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, 2021. The filing identifies PNMR as the publicly traded parent; the supplied request names TXNM Energy Inc., so investors should confirm the issuer and security intended. PNMR’s two regulated utilities serve approximately 801,000 customers and end-users in New Mexico and Texas.
Financial performance and position
Unless stated otherwise, amounts are in millions of dollars. PNMR’s consolidated results were:
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Electric operating revenue | $364.7 | $333.6 |
| Utility margin (revenue less energy costs; non-GAAP) | $249.3 | $234.9 |
| Operating income | $43.2 | $47.7 |
| Net earnings attributable to PNMR | $17.6 | $(15.3) |
| Diluted earnings per share | $0.20 | $(0.19) |
| Cash from operating activities | $86.5 | $93.8 |
| Cash used in investing activities | $(174.5) | $(152.8) |
Operating expenses were $321.5 million, up from $285.9 million. PNMR’s operating margin, calculated as operating income divided by electric operating revenue, was approximately 11.8%, versus 14.3%. The earnings recovery primarily reflects a much smaller investment-securities loss: Q1 2021 recorded a $1.0 million gain compared with a $32.8 million loss in Q1 2020. Utility margin increased, but operating income declined as expenses rose.
At March 31, PNMR reported $7.5 million of cash, $197.5 million of short-term debt, $1,010.6 million of current installments of long-term debt and $2,205.1 million of long-term debt. Total debt including short-term debt was approximately $3.41 billion. Current assets were $328.5 million and current liabilities $1.51 billion. As of April 23, consolidated revolving-credit availability was $644.8 million; the filing says this figure does not reflect the $100.3 million PNM reserved to support floating-rate pollution-control bonds. PNMR was in compliance with its debt covenants.
PNM generated $77.5 million of operating cash and used $88.2 million for utility-plant additions. TNMP generated $16.7 million of operating cash and used $76.1 million for plant additions. PNMR’s cash from operations was below its investment outflows; financing included $220 million borrowed under a delayed-draw term loan and repayment of $300 million of notes.
Material changes versus the prior comparable period
- PNMR revenue increased 9.3% and utility margin increased $14.4 million year over year, while operating income fell $4.6 million.
- PNMR earnings attributable to shareholders improved by $32.9 million, largely reflecting the prior-year investment-securities loss; the comparison also benefited from lower PNM interest expense and better utility results.
- TNMP earnings rose to $8.7 million from $7.1 million. Higher transmission and distribution rates and increased load contributed to the improvement.
- Operating cash flow declined $7.3 million, while utility-plant additions increased to $172.2 million from $140.2 million.
- PNMR’s short-term debt rose to $197.5 million from $32.0 million at year-end 2020. Current installments of long-term debt also increased, to $1.01 billion from $575.5 million.
Outlook, management commentary, risks and unusual items
- Capital needs and liquidity: PNMR estimates total 2021–2025 capital requirements of approximately $4.55 billion, including construction and dividends. Management expects internal cash generation, credit facilities and capital-market access to meet needs for at least the next 12 months, while anticipating additional long-term financing during 2021–2025. Debt maturities and refinancing needs include loans due in June 2021, $160 million of PNM notes due in October 2021, and several term loans due in January 2022.
- Merger: Avangrid agreed to acquire PNMR for $50.30 in cash per share. Shareholders approved the transaction; several federal approvals had been obtained by the filing date, but PUCT, NMPRC and NRC approvals and other conditions remained. Closing was expected in the second half of 2021. The merger could trigger debt change-of-control provisions; TNMP must offer to prepay its $750 million of first mortgage bonds after closing.
- Generation transition and regulation: The NMPRC approved PNM’s plan to retire its share of the San Juan Generating Station by June 2022 and related energy-transition financing of up to $361 million; an appeal remained pending. PNM sought approval to exit Four Corners by the end of 2024 and issue approximately $300 million of energy-transition bonds; the amended application was under review. PNM also filed to abandon 114 MW of leased Palo Verde capacity and procure replacement resources. Regulatory approvals, cost recovery and replacement-resource decisions remain material uncertainties.
- Weather and credit: February cold weather increased PNM’s natural-gas costs by an estimated $20 million and purchased-power costs by $8 million; PNM expected to pass these costs to customers through its fuel adjustment mechanism over the rest of 2021. The Texas winter storm led TNMP to record a $1.4 million allowance for credit losses on receivables from retail electric providers; TNMP has authority to defer eligible bad-debt expense and seek recovery in a rate case.
- COVID-19: PNM recorded $10.7 million of deferred COVID-related costs at quarter-end, including incremental bad debt, subject to future recovery proceedings. Management said it could not predict the pandemic’s duration or ultimate financial effects.
- Longer-term strategy: PNM’s resource plan targets a carbon-free portfolio by 2040, while New Mexico law requires 100% zero-carbon energy by 2045. Environmental regulation, plant retirement and reclamation costs, water availability, and the recoverability of costs through rates present ongoing risks.
- Other contingencies: The filing describes environmental, water-rights, reclamation, regulatory and litigation matters. Management generally did not expect known matters to materially affect financial condition, results or cash flow, except where uncertainty is specifically noted; some potential losses could not be estimated.
Most important facts for investors to verify
- Confirm that PNMR’s combined 10-Q—not a later TXNM Energy filing—is the intended issuer and reporting period.
- Track remaining regulatory approvals, closing conditions and timing for the Avangrid merger, including related debt and TNMP bond requirements.
- Review the outcomes of the Four Corners, San Juan and Palo Verde proceedings, especially cost recovery, securitization and replacement-resource approvals.
- Monitor near-term debt maturities, refinancing, credit-facility availability and the funding of the company’s projected $4.55 billion 2021–2025 capital requirements.
- Assess whether weather-related costs and TNMP’s retail-provider credit losses are recovered as expected, and whether COVID-related deferred costs receive regulatory recovery.