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PNM, Continental Focus on Gas; Shelve Cap Rock Sale

July 28, 2008
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PNM Resources Inc. and Continental Energy Systems LLC have agreed to terminate PNM's pending acquisition of Cap Rock Energy Corp, an electric distribution and transmission company that serves 36,000 customers in 28 counties in North, West and Central Texas, the companies said.

The companies said they will focus their efforts on completing the pending acquisition by Continental of the natural gas business of PNM Resources' subsidiary PNM. Both of the deals were announced in January (see NGI, Jan. 21).

In order to retain the Cap Rock business, the sale of which was dependent on the closing of the PNM gas sale, Continental has agreed as part of the termination negotiations to pay PNM Resources $15 million upon the closing of the PNM gas sale. The transaction is slated to close by the end of the year, assuming approval from the New Mexico Public Regulation Commission and federal antitrust review.

"The sale of the PNM gas operations remains on track, and we can now focus our complete attention on obtaining the New Mexico regulatory approval for that transaction," said PNM Resources CEO Jeff Sterba.

PNM, which provides electricity to more than 835,000 homes and businesses in New Mexico and Texas and gas service to more than 492,000 in New Mexico, would sell all of its gas operations for $620 million to a subsidiary of Continental Energy Systems of Michigan. A new subsidiary of Continental, New Mexico Gas Co., would be based in Albuquerque, and about 800 PNM employees would transfer to the new company.

Last year PNM reported that in the last decade gas use per customer declined 26%, which has affected the company's ability to adequately recover the costs of running and maintaining its natural gas system (see NGI, July 9, 2007).

In addition to its Texas electric distribution assets, Continental provides gas distribution services to 410,000 customers in Alaska and Michigan through subsidiaries Enstar Natural Gas Co. and SEMCO Energy Inc. Following the closing of the proposed gas sale transaction, Continental would provide regulated gas distribution services to almost one million customers throughout New Mexico, Alaska and Michigan.

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