SECURITIES AND EXCHANGE COMMISSION

(Release No. 35-27934; 70-10248)

PNM Resources, Inc.

Order Authorizing External and Intrasystem Financing and Related Transactions; Authorizing Interim Service Arrangement; and Reserving Jurisdiction

December 30, 2004

PNM Resources, Inc. ("PNM Resources"), Albuquerque, NM, an electric and gas public utility holding company, has filed with the Securities and Exchange Commission ("Commission") an application-declaration ("Application") under sections 6(a), 7, 9(a), 10, 12(b), and 13 of the Public Utility Holding Company Act of 1935, as amended ("Act") and rules 42-46, 90-91, 53 and 54 under the Act.¹ The Commission issued a notice of the Application on November 18, 2004 (Holding Co. Act Release No. 27911).

I. Introduction

PNM Resources and its Subsidiaries

PNM Resources is a holding company that has claimed exemption from registration under section 3(a)(1) of the Act by rule 2 under the Act. PNM Resources became a public utility holding company on December 31, 2001. PNM Resources' only public utility company subsidiary is Public Service Company of New Mexico ("PNM"), a New Mexico corporation. PNM is an electric and gas public utility company. It is engaged in the generation, transmission, and distribution of electric energy at retail in the State of New Mexico and makes sales for resale ("wholesale" sales) of electricity in interstate commerce. PNM is also engaged in the distribution of natural gas in the State of New Mexico, which includes some off-system wholesale sales of natural gas. PNM had electric revenues for 2003 of $543,850,000, $51,952,000 and $550,382,000 for its retail, transmission, and wholesale electricity segments, respectively. Its natural gas operating revenues for 2003 were $358,267,000. Electric and gas operating revenues for the nine months ending September 30, 2004, were $863,783,000 and $330,290,000, respectively.

PNM Resources' current nonutility activities are conducted through Avistar, Inc. ("Avistar"), a company engaged in the developing and marketing of technologies for energy production and supply. PNM Resources also owns a one-third interest in Luna Energy, LLC, a Delaware limited liability company that was formed for the sole purpose of facilitating the transfer of the permit rights, real property rights, equipment, and contracts associated with a partially constructed 570 MW gas-fired generating plant located near Deming, New Mexico. The project assets were purchased in November of 2004 by Luna Energy from Duke Energy North America for $ 40 million. The co-owners of Luna Energy, Phelps Dodge Energy Services, LLC, and Unisource Energy Corporation, are not affiliates of PNM Resources. The three owners of the project expect to distribute the production-related assets of Luna Energy to appropriate utility or exempt affiliates substantially prior to the completion and operation of the plant in 2006. The owners of Luna Energy do not intend for it to become a public utility company, but to restrict its activities to holding project assets pending distribution. Upon completion the project will be interconnected with the PNM transmission system.

On December 3, 2002, the New Mexico Public Regulation Commission ("NMPRC") approved the formation by PNM of PNM Receivables Corporation ("PNM Receivables"), a wholly-owned subsidiary, dedicated to purchasing electric and gas utility receivables from PNM over a three-year period and selling undivided fractional interests in such purchased receivables to a non-affiliated asset-based commercial paper conduit. PNM Receivables does not offer the service to non-affiliates. Pursuant to the arrangements approved by the NMPRC, upon three days notice to the commercial paper conduit, PNM is able to obtain advances up to $ 100 million against receivables for up to 270 days, and PNM Receivables pays the carrying costs incurred by the conduit, which are consolidated as expenses onto the books of PNM. PNM incurs neither a profit nor a loss in its transactions with PNM Receivables, and the proceeds are used exclusively for the electric and gas utility operations and utility related debt refunding in accordance with terms approved by the NMPRC.² PNM Resources accordingly requests authority pursuant to sections 9 and 10 of the Act to continue to retain its interest in and fund the operation of PNM Receivables Corporation using the proceeds of the authorized financings.

Further, PNM Resources has the following direct inactive nonutility subsidiaries: EIP Refunding Corporation, Paragon Resources, Inc., PNM Electric & Gas Services, Inc., PNMR Services Company, Sunbelt Mining Co. Inc., Sunterra Gas Gathering Company and Sunterra Gas Processing Company. PNM Resources also has the following indirect inactive nonutility subsidiaries: AMDAX.com (25% interest directly owned by Avistar), Gas Company of New Mexico (directly owned by Sunbelt Mining Co. Inc.), Meadows Resources, Inc. (directly owned by PNM) and its subsidiaries, Bellamah Associates, Ltd., Bellamah Community Development, Bellamah Holding Company, Bellamah Investors Ltd., and Republic Holding Company. PNM Electric & Gas Services, Inc. ("PNM Electric & Gas Services") and PNM Services Company ("PNM Services") are each inactive affiliate service company shell corporations. PNM Resources presently intends to qualify PNM Services as a subsidiary service company pursuant to rule 88 under the Act by filing a separate application with the Commission and to retain PNM Electric & Gas Services as an inactive corporation. Applicant does not anticipate any of the other enumerated nonutility subsidiaries other than Avistar resuming active operations and retains the securities of those subsidiaries solely in order to wind up their operations and resolve any claims resulting from past operations. PNM Resources states that these subsidiaries conduct no on-going business activities other than winding up existing obligations and that Commission authorization will be secured prior to any of these companies reinstating or undertaking active business operations.

PNM is subject to the jurisdiction of the NMPRC, with respect to its retail electric and gas rates, service, accounting, issuance of securities, construction of major new generation and transmission facilities and other matters regarding retail utility services provided in New Mexico.

PNM's principal business segments are wholesale operations ("Wholesale") and utility operations. Utility operations include electric services, transmission services ("Transmission") and gas services ("Gas"). In addition, PNM owns "Merchant Plant" (authorized generation facilities that are not included in rate base) that is subject to a Global Electric Settlement Agreement that was entered into on ("Global Electric Settlement") and approved by the NMPRC.³ All of these segments involve ownership of utility assets within the meaning of the Act. PNM states that it operates as a vertically integrated electric and gas utility company and these business segments are used for financial reporting purposes and are not distinct corporate entities.

Wholesale consists of the generation and sale of excess electricity into the wholesale market based on three product lines that include long-term contracts, forward sales and short-term sales. The "regulated generation" (generation in rate base),"unregulated generation" (certain generation excluded from rate base) and "Merchant Plant" ( including certain generation excluded from rate base) are jointly dispatched in order to improve reliability, provide the most economic power to retail customers, and maximize profits on any wholesale transactions. From time to time, Wholesale also makes purchases of energy.

PNM provides retail electric service to a large area of north central New Mexico, including the cities of Albuquerque and Santa Fe, and certain other areas of New Mexico. Customers' rates for retail electric service are set by the NMPRC based on the provisions of the Global Electric Settlement through 2007. PNM's power generation facilities are jointly dispatched under common control in order to serve PNM's electric utility customers economically and reliably. PNM owns or leases generation located in the States of Arizona and New Mexico within the Western Electricity Coordinating Council ("WECC")⁴ region, a National Electric Reliability Council region including much of the Western United States and portions of Canada and Mexico. PNM is interconnected with the Southwest Power Pool ("SPP"). Generation included within the SPP is eligible for inclusion as Merchant Plant. PNM experienced a peak electrical demand on its system of 1661 MW in 2003. PNM owns or leases 1742 MW of generating capacity. Additional capacity is purchased from third parties under certain power purchase agreements that may be accounted for as leases, for a total of 2074 MW available capacity.

Transmission consists of the transmission of electricity over transmission lines owned or leased by PNM, interconnected with other utilities in New Mexico and south and east into Texas, west into Arizona and north into Colorado and Utah. PNM owns or leases approximately 3000 circuit miles of transmission lines. PNM owns and operates in excess of 8000 miles of distribution lines excluding street lighting in New Mexico.

The Gas segment includes the transportation and distribution of natural gas to end users, including end users in most of the major communities in New Mexico, including Albuquerque and Santa Fe. Gas's customer base includes both sales-service customers and transportation-service customers. From time to time, the Gas segment makes off-system sales of natural gas incidental to its natural gas operations.

The Merchant Plant owned by PNM constitutes utility assets within the meaning of the Act,⁵ and is available through joint dispatch to support service to the retail customers of PNM. PNM's Merchant Plant activities are governed by the Global Electric Settlement.

PNM Resources electric utility assets and operations constitute a primary integrated public utility system satisfying the requirements of section 2(a)(29)(A) of the Act. Further, PNM Resources gas utility operations constitute an additional integrated utility system, satisfying the requirements of section 2(a)(29)(B) of the Act, that is retainable under the standards of sections 10 and 11 of the Act. Finally, PNM Resources' active nonutility businesses are retainable based on the facts presented in the Application.

II. Current Request

PNM Resources seeks the following authority beginning with the Order Date through December 31, 2007 ("Authorization Period") for:

1. PNM Resources to increase its capitalization in the aggregate amount of $1.5 billion ("Financing Limit") over and above its capitalization as of December 31, 2004, other than for exchanging, refunding or replacing securities, where capitalization is not increased, through the issuance and/or sale of common stock, preferred stock, preferred securities, equity-linked securities, long-term debt and short-term debt, or securities which are convertible into any such securities, whether directly or through one or more financing conduits (PNM Resources requests that the Commission reserve jurisdiction over $500 million of this Financing Limit pending completion of the record);⁶
    
2. PNM Resources to provide performance and financial guarantees, and other credit support for all of its subsidiaries, as described below, in an aggregate amount not to exceed $300 million at any time outstanding;
    
3. PNM Resources to issue and sell common stock pursuant to direct stock purchase and dividend reinvestment plans, incentive compensation plans and other employee benefit plans (included under the issuances and sales of common stock authorized in Paragraph (A) above);
    
4. PNM Resources to engage in certain cash management activities as described below;
    
5. PNM Resources to use financing conduits or subsidiaries to issue or sell debt or equity securities or securities which are convertible into any such securities on PNM Resources' behalf either by PNM Resources owning such conduits or subsidiaries or guaranteeing the obligations of such conduits or subsidiaries as described below;
    
6. PNM Resources to enter into transactions to manage financial risk as described below;
    
7. PNM Resources to invest up to $300 million in certain natural gas gathering, storage, transmission, other fuel resources, processing storage and transportation assets ("Energy Assets");
    
8. PNM Resources to change the capital stock of subsidiaries as described below;
    
9. PNM Resources to exchange, refund or replace existing securities where capitalization is not increased as a result over that in place at December 31, 2003; and
    
10. PNM Resources to provide services to its subsidiaries pursuant to section 13(a) of the Act as described below.
     

III. Parameters for Financing Authorization

The following general terms will be applicable where appropriate to the financing transactions requested:

1. Common Equity Ratio. PNM Resources states that at all times during the Authorization Period each of PNM Resources and PNM will maintain common equity (as reflected in the most recent Form 10-K or Form 10-Q filed with the Commission) of at least 30% of its consolidated capitalization. The term "consolidated capitalization" is defined to include, where applicable, all common stock equity (comprised of common stock, additional paid in capital, retained earnings, accumulated other comprehensive income or loss, and/or treasury stock), minority interests, preferred stock, preferred securities, equity linked securities, long-term debt, short-term debt and current maturities. PNM Resources will in any event be authorized to issue common stock to the extent otherwise authorized in this Application.⁷
    
2. Investment Grade Ratings. PNM Resources will not issue any securities, other than common stock, commercial paper, member interest, short-term bank debt (with a maturity or one year or less) or securities issued for the purpose of funding intra-system financings, pursuant to the authority conferred pursuant to this Application, unless upon original issuance: (1) the security to be issued, if rated, is rated at least investment grade; and (2) all outstanding securities of PNM Resources that are rated are rated investment grade (the "Investment Grade Condition"). For purposes of this provision, a security will be deemed to be rated investment grade if it is rated investment grade by at least one nationally recognized statistical rating organization, as defined in rule 15c3-1(c)(2)(vi)(F) under the Securities Exchange Act of 1934. PNM Resources further requests that the Commission reserve jurisdiction over the issuance of any securities that do not satisfy the Investment Grade Condition.
    
3. Effective Cost of Money on Financings. The effective cost of capital for long-term debt, short-term debt, preferred stock, preferred securities and equity-linked securities will not exceed competitive market rates available at the time of issuance for securities having the same or reasonably similar terms and conditions issued by similar companies of reasonably comparable credit quality; provided that in no event will the effective cost of capital on (i) any such long-term debt securities exceed 500 basis points over comparable term U.S. Treasury securities ("Treasury Security"); or (ii) any such short-term debt securities exceed 300 basis points over London Interbank Offered Rate. The dividend and distribution rate on any series of preferred stock, preferred securities or equity-linked securities will not exceed at the time of issuance 700 basis points over a Treasury Security.
    
4. Maturity. The final maturity of any long-term debt securities will not exceed 50 years. Preferred securities will be redeemed no later than 50 years after issuance, unless such preferred security is perpetual in duration. Short-term debt will have a maturity of no more than 1 year.
    
5. Issuance Expenses. The underwriting fees, commissions or other similar remuneration paid in connection with the non-competitive issue, sale or distribution of securities pursuant to this Application will not exceed the greater of (1) 500 basis points of the principal or face amount of the securities being issued or gross proceeds of the financing or (2) the competitive market rates which are consistent with similar securities of comparable credit quality and maturities issued by other companies.
    
6. Use of Proceeds. The proceeds from the sale of securities issued by PNM Resources pursuant to this Application will be used for general corporate purposes including (1) the financing of the capital expenditures of the PNM Resources system, (2) the financing of working capital requirements of the PNM Resources system, (3) direct or indirect investment in companies or assets the acquisition of which are either exempt under the Act or by Commission rule or have been authorized by the Commission, (4) cash management activities and (5) other lawful purposes.
    

IV. Description of Requested Financing

As more fully described below, PNM Resources requests authorization to obtain funds externally through sales of equity, equity linked, preferred and/or debt securities in accordance with the authority granted by the Commission.⁸ PNM Resources also requests authority to issue common stock to third parties in consideration for the acquisition by PNM Resources of equity or debt securities of a company being acquired pursuant to an exemption under the Act, or pursuant to a Commission rule or specific authorization by another Commission order. In addition, PNM Resources seeks, to the extent authorization is required, the flexibility to enter into certain hedging transactions to manage financial risk.

A. Equity Securities

1. Common Stock (including Stock Purchase Contracts/Units)

From time to time during the Authorization Period, subject to the limits and conditions specified in this Application, PNM Resources seeks authority to issue and sell up to 60 million additional shares of its common stock or securities convertible into common stock (1) through solicitations of proposals from underwriters or dealers, (2) through negotiated transactions with underwriters or dealers, (3) directly to a limited number of purchasers or to a single purchaser, and/or (4) through agents. The price applicable to additional shares sold in any such transaction will be based on several factors, including the current market price of the common stock and prevailing capital market conditions.

PNM Resources also seeks authority to issue and sell from time to time stock purchase contracts ("Stock Purchase Contracts"), including contracts obligating holders to purchase from PNM Resources and/or PNM Resources to sell to the holders, a specified number of shares at an aggregate offering price of PNM Resources' common stock at a future date. The consideration per share of common stock may be fixed at the time the Stock Purchase Contracts are issued or may be determined by reference to a specific formula set forth in the Stock Purchase Contracts. The Stock Purchase Contracts may be issued separately or as part of units ("Stock Purchase Units") consisting of a stock purchase contract and debt and/or preferred securities of PNM Resources and/or debt obligations of non-affiliates, including U.S. Treasury securities, securing holders' obligations to purchase the common stock of PNM Resources under the Stock Purchase Contracts. The Stock Purchase Contracts may require holders to secure their obligations under the contracts in a specified manner.

PNM Resources may also issue common stock, securities convertible into common stock, warrants and other stock purchase rights exercisable for common stock as consideration, in whole or in part, for acquisitions by PNM Resources of securities of businesses or the assets of such businesses, the acquisition of which (1) is exempt under the Act or by Commission rule or (2) has been authorized by prior Commission order issued to PNM Resources, subject in either case to applicable limitations on total investments in any such businesses.

PNM Resources requests authority, from time to time during the Authorization Period, to issue and/or acquire in open market transactions or by some other method, which complies with applicable law and Commission interpretations then in effect, shares of PNM Resources common stock for its Omnibus Performance Equity Plan and other stock plans, pension trusts or other PNM Resources direct stock purchase and dividend reinvestment plans or similar plans adopted in the future without additional prior Commission order.⁹ PNM Resources further requests authority to issue and sell common stock to PNM customers consistent with existing charter authority and the requirements of applicable state and federal securities laws pursuant to a plan to be adopted during the Authorization Period without additional prior Commission order. Stock transactions of the variety described above would be treated the same as other stock transactions permitted under this Application.

2. Preferred Securities

Subject to the limits and conditions specified in this Application, PNM Resources also seeks authority to issue and sell preferred securities in one or more series. Preferred securities or securities convertible into preferred securities of any series (1) will have a specified par or stated value or liquidation value per security, (2) will carry a right to periodic cash dividends and/or other distributions, subject among other things, to funds being legally available, (3) may be subject to optional and/or mandatory redemption, in whole or in part, at par or at various premiums above the par or stated liquidation value of the securities, (4) may be convertible or exchangeable into common stock of PNM Resources, preferred securities or unsecured debt that PNM Resources is otherwise authorized to issue by Commission order directly, or indirectly through financing conduits on behalf of PNM Resources, (5) and may bear such further rights, including voting, preemptive or other rights, and other terms and conditions, as set forth in the applicable certificate of designation, purchase agreement and/or similar instruments governing the issuance and sale of such series of preferred securities.

B. Debt Securities

1. Short-Term Notes

Subject to the limits and conditions in this Application, PNM Resources seeks authority to make unsecured short-term borrowings from banks or other financial institutions. Shot-term borrowings will be evidenced by (1) "transactional" promissory notes to be dated the date of the borrowings and to mature not more than one year after or (2) "grid" promissory notes evidencing all outstanding borrowings from the respective lender, to be dated as of the date of the first borrowing evidenced by the note, with each such borrowing maturing not more than one year after. Any such note may or may not be prepayable, in whole or in part, with or without a premium in the event of prepayment. PNM Resources notes that, at any given time, some or all of its outstanding short-term notes will be issuable in connection with the establishment of back-up credit facilities to support PNM Resources' commercial paper program but that such credit facilities will not be drawn upon and no borrowings will occur under those programs except in certain limited circumstances at which time obligations under the related commercial paper will be paid. PNM Resources states that short-term notes issued in connection with the establishment of commercial paper back-up facilities backstop and duplicate commercial paper issuances and should not be counted against its Financing Limit unless and until an actual borrowing occurs under the related credit facility. Additionally, Applicants request that with respect to any "grid" notes issued by PNM Resources, only the amount actually outstanding under the notes at any given time shall be considered a borrowing.

2. Commercial Paper

Subject to the limits and conditions in this Application, PNM Resources also seeks authority to issue and sell commercial paper through one or more dealers or agents or directly to a limited number of purchasers. PNM Resources proposes to issue and sell the commercial paper at market rates with varying maturities not to exceed 365 days. The commercial paper will be in the form of book-entry unsecured promissory notes (and/or pursuant to an underlying master note with a trust company which may not state a maturity) with varying denominations of not less than $1,000 each. In commercial paper sales effected on a discount basis, no commission or fee will be payable; however, the purchasing dealer will re-offer the commercial paper at a rate less than the rate offered to PNM Resources. The discount rate to dealers will not exceed the maximum discount rate per annum prevailing at the date of issuance for commercial paper of comparable quality and the same maturity. The purchasing dealer will re-offer the commercial paper in such a manner as not to constitute a public offering within the meaning of the Securities Act of 1933, as amended (the "Securities Act") or otherwise so as to be exempt from registration under the Securities Act.

3. Long-Term Notes

Subject to the limits and conditions in this Application, PNM Resources also seeks authority to issue and sell long-term unsecured debt securities ("Notes") in one or more series. Notes of any series may be either senior or subordinated obligations of PNM Resources. Notes of any series (1) will have maturities of at least 12 months, (2) may be subject to optional and/or mandatory redemption, in whole or in part, at par or at various premiums above the principal amount, (3) may be entitled to mandatory or optional sinking fund provisions, and (4) may be convertible or exchangeable into common stock of PNM Resources. Interest accruing on Notes of any series may be fixed or floating or "multi-modal" (where the interest is periodically reset, alternating between fixed and floating interest rates for each reset period, with all accrued and unpaid interest together with interest becoming due and payable at the end of each such reset period, or at maturity). Notes may be issued under one or more indentures to be entered into between PNM Resources and financial institutions acting as trustee(s); supplemental indentures may be executed in respect of separate offerings of one or more series of Notes.

Notes may be issued in private or public transactions. With respect to the former, Notes of any series may be issued and sold directly to one or more purchasers in privately negotiated transactions or to one or more investment banking or underwriting firms or other entities who would resell the Notes without registration under the Securities Act in reliance upon one or more applicable exemptions from registration. From time to time, PNM Resources may also issue and sell Notes of one or more series to the public either (1) through underwriters selected by negotiation or competitive bidding or (2) through selling agents acting either as agent or as principal for resale to the public either directly or through dealers. Furthermore, Notes may be issued to public agencies or authorities, political subdivisions or instrumentalities that provide industrial revenue bond or pollution control revenue bond or similar financing to PNM Resources or its financing conduits or intermediate subsidiaries (as defined below).

The maturity dates, interest rates, redemption and sinking fund provisions, if any, with respect to the Notes of a particular series, as well as any associated placement, underwriting, structuring or selling agent fees, commissions and discounts, if any, will be established by negotiation or competitive bidding and reflected in the applicable purchase agreement or underwriting agreement setting forth such terms.¹⁰

C. Financing Conduits

In addition to issuing any of the debt or equity securities directly, PNM Resources requests approval (to the extent such approval may be required under the Act) to form one or more entities for the primary purpose of issuing and selling any of the foregoing securities, lending and transferring the proceeds to PNM Resources, subject to the limits and conditions of this Application.

The proposed entities will comprise one or more financing entities (each, a "Financing Entity") and one or more special-purpose entities (each, a "Special-Purpose Entity," and together with Financing Entities, "Financing Conduits"). In either case the entities' businesses may include issuing and selling securities on behalf of PNM Resources. Any securities issued by the Financing Conduits may be guaranteed by PNM Resources. Such Financing Conduits may be constituted as corporations, partnerships, limited liability companies, trusts or other entities.

PNM Resources would acquire a portion of the outstanding shares of common stock or other equity interests of the Financing Conduit for an amount not less than the minimum required by applicable law. A primary function of the Financing Conduit will be effecting financing transactions with third parties for the benefit of PNM Resources. As an alternative in a particular instance to PNM Resources directly issuing debt or equity securities, or through a Special-Purpose Entity, PNM Resources may determine to use a Financing Entity as the nominal issuer of the particular debt or equity security. In that circumstance, PNM Resources or its affiliate may provide a full guarantee or other credit support with respect to the securities issued by the Financing Entity, the proceeds of which would be lent, divided or otherwise transferred to PNM Resources.

D. Interest Rate Risk Management

To the extent authorization is required under the Act, PNM Resources requests authority to manage interest rate risk through the performance, entering into, purchasing and selling of various risk management instruments commonly used in today's capital markets, such as interest rate swaps, caps, collars, floors, options, forwards, treasury locks, forward starting interest rate swaps, futures, forward issuance agreements, call spread options, the sale and/or purchase of various call or put options or warrants and similar products designed to manage interest rate or credit risks (collectively "Hedging Instruments").

PNM Resources would enter into Hedging Instruments only with approved counterparties who at the date of execution of the agreement with PNM Resources are rated (or have a parent company providing a guarantee that is rated) at least investment grade, i.e., "BBB" by Standard & Poors, Inc. or Fitch IBCA, Inc. or "Baa2" by Moody's Investors Service ("Authorized Counterparties"). The derivative transactions will be for fixed periods and in no case will the notional principal amount exceed the principal amount of the underlying security. PNM Resources will not engage in "leveraged" or "speculative" derivative hedging transactions.

In addition, PNM Resources requests authorization to manage, maintain, remove and enter into interest rate hedging transactions with respect to anticipated securities offerings (the "Anticipatory Hedges"), subject to certain limitations and restrictions. Such Anticipatory Hedges would only be entered into with Authorized Counterparties, and would be utilized to fix and/or limit the interest rate risk associated with any new issuance through (1) a forward sale of exchange-traded Hedge Instruments (a "Forward Sale"), (2) the purchase of put options on Hedge Instruments (a "Put Options Purchase"), (3) a Put Options Purchase in combination with the sale of call options Hedge Instruments (a "Zero Cost Collar"), (4) transactions involving the purchase or sale, including short sales, of Hedge Instruments, or (5) some combination of a Forward Sale, Put Options Purchase, Zero Cost Collar and/or other derivative or cash transactions, including, but not limited to, structured notes, caps and collars, appropriate for the Anticipatory Hedges. Anticipatory Hedges may be executed on-exchange ("On-Exchange Trades") with brokers through the opening of futures and/or options positions traded on the Chicago Board of Trade or New York Mercantile Exchange, the opening of over-the-counter positions with one or more counterparties ("Off-Exchange Trades"), or a combination of On-Exchange Trades and Off-Exchange Trades. PNM Resources will determine the optimal structure of each Anticipatory Hedge transaction at the time of execution. In this regard, PNM Resources may decide to lock in interest rates and/or limit its exposure to interest rate increases.

Fees and commissions charged or required in connection with any interest rate risk management agreements will not exceed the then current market price. PNM Resources represents that each Hedging Instrument and Anticipatory Hedge will be treated for accounting purposes under generally accepted U.S. accounting principles. In particular, PNM Resources will comply with Statement of Financial Accounting Standards ("SFAS") 133 ("Accounting for Derivative Instruments and Hedging Activities"), SFAS 138 ("Accounting for Certain Derivative Instruments and Hedging Activities") or other accounting standards related to Hedging Instruments or Anticipatory Hedges as are adopted and implemented by the Financial Accounting Standards Board ("FASB"). PNM Resources states that Hedging Instruments and Anticipatory Hedges will qualify for hedge accounting under the current FASB standards in effect and as determined at the date on which Hedging Instruments or Anticipatory Hedges are entered.

E. Financial and Performance Guarantees

From time to time through the Authorization Period, PNM Resources requests authority to guarantee, obtain letters of credit, enter into financing arrangements and otherwise provide or maintain credit support (each, a "Guarantee") in respect of the debt or other securities or obligations, whether for payment and/or performance, of any or all of PNM Resources' subsidiary or associate companies (including any subsidiary or associate company formed or acquired at any time during the Authorization Period), and otherwise to further the business of PNM Resources, provided that the total amount of Guarantees at any time outstanding does not exceed $300 million (the "PNM Resources Guarantee Limit"), and provided further, that (1) any Guarantees of EWGs and FUCOs shall also be subject to PNM Resources' limitation on investment in EWGs and FUCOs; and (2) any Guarantees of energy-related companies within the meaning of rule 58 ("Rule 58 Companies") shall also be subject to the aggregate investment limit of rule 58; and (3) any security guaranteed by PNM Resources shall itself be in compliance with the financing parameters authorized in this Application or otherwise exempt. The terms and conditions of any Guarantees, and the underlying liabilities, would be established at arm's-length based upon market conditions.

PNM Resources may charge a fee for each Guarantee provided on its behalf that is not greater than the cost, if any, of obtaining the liquidity necessary to perform the guarantee for the period of time the Guarantee remains outstanding.

In the event that PNM Resources issues any debt or equity securities authorized as part of this Application by means of any financing conduits or subsidiaries, PNM Resources may provide a full Guarantee in respect of the payment and other obligations of the financing conduit or subsidiary under the securities issued by it. Given that any securities nominally issued by any such financing conduit or subsidiary are in substance securities issued by PNM Resources itself, any securities issued by a financing conduit or subsidiary would count dollar-for-dollar against PNM Resources' financing authority. However, PNM Resources submits that any Guarantees of securities of financing conduits or subsidiaries will not count against the PNM Resources Guarantee Limit.

As stated above, PNM Resources requests the authority to extend its credit through entry into performance guarantees that will be a part of the definition of "Guarantee" provided in this Application. Such performance Guarantees may be in support of the obligations of affiliates undertaking the development or operation of projects authorized under the Act. However, performance Guarantees and certain other Guarantees may be in support of obligations that are not capable of exact quantification. In such cases, PNM Resources states that it will determine the exposure under such Guarantees for purposes of measuring compliance with the PNM Resources Guarantee Limit by appropriate means, including estimation of exposure based on loss experience or projected potential payment amounts.

V. Cash Management Activities

PNM Resources requests authorization to continue its existing cash management activities with surplus funds. Surplus funds will ordinarily be invested in one or more short-term investments including: (1) obligations issued or guaranteed by the U.S. government and/or its agencies and instrumentalities; (2) commercial paper; (3) certificates of deposit; (4) bankers' acceptances; (5) repurchase agreements; (6) tax exempt notes; and (7) other investments that are permitted by section 9(c)(3) of the Act and rule 40 under the Act. PNM Resources maintains a program of investing up to $15 million in non-voting interests in certain funds designed to hedge capital market risks ("Existing Program").

PNM Resources requests that it be authorized to maintain its Existing Program and manage those assets prudently pending further Commission action upon a post-effective amendment filed not later than ninety days from the Order Date, supplementing the record concerning conformance of the Existing Program and proposed expansion with the standards of the Act. PNM Resources further requests that the Commission reserve jurisdiction over further retention of the Existing Program and the expansion proposed in this Application pending the timely filing of such post-effective amendment and subsequent Commission action.

VI. Investments in Nonutility Subsidiaries and Energy Assets

PNM Resources requests authority to engage in certain activities described below relating to EWGs, FUCOs, exempt telecommunications companies, energy-related companies within the meaning of rule 58, and energy related companies approved by commission order and make additional investments in other nonutility subsidiaries approved by the Commission (collectively, "Nonutility Subsidiaries"). To the extent activities described in this Application constitute the providing of goods, services or construction from one associate company to another in the PNM Resources system which would be subject to section 13(b) of the Act, these goods, services or construction will be provided at cost as defined in rules 90 and 91 unless an exemption from the at cost requirement is available under the Act or otherwise approved in the Commission's order in this matter.

PNM Resources requests authority to make additional investments in Nonutility Subsidiaries in the form of purchases of common stock and other securities, capital contributions, loans or open account advances, guarantees, or any combination of the foregoing. It is also contemplated that Nonutility Subsidiaries may issue securities from time to time under the exemption provided in rule 52 to investors other than PNM Resources for the purpose of financing their operations. Direct or indirect investments by PNM Resources in Nonutility Subsidiaries would be subject to the limitations applicable to investments for such subsidiaries.

In connection with existing and future nonutility businesses, PNM Resources will engage directly or through subsidiaries in preliminary development activities ("Development Activities") and administrative and management activities ("Administrative Activities") associated with such investments. Development Activities will be limited to: due diligence and design review; market studies; preliminary engineering; site inspection; preparation of bid proposals, including, posting of bid bonds; application for required permits and/or regulatory approvals; acquisition of site options and options on other necessary rights; negotiation and execution of contractual commitments with owners of existing facilities, equipment vendors, construction firms, power purchasers, thermal "hosts," fuel suppliers and other project contractors; negotiation of financing commitments with lenders and other third-party investors; and other preliminary activities as may be required in connection with the purchase, acquisition or construction of facilities or the securities of other companies. PNM Resources proposes to expend directly or through subsidiaries up to $300 million in the aggregate outstanding at any time during the Authorization Period on all Development Activities and Administrative Activities. Amounts expended in the development of projects leading to an investment in an Nonutility Subsidiaries will not count against the limitation on expenditures for Development Activities. Administrative Activities will include ongoing personnel, accounting, engineering, legal, financial and other support activities necessary to manage Development Activities and investments in subsidiaries.

PNM Resources requests authority to acquire directly or indirectly the securities of one or more corporations, trusts, partnerships, limited liability companies or other entities (collectively, "Intermediate Subsidiaries"), which would be organized exclusively for the purpose of acquiring, holding and/or financing the acquisition of the securities of or other interest in one or more Nonutility Subsidiaries, provided that Intermediate Subsidiaries may also engage in Development Activities and Administrative Activities. To the extent such transactions are not exempt from the Act or otherwise authorized or permitted by rule, regulation or order of the Commission, PNM Resources requests authority for Intermediate Subsidiaries to engage in the Activities described above. To the extent that PNM Resources provides funds directly or indirectly to an Intermediate Subsidiary which are used for the purpose of making an investment in any Non-Utility Subsidiary, the amount of such funds will be included in PNM Resources' "aggregate investment" in these entities, as calculated in accordance with rule 53 or rule 58, as applicable PNM Resources specifically requests authority to expend up to $300 million during the Authorization Period to acquire Energy Assets, within the United States and within Mexico, to the extent incidental to those United States operations and authorized under applicable import/export law. These acquisitions my also take the form of the acquisition of the securities of companies that exclusively engage in activities pertaining to the development or operation of the Energy Assets, but the purpose of the acquisition of such securities, such as partnership interests, will be to obtain the operational or production benefits of the underlying assets, as opposed to the trading in the securities of such companies.

VII. Changes in Capital Stock of Subsidiaries

The portion of an individual subsidiary's aggregate financing to be effected through the sale of stock to PNM Resources during the Authorization Period pursuant to rule 52 and/or pursuant to an order issued in this proceeding cannot be ascertained at this time. It may happen that the proposed sale of capital securities may in some cases exceed the then-authorized capital stock of the subsidiary. In addition, the subsidiary may choose to use capital stock with no par value or receive a capital contribution without issuing capital stock. Also, a wholly-owned subsidiary may wish to engage in a reverse stock split to reduce franchise taxes. As needed to accommodate such proposed transactions and to provide for future issues, PNM Resources requests authority to change the terms of any such wholly-owned subsidiary's authorized capital stock capitalization by an amount deemed appropriate by PNM Resources or other intermediate parent company in the instant case. A subsidiary would be able to change the par value, or change between par value and no-par stock, without additional Commission approval. Any such action by a utility subsidiary would be subject to and would only be taken upon the receipt of any necessary approvals by the state commission(s) in the state or states in which such utility subsidiary is incorporated and doing business. PNM Resources states that in the event that proxy solicitations are necessary with respect to internal corporate reorganizations, PNM Resources will seek approval pursuant to sections 6(a)(2) and 12(e) of the Act, through the filing of an appropriate declaration.

VIII. Services Provided to Subsidiaries

PNM Resources intends to file with the Commission, no later than thirty (30) days after the Commission issues an order with respect to this Application, an application-declaration seeking authorization of subsidiary service company operations pursuant to rule 88 of the Act. Subject to further action by the Commission, PNM Resources requests authorization under section 13(a) of the Act and Commission rules for PNM Resources to continue to provide support services on an interim basis to its subsidiaries through June 30, 2005. Currently, PNM Resources performs substantially all of the corporate activities of PNM. Charges for all services will be on an at-cost basis, as determined under rules 90 and 91 of the Act.

PNM has no current aggregate investment in EWGs or FUCOs. Fees and expenses to be incurred in connection with the proposed transaction are estimated to be $100,000. Applicants maintain that no other state or federal commission, other than this Commission, has jurisdiction over the proposed transactions.

Due notice of the filing of the underlying Application has been given in the manner prescribed by rule 23 under the Act, and no hearing has been requested of or ordered by the Commission. Based on the facts in the record, the Commission finds that, except as to matters over which jurisdiction had been reserved, the applicable standards of the Act are satisfied and that no adverse findings are necessary.

IT IS ORDERED, under the applicable provisions of the Act and rules under the Act, that, except as to matters over which jurisdiction has been reserved, the Application be granted and permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act.

IT IS FURTHER ORDERED that jurisdiction is reserved over: 1) the retention of the Existing Program and expansion of the Existing Program pending the timely filing of a post-effective amendment and subsequent Commission action; 2) the issuance of any securities that do not satisfy the Investment Grade Condition; and 3) $500 million of the Financing Limit.

Applicants undertake to file rule 24 certificates of notification within 60 days after the end of the first three calendar quarters and within 90 days after the end of the last calendar quarter in which transactions occur. The rule 24 certificates will contain the following information as of the end of the applicable quarter:

1. A computation in accordance with rule 53(a) setting forth PNM Resources' "aggregate investment" in all EWGs and FUCOs, if any, its "consolidated retained earnings" and a calculation of the amount remaining under its rule 53 authority;
    
2. Total capitalization ratio of PNM Resources, with consolidated debt to include all short-term debt and nonrecourse debt of all EWGs and FUCOs, if any;
    
3. The market-to-book ratio of PNM Resources' common stock;
    
4. Analysis of the growth in consolidated retained earnings that segregates total earnings growth of EWGs and FUCOs, if any, from that attributable to other subsidiaries of PNM Resources;
    
5. A statement of revenues and net income for each EWG and FUCO, if any, for the twelve months ending as of the end of that quarter;
    
6. The sales of any common stock, preferred securities or equity-linked securities by PNM Resources and the purchase price per share and the market price per share at the date of the agreement of sale which shall also separately show the amount issued during the Authorization Period for each type of issued securities;
    
7. The total number of shares of PNM Resources common stock issued or issuable under the options granted during the quarter under Stock Plans, employee benefit plans and dividend reinvestment plans including plans later adopted together with the number of shares issued or issuable during the Authorization Period;
    
8. If PNM Resources common stock has been transferred to a seller of securities of a company being acquired, the number of shares so issued, the value per share and whether the shares are restricted in the hands of the acquirer;
    
9. If a guaranty is issued during the quarter, the name of the guarantor, the name of the beneficiary of the guaranty and the amount, terms and purpose of the guaranty;
    
10. The amount and terms of any PNM Resources indebtedness issued during the quarter which shall also separately show the amount of indebtedness issued during the Authorization Period;
     
11. The amount and terms of any short-term debt issued by any utility subsidiary during the quarter which shall also separately show the outstanding amount as of the end of the applicable period of short-term debt of each utility subsidiary;
     
12. The amount and terms of any financings consummated by any non-utility subsidiary that is not exempt under rule 52 which shall also separately show the amount of non-exempt securities issued by non-utility subsidiaries during the Authorization Period;
     
13. The notional amount and principal terms of any Hedge Instruments or Anticipatory Hedges entered into during the quarter and the identity of the other parties to the transaction which shall also separately show the outstanding amount of Hedge Instruments or Anticipatory Hedges previously reported under this item;
     
14. The name and parent company of any Financing Conduit created during the quarter; the amount invested in any Financing Conduit during the quarter and the amount and terms of any securities issued by any Financing Conduit during the quarter, which shall also separately show the amount of all securities issued by such subsidiaries during the Authorization Period;
     
15. If any subsidiaries are Variable Interest Entities ("VIEs") as that term is used in FASB Interpretation 46R, Consolidation of Variable Interest Entities, provide a description of any financing transactions conducted during the reporting period that were used to fund such VIEs;
     
16. If any financing proceeds are used for VIEs, a description of the accounting for such transaction under FASB Interpretation 46R;
     
17. Consolidated balance sheets as of the end of the quarter and balance sheets as of the end of the quarter for each company, including PNM Resources, that has engaged in jurisdictional financing transactions during the quarter;
     
18. A table showing, as of the end of the quarter, the dollar and percentage components of the capital structure of PNM Resources on a consolidated basis and of each utility subsidiary;
     
19. A retained earnings analysis of PNM Resources on a consolidated basis and of each utility subsidiary detailing gross earnings, goodwill amortization, dividends paid out of each capital account and the resulting capital account balances at the end of each quarter; and
     
20. Future registration statements filed under the Securities Act of 1933 with respect to securities that are the subject of the instant Application will be filed or incorporated by reference as exhibits to the next certificate filed under rule 24.
     

For the Commission, by the Division of Investment Management, pursuant to delegated authority.

Endnotes

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¹ PNM Resources states that on or before the official date of this order ("Order Date") it will file a notice of registration complying with rule 1(a) under the Act.

² PNM Resources maintains that retention of a subsidiary dedicated to financing utility operations is appropriate under the standards of the Act. PNM Resources states that acquisition of a receivables financing subsidiary formed for the purposes of securitizing utility receivables utilizing a structure equivalent to that of PNM Receivables was approved by the Commission. E.g., Metropolitan Edison Co., Holding Co. Act Release No. 27820 (March 24, 2004).

³ The Global Electric Settlement was entered into on October 10, 2002, between PNM, the NMPRC staff, the New Mexico Attorney General, and certain consumer groups. The Global Settlement provides, among other things, (1) joint support for the repeal of a majority of the New Mexico Electric Utility Industry Restructuring Act of 1999; (2) PNM's retail electric rates through 2007; (3) generation resources for retail loads; and (4) PNM's participation and financing of Merchant Plant activities and the eventual transfer of Merchant Plant out of PNM.

⁴ The WECC was formed on April 18, 2002, by the merger of the Western Systems Coordinating Council, the Southwest Regional Transmission Council and the Western Regional Transmission Association. It coordinates and supports electric system reliability and open power transmission access throughout its service area, encompassing 1.8 million square miles.

⁵ PNM Resources to date has no aggregate investment in any exempt wholesale generators ("EWGs") or foreign utility companies ("FUCOs"), as defined in sections 32 and 33 of the Act, respectively.

⁶ For the purpose of calculating the amount of the $1.5 billion authorization used at any one time, PNM Resources will calculate capitalization on a non-consolidated basis and will exclude retained earnings and accumulated other comprehensive income, as well as the amount of securities issued for purposes of refunding or replacing other outstanding securities where PNM Resources' capitalization is not increased as a result.

⁷ As of June 30, 2004, consolidated common equity as a percentage of total capitalization for PNM Resources and PNM was 50.8% and 49.2%, respectively.

⁸ Although not limited to the securities described in PNM Resources' Universal Shelf S-3 incorporated by reference in this Application, the authorization sought includes all of the securities described in the shelf registration.

⁹ PNM Resources also sponsors the Employees' Retirement Plan ("ERP"), a noncontributory defined benefit pension plan. Prior to January 1, 1998, employees who had at least one year of service and who had attained the age of 21 years were eligible to become participants. A participant's compensation used for ERP benefit calculations was frozen as of December 31, 1997. PNM Resources made a contribution of PNM Resources common stock in the amount of $28,949,992 on June 6, 2003.

¹⁰ As of September 30, 2004, PNM Resources has no outstanding long- or short-term debt securities.