El Paso Electric Company ("El Paso" or the Company) is an electric utility that provides generation, transmission, and distribution service to approximately 428,000 retail and wholesale customers in a 10,000 square mile area of the Rio Grande valley in west Texas and southern New Mexico.

The original Complaint charges that Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. Specifically, the suit alleges that the Company issued materially false and misleading information by misrepresenting and/or omitting adverse facts concerning illegal arrangements with Enron Corporation and by artificially inflating revenues. Following an investigation by the Federal Energy Regulatory Commission ("FERC") which stated that the Company was very likely involved in illegal transactions, the price of common stock dropped dramatically.

According to the Company’s Form 10-Q for the quarterly period ended September 30, 2005, the lead Plaintiff, Carpenters Pension Fund of Illinois, filed a consolidated amended Complaint on July 2, 2003, alleging, among other things, that El Paso and certain of its current and former directors and officers violated securities laws by failing to disclose that some of the Company’s revenues and income were derived from an allegedly unlawful relationship with Enron. The allegations arise out of the FERC investigation of the power markets in the western United States during 2000 and 2001, which the Company previously settled with the FERC Trial Staff and certain intervening parties. On August 15, 2003, the Company and the individual Defendants filed a motion to dismiss the Complaint for failure to state a claim upon which relief can be granted. On November 26, 2003, the Court denied the motion to dismiss as to the Company and three of the individual Defendants and granted the motion to dismiss as to two individual Defendants. On April 13, 2004, the Court granted a motion of the Company and the remaining individual Defendants requesting permission to file an interlocutory appeal to the U. S. Court of Appeals for the Fifth Circuit regarding certain legal questions relating to the Court’s denial of the motion to dismiss the Complaint as to those Defendants. On April 27, 2004, the Court entered an order staying the district court proceedings until the Fifth Circuit completed its review. On June 7, 2004, the U. S. Court of Appeals denied the appeal which automatically lifted the stay in the district court. While the Company believed the lawsuit was without merit, the parties reached a settlement to resolve this case.

As reported by the same SEC filing, the parties filed a Stipulation of Settlement with the Court on June 2, 2005, and the Court issued a final order approving the settlement on September 15, 2005. The settlement was paid by the Company’s insurance carrier since the deductible had been met and did not require any further charge to the Company’s earnings.

By the Notice of Pendency of Class Action and Proposed Settlement, the Settlement Fund consisted of $10,000,000 in cash, plus interest.