TXNM Energy Inc (TXNM) 2005 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2005 PNM Resources earnings conference call. My name is Anne Marie and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. [OPERATOR INSTRUCTIONS]

I would now like to turn the presentation over to Ms. Lisa Rister, Executive Director, Investor Relations and Corporate Planning. Please proceed.

Thank you very much. Good morning, everyone, thanks for joining us. Please note that the presentation accompanying this conference call, together with the supporting documents relating to our first-quarter earnings is available on the PNM Resources website at pnmresources.com.

With me today are PNM Resources Chairman, President, and CEO, Jeff Sterba, and the Chief Financial Officer, John Loyack, as well as other members of PNM Resources management team.

Before I turn the call over to Mr. Sterba, I need to remind you that some of the information that we will be providing this morning should be considered forward-looking statements pursuant to the Private Securities and 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 discussions of the factors affecting PNM Resources results, please see our current and future annual reports on Form 10-K and the quarterly reports on Form 10-Q, as well as our current and future reports on Form 8-K filed with the SEC.

Thanks, and with that I will turn it over to Jeff.

Thank you very much, Lisa. It is a pleasure to join you all today. Thanks for taking some time out of what I know is a busy day as companies report their earnings.

First thing I would like to touch on, and you will see this on Page 3, is that we are introducing a new logo for the holding company, and we are doing this in order to give the holding company now its own individual identity. The PNM identity in New Mexico has become worth a lot to us with our customers, and particularly the notion of personal commitment to New Mexico.

But as you know, our business is growing beyond -- on a retail side, beyond the boundaries of this state. And while PNM Resources has been in existence for a while, it's now come to a point where we need to create a new identity. A few of you all I think even reviewed a couple of preliminary designs and gave feedback. We appreciate that. And so from now on you will be able to see this logo and use that website for all of your informational needs from us.

More importantly, though, I am pleased to announce strong first-quarter earnings, up about 22% quarter-over-quarter from last year, with first-quarter earnings under GAAP being $0.50 per diluted share. On Page 4, we have identified a couple of the reasons that have helped drive this.

First, we continue to see good cost control and good -- really it's not so much cost control as it is good quality process throughout the Company, which is helping continue to improve quality and lower costs. And we saw another $2.2 million reduction in our non-fuel O&M.

The first quarter of the year was also a good quarter for plant performance, really across the board. San Juan continued to show strength through the quarter, operating in excess of 90% availability. The real difference was Palo Verde and Four Corners also performed better than they did last quarter, and that obviously helped hold down our supply sourcing cost for our retail load, and along with about a $6 increase in wholesale prices, that fueled strong wholesale revenue, which showed a net income increase of about 57% quarter-over-quarter.

Our retail business continues to do well, while we had a milder-than-average winter that took a bit off the growth trajectory. We still showed about 2% growth in our retail, electric, and gas customer side. And we will see how the rest of the year progresses, but it started off well in the retail growth, and we are adding a lot of new customers continuing to see strong growth, customer growth 2.5 to 3% in the core part of the territory.

As you know, we're hopefully rapidly approaching the closing of the TNP transaction. We have received most of the approvals that are necessary for the transaction. I am looking at Page 5. We have received the Hart-Scott-Rodino clearance, the FERC approval, the Texas Commission approval about three weeks ago, and we have had the hearings in New Mexico on our stipulation.

We are looking to -- for a certification from the Hearing Examiner to the Commission, hopefully in the next week or so. And then reasonably quick Commission action. We are targeting the second half of May. It would -- I would be dancing the aisles if we had the approval at the time of our annual meeting on May 17th. That may be a little aggressive, but we can always hope for it.

On the financing side, as you probably know, we have completed all of the financings that we intended to do associated with both this transaction, the TNP acquisition, and the Luna transaction. Recall that we didn't need to do the financing to close TNP. It is really financing to be able to refinance TNP and get the savings on the -- both debt and equity instruments that they have outstanding.

We are very pleased -- John will talk in more detail about how that went, but we are very pleased with how we were received in the marketplace. There's probably a few of you that we had an opportunity to meet with. And we are also very pleased with how the market has held up for us since the time that we issued both the equity units and the common stock. And also for us to have done a piece of the common, half the common in the retail market and for it to have been received so well in the retail market is something that is particularly joyous to our hearts.

A couple of other things, let me just touch on on Page 6. We recently announced the commitment to go forward with a significant amount of environmental upgrades at the San Juan plant. I’m just real tickled with the work that our folks did, and I want to particularly recognize Hugh Smith for his role in the negotiations with the Grand Canyon Trust and Sierra Club.

We have developed a very good relationship with those people, and we look forward to moving forward in the investments that we will make to make San Juan really a premiere, if not the premiere, clean coal unit, pulverized coal unit in the Western United States. It always has been a good performer, but this is going to take it up more than just a single notch.

And I was also very pleased to see an editorial in the Albuquerque paper that not only praised the transaction, but had a closing statement something like, "And PNM customers can rest well at night knowing that all this good work is being done for only the cost of $1 a month." Which also recognizes that all these costs will be recovered through our rates. So we are -- we are pleased about that.

One of the things that has happened more recently relative to San Juan, which is not as good, as you probably know, we issued a release on it. San Juan 4 went down on a forced outage that was associated with the rupture of a 10-foot-diameter pipe. It's water -- it's recirculating coolant pipe. And that took the unit down, and it looked like it would require a couple of weeks to do the repair, because it was fairly significant damage.

I want to really applaud our folks at San Juan who within literally 24 hours, 36 hours had been able to take a unit that was coming down for maintenance, had been taken down the day prior, to get it back ready to go back online and move an outage that was scheduled for the fall on San Juan Unit 4 to right then. So we effectively have replaced the outage that was to occur in the fall with an outage now. Got the pipe fixed. Got the major pieces of maintenance done on unit. That unit is now back up online. And then we are still going forward with the Unit 2 outage, and I believe that Unit 2 is offline?

It is.

It is offline under the maintenance. So I am really pleased because one of the things we really focus on with our people is the issue of innovation and velocity. And for them to be able to adapt that quickly, that I think is a pretty good show.

You also are aware that we filed a FERC transmission rate case asking for about $7.5 million to $8 million. We would anticipate that those rates would go into effect June subject to refund. Discussions have commenced with the customers that are affected under that rate case and we will keep you posted on that.

On Palo Verde, I -- we look forward to a year of good performance. As you know, we've got another one of the units coming down for steam generator replacements this fall. There have been some issues with Palo Verde that have certainly caught our attention. I met with the management of Pinnacle and Palo Verde plant last week, and we had a very good conversation about what's being done to address some of the issues that have been pointed out or raised by the NRC.

I believe that the Pinnacle West Management, APS management and the plant management are committed to doing the things necessary to rectify what have been a couple of burps in their operational plan and move it back on target. But it certainly has our attention as our plant always does, but it's, I would say, a bit more heightened.

The last thing let me just mention before I ask John to go through the quarter in detail, is if you look -- it is interesting to look back. Certainly the last five years we have done I hope reasonably well for you as analysts and for the people that hold our stock. If we look over the last two years, we have grown earnings quarter-over-quarter in every quarter except one. And that was the second quarter of 2003 -- 2004 compared to 2003.

And the reason for that quarter's less-than-stellar performance where it dropped 7% was that that was the quarter in which all three Palo Verde units were taken offline for about a week because of an extraneous incident that had nothing to do with the plant. I promised that I won't talk about what the cause of it associated with the bird, but suffice it to say, it is not something that should happen again. And that was obviously, for us, a major issue to have all three units of Palo Verde down for a week.

So for the last eight -- for the last two years, eight quarters, to see this kind of performance is something we are certainly committed to continuing to replicate this year and going into next year.

With that, let me ask John to talk about the quarter in detail.

Thanks, Jeff. And good morning. Let me start on Slide 8 with the quarter walk across. As Jeff mentioned, EPS is up 22% to $0.50 a share. There were no one-time items in either the first quarter of 2005 or 2004. The key factors that drove our earnings improvement was the gas rate increase, which added $0.07 a share, load growth $0.03, $0.02 on electric, and $0.01 on gas.

Jeff mentioned the operating and maintenance costs being lower, largely due to lower O&M at Four Corners, lower retiree costs that were more than enough to offset general inflation. And plant performance added $0.02 of earnings to the bottom line, as we saw better capacity factors at Palo Verde and Four Corners and still very strong performance from San Juan and Q1.

Offsetting these improvements was weather, and we did talk a little bit about that. About $0.03 of that within the gas business, $0.01 within the electric. We also lost $0.01 because 2004 was a leap year so we had an extra billable day that didn't reoccur in 2005.

On Slide 9, I will walk you through the margin by platform. Overall gross margin was up $6.6 million or 3.8%, driven by gas growth as well as growth in our wholesale electric margins. In our utility operations, the electric margin -- electric utility margin was down $1.2 million.

We saw about $1.2 million of margin erosion from weather, the leap year cost us $1.3 million in billing, and we did see a slight increase in generation cost at our coal units, that was about $900,000. All of that was partially offset by growth that we grew about 1.9% on a load basis, that added 2.2 million of margin back into that mix.

The gas utility was up $4.2 million or 9%. The gas rate increase added $6.7 to margin; growth another 700,000. This was offset by weather and Jeff mentioned that a little bit. We were 3% below our normal heating degree days and 8% below our heating degree days a year ago. That generated the 2.8% offset and we also saw a slightly lower off-system transportation sales of $400,000 in the gas utility.

On the transmission side, margin was down $700,000. This is incremental transmission for our Afton facility in Southern New Mexico to be able to get the power back up north, that added to -- or reduced the margin there.

The wholesale operation side, a very good performance quarter. Overall margin up $4.4 million, 18%. Long-term sales were up slightly as we saw load growth under our existing contracts. That was partially offset by a bit more gas in the generation mix. Forward and short-term sales were up $4.3 million. They more than doubled.

Again, plant availability was critical too that on an equivalent availability basis, Palo Verde was at 92% versus 86% a year ago. Four Corners was at 87% versus 56%. Remember Four Corners had a major outage in Q1 2004 that didn't reoccur in 2005. And San Juan was still very strong, 92% equivalent availability versus 93% a year ago.

And we were able to take that availability into a very strong market year-over-year as we saw power prices up to $48 around the clock for the quarter versus $42 a year ago, or up 14%. And just for reference, within the wholesale electric margin, we had a mark-to-market gain of $900,000 in the first quarter of 2005, versus a mark-to-market gain of $1.8 million in 2004.

On Sslide 10, we will take a look at the EPS performance by platform. The electric utility was even at $0.18, even though margins were a little bit lower, we made that up on the cost side. Gas utility earnings up 19% at $0.19. Again, the rate increase and growth were the main factors there.

Transmission off $0.01 due to the Afton transmission cost. And wholesale was up 71% to $0.12 a share for the quarter. Again stronger short-term performance helped drive that. And corporate costs were down $0.02, largely lower interest due to lower short-term borrowings and lower interest rates and higher returns on our cash balances. So overall, earnings up $0.09 to $0.50 for the quarter.

On Slide 11, let me review liquidity and cash flow for the quarter. For the three months we saw operating cash flow improve to $81 million, up $17 million or 26% quarter-over-quarter. Higher cash earnings, as well as better working capital management, as we saw better receivables performance due to tighter management of our purchased gas adjustment clause that accelerated collections in the first quarter.

Free cash flow saw similar improvement up $18 million or 56%, and you can see our construction expenditures were on par with a year ago. We've got plenty of liquidity at the moment. We've got cash, as well as the revolving credit facilities at the holding company and within the New Mexico Utility business that provide us with about $800 million of available liquidity, and we saw short-term debt balances drop significantly, down 21.8 million, a $72.9 million decrease here in the first quarter.

On Slide 12, as Jeff mentioned, we did finish our financing. In fact, both deals priced on March 23rd, and we were very happy with the performance of both transactions. We raised $104 almost $105 million in common stock and $247 million in mandatorily convertible equity units.

The common stock was priced at $26.76, a very good price. As Jeff mentioned, we did it 50% institutional, 50% retail, which was really important to us internally as we focused on retail shareholders in our Investor Relations program, and had very strong retail shareholder demand. The entire deal was oversubscribed nine times.

On the retail side, we really tried to focus on areas where we thought we would have very good retail retention and wide distribution within that area. About 75% of what we saw retail went in the Southwest market where our home service territories are or will be. And the average distribution was 400 shares per retail investor. So it was widely distributed. Again, we were very happy with those results.

On the mandatorily convertible securities, that deal was eight times over subscribed. In fact, we closed the deal early on that Friday prior to pricing because demand was so good. It has a coupon of 6.75% with a reference price of $26.76 just like the common, up 22% which means that the threshold of our stock price is at 32.65. Remember, that's three-year mandatorily convertible security, so May 16th, 2008, these securities will convert to common stock. As Jeff mentioned, this totally completes our financing plan to acquire TNP to refinance TNP securities and to acquire the Luna facility.

On Slide 13, I would like to reaffirm our earnings guidance at $1.40 to $1.55. I think you are all very familiar with the factors that will drive us through that range as the year progresses. Remember this guidance is not including any guidance for TNP. We will provide TNP guidance on a consolidated basis with PNM guidance for the first time in our second quarter earnings call. So you can keep your eyes out for that. And I also want to reaffirm that we still believe that our TNP transaction will be at least 10% accretive to earnings in the first full year of operations.

On Slide 14, just to spend a minute quickly on our key guidance assumptions. You can see the impact of wholesale prices being up $48 versus $42 for the full year last year, and $42 -- or for the quarter last year and $42 in our low-end guidance. Velocity holding out pretty well at 1.8 versus 1.9 last year, but well above our low-end guidance. You can see the electric retail load growth that we talked about at 1.9%. 2% at the low end of our guidance. And gas always very steady at 2%.

I also want to point out, we included an extra slide that I am not going to go through in detail, but we provided it because we often get questions and Lisa reminds me that I never remember the numbers, but it highlights what our rate base is in both New Mexico and what it will look like when we add TNP. It also highlights rates of return and capital structures for the individual businesses, so I hope that will be a ready reference and it will take the pressure off of me to remember all these numbers every time we get together.

So with that, I will close and turn it back over to Jeff for some comments.

Thanks, John. Let me touch on two things as wrap-up. The first one is the legislative session that we have just ended in New Mexico and a couple of comments about the Federal Legislation that is important to the energy industry.

On the New Mexico legislative session, we had, frankly, what I -- I am not going to say it was the best session overall for New Mexico in general, but for us, it was a very good session. Of the 6 bills that we wanted to get passed, 5 of them passed. The one -- only one that didn't which has to do with a tax credit for produced water, really got caught up at the end in a budget issue. Certainly didn't have any opposition to it. In fact, it had received -- I think it was unanimous approval or maybe two negative votes out of the House before it got balled up in the Senate.

And a number of Bills that we, frankly, did not support, the creation of a Citizens Utility Review Board in the state. Taking out language that says that the state cannot have environmental legislation -- or environmental laws and regs on air that are more stringent than the federal regs. That Bill was defeated. So those things we were concerned about didn't go anywhere, and those things that we were interested in almost everything passed. So we are pleased with the session.

Now on the -- at the Federal level, we are very supportive and strongly working on the passage of an Energy Bill. And I think that there is a growing awareness within the country that it is essential that we move forward now on an Energy Bill that addresses both the demand and the supply side. So we are going to do all we can in support of that, and we also have not given up on a multi-pollutant environmental Bill in one way or the other.

The last thing I will touch on is just a little on the organization. Given that we are hopefully within 30 days or so of closing the TNP transaction, we have now put in place and announced within the Company the organization structures down through the officer level, and in some instances, down two more levels below that so that we are ready to hit the ground running.

I would mention a couple of appointments that we haven't announced publicly. One is the individual who will head First Choice Power. His name is Jeff Shorter, he was the Senior Vice President of the trading operation at TXU, very well regarded and respected. Very intimately knowledgeable about the ERCOT market. Before that, had worked with El Paso, but I think he was with TXU for about five years starting on the gas trading side. And he is developing a team that, in fact, will be announced, I think, Thursday this week that is going to show -- showcase, I think, some real talent to help make that business go.

So the organization is geared up for the integration side. We are very focused on execution because in many of these instances you can have great strategic ideas and poor execution and you don't get the value and that's just not acceptable for us. So, I'm very pleased about where we stand in the integration process and look forward to getting the final approval so we can get to work.

With that, I'll bring it to a close and open up the floor, operator, for any questions.

Thank you, sir. [OPERATION INSTRUCTIONS] Your first question will come from Mr. David Schanzer with Janney Montgomery Scott. Please proceed.

Good morning, Dave Schanzer. Congratulations on a solid quarter.

Thank you, David.

Several unrelated questions. First of all, the operating maintenance expense performance was -- was very good by any standards, and I am sure it is built into your guidance for the full year. But my question is, going forward beyond that '06, what kind of expectations should we have in terms about -- in terms of how O&M would grow. Would it be within the rate of inflation? Or will it be impacted by the TNP acquisition?

Well, at a corporate level, certainly O&M will go up because of the TNP O&M being added to the pot. So overall, total O&M will obviously go up. On a per-unit basis, whether it's per customer or per kilowatt hour or per -- what we'd look at as per energy unit, so we can look at gas and electric together.

We certainly don't anticipate, other than plant maintenance, which can move, if you end up with two major outages in a year and the next year you have two minors, obviously you can have swings, but other than that, we generally try hold our budget at inflation less an efficiency parameter, which we target in the 1.5% range. So -- and that's under overall inflation.

I would say that we've done an awful lot to remove costs and we will probably start to see a bit more pressure on the O&M side as we start to move in the -- in the end -- the second half of '06 or '07. But other than plant maintenance, which can cause things to go up and down, that's our general anticipation.

Okay. Number of new gas customers. How many do you expect to add this year?

It seems to be -- it doesn't really matter what happens, our gas customer growth grows 2% a year.

Okay.

The problem we have on the gas side is, we don't necessarily see 2% growth in use, because of the capital stock that is being turned over in customers' homes. So, what we look for is transportation growth to help make up that difference caused by reduced retail use per customer.

Okay. And the rate case with FERC, what is the ROE that you are looking for in that case?

10.8%.

10.8% is what we filed.

Okay.

We don't -- we are not going for any of the equity adders because, one, they are really tied to being a member of an RTO and we don't have a RTO in this neck of the woods yet. So it is at 10.8%.

Okay. And last question. The tax credit that you are looking for for reduced water. When do you think that subject will be raised again in the legislature.

I think it will end up getting raised next year. It -- we have a 30-day session next year. It is $1,000 tax credit, and in reality, it exists on one of the river basins today, and what this proposal does is it expands it up into the San Juan area and the broader area of the Permian. And it's one of those things that everybody supports, but when they looked at the five-year potential costs, it is the same way that you end up with scoring out of the Federal budget. It made some people a little nervous, so it got put in a pot for further looking, and then when you hit the crunch of the last three days of the session, those things that are in that stack have a tendency to just not get off that stack because people get preoccupied with the other things that are on the must-do list.

Okay. Thanks.

Your next question will come from Steven Rontos with Pallan Capital. Please proceed.

Good morning. A couple of questions. First, if you expect to close for TNP somewhere in the second half of May, why wait until July to update '05 guidance, because what is the reason for not doing it a little sooner?

I think the reason is that we want to get our hands on the business and make sure we go through a complete update of our understanding of TNP's results for the remainder of the year, as well as sort of finalizing our merger savings activities right around the closing time frame and into the first 30 days post close. So that -- that's the reason.

Let me add one other thing to that. We feel very -- we still feel very good about the 10% earnings accretion, and it just makes more sense for us to wait and see through the second quarter how our baseline business is going. So we look at, if there is an update, which there will be because of TNP, we'll give one update instead of two. So I think it is a matter of being able to really get that second quarter of our baseline operations. Plus, as John said, it's one thing to see and expect, but it is good to also have your hands on it.

Okay. And then the second question was, around the wholesale sales were down a little bit year-over-year for the quarter. What, if any, has been the impact on your retail margins. Have you been using some of that generation to serve retail load and is that impacting your retail margins one way or the other?

Yes, our retail load is obviously up, but not what has typically gone up because of weather, but it's up about 2%. So we have an increase -- we are having to provide more energy out of the same resource space, because, remember, we look at it as a total system. So some of that energy is serving the regulated side.

The margins that we are seeing between the regulated and the unregulated side, clearly it depends on what hour you are talking about, but they are fairly equivalent across the -- across the clock hour. So we make about the same amount of margin either way.

I just wanted to point out, you mentioned that revenues were down in -- on the wholesale side.

Volumes.

Volumes were down.

Oh, volumes, okay.

And I think that if you look at the revenue side, it is because prices are higher. It is new longer-term contracts kicking in. One of the things that we have talked to you all about is the need to add additional resources, because we are pretty well maxed out, and that's the reason for the Luna investment, which will be coming on for next -- what, before next summer, as well as other minor purchases that we are making.

Remind us again, Luna will serve which load?

Luna is for the wholesale market.

For wholesale, so won't go to serve PNM's native load or TNP's --

No, we will be filing in New Mexico 45 days after the TNP approval by the New Mexico Commission. We will be filing in New Mexico a resource plan on how we intend to serve all of the New Mexico load, both PNM and the New Mexico portion of TNP -- or TNMP, because we will be integrating those over starting in 2007. So we will be filing a resource plan, and there will clearly be resource additions associated with that plan.

When will that be filed again?

It is 45 days after the Commission order on the TNP transaction.

After the final Commission order on the TNP.

Yes.

Thank you.

[OPERATOR INSTRUCTIONS] And your next question will come from Maurice May with Power Insights. Please proceed.

Good morning.

Good morning. How are you, Maury?

Jeff, I would like you to elaborate on the comments you made about the NRC issues at Palo Verde, if you would, please.

Well, there has been some press about the fine that was levied against Palo Verde, which really goes back to an incident that occurred back -- I think it is 2002, and it has just finally wound its way through the enforcement process.

There are also some other issues that the NRC has referenced in March regarding some problem identification and resolution and a few performance issues. And these things are taken very seriously by -- certainly by us and I honestly believe -- firmly believe by the plant. I think Bill Post, Jack Davis, and Jim Levine -- sorry, I couldn't remember Jim's name -- are very focused on what they have to do from a root perspective to reinvigorate some of their process.

They did have a few human error issues. They didn't cause any problems per se, it's really the preventative process design work. And so there were some deficiencies noted by the NRC in a letter. That letter is public. I think it was in March of 2005. Because the NRC goes through an annual assessment.

And I think one of the things we also recognize with Palo Verde is, because it is the largest nuclear complex in the United States, it is -- and because it came through what it did in the early 90s, it has for the last set of years, I'd say eight or ten -- eight years, in one sense been held to almost a higher standard because it is the premiere facility, and I think it is going through some growing pains.

There's been some shifts in -- in the tenure of people. They did some rotations of senior plant management in which folks -- I am not sure if they were completely prepared for taking on their new assignment, and they were done in a way in which I don't think they will do again. They were all kind done at once. So there's a series of those kind of things, none of which, based on our pretty thorough review, look like serious root issues. All fixable.

Okay. Thank you very much.

And your next question will come from Michael Lapides with Hibernia. Please proceed.

Guys, congratulations on a great quarter. I really have two questions. One easy, which is, are you still thinking about filing another gas utility rate case? And can you talk a little bit about the timing of that rate case, and if you can talk about it, what type of range you might be looking for?

Michael, I guess what I can say is that, yes, we are on an ongoing basis looking at where do we have under-earning pots. One of the things that we have talked publicly about is this last gas rate case was a fairly significant case, and we need to get back into the mode of more -- of smaller, more frequent rate cases on the gas side, because with the level investment that is having to go on because of bare main replacement and when you see use per customer on the residential side decline, it really is something that is going to have to have fair rate support.

I am not going to give you a time frame at this stage on when we will file, Michael. We are certainly looking at -- looking at it time now, and neither could I give you an estimate of what we will file for. I apologize, but you are just going to have to wait and see. We have got a number of irons in the fire that we will have to balance, but you will see us do something.

Okay. And then kind of second question and maybe a little more on a different tact. Can you walk me through -- and I have looked at the slides that you've presented, and those are very helpful -- all of the financing transactions? I've got the converts. I have got the common, I am trying to see if I am missing anything that you've done in the last four to five months related to either Luna or the TNP deal.

No, John?

Just to refresh, and maybe it is a good idea to do that. We have placed originally with Cascade 100 million of mandatorily convertible securities that will fund right around closing. Those haven't funded yet, but that structure is already in place. And we did that right after the deal announcement.

We've locked in our financing terms for the 100 million of debt securities we were going to issue through a forward-starting swap in the use of our holding company credit facility. That's 100 million of debt at 4.97% for a five-year term. And obviously we just recently did the common stock and mandatorily convertible securities that we went through in today's presentation. And 50% of the purchase price of TNP will be funded with PNM common stock.

So all of those vehicles add up to the complete financing plan for TNP. Obviously, the Cascade and the common stock in the deal won't happen until close, everything else is in place and ready to go.

Okay. The terms of the Cascade converts, $100 million converted three years, so convert in '07, and what was the interest rate in that?

Six and three-eighths, Terry?

Six and five-eighths

Up 20%.

Up 20%.

Up 20%.

Got it. Thank you. I appreciate it, guys.

It’s not in '07, it will convert in '08.

'08, yes.

Oh, okay, those will convert in '08. Okay.

In fact, a little later than the ones we just issued because those won't fund until around close.

Okay. Thank you, gentlemen

And there are no further questions at this time. I would like to turn the conference back over to management for any closing remarks.

Well, we just appreciate you taking the time out of the day. We are pleased with the quarter, but we certainly aren't satisfied. We're ready and already hitting this next quarter, which will be a challenge because of the San Juan issues. As you look at it, remember that we will pick up earnings in the third quarter because the outage -- fourth quarter because the outage that we anticipated occurring in the fourth quarter has been moved to the second quarter. But we don't really get too concerned about quarter-to-quarter. We are just going to keep focused on the solid running of the business. Thanks again for your time.

Ladies and gentlemen, thank you so much for your participation in today's conference. This does conclude the presentation. You may now disconnect and have a great day.