El Paso Electric Earnings 2020-03-31

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

Document

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



☐	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.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Balance Sheets - March 31, 2020 and December 31, 2019	1
	Statements of Operations – Three Months and Twelve Months Ended March 31, 2020 and 2019	3
	Statements of Comprehensive Operations – Three Months and Twelve Months Ended March 31, 2020 and 2019	4
	Statements of Changes in Common Stock Equity - Three Months Ended March 31, 2020 and 2019	5
	Statements of Cash Flows – Three Months Ended March 31, 2020 and 2019	6
	Notes to Financial Statements	7
	Report of Independent Registered Public Accounting Firm	32
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51
Item 4.	Controls and Procedures	51
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 5.	Other Information	53
Item 6.	Exhibits	53



	(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.

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.

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.

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.

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
	Common Stock												Treasury Stock
	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
	Common Stock												Treasury Stock
	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.

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.

Table of Contents

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.

Table of Contents

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,

Table of Contents

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:

Price	67.05	EPS	2
Shares	41	P/E	29
MCap	2,728	P/FCF	47
Net Debt	1,370	EBIT	192
TEV	4,098	TEV/EBIT	21
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

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EX-32.01	eeex320120200331q1.htm

EE 10Q Quarterly Report

El Paso Electric Earnings 2020-03-31