PNM Resources Inc (PNM) 2002 Q3 法說會逐字稿

Good morning and welcome, ladies and gentlemen to the PNM Resources Q3 2002 Earnings Teleconference. At this time, I would like to inform you that this conference is being recorded and that all participants are on 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.

Good morning. I am Barbara Barsky, Investor Relations Officer for PNM Resources. I would like to thank you for joining us this morning, to review our Q3 2002 results. This conference call can also be heard on the Internet through our website PNM.com. With me in Albuquerque are PNM Resources Chairman, President and CEO, Jeff Sterba. Senior Vice President and CFO, Max Maerki, our Senior Vice President and General Counsel Pat Ortiz, Senior Vice President, Power Marketing and Development Eddie Padilla and our Chief Accounting Officer, John Loyack.

Yesterday afternoon PNM Resources reported Q3 earning. The News Release includes the summary of financial and operational information for Q3 and nine months ended September period, together with some perative information for 2001. Our quarterly earnings [ ] are on our web page together with accompanying charts and financial statements. In reviewing this material, please note that beginning with Q3 PNM Resources is reclassifying its energy trading activities to a net margin presentation in accordance with the Financial Accounting Standards Board [ ] emerging issues task force issued 0203. The EITF also requires the restatement prior periods to conform to current period classification. The reclassification to net margin on trading activities has no impact on previously recorded operating margins for net income.

The reclassification adjustments are currently under review and will be included in the financial statements on form 10Q to be filed with the Securities and Exchange Commission on or before November 14th 2002. Also please note that some of the information we will provide today relative to earnings, regulatory issues, investments and other issues, should be considered forward looking statements within the meaning of Section 21E of the Securities Exchange Act. Actual results for the remainder of 2002 will be affected by a number of factors including weather, the local and national economies, a competitive environment in the electric and natural gas industries and various legal 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 filings for 2001 and 10Q filings for the quarter ended June 30th 2002 and PNM 8K filings with the SEC.

I would like to now turn the conference over to Jeff Sterba. Immediately following his remarks, we will open the conference to questions. Jeff?

Thanks Barb and good morning everybody. Thanks for joining us today.

Let me first spend a minute reviewing our Q3 results. GAAP earnings for Q3 totaled $0.45 per diluted share and that includes a one-time charge of $0.14 which I will talk about in a moment. So consequently ongoing earnings totaled $0.59 per share for Q3 and $1.49 for the year to date. As expected, that's considerably off last year's pace, when ongoing earnings were $0.96 for the quarter and $4.31 for the comparable 9 months. But certainly the second half of 2000 and the first three quarters of 2001 have to be considered atypical.

As we have talked about before, if you look back to 1991, that is a period of four distortions in the wholesale market began to significantly impact [ ] results. Our ongoing earnings in that year were $0.52 in Q3 compared to the $0.59 this year and $1.48 for the nine months ended September 30.

So we are roughly tracking where we were in 1999 before the spike and subsequent drop in wholesale prices. As in the previous three quarters, the reduced level of PNM earnings for the latest quarter is almost entirely due to the continued weakness in the wholesale market, where average prices and trading activity remain significantly below last year's levels.

Now our retail electric business continues to perform well. We estimate retail electric underlying growth running at just about 3% annually, normalized for weather. Industrial sales have been flat with the economic downturn, but we have seen an increase of nearly 2% in the number of residential customers year to date and a continued in average use per customer.

On the gas side, throughput fell for Q3 and year to date, primarily because we have been moving less gas for electric generation this year, compared to last year. Gas gross margin was down 7.8% for Q3 and 4.2% for the year to date.

Our wholesale power business, our merchant business, continues to reflect the current weakness in the wholesale power market. Both on peak and off peak average prices remain low and trading velocity, the ratio of total sales to total generation remains weak. In terms of [ ] our wholesale sales are down about 26% this year compared to the first nine months of 2001. Performance of our generating units during the quarter was really excellent. San Juan ran at more than 90% and [Paleverde] at 100% availability.

Also the new [Long]mine at San Juan began commercial operation on October 14th and is ramping up to full production. After the underground mine is in full production and the surface operation is shut down, sometime during 2003, we would begin to capture some of the expected benefits from that new fuel source.

Overall, I think our wholesale marketing area has done a good job of managing the adverse circumstances in the wholesale market. That performance reflects the consistently conservative approach we have taken to growing this business. Although we have added to our generation portfolio over the past year, we have not taken on significant new debt and financial expansion and our credit rating remains investment grade, with a stable outlook. Our liquidity remains strong during this period of stress. We have $175mln of cash on hand and $105mmln in unused bank lines.

Discussions with our bank group have given us great comfort that we will also have no problem in renewing the revolver before its expiration in March of next year. Subject to regulatory approval, we are also implementing a three-year $75mln accounts receivable securitisation to provide additional capacity and diversity to our liquidity arrangements.

Also, earlier this week, we received approval from the Public Regulatory Commission to refund $182mln in pollution control revenue bonds. This planned transaction will give us the opportunity, not only to extend the overall maturity of these bonds, at a good time in the market, but also through the use of put bonds to add an adjustable rate component to our debt structure.

According to our projects cash flow from Operations through 2005 will not only cover the dividend and fund all of the capital expenditures budgeted for our utility operations, but also generate a growing cash balance.

We recorded a one-time charge against earnings in Q3 of $8.8mln pre-tax or $0.14 per diluted share, as I mentioned earlier. This reflects the cost of the 3% workforce reduction that we announced in August.

Now let me also move on now to some of the more significant developments that have occurred and that we have announced over the last few months.

First, last week, we announced in agreement with FPL Energy to develop a large-scale wind power project in Eastern New Mexico. FPL Energy will build and operate that site and we have agreed to buy the power under a 25 year contract. We anticipate this facility will enter commercial operation by the end of next year. This is our first major investment in renewable energy and I think this 200 megawatts of wind power will be a valuable addition to the PNM portfolio. Renewable energy is one of the bright spots in today's power market and particularly it has received overwhelming support in this state, and we expect it to be in for green power both here and in New Mexico and in the region will continue to increase. Early next year we will apply to the Commission for permission to offer this power to our retail customers under a special green power tariff and power that is not subscribed under that program will be marketed to other utilities in the region.

The second item which we have also previously discussed with you, and has a significant success, has been in reaching a negotiated agreement with various parties in New Mexico, on a series of really three interlinked issues. Our rates, the ability to develop unregulated generation and restructuring and open access on the retail side. That agreement sets our electric rates over the next five years, with a total of 6.5% rate reduction. Regarding the merchant plant development, it gives us the parameters under which we are able to go forward in a way that gives us flexibility while protecting the integrity of the utility and protecting our customers. And all parties have agreed to support repeal of open access legislation.

As you know, we were in New York a couple of weeks ago to discuss that settlement, agreement, so I won't cover that in any more detail. That presentation fact sheet and other relevant information is still available on our web site, if you haven't seen it yet.

Let me update you on the current status of that agreement. That as you probably know, since we filed the proposed stipulated agreement with the New Mexico commission, one party to the negotiations indicated they would oppose its approval and in fact, they filed a statement in opposition. That dissenting party is the United States Executive Agencies, which represents [ ] Airforce Base here in New Mexico. The update is that we have now reached an understanding with USEA, under which they have agreed to withdraw their objections and to support and abide by all terms of the stipulation. No changes to the stipulated agreement were made in their agreement to support the stipulation, so I think this clears us one hurdle that we would have faced in getting rapid action by the commission to approve the stipulation.

The last thing that I would mention - it follows up on our conversation in New York, we are hard at work now, turning our attention to the filing of a gas rate case, which we expect to file by the end of this year. As you know, our gas business is not earning the kind of return that it should. We provide very low gas rates to customers and it is time for a rate increase.

Last, based on PNM performance during Q3, we remain comfortable with our current guidance for 2002 between $1.90 and $2.10 per share on a continuing basis. We expect to provide 2003 guidance later on in Q4, once we have completed our planning and budgeting process that is now under way. With that, we would be happy to take any questions.

Thank you. The question and answer session will begin at this time. If you are using a speakerphone, please pick up the handset before pressing any numbers. Should you have a question, please press 1,4 on your pushbutton telephone. If you wish to withdraw your question, please 1,3. Your questions will be taken in the order that they are received. Please stand by for your first question. Our first question comes from Andrew Levy. Please state your affiliation, followed by your question.

Hey guys, its Andy Levy at Baur Wagner. Just on the last time we talked about the gas case, could you give us a ball park figure on basically how big the case may be and how the timing is going to play out in 2003 as far as recommendations? I know you don't know the exact date, but just give us a time frame of whether it is nine months, or whenever it is going to be. And what is the actual return that you are running on the gas side?

I am sorry, what is the last part Andy?

What is the actual return you are earning on the gas side right now?

Ok. Well let's take them in reverse order. The actual return in the material that we showed in New York a couple of weeks ago, where we showed the new segment break-outs that we are going to be doing on a go forward basis for the twelve ended .. Q2 of 02, the gas business earned about 3.8%. And that return will be at first a little bit as we move into 03, because there is a [ ]that goes away I think in January or February - an add-up that was collecting some costs that had been deferred in the past. So it is definitely sub-par performance.

On the timing, in New Mexico we have a clock that is in effect, unless it is agreed to be waived by all parties. Effectively if you assume January 1st rates should go into effect ten months subsequent to that, unless something happens where all parties agree to a delay. That is the one thing in New Mexico that we have a clock on.

Regarding your first question, I guess my answer would be, is that it is going to be bigger than a walnut and smaller than a house. I don't mean to be cute Andy, it is a good question, but we are not ready to disclose a number, because obviously if we talk about a number at this time, it also attracts the media attention, and we have not finished our analysis. But I think we can give you the 1%, are we on the gas side, John is worth roughly $1.5mln?

$1.5mln to $2mln.

Something in that range, so that will kind of give you a sense of it, but obviously there are a number of moving pieces when you actually do a historic test of costs of service, with known and measurable adjustments. But that will give you a feel.

Well, that's good. Thank you very, very much.

Ok. Thank you, Andy.

Thank you. Our next question comes from Robert Mullins. Please state your affiliation followed by your question.

You talked about the bonds. Would you just run through that real quickly on the current interest rates on those RD amounts, so we can get a sense of maybe interest rate savings, as well as how this biddable feature works?

Yeah, Rob, I am going to ask Terry Horn to do that.

Thank you very much.

Rob, there is $182mln of tax exempt bonds that are callable December 15th $46mln callable December 15th this year and $136mln callable September 15th next year. The interest rate is around about 6.4 to 6.375 callable at $102mln. Put bond structure would be a 3,5 so the maturity of the bond itself would be extended to thirty years, but the interest rate re-set period would be in these 3,5,7year period. And mixed rate savings would just depend upon which of those terms we pick for the interest rate re-set. I can't tell you today exactly what the savings will be.

Ok. When you put these bonds in place last time, what was the prevailing interest rate in the market at the time, do you know?

Well, when we put them in the market, they were the interest rates we currently haveon the bonds - the 6.4 and 6.375.

They were fixed rate for the entire ..

They were fixed rate at about their five year maturities.

That's fine. Thank you very much.

Thanks Rob.

Thank you. Our next question comes from Sam Brothwell. Please state your affiliation followed by your question.

Merrill Lynch. Jeff I was hoping that you could give us a little bit more detail on the wind project, maybe some idea. Is this going to reside in the utility, what kind of tariff do you envision. I guess what I am trying to get to here is what the initial early stage financial impact of this might be?

Ok. Good question Sam. As I mentioned, we've put in place a stipulation that fixes our rates and the costs of this wind project are not included in those costs. And, at the same time the prices that we have for the wind power, which I can't tell you what the exact specific number is, in terms of what we will buy power for, but it is a very attractive rate for wind resources, but I will leave it at that - very attractive.

So at this stage, those resources are not necessarily included within our retail jurisdiction, but it would be our intent that down the road, some or all, and probably only a portion would go into retail rates and will be used for retail customers and I don't think we will have any difficulty with that occurring down the road. But we also see a great demand on the wholesale side for renewable resources, with some states that already have mandates, but don't necessarily have the resources available. So we see the opportunity to sell some of this power out into the wholesale market place. And [ ]customers, our wholesale customers will find quite attractive. Whether down the road, all of it will end up coming into the retail jurisdiction, or only a portion, is not an issue that we have to face yet and so consequently we are not coming to a conclusion. I don't think we will have any difficulty at all, putting it into rates, because of the strong support we have got from virtually every corner of New Mexico relative to this source.

If you look at kind of the 03, 04 timeframe do you see this as being a bit of a drag on your earnings?

Well in 03, I don't think it will be, because there is a fair amount of work that has got to be done for these units to come on line. So there could be a little bit of a drag, but we are talking about very small. 04 I would say that there is the potential that it could have a slight negative impact on earnings. Beyond that, I don't think it will at all, and whether it does in 04 and to what degree, will depend to some extent, on the adoption rate in New Mexico of people being to pay a little extra to support this kind of a project. So I think there could be a slight earnings drag in 04. Depending on the timing of getting the substation in and the windmills up, it is possible that there could be a slight drag in 03, but I think what we are going to see is a pretty significant effort in New Mexico for people to subscribe to this resource, and it should help cover any significant exposure, I think. I don't think there will be a lot.

Now, one other thing let me just add. The stipulation, the overall stipulation that we entered into, specifically allows us, I am trying to give you a sense about the support for [ ], specifically allows us on future projects, that we own .. if we own the project, we are able to defer the costs of renewable projects, even if they go into service. We are able to defer those costs until the end of the rate freeze and then bring those deferred costs into rates. So I think that will give you a sense of the likelihood of being able to recover renewable costs. But I think it is a fair statement, Sam, that in 0304 we have some risk of a slight earnings reduction because of the wind deal.

Ok. Thanks a lot.

Thank you. Our next question comes from Michael Warner. Please state your affiliation, followed by your question.

It's Kennedy Capital. I am fairly new to this story so pardon me for ignorance on some of these questions, but when you announced that you were lowering your earnings earlier this year, based on wholesale prices, could you tell me how the market has transpired since that point and if you can give me any thoughts on what you see in the near term. I am not talking about 03 the whole year, but you know, maybe three or six months down the road.

I am going to ask Eddie Padilla to address that.

Sure, Michael. Yeah, we have been foreseeing that we can see somewhat of a strengthening of prices in the market. As late as March, April and June of this past year, all the prices for Q3 and through the end of the year seem to be strengthening and I think at the time we are projecting prices to clear on average on peak in around $42. I think that it has been commonly reported that prices fell short of that mark in Q3 and our assessment of that is that that occurred because on a demand side of the equation we continued to see prolonged sluggish economy. Many us were believing that that would respond and strengthen and I think that affected consumption levels. We also saw a relatively mild conditions in the West, although there were some periods of peaking. Whether that might have affected an increase in demand, it always seemed to occur in a very localised region of the West, thereby allowing the remaining areas to fill in the demand requirements.

And on the supply side we saw downward pressure in prices because there was a prolonged availability of hydro which tends to depress both on and off peak prices. We had projected a strong hydro situation, but it went much further into Q3 than we had expected.

And then we saw later on in Q3 we saw some new generation - we had expected that, although it was lower than we had envisioned, but with the combination of the demand reductions, this increase in supply tended to continue to produce downward pricing pressure.

Additionally we had expected to see some uptake in the liquidity of the market. I think that the well reported situations with some larger players in the market continued to extract creditworthiness of some counter parties and so we generally saw the liquidity in the market decrease, or not as strong as we expected. And finally we had hoped to see a definitive pronouncement on the part of various policy makers, to eliminate government intervention in pricing policies and we saw exactly the opposite by the [ ] continued. Although they pronounced that the pricing caps will be eliminated, they did extend it by one month, so it just gives a sense to the market place, that there may be some continuing intervention. All of which tended to, we believe, reduce prices somewhat.

On a forward looking basis then, for many of those elements we continued to project some recovery, particularly on the demand side of the equation. Will it be in the short run? It is hard to say. We continue to be conservative in our outlook for 03 - situations like hydro and weather are obviously difficult to project, so we kind of tend to assess our projections on the basis of typical years. In the form of new generation, we have heard that there has been wide reports of significant reduction in the amount of new generation that various parties are intending to construct, so we would see our projector rebalancing on the supply and demand, both like in the 2004 time frame. On the liquidity aspect of the marketing, we see some new emerging players that from our perspective show stronger creditworthiness. They are starting to participate in the western market and so we continue, that's validated in part from the fact that we see an increased number of membership applications in what is known as the western systems power pull, and finally we are still concentrating heavily on our previously announced strategy to focus on long term clients. We have entered into a couple of short term forward deals in Q3 and to Q1 of next year, with some longer term clients that we hope to develop a relationship with, so that we can translate those into extended relationships.

Yeah, that's great. Just one other thing, hopefully this won't take much time, but as a part of your operating margin is there .. what percent if any is .. do you market your own generation or are you out there basically in respect of trading?

Both Michael, but primarily the former. Our whole strategy has always been that we leverage the physical positions that we have in niche markets and when we can then cover up a sale with a purchase and lock in a margin then we resell the power that was then freed up within our system. So then that is one of the uniquenesses that I think that we have which John Loyack, our Controller can talk about in more detail, but because that's what makes this implementation of EITF 02, 03 or whatever the heck that thing is called. Frankly, I just wish EITF would just go away, but I am just kidding. But you know, they told us we needed to perform or do our trading book on a net basis, and we trade our system as a whole system, and we don't distinguish clearly on an hour by hour basis. Now we will in the future, but we haven't historically and so we are having to go back and do after the fact calculations because sometimes we don't know if a purchase was actually made to serve jurisdiction load, because we don't have a fuel clause, or it was used to serve a wholesale sale, or it was actually a trading sale. Although we identify trading transactions, in going back and trying to recreate this book is a little more difficult. John, I don't know if you want to add anything to this.

No I think this was a good summary, although I would strongly support EITF.

Well, if they would just agree to have a rule and stay with it, as opposed to changing it one day before you are supposed to implement it.

I would agree with that.

What percentage .. just one last thing - what percentage of that is of your total operating margin in which .. I mean just the trading aspect?

As a percentage of total margin as we have reported it here, it would be a very small percent. Probably in the neighborhood of 5%-7% of total margin.

Oh, really. I thought it was higher, ok. So you are trading counts as roughly that percentage of your total.. of what you report as operating margin on a quarterly basis?

That's right. Just for a pure trading activity.

Thanks very much.

Thank you. Our next question comes from Kathleen Lally. Please state your affiliation followed by your question.

Jeff, I am trying to understand a little bit better what the economics of the wind power could look like. You mentioned, I think, favorable pricing on the output of the project. Can you give some idea as to what that pricing looks like or contrasted versus the current wholesale market? And then secondly on the retail side, I guess you are going to try to have some slices going to into [ ]or some fashion to have a path through something that would give you some positive economics on the retail side. Would that add up be something you could put in place before the end of the rate freeze, or would you have to wait for the end of the rate freeze? And can you discuss how you see the economics working on the retail side.

Ok, let me think a minute on reverse order on the last question, John - by the way that was a great letter I got from you. The stipulation specifically provides for us to be able to file a tariff for retail customers to utilize renewable resources. And it is recognized that there will be a slight premium to that tariff, so the stipulation specifically allows us to do that and obviously that was important from our perspective.

In terms of the pricing of the wind power, we are not at liberty to give the actual pricing of it. I will tell you that it is below $0.03, I can't tell you how far below, but it is a measure below. And then some people hear that number and say, "well, now wait a minute, that's cheaper than gas, and maybe it is even cheaper than some coal, so why would it be more expensive?" And I think you all understand that when resources, you know, some other higher force controls when the wind blows, not us and the wind patterns tend to have, I won't say it is when Arizona blows in Texas socks, it happens when, you know, particularly in the spring. And in the spring the problem is that's when we have, - it's a family here... It happens when we typically have hydro to run off, and so it is at a point in time when we have the highest concentration of wind energies, when we also have lower market prices. And also, since wind is not a despatchable resource, so you have to have other resources that are there to back it up. So all that's the reason why, you know, below a $0.03 price does not translate into the same thing as a coal resource or a natural gas resource producing power at below $0.03.

So there is, you know, we anticipate some drag albeit hopefully fairly small, in the first couple of years of this project, that not in rates perse, although it will be used to serve retail customers. It will be our ability to recover its costs will largely be the function of the wholesale market place and the degree of adoption of a green power tariff on the retail side.

And secondly could you just review your capex numbers for the next couple of years?

Max, John, one of you, do you want to take that?

John, we are in the process of going through our annual plan and our five year capital budget, but typically we see our maintenance capital, and that's not a very descriptive name, but it is effectively that capital for line extensions and all of those kinds of things that happen on our gas and electric business, of somewhere in the range of $80mln to $100mln a year. And, as you know, we have pulled out additional capital that had originally been geared for development of merchant plant, over the next couple of years. So the only capital commitments we really have are in the range of $80mln to $100mln associated with maintenance capital of our electric and gas utility operations and capital for generation that is already in place.

I would just add to that. You know the hard capital levels over in the past two years have been associated with the Afton and Lordsburg facility. Afton will be commercial likely in November or early December, so the capital dollars there will add in. Lordsburg is already commercial - went commercial this year. So we really do return to more normalized levels as we get into 03 and beyond.

Ok, so that kind of maintenance level for generation, what's the rough number for that?

For which, maintenance or new generation.

I am sorry, for new generation.

Well, I'll tell you, that depends on how realistic .. you know we have announced that we are probably not going to be in the Greenfield development side. We are interested in acquiring additional resources, but the price has got to be right. At this stage we have not seen the owners of plants that may want to sell resources. We have not seen them, in my view get realistic enough about what the future market would be, such that the prices of those assets reflect what that future is. So you know, that is going to be a case by case basis rather than a budgeted 'x' amount of capital, because it is not going to be construction that we go forward with - we are looking and are interested in buying well placed positioned resources. But as I say, it has got to be priced right, and we haven't seen that kind of pricing yet in the market.

So once that kind of opportunity presents itself, your total capex could be $80mln to $100mln per year?

That's correct.

Ok, right. Thank you.

Thank you. Our next question comes from Rex Shobin. Please state your affiliation, followed by your question.

Hi, Dukeen Capital. Can you give us an update on what is going on in California and the west, with refunds? Any reserves that the others take in. If you potentially needed to take more and given that the [ ] may implement a new methodology, and what your understanding of the methodology that may be imposed will be, and any impact it may have on you?

I am going to ask John to do it and Eddie may want to throw in a few things based on some of the dynamics.

From the reserve perspective we won't be adding anything to the reserves whatever exposure we had, which we think is about $10mln of potential reserve. We still have several quarters to go. Anything above and beyond that in the remote category at this point, and we see [ ]new facts and circumstances that would make us change that assessment at this point. Ed do you want to add..?

No I would support what John said that we don't anticipate any additional changes because we continue to participate in discussions with the various parties to all these .. litigious activities and we are optimistic that we can reach conclusion on those.

Have you done any quantification at all, to try to figure out what your gross margin or I should say revenues that you received during the 2000 and 2001 period for selling into California were? Do you happen to have those?

It is difficult for us to explicitly define how much activity went specifically to California, because we never applied for, and therefore were never authorized to trade within in California ISO. So all of our transactions actually occurred at major hubs, Los Vegas and the [Paleverde] area so it is difficult to track the transactions to determine that it actually ultimately that was transacted in California. So it is hard for us to track that.

So, in other words the only transactions we had into California were some sales to the ISO itself at delivery at a point outside of California and then a lot of transactions with players who may have then taken that power, and taken it into California, but we have no sense of that.

So if I just clarify this a little bit further. If I look at your total wholesale sales for 2000 and 2001, all of those were done at points outside of California but into the trading hubs, Paleverde and some of the other hubs in the area?

I always hesitate to say 'all'. But the significant majority were transacted at major hubs and very few, if any were transacted within California.

We may have made some sales to municipalities, Eddy, that were not part of the 'x'.

But those would be delivered at Paleverde or at the four corners hub.

Ok, thank you very much.

Our next question comes from Theresa Ho. Please state your affiliation, followed by your question.

Just following up on the wind power project. Could you go into I guess the months in which you expect to run those wind power projects? Is that really for the summer peak, or is that year round? And as far as the wholesale markets, which trading hubs are you targeting in terms of selling wind power to?

I'll take the first one on that, Eddie take the second one. The wind machines are going to generate electricity any time the wind blows. And so it will be all throughout the course of the year. Now all of the modeling work that both FPL Energy has done and we have done - in fact there is a delightful picture that our people have produced that creates a three-dimensional graph of when we expect to see the wind energy come off, and comparing that to when our loads are. The predominance of the energy will come in the spring, very early summer and then we also have some winds that will pick up in the fall.

Through the course of the summer, there will obviously generate, but you don't get a lot out of them. You certainly don't get 200 megawatts. Our expectation is on average, this plant will produce a capacity factor in the 30%-35% range. But 32% is kind of the target. So if not, certainly it is not a resource you can count on, particularly for July or August peak to produce anywhere near 200 megawatts. Eddie the second - unless you want to add anything?

I would just append to that, that the other 35% energy production. It follows very similarly the standard definition of on and off peak hours, so of that 35% energy, 57% of it approximately is anticipated to be produced on peak, and the balance off peak. However, those will be on peak hours that are on the shoulder months of our typical low profile. So we won't specifically see energy being produced at significantly high levels during our jurisdictional peak.

In regards to the lay-off points that we are attempting to sell as power into, I would just say that it is anticipated to be sold into all the points of delivery that we currently are able to transact at, and again that is because of the unique nature of our merchant strategy in which we are able to adjust the schedules of our various generators at the hub points at which we participate in. We are uniquely structured so we have generation at Calvary, we have generation positions that take us to [Meads]. We are effectively at [ ] hub as well as the four corners San Juan hub. So we would be able to participate at all of those hubs with our wind energy and in fact we have a handful of proposals currently out, right now, being assessed by other parties in regards to purchase of the output of this facility.

Do you need to put additional investment for transmission from the one power project to the hubs?

Yes, it is relative in scale to the investment being made by FPL Energy. There is a relatively small transmission requirement but this wind site is uniquely situated, in such a manner that it bisects major transmissions and PNM has the rights to, and so essentially all we have to do is add a step-up transformer from the site into this major 345 TV line.

ok. And then on the wholesale case, I have noticed that the long term contracts, the [ ] have come down and you mentioned that you just attained some shorter term contracts with long term clients. Could you update us with the duration of your book is right now?

Jeez, I don't know if I can produce an exact percentage for you. I will tell you that I can calculate that and give it to you. The recent for the reduction in the long term contract was because by the terms of its pre-established conditions of the contract, a long term sale we had with the Arizona Power [Pooling] Association, reduced, beginning with Q3 of this year from its pre-established 80 megawatt level down to a level of around 15 megawatts. However, I will tell you that not an exact balance, but a fairly near balance, we re-established some contracts with some of the co-operatives that are served by APPA and so we were able to in part re-establish those contracts. Now those contracts, those sales for Q3, we re-established some of those for Q4 and we are currently negotiating for Q1 activities with those same clients.

Ok, and lastly, your tax rate went down. I think you will agree, quarter over quarter, could you just speak on I guess the reasons why that has come down.

Two specific issues, one is in investment in affordable housing, much lowers the effective tax rate, the other is research and developing credits that were utilizing from both our San Juan facility in technology. That is the [ ] there as well as at the nuclear facility. And we would expect to continue to be able to see those kinds of credits and the affordable housing deal, is at least a ten year duration.

ok, thank you very much.

Thank you. As a reminder, should you have a question, please press 14 at this time. If there are no further questions, I will turn the conference back to Barbara Barsky to conclude.

This is Jeff. I just wanted to thank you all again for joining us and I wanted to .. this in some senses may not be viewed as a direct impact on income and the performance of the company, but I think it has a dramatic impact on our performance. Just to let you know that we were notified recently in the last couple of weeks, that in terms of system reliability, overall system reliability in a survey done across the nation, PNM ended up coming out on top. Number one, for its performance in 2001 which I think is a real reflection on the commitment our folks have made. Plus it is kind of hard for people to pay bills if you are not connected. And it is hard for them to use electricity if they are not connected, so it does have a dramatic impact. It's one of those things that it is a big success for us and I wanted to share it with the runners.

Well I just wanted to thank you for joining us today and if you have any further questions, feel free to give me a call at 505 241 2662 and we will make whatever follow-up each of you have to satisfy them. Thanks a lot for joining us.

Ladies and gentlemen, if you wish to access the replay for this call you may do so by dialing 1800 428 6051 or 973 709 2089 with an ID number of 265548. That concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.