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: Second Quarter and Six Months Ended June 30, 2003
Date of Report: July 30, 2003
Business Overview: PNM Resources is an energy holding company based in Albuquerque, New Mexico. Its principal subsidiary, PNM, serves approximately 450,000 natural gas customers and 390,000 electric customers in New Mexico. The company also engages in wholesale power sales in the Western U.S.
Key Financial Metrics
Quarter Ended June 30, 2003 (vs. Prior Year Quarter)
- Total Operating Revenues: $340.2 million (Increase of $90.0 million or 36%)
- Net Earnings (GAAP): $17.6 million ($0.44 per diluted share)
- Ongoing Earnings: $0.44 per diluted share (No one-time items in Q2 2003)
- Gross Operating Margin: $164.9 million (Increase of $23.1 million)
- Operating Income: $29.9 million
- Interest Charges: $17.8 million
Six Months Ended June 30, 2003 (vs. Prior Year Period)
- Total Operating Revenues: $727.9 million (Increase of $175.9 million)
- Net Earnings (GAAP): $66.1 million ($1.66 per diluted share)
- Ongoing Earnings: $0.97 per diluted share (Excludes one-time Q1 items)
- Operating Income: $63.3 million
- Interest Charges: $36.0 million
Material Changes vs. Prior Period
- Wholesale Power Performance: Gross margin on wholesale power sales surged $22.3 million (215.5%) to $32.7 million, driven by new long-term contracts and market recovery.
- Gas Operations: Gas gross margin increased $2.2 million (8.8%) primarily due to cooler weather in April 2003 compared to the prior year.
- Retail Electric Operations: Retail electric gross margin decreased slightly by $466,000 to $92.7 million. This was due to the transfer of a major customer from retail to wholesale status, partially offset by growth in residential and commercial sales.
- One-Time Items (Q1 2003 Impact): While Q2 2003 had no one-time items, the first quarter included a $37.4 million non-cash gain ($0.95/share) from the adoption of FASB Statement 143 and a $10.1 million charge ($0.26/share) for regulatory asset write-offs.
Guidance, Outlook, and Risks
Management Commentary and Guidance
Management reaffirmed 2003 earnings guidance. The company expects 2003 ongoing earnings (excluding one-time gains and charges) to be in the range of $1.80 to $2.05 per diluted share.
Key drivers cited for improved results include new long-term wholesale contracts, the recovery of the wholesale power market, and growing demand in the New Mexico service territory.
Recent Developments
- Gas Rate Case: In June, PNM agreed to a negotiated settlement for its pending gas rate case. If approved, this will increase revenues by $22.0 million with an assumed 10.25% return on equity.
- Debt Financing: In May, PNM completed the sale of $182 million in tax-exempt bonds with an initial annual interest rate of 2.75% (adjustable next year).
Risks and Contingencies
Forward-looking statements are subject to risks including interest rates, weather conditions, fuel costs, supply and demand changes in the electric power market, wholesale power prices, market liquidity, competitive environments, regulatory decisions, and legal proceedings.
Investor Verification Checklist
- Verify the regulatory approval status of the $22.0 million gas rate case settlement.
- Confirm the sustainability of the wholesale power market recovery and the terms of new long-term contracts.
- Monitor the impact of the major customer transfer from retail to wholesale on future retail revenue stability.
- Review the specific terms of the $182 million tax-exempt bond issuance regarding future interest rate adjustments.
- Assess the company's exposure to weather variability given the significant impact on gas margins.