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Wiki Wiki Summary
Initial public offering An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investment banks, who also arrange for the shares to be listed on one or more stock exchanges.
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Microsoft Azure Microsoft Azure, often referred to as Azure ( AZH-ər, AY-zhər, UK also AZ-ure, AY-zure), is a cloud computing service operated by Microsoft for application management via Microsoft-managed data centers. It provides software as a service (SaaS), platform as a service (PaaS) and infrastructure as a service (IaaS) and supports many different programming languages, tools, and frameworks, including both Microsoft-specific and third-party software and systems.
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Risk Factors
EL PASO ELECTRIC CO /TX/ Item 1A Risk Factors Like other companies in our industry, our consolidated financial results will be impacted by weather, the economy of our service territory, fuel prices, the performance of our customers and the decisions of regulatory agencies
Our common stock price and creditworthiness will be affected by national and international macroeconomic trends, general market conditions and the expectations of the investment community, all of which are largely beyond our control
In addition, the following statements highlight risk factors that may affect our consolidated financial condition and results of operations
These are not intended to be an exhaustive discussion of all such risks, and the statements below must be read together with factors discussed elsewhere in this document and in our other filings with the SEC Our Costs Could Increase or We Could Experience Reduced Revenues if There are Problems at the Palo Verde Nuclear Generating Station A significant percentage of our generating capacity, off-system sales margins, assets and operating expenses is attributable to Palo Verde
Our 15dtta8prca interest in each of the three Palo Verde units total approximately 600 MW of generating capacity
Palo Verde represents approximately 40prca of our available net generating capacity and represented approximately 46prca of our available energy for the twelve months ended December 31, 2005
Palo Verde comprises 42prca of our total net plant-in-service and Palo Verde expenses comprise a significant portion of operation and maintenance expenses
We face the risk of additional or unanticipated costs at Palo Verde resulting from (i) increases in operation and maintenance expenses; (ii) the replacement of steam generators in Palo Verde Unit 3; (iii) the replacement of reactor vessel heads at the Palo Verde units; (iv) an extended outage of any of the Palo Verde units; (v) increases in estimates of decommissioning costs; (vi) the storage of radioactive waste, including spent nuclear fuel; (vii) prolonged reductions in generating output; (viii) insolvency of other Palo Verde Participants; and (ix) compliance with the various requirements and regulations governing commercial nuclear generating stations
At the same time, our retail base rates in Texas are effectively capped through June 2010
As a result, we cannot raise our base rates in Texas in the event of increases in non-fuel costs or loss of revenue unless our return on equity falls below the bottom of a market-based defined range in which the bottom of the range is approximately 8prca
Additionally, should retail competition occur, there may be competitive pressure on our rates which could reduce profitability
We cannot assure that revenues will be sufficient to recover any increased costs, including any increased costs in connection with Palo Verde or other operations, whether as a result of inflation, changes in tax laws or regulatory requirements, or other causes
Typically, the Company realizes between 40prca and 50prca of its off-system sales margins during the first quarter of each calendar year when the Company’s native load is lower than at other times of the years, allowing for the sale in the wholesale market of relatively larger amounts of off-system energy generated from nuclear fuel resources
Palo Verde’s availability is an important factor in realizing these off-system sales margins
The Company estimates that the reduced output and upcoming outages at Palo Verde Unit 1, together with lower than originally forecast wholesale energy prices, will result in reduced off-system sales margins of approximately dlra12 to dlra18 million for the period January through July 2006
The Company cautions that results would differ from its estimates to the extent that actual market prices, Palo Verde Unit 1 operations and other factors vary from its assumptions
The adverse financial impact on the Company from continued reduced output and outages at Palo Verde Unit 1 could increase and would include foregone off-system margins, higher capital and/or operating costs and increased purchased power and other costs
21 ______________________________________________________________________ [73]Table of Contents [74]Index to Financial Statements Our City Rate Agreement with El Paso Could Terminate Early Under our City Rate Agreement, we agreed to engage the services of an independent consultant to review the reasonableness of certain operating expenses
If the consultant finds such expenses to be unreasonable, the parties will seek to negotiate an appropriate remedy
If the parties are unable to agree on a remedy, the New Texas Freeze Period would expire on June 30, 2006
If that were to occur, we would be subject to traditional rate regulation by the City with appellate review by the Texas Commission beginning July 1, 2006
In such event, there can be no assurance that we would be able to maintain our Texas rates thereafter
In addition, the early termination of the New Texas Freeze Period or denial by the Texas Commission to approve the fuel provision of the City Rate Agreement may mean that we would not be entitled to retain 75prca of our margins from off-system sales retroactive to July 1, 2005
If litigated rate regulation leads to lower rates or reduced off-system sales margin retention, there would be a potential material negative impact on our revenues, earnings, cash flows and financial position
We May Not Be Able to Pass Through All of Our Fuel Expenses to Customers In general, by law, we are entitled to pass through our prudently incurred fuel and purchased power expenses to our customers in Texas and New Mexico
Nevertheless, we agreed in 2004 to a fixed fuel factor for ten percent of the kilowatt-hours of our retail customers in New Mexico pursuant to a base rate freeze that expires in 2007
This agreement also allows us to price a portion of power from Palo Verde Unit 3 at market prices which tend to track gas prices
To the extent that this indirect “hedge” does not perfectly track our costs, we are subject to the risk of increased costs of fuel that would not be recoverable
The portion of fuel expense that is not fixed is subject to reconciliation by the Texas Commission and the NMPRC Prior to the completion of a reconciliation, we record fuel transactions such that fuel revenues equal fuel expense except for the portion fixed in New Mexico
In the event that a disallowance occurs during a reconciliation proceeding, the amounts recorded for fuel and purchased power expenses could differ from the amounts we are allowed to collect from our customers and we would incur a loss to the extent of the disallowance
In New Mexico, the fuel adjustment clause allows us to reflect current fuel cost in the fuel clause and to recover under-recoveries and refund over-recoveries with a two month lag
In Texas, fuel costs are recovered through a fixed fuel factor that may be adjusted two times per year
During periods of significant increases in natural gas prices such as occurred in 2004 and 2005, the Company realizes a lag in the ability to reflect increases in fuel costs in its fuel recovery mechanisms
As a result, the cash flow is impacted due to the lag in payment of fuel costs and collection of fuel costs from customers
At December 31, 2005 and December 31, 2004, the Company had deferred fuel balances of dlra92 million and dlra19 million, respectively
A surcharge to collect fuel under-recoveries of dlra53 million over a 24 month period was placed into effect in Texas in October 2005
A second surcharge was placed into effect on an interim basis in Texas in February 2006 to collect dlra34 million over a twelve month period
To the extent the fuel recovery processes in Texas and New Mexico do not provide for the timely recovery of fuel costs, the Company could experience a material negative impact on its cash flow
To insure that we have adequate liquidity we have recently begun the process of replacing our dlra100 million revolving credit facility with a new dlra150 million revolving credit facility
The new revolving credit facility will have similar terms to the existing revolving credit facility and will provide up to dlra70 million for nuclear fuel purchases with any amounts not borrowed for nuclear fuel purchases 22 ______________________________________________________________________ [75]Table of Contents [76]Index to Financial Statements available for use for working capital
The Company expects, but has no assurance, that the new revolving credit facility will be in place by the second quarter of 2006
Equipment Failures and Other External Factors Can Adversely Affect Our Results The generation and transmission of electricity require the use of expensive and complex equipment
While we have a maintenance program in place, generating plants are subject to unplanned outages because of equipment failure
We are particularly vulnerable to this due to the advanced age of several of our gas-fired generating units in or near El Paso
In the event of unplanned outages, we must acquire power from others at unpredictable costs in order to supply our customers and comply with our contractual agreements
This can materially increase our costs and prevent us from selling excess power at wholesale, thus reducing our profits
In addition, decisions or mistakes by other utilities may adversely affect our ability to use transmission lines to deliver or import power, thus subjecting us to unexpected expenses or to the cost and uncertainty of public policy initiatives
We are particularly vulnerable to this because a significant portion of our available energy (at Palo Verde and Four Corners) is located hundreds of miles from El Paso and Las Cruces and must be delivered to our customers over long distance transmission lines
These factors, as well as weather, interest rates, economic conditions, fuel prices and price volatility, are largely beyond our control, but may have a material adverse effect on our consolidated earnings, cash flows and financial position
Competition and Deregulation Could Result in a Loss of Customers and Increased Costs As a result of changes in federal law, our wholesale and large retail customers already have, in varying degrees, alternate sources of economical power, including co-generation of electric power
Texas has recently passed industry deregulation legislation requiring us to separate our transmission and distribution functions, which would remain regulated, from our power generation and energy services businesses, which would operate in a competitive market, in the future
On October 13, 2004, the Texas Commission approved a rule delaying retail competition in our Texas service territory
There is substantial uncertainty about both the regulatory framework and market conditions that would exist if and when retail competition is implemented in our Texas service territory, and we may incur substantial preparatory, restructuring and other costs that may not ultimately be recoverable
There can be no assurance that deregulation would not adversely affect our future operations, cash flows and financial condition