Feb. 28, 2005
Albuquerque: PNM Resources (NYSE: PNM) announced today it has reached an agreement with New Mexico parties regarding its proposed $1.024 billion acquisition of Fort Worth-based TNP Enterprises (TNP). The agreement was filed today with state regulators.
If approved by the New Mexico Public Regulation Commission (PRC), the agreement provides for cost savings to be passed on to New Mexico customers. The agreement also will complete another step in the process of closing the proposed acquisition of TNP and its subsidiaries, Texas-New Mexico Power Co. (TNMP) and First Choice Power. The agreement sets rates for TNMP through 2010 and outlines a plan to allocate savings that result from the acquisition.
The unopposed agreement was reached with TNMP, PRC staff, the state Attorney General’s Office and the New Mexico Industrial Energy Consumers.
- Provides TNMP’s 49,000 electric customers in southern New Mexico with a three-phase rate reduction totaling 15 percent, beginning in January 2006 and ending in December 2010. The rate reduction, which includes TNMP’s annual synergy-savings allocation of $380,000, will lower TNMP electric rates by $9.6 million in the first year.
- Allows TNMP an imputed 55/45 debt/equity structure with an assumed rate of return on equity of 10.5 percent.
- Maintains PNM as the power supplier for TNMP’s New Mexico needs through 2010.
- Calls for the integration of TNMP’s New Mexico assets into PNM effective January 1, 2007. The companies, however, will maintain separate rates through 2010.
The agreement also provides resolution on how merger consolidation savings, or synergy savings, will be allocated among PNM gas and electric customers. According to the agreement:
- PNM’s 413,000 electric customers will receive rate credits totaling $4.6 million or nearly $1.84 million annually over a 30-month period beginning January 2008.
- PNM’s 471,000 gas customers will receive $4.3 million in rate credits over the next five years or $860,000 annually, beginning at the close of the transaction.
If the PRC approves
the plan, the first TNMP reduction would lower average electric bills about
$111 annually, based on a usage of 500 kWh per month. With additional
reductions in January 2008 and January 2009, average electric bills will be
about $123 lower.
“This plan provides a rate reduction for TNMP New Mexico customers and a way to credit PNM customers with savings generated by the acquisition. It also sets a clear path for approval by New Mexico regulators,” said Jeff Sterba, PNM Resources chairman, president and chief executive officer. “We’ve had tremendous positive reaction to the proposed acquisition because of its benefits to customers, employees and shareholders.
“Our purchase of TNP will make both companies stronger, and our stakeholders ultimately benefit from that,” Sterba said.
New Mexico Attorney General Patricia Madrid supports the agreement.
“My office intervened in the PNM acquisition in an effort to protect the interests of the TNMP ratepayers, whose rates are among the highest in the state,” Madrid said. “Through negotiations, my office and others were able to achieve a settlement that will be beneficial to those customers, bringing their rates more in line with rates around the state.”
John R. Loyack, senior vice president and chief financial officer, reaffirmed PNM Resources’ 2005 stand-alone earnings guidance, which does not include the TNP acquisition, of $1.40 to $1.55 per share.
“PNM Resources reaffirms our original guidance that annual pre-tax savings of at least $40 million, attributable to refinancing debt and preferred stock at TNP and $10 million of annual pre-tax synergy savings, will result from the acquisition,” Loyack said.
The New Mexico agreement is the latest milestone achieved by PNM Resources to obtain approval of the acquisition. On February 3, PNM Resources announced it reached an agreement with Texas parties that would reduce electric transmission and delivery rates for customers in that state, while asking Texas state regulators to allow the acquisition. A day earlier, PNM Resources obtained anti-trust clearance for the acquisition under the Hart-Scott-Rodino Act from the Federal Trade Commission.
In addition to the New Mexico and Texas approvals, PNM Resources needs approval of the acquisition from the Federal Energy Regulatory Commission and the Securities and Exchange Commission.
The acquisition is expected to close by June 2005.