Business context and reporting period
PNM Resources, Inc. (PNMR), the parent of regulated electric utilities Public Service Company of New Mexico (PNM) and Texas-New Mexico Power Company (TNMP), filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2022. The utilities serve approximately 811,000 customers in New Mexico and Texas. Financial amounts below are in millions unless noted.
Financial performance and condition
| PNMR consolidated | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Electric operating revenue | $499.7 | $426.5 | $943.8 | $791.2 |
| Operating income | $86.4 | $74.2 | $154.5 | $117.4 |
| Net earnings attributable to PNMR | $15.4 | $53.7 | $31.4 | $71.3 |
| Diluted EPS | $0.18 | $0.62 | $0.36 | $0.83 |
| Utility margin (non-GAAP) | $304.1 | $273.9 | $579.8 | $523.2 |
Utility margin is electric revenue less energy costs. Despite higher revenue and operating income, PNMR earnings fell sharply, principally because investment securities in the nuclear decommissioning and coal-mine reclamation trusts recorded losses of $41.8 million in Q2 and $68.4 million in the first half, versus gains in 2021. Six-month reported earnings also reflected higher operating costs, depreciation, and interest.
Segment trends diverged: TNMP six-month earnings rose to $41.1 million from $24.4 million, supported by transmission and distribution rate increases, higher load, warmer Q2 weather, and new large loads. PNM’s six-month earnings attributable to PNM common stock were a loss of $1.9 million, compared with income of $59.9 million, heavily affected by the investment losses. PNMR’s Q2 dividend declared per share was $0.3475, compared with $0.3275.
Cash flow and liquidity: First-half operating cash flow was $217.9 million, up from $174.6 million; utility and non-utility plant additions were $475.7 million, versus $335.0 million. Financing provided $263.7 million. Cash and equivalents at June 30 were $3.5 million. PNMR reported $266.3 million of short-term debt and $259.6 million of current long-term debt installments; long-term debt, net, was $3.573 billion. Long-term debt represented 64.1% of PNMR capitalization, excluding short-term debt. As of July 29, consolidated revolving-credit availability was $644.1 million. The companies reported compliance with debt covenants.
Material changes versus the prior comparable period
- PNMR six-month revenue increased 19%, while earnings attributable to PNMR declined 56%; the trust investment losses were the principal unusual driver of the earnings decline.
- PNMR six-month operating cash flow improved, but capital spending increased materially, reflecting a higher pace of utility investment.
- PNM’s Western Spirit transmission line and higher transmission rates supported margin growth; TNMP benefited from rate relief and stronger load, including cryptocurrency-related demand.
- TNMP issued $65 million of 30-year bonds in May at 4.13%; a further $95 million issuance at 3.81% occurred July 28, after quarter-end. PNMR also entered into $450 million of interest-rate hedges, fixing benchmark rates at 2.52%–2.65% plus a SOFR-based spread.
Outlook, management commentary, risks and contingencies
Management projected $4.8 billion of consolidated capital requirements for 2022–2026, including construction spending and dividends; construction expenditures comprise approximately $4.2 billion. Management stated that internal cash generation, credit facilities, and capital-market access should meet needs for at least the next 12 months, while expecting additional long-term financing during 2022–2026. No specific earnings or EPS guidance is provided in the filing text.
- San Juan Generating Station (SJGS): Unit 1 retired June 30, 2022; Unit 4 was extended through September 30, 2022 to support reliability. The NMPRC ordered annual rate credits of $21.1 million, followed by $98.3 million after removal of additional SJGS costs. PNM began issuing credits July 31 while appealing the order; the court’s decision was pending at filing. PNM also paid $19.8 million to designated state funds on July 28. Timing and marketability of proposed securitized bonds, and associated rate treatment, remain disputed.
- Resource adequacy: Delays and price increases affected approved replacement projects for SJGS and expiring PVNGS leased capacity. PNM reported a projected 2023 summer reserve margin of 2.9%–7.5% after arranging 160 MW of power purchases, and continued to evaluate additional supply. Coal-mine geological conditions could also constrain SJGS output.
- Four Corners and transition: PNM’s proposed exit by the end of 2024 and approximately $300 million of securitized financing were denied by the NMPRC; PNM appealed. PNM’s planned coal transition and recovery of related undepreciated investments and decommissioning costs depend on regulatory outcomes.
- Merger: The proposed acquisition by Avangrid for $50.30 cash per PNMR share remained pending, with NMPRC approval outstanding. The parties extended the merger end date to April 20, 2023. Other named agency approvals had been obtained or extended.
- FERC refunds: PNM was directed to pay approximately $7 million and $28 million in time-value refunds relating to service agreements. PNM appealed and recorded no loss, concluding a loss was not probable and the amount could not be reasonably estimated.
- Other risks: The filing highlights interest-rate and refinancing risk, regulatory cost recovery, renewable-project execution and supply-chain delays, extreme weather and system reliability, environmental compliance, spent-fuel and mine-reclamation obligations, and volatility in trust investments. TNMP also faces litigation and inquiries related to the 2021 Texas winter storm; management did not expect significant financial impacts but could not predict outcomes.
Important facts for investors to verify
- Track trust investment performance and whether reported earnings recover from the substantial first-half mark-to-market losses.
- Confirm implementation and appellate outcomes of the SJGS rate credits, and whether and when securitized bonds are issued.
- Monitor PNM’s firm-resource procurement, replacement project schedules, and actual reserve margins for 2023 and later periods.
- Check the status of the Four Corners appeal and the outstanding NMPRC approval required for the Avangrid merger.
- Assess funding of the $4.8 billion capital plan, debt maturities, borrowing costs, and continued access to credit and capital markets.