News Release

June 25, 2003

PNM and Others Reach Agreement
on New Natural Gas Delivery Rates

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NEWS MEDIA CONTACT Susan Sponar Telephone: (505) 241-2768

Albuquerque: PNM, staff of the state Public Regulation Commission (PRC), and an industrial energy users group have reached agreement on new natural gas delivery rates.

If approved by state regulators, the proposal filed today would substantially reduce a rate increase proposed by PNM in January, while still giving the company sufficient revenues to maintain safe and reliable gas service, according to PNM officials.

The proposal would add $3.56, or 7.5 percent, to the average residential customer's total monthly bill, beginning this November. PNM in January asked for an increase of $6.65, or 14 percent, to the average monthly bill.

The delivery charges comprise 30 percent to 50 percent of a typical residential monthly bill. These charges are separate from the cost of gas, which fluctuates monthly based on the wholesale market and is not controlled by PNM. The percentage increases listed above are based on an average natural gas price of 45.72 cents for the past 12 months.

"Though lower than we requested, the dollars associated with this plan will adequately cover the costs of operating and maintaining a reliable and safe natural gas system," said PNM Senior Vice President Bill Real. PNM's system includes more than 12,000 miles of pipe and serves more than 441,000 gas customers.

Real said PNM customers today pay less for gas delivery charges than they did in 1991, despite $300 million in gas infrastructure investments since that time. "Even with the increase, PNM customers will still have a lower annual gas bill than 11 of 16 utilities in the region," he said.

The PRC will hold a public hearing on the proposal July 14.

The agreement filed today includes a $20 million increase to basic delivery charges and a $1.6 million increase to miscellaneous customer charges. In addition, the agreement also allows PNM to collect, with interest, $4.4 million in costs from the 1990s previously approved by the PRC but not yet collected by PNM. Those costs would add 15 cents to the average residential customer's total monthly bill for three years. PNM had proposed a one-year recovery period.

PNM in January asked for a $37.6 million rate increase. The request kicked off a public process that included PNM and interested parties filing testimony. In recent weeks, PNM initiated meetings with those parties, including PRC staff, the New Mexico Industrial Energy Consumers (NMIEC), and the state attorney general's office "to see if we could find common ground," Real said.

The result is a stipulated agreement that serves as an alternative to a fully litigated rate case, which can be time consuming and costly. The agreement has the support of PRC staff and NMIEC. "We will continue talking with the other parties involved with this issue to see if we can earn their support for the agreement," Real said.

Proposed changes

The basic delivery charges that would change under the stipulation are the customer per-therm distribution and transmission charges. Revenue from these fees pays for capital construction and routine operations and maintenance, including new pipeline construction; replacement of old pipe; state-of-the-art electronic monitoring of the pipeline system; expansion of service to new customers; meter reading; billing; and various other customer service functions.

Under the proposal, the monthly access fee for residential customers would remain $9. The charge for distribution and transmission service would rise from 13.67 cents to 19.27 cents per therm. The combined changes would increase the average residential customer's total monthly bill by $3.56, from $47.48 to $51.04 . An additional 15 cents would be added to the average customer's monthly bill, for three years, to recover those costs previously approved by the PRC.

For most business customers, the monthly access fee would increase from $13.50 to $15. The charge for distribution and transmission service would rise from 10.8 cents to 12.2 cents per therm. The combined changes would increase the average business customer's total monthly bill by $7.32, from $244.89 to $252.21 . An additional 95 cents would be added to the average business customer's monthly bill, for three years, to recover costs previously approved by the PRC.

Significant gas system expansions

"Our investments in safety and reliability have been substantial," Real said, pointing to the addition of 67 miles of high-pressure, high-capacity pipeline to the company's northwest transmission system in recent years to ensure PNM can meet peak-day customer demand. The
company also has significantly expanded lines in Silver City. It also continues, every year, to replace and upgrade existing distribution pipe, add new compressor stations, and improve its measurement, gas control and gas administration systems.

Real said the company also plans significant investment in infrastructure in the near term to continue to provide safe and reliable service. Major projects include:

• Expanded "Smart Pigging" and Compliance with Provisions of the New Pipeline Safety Act: PNM in the last year has conducted two "smart pig" operations, which involve sending a high-tech sensing device through key pipelines to look for defects and potential problems. These efforts will expand as the company implements a full Integrity Management Plan to comply with the new federal Pipeline Safety Act. The cost of compliance is expected to reach $16 million in the next five years.
• Bare Main Replacement Program: PNM is in the midst of a program to identify and replace much of the "bare main" pipe in its 12,378-mile gas system. "Bare main" is older steel pipe of 1 to 8 inches in diameter that does not have exterior protective coating typical of newer pipe. PNM expects to replace 150 miles of bare main during the next five years, at a cost of $23 million.
• 2003 Transmission Initiatives: PNM in 2003 expects to construct a new 20-mile pipeline near Rio Rancho and on Albuquerque's west side. The pipeline will increase system reliability and expand delivery capacity from interstate pipelines. The company also plans to construct a new 10-mile pipeline northwest of Albuquerque to increase system capacity and reduce a known pressure drop across the company's northwest transmission system. In addition, PNM is planning additional transmission-related initiatives in 2003 for southeast and southern New Mexico. These 2003 initiatives are expected to cost about $22 million.

PNM is the principal subsidiary of PNM Resources, an energy holding company based in Albuquerque. PNM provides natural gas service to 441,000 gas customers and electric utility service to 378,000 customers in New Mexico. The company also sells power on the wholesale market in the Western U.S. PNM Resources stock is traded primarily on the NYSE under the symbol PNM.

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

Statements made in this news release and documents we file with the Securities and Exchange Commission that relate to future events or our expectations, projections, estimates, intentions, goals, targets and strategies are made pursuant to the Private Securities Litigation Reform Act of 1995. Readers are cautioned that all forward-looking statements are based upon current expectations and estimates and we assume no obligation to update this information.

Because actual results may differ materially from those expressed or implied by the forward-looking statements, PNM Resources cautions readers not to place undue reliance on these statements. Many factors could cause actual results to differ, and will affect our future financial condition, cash flow and operating results. These factors include interest rates, weather, fuel costs, changes in supply and demand in the market for electric power, wholesale power prices, market liquidity, the competitive environment in the electric and natural gas industries, the performance of generating units and transmission system, state and federal regulatory and legislative decisions and actions, the outcome of legal proceedings and the performance of state, regional and national economies. For a detailed discussion of the important factors that affect us and that could cause actual results to differ from those expressed or implied by our forward-looking statements, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our current and future Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q and our current and future Current Reports on Form 8-K, filed with the SEC.