Q3 2003 PNM Resources Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good morning and welcome, ladies and gentlemen, to the PNM Resources third-quarter 2003 conference call. At this time I'd like to inform you that all participants are in a listen only mode. At the request of the Company, we will open up the conference for questions and answers after the presentation. I will now turn the conference over to Barbara Barsky. Please go ahead, ma'am.

BARBARA BARSKY, VP, IR, PNM RESOURCES: Good morning. Welcome to the PNM Resources third quarter earnings teleconference call. With me today are PNM Chairman, President, and CEO JeffJeffrey Sterba, Chief Financial officer John Loyack and other members of the PNM management team. Before I turn the call over to Mr. Sterba, I need to remind you that some of the information we will be providing this morning should be considered to be forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. We caution you that all forward-looking statements are based upon current expectations and estimates and pNM resources assumes no obligation to update this information. For a detailed discussion of the factors affecting PNM results please see our current and future annual reports on form 10-K, quarterly reports on form 10-Q and our current and future reports on form 8-K, filed with the SEC. Now I'd like to introduce Mr. Sterba.

JEFF STERBA, CHAIRMAN, PRESIDENT & CEO, PNM RESOURCES: Good morning. Thanks for joining us today. As you all know, we did a web cast last week and also had a chance - either John or I or Terry Horn to visit with many of you in Florida. As a result of that, I think we will be able to keep this teleconference shorter than usual, particularly on the business update, since we have provided most of that information are ready. But let me just touch on a few quick points and you can reference the slide No. 3 on third-quarter earnings drivers.

One of the things as you know that we have focused on is building additional long-term power contracts. And we have added about 200 -- a little over 250 megawatts of additional wholesale load so far this year. And each of those contracts has a tenure to them - I think the average tenure is about 6 1/2 years on those contracts. And I think that will help see us through the markets over the next four years where there's a lot of uncertainty about what market clearing prices will actually be as well as providing some good sound basis for instability to our earnings string.

In the third-quarter this year we did experience warmer weather. Warmer than average and in fact our retail load grew higher than we anticipated but it's not something that we anticipate continuing.

I think on a weather-adjusted basis we saw about 4 percent growth through the summer. And that is about the forecast that we expect to see moving forward. But we do continue to see obviously retail low growth and I think we're projecting about 2 1/2 percent -- little under.

The wholesale marketplace has improved from what it was last year but I would remind us all that last year was really not a very good year in the wholesale market. And we have additional gas resources that are coming on throughout the West that I think will continue to provide a cap on prices, but I'm pleased to see the kind of improvement.

All of those things, I think. have added up to a relatively strong performance for the Company, I believe. Earnings are up 10 percent year-to-date. Again, that's off a fairly soft year from last year but I'm pleased with the progress we are continuing to make. So with that as just a quick overview let me turn it over to John to walk through the specifics of the numbers for the third Q.

JOHN LOYACK, SVP, CFO, PNM RESOURCES: Thanks, Jeff, and good morning. I'll start on slide 4 where I'll walk through our third-quarter and year-to-date EPS performance. For the quarter, as Jeff had mentioned, ongoing earnings are up 10.2 percent - 65 cents vs. 59 a year ago. On a year-to-date basis, ongoing earnings are up about 9.4 percent $1.63 vs. $1.49.

We have had some non-recurring items in the third-quarter of this year. We had a 24 cent charge for the early retirement of debt as we retired our 7.1 percent senior unsecured notes that would've matured in 2005 and replaced them with 300 million or 4.4 percent senior unsecured notes that will now mature in 2008.

Also as you remember in the first quarter, we had a 94 cent gain from the adoption of FASB 143 and a 26 cent charge for the write-off of regulatory assets associated with our global electric settlement.

In 2002, in the third quarter, we did have a 14 cent charge related to work force restructuring.

On slide 5, let me walk you through the key drivers of earnings improvement for the quarter. Margin was the real story, generating 21 cents of improvement. 12 cents sets coming from our long-term contract business, 7 percent on utility margin reflecting warmer weather and strong customer growth. And 2 cents on wholesale as the market pretty much met our expectations, we did see higher pricing and improved liquidity from a year ago which was a very difficult market. So we also saw that offset by a shift of resources from our short-term sales to service our long-term contracts and increase in retail load demand - both because of weather and growth.

On the cost side, we saw a 15 cent increase. As we had demonstrated in the first two quarters 5 cents of that coming from depreciation on new facilities. Those are our gas fired facilities that came online late in 2002. Five cents …