TXNM Energy, Inc. (TXNM) Q4 2007 Earnings Report, Transcript and Summary

Good morning and thanks for joining us, in addition to those in the room as you know we also have a webcast on so we’ll try to be careful and point out where we are in the presentation for those people that aren’t with us in person today. For those of you that I haven’t met, I’m Jeff Sterba the Chairman, President and CEO of PNM Resources. Joining me in today’s presentation are Pat Vincent who is president of our Regulated Utility Operations, John Loyack who is, as many of you will remember used to be our CFO is now back as our CEO of the EnergyCo joint venture with Cascade and Chuck Eldred our Executive Vice President and CFO. Also with us are a few members of Investor Relations, [Jina DeCoby] who is the head of IT and with her are [Fredrick Bermuda] and [Francine Amadas] she’s around here somewhere. I appreciate you joining us today and we are going to spend a little longer than we typically would in presentations because I think we clearly owe you a complete explanation about the results of 2007 in addition for the first time we are going to be giving guidance by sector of our business as well as giving two years of guidance for the first time. With those two giving guidance in that way along with the disappointing 2007 results we are going to make sure that we give you a complete picture and story. After my overview we will spend a little bit of time on each of the three major market segments or business segments that we have within the operation and then Chuck will come back and tie it up together. Before we get started I wanted to remind you of the ever expanding safe harbor, it gets bigger and in smaller type every time but please recognize that we will be giving forward looking discussions throughout the presentation. Turning to slide five, clearly 2007 was a difficult and challenging year and it was caused by a number of factors that converged on us which we are going to talk about. As a company that, for the seven and one half years from the start of 2000 through April 2007 what we generated a total shareholder return in excess of 300% when our peer benchmark only returned about 180% to have that turn around and for the eight months or so since May of 2007 to have our total shareholder return decline 37% compared to a benchmark of -7% is obviously a sobering and disappointing outcome. We understand the reasons for it, we are going to explain those to you and give you some background about the action steps that we are taking to turn this around. For a number of reasons 2008 will really establish a new base line from which our growth trajectory will occur. There are a couple of reasons for that think about the changes that we are making to the business or in the process of making today. We are exiting the gas business; we are ending what has been a merchant utility model, a very unique merchant utility model with PNM our utility as well as migrating most of our unregulated operations into the EnergyCo joint venture. There are a series of fairly significant changes to the structure of the business that are the basis for creating a new base line of performance. If we look at the fundamentals of the business, for reasons we’ll talk about, I remain convinced that there are great opportunities within both our regulated and unregulated operations. With the regulated side, particularly within New Mexico which has faced its challenges emanating from a five year global settlement that was put in place in 2002. Given those changes we have faced some difficult roads in 2007 and it will take a little bit of time to right that ship, it will not be able to be righted in quick order just through one rate case, it will take a little longer than that. Let me talk about this in the context of what’s happened over the last couple of years. You can see on slide six that in terms of our earnings per share we demonstrated very strong growth just under 11% compounded per year between the period of 2002 through 2006. On the right hand side you see the fundamental break outs of that between three major categories, our PNM Electric operation, First Choice Power and all other resources. The foundation for a lot of this growth was the global settlement that we entered into in 2002 which was rather unique. Effectively we exchanged not having a fuel clause for the ability to retain all off system sales revenues, revenues made from wholesale contracts. Given that we aggressively grew the wholesale business and did it very successfully. We extended that growth in 2005 by acquiring TNMP enterprises which gave us another piece of a regulated operation with a distribution business in Texas and New Mexico, as well as move us into ERCOT competitive market through First Choice Power a competitive retailer. In 2006 we used that platform to expand our physical presence in Texas through the acquisition of the Twin Oaks Coal Plant, we at the end of the year really in 2007 we then created the joint venture with Cascade because we saw that additional capital was going to be required to grow this business appropriately and we transferred Twin Oaks in 2007 into that joint venture. All of these steps were geared around filling what we knew would be a flattening out of the growth of the wholesale business. A lot of the wholesale business growth was driven by the ability to use the excess generation within our regulated fleet of assets in our unregulated fleet. Recall that the merchant utility model allowed us to commingle our regulated and unregulated assets within PNM the utility and use all of the surplus energy available for the wholesale market. Effectively we created our retail load as just another full requirement, full sale contract. On the right hand bars what you can see is that the major source of decline in earnings from 2006 to 2007 is within PNM Electric, its $0.36 a share, which is a little more than half of the total decline. We also saw a significant reduction in First Choice Power of about $0.25 a share and this is on the diluted basis, the dilution is included within these numbers about $0.25 a share. Remember when we closed 2006 we said that 2006 was a stellar, almost perfect year for First Choice Power and we’ll touch on that in a few minutes. Let me spend just a few minutes talking about what drove these changes within the PNM Electric operation by turning to page seven. As I mentioned the merchant utility model allowed us to sell surplus energy out of the jurisdictional area mixed with the resources that we had that were merchant to put together better products to serve into the market. One of the things that happened is that our retail loads have grown much more rapidly than we anticipated and this is shown in the graph in the upper left hand corner. This compares what our retail sales for the summer, just the three months of the summer were for each of the years 2002 through 2007 compared to the available base load generation which includes contracted purchases not market purchases. You can see that while in the early years we had a fair amount of energy available to sell during the summer, that started to cross over and clearly by 2007 we didn’t have sufficient energy to sell, we didn’t have sufficient energy within our regulated assets to serve those loads. What did that mean? It meant that we had to go out and either generate enough gas or buy purchased power at a cost of $0.065 to $0.08 per KWh but we were only being compensated by the generation component in our retail rate which is just under $0.04 per KWh. That’s a position of trying to make it on volume which obviously doesn’t work. This was a recognized challenge that we faced but with reduced performance with Palo Verde and in 2007 with San Juan as shown on the right hand upper graph on slide seven, we faced the challenge of having to use more gas generation and more purchased power. Also in the lower left hand corner you’ll see that our fuel costs for these base load resources was increasing. You may remember that the global settlement that we entered into had two rate reductions, one in 2003 and one in 2005. They were largely funded by going to an underground coal mine at San Juan and that’s the significant reduction in coal costs that you see going from 2002 through 2004. Since then we’ve seen coal costs increase at a much higher rate than we anticipated then up about 6% per year. The primary drivers for this have been in going to an underground coal mine we are using a lot of steel and cement to support the internal infrastructure of the mine. I’m sure that you followed what’s happened to steel prices and cement prices over the last three or four years, they have increased, cement is probably up about 50%, steel is up close to over 300%. The other major item that we used is gasoline for powering the trucks in the mine and so the costs have gone up much more than we expected. Added to this with the cost of increased underground mine safety caused by legislation enacted after the West Virginia coal mine disaster. For San Juan, for example, that was more than $10 million a year just in order to comply with that legislation. We have seen significant cost increases in the coal mine. We are also starting to see increases in Palo Verde costs as elements of the fuel cycle is starting to move up in Richmond and Fabrication and as we move forward obviously in the uranium itself where you see uranium prices move to about 10 times the level that they were two or three years ago. We are seeing base load fuel costs move up. The last component on non-fuel O&M for our base load generation, we managed the San Juan O&M fairly well, it’s increased but it’s increased at about 4% to 4.5%. Palo Verde, however, has been another story and Pat will talk about this more but we’ve seen non-fuel O&M at Palo Verde increase greater than 17% a year as the people operating Palo Verde have struggled to return it to its premier operating status. The combination of these factors have moved what was a very good global settlement and provided strong growth for the company for about three and one half to four years. In 2007 the tables turned and it was using, in order to serve our retail load, we are having to use much more expensive resources for which, because we did not have a fuel clause we were not being compensated. That’s the major driver of the $0.36 a share reduction in the electric utility. As we saw this happening we expedited our efforts to execute on four key initiatives. The first one obviously is to obtain fair regulatory treatment for our regulated utilities and the major piece of that is our PNM Electric rate case which Pat Vincent will discuss in a few moments. The second has been the need to streamline all of our operations and processes to make sure that we have reduced our costs wherever possible. That was an effort that started earlier in the year and in the third quarter of 2007 we gave you a briefing about a major initiative that we had underway that would drive costs out of the business, Pat will also talk about that. Let me spend just a few minutes on the next two, the third is the separation of the merchant operations from our utility at PNM, this is really driven by regulatory simplicity. Having this commingling of assets works fine when you don’t have a fuel clause but if you are going to have fuel clause it makes it very difficult number one and number two it allows frankly for the jurisdiction our retail load to lean on these resources. What we have done, we announced in January that we have sold off a portion of our portfolio of contracts, that transaction should close within the first quarter of this year. There are four assets that we have unregulated within PNM, Palo Verde Unit Three, Luna, the combined cycle facility that we bought half built and finished building it out, we own it with Tucson Electric and one of the copper mines [subsage], then two peaking generation resources. Our plan for these resources is as follows; the three gas units will either be sold, hold or they will be requested to be included in retail rates. Frankly this last option makes a lot of sense for our retail customers because these are low cost assets. Remember we paid about, I think we have invested in Luna somewhere around $300 a kilowatt. We obviously would not put it into rates at its book cost it will have to go into mark at market because we are not going to sell the resource in the regulated side unless it is beneficial to our shareholders. They are lower cost resources that have already been built and are not subject to the continued escalation on equipment and on construction that we see occurring throughout the marketplace. We think this may be a good alternative rather than selling of holding them but we will have to go through the regulatory process to get that done. In the mean time they’ll continue to be sold into the marketplace. The last resource is Palo Verde Unit Three which in all probability we will just hold that resource for a three or five year period. I believe that nuclear power will continue to move up in value so we can hold it for a three or five year period then look to see what we do with it at that point in time. We are separating the merchant resources that we’ve had within PNM away from the PNM Electric Utility. The fourth key initiative has been to narrow our focus to our regulated and unregulated electric businesses. First it’s divesting of the gas operations, we are very pleased with the terms and conditions particularly for financial price we’ve seen paid for that asset and we are also acquiring a small operation in Texas that will get talked about. The balance of the efforts that we will put into the Electric business Pat Vincent is going to discuss what we are doing on the regulated side, John will talk about EnergyCo and I’ll add a few more comments about FCP and also Pat will touch on the environmental sustainability efforts that we have underway. Pat let me ask you to come up and address those.

For those of you that are on the phone if you turn to slide 10 I want to reemphasize a couple things Jeff said. The success in our regulatory business depends on two key things, regulatory success in New Mexico and Texas and improved operations especially power plant performance. We are also going to invest wisely in our electric business to meet our growth and environmental goals. I first want to talk about regulatory treatment on slide 11, a little bit on the New Mexico rate case, the hearings were held last December and we just finished up in January a series of public comment sessions that the PRC held around the state. We were allowed at those sessions to spend about 10 or 15 making comments on the rate case and why we should have the rate increase in the fuel clause. The public was invited to comment, we had about 42 speakers show up statewide and of those more than three quarters spoke in favor of the rate agreement, the rate case both the fuel clause and the base rate increase. Many of them mentioned for example the standard and poors downgrade as a reason that we should have our fuel clause and the need for us to be healthy to help New Mexico. There was a real wide range of folks that showed up, we had environmental groups that showed up, we had retirees, we had shareholders, and we had folks from the chamber of commerce, folks from United Way and other low income agencies talking about how important PNM was for the economy of New Mexico. We also had our labor union show up, the IBEW came and the construction and trade union showed up to support the rate case. The decision from the ALJ is due on February 28th and then the order from the PRC is due on May 7th. Our gas case is now in the hands of the New Mexico Supreme Court. Many of you remember we appealed five issues in that case, the return on equity, the disallowance of a pre-paid pension asset, the disallowance of results based pay, some cash working capital disallowance and also the way that quit in rate case was treated. In Texas we plan on filing a rate case in the third quarter of this year for TNMP. I want to spend a minute talking about the element of our rate case in New Mexico on slide 12. We asked for a base rate increase of $77 million and for the partial year that would be worth $58 million. All of the assumptions you see here on this slide are at 100% of the rate increase or basically as we filed. We also asked for a fuel clause in New Mexico and that fuel clause would include coal, nuclear fuel, natural gas, purchase power costs and capacity costs. That fuel clause would be worth $69 million for all of next year if it were in place the whole entire year and for the partial year its worth $47 million. The return on equity that we requested in the case is 10.75%. That fuel clause number is a big number so I want to spend a minute talking about our fuel on slide 13. Our current rate which as just mentioned are effective from 2002 have about $105 million of base fuel in them. The rates that we filed in 2007, those filed rates in 2007 were based on a test year ending September 30, 2006, that has $146 million of base fuel in that. That $146 million equates to $18.38 MWh and the $105 million is about $16.28 MWh. In the base rate filing we reset our fuel. For 2008 we expect about $157 million in base fuel and that’s based on increased sales. The base fuel rate of $18.38 stays the same but we expect to have $69 million in fuel costs that would flow through that fuel clause for the entire year. That fuel clause is pretty substantial and its made up primarily of two things; first of all increased coal costs, we’ve seen coal costs increase about 25% since the end of that test year. The second is increased load, what the increased load does for us is it lowers our off system sales and when we need to buy the PPA’s are usually based on gas generation and then we also have to increase our own gas generation. We are basically buying gas at the margin in that fuel. On slide 14, I want to talk about our second key focus area and that’s power plant availability. At San Juan we’ve had top quartile performance for many years and we’ve benefited from that. We’ve slipped on that some, we are in the process now of putting in our environmental upgrade and while we are putting in those environmental upgrades we are replacing the tube leaks, the tubes that caused us the performance issues in EAS. We expect that our EAS is going to go up about two point six percentage points this year and that’s primarily due to the work that we completed on Unit four in 2007 and the work that’s going on, on Unit three right now it will be completed this spring. At Four Corners EAS last year was hurt by Unit four and Unit five where they had some extended outages on turban failures. For 2007 they have a major 100 day overhaul on Unit five, many of you know that these plants are about 40 years old and this is the first time they’ve had a major overhaul in some years. In 2009 we expect a 13 percentage point improvement in EAS at Four Corners based on that outage being completed this year. At Palo Verde, [Randy Edington] and his team continue to make progress on the EAS at Palo Verde. The Unit performance is increasing but while that performance increases as Jeff mentioned we expect the O&M budget to go up and I’ll talk about how much in a minute. We are also maintaining oversight at Palo Verde, our new Senior Vice President of the Utility Operation has a nuclear background, he is a nuclear engineer by training, he spent some years at Westinghouse and that is very helpful to us as we continue our oversight at Palo Verde. If you turn to slide 15, I’ll talk about our business improvement initiative that Jeff mentioned. We continue to make progress on the initiative that we announced last year and in November we had the task of saying goodbye to some our colleagues that had been with us for years and had a 5% workforce reduction. We are on track to be down another 9% of our workforce this year. As you can see on the bottom portion of the slide last year the O&M was $466 million and that includes $4 million of those ABI savings that we achieved last year. We are on track to achieve $35 million in ABI savings this year, ten of that is not in the Utility; you’ll see that there is $25 million in the Utility O&M slide the other $10 million benefits corporate, other, First Choice Power and EnergyCo. We are hitting those goals, we plan to take out $25 million in costs this year along with the incremental $4 million that was taken out last year but we’ve seen about $20 million in terms of labor, benefits and material escalation this year and about $7 million in other escalation and that includes things like tree trimming in Texas, some increased storm reserves in Texas and an increased allowance for bad debt as our revenues go up we expect to see more bad debt. Through our business improvement plan we were able to offset all of that escalation in labor and materials and most of the other so it came out about even. What’s happening though is there are some other costs that we can’t control and offset. The first one is Palo Verde; we believe that our share of Palo Verde O&M will go up $13 million from 2007 to 2008. They are making progress on plant performance but while the NRC has enhanced oversight over them we believe they are going to continue to need O&M increases at Palo Verde. Another one there is Afton and Four Corners. Afton is in service for the full year this year so that’s increase Afton costs for that whole year and that outage that I talked about at Four Corners is going to increase O&M. Next year at Utility we are looking $495 million to spend. We turn to slide 16, I’ll talk about our capital plans at the Utility. Our capital spending for 2008 and 2009 is forecasted to be $380 million and $373 million respectively. You can see that spending on existing generation is decreasing, we only have one outage at San Juan in 2009 and much of the spending for the two outages that took place in 2008 took place in 2007 since we need to buy all the material and equipment ahead of time. PNM Electric spending rises in 2009 fairly significantly and that’s attributable to a transmission project called [Rio Forco] which will go into Northwest Albuquerque to serve commercial growth that’s coming online in that period of time. We also have about $75 million for generation development in this period of time and that would be for resources that come online in 2014 and 2015. The new resources that we need in the 2009 and 2010 period are either done through PPA’s or as Jeff mentioned if we would receive regulatory approval it could be done with Luna and Lordsburg. Our ability to spend at these forecasted levels is obviously predicated on the rate case outcome that we get in New Mexico. I also want to spend a minute on our environmental investment, we’ve spent our money on environmental upgrades at San Juan and we’ve experienced significant emissions reductions following the upgrade on Unit four. The Knox admissions are significantly below our target of 0.03 pounds for MMBTU and on the SO2 side our target was 90% reduction and we are at 95%, that’s freeing up some allowance so we can sell on the open market from San Juan. On Opacity our target was 20% and we are running at about 10% so very successful environmental upgrades on San Juan. We are also looking at energy efficiency and many of you know Governor Richardson is now back in New Mexico and one of his key focuses for this year is energy efficiency and that’s very good for PNM. There is a bill in the legislature that has been passed through the committees and should be passed out of the legislature for the Governor’s signature in the next two weeks. It’s called The Efficient Use of Energy Act. It will require PNM to have energy savings targets of 5% by 2014 and 10% by 2010 and that needs to be met through energy efficiency. There’s language in the bill that’s very helpful to the Utilities, specifically it requires the PRC to remove any disincentives to utilities for investing in energy efficiency and it provides that the PRC allow us to earn a profit on resources acquired through energy efficiency programs that is financially more attractive than those afforded supply side resources and it also enables us to collect costs and incentives through either a tariff rider or in base rates. The language in that bill is very favorable to Utilities looking at energy efficiency. The third part of our environmental sustainability is solar, we are doing a solar feasibility study to site a trough in New Mexico, we are working with El Paso Electric, Tri-State and Excel and this could be bought online either through a PPA or a build, whichever gets preferred regulatory treatment. We also have a biomass plant in our resource plan to help us meet our renewable portfolio standard and that will come in at 33 megawatts and that will come in, in late 2009 as a purchase power agreement. The final piece of environmental sustainability is climate change leadership. PNM is very active both national and at the state on the climate change leadership. We are doing that so that PNM is not disadvantaged when it comes to climate change legislation so that we can have acceptable things for our customers while still doing the right thing for the environment. We are focusing on three areas of climate change legislation; the first is advocating for adequate free allowances for utilities in the electric sector. We are also looking at price limits on those allowances and then making sure that there is sufficient time to reduce emissions so we can reduce the impact on our customers. As you can see we have a lot ahead of us this year but our focus is on those two key areas, the regulatory treatment in New Mexico and improving our power plant performance. With that I want to turn it over to John Loyack the CEO of EnergyCo to talk about EnergyCo.

Just to keep everybody on track I’m going to move to slide 19 to start the presentation and talk a little bit about EnergyCo. I think we have a pretty exciting opportunity here to create something special with EnergyCo and 2007 was really a year of formation and progress and foundation building and so we’ll go through some of the highlights of 2007. Obviously you were able to establish the structure and start to build out the management team and we’ll continue that process in 2008. From a strategic growth perspective the contribution of Twin Oaks in addition to the Cogen facility were two big steps forward. Then we also started a project with NRG Cedar Bayou IV a combined cycle low heat rate gas plant that will come online in the summer of 2009. We think that is a really good addition to the portfolio. A lot of the equipment was purchased ahead of the curve so some of the price increase that you’ve been I’m sure following relative to demand for gas equipment so we think it will be very well positioned as it comes on. Our model at EnergyCo is to be really active asset managers and asset optimization and the infrastructure to be able to do that got underway in 2007 including some system work to be able to manage changes going on in ERCOT, for those of you not as familiar with ERCOT today there is a handful of pricing zones, markets refer to zonal, it’s moving to where there will literally be hundred of pricing points to be managed. We are building software and teams to be able to manage that in the marketplace that system development started in 2007. There was a lot of integration work around the assets that were contributed in some very good operational performance Twin Oaks, EAS was near 90% great availability out of the Cogen and then we had a successful upgrade to the next level environmental compliance for our Twin Oaks facility we were able to do that with low cost technology that probably cost us about 20% to 25% of more traditional installations. We think it’s really positioned the plant for 2008 and beyond. On slide 20 if we looked at keys areas of focus now you can think of the transition of EnergyCo because finishing up some formulations but really moving to value creation in 2008 and beyond. We really have four key initiatives; we need to continue to build out our infrastructure as we still need some people in process and we will be working to finish our nodal system. The other thing the nodal system does it allows us to be a level four scheduling, that will allow us to provide additional products and services to our customers as well as to optimize the management of our own assets at ERCOT that’s a big step forward. We’ll be working with NRG very closely to make sure the Cedar Bayou construction stays on time and one budget and again available for the summer of 2009. We’ll be very focused on looking at other asset opportunities gross development and we are going to talk about Twin Oaks expansion as we move forward here as well as M&A acquisition opportunities in building opportunities well underway. Finally maximizing what we have to get the most value out of it because this is about value creation we need to get the most out of the assets we have deployed and new assets which we bring in. We are also expanding our marketing and trading operation outside of [inaudible] in the Southwest. Those are the key initiatives that we’ll keep you posted on as we move through 2008 and we get into value fruition. On slide 21 the 75 days or so since I’ve been here we’ve really been focusing on filing out the strategy for EnergyCo. There’s a physical component to that and there’s a business model component to that I’ll walk you through those. On the physical side we are focused on ERCOT, we have assets there seen if value and those assets we see ERCOT as a market with shrinking reserve margins and better pricing moving forward we see it as a key place to invest. Right behind that with our expertise the Southwest and the West really the footprint that we are going after the build of base for the business and grow it. When you think of what mix the assets its obvious we are off to a good start with the price of gas [inaudible] in the portfolio continue to want to make sure that we have a good mix and that low heat rate so that that asset is going to perform over the long term well and provide returns over the long term as well. As we also look at the portfolio we will look at renewable from our active asset model we’ll be a little more focused on base load renewables, [inaudible], geothermal, those types of assets our model to that. As we think about the business model literally from field for permit to the optimization of plant performance to the generation electricity turning that into products and services to sell to the marketplace and the customer position itself really trying to tie all of those together and then optimize them in the financial market as we optimize each of those positions along the way and we really get the full value of the entire unregulated value change in the market that we intend to serve. That’s why we are so focused on systems processes and people we are able to ensure that we can do this and do it effectively and add the incremental value that we think it will add as we move forward. On slide 22, how will we measure our performance of our value creations? Obviously 2007 was a startup year $10 million EBITDA we’ll see that grow to $60 million to $70 million EBITDA in 2008 as we get a full year out of the assets we have in the marketplace and continue our asset management model and we drive value with it. As we move to 2009 we’ll see that go to $100 million to $110 million of EBITDA as we get a half year of value out of Cedar Bayou and we continue our optimization efforts. There are some things that you should think of in context of those numbers. Those numbers do not include any new developed assets or any new potential acquisitions that we might bring in. That was the additional value creation as we move along. From a development perspective we do have dollars in our ’08 and ’09 plans to develop our 600 megawatt coal facility at the Twin Oaks, we can certainly talk more about that in Q&A. That’s in the development budget for those years. We will continue to fund an M&A budget as we look for good asset opportunities in ERCOT, so that’s in there. The costs associated of the initial work on the nodal system is in there for 2008 but then that will go away as the system commissions up might be in 2009 and beyond that. Finally, we still have some new end capital in process to put in place finish that in ’08 we’ll be at a steady state as we move into ’09 and beyond. I think some pretty exciting opportunities here to position EnergyCo well as a value creation entity to grow it in the market that we think we can really drive value and see it as a pretty special opportunity. With that I’ll hand it over to Jeff to talk about First Choice.

We left [Jeff Weiser] is in Dallas to run the business so just image I’m Jeff Weiser, you’ve got to put a little hair on my head to make that work. Let me just touch on a few things of FCP. When we acquired First Choice Power what we found is a business that was rapidly losing customers, had little or no infrastructure for growth and had a fairly poor power procurement strategy. Thankfully we didn’t pay too much for that business. We brought in a talented management team and they’ve really turned this around, they are building a platform for growth and they are generating reasonable margins in the interim. If you look at page 24 the four graphs that let me talk briefly about. First in the upper left hand graph you’ll notice that in 2006 we grew our customer count by a little over 15% which is pretty healthy in that marketplace. Between 2006 and 2007 however, that growth was stunted. There are two reasons for that; the first is that we went through what is always a difficult transition in a customer care system. They really didn’t have one and we needed to build one. As we built it we shut down our marketing efforts because unless you’ve got a system and a platform to use it doesn’t make a lot of sense to try to add a whole bunch of new customers. We’ve now gotten through that process and they are moving back into the marketing stage and beginning to re-attract a number of new customers. We added a few in 2007 but it was relatively small expansion. As we look into 2008 we believe that we will return to the 12% to 15% customer growth rate and the rate of attraction so far at the end of December and into January are demonstrating the clear capability of doing that. If we look in the upper right hand box of retail margin, as I said earlier 2006 was a stellar year we had very high margin and this was true because of a lot of things that happened within that market it was the last year of price to beat we had high natural gas prices, we had kafuffle around EXU and legislative section and so we saw very high margins. In 2007 they returned to more near normal levels. We expect that as we move into ’08 they will stay in something similar in the low 20’s is the probably range we expect to see on the retail side. The impact on the EBITDA can be seen in the lower left hand corner in 2006 as I said we had a good a year as one could have. Partially driven by the high average retail margin but also driven by creating gains that we made from the small trading operation in that business. As you can see in the first two years of operation we had about $15 million of gain. In 2007 it reversed to a slight loss, this loss was largely generated by the summer of 2007 being wet and cool which drove natural gas prices down and adversed the position that we had taken in natural gas. As we go from 2007 to 2008 you’ll notice that we are forecasting roughly the same level of EBITDA and you may go, “Wait a minute, you’ve got 15% or 12% increase to customers, how can that be?” A couple of things, first in 2007 because of the challenges of bringing in the customer care system the vendor for that system ended up having to pay us about $7 million to help offset those costs that we incurred in the transition as well as the inability to attract new customers because they missed their benchmark performance dates. That’s $7 million that helped compensate for customers we didn’t get in 2007 but we are starting 2008 at a lower level than we otherwise would have. The growth that we see in ’08 is really making up for that. The second thing is that we will spend about five times the amount in ’08 on marketing in order to restart that marketing efforts which will us up to around $10 million. In terms of the key focus areas for this business, which obviously the key is to profitably grow the customer base the major components of this are to be able to leverage the platform which we’ve now got developed both from the web side and the web portal we use for customer traction as well as the multi-channel marketing outfit that really relies on acidity and cobra ending as its key elements. I’m not going to go a lot in details on the marketing strategy for obvious reasons but we’ve given you more information than we’ve given in the past in terms of margin, customer growth and what we anticipate in this business. One of the key pieces for our strategy has been that First Choice Power has been a wholesale led retailer, it is not just a retailer and there is a significant difference when you look at the way different entities operate within Texas. What it means for us is in a rising price market we have found that we get out of customer traction much more rapidly than many of the other players and in a falling price market we move back into that market more aggressively than we have found other players to do so. This is definitely added in our wholesale optimization where we believe we can keep our margins in the low 20’s. The last point I want to touch on is that we continue to evaluate the potential contribution of First Choice Power energy bill. We are sensitive to the issue of burning solution, but we also have to recognize are there ways to increase the value for our shareholders by doing something different with this business. I think there are three reasons why we are considering the potential transfer. The first is that we will create a situation in which all of our unregulated operations are within one entity under one management and one set of structures. Our regulated operations will be wholly owned and under a different set of management. The second piece is that today we have small trading operations in FCP as well as EnergyCo. Their economies to scale consolidation of those trading operations into one and the common management of that operation. The third reason is that the contribution of FCP and EnergyCo would enable us to monetize the value of FCP to take that value for the half piece that Test A would effectively be buying convert that into capital which will fuel the growth of EnergyCo which has to be matched by additional dollars from Test A to invest in the business lines that John talked about. Obviously the decision on whether or not it gets contributed is a function of what’s that value at which we monetize and others terms and conditions that could affect how earnings are distributed out of the business. We will keep you advised as to what outcome we come up with but we are continuing to look at that. With that I’m going to turn it over to Chuck to tie this all together financially.

Let me start out by clearly indicating that it’s obvious that 2007 was an unacceptable year for our shareholders and we certainly understand that the performance of the business and the challenges that the company faces over the next year or two years certainly we feel that with the message you hear today is the intense focus that we have to everything we can within our power to turn this business to show profitable returns to our shareholders. Let me start by talking about 2007 to bring some clarity around what happened and also provide some outlook in 2008 and 2009. To begin with on page 27, as we communicated we talked about the challenges we had financially. We reaffirm the guidance beginning in November to $1.30 to $1.40 the plants at that time were operating okay. We are confident that for the last quarter the plants will continue to hold their performance but not until November and December did we start seeing some of the problems became very evident. Let me give you some examples to point that out. San Juan Unit Four was supposed to be back on schedule on November 1st, it extended through the rest of the year which started issues. We had force outages at Units One and Two at San Juan due to tube leaks. Palo Verde Unit Three startup was delayed until mid December and didn’t come back on until January ’08. We issued 8-K in December to give you some indication that the plants were not performing and as a result of that unfortunately our result ended up at $1.08. Let’s look at a walk across in 2007 turning to slide 28. I’m showing you this by segment so you can begin to see the perspective that we have relative to each of the businesses and as we reported each of the business segments. I also think this will provide greater transparency to you going forward and as we begin to report by segment for guidance for ’08 and ’09 that should also provide some clarity as to how we see the business and its performance. Let’s start with the PNM Electric at $0.28 down before the impact of dilution, again the same thing, plant availability particularly the fourth quarter accounts for about 40%. Higher coal costs Jeff talked about the miner safety act and the rising cost of commodities. The increased plan O&M at Palo Verde less wholesale sales due to load growth all of these had impacts significantly to the Electric business. Let me point out again that these issues can be fixed and these issues are being addressed as we speak. We are very intensely focused on turning this business back around. Let me talk about Twin Oaks which is the Altura segment on here was down $0.22. Simply just keep that in mind that in 2006 we had that plant for eight months and we had it during the summer months which were the higher performing months. In 2007 we moved it over to EnergyCo who had it for five months. As a result, if you go year over year that’s the impact of the $0.22. Also keep in mind that reported that it was $0.05 diluted when we moved it over to EnergyCo. Look at that as just 2007 and when you calculate the numbers you look at moving the plant over obviously we gave it 50% of the earnings but we made that up for the cash proceeds they were extracted from EnergyCo to pay down debt and that end result has been about a $0.05 to $0.10 solution for 2007. On First Choice Jeff talked about 2006 being a banner year and we had the benefit of the price to be customers and higher margins and higher customer growth and we also mentioned that some of the training losses that we had in ’07 and large gains in ’06 resulted in the impact of $0.20 on this business. Dilution is $0.17 that reflects the issuance of the equity that we had in December 2006. Let’s shift gears and look at 2008 for guidance. Again, beginning to show you by segment so you can see on page 29 that the challenges we had certainly will be reflected as our focus in 2008. On slide 29 you can see the improvement to add transparency we are going to be showing guidance for two years, guidance by business segment to give you a perspective we have for each of the businesses and we’ll report those segments throughout the year. Our biggest challenge continues to remain the PMN Electric business. On slide 30 you can see in the guidance in 2007 we earned $0.45 and we are showing with a fuel assumption and full rate relief and fuel clause of $0.45 to $0.60. Let me indicate again the drivers of that particular business. Let me walk through some of the drivers of that business but you can clearly see from this slide where the performance in 2008 is largely going to be dependent upon the success of the rate alert and the rate case. That becomes a critical aspect of this business segment as we go forward. On slide 31 let’s talk about the payroll variances, obviously and electric rate base as Pat talked about for partial year is $0.42, the fuel cost at $0.34. Certainly the outcome of this rate case each of you may have different perspectives as to the results of that decision which we will hear a recommendation on February 28th from the hearing examiner. That could have a significant impact relative to the minimum we have in that business. Plant availability will begin to see some results in 2008 we pick up $0.09 to $0.15 that’s the result of the overhauls that we’ll see for San Juan Units One and Three they will reduce the adages we’ll also continue to focus on Palo Verde and see some continued improvement in the plant and the business initiatives that Pat referred to we see to a pick up of $0.12 but also Pat mentioned that only offsets some of the expected ’08 increases. Palo Verde increases to $0.10 as an impact to O&M I know that ATS reported in their guidance information that expect the impact of Palo Verde to be relatively flat unfortunately we have not seen that experience in years past and so we are adding continuously here to allow for some additional ’08 increases. The Four Corner outage will also be an impact; we’ve talked about that the full year of Afton and normal escalation all of which hit O&M increases. Higher fuel and purchase costs, coal costs up 9% we talked about that why we continue to see that as a significant impact. More gas generation from the add on of Afton plant which will bring about higher purchase power costs as well. Let me just point out the critical nature of the fuel costs. It’s obvious from the calculations and information we are showing you the fuel costs becomes very critical to the business in order for us to absorb the cost impacts and maintain the financial health of utilities. Other factors we saw in 2008, SO2 allowances, really we use those to help offset some of the fuel when we took on the fuel risk itself without a fuel clause and 2008 was a share with the fuel clause itself if we are successful rate order those will be shared with the rate payers. Also the rebalancing of the Trust each year rebalancing of the Palo Verde Trust Fund, this last year we changed the equity allocation from 70% to 60% and realize some gains from that. Dilution, if you recall the public equity units will have dilution in 2008 that will add about nine million shares and also the private equity units will add four million shares in November of this year. Other impacts include depreciation, returning to normal weather and higher interest costs. You can see that the regulatory environment for this business segment continues to be a significant impact. Turning to slide 32 we talked a little bit about guidance on a consolidated basis we’d see $0.80 to $1.10, they won’t add up because when you add them up the segments become very wide and so we narrowed the guidance so we picked up a little bit in the lower end and dropped a little on the higher end and show you how we typically would report guidance in this particular year. Keep in mind that we are trying to show you more transparency by showing you the business segments and we report that throughout the year as we discussed the Electric business at $0.45 to $0.60 continues to be really focused on the result of the rate order which we will hear something, a recommendation on May 7th. We’ll also need to come back to you after the rendering of that order to give you an adjustment to guidance to reflect the outcome of that recommendation. The TNMP at $0.18 to $0.21 is down because the charge revenues are down from an adjusted to a cost to capital, that’s about a $3 million reduction. We’ve added some additional O&M increases driven by tree trimming and other factors in Texas. That’s the reason why we are filing for the rate increase in third quarter 2008. The PNM Gas for accounting purposes given that we sold the business is treated as a discontinued operation but as we go forward we will continue throughout 2008 to report that ongoing earnings. We see that segment at $0.20 to $0.24 keep in mind that’s a full year with the rate increase and with 2007 we did benefit from colder weather in the winter time in January. First Choice as Jeff pointed out we have a wider range because of the trading activities. We typically look at 10% to 15% of EBITDA that would reflect the trading in that particular business. As John pointed out we are moving the infrastructure and the trading function over to EnergyCo and we don’t see First Choice really doing any proprietary trading going forward. After that infrastructure is in place and Energy begins to trade relative to the unregulated business and the assets we have in the business segment. Corporate and other really just represent the holding company interest expense about $400 million of short term debt. Let me point out too on EnergyCo, we’ve talked about and Jeff point out in his discussion we see that as a long term strategy for the business. We report of EBITDA and we won’t report non-cash items because we really see that business to be reflective of its value of cash in the contribution to the business. As we go forward we will provide an adjustment of the EBITDA how it affects PNM resources the contributor earnings per share but again I want to point out the instance is really the cash value of that business as we make investments and we build it for the long term value for our shareholders. Turning to 2009 guidance, again we’ve never reported this but we really wanted to begin to show you that we are seeing an improvements in the business we are beginning to see the value that we’ll be focused the efforts in 2008 will begin to provide results in 2009. Once again looking at the guidance we’d see around $1.20 to $1.50 that does include the full rate release both our fuel clause and the electric business for PMN Electric. In addition to that with TNMP at $0.22 to $0.24 up from $0.18 to $0.21 really reflects the partial year of the rate increase about $4.5 million or $9 million annualized. The Gas is gone at that point in 2009 and will be replaced by Cap Rock and we see the range of $0.05 to $0.08. First Choice the tighter range is the result of not having the trading function of $0.35 to $0.40, that’s up from $0.25 to $0.38 and that continues to support the margins of $20 to $25 in growth to customers of between 12% to 15%. In EnergyCo the range that we see from $(0.01) to $0.07 obviously we will begin to see up side potential for EnergyCo, this does not add any additional growth or acquisitions of EnergyCo but it begins to represent the fact that the business platform, the infrastructure in place as we trade around the assets and we see Cedar Bayou coming online in summer of 2009 we begin to see the contribution benefits of EnergyCo to PNM Resources. Keep in mind this is a full year of dilution especially the conversion of equity which I mentioned was about 13 million shares. Turning to slide 34, let’s talk about the financing of the growth and we put the cash flows for both 2008 and 2009 because of the sale of the gas business but you can see to the bottom lines that there is available for reducing debt as well as for other corporate purposes. As you know, S&P took action earlier this year to downgrade the utility. It dropped the holding company one notch and dropped the utility one notch and places us on a stable outlook. Moody’s on the other hand has placed us on a review for downgrade and has not taken action. I can tell you both of the rating agencies are focusing on the results of the rate case order for 2008 and at that point then we’ll see what kind of comments or actions they’re wanting to take. But as you see from the cash flow that we have, that we have cash as a result of the sale of the gas business and we continue to grow the business with acquisition of Cap Rock. And if you even adjust the inflows, and this is the middle range of the guidance when we look at the inflows here of $610 million you would only drop down about $150 million as the net difference instead of $300 million. Now with that I’d like to turn it back over to Jeff for his closing remarks.

You know over the last eight years since I came back to this company I’ve been able to stand before you all and talk about the very strong growth that we generated in this business. Total shareholder returns….[operator interrupted]…It’s unacceptable as Chuck said and we’re committed to turning it around. Hopefully we’ve explained what the seeds of this were and affectively that our global settlement quest is one year too long. We’re behind a bit of an eight ball and it’s going to make 2008 a challenge but in no way does it alter or deter my belief in the value of the business and our ability to resurrect that value proposition that we’ve executed on quite affectively I think for most of the last eight years. Now I started off early in the conversation indicating that we were affectively going to have 2008 as a new baseline from which we would then grow and I said that the reason for that is that we are fundamentally changing the business. We are eliminating the gas operation, we are exiting the merchant utility model that we used within TNM and we are narrowing our focus just for the gas business and we are collapsing or collecting our unregulated operations within what we believe will be a stronger growth vehicle, the EnergyCo joint venture with [Cascade]. What it will do is put us in a position of being able to look at two more clean, clearly delineated businesses. By the end of 2008 we’ll have about $2.4 billion invested in rate base and regulated operations. Of that $2.4 billion most of it is within PNM Electric but a growing percentage is invested. If we look at the earnings power of that operation, be it regulated operations would have an earnings power in the $1.60ish range, whether it’s $1.60, $1.65, this shows $1.67 on page 36 but it’s in that range. That is substantively higher than the guidance that we provided for ’09, at the high end of the range that we provided for ’09 and the reason is that one, we’re going to be a bit conservative. This delineates the challenge that Pat and the folks that work on the regulated side of the business have before them. To get this kind of earnings power turned into reality as rapidly as possible. Will it happen in 2008? No. Will it happen in 2009? Well I say that’s still a bit of a challenge. But the earnings power of getting there through a couple of steps is there. It’s accentuated by what Pat talked about on energy efficiency. The legislation that will clearly pass and be signed by the Governor which gives us the ability to not only earn on energy efficiency, but be financially compensated in a manner greater than we would be if we built car plants. It’s something that will build over time. Will it affect ’08? No. But does it enhance the value of proposition of the business? Absolutely. In terms of our unregulated operations we think that the EnergyCo model will be a very valuable model for building value. As Chuck mentioned, some of that value doesn’t necessarily translate in earnings per share, that’s why that kind of a business is largely looked at on an EBITDA basis. Purchase accounting messes a lot of things up in trying to figure out what flows through earnings versus what happens on the cash side. We happen to believe in cash. Now as we go through 2008 there are things that you can look for to see how are we executing on them. On page 37 there’s a checklist of the major challenges that we face for 2008. First is the closing of our transactions to sell the gas business and acquire the Cap Rock business along with the continued discipline growth of our First Choice Power operation which we or I firmly believe we will see at least 12% growth in customers. We’re going to continue to opportunistically expand our joint venture primarily focused in ERCOT but secondarily focused in the West. Now one of the items that has been on this slide for the last year, last two years, has been the next one; to ensure Palo Verde’s return to premier operating status. We believe it’s going to take 18 to 24 month, probably more like 24 months and that plant is going to have to prove itself through operations before the regulators are going to put it back in the kind of position that it will ultimately be. Regulatory approvals will lag operational and performance approvals and we’re going to be conservative and believe that it’s going to cost more than our operator is saying it will cost in order to return it to that stage. We have completed a major environmental upgrade on San Juan 4. As Pat mentioned we’ve got two more units going through the same process. These are very complex processes with significant construction and complete new operating systems, digital operating systems, and it’s going to be very important for those to come on as scheduled and operate well. While we know how we’re going to get the $35 million of O&M savings not all of the actions that need to be taken have yet been executed. So we will continue to report on our success there. Last we will obviously look at the rate case decision that comes out in May and determine what is the next step to help ensure that that utility is returned to financial health and is allowed to earn of the appropriate rate of return. So thank you again for your time. I know we took longer than we typically did but we really wanted to provide you adequate information. We’d be happy at this stage to answer any questions that you have.

Two questions, the first relates to will you file another rate case immediately following your May decision and how early do you think you would be able to go back in. The second question is I guess I don’t understand that you’re showing about $100 million two-year improvement in EBITDA at EnergyCo but the EPS is flat in ’09 versus ’07, so I’m just not sure what’s eating up the improvement in EBITDA on an EPS basis.

On your first question, the decision about whether we file or when we file the second rate case is really dependent on what the outcome is. So it’s going to have to be shaped by what they do in that rate case. But obviously we’re going to be looking very closely at the need for additional rate relief. On the second question, Chuck do you want to….

That goes back to [inaudible] actually run the numbers back through human resources and adjust for purchase accounting and the amortization of contracts. EBITDA for EnergyCo is reported on a cash basis and we have to run it through 50% of our [inaudible] based on the basis that we have on the 50% ownership of that particular company we adjust to the amortization of the first accountings of the contract, take away the interest costs and you’ll work your way back down to about a [inaudible] calculation on the high end for 2009 and is roughly about $0.02 or high end for 2010 of the EBITDA calculation. So we can go over that [inaudible].

…..[inaudible] going down by about $20 million.

[inaudible]

There’s a question up front. And after this, we’ll see if there are any questions on the web.

Just to sort of follow up on Paul’s question, assuming that you guys got 100% which is what is in guidance, when do you guys think you’d have to go in for another rate case, that’s number one. Number two, trimming purchase accounting just what was the sort of impact of purchase accounting in your expectation for 2009. And also trading margins, expectations for ’08 and ’09? What are we expect in that in terms of contributions and also the PB Trust benefit in 2009, what should we be thinking about that?

On the rate case obviously we have to wait to see what the outcome is. We will still not be recovering our allowed return because of cost increases. And so you can expect that we will be filling a second rate case. I’m not going to give a date as to when that will be filed but clearly an additional mechanism is going to be necessary. Chuck do you want to take the….

Yes I think we may have to sit down and go over some of the details and calculations but the purchase accounting amortization for 2009 is down about $21 million. Depreciation and other amortization is down about $36 million and then you have interest expense roughly around $30 million so that gives you the GAAP return [and] income, again using that range of $100 million to $150 million, around the low single-digits or $24 million and then we adjust that back to our 50% share which gets us to around [inaudible] Again its what you add back the first accounting [inaudible] and we’ll provide as we go forward and report the segment for EnergyCo and report EBITDA, we’ll have a schedule that will take you through the calculations of exactly where [inaudible] report on EBITDA on a cash basis and add back the accounting impacts for that [inaudible].

On the trading side, your question about what do we anticipate on trading margins, relative to FPC in 2009, we expect no trading margins. We reflected it on this side but we really believe that by 2009 all of the trading will be occurring within the EnergyCo side. John do you want to make a comment about what you expect there?

Sure, if you look at the EBITDA range, it’s about 10% in ’08 and ’09 that we would expect to get from the trading operations. EnergyCo EBITDA, yes.

Okay, that isn’t such a large number in 2008.

Right, that’s right so if we’re 60 to 70 at $6 million to $7 million, if we’re 100 to 110 at $10 million to $11 million [it should move] to 2009.

[What is the taxation for 2009?]

We rebalance it every year and generally we, I’ll just say, in past performance it’s usually $0.03 or so but again it depends on what the portfolio looks after this year. But we generally get around $0.03.

We have a question from Sam Brothwell – Wachovia Capital Markets Sam Brothwell – Wachovia Capital Markets: Jeff all things being equal, if you’re New Mexico jurisdiction were to grant you a fuel clause and let’s say for the sake of argument the staff recommendation on the general rate case, how would that impact your ’09 guidance? Would it still be north of $1.00?

Well you can run that calculation Sam because we’ve told you what the elements would be, or how much is included in both ’08 and ’09 for fuel clause relief and base rate relief, the only thing that would change that is whether we could file a rate case, a follow on rate case that would still result in additional revenues that would be generated in ’09. And that’s getting fairly tight. If we filed a rate case say at the end of August, if it’s only suspended for 12 months, then we would have another five months of that rate case but in reality in this case for example is we’ve had a 15 month suspension. So we would obviously update guidance as we will once we see the ultimate outcome of the rate case in May. Sam Brothwell – Wachovia Capital Markets : But if you look at the plus and minus items and I forget what slide it was on, a large portion of the negative drivers that you illustrate for the electric utility would be captured in the fuel clause, is that not correct?

A number of them would be yes, not all of them but a number of them would be. Sam Brothwell – Wachovia Capital Markets : Okay, thanks a lot.

Jeff what is your outlook for EnergyCo’s asset acquisition markets, are you seeing assets that are fairly reasonable for purchase or are you basically saying the price of the assets are too high right now?

Well we’re seeing a market that is a little hesitant because an awful lot of, as you all know, a lot of the private equity that was interested in these assets has pulled back because of the debt market [royal] so there’s, in one sense, there’s not nearly as much appetite in the marketplace but people, because of what they receive for other assets then they have pulled back to sale. I do believe that we will start to see some assets come out of the market, in fact we’re seeing that today, and I you know, prices are still high. However the real challenge is what can you do with that asset and that’s if you remember, one of the things we have always talked about and believe in is the building of systems rather than individual assets. Because when you build systems you can do things that you can’t by just owning a single asset in a marketplace that you either having to pull or hedge or what have you. So I think you will see hopefully that some of those things will occur in ERCOT that will allow us to enhance that portfolio. So has the market dramatically dropped in price for assets? No it hasn’t. Has it come down a little bit? Yes but it’s really going to be a focus on what is the asset, where is it located and how does it fit within our portfolio? John do you want to add anything?

[inaudible] taking that active asset management model, the inner play of assets within a market that is critical to that and how we’re going to create value and that’ll be a big driver in our asset acquisition, strategy and decision making.

And the next question comes from [Analyst] – PNC Bank [Analyst] – PNC Bank: Just as recently as November you got it to improving or at least some intermediate term improvement in operating rates on your plants and the fourth quarter really substantially under performed that, you’re now projecting that Four Corners EAF will be lower in ’08, I’m concerned about the projected improvement in San Juan and Palo Verde since the recent projections were well above what you delivered. Its just getting a bit frustrating with the projections that we’ve been getting and what’s been delivered and I’m just wondering how you can shore us street confidence in your projections since the recent projections have actually been well above what you’re performed.

Let me make a comment and then I’m going to have Pat add some real color to it. We didn’t guide up the power plant performance, what we did was indicate what we expected and what it would take to hit the low end of the range for that guidance. In reality it’s absolutely correct that the units did not perform as we expected and a lot of this has to do with these are old units that are at the end of their cycle before they’re going into major maintenance. That’s what happened at Four Corners. And it’s what triggered a number of tube leaks at the San Juan plant. The other major piece was San Juan 4 which was down for a major overhaul and all of the environmental equipment installations and particularly the installation of a completely new digital control system, the transition did not go nearly as smoothly as we expected or as we had hoped. And it took that outage, had to be extended significantly. We’ve learned from that process and Pat talked about the root cause work that was done to make sure that those learnings go forward on the other three instead of going forward this year. Pat do you want to talk about the reason for increases.

Yes, San Juan as just mentioned, we had a digital upgrade on unit 4 along with the environmental outages and the digital upgrades did not go as we had planned it to. What we did is we’ve gone outside and gotten a root cause firm to look at the digital upgrades to see what changes we can make. As a matter of fact we pushed off the outage on unit 3 this year for about a week so that we could make the changes that were recommended in that and we are also going outside and getting some more [bench string] out at San Juan. Unit 3 is the only outage this year that also has a digital upgrade. The other two units will not have digital upgrades associated with them and as we mentioned earlier, the work that we’re doing on the tube leaks as we go through and do the environmental outages, will help fix the root cause of most of the unplanned outages at San Juan. Four Corners the reason that EAF does not look as good in 2008 as we would like is because of that major 100-day overhaul that that unit has but again, that’s a 40-year old plant and it needs that overhaul. When we see that overhaul done we’ll get the 13 percentage points EAF improvement in 2009. Palo Verde, despite the fact that their one outage was longer than we had thought made major progress. Their EAF was up about seven percentage points in 2007 from 2006 and we expect to see it go up about six more points. As we said, we see positive things happening on the operating side at Palo Verde. We think they’re making progress on EAF. We just think the budget is going to take a little longer to catch up. [Analyst] – PNC Bank: Thank you.

Just looking at the potential improvement that you have at the electric utility, should we read that as on a normalized basis, that PNM would have earnings power more or less in the range of let’s say $1.85 assuming you were to get the ROEs that are assumed for the electric utilities?

The earnings power that was shown on the last slide relates to the regulated utilities. Obviously it’s going to depend on what happens with FTP and the EnergyCo side. We think it should be north of that but again I would remind you that we look at that business, and I’m not sure EPS is the right way to evaluate that but it would have that kind of impact.

Just a question on EnergyCo, what was the debt at your end ’07 and what would you expect the debt in EnergyCo to be in 2009 without any new transactions? [Operator interruption]

….questions, with the regulatory lag in New Mexico is there any impetus on your part to lobby for a hybrid test year and then the second is looking at ’08 to ’09 guidance could you break down a little more detail the accretion you expect from the Cap Rock acquisition. Because I would expect some interest costs savings with debt reduction but I’m not seeing that.

We are evaluating the future quest here in New Mexico. There is nothing that statutelatory prohibits. A forward test here in New Mexico, one of the small gas companies just filed for a forward test here, it’s a very simple case so we’re going to watch and see what happens with that and then look at it for PNM Electric.

There really are rules that allow a future test here but it’s not quite a future test year in the way we would or you would typically think of it. Because it has a [true up] mechanism. And so we’re looking at as Pat said, a full future test year.

On the accretion question, we reported slightly accretive in 2009. If you think of the Cap Rock business earning roughly 9% to 10% and the gas business under earning around 5% to 6% and the proceeds net of the Cap Rock purchase allows us to pay down some debt and we also see some opportunities for investing in unregulated business that would allow [inaudible] benefit as well. So that gets us to slightly accretive in 2009.

Let me just make a comment on that gas business. As Chuck said earning 5%, this is a chronic issue and the difficulty is that it is most of our revenues on the gas business are volumetrically based and we’ve got declining usage on the residential side because things are becoming more efficient and there hasn’t been any new gas gizmos lately. And so that’s a challenge that we, we’ve tried to push for some form of a decoupling mechanism, I think the Commission will at some point maybe get there, but I think that’s a great thing for a new owner to pick on.

On the general rate case obviously the fuel clause is an important aspect and I’m concerned about this other proceeding going on now in New Mexico, this notice of inquiry into the fuel clause, or at least the implementation of the fuel clause, and I was just wondering has this proceeding gone anywhere and negatively impacted the general rate case? For example it gives the Commission an excuse not to decide upon your fuel clause now.

I guess I look at it a little differently, I looked at is as the current rules would be very difficult for them not to provide it to us and then if they’re going to make any changes to the administration of the overall fuel clause, they would make it to all entities at the same point in time. Now in terms of the status of that proceeding, Pat?

The NOI, everyone’s filed their comments. They were very similar in nature. They have not done anything with that. They’ve not even scheduled a workshop. We view that as positive. Waiting for our fuel clause to come and then they could make changes to all of the fuel clauses to make an administrative [inaudible] comparable.

…they filed notice of testimony in early December and so what you’re saying is that over [inaudible]

Correct.

We have had comments made by one or two commissioners regarding that this will be something that will take some time to do and will be something that may cause changes to the fuel clause adjustments on a prospective basis. So those again, we think are good comments to hear.

I just wanted to follow up on the [inaudible] and the potentially was there an [inaudible] just in terms of getting the software and everything just is there, what should we be thinking about that and how much in place are we on that. The bank of first choice, the customer care is totally done with? Are we, is that put to bed now and are we expecting any additional revenues from that vendor or is that, are we just now finished with that, the new systems in place and so we’re going forward and there’s no other upgrade or anything we have to worry about.

The major systems are in place at this stage and all the web portals have been done and they’re all active and operating well. That doesn’t mean that we won’t have continuous enhancements being made to the systems but that’s much more on the normal order of business rather than the issues that you get engaged with with a complete change out. And so no we don’t anticipate additional payments being made because most of the deliverables have really been put there. If they fall, if they don’t perform however, we have a very good contract that requires that has performance measures for both the system and the accuracy of the system as well as their operation of the call center. If they don’t meet those standards, it has a significant impact in terms of their payments to us. It is also is structured such that as we add customers, the marginal cost of adding a customer is exceptionally low as it will continue to [inaudible] the average cost of service.

I think from a nodal perspective we really see that as an opportunity particularly with the trading and marketing organization. Our system program is ahead of plan at this stage and likely will be done well in advance of going nodal except for any sort of fine tuning that might come out of any final changes in the nodal network. But I think we feel pretty good about where we are and see this as an opportunity.

And then just finally on the synergy savings from the realignment of the merchant business, is that in the $35 million savings or is that incremental and could you just give us a sort of quantifying what that actual number is and also just strategically, when you look at some of these business, they look kind of small. I mean you guys are not the largest company, what’s your sort of strategic thought about maybe from an economy scale situation maybe getting, maybe realigning the business to get rid of one or something.

The EnergyCo side is composed of a series of smaller pieces, but in one sense that allows you to be a little more [inaudible] with the movement. We’ve not got 1200 mw of generation in the portfolio, we’ve got about 260,000 a little over that, 260,000 customers and I think on an enrolled basis we’re about 275,000 or 280,000 today. I think that gives room to grow. Now there’s lots of ways to grow and one is that you put it in with somebody else. Another way is you acquire. A third way is you just continue with intrinsic growth. We have made no decisions about exiting that business, any of those businesses. Obviously we’ll continue to look at it as [inaudible].

Jeff, we have a follow-up question from Sam Brothwell, he just sent it to me. In light of the weaker earnings outlook and ongoing pressure from credit rating is the Board comfortable with the current dividend level?