Good morning, ladies and gentlemen. Welcome to the ThirdQuarter 2007 PNM Resources Earnings Call. I will be your coordinator for today.At this time, all participants are in a listen-only mode. We will befacilitating a question-and-answer session towards the end of today'sconference. (Operator Instructions) I would now like to turn the presentation over to your hostfor today's conference, Ms. Gina Jacobi, Director of Investor Relations. Pleaseproceed, ma'am.

Thank you everyone for joining us this morning for adiscussion of the company's third quarter 2007 earnings. Please note that thepresentation and accompanying materials for this conference call and supportingdocuments are available on the PNM Resources website at www.pnmresources.com. Joining me today are PNM Resources Chairman, President andCEO, Jeff Sterba; Pat Vincent, President of our Utilities; Chuck Eldred, ourChief Financial Officer; as well as several members of our executive managementteam. Before I turn the call over to Jeff, I do need to remind youthat some of the information provided this morning should be consideredforward-looking statements pursuant to the Private Securities Litigation ReformAct of 1995. We caution you that all of the forward-looking statements arebased upon current expectations and estimates and that PNM Resources assumes noobligation to update the information. For a detailed discussion of factors affecting PNM Resourcesresults, please refer to our current and future annual reports on Form 10-K andthe quarterly reports on Form 10-Q as well as other current and future reportson Form 8-K filed with the SEC. And with that, I will turn over the call to Jeff.

Thanks, Gina, and thanks to you all for joining us. In oursecond quarter call, we indicated that 2007 will be what you can call anextremely challenging year, and there is really a couple of reasons and let metouch on them. First, increased load growth in the Mexico which is usually a goodthing except with our current rates structure which was set a number of yearsago. We find ourselves in a situation where current rates frequently don'trecover the margin of cost of supply. Second, we had plant performance issues in the first sixmonths of the year at the Four Corners plantwhich is operated by APS. Third, our current lack of a fuel adjustment clause torecover the higher replacement costs that we've incurred when either plantswere down or when our loads have outstripped our generation resources to meetour regulated retail load. And last, hedging losses in both our regulated andunregulated operations due to mild weather particularly in our Texas operations and lowgas prices that resulted because of mild weather throughout the country thispast summer. And these items did impact our third quarter performance. Overall, ongoing earnings per share were $0.41 compared to$0.62 last year. And on a year-to-date basis, ongoing EPS is $0.96, down from a$1.27 last year. These numbers exclude unrealized mark-to-market gains andlosses on economic hedges in our ongoing earnings. And Chuck will go into thedetails of that in just a little bit. The GAAP earnings decline is due to a number of items whichare reconciled for you, but let me mention the largest two. The first, as you recall, that we transferred withcommission approval Afton Generating Station from our unregulated operationsinto our regulated operations and expanded it into a one-on-one combined cycleconfiguration. We had an agreed upon cap in the stipulation that was added intoto allow the transfer of…

Thank you, Jeff. Good morning everyone. I'll first start outabout talking about our ratings cases. As most of you know last week was thedeadline for intervener testimony in the PNM electric rate case. To summarizewe requested an $82.4 million increase to rate and the fuel clause. This is the first rate increase that PNM Electric has askedfor in 20 years. We also asked for a changed rate design looking for higherrates in the summer to cover higher generation cost in the summer which Jeffmentioned was a factor in our earnings. This slide outlines the major positions of the commissionstaff, the Attorney Generals Office which serves as the consumer advocate herein New Mexico.There are no surprises here. We have been in discussions with staff and the AGas well as the other interveners in our case, so we're very familiar with theirpositions. I would like to point out on this slide that just becausethe staff or an AG rejected a particular item does not mean that they rejectedthe idea behind the item, they just may have rejected our requested methodologyin that particular item. You turn to the next page; it outlines the schedule for ourrate cases. Suspension period for the current rates expires May 7th, so we donot expect to implement new rates prior to that date. We are continuing withour rebuttal preparation, and in it, we will counter the objections made by theinterveners. For example, we are going to point out that our application meetsall the requirement of the PRC's rule and fuel clauses which is known here asRule 550. Those three criteria are that the cost of fuel and purchasepower be a significant percentage of the total cost of service which they are,that the cost periodically fluctuate and cannot be precisely determined, andthat our practices are designed to assure that…

Thank you, Pat and good morning everyone. Let me startbefore I get though the year-to-date walk across. I want to talk about thechange that we are making beginning this quarter to exclude from ongoing earnings,the net unrealized gains and losses from economic hedging activity. We haven'tdone this in the past, because those gains and losses have been relatively verysmall. For example, in 2006 there was a gain of $1 million. 2005 was a loss of$2.5 million and 2004 loss of $1.6. We've given the change in our hedging strategy this year inthe mark-to-market activity has become more material energy as you can see fromthis particular chart we are providing you, that the good portion of this thingor longer term maturity that go out beyond 2013 that show mark-to-market lossbasically where about 60% of the losses group reflecting here. In so for those two factors the materiality and the maturitydates, we thing it's important to reflect the -- excluding the unrealized gainand losses for ongoing operations going forward. And again the reemphasize that when you get in to hedgingperiod of 2013 and beyond, these are really long-term hedge positions thatwe've taken with our merchant business, as we enter into long-term contract tolock in the margin our hedge generating assets. So you can see in 2007 as example that particular positionis a fourth quarter loss that we expect to occur and again I want to retaliatethat particular loss is already baked in to the year end guidance that weprovided to you previously. In addition to that the liquid period, which is really wherewe have market information from 2008 to 2012 see just slight loss relative togas and power prices and then beyond which is really reflect as illliquidperiod in 2013, which is the greater percentage of the losses I guess in the$0.06,…

Thanks Chuck. We will go to questions. But let me justmention that Chuck, Pat and Gina will be in Florida for EEI Finance committee,and I know that their schedules are fully booked to meet with many of you all.I've had anticipated and planned on coming out. I have decided that with thedown sizing and the impactions that we are doing today, I really need to behere not just at the end of this week, but also the first of the next week asthe folks are coming back in, and felt that, that was the better place for meto be as Chuck and Path and Gina can handle answer all your questions. I willbe missing you there, but we will see each other down the road. So, operator let's go to questions.

(Operator Instructions). And our first question will comefrom Lasan Johong with RBC Capital Markets.

Good morning. Thank you. Couple of few quick questions. Isthe rate case filings have the 15% staff cut reduction in it?

Okay. Go on your question, the two question -- Lasan, andthen we will answer both.

Okay, no problem. Basically with the Palo Verde when do youexpect Palo Verde to kind of regain it's past glory of being one of the topperformance in the nuclear industry?

Okay. Relative to the first question, it is not in the ratecase because its out period. The rate case is the historic test year for theperiod that ended…

Oh I see.

September 30, 2006. Now what this rate -- what the O&Mreductions are trying to do, is move our future O&M cost down closer to inline is move our future O&M cost down closer to inline to what is in therate case so it will move all the way down there at such that as we haveadditional rate cases those rate cases will largely be driven by the investmentpatterns. As you know we've got about $2 billion of capital to invest over thenext five years. So it doesn't affect this rate case, because its way out ofperiod, but it's our efforts to try to help minimize disturbances once we havethe rate case to be able to operate under those rates for a period of time andto minimize future rate increases. Relative to PV, regaining their glory Jim Ferland with uswho you may know he joined about six months ago from Westinghouse comes out ofthe nuclear industry. He was the CEO of LES and he is on point relative PaloVerde.

Thanks Jeff. We've spent some significant time with PaloVerde management as Pat indicated our operations level, finance level andsenior management and I think Pat also mentioned we have a kind of a 12, 18months window. We're looking at where we would probably not expect PV to regainits prior status. After that Palo Verde is a new unit and we would expect it tooperate in the top quartile or top [destile] in the country, but the 12 to 18months is a risky period for Palo Verde and we're going to keep our eyes onthem and work closely with their management.

Thank you I will take our next question from Paul Pattersonwith Glenrock Associates.

Good morning guys.

Good morning Paul.

I just to want to follow up on Lasan's question and Isqueezed my agreements on the next two regulations but what has the historicaltest do they look at known measurable differences? And really if you justelaborate little bit more on how that would work with this announcement of costsavings? And the second question I guess I have is what do think costto achieve would be and when do you think we'd actually see the savings?

Okay. On the known and measurable under the rules of the Mexico,known and measurable can only go out of 150 days outside the test period. So weare barely into the first of '07 for the allowance of known and measurable andthese cost savings don't occur during accrue until some time in '08, even thefirst tranche that's occurring today. On the cost to achieve, the first estimate of the cost toachieve is included in what we booked as a non-recurring item for this thirdquarter and I believe the numbers about $12.5 million pre-tax. In terms of the savings and the timing of the savings, the$35 million is an annualized number, a portion of which will be accrued in 2008but not all of it. We don't yet have an estimate of how much in '08 we willinclude that in our guidance. One other thing let mention Paul relative to both known andmeasurable and Lasan's question about is it in rates. The 15% is across theentire corporation, so it's not all electric or even for that matter, all inthe Mexico, as a piece ofthat is in the Texasarena in addition.

Thank you. We will move next to Greg Gordon with CitiInvestment Research.

Hi, Jeff, how are you?

I am fine, Greg, how about you?

Good. So just to recap, maybe a summary of drivers for -- Iknow you haven't given '08 guidance, but just structural drivers for '08 versus'07. First, we had all these, what we hope to be non-operating related issuesthat depressed second quarter earnings that should reverse. We know coal costsare higher. We know you can get some benefit of the headcount reduction programnext year, how much of that is not in the third. You are also telling us wehope the Palo Verde influence, but there is no guarantees, but then at San Juan we are expectingactually a significantly higher number of outage days next year versus thisyear, and is that correct, and what other major structural issues should we becontemplate?

Well on San Juan,it will be slightly higher, it's not significant. And just let me remind you San Juan has been in thetop, that's our performance for really last four years. We had a little troublewith some forced outages this year, greater than what we had typically incurredover the last five years. But with the outages, the planned outages next year,we will have slightly higher planned outages. I will tell you what we can, wewill provide you Greg is we can provide you the number of days of plannedoutage between '07 and ’08. I don't have that with me. I don't think any of ourfolks do today, but we can provide that to you. And then I'm sorry Greg, thefirst item you've mentioned?

I was just saying that first and foremost, we can hopefullynormalize second quarter.

Right.

Second, we know that hopefully Palo Verde well improve. Thebig question is on regulation in the Mexico is still outstanding.

Right.

What's your earn returns will be, you've got a cost cuttingprogram that will hopefully have some at least modest impact in '08.

Yeah. The one that I was going to mention Greg was on PaloVerde. I think what we're saying is we don't expect to see significantimprovement in the operation of Palo Verde over the next 12 to 18 month. So youwill not see us banking on an improved capacity factor next year for PaloVerde. We think it's going to take as Jim said 12 to 18 months forthem to work out of disposition. And it's largely caused by when somethinghappens, the NRC defense and what maybe forgiven in another plant and theplants allowed to start up or they take a written explanation as satisfactoryfor the clause, they end up with a much higher degree of scrutiny. So theoutage tends to last longer. That's why we just don't see next year's PaloVerde performance increasing.

Thank you. We will move next to Dave Parker with Robert W.Baird.

Hi good morning. Just may be a little bit of color on twothings. First of, with the commissions opening several workshop on fuel clauseshow will that sort of dovetail in with your rate case. And then secondly, youtalked about settlements talk so that may be being worked down, what youbelieve the probability is there and who the key players they or have been inthe past? That will be helpful.

Relative to the fuel adjustment clause hearings, thisprocess is just getting started, so it's not clear what impact it would have.We believe that this is positive thing because instead of saying well may beshould eliminate fuel clauses, they are saying, well let's find a way to lookat standardizing fuel clauses. So in terms of the rate case, obviously we will go forwardwith our arguments as to the installation of a fuel clause. If changes are madeto conform the different fuel clause mechanisms applied to the primarily threeutilities, investor-owned utilities that operate in the state, then that willbe fine. We will try to take some of our best thoughts. If we get into strongsettlement discussions, we may be able to help it establish that standard. So that's the impact on the rule making process that theyare going to go through. Relative your second question, who wants to take that?Pat.

The major interveners in the case we have settlementdiscussions with the staff. The attorney general here who functions isbasically the consumer evicted. NIMAC, which are the industrial customers herein New Mexico.The city of Albuquerqueas there are largest city here and are very active. And then University of New Mexicois also a big player in this. We also have Western Resource abacus and some ofthe other environmental groups that have the forwarded some small issues, butthe major ones would be SAP AG and NIMAC sitting in the in the university.

And I think that we are not really out here with theinappropriate for you to walk away thinking we are in settlement discussions,we are not yet. We will be open to it. Our focus right now is on filing our rebuttalcase in a couple weeks. But if there is the opportunity for settlement we willalways remain open to settlement discussions.

Thank you. We will move next to Paul Fremont, Jefferies. Paul Fremont - Jefferies& Co.: Thank you. Looking at 57, sort of two questions. One, itdoesn’t indicate the recommended equity ratio and the second would be that Icome up was about working a $15 million of cost to capital differences with therest, being expense items. Can you sort of review what the major disagreementis on the major expense item?

Yes, the cap structure is a 50-50 cap structure in the ratecase. We will Tom Sategna who is our controller and responsible for the cost ofservice to explain the other item.

Paul, you are right. The cost of capital and differences arein the range of the $14 million. There are a number of issues across the boarddepending on the exact intervener all the way from disallowance of allconstruction work in progress, to adjustments, to some other capacity factorsthat we have proposed for Palo Verde San Juan. Also we have normalize someoutage numbers for maintenance cost going forward, and there is been exceptionthere. So, those are some of the major drivers, but the biggest single itemwould be the reduction in the equity rate from what we filed the 10 in threequarter down to 9.1 on the staff, and 9.57 for the AG.

Thank you. [Operator Instructions]. We will move next to DarrenConti with Wachovia Securities.

Good morning. - Wachovia Securities: Good morning.

Good morning.

Wanted to touch basically on the '08 guidance that youtalked about and some of the drivers, I noticed that you did mentionedEnergyCo, $0.09 year-to-date, I am just wondering do you expect that not to beincremental next year, could you just give us a little color around that? - Wachovia Securities: Wanted to touch basically on the '08 guidance that youtalked about and some of the drivers, I noticed that you did mentionedEnergyCo, $0.09 year-to-date, I am just wondering do you expect that not to beincremental next year, could you just give us a little color around that?

This wasn’t meant to give you guidance as much a there issome key considerations. Certainly we'll talk more about EnergyCo, we talkabout guidance in January, but I guess message this year is that we are righton track. We're meeting our expectations relative to year end performance, andwe have made some good success with the acquisitions that we have talked aboutwith the Altura Cogen and the movement of Twin Oaks over there and thecontinued construction Cedar Bayou which is on schedule to complete 2009. So,at this point we would give you more color around the expectations of EnergyCo,as we give guidance in 2008 and it's our objective to really give you as muchtransparency around the business you have a better outlook towards how we seethat contributing towards the performance of being in that resource.

Okay, just look for little more guidance January there? - Wachovia Securities: Okay, just look for little more guidance January there?

That’s correct.

Okay. Additional question, with the lack, I guess some ofthe challenges that Jeff talked about this year, actions clearly (inaudible),not recovering some costs of retail rates. How, -- what are you doing on theenergy efficiency in DSM front, to kind of may be mitigate some of that forthat cost exposure. (inaudible)? - Wachovia Securities: Okay. Additional question, with the lack, I guess some ofthe challenges that Jeff talked about this year, actions clearly (inaudible),not recovering some costs of retail rates. How, -- what are you doing on theenergy efficiency in DSM front, to kind of may be mitigate some of that forthat cost exposure. (inaudible)?

: So we believe strongly that energy efficiency can have asignificant impact in not only in cutting the growth rate and particularlycutting it for more where we are incurring the higher costs. One of the thingsthat we are facing is that our load shed has shifted fairly significantly inthe last five years, which is the timeframe for the rate path that we have beenunder in the current settlement that we are operating under. And we -- it’s get much more peaky, it's get driven by alarge amount of air conditioning load that’s been added to the system. I knowthose of you in the east don't understand this and you shouldn't, but weactually you do a lot of cooling out here through the years of evaporatedcooling. And so instead of having compressors running you have a fan runningacross border to cool the temperature 20 to 30 degrees. But we are not seeingthat being sold to new homes and we are seeing an enormous amount of conversionto air conditioning. So our load is becoming much more peaky and that's reallywhat’s driving our marginal cost of supply being higher than the averagerevenue that we get from those customers.

We have as Jeff mentioned an electric program and we alsohave a program on the gas side. For recovery, we have dollar-per-dollarrecovery on a rider now for those programs. We're working to do more. But thefirst thing we need to do is just that gets a regulatory theme right. Thegovernor of New Mexicothis year plans on introducing a major energy efficiency bill as part of the30-day session. We are in discussion with his staff and some of theenvironmentalist in terms of what that would look like. Our major focus is thatit gives us the proper incentives to do more energy efficiency. We're also working on some load control programs, which is abig focus for us. As Jeff mentioned, the penetration of refrigerated centralair conditioning, it's becoming quite large in our areas, so we're working onsome load control programs close to residential side and the commercial sidethat helps to level out that peak. But it is a major focus for us.

One other thing let me mention. We already have on the booksfrom this last session. Legislation that says, that the commission is chargedwith removing disincentives and considering the application of incentives. Obviously, we believe that not getting a return is adisincentive. But we agree to go forward, this is a voluntary filing in ourpart with those first set of programs to get them off the ground this year.

Thank you. We'll move to Lasan Johong with RBC CapitalMarkets.

Thank you. Couple of different questions, Chuck I thoughtyou've mentioned that – maybe I mistaken the mark-to-market loss of $0.04, thatis included in your guidance or $1.30 to $1.40, is that right?

That's right, Lasan. If you look at that chart that wereprovided in 2007, that's already baked into the guidance projection.

Okay. So excluding that it's $0.05 higher?

Lasan, I think one of the thing we had, probably it'sunderstood but we want to clarify is that the only mark-to-market gains or lossesthat in the future will be included in earnings as those that are on thetrading book. So all of those that are economic hedges or related to ourbaseline operation, those mark-to-markets will not be included, but since thetrading one of the things that they do as part of their business is thetrading, the mark-to-market will be included in the income statement.

So if you look at year-to-date anything we've done this yearhas been settled and then we expect at this point, the 2007 fourth quarterposition that we currently have would also be settled as a loss frankly andthat's included in our guidance.

Thank you. We'll move to Paul Patterson with GlenrockAssociates.

Good morning guys.

Good morning.

I was just wondering if you could sort of based on themargin on the new customers versus the legacy customers in the First Choicebusiness. And just what you're seeing there in terms of just little more flavorfor the competitive market. What's actually happened with mass market and justin general what you're seeing in terms of how we should look at this in termsof cost to require the customers. Just give us a little bit more of a flavor sowe can be maybe a little bit more predictive of what would happen as whathappened in this quarter with a low volume one and versus a more normal volume(inaudible).

Good question. And I am going to ask Jeff Weiser who is thePresident of the FCP and with us today to answer it. And let me put a caveatupfront Paul which is that obviously we're not the large player that at leasttwo other are, three others are. And so we are a little careful about ourcompetitive information, but Jeff I think can give a little better handle onhow we look at the different customer groups. Jeff?

Thanks Jeff. First of all with respect to your question onmargin, we have recorded margins in the 20s as Jeff talked about. There is avariation above and below that depending upon the specific area. So you saidlegacy versus competitive, it's a little bit lower in the competitive, a littlebit higher in the legacy area. And that's just the function as we go forward of volatilityin a competition. The competition remains strong in Texas. We did get some clarity with respectto a legislative picture earlier this year which obviously translated into thebeginning of the growth in terms of acquisition of customers as the year wenton. With respect to your question on cost to acquire, we look atthis as if you look at any other capital budgeting opportunity and we want tosee significant returns, cash-on-cash higher or etcetera on our acquisitionprogram. So, we do those things completely consistent with capital budgetingcriteria, you would do for any other type of activity and we'd like to seeaccretion on customers within a year on those spends. We won't talk specifically about what our cost to acquire,but I can assure you that those are the measures that we utilized to evaluatethe effectiveness of our marketing activities.

There is one other item on there Jeff that you may want tomention which the positioning of our cost of servicing customers given [theusage].

Well, yeah, thank you Jeff. Obviously as one of the smallerplayers, the fourth largest in this market, you have to have some competitiveleverage to apply and the customer service system that we deployed and therelated technology around that incense us significantly to acquire newcustomers, that is that their marginal cost to serve is significantly lowerthan on our existing base of customers that we had. So that's clearly a factoralong with bad debt in our acquisition model.

And while we are not giving specific on numbers, the deltabetween competitive and other customers is on the high and so legacy customersin the high single-digit. Is that fair Jeff?

In terms of dollars incremental whatever.

Yeah

Probably so.

And then relative to the cost of the service we arecertainly well below a dollar a customer at this stage.

Our cost to serve is probably about at least around half asmuch for incremental customers it is to existing we had when we entered intothe market first.

Okay. Hope that I gave you some more information Paul.

Thank you. Let's take our last question from Lasan Johongwith RBC Capital Markets.

Thank you. Jeff, you have mentioned that basically in Texas you guys arepreparing for the nodal market. What exactly goes into this preparation for thenodal market?

Well, there is two things that go into that and I am goingto have Jeff address them but it relates both the systems and expertise of thepeople and the second one is obviously understanding where do you expect thereto be locational differences. Jeff?

Exactly that system protocol testing that we have to do. Andwe think that it is a very good opportunity for us as wholesale lead retailer.We have those skills intrinsic inside the business and it makes a lot of senseas we go forward to understand how that market evolves and essentially toprotect our customers and take advantage of the opportunities that many of thesmall undercapitalized new entrants simply don’t have. They essentiallyoutsource those skill sets and that's a significant impact in this market goingforward and frankly we are prepared to address it.

Okay.

And that will conclude our question and answer session. Iwould like to turn the conference back over for any additional or closingremarks.

Well again, thanks for your time today, and I know you willsee Chuck, Pat, and Gina again in the Florida.Have a drink for me would you please, and enjoy yourselves. Take care. Bye,bye.