Company Quick10K Filing
El Paso Electric
Price67.05 EPS2
Shares41 P/E29
MCap2,728 P/FCF47
Net Debt1,370 EBIT192
TEV4,098 TEV/EBIT21
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-08
10-K 2019-12-31 Filed 2020-02-27
10-Q 2019-09-30 Filed 2019-11-07
10-Q 2019-06-30 Filed 2019-08-07
10-Q 2019-03-31 Filed 2019-05-08
10-K 2018-12-31 Filed 2019-02-28
10-Q 2018-09-30 Filed 2018-11-02
10-Q 2018-06-30 Filed 2018-08-03
10-Q 2018-03-31 Filed 2018-05-04
10-K 2017-12-31 Filed 2018-02-28
10-Q 2017-09-30 Filed 2017-11-03
10-Q 2017-06-30 Filed 2017-08-04
10-Q 2017-03-31 Filed 2017-05-05
10-K 2016-12-31 Filed 2017-02-24
10-Q 2016-09-30 Filed 2016-11-04
10-Q 2016-06-30 Filed 2016-08-05
10-Q 2016-03-31 Filed 2016-05-06
10-K 2015-12-31 Filed 2016-02-29
10-Q 2015-09-30 Filed 2015-11-06
10-Q 2015-06-30 Filed 2015-08-07
10-Q 2015-03-31 Filed 2015-05-07
10-K 2014-12-31 Filed 2015-02-27
10-Q 2014-09-30 Filed 2014-11-06
10-Q 2014-06-30 Filed 2014-08-07
10-Q 2014-03-31 Filed 2014-05-08
10-K 2013-12-31 Filed 2014-02-26
10-Q 2013-09-30 Filed 2013-11-07
10-Q 2013-06-30 Filed 2013-08-06
10-Q 2013-03-31 Filed 2013-05-08
10-K 2012-12-31 Filed 2013-02-25
10-Q 2012-09-30 Filed 2012-11-02
10-Q 2012-06-30 Filed 2012-08-03
10-Q 2012-03-31 Filed 2012-05-04
10-K 2011-12-31 Filed 2012-02-27
10-Q 2011-09-30 Filed 2011-11-07
10-Q 2011-06-30 Filed 2011-08-08
10-Q 2011-03-31 Filed 2011-05-06
10-K 2010-12-31 Filed 2011-02-28
10-Q 2010-09-30 Filed 2010-11-08
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-06
10-K 2009-12-31 Filed 2010-02-26
8-K 2020-07-28 M&A, Shareholder Rights, Control, Officers, Amend Bylaw, Other Events, Exhibits
8-K 2020-07-22 Other Events
8-K 2020-05-07
8-K 2020-03-30
8-K 2020-02-26
8-K 2019-11-06
8-K 2019-09-19
8-K 2019-09-09
8-K 2019-08-13
8-K 2019-08-06
8-K 2019-07-25
8-K 2019-06-25
8-K 2019-06-01
8-K 2019-05-23
8-K 2019-05-22
8-K 2019-05-08
8-K 2019-02-27
8-K 2018-12-26
8-K 2018-11-01
8-K 2018-09-13
8-K 2018-08-02
8-K 2018-06-28
8-K 2018-05-24
8-K 2018-05-03
8-K 2018-04-05
8-K 2018-02-27
8-K 2018-01-31

EE 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits
EX-10.01 eeex100120200331q1.htm
EX-10.02 eeex100220200331q1.htm
EX-15 eeex1520200331q1.htm
EX-31.01 eeex310120200331q1.htm
EX-32.01 eeex320120200331q1.htm

El Paso Electric Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
3.93.12.31.60.80.02012201420172020
Assets, Equity
0.40.30.20.10.0-0.12016201720182020
Rev, G Profit, Net Income
0.20.10.0-0.0-0.1-0.22012201420172020
Ops, Inv, Fin

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ________________________________________________________ 
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______ to _______
Commission file number: 001-14206
El Paso Electric Company
(Exact name of registrant as specified in its charter)
 
Texas
 
74-0607870
 
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
Stanton Tower
 
 
 
100 North Stanton Street
 
 
 
El Paso,
Texas
 
79901
 
(Address of principal executive offices)
 
(Zip Code)
(915) 543-5711
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock, No Par Value
EE
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes    No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
 
Large Accelerated Filer
Accelerated Filer
 
 
 
 
 
 
Non-accelerated Filer
Smaller Reporting Company
 
 
 
 
 
 
 
 
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   No  
As of April 30, 2020, there were 40,787,627 shares of the Company’s common stock outstanding.
 
 
 
 
 

 
 
 




DEFINITIONS
The following abbreviations, acronyms or defined terms used in this report are defined below:
Abbreviations, Acronyms or Defined Terms
  
Terms
 
 
 
A&G
 
Administrative and general
ADIT
 
Accumulated Deferred Income Taxes
AEFUDC
 
Allowance for Equity Funds Used During Construction
AFUDC
 
Allowance for Funds Used During Construction
ALJ
  
Administrative Law Judge
Amended REA
 
Amendment to the REA by the New Mexico Energy Transition Act, effective June 14,
2019
ANPP Participation Agreement
  
Arizona Nuclear Power Project Participation Agreement dated August 23, 1973, as amended
APS
  
Arizona Public Service Company
ASU
  
Accounting Standards Update
CCN
 
Certificate of Convenience and Necessity
Company
  
El Paso Electric Company
COVID-19
 
Coronavirus Disease 2019, the disease caused by the 2019 novel coronavirus (SARS-CoV-2)
DCRF
 
Distribution Cost Recovery Factor
DOE
  
U.S. Department of Energy
EECRF
 
Energy Efficiency Cost Recovery Factor
El Paso
  
City of El Paso, Texas
EUERF
 
Efficient Use of Energy Recovery Factor
Exchange Act
  
The Securities Exchange Act of 1934, as amended
FASB
  
Financial Accounting Standards Board
FCC
  
Federal Communications Commission
FERC
  
Federal Energy Regulatory Commission
FPPCAC
 
New Mexico Fuel and Purchased Power Cost Adjustment Clause
FTC
  
Federal Trade Commission
GAAP
 
U.S. Generally Accepted Accounting Principles
Gorski Action
 
Gorski v. El Paso Electric Company., et al., Case No. 1:19-cv-07211, in the U.S. District Court for the Southern District of New York
Hearing Examiner
 
The Hearing Examiner of the NMPRC
HSR Act
 
Hart-Scott-Rodino Antitrust Improvements Act of 1976
IIF
 
Infrastructure Investments Fund, an investment vehicle advised by J.P. Morgan Investment Management Inc.
kWh
  
Kilowatt-hour(s)
LTPPA
 
Long-Term Purchased Power Agreement
Merger
 
Merger of Merger Sub with and into the Company with the Company as the surviving corporation pursuant to the Merger Agreement
Merger Agreement
 
Agreement and Plan of Merger, by and among the Company, Parent and Merger Sub, dated June 1, 2019
Merger Consideration
 
The right to receive $68.25 in cash per share of common stock, without interest, on and subject to the terms and conditions set forth in the Merger Agreement
Merger Sub
 
Sun Merger Sub Inc.
MW
 
Megawatt(s)
MWh
  
Megawatt-hour(s)
NAV
 
Net Asset Value

 
(i)
 





Abbreviations, Acronyms or Defined Terms
  
Terms
 
 
 
NDT
 
The Company's Palo Verde nuclear decommissioning trust funds
Newman
 
The Company's Newman Power Station
NMPRC
  
New Mexico Public Regulation Commission
NMPUA
  
New Mexico Public Utility Act
NMSU
 
New Mexico State University
NOPR
 
Notice of Proposed Rulemaking
NRC
  
U.S. Nuclear Regulatory Commission
O&M
 
Operations and maintenance
OATT
 
Open Access Transmission Tariff
Parent
  
Sun Jupiter Holdings LLC
Palo Verde
  
Palo Verde Generating Station
Palo Verde Participation
 
Those utilities that share in power and energy entitlements, and bear certain allocated costs, with respect to Palo Verde pursuant to the ANPP Participation Agreement
PCBs
 
Pollution Control Bonds
PUCT
  
Public Utility Commission of Texas
PURA
  
Texas Public Utility Regulatory Act
RCF
 
The Company's Revolving Credit Facility
REA
  
New Mexico Renewable Energy Act
RGRT
  
Rio Grande Resources Trust II
Rio Grande
 
The Company's Rio Grande Power Station
Rosenblatt Action
 
Rosenblatt v. El Paso Electric Company, et al., Case No. 1:19-cv-01367-UNA, in the
U.S. District Court for the District of Delaware
ROU
 
Right-of-use
RPS
 
Renewable Portfolio Standard
Rule 551
 
NMPRC Rule 17.9.551 of the New Mexico Administrative Code
SEC
 
U.S. Securities and Exchange Commission
Show Cause Proceeding
 
FERC proceeding in which a company must revise its transmission rates for the TCJA effect or show cause as to why it should not be required to do so
SPS
 
Southwestern Public Service Company
SPS Appeal No. 1
 
Southwestern Public Service Co. v. NMPRC, No. S-1-SC-37248, in the New Mexico Supreme Court
SPS Appeal No. 2
 
Southwestern Public Service Co. v. NMPRC, No. S-1-SC-37308, in the New Mexico Supreme Court
Stein Action
 
Stein v. El Paso Electric Company., et al., Case No. 1:19-cv-06703, in the U.S. District Court for the Southern District of New York
TCJA
 
The federal legislation commonly referred to as the Tax Cuts and Jobs Act of 2017
TCRF
 
Transmission Cost Recover Factor
Texas Fuel Rule
 
Fuel cost recovery rule of the PUCT
U.S.
 
United States
2017 PUCT Final Order
 
PUCT Final Order in Docket No. 46831
2019 DCRF rate filing
 
DCRF rate filing in PUCT Docket No. 49395
2019 Form 10-K
 
Annual Report of El Paso Electric Company on Form 10-K for the fiscal year ended December 31, 2019
2019 TCRF rate filing
 
TCRF rate filing in PUCT Docket No. 49148

 
(ii)
 




EL PASO ELECTRIC COMPANY
INDEX TO FORM 10-Q
 
 
 
Page No.
 
Item 1.
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.
 


 
(iii)
 




PART I. FINANCIAL INFORMATION
 
Item 1.
Financial Statements

EL PASO ELECTRIC COMPANY
BALANCE SHEETS
 
 
March 31,
2020
 
December 31,
2019
 
(Unaudited)
 
 
 
 
 
ASSETS
(In thousands)
 
 
 
Utility plant:
 
 
 
Electric plant in service
$
4,447,169

 
$
4,404,150

Less accumulated depreciation and amortization
(1,486,274
)
 
(1,461,385
)
Net plant in service
2,960,895

 
2,942,765

Construction work in progress
164,528

 
157,851

Nuclear fuel; includes fuel in process of $57,845 and $61,709, respectively
211,336

 
198,075

Less accumulated amortization
(81,560
)
 
(71,588
)
Net nuclear fuel
129,776

 
126,487

Net utility plant
3,255,199

 
3,227,103

Current assets:
 
 
 
Cash and cash equivalents
57,379

 
10,818

Accounts receivable, principally trade, net of allowance for doubtful accounts of $1,778 and $1,900, respectively
66,307

 
79,814

Inventories, at cost
60,429

 
60,872

Regulatory assets
9,290

 
9,939

Prepayments and other
15,539

 
11,203

Total current assets
208,944

 
172,646

Deferred charges and other assets:
 
 
 
Decommissioning trust funds
294,501

 
325,998

Regulatory assets
69,640

 
70,805

Other
17,551

 
16,648

Total deferred charges and other assets
381,692

 
413,451

Total assets
$
3,845,835

 
$
3,813,200


See accompanying notes to financial statements.

1




EL PASO ELECTRIC COMPANY
BALANCE SHEETS (Continued)
 
 
March 31,
2020
 
December 31,
2019
 
(Unaudited)
 
CAPITALIZATION AND LIABILITIES
(In thousands except for share data)
 
 
 
Capitalization:
 
 
 
Common stock, stated value $1 per share, 100,000,000 shares authorized, 64,312,516 and 64,332,884 shares issued, and 116,172 and 95,804 restricted shares, respectively
$
64,429

 
$
64,429

Capital in excess of stated value
322,890

 
323,367

Retained earnings
1,221,513

 
1,272,418

Accumulated other comprehensive loss, net of tax
(48,977
)
 
(48,952
)
 
1,559,855

 
1,611,262

Treasury stock, 23,656,061 and 23,696,262 shares, respectively, at cost
(394,044
)
 
(394,715
)
Common stock equity
1,165,811

 
1,216,547

Long-term debt, net of current portion
1,341,131

 
1,340,981

Total capitalization
2,506,942

 
2,557,528

Current liabilities:
 
 
 
Current maturities of long-term debt
44,979

 
44,969

Short-term borrowings under the revolving credit facility
240,781

 
113,801

Accounts payable, principally trade
43,386

 
65,745

Taxes accrued
27,205

 
39,315

Interest accrued
18,920

 
14,196

Regulatory liabilities
12,908

 
19,961

Other
41,565

 
38,408

Total current liabilities
429,744

 
336,395

Deferred credits and other liabilities:
 
 
 
Accumulated deferred income taxes
337,366

 
348,398

Accrued pension liability
94,378

 
96,745

Accrued post-retirement benefit liability
23,599

 
23,081

Asset retirement obligations
112,553

 
110,105

Regulatory liabilities
298,705

 
298,466

Other
42,548

 
42,482

Total deferred credits and other liabilities
909,149

 
919,277

Commitments and contingencies


 


Total capitalization and liabilities
$
3,845,835

 
$
3,813,200

See accompanying notes to financial statements.

2





EL PASO ELECTRIC COMPANY
STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except for share data)
 
 
Three Months Ended
 
Twelve Months Ended
 
March 31,
 
March 31,
 
2020
 
2019
 
2020
 
2019
Operating revenues
$
158,563

 
$
174,363

 
$
846,194

 
$
902,253

Operating expenses:
 
 
 
 
 
 
 
Fuel and purchased power
33,624

 
48,326

 
161,219

 
225,247

Operations and maintenance
80,704

 
80,413

 
332,848

 
335,136

Depreciation and amortization
26,466

 
25,126

 
103,412

 
97,694

Taxes other than income taxes
16,071

 
16,189

 
73,233

 
71,682

 
156,865

 
170,054

 
670,712

 
729,759

Operating income
1,698

 
4,309

 
175,482

 
172,494

Other income (deductions):
 
 
 
 
 
 
 
Allowance for equity funds used during construction
586

 
1,001

 
2,130

 
3,534

Investment and interest income (losses), net
(25,599
)
 
23,707

 
20,321

 
36,929

Miscellaneous non-operating income
2,945

 
3,048

 
15,166

 
12,735

Strategic transaction costs
(1,295
)
 

 
(13,405
)
 

Miscellaneous non-operating deductions
(3,149
)
 
(2,357
)
 
(10,738
)
 
(11,594
)
 
(26,512
)
 
25,399

 
13,474

 
41,604

Interest charges (credits):
 
 
 
 
 
 
 
Interest on long-term debt and revolving credit facility
18,743

 
18,989

 
74,542

 
76,425

Other interest
4,547

 
5,233

 
20,680

 
18,469

Capitalized interest
(1,378
)
 
(1,532
)
 
(5,575
)
 
(5,801
)
Allowance for borrowed funds used during construction
(885
)
 
(972
)
 
(3,928
)
 
(3,686
)
 
21,027

 
21,718

 
85,719

 
85,407

Income (loss) before income taxes
(45,841
)
 
7,990

 
103,237

 
128,691

Income tax expense (benefit)
(10,632
)
 
1,901

 
21,498

 
31,321

Net income (loss)
$
(35,209
)
 
$
6,089

 
$
81,739

 
$
97,370

 
 
 
 
 
 
 
 
Basic earnings (loss) per share
$
(0.87
)
 
$
0.15

 
$
2.01

 
$
2.39

 
 
 
 
 
 
 
 
Diluted earnings (loss) per share
$
(0.87
)
 
$
0.15

 
$
2.00

 
$
2.39

 
 
 
 
 
 
 
 
Dividends declared per share of common stock
$
0.385

 
$
0.360

 
$
1.540

 
$
1.440

Weighted average number of shares outstanding
40,653,326

 
40,582,936

 
40,623,151

 
40,543,986

Weighted average number of shares and dilutive potential shares outstanding
40,653,326

 
40,663,753

 
40,691,961

 
40,661,228


 See accompanying notes to financial statements.




3




EL PASO ELECTRIC COMPANY
STATEMENTS OF COMPREHENSIVE OPERATIONS
(Unaudited)
(In thousands)
 
 
Three Months Ended
 
Twelve Months Ended
 
March 31,
 
March 31,
 
2020
 
2019
 
2020
 
2019
Net income (loss)
$
(35,209
)
 
$
6,089

 
$
81,739

 
$
97,370

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrecognized pension and post-retirement benefit costs:
 
 
 
 
 
 
 
Net loss arising during period

 

 
(12,110
)
 
(5,898
)
Reclassification adjustments included in net income for amortization of:
 
 
 
 
 
 
 
Prior service benefit
(1,651
)
 
(2,186
)
 
(8,205
)
 
(9,427
)
Net loss
1,445

 
843

 
4,017

 
5,655

Net unrealized gains/losses on marketable securities:
 
 
 
 
 
 
 
Net holding gains arising during period

 
2,471

 
3,601

 
1,107

Reclassification adjustments for net (gains) losses included in net income

 
829

 
(3,061
)
 
1,756

Net losses on cash flow hedges:
 
 
 
 
 
 
 
Reclassification adjustment for interest expense included in net income
158

 
148

 
615

 
577

Total other comprehensive income (loss) before income taxes
(48
)
 
2,105

 
(15,143
)
 
(6,230
)
Income tax benefit (expense) related to items of other comprehensive income (loss):
 
 
 
 
 
 
 
Unrecognized pension and post-retirement benefit costs
53

 
265

 
3,655

 
2,144

Net unrealized gains on marketable securities

 
(665
)
 
(233
)
 
(577
)
Losses on cash flow hedges
(30
)
 
(48
)
 
(129
)
 
(143
)
Total income tax benefit (expense)
23

 
(448
)
 
3,293

 
1,424

Other comprehensive income (loss), net of tax
(25
)
 
1,657

 
(11,850
)
 
(4,806
)
Comprehensive income (loss)
$
(35,234
)
 
$
7,746

 
$
69,889

 
$
92,564

See accompanying notes to financial statements.

4




EL PASO ELECTRIC COMPANY
STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
(Unaudited)
(In thousands except for share data)


 
Common Stock
 
Capital in
Excess of Stated Value
 
Retained Earnings
 
Accumulated
Other
Comprehensive Income (Loss), Net of Tax
 
Treasury Stock
 

Common Stock Equity
 
 
 
 
 
 
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
Balances at December 31, 2019
64,428,688

 
$
64,429

 
$
323,367

 
$
1,272,418

 
$
(48,952
)
 
23,696,262

 
$
(394,715
)
 
$
1,216,547

Restricted common stock grants and deferred compensation
 
 
 
 
(40
)
 
 
 
 
 
(20,368
)
 
339

 
299

Performance share awards vested
 
 
 
 
197

 
 
 
 
 
(32,119
)
 
535

 
732

Stock awards withheld for taxes
 
 
 
 
(640
)
 
 
 
 
 
12,404

 
(206
)
 
(846
)
Compensation paid in shares
 
 
 
 
6

 
 
 
 
 
(118
)
 
3

 
9

Net loss
 
 
 
 
 
 
(35,209
)
 
 
 
 
 
 
 
(35,209
)
Other comprehensive loss
 
 
 
 
 
 
 
 
(25
)
 
 
 
 
 
(25
)
Common stock, dividends declared, $0.385 per share
 
 
 
 
 
 
(15,696
)
 
 
 
 
 
 
 
(15,696
)
Balances at March 31, 2020
64,428,688

 
$
64,429

 
$
322,890

 
$
1,221,513

 
$
(48,977
)
 
23,656,061

 
$
(394,044
)
 
$
1,165,811



 
Common Stock
 
Capital in
Excess of Stated Value
 
Retained Earnings
 
Accumulated
Other
Comprehensive Income (Loss), Net of Tax
 
Treasury Stock
 

Common Stock Equity
 
 
 
 
 
 
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
Balances at December 31, 2018
65,828,688

 
$
65,829

 
$
328,480

 
$
1,227,471

 
$
(38,784
)
 
25,147,567

 
$
(418,893
)
 
$
1,164,103

Restricted common stock grants and deferred compensation
 
 
 
 
(1,328
)
 
 
 
 
 
(31,461
)
 
524

 
(804
)
Performance share awards vested
 
 
 
 
1,478

 
 
 
 
 
(39,923
)
 
665

 
2,143

Stock awards withheld for taxes
 
 
 
 
(430
)
 
 
 
 
 
12,425

 
(207
)
 
(637
)
Forfeited restricted common stock
 
 
 
 
 
 
 
 
 
 
2,566

 
(43
)
 
(43
)
Compensation paid in shares
 
 
 
 
28

 
 
 
 
 
(669
)
 
11

 
39

Net income
 
 
 
 
 
 
6,089

 
 
 
 
 
 
 
6,089

Other comprehensive income
 
 
 
 
 
 
 
 
1,657

 
 
 
 
 
1,657

Common stock, dividends declared, $0.36 per share
 
 
 
 
 
 
(14,658
)
 
 
 
 
 
 
 
(14,658
)
Balances at March 31, 2019
65,828,688

 
$
65,829

 
$
328,228

 
$
1,218,902

 
$
(37,127
)
 
25,090,505

 
$
(417,943
)
 
$
1,157,889




See accompanying notes to financial statements.



5




EL PASO ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
Three Months Ended
 
March 31,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(35,209
)
 
$
6,089

Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
 
 
 
Depreciation and amortization of electric plant in service
26,466

 
25,126

Amortization of nuclear fuel
10,739

 
10,706

Deferred income taxes, net
(10,718
)
 
1,236

Allowance for equity funds used during construction
(586
)
 
(1,001
)
Other amortization and accretion
4,937

 
5,173

Net losses (gains) on decommissioning trust funds
33,164

 
(15,989
)
Other operating activities
(163
)
 
349

Change in:
 
 
 
Accounts receivable
9,021

 
8,352

Inventories
1,718

 
(2,110
)
Prepayments and other
(4,403
)
 
(5,519
)
Accounts payable
(22,071
)
 
(11,021
)
Taxes accrued
(12,110
)
 
(8,827
)
Interest accrued
4,724

 
2,971

Net over-collection (under-collection) of fuel revenues
(6,174
)
 
12,799

Other current liabilities
2,694

 
1,599

Deferred charges and credits
(3,513
)
 
(3,513
)
Net cash provided by (used for) operating activities
(1,484
)
 
26,420

Cash flows from investing activities:
 
 
 
Cash additions to utility property, plant and equipment
(50,897
)
 
(52,428
)
Cash additions to nuclear fuel
(12,590
)
 
(9,502
)
Proceeds from insurance
4,591

 

Capitalized interest and AFUDC:
 
 
 
Utility property, plant and equipment
(1,471
)
 
(1,973
)
Nuclear fuel and other
(1,378
)
 
(1,532
)
Allowance for equity funds used during construction
586

 
1,001

Decommissioning trust funds:
 
 
 
Purchases, including funding of $0.5 million and $0.5 million, respectively
(3,073
)
 
(37,613
)
Sales and maturities
1,406

 
35,468

Other investing activities
829

 
(724
)
Net cash used for investing activities
(61,997
)
 
(67,303
)
Cash flows from financing activities:
 
 
 
Dividends paid
(15,696
)
 
(14,658
)
Borrowings under the revolving credit facility:
 
 
 
Proceeds
202,095

 
215,196

Payments
(75,115
)
 
(61,452
)
Payment on repurchase of pollution control bonds

 
(63,500
)
Other financing activities
(1,242
)
 
(653
)
Net cash provided by financing activities
110,042

 
74,933

Net increase in cash, cash equivalents and restricted cash
46,561

 
34,050

Cash, cash equivalents and restricted cash at beginning of period
10,818

 
12,900

Cash, cash equivalents and restricted cash at end of period
$
57,379

 
$
46,950

See accompanying notes to financial statements.

6

EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)


A. Principles of Preparation
These condensed financial statements should be read in conjunction with the financial statements and notes thereto in the Annual Report of El Paso Electric Company (the "Company") on Form 10-K for the fiscal year ended December 31, 2019 ("2019 Form 10-K"). Capitalized terms used in this report and not defined herein have the meaning ascribed to such terms in the 2019 Form 10-K. In the opinion of the Company’s management, the accompanying financial statements contain all adjustments necessary to present fairly the financial position of the Company at March 31, 2020 and December 31, 2019; the results of its operations and comprehensive operations for the three and twelve months ended March 31, 2020 and 2019; changes in common stock equity for the three months ended March 31, 2020 and 2019; and its cash flows for the three months ended March 31, 2020 and 2019. The results of operations, comprehensive operations and the changes in common stock equity for the three months ended March 31, 2020 and 2019, and the cash flows for the three months ended March 31, 2020 and 2019, are not necessarily indicative of the results to be expected for the full calendar year.
Pursuant to the rules and regulations of the United States ("U.S.") Securities and Exchange Commission ("SEC"), certain financial information has been condensed and certain footnote disclosures have been omitted. Such information and disclosures are normally included in financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP").
Coronavirus Disease 2019 ("COVID-19") Impacts. On March 11, 2020, the World Health Organization declared the current COVID-19 outbreak to be a global pandemic, and on March 13, 2020, the U.S. declared a national emergency. In response to these declarations and the rapid spread of COVID-19, federal, state, and local governments have imposed varying degrees of restrictions on business and social activities to contain the spread of COVID-19, including quarantine and “stay-at-home” orders and directives in the Company's service territory. The pandemic and directives have significantly impacted many sectors of the economy, including record levels of unemployment, with businesses, nonprofit organizations, and governmental entities modifying, curtailing or ceasing normal operations. The Company also modified certain business practices to conform to government restrictions and best practices encouraged by the Centers for Disease Control and Prevention, the World Health Organization, and other governmental and regulatory authorities.
While the Company continues to assess the impact of COVID-19 on its business, the Company cannot predict the full impact that COVID-19 or the significant disruption and volatility currently being experienced in the markets will have on its business, cash flows, liquidity, financial condition, and results of operations at this time, due to the numerous uncertainties that exist. The ultimate impact will depend on future developments, including, among others, the ultimate geographic spread of COVID-19, the consequences of governmental and other measures designed to prevent the spread of COVID-19, the development of effective treatments and/or vaccines, the duration of the outbreak, actions taken by governmental authorities, customers, suppliers and other third parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume. An extended slowdown of economic growth in the U.S. could result in lower growth and reduced demand for and usage of electricity in the Company's service territory as facilities continue to close or remain closed. The ability of customers, contractors and suppliers to meet their obligations to the Company, including payment obligations, could also be affected under the current economic conditions.
Agreement and Plan of Merger. On June 1, 2019, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement"), by and among the Company, Sun Jupiter Holdings LLC, a Delaware limited liability company ("Parent"), and Sun Merger Sub Inc., a Texas corporation and wholly owned subsidiary of Parent ("Merger Sub"). Pursuant to the Merger Agreement, on and subject to the terms and conditions set forth therein, Merger Sub will merge with and into the Company (the "Merger"), with the Company continuing as the surviving corporation in the Merger and becoming a wholly owned subsidiary of Parent. Parent and Merger Sub are affiliates of the Infrastructure Investments Fund, an investment vehicle advised by J.P. Morgan Investment Management Inc. ("IIF"). See Part I, Item 1, Financial Statements, Note M of Notes to Financial Statements for a discussion of the Merger.
Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. The Company evaluates its estimates on an on-going basis, including those related to depreciation, unbilled revenue, income taxes, fuel costs, pension and other post-retirement obligations and asset retirement obligations. Actual results could differ from those estimates.

7

EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

Operating Revenues. The Company accrues revenues for services rendered, including unbilled electric service revenues. The Company recognizes revenue associated with contracts with customers when performance obligations under the terms of the contract with the customer are satisfied. Revenue is measured as the amount of consideration the Company receives in exchange for transferring goods or providing services to the customer. Taxes collected concurrently with revenue producing activities are excluded from revenue. Unbilled revenues are recorded for estimated amounts of energy delivered in the period following the customer's last billing cycle to the end of the reporting period. Unbilled revenues are estimated based on monthly generation volumes and by applying an average revenue/kilowatt-hour ("kWh") to the number of estimated kWhs delivered but not billed. Accounts receivable included accrued unbilled revenues of $18.3 million at March 31, 2020 and $25.6 million at December 31, 2019.
The Company’s Texas retail customers are billed under base rates and a fixed fuel factor approved by the Public Utility Commission of Texas ("PUCT"). The Company’s New Mexico retail customers are billed under base rates and a fuel adjustment clause that is adjusted monthly, as approved by the New Mexico Public Regulation Commission ("NMPRC"). The Company's Federal Energy Regulatory Commission ("FERC") sales for resale customers are billed under formula base rates and fuel factors and a fuel adjustment clause that is adjusted monthly. The Company’s recovery of fuel and purchased power expenses is subject to periodic reconciliations of actual fuel and purchased power expenses incurred to actual fuel revenues collected. The difference between fuel and purchased power expenses incurred and fuel revenues charged to customers is reflected as over/under-collection of fuel revenues, which is included in regulatory liabilities/assets - current in the balance sheets. See Part I, Item 1, Financial Statements, Note D of Notes to Financial Statements for further discussion.
Credit Losses. On January 1, 2020, the Company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326). There was no cumulative effect adjustment at the initial application of the new standard. In addition, comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company expects the ongoing impact of the new standard to be immaterial to its financial position and results of operations and no significant changes in the Company's business processes and internal controls were necessary upon adoption of the new standard. The Company is exposed to credit losses as a result of recording customer receivables related to retail and wholesale electric sales and the provision of transmission services to customers. The allowance for doubtful accounts represents the Company’s estimate of existing accounts receivable that will ultimately be uncollectible. The allowance is calculated by applying estimated write-off factors to various classes of outstanding receivables. The write-off factors used to estimate uncollectible accounts are based upon consideration of both historical collections experience and management’s best estimate of future collections success given the existing collections environment and qualitative forecasts of future conditions. During the first quarter of 2020, the Company performed its assessment, which included consideration of the COVID-19 pandemic. Based on that assessment, the Company recorded a charge for anticipated uncollectible customer accounts. Additions, deductions and balances for the allowance for doubtful accounts for the three months ended March 31, 2020 and March 31, 2019 are as follows (in thousands):
 
Three Months Ended
 
March 31,
 
2020
 
2019
Balance at beginning of period
$
1,900

 
$
2,070

Additions:
 
 
 
Increase to provision
676

 
217

Recovery of previous write-offs
340

 
342

Uncollectible receivables written off
(1,138
)
 
(1,115
)
Balance at end of period
$
1,778

 
$
1,514


Leases. The Company determines if an arrangement contains a lease and the classification of that lease at inception. Operating lease right-of-use ("ROU") assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make payments under the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of the minimum lease payments over the lease term. In determining lease terms, the Company considers any options to extend or terminate the lease that are reasonably certain of being exercised. As the Company’s leases do not include an implicit rate, the Company uses an estimated incremental borrowing rate, at lease commencement, to determine the present value of the future lease payments. In calculating the incremental borrowing rate, the Company takes into consideration recent debt issuances and other data for instruments with similar characteristics. The Company’s lease agreements do not contain residual value guarantees or restrictive covenants. For leases with lease and non-lease components,

8

EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

the Company has elected to account for the consideration as a single lease component. The Company has also elected not to record leases with a term of 12 months or less on the balance sheets. The operating lease ROU assets are included as part of electric plant in service and lease liabilities are included as part of current and non-current liabilities in the Company’s balance sheets.
Depreciation. The Company routinely evaluates the depreciable service lives, cost of removal and salvage values of its property, plant and equipment. Depreciation is provided on a straight-line basis over the estimated remaining lives of the assets (ranging in average from 5 to 48 years). When property subject to composite depreciation is retired or otherwise disposed of in the normal course of business, its cost together with the cost of removal, less salvage is charged to accumulated depreciation. For other property dispositions, the applicable cost and accumulated depreciation is removed from the balance sheet accounts and a gain or loss is recognized, if applicable.
New Accounting Standards Adopted in 2020
In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). ASU 2016-13 changes how companies measure and recognize credit impairment for many financial assets. The new expected credit loss model requires companies to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets that are in the scope of the standard. ASU 2016-13 is required for reporting periods beginning after December 15, 2019. ASU 2016-13 was applied in a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is implemented. The Company adopted ASU 2016-13 on January 1, 2020. As part of its implementation process, the Company evaluated the impact of the new standard, which included evaluating the impact of (i) ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses; Topic 815, Derivatives and Hedging; and Topic 825, Financial Instruments and (ii) ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief. The adoption of this standard did not have a material impact or require a cumulative effect adjustment to retained earnings. The Company anticipates the ongoing impact of ASU 2016-13 will be immaterial to the Company’s financial position, results of operations, and cash flows.
New Accounting Standards to be Adopted in the Future
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), as part of its initiative to reduce complexity in accounting standards. ASU 2019-12 amends the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 will be effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim periods for reporting periods for which financial statements have not been issued. The Company is currently evaluating the future impact of ASU 2019-12.
Supplemental Cash Flow Disclosures (in thousands)
 
 
 
 
 
Three Months Ended
 
 
March 31,
 
 
2020
 
2019
Cash paid (refunded) for: