NEW YORK - (Business Wire) Fitch Ratings has assigned a 'BB+' rating to the $36 million 6.25% Maricopa County, Arizona Pollution Control Corporation pollution control revenue refunding bonds, 2003 series A (Public Service Company of New Mexico Palo Verde Project), due Jan. 1, 2038. The transaction was priced Nov. 24, 2009, and is expected to close on Dec. 1, 2009. The Rating Outlook is Stable. The rating reflects Public Service Company of New Mexico's (PNM) high debt leverage relative to EBITDA, low earned returns and weak credit metrics. The ratings also consider management efforts to work diligently with New Mexico Public Regulation Commission (PRC) to timely recover its invested capital with a reasonable return on investment. Regulatory lag is a primary concern for PNM investors. Importantly, legislation was enacted in New Mexico in 2009 allowing use of a forward test year in general rate case (GRC) proceedings, which should benefit future rate cases.
The ability of the company to meet its secular infrastructure investment requirements and earn a reasonable return on investment is expected to be a key driver of the company's future creditworthiness.
PNM filed a GRC proceeding with the PRC in September 2008 requesting a $123 million rate increase, based on a test year ending March 2008, and authorization of a fuel and purchase power adjustment clause (FPPAC). In March 2009, the company and most intervening parties to the GRC entered into a stipulated agreement that proposed a $77 million rate increase to be implemented in two steps: $50 million on July 1, 2009 and the remainder on April 1, 2010.
The proposed stipulation was approved by the PRC with slight modifications. Most important, the PRC-approved settlement authorized a revised FPPAC which provides for the deferral and recovery of 100% of fuel and purchase power costs from ratepayers. Adoption of the FPPAC significantly improves PNM's business risk profile in Fitch's opinion and is supportive of the utility's creditworthiness.
The rating also recognized PNM's status as the largest of corporate parent PNM Resources' (PNMR) two core electric operating utility subsidiaries. There are no inter-company guarantees or cross defaults between PNM and PNMR or its operating affiliates.
Additional information is available at 'www.fitchratings.com'.
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Fitch Ratings, New York
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com
Philip W. Smyth, CFA, +1-212-908-0531
Glen Grabelsky, +1-212-908-0577
