Good day, ladies and gentlemen, and welcome to the PNM Resources Fourth Quarter Conference Call. [Operator Instructions] I would now like to introduce your host for today, Ms. Gina Jacobi, Director of Investor Relations. Ma'am, please go ahead.

Thank you, everyone for joining us this morning for a discussion of the company's fourth quarter 2010 earnings. Please note that the presentation and accompanying materials for this conference call and supporting documents are available on the PNM Resources website at pnmresources.com. Joining me today are PNM Resources' CEO, Pat Collawn; and Chuck Eldred, our Chief Financial Officer; as well as several other members of our executive management team. Before I turn the call over to Pat, 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 Pat.

Thank you, Gina, and good morning, everyone. And let me add my thanks to Gina and to all of you who are joining us this morning. For those of you that have been following us for a while, you'll know that we've been on a journey to improve the financial health of our company, thereby increasing shareholder value. We have three strategic goals that allow us to accomplish that. First and most importantly, we focus on earning the authorized return on our regulated businesses. These businesses are the earnings power of PNM Resources. Second, [Audio Gap] The solid investment-grade credit ratings. Now these goals span multiple years. But each year, our activities listed on our checklist are geared toward accomplishing these strategic goals. So if we turn to the 2010 checklist on Slide 5, I'll take you through a quick review of our progress. Our progress in addressing several regulatory matters was significant in 2010 as we filed four rate cases in three jurisdictions. The PNM General rate case is ongoing and I'll spend more time on that later, as is the FERC transmission case. We resolved those at TNMP transmission cost of service filing, and last month, we implemented new general rates. In addition, we have resolution to renewable filing to add 22 megawatts of solar power to PNM's portfolio. From an operational standpoint, we had strong reliability results and sever power plant performance. Our competitive business had mixed results. First Choice continued to demonstrate strong performance, while Optim Energy, along with other generators in Texas and in the nation, was challenged by the continued low-price market. As we accomplish our objectives and meet the first two goals, we will come closer to achieving the third goal of improving our credit metrics and returning to solid investment grade. We'll…

And thank you, Pat, and good morning, everyone. As Pat pointed out some of the key drivers in 2010, let me just briefly walk you through our 2010 earnings and then I want to move on to guidance. And if you're interested in more information on last year's performance, we've included a detailed review in the Appendix. As Pat already covered, we finished 2010 with ongoing earnings of $0.87, which is well above our original guidance for 2010, and in the middle of the updated range we've provided in October. As you can see in the walk across on Slide 12, our ongoing earnings reflect improved performance at our two regulated utilities, offset by lower earnings from our competitive businesses. Needless to say, we're pleased with the progress we've made on the regulated side of the business. PNM electric ongoing earnings were up $0.08 year-over-year, while TNMP was up $0.04. Some of the improvement in earnings is attributable to whether that rate relief at both utilities and modest load growth also contributed. Offsetting the positives at PNM were higher plant outage costs, loss of income from pension and retiree medical funds and increased interest expense. Now moving to our unregulated businesses, Optim's earnings were down $0.09 from 2009. The decline partly reflects the challenging low power price environment in ERCOT. Additionally, higher interest and depreciation costs at Optim also reduced our share of the company's earnings. The last item on the walk across is First Choice Power. The company's earnings were down $0.02 compared with 2009 as First Choice continued to face declining unit margins. The good news is that most of the impact of the lower margins were offset by reduced bad debt and an increase in commercial sales, which were up $0.12 for the year and 22% in…

Thank you, Chuck. We will finish today's presentation with the checklist for 2011. It has a slightly different look than the ones you've seen before. As I started today's call by focusing on our three strategic goals, this slide highlights outcomes we need in order to be successful in achieving those goals. Starting with our goal of earning our authorized return on equity in our regulated business, and as I believe Chuck reinforced, these are the earnings power of PNM Resources. We need to achieve successful outcomes in the PNM retail rate case and the FERC transmission case. We also need a fair outcome in the TNMP advanced metering system case that is ongoing. Operationally, we need to continue to serve our customers well, providing strong reliability and power plants that run as efficiently as possible. And finally, we will not let up our focus on cost control in order to meet our financial goals. Our second strategic goal is maximizing the value of our competitive businesses. Moving forward, First Choice Power needs to continue to grow its commercial customer businesses and increase its residential customer retention. Optim Energy will remain in cost control mode and will need to continue to run its generation assets as well as it has done in order to capitalize on the market opportunities that arise. We believe that having both of these businesses really does provide that natural hedge for us in Texas. Accomplishing those first two goals leads us to achieving the third: Becoming fully investment-grade in our credit. We have made much progress in 2010. Our employees and the communities that we serve have helped us move a great way along that path, and we look forward to more successes in 2011. That ends our formal presentations and now we can take questions.

[Operator Instructions] Our first question comes from the line of Anthony Crowdell of Jefferies & Company. Anthony Crowdell - Jefferies & Co: Just a quick question at First Choice. What was the gross margin there for the quarter?

Anthony, it's Pat. Good morning. Brian Hayduk from First Choice is here and he'll give you a little color.

Anthony, it's Brian. I don't think we're going to give specific numbers on the quarter. I think what we can do is just give you a sense for what happened for the year on the gross margin perspective. We were down about 11% on unit margins for the year, year-over-year.

And our next question comes from the line of John Ali of Decade Capital.

Just a couple of quick questions. You gave the ROE at New Mexico, 7% to 7 1/2%, could you give us a better number on Texas?

On Texas, for 2011?

Correct.

Yes. Texas in 2011, we should be about the 10% to 11% range.

As I've mentioned, John, we expect to earn our allowed return in Texas this year.

You wouldn't be over-earning there, would you?

No. I mean, maybe a hair but not significantly.

And then can you give us your hedged price for Optim for 2011?

We really don't give out information. We just have a rolling 12 months hedge. So I think you just have to go by the guidance and the sensitivities I gave you as far as giving some idea what that impact would be.

And could you just maybe split out the EPS between what you expect from First Choice versus Optim that you give a kind of a consolidated on REC but...

; Actually, if you look in the appendix, there's a detail of the breakout of each of the businesses along with EBITDA projections. At First Choice, the EPS range is $0.28 to $0.35; in Optim, our 50% share is minus $0.22 and a minus $0.19, which gives you the range of $0.06 to $0.16.

And has there been any changes in the amortizations in Optim, because remember you had those in a contract once, are there any change there with the write-down or does it just stay as is?

No. Nothing on their side that would cause us any change in that.

Page 10 on the Appendix has got that guidance on it.

And our next question comes from the line of Brian Russo of Ladenburg Thalmann. Brian Russo - Ladenburg Thalmann & Co. Inc.: Does the ROE at PNM Electric in 2011, the 7%, 7 1/2%, does that include the PV [Palo Verde] Energy 3 contribution and from wholesale contribution?

It does.

That's a rate-based ROE...

That's a rate-based ROE. Yes, it does not. Brian Russo - Ladenburg Thalmann & Co. Inc.: So could you quantify what the PV Energy 3 contribution and from wholesale is in '11?

Yes, if we go back in the comments I made, we'd expect about $35 million of revenue generated for PV 3. So you just have to build that revenue addition to your model and then factor in whatever cost you have left with the net income and the earnings. But we don't break out Palo Verde 3. So I can just give you the revenue number. Brian Russo - Ladenburg Thalmann & Co. Inc.: What's the rate base that TNMP is earning on in 2011? And If you could break that down maybe between FERC and maybe the Texas distribution?

Well the rate base in TNMP is all Texas distribution, because they're controlled by ERCOT. And On Page 820, it's got it all in there. It's about $448 million in Texas. Brian Russo - Ladenburg Thalmann & Co. Inc.: So you're going to earn $0.27 to $0.29 on $448 million of rate base?

Yes.

Remember in Texas, the allowed equity ratio is 45%. It used to be 40% equity and 50% debt. That's the way they did the market when they split it up. And then in this past case, we were allowed to change our cap structure to 55/45. Brian Russo - Ladenburg Thalmann & Co. Inc.: And it seems that the 2011 revenue contribution I guess from the phase one from the stipulation, it looks like the entire revenue requirement is flowing to the bottom line. Could you just comment on the cost controls or other leverage you guys are pulling to have the entire amount flow down?

Sure. And just a reminder on Texas, the other thing you do see in there is the strain of cost recovery is not in that rate base, there's still strain of cost recovery in Texas . When you look at New Mexico, a couple of things that are different is that we are still very forceful on our cost reductions. There's also an outage difference in 2011. There were two outages last year at San Juan and there is only one this year at San Juan. Same for Four Corners. So that and just continued focus on cost control and scrutinizing every penny, watching our hiring, holding costs flat, that's what helped it drop to the bottom line.

Yes, and just in addition to that Brian, we had less pension and medical expenses. We also had some changes in our healthcare program that generated some additional savings. You've got to factor in some of the load increases that Pat had talked about. And then we have lower interest costs associated with the fact that we have less in renewables that we're building that we probably talked about in April of last year. So if you go back and think about the cost type initiatives that I'm referring to, basically we're adjusting our cost structure to make sure we live within our means and make sure that we line up to the potential stipulation that we're trying to settle. Brian Russo - Ladenburg Thalmann & Co. Inc.: So we should see that ROE continue to trend higher in '12 and '13 with the second phase of the revenue increase and then plus that additional rider, is that safe to say?

Yes. Again, the message is loud and clear that we're working on a pathway to get to our allowed returns. So we have that focus and we will continue, assuming we get the stipulation approved to see that continued increase in ROE. Brian Russo - Ladenburg Thalmann & Co. Inc.: Would you get to your allowed ROE in '13?

We would. Assuming the stipulation's approved as filed, it would allow us to earn our ROE in 2013. Brian Russo - Ladenburg Thalmann & Co. Inc.: And remind me what's the test year again in the PNM Electric rate case...

June 30, 2010. Brian Russo - Ladenburg Thalmann & Co. Inc.: June 30, 2010?

June the 30th, yes.

Yes. And then the capital Addition's Rider allows us to catch that capital up. That's why that $20 million is so important. Brian Russo - Ladenburg Thalmann & Co. Inc.: And then just lastly, any idea what the favorable weather in the first quarter '11, the impact on the earnings outlook for PNM Electric and TNMP?

Well we haven't released any first quarter results. As soon as we get the heating degree days, we'll put them on the website for you, but it was really cold here and it was really cold in Texas. I can promise you that.

And our next question comes from the line of Ali Agha from SunTrust.

I wanted to -- just to be clear, the 2011 contribution from PNM Electric, does that assume rate's going to affect May 15? I wanted to get this interim rate increase, is that a mandatory once you file or is it up to the commission to approve it?

It does assume that rate's going to affect May 15. Interim rates are not mandatory. We will file in mid-March for the interim rates asking for them to go into effect on May 15, but it is totally up to the commission whether or not they'd let us put in interim rates. I will say though that they do understand that in the stipulation, that the compromises we made were conditioned on the fact that rates would go into effect on May 15.

So if they don't, then that monthly number, I think, just kind of strip view [ph] you gave us kind of kicks in?

Yes. And then we put a sensitivity in there on the rates for PNM that is $0.02 to $0.03 a month. Obviously, the shoulder months are a little less but at summer months it's $0.03.

Separately, I thought that Optim, Chuck -- so what kind of depreciation expense does that save you? And obviously that's factored into your still lower number for Optim in '11?

No. There's no impact because it's just PNM Resources right now, and so Optim's depreciation remains as is. And that's why you see the continued ongoing losses that we have recorded in the earnings projections for this year. There's no change in Optim's financial statements. It's really just a reflection of our write-down of our investment.

And in the past, back there, you folks have been telling us that you're taking a close, hard look at those competitive businesses, does it make sense to stay in them? Does it make sense for them to operate as two separate entities? From your commentary today, I did not hear anything along a conclusion being reached on that front, could you just tell us where you are in your thinking? Are these still poor businesses for you? And are you comfortable running them as two separate entities?

Well if you maybe go back to -- our main focus is our unyielding efforts to earn our allowed return on the Regulated business. So that's where we're spending our time and effort. But we still see that there's value in the competitive businesses and the natural hedge, as I pointed out in my comments. And February clearly showed some value in having both those businesses. We continue to look and think about strategic alternatives for the business to try to find long-term ways to maximize that value, but currently our intense focus will remain on the Regulated business and preserve the value of the earnings power of the unregulated as we go forward and think about the business.

Well the impairment that you talked Chuck, we should not see that as a signal of what you may or may not be thinking about strategically on that business?

The impairment is totally an accounting-related thing that you have to do and it doesn't signal any feeling about our business, it just signals that the accountants make us do things once in a while.

And final question. I want to make sure I heard this correctly, so assuming the stipulation does go through, you would still see yourselves slightly under earning at PNM Electric in '12, and it's really in '13 that you would see the authorized level, did I hear that right? Or how should we think about '12 improvement versus '11?

You heard that correctly. Obviously, it continues to go up in '12, but because we don't totally catch-up with capital until 2013, there's still a slight lag.

And our next question comes from the line of Edward Heyn of Catapult Capital.

Just to go back, for ROE at PNM the thought is 7% to 7 1/2% in '11, getting close to the allowed in '12, and by '13, being able to hit the allowed ROE, is that right?

That's correct. That's the rate base ROE.

And the ROE that was stipulated to was like 10.25%, is that right?

Yes, sir.

That's right.

And then I guess people have been kind of talking about Optim as well, is there -- I guess the frustrating thing with that obviously there's optionality value, but it's a nonrecourse sub that has $0.15 the $0.20 a drag on your consolidated earnings, is there any thought that getting rid of that would allow you to get acceleration on your consolidated earnings at a kind of more rapid pace as opposed to kind of keeping...

You know, as we continue to talk about the Competitive business, we look at the net contribution of both those businesses as a positive for PNM Resources and some ability to preserve future earnings power, as we think about their cut[indiscernible] market recovering over time. And that's the way we look at it. And I understand the drag at Optim, but it's also very positive First Choice. And what I mentioned in February was a great example, although we're not prepared to release numbers, we clearly saw the value of Optim benefitting from higher energy prices, while First Choice had to purchase for some of the usage swings that occurred during their ability to buy power in the market at higher prices. So the net effect of that certainly reflected the value of having both those businesses. But again, really our earnings power of the business and our continued focus is on the regulated side of the business and getting PNM Resources back to its allowed return. We've been able to accomplish that at TNMP. That's really the intense focus that we think will get the earnings power that we need for the business in the next few years.

And then just quickly go back to the ROE question, when you guys talk about earning your allowed ROE, are you talking about earning on the '11 rate base that you filed for or on the prospective rate base that you will have in 2013?

The current rate base that we have, the $1.8 million when you look at PNM, $1.8 billion, but it's a rate base return.

So it's a rate base on the allowed rate base in the stipulation, not necessarily what the rate base would be prospectively in '13?

Correct. But remember in '13 you pick up that capital Additions Rider, which trues you up to that capital, and then remember part of the stipulation is that we have a workshop on future test year and that the parties won't oppose a future test year filing the next time around.

So the capital rider should true you up where you're kind of earning an allowed ROE on your current rate base as well?

Correct.

Thank you. Our next question comes from the line of Mike Bolte of Wells Fargo.

I was just wondering on the outage costs or the outage schedule at PNM Electric. I was wondering in 2012, what does the outage schedule look like? I'm just really trying to get -- what should the outage cost go back to kind of a more like 2010 level?

If you look back in the appendix there, I'm looking for the outage assumptions are in there. In 2012, we end up with two at San Juan versus -- which is more like 2010. We have one at Four Corners, and then Palo Verde's got outages at each of their units. So you'll see more outage costs at Palo Verde. If you look at Page A-12, it's got details with the outages and the dates so you can take a look at that.

Our next question comes from the line of Ashar Khan [ph] of Visium.

All of my questions have been answered. Just wanted to check if you had mentioned that the stipulation were to help earnings, if I remember, by $0.34 in '12. Is that forecast still correct, as you stand here?

$0.34 in 2012?

Incremental, if I remember.

Yes. We do have -- if you look in the appendix, we have a slide that indicates -- someone might tell me what appendix number that is. A-19. So in 2012, we reflect what we look to be the incremental EPS of $0.56.

That's total. $0.34 in 2012. That adds the $0.23 and $0.34 together with a little bit of rounding so...

Thank you. Our next question comes from the line of Chris Shelton of Millennium Partners.

Quick First Choice question. I wanted to see just on the bad debt, you guys have obviously worked off a lot of the balances from a sort of legacy customer bid. Is this level somewhere that we should think off as nearing a bottom and maybe it starts leveling off and going up with new customer growth? Or is this still an area that you guys can improve on, you think?

Chris, it's Brian. And I think you'll see our 2011 assumptions, it's appendix A-14, a 4% to 5% range, $20 million to $25 million, which is a modest decrease and it's -- the question in terms of what the floor is, it certainly is difficult to tell. Historically, this business has been down as low as 3%,2 1/2%. It really depends on what sort of the market dynamics are with customers and rules and what the split on our portfolio is with residential and commercial, because commercial has a lower percent of bad debt. So I think there's certainly still room to grow. It's not going to be at the pace that we've seen over the last couple of years, though.

So I guess you've worked off a lot of the customers that were said to cause the bad debt to increase so much I guess is the take away?

I think that's fair to say. Always more work to do, but a bulk of that has been addressed.

[Operator Instructions] And our next question is a follow up from John Ali from Decade Capital.

My follow up was actually already answered.

And I see no further questions in the queue at this time. I'd like to turn the call back to our speakers for any further remarks.

Thank you all for joining us on this earnings call. We look forward to our first quarter earnings call in 2011 and continued success on our regulatory front. We'll keep you all posted as we have news. Thank you.