PNM Resources scales back Texas operations

PNM Resources said it has dropped plans to expand a Texas coal-fired power plant, may sell its Texas retail electric operation and slashed its dividend to focus on restoring financial health at its regulated utility in New Mexico, the company said.

PNM's Energy Co venture with Bill Gate's Cascade Investments LLC will not pursue construction of a 305-megawatt expansion at its Twin Oak coal plant in Robertson County, about 130 miles (210 km) northwest of Houston, due to uncertainty over carbon dioxide regulation, Jeff Sterba, PNM chief executive officer, said on a call with investors.

Sterba said uncertainty around the cost of future carbon legislation and carbon storage made the economics of a new plant risky.

"That site will remain valuable for future expansion as a coal unit with carbon capture, a gas unit or some other form of generation," Sterba said on the call.

Energy Co's investment in the expansion of a natural gas-fired unit near Houston with NRG Energy Inc. will not change, officials said.

Albuquerque, New Mexico-based PNM also said it will consider a sale of its Texas electric retail business unit, First Choice Power, which lost money in the second quarter due to volatile fuel prices, mismatched hedges and rising congestion costs in the Texas market exacerbated by a large amount of new wind generation.

"The hedges we place on our retail loads are inherently not perfect and that really came home," Sterba said.

Price volatility in the Texas real-time power market has been blamed for financial collapse of four small retailers this year.

Swings in spot prices to more than $2,000 per megawatt-hour began in the spring when increased wind generation in the western half of the state and a lack of sufficient transmission to move the power to big cities led to depressed prices in West Texas and soaring prices elsewhere.

Options for First Choice include a sale or possibly a transfer to Energy Co, Sterba said, depending on buyer interest.

"Our primary focus at this stage is clearly on moving it into someone else's hands if, in fact, they have a higher value for it than we do," Sterba said.

Last month, PNM terminated an agreement to expand its power delivery business in Texas through a purchase of Cap Rock Energy Corp.

PNM cut its annual dividend by 46 percent to 50 cents a share as it works to complete a sale of its New Mexico natural gas business and to reflect its plan to retrench operations in Texas.