El Paso Electric Announces Second Quarter Financial Results

Business Wire, August 6, 2008

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

* Increased Palo Verde non-fuel operations and maintenance expenses in 2008 due to higher maintenance costs at Palo Verde Unit 2 associated with refueling the unit, including some unscheduled preventive maintenance, 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 2007 no major maintenance was performed at our fossil-fueled generating units.

* Increased depreciation and amortization primarily due to increased 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 rate on two series of pollution control bonds are reset through weekly auctions, and uncertainties in the auction markets have resulted in substantially higher interest rates in the first half of 2008 on these two series of bonds.

Key Earnings Drivers

Historically, our earnings are largely influenced by base revenues from retail electric customers, operations at Palo Verde, and off-systems sales margins.

Retail Non-fuel Base Revenues

Retail non-fuel base revenues increased by $11.6 million, pre-tax, or 10.4% in the second quarter of 2008 compared to the same period in 2007. KWh sales and non-fuel base revenues for residential, small commercial and industrial and public authority customers were all positively impacted by a return to normal summer weather in the second quarter of 2008 as compared to cooler than normal summer weather in the second quarter of 2007, as can be seen on page 11 of 15 of the Release. During the second quarter of 2008, cooling degree days were 20% above last year and 2% above the 10-year average. The increase in kWh sales was also impacted by a 2.0% increase in the number of customers served in the second quarter of 2008 as compared to 2007. Revenues from residential, small commercial and industrial and public authority customers also benefited from a non-fuel base rate increase in New Mexico effective July 1, 2007.

For the six month period ended June 30, 2008, retail non-fuel base revenues increased $13.4 million, pre-tax, or 6.3% and kWh sales grew 4.7%, compared to the same period in 2007, as can be seen on page 13 of 15 of the Release. Year to date non-fuel base revenues and kWh sales also benefited from the return to normal summer weather in the second quarter of 2008. In the first six months of 2008, cooling degree days were 18% above last year and 3% above the 10-year average. Revenues from residential, small commercial and industrial and public authority customers also benefited from a non-fuel base rate increase in New Mexico effective July 1, 2007.

Palo Verde Operations

We own approximately 633 MW (undivided interest) of generating capacity in the three generating units at the Palo Verde nuclear power station. The operation of Palo Verde not only affects our ability to make off-system sales but also impacts fuel costs to native load customers and represents a significant portion of our non-fuel operation and maintenance expenses. Palo Verde generation accounted for almost 55% of total Company generation in both the second quarters of 2008 and 2007. A spring refueling outage at Palo Verde Unit 2 began March 29, 2008 and was completed June 5, 2008. The 2007 Spring refueling outage at Palo Verde Unit 1 began May 19, 2007 and was completed July 19, 2007.