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FERC Gives Green Light to PNM Acquisition of TNP Enterprises

March 7, 2005
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FERC last week gave its blessing to PNM Resources' proposed $1.024 billion purchase of Fort Worth-based TNP Enterprises (TNP). The deal still needs approvals from state utility regulators in New Mexico and Texas, as well as the Securities and Exchange Commission (SEC).

"The Commission has reviewed the proposed transaction under the Commission's merger policy statement and will authorize it since it will not have an adverse effect on competition, rates or regulation and is consistent with the public interest," FERC said in its March 2 order [EC05-29].

PNM's proposal to buy TNP was first unveiled last summer and requires various regulatory approvals in order to be consummated. Under the deal, PNM will also be acquiring TNP subsidiaries Texas-New Mexico Power Co. (TNMP) and First Choice Power.

In its order, FERC noted a proposed market monitoring plan advanced by PNM Resources and TNP includes provisions for a market monitor to identify any anticompetitive behavior regarding PNM's and TNMP's operation of their transmission facilities.

"We rely on PNM's and TNMP's commitment to continue to participate in regional transmission planning," FERC said. "We note that groups such as Southwest Area Transmission (SWAT) and Southwest Transmission Expansion Plan (STEP) are engaged in such efforts, and we will direct the market monitor to monitor and report on participation by PNM and TNMP in regional transmission planning endeavors such as SWAT and STEP."

The market monitor "must also report as to the efficacy of these groups in achieving transmission expansion and compare these efforts with the additional efforts that applicants will undertake as a condition of our approval here," FERC added.

In their Dec. 23 filing at FERC, the utilities ask FERC to approve SW Acquisition L.P.'s sale of 100% of the outstanding common shares of TNP Enterprises to PNM. SW Acquisition is a Texas limited partnership that holds all of the shares of common stock of TNP Enterprises.

The proposed transaction drew very little protest in terms of comments filed in response to the PNM-TNP application at FERC. However, El Paso Electric Co. in late January said in a filing at the Commission that the applicants had "failed to show that PNM's proposed acquisition of TNMP's transmission system will not adversely affect horizontal or vertical competition, including whether the proposed transaction will create barriers to market entry."

Standard & Poor's Ratings Services (S&P) last Wednesday revised the CreditWatch implications on its "BB+" corporate credit rating on TNP Enterprises to positive from developing.

"The rating action is based on the strong likelihood that the proposed acquisition of TNP Enterprises by PNM Resources Inc. (BBB/Stable/A-2) will receive all required approvals," said S&P credit analyst Judith Waite.

Upon completion of the acquisition, which is expected before the end of June 2005, the corporate credit and senior debt ratings on TNMP will be "BBB," mirroring those of Public Service Co. of New Mexico, S&P noted. At closing, PNM Resources will pay down all debt of TNP Enterprises, including $275 million of long-term debt, a $110 million term loan, and $217 million of payment-in-kind preferred stock.

PNM Resources received anti-trust clearance for the acquisition under the Hart-Scott-Rodino Act from the Federal Trade Commission on Feb. 2.

The acquisition still requires the formal approval of the Public Utility Commission of Texas and the New Mexico Public Regulatory Commission (PRC), as well as the SEC. These remaining approvals are expected within the next several weeks, the ratings agency noted.

PNM Resources last week said it had reached an agreement with stakeholders in New Mexico regarding the transaction. The New Mexico agreement, which follows a similar deal in Texas last month, was filed with state regulators.

If approved by the New Mexico PRC, the agreement, which was reached with TNMP, PRC staff, the state attorney general's office and the New Mexico Industrial Energy Consumers, would set rates for TNMP customers through 2010. It outlines a plan to allocate savings from the deal to New Mexico customers.

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