El Paso Electric Announces Second Quarter Financial Results

Business Wire, August 6, 2008

Cash flows from operations for the six months ended June 30, 2008 decreased to $48.8 million from $88.1 million in the corresponding period in 2007. The primary factors affecting the change in cash flow were the 2008 increases in net deferred fuel revenues and increased accounts receivable associated with June 2008 sales. Cash requirements increased $43.1 million in the first six months of 2008 compared to the first six months of 2007 due to the under-recovery of fuel costs. In the first six months of 2008, prices for natural gas increased significantly, resulting in significant increases in fuel costs and the balance of fuel under-recoveries. These cost increases have not yet been reflected in our Texas fuel factor. In addition, post-February 2008 cost increases in New Mexico are being deferred for collection beginning in October 2008. As a result, at June 30, 2008, the Company had a fuel under-recovery balance of $66 million including $56 million in Texas and $10 million in New Mexico. The Company is seeking to collect the balance of fuel under-recoveries in Texas through fuel surcharges including a $30.1 million twelve-month surcharge that was placed into effect in May 2008, and a second twelve-month surcharge which was filed in Texas in July 2008 with a proposed effective date of October 2008.

During the six months ended June 30, 2008, our primary capital requirements were for construction and purchase of electric utility plant, purchases of nuclear fuel, and the repurchase of common stock. Capital requirements for new electric plant were $94.7 million for the six-month period ended June 30, 2008 compared to $55.2 million for the six-month period ended June 30, 2007. During the first six months of 2008, we repurchased $9.9 million of common stock compared to common stock repurchases of $14.1 million in the first six months of 2007. We issued $150 million of 7.5% Senior Notes in June 2008 to meet our current and expected future cash requirements. The net proceeds from the 7.5% Senior Notes of $148.7 million were used to pay down $44.0 million of working capital borrowings under our credit facility and the remaining proceeds are expected to fund our construction program and ensure adequate liquidity for the next 12 to 18 months. In addition, during the first six months of 2008, we liquidated $16.0 million of temporary investments. At June 30, 2008, we had a balance of $94.0 million in cash and cash equivalents.

Our capital requirements for nuclear fuel increased substantially in 2007 and 2008 as a result of increases in prices for uranium concentrates and an increase in our inventory of nuclear fuel feedstock. We finance our nuclear fuel inventory through a trust that borrows under our $200 million credit facility to acquire and process the nuclear fuel. Borrowings under the credit facility for nuclear fuel were $95.1 million as of June 30, 2008 and $55.1 million as of June 30, 2007. Up to $120 million of the credit facility may be used to finance nuclear fuel. Amounts not drawn for nuclear fuel are available for general corporate purposes.