Business Context and Reporting Period
Company: PNM Resources, Inc. (Parent of Public Service Company of New Mexico)
Filing Type: Form 8-K (Current Report)
Reporting Period: Three and twelve months ended March 31, 2004
Date of Report: April 30, 2004
Business Overview: PNM Resources is an energy holding company based in Albuquerque, New Mexico. Its principal subsidiary, PNM, serves approximately 460,000 natural gas customers and 400,000 electric customers in New Mexico, while also selling power on the wholesale market in the Western U.S.
Key Financial Metrics
| Metric | Q1 2004 | Q1 2003 | Variance |
|---|---|---|---|
| Total Operating Revenues | $443.7 million | $385.6 million | +$58.1 million (15.1%) |
| Net Earnings (GAAP) | $24.8 million | $48.2 million | -$23.4 million |
| Earnings Per Share (Diluted, GAAP) | $0.61 | $1.22 | -$0.61 |
| Ongoing Earnings Per Share (Non-GAAP) | $0.61 | $0.53 | +$0.08 (15.1%) |
| Operating Income | $33.5 million | $33.4 million | +$0.1 million |
| Interest Charges | $13.8 million | $18.2 million | -$4.4 million |
Segment Performance:
- Wholesale Power: Revenues increased 20.3% to $133.1 million; sales volume increased 15.3% to 3.0 million MWh.
- Retail Utility: Revenues increased 13.1% to $305.9 million.
- Gross Margins: Wholesale electric gross margin improved 21.3%; Gas gross margin increased $5.4 million due to colder weather and load growth.
Material Changes vs. Prior Period
GAAP Earnings Decline: GAAP net earnings per share dropped from $1.22 in Q1 2003 to $0.61 in Q1 2004. This decrease is primarily attributed to a one-time gain of $0.95 per share recorded in Q1 2003 related to a change in accounting principle (FASB Statement 143) and a one-time charge of $0.26 per share in the prior year. Q1 2004 contained no one-time gains or charges.
Ongoing Earnings Growth: Excluding one-time items, ongoing earnings per share increased 15.1% to $0.61, reflecting strong operational performance.
Revenue Drivers: Total operating revenue grew 15.1% driven by:
- Increased wholesale sales volumes and improved short-term prices.
- 3.5% growth in the utility service territory.
- 10% reduction in generating costs at the San Juan plant.
- Improved plant availability at San Juan offsetting outages at Palo Verde.
Cost Reductions: Interest charges decreased by $4.4 million due to debt refinancing and lower short-term interest rates.
Guidance, Outlook, and Risks
2004 Guidance: PNM Resources reaffirmed its full-year 2004 guidance for ongoing earnings (excluding one-time items) to be in the range of $1.90 to $2.15 per diluted share.
Recent Developments:
- Dividend: Board approved a 4.3% increase in the common stock dividend.
- Regulatory: New Mexico regulators approved a $22 million increase in rates and fees for the PNM gas utility.
- Contracts: Entered a 15-year agreement to transport natural gas to fuel two power plants in Farmington, N.M., estimated to generate $550,000 in annual revenue.
- Credit Ratings: Moody's upgraded debt securities to Baa2 (stable); S&P raised corporate credit rating to 'BBB' (stable).
Risks and Contingencies: Future results are subject to interest rates, weather conditions, fuel costs, wholesale power prices, market liquidity, regulatory decisions, and the performance of generating units. The filing includes a Safe Harbor statement regarding forward-looking statements.
Investor Verification Checklist
- Verify the reconciliation of GAAP EPS ($0.61) to Ongoing EPS ($0.61) to confirm the absence of one-time items in Q1 2004 compared to the significant one-time gain in Q1 2003.
- Confirm the impact of the 4% retail electric rate reduction implemented in 2003 on future margin trends.
- Monitor the execution of the new 15-year natural gas transport contract and its contribution to the $550,000 annual revenue estimate.
- Track the realization of the $22 million rate increase approved by New Mexico regulators for the gas utility.
- Review the stability of wholesale power prices ($42/MWh average) and the performance of the San Juan Generating Station.