Public Service Co. of New Mexico is gaining a strong presence inthe Midwest/Midcontinent power market with the $4.4 billionpurchase, including debt assumption, of Western Resources’utilities. The proposed merger would create a new Albuquerque-basedholding company serving more than one million retail electriccustomers and 400,000 retail gas customers in New Mexico andKansas, with a generating capacity of more than 7,000 MW.

The tax-free, stock-for-stock transaction, which will take 12 to15 months to complete, will make the new company a leading energysupplier in Midwest and western U.S. wholesale markets. Western’strading presence in six Midwestern power pools is expected toprovide opportunities for PNM to bring its 15 years of powermarketing experience and niche product development to newcustomers. In 1998, PNM exited the gas marketing business, afterhaving a less than stellar start trying to enter the Californiamarket (see NGI, Aug. 31, 1998).

“We evaluated potential partners across a broad range ofcriteria, including financial flexibility, proven managementskills, superior operating and technological capabilities,excellent customer service and a track record for fair dealing onregulatory issues,” said Western’s CEO David C. Wittig. He said thecompany was confident about the merger with PNM.

The merger comes nearly 10 months after Western announced itwould seek a buyer of its electric utilities following its failedmerger with Kansas City Power & Light Co. (see NGI, Jan. 10).Faced with a falling stock price and financial problems associatedwith its subsidiary Protection One, a monitored security company,Western decided to split up the company.

The new company, which will have combined assets of nearly $6.5billion, won’t occur until Western separates its utility assetsfrom its unregulated subsidiaries. These include an 85% ownershipin Protection One, and its 45% investment in ONEOK Inc., theTulsa-based parent of Kansas Gas Service Co. Western plans totransfer its unregulated assets to its spinoff company, WestarIndustries (see NGI, April 4). In October, it filed an applicationwith the Securities and Exchange Commission to sell stock inWestar. Wittig will become CEO of Westar.

What PNM found attractive, among other things, was the $3billion Wolf Creek nuclear power plant near Burlington, KS, theKansas Power & Light division and the KG&E subsidiary. PNMrecently announced plans to increase its generating capacity tomeet the Southwest’s power demands.

PNM said it plans to accelerate its growth plan, which includes10% annual average earnings growth. It also wants to reduce itsdebt load, said PNM CEO Jeffry E. Sterba. The company has reducedits debt-to-capitalization ratio to 55% from 72% over the pastseven years.

“The addition of Western Resources’ low-cost, high capacitygeneration facilities will quadruple our current productioncapabilities, giving us a competitive edge in both power plantoperations and wholesale electric sales,” said Sterba, who willlead the new company.

Once the merger is completed, the new holding company wouldissue approximately 95 million shares of stock, of which 42.1%would be owned by former PNM shareholders and 57.9% by formerWestern shareholders and Westar Industries.

The board of directors of the new company would consist of sixcurrent PNM members and three additional directors, two of whomwill be selected by PNM from a pool of candidates nominated byWestern, and one nominated by Westar. The headquarters for theKansas utilities will remain in Topeka.

Carolyn Davis, Houston

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