Exhibit 99.3
Prepared comments for the Company's telephone conference call to discuss the
Company's third quarter earnings that was broadcast on October 19, 2000.
Barbara Barsky Opening Remarks
Good Morning. Thank you for participating in this teleconference to review PNM's
third quarter results. Today's conference call can also be heard live on the
Internet by accessing the link on our web site at www.pnm.com. We are pleased to
announce that PNM will now be hosting quarterly conference calls with web
access. I am Barbara Barsky, IR officer for PNM. Joining me today are:
o Jeff Sterba, Chairman, President and CEO
o Max Maerki, CFO
o Pat Ortiz, General Counsel
o Bill Real, Exec VP, Energy Services and Power Production
o Ed Padilla, Senior VP, Bulk Power
o John Loyack, Controller
o Harry Schanning, Director of Fuels Management
Yesterday, we reported record earnings for the third quarter of 2000. A press
release was issued which included summary financial information for the third
quarter and earnings guidance for the fourth quarter of 2000 and year-end 2000
and 2001. If you have not received this release, please call 505 241-2868 and we
will fax you a copy immediately. A copy can also be found on our web site at
www.pnm.com
I need to remind you that some of the information we will provide today relative
to revenues, earnings and investments should be considered forward looking
statements, within the meaning of Section 21E of the Securities and Exchange
Act. Actual results for 2000 and 2001 will be affected by a number of factors,
including weather, the local and national economies, the competitive environment
in the electric and natural gas industries, various legal, regulatory, and
legislative outcomes that the company is unable to predict at this time. For
more information about these uncertainties and risk factors, please consult
PNM's 10K, 10Q and 8K filings with the Securities and Exchange Commission for
1999 and 2000.
I'd now like to introduce Jeff Sterba, who will take about 15 minutes to discuss
third quarter results and other recent news. Immediately following his remarks,
we will open the conference to questions.
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Jeff Sterba Comments
Good morning and welcome.
Today I would like to talk to you about...
1. Third quarter results,
2. Earnings estimates for the fourth quarter of this year, as well as
year-end 2000 and 2001 estimates,
3. Our new coal contract, and,
4. Our plans for moving forward with restructuring in New Mexico.
But before I get to this quarter's results, let me say how pleased I am to be
joining you today as PNM's new Chairman of the Board, President and CEO. When I
returned to the company, I immediately realized the progress Ben had made in
returning this company to financial strength, with an improved regulatory
environment. I look forward to building on that success and taking this company
even further.
1. Third Quarter Results:
Now, I'd like to walk you through our third quarter results. As you may recall,
we notified investors of our belief that we'd be exceeding earnings expectations
for this year and next, and this quarter's results have proven that. Yesterday
we reported $1.18 per share, compared to $0.52 per share in the third quarter of
1999, which is a 127 percent improvement. Excluding non-recurring items of $0.21
per share, ongoing earnings were $0.97. (There were no one-time items in the
third quarter of 1999).
The increase in earnings is primarily due to the success in our wholesale power
marketing business, warmer than normal weather, and to cost reductions. PNM
wholesale power revenues totaled $279.5 million this quarter, an increase of
nearly 86 percent over the same quarter last year, or 95 percent year-to-date.
The increase in wholesale power revenues was primarily due to favorable market
conditions and our continuing efforts to expand this business.
Electric retail sales increased 4 percent over third quarter 1999. This is
attributed to warmer weather and continuing growth in our service territory.
Operations and maintenance expenses are about $2.9 million or 3.3 percent below
last year, as a result of ongoing cost control.
One-time items this quarter included the following:
o A benefit of $13.8 million or $0.21 per share for a legal settlement.
o A one-time gain of $4.6 million or $0.07 per share, for the reversal of
certain reserves associated with the expected resolution of two gas
rate cases currently before the NMPRC. We anticipate a final order some
time this month.
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o A charge of $4.5 million or $0.07 per share in connection with the
acquisition of the Navopache contract, a new 50 MW co-op customer PNM
acquired as a result of the Tri-State merger.
When Navopache signed on with us as a customer, we agreed to pick up a
portion of their stranded costs. The Navopache contract does not
specify that these costs will be recovered, thus we were required to
take a charge under the accounting rules. However, we believe the
payment to be a sound investment in the future, as sales to Navopache
will more than cover the charge and provide a healthy margin.
2. Fourth quarter and year-end earnings guidance
Now I'd like to spend a few minutes and talk to you about our expectations for
next quarter and year-end results in 2000 and 2001.
In the fourth quarter of 1999, PNM reported ongoing earnings of $0.43 per share.
The FirstCall consensus for 2000 is about $0.49 for the fourth quarter and $2.34
for 2000 and $2.48 for 2001.
With the strong results we've seen in our wholesale power trading, we expect
that trend to continue in the fourth quarter and on into 2001. We are also
expecting a cooler winter relative to last year, and even though we will not
benefit from the increase in gas prices, we may benefit from an increase in the
cost of service revenues. Therefore, we would expect to earn between $0.45 and
$0.55 for the fourth quarter 2000. This would place year-end 2000 earnings
between $2.40 and $2.50 on an ongoing basis.
Earnings estimates for 2001 have increased as well. We are now expecting between
$2.50 and $2.60 per share, a 4 percent increase over 2000 year-end expectations.
While this may not sound like a significant increase, you have to consider that
in April of 2001, we will be losing a lucrative long-term wholesale power
contract that contributes about $0.36 per share on an annualized basis. Given
this recovery, expected earnings growth for 2001 compared to 2000 is actually
closer to 20 percent, and a compound growth rate, from 1999 to 2001 estimates,
of 16%.
3. New Coal Contract
I would also like to touch on some news that we released earlier this week,
regarding a new agreement we've entered into with our coal supplier at San Juan
Generating Station. By switching to underground mining, we will be able to save
the company up to $500 million in fuel costs over the next 17 years, in addition
to $2 million per year in operations and maintenance expenses. These savings are
based on what our future fuel costs would have been if we continued surface
mining. They are not based on current fuel prices. We expect our average San
Juan fuel costs to decline about 4% per year, beginning in 2002, from our actual
experience next year. This translates into a savings of about $6.0 to $8.0
million per year until 2006. At that time, costs will flatten out for some time
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and then will rise relative to inflation. We are very proud of our relationship
with our fuel supplier and believe that every step that we take towards reducing
our costs makes us that much more efficient and better able to compete in an
open marketplace.
4. Update on Path to Restructuring
Now to address a question that I know many of you have: What impact will the
events in California have on the timing of industry restructuring in New Mexico?
Will it stay on the current timetable?
As many of you know, the legislators and regulators in New Mexico have been
concerned with the events that have transpired in California and some other
states, as a result of deregulation. Understandably, this has created concern
here in New Mexico and therefore on Wall Street.
Last month, I addressed the Public Regulation Commission and asked the
commissioners to continue along the path set by the 1999 Electric Utility
Industry Restructuring Act, an Act that was passed after six years of study and
debate.
I firmly believe that this summer's experience in southern California was
primarily the result of a combination of two factors: an imbalance between
supply and demand for electricity, and a flawed market structure. Neither of
those factors should apply in New Mexico if we continue with implementation of
the restructuring legislation we now have in place and focus on creating a fluid
supply market and encourage demand responsiveness to prices.
The sponsor of the restructuring act here in New Mexico has publicly stated that
he will conduct a forum in mid to late November to address the California issues
relative to New Mexico. He, along with another sponsor of the bill, also
suggested that it would be valuable for PNM and the other parties to get
together and agree on some proposals that would address the concerns that have
been raised by events in California. We are committed to doing that.
So what does this mean for PNM? Separation is not likely until after the first
quarter of 2001. Does that mean that the restructuring act will be repealed? I
don't think so. New Mexico has spent a considerable amount of time studying
electric utility restructuring and I feel the current law is a balanced,
workable approach. We will make every effort to meet with the staff and the
parties to ensure that electric choice benefits all New Mexico customers in the
long term. Although a delay in the implementation date is more likely than a
repeal; we feel strongly that delaying open access will only discourage new
investment in the generating plants that New Mexicans will need to ensure
reliable service in a state that continues to grow. Thank you for the
opportunity to share my remarks with you. I will be at EEI later this month and
look forward to talking with you face-to-face.
Right now, I'd be glad to take any questions.
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