UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITES EXCHANGE ACT OF 1934
Date of Report (Date of earliest events reported) January 25, 2001
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January 25, 2001
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PUBLIC SERVICE COMPANY OF NEW MEXICO
(Exact name of registrant as specified in its charter)
New Mexico 85-0019030
--------------------------- Commission ----------------------
(State or Other Jurisdiction File Number 1-6986 (I.R.S. Employer
of Incorporation) ------ Identification) Number)
Alvarado Square, Albuquerque, New Mexico 87158
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(Address of principal executive offices) (Zip Code)
(505) 241-2700
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Item 9. Regulation FD Disclosure
The following is the prepared comments of the Company `s telephone conference
call to discuss the Company's year-end earnings that was broadcast on January
25, 2001 and is being filed herewith as a Regulation FD disclosure.
Teleconference Outline
January 25, 2001
Fourth Quarter and Year End 2000 Earnings Announcement
Barbara Barsky Opening Remarks
Good Morning. Thank you for participating in this teleconference to review PNM's
year 2000 results. We'll also update you on our take on California's crisis and
restructuring in New Mexico. Today's conference call can also be heard on the
web by accessing our web site at www.pnm.com. I am Barbara Barsky, IR officer
for PNM. Joining me today are:
o Jeff Sterba, Chairman, President and CEO
o Max Maerki, CFO
o Pat Ortiz, General Counsel
o Eddie Padilla, Senior VP, Bulk Power
o John Loyack, Controller
Yesterday, we reported record earnings for the 4th quarter and the full year
2000. A press release was issued which included summary financial information
for the fourth quarter and full year of 2000 and earnings guidance for 2001.
(This press release was filed in the Company's Form 8-K dated January 25, 2001).
I need to remind you that some of the information we will provide today relative
to revenues, earnings, regulatory issues, merger issues and investments should
be considered forward looking statements, within the meaning of Section 21E of
the Securities and Exchange Act. Actual results for 2001 will be affected by a
number of factors, including but not limited to weather, the local and national
economies, the competitive environment in the electric and natural gas
industries, various legal and state and federal regulatory and legislative
outcomes that the company is unable to predict at this time. For more
information about these uncertainties and risk factors, please consult PNM's
10K, 10Q and 8K filings with the Securities and Exchange Commission for 1999 and
2000.
I'd now like to introduce Jeff Sterba, who will take about 15 minutes to discuss
PNM's financial results and other recent news. Immediately following his
remarks, we will open the conference to questions.
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Jeff Sterba
Good morning and welcome.
The fourth quarter of 2000 was certainly not a dull time for us in the utility
industry, particularly here in the West. At PNM, it marked the climax of a great
year, a year in which our long-term strategic plan continued to produce solid
earnings growth.
We recorded a substantial increase in our wholesale power business, more than
doubling revenues over the previous year. Due to that success in the wholesale
market, continued retail load growth and effective cost control, PNM earnings
for the year exceeded our original expectations.
And 2000 was the year in which we accelerated our planned growth strategy with
an acquisition that we believe will make PNM a significant multiregional
presence in our industry.
2000 was also a year in which we faced the challenge of a volatile wholesale
market, driven by events in California -- and California's difficulties have
raised concerns here in New Mexico about our own state's transition to
competition.
PNM has responded to those concerns with a proposed solution that we believe
will provide New Mexico customers with a sound transition to a competitive
market, while providing appropriate protection from the high prices and supply
shortages that California has experienced due to their own disregard of sound
economic and market principles. At this time, it is unclear what the outcome
will be in New Mexico, but we will work to ensure that an appropriate market
structure is put in place and that we are provided the business flexibility
necessary to enable us to compete.
1. Fourth Quarter and 2000 Results:
I'll talk more a little later about industry restructuring here in New Mexico,
but first let's focus on earnings.
Yesterday we reported net earnings of $2.53 per diluted share, an increase of
21.3 percent over 1999 net earnings of $2.01 per share.
For the fourth quarter, reported earnings were 35 cents per share compared to 41
cents per share in the fourth quarter in '99.
Excluding one-time items and costs related to our proposed Western Resources
acquisition, PNM earned $2.58 per share compared to $1.92 in 1999. For the last
quarter of 2000, earnings net of one-time items was 58 cents compared to 43
cents in 1999. I'll come back to those one-time items in a few moments.
The increase in earnings is primarily due to first, the success of our wholesale
power marketing business; second, a warmer summer and colder winter in 2000 than
in the previous year; and third, continued cost control in all areas of our
business and lower interest expense.
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While PNM wholesale sales for the year were up 11% in terms of kilowatt-hours,
wholesale revenues more than doubled, to $748 million for the year. The
relatively small growth in sales compared to the big jump in revenues reflects
the higher prices and increased volatility we saw in the western market,
especially during the second half of 2000.
Although PNM electric retail sales increased about 4.2 percent over 1999 levels,
retail electric revenues were down a little less than one percent. The sales
increase reflects both continued strong underlying growth in our home territory
and warmer temperatures in New Mexico last summer. Those factors were offset by
the $37 million rate reduction we implemented for retail customers in the third
quarter of 1999.
Operations and maintenance expenses were about flat in 2000 compared to the
previous year, and interest expense for the year declined by more than $5
million due to the net retirement of $53 million in debt over the past two
years.
We were also able to take advantage of our strong cash position to buy back 1.5
million shares of common stock.
At year end, PNM recorded a one-time regulatory reserve of 17 cents per share,
reflecting our view of the probable treatment of certain regulatory assets in
the transition to industry restructuring in New Mexico. The other one-time items
in 2000 were in the third quarter and included a gain of 21 cents from a legal
settlement, a reversal of gas rate reserves of 7 cents, a charge of 7 cents
related to the acquisition of a new long-term wholesale customer and a charge of
10 cents related to the proposed acquisition of Western Resources electric
utility assets.
2. California
The big news in our industry in recent months has been the unraveling of
industry restructuring in California, and I want to talk a little bit about how
that situation impacted our wholesale business in 2000 and how we see it
affecting PNM going forward.
PNM is not a major participant in the California market, and only a small part
of our sales are directly into the California PX and ISO. We do not track our
wholesale trading by state, but we estimate that about 7 percent of our
wholesale power went to the California PX and ISO last year.
But California is the 800-pound gorilla of the Western market, and what happens
there affects all of us, in 2000 and as we move forward in 2001 in the western
marketplace.
First, let me review our exposure to the California and Western market, which we
obviously monitor quite closely. We take an active approach to risk management
and have strong policies in place to help us understand and minimize our
exposure to risks in a commodity market.
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We received payment on January 18 from the California Power Exchange for the
majority of the bill due, but the exchange is now in default on about $1.7
million that we understand to be the Southern California Edison portion.
Additionally, the Power Exchange and ISO owe us about $6.5 million payable
within the next 90 days.
As of two weeks ago, we discontinued trades with the PX and ISO until we have
some assurance of payment. We have also transacted business with the California
department of Water Resources, but at this time we've also ceased that trading
activity until such time as additional security is provided. Until then, we will
trade with these California parties only to the extent necessary to comply with
the Department of Energy's directive. Given that the greatest problems appear to
be in northern California, where it's difficult for us to transmit power, we
have only been called on once in recent weeks under this directive.
In the fourth quarter, we also booked an $8.5 million reserve to reflect our
exposure to the wholesale market.
Going forward, we expect that the disruptions in the California market will
continue to have an impact on PNM's wholesale business in 2001.
As you know, the fundamental problem in California is a mismatch in supply and
demand, aggravated by a seriously flawed market structure. While it's too soon
to say how long it will take to straighten out the market problems, it's clear
that it will take at least a year to 18 months before the new generation now in
planning stages can begin to address the supply shortage, and I believe it will
be two to three years before power supplies catch up with demand.
So we expect that demand and prices will remain strong, and risk and volatility
will remain high in the Western market at least through 2001.
3. Update on Path to Deregulation in New Mexico
California's problems have raised a lot of second thoughts about proceeding with
utility industry restructuring here in New Mexico. A number of parties,
including the legislator who sponsored New Mexico's restructuring legislation
back in 1999, are now calling for delay of implementation or even repeal.
We understand the concern and fear that what has happened in California not
happen here in New Mexico. We believe that the combination of the New Mexico
law, developed after five years of study with a focus on avoiding the California
model, second, the desire for New Mexico to be the site of environmentally
appropriate new power generation, and third, our proposed plan of transition can
assure that the California disease will not infect New Mexico customers.
We and many others continue to believe that competition and customer choice are
the future of our industry, and that there is no effective back to go back to.
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We are urging regulators and legislators to continue to press forward with
implementation, while learning from the errors made in California. New Mexico is
not California, and our approach to industry restructuring avoids the pitfalls
that California fell into. However, we have also indicated a commitment to work
with the Legislature if they feel a short-term delay is essential, provided it
is structured to continue the development of a competitive supply market and
provide us the business flexibility to position and compete.
The Legislature has several possible options: it can decline to amend the
restructuring law, which would leave us on track for open access beginning next
year.
Alternatively, the Legislature could choose to let the open access dates slip by
one, two or maybe even five years, but allow PNM and the other utilities in the
state to proceed with corporate separation or something similar that facilitates
development of a competitive supply market as well as the other necessary steps
in preparation for customer choice.
Or the Legislature could allow delay of all those preparatory steps as well as
the open access dates, effectively calling a "time out" that freezes the status
quo. It also raises questions about how the supply needs will be met.
The most extreme option would be to repeal the law altogether and attempt to
return to the old regulatory system.
There is no doubt that California's unfortunate experience has shaken public
confidence in the benefits of utility industry restructuring. Ours is a vital
industry, indispensable to modern life in the 21st Century, and people look to
us to provide a reliable supply of energy at affordable prices.
But we also believe that free markets, properly structured, will continue to do
that, and do it better than regulation. We strongly support continuing with
preparing for a competitive market, particularly focusing on the supply side,
even if the actual date for open access is delayed for some period of time.
4. Earnings Forecast for 2001
Based on our strong results in 2000 and our view of developments this year we
are raising our earnings forecast for 2001 to $2.60 to $2.70 a share.
We believe that the first and second quarters will exceed the same quarters of
last year. In part, this change reflects the pricing in the West during the
second half of 2000. We don't believe we will see the same spikes in the second
half of this year as we did in 2000 on a comparative basis, so we look for lower
third and fourth quarters in 2001 compared to last year.
That assumes that retail sales growth will continue at 2000's rate and that we
will continue to see growth in our wholesale margins. It also includes the
positive effect of the two gas rate cases settled at the end of the year.
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Expenses will increase due to inflation, growth initiatives and regulatory
costs. Significant capital additions in 2000 will lead to increased depreciation
in 2001, but fewer shares outstanding and reduced losses in our non-regulated
businesses will benefit earnings.
At $2.60 to $2.70 earnings for this year, we will produce an annual 16 to 18
percent earnings growth rate since 1999 and be positioned to achieve our target
growth rate of 10 percent over the next 5 to 6 years.
Now we'd be glad to take any questions.
Barbara Barsky
Thank you for your interest. Debi Randall and I are available this afternoon if
for further discussion.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Statements made in this news release that relate to future events are made
pursuant to the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based upon current expectations and the company
assumes no obligation to update this information. Because actual results may
differ materially from expectations, the company cautions readers not to place
undue reliance on these statements. A number of factors, including weather, fuel
costs, changes in supply and demand in the market for electric power, the
performance of generating units and transmission system, and state and federal
regulatory and legislative decisions and actions, including but not limited to
rulings issued by the New Mexico Public Regulation Commission pursuant to the
Electric Utility Industry Restructuring Act of 1999 and in other cases now
pending or which may be brought before the commission and any action by the New
Mexico Legislature to amend or repeal that Act, or other actions relating to
restructuring or stranded cost recovery could cause PNM operating revenues and
earnings to differ from results forecast in this press release. For a detailed
discussion of the important factors affecting PNM, please see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Company's Form 10-K for the year ended December 31, 1999, Form 10-Q for the
quarter ended September 30, 2000 and 8K filings with the Securities and Exchange
Commission.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PUBLIC SERVICE COMPANY OF NEW MEXICO
(Registrant)
Date: January 25, 2001 /s/ John R. Loyack
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John R. Loyack
Vice President, Corporate Controller
and Chief Accounting Officer
(Officer duly authorized
to sign this report)
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