Good day and welcome to the PNM Resources' third quarter earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to your host, Ms. Gina Jacobi, Director of Investor Relations. Please go ahead, ma'am.

Thank you, everyone, for joining us this morning for a discussion of the company's third quarter 2009 earnings. Please note that the presentation and accompanying materials for this conference call and supporting documents are available on the PNM Resources website at www.pnmresources.com. Joining me today are PNM Resources' Chairman and CEO, Jeff Sterba; PNM Resources' Chief Operating Officer, Pat Vincent-Collawn; and Chuck Eldred, our Chief Financial Officer, as well as several members of our executive management team. Before I turn the call over to Jeff, I need to remind you that some of the information provided this morning should be considered forward-looking statements pursuant to the Private Securities Litigation Reform Act of 1995. We caution you that all of the forward-looking statements are based upon current expectations and estimates, and that PNM Resources assumes no obligation to update the information. For a detailed discussion of factors affecting PNM Resources' results, please refer to our current and future annual reports on Form 10-K and the quarterly reports on Form 10-Q, as well as other current and future reports on Form 8-K filed with the SEC. And with that, I'll turn the call over to Jeff.

Thanks, Gina and thank you for joining us this morning. As you saw when you read the release that we issued this morning our third quarter was a strong third quarter performance. It was led by our competitive retail operation in ERCOT First Choice Power, but as we'll talk through, frankly the entire business has performed well given the economic conditions that we and others throughout our industry and the country are facing. For the quarter, our ongoing earnings per share were $0.63 versus $0.27 for last year, which means year-to-date we are at $0.94 versus $0.24 year-to-date for 2008. I'd remind you that since the sale of the gas business our earnings profile will be much more seasonal as we have talked about before with quarter three being the most significant quarter for our earnings and Q1 and Q4 being potential or probable loss quarters without the gas business in place. Our GAAP earnings also reflect that significant improvement with the quarter at $0.59 versus a slight loss last year and year-to-date at $1.61 of earnings versus $2.40 loss largely driven by the gain on the sale of the gas business as well as the number of the write-offs that we had last year that we have talked about last year. While First Choice generated most of the higher than expected earnings for the quarter and recall that we advised you in September that we were adjusting First Choice Power's earnings for the year, our regulated operations have been able to hit their numbers in spite of an almost 3% load decline in New Mexico. This has obviously been done through solid operational performance, which Pat will talk about as well as continued cost control throughout both the corporate and the utility areas. We are pleased that we have both of the rate cases, both Texas and New Mexico, behind us. The Texas rate case was approved by the commission in the third quarter and the rates for the PNM rate case went into effect in the third quarter. And after Pat spends a little bit of time talking about our regulated operations, I'll make a few more comments about First Choice Power.

Thank you, Jeff and good morning everyone. I’ll start on slide six this morning. For the past several quarters, we have really been tuned in to what is happening on the regulatory front at PNM and TNMP, particularly with respect to their rate cases. I'm pleased to say, as Jeff mentioned, that we received the outcomes we needed to continue to restore financial health to both utilities. The first phase of the new PNM rates were effective July 1; that was 65% of the rate increase. The second phase, 35%, goes into effect April 1st of 2010. I also continue to have the pleasure to report that our power plant performance has been strong. Although we now have a more traditional fuel clause, power plant performance remains very high on our radar screen as an operational measure. Year-to-date, our weighted average base load, equivalent availability factor, was 86.7% compared with the 78.5% equivalent availability factor year-to-date in 2008. The details for each power plant are located in the appendix on page A8. On the renewable side, we have told you about our plan to add some ownership of renewables to our rate base. We are in the process of working with our key stakeholders to come up with an agreement. So we will have the support of not only our traditional interveners, but also the environmental energy groups or the environmentalists and the renewable energy companies. We have until early January to file the details of how we will add additional wind and solar to our generation portfolio and discussions continue with our interveners. Also at PNM, much activity is focused on the future, both internally in terms of preparing ourselves, but externally. We have started a series of workshops with the interveners to talk about such things as rate…

Thanks Pat. Maybe just one other anecdotal thing, I don't know how many of you saw this, but there was a U.S. News and World Report that I read over the weekend of the 40 cities with the least economic impact from the recession. In the top 20, I believe seven of them were in Texas and Albuquerque was also in the top 20. So, just another indication that while we are all feeling it, our territory is having a bit of a lesser impact. Let me just briefly move to page nine and talk about First Choice Power. Recall, that earlier in September we advised you that we were now expecting a range of EBITDA for First Choice to be in the $55 million to $60 million. Their third quarter performance has certainly shown that we will be in that range. Obviously, this was a year of rebuilding for First Choice after a dismal 2008 performance, and we are very pleased with what they have done. Part of this is just market conditions. When you have a falling market, a falling price market, margins in the retail business should move up and should move up fairly sharply because you're going to have a lag between retail prices and wholesale costs. And that's certainly been reflected and it's the lower purchased power prices that have contributed to the greatest degree in the improved performance at FCP. As we have said before, we do expect to see these margins compress. That'll certainly happen in Q4, and as we move into 2010 we expect margins to compress to more historical levels. FCP has obviously also responded competitively relative to its price offerings, which will reduce margins. I think we have had five significant reductions that total I think as much as about…

Thank you, Jeff and good morning. Obviously, we are very pleased with our financial performance this quarter. The $0.63 is more than double last year's third quarter earnings of $0.27. Our year-to-date cash earnings are up 61% from last year and our available liquidity remains solid. The favorable results are largely due to improved performance as we talked about with First Choice, which added $0.23; however, we don't want to minimize the contribution of our other businesses. With the exception of TNMP, which reflected higher interest costs, all our segments reported higher earnings this quarter despite difficult economic and market conditions. Before we move on to discuss each segment in detail, I want to briefly touch on the $0.05 favorable variance in corporate and other. This year's repurchase of the holding company's 9.25% senior notes contributed about $0.03 to earnings. The remaining $0.02 is associated with lower debt balances and reduced short-term rates. Now turning to slide 13, I'll discuss the major drivers of the regulated business. PNM Electric's earnings of $0.35 were up $0.02 from last year. Implementation of new rates on July 1st added a total of $0.05 to PNM Electric's earnings. Favorable interest expense due to lower short-term debt balances added $0.02 and warmer weather added $0.01. Offsetting the positive variances was a 2.5% decline in load that Pat discussed earlier, which reduced earnings by $0.03. Lower pension income and dilution associated with last year's conversion of the equity-linked securities also reduced earnings. TNMP earned $0.06 for the quarter, which is down $0.04 from last year. Positive drivers included the benefit associated with the implementation of new rates on September 1st and the absence of Hurricane Ike that reduced earnings last year. Negative drivers include $0.03 higher interest expense associated with the refinancing of TNMP's long-term debt.…

Thanks, Chuck. Page 18 provides the checklist that we started the year with. We said these are the things that you ought to not only hold us accountable for but would be the indicators of the progress that we make in the recovery that we have been going through this past year and the execution of the four-pronged strategy that we have talked a lot about. As you can see, each one of them is in the green. I'm very pleased with the progress that has been made. That certainly doesn't say that we are done by any means. We are well under earning, particularly in our regulated operations and that's got to turn around. But I am pleased to see how well we have been able to respond to the difficult economic conditions that have been faced, the cost control, and the operational improvements that have been made. Over the last two years, we have been consumed with both the downturn that we incurred and the recovery that we have been going through since then. Through that period, we have stayed very short-term execution focused as we needed to be. At the same time, however, we have been continuing to lay groundwork for the long-term financial growth of the business. And on slide 19, I just want to touch on a few of the things that we see as incremental long-term value adders as we go forward over the next three to five years. First, the future test period rate case, which we have talked a lot about and that we anticipate filing in 2010 is one that we think will benefit not only our company but also our customers, and get costs and prices more in line. Pat talked about our decision to go forward with ownership of…

Thank you. (Operator Instructions) We'll take our first question from Emily Christy with RBC Capital Markets.

A question on the Tres Amigas great connection project, are you talking about having an ownership interest in that project? And is there a timeline at this point for expected earnings?

We are not talking about an ownership in the hub itself. In the hub itself, will just be equipment that will facilitate the transfer between. Our interest will be on the transmission interconnects on either side. We, today, own 1.5 roughly of the 2 major interconnects that exist between the western grid and Southwest Power Pool in the southern part of the country. This would facilitate even greater flow, not just with them, but then also into ERCOT. So, probably at this stage, we have no interest in the participation. This is also not a near-term project. Even if, I think on a rapid schedule, probably you wouldn't see power flow till 2014, 2015. So this is longer term looking.

Okay. And then in terms of the renewable development that you're working on, can you give us a little more color as to the types of discussions you're having? Are they around the type of energy or the ownership structures? What's kind of the point of talk there?

There's a couple topics that we are talking about. One is the third-party ownership issue is being discussed. And that's more for smaller solar. Our ownership not in so much in the larger solar, but in the smaller solar if you remember. We proposed a [customer-cited] PNM-owned program. We are also discussing the level of renewable energy credits, the length of time of the renewable energy credits and what the renewable cost threshold should be. Those are the major issues that we are discussing with the interveners.

If I can just have one more question on the smart grid developments at TNMP. I know that the DOE grant, you weren't on that list. What's the status of that project at this point?

What we are doing, Emily, is looking at rolling out the smart meters in Texas but over a longer period of time. What the DOE grant would have allowed us to do us is to really jumpstart that program. So we will just be looking at a longer scale deployment schedule.

Thank you. We'll take our next question from Paul Fremont with Jefferies.

I guess my first question has to do with 2009. You talked about a loss in the fourth quarter. How much of that would be driven by First Choice? And I guess First Choice last fourth quarter lost $0.09 per share a year ago.

That's my recollection. We'll I'm not going to give you a number, Paul, of what we expect as a loss in First Choice. Frankly, on a per share basis I don't have anything that relates to that. But we do expect that they, because sales drop off so much in that period that we will see a slight loss at FCP in the quarter, probably, not as big as last year.

My second question is, if I look at the drivers, should our takeaway basically be that the level of 2010 earnings when you do give guidance will likely be lower than the number that you're guiding to in 2009?

That's right, Paul. I mean based on what I'm trying to point out is the major drivers in 2010 that will have an impact when you look at what the earnings are in 2009, with the largest being First Choice.

And I guess my last question is, I think NRG seems to be pointing to 11 of margin realization in 2010. That's very close to the levels that they're seeing in 2009. Is there something that's different in terms of the markets that they're operating in Texas versus your expectations on margins next year?

They are more concentrated in Houston. Houston is a slightly higher priced market. While we do have customers in the Houston region, they're much more concentrated in that area. They also have a much higher percentage of property. The commercial rates are not, frankly, as volatile as the residential retail rates. So whereas we may be 20%, 15% commercial, they're I believe more in the 40% commercial and industrial. And those rates have a tendency to be a bit more stable. So that would be part of it. I think also they may have a different outlook than we do. If general market conditions continue to allow higher than average margins, then we'll be pleased. But there certainly is an explanation because of the higher concentration in Houston and higher concentration in commercial.

Thank you. (Operator Instructions) We'll take our next question from Brian Russo with Ladenburg Thalmann.

So just to be clear on the 2010 drivers on slide 17. If you take your '09 midpoint and you assume the positive and negatives, it looks like the midpoint for 2010 is somewhere in the range of $0.64. Is that accurate or are there other positive drivers that may materialize that in 2010 that aren't included in this slide 17?

We are really trying to give you some indication on how you can work that against what your projections are, but we are not in a position of giving you specific guidance in 2010. I do want to make a slight correction, just from the notes I was working from. But in First Choice, we talked about returning to normal margins in 2010. I mentioned a range of $0.25 to $0.30. I really meant to say $0.25 to $0.22. So let me just make that on the record for a correction, okay? So we don't want to give anymore. Just make user that these are the things that we talked about throughout the year in drivers for 2010. And wanting to make sure that as the analysts look at their modeling for next year that they take these things in consideration and make sure they make the necessary adjustments as we begin to focus on 2011 and the forward test year to address the additional positive opportunities for the company in the regulated side of the business.

One of the things Brian that we found as we talked with folks is that some of the things that they've built and people have built into their models are a bit off in terms of either understanding how the rate case and the rate case impact really is. We don't have normalized outage cost recovery in our rates and so, given our fleet, when we have significant shifts and outages that can drive our earnings $0.05. And so 2010 is a little more heavy. So this is trying to identify those known kinds of things we want to make sure you all are taking into account. We'll come out and give you guidance as move into the first of the year.

Just to dig a little deeper into First Choice Power, what are considered normalized margins? I think historically they were in the mid-20 range. Is that safe to assume going forward? And then how does that compare to what the margins you're assuming in 2009 relative to your '09 outlook?

Brian Hayduk is with us this morning. Let me ask him to handle that.

I think in 2009 you're certainly looking at higher historical numbers, north of 40 on a portfolio basis. And you're right in terms of historically you've been in the mid 20s to I think as high as low 30s. And essentially what we are going to be doing as you get into 2010 is trending towards that number. It's always a little hard to guess exactly how you step down. Certainly, we are going to be trending to those historical numbers.

I think you mentioned earlier that in First Choice Power you actually saw a decline in the number of customers. Are you assuming any sort of customer growth in 2010 in terms of a shift in strategy? Or should we expect that trend to continue?

No, certainly at some point we have to turn that trend around. We do expect customer growth next year. There are a lot of nuances there in terms of the average usage per customer both on the commercial side and the residential side, but we are expecting gains on the customer account side, both on the commercial and the residential side next year. Again, it's a little hard to tell when you turn the corner from the decline to the increase but we do expect that to happen next year.

Let me add two things to that Brian. On the decline, this was intentional, as we try to change the quality of customers that we have and the characteristics of those customers. The kinds of growth that Brian is mentioning as we move into next year, they clearly have the challenge to turn it. But we are not looking at double digit kinds of growth. That's not what you will see as we move into next year.

In terms of bad debt expense, I think you mentioned they declined about $1 million in the quarter. Can we expect that trend to continue in the fourth? Or is there some sort of seasonal nature that customers may look to gain the system a little bit more as they receive their summer peak cooling electricity bill?

Are you telling us Brian you think like those customers?

No, not me, but apparently it goes on a lot in Texas.

Yes, in terms of the dollar amount, frankly, we do expect that because third quarter bills are highest because of the load increases that tend to see a little more activity on the bad debt side in the fourth quarter. But we do not expect it to be at the level it was the fourth quarter last year.

Just a few more questions, if I may. The flat load growth you're expecting at PNM Electric next year, does that impact your ability to earn an appropriate ROE?

Brian, I think the biggest lag on earning the appropriate ROE is still the regulatory lag more than the lack of load growth that we are seeing.

Yes, remember, Brian, what we have said is that it was multi steps to get the regulated business in New Mexico out. And it's really the move to the future test year that will help get us out of that regulatory lag problem.

Certainly from energy efficiency for example, it should be covered in margin when we get the regulatory order.

And remind me with the new Senate bill on the forward test year, is the commission required to utilize a forward test year? Or do they only have to consider a forward test year and the utilities can file for one?

They only have to consider it. They're required to consider a forward test year filing. What they're really required to do is to consider the filing that best represents the utility's circumstances, which we obviously believe, is a forward test year because our costs go up as we go into the future.

Excluding the renewables, are you still forecasting a forward test year of about $2.5 billion for your entire regulated utility rate base for 2011?

We haven't really made any forecasts yet on what our rate base would be in 2011 yet.

Not on a specific in terms of how. We have given an indication at the end of 2011 what the total investment rate base would be. Part of that is FERC, part of that is TNMP, part of that is PNM.

And we'll take our next question from [Robert Mullen with Ducaine].

Hi, earlier in the prepared comments, when you were talking about Optim Energy, you were talking about hedges that were put in place in a point in time when prices were pretty friendly. I was kind of curious if you talked about the duration of those hedges if I heard that correctly?

There will be a slight gain in fourth quarter, but beyond that, then the hedging strategy will be different going in 2010.

Okay, so we should think of that as one of drivers between '09 and '10, is that the hedges were of 2009 kind of maturity?

That's correct.

Thank you. That concludes the question and answer session today. At this time, I'd like to turn the conference back over to our speakers for any additional or closing remarks.

Well I appreciate your time this morning and certainly if you have any follow-up questions, feel free to get a hold of Gina or Fredrick. And for those of you that are going to Florida, we will see you down there next week. Have a safe weekend.