EXHIBIT 99.1
PNM Resources Reports Lower 2nd Quarter Ongoing Earnings
EnergyCo and NRG Energy to expand Houston-area power plant
Company lowers 2007 ongoing EPS guidance
2007 SECOND QUARTER SUMMARY
| · | GAAP (generally accepted accounting principles) earnings of $0.26 per diluted share, up from $0.23 per diluted share in 2006 |
| · | Favorable IRS decision improves GAAP earnings |
| · | Ongoing earnings of $0.13 per diluted share, including mark-to-market impacts, compared with $0.25 per diluted share in 2006 |
| · | Increased coal costs and lower Four Corners production impact earnings |
| · | Cooler weather impacts all operating units |
| · | Lower First Choice Power earnings |
(ALBUQUERQUE, N.M.)– PNM Resources (NYSE: PNM) today reported second quarter 2007 unaudited consolidated ongoing earnings of $0.13 per diluted share, compared with $0.25 for the same period in 2006. The company also reported second quarter 2007 unaudited consolidated GAAP earnings of $0.26 per diluted share, compared with $0.23 for the quarter in 2006.
Ongoing earnings exclude non-recurring gains and charges. A reconciliation of ongoing earnings to GAAP earnings is provided on Schedule 1. All reported results are unaudited.
“This has been a challenging and disappointing quarter and year for us so far,” said Jeff Sterba, PNM Resources president, chairman and CEO. “For example, while we had improved performance at the Palo Verde Nuclear Generating Station, the plant still is not operating at expected and acceptable levels. And its improvement was offset by other outages, particularly at the Four Corners Plant.
“In light of our performance year-to-date, we have developed action plans to improve our operations and streamline our cost structure even more,” he said. “Top priorities include strengthening our core utilities to increase their ability to earn their cost of capital, and maximizing the potential within our competitive businesses to produce sustainable growth for shareholders.”
SECOND QUARTER CONSOLIDATED PERFORMANCE SUMMARY
PNM Resources reported ongoing earnings of $10.2 million, or $0.13 per diluted share. Ongoing earnings include net mark-to-market losses of $13.3 million, or $0.10 per diluted share. GAAP earnings were $20.2 million, or $0.26 per diluted share, compared with $16.0 million, or $0.23 per diluted share, in 2006. A favorable decision by the Internal Revenue Service increased GAAP earnings by $16.0 million. GAAP earnings also include non-recurring items related to the contribution of Twin Oaks Power to EnergyCo and the formation of EnergyCo.
The impacts of solid performance at the PNM San Juan Generating Station and improved performance at the Palo Verde Nuclear Generating Station were offset by outages at Four Corners. In addition, higher coal costs increased expenses by $4.2 million, or $0.03 per diluted share.
Considerably cooler weather impacted all operating units. PNM’s service territory experienced a 31.4 percent drop in cooling-degree days and TNMP’s system had a 20.4 percent decrease, comparing 2007 with 2006.
YEAR-TO-DATE CONSOLIDATED PERFORMANCE SUMMARY
For the six months ended June 30, 2007, ongoing earnings totaled $40.6 million, or $0.52 per diluted share. Ongoing earnings include net mark-to-market losses of $11.4 million, or $0.09 per diluted share, most of which will reverse by year-end. However, higher energy costs are expected because of fixed-price hedged positions. For the same period in 2006, the company reported ongoing earnings of $43.7 million, or $0.63 per diluted share.
GAAP earnings for the first six months of 2007 totaled $49.9 million, or $0.64 per diluted share. For the first six months of 2006, GAAP earnings were $42.0 million, or $0.61 per diluted share.
While Palo Verde’s performance improved significantly over 2006 with the first half of the year having an equivalent availability factor, or EAF, of 82.2 percent, performance was below the company’s expectations of at least 85 percent. For the same period last year, Palo Verde had a 59.2 percent EAF. For the period, San Juan’s performance remained consistent and Four Corners’ EAF dropped to 66.9 percent, compared with 92.4 percent in 2006.
A 13.1 percent increase in the average number of common shares outstanding lowered earnings per share by $0.07.
SECOND QUARTER SEGMENT REPORTING
Regulated Operations
PNM – a vertically integrated electric and natural gas utility in New Mexico with distribution, transmission and generation assets.
Electric:
Beginning on Jan. 1, 2007, the PNM Electric segment includes the territory in southern New Mexico formerly served by TNMP.
| · | PNM Electric reported earnings of $0.07 per diluted share, compared with $0.10 per diluted share in 2006. Earnings decreased $1.3 million to $5.4 million and gross margin increased $7.1 million to $101.6 million. |
| · | A modest increase in load growth of 1.2 percent, the addition of TNMP-New Mexico operations and better Palo Verde performance contributed to earnings. Those increases were offset by reduced performance at Four Corners and a $3.6 million increase in coal costs. |
Gas:
| · | PNM Gas reported losses of $0.04 per diluted share, compared with losses of $0.07 per diluted share in 2006. Losses were $3.2 million in 2007 compared with losses of $4.7 million in 2006. Gross margin increased $3.3 million to $30.1 million. |
| · | Colder weather and customer growth of 2.1 percent decreased losses compared with 2006. |
TNMP– a transmission and distribution company in Texas.
Beginning in 2007, the TNMP Electric segment consists only of transmission and distribution operations located in Texas.
| · | TNMP reported earnings of $0.05 per diluted share, compared with $0.04 per diluted share in 2006. Earnings increased $1.4 million to $4.2 million and gross margin decreased $2.5 million to $36.3 million. |
| · | Modest load growth and the collection of the competitive transition charge, which began in December 2006, were partially offset by a 20.4 percent decrease in cooling-degree days and the transfer of the southern New Mexico operations to PNM, which significantly reduced revenue and sales volumes by 29.2 percent and 17.0 percent, respectively. |
Unregulated Operations
Wholesale– a business segment consisting of the generation and sale of electricity into wholesale markets.
| · | Wholesale reported earnings of $0.02 per diluted share, compared with $0.08 per diluted share in 2006. Gross margin decreased $11.1 million to $32.0 million. |
| · | Improved performance at Palo Verde increased earnings by $8.8 million, which was more than offset by poor Four Corners performance and mark-to-market changes totaling $13.3 million. |
First Choice Power– a competitive retail electric provider in Texas.
| · | First Choice Power reported earnings of $0.08 per diluted share, compared with $0.19 per diluted share in 2006. Earnings decreased to $6.4 million from $13.3 million and gross margin decreased to $24.2 million from $36.8 million. |
| · | An 8.4 percent increase in customer growth was more than offset by higher purchase power costs, a change in customer mix and cooler temperatures, which resulted in lower sales volumes. |
Corporate/Other– a business segment that reflects costs at the holding company, PNM Resources. The segment includes Avistar and PNMR Services Company, which provides corporate services to PNM Resources and its subsidiaries.
| · | Ongoing losses were $0.07 per diluted share in 2007, improving from a loss of $0.09 per diluted share in 2006. GAAP earnings were $0.06 per diluted share, improving from a loss of $0.12 per diluted share in 2006. The favorable IRS decision improved earnings. |
EnergyCo – a business segment that is comprised of the joint venture between PNM Resources and a subsidiary of Cascade Investment, L.L.C.
| · | EnergyCo contributed $2.3 million, or $0.02 per diluted share, to consolidated ongoing earnings. |
EARNINGS GUIDANCE LOWERED
The company today lowered its 2007 ongoing earnings guidance and now estimates that earnings for the year ending Dec. 31, 2007, will be in the range of $1.30 to $1.40 per diluted share. The previous estimate range was $1.80 to $2.00 per diluted share. The main drivers leading to the company’s revised earnings guidance include:
| · | Year-to-date and projected reduced performance at base load plants |
| · | Increased coal costs at San Juan and Four Corners |
| · | Lost sales and increased power purchases as a result of the Afton Generating Station start-up delay to mid August |
| · | The lower-than-requested amount allowed in PNM’s gas rate case, which was ordered by the New Mexico Public Regulation Commission on June 29, 2007. |
ENERGYCO ACTIVITY
| · | EnergyCo and NRG Energy to Expand Houston-Area Power Plant – PNM Resources also announced today that EnergyCo has agreed with NRG Energy, Inc. (NYSE: NRG) to jointly develop a 550-megawatt, combined-cycle natural gas unit at the existing NRG Cedar Bayou Generating Station near Houston. |
The project will be located adjacent to the existing three gas-fired units at NRG’s Cedar Bayou facility and will be owned equally by EnergyCo and NRG. Cedar Bayou 4, which has estimated construction costs of $390 million, will benefit from existing infrastructure and, based on an estimated average net output of 550 megawatts, development costs are estimated to be less than $710 per kilowatt. The unit is expected to be commercially available in the summer of 2009.
Once Cedar Bayou Unit 4 goes online, approximately 275 megawatts will be available to EnergyCo’s Marketing and Trading division. When the project is completed, EnergyCo venture will have a generation portfolio of nearly 1,200 megawatts.
| · | Houston Plant Acquisition Completed– EnergyCo has completed the acquisition of the CoGen Lyondell Power Generation Facility, now named Altura Cogen, LLC. The acquisition closed on Aug. 1. |
EnergyCo purchased Altura Cogen, a 614-megawatt natural gas-fired cogeneration plant within the high-demand Houston Zone, from Dynegy for approximately $467.5 million.
The purchase of Altura Cogen, combined with the ownership of the 305-megawatt, coal-fired Twin Oaks Power facility, brings EnergyCo’s current generation portfolio to nearly 920 megawatts.
“EnergyCo is pursuing selective opportunities to provide long-term value for both PNM Resources and Cascade,” said Sterba, who also serves as chairman of the EnergyCo board of directors. “Cedar Bayou and Altura Cogen are examples of strategic assets situated in a premium ERCOT location. They also underscore our near-term strategy of building a strong, environmentally responsible ERCOT generation asset base.”
SECOND QUARTER EARNINGS CALL
PNM Resources will conduct its second quarter 2007 earnings conference call on Friday, Aug. 3, at 9 a.m. Eastern.
| Analysts in the United States call: | (800) 901-5226 |
| Analysts outside the United States call: | (617) 786-4513 |
| Pass code: | 51730127 |
Participating analysts should dial in after 8:45 a.m. Eastern. The call will be broadcast live and the presentation available at www.PNMResources.com. A transcript of the call also will be on the Web site as soon as possible. A replay will be available through Aug. 10, 2007:
| Analysts in the United States call: | (888) 286-8010 |
| Analysts outside the United States call: | (617) 801-6888 |
| Pass code: | 60213359 |
Background:
PNM Resources (NYSE: PNM) is an energy holding company based in Albuquerque, N.M., with 2006 consolidated operating revenues of $2.5 billion. Through its utility and energy subsidiaries, PNM Resources serves electricity to approximately 835,000 homes and businesses in New Mexico and Texas and natural gas to nearly 490,000 customers in New Mexico. Its utility subsidiaries are PNM and Texas-New Mexico Power. Other subsidiaries include First Choice Power, a deregulated competitive retail electric provider in Texas, and Avistar, an unregulated energy technology company. With generation resources of more than 2,465 megawatts, PNM Resources and its subsidiaries market power throughout the Southwest, Texas and the West. In addition, the joint venture in which the company has a 50-percent ownership owns approximately 920 megawatts of generation. For more information, visit www.PNMResources.com.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Statements made in this news release that relate to future events or the Company’s expectations, projections, estimates, intentions, goals, targets and strategies are made pursuant to the Private Securities Litigation Reform Act of 1995. You are cautioned that all forward-looking statements are based upon current expectations and estimates and the Company assumes no obligation to update this information. Because actual results may differ materially from those expressed or implied by these forward-looking statements, the Company cautions you not to place undue reliance on these statements. The Company’s business, financial condition, cash flow and operating results are influenced by many factors, which are often beyond its control, that can cause actual results to differ from those expressed or implied by the forward looking statements. These factors include the risk that EnergyCo is unable to identify and implement profitable acquisitions, including development of the Cedar Bayou Generating Station and implementation of the acquisition of the Lyondell facility, or that the contribution of assets to EnergyCo by the Company may not be implemented as expected, the potential unavailability of cash from the Company’s subsidiaries or EnergyCo due to regulatory, statutory or contractual restrictions, the outcome of any appeals of the Public Utility Commission of Texas order in the stranded cost true-up proceeding, the ability of First Choice Power to attract and retain customers, changes in Electric Reliability Council of Texas protocols, changes in the cost of power acquired by First Choice Power, collections experience, insurance coverage available for claims made in litigation, fluctuations in interest rates, conditions affecting the Company’s or EnergyCo’s ability to access the financial markets, weather, water supply, changes in fuel costs, availability of fuel supplies, the effectiveness of risk management and commodity risk transactions, seasonality and other changes in supply and demand in the market for electric power, variability of wholesale power prices and natural gas prices, volatility and liquidity in the wholesale power markets and the natural gas markets, changes in the competitive environment in the electric and natural gas industries, the performance of generating units, including the Palo Verde Nuclear Generating Station, the San Juan Generating Station, the Four Corners Plant, and EnergyCo generating units, and transmission systems, the ability to secure long-term power sales, the risk that the Company and its subsidiaries and EnergyCo may have to commit to substantial capital investments and additional operating costs to comply with new environmental control requirements including possible future requirements to address concerns about global climate change, the risks associated with completion of generation, including pollution control equipment at the SJGS, the expansion of the Afton Generating Station, and the EnergyCo Cedar Bayou Generating Station, transmission, distribution, and other projects, including construction delays and unanticipated cost overruns, state and federal regulatory and legislative decisions and actions, the outcome of legal proceedings, changes in applicable accounting principles and the performance of state, regional and national economies. For a detailed discussion of the important factors that affect the Company and that could cause actual results to differ from those expressed or implied by the Company’s forward-looking statements, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s current and future Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q and the Company’s current and future Current Reports on Form 8-K, filed with the SEC.
PNM Resources
Schedule 1:
Second Quarter 2007 Reconciliation of Ongoing Earnings to GAAP Earnings
All ongoing-to-GAAP adjustments are included in the Corporate/Other segment
Second Quarter
| | | Quarter Ended June 30, | |
| | | 2007 | | | 2006 | |
| | | Earnings | | | Diluted | | | Earnings | | | Diluted | |
| | | (in 000's) | | | EPS | | | (in 000's) | | | EPS | |
Net Earnings Available to Common Shareholders | | $ | 20,240 | | | $ | 0.26 | | | $ | 15,983 | | | $ | 0.23 | |
| | | | | | | | | | | | | | | | | |
Adjustments for Acquisition and Other | | | | | | | | | | | | | | | | |
Non-Recurring Charges (net of income tax effects): | | | | | | | | | | | | | | | | |
| Favorable IRS Decision | | | (16,038 | ) | | | (0.20 | ) | | | -- | | | | -- | |
| Acquisition Integration Costs | | | -- | | | | -- | | | | 1,140 | | | | 0.02 | |
| Twin Oaks III Impairment | | | 2,042 | | | | 0.02 | | | | -- | | | | -- | |
| Loss on Contribution of Altura (Twin Oaks) | | | 2,197 | | | | 0.03 | | | | -- | | | | -- | |
| JV Formation Costs | | | 1,801 | | | | 0.02 | | | | -- | | | | -- | |
Total Adjustments | | | (9,998 | ) | | | (0.13 | ) | | | 1,140 | | | | 0.02 | |
| | | | | | | | | | | | | | | | | |
Net Ongoing Earnings Available to Common Shareholders | | $ | 10,242 | | | $ | 0.13 | | | $ | 17,123 | | | $ | 0.25 | |
| | | | | | | | | | | | | | | | | |
| Average Diluted Shares | | | 78,793 | | | | | | | | 69,433 | | | | | |
Year-to-Date
| | | Year-to-Date June 30, | |
| | | 2007 | | | 2006 | |
| | | Earnings | | | Diluted | | | Earnings | | | Diluted | |
| | | (in 000's) | | | EPS | | | (in 000's) | | | EPS | |
Net Earnings Available to Common Shareholders | | $ | 49,906 | | | | 0.64 | | | $ | 41,984 | | | $ | 0.61 | |
| | | | | | | | | | | | | | | | | |
Adjustments for Acquisition and Other | | | | | | | | | | | | | | | | |
Non-Recurring Charges (net of income tax effects): | | | | | | | | | | | | | |
| Favorable IRS Decision | | | (16,038 | ) | | | (0.20 | ) | | | -- | | | | -- | |
| Acquisition Integration Costs | | | -- | | | | -- | | | | 1,709 | | | | 0.02 | |
| Twin Oaks III Impairment | | | 2,042 | | | | 0.02 | | | | -- | | | | -- | |
| Loss on Contribution of Altura (Twin Oaks) | | | 2,197 | | | | 0.03 | | | | -- | | | | -- | |
| JV Formation Costs | | | 2,543 | | | | 0.03 | | | | -- | | | | -- | |
Total Adjustments | | | (9,256 | ) | | | (0.12 | ) | | | 1,709 | | | | 0.02 | |
| | | | | | | | | | | | | | | | | |
Net Ongoing Earnings Available to Common Shareholders | | $ | 40,650 | | | $ | 0.52 | | | $ | 43,693 | | | $ | 0.63 | |
| | | | | | | | | | | | | | | | | |
| Average Diluted Shares | | | 78,446 | | | | | | | | 69,349 | | | | | |
PNM RESOURCES, INC. AND SUBSIDIARIES | |
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS | |
| (Unaudited) | |
| | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| | | (In thousands, except per share information) | |
Operating Revenues: | | | | | | | | | | | | |
| Electric | | $ | 505,376 | | | $ | 477,603 | | | $ | 942,183 | | | $ | 925,819 | |
| Gas | | | 75,141 | | | | 68,869 | | | | 291,625 | | | | 276,345 | |
| Other | | | 164 | | | | 197 | | | | 374 | | | | 306 | |
| Total operating revenues | | | 580,681 | | | | 546,669 | | | | 1,234,182 | | | | 1,202,470 | |
| | | | | | | | | | | | | | | | | |
Operating Expenses: | | | | | | | | | | | | | | | | |
| Cost of energy sold | | | 356,533 | | | | 306,500 | | | | 735,053 | | | | 732,472 | |
| Administrative and general | | | 64,341 | | | | 66,311 | | | | 135,547 | | | | 131,616 | |
| Energy production costs | | | 52,256 | | | | 44,038 | | | | 100,080 | | | | 81,949 | |
| Depreciation and amortization | | | 39,695 | | | | 37,953 | | | | 80,137 | | | | 72,283 | |
| Transmission and distribution costs | | | 22,194 | | | | 21,314 | | | | 44,761 | | | | 40,364 | |
| Taxes, other than income taxes | | | 19,003 | | | | 18,261 | | | | 37,623 | | | | 35,225 | |
| Total operating expenses | | | 554,022 | | | | 494,377 | | | | 1,133,201 | | | | 1,093,909 | |
| Operating income | | | 26,659 | | | | 52,292 | | | | 100,981 | | | | 108,561 | |
| | | | | | | | | | | | | | | | | |
Other Income and Deductions: | | | | | | | | | | | | | | | | |
| Interest income | | | 7,041 | | | | 8,916 | | | | 17,829 | | | | 19,067 | |
| Gains on investments held by NDT | | | 2,957 | | | | 1,158 | | | | 2,917 | | | | 2,054 | |
| Other income | | | 1,890 | | | | 764 | | | | 4,013 | | | | 3,035 | |
| Equity in net earnings of EnergyCo | | | 2,272 | | | | - | | | | 1,610 | | | | - | |
| Carrying charges on regulatory assets | | | - | | | | 2,004 | | | | - | | | | 3,977 | |
| Other deductions | | | (5,530 | ) | | | (2,497 | ) | | | (6,518 | ) | | | (4,013 | ) |
| Net other income and deductions | | | 8,630 | | | | 10,345 | | | | 19,851 | | | | 24,120 | |
| | | | | | | | | | | | | | | | | |
Interest Charges: | | | | | | | | | | | | | | | | |
| Interest on long-term debt | | | 18,734 | | | | 24,267 | | | | 42,743 | | | | 46,798 | |
| Other interest charges | | | 11,158 | | | | 12,231 | | | | 24,996 | | | | 18,263 | |
| Total interest charges | | | 29,892 | | | | 36,498 | | | | 67,739 | | | | 65,061 | |
| | | | | | | | | | | | | | | | | |
Earnings before Income Taxes | | | 5,397 | | | | 26,139 | | | | 53,093 | | | | 67,620 | |
| | | | | | | | | | | | | | | | | |
Income Taxes (Benefit) | | | (14,975 | ) | | | 10,024 | | | | 2,923 | | | | 25,372 | |
| | | | | | | | | | | | | | | | | |
Preferred Stock Dividend Requirements of | | | | | | | | | | | | | | | | |
Subsidiary | | | 132 | | | | 132 | | | | 264 | | | | 264 | |
| | | | | | | | | | | | | | | | | |
Net Earnings | | $ | 20,240 | | | $ | 15,983 | | | $ | 49,906 | | | $ | 41,984 | |
| | | | | | | | | | | | | | | | | |
Net Earnings per Common Share: | | | | | | | | | | | | | | | | |
| Basic | | $ | 0.26 | | | $ | 0.23 | | | $ | 0.65 | | | $ | 0.61 | |
| Diluted | | $ | 0.26 | | | $ | 0.23 | | | $ | 0.64 | | | $ | 0.61 | |
Dividends Declared per Common Share | | $ | 0.23 | | | $ | 0.22 | | | $ | 0.46 | | | $ | 0.44 | |
The following table shows PNM Electric revenues by customer class, including intersegment revenues that are eliminated within the presentation of the preliminary condensed consolidated statements of earnings, and average number of customers:
The following table shows TNMP Electric revenues by customer class, including intersegment revenues that are eliminated within the presentation of the preliminary condensed consolidated statements of earnings, and average number of customers:
The following table shows PNM Gas revenues by customer class, including intersegment revenues that are eliminated within the presentation of the preliminary condensed consolidated statements of earnings, and average number of customers:
The following table shows Wholesale revenues by class of sales transactions, including intersegment revenues that are eliminated within the presentation of the preliminary condensed consolidated statements of earnings.
The following table shows First Choice electric operating revenues by customer class, including intersegment revenues that are eliminated within the presentation of the preliminary condensed consolidated statements of earnings, and number of customers:
