Cap Rock Energy Corp. owns and operates an electric distribution and transmission business in various non-contiguous areas in Texas. The company's primary focus is on the distribution of electricity to its customers, from the use of its power lines and associated equipment. All costs of purchased power, including the cost of fuel used to generate the power, are passed through to the retail customer. The company has not and does not plan to engage in the generation of electricity. As of Dec. 31, 2004, the company provided electric distribution service to approximately 33,500 meters in 28 counties covering apx. 13,000 square miles in Texas. This includes 23,000 meters in 17 counties within two operating divisions in the Midland-Stanton area of west Texas (the west Texas divisions), 6,100 meters in the central Texas area around Brady, and over 4,200 meters in northeast Texas in Hunt, Collin and Fannin Counties. The company also provides management services to the Farmersville Municipal Electric System which services nearly 1,500 meters in Farmersville, TX. The company's operating revenues come from electric or electric related sales. Annual sales for 2004 to the company's commercial/industrial, residential and irrigation customers accounted for apx. 54%, 38% and 8%, respectively, of total electric sales. This trend has remained fairly constant. The company has investments in the real estate business, the oil and gas business and the petroleum distribution business, none of which separately or collectively account for 10% or more of the company's revenues. The company had a 15% interest in United Fuel and Energy Company (United Fuel), which is engaged in the petroleum distribution business. The company also had a note receivable from United Fuel which was extinguished by United Fuel taking the company's position as borrower on a cross-collateralized note payable. The company was a secondary guarantor on United Fuel's note of $3,500,000, which United Fuel repaid in November 2004, and the company was released from the guaranty. In March 2004, the company signed an agreement with a shareholder of United Fuel to sell the company's shares of stock in United Fuel for $1,300,000 in exchange for a note receivable from that shareholder. The payment date is defined as the sooner of 24 months from the date of the agreement or 60 days after United Fuel has completed certain capitalization arrangements.
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