Sources: PNM Resources Conducting Auction for Disposition of First Choice Power

June 10, 2011
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PNM Resources has commenced an auction process for the disposition of First Choice Power, and potentially its Optim Energy generating facilities as well, two sources familiar with the process told Matters.

Both sources asked not to be identified given the confidential nature of the process. The auction is described a limited/closed process in which PNM has solicited the interest of a select number of REPs in the First Choice Power business.

The move is not surprising, nor is it the firs time PNM Resources has shopped the First Choice Power book. Indeed, asked for a comment, PNM Resources referred to statements in its 10-K regarding its general strategy for its competitive retail and generation units, including continued evaluation of their value.

However, the auction process, commenced in the past 1-2 weeks, represents the first concrete action PNM has taken recently to consider strategic alternatives.

PNM Resources had previously tested market demand for the First Choice Power book in 2008, but elected to retain the unit as pricing did not meet its view for the value of the unit.

The instant auction process is again seen as PNM seeking to monetize the investment in its competitive businesses given the currently favorable environment for retail M&A, and similarly may not result in any transaction if offers do not meet PNM's targets.

With 212,800 customers, First Choice Power has one of the largest mass market books in ERCOT, with a large portion representing customers inherited as the former affiliated REP at Texas-New Mexico Power.

Recently, First Choice Power has reduced quarterly net churn by 80% to approximately 1,000 customers, and has focused on growing its commercial book. It has also successfully been decreasing its bad debt.

First Choice Power reported ongoing EBITDA of $12.3 million for the quarter ending March 31, 2011, and ongoing earnings of $7.6 million.

Operating revenue for the first quarter at First Choice Power was $108.5 million, reflecting sales of 857.8 GWh.

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