Federal Court Dismisses California Attorney General Lawsuit Against PNM, Powerex; FERC Closes Market-Based Rate Proceeding in PNM Control Area

Business Wire, April 27, 2006

ALBUQUERQUE, N.M. -- A federal court judge has dismissed a lawsuit filed by the California attorney general claiming PNM, a utility subsidiary of PNM Resources (NYSE: PNM), and other power sellers used manipulative practices to inflate California energy prices in 2001. In a separate matter, the Federal Energy Regulatory Commission reaffirmed PNM's market-based rate authority in the utility's control area.

Attorney General Lawsuit Dismissed

In a recent order, U.S. District Judge David F. Levi denied the California attorney general's motion to remand the case to state court, where it was originally filed, and granted motions to dismiss by PNM and Powerex, a subsidiary of BC Hydro. The suit also was filed against 100 other unnamed power sellers.

"From the beginning, we cooperated fully with all investigations by federal officials, and held steadfast to our assertion that we conduct all aspects of our business with the highest ethical standards," said Jeff Sterba, PNM Resources chairman, president and CEO. "We are extremely pleased courts have consistently ruled that this is a matter for federal regulators.

"We presented our case to federal regulators, demonstrating the legitimacy of PNM's business conduct, and they determined we did not engage in gaming practices or partnerships, and dismissed PNM from their investigations."

In dismissing the attorney general lawsuit, Levi referenced several previous federal court rulings and agreed that the Federal Energy Regulatory Commission has "exclusive control over every aspect of the sale and transmission of wholesale energy." The ruling, filed April 14 in U.S. District Court in California, is the latest in a series of federal court decisions affirming FERC's sole jurisdiction over the transmission and pricing of wholesale energy in interstate commerce.

FERC previously cleared PNM in all of its investigations into alleged misconduct by power companies during the California crisis. In July 2005, FERC dismissed PNM from its final investigation after finding no evidence that PNM engaged in gaming partnerships or shared any unjust profits with other companies. The FERC ruling came two months after the attorney general's suit.

The attorney general could appeal the decision to the Ninth Circuit Court of Appeals, which also has previously ruled FERC has exclusive jurisdiction in determining the reasonableness of wholesale electric prices.

FERC Reaffirms PNM Market-Based Tariff

In a separate issue, PNM can continue to charge market-based rates in its control area in central and northern New Mexico, according to a recent FERC decision.

FERC has agreed with PNM officials and determined the utility lacks market power, or the ability to control transmission activity to defray wholesale competition, in its control area. The order reaffirms PNM's market-based tariff, which allows the company to charge market prices for wholesale power when there are no transmission constraints or outages. The FERC order also affirmed a 1996 provision in PNM's tariff that requires cost-based rates to be in effect during periods of transmission constraints in northern New Mexico.

Federal officials said they have not yet determined whether PNM also lacks market power in the neighboring El Paso control area in southern New Mexico. FERC has asked PNM to submit additional information about market conditions when transmission paths are constrained in the El Paso control area.

Background

PNM Resources is an energy holding company based in Albuquerque, N.M., with consolidated operating revenues of $2.1 billion. Through its utility and energy service subsidiaries, PNM Resources supplies electricity to 748,500 homes and businesses in New Mexico and Texas and natural gas to 480,500 customers in New Mexico. Its utility subsidiaries are PNM and Texas-New Mexico Power. Other subsidiaries include First Choice Power, a deregulated competitive retail electric provider in Texas, and Avistar, an energy research and development company. The company has generation resources of approximately 2,840 megawatts and sells power on the wholesale market throughout the Southwest. For more information, visit PNMResources.com.