inventories...................... (625) 301 134 (3,409)
Change in other current assets............. 27,300 (3,061) (7,688) (5,143)
Change in accounts payable................. (43,190) 45,683 10,024 (834)
Change in other current liabilities........ 31,699 (10,000) (7,271) 9,398
Change in deferred amounts................. 30,309 (48,934) (11,381)
8,160
Other...................................... 3,358 276 13,571
(4,753)
--- ------ ------------- ------- -------
Net cash provided by operating activities 258,449 116,311 180,026 189,298
Investing activities:
Construction expenditures.................... (92,218) (118,550)(111,986) (94,662)
Allowance for equity funds used during
construction ............................................................. - 5 60
229
Proceeds fromCost of disposition of property, plant and
equipment ............................................................... (2,897) (2,371) - -
Proceeds from the sale of Quixx and UE, net
of cash disposed (Note 1) ................................... - (29,567) - -
Purchase of other investments................ (673) (4,639) (1,768)
(28,219)Sale of other investments.................... 820 - -
Acquisition of TNP properties (Note 3)....... - - (29,200)
-
--- ------- ---------- -------
Net cash used in investing activities.... (94,968) (155,122)(142,894)(122,652)
Financing activities:
Proceeds from sale of long-term notes and bondsdebt......... - - 60,000 76,204
Redemption of long-term notes and bonds......debt................. (179) (14,986) (4,445) (16,880)
Short-term borrowings - net.................. (85,242) 100,564 69,624 (14,994)
Retirement of preferred stock................ - - (75,434) -
Dividends on common stock (Notes 4 and 15)... (77,696) (86,391) (90,020) (90,020)
Dividends on preferred stock................. - - (2,494)
(4,878)
--- ------ ------------- ------- -------
Net cash used in financing activities.... (163,117) (813) (42,769)
(50,568)
------------ ------- -------
Net increase (decrease) increase in cash and
temporary cash investments ........................ 364 (39,624) (5,637) 16,078
Cash and temporary cash investments at
beginning of year .......................................... 986 40,610 36,860
20,782
--------- ------ ------
Cash and temporary cash investments at
end of year ............................$ 1,350 $ 986 $ 31,223 $ 36,860
======== ========= ========$31,223
======= ======= =======
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
7376
SOUTHWESTERN PUBLIC SERVICE COMPANY
AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Four months ended December 31, 1996 and 1995 (Note 1)
1996 1995
---- ----
(Unaudited)
Operating activities:
Net income......................................... $19,137 $30,946
Adjustments to reconcile net income to net
cash provided by operating activities (Note 1):
Depreciation and amortization.................... 22,289 21,873
Write-off of investment in BCH Project (Note 3).. 15,546 -
Deferred income taxes and investment tax credits 4,806 3,166
Allowance for equity funds used during construction (179) (60)
Change in accounts receivable.................... 10,180 9,402
Change in inventories............................ 1,417 928
Change in other current assets................... (5,674) 9,977
Change in accounts payable....................... 628 (10,673)
Change in other current liabilities.............. (12,487) (11,021)
Other............................................ (14,674) 7,627
------- ------------
Net cash provided by operating activities...... 40,989 62,165
Investing activities:
Construction expenditures.......................... (66,031) (44,950)
Purchase of other investments...................... (2,297) (3,741)
Acquisition of TNP properties (Note 3)............. - (29,200)
---------- -------
Net cash used in investing activities.......... (68,328) (77,891)
Financing activities:
Proceeds from sale of long-term notes and bonds (Note 6) ........................................ 82,300 -
Proceeds from sale of SPS obligated mandatorily
redeemable preferred securities of subsidiary trust
holding solely subordinated debentures of SPS .......................................... 100,000 -
Retirement of long-term notes and bonds............ (84,776) (1,717)
Short-term borrowings - net........................ (15,788) 116,250
Retirement of preferred stock...................... - (74,672)
Dividends on common stock.......................... (45,010) (45,010)
Dividends on preferred stock....................... - (2,373)
--- ------------- -------
Net cash provided by (used in) financing activities ................................... 36,726 (7,522)
------ ------
Net increase (decrease) in cash and temporary
cash investments ........................................................ 9,387 (23,248)
Cash and temporary cash investments at beginning
of period ...................................................................... 31,223 36,860
------ ------
Cash and temporary cash investments at end of period ....................................... $ 40,610 $ 13,612
========= ========$40,610 $13,612
======= =======
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
7477
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 19971998
1. Summary of Significant Accounting Policies (NCE, PSCo and SPS)
Business, Utility Operations and Regulation
NCE is a registered holding company under PUHCA and its domestic utility
subsidiaries (PSCo, SPS and Cheyenne) are engaged principally in the generation,
purchase, transmission, distribution and sale of electricity and in the
purchase, transportation, distribution and sale of natural gas. Both the Company
and its subsidiaries are subject to the regulatory provisions of the PUHCA. The
utility subsidiaries are subject to regulation by the FERC and state utility
commissions in Colorado, Texas, New Mexico, Wyoming, Kansas and Oklahoma. Over
90% of the Company's revenues are derived from its regulated utility operations.
Regulatory Assets and Liabilities
The Company's regulated subsidiaries prepare their financial statements in
accordance with the provisions of Statement of Financial Accounting Standards
("SFAS 71"), as amended. SFAS 71 recognizes that accounting for rate regulated
enterprises should reflect the relationship of costs and revenues introduced by
rate regulation. A regulated utility may defer recognition of a cost (a
regulatory asset) or recognize an obligation (a regulatory liability) if it is
probable that, through the ratemaking process, there will be a corresponding
increase or decrease in revenues. The Company believes its utility subsidiaries
will continue to be subject to rate regulation. In the event that a portion of a
subsidiaries' operations is no longer subject to the provisions of SFAS 71, as a
result of a change in regulation or the effects of competition, the Company's
subsidiaries could be required to write-off their regulatory assets, determine
any impairment to other assets resulting from deregulation and write-down any
impaired assets to their estimated fair value, which could have a material
adverse effect on NCE's, PSCo's and SPS's financial position, results of
operations or cash flows.
The following regulatory assets are reflected in the Company's
consolidated balance sheets (in thousands):
1998 NCE PSCo SPS
------ ------ ------
Income taxes (Note 13).............. $148,499 $ 69,868 $79,116
Nuclear decommissioning costs....... 69,490 69,490 -
Employees' postretirement benefits
other than pensions (Note 12)..... 57,350 54,461 2,889
Employees' postemployment benefit
(Note 12) ......................... 24,888 24,416 -
Demand-side management costs........ 37,160 31,984 5,176
Unamortized debt reacquisition costs 33,138 15,769 16,808
Early retirement costs.............. 1,000 - 1,000
Thunder Basin judgment (Note 9)..... 548 - 548
Other............................... 9,559 3,124 6,434
------ ------ ------
Total............................. $381,632 $269,112 $111,971
======== ======== ========
78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1997 NCE PSCo SPS
------ ------ ------
Income taxes (Note 13).............. $162,985 $ 84,356 $ 79,161
Nuclear decommissioning costs....... 76,881 76,881 -
Employees' postretirement benefits
other than pensions (Note 12)..... 63,023 59,995 3,028
Employees' postemployment benefits
(Note 12) ......................... 24,455 23,932 -
Demand-side management costs........ 42,503 38,518 3,985
Unamortized debt reacquisition costs 36,717 17,791 18,344
Early retirement costs.............. 8,008 6,645 1,363
Thunder Basin judgment (Note 9)..... 5,912 - 5,912
Other............................... 9,991 2,540 7,451
------ ------ ------
Total............................. $430,475 $310,658 $119,244
======== ======== ========
The regulatory assets of the Company's regulated subsidiaries that are
currently being recovered as of December 31, 1998 and 1997 are reflected in
rates charged to customers over periods ranging from two to thirty years. The
recovery of regulatory assets over the next five years is estimated to exceed
$200 million. Refer to the discussion below or the Notes to Consolidated
Financial Statements as identified in the above table for a more detailed
discussion regarding recovery periods.
Effective July 1, 1993, PSCo began collecting from customers the costs
approved by the CPUC for the decommissioning of Fort St. Vrain. This recoverable
amount totaled approximately $124.4 million (plus a 9% carrying cost). Such
amount, which is being collected over a twelve-year period, represented the
inflation-adjusted estimated remaining cost of decommissioning activities not
previously recognized as expense at the time of CPUC approval. PSCo is
recovering approximately $13.9 million per year from its customers, including
carrying costs.
On January 27, 1997, the CPUC issued its order on PSCo's 1996 gas rate
case. The CPUC allowed recovery of postemployment benefit costs on an accrual
basis under SFAS 112 and denied amortization of the approximately $8.9 million
regulatory asset recognized upon the adoption of SFAS 112 (see Note 12. Employee
Benefits - Postemployment Benefits). PSCo has appealed in the Denver District
Court the decision related to this issue. PSCo believes that it will be
successful on appeal and that the associated regulatory asset is realizable. On
April 1, 1998, in connection with PSCo's annual electric department earnings
test filing, PSCo requested approval to recover its electric jurisdictional
portion of the postemployment benefits cost regulatory asset totaling
approximately $15 million over three years. In December 1998, the CPUC approved
a settlement agreement on this matter which deferred the final determination of
the regulatory treatment of these costs pending the outcome of the current
appeal of the decision on PSCo's gas rate case. PSCo believes that it will be
allowed recovery of SFAS 112 costs on an accrual basis. If PSCo is ultimately
unsuccessful in its appeal of the gas rate case decision and/or in its request
to recover its electric jurisdictional regulatory asset, all unrecoverable
amounts will be written off (see Note 9. Regulatory Matters).
Certain costs associated with PSCo's DSM programs are deferred and
recovered in rates over five to seven-year periods through the DSMCA. Non-labor
incremental expenses, carrying costs associated with deferred DSM costs and
incentives associated with approved DSM programs are recovered on an annual
basis. Costs associated with SPS's DSM programs are also deferred and, as part
of a negotiated settlement agreement reached in July 1995, will be included in
rate base and cost of service in future PUCT proceedings.
Costs incurred to reacquire debt prior to scheduled maturity dates are
deferred and amortized over the life of the debt issued to finance the
reacquisition, or as approved by the applicable regulatory authority.
79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Recovered/Recoverable Purchased Gas and Electric Energy Costs -Net
The Company's utility subsidiaries have adjustment mechanisms in place
which currently provide for the recovery of certain purchased gas and electric
energy costs. These cost adjustment tariffs may increase or decrease the level
of costs recovered through base rates and are revised periodically, as
prescribed by the appropriate regulatory agencies, for any difference between
the total amount collected under the clauses and the recoverable costs incurred
(see Note 9. Regulatory Matters).
Other Property
Property, plant and equipment includes approximately $18.4 million and
$25.4 million, respectively, for costs associated with the engineering design of
the future Pawnee 2 generating station and certain water rights located in
southeastern Colorado, also obtained for a future generating station. PSCo is
earning a return on these investments based on its weighted average cost of debt
in accordance with a CPUC rate order.
Non-utility Subsidiaries and International Investments
The Company's non-utility subsidiaries are principally involved in
energy-related businesses including the following: engineering, design and
construction management, non-regulated energy services, including gas and power
marketing, the management of real estate and certain life insurance policies,
the financing of certain current assets of PSCo and investments in cogeneration
facilities, electric wholesale generators and a foreign utility company. The
Company's international investments are subject to regulation in the countries
in which such investments are made (see Note 2. Investment in Yorkshire Power
and U.K. Windfall Tax). Financial statements of foreign subsidiaries are
translated into U.S. dollars at current rates, except for revenues, costs and
expenses, which are translated at average current rates during each reporting
period.
Consolidation and Financial Statement Presentation
The Company follows the practice of consolidating the accounts of its
majority owned and controlled subsidiaries. The Company recognizes equity in
income from its unconsolidated investments accounted for under the equity method
of accounting. All intercompany items and transactions have been eliminated.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
Effective August 1, 1997, following the receipt of all required state and
Federal regulatory approvals, PSCo and SPS merged in a tax-free "merger of
equals" transaction and became wholly-owned subsidiaries of NCE. Each
outstanding share of PSCo common stock was canceled and converted into the right
to receive one share of NCE common stock, and each outstanding share of SPS
common stock was canceled and converted into the right to receive 0.95 of one
share of NCE common stock. The Merger was accounted for as a pooling of
interests. Effective with the Merger, certain utility and non-utility
subsidiaries were transferred within NCE's common controlled subsidiaries. The
common stock of Quixx and UE, former SPS subsidiaries, were transferred through
the sale by SPS of the common stock of such subsidiaries at net book value,
aggregating approximately $119.0 million, to NC Enterprises in exchange for
notes payable of NC Enterprises. Subsidiaries of PSCo (Cheyenne, WGI, e prime
and Natural Fuels) were transferred by a declaration of a dividend of the
subsidiaries' stock, at net book value, aggregating approximately $49.9 million,
to NCE. NCE subsequently made a capital contribution of the e prime and Natural
Fuels common stock, at net book value, aggregating approximately $29.5 million,
to NC Enterprises.
The NCE consolidated financial statements reflect the accounting for
the Merger as a pooling of interests. The Company's consolidated financial
statements include the consolidated financial statements for both PSCo and
SPS as of and for the years ended December 31, 1997 and 1996. The Company's
1995 consolidated statement of income combines the consolidated statement of
income for PSCo for the year ended December 31, 1995 with the consolidated
statement of income for SPS for the year ended August 31, 1995. Certain
items have been reclassified in the consolidated financial statements to
conform to the presentation used by the Company.
On April 22, 1997, SPS changed its fiscal year from a twelve-month period
ending August 31 to a twelve-month period ending December 31. SPS filed a
Transition report on Form 10-K for the period September 1, to December 31, 1996
(the transition period)("Transition Period"). The fiscal year periods presented in SPS's consolidated statements of
income and cash flows are for the twelve-months ending December 31, 1998 and
1997 August 31, 1996 and August 31, 1995.
Business, Utility Operations and Regulation
NCE is a registered holding company under the PUHCA and its utility
subsidiaries (PSCo, SPS and Cheyenne) are engaged principally in the
generation, purchase, transmission, distribution and sale of electricity and
in the purchase, transmission, distribution, sale and transportation of
natural gas. Both the Company and its subsidiaries are subject to the
regulatory provisions of the PUHCA. The utility subsidiaries are subject to
regulation by the FERC and state utility commissions in Colorado, Texas, New
Mexico, Wyoming, Kansas and Oklahoma. Over 90% of the Company's revenues are
derived from its regulated utility operations.
Regulatory Assets and Liabilities
The Company's regulated subsidiaries prepare their financial statements
in accordance with the provisions of SFAS 71, as amended. SFAS 71 recognizes
that accounting for rate regulated enterprises should reflect the
relationship of costs and revenues introduced by rate regulation. A
regulated utility may defer recognition of a cost (a regulatory asset) or
recognize an obligation (a regulatory liability) if it is probable that,
through the ratemaking process, there will be a corresponding increase or
decrease in revenues. During 1996, NCE's subsidiaries adopted SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed Of, which imposed stricter criteria for the continued recognition
of regulatory assets
751996.
80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
on the balance sheet by requiring that such assets be probable of future
recovery at each balance sheet date. The adoption of this statement did not
have a material impact on the Company's results of operations, financial
position or cash flows.
The following regulatory assets are reflected in the Company's
consolidated balance sheets (in thousands):
1997 NCE PSCo SPS
--- ---- ---
Income taxes (Note 13).............. $162,985 $ 84,356 $ 79,161
Nuclear decommissioning costs....... 76,881 76,881 -
Employees' postretirement benefits
other than pensions (Note 12)..... 63,023 59,995 3,028
Early retirement costs.............. 8,008 6,645 1,363
Employees' postemployment benefits
(Note 12) ......................... 24,455 23,932 -
Demand-side management costs........ 42,503 38,518 3,985
Unamortized debt reacquisition costs 36,717 17,791 18,344
Thunder Basin judgment (Note 9)..... 5,912 - 5,912
Other............................... 9,991 2,540 7,451
----- ----- -----
Total............................. $430,475 $310,658 $119,244
======== ======== ========
1996 NCE PSCo SPS
--- ---- ---
Income taxes (Note 13).............. $179,757 $ 98,355 $ 81,403
Nuclear decommissioning costs....... 89,731 89,731 -
Employees' postretirement benefits
other than pensions (Note 12)..... 57,641 54,449 3,192
Early retirement costs.............. 17,232 15,505 1,727
Employees' postemployment benefits
(Note 12) ......................... 24,797 24,797 -
Demand-side management costs........ 43,779 41,462 2,317
Unamortized debt reacquisition costs 39,794 19,914 19,880
Other............................... 13,380 4,353 9,027
------ ----- -----
Total............................. $466,111 $348,566 $117,546
======== ======== ========
The regulatory assets of the Company's regulated subsidiaries as of
December 31, 1997 and 1996 are reflected in rates charged to customers over
periods ranging from two to thirty years. Refer to the discussion below or
the Notes to Consolidated Financial Statements as identified in the above
table for a more detailed discussion regarding recovery periods. The Company
believes its utility subsidiaries will continue to be subject to rate
regulation. In the event that a portion of the Company's operations is no
longer subject to the provisions of SFAS 71, as a result of a change in
regulation or the effects of competition, the Company's subsidiaries could be
required to write-off their regulatory assets, determine any impairment to
other assets resulting from deregulation and write-down any impaired assets
to their estimated fair value, which could have a material adverse effect on
NCE's, PSCo's and SPS's financial position, results of operations or cash
flows.
Effective July 1, 1993, PSCo began collecting from customers nuclear
decommissioning costs expected to total approximately $124.4 million (plus a
9% carrying cost). Such amount, which is being collected over a twelve year
period, represented the inflation-adjusted estimated remaining cost of
decommissioning activities not previously recognized as expense at the time
of CPUC approval. PSCo is recovering approximately $13.9 million per year
from its customers for such costs.
Approximately 550 employees elected to participate in PSCo's early
retirement enhancement program, of which approximately 370 employees elected
the early retirement benefit. The total cost of the program was
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
approximately $39.7 million. These costs were deferred and, effective April
1, 1994, are being amortized to expense over approximately 4.5 years in
accordance with rate regulatory treatment. This amortization period
represents the participants' average remaining years of service to their
expected retirement date.
On January 27, 1997, the CPUC issued its order on PSCo's 1996 gas rate
case. The CPUC allowed recovery of postemployment benefit costs on an
accrual basis under SFAS 112 and denied amortization of the approximately
$8.9 million regulatory asset recognized upon the adoption of SFAS 112 (see
Note 12. Employee Benefits - Postemployment Benefits). PSCo has appealed in
the Denver District Court the decision related to this issue and is assessing
the impact of this decision on the future recovery of the electric
jurisdictional portion of postemployment benefit costs totaling approximately
$14.6 million. PSCo believes that it will be successful on appeal and that
the associated regulatory asset is realizable. If PSCo is ultimately
unsuccessful, these amounts will be written off.
Certain costs associated with PSCo's DSM programs are deferred and
recovered in rates over five to seven year periods through the DSMCA.
Non-labor incremental expenses, carrying costs associated with deferred DSM
costs and incentives associated with approved DSM programs are recovered on
an annual basis. Costs associated with SPS's DSM programs are also deferred
and, as part of a negotiated settlement agreement reached in July 1995, will
be included in rate base and cost of service in future PUCT proceedings.
Costs incurred to reacquire debt prior to scheduled maturity dates are
deferred and amortized over the life of the debt issued to finance the
reacquisition or as approved by the applicable regulatory authority.
As of December 31, 1997, SPS has approximately $5.9 million in
regulatory assets associated with the Thunder Basin judgment. The judgment
amount paid is recoverable from customers subject to review by various
regulatory agencies (see Note 9. Regulatory Matters - Electric and Gas Cost
Adjustments).
Recovered/Recoverable Purchased Gas and Electric Energy Costs -Net
The Company's utility subsidiaries have adjustment mechanisms in place
which allow for the recovery of certain purchased gas and electric energy
costs in excess of the level of such costs included in base rates. Currently,
these cost adjustment tariffs are revised periodically, as prescribed by the
appropriate regulatory agencies, for any difference between the total amount
collected under the clauses and the recoverable costs incurred (see Note 9.
Regulatory Matters - Electric and Gas Cost Adjustments).
Other Property
Property, plant and equipment includes approximately $18.4 million and
$25.4 million, respectively, for costs associated with the engineering design
of the future Pawnee 2 generating station and certain water rights located in
southeastern Colorado, also obtained for a future generating station. PSCo
is earning a return on these investments based on its weighted average cost
of debt and preferred stock in accordance with a CPUC rate order.
Non-utility Subsidiaries and International Investments
The Company's non-utility subsidiaries are principally involved in
engineering, design and construction management, non-regulated energy
services, including gas and power marketing, the management of real estate
and certain life insurance policies, the financing of certain current assets
of PSCo and investments in cogeneration facilities, electric wholesale
generators and a foreign utility company. The Company's international
investments are subject to regulation in the countries in which such
investments are made (see Note 2. Acquisition of Yorkshire Electricity and
U.K. Windfall Tax). Financial statements of foreign subsidiaries are
translated into U.S. dollars at current rates, except for revenues, costs and
expenses which are translated at average current rates during each reporting
period.
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Management Estimates
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Consolidation
The Company follows the practice of consolidating the accounts of its
majority owned and controlled subsidiaries. The Company recognizes equity in
income from its unconsolidated investments accounted for under the equity
method of accounting. All intercompany items and transactions have been
eliminated.
Basic and Diluted Earnings Per Share
Effective for periods ending after December 15, 1997, the FASB issued
SFAS No. 128 "Earnings per Share" which changed the methodology for
calculating and reporting earnings per share ("EPS"), and required
restatement of all prior-period EPS data. Basic and Diluted EPS of common
stock is computed and presented for each year based upon the weighted average
number of common shares outstanding on the consolidated income statements.
The dilutive effect of NCE stock options, the only dilutive securities and
applicable only to NCE, was immaterial and, accordingly, the computed Basic
and Diluted EPS result in the same EPS.
Revenue Recognition
The Company's utility subsidiaries accrue for estimated unbilled revenues
for services provided after the meters were last read on a cycle billing basis
through the end of each year.
StatementsRisk Management
The Company and its subsidiaries have initiated the utilization of Cash Flows
For purposesa
variety of energy contracts, both financial and commodity based, in the energy
trading and energy non-trading operations to reduce their exposure to commodity
price risk. These contracts consist mainly of commodity futures and options,
index or fixed price swaps and basis swaps.
Energy contracts entered into for the trading operations are accounted for
using the mark-to-market method of accounting. Under mark-to-market accounting,
natural gas and power trading contracts, including both physical transactions
and financial instruments, are recorded at fair value and recognized as an
increase or decrease to purchased power or cost of gas sold upon contract
execution. Changes in the market value of the portfolio are recognized as gains
or losses in the period of change and the resulting unrealized gains and losses
are recorded as other current assets and liabilities. Such amounts are
recognized as net positions in the consolidated balance sheets and income
statements of cash flows,as NCE and its subsidiaries have master netting agreements in place
with counterparties.
Energy contracts are also utilized in the Company and its subsidiaries'
non-trading operations to reduce commodity price risk. Hedge accounting is
applied only if the contract reduces the price risk of the underlying hedged
item and is designated as a hedge at its inception. Gains and losses related to
qualifying hedges of firm commitments or anticipated transactions are deferred
and recognized as a component of purchased power or cost of gas sold when
settlement occurs. If, subsequent to being hedged, underlying transactions are
no longer likely to occur, the related gains and losses are recognized currently
in income (see Note 8. Financial Instruments - Risk Management for further
discussion of the Company's risk management activities).
Comprehensive Income
The Company and its subsidiaries consideradopted SFAS No. 130, "Reporting
Comprehensive Income," effective January 1, 1998. This statement establishes
standards for the reporting and display of comprehensive income (net income plus
all temporary cash investmentsother changes in net assets from non-owner sources) and its components in
financial statements. Other comprehensive income for NCE and PSCo was reported
in the consolidated Statements of Shareholders' Equity and consists of foreign
currency translation adjustments related to be cashthe investment in Yorkshire Power.
Basic and Diluted Earnings Per Share
Effective in calendar year 1997, the FASB issued SFAS No. 128, "Earnings
per Share" ("SFAS 128") requiring presentation of basic and diluted earnings per
share. Basic earnings per share is based upon the weighted average common shares
outstanding during the year. Diluted earnings per share reflects the potential
dilution that could occur if securities or other agreements to issue common
stock were exercised or converted into common stock. Diluted earnings per share
is based upon the weighted average common and common equivalent shares
outstanding during each year. Employee stock options are the Company's only
common stock equivalents. These temporary cash investmentsThere are securities having original
maturities of three months or less or having longer maturities but with put
dates of three months or less.
Income Taxes and Interest (Excluding Amounts Capitalized) Paid (in
thousands):
NCE 1997 1996 1995
---- ---- ----
Income taxes ............................... $ 99,938 $117,121 $108,750
Interest.................................... $230,507 $197,073 $182,913
PSCo 1997 1996 1995
---- ---- ----
Income taxes, including amounts paid to NCE $ 75,439 $ 66,871 $ 58,662
Interest.................................... $172,470 $144,533 $140,823
SPS 1997 1996 1995
---- ---- ----
Income taxes, including amounts paid to NCE $ 37,752 $ 50,250 $ 50,088
Interest.................................... $ 56,486 $ 52,540 $ 42,090
78no other potentially dilutive securities.
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Non-cash Transactions:
Prior toFor the Merger, shares of PSCo's common stock (250,058 in 1997,
274,934 in 1996 and 310,546 in 1995), valued at the market price on date of
issuance (approximately $10 million for each year), were issued to the
Employees' Savings and Stock Ownership Plan of Public Service Company of
Colorado and Participating Subsidiary Companies. The estimated issuance
values were recognized in other operating expenses during the respective
preceding years.
Stock issuances and the dividend of subsidiaries' stock in connection
with the Merger discussed above were non-cash financing and investing
activities and are not reflected in the consolidated statements of cash flows.
During 1996, PSCo exchanged shares of its common stock in connection
with the acquisition of TOG and TOP (see Note 3. Acquisition and Divestiture
of Investments). During 1995, a $40.5 million PSCo capital lease obligation
was recognized in connection with a 30-year gas storage facility agreement.
Property and Depreciation
Property, plant and equipment is stated at original cost. Replacements
and capital improvements, representing units of property, are capitalized.
Maintenance and repairs of property and replacements of items of property
determined to be less than a unit of property are charged to operations as
maintenance expense. The cost of units of property retired, together with
cost of removal, less salvage, is charged to accumulated depreciation.
Depreciation expense, for financial accounting purposes, is computed on
the straight-line basis based on the estimated service lives and costs of
removal of the various classes of property. Depreciation expense, expressed
as a percentage of average depreciable property, for NCE, PSCo and SPS ranged
from approximately 2.6%-2.9% for the yearsyear ended December 31, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
---------- ------------ ------
(in thousands)
Basic EPS
Net income................................ $341,957 111,859 $ 3.06
======
Effect of Dilutive Securities:
Common stock options...................... - 149
------- -------
Diluted EPS
Net income and assumed conversion......... $341,957 112,008 $ 3.05
======== ======= ======
SFAS 128 had no effect on the Company's 1997 and 1996 and
1995. For income tax purposes, the Company and its subsidiaries use
accelerated depreciation and other elections provided by the tax laws.
Allowance for Funds Used During Construction
AFDC, as definedreported earnings
per share information.
Approximately 780,000 common stock options were outstanding during 1998,
but were not included in the systemcomputation of accounts prescribed bydiluted earnings per share because
the FERC,
representsoptions' exercise prices were greater than the net cost during the period of construction of borrowed funds
used for construction purposes and a reasonable rate on funds derived from
other sources. AFDC does not represent current cash earnings. The Company's
regulated subsidiaries capitalize AFDC as a partaverage market price of the
cost of utility
plant.common stock.
Income Taxes
The Company and its subsidiaries file consolidated Federal and
consolidated and separate state income tax returns. Income taxes are allocated
to the subsidiaries based on separate company computations of taxable income or
loss. Investment tax credits have been deferred and are being amortized over the
service lives of the related property. Deferred taxes are provided on temporary
differences between the financial accounting and tax bases of assets and
liabilities using the tax rates which are in effect at the balance sheet date
(see Note 13. Income Taxes).
Stock-based Compensation
The Company uses the intrinsic value based method of accounting for its
stock-based compensation plan (see Note 12. Employee Benefits - Incentive
Compensation).
79Temporary Cash Investments and Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company and
its subsidiaries consider all temporary cash investments to be cash equivalents.
These temporary cash investments are securities having original maturities of
three months or less or having longer maturities but with put dates of three
months or less. At December 31, 1998, approximately $14.3 million of cash
balances are restricted for operational uses as they have been committed for
investments in cogeneration projects.
Income Taxes and Interest (Excluding Amounts Capitalized) Paid (in
thousands):
NCE 1998 1997 1996
------- ------- -------
Income taxes ............................... $135,776 $ 99,938 $117,121
Interest.................................... $249,405 $230,507 $197,073
PSCo 1998 1997 1996
------- ------- -------
Income taxes, including amounts paid to NCE $114,340 $ 75,439 $ 66,871
Interest.................................... $188,443 $172,470 $144,533
82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SPS 1998 1997 1996
------- ------- -------
Income taxes, including amounts paid to NCE $69,111 $37,752 $50,250
Interest.................................... $55,739 $56,486 $52,540
Non-cash Transactions:
Shares of NCE's common stock in 1998 and PSCo's common stock in 1997 and
1996 (222,387 in 1998, 250,058 in 1997 and 274,934 in 1996), valued at the
market price on date of issuance (approximately $10 million for each year), were
issued to a savings plan of the Company. The estimated issuance values were
recognized in other operating expenses during the respective preceding years.
Effective March 31, 1998, PSCo sold its common stock investment in NCI to
NC Enterprises, an NCE subsidiary. PSCo received as consideration a 20-year
promissory note from NC Enterprises in the amount of approximately $292.6
million (see Note 2. Investment in Yorkshire Power and U.K. Windfall Tax).
Stock issuances and the dividend of subsidiaries' stock in connection with
the Merger discussed above were non-cash financing and investing activities and
are not reflected in the consolidated statements of cash flows.
During 1996, PSCo exchanged shares of its common stock in connection with
the acquisition of TOG and TOP (see Note 3. Acquisitions and Divestitures).
Property and Depreciation
Property, plant and equipment is stated at original cost. Replacements and
capital improvements, representing units of property, are capitalized.
Maintenance and repairs of property and replacements of items of property
determined to be less than a unit of property are charged to operations as
maintenance expense. The cost of units of property retired, together with cost
of removal, less salvage, is charged to accumulated depreciation.
Depreciation expense, for financial accounting purposes, is computed on
the straight-line basis based on the estimated service lives and costs of
removal of the various classes of property. Depreciation expense, expressed as a
percentage of average depreciable property, for NCE, PSCo and SPS ranged from
approximately 2.7%-2.9% for the years ended December 31, 1998, 1997 and 1996.
For income tax purposes, the Company and its subsidiaries use accelerated
depreciation and other elections provided by the tax laws.
Allowance for Funds Used During Construction
AFDC, as defined in the system of accounts prescribed by the FERC,
represents the net cost during the period of construction of borrowed funds used
for construction purposes and a reasonable rate on funds derived from other
sources. AFDC does not represent current cash earnings. The Company's regulated
subsidiaries capitalize AFDC as a part of the cost of utility plant.
Gas in Underground Storage (NCE and PSCo)
Gas in underground storage is accounted for under the last-in, first-out
(LIFO)("LIFO") cost method. The estimated replacement cost of gas in underground
storage at December 31, 19971998 and 19961997, exceeded the LIFO cost by approximately
$13.0 million and $36.0 million, and $52.2 million, respectively.
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Cash Surrender Value of Life Insurance Policies (NCE and PSCo)
The following amounts related to corporate-owned life insurance
("COLI")COLI contracts, issued by one major
insurance company, are recorded as a component of Investments, at cost, on the
consolidated balance sheets:sheets (in thousands):
1998 1997
1996
---- ----
(Thousands of Dollars)
Cash surrender value of contracts..................... $461,752 $408,425 $359,136
Borrowings against contracts.......................... 458,104 405,285 356,421
------- -------
Net investment in life insurance contracts......... $ 3,648 $ 3,140
$ 2,715
======== =======
On August 2, 1996, Congress passed legislation========
Refer to Note 10. "Commitments and Contingencies", for discussion of
certain tax matters.
Management Estimates
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that will phase out tax
benefits associated with certain COLI policies. The legislation had minimal
impact onaffect the Company's COLI policies as all policies were entered into prior
to July 1, 1986reported amounts of assets and were grandfathered underliabilities and the
legislation.disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Acquisition ofInvestment in Yorkshire ElectricityPower and U.K. Windfall Tax (NCE and PSCo)
Acquisition
During the second quarter of 1997, Yorkshire Power, a subsidiaryjoint venture
initially equally owned by PSCo and AEP, acquired indirectly all of the
outstanding ordinary shares of Yorkshire Electricity, a United KingdomU.K. regional
electricity company. PSCoNCI accounts for its investment in Yorkshire Power using
the equity method. Yorkshire Power's results of operations include 100% of
Yorkshire Electricity's results since the April 1, 1997. PSCo's1997 acquisition date. NCI's
equity in earnings inof Yorkshire Power is 50%, the same as its ownership share.
The totalEffective March 31, 1998, PSCo sold its common stock investment in NCI to
NC Enterprises, an NCE subsidiary. NCI's primary investment is Yorkshire Power.
PSCo received as consideration paid by Yorkshire Power was approximately $2.4
billion (1.5 billion pounds sterling). The acquisition was financed by
Yorkshire Power through a combination20-year promissory note from NC Enterprises in
the amount of approximately 25% equity$292.6 million. Annual interest payments are
required for the first three years followed by principal and 75%
debt, includinginterest payments
for the assumptionremaining seventeen years. The interest rate on the note is 7.02%. NCE
intends to make additional capital contributions to NC Enterprises to provide
the necessary cash flow requirements to make payments on the promissory note to
PSCo. In October 1998, NCE contributed $100 million to NC Enterprises, which was
used to reduce the principle balance of the existing debt of Yorkshire
Electricity. The funds for the acquisition were obtained from PSCo's and
AEP's investment in Yorkshire Power of approximately $360 million (220
million pounds sterling) each, with the remainder obtained by Yorkshire Power
through the issuance of non-recourse debt. PSCo funded its entire equity
investment in Yorkshire Power through $250 million of publicly issued secured
medium-term notes with varying maturities and drawings of approximately $110
million on its short-term lines of credit pursuantpromissory note to its short-term credit
agreement with Bank of America, as agent.PSCo.
U.K. Windfall Tax
In July 1997, the U.K. government enacted a windfall tax on certain
privatized business entities, payable in two installments with the first payment in
December 1997 and the second installment a year later.in December 1998. The windfall tax was a
retroactive adjustment to the privatization value based on post-privatization
profits during the 1992 to 1995 period. During the third quarter of 1997,
Yorkshire Power recorded an extraordinary charge of approximately $221 million
(135 million pounds sterling) for this windfall tax. PSCo'sThe Company's share of this
tax iswas approximately $110.6 million.
8084
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Investment in Ionica
During the second quarter of 1998, Yorkshire Power recognized a $54.7
million after-tax impairment of its investment in Ionica, a wireless
telecommunications company, upon the May 22, 1998, announcement by Ionica that
negotiations for release of lines of credit from existing providers of bank
facilities had been unsuccessful. In November of 1998, Ionica was placed into
receivership and an administrator was appointed to oversee its operations and
distribute its remaining assets. Due to the complexity of Ionica operations it
may take considerable time to complete this process. Yorkshire Electricity
continues to assess the recoverability of the remaining book value of this
investment (approximately $7 million at December 31, 1998).
Generation Sale
In the fourth quarter of 1998, Yorkshire Power recognized a $42.1 million
after-tax gain on the sale of its generation assets. This included the sale of
its 75% interest in Regional Power Generators, Ltd., which owned a 272-megawatt
combined cycle, gas fired plant located in North Lincolnshire, England and the
sale of other generation capacity. Proceeds from these sales were used to reduce
the debt of Yorkshire Power. Yorkshire Electricity is focusing its main business
on the distribution and supply of electricity and the supply of natural gas.
Summarized income statement information for the periodyear ended December 31,
1998 and from the date of acquisition, April 1, 1997
(date of acquisition) to December 31, 1997, is
presented below (in millions):
1998 1997
------------------ -------
Year 3 Months
Ended Ended (NCE
December 31, March 31, and
(NCE) (PSCo) PSCo)
----- ------ -----
Yorkshire Power:
Operating revenues.......................revenues............... $2,281.7 $ 663.2 $1,492.9
-------- -------- --------
Operating income.........................income................. 324.9 65.5 202.3
------------- -------- --------
Income before extraordinary item.........item. 76.9 6.9 69.8
-------- -------- --------
Extraordinary item - U.K.
windfall tax...tax - - (221.1)
-------- ------ ------
Net loss.................................income (loss)................ $ 76.9 $ 6.9 $ (151.3)
======== PSCo's======== ========
NCI's equity in the earnings (losses):
Extraordinary item - U.K. windfall tax.. $ (110.6)
Equity in earnings of Yorkshire
Power (1)$ 38.5 $ 3.5 $ 34.9
Extraordinary item - U.K.
windfall tax - - (110.6)
----- ---- ------
$ 38.5 $ 3.5 $ (75.7)
======== (1) Includes the impact of approximately $10 million related to the change
in the U.K. corporate income tax rate from 33% to 31%.
PSCo's======== ========
85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NCI's investment in Yorkshire Power at December 31, 1998 and 1997 iswas
approximately $287 million.$333 million and $290 million, respectively. Summarized balance
sheet information for Yorkshire Power as of December 31, 1998 and 1997, is
presented below (in millions):
1998 1997
Assets:
Property, plant and equipment............ $1,644.6$1,602 $1,645
Current assets........................... 602.2552 602
Goodwill (net)........................... 1,547 1,602
Other assets............................. 1,895.4
-------
$4,142.2
========295 293
------ ------
$3,996 $4,142
====== ======
Capitalization and Liabilities:
Common shareholders' equity.............. $ 542.1655 $ 542
Long-term debt........................... 704.32,121 704
Other non-current liabilities............ 488.7413 489
Current liabilities...................... 2,407.1
-------
$4,142.2
========807 2,407
------ ------
$3,996 $4,142
====== ======
The unaudited pro forma financial information presented below for NCE
assumes that the investment in Yorkshire Power was acquired on the first day of each
respective period.January 1, 1997. The pro forma
adjustments include recognition of equity in the estimated earnings of Yorkshire
Power, an adjustment for interest expense on debt associated with PSCo'sthe investment
in Yorkshire Power and related income taxes. The estimated earnings of Yorkshire
Power were based on historical earnings of Yorkshire Electricity, prior to its
acquisition by Yorkshire Power, adjusted for the estimated effects of purchase
accounting (including the amortization of goodwill), conversion to United States
generally accepted accounting principles, interest expense on debt issued by
Yorkshire Power associated with the acquisition and related income taxes. Sales
of electricity are affected by seasonal weather patterns and, therefore, the
results of Yorkshire Power/Yorkshire Electricity will not be distributed evenly
during the year. Equity in earnings of Yorkshire Power has been converted at the
average exchange rates for the year ended December 31, 1997 and December 31,
1996, of $1.639/pound and $1.561/pound, respectively.
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Based on the above assumptions, shown below is unaudited pro forma
financial information for the years ended December 31, 1997 and 1996 (in
millions, except per share amounts):
NCE Earnings
before Earnings before
Extraordinary Item Extraordinary ItemAvailable for
common stock EPS-Basic (1)
1997 1996 per share (1)
---- ---- -------------
NCE PSCo NCE PSCo 1997 1996
--- ---- ---
---- ---- ---- Income----
Net income before extraordinary item..........item... $261.5 $204.0 $272.3 $190.3 $2.50 $2.64
===== =====
Pro forma adjustments:
Equity in earnings of
Yorkshire Power, net of
U.S. tax benefits (2)..................... (10.1) (10.1) 19.3 19.3
Interest expense, net of tax (3.5)tax......... (3.5) (13.8)
(13.8)
---- ---- ----- -----------
Pro forma result..............result....................... $247.9 $190.4 $277.8 $195.8$ 277.8 $2.37 $2.70
====== ====== ====== ============= ===== =====
(1) Based on the weighted average number of common shares outstanding for the
period.
(2) The years ending December 31, 1997 and 1996 amounts include $24.0 million
and $18.9 million ($17.9 million and $11.7 million after-tax),
respectively, of write-offs related to certain computer development costs,
acquisition expenses and costs incurred for the preparation for
deregulation.
86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The unaudited pro forma financial information presented below for PSCo
assumes that NCI was sold to NC Enterprises effective January 1, 1997. NCI was
formed in connection with the investment in Yorkshire Power and had no
operations during the first three months of 1997. The pro forma adjustments
represent the removal of NCI's net income from PSCo and the inclusion of
interest income, net of tax, from the promissory note to PSCo from NC
Enterprises.
Based upon the above assumptions, shown below is unaudited pro forma
financial information for the years ended December 31, 1998 and 1997 (in
millions):
PSCo Earnings
1998 1997
---- ----
Net income before extraordinary item..................... $200.1 $204.0
Pro forma adjustments:
NCI's net income before extraordinary item............. (2.8) (35.9)
Interest income from promissory note, net of tax....... 3.2 9.5
----- -----
Pro forma result......................................... $200.5 $177.6
====== ======
3. Acquisition and Divestiture of Investments
Acquisition of Planergy (NCE)
Effective April 1, 1998, the Company acquired all of the outstanding
common stock of Falcon Seaboard Energy Services, Inc. ("Planergy") and assumed
other outstanding debt. Planergy includes Planergy, Inc. and Planergy Services
and is primarily engaged in energy consulting, energy efficiency management,
conservation programs and mass-market services. Such acquisition was accounted
for using the purchase method and the acquired assets and liabilities were
valued at their estimated fair market values as of the date of acquisition.
Planergy has been consolidated as a subsidiary of NC Enterprises in the
Company's consolidated financial statements.
Carolina Energy Limited Partnership Investment (NCE and SPS)
The Carolina Energy Partnership, a waste-to-energy cogeneration facility,
was originally scheduled to be completed in 1997, but was halted pending an
independent analysis of the project's engineering and financial viability. The
banks providing debt financing to the project withheld funds for continued
construction. Quixx, UE, other equity owners, senior creditors and the
construction contractor were unable to restructure the project on mutually
agreeable terms and the senior creditors took possession of the assets of the
facility. In June 1997, Quixx wrote-off its investment of approximately $13.6
million in the Carolina Energy Partnership. Additionally, UE wrote-off its net
investment of approximately $2.4 million in this same partnership. Quixx holds a
one-third ownership interest, including a 1% general partnership interest, in
the partnership. UE's net investment in the partnership was comprised of
subordinated debt, the related interest receivable, as well as fees for
engineering services.
BCH Energy Limited Partnership Investment (NCE and SPS)
Quixx holds a 49% limited partnership interest in BCH Energy Limited
Partnership which owned a waste-to-energy cogeneration facility located near
Fayetteville, North Carolina. Limited commercial operation of the BCH project
began in June 1996; however, the facility did not achieve the expected
performance level. An effort was made to restructure the project but it was not
possible to achieve the required improvements on economically viable terms. In
late 1996, senior creditors took possession of the assets of the facility. In
December 1996, Quixx wrote-off its investment of approximately $16 million in
this project.
8287
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Quixx Underground Water Rights (NCE and SPS)
During 1996, Quixx sold a portion of its underground water rights for
approximately $14 million. Quixx recognized an after-tax gain on the sale of
these water rights of approximately $11.7 million, which is reflected, in
miscellaneousMiscellaneous income and deductions - net for the year ended December 31, 1996.
Acquisition of Texas-Ohio Gas, Inc. and Texas-Ohio Pipeline, Inc. (NCE and
PSCo)
Effective September 1, 1996, e prime acquired all of the outstanding stock
of TOG and TOP in exchange for a combination of common stock of PSCo and cash.
Such acquisitions were accounted for using the purchase method and the acquired
assets and liabilities have beenwere valued at their estimated fair market values as of
the date of acquisition. These companies are primarily engaged in gas brokering
and marketing activities and interstate gas transmission and are subsidiaries of
e prime.
Acquisition of TNP Properties (NCE and SPS)(SPS)
In September 1995, SPS purchased properties of TNP located in the Texas
Panhandle area for $29.2 million. The purchase added approximately 8,000
customers and was accounted for using the purchase method. Cost recovery of this
amount was allowed by the PUCT through a rate surcharge over a ten-year period.
Acquisition of Young Gas Storage Company (NCE and PSCo)
On June 25, 1995, PSCo acquired all of the outstanding stock of YGSC
for $6.3 million. The acquisition was accounted for using the purchase
method. On February 1, 1996, PSCo contributed the common stock of YGSC to e
prime. YGSC owns a 47.5% interest in Young Storage, which owns and operates
an underground gas storage facility in northeastern Colorado.
4. Capital Stock (NCE, PSCo and SPS)
Shareholder Rights
On April 30, 1997, the Board of Directors declared that a dividend of one
right for each Common Share be paid on the effective date of the business
combination among the Company, PSCo and SPS to shareholders of record of the
common shares issued and outstanding at the close of business on the day before
the effective date of the business combination. Each right represents the right
to purchase one one-hundredth of a share of Series A Junior Participating
Preferred Stock at a price of $100 per one one-hundredth share. Additionally,
the Board of Directors created a Series A Junior Participating Preferred Stock,
$1 par value, and reserved 2,600,0002.6 million shares for issuance upon exercise of the
Rights. In the event any person or group acquires 10% or more of the Company's
common stock, the holders of the rights generally will be entitled to receive,
upon exercise, common stock of the Company having a value equal to two times the
exercise price of the right. In addition, the Board of Directors may, at its
option after a person or group acquires 10% or more of the Company's common
stock, exchange all or part of the rights for shares of the Company's common
stock. In the event that the Company is acquired in a merger or other business
combination or 50% or more of the Company's assets or earning power is sold or
transferred, the holders of the rights have the right to receive, upon exercise,
common stock of the acquiring company having a value equal to two times the
exercise price of the right. The Company may redeem the rights at a price of
$.001$0.001 per right at any time prior to the tenth day following the date any
person or group acquires 10% or more of the Company's common stock. The rights
expire 10 years after the record date, unless earlier redeemed or exchanged by
the Company.
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Common Stock IssuanceIssuances
In November 1998, NCE issued 2.5 million shares of common stock. The net
proceeds totaling $117.0 million were used for general corporate purposes and
the retirement of short-term debt. In December 1997, NCE issued 5.9 million
shares of common shares were issued,stock, resulting in net proceeds (after deducting issuance
costs) oftotaling approximately $251.4 million. The proceeds from the sale of
stock were used for general corporate purposes, including retirement of
short-term debt and a capital contribution to PSCo. PSCo used such proceeds to
retire debt and for general corporate purposes.short-term debt.
88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Preferred Stock of NCE
NCE has 20 million shares of preferred stock authorized. At December 31,
1997,1998, the Company has not registered or issued any of the preferred stock.
Preferred Stock of Subsidiaries
December 31, 1998 December 31, 1997 1996
---- ----
Shares Amount Shares Amount
------ ------ ------ ------
(Thousands (Thousands
of Dollars) of Dollars)(in thousands) (in thousands)
PSCo cumulative preferred stock,
$100 par value, 3 million shares
authorized:
Issued and outstanding:
Not subject to mandatory
redemption (1):
4.20% series................... - - 100,000 $ 10,000
100,000 $ 10,000
4 1/41/4% series (includes $7,500
premium) .................................... - - 174,997 17,507
175,000 17,508
4 1/41/2% series.................. 65,000 6,500series................... - - 65,000 6,500
4.64% series................... - - 159,950 15,995
160,000 16,000
4.90% series................... 150,000 15,000- - 150,000 15,000
4.90% 2nd series............... 150,000 15,000- - 150,000 15,000
7.15% series................... - - 250,000 25,000
250,000 25,000
------- ------ ------- ------------- -------
Total.......................... - - 1,049,947 $105,002
1,050,000 $105,008
========= ======== =============== ======= ========== ========
Subject to mandatory redemption (2):
7.50% series .................. 216,000 $ 21,600- - 216,000 $ 21,600
8.40% series................... - - 202,294 20,229
208,892 20,889
------- ------ ------- ------------- -------
- - 418,294 41,829 424,892 42,489
Less: Preferred stock subject to
mandatory redemption within
one year......................year....................... - - (25,760) (2,576)
(25,760) (2,576)
------- ------ ------- ------------- -------
Total........................ - - 392,534 $ 39,253
399,132 $ 39,913====== ======= ======== ======= ========
PSCo cumulative preferred stock,
$25 par value, 4 million shares
authorized:
Issued and outstanding:
Not subject to mandatory redemption (1):
8.40% series................... - - 1,400,000 $ 35,000
1,400,000 $ 35,000
========== ======= ========= ========
=========PSCo cumulative preferred stock,
$0.01 par value,
10 million shares authorized with
no shares outstanding (3) ....... - - - $ -
===== ==== ===== ========
SPS cumulative preferred stock, $1
par value,
10 million shares authorized with
no shares outstanding (3) .................(4) ........ - - - $ -
=== === === ======= ==== ==== ========
(1) TheOn June 10, 1998, PSCo redeemed all of the preferred stock, may be redeemed at the option of PSCo upon at
least 30, but not more than 60, days' notice in accordance with the following
schedule of prices, plus an amount equal to the accrued dividends to the date
fixed for redemption; $100 par value,
at a value of $101 per share plus accrued dividends and all of the preferred
stock, $25 par value, at a value of $25.25 per share.share plus accrued dividends.
(2) Mandatory redemption for 7.50% series: $101.50 per share on or prior to
August 31,On June 10, 1998, reducing each year thereafter by $0.25 per share until
August 31, 2003, after which the redemption price is $100 per share;
mandatory redemption for 8.40% series: $101.75 per share on or prior to July
31, 1998, and reducing each year thereafter by $0.25 per share until July 31,
2004, after which the redemption price is $100 per share. In 1998 and in each
year thereafter, PSCo must offer to repurchase 12,000redeemed all outstanding shares of the 7.50% series
subject to mandatory redemption for $101.50 per share plus accrued dividends and
13,760 sharesall of the 8.40% series subject to mandatory redemption at $100for $101.75 per share
plus accrued dividends to the date set for repurchase.dividends. In 1997, PSCo repurchased 6,598 shares of the 8.40%
cumulative preferred series subject to mandatory redemption. In 1996, and 1995, PSCo
repurchased 13,760 shares of the 8.40% cumulative preferred series subject to
mandatory redemption.
(3) On July 10, 1998, the shareholders of PSCo approved an amendment to the
Restated Articles of Incorporation to replace the existing authorized preferred
stock and to provide for a class of 10 million authorized shares of preferred
stock, $0.01 par value. This preferred stock may be issued from time to time in
such series and having such designations, preferences, limitations and relative
rights as the Board of Directors may determine.
(4) On January 31, 1996, the shareholders of SPS approved an amendment to the
Restated Articles of Incorporation to replace the existing authorized preferred
stock and to provide for a class of 10 million authorized shares of preferred
stock, $1.00 par value, issuablevalue. This preferred stock may be issued from time to time in
such series and having such designations, preferences, limitations and relative
rights as the Board of Directors may determine.
8489
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. SPS Obligated Mandatorily Redeemable Preferred Securities of Subsidiary TrustTrusts
Holding Solely Subordinated Debentures of SPS (NCE, PSCo and SPS)
In October 1996, Southwestern Public ServiceMay 1998, PSCo Capital Trust I, a wholly-owned Trusttrust of SPS,PSCo, issued
4,000,0007,760,000 shares of 7.85%its 7.60% Trust Originated Preferred Securities Series A for $100$194
million. The sole asset of the trust is $103$200 million principal amount of SPS's 7.85% DeferredPSCo's
7.60% Deferrable Interest Subordinated Debentures, Series A, due September 1, 2036.June 30, 2038. Holders of
the securities are entitled to receive quarterly dividends at an annual rate of
7.85%7.60% of the liquidation preference value of $25. The securities are redeemable
at the option of SPSPSCo on October 21, 2001and after May 11, 2003 at 100% of the principal amount
outstanding plus accrued interest. In addition to PSCo's obligations under the
Subordinated Debentures, PSCo has agreed, pursuant to a guarantee issued to the
trust and the provisions of the trust agreement establishing the trust, on a
subordinated basis, payment of distributions on the preferred securities (but
not if the trust does not have sufficient funds to pay such distributions) and
to pay all of the expenses of the trust (collectively, the "Back-up
Undertakings"). Considered together, the Back-up Undertakings constitute a full
and unconditional guarantee by PSCo of the trust obligations under the preferred
securities. The proceeds from the sale of the 7.60% Trust Originated Preferred
Securities were used to redeem all $181.8 million of PSCo's outstanding
preferred stock on June 10, 1998, and for general corporate purposes.
In October 1996, Southwestern Public Service Capital I, a wholly-owned
trust of SPS, issued $100 million of its 7.85% Trust Preferred Securities,
Series A. The sole asset of the trust is $103 million principal amount of SPS's
7.85% Deferrable Interest Subordinated Debentures, Series A due September 1,
2036. The securities are shown as SPS obligated mandatorily redeemable preferred securities of subsidiary trust holding solely subordinated
debenturesat the option of SPS on and after October
21, 2001 at 100% of the consolidated balance sheets.principal amount plus accrued interest. In addition to
SPS's obligations under the Subordinated Debentures, SPS has agreed, pursuant to
a guarantee issued to the trust, the provisions of the trust agreement
establishing the trust and a related expense agreement to guarantee, on a
subordinated basis, payment of distributions on the preferred securities (but
not if the trust does not have sufficient funds to pay such distributions) and
to pay all of the expenses of the trust. Considered together, the Back-up
Undertakings constitute a full and unconditional guarantee by SPS of the trust
obligations under the preferred securities. The net proceeds from the sale were used
to reduce short-term debt.
90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Long-Term Debt of Subsidiaries (NCE, PSCo and SPS)
1998 1997 1996
---- ----
(Thousands of Dollars)(in thousands)
First Mortgage Bonds:
5-70%6-3/4% retired FebruaryJuly 1, 1997.....................1998........................ $ - $ 15,000
5-7/8% retired July 1, 1997........................ - 35,000
6-3/4% due July 1, 1998............................ 25,000
25,000
6.875%6-7/8% due December 1, 1999........................ 90,000 90,000
6.00% due January 1, 2001.......................... 102,667 102,667
7-7/8% due April 1, 2003........................... 4,000 4,000
6.00% due April 15, 2003........................... 250,000 -
8-1/8% due March 1, 2004........................... 100,000 100,000
5-7/8% due March 1, 2004........................... 21,500 22,000 22,500
7-1/4% due July 15, 2004........................... 135,000 135,000
6-3/8% due November 1, 2005........................ 134,500 134,500
6-1/2% due March 1, 2006........................... 60,000 60,000
7 1/7-1/8% due June 1, 2006............................ 125,000 125,000
5-5/8% due April 1, 2008........................... 18,000 18,000
7-3/8% due November 1, 2009........................ 27,250 27,250
5-1/2% due June 1, 2012............................ 50,000 50,000
5-7/8% due April 1, 2014........................... 61,500 61,500
9-7/8% due July 1, 2020............................ 75,000 75,000
Variable rate (3.80%(4.05% and 7-1/4%3.80% at December 31, 19971998
and 1996)1997) due September 1, 2021....................2021.................. 7,000 7,000
8-3/4% due March 1, 2022........................... 150,000 150,000
8-1/4% due July 15, 2022........................... 40,000 40,000
8.20% due December 1, 2022......................... 100,000 100,000
7-1/4% due January 1, 2024......................... 110,000 110,000
7.50% due January 1, 2024.......................... 8,000 8,000
8.50% due February 15, 2025........................ 70,000 70,000
Variable rate (3.80%(4.05% and 3.80% at December 31, 1998
and 1997)due March 1, 2027 ....................................2027...................... 10,000 -10,000
Secured Medium-Term Notes, 6.02% - 9.25% secured medium-term notes,, due August
1, 1997March
4, 1998 - March 5, 2007...........................2007.......................... 296,500 423,500 183,500
Other secured long-term debt 13.25%, due in
installments through October 1, 2016.............2016............... 30,755 31,155 31,506
Pollution control obligations, securing pollution
control revenue bonds:
Not collateralized by First Mortgage Bonds:
Variable rate (4.30% and 3.95% at December 31, 19971998 and
1996)1997), due July 1, 2011......................2011 ........................ 44,500 44,500
Variable rate (6.435% effective at December 31,
19971998 and 1996)1997), due July 1, 2016................ 25,000 25,000
5-3/4% series, due September 1, 2016............. 57,300 57,300
LessLess: funds held by Trustee:............................................... (168) (161) (417)
Unsecured Medium-Term Notes:
5.91%5.86% - 6.14%, due November 24, 1997October 13, 1998 - December
15, 1998 .......................................May 30, 2000 100,000 100,000
Capital lease obligations, 4.21% - 11.21% due in
installments through May 31, 2025.................. 39,751 44,747
49,154
Other................................................ 6,284 286 527
Unamortized discount and premium-net.................premium - net............... (5,629) (5,820)
(6,298)------- ------
------2,343,710 2,245,424 2,050,189
Less: maturities due within one year.................... 138,165 257,469 170,261
------- -------
$2,205,545 $1,987,955 $1,879,928
========== ==========
The First Mortgage Bonds include all long-term bonds and notesdebt (including First Collateral
Trust Bonds) issued by the Company's utility subsidiaries under various mortgage
indentures. Substantially all properties of the 85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Company's utility subsidiaries,
other than expressly excepted property, are subject to the liens securing the
First Mortgage Bonds. Additionally, the SPS Indenture provides for certain
restrictions on the payment of dividends by SPS.
The Red River Authority of Texas has issued certain obligations, based on
long-term installment sale agreements executed by SPS, that relate to the
pollution control facilities installed at the Company'sSPS's coal-fueled generating units.
SPS's payments under the pollution control obligations are pledged to secure the
Red River Authority Pollution Control Revenue Bonds.
91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The annual maturities and sinking fund requirements during the five years
subsequent to December 31, 19971998 are (in thousands):
Year Maturities Sinking Fund Requirements Total
---- ---------- ------------------------- -----
NCE 1998 $257,4691999 $138,165 $ 560 $258,029
1999 134,454 560 135,014$138,725
2000 31,725131,721 1,310 33,035133,031
2001 140,969 1,310 142,279
2002 16,806 2,810 19,616
2003 281,848 2,810 284,658
PSCo 1998 $257,1601999 $ 44,481 $ 500 $257,660
1999 44,191 500 44,691$ 44,981
2000 31,656131,656 1,250 32,906132,906
2001 140,969 1,250 142,219
2002 16,806 2,750 19,556
2003 281,848 2,750 284,598
SPS 19981999 $ 17390,113 $ - $ 173
1999 90,113 - 90,113
2000 - - -
2001 - - -
2002 - - -
2003
The sinking fund requirements relate to PSCo and Cheyenne and they expect
to satisfy substantially all of their sinking fund obligations in accordance
with the terms of their respective indentures through the application of
property additions. SPS has no significant sinking fund requirements.
7. Short-term Borrowing Arrangements (NCE, PSCo and SPS)
Notes Payable and Commercial Paper
Information regarding notes payable and commercial paper for the years
ended December 31, 19971998 and 19961997 is as follows (in thousands, of dollars, except interest
rates):
1998 1997 1996
---- ----
NCE
Notes payable to banks ..............................banks............................... $ 36,437 $147,500
$ 18,478
Commercial paper ....................................paper..................................... 487,957 440,843 280,083
------- -------
$524,394 $588,343 $298,561
======== ========
Weighted average interest rate at year end.............. 5.57% 5.74% 5.94%
PSCo
Notes payable to banks ..............................banks............................... $ - $ 50,000
$ 18,375
Commercial paper ....................................paper..................................... 402,795 286,599 226,350
Note payable to affiliates (by NCI to Quixx) ................. - 11,956
-
------ ---------- -------
$402,795 $348,555 $244,725
======== ========
Weighted average interest rate at year end.............. 5.72% 5.78%
5.63%
86SPS
Commercial paper..................................... $ 85,162 $154,244
Note payable to affiliates (UE)...................... 9,000 9,000
Note payable to affiliates (Quixx)................... - 16,160
------- -------
$ 94,162 $179,404
======== ========
Weighted average interest rate at year end.............. 5.50% 5.60%
92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1997 1996
---- ----
SPS
Commercial paper .................................... $154,244 $53,836
Note payable to affiliates (UE) ..................... 9,000 -
Note payable to affiliates (Quixx) .................. 16,160 -
------ ---
$179,404 $53,836
======== =======
Weighted average interest rate at year end.............. 5.60% 5.65%
Bank Lines of Credit and Compensating Bank Balances
In August 1997, NCE entered into a $225 million credit facility with
several banks. TheOriginally, the credit facility providesprovided for $100 million of
direct borrowings by NCE until the outstanding common stock of PSCCC, a
wholly-owned subsidiary of PSCo, iswas transferred to NCE. On June 30, 1998, the
credit facility was amended to eliminate the PSCCC common stock restriction and
to provide for $200 million of direct borrowings by NCE. In addition, Cheyenne
was added as a borrower of up to $25 million with an NCE guaranty. The credit
facility expires August 11, 2002. After the transfer,As of December 31, 1998, NCE will have access to $225 million of
direct borrowings under the credit facility.had used $37
million.
PSCo and its subsidiaries have entered into a credit facility with several
banks providing $300 million in committed bank lines of credit. The credit
facility, which is used primarily to support the issuance of commercial paper by
PSCo and PSCCC, alternatively provides for direct borrowings thereunder. 1480
Welton, Inc. and PSRI are provided access to the credit facility with direct
borrowings guaranteed by PSCo. The facility expires November 17, 2000.
Additionally, PSCo has a credit facility which provides $125$150 million in
committed lines of credit and expires on April 30,
1998.June 25, 1999. SPS has twoa credit
facilitiesfacility which provide $180provides $200 million in committed bank lines of credit and
expireexpires February 2726, 1999. As of December 31, 1998, PSCo had used $404 million
and 28, 1998. It is planned that
at maturity these lines of credit will be replaced with a $200 million line
of credit.SPS had used $86 million.
Borrowings permitted under the committed bank lines of credit totaled $705
million at December 31, 1997, of which $9 million of SPS's committed
bank lines of credit required account deposits of 1 1/2% of the unused portion
of the loan commitment.1998. Arrangements by the Company and its subsidiaries
for committed lines of credit are maintained by a combination of fee payments
and compensating balances.
Arrangements for uncommitted lines of credit have no fee or
compensating balance requirements.
Individual PSCo arrangements for uncommitted bank lines of credit
totaled $50 million at December 31, 1997, of which all were used. PSCo and SPS may borrow under uncommitted preapproved lines of credit upon
request; however, the banks have no firm commitment to make such loans.
Individual PSCo arrangements for uncommitted bank lines of credit totaled $50
million at December 31, 1997, of which all were used. None were used or
outstanding as of December 31, 1998.
8. Financial Instruments (NCE, PSCo and SPS)
Fair Value of Financial Instruments
The following tables present the carrying amounts and fair values of the
Company's and subsidiaries' significant financial instruments at December 31,
19971998 and 1996.1997. The carrying amount of all other financial instruments
approximates fair value. SFAS No. 107, Disclosures"Disclosures about Fair Value of
Financial Instruments," defines the fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale.
87
1998 1997
---------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
NCE (in thousands)
Investments, at cost................. $ 35,885 $ 35,256 $ 36,936 $ 36,072
Preferred stock of subsidiaries
subject to mandatory redemption .... - - 41,829 42,893
PSCo and SPS obligated mandatorily
redeemable preferred securities of
subsidiary trust holding solely
subordinated debentures of SPS and
PSCo ............................... 294,000 308,250 100,000 104,752
Long-term debt of subsidiaries....... 2,343,710 2,434,249 2,245,424 2,251,523
PSCo
Investments, at cost................. $ 30,355 $ 31,324 $ 36,936 $ 36,072
Preferred stock subject to mandatory
redemption ......................... - - 41,829 42,893
PSCo obligated mandatorily redeemable
preferred securities of subsidiary
trust holding solely subordinated
debentures of PSCo ................. 194,000 204,000 - -
Long-term debt....................... 1,687,611 1,590,226 1,595,298 1,604,160
93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1998 1997
1996
---- -------------------- ---------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
NCE (Thousands of dollars)SPS (in thousands)
Investments, at cost................ $36,010 $36,072 $30,249cost................... $5,530 $ 30,416
Preferred stock of subsidiaries
subject to mandatory redemption .. 41,829 42,893 42,489 43,6853,932 $ - $ -
SPS obligated mandatorily redeemable
preferred securities of subsidiary
trust holding solely subordinated
debentures of SPS .................................... 100,000 104,250 100,000 104,752
100,000 99,520
Long-term debt of subsidiaries...... 2,206,372 2,251,523 2,001,035 2,059,972
PSCo
Investments, at cost................ $36,010 $36,072 $30,249 $30,416
Preferred stock subject to mandatory
redemption ........................ 41,829 42,893 42,489 43,685
Long-term debt...................... 1,555,572 1,604,160 1,370,423 1,404,972
SPS
SPS obligated mandatorily redeemable
preferred securities of subsidiary
trust holding solely subordinated
debentures of SPS ................ $100,000 $ 104,752 $ 100,000 $ 99,520
Long-term debt...................... 621,800debt......................... 620,731 661,823 620,771 625,348 630,612 655,000
The fair value of the debt and equity securities included in Investments,
at cost, is estimated based on quoted market prices for the same or similar
investments. The debt securities are classified as held-to-maturity and the
equity securities are classified as available-for-sale. The unrealized holding
gains and losses for these debt and equity securities are not significant.
The estimated fair values of preferred stock subject to mandatory
redemption, thePSCo and SPS obligated mandatorily redeemable preferred securities and
long-term debt are based on quoted market prices of the same or similar
instruments. Since PSCo, SPS and Cheyenne are subject to regulation, any gains
or losses related to the difference between the carrying amount and the fair
value of these financial instruments would not be realized by the Company's
shareholders.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 19971998 and 1996.1997. These fair
value estimates have not been comprehensively revalued for purposes of these
financial statements since that date, and current estimates of fair values may
differ significantly from the amounts presented herein.
Off-Balance-Sheet Financial Instruments
NCE has entered in to a construction contract guarantee which assures
Quixx's performance under its engineering, procurement, and construction
contract with Borger Energy Associates, L.P. ("BEA"). Quixx, which owns 45% of
BEA, is constructing a 230 Mw cogeneration facility at a Phillips Petroleum site
near Borger, Texas. The maximum aggregate amount of this guarantee at December
31, 1998 was $88.4 million. This maximum amount decreases to $25.0 million at
commercial operation of the facility, currently estimated in March 1999, and
remains in effect for a period of no longer than 24 months before expiring.
Based upon the current state of construction of the facility, this guarantee is
not expected to have any financial impact on NCE.
As of December 31, 1998, NCE had $59.9 million of guarantees outstanding
to e prime. These guarantees were made to facilitate e prime's energy marketing
and trading activities. Also, e prime, inc. has guaranteed obligations relating
to the sale and purchase of energy and capacity for TOG. These guarantees
totaled $13.3 million at December 31, 1998.
In connection with an agreement for the sale of electric power, SPS
guaranteed certain obligations of a customer totaling $48 million. These
obligations related to the construction of certain utility property that, in the
event of default by the customer, would revert to SPS.
NCE and YGSC have guaranteed 50% of amounts financed under a $32 million
Credit Agreement among Young Storage and various lending institutions entered
into on June 27, 1995. This debt financing is for the development, construction
and operation of an underground natural gas storage facility in northeastern
ColoradoColorado. (see Note 3. AcquisitionAcquisitions and DivestitureDivestitures).
NC Enterprises has guarantees totaling $10 million of Investments).
In connection with an agreementNew Century Cadence
as of December 31, 1998. These guarantees relate to the capital requirements and
operations of Cadence Network LLC, in which New Century Cadence is a 33.3%
partner.
94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Risk Management
Energy Financial Contracts - Trading
The Company and its subsidiaries use the mark-to-market method of
accounting for energy trading activities and recognized a gain related to e
prime's power trading activities and a loss related to e prime's gas trading
activities. These gains and losses were recognized as part of purchased power
and gas purchased for resale, respectively, and totaled less than $500,000. The
following table displays the mark-to-market values of the energy trading
financial instruments of the Company and its subsidiaries at December 31, 1998
and the average value for the saleperiod then ended.
Assets Liabilities
Net Notional Average Dec. 31, 1998 Average Dec. 31, 1998
Amount Value Value Value Value
------ ----- ----- ----- -----
(in thousands) (in thousands)
Natural Gas (Mmbtus) 30,000 $ 335 $ 467 $ 344 $ 489
Power (Mwhs) 61,800 149 426 256 795
In addition, PSCo and SPS did not hold any energy trading financial
instruments at December 31, 1998. There were no energy trading financial
instruments held by NCE and its subsidiaries at December 31, 1997.
Energy Financial Contracts - Other than Trading
Various energy financial instruments are used by NCE and its subsidiaries
as hedging mechanisms against future contractual energy related obligations. The
weighted average maturity of electric power, SPS
guaranteed certain obligationsthese instruments is less than one year. At
December 31, 1998, the Company, as part of a customer totaling $48 million. These
obligationse prime's retail gas marketing
business, held notional long volumetric positions of approximately 14.2 million
Mmbtus of natural gas related to the constructionthese financial instruments which had related
unrealized losses of certain utility property that, in
the eventapproximately $6.4 million. At December 31, 1997, e prime
held notional long volumetric positions of default by the customer, would revertapproximately $5.2 million Mmbtus of
natural gas related to SPS.these financial instruments which had related unrealized
losses of approximately $0.7 million. In addition, PSCo and SPS did not hold any
energy financial instruments at December 31, 1998.
Financial Derivatives - Interest Rates
SPS has an interest rate swap agreement, which, in effect, fixes the
interest rate on a $25,000,000$25 million notional amount at 6.435%. Amounts paid or
received under this agreement are accrued as interest rates change and are
recognized over the life of the agreement as an adjustment to interest expense.
SPS is exposed to interest rate risk in the event of nonperformance by
counterparties; however, SPS does not anticipate such nonperformance.
88Credit Risk
In addition to the risks discussed above, NCE and its subsidiaries are
exposed to credit risk in its risk management activities. Credit risk relates to
the risk of loss resulting from the nonperformance of a counterparty of its
contractual obligations. As the Company continues to expand its gas and power
marketing and trading activities, the Company's exposure to credit risk and
counterparty default may increase. NCE and its subsidiaries maintain credit
policies intended to minimize overall credit risk.
NCE and its subsidiaries conduct standard credit review for all of its
counterparties. The Company employs additional credit risk control mechanisms
when appropriate, such as letters of credit, parental guarantees and
standardized master netting agreements that allow for offsetting of positive and
negative exposures. The credit exposure is monitored and, when necessary, the
activity with a specific counterparty is limited until credit enhancement is
provided.
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Concentration of Credit Risk - Accounts Receivable
No individual customer or group of customers engaged in similar activities
represents a material concentration of credit risk to the Company and its
subsidiaries.
9. Regulatory Matters (NCE, PSCo and SPS)
Merger Rate Filings
The discussion below summarizes the significant conditions imposed by
the state utility regulatory commissions in Colorado, Texas, New Mexico,
Wyoming, Oklahoma and Kansas in their respective approvalsElectric Utility Matters
PSCo Performance Based Regulatory Plan
PSCo's base electric rates are based on traditional cost of the Merger.
PSCoservice
ratemaking principles. The CPUC decision approving the Merger established a five-year performance based regulatory plan
and acknowledged thatin connection with the Merger was inCPUC's decision to approve the public interest.Merger. The major
provisionscomponents of the decisionthis regulatory plan include the following,
some of which are discussed in other sections of this note:
- a $6 million annual electric rate reduction, which was instituted
October 1, 1996, followed by an additional $12 million annual electric
rate reduction effective with the implementation of new gas rates on
February 1, 1997;following:
- an annual electric department earnings test with the sharing of earnings
in excess of an 11% return on equity for the calendar years 1997-2001 and the implementation of1997-2001;
- a Quality of Service Plan;Plan ("QSP") designed with performance measures to
effectively penalize or reward PSCo based on the quality of service
provided to retail customers; and
- an Incentive Cost Adjustment ("ICA") which provides for the sharing of
energy costs and savings relative to an annual target cost/delivered Kwh.
The sharing of earnings in excess of an 11% return on equity for the
calendar years 1997-2001 are as follows:
Electric Department Sharing of Excess Earnings
Return on Equity Customers Shareholders
---------------- --------- ------------
11-12% 65% 35%
12-14% 50% 50%
14-15% 35% 65%
over 15% 100% 0%
The QSP provides for bill credits if PSCo does not achieve certain
performance measures relating to electric reliability, customer complaints and
telephone response to inquiries. For 1997, the QSP provided for up to $3 million
of rewards for its performance and PSCo's actual reward totaled approximately
$1.5 million. During the third quarter of 1998, PSCo reached a settlement
agreement with the CPUC Staff and the OCC which modified the bill credit
structure for 1998 electric reliability and eliminated the reward structure for
the years 1999 through 2001. Approval of this modification was obtained in
November 1998.
In April 1998, PSCo filed with the CPUC its proposed Performance Based
Regulatory Plan adjustment for calendar year 1997. This adjustment provides the
means for implementing the sharing mechanism for the customers' portion of
earnings over PSCo's authorized return on equity threshold resulting from the
1997 earnings test, net of QSP rewards. PSCo recorded a customer refund
obligation of $15.1 million for the 1997 earnings test. In July 1998, PSCo began
refunding a portion of this amount to customers through bill credits. As of
December 31, 1998, PSCo recorded an estimated refund obligation of approximately
$8.1 million for the 1998 earnings test.
Additionally, a $6 million annual electric rate reduction was instituted
October 1, 1996, followed by an additional $12 million annual electric rate
reduction effective with the implementation of new retail gas rates on February
1, 1997. PSCo agreed to freeze in base electric rates after the Merger rate
reductions for the period through December 31, 2001 with the flexibility to make
certain other rate changes, including those necessary to allow for the recovery of DSM,
QF capacity costs and decommissioning costs. The freeze in base electric rates
does not prohibit PSCo from filing a general rate case or deny any party the
opportunity to initiate a complaint or show cause proceeding; andproceeding.
96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
PSCo FERC Rate Case
PSCo filed a rate case with the replacement of the ECA with an ICA.
On January 20, 1998, the CPUC approved theFERC on December 29, 1995, requesting a
slight overall rate increase (less than 1%) from its wholesale electric
customers. This filing, among other things, requested approval for recovery of
$16 million in
mergerOPEB costs incurred through May 31,under SFAS 106, postemployment benefit costs under SFAS 112 and new
depreciation rates based on the Company's most recent depreciation study. In
March 1997, the allocation methodologies of
merger costsFERC issued an order accepting for filing and suspending certain
proposed rate changes. Settlement agreements were reached with all parties and
filed with the recovery of payments associated withFERC, which, resulted in a transmission
agreement with a wholesale customer. PSCo will request approval fromslight decrease in rates overall. A
final order accepting the CPUC for the merger costs incurred subsequent to May 31, 1997 as part of the
electric department earnings test expected to be filedsettlement agreements was received in mid-1998.June 1997.
SPS Merger costs attributable to Colorado electric retail customers will be amortized
monthly through December 31, 2001 as part of the electric department earnings
test. Merger costs attributable to Colorado gas retail customers were
included in the gas rate case approved by the CPUC, discussed below.
SPSRelated Rate Reductions
Under the various regulatory commission approvals, SPS is required to
provide credits to customers over five years for one-half of the measured
non-fuel operation and maintenance expense savings associated with the Merger.
SPS will provide guaranteed minimum annual credits to retail customers of $3
million in Texas, $1.2 million in New Mexico, $100,000 in Oklahoma and $10,000 in Kansas and $1.5 million to
wholesale customers.
Cheyenne
The WPSC approvedUnder a settlement reached with the NMPRC, effective December 30, 1998,
SPS discontinued the merger savings credit of $1.2 million per year with the
implementation of new retail rates in New Mexico as discussed below.
SPS Electric Cost Adjustment Mechanisms
Substantially all fuel and purchased power costs are recoverable from
utility customers, as determined on August 16, 1996. Cheyenne agreed nota jurisdictional basis, using approved cost
adjustment mechanisms. As a result of amendments during 1998 to contracts
between the coal supplier to SPS and the railroad company it employs, coal
transportation costs are projected to decline significantly for the period from
November 1998 through December 2002. These savings will be passed on to
customers.
Texas
The PUCT's regulations require periodic examination of SPS's fuel and
purchased power costs, the efficiency of the use of such fuel and purchased
power, fuel acquisition and management policies and purchase power commitments.
SPS is required to file an application for the Commission to retrospectively
review, at least every three years, the operations of a retail electric rate caseutility's electricity
generation and fuel management activities. In June 1998, SPS filed its
reconciliation for two years after the merger is
consummated. Cheyenne expects to file a combined gasgeneration and electric rate casefuel management activities totaling
approximately $690 million, for the period from January 1995 through December
1997. For this same period, SPS had approximately $21.4 million in
underrecovered fuel costs associated with the WPSCTexas retail jurisdiction. The
Company has also requested the prospective sharing of margins from wholesale
non-firm sales. The outcome of this fuel reconciliation proceeding is pending
and a hearing has been set for June 1999.
SPS was named as a defendant in 1999 aftera case entitled Thunder Basin Coal Co. vs.
Southwestern Public Service Co. In November, 1994, the two year moratorium expires.
89jury returned a verdict
in favor of Thunder Basin and awarded damages of approximately $18.8 million.
SPS appealed the judgment and, in January 1997, that Court found in favor of
Thunder Basin and upheld the judgment. In February 1997, SPS recorded the
liability for the judgment including interest and court costs. The amount of
approximately $22.3 million was paid in April 1997.
During 1996 and 1997, SPS obtained conditional approval to collect portions
of the Thunder Basin judgment from wholesale customers from the FERC and the
NMPRC issued an order granting recovery of the New Mexico retail jurisdictional
portion of the judgment. In May 1997, SPS filed a request with the PUCT to
surcharge undercollected fuel and purchased power expenses, which included $9.1
million of the Thunder Basin judgment. The PUCT issued a decision which denied
recovery of the judgment through a surcharge on the grounds that the costs were
not classified as
97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
fuel costs. In 1997, SPS expensed approximately $12.1 million of the Texas
retail jurisdictional portion of the Thunder Basin judgment and recognized an
equal amount as deferred revenue in anticipation of future recovery through the
pending fuel reconciliation proceeding.
SPS believes that recovery of the Thunder Basin costs for the Texas retail
jurisdiction will be approved in the pending fuel reconciliation proceeding.
Under the PUCT regulations, a utility may recover eligible fuel expenses or
fuel-related expenses, which result in benefits to customers that exceed the
costs that customers would otherwise have to pay. The Thunder Basin costs
resulted in total net savings to customers of approximately $8.5 million, with
approximately $4.6 million net savings attributable to Texas retail
jurisdictional customers.
New Mexico
In October 1997, the NMPRC approved a fixed fuel factor for SPS's New
Mexico retail jurisdiction, effective January 1998. This employs an over/under
fuel collection calculation made on a monthly basis. SPS is required to petition
for a change in the fixed fuel factor if the over/under recovery balance reaches
$5 million. In addition, on an annual basis SPS files with the NMPRC a report of
SPS's fuel and purchase power costs, which includes the current over/under
recovery balance and proposed rate changes to refund or surcharge the balance.
The methodology of the over/under calculation, plus interest, is similar to the
Texas fixed fuel factor calculation. Previously, New Mexico's retail
jurisdictional electric rates applied a monthly fuel factor. In January 1999,
SPS implemented new annual fixed fuel cost recovery factors to reflect lower
fuel costs primarily as a result of the aforementioned coal transportation cost
settlement between SPS's coal supplier and the railroad company.
SPS Rate Cases
New Mexico
In November 1997, the NMPRC issued an order investigating SPS's rates. In
the order, the NMPRC determined that because of the rapid changes occurring in
the electric industry the NMPRC would require rate case filings by the major
electricity suppliers who have not adopted a plan to provide retail open access
and customer choice of suppliers. SPS made a compliance filing in May 1998,
which proposed a $1.7 million annual rate reduction for certain retail customers
in New Mexico and incorporated the $1.2 million guaranteed minimum annual
credits, discussed above. In October 1998, SPS entered into an uncontested
stipulation agreement settling the rate investigation case. As part of this
settlement, SPS instituted a $6 million annual reduction in base rates
(discontinuing the $1.2 million in guaranteed minimum annual credits) for
certain retail customers. Additionally, SPS implemented full normalization in
its accounting for income taxes with recovery of the New Mexico jurisdictional
portion of the tax regulatory asset over 16.8 years. On November 30, 1998, the
NMPRC approved the stipulation and the rate reduction became effective December
30, 1998.
Wholesale - FERC
In 1989, the FERC issued its final order regarding a 1985 wholesale rate
case. SPS appealed certain portions of that order that related to recognition of
rates of the reduction of the federal income tax rates from 46% to 34%. The
United States Court of Appeals remanded the case, directing the FERC to
reconsider SPS's claim. Negotiated settlements with certain customers were
reached, and approved by the FERC, in 1993 and 1995, with SPS receiving
approximately $10 million, including interest. Settlement agreements were
reached with the two remaining customers during 1998 and approved by the FERC.
In connection with these settlements, SPS recorded $16.9 million of additional
revenues and $7.6 million of additional depreciation expense.
98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Cheyenne Electric Cost Adjustment Mechanism
Cheyenne filed for an increase in its ECA rates of approximately $3
million and new rates became effective January 1, 1999. This increase, however,
is being contested and hearings are scheduled for March 1999.
Gas Utility Matters
PSCo Retail - GasRate Cases
On June 5, 1996, PSCo filed a retail rate case with the CPUC requesting an
annual increase in its jurisdictional gas department revenues of approximately
$34 million. In early 1997, the CPUC approved an overall increase of
approximately $18 million with an 11.25% return on equity, effective February 1,
1997 and as modified on May 15, 1997. The CPUC disallowed the recovery of
certain postemployment benefit costs under SFAS 112 and imputed anticipated
merger related savings net of costs related to the gas business (see Note 1.
Summary of Significant Accounting Policies). PSCo filed a petition with the
Denver District Court appealing the CPUC's decision. AThe District Court judge
requested oral arguments in the proceeding. The Company anticipates a decision
during 1999.
In November 1998, PSCo filed a retail gas rate case with the CPUC
requesting an annual increase in rates of approximately $23.4 million. The
request for a rate increase reflects revenues for additional plant investment, a
12.0% return on equity and the recovery of incremental year 2000 costs (see Note
5. Commitments and Contingencies - Year 2000 Costs). The recovery of
postemployment benefit costs was not included in this request pending a decision
from the Denver District Court, is expected in the last
half of 1998.
Wholesale - FERC
PSCo filed a rate case with the FERC on December 29, 1995, requesting a
slight overall rate increase (less than 1%) from its wholesale electric
customers. This filing, among other things, requested approvalas discussed above. Hearings are set for recovery
of OPEB costs under SFAS 106, postemployment benefit costs under SFAS 112 andApril
1999. The new depreciation rates, based on the Company's most recent depreciation
study. On March 29, 1997, the FERC issued an order accepting for filing and
suspending certain proposed rate changes. Settlement agreements have been
reached with all parties and filed with the FERC, which, results in a slight
decrease in rates overall. A final order accepting the settlement
agreements, subject to PSCo making certain compliance filings, was received
in June 1997. On October 3, 1997, PSCo filed the required compliance filing
with the FERC to unbundle the wholesale generation, transmission and
ancillary services prices in the wholesale power agreements.
SPS
New Mexico
On November 17, 1997, the NMPUC issued an order investigating SPS's
rates. SPS is required to file a rate case by May 5, 1998. In the order,
the NMPUC determined that because of the rapid changes occurring in the
electric industry there is a need for the NMPUC to require rate case filings
by the major electricity suppliers who have not adopted a plan to provide
retail open access and customer choice of suppliers.
Wholesale - FERC
On December 19, 1989, the FERC issued its final order regarding a 1985
wholesale rate case. SPS appealed certain portions of the order that related
to recognition in rates of the reduction of the federal income tax rate from
46% to 34%. The United States Court of Appeals for the District of Columbia
Circuit remanded the case directing the FERC to reconsider SPS's claim of an
offsetting cost and limiting the FERC's actions. The FERC issued its Order
on Remand in July 1992, the required filings were made and a hearing was
completed in February 1994. In October 1994, the administrative law judge
("ALJ") issued a favorable initial decision that, if approved, by the FERC,
would result in a substantial revenue recovery for SPS. Negotiated
settlements with SPS's partial requirements customers and TNP were approved
by the FERC inbecome effective July 1993 and September 1993, respectively, and SPS received
approximately $2.8 million, including interest.1, 1999.
Cheyenne Rate Case
In a settlement with SPS's
New Mexico rural electric cooperative customers, SPS received approximately
$7.0 million, including interest. The FERC approved this settlement in July
1995. Resolutions of these matters with the remaining wholesale customers,
the Golden Spread member cooperatives and Lyntegar Electric Cooperative, have
not been achieved. SPS is awaiting a final order from the FERC. SPS cannot
reasonably estimate the remaining amount recoverable from these proceedings;
however, a favorable resolution could materially improve its earnings in the
period in which it is resolved.
90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Cheyenne
On May 12, 1997, Cheyenne filed an application with the WPSC for an overall
annual increase in retail gas revenues of approximately $1.25 million. On September 23, 1997, theThe WPSC
approved an increase in retail gas revenues of approximately $1.19 million, with
an 11.71% return on equity, effective October 1, 1997.
Electric and Gas Cost Adjustment Mechanisms
PSCo
During 1994 and 1995, the CPUC conducted several proceedings to review
issues related to the ECA. The CPUC opened a docket to review whether the ECA
should be maintained in its then present form, altered or eliminated, and on
January 8, 1996, combined this docket with the merger docket discussed
above. The CPUC decision on the Merger modified and replaced the ECA with an
ICA. The ICA, which became effective October 1, 1996, allows for a 50%/50%
sharing of certain fuel and energy cost increases and decreases among
customers and shareholders. As of December 31, 1997, PSCo has deferred
approximately $0.7 million, as recoverable fuel and energy costs. Management
does not believe the cost adjustment mechanism will have a significant impact
on the Company's results of operations, financial position or cash flows.
The CPUC had a docket to review and prescribe a standardized GCA
process to determine the prudence of gas commodity and pipeline delivery
service costs incurred by gas utilities. Other issues addressed in this
docket included whether the GCA should be maintained in its present form,
altered or eliminated. The CPUC issued an order on May 7, 1997, which
provides for the current GCA to be maintained and the adoption of certain
standardized filing and gas purchase reporting requirements. On January 30,
1998, the CPUC issued another Notice of Proposed Rulemaking seeking comments
on various customer notice and reporting requirements related to changes in
gas costs.
SPS
Texas
A PUCT substantive rule requires periodic examination of SPS's fuel and
purchased power costs, the efficiency of the use of such fuel and purchased
power, fuel acquisition and management policies and purchase power
commitments. Under the PUCT's regulations, SPS is required to file an
application for the Commission to retrospectively review, at least every
three years, the operations of a utility's electricity generation and fuel
management activities. SPS will file a reconciliation in 1998 for the
generation and fuel management activities of approximately $690 million, for
the period from January 1995 through December 1997. At December 31, 1997,
SPS had approximately $22.9 million in underrecovered fuel costs associated
with the Texas retail jurisdiction. Currently, Texas retail customers are
being surcharged for approximately $6.4 million of such underrecovered fuel
costs. This surcharge does not include the Thunder Basin judgment discussed
below.
On May 1, 1995, SPS filed with the PUCT a petition for a fuel
reconciliation for the months of January 1992 through December 1994. The
PUCT issued an order in January 1996 requiring SPS to make a $3.9 million
fuel refund consisting of $2.1 million of overrecovered fuel costs and $1.8
million of disallowed fuel costs for the period. This refund was made in
April 1996. Additionally, the order required SPS to pass through to
customers 100% of margins from non-firm off-system opportunity sales as of
January 1995. Prior PUCT rulings had allowed SPS to retain 25% of these
margins. The 100% flow through is required by PUCT rules, absent of waiver.
A motion for rehearing on the fuel disallowance (which was adjusted to $1.9
million) was subsequently denied by the PUCT and SPS was ordered to flow
through 100% of the non-firm off-system sales margin effective with the first
billing cycle after the date of the order. Upon appeal by SPS to the Travis
County District Court in May 1996, the PUCT's decision on the disallowed fuel
costs was upheld. SPS appealed the decision and on January 29, 1998 the Texas
Court of Appeals upheld the PUCT decision to disallow fuel costs. SPS is
evaluating its alternatives, including filing an appeal to the Supreme Court
of Texas.
91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SPS was named as a defendant in a case entitled Thunder Basin Coal Co.
vs. Southwestern Public Service Co., No. 93-CV304B (D. Wyo.). On November 1,
1994, the jury returned a verdict in favor of Thunder Basin and awarded
damages of approximately $18.8 million. SPS appealed the judgment to the
Tenth Circuit Court of Appeals and, on January 7, 1997, that Court found in
favor of Thunder Basin and upheld the judgment. SPS filed a motion for
rehearing which was denied. In February 1997, SPS recorded the liability for
the judgment including interest and court costs. The amount of approximately
$22.3 million was paid in April 1997.
On September 17, 1996, the FERC issued an order granting SPS
conditional approval to collect the FERC jurisdictional portion of the
Thunder Basin judgment from wholesale customers. On October 24, 1997, the
NMPUC issued an order granting recovery of the New Mexico retail
jurisdictional portion of the judgment. On May 1, 1997, SPS filed a request
with the PUCT to surcharge undercollected fuel and purchased power expenses,
which included $9.1 million of the Thunder Basin judgment. In November 1997,
the PUCT issued a decision which denied recovery of the judgment through a
surcharge, on the grounds that the costs are not classified as fuel costs.
In 1997, SPS expensed approximately $12.1 million of the Texas retail
jurisdictional portion of the Thunder Basin judgment and recognized an equal
amount as deferred revenue in anticipation of future recovery through the
fuel reconciliation proceeding.
SPS believes that recovery of the Thunder Basin costs for the Texas
retail jurisdiction will be approved in a fuel reconciliation proceeding in
1998, but cannot predict the ultimate outcome. Under the PUCT regulations, a
utility may recover eligible fuel expenses or fuel-related expenses, which
result in benefits to customers that exceed the costs that customers would
otherwise have to pay. The Thunder Basin costs resulted in total net savings
to customers of $8.9 million, of which $4.8 million net savings is
attributable to Texas retail jurisdictional customers.
New Mexico
On October 24, 1997, the NMPUC approved a fixed fuel factor for SPS's
New Mexico retail jurisdiction, effective January 1998. This will employ an
over/under fuel collection calculation made on a monthly basis. SPS will
petition for a change in the fixed fuel factor if the over/under recovery
balance reaches $5 million. In addition, on an annual basis SPS files with
the NMPUC a report of SPS's fuel and purchase power costs, which will include
the current over/under recovery balance and will refund or surcharge the
balance. The methodology of the over/under calculation, plus interest, is
similar to the Texas fixed fuel factor calculation. Previously, New Mexico's
retail jurisdictional electric rates applied a monthly fuel factor.
Electric Department Earnings Test and Quality of Service Plan
PSCo
The CPUC's decision on the Merger implemented an electric department
earnings test with the sharing of earnings in excess of an 11% return on
equity for the calendar years 1997-2001 as follows:
Electric Department Sharing of Excess Earnings
Return on Equity Customers Shareholders
---------------- --------- ------------
11-12% 65% 35%
12-14% 50% 50%
14-15% 35% 65%
over 15% 100% 0%
The CPUC's decision on the Merger also implemented a QSP which provides
for bill credits totaling up to $5 million in year one and increasing to $11
million in year five, if PSCo does not achieve certain performance measures
relating to electric reliability, customer complaints and telephone response
to inquiries. On October 15, 1997, the CPUC issued an order addressing the
implementation of a reward mechanism in the QSP which
92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
provides up to $3 million of annual rewards if PSCo achieves certain performance
measures relating to electric reliability.
As of December 31, 1997, PSCo recorded an estimated customer refund
obligation of approximately $16.4 million related to the electric department
earnings test, net of QSP rewards.
10. Commitments and Contingencies (NCE, PSCo and SPS)
Environmental Issues
The Company and its subsidiaries are subject to various environmental
laws, including regulations governing air and water quality and the storage and
disposal of hazardous or toxic wastes. The Company and its subsidiaries assess,
on an ongoing basis, measures to ensure compliance with laws and regulations
related to air and water quality, hazardous materials and hazardous waste
compliance and remediation activities.
Environmental Site Cleanup
As described below, PSCo has been or is currently involved with the
clean upcleanup of contamination from certain hazardous substances. In allmany situations,
PSCo is pursuing or intends to pursue insurance claims and believes it will
recover some portion of these costs through such claims. Additionally, where
applicable, PSCo is pursuing, or intends to pursue, recovery from other Potentially Responsible Parties ("PRPs"). To the extent such costs are not
recovered, PSCo currently believes it is probable that such costs will be
recoveredPRPs and
through the rate regulatory process. To the extent any costs are not recovered
through the options listed above, PSCo would be required to recognize an expense
for such unrecoverable amounts.
Under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"),CERCLA, the U.S. Environmental Protection Agency ("EPA")EPA identified, and a Phase II environmental
assessment revealed, low level, widespread contamination from hazardous
substances at the Barter Metals Company ("Barter") properties located in central
Denver. For an estimated 30 years, PSCo sold scrap metal and electrical
equipment to Barter for reprocessing. PSCo has completed the cleanup of this
site at a cost of approximately $9 million and has received responses from the
Colorado Department of Public Health and Environment ("CDPHE") indicating that
no further action is required related to these properties. On January 3, 1996,
in a lawsuit by PSCo against its insurance providers, the Denver District Court
99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
entered final judgment in favor of PSCo in the amount of $5.6 million for
certain cleanup costs at Barter. Several appeals and cross appeals have been
filed by one of the insurance providers and PSCo in the Colorado Court of
Appeals. The insurance provider has posted supersedeas bonds in the amount of
$9.7 million ($7.7 million attributable to the Barter judgment). On July 10,
1997, the Colorado Court of Appeals overturned the previously awarded $7.7
million judgment on the basis that the jury had not been properly instructed by
the Judge regarding a narrow issue associated with some of thecertain policies. PSCo plans to appeal the Colorado Court of Appeals
decision to the Colorado Supreme Court. Previously,
PSCo had received certain insurance settlement proceeds from other insurance
providers for Barter and other contaminated sites and a portion of those funds
remains to be allocated to this site by the trial court. Both sides of the
litigation filed petitions for certiorari to the Colorado Supreme Court which
granted a hearing on several issues, although the matter is still pending. In
addition, in August 1996, PSCo filed a lawsuit against four PRPs seeking
recovery of certain Barter related costs. Settlement has been achieved with two
smaller PRP's. On December 16, 1997, the U. S. District Court awarded summary
judgment in favor of the remaining PRPs, on the basis that PSCo failed to follow
CERCLA guidelines in the cleanup. On January 15, 1998, PSCo appealed the summary
judgment to the U.S. Court of Appeals. Furthermore,Appeals, which is still pending. In March 1998,
PSCo expects to recover additional
expenditures throughsold the sale ofremaining Barter properties, and the Barter property.total proceeds were $1.1
million.
PCB presence was identified in the basement of an historic office building
located in downtown Denver. The Company was negotiating the future cleanup with
the current owners; however, onin October 5, 1993, the owners filed a civil action
against PSCo in the Denver District Court. The action alleged that PSCo was
responsible for the PCB releases and additionally claimed other damages in
unspecified amounts. OnIn August 8, 1994, the Denver District Court entered a
judgment approving a $5.3 million offer of settlement between PSCo and the
building owners resolving all claims. In December 1995, complaints werePSCo filed by PSCocomplaints
against all applicable insurance carriers in the Denver 93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
District Court. OnIn June 30,
1997, the Court ruled in favor of the carriers on summary judgment motions
addressing late notice and other issues. OnIn August 27, 1997, PSCo filed an appeal of
the decision with the Colorado Court of Appeals.
Two carriers wereAppeals, which is still pending. One
carrier was excluded from this proceeding;the summary judgment; subsequently, onethat carrier
received approval to be dismissed on the same basis as the other carriers. In
March 1998, PSCo intends to pursuereached a settlement with another carrier who was not part of
the Denver District Court action. In December 1998, the CPUC approved recovery
fromof the remaining carrier.electric jurisdictional net costs totaling approximately $3.1 million
through PSCo's electric department earnings test over a five-year amortization
period.
In addition to these sites, PSCo has identified several other sites where
clean up of hazardous substances may be required. While potential liability and
settlement costs are still under investigation and negotiation, PSCo believes
that the resolution of these matters will not have a material adverse effect on
PSCo's financial position, results of operations or cash flows. PSCo fully intends towill pursue
the recovery of all significant costs incurred for such projects through
insurance claims and/or the rate regulatory process.
Other Environmental Matters
Under the Clean Air Act Amendments of 1990 ("CAAA"), coal fueledcoal-fueled power
plants are required to reduce SO2 and NOx emissions to specified levels through
a phased approach. PSCo'sPSCo and SPS's facilities must comply with the Phase II
requirements, which will be effective in the year 2000. Currently, these
regulations permit compliance with SO2 emission limitations by using SO2
allowances allocated to plants by the EPA, using allowances generated by
reducing emissions at existing plants and by using allowances purchased from
other companies. The Company expects to meet the Phase II emission standards
placed on SO2 through the combination of: a) the use of low sulfur coal, b) the
operation of air quality control equipment on certain generation facilities, and
c) allowances issued by the EPA and purchased from other companies. In addition,
PSCo
and SPS will be required to modify certain boilers by the year 2000 to reduce the
NOx emissions in order to comply with Phase II requirements. The estimated Phase
II costs for these future plant modifications to meet NOx requirements istotal
approximately $14.4$2.5 million forand pertain to PSCo's Cherokee Unit 1 and 2 and
Arapahoe Unit 3. SPS installed two new gas turbines at its Cunningham
Station in 1997. The two gas turbine units have undergone performance
testing to meet the requirements of the air quality permit. The test results
indicated the units may not be in compliance with certain emission
limitations. SPS is working with the vendor and the New Mexico Environmental
Department to insure compliance with all permit limits.
PSCo has announced its intention to spend approximately $211 million on
its Denver and Boulder Metro area coal-fueled power plants to further reduce
such emissions below the required regulatory levels discussed above, but will
only do so if the following three conditions are met: 1) the Colorado General
Assembly and the CPUC approve recovery of these costs, 2) PSCo obtains
flexibility in operating the plants, and 3) PSCo is assured the emission
reduction plan is
100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
sufficient to meet future state requirements for 15 years. Legislation was
passed and signed into law during the second quarter of 1998. During the third
quarter of 1998, PSCo and the CDPHE entered into a voluntary emissions reduction
agreement under the legislation. In November 1998, the Company filed for
recovery of these costs with the CPUC. The voluntary emissions reduction
agreement will be effective only if the CPUC approves a cost recovery mechanism
acceptable to PSCo.
Hayden Steam Electric Generating Station
OnIn May 21, 1996, PSCo and the other joint owners of Hayden Station reached an
agreement resolving violations alleged in complaints filed by a conservation
organization, the CDPHE and the EPA against the joint owners. PSCo is the
operator and owns an average undivided interest of approximately 53% of the
station's two generating units. In connection with the settlement, the joint
owners of the Hayden station were required to make
certain payments totaling $4.25 million to the U.S. Treasury and other
organizations (PSCo's portion was approximately $2.3 million) and install emission control equipment
of approximately $130 million (PSCo's portion is approximately $70 million). The
settlement included stipulated future penalties for failure to comply with the
terms of the agreement, including specific provisions related to meeting
construction deadlines associated with the installation of additional emission
control equipment and complying with particulate, SO2 and NOx emissions
limitations. In August 1996, the U.S. District Court for the District of
Colorado entered the settlement agreement, which effectively resolved this
litigation. Installation of this emission control equipment is in process and on
schedule in accordance with the settlement agreement. The initial installation
of some equipment at Unit 1 was completed in late 1998.
Craig Steam Electric Generating Station
OnIn October 9, 1996, a conservation organization filed a complaint in the U.S.
District Court pursuant to provisions of the Federal Clean Air Act (the "Act")
against the joint owners of the Craig Steam Electric Generating Station located
in western Colorado. Tri-State Generation and Transmission Association, Inc. is
the operator of the
94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Craig station and PSCo owns an undivided interest (acquired
in April 1992) in each of two units at the station totaling approximately 9.7%.
The plaintiff alleged that: 1) the station exceeded the 20% opacity limitations
in excess of 14,000 six minute intervals during the period extending from the
first quarter of 1991 through the second quarter of 1996, and 2) the owners
failed to operate the station in a manner consistent with good air pollution
control practices. The complaint seeks, among other things, civil monetary
penalties and injunctive relief. The Act provides for penalties of up to $25,000
per day per violation, but the level of penalties imposed in any particular
instance is discretionary. A settlement conference wasSettlement discussions were held in February 1998.1998, although no
settlement was achieved. There have been no further settlement discussions.
Resolution of this matter may require the installation of additional emission
control equipment. Management does not believe that this potential liability,
the future impact of this litigation on plant operations, or any related cost
will have a material adverse impact on PSCo's financial position, results of
operations or cash flows.
Pepsi Center
Hazardous substances resulting from manufactured gas plant operations
have been identified at the future site of the proposed Pepsi Center, a
sports arena to be located in lower downtown Denver. The site owners have
approached PSCo, seeking recovery of most of the costs of cleanup of the
site. Total estimated soil cleanup costs range from $1-2 million. The
estimate does not include potential costs to clean up affected ground water
contamination, if any exists. PSCo's insurance carriers have been notified.
Fort St. Vrain Defueling and Decommissioning
In 1989, PSCo announced its decision to end nuclear operations at Fort St.
Vrain. Defueling of the reactor to the Independent Spent Fuel Storage
Installation ("ISFSI") was completed in June 1992. In March 1996, PSCo and the
decommissioning contractors announced that the physical decommissioning
activities at the facility had been completed. The final site survey was
completed in late October 1996. On August 5, 1997, the NRC approved PSCo's
request to terminate the Part 50 license. This concluded the decommissioning
activities as the facilities and the site werewas released for unrestricted use.
PSCo is currently operating a gas-fired combined cycle steam generation plant at
this facility.
On February 9, 1996, PSCo and the DOE entered into an agreement resolving
all the defueling issues. As part of this agreement, PSCo has agreed to the
following: 1) the DOE assumed title to the fuel currently stored in the ISFSI,
2) the DOE will assume title to the ISFSI and will be responsible for the future
defueling and decommissioning of the facility, 3) the DOE agreed to pay PSCo $16
million for the settlement of claims associated with the ISFSI, 4) ISFSI
operating and maintenance costs, including licensing fees and other regulatory
costs, will be the responsibility of the DOE, and 5) PSCo provided to the DOE a
full and complete release of claims against the DOE resolving all contractual
disputes related to storage/disposal of Fort St. Vrain spent nuclear fuel. On
December 17, 1996, the DOE submitted a
101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
request to the NRC to transfer the title of the ISFSI. ThisThe NRC is reviewing this
request is being reviewed by the NRC and PSCo anticipates approval in late-1998.early 1999.
As a result of the DOE settlement, coupled with a complete review of
expected remaining decommissioning costs and establishment of the anticipated
refund to customers, pre-tax earnings for 1996 were positively impacted for 1997 and 1996
by approximately $5 million and $16 million.million, respectively. In accordance with
the 1991 CPUC approval to recover certain decommissioning costs, 50% of any cash
amounts received from the DOE as part of a settlement, net of costs incurred by
PSCo, including legal fees, is to be refunded or credited to customers. At
December 31, 1997,1998, a $5.3$4.7 million refund to customers has been recorded on the
consolidated balance sheet.
Under the Price-Anderson Act, PSCo remains subject to potential
assessments levied in response to any nuclear incidents prior to early 1994.
PSCo continues to maintain primary commercial nuclear liability insurance of
$100 million for the Fort St. Vrain site and the adjoining ISFSI. PSCo also
maintains coverage of $20.4 million to provide property damage and
decontamination protection in the event of an accident involving the ISFSI.
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)Leyden Gas Storage Facility
During August 1998, a Jefferson County, Colorado District Court jury found
PSCo liable for approximately $1.8 million for the reduction in land value and
related damages resulting from the allegations that natural gas had migrated
from the Leyden Gas Storage facility. PSCo appealed the judgment. The affected
land is located north of, but not immediately adjacent to, the storage facility.
Additionally, PSCo has requested condemnation authorization for a buffer zone
from the Colorado Oil and Gas Conservation Commission.
Fuel Purchase Requirements
Coal Purchases and Transportation
PSCo and SPS have in place various long-term contracts for the purchase
and transportation of coal (and with respect to SPS, the processing of coal for
deliveries to its bunkers) which are used in the generation of electricity.
These contracts expire on various dates through 2017 and at December 31, 1997,1998,
the total estimated obligations, based on 19971998 prices, for PSCo were
approximately $849$729.2 million, and for SPS were approximately $1.3$1.2 billion.
Gas Purchases and Transportation
PSCo and Cheyenne have long-term contracts for the purchase, firm
transportation and storage of natural gas. These contracts, excluding the
thirty-year contract with Young Storage which has been accounted for as a
capital lease, are primarily used to support distribution of natural gas and the
majority of these contracts expire on various dates through 2002. During
1996, PSCo renegotiated contracts with its primary gas pipeline supplier and
committed to continue purchasing firm transportation and gas storage services
through 2002. At December
31, 1997,1998, PSCo has minimum annual obligations under such contracts of
approximately $213$167 million in 19981999 declining thereafter for a total estimated
commitment of approximately $409$245 million. The combined PSCo and Cheyenne minimum
annual obligation at December 31, 1997,1998, under such contracts is approximately
$216$169 million in 19981999 declining thereafter for a total estimated commitment of
approximately $415$248 million. SPS does not have any long-term contracts with
minimum obligations.
Purchased Power
PSCo, SPS and Cheyenne have entered into agreements with utilities and QFs
for purchased power to meet system load and energy requirements, replace
generation from company-owned units under maintenance and during outages, and
meet operating reserve obligations to various regional power pools.obligations.
PSCo and SPS have various pay-for-performance contracts with QFs having
expiration dates through the year 2022. In general, these contracts provide for
capacity payments, subject to the QFs meeting certain contract obligations, and
energy payments based on actual power taken under the contracts. The capacity
and energy costs
102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
are recovered through base rates and other cost recovery mechanisms.
Additionally, the Company's regulated utilities have long-term purchased power
contracts with various regional utilities expiring through 2018. In general, these contracts provide for
capacity and energy payments which approximate the cost of the sellers.
Total capacity
and energy payments associated with such contracts for NCE were $490 million,
$477 million, $473 million, and $451$473 million; for PSCo such payments were $439 million, $452
million $453 million and $445$453 million; and, for SPS such payments were $23 million, $15
million and $20 million in 1998, 1997 and $6 million in 1997, 1996, and 1995, respectively.
At December 31, 1997,1998, the estimated future payments for capacity that NCE,
PSCo and SPS are obligated to purchase, subject to availability, are as follows
(in thousands):
Regional
QFs Utilities Total
--- --------- -----
NCE
1998..............................1999.............................. $ 144,973156,489 $ 184,772182,969 $ 329,745
1999.............................. 157,741 175,046 332,787339,458
2000.............................. 156,106 163,989 320,095153,808 163,990 317,798
2001.............................. 154,926 142,302 297,228151,903 142,301 294,204
2002.............................. 142,629139,656 130,534 273,163
2003270,190
2003.............................. 128,171 119,397 247,568
2004 and thereafter............... 1,248,877 1,137,900 2,386,7771,053,855 1,018,503 2,072,359
--------- ------------------- ---------
Total............................ $2,005,252 $1,934,543 $3,939,795$1,783,882 $1,757,694 $3,541,576
========== ========== ==========
96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Regional
QFs Utilities Total
--- --------- -----
PSCo
1998..............................1999.............................. $ 140,466140,445 $ 176,757166,620 $ 317,223
1999.............................. 140,852 166,620 307,472307,065
2000.............................. 138,937 155,226 294,163137,497 155,227 292,724
2001.............................. 137,480135,323 142,301 279,781277,624
2002.............................. 124,878122,802 130,534 255,412
2003253,336
2003.............................. 111,035 119,397 230,432
2004 and thereafter............... 864,510 1,137,901 2,002,411758,917 1,018,504 1,777,421
------- --------- ---------
Total............................ $1,547,123 $1,909,339 $3,456,462$1,406,019 $1,732,583 $3,138,602
========== ========== ==========
SPS
1998..............................1999.............................. $ 4,50716,044 $ 7,923 $ 23,967
2000.............................. 16,311 - $ 4,507
1999.............................. 16,88916,311
2001.............................. 16,580 - 16,889
2000.............................. 17,16916,580
2002.............................. 16,854 - 17,169
2001.............................. 17,44616,854
2003.............................. 17,136 - 17,446
2002.............................. 17,751 - 17,751
200317,136
2004 and thereafter............... 384,367294,938 - 384,367294,938
------- ------- -------
Total............................ $458,129$377,863 $ - $458,1297,923 $385,786
======== ============= ========
Historically, all minimum coal, coal transportation, natural gas and
purchased power requirements have been met.
System Purchase Option
SPS and the City of Las Cruces, New Mexico ("the City") entered into a
System Purchase Option and Rate Agreement in August 1994, which grants the City
the option to sell to SPS the electric utility system serving the City
(including distribution, subtransmission and transmission facilities), which the
City plans to acquire from El Paso Electric Company ("EPE") by purchase or
through condemnation proceedings. The agreement has a three-year term beginning
at the time the City acquires the facilities and ending no later than January 1,
2002. The purchase price which would be paid by SPS would be equal to the amount
required to retire all outstanding debt incurred by the City in acquiring the
facilities plus the City's reasonable costs in acquiring the facilities. SPS has
the right to terminate the agreement if, in SPS's sole discretion, it determines
that any proposed condemnation award is excessive or upon the occurrence of
certain other events. The agreement also provides that, if the City abandons or
dismisses condemnation proceedings as a consequence of SPS's termination of the
agreement, SPS
103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
will reimburse the City for one-half of its reasonable litigation expenses and
for any of EPE's damages and litigation expenses that the City is obligated to
pay by final court order. It is anticipated that the City will file a in suit in
State District Court in 1999 seeking to condemn the electric distribution
facilities of EPE. In conjunction with the agreement, the NMPUCNMPRC has initiated
Case 2651 to investigate whether the agreement constitutes a security, or the
guarantee of a security, under the New Mexico Public Utility Act. SPS has
responded to the Commission's Order to Show Cause and does not believe the
agreement to be a security or the guarantee of a security. A hearing was
conducted in Case 2651 in July 1997. Post hearing briefs were
filed. The hearing examiner's recommendation is expected during 1998.
EPE requested a declaratory judgment regardingOn November 24, 1998, the condemnation stating
that it is not a legal condemnation. DuringNMPRC issued an
order dismissing the first quarter of 1997, the
governor of New Mexico signed and issued legislation regarding municipal
condemnations which allows the City to complete its action against EPE. The
City has not completed its condemnation as it is awaiting a determination of
the stranded costs allocated to the system.investigation.
Other
In connection with an agreement for the sale of electric power, SPS
guaranteed certain obligations of a customer totaling $48 million at December
31, 1997. These obligations are related to the construction of certain utility
property that, in the event of default by the customer, would revert to SPS.
Additionally, the Company has
97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)and its subsidiaries have commitments related to the
purchase of materials, plant and equipment additions, DSM expenditures and other
various items resulting from the normal course of business.
EmployeeTax Matters
Several employee lawsuits have beenPSRI, a subsidiary of PSCo, owns and manages permanent life insurance
policies on certain past and present employees. These corporate owned life
insurance ("COLI") policies were entered into prior to July 1, 1986. In 1996,
Congress passed legislation to phase out the tax benefits with certain COLI
policies, however, the Company's policies were grandfathered under this
legislation. In August 1998, the IRS issued a Notice of Proposed Adjustment
proposing to disallow the 1993 and 1994 deductions of interest expense related
to policy loans on the COLI policies totaling approximately $54.6 million. A
Request for Technical Advice was filed against PSCo involving
alleged discrimination or workers' compensation issues which have arisen
during the normal course of business. Also, lawsuits have been filed against
PSCo alleging breach of certain fiduciary duties to employees. The
plaintiffs lawsuits are in various stages of litigation and/or appeal(s),
including settlement discussions, with the appropriate state and federal
judicial courts.IRS National Office on January
15, 1999, with respect to the proposed adjustment.
Management plans to vigorously contest this issue. PSCo intendshas not recorded
any provision for income tax or interest expense related to contest, or is actively contesting, all
such lawsuits,this matter.
Management believes that the Company's tax deduction of interest expense on life
insurance policy loans was in full compliance with IRS regulations and believes
that the ultimate outcomeresolution of this matter will not have a material adverse impact on
the Company'sPSCo's financial position, results of operations financial position or cash flow.
During 1996, ninety former Information Technologyflows.
Year 2000 Issue
The Y2K issue is a result of a universal programming standard that records
dates as six digits, e.g., mm/dd/yy, using only the last two digits for the
year. Any automated system software or firmware that uses two-digit fields could
understand the year 2000 as the year 1900 if the issue is not corrected. This
situation is not limited to computers; it has the potential to affect many
systems, components and Systems ("IT&S")
employees filed a lawsuit against the Company.devices, which have embedded computer chips, which may
be, date sensitive. The complaint alleged that
PSCo unfairly amended its severance plan in connection with a restructuring
in late 1994 to exclude the IT&S function/positions that were outsourced to a
subsidiary of IBM, effective February 1, 1995. On June 16, 1997, the Denver
District Court issued a decision in favor of the former IT&S employees and
awarded approximately $1.6 million in severance costs and,Y2K issue could result in a judgment on
October 10, 1997, the former IT&S employees were awarded interestmajor system failure or
miscalculations and attorney fees as well, making the total judgment against PSCo $2.1 million.
An additional case with 153 former IT&S employees was filed asserting
identical claims. Settlement on both cases was achieved in early 1998.
During 1997, PSCo accrued related costs, including estimated interest and
attorney fees. In early 1998, an additional lawsuit, asserting identical
claims, was filed on behalf of 18 former IT&S employees.
Certain employees terminated as part of PSCo's 1991/1992 organizational
analysis asserted breach of contract and promissory estoppel with respect to
job security and breach of the covenant of good faith and fair dealing. Of
the 21 actions filed, the trial court directed verdicts in favor of PSCo in
19 cases. A jury entered verdicts adverse to PSCo in two cases which were
subsequently appealed by PSCo. On February 6, 1997, the Colorado Court of
Appeals issued a decision on all issues in favor of PSCo and on April 3,
1997, the employees appealed the decision of the Colorado Court of Appealsdoes impact many NCE systems considered critical or
important to the Colorado Supreme Court. In October 1997,Company's business operations. Systems posing the Colorado Supreme Court
denied the petition for appeal, effectively ending this lawsuit.
During 1996, complaints were filed by seventeen plaintiffs, allegedly
on behalf of all non-managerial, non-clerical women in the Company's regional
facilities. The complaints assert thatgreatest
business risks to the Company has engagedinclude power generation and distribution systems,
telecommunications systems, energy trading systems and billing systems. The
Company is addressing all potential Y2K failure points identified in a
company-wide patternits
critical automated systems to maintain service to its customers and practice of sexual discrimination, including sexual
harassmentto mitigate
legal and retaliation. During Julyfinancial risks.
In 1997, the Company resolvedestablished the Y2K Program Office to oversee all
issues relatedcorporate-wide Y2K initiatives. These initiatives encompass all computer
software, embedded systems, as well as contingency planning. Teams of internal
and external specialists were established to this matterinventory and accrued all related estimated costs.
Union Contracts
PSCoassess and test
critical computer programs and automated operational systems and modify those
that may not be Y2K compliant. The current Collective Bargaining Agreement is a three year agreement
extending from June 1, 1997 through May 31, 2000, with wage increases of 3%,
3%inventory phase and 3.25% beginningassessment phase for IT
systems were completed in each year1998. Additionally, approximately 77% of the
agreement 1997,remediation and testing phase for all critical IT systems was completed in 1998
with the remaining remediation and 1999
respectively. Approximately 1,082 employees, or 47% of PSCo's total
workforce, are representedtesting planned to be completed by June 30,
1999. For non-IT systems, which exist primarily in the International Brotherhood of Electrical
Workers, ("IBEW"), Local 111.
During 1996, the IBEW, Local 111 filed several grievances before the
National Labor Relations Board relating to the employment of certain
non-union personnel to perform services for PSCo. A decision has been
entered on three of the multiple grievances, with two of those decisions
requiring that PSCo pay union wage rates on new construction jobs performed
by outside vendors. PSCo had filed suit seeking to reverse one of these
decisions and challenging the subcontracting provision of the labor
agreement, all of the outstanding subcontracting grievances and both of the
existing adverse decisions, as violations of federal law. During 1997, PSCo
and the union reached a settlement resolving all issues and PSCo withdrew its
previously filed lawsuit.
98generation,
104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SPStransmission and distribution areas of the business, the inventory and
assessment phases are complete. Remediation and testing for non-IT systems were
approximately 46% complete at December 31, 1998;the remainder is expected to be
completed by September 30, 1999. Systems critical to the generation and delivery
of energy are expected to be completed by June 30, 1999.
The Company has identified third parties, with which it has material
business relationships including interconnected utilities, telecommunications
service providers, fuel and water suppliers, equipment suppliers, leased
facilities and financial institutions. Subject matter experts, along with
functional managers, continue to evaluate the current Collective Bargaining Agreementlist of third parties and
have ongoing discussions with these and other critical suppliers about their Y2K
readiness and contingency planning efforts.
The Company currently expects to incur costs of approximately $25 million
to modify its computer software, hardware and other automated systems used in
operations enabling proper data processing relating to the year 2000 and beyond.
This includes approximately $19 million for inventory, assessment, remediation
and testing and approximately $6 million for the replacement of automated system
components. Furthermore, the Company expects to spend approximately $15 million
in capital expenditures for the accelerated replacement of certain non-compliant
IT systems, which are expected to be implemented by September 30, 1999. The
majority of all Y2K costs will be incurred by PSCo and SPS. A significant
portion of the costs incurred to address the Company's Y2K issues will represent
the redeployment of existing information technology resources. The table below
details the actual costs incurred through December 31, 1998, and the estimated
costs to be incurred during 1999 (in millions).
Actual Costs Estimated Estimated
1998 and Prior 1999 Total
-------------- ---- -----
Operating expenses.................... $ 8.2 $ 11.1 $ 19.3
Capital expenditures ................. 7.1 13.4 20.5
Yorkshire Power has also undertaken activities to address Y2K issues. The
estimated proportionate share of Yorkshire Power's incremental Y2K costs (costs
which would not have been required in the normal course of business) that will
flow through to the Company's earnings as a result of such activities is not
expected to have a material impact on the financial condition or results of
operations of the Company.
The most reasonably likely worst case scenario resulting during Y2K
critical dates is a three-year agreement
extendingloss of production capacity from November 1, 1996 through November 1, 1999, with wage increases
of 3% in each yearcertain of the agreement. Approximately 850 employees,Company's
generating units, along with loss of a portion of the communication system that
is critical to generation and distribution control. If this were to occur, the
Company's operating utilities may be required to "island" (separate from
neighboring interconnected utilities) their generation and distribution systems
in their service territories. As part of this scenario, difficulty could be
encountered with the restart of generating units. The overall blackout recovery
plan for NCE is designed so that this most reasonably likely worst case scenario
would be addressed and electricity restored. Critical components of this plan
have been and continue to be tested to provide assurance that the Company will
be prepared for risks which could result from the Y2K millennium change.
If correction or 55%replacement of SPS's total workforce,non-compliant systems are represented bynot completed on
a timely basis, the IBEW, Local 602.Y2K issues may have a material impact on the operations of
the Company and its subsidiaries. Management, however, does not anticipate these
activities will have a material adverse impact on the financial position,
results of operations or cash flows of the Company or its subsidiaries.
Leasing Program
The Company's subsidiaries lease various equipment and facilities used in
the normal course of business, some of which are accounted for as capital
leases. Expiration of the capital leases range from 19981999 to 2025. The net book
value of property under capital leases was $39.8 million and $39.6 million for
NCE and PSCo,
105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
respectively at December 31, 1998 and $44.7 million and $44.4 million for NCE
and PSCo, respectively, at December 31, 1997, and $49.2
million for NCE and PSCo at December 31, 1996.1997. Assets acquired under capital
leases are recorded as property at the lower of fair-market valuefair-marketvalue or the present
value of future lease payments and are amortized over their actual contract term
in accordance with practices allowed by regulators. The related obligation is
classified as long-term debt. Executory costs are excluded from the minimum
lease payments.
The majority of the operating leases are under a leasing program that has
initial noncancellable terms of one year, while the remaining leases have
various terms. These leases may be renewed or replaced. No material restrictions
exist in these leasing agreements concerning dividends, additional debt, or
further leasing. Rental expense for 1998, 1997 and 1996 and 1995
was $15.5 million, $36.2
million $26.9 million and $25.4$26.9 million, respectively, for NCE; $12.2 million, $31.1 million
$25.0 million and $23.5$25.0 million, respectively, for PSCo; and $2.4 million, $4.3 million $3.7 million and
$3.9$3.7 million, respectively, for SPS. SPS's rental expense for the Transition
Period was $1.2 million.
Estimated future minimum lease payments at December 31, 19971998, are as
follows (thousands of dollars)(in thousands):
Capital Leases
NCE PSCo
--- ----
19981999 .............................................. $ 9,5058,020 $ 9,346
1999............................................... 8,050 7,890
2000............................................... 5,1375,158 5,092
2001............................................... 5,035 5,035
2002............................................... 4,820 4,820
2003............................................... 4,646 4,646
All years thereafter............................... 76,358 76,358
------ ------71,711 71,711
------- -------
Total future minimum lease payments 108,905 108,54199,390 99,194
Less amounts representing interest............. 64,158 64,149
------ ------59,639 59,639
------- -------
Present value of net minimum lease payments.... $44,747 $44,392$39,751 $39,555
======= =======
Operating Leases
NCE PSCo SPS
--- ---- ---
1998 ................................. $23,036 $19,8411999.................................. $13,512 $10,451 $ 2,426
1999.................................. 19,143 16,176 2,3892,292
2000.................................. 15,767 13,227 2,28410,647 8,012 2,195
2001.................................. 9,631 7,567 1,9445,450 3,297 1,860
2002.................................. 4,408 4,058 235499 347 31
2003.................................. 379 245 26
All years thereafter................. 18,392 17,899 -
------ ------ ---7,752 7,313 52
------- ------- -------
Total future minimum lease payments $90,377 $78,768$38,239 $29,665 $ 9,2786,456
======= ======= =======
PSCo has in place a leasing program which includes a provision whereby
PSCo indemnifies the lessor for all liabilities which might arise from the
acquisition, use, or disposition of the leased property.
99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Year 2000 Costs
Based on a preliminary analysis, the Company expects to incur costs of
approximately $50-65 million over the next two years to modify its computer
software, hardware and other automated systems used in operations enabling
proper data processing relating to the year 2000 and beyond. The majority of
these costs will be incurred by or allocated to the Company's operating
utilities. The costs recognized by PSCo and SPS are anticipated to be
slightly less than two-thirds and one-third, respectively, of the total
estimated costs.Employee Matters
The Company continuesand its subsidiaries are engaged in certain employment related
litigation and intend to evaluate appropriate courses of
corrective action, includingcontest, or are actively contesting, all such claims,
and believe that the replacement of certain systems. A
significant portion of these costsultimate outcome will represent the redeployment of
existing information technology resources. If such modifications and
conversions are not completed timely, the year 2000 problem may have a
material impact on the operations of the Company. Management does not
anticipate these activities will have a material adverse impact on
the financial position, results of operations or cash flows of the Company or
its subsidiaries.
Union Contracts
PSCo
The current Collective Bargaining Agreement is a three-year agreement
extending from June 1, 1997 through May 31, 2000 with wage increases of 3%, 3%
and 3.25% beginning in each year of the agreement 1997, 1998 and 1999,
respectively. Approximately 1,946 employees, or 62% of PSCo's total workforce at
December 31, 1998, are represented by the International Brotherhood of
Electrical Workers, ("IBEW"), Local 111.
106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SPS
The current Collective Bargaining Agreement is a three-year agreement
extending from November 1, 1996 through November 1, 1999 with wage increases of
3% in each year of the agreement. Approximately 805 employees, or 60% of SPS's
total workforce at December 31, 1998, are represented by the IBEW, Local 602.
11. Jointly-Owned Electric Utility Plants (NCE and PSCo)
The Company's investments in jointly-owned plants (PSCo participation) and
its ownership percentages as of December 31, 1997 are:1998, are (in thousands):
Plant Construction
in Accumulated Work in
Service Depreciation Progress Ownership %
------- ------------ -------- -----------
(Thousands of Dollars)
Hayden Unit 1................ $38,452 $30,735 $ 10,86770,191 $ 31,785 $ 2,841 75.50
Hayden Unit 2................ 58,356 34,204 1,84658,257 35,518 11,191 37.40
Hayden Common Facilities..... 4,002 453 7,52023,411 720 1,350 53.10
Craig Units 1 & 2............ 57,662 24,665 4757,660 25,985 50 9.72
Craig Common Facilities
Units 1 & 2 .................... 10,181 3,164 28............... 10,990 3,388 30 9.72
Craig Common Facilities
Units 1,2 & 3 .................. 8,780 3,503 19............ 8,773 3,698 1 6.47
Transmission Facilities,
Including Substations 79,330 23,402 84..... 79,722 24,703 92 42.0-73.0
------ ------ --
$256,763 $120,126---
$309,004 $125,797 $ 20,41115,555
======== ======== ========
These assets include approximately 320 Mw of net dependable generating
capacity. PSCo is responsible for its proportionate share of operating expenses
(reflected in PSCo's and the Company's consolidated statements of income) and
construction expenditures. The increase in plant in service in 1998 and the
construction work in progress amounts for Hayden Unit 1, Hayden Unit 2 and
Hayden Common Facilities include construction expenditures for installing
emission control equipment for these facilities as discussed in Note 10.
100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. Employee Benefits (NCE, PSCo and SPS)
The FASB issued SFAS No.132, "Employers' Disclosures about Pensions &
Other Postretirement Benefits", effective for 1998. This standard does not
change the measurement or recognition of costs for pension or other
postretirement plans but rather standardizes disclosures.
Pensions
The Company and its subsidiaries maintain tax qualified noncontributory
defined benefit pension plans which cover substantially all employees. As ofAt
December 31, 1997,1998, there were 5,839, 3,118, and 1,276 NCE, PSCo and SPS
have separate employee pension plans. NCS
and other NCE affiliates participatedemployees, respectively, participating in these plans during 1997. Certain
newplans. NCE, pension plans will be established in 1998.
The net pension expenseas the plan sponsor,
has overall responsibility for these plans in 1997, 1996, 1995 and SPS's
transition perioddirectly allocating such costs of each individual
plan to each of the participating employers. This allocation was comprised of:
1997 NCE PSCo SPS
- ---- --- ---- ---
(Thousands of Dollars)
Service cost....................... $ 18,418 $ 13,360 $ 5,058
Interest costdetermined by
the plans' actuary based on projected benefit obligation ...................... 68,327 48,245 20,082
Actual return on plan assets....... (189,597) (102,719) (86,878)
Amortization of net transition assets
over 15-17 year periods* ......... (7,238) (3,674) (3,564)
Deferral and other items........... 100,192 47,535 52,657
------- ------ ------
Net pension expense (benefit)... $ (9,898) $ 2,747 $(12,645)
======== ======= ========
SPS
Transition
1996 NCE PSCo SPS Period
- ---- --- ---- --- ------
(Thousands of Dollars)
Service cost....................... $ 21,226 $14,317 $ 6,846 $ 2,390
Interest cost on projected benefit
obligation ....................... 66,503 46,497 20,266 7,066
Actual return on plan assets....... (133,301) (74,646) (53,666) (22,878)
Amortization of net transition assets
over 15-17 year periods* ......... (7,238) (3,674) (3,564) (1,188)
Deferral and other items........... 59,217 24,362 30,973 14,601
------ ------ ------ ------
Net pension expense (benefit)... $ 6,407 $ 6,856 $ 855 $ (9)
======== ======= ======== =======
1995 NCE PSCo SPS
- ---- --- ---- ---
(Thousands of Dollars)
Service cost....................... $ 18,203 $11,659 $ 6,606
Interest cost on projected benefit
obligation ....................... 65,574 46,570 19,563
Actual return on plan assets....... (161,443) (123,531) (37,912)
Amortization of net transition assets
over 15-17 year periods* ......... (7,238) (3,674) (3,564)
Deferral and other items........... 91,455 75,521 16,404
------ ------ ------
Net pension expense............. $ 6,551 $6,545 $1,097
======== ====== ======
* PSCo is amortizing its net transition assets over 17 years and SPS is
amortizing its net transition assets over 15 years.
1997 1996 1995
---- ---- ----
PSCo SPS** PSCo SPS* PSCo SPS
---- ----- ---- ---- ---- ---
Significant assumptions:
Discount rate 7.75% 7.5/8.0% 7.25% 8.0% 8.75% 8.0%
Expected long-term increase
in compensation level 4.25% 6.0/4.5% 4.00% 6.0% 5.00% 6.0%
Expected weighted average
long-term rate of return
on assets 9.75% 9.75% 9.75% 8.0% 9.75% 8.0%
* The assumptions used in 1996obligations for SPS were the same assumptions used for the
SPS transition period.
** Assumptions used for January to April/May to December 1997 periods.
Variances between actual experience and assumptions for costs and
returns onactive participants.
Plan assets are amortized over the average remaining service lives of
employeesheld in the plans.
101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A comparison of the actuarially computed benefit obligations and plan
assets at December 31, 1997 and 1996, is presented in the following table.a master trust. Plan assets are stated at fair
value and are comprised primarily of corporate debt and equity securities, a
real estate fund and government securities held either directly or in commingled
funds. The Company's funding policy is to contribute annually, at a minimum, the
amount necessary to satisfy the IRS funding standards.
A comparison of the actuarially computed benefit obligation and plan
assets at December 31, 1998 and 1997, NCE PSCo SPSis presented in the following table (in
thousands).
107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1998 1997
---- --- ----
---
(Thousands of Dollars)Change in Benefit Obligation
Obligation at January 1............ $ 991,973 $ 919,452
Service cost....................... 23,902 18,418
Interest cost...................... 66,735 68,327
Plan amendments *.................. (60,014) -
Actuarial present value of benefit obligations:
Vested.................................. $ 853,533 $596,379 $257,154
Nonvested............................... 14,924 6,155 8,769
------ ----- -----
.................................... 868,457 602,534 265,923
Effect of projected future salary increases 123,516 91,220 32,296
-------loss..................... 52,416 42,460
Benefit payments................... (61,221) (54,412)
Curtailment........................ - (2,272)
------ ------
Projected benefit obligation...............Obligation at December 31.......... $1,013,791 $ 991,973
693,754 298,219========== ==========
Change in Fair Value of Plan assets at fair value.................. (1,131,270) (699,241) (432,029)
---------- -------- --------
ExcessAssets
Fair value of plan assets over projected benefit
obligation ............................... 139,297 5,487 133,810
Unrecognized net gain...................... (111,191) (2,195) (108,996)
Prior service costs not yet recognized in net
periodic pension cost .................... 26,476 25,455 1,021
Unrecognized net transition assets being
recognized over 15-17 year periods ....... (38,108) (18,369) (19,739)at January 1 $1,131,270 $ 996,085
Actual return on plan assets....... 168,872 189,597
Benefit payments................... (61,221) (54,412)
------- -------
-------
Prepaid pension asset...................... $ 16,474 $ 10,378 $ 6,096
========== ======== ========
1996 NCE PSCo SPS
- ---- --- ---- ---
(Thousands of Dollars)
Actuarial presentFair value of benefit obligations:
Vested.................................. $ 734,168 $514,762 $ 219,406
Nonvested............................... 39,557 28,689 10,868
------ ------ ------
.................................... 773,725 543,451 230,274
Effect of projected future salary increases 145,727 85,216 60,511
------- ------ ------
Projected benefit obligation............... 919,452 628,667 290,785
Plan assets at fair value.................. (996,085) (634,967) (361,118)
-------- -------- --------
Excess of plan assets over projected benefitat
December 31 ..................... $1,238,921 $1,131,270
========== ==========
Funded Status
Funded status at December 31....... $ 255,130 $ 139,297
Unrecognized transition asset...... (30,871) (38,109)
Unrecognized prior-service cost (credit) (33,073) 26,477
Unrecognized gain.................. (120,838) (111,190)
-------- --------
NCE prepaid pension asset.......... $ 40,348 $ 16,475
========== =========
PSCo prepaid pension asset........ $ 15,089 $ 9,925
========== =========
SPS prepaid pension asset......... $ 24,611 $ 7,243
========== =========
* Effective July 1, 1998, a new cash balance plan was established by NCE. The
NCE board of directors approved amendments to the existing pension plans and the
plan assets and obligation ............................... 76,633 6,300 70,333
Unrecognized net loss (gain)............... (57,154) 1,110 (58,264)
Prior service costs not yet recognized in net
periodic pension cost .................... 28,897 27,758 1,139
Unrecognized net transition assets being
recognized over 15-17 year periods ....... (41,798) (22,042) (19,756)
------- ------- -------
Prepaid pension asset...................... $ 6,578 $ 13,126 $ (6,548)
========= ======== =========for all non-bargaining unit employees were
transferred into this plan.
1998 1997
1996
---- ----
PSCo & SPS PSCo SPS
---------- ---- ---
Significant assumptions:
Discount rate 6.75% 7.0% 7.75% 7.5%
Expected long-term increase
in compensation level 4.0% 4.25%4.0%
Cumulative variances between actual experience and assumptions for costs
and returns on assets, outside of a 10% corridor of the greater of plan assets
and obligations, are amortized over the average remaining service lives of
employees in the plans.
The components of net periodic pension cost (credit) are as follows (in
thousands):
NCE 1998 1997 1996
- --- ------- ------ -----
Service cost............................... $ 23,902 $ 18,418 $21,226
Interest cost.............................. 66,735 68,327 66,503
Expected return on plan assets............. (103,928) (89,567) (75,723)
Curtailment................................ - 126 -
Amortization of transition asset........... (7,238) (7,238) (7,238)
Amortization of prior-service cost (credit) (464) 2,431 2,440
Amortization of net gain................... (2,880) (2,395) (801)
------- ------ ------
NCE net periodic pension cost (credit)..... $(23,873) $ (9,898) $ 6,407
======== ======== =======
PSCo net periodic pension cost (credit).... $ (5,093) $ 2,318 $ 6,856
======== ======== =======
SPS net periodic pension cost (credit)..... $(15,175) $(10,968) $ 855
======== ======== =======
108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SPS
Transition
1996 PSCo SPS Period
- ---- ------ ------ --------
Service cost............................... $ 14,317 $ 6,846 $ 2,390
Interest cost.............................. 46,497 20,266 7,066
Expected return on plan assets............ (53,739) (20,984) (8,263)
Amortization of transition asset........... (3,674) (3,564) (1,188)
Amortization of prior-service cost......... 2,304 136 45
Amortization of net loss (gain)............ 1,151 (1,845) (59)
------- ------- ------
Net periodic pension cost.................. $ 6,856 $ 855 $ (9)
======== ======== ======
1998 1997 1996
------- ------ ------------
PSCo SPS
---- ---
Significant assumptions:
Discount rate............................ 7.0% 7.5-8.0% 7.25% 8.0%
Expected long-term increase in
compensation level ..................... 4.0% 4.25-6.0% 4.0% 6.0%
Expected weighted average long-term rate
of return on assets .................... 9.5% 9.75% 9.75% 8.0%
Additionally, the Company maintains noncontributory defined benefit
supplemental retirement income plans (Supplemental Plan)("Supplemental Plan") for certain
qualifying executive personnel. The Supplemental Plan benefits are paid out
of/or funded through the Company's general fund.
Defined Contribution Plans
The Company and its subsidiaries maintain defined contribution plans which
cover substantially all employees. Total contributions to these plans by the
Company and its subsidiaries for bothwere approximately $12 million in 1998, 1997 and
1996 totaled
approximately $12 million. The contribution for 1995 was approximately $11
million.
102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)1996.
Postretirement Benefits Other Than Pensions
The Company and its subsidiaries provide certain post-retirementpostretirement health
care and life insurance benefits for substantially all employees who reach
retirement age while working for the Company. PSCo, SPS, NCS and other NCE
affiliates participate in these plans. NCE, as the plan sponsor, will continue
to reflect the costs of these plans in accordance with SFAS 106 and directly
allocate such costs to each of the participating employers. Historically, the
Company has recorded the cost of these benefits for these plans on a pay-as-you-go
basis. The Company's subsidiaries have adopted SFAS 106 which requires the
accrual, during the years that an employee renders service to the Company, of
the expected cost of providing these benefits to the employee. The Company is
amortizing the transition obligations for these plans over a period of 20 years.
Effective January 1, 1993,Plan assets are stated at fair value and are comprised primarily of
corporate debt and equity securities, a real estate fund, government securities
and other short-term investments held either directly or in commingled funds.
PSCo adopted SFAS 106 based on a level of expense determined in accordance
with the CPUC. PSCo has been transitioningtransitioned to full accrual accounting for OPEB costs
between January 1, 1993 and December 31, 1997, consistent with the accounting
requirements for rate regulated enterprises. All OPEB costs deferred during the
transition period will be amortized on a straight line basis over the subsequent
15 years.
Additionally, certain state agencies, which regulate the Company's utility
subsidiaries, have issued guidelines related to the recovery or funding of OPEB
costs. SPS is required to fund SFAS 106 costs for Texas and New Mexico
jurisdictional amounts collected in rates and PSCo and Cheyenne are required to
fund SFAS 106 costs in irrevocable external trusts which are dedicated to the
payment of these postretirement benefits.
109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A comparison of the actuarially computed benefit obligation and plan
assets at December 31, 1998 and 1997, is presented in the following table (in
thousands):
1998 1997
---- ----
Change in Benefit Obligation
Obligation at January 1............ $376,685 $350,354
Service cost....................... 4,917 6,120
Interest cost...................... 26,503 26,537
Plan amendments.................... (14,346) -
Actuarial loss..................... 20,310 16,627
Benefit payments................... (16,874) (21,253)
Curtailment........................ - (1,700)
------ -------
Obligation at December 31.......... $397,195 $376,685
======== ========
Change in Fair Value of Plan Assets
Fair value of plan assets at January 1 $112,324 $ 88,673
Actuarial return on plan assets.... 14,158 1,423
Employer contributions............. 26,928 28,908
Employee contributions............. 535 1,886
Benefit payments................... (7,717) (8,566)
------- -------
Fair value of plan assets at
December 31 ...................... $146,228 $112,324
======== ========
Funded Status
Funded status at December 31....... $250,967 $264,361
Unrecognized transition obligation. (212,648) (227,724)
Unrecognized prior-service credit.. 13,588 -
Unrecognized gain.................. 9,825 26,079
------ ------
NCE accrued benefit cost........... $ 61,732 $ 62,716
======== ========
PSCo accrued benefit cost.......... $ 55,537 $ 58,695
======== ========
SPS accrued benefit cost........... $ 5,941 $ 3,800
======== ========
1998 1997
---- ----
Significant assumptions:
Discount rate 6.75% 7.0%
Expected long-term increase in
compensation level 4.0% 4.0%
110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The components of net periodic postretirement benefit cost inare as follows
(in thousands):
NCE 1998 1997 1996
and 1995
under SFAS 106 was comprised of:
NCE PSCo SPS- --- ---- ---
1997 (Thousands of Dollars)------ ------ -----
Service cost.............................cost............................... $ 4,917 $ 6,121 $ 4,999 $ 1,0308,191
Interest cost............................cost.............................. 26,503 26,537 21,254 4,782
Return27,998
Expected return on plan assets.................... (9,240) (6,376) (2,572)
Curtailment expense......................assets............. (10,767) (8,078) (6,233)
Curtailment................................ - 3,323 -
3,323Amortization of transition obligation...... 15,076 14,992 15,388
Amortization of prior-service cost (credit) (757) - -
Amortization of net transition obligation
over a 20 year amortization period and
deferrals............................... 14,992 12,399 2,283
------ ------ -----gain................... (786) (1,162) (90)
Net periodic postretirement benefit cost required
by SFAS 106.............................costs.. 34,186 41,733 32,276 8,84645,254
OPEB expense recognized in accordance with
current regulation......................regulations ...................... (39,859) (36,351) (26,730) (9,010)
------- ------- ------(37,981)
Increase (decrease) in regulatory
asset (Note 1)................................ .......................... (5,673) 5,382 7,273
Regulatory asset at beginning of year...... 63,023 57,641 50,368
------- ------ ------
Regulatory asset at end of period.......... $ 57,350 $ 63,023 $ 57,641
======== ======== ========
1998 1997
---------------- --------------
PSCo SPS PSCo SPS
---- --- ---- ---
Net periodic postretirement benefit costs.. $ 26,044 $3,295 $29,025 $8,199
OPEB expense recognized in accordance with
current regulations ..................... (31,578) (3,434) (23,479) (8,363)
Increase (decrease) in regulatory
asset (Note 1) .......................... (5,534) (139) 5,546 (164)
Regulatory asset at beginning of period.. 57,641year...... 59,995 3,028 54,449 3,192
------- ------ ------------- -----
Regulatory asset at end of period........period.......... $ 63,02354,461 $2,889 $59,995 $ 3,028$3,028
======== ====== ======= ============
SPS
Transition
NCE1996 PSCo SPS Period
---- ---- --- ------ 1996 (Thousands of Dollars)------ ---------
Service cost............................. $ 8,191cost............................... $ 6,928 $ 1,266 $ 419
Interest cost............................ 27,998cost.............................. 22,982 5,109 1,608
ReturnExpected return on plan assets.................... (5,710)assets............. (4,500) (1,964) 100(1,589) (674)
Amortization of transition obligation...... 12,710 2,674 892
Amortization of net transition obligation
over a 20 year amortization period and
deferrals............................... 14,775 12,710 3,049 31gain................... - - (87)
------- ------ ------
----- --
Net periodic postretirement benefit cost required
by SFAS 106 ............................ 45,254costs.. 38,120 7,460 2,158
OPEB expense recognized in accordance with
current regulation ..................... (37,981)regulations ...................... (31,271) (6,715) (2,230)
------- ------- ------ ------
Increase (decrease) in regulatory asset (Note 1)................................ 7,273...... 6,849 745 (72)
Regulatory asset at beginning of period.. 50,368year...... 47,600 2,519 3,264
------- ------ ------ ----- -----
Regulatory asset at end of period........ $57,641period.......... $54,449 $ 3,264$3,264 $3,192
======= ======= ======= ====== 103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NCE======
1998 1997 1996
------- ------ -----------
PSCo SPS
--- ---- ---
1995 (Thousands of Dollars)
Service cost.............................. $ 7,240 $ 6,027 $ 1,213
Interest cost............................. 29,604 24,761 4,843
Return on plan assets..................... (3,301) (2,578) (723)
Amortization of net transition obligation
over a 20 year amortization period and
deferrals................................ 15,186 12,710 2,476
------ ------ -----
Net postretirement benefit cost required
by SFAS 106.............................. 48,729 40,920 7,809
OPEB expense recognized in accordance with
current regulation ...................... (37,933) (30,893) (7,040)
------- ------- ------
Increase in regulatory asset (Note 1)..... 10,796 10,027 769
Regulatory asset at beginning of period... 39,323 37,573 1,750
------ ------ -----
Regulatory asset at end of period......... $50,119 $47,600 $2,519
======= ======= ======
1997 1996 1995
---- ---- ----
PSCo SPS** PSCo SPS* PSCo SPS
---- ----- ---- ----
---- ---
Significant assumptions:
Discount rate 7.75% 7.5/8.0%rate............................ 7.0% 7.5-8.0% 7.25% 8.0% 8.75% 8.0%
Expected long-term increase in
compensation level 4.00% 6.0/4.5% 4.00% 6.0% 5.00%.................... 4.0% 4.0-6.0% 4.0% 6.0%
Expected weighted average long-term rate
of return on assets 9.75%................... 9.5% 9.75% 9.75% 8.0% 9.75% 8.0%
* The assumptions used in 1996 for SPS were the same assumptions used for the
SPS transition period.
** Assumptions used for January to April/May to December 1997 periods.
A comparison of the actuarially computed benefit obligations and plan
assets for 1997 and 1996 is presented in the following table. Plan assets
are stated at fair value and are comprised primarily of corporate debt and
equity securities, a real estate fund, government securities and other
short-term investments held either directly or in commingled funds.
NCE PSCo SPS
--- ---- ---
1997 (Thousands of Dollars)
Accumulated postretirement benefit obligation:
Retirees and eligible beneficiaries. $ 163,730 $ 122,945 $ 37,066
Other fully eligible plan participants 103,593 100,371 458
Other active plan participants...... 109,362 88,761 17,934
------- ------ ------
Total........................... 376,685 312,077 55,458
Plan assets at fair value ............. (112,324) (80,480) (27,517)
-------- ------- -------
Accumulated benefit obligation in excess
of plan assets ....................... 264,361 231,597 27,941
Unrecognized net gain.................. 26,079 13,087 12,457
Unrecognized transition obligations over
a 20 year amortization period ....... (227,724) (185,989) (36,598)
-------- -------- -------
Accrued postretirement benefit obligation $ 62,716 $ 58,695 $ 3,800
========== ========= ========
NCE PSCo SPS
--- ---- ---
1996 (Thousands of Dollars)
Accumulated postretirement benefit obligation:
Retirees and eligible beneficiaries. $148,460 $ 110,692 $ 37,768
Other fully eligible plan participants 84,439 81,676 2,763
Other active plan participants...... 117,456 90,559 26,897
------- ------ ------
Total........................... 350,355 282,927 67,428
Plan assets at fair value ............. (88,673) (63,744) (24,929)
------- ------- -------
Accumulated benefit obligation in excess
of plan assets ....................... 261,682 219,183 42,499
Unrecognized net gain ................. 44,794 39,847 4,947
Unrecognized transition obligations over
a 20 year amortization period ........ (247,925) (203,353) (44,572)
-------- -------- -------
Accrued postretirement benefit obligation $ 58,551 $ 55,677 $ 2,874
========= ========= ========
1997 1996
---- ----
PSCo & SPS PSCo SPS
---------- ---- ---
Significant assumptions:
Discount rate 7.0% 7.75% 7.5%
Expected long-term increase in
compensation level 4.0% 4.0% 6.0%
104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The assumed health care cost trend rate for 1998 is 8.5%, decreasing to
4.5% in 20062007 in 0.5% annual increments. A 1% increase in the assumed health care
cost trend rate will increasewould have the estimated total accumulated benefit
obligation for PSCo by $37.0 million and for SPS by $7.1 million, and the
service and interest cost components of net periodic postretirement benefit
costs for PSCo by $5.0 million and SPS by $0.8 million.following effects (in thousands):
NCE PSCo SPS
1% Increase 1% Decrease 1% Increase 1% Decrease 1% Increase 1% Decrease
----------- ---------- ----------- ----------- ----------- -----------
Effect on total of
service and interest cost
components of net periodic
postretirement benefit cost......... $ 3,300 $ (2,600) $ 2,364 $(1,911) $ 787 $ (634)
Effect on the accumulated
postretirement benefit obligation... $38,200 $(31,300) $27,290 $(22,509) $9,414 $(7,681)
111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Postemployment Benefits
In 1994, theThe Company and its regulated subsidiaries adopted SFAS 112,
which establishes the accounting standards for employers who provide certain benefits to former or
inactive employees after employment but before retirement (postemployment
benefits). At December 31, 1997,1998, the Company has recorded a $28.0$31.3 million
liability on the consolidated balance sheet, using an assumed discount rate of
7.0%6.75%. TheseThe costs haveof the benefit were historically been recorded on a pay-as-you-go
basis. Regulatorybasis prior to the adoption of SFAS 112 in 1994, which required accrual
accounting. PSCo and Cheyenne recorded regulatory assets were recorded upon the adoption of
SFAS 112 in anticipation of obtaining future rate recovery of these costs recorded.(see
Note 1. Summary of Significant Accounting Policies Regulatory Assets and
Liabilities). PSCo filed areceived FERC rate caseapproval in December 19951997 to recover the electric
wholesale jurisdictional portion of its regulatory asset and a retailCheyenne received
WPSC approval in 1997 to recover its gas jurisdictional portion. The CPUC
allowed recovery of postemployment benefit costs on an accrual basis in
connection with PSCo's 1996 gas rate case, in June 1996 which included requests for recovery of all electric
wholesale and gas retail jurisdictional SFAS 112 costs. A final order
approving the FERC settlement agreement, which includes the recovery of SFAS
112 costs, was received in June 1997. In the 1996 PSCo gas rate case, the
CPUCbut denied PSCo's request to amortize
theits approximately $8.9 million regulatory asset (gas jurisdictional portion) recognized upon the adoption of
SFAS 112.jurisdictional) portion.
PSCo has appealed to the Denver District Court the decision related to this
issue and is assessing the impact of this decisionissue. A final determination on the
future recovery of PSCo's retail electric
jurisdictional portion (see Note 1.
Summary of Significant Accounting Policies - Regulatory Assets and
Liabilities).has not been made. Management believes it is probable
that the Company will receive the other required regulatory approvals to recover these
costs in the future.
Incentive Compensation
The Company and its subsidiaries have Incentive Compensation Plans
("Incentive Plans"), which provide for annual and long-term incentive awards for
key employees. Approximately 5 million shares of common stock have been
authorized for these Incentive Plans for the issuance of restricted shares
and/or stock options, with certain vesting and/or exercise requirements. The
Company recognizes compensation expense for restricted stock awards based on the
fair value of the Company's common stock on the date of grant, consistent with
SFAS 123. Cash, restricted stock and stock option awards were made under these
plans during 1998, 1997 1996 and 1995.1996.
The Company applies APBAccounting Principles Board Opinion No. 25 in
accounting for its stock-based compensation and, accordingly, no compensation
cost is recognized for the issuance of stock options as the exercise price of
the options equals the fair-market value of the Company's common stock at the
date of grant. Assuming compensation cost for the Company, PSCo and SPS had been
determined consistent with SFAS 123 using the fair-value based method, the
Company's net income would have been reduced by approximately $1.1 million and
$2.8 million in 1998 and 1997, respectively, which would have reduced earnings
per share by approximately $0.03.$0.01 and $0.03, respectively. The net income would
have been reduced by an insignificant amount with no impact on earnings per
share for 1996 and 1995.1996.
112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SFAS 123's method of accounting for stock-based compensation plans has not been
applied to options granted prior to January 1, 1995, and as a result the pro
forma compensation cost may not be representative of that to be expected in
future years. A summary of the Company's stock options at December 31, 1998,
1997 1996 and 19951996 and changes during the years then ended is presented in the table
below:
105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NCE* PSCo SPS
---- ---- ------------------ --------------- ---------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
1997
1998
Outstanding at beginning
of year 2,085,632 $ 41.10
Granted 570,200 47.55
Exercised 187,198 34.61
Forfeited 38,607 45.10
------
Outstanding at end of year 2,430,027 43.07
=========
Exercisable at end of year 1,650,088 40.99
=========
Weighted-average fair value
of options granted $ 4.40
1997
Outstanding at beginning
of year 477,783 $31.46$ 31.46 441,227 $31.38 38,480 $30.80
Granted 1,690,147 43.32 62,100 39.00 2,147 37.24
Exercised 78,647 30.34 40,404 29.57 3,666 30.81
Forfeited 3,651 33.41 3,651 33.41 - -
Converted to NCE options at
Merger date - - 459,272 32.56 36,961 32.70
--------- ------- -------------
Outstanding at end of year 2,085,632 41.10 - - - -
========= === ======== ==== =====
Exercisable at end of year 431,071 32.66 - - - -
========= === ======== ==== =====
Weighted-average fair value
of options granted $ 5.45 $ 4.23 $ 3.70
1996
Outstanding at beginning
of year 407,117 $29.78 347,931 $29.33$ 29.33 62,301 $30.78
Granted 158,270 35.13 158,270 35.13 - -
Exercised 74,303 30.87 51,673 30.21 21,647 30.76
Forfeited 13,301 32.48 13,301 32.84 - -
------ ------ --------
Outstanding at year
of year 477,783 31.46 441,227 31.38 40,654 30.79
======= ======= ======
Exercisable at end of year 158,970 29.05 158,970 29.05 - -
======= ======= ========
Weighted-average fair value
of options granted $ 4.31 $4.31 $ -
1995
Outstanding at beginning of year 262,932 $29.52 195,744 $28.53 70,724 $30.79
Granted 161,000 30.29 161,000 30.29 - -
Exercised 5,685 32.38 267 29.00 5,703 30.92
Forfeited 11,130 29.93 8,546 29.17 2,720 30.81
------ ----- -----
Outstanding at year of year 407,117 29.78 347,931 29.33 62,301 30.78
======= ======= ======
Exercisable at end of year 134,809 28.88 125,931 28.52 9,345 32.34
======= ======= =====
Weighted-average fair value
of options granted $ 5.39 $ 5.394.31 $ -
SPS Transition Period
Outstanding at beginning of year 40,654 $30.79
Granted$ 30.79
Granted. - -
Exercised 2,174 30.69
Forfeited - -
--------
Outstanding at year of year 38,480 30.80
======
Exercisable at end of year -
---
* Amounts======
* For 1997 and 1996 the amounts reflect the conversion of SPS and PSCo stock
options to NCE stock options.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes Option-Pricing Model with the following weighted-average
assumptions:
1998 1997 1996
---- ------------ -------- --------
Expected option life..................................life..................... 10 years 10 years 10 years
Stock volatility.......................................volatility.......................... 13.8% 13.3% 11.95%
Risk-free interest rate................................rate................... 5.08% 6.15% 6.21%
Dividend yield.........................................yield............................ 5.4% 5.4% 5.8%
113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Additionally, NCE, PSCo and SPS have other plans, which provide for cash
awards to all employees based on the achievement of corporate goals, of which
certain goals were met in each of the last three years. The expenses 106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
accrued
under the incentive programs totaled approximately $4.2 million infor the years 1998, 1997 $10.9 million inand 1996 and $9.1 million in 1995.are as follows
(in millions of dollars):
1998 1997 1996
------- ------ -----
NCE........................................ $ 11.3 $ 4.2 $ 10.9
PSCo....................................... 3.4 2.7 7.8
SPS........................................ 1.9 1.1 3.1
In accordance with the terms of the Company's Incentive Plans, certain
unexercisable stock options, restricted stock awards and dividend equivalents
became exercisable or vested on the effective date of the Merger. The NCE
Omnibus Incentive Plan, which was adopted in 1997, contains a change in control
provision under which all stock-based awards, such as options and restricted
shares, will vest 100% and all cash-based awards will be paid out immediately in
cash as if the performance objectives have been achieved through the effective
date of the change in control.
13. Income Taxes (NCE, PSCo and SPS)
The provisions for income taxes for NCE and PSCo for the years ended
December 31, 1998, 1997 1996 and 1995,1996, and for SPS for the years ended December 31,
1998, 1997 and August 31, 1996 and 1995 and for the four months ended December 31, 1996
and 1995 consist of the following (in thousands)thousands of dollars):
1998 NCE PSCo SPS
--- ---- ---
Current income taxes:
Federal.......................... $126,122 $91,122 $71,954
State............................ 8,448 8,176 2,592
-------- ------- -------
Total current income taxes.......... 134,570 99,298 74,546
-------- ------- -------
Deferred income taxes:
Federal.......................... 5,433 6,014 (8,266)
State............................ 815 1,078 (334)
-------- ------- -------
Total deferred income taxes...... 6,248 7,092 (8,600)
-------- ------- -------
Investment tax credits - net........ (5,222) (4,896) (250)
-------- ------- -------
Total provision for income taxes.... $135,596 $101,494 $65,696
======== ======== =======
1997 NCE PSCo SPS
--- ---- ---
Current income taxes:
Federal.......................... $ 82,337 $55,041 $43,401
State............................ 4,872 3,601 2,057
----- ----- ------------- ------- -------
Total current income taxes.......... 87,209 58,642 45,458
------ ------ -------------- ------- -------
Deferred income taxes:
Federal.......................... 45,537 31,548 3,045
State............................ 6,674 5,842 542
----- ----- ----------- ------- -------
Total deferred income taxes...... 52,211 37,390 3,587
------ ------ ------------- ------- -------
Investment tax credits - net........ (5,501) (5,219) (250)
------ ------ ------------ ------- -------
Total provision for income taxes.... $133,919 $90,813 $48,795
======== ======= =======
114
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1996 NCE PSCo SPS
--- ---- ---
Current income taxes:
Federal.......................... $ 79,365 $41,737 $46,435
State............................ 2,832 951 2,689
----- --- ------------- ------- -------
Total current income taxes..... 82,197 42,688 49,124
------ ------ -------------- ------- -------
Deferred income taxes:
Federal.......................... 70,964 53,612 15,776
State............................ 7,998 7,287 647
----- ----- ----------- ------- -------
Total deferred income taxes...... 78,962 60,899 16,423
------ ------ -------------- ------- -------
Investment tax credits - net........ (7,506) (7,256) (250)
------ ------ ------------ ------- -------
Total provision for income taxes.... $153,653 $96,331 $65,297
======== ======= =======
107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1995 NCE PSCo SPS
--- ---- ---
Current income taxes:
Federal.......................... $115,025 $58,728 $56,297
State............................ 4,691 2,807 1,884
----- ----- -----
Total current income taxes..... 119,716 61,535 58,181
------- ------ ------
Deferred income taxes:
Federal.......................... 47,327 38,006 9,321
State............................ 1,560 1,164 396
----- ----- ---
Total deferred income taxes...... 48,887 39,170 9,717
------ ------ -----
Investment tax credits - net........ (5,598) (5,348) (250)
------ ------ ----
Total provision for income taxes.... $163,005 $95,357 $67,648
======== ======= =======
Four Months Ending December 31,
-------------------------------
SPS - Transition Period 1996 1995
---- ------------- ---------
(unaudited)
Current income taxes:
Federal.......................... $ 5,991 $14,799
State............................ 190 998
--- ----------- -------
Total current income taxes..... 6,181 15,797
----- -------------- -------
Deferred income taxes:
Federal.......................... 4,697 3,117
State............................ 192 132
--- ----------- -------
Total deferred income taxes...... 4,889 3,249
----- ------------- -------
Investment tax credits - net........ (83) (83)
--- ----------- -------
Total provision for income taxes.... $ 10,987 $18,963
======== =======
108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A reconciliation of the statutory U.S. income tax rates and the effective
tax rates follows (in thousands):
1998
NCE PSCo SPS
--- ---- ---
Tax computed at U.S. statutory
rate on pre-tax accounting income $169,010 35.0% $105,559 35.0% $ 63,239 35.0%
Increase (decrease) in tax from:
Allowance for funds used
during construction......... (6,072) (1.3) (4,315) (1.4) (1,730) (1.0)
Amortization of investment tax
credits .................... (5,221) (1.1) (4,896) (1.6) (250) (0.1)
State income taxes, net of
Federal income tax benefit 6,010 1.2 6,015 2.0 1,468 0.8
Cash surrender value of life
insurance policies.......... (14,553) (3.0) (14,478) (4.8) (76) -
Amortization of prior
flow-through amounts ...... 10,509 2.2 10,446 3.5 - -
Merger related costs -
non-deductible ............ 1,482 0.3 - - 562 0.3
Foreign tax credit........... (15,457) (3.2) (1,363) (0.5) - -
International treaty tax relief (12,806) (2.7) (1,129) (0.4) - -
Other-net.................... 2,694 0.7 5,655 1.9 2,483 1.4
----- ---- ------ ---- ------ ----
Total income taxes.......... $135,596 28.1% $101,494 33.7% $65,696 36.4
======== ==== ======== ===== ======= =====
115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1997
NCE PSCo SPS
--- ---- ---
Tax computed at U.S. statutory
rate on pre-tax accounting
income...income......................... $142,506 35.0% $103,199 35.0% $43,529 35.0%
Increase (decrease) in tax from:
Allowance for funds used
during construction......... (2,220) (0.6) (2,222) (0.8) (2) -
Amortization of investment tax
credits .................... (5,501) (1.4) (5,219) (1.8) (250) (0.2)
State income taxes, net of
Federal income tax benefit 6,617 1.6 5,250 1.8 1,689 1.4
Cash surrender value of life
insurance policies.......... (12,952) (3.2) (12,876) (4.4) (76) (0.1)
Amortization of prior
flow-
throughflow-through amounts ................... 10,509 2.6 10,483 3.6 - -
Merger related costs -
non-deductible ............. 8,274 2.0 4,921 1.7 3,352 2.7
Foreign tax credit........... (7,043) (1.7) (7,043) (2.4) - -
International treaty tax relief (6,309) (1.4) (6,309) (2.1) - -
Other-net.................... (6,271) (1.4) (5,680) (1.9)38 0.0 629 0.2 553 0.4
----- ----- ------ ---- ------ ---- --- --------
Total income taxes.......... $133,919 32.9% $ 90,813 30.8% $48,795 39.2%
======== ==== ======== ==== ======= =========
1996
NCE PSCo SPS
--- ---- ---
Tax computed at U.S. statutory
rate on pre-tax accounting
income .......................income... .................... $153,287 35.0% $100,337 35.0% $59,874 35.0%
Increase (decrease) in tax from:
Allowance for funds used
during construction......... (1,685) (0.3) (1,438) (0.5) (248) (0.1)
Amortization of investment tax
credits ......................................... (7,506) (1.7) (7,256) (2.5) (250) (0.1)
State income taxes, net of
Federal income tax benefit 6,579 1.5 5,356 1.9 1,748 0.9
Cash surrender value of life
insurance policies.......... (11,265) (2.6) (11,265) (3.9) (76) -
Amortization of prior
flow-
throughflow-through amounts ................... 10,509 2.4 10,509 3.6 - -
Merger related costs -
non-deductible ............. 4,258 1.0 2,574 0.9 2,006 1.2
Other-net.................... (524) (0.2) (2,486) (0.9) 2,243 1.3
---- --------- ----- ------ ---- ----- ---
Total income taxes.......... $153,653 35.1% $ 96,331 33.6% $65,297 38.2%
======== ==== ======== ==== ======= ====
1995
NCE PSCo SPS
Tax computed at U.S. statutory
rate on pre-tax accounting
income ...................... $161,469 35.0% $ 95,975 35.0% $65,494 35.0%
Increase (decrease) in tax from:
Allowance for funds used
during construction......... (2,817) (0.6) (2,495) (0.9) (322) (0.2)
Amortization of investment tax
credits .................... (5,598) (1.2) (5,348) (1.9) (250) (0.1)
State income taxes, net of
Federal income tax benefit .. 3,806 0.8 2,581 0.9 1,225 0.7
Cash surrender value of life
insurance policies.......... (9,546) (2.1) (9,546) (3.5) (76) -
Amortization of prior flow-
through amounts ............ 10,509 2.3 10,509 3.8 - -
Merger related costs -
non-deductible ............. 2,225 0.5 1,414 0.5 170 0.1
Other-net.................... 2,957 0.7 2,267 0.9 1,407 0.7
----- --- ----- --- ----- ---
Total income taxes.......... $163,005 35.4% $ 95,357 34.8% $67,648 36.2%
======== ==== ======== ========= ======= ====
SPS Transition Period Four Months Ending December 31,
-------------------------------
1996 1995
---- ----------------- --------------
(unaudited)
Tax computed at U.S. statutory
rate on pre-tax accounting
income... ..................... $10,544 35.0% $17,468 35.0%
Increase (decrease) in tax from:
Allowance for funds used
during construction......... (144) (0.5) (180) (0.4)
Amortization of investment tax
credits ....................................... (83) (0.3) (83) (0.2)
State income taxes, net of
Federal income tax benefitbenefit... 123 0.4 649 1.3
Merger related costs -
non-deductible ............. 488 1.6 620 1.2
Other-net.................... 59 0.3 489 1.1
------- --- --- -------
Total income taxes.......... $10,987 36.5% $18,963 38.0%
======= ==== ======= ====
109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)======
The Company and its regulated subsidiaries have historically provided for
deferred income taxes to the extent allowed by their regulatory agencies whereby
deferred taxes were not provided on all differences between financial statement
and taxable income (the flow-through method). At December 31, 1997,1998, PSCo and SPS
are fully normalized for FERC jurisdictional purposes. For state jurisdictional
purposes, PSCo is fully normalized in Colorado and Wyoming, respectfully and SPS
is fully normalized in Texas, Oklahoma, and Oklahoma.New Mexico (see Note 9. Regulatory
Matters -SPS Electric Cost adjustment Mechanisms). SPS is fully normalized to
the extent allowed by its regulators in New Mexico and Kansas, with flow-through treatment of
certain temporary differences. To give effect to temporary differences for which
deferred taxes were not previously required to be provided, a regulatory asset
was recognized. The regulatory asset represents temporary differences primarily
associated with prior flow-through amounts and the equity component of allowance
for funds used during construction, net of temporary differences related to
unamortized investment tax credits and excess deferred income taxes that have
resulted from historical reductions in tax rates (see Note 1)1. Summary of
Significant Accounting Policies).
116
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The tax effects of significant temporary differences representing deferred
tax liabilities and assets as of December 31, 19971998 and 19961997 are as follows (in
thousands)thousands in dollars):
1998 NCE PSCo SPS
--- ---- ---
Deferred income tax liabilities:
Accelerated depreciation and
amortization ................... $ 762,538 $ 471,776 $ 280,949
Plant basis differences (prior
flow-through) .................. 150,210 98,208 52,383
Allowance for equity funds used
during construction ............ 74,903 45,137 29,664
Pensions.......................... 29,915 35,053 (6,648)
Other............................. 114,456 64,045 36,169
-------- ------- --------
Total............................ 1,132,022 714,219 392,517
Deferred income tax assets:
Investment tax credits............ 61,912 58,315 2,925
Contributions in aid of construction 87,685 84,720 2,172
Other............................. 33,147 24,461 12,878
-------- ------- --------
Total............................ 182,744 167,496 17,975
-------- ------- --------
Net deferred income tax liability... $ 949,278 $546,723 $374,542
======== ======== ========
1997 NCE PSCo SPS
--- ---- ---
Deferred income tax liabilities:
Accelerated depreciation and
amortization ................... $ 724,879 $432,453 $278,566$ 432,453 $ 278,566
Plant basis differences (prior
flow-through) ..................................... 173,523 118,332 54,384
Allowance for equity funds used
during construction ......................... 77,925 46,715 31,103
Pensions.......................... 31,832 33,105 (1,693)
Other............................. 116,912 75,143 39,424
-------- ------- ------ --------------
Total............................ 1,125,071 705,748 401,784
Deferred income tax assets:
Investment tax credits............ 65,111 61,333 3,065
Contributions in aid of construction 72,424 69,560 2,172
Other............................. 37,804 20,737 13,360
------ ------ -------------- ------- --------
Total............................ 175,339 151,630 18,597
-------- ------- ------- --------------
Net deferred income tax liability... $ 949,732$949,732 $554,118 $383,187
========= ======== ========
1996 NCE PSCo SPS
--- ---- ---
Deferred income tax liabilities:
Accelerated depreciation and
amortization ................... $ 685,244 $412,047 $273,197
Plant basis differences (prior
flow-through) .................. 188,120 132,149 55,971
Allowance for equity funds used
during construction ............ 81,559 48,952 32,607
Pensions.......................... 40,075 38,790 1,285
Other............................. 99,164 68,940 30,224
------ ------ ------
Total............................ 1,094,162 700,878 393,284
Deferred income tax assets:
Investment tax credits............ 68,484 65,278 3,206
Contributions in aid of construction 65,489 63,317 2,172
Other............................. 45,692 28,641 17,051
------ ------ ------
Total............................ 179,665 157,236 22,429
------- ------- ------
Net deferred income tax liability... $914,497 $543,642 $370,855
======== ======== ========
As of December 31, 1997,1998, the consolidated group does not have any
cumulative Federal or state tax credits which have not been realized. A
valuation allowance has not been recorded as the Company expects that all
deferred income tax assets will be realized in the future. 110The Company's
management intends to reinvest indefinitely, its earnings from the foreign
operations of Yorkshire Power. According, deferred income taxes have not been
provided on any cumulative amount of unremitted earnings.
117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 14. SegmentsBusiness Segment Information (NCE, PSCo and SPS)
NCE:
NCE has three reportable segments: electric utility, gas utility and
international. The electric utility segment consists primarily of Business (NCEthe activities
of the three regulated operating companies that provide wholesale and PSCo)retail
electric service in the states of Colorado, Texas, New Mexico, Wyoming, Kansas
and Oklahoma. The gas utility segment consists primarily of the activities of
three regulated operating companies providing retail gas service in the state of
Colorado and Wyoming. The international segment consists of equity investments
in foreign operations held by NCI since 1997. Revenues from operating segments
below the quantitative thresholds are included in the all other category. Those
primarily include a company involved in non-regulated power and gas marketing
activities throughout the United States; a company that invests in and develops
cogeneration and energy related projects; a company that is engaged in
engineering, design construction management and other miscellaneous services and
a company engaged in energy consulting, energy efficiency management,
conservation programs and mass market services.
The accounting policies of the segments are the same as those described in
Note 1. Summary of Significant Accounting Policies. NCE 1997evaluates performance by
each legal entity based on profit or loss generated from the product or service
provided. NCE segment information is as follows (in thousands):
Electric Gas All
1998 Utility Utility International Other Total
-------- ---------- ------------- ----- -----
(ThousandsRevenues:
External customers. $2,626,644 $653,438 $ - $330,823 $3,610,905
Intersegment....... 316 5,281 - 75,209 80,806
Electric margin..... 1,339,201 - - 1,087 1,340,288
Gas margin.......... - 265,971 - 12,722 278,693
Equity in earnings of
Dollars)
Operating revenues.................. $2,473,359 $ 816,596 $ 52,570 $3,342,525
---------- --------- -------- ----------
Operating expenses, excluding
depreciationnonconsolidated
subsidiaries ....... - - 38,127 (2,026) 36,101
Interest charges and
amortization..... 1,740,338 705,984 23,900 2,470,222preferred dividend
requirements ....... 153,462 28,589 745 15,530 198,326
Income taxes.......... 164,189 14,273 (15,817) (12,075) 150,570
Depreciation and amortization....... 193,970 42,760 6,348 243,078
------- ------ ----- -------&
amortization ........ 216,288 43,889 121 8,445 268,743
Segment profit (loss) 278,726 29,859 51,978 9,396 369,959
Segment assets...... 4,777,189 973,263 333,069 482,560 6,566,081
Construction
expenditures ....... 412,005 99,038 - 97,929 608,972
Electric Gas All
1997 Utility Utility International Other Total operating expenses.......... 1,934,308 748,744 30,248 2,713,300
--------- ------- ------ ---------
Operating income.................... 539,051 67,852 22,322 629,225
======= ====== ====== =======
Plant construction expenditures*.... 365,366 107,008 3,123 475,497
======= ======= ===== =======
Identifiable assets:
Property, plant and equipment*.... 4,585,582 872,056 75,738 5,533,376
Materials and supplies............ 61,950 5,129 1,332 68,411
Fuel inventory.................... 23,017 - 145 23,162
Gas in underground storage........ - 47,394 - 47,394
Other corporate assets............ 1,637,938
---------
$7,310,281
==========
1996
Operating revenues.................. $2,416,539 $640,497 $ 39,998 $3,097,034
---------- -------- -------- ----------
Operating expenses, excluding
depreciation and amortization...... 1,651,960 549,223 35,403 2,236,586
Depreciation and amortization....... 182,665 35,735 6,465 224,865
------- ------ ----- -------
Total operating expenses.......... 1,834,625 584,958 41,868 2,461,451
--------- ------- ------ ---------
Operating income (loss)............. 581,914 55,539 (1,870) 635,583
======= ====== ====== =======
Plant construction expenditures*.... 356,464 96,842 1,662 454,968
======= ====== ===== =======
Identifiable assets:
Property, plant and equipment*.... 4,400,189 805,372 83,522 5,289,083
Materials and supplies............ 58,122 7,325 1,301 66,748
Fuel inventory.................... 26,914 - 145 27,059
Gas in underground storage........ - 42,826 - 42,826
Other corporate assets............ 1,191,726
---------
$6,617,442
==========
1995
Operating revenues.................. $2,283,179 $624,585 $54,444 $2,962,208
----------
-------- ------- ----------
Operating expenses, excluding
depreciation------------- ----- -----
Total
Revenues:
External customers. $2,450,498 $640,248 $ - $251,779 $3,342,525
Intersegment........ 293 3,825 - 25,819 29,937
Electric margin..... 1,269,080 - - 987 1,270,067
Gas margin.......... - 268,423 - 4,882 273,305
Equity in earnings of
nonconsolidated
subsidiaries ..... - - 35,499 (1,333) 34,166
Interest charges and
preferred dividend
requirements ...... 151,718 27,376 186 14,168 193,448
Income taxes........ 146,621 18,555 (1,186) (26,875) 137,115
Depreciation &
amortization 193,877 39,833 89 9,279 243,078
Segment profit (loss) 215,712 27,034 35,946 1,746 280,438
Segment assets...... 4,770,091 1,060,633 290,845 90,401 6,211,970
Construction
expenditures ..... 1,548,581 538,620 52,479 2,139,680
Depreciation and amortization....... 170,566 29,901 5,117 205,584
------- ------ ----- -------
Total operating expenses.......... 1,719,147 568,521 57,596 2,345,264
--------- ------- ------ ---------
Operating income (loss)............. 564,032 56,064 (3,152) 616,944
======= ====== ====== =======
Plant construction expenditures*.... 289,701 86,482 4,224 380,407
======= ====== ===== =======
Identifiable assets:
Property, plant and equipment*..... 4,188,491 777,420 89,597 5,055,508
Materials and supplies............ 65,700 8,886 1,241 75,827
Fuel inventory.................... 37,854365,219 105,894 - 145 37,999
Gas in underground storage........ - 44,900 - 44,900
Other corporate assets............ 1,046,560
---------
$6,260,794
==========
* Net of accumulated depreciation and includes allocation of common utility
property.
1114,384 475,497
118
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. Segments of Business (continued)
PSCo
1997 Electric Gas All
1996 Utility Utility International Other Total
-------- ---------- ------------- ----- -----
(ThousandsTotal
Revenues:
External customers. $2,408,733 $571,329 $ - $116,972 $3,097,034
Intersegment........ 733 - - 7,008 7,741
Electric margin..... 1,270,520 - - 157 1,270,677
Gas margin.......... - 239,521 - 7,813 247,334
Equity in earnings of
Dollars)
Operatingnonconsolidated
subsidiaries ..... - - - 389 389
Interest charges and
preferred dividend
requirements ...... 141,380 23,665 - 14,759 179,804
Income taxes........ 163,657 12,913 - (22,917) 153,653
Depreciation &
amortization ...... 182,667 34,166 - 8,032 224,865
Segment profit (loss) 239,442 17,356 - 13,862 270,660
Segment assets...... 4,529,294 933,666 - 135,362 5,598,322
Construction
expenditures ...... 357,201 96,842 - 925 454,968
Reconciliations: 1998 1997 1996
-------- -------- --------
Revenues
Total revenues for reportable
segments $3,280,398 $3,090,746 $2,980,062
Intersegment revenue............ 80,806 29,937 7,741
Other revenues.................. $1,485,196330,507 251,779 116,972
Elimination of intersegment revenues (80,806) (29,937) (7,741)
------ -------- ------
Total consolidated revenues.. $3,610,905 $3,342,525 $3,097,034
========== ========== ==========
Profit or Loss
Total profit for reportable segments $ 733,091360,563 $ 11,356 $2,229,643
----------278,692 $ 256,798
Other profit (loss)............. 9,396 1,743 13,862
Other unallocated amounts....... (28,002) (18,954) 3,643
Elimination of intercompany profit - 6 (1,962)
----- ----- ------
Income before extraordinary item $ 341,957 $ 261,487 $ 272,341
========== ========== ==========
Assets
Total assets for reportable
segments $6,083,521 $6,121,049 $5,462,960
Other assets.................... 482,559 90,401 135,362
Unallocated assets.............. 1,105,884 1,109,696 1,019,120
--------- -------- ----------
Operating expenses, excluding
depreciation and amortization
and income taxes.................. 1,017,108 609,004 6,914 1,633,026--------- ---------
Total consolidated assets.... $7,671,964 $7,321,146 $6,617,442
========== ========== ==========
Segment Consolidated
Other Significant Items Totals Adjustments Totals
------ ----------- ------
1998
Interest charges & preferred
dividends .................... $ 198,326 $ 6,473 $ 204,799
Income taxes.................... 150,570 (14,974) 135,596
Depreciation and amortization....... 125,456 40,929 2,066 168,451
------- ------ ----- -------
Total operating expenses*......... 1,142,564 649,933 8,980 1,801,477
--------- ------- ----- ---------
Operating income*................... 342,632 83,158 2,376 428,166
======= ====== ===== =======
Plant construction expenditures**... 246,072 104,876 1,325 352,273
======= ======= ===== =======
Identifiable assets:
Property, plant and equipment**... 2,828,792 841,238 54,830 3,724,860
Materials and supplies............ 44,937 3,089 4 48,030
Fuel inventory.................... 20,717amortization... 268,743 - 145 20,862
Gas268,743
Equity in underground storage........earnings of
unconsolidated subsidiaries... 36,101 - 46,57636,101
Construction expenditures....... 608,972 - 46,576
Other corporate assets............ 1,154,405
---------
$4,994,733
==========
1996
Operating revenues.................. $1,488,990 $640,497608,972
1997
Interest charges & preferred
dividends .................... $ 7,951 $2,137,438
---------- -------- ------- ----------
Operating expenses, excluding
depreciation and amortization
and income taxes.................. 1,006,904 549,223 5,813 1,561,940193,448 $ 13,182 $ 206,630
Income taxes.................... 137,115 (3,196) 133,919
Depreciation and amortization....... 116,801 35,735 2,095 154,631
------- ------ ----- -------
Total operating expenses*......... 1,123,705 584,958 7,908 1,716,571
--------- ------- ----- ---------
Operating income*................... 365,285 55,539 43 420,867
======= ====== == =======
Plant construction expenditures**... 223,395 96,842 925 321,162
======= ====== === =======
Identifiable assets:
Property, plant and equipment**... 2,733,699 805,372 59,824 3,598,895
Materials and supplies............ 41,418 7,325 229 48,972
Fuel inventory.................... 24,594amortization... 243,078 - 145 24,739
Gas243,078
Equity in underground storage........earnings of
unconsolidated subsidiaries... 34,166 - 42,82634,166
Construction expenditures....... 475,497 - 42,826
Other corporate assets............ 857,216
-------
$4,572,648
==========
1995
Operating revenues.................. $1,449,096 $624,585 $ 7,010 $2,080,691
---------- -------- ------- ----------
Operating expenses, excluding
depreciation and amortization
and income tax.................... 1,002,381 538,620 7,046 1,548,047
Depreciation and amortization....... 109,498 29,901 1,981 141,380
------- ------ ----- -------
Total operating expenses*......... 1,111,879 568,521 9,027 1,689,427
--------- ------- ----- ---------
Operating income*................... 337,217 56,064 (2,017) 391,264
======= ====== ====== =======
Plant construction expenditures**... 198,341 86,482 693 285,516
======= ====== === =======
Identifiable assets:
Property, plant and equipment**.... 2,645,045 777,420 58,247 3,480,712
Materials and supplies............ 47,636 8,886 3 56,525
Fuel inventory.................... 35,509 - 145 35,654
Gas in underground storage........ - 44,900 - 44,900
Other corporate assets............ 733,998
-------
$4,351,789
==========
* Before income taxes.
** Net of accumulated depreciation and includes allocation of common utility
property.
112475,497
119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Segment Consolidated
1996 Totals Adjustments Totals
------ ----------- ------
Interest charges & preferred
dividends .................... $ 179,804 $ (4,708) $ 175,096
Income taxes.................... 153,653 - 153,653
Depreciation and amortization... 224,865 - 224,865
Equity in earnings of
unconsolidated subsidiaries... 389 - 389
Construction expenditures....... 454,968 - 454,968
PSCo:
PSCo has three reportable segments: electric utility, gas utility, and
international. During 1998, the electric utility segment consists primarily of
the activities of PSCo's regulated operations that provide wholesale and retail
electric service in the state of Colorado. For the years ended December 31, 1997
and 1996, this segment also included Cheyenne's regulated operations in the
state of Wyoming. During 1998, the gas utility segment consists primarily of the
activities of PSCo's regulated gas operations in Colorado. For the years ended
December 31, 1997 and 1996, this segment also included Cheyenne's regulated
operations in the state of Wyoming and WGI's regulated operations in the states
of Colorado and Wyoming. Revenues from operating segments below the quantitative
thresholds are included in the all other category. Those segments primarily
include a real estate company which owns certain real estate interests of PSCo,
a company which owns and manages permanent life insurance policies on certain
past and present employees and a finance company that finances certain of PSCo's
current assets.
The accounting policies of the segments are the same as those described in
Note 1. Summary of Significant Accounting Policies. PSCo evaluates performance
by each legal entity based on profit or loss generated from the product or
service provided. PSCo segment information is as follows (in thousands):
Electric Gas All
1998 Utility Utility International Other Total
-------- -------- ------------- ------- -----
Total
Revenues from
external customers. $1,635,573 $ 640,064 $ - $ 8,449 $2,284,086
Electric margin..... 833,752 - - - 833,752
Gas margin.......... - 259,509 - - 259,509
Equity in earnings of
Yorkshire Power... - - 3,446 - 3,446
Interest charges and
preferred dividend
requirements ...... 93,579 27,745 192 14,291 135,807
Income taxes........ 97,924 13,997 427 (10,854) 101,494
Depreciation &
amortization ...... 135,876 43,036 40 1,961 180,913
Segment profit...... 166,066 29,207 2,799 15,015 213,087
Segment assets...... 2,981,154 944,456 - 433,417 4,359,027
Construction
expenditures ..... 313,825 95,692 - 95,211 504,728
120
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Electric Gas All
1997 Utility Utility International Other Total
-------- -------- ------------- ----- ------
Total
Revenues from
external customers. $1,485,196 $733,091 $ - $ 11,356 $2,229,643
Electric margin..... 792,588 - - - 792,588
Gas margin.......... - 265,346 - - 265,346
Equity in earnings of
Yorkshire Power... - - 34,926 - 34,926
Interest charges and
preferred dividend
requirements ....... 92,684 26,980 186 13,885 133,735
Income taxes........ 92,930 18,496 (1,186) (19,427) 90,813
Depreciation &
amortization ...... 125,418 38,983 89 3,961 168,451
Segment profit...... 137,899 25,813 35,946 14,091 213,749
Segment assets...... 2,955,537 1,027,060 290,845 55,212 4,328,654
Construction
expenditures ..... 246,015 103,957 - 2,301 352,273
Electric Gas All
1996 Utility Utility International Other Total
-------- -------- ------------- ----- ------
Total
Revenues from
external customers. $1,488,990 $640,497 $ - $ 7,951 $2,137,438
Electric margin..... 803,120 - - - 803,120
Gas margin.......... - 239,521 - 7,813 247,334
Interest charges and
preferred dividend
requirements ...... 87,001 23,665 - 14,115 124,781
Income taxes........ 106,615 12,913 - (23,197) 96,331
Depreciation &
amortization ..... 116,802 34,166 - 3,663 154,631
Segment profit...... 151,139 17,356 - 11,900 180,395
Segment assets...... 2,840,481 930,474 - 71,109 3,842,064
Construction
expenditures ...... 223,395 96,842 - 925 321,162
Reconciliations: 1998 1997 1996
-------- -------- --------
Revenues
Total revenues for reportable
segments $2,275,637 $2,218,287 $2,129,487
Other revenues.................. 8,449 11,356 7,951
----- ------ -----
Total consolidated revenues.. $2,284,086 $2,229,643 $2,137,438
========== ========== ==========
Profit or Loss
Total profit or loss for reportable
segments $198,072 $199,658 $179,679
Other profit or loss............ 15,015 14,091 11,926
Other unallocated amounts....... (18,316) (21,458) (13,107)
Elimination of intersegment profit - (1) -
----- ------ ----
Income before extraordinary item $194,771 $192,290 $178,498
======== ======== ========
Assets
Total assets for reportable segments $3,925,610 $4,273,442 $3,770,955
Other assets.................... 433,417 55,212 71,109
Other unallocated amounts....... 818,609 666,079 730,584
-------- -------- --------
Consolidated total........... $5,177,636 $4,994,733 $4,572,648
========== ========== ==========
121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Segment Consolidated
Other Significant Items Totals Adjustments Totals
1998
Interest charges & preferred
dividends .................... $135,807 $ 7,839 $143,646
Income taxes.................... 101,494 - 101,494
Depreciation and amortization... 180,913 - 180,913
Equity in earnings of Yorkshire
Power ........................ 3,446 - 3,446
Construction expenditures..... 504,727 - 504,727
1997
Interest charges & preferred
dividends ..................... $133,735 $14,219 $147,954
Income taxes.................... 90,813 - 90,813
Depreciation and amortization... 168,451 - 168,451
Equity in earnings of Yorkshire
Power ....................... 34,926 - 34,926
Construction expenditures....... 352,273 - 352,273
1996
Interest charges & preferred
dividends ..................... $124,781 $(3,213) $121,568
Income taxes.................... 96,331 - 96,331
Depreciation and amortization... 154,631 - 154,631
Construction expenditures....... 321,162 - 321,162
SPS:
SPS operates in the regulated electric utility industry providing wholesale
and retail electric service in the states of Texas, New Mexico, Kansas and
Oklahoma. Revenues from external customers for this reportable segment were
$951.2 million, $979.3 million, $931.8 million, $306.3 million, and $278.5
million for the fiscal years ended December 31, 1998, 1997 and August 31, 1996
and for the four months ended December 1996 and 1995, respectively. During the
fiscal years ended December 31, 1997 and August 31, 1996, operating results
included the activities of Quixx and UE, subsidiaries that were subsequently
transferred to NC Enterprises in connection with the Merger. Neither of these
two segments has ever met any of the quantitative thresholds for determining
reportable segments.
15. Transactions Withwith Affiliates (PSCo and SPS)
PSCo and SPS receive various administrative, management, environmental and
other support services from NCS, which began operations on May 1, 1997 and
construction services from UE. In addition, PSCo and SPS pay interest expense on
any short-term borrowings from NCE. Dividends on common stock declared by PSCo
and SPS are paid to NCE.
PSCo sells firm and interruptible transportation services to e prime for
gas delivered into the Denver/Pueblo operating area. PSCo also receives interest
income from NC Enterprises on the note receivable related to the sale of NCI
effective March 31, 1998 (see Note 2. "Investment in Yorkshire Power and U.K.
Windfall Tax"). SPS receives interest income from NC Enterprises on the note
receivable related to the sale of Quixx and UE as part of the Merger. The table
below contains the various significant affiliate transactions among the
companies and related parties for the years ended December 31, 1998 and 1997 (in
thousands
of dollars)thousands).
PSCo SPS
---- ---------------------- --------------------
1998 1997 1998 1997
------- ------- ------- --------
Gas revenues................. $ 5,281 $ 3,825 $ - $ -
Operating expenses $125,030 $40,149expenses........... 197,862 108,096 63,108 36,317
Interest incomeincome.............. 14,188 - 8,630 3,618
Interest expenses............ 1,714 156 1,390 747
Dividends paid to NCENCE........ 188,845 76,093 75,157 45,092
Interest expenses 156 747Construction services........ 68,744 16,934 6,465 3,832
There were no significant related party transactions for the yearsyear ended
December 31, 1996 and 1995.1996.
122
16. Quarterly Financial Data (Unaudited) (NCE, PSCo and SPS)
The following summarized quarterly information for 19971998 and 19961997 is
unaudited, but includes all adjustments (consisting only of normal recurring
accruals) which the Company considers necessary for a fair presentation of the
results for the periods. Information for any one quarterly period is not
necessarily indicative of the results which may be expected for a twelve-month
period due to seasonal and other factors (in thousands, except per share data).
NCE Three Months ended
------------------
1997--------------------------------------------------
1998 March 31 June 30 September 30 December 31
----------- --------- -------- ------- ------------ -----------
Operating revenues.................... $898,955 $784,658 $ 804,154 $854,758939,504 $ 859,621 $915,898 $ 895,882
Operating income ..................... 139,289 124,750 130,135 235,051181,837 146,666 164,173 157,825
Net income ........................... 86,149 56,593 90,772 108,443
Earnings per share of common stock
outstanding:
Basic............................... $0.78 $0.50 $0.82 $0.96
Diluted............................. $0.78 $0.50 $0.82 $0.95
1997
----
Operating revenues.................... $ 890,011 $ 776,742 $793,472 $ 882,300
Operating income ..................... 176,000 130,336 153,168 169,721
Net income (loss)..................... 78,156 34,045 (47,225) 85,946
Basic and diluted earnings per share
of common stock outstanding:
Income before extraordinary item (loss) .......................item.... $0.75 $0.32$0.33 $ 0.61 $0.82$0.81
Extraordinary item..................item (1) ............ - - (1.06) -
Net income (loss)................... $0.75 $0.32$0.33 $(0.45) $0.82
1996
----
Operating revenues.................... $838,931 $733,121 $ 739,406 $819,524
Operating income ..................... 135,289 114,772 135,251 130,566
Net income............................ 76,218 59,452 76,547 60,124
Basic and diluted earnings per share of
common stock outstanding:
Net income.......................... $0.74 $0.58 $0.74 $0.58$0.81
PSCo Three Months ended
1997---------------------------------------------------
1998 March 31 June 30 September 30 December 31
----------- --------- -------- ------- ------------ -----------
Operating revenues.................... $677,660 $542,677 $ 477,264 $532,042644,642 $ 504,598 $541,601 $593,245
Operating income ..................... 104,818 83,022 81,054 68,45999,846 63,266 76,834 92,072
Net income............................ 68,897 30,908 44,015 56,283
1997
-----
Operating revenues.................... $ 668,717 $ 533,520 $466,582 $560,824
Operating income (loss)..................... 95,981 73,271 70,372 97,729
Net income............................ 62,881 30,607 (73,085)(1) 73,074
1996
----
Operating revenues.................... $622,917 $484,787 $ 476,861 $586,821
Operating income...................... 104,846 73,286 88,222 92,130
Net income............................ 64,429 34,537 39,256 52,124
113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SPS Three Months ended
1997---------------------------------------------------
1998 March 31 June 30 September 30 December 31
----------- --------- -------- ------- ------------ -----------
Operating revenues..................revenues.................... $199,732 $ 264,006 $284,648 $202,801
Operating income ................... 31,339 49,319 49,458 35,563
Net income.......................... 18,139 36,917 36,929 23,002
1997
-----
Operating revenues.................... $221,295 $243,221 $ 284,156243,221 $284,156 $230,611
Operating income ................... 34,471 39,656 53,051 32,103
Net income.......................... 18,218 6,380 (2) 31,111 19,866
Three Month
Months Ended Ended
1996 Transition Period Nov. 30 Dec. 31
---------------------- ------- -------
Operating revenues.................. $214,381 $ 81,198
Operating income.................... 34,711 12,481
Net income (loss)................... 21,470 (2,332)(3)
Three Months ended
1996 Nov. 31, 95 Feb. 29, 96 May 31, 96 Aug. 31, 96
---- ----------- ----------- ---------- -----------
Operating revenues.................. $200,957 $203,785 $225,029 $269,626
Operating income.................... 33,238 28,801 31,980 56,64734,457 41,744 50,976 32,104
Net income.......................... 23,168 18,081 19,878 44,646 (4)
(1) Includes the effect of the UK Windfall Tax recognized in the third quarter 1997.18,218 6,380 (2) Includes the write-off of Quixx's & UE's investment in the Carolina Energy Project.
(3) Includes the write-off of Quixx's investment in the BCH Energy Project.
(4) Includes the sale of water rights by Quixx.31,111 19,866
114(1)Includes the extraordinary U.K. windfall tax recognized in the third
quarter 1997.
(2)Includes the write-off of Quixx's & UE's investment in the Carolina Energy
Project.
123
SCHEDULE II
NEW CENTURY ENERGIES, INC.
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended December 31, 1998, 1997 and 1996
Additions
---------
Balance at Charged Charged to Deductions Balance
beginning to other from at end
of period income accounts(1) reserves(2) of year
--------- ------ ----------- ----------- -------
NCE (in thousands)
Reserve deducted from related
assets:
Provision for uncollectible
accounts:
1998....................... $5,355 $6,852 $ 41 $ 7,406 $4,842
====== ====== ===== ======= ======
1997....................... $6,623 $5,854 $ 79 $ 7,201 $5,355
====== ====== ===== ======= ======
1996....................... $6,218 $7,283 $ 453 $ 7,331 $6,623
====== ====== ===== ======= ======
PSCo
Reserve deducted from related
assets:
Provision for uncollectible
accounts:
1998....................... $2,272 $5,593 $ (32) $ 5,579 $2,254
====== ====== ====== ======= ======
1997....................... $4,049 $5,193 $(500) $ 6,470 $2,272
====== ====== ====== ======= ======
1996....................... $3,630 $6,741 $ 477 $ 6,799 $4,049
====== ====== ===== ======= ======
SPS
Reserve deducted from related
assets:
Provision for uncollectible
accounts:
1998....................... $2,442 $ 400 $ (7) $ 1,140 $1,695
====== ====== ====== ======= ======
1997....................... $2,574 $ 661 $ (62) $ 731 $2,442
====== ====== ====== ======= ======
1996 (September 1996 through
December 1996) $2,669 $ 223 $ (13) $ 305 $2,574
====== ====== ===== ======= ======
1996 (3)................... $2,494 $ 535 $ (9) $ 351 $2,669
====== ====== ====== ======= ======
---------------------------------------
(1)Uncollectible accounts subsequently recovered, transfers from customers'
deposits, etc., and 1995
Additions
---------
Balance at Charged Charged to Deductions Balance
beginning to other from at end
of period income accounts(1) reserves(2) of year
--------- ------ ----------- ----------- -------
NCE (Thousands of Dollars)
Reserve deducted from related
assets:
Provision for uncollectible
accounts:
1997....................... $6,623 $5,854 $ 79 $ 7,201 $5,355
====== ====== ===== ======= ======
1996....................... $6,218 $7,283 $ 453 $ 7,331 $6,623
====== ====== ===== ======= ======
1995 (3)................... $5,381 $8,431 $ (40) $ 7,648 $6,124
====== ====== ===== ======= ======
PSCo
Reserve deducted from related assets:
Provision for uncollectible accounts:
1997....................... $4,049 $5,193 $(500) $ 6,470 $2,272
====== ====== ===== ======= ======
1996....................... $3,630 $6,741 $ 477 $ 6,799 $4,049
====== ====== ===== ======= ======
1995....................... $3,173 $7,815 $ 4 $ 7,362 $3,630
====== ====== ===== ======= ======
SPS
Reserve deducted from related assets:
Provision for uncollectible accounts:
1997....................... $2,574 $ 661 $ (62) $ 731 $2,442
====== ====== ===== ======= ======
1996 (September 1996 through
December 1996) ...... $2,669 $ 223 $ (13) $ 305 $2,574
====== ====== ===== ======= ======
1996 (4)................... $2,494 $ 535 $ (9) $ 351 $2,669
====== ====== ===== ======= ======
1995 (4)................... $2,208 $ 616 $ (44) $ 286 $2,494
====== ====== ===== ======= ======
---------------------------------------
(1) Uncollectible accounts subsequently recovered, transfers from customers' deposits,
etc., and the transfer of certain subsidiaries' balances of $571,620 for
PSCo and $69,320 for SPS in 1997.
(2) Uncollectible accounts written off or transferred to other parties.
(3) Information for PSCo includes January 1995 through December 1995 and for SPS includes
September 1994 through August 1995.
(4) Information reflects fiscal years ended August 31, 1996 and 1995.
115the transfer of certain subsidiaries' balances of
$571,620 for PSCo and $69,320 for SPS in 1997.
(2) Uncollectible accounts written off or transferred to other parties.
(3) Information reflects fiscal year ended August 31, 1996.
124
EXHIBIT 12(a)
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
TO CONSOLIDATED FIXED CHARGES
(not covered by Report of Independent Public Accountants)
Year Ended December 31,
-----------------------1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Thousands of Dollars,(in thousands, except ratios)
Fixed charges:
Fixed charges:
Interest on long-term debt....... $ 114,460$115,808 $114,460 $ 92,205 $ 85,832 $ 89,005
$ 98,089Dividends on PSCo obligated
mandatorily redeemable preferred
securities......................... 9,711 - - - -
Interest on borrowings against
COLI contracts .................................. 51,664 46,082 40,160 34,717 29,786
25,333
Other interest................... 20,849 24,117 17,238 23,392 14,235 9,445
Amortization of debt discount and
expense less premium ..........4,274 3,987 3,621 3,278 3,126 2,018
Interest component of rental
expense ......................... 8,233 9,012 10,649 6,729 6,888
6,824----- ----- ------ ----- -----
-----
Total ......................... $ 197,658 $ 163,873$210,539 $197,658 $163,873 $153,948 $143,040
$141,709
========= ================= ======== ======== ======== ========
Earnings (before fixed charges and
taxes on income):
Net income....................... $ 204,042 $ 190,346$200,103 $204,042 $190,346 $178,856 $170,269 $157,360
Fixed charges as above........... 210,539 197,658 163,873 153,948 143,040 141,709
Provisions for Federal and state
taxes on income, net of investment
tax credit amortization ........ 101,494 90,813 96,331 95,357 48,500
60,994
------------- ------ ------ ------ ------
Total.......................... $ 492,513 $ 450,550$512,136 $492,513 $450,550 $428,161 $361,809
$360,063
========= =================== ======== ======== ======== ========
Ratio of earnings to fixed charges.. 2.43 2.49 2.75 2.78 2.53
2.54
==== ==== ==== ==== ========= ===== ===== ====== =====
116125
EXHIBIT 12(b)
SOUTHWESTERN PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
TO CONSOLIDATED COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(not covered by Report of Independent Public Accountants)
Year Ended Trans- Year Ended
December 31, -----------------------ition August 31,
1998 1997 Period 1996 1995 1994
1993---- ---- ------ ---- ---- ----
---- ----
(Thousands of Dollars,(in thousands, except ratios)
Fixed charges and preferred stock dividends:
Fixed charges:
Interest on long-term debt....... $114,460debt..... $44,220 $44,112 $15,556 $44,964 $ 92,205 $ 85,832 $ 89,005 $ 98,089
Interest40,645 $37,881
Dividends on borrowings against
COLI contracts ................. 46,082 40,160 34,717 29,786 25,333SPS obligated
mandatorily redeemable
preferred securities......... 7,850 7,850 1,526 - - -
Other interest................... 24,117 17,238 23,392 14,235 9,445interest................. 8,925 7,444 1,612 6,561 3,219 3,068
Amortization of debt discount
and expense less premium ........... 3,987 3,621 3,278 3,126 2,018..... 2,251 2,244 235 577 534 518
Interest component of rental
expense 9,012 10,649 6,729 6,888 6,824
Preferred stock dividend requirement 11,752 11,848 11,963 12,014 12,031
Additional preferred stock dividend
requirement .................... 5,231 5,995 6,377 3,422 4,662...................... 806 1,425 415 1,245 1,292 1,184
--- ----- ----- ----- ----- -----------
Total ......................... $214,641 $181,716 $172,288 $158,476 $158,402..................... $64,052 $63,075 $19,344 $53,347 $ 45,690 $42,651
======= ======= ======= ======= ======== ======== ======== ======== ===============
Earnings (before fixed charges and
taxes on income):
Net income....................... $204,042 $190,346 $178,856 $170,269 $157,360
Interest on long-term debt....... 114,460 92,205 85,832 89,005 98,089
Interest on borrowings against
COLI contracts ................ 46,082 40,160 34,717 29,786 25,333
Other interest................... 24,117 17,238 23,392 14,235 9,445
Amortization of debt discount and
expense less premium .......... 3,987 3,621 3,278 3,126 2,018
Interest component of rental expense 9,012 10,649 6,729 6,888 6,824income..................... $114,987 $ 75,575 $19,137 $105,773 $119,477 $102,168
Fixed charges as above......... 64,052 63,075 19,344 53,347 45,690 42,651
Provisions for Federal and state
taxes on income, net of
investment tax credit
amortization ............ 90,813 96,331 95,357 48,500 60,994................. 65,696 48,795 10,987 65,297 67,649 58,388
------ ------ ------ ------ ------ Total.......................... $492,513 $450,550 $428,161 $361,809 $360,063------
Total...................... $244,735 $187,445 $49,468 $224,417 $232,816 $203,207
======== ======== ======= ======== ======== ========
Ratio of earnings to fixed charges and preferred stock dividends..... 2.29 2.48 2.49 2.28 2.27
==== ==== ==== ==== ====
117
EXHIBIT 12(c)
SOUTHWESTERN PUBLIC SERVICE COMPANY
AND SUBSIDIARIES
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
TO CONSOLIDATED FIXED CHARGES
(not covered by Report of Independent Public Accountants)
Year Trans- Year-Ended
Ended ition August 31,
Dec. 31, 1997 Period 1996 1995 1994 1993
------------- ------ ---- ---- ---- ----
(Thousands of Dollars, except ratios)
Fixed charges:
Interest on long-term debt....... $ 44,112 $ 15,556 $ 44,964 $ 40,645 $ 37,881 $ 38,992
Dividends on SPS obligated
mandatorily redeemable
preferred securities............ 7,850 1,526 - - - -
Other interest................... 7,444 1,612 6,561 3,219 3,068 2,047
Amortization of debt discount and
expense less premium .......... 2,244 235 577 534 518 498
Interest component of rental expense 1,425 415 1,245 1,292 1,184 1,094
----- --- ----- ----- ----- -----
Total ......................... $ 63,075 $ 19,344 $ 53,347 $ 45,690 $ 42,651 $ 42,631
======== ======== ======== ======== ======== ========
Earnings (before fixed charges and
taxes on income):
Net income....................... $ 75,575 $ 19,137 $105,773 $119,477 $102,168 $105,254
Fixed charges as above........... 63,075 19,344 53,347 45,690 42,651 42,631
Provisions for Federal and state
taxes on income, net of investment
tax credit amortization ........ 48,795 10,987 65,297 67,649 58,388 57,668
------ ------ ------ ------ ------ ------
Total.......................... $187,445 $ 49,468 $224,417 $232,816 $203,207 $205,553
======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges..3.82 2.97 2.56 4.21 5.10 4.76 4.82
==== ==== ==== ==== ==== ====
118
EXHIBIT 12(d)
SOUTHWESTERN PUBLIC SERVICE COMPANY
AND SUBSIDIARIES
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
TO CONSOLIDATED COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(not covered by Report of Independent Public Accountants)
Year Trans- Year-Ended
Ended ition August 31,
Dec. 31, 1997 Period 1996 1995 1994 1993
------------- ------ ---- ---- ---- ----
(Thousands of Dollars, except ratios)
Fixed charges and preferred stock dividends:
Interest on long-term debt....... $ 44,112 $ 15,556 $ 44,964 $ 40,645 $ 37,881 $ 38,992
Dividends on SPS obligated
mandatorily redeemable
preferred securities............ 7,850 1,526 - - - -
Other interest................... 7,444 1,612 6,561 3,219 3,068 2,047
Amortization of debt discount and
expense less premium .......... 2,244 235 577 534 518 498
Interest component of rental expense 1,425 415 1,245 1,292 1,184 1,094
Preferred stock dividend requirement - - 2,494 4,878 4,878 5,626
Additional preferred stock
dividend requirement ........... - - 1,522 2,715 2,742 3,037
--- --- ----- ----- ----- -----
Total ......................... $ 63,075 $ 19,344 $ 57,363 $ 53,283 $ 50,271 $ 51,294
======== ======== ======== ======== ======== ========
Earnings (before fixed charges and
taxes on income):
Net income....................... $ 75,575 $ 19,137 $105,773 $119,477 $102,168 $105,254
Interest on long-term debt....... 44,112 15,556 44,964 40,645 37,881 38,992
Dividends on SPS obligated
manditorily redeemable
preferred securities............ 7,850 1,526 - - - -
Other interest................... 7,444 1,612 6,561 3,219 3,068 2,047
Amortization of debt discount and
expense less premium ........... 2,244 235 577 534 518 498
Interest component of rental expense 1,425 415 1,245 1,292 1,184 1,094
Provisions for Federal and state
taxes on income, net of investment
tax credit amortization ....... 48,795 10,987 65,297 67,649 58,388 57,668
------ ------ ------ ------ ------ ------
Total.......................... $187,445 $ 49,468 $224,417 $232,816 $203,207 $205,553
======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges
and preferred stock dividends..... 2.97 2.56 3.91 4.37 4.04 4.01
==== ==== ==== ==== ==== ====
119126
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Does not apply.
PART III
Item 10. Directors and Executive Officers of the Registrant (New Century
Energies, Inc., Public Service Company of Colorado,(NCE, PSCo and
Southwestern Public
Service Company)SPS)
Biographies concerning the directors of NCE are contained under ELECTION
OF DIRECTORS in NCE's 19981999 Proxy Statement, which is incorporated herein by
reference. The following tables settable sets forth certain information concerning the
executive officers of NCE as of December 31, 1998. Information concerning
directors and executive officers of each of the registrants as
of December 31, 1997.
PSCo and SPS has been omitted pursuant to
General Instructions I(2)(c).
NEW CENTURY ENERGIES, INC.
Name Age Occupation/Title Period
- ---- --- ---------------- ------
Executive Officers
- ------------------
Officers
Bill D. Helton 5960 Chairman of the Board, CEO and Director 1997-Present
Chairman of the Board and Director 1997-Present
Public Service Company of Colorado, Cheyenne Light,
Fuel and Power Company, NC Enterprises, Inc.,
New Century Services, Inc., New Century-Cadence,Inc.,
and e prime, inc.
Director, Southwestern Public Service Company 1990-Present
CEO, Southwestern Public Service Company 1990-1997
Chairman of the Board, Southwestern Public Service
1991-PresentCompany, Quixx Corporation and Utility Engineering 1991-Present
Corporation
Director, Natural Fuels Corporation 1997-Present
Director, Quixx Corporation 1990-Present
Chairman of the Board and Director, Quixx Power
Services, Inc. 1993-Present
Director, Utility Engineering Corporation 1989-Present
Director, New Century International, Inc. 1998-Present
Chairman of the Board, Natural Fuels Corporation 1998-Present
Chairman of the Board and Director 1998-Present
New Century-Centrus, Inc. and New Century Energies
Foundation
Wayne H. Brunetti (a) 5556 Vice Chairman, President, COO, and Director 1997-Present
Vice Chairman and CEO, Public Service Company of 1997-Present
Colorado and Cheyenne Light, Fuel and Power Company
President and Director, PSCoPublic Service Company of Colorado 1994-Present
Vice Chairman, President, CEO, and Director, 1997-Present
NC Enterprises, Inc., New Century Services, Inc. and
New Century Cadence, Inc.
Chairman, 1480 Welton, Inc., Green and Clear Lakes 1997-Present
Company, and WestGas InterState, Inc.
Chairman, PSR Investments, Inc., and PS Colorado Credit 1997-1998
Corporation and WestGas InterState, Inc.
President and Director, 1480 Welton, Inc. and1996-Present
Director, Natural Fuels Corporation 1996-Present1994-Present
President, Natural Fuels Corporation 1996-1998
Vice Chairman, CEO, and Director, Southwestern Public 1997-Present
Service Company
1997-Present127
Director, Cheyenne Light, Fuel and Power Co., Green and 1994-Present
and
Clear Lakes Company, PSR Investments, Inc., PS
Colorado Credit Corporation and WestGas InterState, Inc.
Director, PSR Investments, Inc. and PS Colorado Credit 1994-1998
Corporation
Director, Young Gas Storage Company and e prime, inc. 1995-Present
President and Director, Fuel Resources Development Co. 1995-Present
President, Green and Clear Lakes Company and e prime, inc.WestGas 1995-Present
InterState, Inc.
President, and Director, Fuel Resources Development Co. 1995-Present
President, Green and Clear Lakes Company and WestGas 1995-Present
InterState Inc.
120
President andNew Century International, Inc. 1997-1997
Director, New Century International, Inc. 1997-Present
Chairman of the Board, New Century International, Inc. 1998-Present
President, PSR Investments, Inc., and PS Colorado Credit 1996-Present1996-1998
Corporation
Director, and Yorkshire Electricity Group plc and 1997-Present
Yorkshire Holdings, plc and Yorkshire Power Group
Limited 1997-Present
Chairman of the Board, Cheyenne Light, Fuel and Power 1997-1997
Company and e prime, inc.
Vice Chairman and Director, Quixx Corporation and
Utility Engineering Corporation 1997-Present
Director, Yorkshire Holdings plc 1997-Present
Vice Chairman, Yorkshire Holdings plc 1997-1998
Vice Chairman, e prime, inc. 1997-Present
Vice Chairman, Yorkshire Electricity Group plc 1997-1998
Chairman of the Board, Yorkshire Electricity Group, plc 1998-Present
Chairman of the Board and 1997-Present
e prime, inc.Director, Yorkshire Power 1998-Present
Group Limited, Yorkshire Holdings plc
Chairman of the Board and Director 1998-Present
Planergy (Delaware) Inc., Planergy Energy Services
Corporation, Planergy New York, Inc., Planergy
Power II, Inc., Planergy Services USA, Inc., Planergy
Services of California, Inc., Planergy Services of
Houston, Inc., Planergy Services of Texas, Inc.,
Planergy Services, Inc., Planergy, Inc., Cogeneration
Capital Associates Incorporated, The Planergy Group, Inc.
President and Director, New Century Energies Foundation 1998-Present
Vice Chairman, Director, President and CEO, New Century 1998-Present
Centrus, Inc.
Richard C. Kelly 51(d) 52 Executive Vice President and Chief Financial Officer 1997-Present
President, Treasurer, and Director 1995-1997
Executive Vice President CFO, and Director, Public Service 1997-Present
Company of Colorado and Southwestern Public Service
Company
Chief Financial Officer, Public Service Company of 1997-1998
Colorado and Southwestern Public Service Company
Senior Vice President, PSCoPublic Service Company of Colorado 1990-1997
Treasurer, PSCoPublic Service Company of Colorado 1986-1997
Executive Vice President and Director, NC Enterprises, 1997-Present
Enterprises,
Inc. and New Century Service,Services, Inc.
Treasurer, 1480 Welton, Inc., Cheyenne Light, Fuel and 1994-Present
Power Company, Fuel Resources Development Co., Green and 1994-Present
Clear Lakes Company and WestGas InterState, Inc.
Treasurer, 1480 Welton, Inc. and Cheyenne Light, Fuel 1994-1998
and Power Company
128
Director, Texas-Ohio Gas, Inc., Texas-Ohio Pipeline, 1996-Present
Inc., e prime Networks, Inc., and e prime Telecom,Networks, Inc.
Director, Quixx Corporation, Utility Engineering 1997-Present
Corporation, Yorkshire Electricity Group plc,
Yorkshire Holdings plc, Yorkshire Power Group Limited,
e prime operating, inc., and e prime projects
international, inc.
Director, 1480 Welton, Inc. 1989-Present
Director, Cheyenne Light, Fuel and Power Company 1990-Present
Vice President, Fuel Resources Development Co. 1990-Present
Director, Fuel Resources Development Co. 1991-Present
Director, Green and Clear Lakes Company and 1990-Present
Natural 1990-Present Fuels Corporation
Director, andNew Century International, Inc. 1997-Present
Secretary, New Century International, Inc.1997-PresentInc. 1997-1998
Director and Treasurer, New Century-Cadence, Inc. 1997-Present
Vice President and Director, PSR Investments, Inc. 1986-Present
Vice President, andPSR Investments, Inc. 1986-1998
Director, PS Colorado Credit Corporation 1987-Present
Vice President, PS Colorado Credit Corporation 1987-1998
Director, WestGas InterState, Inc. 1993-Present
Vice President, Treasurer and Director, Young Gas 1995-Present
Storage Company and e prime inc. 1995-Present
Vice President and Treasurer, Young Gas Storage Company 1995-1998
Secretary, Treasurer and Director, e prime 1997-Present
Energy 1997-Present Marketing, Inc.
Director, e prime inc. 1995-Present
President and CEO, e prime inc. 1997-Present
Vice President and Treasurer, e prime, inc. 1995-1997
Chairman of the Board Texas-Ohio Gas, Inc., Texas-Ohio 1997-Present
Pipeline, Inc.
Chairman of the Board, and Young Gas Storage Company 1998-Present
Chief Financial Officer, New Century Services, Inc., 1998-Present
WestGas InterState, Inc. and Green and Clear Lakes
Company
Director, Planergy (Delaware), Inc., Planergy Energy 1998-Present
Services Corporation, Planergy Services USA, Inc.,
Planergy Services of California, Inc., Planergy Services
of Houston, Inc., Planergy Services of Texas, Inc.,
Planergy Services, Inc., Planergy, Inc., Cogeneration
Capital Associates Incorporated
Vice President and Director, Planergy New York, Inc., 1998-Present
Planergy Power II, Inc., The Planergy Group, Inc.
President and Director, NCE Communications, Inc. 1996-Present
(former e prime Telecom, Inc.)
Treasurer and Director, New Century Energies Foundation 1998-Present
and New Century-Centrus, Inc.
Management Committee Representative and Director, ep3,L.P. 1998-Present
Treasurer and Corporate Secretary, e prime Networks,Inc. 1998-Present
Paul J. Bonavia (b) 4647 Senior Vice President and General Counsel 1997-Present
General Counsel, 1480 Welton, Inc., Green and Clear Lakes 1998-Present
Company, NC Enterprises, Inc., PSR Investments, Inc.,
PS Colorado Credit Corporation, WestGas InterState, Inc.
Senior Vice President and General Counsel, Cheyenne Light, 1998-Present
Fuel and Power Company, New Century Services, Inc.,
Public Service Company of Colorado and Southwestern
Public Service Company
129
President, General Counsel and Director, New Century 1998-Present
International, Inc.
Director, Yorkshire Power Group Limited, Yorkshire 1998-Present
Holdings plc and Yorkshire Electric Group plc
Brian P. Jackson (c) 3940 Senior Vice President Finance and Administrative Services 1997-Present
Treasurer, Chief Financial Officer and Director, 1998-Present
1480 Welton, Inc., NC Enterprises, Inc. and Cheyenne
Light, Fuel and Power Company
Treasurer and Chief Financial Officer, NCE 1998-Present
Communications, Inc. and New Century International,
Inc.
Chairman of the Board, President, Chief Financial 1998-Present
Officer, and Director, PSR Investments, Inc. and PS
Colorado Credit Corporation
Treasurer, Planergy (Delaware), Inc., Planergy Energy 1998-Present
Services Corporation, Planergy Limited,
Planergy New York, Inc., Planergy Power II, Inc.,
Planergy Services USA, Inc., Planergy Services of
California, Inc., Planergy Services of Houston, Inc.,
Planergy Services of Texas, Inc., Planergy Services,
Inc., Planergy, Inc., The Planergy Group, Inc.,
Cogeneration Capital Associates Incorporated
Treasurer and Director, e prime, inc. 1998-Present
Senior Vice President and Chief Financial Officer, 1998-Present
Southwestern Public Service Company
Senior Vice President, Chief Financial Officer and 1998-Present
Director, Public Service Company of Colorado
Senior Vice President, New Century Services, Inc. 1998-Present
Management Committee Representative, Centrus,LLP 1998-Present
Director, New Century-Centrus, Inc. 1998-Present
Teresa S. Madden (d) 4142 Controller and1997-Present
Secretary 1997-Present1997-1998
Controller, and Secretary, Public Service Company 1997-Present
of Colorado, 1997-Present
Southwestern Public Service Company and New Century
Services, Inc.
ControllerSecretary, Public Service Company of Colorado and New 1997-1998
Century Services, Inc.
Assistant Secretary, Southwestern 1997-Present
Public Service Company
121
Public Service Company 1997-1998
Director, Yorkshire Power Group Limited, Yorkshire 1997-Present1997-1998
Holdings plc and Yorkshire Electricity Group plc
Secretary, Fuel Resources Development Co. 1997-Present
Secretary, NC Enterprises, Inc., WestGas InterState, 1997-PresentInc., 1997-1998
e prime,inc., Cheyenne Light, Fuel and Power Company,
and New Century-Cadence, Inc., Texas-Ohio Pipeline, Inc.,
and Texas-Ohio Gas, Inc., Fuel
Resources Development Co.
Manager of Corporate Accounting, Public Service Company 1990-1997
Company
of Colorado
Assistant Secretary, PSCoPublic Service Company of Colorado 1995-1997
and e prime, inc. 1995-1997
Assistant Secretary, 1480 Welton, Inc., PSR 1991-Present
Investments, 1991-1998
Inc., PS Colorado Credit Corporation,
Assistant Secretary, Cheyenne Light, Fuel and Power 1991-1997
Company and Fuel Resources Development Co.
130
Controller, 1480 Welton, Inc., Cheyenne Light, Fuel 1998-Present
and Power Company, Green and Clear Lakes Company, NC
Enterprises, Inc., New Century International, Inc.,
PSR Investments, Inc., PS Colorado Credit Corporation,
and WestGas InterState, Inc.
Assistant Secretary, Yorkshire Electricity Group plc, 1998-Present
Yorkshire Holdings plc, and Yorkshire Power Group Limited
James D. Steinhilper 48Steinhilper(e)49 Treasurer 1997-Present
Treasurer, Public Service Company of Colorado and 1997-Present
Southwestern Public Service Company
Assistant Treasurer, Cheyenne Light, Fuel and Power 1997-19971997-Present
Company, New Century-Cadence, Inc. and WestGas
InterState, Inc.
Director of Finance and Treasurer, New Century Services, 1997-Present
Inc.
Assistant Treasurer, 1480 Welton, Inc., Green and 1998-Present
Clear Lakes Company, and New Century-Centrus, Inc.
Treasurer and Director, PSR Investments, Inc. and PS 1998-Present
Colorado Credit Corporation
Treasurer, e prime, inc. and NC Enterprises, Inc. 1997-1998
Group Manager, Finance, Southwestern Public Service Company 1989-1997
Chairman of the Board, President and Director, Borger 1998-Present
Funding Corporation
Treasurer and Assistant Secretary, KES Montego, Inc., 1998-Present
Quixx Carolina, Inc., Quixx Corporation, Quixx Jamaica,
Inc., Quixx Power Services, Inc., Quixx WPP94, Inc., and
Quixxlin Corp.
Treasurer, Director and Assistant Secretary, Quixx Borger 1998-Present
Cogen, Inc., and Quixx Mustang Station, Inc.
David M. Wilks 52 Executive Vice President and Director, Public Service 1997-Present
Company of Colorado and New Century Services, Inc.
Executive Vice President and Director, New Century- 1997-1998
Cadence, Inc.
Director, Cheyenne Light, Fuel and Power Company 1997-Present
Director, Southwestern Public Service Company, Quixx Power 1995-Present
Services, Inc., Utility Engineering Corporation and
Quixx Corporation
President and Chief Operating Officer, Southwestern 1995-Present
Public Service Company
Senior Vice President, Southwestern Public Service 1991-1995
Company
Director, WestGas InterState, Inc. and Young Gas Storage 1998-Present
Company
Vice President and Director, New Century Energies 1998-Present
Foundation
Cathy J. Hart (f) 49 Secretary 1998-Present
Secretary, 1480 Welton, Inc., Cheyenne Light, Fuel and 1998-Present
Power Company, Cogeneration Capital Associates
Incorporated, Green and Clear Lakes Company, NC
Enterprises, Inc., New Century International, Inc.,
New Century Services, Inc., New Century-Cadence,
Inc., New Century-Centrus, Inc., PSR Investments,
Inc., PS Colorado Credit Corporation, Planergy
(Delaware), Inc., Planergy Energy Services Corporation,
Planergy Limited, Planergy New York, Inc., Planergy
Power II, Inc., Planergy Services USA, Inc., Planergy
Services of California, Inc., Planergy Services of
Houston,I nc., Planergy Services of Texas, Inc.,
Planergy Services, Inc., Planergy, Inc.,
131
Public Service Company of Colorado, Texas-Ohio Gas,
Inc., Texas-Ohio Pipeline, Inc., The Planergy Group,
Inc., WestGas InterState, Inc., Young Gas Storage
Company and e prime, inc.
Director Finance and Treasurer, New Century 1997-Present
Services, Inc.
Group Manager, Finance,Assistant Secretary, Southwestern Public Service 1989-1997
Company PUBLIC SERVICE COMPANY OF COLORADO
Directors
Wayne H. Brunetti See information under NCE Officers Section above.
Doyle R. Bunch II 51 Senior1998-Present
Manager, Corporate Communications, Public Service Company 1993-1996
of Colorado
Tom Petillo (g) 54 Executive Vice President, New Century Services, Inc. 1997-Present1998-Present
President and Director, e prime, inc., NC Enterprises, New Century International,Inc., PSCo 1997-Present 1997-1998
Executive Vice President, Public Service Company of
Colorado and Southwestern Public Service Company 1998-Present
Chairman of the Board Secretary,and Director, Planergy Limited 1998-Present
Senior Vice President and Director, Planergy New York, 1998-Present
Inc. and Planergy, Inc.
Vice President and Director, Cogeneration Capital 1998-Present
Associates Incorporated, New Century-Centrus, Inc.,
Planergy (Delaware), Inc., Planergy Energy Services
Corporation, Planergy Services USA, Inc., Planergy
Services of California, Inc., Planergy Services of
Houston, Inc., Planergy Services of Texas, Inc.
and Planergy Services, Inc.
President and Director, Planergy Power II, Inc. and 1998-Present
The Planergy Group, Inc.
Executive Vice President and Director, New 1995-1997
Century Energies,Century- 1998-Present
Cadence, Inc.
Director, Quixx Corporation 1985-1997
Executive Vice President, Southwestern Public Service 1992-1997
Company
Henry H. Hamilton 5960 Executive Vice President and Director, Southwestern 1997-Present
Public Service Company, Public Service Company of
Colorado and New Century Services, Inc.
Vice President of Production, Southwestern Public Service 1987-1997
Company
Director, Quixx Power Services, Inc. 1993-Present
Vice President, Southwestern Public Service Company 1987-1997
Bill D. Helton See information under NCE Officers Section above.
Richard C. Kelly See information under NCE Officers Section above.
David M. Wilks 51 Executive ViceChairman of the Board and President and Director, Public Service 1997-Present
Company of Colorado, New Century Services, Inc.
and New Century-Cadence, Inc.
Director, Cheyenne Light Fuel and Power Company, 1997-Present
Director, Southwestern Public Service Company, Quixx 1995-Present
Power Services and Utility Engineering Corporation
Quixx Corporation
President and Chief Operating Officer, Southwestern 1995-Present
Public Service Company
Senior Vice President, Southwestern Public Service 1991-1995
Company
122
Officers
Bill D. Helton See information under NCE Officers Section above.
Wayne H. Brunetti See information under NCE Officers Section above.
Henry H. Hamilton See information under PSCo Directors Section above.
Richard C. Kelly See information under NCE Officers Section above.
David M. Wilks See information under PSCo Directors Section above.
Teresa S. Madden See information under NCE Officers Section above.
SOUTHWESTERN PUBLIC SERVICE COMPANY
Directors
Bill D. Helton See information under NCE Officers Section above.
Wayne H. Brunetti See information under NCE Officers Section above.
David M. Wilks See information under NCE Officers Section above.
Henry H. Hamilton See information under PSCo Directors Section above.
Richard C. Kelly See information under NCE Officers Section above.
Officers
Bill D. Helton See information under NCE Officers Section above.
Wayne H. Brunetti See information under NCE Officers Section above.
David M. Wilks See information under NCE Officers Section above.
Henry H. Hamilton See information under PSCo Directors Section above.
Richard C. Kelly See information under NCE Officers Section above.
Teresa S. Madden See information under NCE Officers Section above.
Mary Pullum 55 Secretary, SPS, Utility Engineering Corporation, 1997-Present
Quixx Corporation
Assistant Secretary, New Century Energies, Inc. 1997-Present
New Century Services, Inc.,1998-Present
KES Montego, Inc., Quixx Borger Cogen,Inc.,
Quixx Carolina, Inc., Quixx Jamaica, Power, Inc.,
Quixx Mustang Station, Inc., and Quixxlinn Corporation
Manager, Compliance/Document Services, New Century 1997-Present
Services, Inc.,
Assistant Secretary, Quixx Jamaica,WPP94, Inc.
and Quixxlin Corp.
President, CEO, COO and Director, Quixx 1996-Present
WPP94
Assistant Secretary, Quixx Carolina, Inc. 1995-Present
Assistant Secretary,Corporation 1998-Present
President and CEO, Quixx Power Services, Inc. 1993-Present
Assistant Secretary,1998-Present
Director, Utility Engineering Corporation 1989-1997
and Quixx1998-Present
CEO, Borger Funding Corporation Assistant Secretary, Southwestern Public Service 1981-1997
Company1998-Present
There are no family relationships between executive officers or directors
of the registrants. There are no arrangements or understandings between the
executive officers individually and any other person with reference to their
being selected as officers of each registrant. All executive officers of each
registrant are elected annually by the respective Board of Directors.
(a) Mr.BrunettiMr. Brunetti was President and Chief Executive Officer of Management Systems
International from June 1991 through July 1994 and Executive Vice President
of Florida Power & Light Company from 1987 through May 1991.
(b)Mr. Bonavia was Of Counsel at LeBoeuf, Lamb, Greene & MacRae, LLP from March
1997 through December 1997 and Senior Vice President at Dominion Resources,
Inc. from 1991 through February 1997.
123
(c)Mr. Jackson was named Treasurer of New Century Energies, Inc. effective
January 1, 1999. Mr. Jackson was employed by Arthur Andersen LLP from 1980
through November 1997. He was a partner with the firm from 1994 through 1997.
Effective
February 17, 1998, Mr. Jackson was elected Chief Financial Officer of
Public Service Company of Colorado and Southwestern Public Service Company.132
(d) Ms. Madden is a member of the audit committee and finance committee for
Yorkshire Electricity Group plc. Mr. Kelly is Chairman of the audit committee and a member of the finance
committee of Yorkshire Electricity Group plc.
(e)Mr. Steinhelper was named Vice President of Quixx Corporation effective
January 1, 1999, and subsequently resigned as Treasurer of New Century
Energies, Inc. and certain other subsidiary positions.
(f)Ms. Hart was self-employed as communications and marketing consultant,
Sydney, Australia and Denver, Colorado from June 1996 through June 1998.
(g)Mr. Petillo was Director and President, Qualtec Quality Services, Inc. from
August 1992 through October 1995 and Senior Vice President of Florida Power &
Light Company from June 1991 through December 1995.
Item 11. Executive Compensation
Information concerning executive compensation for NCE is contained under
Compensation Of Executive Officers And DirectorsCOMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS in the NCE 19981999 Proxy
Statement, which information is incorporated herein by reference. Information
concerning executive compensation for PSCo and SPS has been omitted pursuant to
General Instruction I(2)(c). Information concerning executive
compensation for PSCo is presented herein.
The following tables set forth information concerning the total
compensation paid or awarded in 1997 to PSCo's Chief Executive Officer and
each of the four most highly compensated officers serving as such on December
31, 1997, and one additional executive officer who was among the most highly
compensated officers in 1997, but who had resigned her position prior to
December 31, 1997 (collective the PSCo Named Executive Officers). In 1997,
in connection with the Merger, the salaries of these executives were paid by
NCS and a portion of their compensation has been allocated and charged to
PSCo. Information for calendar years 1996 and 1995 is presented for the
executive officers who were executive officers of PSCo prior to the Merger.
========================================================================================
Summary Compensation Table
========================================================================================
Annual Compensation Long-Term Compensation (c) All Other
Name and Principal Compen-
Position sation
($)(d)(e)
-----------------------------------------------
Year Awards Payouts
-------------------------------
Salary Bonus Other Restricted Securities LTIP
($) ($) Annual Stock Underlying Payouts
(a) Compen- Awards Options/ ($)
sation($) ($) SAR's(#)
(b)
===================================================================================================
Bill D. Helton 1997 455,833 78,363 271,092 0 300,000 0 27,524
Chairman of the Board
===================================================================================================
Wayne H. Brunetti 1997 435,853 104,994 3,750 0 314,400 231,722 27,304
Vice Chairman and 1996 400,018 256,820 0 16,800 30,129 20,001
Chief Executive 1995 330,838 150,448 74,992 14,700 0 6,917
Officer
===================================================================================================
Richard C. Kelly 1997 254,382 48,997 3,750 0 107,100 120,484 16,089
Executive Vice 1996 227,503 100,457 0 10,950 29,388 11,917
President 1995 215,005 49,970 49,983 9,600 15,619 11,375
and Chief Financial
Officer
===================================================================================================
Patricia T. Smith 1997 216,559 39,723 2,250 0 6,700 84,593 2,394,914
Sr. V.P. and General 1996 225,842 94,944 0 9,300 0 11,292
Counsel 1995 220,018 49,782 24,658 8,150 0 0
===================================================================================================
Henry H. Hamilton 1997 174,583 35,673 49,125 0 66,000 0 11,139
Executive Vice
President
===================================================================================================
David M. Wilks 1997 238,958 41,285 24,809 0 87,000 0 9,618
Executive Vice
President
===================================================================================================
(a) The amounts shown in the "Bonus" column for 1997 are related to payments
made to the Named Executives Officers by PSCo or SPS in connection with the
Merger. The amounts paid to Messrs. Helton, Wilks, and Hamilton were based
on the average of their two highest bonuses paid by SPS in fiscal years 1993,
1994 and 1995, in accordance with their employment agreements. The amounts
paid to Messrs. Brunetti and Kelly and Ms. Smith
124
represent 7/12 of the target award earned under the PSCo Omnibus Incentive Plan
which were paid in accordance with their Change in Control agreements.
(b) The amounts shown in this column include relocation benefits of
$238,125 for Mr. Helton and the reimbursement of certain taxes related to the
exercise of SPS stock options of $24,639, $16,042 and $41,785 for Messrs.
Helton, Wilks and Hamilton, respectively. Also, the amounts shown in this
column for Messrs. Helton, Brunetti, Kelly, Wilks and Hamilton and Ms. Smith
include flexible perquisite or automobile allowance benefits ($8,328, $3,750,
$3,750, $8,767, $7,340 and $2,250, respectively).
(c) There were no restricted stock awards granted in 1997 and no Named
Executive Officer held any restricted stock at December 31, 1997. In
accordance with the terms of the PSCo Omnibus Incentive Plan, Mr. Brunetti,
Mr. Kelly and Ms. Smith received certain stock option awards (14,400, 7,100
and 6,700 options, respectively) and dividend equivalents payments ($231,726,
$120,484 and $84,593, respectively) which vested in connection with the
Merger.
(d) The amounts represented in the "All Other Compensation" column, except
for the additional compensation to Ms. Smith as disclosed in footnote (e),
reflect the total of matching contributions made under the PSCo and SPS
employee savings plans, the PSCo and SPS non-qualified savings plans (the
"Executive Savings Plan" and the "Non-Qualified Salary Deferral Plan",
respectively) and insurance premiums paid by PSCo and SPS. These amounts are
summarized below:
- --------------------------------------------------------------------------------
Name Contributions to Contributions to Insurance
Employee Savings the Non-Qualified Premiums ($)
Plan ($) Savings Plans ($)
- --------------------------------------------------------------------------------
Bill D. Helton 9,330 17,069 1,125
- --------------------------------------------------------------------------------
Wayne H.Brunetti 7,150 15,767 4,387
- --------------------------------------------------------------------------------
Richard C. Kelly 7,150 6,204 2,735
- --------------------------------------------------------------------------------
Patricia T. Smith 7,150 1,554 1,939
- --------------------------------------------------------------------------------
Henry H. Hamilton 5,655 4,909 575
- --------------------------------------------------------------------------------
David M. Wilks 4,773 4,235 610
- --------------------------------------------------------------------------------
(e) Ms. Smith resigned and was paid $2,384,271 on October 31, 1997. Under
the terms of the severance and employment agreements in effect, she received
a severance benefit equal to three years compensation including base salary
and annual incentive paid at target, reimbursement of certain taxes,
immediate vesting of all outstanding incentive awards and the economic
equivalent of any long-term awards she would have received during the
upcoming three year term. Also, Ms. Smith received additional credit under
the then existing PSCo Supplemental Employment Retirement Plan for the
upcoming three year term, additional contributions under the Executive
Savings Plan that she would have received during the upcoming three years,
continued welfare benefits for three years and a payment equal to the present
value of the benefits Ms. Smith would have received under all then existing
qualified retirement plans had she received credit for three additional years
of service.
125
=============================================================================
Option/SAR Grants in Last Fiscal Year
=============================================================================
Name Individual Grants
----------------------------------------------------------
Number
of
Securities % of Total
Underlying Options/SARs Exercise
Options/ Granted to or Base Grant Date
SARs Employees in Price Expiration Present Value
Granted Fiscal ($/Share) Date ($)(c)
(#)(a) year(b)
- --------------------------------------------------------------------------------
Bill D. Helton 300,000 18.45% 41.625 8/3/07 1,068,000
- --------------------------------------------------------------------------------
Wayne H. Brunetti 300,000 18.45% 41.625 8/3/07 1,068,000
14,400 23.19% 39.000 2/18/07 61,344
- --------------------------------------------------------------------------------
Richard C. Kelly 100,000 6.15% 41.625 8/3/07 356,000
7,100 11.43% 39.000 2/18/07 30,246
- --------------------------------------------------------------------------------
David M. Wilks 87,000 5.35% 41.625 8/3/07 309,720
- --------------------------------------------------------------------------------
Patricia T. Smith 6,700 10.79% 39.000 10/31/00 22,378
- --------------------------------------------------------------------------------
Henry H. Hamilton 66,000 4.06% 41.625 8/3/07 234,960
- --------------------------------------------------------------------------------
(a) The options with an exercise price of $39.00 were grants of PSCo common
stock granted by the Compensation Committee of the PSCo Board on February 18,
1997. The options were intended to vest and be exercisable only to the
extent of 33 1/3% on the first anniversary date of the grant and to the same
extent on the second anniversary and third anniversary. All rights to
exercise were intended to be cumulative to the extent not exercised. All
options expire 10 years from the date of grant. Effective August 1, 1997,
with the completion of the Merger, all PSCo options converted to NCE options
based on the one for one conversion ratio used in the Merger and were
immediately vested and exercisable with the $39.00 price and 10 year term
carried forward, except for Ms. Smith. In accordance with the terms of Ms.
Smith's PSCo Severance Agreement, her options will expire three years after
her date of resignation. The $39.00 exercise price equals the Fair Market
Value of PSCo Common Stock on February 18, 1997.
The options with an exercise price of $41.625 were granted by the NCE
Compensation Committee with an exercise price equal to the opening trade
price on the New York Stock Exchange (NYSE) of NCE Common Stock on August 4,
1997. The options vest and may be fully exercisable on the first anniversary
date of the grant. All options expire 10 years from the date of the grant.
(b) % of Total Options/SARs Granted to Employees in Fiscal Year apply to
shares of PSCo common stock granted prior to the completion of the Merger
with respect to all $39.00 options and to shares of NCE Common Stock granted
following the completion of the Merger with respect to all $41.625 options.
(c) These amounts represent a theoretical present valuation based on the
Black-Scholes Option Pricing Model as adjusted for dividends. The values in
the column are estimates based upon an option value of $4.26 for the $39.00
options granted to Messrs. Brunetti and Kelly and $3.34 for the options
granted to Ms. Smith. The options granted at the $41.625 exercise price are
estimate based upon an option price of $3.56. The option values were
derived using the following assumptions:
1. the time to exercise is the option life of ten years (except for Ms.
Smith option life is 3.7 years);
2. the risk free rate is 6.45% for the $39.00 PSCo options granted to
Messrs. Brunetti and Kelly; 5.89% for the options granted to Ms.
Smith and 6.38% for the $41.625 NCE options. These rates represent
126
the interest rate on 10-year, 4-year and 10-year treasury strips as
quoted in the Federal Reserve Statistical Release for February 1997,
February 1997 and August 1997, respectively;
3. the option strike prices are $39.00 for the PSCo options and
$41.625 for the NCE options;
4. the stock prices at grant date were $39.00 for the PSCo options
and $41.625 for the NCE options;
5. the standard deviation of PSCo and NCE common stock, which is a
measure of the volatility of the stock, is 14.15% for the $39.00 PSCo
options and 9.16% for the $41.625 NCE options and
6. a dividend yield for the $39.00 PSCo options is 5.94% and for
the $41.625 NCE options is 5.57%.
Executives may not sell or assign these options, which have value only to the
extent of the future stock price appreciation. These amounts or any of the
assumptions should not be used to predict future performance of the stock
price or dividends.
================================================================================
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
================================================================================
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options/SARs
Options/SARs at FY-End
at FY-End ($) (a)
(#)
------------- -------------
Name Shares Value Exercisable/ Exercisable/
Acquired Realized Unexercisable Unexercisable
on ($)
Exercise
(#)
--------------------- ------------ ------------ ------------- -------------
Bill D. Helton 890 7,512 0/ 0/
303,561 1,948,957
- --------------------------------------------------------------------------------
Wayne H. Brunetti 0 0 52,334/ 758,843/
300,000 1,893,750
- --------------------------------------------------------------------------------
Richard C. Kelly 0 0 41,050/ 631,866/
100,000 631,250
- --------------------------------------------------------------------------------
Patricia T. Smith 0 0 24,150/ 323,191/
0 0
- --------------------------------------------------------------------------------
Henry H. Hamilton 454 3,832 77/ 1,194/
67,817 444,794
- --------------------------------------------------------------------------------
David M. Wilks 409 3,452 67/ 1,039/
88,905 578,721
================================================================================
(a) Option values were calculated based on a $47.9375 closing price of NCE
Common Stock, as listed on the NYSE at December 31, 1997.
127
================================================================================
Long-Term Incentive Plans - Awards in Last Fiscal Year
================================================================================
Name Number Performance Estimated Future Payouts Under
of or Other Non-Stock Price-Based Plans
Shares, Period
Units Until
or Maturation
Other or Payout
Rights
(a)(#)
---------- ----------- ----------
Threshold Target Maximum
($ or #) ($ or #) ($ or #)
- --------------------------------------------------------------------------------
Bill D. Helton N/A N/A
- --------------------------------------------------------------------------------
Wayne H. Brunetti 47,480 1/1/97
thru 99,708
12/31/99
- --------------------------------------------------------------------------------
Richard C. Kelly 17,600 1/1/97
thru 36,960
12/31/99
- --------------------------------------------------------------------------------
Patricia T. Smith 15,616 1/1/97
thru 32,794
12/31/99
- --------------------------------------------------------------------------------
Henry H. Hamilton N/A N/A
- --------------------------------------------------------------------------------
David M. Wilks N/A N/A
- --------------------------------------------------------------------------------
(a) Dividend equivalents are granted under the PSCo Omnibus Incentive Plan.
Dividend equivalents entitle the recipient to a cash amount equal to the
average of the dividends paid over the performance cycle at the then
current dividend rate multiplied by the number of units granted. Dividend
equivalents are earned, if at all, at the end of a three-year performance
period depending upon the achievement of Earnings Per Share goals over the
performance period. The Target represents the amount to be awarded if
100% of the goal is achieved. Threshold represents the amount to be
awarded if 90% of the goal is achieved, and Maximum represents the amount
to be awarded if 110% of the goal is achieved. Additional dividend
equivalents may be granted each year by the Compensation Committee. In
accordance with the terms of the PSCo Omnibus Incentive Plan, dividend
equivalents for all open performance periods vested at the target level
immediately upon the effective date of the Merger and, accordingly,
Threshold and Maximum award amounts for 1997 were not established.
128
The following table shows estimated aggregate pension benefits payable
to a covered participant from the qualified defined benefit plans maintained
by NCE and its subsidiaries and the NCE Supplemental Executive Retirement
Plan (the "SERP").
================================================================================
Pension Plan Table
================================================================================
Remuneration Years of Service
15 20 25 or more years
- --------------------------------------------------------------------------------
$150,000 $ 61,875 $ 82,500 $ 82,500
175,000 72,188 96,250 96,250
200,000 82,500 110,000 110,000
225,000 92,813 123,750 123,750
250,000 103,125 137,500 137,500
300,000 123,750 165,000 165,000
350,000 144,375 192,500 192,500
400,000 165,000 220,000 220,000
450,000 185,625 247,500 247,500
500,000 206,250 275,000 275,000
600,000 247,500 330,000 330,000
700,000 288,750 385,000 385,000
================================================================================
The benefits listed in the Pension Plan Table are not subject to any
deduction or offset. The compensation used to calculate SERP benefits is
base salary plus short-term incentive. Such covered compensation is
reflected in the Salary and Bonus columns of the Summary Compensation Table
for 1997. Current annual covered compensation for Mr. Helton equals
$635,000.
The SERP benefit accrues over 20 years and is equal to (a) 55% of the
highest three years covered compensation of the five years preceding
retirement or termination minus (b) the qualified plan benefit. The SERP
benefit is payable as an annuity for 20 years, or as a single lump-sum amount
equal to the actuarial equivalent present value of the 20 year annuity.
Benefits are payable at age 62, or as early as age 55 reduced 5% for each
year that the benefit commencement date proceeds age 62.
The estimated credited years of service under the SERP as of December
31, 1997 were as follows:
Mr. Helton 33
Mr. Brunetti 10
Mr. Kelly 30
Mr. Wilks 20
Mr. Hamilton 34
129
The Company has granted additional credited years of service to Mr.
Brunetti for purposes of SERP accrual. The additional credited years of
service (approximately seven) are included in the above table. Additionally,
the Company has agreed to grant full accrual of SERP benefits to Mr. Brunetti
at age 62 in the event he continues to be employed by the Company until such
age.
The Board of Directors of NCE approved the SERP in December 1997. The
above Named Executive Officers are all participants of the SERP, and
participate in qualified defined benefit plans sponsored by the Company or
its subsidiaries.
Prior to the Merger, PSCo and SPS, each sponsored one defined benefit
plan covering substantially all represented and non-represented employees of
the respective company. Employees who participated in the Employees'
Retirement Plan of Public Service Company of Colorado and Participating
Subsidiary Companies (the "Public Service Company retirement plan") prior to
the Merger continue to participate in this plan. Employees who participated
in the Retirement Plan for Employees of Southwestern Public Service Company
(the "Southwestern Public Service Company retirement plan") prior to the
Merger continue to participate in this plan. Effective July 1, 1998, the
assets and liabilities associated with the non-represented employees
participating in the Public Service Company retirement plan and the assets
and liabilities associated with the non-represented employees participating
in the Southwestern Public Service Company retirement plan will be spun-off
from the respective plans and merged to form the New Century Energies
retirement plan for non-represented employees.
Mr. Brunetti and Mr. Kelly participate in the Employees' Retirement
Plan of Public Service Company of Colorado and Participating Subsidiary
Companies. Messrs. Helton, Hamilton and Wilks participate in the Retirement
Plan for Employees of Southwestern Public Service Company. Effective July 1,
1998, all such executives will participate in the NCE retirement plan for
non-represented employees.
Ms. Smith resigned effective October 31, 1997, prior to the effective
date of the SERP benefits illustrated above. Pension benefits were paid to
Ms. Smith under the terms of the plans and employment agreement in effect at
her date of termination.
Compensation of Directors
All Directors of PSCo are employees of NCS. They receive no additional
compensation for their role as members of the Board of Directors. Former
directors of PSCo and SPS receive and are paid retirement and other certain
benefits, as defined by the terms of the agreements/policies of these
subsidiaries, in effect prior to the Merger.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning the security ownership of the directors and
officers of NCE is contained under Election Of DirectorsELECTION OF DIRECTORS in NCE's 19981999 Proxy
Statement, which information is incorporated herein by reference. Information
concerning the security ownership of the directors and officers of PSCo and SPS
is omitted pursuant to General Instruction I(2)(c). Information
concerning the security ownership of the directors and officers of PSCo is
presented herein.
All 100 shares of PSCo Common Stock, $5 par value, are directly and
beneficially held by NCE. Holders of the PSCo Cumulative Preferred Stock,
$100 par value and $25 par value generally have no voting rights, except with
respect to certain corporate actions and in the event of certain defaults in
the payment of dividends on such shares.
The table below shows the number of shares of NCE Common Stock that
were beneficially owned directly or indirectly as of January 29, 1998 by each
director of PSCo and each of the executive officers of PSCo named in the
summary compensation table, and by all directors and executive officers of
PSCo as a group. No such person owns any shares of any series of the PSCo
Cumulative Preferred Stock.
130
Security Ownership of Management and Directors
as of January 29, 1998 (a)
- --------------------------------------------------------------------------------
Title of Class Name of Beneficial Owner Amount and % of
(b) nature of Class
beneficial (d)
ownership (c)
- --------------------------------------------------------------------------------
Common Stock Bill D. Helton (1) 24,158 (e)
- --------------------------------------------------------------------------------
Common Stock Wayne H. Brunetti 71,097 (e)
- --------------------------------------------------------------------------------
Common Stock Richard C. Kelly (2) 46,321 (e)
- --------------------------------------------------------------------------------
Common Stock Henry H. Hamilton 14,442 (e)
- --------------------------------------------------------------------------------
Common Stock David M. Wilks 12,451 (e)
- --------------------------------------------------------------------------------
Common Stock All the above and other 183,466 (e)
Executive Officers as a
Group (7 persons)
================================================================================
Notes
(a) As of January 29, 1998, the Company is not aware of any persons who
beneficially own more than 5% of the Company's Common Stock.
(b) Common Stock listed in the table represents NCE Common Stock, $1 par value.
(c) The common shares represented above include those shares, if any, held
under the PSCo Employees' Savings and Stock Ownership Plan (the "ESOP")
and the SPS Employee Investment Plan (the "EIP").
(d) As of January 29, 1998, the percentage of shares beneficially owned by
any Director or named Executive Officer, or by all Directors and
Executive Officers as a group, does not exceed one percent of the class
of securities described above.
(e) The number of shares includes those which the following have the right
to acquire as of January 29, 1998, through the exercise of vested
options granted under the NCE Omnibus Incentive Plan and the predecessor
PSCo Omnibus Incentive Plan and the SPS 1989 Incentive Plan (the "1989
Plan"): Mr. Brunetti, 52,334 shares; Mr. Kelly, 41,050 shares; Mr.
Hamilton, 77 shares; Mr. Wilks, 67 shares; and all Executive Officers as
a group, 2,717 shares.
Unless otherwise specified, each Director and named Executive Officer has
sole voting and sole investment power with respect to the shares
indicated.
(1) Includes 716 shares held in trusts for the benefit of Mr. Helton's
grandchildren. Mr. Helton's wife retains the right to the corpus of the
trusts upon their termination. Mr. Helton disclaims beneficial
ownership of the shares held in the trusts.
(2) Mr. Kelly's wife owns 263 of these shares; Mr. Kelly disclaims
beneficial ownership of those shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3, 4 and 5 and written
representations furnished to PSCo prior to the Merger effective August 1,
1997, PSCo believes that all Directors and Officers filed in a timely manner
their reports required under Section 16(a) of the Securities Exchange Act of
1934, as amended.
131
Item 13. Certain Relationships and Related Transactions
Information concerning relationships and related transactions of the
directors and officers of NCE is contained under Certain Relationships And
Related TransactionsCERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS in NCE's 19981999 Proxy Statement, which information is
incorporated herein by reference. PSCo and SPS have no information concerning
relationships and related transactions required to be disclosed.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements, Financial Statement Schedules, and Exhibits:
(1)Financial Statements and Reports of Independent Public Accountants on
the financial statements for NCE,
PSCo and SPS are listed under Item 8 herein.
(2)Financial Statement Schedules.
Reports of Independent Public Accountants as to Schedules for NCE, PSCo
and SPS are included in the Reports of Independent Public Accountants for
each registrant.
(3)Exhibits.
Exhibits for NCE, PSCo and SPS are listed in Index to Exhibits below.
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed since the end of the third
quarter of 1998:
- A combined report on Form 8-K dated February 23, 1999, was filed
separately by NCE, PSCo and SPS: No reports were filedSPS on February 23, 1999.
The item reported was Item 5. Other Events: Filing of audited financial
statements of NCE and its subsidiaries, PSco and its subsidiaries and SPS
for the year ended December 31, 1998.
133
- A report on Form 8-K duringdated February 25, 1999, was filed by SPS on
February 25, 1999.
The item reported was Item 5. Other Events: filing of consent of Arthur
Andersen LLP and Letter on unaudited financial information of Arthur
Andersen LLP.
- A report on Form 8-K dated February 25, 1999, was filed by SPS on March
9, 1999.
The item reported was Item 5. Other Events: Filing of Purchase Agreement.
the quarter
ended December 31, 1997.
132Indenture and the First Supplemental Indenture realted to the sale of
Series A Senior Notes.
- A report on Form 8-K dated March 24, 1999, was filed by NCE on March 24,
1999.
The item reported was Item 5. Other Events: Filing of an Agreement and
Plan of Merger dated March 24, 1999, between New Century Energies, Inc.
and Northern States Power Company and a joint press release announcing
the proposed merger.
- A report of Form 8-K dated March 26, 1999 was filed by NCE on March 26,
1999.
The item reported was Item 5. Other Events: Filing of slide presentation
for joint meeting, NCE and Northern State Power Company held with
financial analysts.
134
EXPERTS
The consolidated balance sheets of New Century Energies, Inc. and its
subsidiaries as of December 31, 19971998 and 1996,1997, the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1998, and the related financial statement
schedule, appearing in this Annual Report on Form 10-K, have been audited by
Arthur Andersen LLP, independent public accountants, as set forth in their
report appearing elsewhere herein. Arthur Andersen LLP did not audit the
consolidated financial statements of Southwestern Public Service Company for the
year ended December 31, 1996, included in the consolidated financial statements
of New Century Energies, Inc., which statements reflect total revenues
constituting 31% in 1996, of the related consolidated totals. The consolidated
financial statements and the related financial statement schedule, which are
included in this Annual Report on Form 10-K, are included herein in reliance
upon the authority of said firm as experts in giving said report.
The consolidated balance sheets and statements of capitalization of Public
Service Company of Colorado and its subsidiaries as of December 31, 1998 and
1997, the related consolidated statements of income, shareholder's equity and
cash flows for each of the three years in the period ended December 31, 1998,
and the related financial statement schedule, appearing in this Annual Report on
Form 10-K, have been audited by Arthur Andersen LLP, independent public
accountants, as set forth in their report appearing elsewhere herein. The
consolidated financial statements and the related financial statement schedule,
which are included in this Annual Report on Form 10-K, are included herein in
reliance upon the authority of said firm as experts in accounting and auditing in giving said report.
The consolidated balance sheets and statements of capitalization of Southwestern Public
Service Company of Colorado. and its subsidiaries as of December 31, 19971998 and 1996,1997, the related consolidated statements of
income, shareholder's equity and cash flows for each of the threetwo years in the
period ended December 31, 1997, and the related financial statement schedule, appearing in
this Annual Report on Form 10-K, have been audited by Arthur Andersen LLP,
independent public accountants, as set forth in their report appearing
elsewhere herein. The consolidated financial statements and the related
financial statement schedule, which are included in this Annual Report on
Form 10-K, are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report.
The balance sheet and statement of capitalization of Southwestern
Public Service Company as of December 31, 1997, the related statement of
income, shareholder's equity and cash flows for the year ended December 31,
1997,1998, and the related financial statement schedule,
appearing in this Annual Report on Form 10-K, have been audited by Arthur
Andersen LLP, independent public accountants, as set forth in their report
appearing elsewhere herein. The financial statements and the related financial
statement schedule, which are included in this Annual Report on Form 10-K, are
included herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving
said report.
133135
EXHIBIT 23 (a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report included in this Form 10-K, into New Century
Energies, Inc.''s previously filed Registration Statement (Form S-8, File No.
333-28639) pertaining to the Omnibus Incentive Plan; New Century Energies,
Inc.'s Registration Statement (Form S-3, File No. 333-28637) pertaining to the
Dividend Reinvestment and Cash Payment Plan andPlan; New Century Energies, Inc.'s
Registration Statement (Form S-3, File No. 333-40361)Nos. 333-40361 and 333-6407) pertaining
to the registration of NCE Common Stock and New Century Energies, Inc.'s
Registration Statement (Form S-8, File No. 333-58117) pertaining to the NCE
Employee Investment Plan and NCE Employees' Savings and Stock Ownership Plan and
to all references to our Firm included in this Form 10-K.
As independent public accountants, we hereby consent to the incorporation
by reference of our report included in this Form 10-K, into Public Service
Company of Colorado's previously filed Registration Statement (Form S-3, File
No. 33-62233) pertaining to the Automatic Dividend Reinvestment and Common Stock
Purchase Plan; Public Service Company of Colorado's Registration Statement (Form
S-3, File No. 33-37431) as amended on December 4, 1990, pertaining to the shelf
registration of Public Service Company of Colorado's First Mortgage Bonds;
Public Service Company of Colorado's Registration Statement (Form S-8, File No.
33-55432) pertaining to the Omnibus Incentive Plan; Public Service Company of
Colorado's Registration Statement (Form S-3, File No. 33-51167) pertaining to
the shelf registration of Public Service Company of Colorado's First Collateral
Trust Bonds and Public Service Company of Colorado's Registration Statement
(Form S-3, File No. 33-54877) pertaining to the shelf registration of Public
Service Company of Colorado's First Collateral Trust Bonds and Cumulative
Preferred Stock and to all references to our Firm included in this Form 10-K.
As independent public accountants, we hereby consent to the incorporation
by reference of our report included in this Form 10-K, into Southwestern Public
Service Company's previously filed Registration Statement (Form S-3, File No.
333-05199) pertaining to Southwestern Public Service Company's Preferred Stock
and Debt Securities; Southwestern Public Service Company's Registration
Statement (Form S-8, File No. 33-27452) pertaining to Southwestern Public
Service Company's 1989 Stock Incentive Plan and Southwestern Public Service
Company's Registration Statement (Form S-8, File No. 33-57869) pertaining to
Southwestern Public Service Company's Employee Investment Plan and Southwestern Public Service Company's Non-Qualified
Salary Deferral Plan and to all references to our Firm included in this Form
10-K.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 26, 1998
134March 29, 1999
136
EXHIBIT 23 (b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in Registration Statement No.
333-05199 on Form S-3 and Registration Statements No. 33-27452 and 33-57869
on Form S-8 of Southwestern Public Service Company and Registration Statement
No. 333-28637 and 333-40361 on Form S-3 and Registration Statement No.
333-28639 on Form S-8 of New Century Energies, Inc. of our report dated
February 28, 1997 (June 19, 1997, as to the Carolina Energy Limited
Partnership in Note 3) on Southwestern Public Service Company, appearing in
the Annual Report on Form 10-K of New Century Energies, Inc. for the year
ended December 31, 1997.1998.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 26, 1998March 29, 1999
EXHIBIT 24
POWER OF ATTORNEY
Each director and/or officer of New Century Energies, Inc., whose
signature appears herein hereby appoints B.Bill D. Helton and R.Richard C. Kelly,
and each of them severally, and each director and/or officer of Public Service
Company of Colorado and Southwestern Public Service Company, whose signature
appears herein hereby appoints W.Wayne H. Brunetti and B.Brian P. Jackson, and each
of them severally, as his or her attorney-in-fact to sign in his or her name and
behalf, in any and all capacities stated herein, and to file with the Securities
and Exchange Commission, any and all amendments to this Annual Report on Form
10-K.
135137
NEW CENTURY ENERGIES, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, New Century Energies, Inc. has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized on the
24th23rd day of February, 1998.1999.
NEW CENTURY ENERGIES, INC.
By /s/R.Richard C. Kelly
_________________________________
R.---------------------------------
Richard C. KELLYKelly
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of New Century
Energies, Inc. and in the capacities and on the date indicated.
Signature Title Date
________________________________________________________________________________- --------------------------------------------------------------------------------
/s/B.Bill D. Helton
_________________________________________________________ Principal Executive FebruaryMarch 24, 1998
B.1999
Bill D. Helton Officer and Director
Chairman of the Board and
Chief Executive Officer
/s/R.Richard C. Kelly
_____________________________ Principal March 24, 1999
Richard C. Kelly Financial Officer February 24, 1998
R. C. Kelly
Executive Vice President and
Chief Financial Officer
/s/Teresa S. Madden
_____________________________ Principal Accounting Officer FebruaryMarch 24, 19981999
Teresa S. Madden
Controller
and Secretary
136138
Signature Title Date
_______________________________________________________________________________- --------------------------------------------------------------------------------
/s/Bill D. Helton
__________________________________ Chairman of the Board FebruaryMarch 24, 19981999
Bill D. Helton and Director
/s/ W.Wayne H. Brunetti
__________________________________ Vice Chairman and
W.Wayne H. Brunetti Director FebruaryMarch 24, 19981999
/s/C. Coney Burgess
__________________________________ Director FebruaryMarch 24, 19981999
C. Coney Burgess
/s/ Danny H. Conklin
__________________________________ Director FebruaryMarch 24, 19981999
Danny H. Conklin
/s/Giles M. Forbess
__________________________________ Director FebruaryMarch 24, 19981999
Giles M. Forbess
/s/Gayle L. Greer
__________________________________ Director FebruaryMarch 24, 19981999
Gayle L. Greer
/s/R. R. Hemminghaus
__________________________________ Director FebruaryMarch 24, 19981999
R. R. Hemminghaus
/s/A. Barry Hirschfeld
__________________________________ Director FebruaryMarch 24, 19981999
A. Barry Hirschfeld
/s/ J. Howard Mock
__________________________________ Director FebruaryMarch 24, 19981999
J. Howard Mock
/s/ Albert F. Moreno
__________________________________ Director March 24, 1999
Albert F. Moreno
/s/ Will F. Nicholson, Jr.
__________________________________ Director FebruaryMarch 24, 19981999
Will F. Nicholson, Jr.
/s/J. Michael Powers
__________________________________ Director FebruaryMarch 24, 19981999
J. Michael Powers
/s/Rodney E. Slifer
__________________________________ Director FebruaryMarch 24, 19981999
Rodney E. Slifer
137139
Signature Title Date
________________________________________________________________________________- --------------------------------------------------------------------------------
/s/W. Thomas Stephens
__________________________________ Director FebruaryMarch 24, 19981999
W. Thomas Stephens
/s/Robert G. Tointon
__________________________________ Director FebruaryMarch 24, 19981999
Robert G. Tointon
138140
PUBLIC SERVICE COMPANY OF COLORADO
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Public Service Company of Colorado has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized
on the 24th23td day of February, 1998.1999.
PUBLIC SERVICE COMPANY OF COLORADO
By /s/Brian P. Jackson
_________________________________---------------------------------
Brian P. Jackson
Senior Vice President, Finance and
Administrative Services, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Public
Service Company of Colorado and in the capacities and on the date indicated.
Signature Title Date
________________________________________________________________________________- --------------------------------------------------------------------------------
/s/Wayne H. Brunetti
_____________________________________________________ Principal Executive FebruaryMarch 24, 19981999
Wayne H. Brunetti Officer and Director
Vice Chairman, President and
Chief Executive Officer
/s/Brian P. Jackson
_____________________________________________________ Principal Financial Officer FebruaryMarch 24, 19981999
Brian P. Jackson and Director
Senior Vice President, Finance
and Administrative Services,
Chief Financial
Officer and Treasurer
/s/Teresa S. Madden
_____________________________________________________ Principal Accounting Officer FebruaryMarch 24, 19981999
Teresa S. Madden
Controller
and Corporate Secretary
139141
Signature Title Date
________________________________________________________________________________- --------------------------------------------------------------------------------
/s/ Bill. D. Helton
______________________________________________________________ Director FebruaryMarch 24, 19981999
Bill. D. Helton
/s/Doyle R. Bunch II
____________________________ Director February 24, 1998
Doyle R. Bunch II
/s/Henry H. Hamilton
______________________________________________________________ Director FebruaryMarch 24, 19981999
Henry H. Hamilton
/s/ Richard C. Kelly
_______________________________________________________________ Director FebruaryMarch 24, 19981999
Richard C. Kelly
/s/David M. Wilks
_______________________________________________________________ Director FebruaryMarch 24, 19981999
David M. Wilks
140142
SOUTHWESTERN PUBLIC SERVICE COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Southwestern Public Service Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized
on the 24th23rd day of February, 1998.1999.
SOUTHWESTERN PUBLIC SERVICE COMPANY
By /s/Brian P. Jackson
_________________________________---------------------------------
Brian P. Jackson
Senior Vice President, Finance and
Administrative Services, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Southwestern
Public Service Company and in the capacities and on the date indicated.
Signature Title Date
________________________________________________________________________________- --------------------------------------------------------------------------------
/s/Wayne H. Brunetti
_____________________________________________________ Principal Executive FebruaryMarch 24, 19981999
Wayne H. Brunetti Officer and Director
Vice Chairman and
Chief Executive Officer
/s/Brian P. Jackson
_____________________________________________________ Principal Financial Officer FebruaryMarch 24, 19981999
Brian P. Jackson
Senior Vice President, Finance
and Administrative Services,
Chief Financial
Officer and Treasurer
/s/Teresa S. Madden
_____________________________________________________ Principal Accounting Officer FebruaryMarch 24, 19981999
Teresa S. Madden
Controller
and Corporate
Secretary
141143
Signature Title Date
________________________________________________________________________________- --------------------------------------------------------------------------------
/s/Bill. D. Helton
__________________________________ Director FebruaryMarch 24, 19981999
Bill. D. Helton
/s/Henry H. Hamilton
__________________________________ Director FebruaryMarch 24, 19981999
Henry H. Hamilton
/s/ Richard C. Kelly
__________________________________ Director FebruaryMarch 24, 19981999
Richard C. Kelly
/s/David M. Wilks
__________________________________ Director FebruaryMarch 24, 19981999
David M. Wilks
142144
EXHIBIT INDEX
2 Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession
NCE
2(a)1* Agreement and Plan of Merger dated March 24, 1999 (Form 8-K, March 24,
1999, Exhibit 2.1).
2(a)2* Merger Agreement and Plan of Reorganization dated August 22, 1995
(Form S-4, Annex I, File No. 33-64951).
PSCo
2(b) 2(a)1* Merger Agreement and Plan of Reorganization dated August 22, 1995
(Form 8-K, dated August 22, 1995, File No. 1-3280 - Exhibit 2).
SPS
2(c) 2(a)1* Agreement and Plan of Reorganization dated August 22, 1995 (Form 8-K,
Exhibit 2, dated August 22, 1995).
3 (i) Articles of Incorporation
NCE
3(a)1* Restated Articles of Incorporation datedated December 8, 1995 (Form S-4,
Exhibit 3(a)).
PSCo
3(a)1 Amended and Restated Articles of Incorporation dated September 19, 1997July 10, 1998.
SPS
3(a) 22* Amended and Restated Articles of Incorporation dated September 30,
1997.
3 (ii) By-Laws
NCE
3(b) 1*1 Restated Bylaws of New Century Energies, Inc. (Form S-4, Exhibit 3(b)).By-laws dated December 15, 1998.
PSCo
3(b) 11* By-laws dated November 20, 1997.
SPS
3(b) 22* By-laws dated September 29, 1997.
4 Instruments Defining the Rights of Security Holders, Including Indentures
NCE
4(a)1* Rights Agreement, dated as of August 1, 1997, between New Century
Energies, Inc. and the Bank of New York, as Rights Agent (Form 8-K,
August 1, 1997-Exhibit 1).
4(a)2* Amendment as of March 24, 1999 to the Rights Agreement, dated as of
August 1, 1997, between New Century Energies, Inc. and the Bank of New
York (Form 8-K, March 24, 1999, Exhibit 99.2)
PSCo
4(a)1* Indenture, dated as of December 1, 1939, providing for the issuance
of First Mortgage Bonds (Form 10 for 1946- Exhibit (B-1)).
4(a)2* Indentures supplemental to Indenture dated as of December 1, 1939:
Previous Filing: Previous Filing:
Form; Date or Exhibit Form; Date or Exhibit
Dated as of File No. No. Dated as of File No. No.
----------- -------- --- ----------- -------- ---
Mar. 14, 1941 10, 1946 B-2 Apr. 21, 1970 8-K, Apr. 1970 1
May 14, 1941 10, 1946 B-3 Sept. 1, 1970 8-K,Previous Filing: Previous Filing:
Form; Date orExhibit Form; Date or Exhibit
Dated as of File No. No. Dated as of File No. No.
Mar. 14, 1941 10, 1946 B-2 Sept. 1, 19708-K, Sept. 1970 2
May 14, 1941 10, 1946 B-3 Feb. 1, 1971 8-K, Feb. 1971 2
Apr. 28, 1942 10, 1946 B-4 Feb. 1, 1971 8-K, Feb. 1971 2
Apr. 14, 1943 10, 1946 B-5 Aug. 1, 1972 8-K, Aug. 1972 2
Apr. 14, 1943 10, 1946 B-5 June 1, 1973 8-K, June 1973 1
145
Apr. 27, 1944 10, 1946 B-6 June 1, 1973 8-K, June 1973 1
Apr. 18, 1945 10, 1946 B-7 Mar. 1, 1974 8-K, Apr. 1974 2
143
Apr. 23, 1946 10-K, 1946 B-8Apr. 18, 1945 10, 1946 B-7 Dec. 1, 1974 8-K, Dec. 1974 1
Apr. 23, 1946 10-K, 1946 B-8 Oct. 1, 1975 S-7, (2-60082) 2(b)(3)
Apr. 9, 1947 10-K, 1946 B-9 Apr. 28, 1976S-7, (2-60082) 2(b)(4)
June 1, 1947 S-1, (2-7075) 7(b) Apr. 28, 1977S-7, (2-60082) 2(b)(5)
Apr. 1, 1948 S-1, (2-7671)7(b)(1) Nov. 1, 1977 S-7, (2-62415) 2(b)(3)
May 20, 1948 S-1, (2-7671)7(b)(2) Apr. 28, 1978S-7, (2-62415) 2(b)(4)
Oct. 1, 1948 10-K, 1948 4 Oct. 1, 1978 10-K, 1978 D(1)
Apr. 20, 1949 10-K, 1949 1 Oct. 1, 1979 S-7, (2-66484) 2(b)(3)
Apr. 24, 19508-K, Apr. 1950 1 Mar. 1, 1980 10-K, 1980 4(c)
Apr. 18, 19518-K, Apr. 1951 1 Apr. 28, 1981S-16, (2-74923) 4(c)
Oct. 1, 19518-K, Nov. 1951 1 Nov. 1, 1981 S-16, (2-74923) 4(d)
Apr. 21, 19528-K, Apr. 1952 1 Dec. 1, 1981 10-K, 1981 4(c)
Dec. 1, 1952S-9, (2-11120)2(b)(9) Apr. 29, 1982 10-K, 1982 4(c)
Apr. 15, 19538-K, Apr. 1953 2 May 1, 1983 10-K, 1983 4(c)
Apr. 19, 19548-K, Apr. 1954 1 Apr. 30, 1984S-3, (2-95814) 4(c)
Oct. 1, 19548-K, Oct. 1954 1 Mar. 1, 1985 10-K, 1985 4(c)
Apr. 18, 19558-K, Apr. 1955 1 Nov. 1, 1986 10-K, 1986 4(c)
Apr. 24, 1956 10-K, 1956 1 May 1, 1987 10-K, 1987 4(c)
May 1, 1957S-9, (2-13260)2(b)(15) July 1, 1990 S-3, (33-37431) 4(c)
Apr. 10, 19588-K, Apr. 1958 1 Dec. 1, 1990 10-K, 1990 4(c)
May 1, 1959 8-K, May 1959 2 Mar. 1, 1992 10-K, 1992 4(d)
Apr. 18, 19608-K, Apr. 1960 1 Apr. 1, 199310-Q, June 30, 19934(a)
Apr. 19, 19618-K, Apr. 1961 1 June 1, 199310-Q, June 30, 19934(b)
Oct. 1, 19618-K, Oct. 1961 2 Nov. 1, 1993 S-3, (33-51167) 4(a)(3)
Mar. 1, 19628-K, Mar. 1962 3(a) Jan. 1, 1994 10-K, 1993 4(a)(3)
June 1, 19648-K, June 1964 1 Sept. 2, 19948-K, Sept. 1994 4(a)
May 1, 1966 8-K, May 1966 2 May 1, 199610Q, June 30, 1996 4(a)
July 1, 19678-K, July 1967 2 Nov. 1, 1996 10-K, 1996 4(a)(3)
July 1, 19688-K, July 1968 2 Feb. 1, 199710-Q, Mar. 31, 19974(a)
Apr. 25, 19698-K, Apr. 1969 1 April 1, 199810-Q, Mar. 31, 19984(a)
Apr. 21, 19708-K, Apr. 1970 1 1974 8-K, Dec. 1974 1
Apr. 9, 1947 10-K, 1946 B-9 Oct. 1, 1975 S-7, (2-60082) 2(b)(3)
June 1, 1947 S-1, (2-7075) 7(b) Apr. 28, 1976 S-7, (2-60082) 2(b)(4)
Apr. 1, 1948 S-1, (2-7671) 7(b)(1) Apr. 28, 1977 S-7, (2-60082) 2(b)(5)
May 20, 1948 S-1, (2-7671) 7(b)(2) Nov. 1, 1977 S-7, (2-62415) 2(b)(3)
Oct. 1, 1948 10-K, 1948 4 Apr. 28, 1978 S-7, (2-62415) 2(b)(4)
Apr. 20, 1949 10-K, 1949 1 Oct. 1, 1978 10-K, 1978 D(1)
Apr. 24, 1950 8-K, Apr. 1950 1 Oct. 1, 1979 S-7, (2-66484) 2(b)(3)
Apr. 18, 1951 8-K, Apr. 1951 1 Mar. 1, 1980 10-K, 1980 4(c)
Oct. 1, 1951 8-K, Nov. 1951 1 Apr. 28, 1981 S-16, (2-74923) 4(c)
Apr. 21, 1952 8-K, Apr. 1952 1 Nov. 1, 1981 S-16, (2-74923) 4(d)
Dec. 1, 1952 S-9, (2-11120) 2(b)(9) Dec. 1, 1981 10-K, 1981 4(c)
Apr. 15, 1953 8-K, Apr. 1953 2 Apr. 29, 1982 10-K, 1982 4(c)
Apr. 19, 1954 8-K, Apr. 1954 1 May 1, 1983 10-K, 1983 4(c)
Oct. 1, 1954 8-K, Oct. 1954 1 Apr. 30, 1984 S-3, (2-95814) 4(c)
Apr. 18, 1955 8-K, Apr. 1955 1 Mar. 1, 1985 10-K, 1985 4(c)
Apr. 24, 1956 10-K, 1956 1 Nov. 1, 1986 10-K, 1986 4(c)
May 1, 1957 S-9, (2-13260) 2(b)(15) May 1, 1987 10-K, 1987 4(c)
Apr. 10, 1958 8-K, Apr. 1958 1 July 1, 1990 S-3, (33-37431) 4(c)
May 1, 1959 8-K, May 1959 2 Dec. 1, 1990 10-K, 1990 4(c)
Apr. 18, 1960 8-K, Apr. 1960 1 Mar. 1, 1992 10-K, 1992 4(d)
Apr. 19, 1961 8-K, Apr. 1961 1 Apr. 1, 1993 10-Q, June 30, 1993 4(a)
Oct. 1, 1961 8-K, Oct. 1961 2 June 1, 1993 10-Q, June 30, 1993
4(b)
Mar. 1, 1962 8-K, Mar. 1962 3(a) Nov. 1, 1993 S-3, (33-51167) 4(a)(3)
June 1, 1964 8-K, June 1964 1 Jan. 1, 1994 10-K, 1993 4(a)(3)
May 1, 1966 8-K, May 1966 2 Sept. 2, 1994 8-K, Sept. 1994 4(a)
July 1, 1967 8-K, July 1967 2 May 1, 1996 10Q, June 30, 1996 4(a)
July 1, 1968 8-K, July 1968 2 Nov. 1, 1996 10-K, 1996 4(a)(3)
Apr. 25, 1969 8-K, Apr. 1969 1 Feb. 1, 1997 10-Q, Mar. 31, 1997 4(a)
4(b) 1* Indenture, dated as of October 1, 1993, providing for the
issuance of First Collateral Trust Bonds
(Form 10-Q, September 30, 1993 - Exhibit 4(a)).
4(b)2* Indentures supplemental to Indenture dated as of October 1, 1993:
Previous Filing:
Form; Date or Exhibit
Dated as of File No. No.
----------- -------- ---
November 1, 1993 S-3, (33-51167) 4(b)(2)
January 1, 1994 10-K, 1993 4(b)(3)
September 2, 1994 8-K, Sept. 1994 4(b)
May 1, 1996 10-Q, June 30, 1996 4(b)
November 1, 1996 10-K, 1996 4(b)(3)
February 1, 1997 10-Q, Mar. 31, 1997 4(b)
April 1, 1998 10-Q, Mar. 31, 1998 4(b)
4(c)1* Indenture date May 1, 1998, between PSCo and The Bank of New York,
providing for the issuance of Subordinated Debt Securities (Form 8-K,
May 6, 1998 - Exhibit 4.2).
4(c)2* Supplemental Indenture dated May 11, 1998, between PSCo and The Bank
of New York, (Form 8-K, May 6, 1998 - Exhibit 4.3).
146
4(c)3* Preferred Securities Guarantee Agreement dated May 11, 1998, between
PSCo and The Bank of New York, (Form 8-K, May 6, 1998 - Exhibit 4.4).
4(c)4* Amended and Restated Declaration of Trust of PSCo Capital and Trust
I date May 11, 1998, (Form 8-K, May 6, 1998 - Exhibit 4.1).
SPS
4(a)1* Indenture, dated as of August 1, 1946, providing for the issuance of
First Mortgage Bonds (Registration No. 2-6910, Exhibit 7-A).
144
4(b) 1*4(a)2* Indentures supplemental to Indenture dated as of August 1, 1946:
Previous Filing:
Form; Date or Exhibit
Dated as of File No. No.
----------- -------- ---
February 1, 1967 2-25983 2-S
October 1, 1970 2-38566 2-T
February 9, 1977 2-58209 2-Y
March 1, 1979 2-64022 b(28)
April 1, 1983 (two) 10-Q, May 1983 4(a)
February 1, 1985 10-K, Aug. 1985 4(c)
July 15, 1992 (two) 10-K, Aug. 1992 4(a)
December 1, 1992 (two) 10-Q, Feb. 1993 4
February 15, 1995 10-Q, May 1995 4
March 1, 1996 333-05199 4(c)
4(b)1* Indenture dated February 1, 1999 between SPS and the Chase Manhattan
Bank (Form 8-K, February 25, 1999. Exhibit B).
4(b)2* Supplemental Indenture dated March 1, 1999, between SPS and the Chase
Manhattan Bank (Form 8-K, February 25, 1999, Exhibit C).
4(c)1* Standby Credit Agreement with Union Bank of Switzerland (Houston Agency)
dated July 1, 1991 (Form 10-K, August 31, 1991 - Exhibit 4(a)).
4(d)1* Red River Authority for Texas Indenture of Trust dated July 1, 1991
(Form 10-K, August 31, 1991 - Exhibit 4(b)).
4(e)1* Indenture dated October 21, 1996, between SPS and Wilmington Trust
Company, (Form 10-Q, November 30, 1996 - Exhibit 4(a)).
4(f)1* Supplemental Indenture dated October 21,1996,21, 1996, between SPS and
Wilmington Trust Company, (Form 10-Q, November 30, 1996 - Exhibit 4(b)).
4(g)1* Guarantee Agreement dated October 21, 1996, between SPS and Wilmington
Trust Company, (Form 10-Q, November 30, 1996 - Exhibit 4(c)).
4(h)1* Amended and Restated Trust Agreement dated October 21, 1996, among SPS,
David M. Wilks, as initial depositor, Wilmington Trust Company
and the administrative trustees named therein (Form 10-Q,10- Q, November
30, 1996 - Exhibit 4(d)).
4(i)1* Agreement as to Expenses dated October 21, 1996, between SPS and
Southwestern Public Service Capital I,(Form (Form 10-K, December 31, 1996
- Exhibit F).
147
10 Material Contracts
NCE
10(a)1 Form of Key Executive Change in Control Agreement.
10(b) 2*1*+ Employment Agreement, effective August 1, 1997, between the Company
and Mr. Bill D. Helton (Form S-4, Annex I, File No.
33-64951).
10(b) 3*2*+ Employment Agreement, effective August 1, 1997, between the Company
and Mr. Wayne H. Brunetti (Form S-4, Annex I, File No.
33-64951).
10(b)3*+ Employment Agreement, effective December 15, 1997, between company
and Mr. Paul J. Bonavia (Form 10Q, September 30, 1998 - Exhibit 10(a)).
10(c)1*+ Omnibus Incentive Plan, effective August 1, 1997 (Form Def 14A,
December 31, 1997 - Exhibit A)
10(d)1+ Directors' Voluntary Deferral Plan
10(e)1+ Supplemental Executive Retirement Plan
10(f)1+ Salary Deferral and Supplemental Savings Plan for Executive Officers
10(g)1+ Salary Deferral and Supplemental Savings Plan for Key Managers
PSCo
10(a)1* Settlement Agreement dated February 9, 1996 between the Company and
the United States Department of Energy (Form 10-K, December 31, 1995 -
Exhibit 10(a)(1)).
145
10(a)2* Settlement Agreement dated June 27, 1979 between the Registrant and
General Atomic Company(FormCompany (Form S-7, File No. 2-66484-Exhibit2-66484 - Exhibit 5(a)(1)).
10(a)3* Services Agreement executed June 27, 1979 and effective as of
January 1, 1979 between the Registrant and General Atomic Company (Form
S-7, File No. 2-66484 - Exhibit 5(a)(3)).
10(c)10(b)1* Amended and Restated Coal Supply Agreement entered into October 1,
1984 but made effective as of January 1, 1976 between the Registrant
and Amax Inc. on behalf of its division, Amax Coal Company (Form 10-K,
December 31, 1984 - Exhibit 10(c)(1)).
10(c)10(b)2* First Amendment to Amended and Restated Coal Supply Agreement
entered into May 27, 1988 but
made effective January 1, 1988 between the Registrant and Amax Coal
Company (Form 10-K, December 31, 1988 -Exhibit1988-Exhibit 10(c)(2).**
10(e)10(c)1*+ Supplemental Executive Retirement Plan for Key Management
Employees, as amended and restated March 26, 1991 (Form 10-K, December
31, 1991 - Exhibit 10(e)(2)).
10(e)3*10(c)2*+ Executive Savings Plan (Form 10-K, December 31, 1991 - Exhibit
10(e)(5)).
10(e) 4*10(c)3*+ Form of Key Executive Severance Agreement, as amended on August 22,
and November 27, 1995. (Form 10-K, December 31, 1995 - Exhibit
10(3)(4)).
SPS
10(a)1* Coal Supply Agreement (Harrington Station) between SPS and TUCO,
dated May 1, 1979 (Form 8-K, May 14, 1979 - Exhibit 3).
10(b)1* Master Coal Service Agreement between Swindell-Dressler Energy
Supply Company and TUCO, dated July 1, 1978 (Form 8-K, May 14, 1979 -
Exhibit 5(A)).
148
10(c)1* Guaranty of Master Coal Service Agreement between Swindell-Dressler
Energy Supply Company and TUCO (Form 8-K, May 14, 1979 - Exhibit 5(B)).
10(d)1* Coal Supply Agreement (Tolk Station) between SPS and TUCO dated
April 30, 1979, as amended November 1, 1979 and December 30, 1981 (Form
10-Q, February 28, 1982 - Exhibit 10(b)).
10(e)1*+Master Coal Service Agreement between Wheelabrator Coal Services Co.
and TUCO dated December 30, 1981, as amended November 1, 1979 and
December 30, 1981 (Form 10-Q, February 28, 1982 - Exhibit 10(c)).
10(f)1*+Incentive Compensation Plan (an Executive Management Plan) as
amended July 23, 1996 (Form 10-K, August 31, 1996 - Exhibit 10(a)).
10(g)1*+ 1989 Stock Incentive Plan as amended April 23, 1996 (Form 10-K,
August 31, 1996 - Exhibit 10(b)).
10(h)1*+ Director's Deferred Compensation Plan as amended January 10, 1990
(Form 10-K, August 31, 1996 - Exhibit 10(c)).
10(i)1*+ Supplemental Retirement Income Plan as amended July 23, 1991 (Form
10-K, August 31, 1996 - Exhibit 10(e)).
10(j)1*+ EPS Performance Unit Plan dated October 27, 1992 (Form 10-K, August
31, 1996 - Exhibit 10(a)).
146
12 Statement Re Computation of Ratios
12(a) PSCo Computation of Ratio of Consolidated Earnings to Consolidated
Fixed Charges is set forth at page 116125 herein.
12(b) PSCo Computation of Ratio of Consolidated Earnings to Consolidated
Combined Fixed Charges and Preferred Stock Dividends is set forth at page
117 herein.
12(c) SPS Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges is set forth at page 118 herein.
12(d) SPS Computation of Ratio of Consolidated Earnings to ConsolidatedCombined
Fixed Charges and Preferred Stock Dividends is set forth at page 119126 herein.
21 Subsidiaries of the RegistrantRegistrants
23(a) Consent of Arthur Andersen LLP is set forth at page 134136 herein.
23(b) Consent of Deloitte & Touche LLP is set forth at page 135137 herein.
24 Power of Attorney is set forth at page 135137 herein.
27 Financial Data Schedule UT
27 (a)27(a) Financial Data Schedule for NCE as of December 31, 1997
27 (b)1998
27(b) Financial Data Schedule for PSCo as of December 31, 1997
27 (c)1998
27(c) Financial Data Schedule for SPS as of December 31, 19971998
- --------------
* Previously filed as indicated and incorporated herein by reference.
+ Management contracts of compensatory plans or arrangements.
147149