[Federal Register Volume 69, Number 226 (Wednesday, November 24, 2004)]
[Notices]
[Pages 68424-68431]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3332]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27911]


Filing Under the Public Utility Holding Company Act of 1935, as 
amended (``Act'')

November 18, 2004.
    Notice is hereby given that the following filing(s) has/have been 
made with the Commission under provisions of the Act and rules 
promulgated under the Act. All interested persons are referred to the 
application(s) and/or declaration(s) for complete statements of the 
proposed transaction(s) summarized below. The application(s) and/or 
declaration(s) and any amendment(s) is/are available for public 
inspection through the Commission's Branch of Public Reference.
    Interested persons wishing to comment or request a hearing on the 
application(s) and/or declaration(s) should submit their views in 
writing by December 13, 2004, to the Secretary, Securities and Exchange 
Commission, Washington, DC 20549-0609, and serve a copy on the relevant 
applicant(s) and/or declarant(s) at the address(es) specified below. 
Proof of service (by affidavit or, in the case of an attorney at law, 
by certificate) should be filed with the request. Any request for 
hearing should identify specifically the issues of facts or law that 
are disputed. A person who so requests will be notified of any hearing, 
if ordered, and will receive a copy of any notice or order issued in 
the matter. After December 13, 2004, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

Allegheny Energy, Inc., et al. (70-7888)

    Allegheny Energy, Inc. (``Allegheny''), a registered holding 
company; Allegheny Energy Supply Company, LLC (``AE Supply''), a 
registered holding company and public utility company subsidiary of 
Allegheny; \1\ Allegheny's wholly-owned public-utility company 
subsidiaries, Monongahela Power Company (``Monongahela Power''), 
Mountaineer Gas Company (``Mountaineer''), The Potomac Edison Company 
(``Potomac Edison''), West Penn Power Company (``West Penn''), and 
Allegheny Generating Company (``AGC''); and the Allegheny system 
service company, Allegheny Energy Service Corporation (``AESC,'' and 
collectively, ``Applicants''), 800 Cabin Hill Drive Greensburg, PA 
15601, have filed an application-declaration (``Application'') under 
sections 6, 7, 9(a), 12(b), and 13 of the Act and rules 43, 45, 54, 86, 
87, 90, 91, and 100 under the Act.
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    \1\AE Supply is a public utility company within the meaning of 
the Act, but it is not subject to state regulation.
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    The Applicants request authority to continue the current Allegheny 
system money pool (``Money Pool'') through April 30, 2005. The 
Commission has previously authorized the operation of the Money Pool 
through December 31, 2004.
    The Allegheny system has three regulated electric utility 
companies, West Penn, Monongahela Power, and Potomac Edison Company 
(collectively, ``Operating Companies''), and a regulated gas utility 
company, Mountaineer, which is a wholly-owned subsidiary of Monongahela 
Power (all collectively d/b/a ``Allegheny Power'').\2\

[[Page 68425]]

Allegheny Power delivers electric energy to approximately 1.6 million 
customers in parts of Maryland, Ohio, Pennsylvania, Virginia, and West 
Virginia and natural gas to approximately 230,000 customers in West 
Virginia. AGC is jointly owned by Monongahela Power and AE Supply. Its 
sole asset is a 40 percent undivided interest in a pumped-storage 
hydroelectric station located in Bath County, Virginia. All of AGC's 
revenues are derived from sales from its share of this facility's 
generating capacity to AE Supply and Monongahela Power. AE Supply is 
the principal electric generating company for the Allegheny system. AE 
Supply provides power to West Penn, Potomac Edison, and Monongahela 
Power to serve their customers in Pennsylvania, Maryland, Virginia, and 
Ohio and to serve the retail load of Potomac Edison in West Virginia. 
AESC is the Allegheny system service company. Among other things, it 
administers the Money Pool.
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    \2\ On August 4, 2004, Allegheny announced it had entered into 
an agreement to sell Mountaineer and all of Allegheny's West 
Virginia gas assets to a partnership composed of IGS Utilities LLC, 
IGS Holdings LLC, and affiliates of ArcLight Capital Partners, LLC.
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    In a series of orders \3\ (collectively, ``Prior Money Pool 
Orders''), the Applicants were authorized, among other things, to 
establish and participate in the Money Pool through December 31, 2004. 
The Applicants request authority to continue the Money Pool through 
April 30, 2005, subject to substantially the same terms and conditions 
set forth in the Prior Money Pool Orders.\4\ The applicants request 
that the Commission authorize (i) Monongahela Power, Mountaineer, 
Potomac Edison, and West Penn to continue participation in the Money 
Pool as both lenders and borrowers to the extent not exempt under rule 
52; (ii) AGC to continue participation in the Money Pool as a borrower 
only, to the extent not exempt under rule 52; and (iii) Allegheny and 
AE Supply to continue participation in the Money Pool as lenders only.
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    \3\ Holding Co. Act Release Nos. 25462 (Jan. 29, 1992), 25481 
(Feb. 28, 1992), 25581 (July 14, 1992), 25919 (Nov. 5, 1993), 26418 
(Nov. 28, 1995), 26506 (April 18, 1996), 26804 (Dec. 23, 1997), 
27030 (May 19, 1999), 27084 (Oct. 8, 1999), 27475 (Dec. 17, 2001), 
27585 (Oct. 24, 2002), and 27199 July 14, 2000).
    \4\ The Commission has authorized Mountaineer to participate in 
the Money Pool through December 31, 2005.
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    The Money Pool will continue to be administered on behalf of the 
Money Pool Applicants by AESC and under the direction of an officer of 
AESC. AESC will not be a participant in the Money Pool. The Money Pool 
will consist principally of surplus funds received from the Money Pool 
Applicants.
    The Applicants do not propose any material changes to the operation 
of the Money Pool as currently authorized. Participants will be parties 
to the Allegheny Energy System Money Pool Agreement. Transactions under 
the Money Pool will be designed to match, on a daily basis, the surplus 
funds of the pool participants with the short-term borrowing 
requirements of the pool participants (other than the pool participants 
who are lenders only). The Applicants believe that the cost of the 
proposed borrowings through the Money Pool generally will be more 
favorable to the borrowing participants than the comparable cost of 
external short-term borrowings, and the yield to the participants 
contributing available funds to the Money Pool generally will be higher 
than the typical yield on short-term investments.
    The funds available through the Money Pool will be loaned on a 
short-term basis to those eligible pool participants that have short-
term debt requirements. If no short-term requirements match the amount 
of funds that are available for the Money Pool for the period the funds 
are available, AESC will invest the funds, directly or indirectly, as 
described below and will allocate the interest earned on these 
investments among the pool participants providing these funds on a pro 
rata basis according to the amount of funds each provided:
    (1) Direct of indirect obligations of the United States Government;
    (2) Certificates of Deposit of commercial banks with assets 
exceeding $2.5 billion;
    (3) Bankers acceptances of commercial banks with assets exceeding 
$2.5 billion;
    (4) Commercial paper of companies having a minimum net worth of 
$150 million having a ``1'' commercial paper rating by at least two of 
the three recognized rating services (Moody's, Standard & Poor's, and 
Fitch);
    (5) Taxable or tax exempt institutional money market funds with 
assets of at least $500 million which restrict investments to high 
quality money market instruments; and
    (6) Such other investments as are permitted by section 9(c) of the 
Act and rule 40 under the Act.
    All borrowings from and contributions to the Money Pool will be 
documented and will be evidenced on the books of each pool participant 
that is borrowing from or contributing surplus funds to the Money Pool. 
Any pool participant contributing funds to the Money Pool may withdraw 
those funds at any time without notice to satisfy its daily need for 
funds. All short-term debt through the Money Pool will be payable on 
demand, may be prepaid by any borrowing pool participant at any time 
without penalty, and will bear interest for both the borrower and 
lender. Interest income and expense will be calculated using the 
previous day's Fed Funds Effective Interest Rate (``Fed Funds Rate'') 
as quoted by the Federal Reserve Bank of New York, as long as this rate 
is at least, four basis points lower than the previous day's seven-day 
commercial paper rate as quoted by the same source. Whenever the Fed 
Funds Rate is not at least four basis points lower than the seven-day 
commercial paper rate, then the seven-day commercial paper rate minus 
four basis points should be used. Interest income and expense will be 
calculated daily and settled on a cash basis on the first business day 
of the following month.
    Each of the Utility Applicants may use the proceeds it borrows from 
the Money Pool (i) for the interim financing of its construction and 
capital expenditure programs; (ii) for its working capital needs; (iii) 
for the repayment, redemption, or refinancing of its debt and preferred 
stock; (iv) to meet unexpected contingencies, payment and timing 
differences, and cash requirements; and (v) to otherwise finance its 
own business and for other lawful general corporate purposes. Each of 
the following companies requests authority to borrow up to an amount at 
any one time outstanding from the Money Pool as set forth below: AGC, 
$100 million; Monongahela Power, $125 million; Mountaineer, $100 
million; Potomac Edison, $150 million; West Penn, $200 million.

PNM Resources, Inc. (70-10248)

    PNM Resources, Inc. (``PNM Resources''), Alvarado Square, 
Albuquerque, NM 87158, an electric and gas public utility holding 
company has filed an application-declaration (``Application'') under 
sections 6(a), 7, 9(a), 10, 12(b), and 13 of the Act and rules 42-46, 
90-91 and 54 under the Act.\5\
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    \5\ PNM Resources states that on or before the official date of 
the order in this matter (``Order Date'') it will file a notice of 
registration complying with rule 1(a) under the Act.
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I. Introduction

A. PNM Resources and Its Subsidiaries

    PNM Resources is a holding company that currently claims exemption 
from registration under section 3(a)(1) of the Act by rule 2 under the 
Act. PNM

[[Page 68426]]

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.
    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 also 
factors its receivables through a financing subsidiary, PNM Receivables 
Corporation, but does not offer the service to non-affiliates. 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.
    Furthermore, PNM Resources has the following direct inactive 
nonutility subsidiaries: EIP Refunding Corporation, Paragon Resources, 
Inc., PNM Electric & Gas Services, Inc., 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 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 active business operations.
    PNM is subject to the jurisdiction of the New Mexico Public 
Regulation Commission (``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 October 10, 2002 (``Global Electric Settlement'') and 
approved by the NMPRC.
    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'') 
\6\ 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.
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    \6\ 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.
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    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. PNM Resources states that Gas derives its supplies 
from common sources of supply within New Mexico and the region and 
operates as an integrated system. 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,\7\ and will be 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.
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    \7\ PNM Resources to date has no aggregate investment in any 
Exempt Wholesale Generators (``EWGs''), as defined in section 32 of 
the Act.
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II. Current Request

    PNM Resources seeks the following authority beginning with the 
Order Date through December 31, 2007 (``Authorization Period'') for:
    (A) 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, 2003, 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; 
\8\
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    \8\ 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.

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[[Page 68427]]

    (B) 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;
    (C) 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);
    (D) PNM Resources to engage in certain cash management activities 
as described below;
    (E) 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;
    (F) PNM Resources to enter into transactions to manage interest 
rate and equity price risk with regard to the issuance of securities as 
described below;
    (G) 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'');
    (H) PNM Resources to change the capital stock of subsidiaries as 
described below;
    (I) 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
    (J) 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:
    (A) 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 (common equity, preferred stock and long-
term and short-term debt); provided that PNM Resources will in any 
event be authorized to issue common stock to the extent otherwise 
authorized in this Application.\9\
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    \9\As of June 30, 2004, consolidated common equity as a 
percentage of total capitalization for PNM Resources and PNM was 
52.3% and 50.7%, respectively.
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    (B) 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 of 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.
    (C) 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.
    (D) 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.
    (E) 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.
    (F) 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 (v) 
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.\10\ 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 interest rate and equity price risk.
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    \10\ 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.
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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

[[Page 68428]]

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. 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. Such borrowings will be 
evidenced by (1) ``transactional'' promissory notes to be dated the 
date of such 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.

[[Page 68429]]

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.\11\
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    \11\ As of June 30, 2004, PNM Resources has no outstanding long-
or short-term debt securities.
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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, transferring the proceeds to PNM Resources or an entity 
designated by PNM Resources, and engaging in incidental transactions, 
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 or a PNM Resources' affiliate. Any securities issued by the 
Financing Conduits may be guaranteed by PNM Resources or such 
affiliate, either directly or indirectly. 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 or its 
affiliates. 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, 
dividended or otherwise transferred to PNM Resources or an entity 
designated by PNM Resources.

D. Interest Rate and Equity Price Risk Management

    To the extent authorization is required under the Act, PNM 
Resources requests authority to manage equity price and 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 market, price, 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 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 or equity price 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

[[Page 68430]]

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 or equity price 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 
foreign utility companies (``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 would 
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.

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

[[Page 68431]]

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 
Nonutility 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.

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 
ninety (90) days after the Commission issues an order with respect to 
this Application, an application-declaration seeking authority to 
create a service company pursuant to rule 88 of the Act. Until the 
service company application is made effective, 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.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E4-3332 Filed 11-23-04; 8:45 am]
BILLING CODE 8010-01-P