Business context and reporting period
This is the unaudited combined Form 10-Q of PNM Resources, Inc. (PNMR), Public Service Company of New Mexico (PNM) and Texas-New Mexico Power Company (TNMP), for the quarter ended March 31, 2019. The filing identifies PNMR as a holding company with two regulated electric utilities serving approximately 784,000 customers and end-users in New Mexico and Texas. The filing itself names PNM Resources, Inc.; it does not identify the registrant as TXNM Energy Inc.
Key financial results
Amounts below are in millions of dollars unless otherwise stated. PNMR comparisons are for the three months ended March 31, 2019 versus the same period in 2018.
| Metric | 2019 Q1 | 2018 Q1 | Change |
|---|---|---|---|
| Electric operating revenue | $349.6 | $317.9 | +$31.8 |
| Operating income | $36.7 | $46.1 | -$9.4 |
| Net earnings attributable to PNMR | $18.7 | $15.0 | +$3.7 |
| Diluted earnings per share | $0.23 | $0.19 | +$0.04 |
| Operating cash flow | $104.7 | $78.9 | +$25.8 |
| Utility plant additions | $142.0 | $117.7 | -$24.2 in cash flow |
| Utility margin (non-GAAP) | $228.0 | $225.3 | +$2.7 |
Revenue growth included $19.7 million more in “other electric operating revenue,” mainly at PNM. PNMR’s $14.0 million gain on investment securities, versus $0.3 million in the prior-year quarter, was a major contributor to earnings growth; operating income declined as operating expenses rose. PNMR’s declared common dividend was $0.29 per share, compared with $0.265.
PNM reported net earnings available for common stock of $19.0 million, up from $7.7 million. TNMP reported net earnings of $4.1 million, down from $9.4 million; management cited lower utility margin, higher depreciation and interest costs, and the effects of rate-design changes. PNMR consolidated results include corporate and other activities and Valencia non-controlling interest.
Financial position, debt and liquidity
- At March 31, PNMR reported cash of $180.1 million, total assets of $7.25 billion, current liabilities of $664.1 million and long-term debt of $2.77 billion. Short-term debt was $223.8 million and current installments of long-term debt were $172.3 million.
- Cash and restricted cash increased by $178.0 million during the quarter. Financing cash flow was $225.2 million, including $475.0 million in long-term borrowings and $200.0 million in debt repayments; investing cash outflow was $151.9 million.
- PNMR stated consolidated liquidity availability was $732.5 million as of May 3, 2019. Management said internal cash generation, credit arrangements and capital-market access were expected to cover requirements for at least the next 12 months, while additional long-term financing would be needed during 2019–2023.
- PNMR’s estimated capital requirements for 2019–2023 total $3.63 billion, including construction, NMRD contributions and dividends. The estimate excludes potential incremental replacement-resource costs associated with the planned SJGS retirement.
Material changes, outlook and risks
- PNM’s utility margin rose $4.6 million, supported by rate relief, higher load and colder weather, partly offset by lower rate-rider revenues. TNMP’s utility margin fell $1.9 million, with lower transmission cost-of-service revenues and milder weather partly offset by retail rate relief and stronger demand-based load.
- PNM entered a $250 million variable-rate term loan in January, due by July 2020. TNMP issued $225 million of fixed-rate bonds in March, at 3.79%–4.06% with 15–25-year maturities, and planned to issue a further $80 million by July 1, 2019. Proceeds included refinancing TNMP’s $172.3 million 9.50% bonds, which matured April 1, 2019.
- New Mexico’s Energy Transition Act was signed March 22, 2019, effective June 14. It sets renewable and zero-carbon portfolio milestones, including 100% zero-carbon energy by 2045, and provides a potential securitization mechanism for certain qualifying transition costs. Its effects on PNM’s future portfolio and recovery of costs remain uncertain.
- PNM’s planning anticipates retiring its share of the San Juan Generating Station (SJGS) after the coal supply agreement expires in mid-2022, subject to regulatory approval. Regulatory proceedings over the required filing and replacement resources were ongoing. PNM reported $371.6 million of remaining undepreciated SJGS investment it expects to seek to recover.
- PNM recorded an additional $1.3 million pre-tax regulatory disallowance in Q1 related to its appeal of the 2015 New Mexico rate-case order. It estimated potential further write-offs could include $72.6 million for PVNGS Unit 2 purchases, $37.6 million for related improvements and $49.7 million for SJGS emissions-control equipment, depending on appeal outcomes.
- PNM’s December 2018 reassessment of SJGS mine-reclamation timing increased its liability by $39.2 million; $29.8 million was recorded as regulatory disallowances and restructuring costs. Estimates and customer recovery remain subject to regulatory outcomes and assumptions about timing and reclamation costs.
- PNMR’s 2019–2022 target is 5%–6% annual growth in ongoing earnings and dividends, a non-GAAP measure. Management also described a long-term goal of a 50%–60% dividend payout ratio of ongoing earnings. These are targets, not guarantees.
- Adoption of lease accounting on January 1, 2019 added operating lease right-of-use assets and liabilities to the balance sheet; management said the change did not materially affect earnings or cash flows. No material changes to the risk factors in the 2018 Form 10-K were reported.
Important facts for investors to verify
- Confirm the legal registrant and reporting entity: this filing covers PNMR, PNM and TNMP and does not itself use the name TXNM Energy Inc.
- Assess how much of Q1 earnings growth depended on investment-security gains and whether operating performance trends support the earnings outlook.
- Track regulatory decisions on SJGS retirement, replacement resources, Energy Transition Act implementation, and recovery of remaining plant and mine-reclamation costs.
- Review the outcomes of PNM’s rate-case appeal and quantify any resulting disallowances or customer refunds.
- Monitor debt maturities, the planned TNMP bond issuance, variable-rate exposure, credit-facility availability and capital requirements; management’s liquidity statement is forward-looking.
- Review the assumptions underlying the $3.63 billion capital plan and the filing’s ongoing-earnings growth target, including costs excluded for replacement generation.