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El Paso Electric holds off on guidance until rate cases are settled

El PasoElectric Co. has implemented an interim rate increase of $37million related to its pending ratecase in Texas, subject to refund or surcharge.

Until the Texas rate case is resolved, however, El PasoElectric will not issue a defined range of guidance, company CFO Nathan Hirschisaid during a first-quarter 2016 earningsconference call held May 4. Another rate case in New Mexico ispending as well.

The non-fuel base rate increase was agreed to in a recentsettlement agreement thatwas approved by anadministrative law judge of the Public Utility Commission of Texas in lateMarch. The agreement called for the base rate increase with a possibility forthe company to collect an additional $8 million for expenses related to the coal-firedFour Cornerspower project, which will be litigated separately, El Paso Electric executivessaid during the call.

The company owns a 7% interest in Four Corners units 4 and 5.

Other key terms of the agreement are the lowering of annualdepreciation expense by about $8.5 million and the setting of a 9.7% return onequity for allowance for funds used during construction purposes. Part of thesettlement was a determination that substantially all new plant in service wasreasonable and necessary, and should be included in rate base.

The settlement would resolve all issues in the case otherthan the revenue requirement for the Four Corners project, subject to the finalapproval of the commission. If approved, the new rates would relate back toenergy consumed on and after Jan. 12.

The company expects to have a true-up that will allow it torecord the revenue requirements and recover them during 12 to 18 months. Afterthat, the company plans to have a surcharge that it expects collecting over 12-to 18-month period. The surcharge would relate to potential additional revenuesfrom Four Corners and rate case expenses.

Based on a procedural schedule under an April 22 order, ahearing on the merits of the settlement has been set for June 21 and 22,excluding the Four Corners power plant issue. The company was unable to predictthe issuance date of the PUCT's final order.

Company executives expressed concern that the challenges ElPaso Electric faced during the first quarter would continue until the interimrevenues in Texas are no longer subject to refund.

In addition, El Paso Electric now expects to energize unit 4of its natural gas-fired MontanaPower Station in September. Previously, the unit was scheduled toachieve commercial operations in December.