El Paso Electric Announces Second Quarter Financial Results

Business Wire, August 6, 2008

EL PASO, Texas -- El Paso Electric Company (NYSE:EE):

Overview

* For the second quarter 2008, EE reported net income of $19.2 million, or $0.43 basic and diluted earnings per share. In the second quarter of 2007, EE had net income of $9.6 million, or $0.21 basic and diluted earnings per share.

* For the six months ended June 30, 2008, EE reported net income of $33.7 million, or $0.75 basic and diluted earnings per share. Net income for the six months ended June 30, 2007 was $24.7 million, or $0.54 and $0.53 basic and diluted earnings per share, respectively.

"Our strong second quarter 2008 results, relative to 2007, were largely driven by increased revenues from retail customers. This revenue growth was primarily the result of a return to more normal summer weather," said J. Frank Bates, Interim President and Chief Executive Officer. "Increased revenues from sales to retail customers, including sales from the deregulated portion of Palo Verde Unit 3, more than offset operation and maintenance cost increases at the Palo Verde nuclear generating station and our coal and gas-fired generating stations."

Earnings Summary

The table and explanations below present the major factors affecting 2008 net income relative to 2007 net income.

[TABLE OMITTED]

Second Quarter 2008

Earnings for the quarter ended June 30, 2008 when compared to the same period last year were positively affected by:

* Higher retail non-fuel revenues in 2008 were primarily due to a 6.9% increase in kWh sales to retail customers. Kilowatt-hour sales increases were mostly the result of the return to normal summer weather in 2008 compared to cooler summer weather in the second quarter of 2007, but were also impacted by the 2% increase in the average number of customers served.

* Higher proxy market prices for deregulated Palo Verde Unit 3 power sold to retail customers.

* Increased revenues for transmission wheeling in 2008 largely due to increased revenues for wheeling power in southern New Mexico and for wheeling power in Arizona.

* Lower administrative and general expenses due to a decrease in pension and other post-retirement benefits expenses due primarily to an increase in the discount rate for the associated liabilities.

* Increased AFUDC (allowance for funds used during construction) and capitalized interest due to higher balances of construction work in progress subject to AFUDC and nuclear fuel inventory subject to capitalized interest in 2008.

Earnings for the quarter ended June 30, 2008 when compared to the same period last year were negatively affected by:

* Increased Palo Verde non-fuel operation and maintenance expenses in 2008 due to higher maintenance costs at Palo Verde Unit 2, including some unscheduled preventive maintenance during refueling of the unit, and increased operating costs at all three units.

* Increased O&M costs at our fossil-fueled generating plants as planned major maintenance was performed at Four Corners Unit 5 and Newman Unit 3 in 2008. In the second quarter of 2007 no major maintenance was performed at our fossil-fueled generating units.

* Increased depreciation and amortization expense primarily due to higher depreciable plant balances.

* Increased interest expense on long-term debt due to higher interest rates on pollution control bonds and the issuance of $150 million of 7.5% Senior Notes in June 2008. The interest rates on two series of pollution control bonds are reset through weekly auctions, and uncertainties in the auction markets have resulted in higher interest rates on these two series of bonds.

* Reduced margins on off-system sales in the second quarter of 2008 primarily due to the timing of Palo Verde refueling outages. The 2008 Spring outage began on time (late March) when off-system sales margins are typically higher than they are in late Spring and Summer. The 2007 Spring outage began in mid-May 2007. This timing difference in Spring outages led to tighter sales margins in 2008.

Year to Date

Earnings for the six months ended June 30, 2008 when compared to the same period last year were positively affected by:

* Higher retail non-fuel revenues in 2008 were primarily due to a 4.7% increase in kWh sales to retail customers. Kilowatt-hour sales increases were mostly the result of the return to normal summer weather in the second quarter of 2008 compared to cooler summer weather in the second quarter of 2007, but were also impacted by the 2.1% increase in the average number of customers served.

* Higher proxy market prices for deregulated Palo Verde Unit 3 power sold to retail customers.

* Increased AFUDC and capitalized interest due to higher balances of construction work in progress subject to AFUDC and nuclear fuel inventory subject to capitalized interest in 2008.

* Increased revenues for transmission wheeling in 2008 largely due to increased revenues for wheeling power in southern New Mexico and for wheeling power in Arizona.

* Higher retained margins on off-system sales as a result of higher margins from an off-system sales transaction in the first quarter of 2008 partially offset by lower margins on second quarter 2008 off-system sales, largely the result of the relative timing of Palo Verde refueling outages.