Gates investment fund forms energy venture

Cascade Investments LLC, the private investment fund of Microsoft Corp. Chairman Bill Gates, will form a joint energy-trading venture with PNM Resources Inc., a New Mexico utility owner to bet on growing regional demand. PNM shares rose as much as 3.5 percent.

The 50-50 venture would compete with existing electricity suppliers to homes and businesses in Texas and states in the U.S. Southwest and West, Albuquerque-based PNM said today in a statement. It will also own and operate power plants and trade energy to support those operations.

Chief Executive Officer Jeff Sterba has expanded into Texas, buying a power plant from Sempra Energy this year and utility Texas-New Mexico Power in July. PNM's First Choice Power unit sells power to homes and businesses in the Texas in competition with larger rivals such as TXU Corp. and Reliant Energy Inc.

"The southwest is a very good place for that and the vote of confidence from Bill Gates is a tremendous thing," said Greg Phelps, who manages $5 billion at MFC Global Investment Management in Boston, including an undisclosed amount of common and preferred shares of PNM. "This will let them grow their unregulated business without selling as much equity or debts they had expected."

Shares of PNM rose 62 cents, or 2.2 percent, to $28.77 at 11:44 a.m. in New York Stock Exchange composite trading. A close at that price would be the biggest one-day gain since July 3.

Power use at times of peak demand has been rising more than 5 percent a year at utilities Public Service Co. of New Mexico and Texas-New Mexico Power, Sterba said on a conference call today with analysts and investors. The utilities will need 800 megawatts of new generation within six years, and the venture can buy or build those, he said.

Separate Ownership

PNM intends to sell power plants or other assets not owned by its regulated utility to the partnership for cash from Cascade and the venture will buy or build plants. Separate ownership of plants and utility operations would increase transparency at PNM, the utility owner said. Cascade, based in Kirkland, Washington, is PNM's second-biggest shareholder, with a stake of 9.4 percent.

"Our partnership with Cascade enables us to execute our unregulated growth strategy faster than we would have otherwise," Sterba said.

Cascade also holds stakes in Pacific Ethanol, a developer of plants that will produce the grain-based motor fuel in West Coast states.

Regulation Issues

U.S. utility executives have begun debating whether to separate power generation that sells to wholesale markets to protect the profits from state regulators.

New Jersey in September blocked the biggest utility merger ever with demands for rate concessions and plant sales. Exelon Corp. abandoned its $17.8 billion purchase of New Jersey's Public Service Enterprise Group because of an impasse.

The venture was reported earlier today in the Wall Street Journal.