Exhibit 99.1
The Challenge of Change: A Focus on Transformation
Good morning and welcome to the 2001 PNM Annual Shareholders Meeting.
You know, I'd bet that no utility CEO has given an annual meeting speech
this year without talking about change. For nearly a decade, change has been our
constant theme here at PNM - and this year may top the charts. Change in our
industry, in our business structure, in regulation, change that has been more
rapid, more far-reaching, and less predictable than anyone would have believed
possible.
I wish I could say we'd anticipated all these changes - But I can't.
Look at how the situation has developed in California over the past 12
months - while some market turbulence was anticipated, I don't believe anyone in
our industry could honestly say they saw that coming with all its ramifications.
But I can tell you that we are continually learning how to respond to
change and make it work for us to benefit customers, shareholders and employees.
Adapting quickly and effectively to changing circumstances has become the focus
for transformation of our company.
When we met last year, we were preparing PNM for the opening of retail
electric competition here in New Mexico and the fundamental restructuring of our
business, which was scheduled to begin this year. But events in California
overtook those carefully laid plans, and New Mexico has now postponed its
schedule for retail electric competition, delaying the separation of our
delivery and commodity businesses.
In authorizing that delay, legislators recognized that PNM cannot stand
still while others move ahead. PNM Resources, our proposed holding company, will
look somewhat different than originally planned but it will allow us to continue
on the path we embarked on nearly a decade ago.
Some things have not, and will not, change for PNM. Serving the people of
New Mexico remains the vital core of our business. In this role, our utility
mission remains unchanged: to deliver safe, reliable energy and provide
customers with information that can help them better manage their energy use. In
short, provide Energy Confidence. Our efforts to improve service and increase
efficiency have enabled New Mexico consumers to benefit from some of the lowest
electric bills in the United States. PNM retail customers today are paying 13
percent less for electricity than they did in 1985 -46 percent less, when
adjusted for inflation.
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In fact, PNM is the only investor-owned utility in New Mexico that has not
increased its electric rates in the last 12 months. Being a low cost electricity
provider is a change for the better for PNM and our customers.
Unfortunately, over the past year we, along with the rest of the nation,
have faced escalating natural gas costs, which have truly been difficult for
customers. While we have consistently provided gas service to customers at costs
well below the national average, utility bill increases are a change not
everyone can handle, even if they are lower than they are in Arizona, Colorado
or Kansas. We know these kind of changes are hard and that's why we've taken
steps to change how we purchase gas for customers, and how we charge customers
for that energy.
We've spread those higher costs out over more months so customers aren't
hit so hard during the winter heating season. We have substantially boosted the
contribution PNM shareholders gave to our Good Neighbor fund, contributing
nearly $500,000 in this past winter heating season to help those customers who
most need assistance. And we have stepped up our efforts to work with
residential and small business customers to conserve energy and lower their
energy bills.
During just one month, January of this year, more than 2,000 PNM customers
took advantage of our offer for a free energy analysis. So far this year, more
than 5,000 customers have requested these energy audits, compared to 4,000 such
requests for all of last year. We will continue to emphasize these and other new
initiatives to help customers.
While we will not lose sight of our utility mission, the other half of
PNM's business has assumed growing importance in our strategic plan. PNM's power
generation and wholesale power trading operations now contribute more than half
of the company's total revenues, and we see continued growth ahead.
Successfully managing all these changes becomes more of a challenge every
day. We have learned to respond quickly, not just to day-to-day shifts in the
market, but also to the shifting currents of political and regulatory action at
the federal level.
The latest change was the Federal Energy Regulatory Commission's June 18
decision expanding price controls throughout the Western wholesale power market.
While we are still watching the effect of that order on the current market, we
do not believe it will adversely affect the Company in the long term.
However, major market interventions like price caps have a ripple effect
with unintended consequences.
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Price caps, while well-intentioned, will discourage new investment in power
plants - the very thing that must be encouraged if the supply imbalance is to be
addressed. Energy policy must be focused on increasing supply and reducing
demand. Price caps accomplish neither of these.
The new order also creates a 10 percent price premium for all power flowing
into California - an incentive, if you will, to sell power there despite the
increased credit risk. The unintended consequence may well be that available
power will flow to California increasing California's supply, but at the expense
of the rest of the West.
PNM customers, however, can be assured that we have adequate capacity for
now. We also have a rate freeze in place that keeps rates at current levels
until 2003, regardless of wholesale market prices. PNM customers can also rely
on our commitment to ensuring continued, reliable service.
We are also proud of helping bring price stability and supply security to
other New Mexicans through an agreement we announced yesterday with Texas New
Mexico Power. Under the terms of that contract, PNM will meet all the
electricity needs of TNP's customers in southwestern New Mexico over the next
five years. To help provide the 100 megawatts of power needed to meet that
commitment, we are proceeding with plans to build a new generating plant near
Las Cruces. That new generating station should be in operation next fall.
Whatever actions federal regulators take to try and control prices, one
fact remains clear: there is a significant shortage of electric power in the
Western United States today that will likely persist for a few years.
While PNM has an adequate power supply for now, we can't take it for
granted. New Mexico and the nation need an energy policy that addresses
increasing energy use and future requirements for growth, while fostering
improved energy efficiency technologies.
PNM relies on coal, nuclear and natural gas to generate electricity, and we
have a keen interest in adding renewable energy to this portfolio. We are
investigating new opportunities in wind power and in new technologies that will
allow us to site smaller generating units closer to where the power is needed.
Our proposed transaction with Western Resources will also vastly expand
PNM's generation resources - and our market reach -- by giving us access to
Midwestern wholesale markets, as well as adding more than 600,000 new customers
to our retail customer base.
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Changing energy needs will also require new energy solutions. While we
continue to concentrate first on our core utility operations and second on our
growing wholesale power business, through our Avistar subsidiary we will seek
out selective strategic investments that complement and enhance PNM's
competencies in the areas of electricity production, energy trading and utility
operations.
Our vision is to be the best merchant utility in America - a company whose
primary focus is on efficiently delivering energy to customers in its service
territory and expanding our generation and power trading business on a regional
basis.
We are committed to increasing our financial strength and providing an
attractive total return to shareholders. In the 12 1/2 months since our last
annual meeting, PNM total shareholder return - dividend plus the increase in
stock price -- has been 105 percent, compared to 26 percent for other stocks in
our peer group and a loss of 1/2 percent in for the Dow Jones Industrial
Average.
While I am pleased that PNM stock today is trading at more than twice its
price at this time last year, we continue to believe that PNM stock is
undervalued. I believe this is partly due to our small size in a consolidating
industry and partly due to investor uncertainty, both in regards to our proposed
acquisition of Western Resources and our future in the Western power market.
The Western Resources transaction is a transforming event for our company.
We are awaiting a final decision from Kansas regulators regarding Western's
pending electric rate case. That decision is expected later this month. After we
have assessed the potential impact of that rate order, we will present this
proposed transaction to shareholders for your approval.
As to our future in the wholesale power market here in the West, I believe
our track record over the past 10 years speaks for itself. Yes, the market is
changing; in fact it's evolving at a pace undreamed of just a few years ago. But
we have demonstrated the ability to thrive on that change, and I am confident we
can continue to do so.
Our success over the last 12 months, and the ability to continue to succeed
in the future, is most dependent on one thing - our people. They have been
through a lot over the last 10 years - and have the scars to prove it. I
couldn't be more pleased to have the opportunity to work with them in service to
our customers and owners.
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Our path is full of bumps but our folks have demonstrated commitment and,
increasingly, creativity to enable our continued progress. It's also special
when the culture of our company receives recognition, as in this month's issue
of Fortune magazine. Fortune recognized your company as one of America's best
companies for minorities, and THE BEST for Hispanics. While this is only one
aspect of our corporate culture, it is an exceptionally important one that helps
us do a better job in the markets we serve.
Thank you for your confidence in PNM. Now I'd like to answer any questions
you may have.
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