El Paso Electric Announces Second Quarter Financial Results

Business Wire, August 6, 2008

Palo Verde operation and maintenance expenses increased $4.3 million, pre-tax, in the second quarter of 2008 and $8.7 million, pre-tax, for the six months ended June 30, 2008 when compared to the same periods last year. These increases are primarily due to increased maintenance costs incurred during the 2008 Spring refueling outage at Palo Verde Unit 2 and increased operating costs at all three units in response to an enhanced inspection regimen by the Nuclear Regulatory Commission (NRC). The NRC placed Palo Verde Unit 3 in the "multiple/repetitive degraded cornerstone" column of the NRC's action matrix in February 2007 which has resulted in an enhanced NRC inspection regimen for the entire plant. This enhanced inspection regimen and associated corrective actions have resulted in increased operating costs at the plant.

Off-system Sales

We continue to make off-system sales in the wholesale power markets when competitively priced excess power is available from our generating plants and purchased power contracts. The table below shows off-system sales MWh and the pre-tax margins realized and retained by us from sales for the quarter and six month periods ended June 30, 2008 and 2007:

[TABLE OMITTED]

For the quarter ended June 30, 2008, retained margins from off-system sales decreased approximately $1.3 million, pre-tax, over the corresponding period in 2007 due primarily to the aforementioned difference in the timing of Palo Verde outages which resulted in higher costs of energy to make off-system sales. The average retained margin per MWh decreased $3.08.

For the six months ended June 30, 2008, our retained margins increased $1.6 million, pre-tax, over the corresponding period in 2007. The increase in off-system sales margins was primarily the result of an off-system sale transaction. In May 2007, the Company began selling 100 MW of firm energy and 50 MW of contingent energy to the Imperial Irrigation District. The firm portion of this sale is made through a 100 MW purchase of firm energy from CreditSuisse, LLC and the contingent portion is generally from our generating plants. During the first six months of 2008, the net margin from this transaction resulted in $7.5 million in gross off-system sales margin compared to $0.7 million during the same period last year. This increase was offset by reduced retained margins on our other off-system sales due to higher costs of energy to make off-system sales, due primarily to the previously discussed difference in the timing of refueling outages. The table below shows on a per MWh basis, pre-tax revenues, costs and margins from off-system sales for the first two quarters of 2008 and 2007.

[TABLE OMITTED]

Capital and Liquidity

At June 30, 2008, common stock equity comprised 45.1% of our permanent capitalization (common stock, long-term debt and the current portion of long-term debt and financing obligations). The Company issued $150 million of 7.5% Senior Notes in June 2008 to fund construction expenditures and for general corporate purposes, which resulted in a reduction in our common equity ratio. The Senior Notes issuance should, however, provide the remaining liquidity necessary for the Company to fund its capital program for the next 12 to 18 months.