Good day, everyone and welcome to the PNM Resources 2009 earnings conference call. Today's call is being recorded. At this time, I would like to turn the call over to Gina Jacobi, Director of Investor Relations. Please go ahead.

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

Thank you, Gina and thank you all for joining us this morning. As you have seen from the report that we released, our earnings report, we had in – given the circumstances that we faced in 2009, we had a very strong year, good performance throughout the entire business and certainly also through the fourth quarter. For the year of 2009, we reported ongoing earnings of $0.94 per diluted share, which is a fairly significant increase over last year of $0.10 and considerably above the upper end of our earnings guidance and the consensus of the analysts that are on the call. Our GAAP results also reflect a strong turnaround compared with last year. You'll remember that our GAAP results reflect a $71 million after-tax gain from the sale of PNM gas operations, which is partially offset with the – some write-down on the Optim emissions allowances that I think Chuck will probably touch on later in the call. As stated in our news release, 2009 reflects a better regulatory framework for our utilities although we still have a ways to go there, significant improvement by First Choice Power and modest growth for Optim Energy. We really saw improvement across all parts of the business. The only one that had earnings below the level of 2008 is TNMP, our Texas wires business and frankly, that was fully expected because of the higher financing cost due to refinancing all of the debt at TNMP and when we take that into account, they – our TNMP business beat the expectations we had for the business, beat their budget numbers. So we saw a very good success across all aspects of the business. Let me just remind you of some of the key strategic successes we had during the course of the year,…

Good morning, everyone. Thank you, Jeff. As Jeff mentioned, we made several strides in 2009 to strengthen the position of our utilities and I want to go through those quickly on slide seven. We still have more work to do at both PNM and TNMP and that work will start in the second quarter at PNM. We are on track to file a future-test-year rate period in the second quarter. This will be the first time that PNM has filed a case that is not historical in nature and it will probably be the first case that the Commission hears in a future-test-year mode. We are on track to make that filing. The rates would go in on April 2011. And as many of you know, we are continuing to work to build consensus among our key parties about the regulatory framework for this future-test-year filing. We will continue to hold these workshops and participate in discussions to address multiple issues. We also expect to file a FERC case for PNM toward the end of this year. Our last filing to increase our transmission rates was in March of 2005. Turning to TNMP, we expect two filings this year. First, we will have a T-cost or a transmission cost-of-service filing during the second quarter. This is primarily an administrative filing where we address such things as items placed in service since the last general rate case, the related increase in depreciation and property taxes. This process is very streamlined in Texas. So we expect a resolution of that case about 60 days after we make the filing. And in the third quarter at TNMP, we are going to file another general rate case. Once we finalize these cases and have the filings, we will communicate the amount of their requests,…

Thank you, Pat. As Jeff and Pat both mentioned, we are very pleased with our financial performance this year. Earnings at $0.94 were significantly above our third quarter guidance range. The drivers behind that were obviously the performance of First Choice Power, continued cost control at the utility, higher-than-expected load growth, and colder-than-normal weather. We are also very pleased to report that S&P has revised ratings outlook to stable, which is another indication of our steps towards recovery to investment grade. Now, let me talk about the major drivers on our performance year-over-year, was a turnaround of First Choice Power, which added $0.72 of earnings. Earnings improved from a loss of $0.28 in 2008 to a gain of $0.44. Most of the improvement was from higher gross margins and the function of improved portfolio management and lower short-term energy prices. The company is focused on reducing bad debt, growing the percentage of fixed versus floating contracts, and increasing customer retention and satisfaction were also key to stabilizing the company. The bad debt expense decreased from $52 million in 2008 to $41 million. As a percent of revenue, it dropped from 8.2% in 2008 to 7.8%. PNM Electric's earnings more than doubled from $0.19 in 2008 to $0.50 last year. $0.26 or almost 85% of the increase reflected implementation of higher rates and the full-year impact of the fuel adjustment costs. Another positive were fewer scheduled planned outages, which were offset to reduce pension income and last year's decline in load growth. Corporate & other, which you know is the holding company debt, contributed an incremental of $0.12 to earnings. This is a benefit that reflects a redemption of $157 million of our 9.25% notes using the proceeds from the sale of the gas operations. Optim Energy was up $0.02 from…

Thank you, Chuck. As Jeff began the tradition of putting in a checklist to hold us accountable, we are going to keep that tradition up. Most of what you see has been discussed during today's presentation, but I want to quickly hit on some high points. First of all, I'll put a personal one in there to not flub my speaking points on the call. So I apologize to you all for doing that earlier. We plan a healthy schedule of rate cases this year as we mentioned, PNM future-test-year; two in TNMP, the TCOS filing and the generate rate case; and finally, the transmission rate case at FERC. We are going to strive to achieve a favorable regulatory outcome in our renewable resource plans. We are going to continue to maintain strong electric reliability and improve our plant performance. FCP had a strong 2009 and we are going to work diligently to sustain that solid performance we had from them. We don't expect the level of 2009 earnings this year, but we do expect solid results and a profitable growth of their customer base. Optim has a goal to grow its EBITDA by 5% to 10% in 2010. They are going to be challenged by an ERCOT market that remains soft and provides few opportunities. That said, Optim is nimble and efficient, it has great generation assets and it's poised for the turnaround. And finally, work needs to continue to strengthen and improve our credit metrics. As Jeff mentioned, we did get the business outlook for our senior unsecured notes upgraded from negative to stable by S&P, but clearly, more progress needs to be made on that front. With that, I'd like to turn it back over to Jeff for some closing remarks.

Thanks, Pat. Let me just say that it has been an honor and a pleasure to work with each and every one of you that's on the phone over the last 10 years as Chairman and CEO. But as I told my Board – in fact, originally it was only five years, but I agreed to stay for 10 and that 10 years has run. The great thing to me is the team that we have pulled together that I know is going to do a tremendous job in continuing to lead this company forward. Pat has the absolute confidence not just of the Board, but of our employees and our community, and the senior team is well seasoned and knows its job well. And I think the results of 2009 demonstrate what the team is capable of. So let me just thank each and every one of you for your interest in our company. It has truly been a pleasure to serve over the last 10 years. Obviously, I'll still stay engaged briefly as our – less significant role, not briefly, but a less significant role as Chairman. But I'll also keep my eye on the company. And again, it has been a pleasure knowing each and every one of you and I wish you the best. With that, we will turn it over and take any calls that we might have.

Thank you. (Operator Instructions). And we will pause for a moment to give everyone an opportunity to signal. And we will take our first question from Brian Russo with Ladenburg Thalmann. Brian Russo – Ladenburg Thalmann: Hi, good morning.

Good morning.

Good morning. Brian Russo – Ladenburg Thalmann: Would it be possible to break down the regulated utility 2010 earnings contribution by the TNMP sub and the PNM Electric sub?

The answer, Brian, is yes. It's a question of if Chuck has that handy. If not, we could provide it at a later point. Have you got it, Chuck?

Yes, give me a minute here just to kind of just take a look.

Brian, have you got a follow-up while Chuck is checking? Brian Russo – Ladenburg Thalmann: Sure, okay. Just based on the regulated earnings guidance you've provided, what kind of ROE does that imply for 2010?

Yes, Brian, we are still looking in the low-mid single-digits for both PNM and TNMP. That's why the new rate cases are so important to us. Brian Russo – Ladenburg Thalmann: Okay. And just in terms of the workshops you are holding for – in regards to the forward test, it's my understanding that you are going to have a lot of turnover at the Commission. So how does that kind of play into kind of educating the major constituents on this forward-test-year filing?

The first line of defense, so to speak, with the workshop is with the staff, the AG, and the other intervenors, the environmental group, the industrial groups. Those folks will stay constant. The Commission has already named some of its replacement. So that group will stay the same. We could potentially have – we will – we definitely will have two new Commissioners as Commissioner King is term-limited and Commissioner King – excuse me, Commissioner Jones is not running again. We think the Commissioner Sloan will have some opposition, but the deadline to file papers has not passed yet. So we may – we will just keep our issues in front of them. We can't obviously talk to the Commissioners about it because it would be a pending case. So we are going to make sure we really work first on the staff and the AG and the intervenors and then when the Commissioners come into play, we think they will take a look and any new Commissioners we have will come in with a fresh set of eyes. We can educate the candidates on general industry issues and we will do that. And Chuck, I think, has your answer, Brian. Brian Russo – Ladenburg Thalmann: Okay.

Yes, Brian, if you were to just – again, the guidance range is $0.66 and $0.72 and if you were to break it down by segment showing TNMP, it would be a range of $0.15 to $0.17 and on PNM would be $0.51 to $0.55. Brian Russo – Ladenburg Thalmann: Okay. And the low-single digit ROE in 2010 at utilities, does that include the firm wholesale margins, as well as Palo Verde 3 margins?

Yes.

Yes, it does. Brian Russo – Ladenburg Thalmann: Okay. And then just lastly if I could, on the renewable pending filing, how do you plan on financing that and will you use any ITC credits?

Yes, it – as we've talked before that there is no plans for issuing equity that we have enough cash from the ITC credits as the project is completed to allow for some cash generation to support that, as well as any revenue requirements as a result of the recovery from the Commission's approval to proceed with the investment and that in itself builds up enough equity to allow us to proceed without issuing equity and then we would finance the balance with debt.

And Brian, we also – in addition to the 30% federal credit, there is a 5% tax ITC in the state of New Mexico. Brian Russo – Ladenburg Thalmann: Okay, great. Thank you very much.

And we'll go next to Chris Shelton with Millennium Partners. Chris Shelton – Millennium Partners: Good morning, guys.

Good morning, Chris.

Hey, Chris. Chris Shelton – Millennium Partners: Just a couple of questions. FERC – on the FERC rate base, do we have what the FERC rate base is and what the earned ROE is currently or in guidance?

I don't have it for you, Brian, but we can get that. Chris Shelton – Millennium Partners: Okay. And is it included – I guess there is the final slide which has all the rate bases, would it be included in the PNM rate base or?

I'm sorry, Brian. I didn’t – which was your second question? Chris Shelton – Millennium Partners: It's Chris Shelton.

Sorry, Chris. Chris Shelton – Millennium Partners: That's okay. I was just looking at the utility rate base slide in the appendix.

In the appendix? Chris Shelton – Millennium Partners: Yes. Is it additional to these numbers or is – the FERC rate base, I mean, additional in these numbers or is it included in these numbers?

Additional. Chris Shelton – Millennium Partners: Okay. Okay, I'll follow up on that.

Just on the issue of the FERC rate base, the – in the FERC rate making methodology is a fair amount different than it is within the states. One of the things they do is they give you more flexibly in terms of adjustments. And so what maybe provided will be, for example, year-end 2009 rate base for the FERC side and it won't even really be rate base, it will be kind of a ratio to allocation. Because the process of actually making that calculation is a little more complicated and it won't be filed till next year – end of this year.

This year, because in the last step we have on the case is 2005. But we can get you that. Chris Shelton – Millennium Partners: Got it, okay. And then can you elaborate a little bit more on the third-party bill that just went in or is that on the Governor's desk? Is the implication there that utilities are going to need to own any large-scale renewables if that bill passes or am I reading that wrong?

No, we still won't need to own or want to own a large-scale renewables. The large-scale renewables are still the most cost-effective in terms of the renewables overall and particularly with solar, you get a big scale advantage. But what this is this does allow – as you know, there is a lot of solar industry here and we have a lot of solar plants. This allows folks that want to actually own it themselves to be able to do that and it's beneficial for us because it really carves it out as just the renewables and not other forms of generation, it limits its size. And I think as you know, one of the issues when these kinds of bills come in in other states is the fact that the utility is still there providing backup power, but it's not being compensated for that. And this bill allows us to apply for some rate-making treatment that keeps us whole for that backup power and we set those rules upfront so we don't get far into customer renewable ownership and all of a sudden having to go, "oh, wait a minute, we are not being compensated." So that's why we are very supportive of that. I don't think it's going to – it doesn't change the profile of what we filed in our renewable filing.

Chris, let me back it out maybe and just talk more strategically about what the intention is, not just the bill, but how we are trying to position. First, as Pat said, yes, we are absolutely going forward with the intention of owning larger-scale solar projects that's – that are integrated into the grid. But second, we are also – have agreement to put forward a – and have put forward to the Commission an approach where we can install, we won't do the installation, but we will own facilities that are installed on consumers' premises. All this does is provides an option for a third party to also own something inside the fence if you will. But it has – it's limited in size and that limitation is a very good thing for us and then as Pat said, the recovery of the lost margins because of that being installed, and making clear that that – the power from that resource cannot be used to serve other loads. So there is really very good protection for us in there. It clarifies what was a point of disagreement about someone else owning a power plant, a solar facility inside the customer's property which was going to go – when in fact, is in – is at the court. So it helps clarify that result and provides us protection. Chris Shelton – Millennium Partners: I see. So if I can paraphrase, it basically allows only the utility to own renewable generation inside customer premises?

No, it allows a third party to own inside the customer premises, but it's limited in size, 120% of the load.

It prevents retail wheeling for those ones owned by the customer and it allows us to make sure that we are made whole. Chris Shelton – Millennium Partners: I see. Okay, thanks. And I guess just on First Choice, maybe for Chuck or – what level of bad debt – or can we assume that the bad debt levels will continue to decrease over time and have you assumed – made an assumption in guidance of them?

Yes, Brian is here. So I'll let Brian Hayduk, the President of First Choice – Chris Shelton – Millennium Partners: I agree. Hey, Brian.

Hey, Chris. How are you? Chris Shelton – Millennium Partners: Good.

Yes, I think it was actually in Chuck's comments. Our assumption for 2010 is 7% of revenue. Chris Shelton – Millennium Partners: Okay. Great, sorry, I missed that. Thanks very much, guys.

Thanks, Chris.

And we'll go next to Ali Agha with SunTrust Robinson Humphrey. Ali Agha – SunTrust Robinson Humphrey: Thank you. Good morning.

Good morning.

Good morning. Ali Agha – SunTrust Robinson Humphrey: Pat, assuming that you file your next round of rate cases as planned, forward-test-year, et cetera, should we assume that – again, assuming reasonable regulatory treatment, that the regulatory lag that you currently face should be largely eliminated following those next round of rate cases?

In New Mexico, it should be largely eliminated because of the forward-looking nature. In Texas, you will still have some regulatory lag because the base rate cases there are done on a historical basis. The transmission cost filings in Texas are more contemporaneous, but you still have some regulatory lag in Texas, it's not a significant amount. Ali Agha – SunTrust Robinson Humphrey: Okay. And a separate question on First Choice. As you all have indicated to us repeatedly, the margin should be – we should assume them to be compressed from '09 levels. Can you remind us in terms of as you go into the year, how much hedged are you versus the volume that you expect to sell in '10? In other words, are those margins already locked in and hence your conviction that they are coming down?

Hi, Ali. This is Brian again. No, I don't think anybody in this space would have all of their volume locked down for the full year. We certainly have some sales to do. I don't think we give out specifically the go-get percentage, but one thing I can say from a hedge perspective, the fixed price that we have sold is in the 100% in terms of hedge. Ali Agha – SunTrust Robinson Humphrey: Okay, okay. But in terms of the total volume, that's not a number you've disclosed?

No. Ali Agha – SunTrust Robinson Humphrey: Okay. And then – and final question related to that, I know you focused on 2010 guidance, but generally speaking, to your point, just to clarify, should we look at the margins that First Choice is getting in 2010 as kind of the trend going forward as well assuming normally the dislocation and gas prices, et cetera, I mean, is that the real norm we should be thinking about from a longer-term perspective?

Yes, that's very difficult to tell. I think we are going to have to see how the year plays out. There are so many factors that play into gross margin from customer behavior to competitive pressures that we don't know exactly how that trend line – how steep that trend line is going be throughout the year. Therefore, it would be sort of misguided for me to tell you that '10 is going to be a good indicator of '11. Ali Agha – SunTrust Robinson Humphrey: I see. And last question, with regards to both Optim and First Choice, obviously these are still considered core businesses for PNM, but as you look forward, are there any matrices or any benchmarks you are looking at that may cause you to reevaluate that or should we just assume these are core businesses going forward?

I think that you can assume for now that they are core businesses. What we are working on doing with both Optim and First Choice is stabilizing their performance. As we said, 2009 was a great year for First Choice. We want to get another year or so under our belt and see where the Texas market goes. After that, we may make different decisions, but we are keeping those businesses and making sure that they optimize their performance. Ali Agha – SunTrust Robinson Humphrey: Fair enough. Thank you.

Let me add one other thing to the issue on First Choice. I mean, one of the major charges and challenges Brian has had this year is really to focus on de-risking that business, because what we saw in 2008 was too much volatility, too much risk, and frankly, not well-managed, risk if you will, on the retail side. And – so I think what Brian has done a good of is in narrowing the band of performance that it will have. So as you look at whatever the 2010 results are as they turn out to be, when you look at 2011, it – sure, it's going to vary. But the band, particularly the downside band is – should – will be substantively less than that business had in 2008 and frankly carrying early in the business. Part of that is removal out of the trading side, but it's also the way in which the retail side is positioned. Ali Agha – SunTrust Robinson Humphrey: Thank you, Jeff.

And we'll go next to Paul Fremont, Jefferies. Paul Fremont – Jefferies: Thank you. With respect to the gross margin at First Choice, can you remind us what the margin was in the third quarter and can you update us as to what it was in the fourth quarter?

Third quarter, I don't have off the top of my head. I think what you will see is a mid-40s for the fourth quarter, you'll see that in the K. Paul Fremont – Jefferies: Okay.

And it was higher than that in Q3, but I don't know the specific number offhand. Paul Fremont – Jefferies: It's probably close to like the $50 level, right?

I think it was high-40s, Brian.

$49, something like that.

Yes, $48, $49, in that range. Paul Fremont – Jefferies: And where are you so far in 2010? Are you closer to that mid-40s number for the first month and a half?

Yes. I don't think we are going to give out anymore guidance than what Chuck has already disclosed. And as we said, we certainly see that trend. We saw Q1 to Q4 in '09, 20% reduction in gross margin. We would expect that declining trend to continue, but I don't think we are going to give any earlier guidance on where we are so far.

Yes. Paul, as you know, that will have to wait till the first quarter results. I think we can say that in Texas, it has been unseasonably cool in January and February and so that's something that's pretty well-known. But outside of that – Paul Fremont – Jefferies: And in terms of customer growth, you talked about an expectation that customer growth would increase in 2010. Can you give us a percentage number that you are thinking about?

Sure, Paul. It's Brian again. 5% is on the residential side to the expectation in terms of growth. Paul Fremont – Jefferies: Thank you very much.

Thanks, Paul.

And we'll go next to Mike Bolte with Wells Fargo. Mike Bolte – Wells Fargo: Good morning.

Good morning.

Good morning. Mike Bolte – Wells Fargo: I just had a follow-up question to Chris' question on bad debt at FCP. I know in the past you have talked about efforts by a group of retail providers in Texas to, I guess, create a – like a customer database that might help reduce bad debt. I was wondering if you have any update on that.

Sure, Mike. It's Brian. Not really, there are still some efforts going on at the Commission. I do not expect that to have an impact in 2010. I think we are still very hopeful. We are certainly in need of that type of solution in Texas, but the effort is fairly slow. There may be a pilot-type effort that could get in this summer, but I don't think it will be material enough to have much of an impact on our bad debt. Mike Bolte – Wells Fargo: What about maybe like 2011, do you – what do you think the odds are that it maybe helps out 2011?

If I had to put a percentage on it, 40%. It's a tough one. Mike Bolte – Wells Fargo: All right. Thanks a lot.

Thank you.

And we'll go next to Ted Heyn with Catapult Capital. Ted Heyn – Catapult Capital: Good morning.

Good morning, Ted. Ted Heyn – Catapult Capital: I just had a few quick questions. You mentioned the rate case schedule. I didn’t you hear you – I don't hear you mention PNM South. I just want to know what the thought process was there. Is there going to be a separate filing in the South or are you looking to roll that into the larger northern rate case?

Right now, that's one of the things that we are discussing with the intervenors. Our hope and we are – we think we are close is to roll it into the North rate case. Ted Heyn – Catapult Capital: Okay. So that –

If not, it would be a separate case, but right now, we are trying to roll it into the North case. Ted Heyn – Catapult Capital: Okay. And you are working with the intervenors to try to get that?

Absolutely. Ted Heyn – Catapult Capital: Okay, great. And then just – I think you briefly mentioned that you would update us a little bit more on 2011 once you file the rate case. Is it the thought process that you are going to give 2011 guidance sometime in the second quarter or is it more just a thought process of kind of what the drivers would be?

It's more just an update in terms of what's in the rate case, the amount of the rate case, the schedule, and some of the drivers on that as opposed to actual guidance for 2011.

Ted, you remember what we did when we had the rate case and the earnings discussion for 2009. We showed by component of the business what the potential rate case impact would be, if it was zero, if it was a 100% so that each analyst can kind of make their own judgment about what the outcome will be. And we will probably also show a phase-in alternative just to give you a sense without – and then you all would have all the information to make a judgment on what you want to assume. Ted Heyn – Catapult Capital: Got you. Okay, that's helpful. Thanks a lot.

Thanks, Ted.

And we'll take a follow-up from Chris Shelton with Millennium Partners. Chris Shelton – Millennium Partners: Hi, just one quick follow-up on First Choice. The 5% customer growth guidance, what does that usually translate into as far as the megawatt hours sold or is there some correlation there?

Hey, Chris. It's Brian. You are looking at about 10,000 customers, a little over a megawatt hour for the average size. So – well, sorry, it's closer to 13 megawatt hours, 14 megawatt hours for a year. So that's the math. Chris Shelton – Millennium Partners: So you add 13 megawatt hours to 14 megawatt hours per customer added, I guess?

Yes. Yes. Chris Shelton – Millennium Partners: And what was the customer count in the fourth quarter or as of the end of the year?

186 was the residential customer count at the end of the year. Chris Shelton – Millennium Partners: Okay, great. Thank you.

And with no further questions in the queue, I'll turn the conference back over for any additional or closing remarks.

Well, this is Jeff. Let me just quickly close and again, thank you for taking the time tonight or this morning – this morning to visit with us and I know that Pat and Chuck and other members of the team will be out in New York in the not-too-distant future to visit with you and hope you have a great rest of the day. Bye-bye.