The accompanying proxy is solicited on behalf of the Board for use at the 2014 Annual Meeting of Shareholders (the “Annual Meeting”) to be held on May 29, 2014, at 10:00 a.m., Mountain Daylight Time, at El Paso Electric Company’s (the “Company”) principal offices, and at any adjournment thereof. The Company’s principal offices are located at the Stanton Tower Building, 100 N. Stanton Street, El Paso, Texas 79901.

The cost of soliciting proxies will be borne by the Company. In addition to the use of the mail, proxies may be solicited by personal interview, telephone, fax or other electronic

means by the Board, officers, employees and agents of the Company. To assist in the solicitation, the Company has engaged Georgeson Inc. for a fee of $6,500 plus out-of-pocket expenses. The Company will also reimburse brokers, banks and other persons for reasonable expenses in forwarding the Notice of the Meeting to beneficial owners and forwarding printed proxy materials by mail to beneficial owners who specifically request them.

This Proxy Statement and the accompanying form of proxy are first being made available on the Internet to shareholders of the Company on or about April 18, 2014.

At the close of business on March 31, 2014, the record date for determination of the shareholders entitled to notice of and to vote at the Annual Meeting, the Company had outstanding 40,303,763 shares of its common stock (the “Common Stock”).

Each outstanding share of Common Stock is entitled to one vote. The holders of at least a majority of the issued and outstanding shares of Common Stock must be represented in person or by proxy at the Annual Meeting for a quorum to be present and business to be conducted. The affirmative vote of a plurality of the votes cast at the meeting is required for the election of each Class II Director. The affirmative vote of the holders of a majority of the shares of Common Stock entitled to vote and represented in person or by proxy at the meeting is required to approve El Paso Electric Company’s Amended and Restated 2007 Long-Term Incentive Plan. The affirmative vote of the holders of a majority of the shares of Common Stock entitled to vote on the proposal and represented in person or by proxy at the meeting is required to approve the selection of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2014.

The outcome of the advisory vote on the Company’s executive compensation will not be binding on the Board. Therefore, there is no “required vote” on this resolution. The Board, in the exercise of its fiduciary duties, will consider

the outcome of the advisory vote in determining how to proceed following such vote. The affirmative vote of the majority of the shares of Common Stock present in person or represented by proxy and entitled to vote on the proposal will be considered as the approval, by an advisory vote, of the compensation of our Named Executive Officers.

A shareholder of record having the right to vote may vote either in person or by proxy. A shareholder of record may vote by proxy over the Internet by following the instructions provided in the Notice of the Meeting, or if the shareholder requests printed copies of the proxy materials by mail, the shareholder may also vote by mail or by telephone.

A shareholder who signs and returns a proxy may revoke that proxy at any time before the Annual Meeting by filing with the Corporate Secretary of the Company an instrument in writing revoking the proxy, delivering a duly executed proxy bearing a later date, or attending the meeting and voting in person. The shares represented by a proxy given and not so revoked will be voted and, where the shareholder specifies a choice with respect to any matter to be acted upon and for which a ballot is provided in the proxy form, the shares will be voted in accordance with the specification so made. If a proxy is properly executed and returned, but no choice is specified, the shares will be voted “FOR” each director nominee and “FOR” each of proposals two, three and four. With respect to any other matters that will come

before the Annual Meeting, the proxy will be voted in the discretion of the proxy holder. If no proxy is returned by a shareholder of record, the shares represented by such proxy will not be voted.

The Board is not aware of any matter that will be presented at the Annual Meeting of Shareholders other than as set forth in the accompanying Notice. If, however, any other matters are properly presented at the Annual Meeting, the proxy holder will have discretionary authority to vote the shares represented by properly executed proxies in accordance with the proxy holder’s discretion and judgment as to the best interests of the Company and its shareholders.

Abstentions are included in the determination of the number of shares represented at the Annual Meeting for purposes of determining whether a quorum is present and are counted as a vote “AGAINST” when determining whether a proposal has been approved. Broker non-votes are included in the determination of the number of shares represented at the Annual Meeting for purposes of determining whether a quorum is present and are not counted for purposes of determining whether a proposal has been approved. Broker non-votes occur when a beneficial owner who holds company stock through a broker does not provide the broker with voting instructions as to any matter on which the broker is not permitted to exercise its discretion and vote without specific instruction.

The rules of the New York Stock Exchange (the “NYSE”) determine whether proposals presented at shareholder meetings are routine or non-routine. If a proposal is routine, a broker or other entity holding shares for an owner in street name may vote for the proposal without receiving voting instructions from the owner under certain circumstances. If a proposal is non-routine, the broker or other entity may vote on the proposal only if the owner has provided voting instructions. A broker non-vote occurs when the broker or other entity is unable to vote on a proposal because the proposal is non-routine and the owner does not provide any voting instructions.

The NYSE rules provide that the election of directors in an uncontested election, the approval of the Amended and Restated 2007 Long-Term Incentive Plan, and the advisory vote on executive compensation are non-routine items. This means that brokers who do not receive voting instructions from their clients as to how to vote their shares for these proposals cannot exercise their discretionary authority to vote your shares for these proposals. Therefore, it is important that you instruct your broker as to how you wish to have your shares voted on these proposals, even if you wish to vote as recommended by the Board. The ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2014 is a routine item under the NYSE rules.

Article III, Section 2, of the Company’s Bylaws (“Bylaws”) divides the Board into three classes, as equally as numerically possible, each of which is elected for a three-year term. The Board currently has twelve members, four in each class.

The shares represented by the accompanying proxy will be voted to elect the four nominees for Class II Directors as recommended by the Board, unless authority to do so is

withheld. Each nominee has agreed to the nomination and has agreed to serve if elected. Should any nominee become unavailable for election, the proxies will be voted for the election of such other person as the Board may recommend in place of such nominee.

The Board, acting through the Nominating and Corporate Governance Committee, is responsible for recommending to the shareholders a group of nominees that, taken together, have the experience, qualifications, attributes and skills to function effectively as a board. Our Corporate Governance Guidelines require the Nominating and Corporate Governance Committee to periodically review the composition of the Board in light of the current challenges and needs of the Company and determine whether to add or remove individuals “after considering issues of judgment, diversity, skills, background and experience.”

Five of the twelve current directors were originally appointed to the Board at the time of the Company’s emergence from bankruptcy in 1996. The various creditor and public constituencies at the time sought individuals with financial, regulatory and managerial skills that both represented a break with the past and an ability to direct a fragile entity back to viability. This core group of directors instituted policies that returned the Company’s debt to investment grade status within a short period and improved its posture with customers and regulators, which led to a substantial increase in the price of the Common Stock in succeeding years. During that period, as directors retired or as the needs of the Company evolved, the Board added other individuals with skills (such as knowledge of the local service areas and of legislative and regulatory affairs) that became more important as the Company stabilized and grew.

In addition to the characteristics common to all of our directors, which include integrity, a strong professional reputation and record of achievement in senior executive capacities, the Nominating and Corporate Governance Committee has included on our Board persons with diverse backgrounds and skills reflecting the needs of the Company. In presenting this year’s nominees, the Nominating and Corporate Governance Committee also considered the invaluable experience they have gained in dealing with

the Company’s unique challenges over many years, their ability to work as a collegial group during intense and stressful periods in the past and their willingness to spend the time necessary to perform their roles despite other professional commitments.

The Nominating and Corporate Governance Committee considers the following additional factors as important qualifications and skills of each member of the current Board:

Included below is information about the nominees for election as directors and the existing directors who will continue in office after the Annual Meeting. The Board has concluded that

the skills, qualifications and experience of each of the director nominees and continuing directors supports such nominee or director’s continued membership on the Company’s Board.

Founder, Chairman and Chief Executive Officer, The Santa Fe Group

Director since 2009

Ms. Allen, age 67, has, since 1996, been the Founder, Chairman and Chief Executive Officer of The Santa Fe Group, a strategic consulting company providing services to financial institutions and related infrastructure companies. Previously, Ms. Allen was a Vice President of Business Development and Alliances of Citicorp, where her responsibilities included developing and managing strategic alliances with technology and telecommunications companies for technology-based products and services. She sits on a number of non-profit boards including the University of Missouri Research and Development Committee, LANL Foundation, Lensic Performing Arts Center, Museum of New Mexico Foundation, Women Corporate Directors, and is the board chair of the National Foundation for Credit Counseling. She is co-chair of the University of Missouri Capital Campaign Committee and she received an Honorary Doctorate in 2005. She has received two Lifetime Awards for her service to the financial sector and technology, from U.S. Banker and the Executive Womens’ Forum. She was formerly CEO of BITS, a financial services consortium and non-profit industry association from 1997 to 2007. She serves on the board of Stewart Title Guaranty Company, Synovus Financial Corporation and the advisory board for Houlihan Lokey Investment Bank. Ms. Allen joined our Board in May 2009 and serves on our Public Policy and Corporate Reputation, Nominating and Corporate Governance and Energy Resources and Environmental Committees.

President and Chief Executive Officer, High Desert Capital LLC

Director since 2012

Mr. Escudero, age 43, is President and Chief Executive Officer of High Desert Capital LLC, a finance company specializing in providing various types of capital alternatives to small-to-mid-size companies a role he has held since 2008. Previously, Mr. Escudero was Executive Vice President and Chief Financial Officer of C&R Distributing, a major distributor of fuel and lubricants and was the owner of various convenience stores in West Texas and Southern New Mexico. He also served as Secretary and Chief Financial Officer of Petro Stopping Centers, LP, where he held vital roles of managing various departments including accounting,

legal, human resources, audit, financial planning and information systems. He serves on a number of community boards, including the Medical Center of the Americas Foundation, El Paso Community Foundation Investment Committee, El Paso Hispanic Chamber of Commerce and the University of Texas at El Paso Centennial Commission. Formerly, Mr. Escudero served on the El Paso Water Utility Public Service Board. Mr. Escudero has been a director of the Company since December 2012 and serves as Chairman of our Audit Committee. He also serves as a member of our Nominating and Corporate Governance Committee.

Retired Managing Director, Crescent Capital Group, LP and Business Consultant Chairman of the Board since 2012

Director since 1996

Mr. Parks, age 54, retired as Managing Director of Crescent Capital Group, LP (“Crescent”) at year-end 2013. Mr. Parks served as Managing Director of Crescent and for limited purposes as a Managing Director of Trust Company of the West (“TCW”) from 2011 through 2013 and prior to that was a Managing Director of TCW since 2000. Prior to joining Crescent and TCW, Mr. Parks held various executive level positions at Aurora National Life Assurance Company from 1993 to 2000, including Chief Executive Officer, President and Chief Investment Officer from 1996 to October 2000. From 1981 to 1992, he held various positions at Salomon Brothers Inc. He served as a director of E*Trade Financial Corp. (formerly, E* Trade Group Inc.) from April 2003 until May 2012 and served on its audit committee and finance risk oversight committee. He also served as a director of Aurora National Life Assurance Company until 2012. He has been a director of the Company since 1996. He currently serves as Chairman of the Board as of July 2012, and previously served as Vice Chairman of the Board from November 2005 through July 2012. He also serves on our Audit, Compensation, Executive, and Nominating and Corporate Governance Committees.

Retired Limited Partner of Apollo Advisors, LP Consultant and Special Advisor to the Chairman of the Milwaukee Brewers Baseball Club

Director since 1996

Mr. Siegel, age 56, is a retired Limited Partner of Apollo Advisors, LP (“Apollo”) and has been an independent business consultant since 1995. Since 2004, Mr. Siegel has

served as a consultant to and on the advisory board of the Milwaukee Brewers Baseball Club. He previously served as a Principal and was a Limited Partner of Apollo Advisors, LP (a predecessor to Apollo Management, LP) and Lion Advisors, LP. Prior to joining Apollo, Mr. Siegel was a partner of Irell & Manella LLP, a law firm practicing corporate law. He serves as the lead independent director and chairman of the nominating and governance committee of Ares Capital Corporation, where he has been a board member and a

member of the audit committee since 2004. Mr. Siegel has previously served as a director of a number of public and private companies, including Kerzner International Limited (“Kerzner”) where he was a director and chairman of its audit and compensation committees from April 1994 to 2006. He rejoined the Kerzner Board from 2008 until April 2014. He has been a director of the Company since 1996 and serves as Chairman of our Executive Committee. He also serves as a member of our Audit and Compensation Committees.

Managing Partner, OP Food Products, LLC and Harris Financial Advisors, LLC

Director since 1996

Mr. Harris, age 67, has served as the Managing Partner of OP Food Products, LLC since 2013 and Managing Partner of Harris Financial Advisors, LLC since 2013. From 1993 until 2013, Mr. Harris served as Founder and President of Seneca Financial Group Inc. Previously, Mr. Harris served as Managing Director at Lehman Brothers and Head of the Financial Restructuring Group. Before joining Lehman Brothers, he spent 10 years at Citibank, N.A. where he worked in the Bank’s Institutional Recovery Group and managed lending activities in the international and domestic banking groups. From 2001 to 2003, he was an Adjunct Professor at Columbia University’s Graduate School of Business in New York. From 2006 to 2012, Mr. Harris was an adjunct professor at the Kenan-Flagler School of Business Administration at the University of North Carolina in Chapel Hill, North Carolina where he taught a course on Managing Business Turnarounds. Mr. Harris currently serves on the advisory board of the Coastal Studies Foundation in Manteo, North Carolina and public radio station WUNC in Chapel Hill, North Carolina. He previously served as a director of Peregrine Systems Inc. and was a member of its audit committee. Mr. Harris has been a director of the Company since 1996 and serves as Chairman of our Nominating and Corporate Governance Committee. He also serves as a member of our Compensation and Executive Committees.

Chairman and Chief Executive Officer, Hunt Companies, Inc.

Director since 2012

Mr. Hunt, age 68, has served as the Chairman and Chief Executive Officer of Hunt Companies, Inc. (“Hunt”) since January 1991. Hunt is an industry-leading real estate company dedicated to building value through development, investment, and management. For decades, Hunt has focused on the key areas of public-private partnerships, community development, real asset investment management, and multifamily housing. Mr. Hunt also serves as Chairman of the Hunt Family Foundation, a private family foundation. He received a number of honors and awards including being recognized as one of the “Philanthropists of

the Year” for 2008 by the West Texas-Southern New Mexico Chapter of the Association of Fundraising Professionals. Mr. Hunt also serves on various national, state and local advisory and development boards including the Texas Business Leadership Council, Complete College America, College for all Texas Foundation, Visitors of the University of Texas MD Anderson Cancer Center-Houston, the Borderplex Alliance, Council for Continuous Improvement and Innovation in Texas Higher Education, University of Texas at El Paso, Texas Tech University Health Sciences Center, Western Governors University, WestStar Bank and Tom Lea Institute. Mr. Hunt has been a director of the Company since December 2012 and serves on our Compensation and Public Policy and Corporate Reputation Committees.

Managing Director and Founding Partner, W Capital Partners

Director since 1996

Mr. Wertheimer, age 63, has been a Managing Director and Founding Partner of W Capital Partners since 2001. He has over 30 years of experience in investment banking and principal investments. Prior to founding W Capital Partners, Mr. Wertheimer served as a Managing Director of CRT Capital Group, LLC. He was a Founder and Managing Member of Water Capital Management from 1991 to 1997. From 1988 to 1991, he served as a Managing Director and the Group Head of Investment Banking-Asia of PaineWebber Incorporated. Prior to 1988, Mr. Wertheimer was a Managing Director at First Chicago Corporation, where he specialized in tax-structured domestic and international principal investments and was a Vice President with Bank of America’s tax financing group making equity investments for the parent corporation. Mr. Wertheimer has extensive board experience having served on the boards of over thirty companies, both public and private. Mr. Wertheimer is a member of the International Council of Advisors of the National Geographic Society. He is also a member of the board of directors of Dynacast International, Inc., Moosejaw Inc., M*Modal Inc., and World Kitchen, Inc. Mr. Wertheimer has been a director of the Company since 1996 and serves as Chairman of the Energy Resources and Environmental Committee. He also serves as a member of the Executive and Nominating and Corporate Governance Committees.

Managing Director, Houlihan Lokey

Director since 1996

Mr. Yamarone, age 55, has been Managing Director of Houlihan Lokey since January 2014. From November 2009 until January 2014, he was a director, where he was a senior member of the Debt Capital Markets Group. Mr. Yamarone also worked for over 18 years at Libra Securities (“Libra”) and its predecessors. At Libra, Mr. Yamarone served in a wide variety of roles and was involved in all areas of Libra’s business as an institutional broker-dealer, including capital markets, corporate finance, sales and trading, research, legal, compliance, operations and administration. He was a

director of Continental Airlines, Inc. from 1995 until its merger into United Continental Holdings, Inc. in October 2010 and was chairman of Continental’s human resources committee and a member of its corporate governance and social responsibility committee. Since October 2010, he has been a director of United Continental Holdings, Inc. and is chairman of its compensation committee and a member of its executive committee. Until January 2012, he was a director of New Millennium Homes, LLC, a privately-owned homebuilder, and served on its audit committee. He also previously served as a director of four other public companies. Mr. Yamarone has been a director of the Company since 1996 and is Chairman of our Compensation Committee. He also serves as a member of our Audit and Energy Resources and Environmental Committees.

Owner and President, Brownco Capital, LLC

Director since 2003

Mr. Brown, age 69, has been the Owner and President of Brownco Capital, LLC, a private investment company, since November 2007. From May 1992 to March 2008, Mr. Brown was the President and Chairman of the Board of Desert Eagle Distributing of El Paso, Inc., a distributor of Anheuser-Busch products in West Texas and Eastern New Mexico. He currently serves on the board of directors of WestStar Bank and the University of Texas at El Paso Development Board. Mr. Brown has been a director of the Company since June 2003 and serves on our Audit, Energy Resources and Environmental and Public Policy and Corporate Reputation Committees.

Senior Executive Vice President for External and Legislative Affairs, AT&T Services, Inc.

Director since 1997

Mr. Cicconi, age 61, has been Senior Executive Vice President of External and Legislative Affairs for AT&T Services, Inc. since November 2005. Prior to that, Mr. Cicconi served as Executive Vice President for Law and Government Affairs and General Counsel of AT&T Corp. He served as a partner of Akin, Gump, Strauss, Hauer & Feld, LLP (“Akin Gump”) from 1991 to 1998. While practicing law at Akin Gump, Mr. Cicconi specialized in administrative and regulatory law, as well as federal legislation, representing a range of corporate clients. He was also involved in a number of significant transactions, including public sales, restructurings and acquisitions. Mr. Cicconi served as Deputy Chief of Staff to President George H. W. Bush and also served as the Senior Issues Advisor to President Bush’s 1988 and 1992 election campaigns. Mr. Cicconi has been a director of the Company since 1997 and serves as Chairman of our Public Policy and Corporate Reputation Committee. He also serves as a member of our Audit and Executive Committees.

Owner, Chairman and Chief Executive Officer, The Facilities Connection, Inc.

Director since 1997

Ms. Holland-Branch, age 70, has been the Owner, Chairman and Chief Executive Officer of The Facilities Connection, Inc., headquartered in El Paso, Texas since 1986. The company provides its national and international customers with professional services, including interior design, project management, logistics, and installation. She currently serves on the board of directors of the Borderplex Alliance, the advisory board for Texas Tech University Gayle Greve Hunt School of Nursing and is a former director for El Paso Hispanic Chamber of Commerce Foundation, Regional Economic Development Corporation, and El Paso Branch of the Federal Reserve Bank of Dallas as well as a past chairman of the board for the Greater El Paso Chamber of Commerce. Ms. Holland-Branch has been a director of the Company since 1997 and serves on our Public Policy and Corporate Reputation and Energy Resources and Environmental Committees.

Chief Executive Officer since January 2012, El Paso Electric Company Retired Vice Chairman and Chief Operating Officer, American Electric Power Company, Inc.

Director since 2010

Mr. Shockley, age 69, retired in 2004 after a lengthy career in the regulated utility industry. From 2000 to 2004, he served as the Vice Chairman and Chief Operating Officer of American Electric Power Company, Inc. (“AEP”), one of the largest electric utilities in the United States. From 1997 to 2000, Mr. Shockley was President and Chief Operating Officer of Central and South West Corporation, which combined with American Electric Power of Columbus, Ohio in 2000 to form AEP. He serves on the board of the Borderplex Alliance and University of Texas at El Paso Development Board. In his career, Mr. Shockley served in various other executive and management positions in the utility and energy industries. He previously served on the boards of directors of the Foundation Coal Company, Cellnet and on the board of Chase Energy

Development. Mr. Shockley was appointed Interim Chief Executive Officer from January 2012 until May 2012, when he was elected Chief Executive Officer. Previously, he served

on our Executive, External Affairs and Energy Resources and Environmental Committees. Currently, he serves as Ex-Officio member of the Committees of the Board.

Although not required by the Company’s Bylaws, since 1996, the offices of Chairman and Chief Executive Officer (“CEO”) of the Company have been held by different individuals. The Chairman of our Board, Mr. Parks, is an independent director. Our CEO, Mr. Shockley, is the only

member of management on the Board. We believe that this leadership structure enhances the accountability of the CEO to the Board and strengthens the Board’s independence from management.

The Board has adopted Corporate Governance Guidelines (the “Guidelines”) that, along with the charters of the Board Committees, provide the framework for the governance of the Company. The Board’s Nominating and Corporate Governance Committee is responsible for overseeing and reviewing the Guidelines at least annually and recommending any proposed changes to the Board for approval. The Guidelines are available on the Company’s website at www.epelectric.com. The website and its contents are not part of this Proxy Statement.

The Board believes that directors should hold meaningful equity ownership positions in the Company. Each non-employee director is expected to be a beneficial owner of

shares of the Company’s Common Stock or common stock equivalents with a market value equivalent to at least three years’ annual cash retainer fees by the end of his or her second year of service on the Board. Each non-employee director with two years or more of service on the Board met this stock ownership guideline as of December 31, 2013. The guidelines for our executive officers are described in the Compensation Discussion and Analysis.

In addition, we prohibit our executive officers and directors from engaging in hedging activities such as trading options (for example, puts, calls and other derivatives) and also prohibit them from having Company shares in margin accounts.

The Guidelines, among other things, set forth categorical standards to assist the Board in making determinations of director independence in accordance with the rules of the NYSE. The Board makes a determination regarding the independence of each director annually based on all relevant facts and circumstances. Although any director who meets the following criteria and the independence criteria of the NYSE is presumed to be independent (except for purposes of serving as a member of the Audit Committee, which requires that the director meet additional requirements), the Board may make an affirmative determination to the contrary based on its review of other factors. Under the Guidelines, the following persons will not be considered to be independent:

After a review of all relevant factors and applying these categorical standards and the independence criteria of the NYSE, the Board has determined that:

In determining the independence of Mr. Cicconi, the Board took into account various bilateral payments, which are not material in amount, between the Company and AT&T (for which Mr. Cicconi serves as an executive) relating to utility services and property.

In determining the independence of Ms. Holland-Branch, the Board took into account the Company’s purchases of immaterial amounts of goods and services from The Facilities Connection, Inc., a company owned by Ms. Holland-Branch and an immaterial amount of goods from a vendor whose President is Ms. Holland-Branch’s son. All transactions between the Company and entities owned by Ms. Holland-Branch ceased in March 2013.

In addition, the Board has determined that all members of the Audit Committee meet the independence requirements set forth in Rule 10A-3(b)(1)(ii) under the Securities Exchange Act of 1934, as amended (the “Act”).

Within the last three years, the Company has not made any charitable contributions to any charitable organization for which a director of the Company serves as an executive officer in excess of the greater of $1 million or 2% of the charitable organization’s consolidated gross revenues.

As part of its oversight of the Company’s executive compensation program, the Compensation Committee considers the impact of the Company’s executive compensation program, and the incentives created by the compensation awards that it approves, on the Company’s risk profile. In addition, the Company reviews all of its compensation policies and procedures, including the incentives that they create and factors that may reduce the likelihood of excessive risk taking, to determine whether they present a significant risk to the Company. Based on this review, the Company has concluded that its compensation policies and procedures are not reasonably likely to have a material adverse effect on the Company.

The Nominating and Corporate Governance Committee assists the Board in overseeing risks associated with board organization, membership and structure, succession planning for our directors and executive officers, and corporate governance.

The Energy Resources and Environmental Committee assists the Board in overseeing risks associated with the Company’s electric generating fleet, including plants in which we are the sole owner and those (such as the Palo Verde Nuclear Generating Station) operated by others; issues facing the Company from legislative and regulatory initiatives regarding climate change, emissions, renewables and alternative energy; and environmental issues, including compliance with applicable environmental laws and regulations.

The Public Policy and Corporate Reputation Committee (formerly External Affairs) assists the Board in overseeing matters relating to the Company’s legislative and regulatory affairs including, but not limited to, those relating to local government and the Company’s state and federal regulators; communication and public relations activities related to the Company’s brand and reputation; matters relating to corporate and social responsibility; and contributions by the employee political action committee as well as corporate activities related to civic and charitable affairs in accordance with applicable regulations.

It is the responsibility of senior management to identify, assess, and manage our exposure to risk inherent in the operation of the Company and the implementation of our strategic plan. The Board, however, plays an important role in overseeing management’s performance of these functions. In connection with its review of the operations of the Company’s business, the Board addresses the primary risks associated with various business decisions and operations. In addition, the Board reviews the risks associated with the Company’s strategic plan periodically throughout the year as part of its consideration of the strategic direction of the Company.

Each of the Board’s Committees also oversees the management of Company risks that fall within such Committee’s areas of responsibility. In performing this function, each Committee has full access to management, as well as the ability to engage advisors.

The Company has an enterprise risk management program that was established in 2010. The Company’s Senior Vice President, General Counsel and Chief Compliance Officer, who reports directly to the Audit Committee, is responsible for identifying, evaluating and enabling the development, implementation and monitoring of risk mitigation strategies.

Pursuant to its Charter, the Audit Committee oversees the operation of this enterprise risk management program, and the Senior Vice President, General Counsel and Chief Compliance Officer and her team make periodic reports to the Audit Committee about the identified risks and the management controls and methodologies in place to manage those risks. In connection with its risk management role, the Audit Committee periodically meets privately with representatives from the Company’s internal auditors and its independent registered public accounting firm. The Audit Committee provides reports to the Board that include these activities.

The Board has adopted a Code of Ethics that applies to all directors, officers and employees of the Company, including the Chief Executive Officer, the Senior Vice President and Chief Financial Officer, and the Vice President and Controller. A current copy of the Code of Ethics may be found on the Company’s website at www.epelectric.com. Any amendments to, or waivers from, any provision of the Code of Ethics applicable to the Chief Executive Officer, the Senior Vice President and Chief Financial Officer, the Vice President and Controller or persons performing similar functions will be disclosed by posting such information on the Company’s website at www.epelectric.com within five business days.

Current copies of the charters of the Audit, Compensation, Energy Resources and Environmental, Executive, Nominating and Corporate Governance and Public Policy and Corporate Reputation Committees (the “Committee Charters”) may also be found on the Company’s website at www.epelectric.com.

Printed copies of the Guidelines, the Committee Charters and the Code of Ethics are available to any shareholder upon request. Requests for printed copies should be addressed to El Paso Electric Company, 100 N. Stanton Street, El Paso, Texas 79901, Attention: Office of the Secretary.

Shareholders and interested parties may correspond directly with non-management directors by writing to James W. Harris, Chairman, Nominating and Corporate Governance Committee, P.O. Box 982, El Paso, Texas 79960.

The Company’s CEO must certify to the NYSE each year that he is not aware of any violation by the Company of NYSE corporate governance listing standards, qualifying the certification to the extent necessary. Such certification must

be made within thirty days of the date of the Company’s annual shareholders’ meeting. The 2013 CEO certification was submitted to the NYSE timely and without qualification.

The Board held eight meetings in 2013 and held executive sessions at each meeting. The Chairman of the Board presides at the executive sessions. All directors attended at least 75% of the total number of meetings of the Board and the Committees on which they served.

The Company does not have a formal policy regarding director attendance at Annual Meetings. All members of the Board except Mr. Wertheimer attended the 2013 Annual Meeting.

During 2013, compensation for non-employee directors consisted of the following:

Directors are also reimbursed for travel expenses incurred in connection with their duties as directors. Non-employee directors are not eligible to participate in the executive incentive program, savings programs or any of the retirement programs for the Company’s employees. Other than as described in this section, there are no separate benefit plans for active directors.

The Company’s Restated Articles of Incorporation and Bylaws, as amended, provide for indemnification of the Company’s directors and executive officers up to the maximum extent provided by the Texas Business Organizations Code (“TBOC”), and the Company maintains director and officer liability insurance. The Company has Indemnification Agreements with each of the Company’s directors and executive officers.

The Board has the following standing Committees: Audit, Compensation, Nominating and Corporate Governance, Executive, Energy Resources and Environmental and Public Policy and Corporate Reputation (formerly External Affairs).

During 2013, the Audit Committee was composed of directors Escudero (appointed Chairman in May 2013), Brown, Cicconi, Parks, Siegel and Yamarone (committee Chairman until May 2013). The Audit Committee, which held 13 meetings in 2013, is responsible for appointing the independent auditors of the Company, reviewing all recommendations of the Company’s independent auditors and the Company’s internal auditors, reviewing and approving non-audit services performed by accountants and other consultants retained by the Company, reviewing the Company’s periodic reports filed with the U.S. Securities and Exchange Commission (the “SEC”) and otherwise overseeing the Company’s financial reporting. The Audit Committee, in conjunction with senior management, also reviews the Company’s internal controls and disclosure controls and procedures. The roles and responsibilities of the Audit Committee are described in detail in a written charter adopted by the Board and amended on July 29, 2011. The Board has determined that each member of the Audit Committee meets the experience and independence requirements of the NYSE rules and Rule 10A-3(b)(1)(ii) under the Act. No member of the Audit Committee serves on the audit committee of more than three public companies. The Board has determined that Messrs. Escudero, Parks, and Yamarone meet the criteria of Audit Committee financial experts under the SEC’s rules and are independent of management. Certain additional information concerning the composition and role of the Audit Committee is set forth under the caption “Audit Committee Report” below.

During 2013, the Compensation Committee was composed of directors Yamarone (appointed Chairman in May 2013 and previously served as Vice Chairman), Harris, Hunt, Parks and Siegel (appointed as a committee member in May 2013). The Board has determined that each member of this Committee is independent under the rules of the NYSE. The Compensation Committee, which held ten meetings in 2013, is responsible for evaluating and approving the compensation of executive officers and the Chairman of the Board. It also reviews and approves recommended Company-wide compensation increases for employees, as well as approves the adoption of collective bargaining agreements. The Compensation Committee is also responsible for evaluating, adopting and administering benefit plan programs. The roles and responsibilities of the Compensation Committee are described in detail in a written charter adopted by the Board and amended on May 9, 2013. Additional information concerning the Compensation Committee’s process and procedures for the consideration and determination of executive compensation (including its engagement of compensation consultant Frederic W. Cook & Company, Inc. (“FW Cook”) appears under the caption “Compensation Discussion and Analysis” below.

During 2013, the Nominating and Corporate Governance Committee was composed of directors Harris (Chairman), Allen (appointed as a committee member in May 2013), Escudero, Parks, Siegel and Wertheimer. The Board has determined that each member of this Committee is independent under the rules of the NYSE. The Nominating and Corporate Governance Committee, which held seven meetings in 2013, is responsible for identifying qualified individuals to serve as members of the Board, recommending directors for appointment to Committees, evaluating Board performance, and overseeing and setting compensation for the members of the Board. The roles and responsibilities of the Nominating and Corporate Governance Committee are described in detail in a written charter adopted by the Board on November 13, 2003.

During 2013, the Executive Committee was composed of directors Siegel (Chairman), Cicconi (appointed as a committee member in May 2013), Harris, Parks and Wertheimer. The Executive Committee, which held three meetings in 2013, consults with senior management on administrative matters and directs the strategic planning effort on behalf of the Board. The Executive Committee may exercise all powers of the Board (except as prohibited by TBOC) between meetings. In addition, the Executive Committee’s responsibilities include analyzing and making recommendations to the Board regarding the maximization of shareholder value. The roles and responsibilities of the Executive Committee are described in detail in a written charter adopted by the Board on July 15, 2004.

During 2013, the Public Policy and Corporate Reputation Committee (formerly External Affairs Committee) was composed of directors Cicconi (Chairman, appointed in May 2013), Allen, Brown (who served as Chairman of the External Affairs Committee until May 2013), Holland-Branch and Hunt. The Public Policy and Corporate Reputation Committee, which held five meetings in 2013, is responsible for overseeing matters relating to the Company’s legislative and regulatory affairs including, but not limited to those relating to local government and the Company’s state and federal regulators; communication and public relations activities related to the Company’s brand and reputation; matters relating to corporate and social responsibility; and contributions by the employee political action committee as well as corporate activities related to civic and charitable affairs in accordance with applicable regulations. The roles and responsibilities of the Public Policy and Corporate Reputation Committee are described in detail in a written charter adopted by the Board and amended on July 26, 2013.

During 2013, the Energy Resources and Environmental Committee was composed of Directors Wertheimer (Chairman), Allen, Brown (appointed as a committee member in May 2013), Holland-Branch and Yamarone (appointed as a committee member in May 2013). This Committee held five meetings in 2013. The Energy Resources and Environmental Committee is responsible for (i) reviewing and assessing the operations of the

Company’s electric generating fleet, including plants in which it is the sole owner and those operated by others in which it owns a minority interest (such as the Palo Verde Nuclear Generating Station); (ii) overseeing the affairs and operations of the Company to determine whether the Company has operated Company facilities in compliance

with applicable environmental laws and regulations; and (iii) identifying existing and potential environmental issues facing the Company under federal, state and local law. The roles and responsibilities of the Energy Resources and Environmental Committee are described in detail in a written charter adopted by the Board on September 24, 2009.

The Nominating and Corporate Governance Committee will consider nominees for the Board submitted in writing by a shareholder. A shareholder wishing to nominate one or more individuals to stand for election as a director at an annual or special meeting of the shareholders must provide written notice thereof not less than 80 days in advance of such meeting; provided, however, that in the event that the date of the meeting was not publicly announced by the Company more than 90 days prior to the meeting, such notice, to be timely, must be delivered not later than the close of business on the tenth day following the day on which the date of the meeting was publicly announced. A shareholder’s notice must set forth (i) the name and address of the shareholder making the nomination; (ii) such information regarding the nominee(s) proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the SEC had the nominee(s) been nominated by the Board; (iii) a representation of the shareholder as to the number of shares of stock of the Company that are beneficially owned by the shareholder and the shareholder’s intent to appear in person or by proxy at the meeting to propose such nomination; and (iv) the written consent of the nominee(s) to serve as a member of the Board if so elected. Any such shareholder notice should be submitted in writing to: El Paso Electric Company, Attn: Office of the Secretary, 100 N. Stanton Street, El Paso, Texas 79901.

In making its recommendations regarding nominees to serve on the Board, the Nominating and Corporate Governance Committee reviews an individual’s qualifications, and makes a determination as to the independence of the candidate based on the independence criteria described above. If the nominee is being evaluated for re-nomination to the Board, the Nominating and Corporate Governance Committee will assess the prior performance of such director. The Nominating and Corporate Governance Committee will also periodically review the composition of the Board in light of its current challenges and needs and determine whether it may be appropriate to add or remove individuals after considering issues of judgment, diversity, age, skills, background and experience. Our Board does not have a formal written policy with regard to the consideration of diversity in identifying director nominees, but its practice has been to seek a combination of skills, experience, geographic and local knowledge, backgrounds and outlook that is in the best interest of the Company and its various constituencies. No director may serve on the boards of more than three other public companies while serving on the Company’s Board.

The Board of Directors is seeking shareholder approval of the El Paso Electric Company Amended and Restated 2007 Long-Term Incentive Plan (the “Plan”). A vote for the Plan will mean approval of an increase in shares available for future grants under the Plan and re-approval of the performance metrics that may be used for performance-based awards under the Plan, all as described below.

The purpose of the Plan is to provide a means whereby employees and directors of the Company develop a sense of proprietorship and personal involvement in the development and financial success of the Company, and to encourage them to devote their best efforts to the business of the Company, thereby advancing the interests of the Company and its shareholders. A further purpose of the Plan is to provide a means through which the Company may attract able individuals to become employees or serve as directors of the Company and to provide a means whereby those individuals upon whom the responsibilities of the successful administration and management of the Company are of

importance, can acquire and maintain stock ownership, thereby strengthening their concern for the welfare of the Company.

As of December 31, 2013, 490,362 shares of our common stock remained available for issuance under the 2007 Long-Term Incentive Plan as currently in effect. If approved, the number of shares available for issuance under the Plan would be increased by 1,209,638 less any awards granted between December 31, 2013 and the date of the annual meeting, so that a total of 1,700,000 shares would be available for future grants (minus the number of Shares subject to Awards granted by the Company between December 31, 2013 to the date of the annual meeting).

If stockholders do not approve the Plan, we will continue to grant equity awards under the terms of the 2007 Long-Term Incentive Plan as currently in effect.

Reference is made to Exhibit A to this Proxy Statement for the complete text of the Plan which is summarized below.

Shares Under the Plan. The following information summarizes, as of December 31, 2013, the equity awards outstanding under the Plan as in effect as of such date and our prior plans:

Number of Restricted Shares Outstanding: 120,534 Number of Performance Awards Outstanding (Assuming Maximum Performance): 249,994 Shares Available for Grant: 490,362

If approved, the number of shares available for issuance under the Plan would be increased by 1,209,638, less any awards granted between December 31, 2013 and the date of the annual meeting, so that a total of 1,700,000 shares would be available for future grants (minus the number of Shares subject to Awards granted by the Company from December 31, 2013 and the date of the annual meeting).

The number of shares available for grant under the Plan may increase in connection with the cancellation or forfeiture of awards outstanding or by shares tendered to pay the taxes upon vesting of restricted stock awards.

Equity Overhang and Burn Rate. As of December 31, 2013, our equity overhang was equal to 2.14%. Equity overhang means the total number of shares subject to outstanding equity awards plus shares available for grant, together as a percentage of total shares subject to equity awards outstanding plus shares available for grant plus our outstanding stock. If the requested increase in shares is approved by our stockholders, this equity overhang

(based on the equity awards and shares outstanding as of December 31, 2013 would increase to 5.14%.

Our “burn rate” for 2013, measured as number of equity awards granted during the fiscal year as a percentage of 2013 weighted average total shares outstanding was 0.40% under this formulation. Factoring in the impact of cancelled and forfeited awards, our burn rate was 0.40%.

Features of the Plan. The Plan includes a number of specific terms and limitations that the Compensation Committee believes are consistent with the long-term interests of our stockholders. These features include:

Administration. The Plan will be administered by the Compensation Committee of the Board of Directors (the “Committee”). Subject to the express provisions of the Plan, the Committee will have the authority to select eligible persons to receive awards and determine all of the terms and conditions of each award. All awards will be evidenced by a written agreement containing such provisions not inconsistent with the Plan as the Committee shall approve. The Committee will also have authority to establish rules and regulations for administering the Plan and to decide questions of interpretation or application of any provision of the Plan.

Change in Control. In the event of certain acquisitions of 30% or more of our common stock, certain changes in a majority of the Board of Directors, or the consummation of a reorganization, merger or consolidation or sale or disposition of all or substantially all of the assets of the Company (unless, among other conditions, the Company’s shareholders receive 60% or more of the stock of the surviving company) or the liquidation or dissolution of the Company, all outstanding options and SARs will be exercisable in full, and the restricted stock and restricted stock units will become immediately vested and payable. The performance period applicable to performance shares and performance units shall end upon the occurrence of a change in control in the manner and on the date determined by the Committee in its sole discretion. The performance goals associated with such awards shall be measured based on performance achieved through the end of such shortened performance period and such awards shall become vested and payable on a prorated basis to reflect the shortened performance period, with the remaining portion of the awards terminating.

Termination and Amendment. If approved by shareholders, the Plan will terminate in 2024 unless terminated earlier by the Board of Directors. The Committee may, at any time and from time to time, alter, amend, modify, suspend, or terminate the Plan and any award agreement in whole or in part; provided, however, that, without the prior approval of the Company’s shareholders and except as provided in the Plan, options or SARs issued under the Plan will not be repriced, replaced, or regranted through cancellation, or by lowering the option price of a previously granted option or the grant price of a previously granted SAR, and no amendment of the Plan shall be made without shareholder approval if shareholder approval is required by law, regulation, or stock exchange rule.

Stock Options - General. The Committee will determine the conditions to the exercisability of each option. Upon exercise of an option, the purchase price may be paid in cash or by delivery of previously owned shares of our common stock. The exercise price of a stock option, whether a non-qualified stock option or incentive stock option, will not be less than the fair market value of our common stock on its date of grant.

The award agreement shall set forth the extent to which the participant shall have the right to exercise the non-qualified stock option or incentive stock option in the event of participant’s termination of employment or service. Such provisions will be determined by the Committee.

Stock Appreciation Rights. The period for the exercise of a stock appreciate right (“SAR”) will be determined by the Committee. The base price of a SAR will not be less than 100% of the fair market value of our common stock on the date of grant. A SAR entitles the holder to receive upon exercise (subject to withholding taxes) shares of our common stock (which may be restricted stock), cash or combination thereof with a value equal to the difference between the fair market value of our common stock on the exercise date and the base price of the SAR. The Committee may impose restrictions upon exercise of a SAR granted under the Plan.

The award agreement shall set forth the extent to which the participant shall have the right to exercise the SAR in the event of participant’s termination of employment or service. Such provisions will be determined by the Committee.

Restricted Stock and Restricted Stock Units. The Plan provides for the grant of (i) restricted stock awards which may be subject to a restriction period (“restricted stock”), and (ii) restricted stock units which are similar to restricted stock except no shares are actually awarded. An award of restricted stock or restricted stock units may be subject to specified performance measures during the applicable restriction period. Shares of restricted stock will be freely transferable after all conditions and restrictions have been satisfied or have lapsed. The Committee may determine the extent to which the participant shall have the right to retain restricted stock and/or restricted stock units in the event of participant’s termination of employment or service. Unless otherwise set forth in a restricted stock award agreement, the holder of a restricted stock award will have rights as a shareholder of the Company, including the right to vote and receive dividends with respect to the shares of restricted stock. A participant shall have no voting rights with respect to any restricted stock units granted under the Plan.

Performance Units and Performance Shares. The Plan also provides for the grant of performance units and performance share awards. Each performance unit and each performance share is a right, contingent upon the attainment of performance measures within a specified performance period. A participant shall have no dividend rights with respect to any performance units or performance share awards that are unearned. The Committee will determine the form of payout of cash or in shares (or in a combination thereof) equal to the value of earned performance units/ performance shares at the close of the applicable performance period. The Committee may determine the extent to which the participant shall have the right to retain the performance units and/or performance shares in the event of participant’s termination of employment or service.

Performance Goals. If the Committee desires to grant performance-based awards intended to qualify as performance-based compensation under Section 162(m) of the Code, the performance goals will consist of any of the following:

Cash-Based Awards and Other Stock-Based Awards. The Plan also provides for the grant of cash-based awards and other types of equity-based or equity-related awards not otherwise described by the Plan as determined by the Committee. The Committee will determine the value of the cash-based awards and other stock-based awards and may establish performance goals. In the event the Committee establishes performance goals, the number and/or value of cash-based awards or other stock-based awards that will be paid out will depend on the extent to which performance goals are met. The Committee shall determine the extent to which the participant shall have the right to receive cash-based awards or other stock-based awards in the event of participant’s termination of employment or service.

Non-Employee Director Awards. Unless the Board determines otherwise, on the date of each annual meeting of shareholders of the Company, the following restricted stock awards shall be made to each person who is a non-employee director immediately after such meeting of shareholders:

The Board will have full discretion to change grant practices for non-employee directors.

Maximum Awards for Employees. Generally, the Plan limits the annual awards to any individual employee as follows:

Adjustments. The shares available under the Plan are subject to adjustment in the event of any corporate event or transaction (including, but not limited to, a change in the shares of the Company or the capitalization of the Company) such as a merger, consolidation, reorganization, recapitalization, separation, partial or complete liquidation, stock dividend, stock split, reverse stock split, split up, spinoff, or other distribution of stock or property of the Company, combination of shares, exchange of shares, dividend in kind, or other like change in capital structure, number of outstanding shares or distribution (other than normal cash dividends) to shareholders of the Company, or any similar corporate event or transaction. Shares covered by an award shall be counted as used as of the date of grant. Under the Plan, any shares related to awards under the Plan or the Company’s prior plans which terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such shares, are settled in cash in lieu of shares, or are exchanged with the Committee’s permission, prior to the issuance of shares, for awards not involving shares, and shall be available again for grant under the Plan.

The following is a brief summary of certain U.S. federal income tax consequences generally arising with respect to awards under the Plan.

A participant generally will not recognize taxable income at the time an option is granted, and the Company will not be entitled to a tax deduction at such time. A participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) upon exercise of a non-qualified stock option equal to the excess of the fair market value of the shares purchased over their exercise price, and the Company generally will

be entitled to a corresponding deduction. A participant will not recognize income (except for purposes of the alternative minimum tax) upon exercise of an incentive stock option. If the shares acquired by exercise of an incentive stock option are held for the longer of two years from the date the option was granted and one year from the date it was exercised, any gain or loss arising from a subsequent disposition of such shares will be taxed as long-term capital gain or loss, and the Company will not be entitled to any deduction. If, however, such shares are disposed of within the above-described period, then in the year of disposition, the participant will recognize compensation taxable as ordinary income equal

to the excess of the lesser of (i) the amount realized upon disposition and (ii) the fair market value of the shares on the date of exercise over the exercise price, and the Company generally will be entitled to a corresponding deduction.

A participant generally will not recognize taxable income at the time SARs are granted and the Company will not be entitled to a tax deduction at such time. Upon exercise, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) in an amount equal to the fair market value of any shares delivered and the amount of any cash paid by the Company. This amount generally is deductible by the Company as compensation expense.

A participant will not recognize taxable income at the time restricted stock is granted and the Company will not be entitled to a tax deduction at such time, unless the participant makes an election to be taxed at such time. If such election is not made, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) at the time the restrictions lapse in an amount equal to the excess of the fair market value of the shares at such time over the amount, if any, paid for such shares. The amount of ordinary income recognized generally is deductible by the Company as compensation expense, except to the extent the deduction limits of Section 162(m) of the Code apply. Restricted stock units generally will also be taxed as ordinary income upon vesting unless structured in compliance with applicable tax rules to defer taxation until settlement.

The awards under the Plan are discretionary, so it is not possible to determine the benefits received in the future by participants, except with respect to directors annual grants under the current Board compensation policy. The

following table sets forth the aggregate number of annual restricted stock awards that would be granted annually in 2014 to non-employee directors based on the current Board compensation policy as described in the Plan.

The grants to each Named Executive Officer of the Company is set forth under “Grants of Plan-Based Awards” above. In fiscal 2013, executive officers of the Company received an aggregate award of 27,997 shares of restricted stock which have a three-year vesting schedule, and 27,584

performance shares at target which have a three-year performance cycle. Other employees received awards for an aggregate of 33,085 shares. However, awards under the Plan are discretionary, and therefore, individuals may receive different amounts of awards in the future.

Under our Bylaws, the affirmative vote of the holders of a majority of the shares of common stock entitled to vote and represented in person or by proxy at the Annual Meeting is required to approve the El Paso Electric Company Amended

and Restated 2007 Long-Term Incentive Plan. Unless otherwise instructed, the proxy holders will vote the proxies received by them FOR approval of the Plan.

The Board has selected KPMG LLP to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2014. At the Annual Meeting, the Company will ask shareholders to ratify the Board’s selection. KPMG LLP, which served in the same capacity in 2012 and 2013, is expected to be represented at the Annual Meeting. Representatives of KPMG LLP will have an opportunity to make a statement if they desire to

do so and will respond to appropriate questions. If the shareholders do not ratify the Board’s proposal, the Board will reconsider its action with respect to the appointment of KPMG LLP. Approval of the resolution, however, will in no way limit the Board’s authority to terminate or otherwise change the engagement of KPMG LLP during the fiscal year ending December 31, 2014.

KPMG LLP billed the Company an aggregate of $1,162,000 and $1,123,000 for professional services rendered in connection with the integrated audit of the Company’s financial statements (including the Sarbanes-Oxley Section

404 certification) and review of the Company’s financial statements included in the Company’s Quarterly Reports on Form 10-Q during the fiscal years ended December 31, 2013 and December 31, 2012, respectively.

KPMG LLP billed the Company $232,000 and $519,000 for audit-related services during the fiscal years ended December 31, 2013 and 2012, respectively. These audit-related services included (i) audits of state and federal

regulatory filings; (ii) audits of benefits plans; and (iii) comfort letters associated with the refunding and remarketing of two series of pollution control bonds and the issuance of a series of Senior Notes in 2012.

The Company paid no other fees to KPMG LLP during the fiscal years ended December 31, 2013 and 2012.

KPMG LLP determined that these services did not affect its independence under applicable auditing standards. The Audit Committee pre-approved the engagement of KPMG LLP to provide the audit and permissible non-audit services

described above in accordance with the requirements of the Sarbanes-Oxley Act of 2002 and determined that KPMG LLP’s provision of the services described above under “Audit-Related Fees,” “Tax Fees,” and “All Other Fees” is compatible with KPMG LLP’s independence.

The Audit Committee Charter provides that the Audit Committee will pre-approve audit services and non-audit services to be provided by the Company’s independent auditors pursuant to pre-approval policies and procedures established by the Audit Committee. The Audit Committee may consult with management in the decision-making

process, but may not delegate this authority to management. The Audit Committee may delegate its authority to pre-approve services to one or more Audit Committee members, provided that such designees present any such pre-approvals to the full Audit Committee at the next Audit Committee meeting.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in July 2010 (“Dodd-Frank Act”), we are once again providing our shareholders with the opportunity to vote to approve, on a non-binding, advisory basis, the compensation of our Named Executive Officers (as hereinafter defined) as disclosed in this Proxy Statement in accordance with the compensation disclosure rules of the SEC. The Dodd-Frank Act and applicable SEC rules also require that, at least once every six years, shareholders be given the opportunity to vote on an advisory basis regarding the frequency (i.e., annually, every two years or every three years) of future shareholder advisory votes on the compensation of our Named Executive Officers. At the 2010 Annual Meeting, the shareholders indicated a preference for holding “Say-on-Pay” advisory votes on an annual basis as recommended by the Board of Directors. Thus, the advisory vote in this Proposal 4 reflects the approved annual frequency and the next advisory vote on the frequency of future Say-on-Pay votes will occur no later than the 2016 Annual Meeting.

Shareholders are encouraged to read the Compensation Discussion and Analysis (“CD&A”) section of this Proxy Statement for a more detailed discussion of how our compensation programs further the Company’s objectives.

At this meeting, the shareholders will be asked to vote on the following resolution:

“RESOLVED, that the shareholders approve the compensation paid to the Company’s Named Executive Officers as disclosed pursuant to Item 402 of Regulation S-K in the Compensation Discussion and Analysis, compensation tables and related narratives and other materials in the Company’s Proxy Statement.”

Our Board and Compensation Committee urge shareholders to endorse the compensation program for our executive officers by voting “FOR” the above resolution. The Board is committed to excellence in governance and recognizes

that executive compensation is an important matter for our shareholders. The Board and the Compensation Committee believe that the Company’s executive officer compensation program, as described in the Compensation Discussion and Analysis and other related sections of this Proxy Statement, is reasonable and effective in aligning the interests of the executive officers with the interests of the Company’s shareholders. We believe that our executive compensation program is designed to reward our Named Executive Officers for the achievement of short-term and long-term strategic and operational goals and the achievement of increased total shareholder value while at the same time avoiding the encouragement of unnecessary or excessive risk-taking. In particular, as described in detail in our Compensation Discussion and Analysis below, our program has the following features:

The vote on this resolution is not intended to address any specific element of compensation; rather, the vote relates to the compensation of our Named Executive Officers, as described in this Proxy Statement in accordance with the compensation disclosure rules of the SEC. This vote is advisory, which means that it is not binding on us, our Board or the Compensation Committee of our Board. The Compensation Committee and our Board value the views of our shareholders and will take into account the outcome of the vote when considering future compensation decisions for our Named Executive Officers.

Our executive compensation program is designed to:

To meet these goals, our executive compensation program currently consists of base salary, an annual performance bonus payable in cash, and stock-based long-term incentive awards, along with retirement and other benefits. The levels of compensation are determined through a combination of market data, company performance and individual responsibility and performance.

Highlights regarding our 2013 executive compensation program include the following:

Our Compensation Committee reviews and approves compensation for all executive officers. The Compensation Committee reviews the performance of our CEO at least annually. Our CEO reviews other executive officers’ performance and reports his evaluations to the

Compensation Committee. Our CEO also recommends to and discusses with the Compensation Committee the non-equity compensation elements for the other executive officers, although the Compensation Committee approves the actual compensation awarded.

Since May 2012, the Compensation Committee has engaged Frederic W. Cook & Company Inc. (“FW Cook”) as its independent outside executive compensation consulting firm. FW Cook’s services to the Compensation Committee during 2013 included:

The FW Cook consultant regularly attended meetings of the Compensation Committee and, as requested, attended its executive sessions. In addition, members of the Compensation Committee held discussions with the FW Cook consultant between meetings as the need arose. Pursuant to SEC rules, the Compensation Committee reviewed the independence of FW Cook and concluded there was no conflict of interest.

The Compensation Committee generally makes decisions regarding base salary, annual bonus targets and equity incentive awards at one or more regularly scheduled meetings during the first quarter of each year. The Compensation Committee continues to review compensation matters throughout the year and changes or approves compensation at other times in response to hiring needs, market changes and other occurrences. The Compensation Committee’s decisions about equity awards are not “timed” or otherwise affected by the planned announcement of material information. At least annually, (and at other times when material decisions are being considered) the Compensation Committee reviews a summary of compensation (also called a “tally sheet”) with its outside independent executive compensation consulting firm for each executive officer showing all compensation, equity holdings and accrued retirement benefits. The tally sheets are designed to inform the Compensation Committee of the total compensation potentially payable to the executive officers, particularly in the event of change in control and/or separation from the Company, but were not a material factor in making any particular compensation decision during the year.

In 2013, we again held a shareholder advisory vote to approve the compensation of our Named Executive Officers, commonly referred to as a “say on pay” vote. More than 96% of shareholder votes (excluding abstentions and broker non-votes) were cast in favor of the compensation of our Named Executive Officers. Although this was only an advisory vote, we believe the approval by our shareholders shows support for our compensation philosophy and approach, and our Compensation Committee did not make any specific changes in response to this vote. Instead, it retained its general approach to determining our executive compensation as described in this CD&A while focusing on particular needs that arise during the year.

In consultation with FW Cook, the Compensation Committee approved a group of companies (referred to in this discussion as the “Compensation Comparator Group”), which includes United States shareholder-owned electric and diversified utilities, and which is used for an annual benchmarking review of our compensation program. These companies are regional electric and diversified utilities with business issues, scale and compensation programs similar to our own. The Compensation Committee reviews compensation information of the Compensation Comparator Group compiled from publicly available data and data from similarly-sized utilities from the Towers Watson Energy Services Executive Compensation Database.

For pay decisions made in 2013, the companies in the Compensation Comparator Group consisted of the following:

The primary components of our compensation program for the Named Executive Officers (as hereinafter defined) are:

We do not target any element of compensation to be a particular percentage of total compensation.

Base Salary. Base salary levels for our continuing executive officers are reviewed and set annually or as warranted in connection with hiring, promotions or reassignments. The Compensation Committee generally targets the 50th percentile level of the Compensation Comparator Group, although the Compensation Committee also considers each executive officer’s responsibility level, experience and individual performance. The Compensation Committee approved base salary increases effective January 2013, for the Named Executive Officers from 2.6% to 6.1%, except that Mr. Puente received an increase of 10.7% which included a market equity adjustment to better align his compensation with the market data provided by FW Cook. In addition, Mr. Hirschi received a promotional increase in connection with his appointment as Chief Financial Officer in October 2013. For 2013 each of the Named Executive Officers’ salaries fell within 15% of the 50th percentile, as determined by FW Cook, with the average being below the 50th percentile of similarly-positioned executives at members of the Compensation Comparator Group. Individual variations from the 50th percentile primarily reflect each executive’s skills, experience and performance in the position. Although individual performance and contributions are considered, no specific individual performance factors had a material impact on salaries for fiscal 2013.

Annual Cash Bonus Plan. The purpose of our Annual Cash Bonus Plan is to provide market-based compensation opportunities based on achievement of specific business goals and objectives that are established in advance on an annual basis. All employees, including all of our Named Executive Officers, are eligible to participate in the Annual Cash Bonus Plan.

Each executive officer is assigned a target award opportunity expressed as a percentage of base salary. The target for each of the Named Executive Officers for 2013 was as follows: (i) 70% for Mr. Shockley; and (ii) 45% for the other Named Executive Officers. (Prior to his appointment as Chief Financial officer in October 2013, Mr. Hirschi’s target was 35%, and his actual payout was prorated based on time spent in his current and prior positions). The target award represents the level of bonus payment the executive officer may earn in the event that plan performance is achieved at target or expected levels of performance. Payments at the target levels are further intended to approximate the 50th percentile of the total annual cash compensation opportunity

among the Compensation Comparator Group. In addition, maximum and threshold award levels are established for each metric that adjust payouts for performance levels that exceed or fall below our plan. The CEO could earn 36% of his target bonus opportunity (22% for the other Named Executive Officers) if all metrics were achieved at Threshold performance, and could earn no more than 200% of the target bonus opportunity (178% for the other Named Executive Officers) at Maximum.

For our Named Executive Officers, the goals under the Annual Cash Bonus Plan for 2013 were based solely on the following corporate financial and operational performance measures.

The safety goals under operational performance include the following: (i) lost time incidence rate; (ii) vehicle accident frequency rate; and (iii) medical incidence rate. All three safety goals are based on internal safety performance statistics. The maximum goal for 2013 was established using the best single-year performance in the past five years for each measure. The lost time incidence rate and the medical incidence rate are calculated by applying the number of respective incidents to total hours worked by employees. The vehicle accident frequency rate is determined by applying the number of chargeable vehicle accidents to total miles driven.

The customer satisfaction goal under operational performance is to increase customer satisfaction to a level of customer loyalty. Customer loyalty is defined as the point where, given a choice, a customer is less likely to switch to a competitor. The establishment and measurement of the customer satisfaction goal is based on an annual customer survey designed and conducted by a third-party marketing organization. Survey responses are provided by a combination of customer classes and are weighted as follows: (i) 50% for residential customers; (ii) 25% for small commercial customers; and (iii) 25% for large commercial customers.

The regulatory compliance goal under operational performance is designed to monitor and evaluate the Company’s regulatory compliance activities in light of the importance of the Company’s relationship with its regulators. The 2013 performance levels are based upon improvement from the previous year’s dollar impact as a result of fines or penalties assessed by regulators against the Company.

The earnings per share bonus goal for 2013 was established based on a range between a threshold of $2.20 and a maximum of $2.70. Executive officers would receive no bonus if the threshold earnings per share goal was not

achieved. Because the plan provides that bonus payments are made only if the Company’s reported earnings per share exceed the threshold amount, and earnings per share reflect the bonus payments, any amounts otherwise earned based on achievement of various targets would need to be reduced pro rata in the event the full payments would cause the Company’s earnings per share to be lower than the threshold amount.

The table “2013 Annual Cash Bonus Plan” shows the individual metrics, their respective weighting and the performance goals at Target, Threshold and Maximum levels of performance. Results between the Threshold and Target, or between the Target and Maximum, are interpolated

to calculate the achievement of the metric. The table also shows the actual performance result for each metric and the resulting final payout percentage of Target opportunity (rounded to the nearest whole percentage) earned by the Named Executive Officers, after being reduced to account for the iterative process of factoring the bonus payments into the earnings per share result. As noted above, the CEO has a wider and higher range of payout under this plan to better focus his short term compensation on performance. Also as noted above, Mr. Hirschi’s bonus was prorated for 2013 based on time spent in different positions, and so his payout percentage from the time he was at the Vice President level is not shown below, but the metric goals were the same.

Bonuses are paid in late February or early March after the Compensation Committee reviews the audited financial results and operational performance for the previous year. As reported in the Annual Report on Form 10-K for the year ended December 31, 2013, and as shown in the above table, the Company had net income of $2.20 per basic share (before extraordinary items), which includes an accrual for the cost of the bonus pool. The Company also met its three annual safety goals, its regulatory compliance goal, and its customer satisfaction goal in each instance at the level reflected in the above table. As a result, each Named

Executive Officer received a bonus, as set forth in the table below and also in the Summary Compensation Table later in this proxy statement. The total bonus paid to Company employees for 2013 was approximately $4.0 million, of which approximately $0.7 million was paid to the Named Executive Officers and other executive officers.

The following table shows the payout amount under the 2013 Annual Cash Bonus Plan (as set forth in the Summary Compensation Table under “Non-Equity Incentive Plan Compensation”) compared with the payout opportunity at Target payout for each of the Named Executive Officers:

Other Cash Awards. In 2013, the Compensation Committee approved no other cash bonus award for any Named Executive Officer, except the annual strategy execution bonus provided under Mr. Shockley’s employment agreement as described below.

Long-Term Equity Incentives. Generally we grant stock awards annually to our Named Executive Officers with a three-year performance cycle and payout. These awards are designed to focus executive officers on the relative performance of our stock and, secondarily, as a retention tool. Since 2004, the Compensation Committee has granted annual long-term equity incentives consisting of two elements:

All of our Named Executive Officers (other than our CEO) received these awards in February 2013, in the amounts set forth below in the “Grants of Plan-Based Awards” table. The CEO did not receive an equity award in February 2013 when the other Named Executive Officers received their annual long-term incentive grant because at such time, his employment term would have ended in December 2014, and his initial equity grants in 2012 were intended to last through the 2014 period. However, in consideration for Mr. Shockley agreeing to extend his term until December 2015, he received a special grant in November 2013 with one cliff vesting date at the end of his December 2015 term.

For our Named Executive Officers (excluding the CEO), the mix for each annual equity award was again based on a weighting of 75% for performance shares and 25% for time-based restricted stock. We have chosen to place more weight on the performance shares to emphasize long-term performance and shareholder returns, consistent with the Company’s compensation philosophy. We believe that the time-based restricted stock awards are also effective retention and incentive tools because their actual value is tied to the value of the Company’s stock no earlier than the vesting date and the vesting schedules require that participants be employed at the end of the three-year vesting period. The initial target values (i.e., the initial value of the time-based restricted stock plus performance shares at target),when combined with annual cash compensation,are intended to approximate the 50th percentile of the total direct compensation value among the Compensation Comparator Group. Dividends on Company stock are paid quarterly on time-vested restricted stock but are not paid on unearned performance shares, until such time as they are earned and converted to shares.

The actual number of performance shares earned at the end of each three-year cycle depends on the Company’s total shareholder return percentile ranking within a specific group of companies approved by the Compensation Committee (called the “Performance Comparator Group”). The Performance Comparator Group for the 2013 equity awards is somewhat different from our Compensation Comparator Group. In addition to the Company, the

Performance Comparator Group currently includes 10 other publicly-traded electric utilities with market capitalizations and investor bases that are generally similar to ours. The following companies, selected from the Standard & Poor’s SmallCap 600 Index and MidCap 400 Index that are included in the Global Industry Classification Standard’s (GICS) sub-industry of Electric Utilities for their similarities to us in type of industry and size of operations, are in our 2013 Performance Comparator Group. Note this comparator group included NV Energy at the time of the grant but NV Energy subsequently was removed following its acquisition by MidAmerican Energy:

The actual number of performance shares earned at the end of the three-year cycle can range from 0% to 200% of target, depending on our ranking within the 11-member Performance Comparator Group (including the Company) for total shareholder return. As with the time-based restricted stock, participants are required to be employed at the end of the three-year cycle to be eligible for any award. Total Shareholder Return is defined as the change in stock value, plus dividends paid, over the three-year performance period. To eliminate volatility from measuring stock price on a particular date, the beginning and ending stock price used to calculate total shareholder return is the average closing price for the month of December. The performance share payout scale is as follows:

For the 2011 to 2013 performance cycle, which ended on December 31, 2013, our total shareholder return ranked below the 30^th percentile within the 11-member Performance Comparator Group. Therefore, the performance shares awarded for that performance cycle were not earned and were forfeited.

Type of Equity Awards. We have chosen to make recent long-term awards to executive officers in the form of “full-value” stock awards because they have significant retention value due to their value being directly linked to the stock price in the future. In addition, this type of award limits the negative retention impact of short-term volatility in our stock price

compared to stock options. The Compensation Committee regularly reviews our equity incentive program and reserves the right to grant different types of equity awards in the future. We began paying dividends on our Common Stock in 2011, but do not pay dividends on unearned performance share awards.

CEO Compensation. Mr. Shockley has served as CEO since January 2012, first as interim CEO and then as CEO effective June 1, 2012, at which time the Compensation Committee approved an employment agreement for him. In determining Mr. Shockley’s compensation both at the time of his hiring and during 2013 when his employment agreement was adjusted, the Compensation Committee and the independent members of the Board considered several key factors that are unique to his role – in particular:

The original term of Mr. Shockley’s employment agreement was through December 31, 2014. During 2013, the parties agreed to extend the term of his agreement (and his expected commitment to remain in his role) through December 15, 2015. As part of this process, the Compensation Committee conducted a review of Mr. Shockley’s compensation package, consulting with its independent executive compensation consultant, FW Cook, and determined to make several changes to his compensation. His compensation arrangements for 2013 included the following compensation elements:

Mr. Shockley’s agreement also provides for payments and benefits in the event of his termination by the Company without cause (or by Mr. Shockley under defined circumstances), including in connection with a change of control of the Company, as further described below. Because of the limited term of the agreement, the Compensation Committee decided not to provide Mr. Shockley a Change in Control Agreement as is provided to other senior executives.

Instead, in the event he is terminated without cause or terminates his employment for good reason (such as if he is removed as CEO or has his duties materially reduced), including in connection with a change in control of the Company, Mr. Shockley will receive severance benefits of up to 12 months base salary, a prorated bonus for the year in which termination occurs and reimbursement of COBRA benefits for 12 months, or a cash payment in lieu thereof, and accelerated vesting of certain outstanding unvested equity awards as described below under “Change of Control Agreements and Other Termination Benefits.”

The Compensation Committee reviewed with FW Cook the costs and benefits compared to those provided by the members of our Compensation Comparator Group to their respective CEOs in determining that the arrangement was reasonable and appropriate for the circumstances. FW Cook reported to the Compensation Committee that the annualized value of Mr. Shockley’s proposed target total direct compensation for 2013 was within 2% of the market median of the Compensation Comparator Group comparability data, including up to the maximum annual strategic bonus of $350,000 and the $500,000 restricted stock grant awarded in 2013.

Perquisites and Other Benefits. The Company generally provides to our Named Executive Officers the same benefits as it does to other executive officers and employees. For example, our Named Executive Officers participate in the same medical, dental, life insurance, accidental death & dismemberment, and long-term disability plans, as do other employees, and their Company matching contributions to the 401(k) plan are on the same basis as other employees.

The Company provides limited perquisites to executive officers such as a car allowance, and, for senior officers, an allowance for financial, tax and estate planning.

Change of Control/Termination Agreements. The Compensation Committee has approved a change of control severance agreement for each of our Named Executive Officers (except Mr. Shockley, whose arrangement is further described above and below) and all other executive officers. As further described in this Proxy Statement, these agreements provide executive officers with benefits in the event of involuntary termination (other than for cause or disability) or adverse job changes in connection with or after a change in control. The Compensation Committee periodically reviews the costs of these agreements and market practice. The Compensation Committee believes these agreements offer important protection in the event of a change of control, while also ensuring that in the event of an actual proposed change of control, key executive officers will be willing to remain through the closing because of this protection. This is especially important in the utility industry when the need for regulatory approvals can result in significant delays in consummating transactions following the execution of definitive agreements.

We believe that stock ownership by executive officers can directly correlate to improved performance and enhancement of shareholder value. Therefore, the

Compensation Committee has established recommended stock ownership guidelines for executive officers. The guidelines are as follows:

Our executive officers are expected to meet these guidelines within five years after becoming executive officers. As of the end of 2013, all of our Named Executive Officers met or

are progressing towards meeting the guidelines within their initial five-year terms.

Historically, the accounting and tax treatment of compensation has not been a driving factor in determining the design or amounts of pay at the Company. For example, the Company granted “full value” awards prior to its adoption of FASB ASC Topic 718 and continues to do so, although the Compensation Committee does review the expected accounting treatment of its equity grants.

Section 162(m) of the Code generally limits the tax deductibility to public companies for compensation in excess of $1 million per person per year, unless the compensation is “performance-based” within the meaning of the tax regulations. The Compensation Committee considers it important to retain flexibility to design compensation

programs, even where compensation payable under our programs may not be fully deductible, if the programs effectively recognize a full range of criteria important to the Company’s success. The Company retains the ability to grant equity awards such as restricted stock that are not eligible for the Section 162(m) performance-based compensation exception. Our 2007 Long-Term Incentive Plan allows the Compensation Committee to approve restricted stock, performance shares and stock options that qualify as “performance-based” compensation for purposes of Section 162(m) to the extent the Compensation Committee deems appropriate. The Company’s annual cash bonus plan also qualifies as “performance based” compensation for purposes of Section 162(m).

The Compensation Committee has reviewed and discussed this Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

THE COMPENSATION COMMITTEE

Charles A. Yamarone, Chairman
James W. Harris
Woodley L. Hunt
Michael K. Parks
Eric B. Siegel

The Summary Compensation Table sets forth the compensation for each individual who served as principal executive officer or principal financial officer during fiscal 2013, and each of the Company’s other three most highly

compensated executive officers for fiscal 2013. The persons named in the Summary Compensation Table are referred to collectively as the “Named Executive Officers” or “NEOs.”

The Company has a qualified defined benefit pension plan with a cliff vesting schedule that provides definitely determinable benefits over a period of years, often an employee’s lifetime (the “Pension Plan”). The purpose of the Pension Plan which is for the exclusive benefit of eligible employees and their beneficiaries, is to reward eligible employees for long and loyal service by providing them with retirement benefits. Employees are eligible to participate in the Pension Plan on the first day of the month coinciding with or immediately following completion of one year of service during which the employee completes not less than 1,000 hours of service. In order to vest in the benefit payable from the Pension Plan, an employee must have five years of vesting service during which he or she completes at least 1,000 hours each year. To the extent they meet the eligibility requirements, each of the Named Executive Officers and the executive officers is a participant in the Pension Plan, and the estimated credited years of service for each of the Named Executive Officers at December 31, 2013 is set forth in the “Pension Benefits Table” below.

Retirement benefits under the Pension Plan are calculated as the product of 1.25% of the employee’s average monthly earnings (“Pension Plan Average Monthly Earnings”) and credited years of service (“Benefit Accrual Service”). The definition of Pension Plan Average Monthly Earnings is the employee’s annualized rate of basic compensation (excluding bonuses, overtime pay, expense allowances, profit sharing and any other compensation in any form) as of any day converted to a monthly amount and then averaged over a five consecutive year period. The maximum benefit payable under the Pension Plan does not consider compensation in excess of that allowed by the Code. For the year 2013, the maximum amount of compensation on which benefits from the Pension Plan may be based is $250,000. An employee is credited with one year of Benefit Accrual Service in any plan year (January through December) during which he or she completes 1,000 hours of service. The formula below provides an illustration as to how a monthly retirement benefit is calculated for an employee at the later of the date the employee attains the normal retirement age of 65 or the date the employee completes five years of vesting service during which he or she completes 1,000 hours of service each year:

A monthly benefit from the Pension Plan is computed as a straight life only annuity that provides a monthly benefit for the employee’s lifetime and ends upon the employee’s death. Optional benefit forms of payment are also available under the Pension Plan to include:

payments have been made. If the employee dies before all 120 payments have been made, the same amount of annuity is payable for the remainder of the 120 months to the employee’s beneficiary provided the beneficiary continues to live during this period.

Under the terms of the Pension Plan, an employee of the Company may retire and begin to receive a monthly benefit from the Pension Plan upon attaining age 55 and completing the required vesting period of five years during which the employee has completed 1,000 hours of service each year. If a vested participant terminates employment with the Company and elects to commence his or her retirement benefit after age 55 and before age 65, the benefit amount payable from the Pension Plan is reduced such that if the employee commences benefits at age 55, he or she will be entitled to 50% of the accrued benefit otherwise payable

without a reduction at age 65. The reduction schedule below displays the reduction percentage to which an employee’s accrued benefit is subject when benefits commence after

age 55 and before age 65. (Straight line interpolations of these percentages are used where fractional years are involved.)

A monthly benefit payable from the Pension Plan before normal retirement age at 65 is not subject to the reduction schedule above if the employee terminates employment after completing 20 years of vesting service and attaining age 62, or if upon the employee’s termination of employment, the sum of his or her age and years of vesting service exceeds 85. All benefit payments are subject to federal and state income tax and are payable on the first day of each month of retirement.

For the valuation method and all material assumptions, please see the Retirement Plan’s section under Note M Employee Benefits of the Company’s 2013 Annual Report on Form 10-K.

The Company has a non-qualified deferred compensation plan that provides supplemental retirement benefits to certain employees of the Company (the “Excess Benefit Plan”). In determining benefits, the Excess Benefit Plan applies the “Excess Benefit Plan Average Monthly Earnings” definition, which is different than the Pension Plan Average Monthly Earnings definition (that is, basic compensation). The definition of Excess Benefit Plan Average Monthly Earnings is basic compensation including regular wages and bonuses paid pursuant to the Company’s short-term bonus plan. Unlike the computation of Pension Plan Average Monthly Earnings, which is subject to compensation limits imposed by the Code, the computation of Excess Benefit Plan Average Monthly Earnings is not subject to the Code’s compensation limits.

For participation in the Excess Benefit Plan, the Company selects those employees who are eligible to receive a benefit from the Pension Plan, the amount of which is reduced compared to benefits that would be payable to the employee based on his or her Excess Benefit Plan Average Monthly Earnings. Benefits payable from the Excess Benefit Plan are

subject to the same vesting schedule, age requirements and benefit payment options as under the Pension Plan. Except as noted under the heading “Change in Control Agreement and Other Termination Benefits,” it is generally not possible for an employee’s credited years of service under the Pension Plan to exceed the employee’s actual years of service with the Company.

Supplemental retirement benefits under the Excess Benefit Plan are calculated as a monthly amount equal to the difference between (i) and (ii) below:

The formula below provides an illustration as to how a retirement benefit from the Excess Benefit Plan is calculated for an employee at the later of the date the employee attains

the normal retirement age of 65 or the date the employee completes five years of vesting service requiring 1,000 hours of service each year:

The Excess Benefit Plan is subject to the rules of Section 409A of the Code. Generally, under Section 409A of the Code, distributions on account of separation from service cannot be made to certain employees (as defined in Section 416(i)(1) of the Code) of a publicly traded corporation before the earlier of (i) six months following the employee’s separation from service or (ii) the death of the employee. If payments are delayed under this rule, the first payment that the participant receives from the Excess Benefit Plan will include his or her first six monthly payments.

Subject to the above-described six-month delay rule, and unless a participant makes a prior election to defer commencement of his or her retirement benefits pursuant to the requirements of the Excess Benefit Plan, (i) benefits to a participant who separates from service before age 55, but after completing five years of vesting service under the Pension Plan, will commence not earlier than the date the

participant attains age 55 and not later than the first day of the month following attainment of age 55, and (ii) benefits to a participant who separates from service after age 55, and after completing five years of vesting service under the Pension Plan, will commence no earlier than the participant’s separation from service and not later than the first day of the month following separation from service. Thereafter, the employee’s benefit from the Excess Benefit Plan is payable on the first day of each month. A participant may elect the form in which benefits will be payable from the Excess Benefit Plan’s optional forms of benefit. All payments are subject to federal and state income tax.

The Excess Benefit Plan is entirely unfunded. Employees who participate in the Excess Benefit Plan have only the rights of general unsecured creditors of the Company with respect to any rights under the Excess Benefit Plan.

The Company has entered into Change of Control Agreements with each Named Executive Officer other than Mr. Shockley. In the event the covered Named Executive Officer is terminated without cause or resigns for good reason (including a material reduction in duties and responsibilities, a reduction in pay or a relocation of more than 100 miles) during the two-year period following a change of control, he or she will receive the following benefits under the Change of Control Agreements:

The Change of Control Agreements do not provide any tax gross-up payment in the event the payments become subject to the federal “change in control” excise tax and instead provide that either (i) the executive officer will be responsible for paying the excise tax or (ii) payments under the agreements will be reduced to an amount that would result in no such excise tax, whichever would result in the executive officer retaining the higher after-tax amount.

A “change in control” is defined in the Change of Control Agreements and generally includes the acquisition by any person of 30% or more of the Common Stock or voting power of the Company, or the consummation of a reorganization, merger or consolidation or other disposition of all or substantially all of the assets of the Company which results in at least a 40% change in ownership.

Under our shareholder-approved equity incentive plan, upon a change in control, unvested restricted stock awards become fully vested, while unearned performance share awards become vested on a prorated basis to the extent performance is achieved through a shortened performance period ending before the change in control.

Under Mr. Shockley’s employment agreement dated June 1, 2012, and as amended on May 2, 2013 and November 20, 2013 which has a term until December 15, 2015, if he is terminated without cause or resigns due to a material reduction in responsibilities or position, or if a change in control occurs and he is terminated, he will receive a cash payment equal to his annual base salary (or, if less, salary through the remaining term of the employment agreement if termination of employment occurs prior to a change in control), a prorated annual cash bonus, up to 12 months of health benefits, and accelerated vesting of his restricted shares. Upon a change in control, his performance shares would vest on a prorated basis to the extent performance is achieved through a shortened performance period ending before the change in control.

The following table quantifies potential payments or benefits to our Named Executive Officers under our equity incentive plans upon a change in control or under the Change of Control Agreements upon a termination without cause or resignation for good reason following a change in control as described above, in any case based on assumptions

as if the change in control or termination had occurred on December 31, 2013. These amounts do not include benefits under our Pension Plan and Excess Benefit Plan that would be paid in connection with any retirement event, as described under “Pension Benefits Table” above.