[Federal Register Volume 70, Number 156 (Monday, August 15, 2005)]
[Notices]
[Pages 47871-47873]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4406]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-28011]


Filings Under the Public Utility Holding Company Act of 1935, as 
Amended (``Act'')

August 2, 2005.
    Notice is hereby given that the following filing(s) has/have been 
made with the Commission pursuant to 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 August 26, 2005, to the Secretary, Securities and Exchange 
Commission, 100 F Street, NE., Washington, DC 20549-9303 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 August 26, 2005, the 
application(s) and/or declaration(s), as filed or as amended, may be 
granted and/or permitted to become effective.

PNM Resources, Inc., et al. (70-10320)

    PNM Resources, Inc., (``PNM Resources''), a registered holding 
company; Texas New Mexico Power Company, a Texas corporation and 
electric public utility company, (``TNMP''); and TNP Enterprises, Inc. 
a Texas corporation and wholly-owned holding company subsidiary of PNM 
Resources (``TNP Enterprises''), all of 4100 International Plaza, P.O. 
Box 2943, Fort Worth, Texas 76113, have filed a declaration, as amended 
(``Declaration'') under sections 6(a), 7, and 12(c), of the Act and 
rules 42 and 46, under the Act. PNM Resources, TNMP and TNP Enterprise 
are collectively referred to as ``Applicants.''
    PNM Resources and its subsidiary TNP Enterprises are registered 
public utility holding companies. PNM Resources acquired TNP 
Enterprises on June 6, 2005, and as a result of the acquisition, TNP 
Enterprises has no employees or active operations, and serves as a 
financial conduit.
    TNP Enterprises has two subsidiaries, TNMP and FCP Enterprises, 
Inc., a Delaware corporation formed as an intermediate subsidiary to 
hold businesses that qualify under Rule 58, including First Choice 
Power, L.P. and First Choice Power Special Purpose, L.P. (``First 
Choice'').\1\ First Choice was organized to act as TNMP's affiliated 
retail electric provider in accordance with Texas Senate Bill 7, which 
established retail competition in the Texas electricity market. TNMP is 
a regulated utility operating in Texas and New Mexico.
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    \1\ First Choice Power Special Purpose, L.P. is a bankruptcy 
remote special purpose entity certificated retail electric provider 
(``REP'') in Texas to which the original REP certificate of First 
Choice Power, Inc. and its price to beat customers were transferred 
pursuant to order of the Public Utility Commission of Texas. A new 
certificate was granted to First Choice Power, Inc., which is now 
First Choice Power, L.P., also a direct subsidiary of TNP 
Enterprises. These entities are collectively referred to as ``First 
Choice.'' First Choice does not derive material revenue from the 
public-utility company affiliates.
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    Prior to January 1, 2002 when retail competition in the Texas 
electricity market was established, TNMP operated as an integrated 
electric utility in Texas, generating, transmitting and distributing 
electricity to customers in its Texas service territory. As required by 
Senate Bill 7, and in accordance with a plan approved by the Public 
Utility Commission of Texas (``PUCT''), TNMP separated its Texas 
utility operations into three components:
     Retail Sales Activities. As mentioned above, First Choice 
assumed the activities related to the sale of electricity to retail 
customers in Texas, and, on January 1, 2002, TNMP's customers became 
customers of First Choice, unless they chose a different retail 
electric provider.
     Power Transmission and Distribution. TNMP continues to 
operate its regulated transmission and distribution business in Texas.
     Power Generation. Texas Generating Company (``TGC'') 
became the unregulated entity performing TNMP's generation activities 
in Texas. However, in October 2002, TNMP and TGC sold TNP One (TGC's 
sole generating asset) to Sempra Energy Resources. As a result of the 
sale, TGC and TGC II neither own property nor engage in any operating 
activities, and neither TNMP nor any of its affiliates are currently in 
the power generation business.
    TNMP initially sought recovery of $307.6 million of stranded costs 
pertaining to the generation assets rendered uneconomic by Texas 
restructuring from its customers, an amount which was later revised to 
$266.5 million. On July 22, 2004, the PUCT authorized TNMP to recover 
from its customers $87.3 million instead of the $266.5 million 
requested. The decision resulted in a loss of $155.2 million before an 
income tax benefit of $57.3 million ($97.8 million after tax). As a 
result, TNMP reported on August 9, 2004 a loss applicable to common 
stock of $97.0 million for the quarter ended June 30, 2004. TNMP 
recorded the $97.8 million after tax loss as an extraordinary item in 
accordance with the requirements of Statement of Financial Accounting 
Standards (``SFAS'') 101--Regulated Enterprises--accounting for the 
discontinuance of the application of FASB Statement No. 71. TNP 
Enterprises reported a net loss for calendar 2004 of $75,603,000 and 
negative shareholder equity of $29,680,000.
    On the day of its acquisition by PNM Resources, TNP Enterprises 
refunded

[[Page 47872]]

the balance of its outstanding term loans and issued irrevocable 
notices to redeem its outstanding high coupon senior subordinated notes 
and preferred stock effective July 6, 2005. Such securities were 
redeemed on that date. See HCAR No. 27979 (June 1, 2005).
    The acquisition of TNP Enterprises will be accounted for using the 
``purchase method'' under SFAS 141, Business Combinations, with 
associated intangible assets and goodwill recorded on the balance 
sheets in accordance with SFAS 142, Goodwill and Other Intangible 
Assets. Since PNM Resources has acquired all of the stock of TNP 
Enterprises, the ``push-down basis of accounting'' will be used.\2\ 
Under this method, the cost of the acquisition will be allocated to the 
acquired company's assets and liabilities, which are recorded on the 
balance sheet at fair market value. Even though Commission accounting 
rules require PNM Resources to use push-down accounting and to value 
the acquisition at fair value, resulting in the recording of goodwill 
and intangible assets on TNMP's balance sheet, the goodwill and 
intangible assets will not be included in rate base or amortized as a 
component of cost of service in any state rate proceedings.
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    \2\ Because PNM Resources acquired all of the stock of TNP 
Enterprises, S.E.C. Codification of Staff Accounting Bulletins 
(``SAB'') Topic 5J, Miscellaneous Accounting, provides that the 
``push down basis of accounting'' be used for financial reporting 
purposes. The Commission has found ``push-down'' accounting 
appropriate on these circumstances. See HCAR No. 27896 (Sept. 27, 
2004) at 18.
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    Currently, as a result of purchase accounting and the push-down of 
the amount paid in excess of book value for the TNP Enterprises system, 
the Shareholder Equity account of TNMP will be increased by $429 
million, from $194 million to $623 million, and the retained earnings 
account of TNMP will be reset upwards to zero.
    The manner in which PNM Resources acquired TNP Enterprises, and 
thereby TNMP, was designed to improve TNMP's credit ratings from BB+/
Baa3 prior to the acquisition announcement to investment grade, BBB-/
Baa3, and to maintain them at that level in order to provide consistent 
access to the capital markets at reasonable rates, which allows TNMP to 
fund necessary utility system improvements. Also, the acquisition was 
structured so as not to damage PNM Resources' credit ratings. Through 
the financial models provided to the rating agencies in advance of the 
acquisition of TNP Enterprises, both major agencies were aware of the 
plan to dividend and distribute cash from TNMP and First Choice to PNM 
Resources following the acquisition of TNP Enterprises.
    The acquisition of TNP Enterprises has, in fact, improved the 
credit ratings of TNP Enterprises and its subsidiaries, including TNMP. 
All rating agencies referenced in their reports the stronger credit 
profile of PNM Resources, as well as the TNP Enterprises debt reduction 
resulting from the acquisition. Standard & Poor's raised the rating of 
TNMP following the acquisition to BBB from BB+. In addition, Moody's 
increased its credit rating to Baa3, as Applicants anticipated.\3\
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    \3\ The refinancing of the debt and preferred securities at the 
TNP Enterprises level has resulted in debt and preferred securities 
representing less than 40% (approximately 37.3%) of the consolidated 
capitalization of TNP Enterprises at the close of 2005, opposed to 
in excess of 100% in the absence of the acquisition and the relief 
sought in this filing.
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A. Requested Authorizations

    Applicants request four related authorizations in this filing. 
First, TNMP requests authorization through December 31, 2005 to redeem 
$62 million of its common stock held by TNP Enterprises, its parent. 
Second, PNM Resources and TNP Enterprises seek authority for their 
nonutility subsidiaries to distribute surplus, retire or redeem 
securities or pay dividends from capital through December 31, 2007. 
Third, TNP Enterprises requests authority to pay dividends (or to 
redeem capital stock) so as to distribute the proceeds received from 
its subsidiaries to PNM Resources pursuant to this filing. Applicants 
state that the need for the requested authorizations results from (i) 
the extraordinary effect of Texas restructuring on the book value of 
generation and the disallowance of stranded cost recovery; (ii) the 
application of push-down accounting for the recent acquisition by PNM 
Resources and (iii) the short-term debt incurred by PNM Resources to 
effectuate the acquisition of TNP Enterprises.
    Applicants represent that (i) all dividends, redemptions of stock 
and other distributions authorized in this filing would be made in 
compliance with all applicable laws, (ii) no nonutility subsidiary that 
derives any material part of its revenues from the sale of goods, 
services or electricity to any public utility subsidiary shall declare 
or pay any dividend out of capital or unearned surplus, and (iii) no 
nonutility subsidiary shall declare or pay any dividend out of capital 
or unearned surplus unless it: (a) Has received excess cash as a result 
of the sale of its assets, (b) has engaged in a restructuring or 
reorganization, and/or (c) is returning capital to an associate 
company.
    Fourth, TNMP requests authority to be added to a $400,000,000 
Credit Facility Agreement among PNM Resources, Inc. and Bank of 
America, N.A. (as Administrative Agent for Lenders) dated November 15, 
2004, as amended (``Revolving Credit Facility'') maintained by PNM 
Resources,\4\ under which it would be eligible to borrow up to $100 
million pursuant to a note with a five-year maturity and two additional 
one-year extension options (if approved by the banking institutions) 
through August 1, 2012. Borrowings made by PNM Resources pursuant to 
the Revolving Credit Facility are pursuant to and subject to authority 
conferred in PNM Resources, Inc., HCAR No. 27934 (December 30, 2004). 
TNMP proposes that the same conditions apply to its borrowings under 
the Revolving Credit Facility. Borrowings by the individual borrowers 
under the Revolving Credit Facility occur on a several, not joint, 
obligation basis. Such borrowings would be evidenced by 
``transactional'' promissory notes to be dated the date of such 
borrowings and to mature not more than five years after the date. Any 
such note may or may not be prepayable, in whole or in part, with or 
without a premium in the event of prepayment.\5\ TNMP proposes to use 
the revolving credit facility to provide funds for its authorized 
operations.
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    \4\ Section 2.6 of the Revolving Credit Facility specifically 
provides for First Choice and TNMP borrowing in accordance with its 
terms following the acquisition completed on June 6, 2005.
    \5\ On behalf of PNM Resources, TNMP 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 pursuant to PNM Resources' commercial paper program but 
that such credit facilities will not be drawn upon and no borrowings 
will occur except in certain limited circumstances at which time 
obligations under the related commercial paper will be paid. Thus, 
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 deemed to be borrowings 
under TNMP or PNM Resources' financing authorization unless and 
until an actual borrowing occurs under the related credit facility. 
Any other result would ``double count'' PNM Resources' actual 
financial obligation.
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B. Parameters for Financing Authorization

    The following general terms would be applicable, as appropriate, to 
the transactions requested to be authorized in the Declaration:
    (1) Common Equity Ratio. Applicants state that each would at all 
times maintain common equity (as reflected in its most recent Form 10-K 
or Form 10-

[[Page 47873]]

Q filed with the Commission) of at least 30% of its consolidated 
capitalization. The term ``consolidated capitalization'' is defined to 
include, where applicable, all common stock equity (comprised of common 
stock, additional paid in capital, retained earnings, accumulated other 
comprehensive income or loss and/or treasury stock), minority 
interests, preferred stock, preferred securities, equity linked 
securities, long-term debt, short-term debt and current maturities.
    (2) Investment Grade Ratings. With respect to the securities 
issuance authority proposed in this Declaration: (a) Within four 
business days after the occurrence of a Ratings Event,\6\ Applicants 
would notify the Commission of its occurrence (by means of a letter, 
via fax, email or overnight mail to the Office of Public Utility 
Regulation); and (b) within 30 days after the occurrence of a Ratings 
Event, Applicants would submit a post-effective amendment to the 
Declaration explaining the material facts and circumstances relating to 
that Ratings Event (including the basis on which, taking into account 
the interests of investors, consumers and the public as well as other 
applicable criteria under the Act, it remains appropriate for 
Applicant(s) to issue the securities for which authorization has been 
requested in this Declaration, so long as Applicant(s) continue to 
comply with the other applicable terms and conditions specified in the 
Commission's order authorizing the transactions requested in this 
filing). Furthermore, no securities authorized as a result of this 
Declaration would be issued following the 60th day after a Ratings 
Event (other than common stock, commercial paper and short-term debt) 
by any Applicant if the downgraded rating(s) has or have not been 
upgraded to investment grade. Applicants request that the Commission 
reserve jurisdiction through the remainder of the period authorized in 
this filling over the issuance of any securities (other than common 
stock, commercial paper and short-term notes) that Applicants are 
prohibited from issuing as a result of the occurrence of a Ratings 
Event if no revised rating reflecting an investment grade rating has 
been issued.
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    \6\ A ``Ratings Event'' would occur if, during the authorization 
period requested in this filing, (i) any security issued by any 
Applicant upon original issuance, if rated, is rated below 
investment grade; or (ii) any outstanding security of any Applicant 
that is rated is downgraded below investment grade. For purposes of 
this provision, a security would be deemed to be rated ``investment 
grade'' if it is rated investment grade by at least one nationally 
recognized statistical rating organization, as that term is used in 
paragraphs (c)(2)(vi)(E), (F) and (H) of rule 15c3-1 under the 1934 
Act.
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    (3) Effective Cost of Money on Financings. The effective cost of 
capital would 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 would the effective cost of 
capital exceed 500 basis points over comparable term U.S. Treasury 
securities (``Treasury Security'').
    (4) Maturity. The final maturity of any long-term debt securities 
would not exceed five years. Short-term debt incurred under the 
Revolver would have a maturity of not to exceed one year.
    (5) Issuance Expenses. The fees, commissions or other similar 
remuneration paid in connection with the non-competitive issue, sale or 
distribution of securities pursuant to this Declaration would not 
exceed the competitive market rates which are consistent with similar 
securities of comparable credit quality and maturities issued by other 
companies, provided that in no event would such fees and expenses 
exceed 500 basis points of the principal or face amount of the 
securities being issued or the gross proceeds of the financing.
    (6) Use of Proceeds. The proceeds from the borrowing would be used 
for general corporate purposes including (i) the financing of working 
capital requirements of the PNM Resources system, (ii) cash management 
activities and (iii) other lawful purposes.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-4406 Filed 8-12-05; 8:45 am]
BILLING CODE 8010-01-P