TXNM Energy Inc. 2024 Q3 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2024, for TXNM Energy, Inc. (TXNM), formerly PNM Resources, Inc., and its subsidiaries: Public Service Company of New Mexico (PNM) and Texas-New Mexico Power Company (TNMP). TXNM is a holding company operating two regulated electric utilities serving approximately 831,000 customers in New Mexico and Texas. The company is focused on transitioning to a carbon-free generating portfolio by 2040.
Key Financial Metrics (Nine Months Ended Sept 30, 2024)
| Metric | 2024 (YTD) | 2023 (YTD) |
|---|---|---|
| Electric Operating Revenues | $1,494.2 million | $1,527.1 million |
| Net Earnings Attributable to TXNM | $226.4 million | $138.0 million |
| Diluted EPS | $2.50 | $1.60 |
| Operating Cash Flows | $349.5 million | $412.6 million |
| Investing Cash Flows (Used) | ($805.9 million) | ($811.9 million) |
| Financing Cash Flows | $468.8 million | $403.0 million |
| Total Debt (Long-term + Current) | $5.38 billion | $4.78 billion |
| Utility Margin (Non-GAAP) | $1,068.3 million | $902.6 million |
Material Changes vs. Prior Period
- Earnings Growth: Net earnings attributable to TXNM increased by $88.4 million (64%) year-over-year. This was driven by rate relief approved in PNM's 2024 Rate Change, higher transmission and distribution rates at TNMP, increased volumetric load at TNMP, and improved performance on investment securities (NDT, coal mine reclamation, and SJGS decommissioning trusts).
- Revenue Decline: Consolidated electric operating revenues decreased by $32.9 million. This was primarily due to rate credits recorded in 2023 related to the San Juan Generating Station (SJGS) abandonment settlement agreement, which did not recur in 2024.
- Cost of Energy: Cost of energy decreased significantly by $198.5 million year-over-year, largely due to the absence of the 2023 SJGS settlement credits and lower fuel costs.
- Regulatory Disallowances: PNM recorded regulatory disallowances of $10.6 million for the nine months ended September 30, 2024, primarily related to the remeasurement of San Juan Coal Mine reclamation liabilities where costs exceeded the regulatory cap for surface mine reclamation.
- Investment Activity: Proceeds from the sale of NMRD (New Mexico Renewable Development) equity method investment totaled $116.9 million in Q1 2024, contributing to investing cash flows.
Guidance, Outlook, and Management Commentary
- Capital Requirements: TXNM projects consolidated capital requirements (construction expenditures and dividends) of approximately $6.9 billion for the 2024-2028 period. Construction expenditures are expected to total $6.2 billion.
- Rate Cases:
- PNM 2025 Rate Request: Filed June 14, 2024, seeking a $174.3 million increase in retail revenues (effective July 2025 and Jan 2026) to fund investments in distribution, transmission, and generation, including wildfire mitigation.
- TNMP System Resiliency Plan (SRP): Filed August 28, 2024, proposing $600 million in capital investments and $151 million in other costs over three years to enhance grid reliability.
- Financing Activities:
- Issued $550 million in junior subordinated convertible notes (5.75% interest, due 2054) in June 2024 to prepay term loans.
- TNMP issued $285 million in first mortgage bonds in 2024.
- PNM entered into a $200 million term loan in May 2024.
- TXNM established a $300 million "at-the-market" (ATM) equity program in 2024.
- Regulatory Risks:
- Four Corners: PNM decided to remain a participant in the Four Corners Power Plant until the coal supply agreement expires in 2031, terminating the previous sale agreement with NTEC.
- Environmental Regulation: Ongoing litigation and rulemaking regarding EPA's Greenhouse Gas (GHG) emission standards (Section 111(d)) and coal combustion residuals (CCR) pose potential compliance costs.
- Wildfire Risk: Increased insurance premiums and potential liability for wildfire damages remain a significant risk factor for both PNM and TNMP.
Investor Verification Checklist
- Regulatory Outcomes: Monitor the NMPRC's final decision on PNM's 2025 Rate Request and the PUCT's approval of TNMP's System Resiliency Plan, as these are critical for future revenue recovery.
- Reclamation Costs: Verify the impact of the capped surface mine reclamation liability on PNM's future earnings, specifically the $10.6 million disallowance recorded in 2024 and potential future remeasurements.
- Convertible Notes: Review the terms of the $550 million convertible notes issued in June 2024, including conversion triggers and potential dilution or cash settlement requirements.
- Capital Expenditures: Track actual construction spending against the projected $6.2 billion for 2024-2028 to ensure alignment with cash flow generation and financing plans.
- Investment Trust Performance: Assess the volatility of the Nuclear Decommissioning Trust (NDT) and coal mine reclamation trusts, which contributed significantly to "Other Income" in 2024.