PNM RESOURCES • 2 0 0 3 A n n u a l R e p o r t t o S h a r e h o l d e r s 7 6 An agreement approved by New Mexico regulators early in 2003 sets PNM retail electric rates through the end of 2007. In January 2004, regulators approved a $22 million increase in gas rates and fees. The number of PNM electric cus- tomers increased about 3.1 percent in 2003. Growth in PNM’s home service territory has been above the national rate for most of the last 10 years. According to the New Mexico Department of Labor, employment in the Albuquerque metro area is projected to increase about 25  percent by 2010, significantly  above the national average. A BRIGHT FUTURE The balance of coal, nuclear, gas and renewables in the PNM fleet gives us the opportunity to make the most of each of these resources. Rather than limit certain plants to serving only retail customers, any PNM power not needed to serve retail load is available for the wholesale market. The PNM financial strategy aims at reducing interest expense, maintaining a healthy cash flow and maintaining the company’s investment-grade credit rating. In 2003, we refinanced nearly $500 million in older, high-cost debt, cutting interest costs by about $12 million a year. 2001GLYPH<.notdef> 2002GLYPH<.notdef> 2003GLYPH<.notdef> CONSERVATIVE FINANCIAL STRATEGY 500GLYPH<.notdef> 600GLYPH<.notdef> 200GLYPH<.notdef> 300GLYPH<.notdef> 400GLYPH<.notdef> 100GLYPH<.notdef> 95GLYPH<.notdef> 100GLYPH<.notdef> 80GLYPH<.notdef> 85GLYPH<.notdef> 90GLYPH<.notdef> 75GLYPH<.notdef> 2001GLYPH<.notdef> 2002GLYPH<.notdef> 2003GLYPH<.notdef> DIVIDENDS PER SHARE  RETAINED EARNINGS 500GLYPH<.notdef> 600GLYPH<.notdef> 200GLYPH<.notdef> 300GLYPH<.notdef> 400GLYPH<.notdef> 100GLYPH<.notdef> 95GLYPH<.notdef> 100GLYPH<.notdef> 80GLYPH<.notdef> 85GLYPH<.notdef> 90GLYPH<.notdef> 75GLYPH<.notdef> 500GLYPH<.notdef> 600GLYPH<.notdef> 300GLYPH<.notdef> 400GLYPH<.notdef> 95GLYPH<.notdef> 100GLYPH<.notdef> 85GLYPH<.notdef> 90GLYPH<.notdef> MILLIONS OF DOLLARS CENTS PER SHARE STABILITY EFFICIENT USE OF GENERATING RESOURCES Long Term Contracts “Most of our wholesale business is based on long-term contract sales to  municipal utilities, rural co-ops, and other utilities. Over three-quarters  of PNM’s total generating capacity is devoted to serving our retail base and  long-term wholesale customers.”  THOMAS NESMITH  Manager, Marketing & Forward Contracts COAL POWER One of the largest coal-fired power plants in the West, San Juan Generating Station in northwestern New Mexico is the flagship of the PNM generating fleet. San Juan pro- vides nearly 60 percent of the power needs of the company’s customers. NUCLEAR POWER PNM owns a 10.2 percent share in the 3,800-megawatt Palo Verde nuclear plant, located about 50 miles west of Phoenix, Arizona. Palo Verde provides about 30 percent of PNM power needs. NATURAL GAS  In 2002, PNM added two new,  natural gas-fired generating plants to help meet peak demand during the summer or take advantage of opportunities in the wholesale market. RENEWABLES In 2003, PNM contracted to buy the full output of the 200-megawatt New Mexico Wind Energy Center, operated by FPL Energy. One of the largest wind power projects in the U.S., the project serves both PNM retail and wholesale customers.