Business context and reporting period
The filing is a combined, unaudited Form 10-Q for PNM Resources, Inc. (PNMR), Public Service Company of New Mexico (PNM), and Texas-New Mexico Power Company (TNMP), for the quarter ended March 31, 2020. The supplied metadata names TXNM Energy Inc.; the filing itself identifies the registrants as PNM Resources, PNM, and TNMP. PNMR is a holding company with regulated electric utilities serving customers in New Mexico and Texas.
Key financial results
Unless otherwise noted, amounts are in millions of dollars. PNMR consolidated results for Q1 2020 compared with Q1 2019:
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Electric operating revenue | $333.6 | $349.6 |
| Utility margin | $234.9 | $228.0 |
| Operating income | $47.7 | $36.7 |
| Net earnings (loss) attributable to PNMR | $(15.3) | $18.7 |
| Diluted earnings (loss) per share | $(0.19) | $0.23 |
| Operating cash flow | $93.8 | $104.7 |
| Capital expenditures and other plant additions | $140.2 | $142.0 |
Utility margin is a company-defined non-GAAP measure: electric revenue less cost of energy. PNMR’s net loss included $32.8 million of investment-security losses, compared with $14.0 million of gains in Q1 2019. Operating income improved as lower energy costs and operating expenses more than offset lower revenue and higher depreciation.
By segment, PNM reported a $16.1 million loss available for common stock, versus earnings of $19.0 million a year earlier, principally reflecting investment-security losses. TNMP net earnings rose to $7.1 million from $4.1 million, with higher transmission rates and lower interest charges among the contributors.
Cash, debt, and liquidity
PNMR ended March 31 with $16.2 million of cash, versus $3.8 million at year-end 2019. Short-term debt was $300.6 million; current installments of long-term debt were $539.6 million, and long-term debt net of current installments was $2,468.7 million. PNMR’s reported capitalization consisted of 64.8% long-term debt and 35.0% common equity, excluding short-term debt and lease obligations from that calculation.
At May 1, 2020, PNMR reported $670.0 million of consolidated remaining availability under credit facilities and $24.7 million of invested cash. Management said internal cash generation, credit arrangements, and capital-market access were expected to meet requirements for at least the next 12 months; the company was in compliance with debt covenants. It also reported approximately $718 million of short- and long-term debt maturities through May 31, 2021.
Material changes versus the prior comparable period
- PNMR shifted from $18.7 million of attributable earnings to a $15.3 million loss, largely because investment securities moved from $14.0 million of gains to $32.8 million of losses.
- Operating income increased $11.0 million, and utility margin increased $6.9 million. Lower energy costs and reduced employee-related and maintenance expenses supported the improvement.
- Operating cash flow declined $10.9 million to $93.8 million. Financing cash flow was $71.5 million, versus $225.2 million in Q1 2019, when debt issuance and repayment activity was substantially different.
- PNMR short-term debt increased to $300.6 million from $185.1 million at December 31, 2019.
Outlook, management commentary, risks, and unusual items
- Outlook: PNMR’s stated target is 5% to 6% earnings and dividend growth for 2020–2023, based on ongoing earnings, a non-GAAP measure. Its target dividend payout ratio is 50% to 60% of ongoing earnings. These are targets, not guarantees.
- COVID-19: Management reported no significant Q1 customer-usage impact, but anticipated residential usage increases could be offset by commercial declines. The company suspended certain disconnections and late fees and warned that the pandemic could affect demand, collections, supply chains, projects, securities values, liquidity, and access to capital markets. The duration and financial effect were uncertain.
- San Juan Generating Station (SJGS): On April 1, 2020, the New Mexico regulator approved PNM’s proposed 2022 retirement and up to approximately $361 million of securitized bonds. The bond approval was appealed, and replacement-resource approval remained pending, with a regulator order expected by September 2020. PNM recorded $38.1 million of estimated severance, workforce, and economic-development obligations, with a corresponding regulatory asset; the amounts may change and are subject to challenge.
- Financing after quarter-end: PNM issued $200 million of senior unsecured notes on April 30 and had entered a $250 million term loan on April 15. TNMP issued $110 million of a planned $185 million bond offering on April 24, with the balance expected by July 15, subject to conditions. PNMR also had forward sale agreements covering approximately 6.2 million shares, expected to be physically settled by January 2021.
- Credit ratings: S&P downgraded PNMR, PNM, and TNMP by one notch on April 6; the filing stated the ratings remained investment grade. The downgrade triggered pricing changes on certain revolving credit facilities.
- Regulatory and operating risks: Key uncertainties include rate recovery, SJGS replacement resources and securitization appeals, PNM’s PVNGS lease decisions, coal-mine reclamation costs, environmental requirements, and the effects of COVID-19 and extreme weather. The filing states that outcomes of certain claims and regulatory matters cannot be predicted or reliably estimated.
Important facts for investors to verify
- Whether the sharp earnings reversal is principally explained by market-related investment-security losses and how trust-asset values and future results evolve.
- The final regulatory and court outcomes for SJGS retirement financing and replacement resources, and whether the recorded $38.1 million obligation and regulatory asset change.
- Execution and use of proceeds from the post-quarter PNM and TNMP financings, remaining debt maturities, and the availability and cost of refinancing.
- The actual effect of COVID-19 on customer usage, unpaid bills, operating costs, capital projects, and recovery of related costs through rates.
- Whether PNMR can meet its 2020–2023 ongoing-earnings and dividend-growth targets while funding its stated $4.4 billion 2020–2024 capital requirements.