TXNM ENERGY INC annual report, FY2021

Business context and reporting period

This is the combined Form 10-K of PNM Resources, Inc. (PNMR), Public Service Company of New Mexico (PNM), and Texas-New Mexico Power Company (TNMP), for the fiscal year ended December 31, 2021—not a Q4-only report. PNMR is a regulated electric utility holding company serving New Mexico and Texas. The filing predates the company’s later TXNM Energy name.

Financial performance and position

Revenue rose 16.9%, while attributable earnings increased 13.3% and diluted EPS rose 5.6%. The company’s non-GAAP utility margin—revenue less energy costs—was $1,135.0 million, up from $1,075.8 million. PNM’s utility margin increased to $830.2 million from $794.7 million; TNMP’s increased to $304.8 million from $281.1 million. Management cited higher load and transmission revenue, TNMP rate increases, lower interest expense at PNM and the holding company, and lower merger costs. Offsets included milder weather, higher operating and maintenance costs, depreciation, TNMP interest expense, and weaker returns on PNM trust investments.

At December 31, PNMR reported $3.52 billion of long-term debt, net, plus $62.7 million of short-term debt; current long-term debt installments were $179.3 million. Long-term debt was 62.9% of reported capitalization. As of February 18, 2022, consolidated credit-facility availability was $799.8 million. Management said it expected resources to cover at least the next 12 months, while anticipating additional long-term financing during 2022–2026. The company projected $4.79 billion of capital requirements for 2022–2026, including $4.19 billion of construction expenditures and $599.1 million of dividends.

Material changes versus the prior comparable period

• PNMR earnings attributable to shareholders increased by $23.0 million; reported revenue also rose substantially, partly reflecting higher energy sales for resale and market activity after PNM joined the Western Energy Imbalance Market (EIM) in April 2021.
• PNM reported $12.5 million of EIM customer cost savings for 2021. Weather-normalized retail sales increased 0.3%; TNMP volumetric weather-normalized sales decreased 0.8%, while demand-based load increased 1.8%.
• PNM completed its purchase of the Western Spirit transmission line in December 2021. PNMR’s utility-plant additions were $935.0 million, compared with $679.0 million in 2020.
• Debt financing included a $900 million draw under PNMR’s delayed-draw term loan, PNM note issuances and TNMP first mortgage bonds. PNMR’s common shares issued under its 2020 forward equity sale had increased the share count used in EPS comparisons.

Outlook, commentary, risks and unusual items

• Merger uncertainty: The proposed Avangrid acquisition would pay $50.30 per PNMR share, but the New Mexico Public Regulation Commission rejected the merger stipulation in December 2021. PNMR and Avangrid appealed; the agreement’s end date was extended to April 20, 2023. Required New Mexico approval remained outstanding.
• Generation transition and reliability: PNM’s planned retirement of San Juan Generating Station (SJGS) in 2022 is approved, but delays to replacement projects raised concerns about 2022 summer reliability. PNM arranged additional power purchases and obtained agreement to extend SJGS Unit 4 operation through September 30, 2022. The proposed Four Corners exit and related securitization were denied by regulators and appealed.
• Regulatory and capital exposure: Recovery of utility investment, retired-plant costs, and replacement-resource costs depends on regulators. The filing forecasts major construction spending and identifies capital-market access, refinancing, interest rates, and credit ratings as risks. Moody’s downgraded TNMP’s issuer rating from A3 to Baa1 in February 2022; its debt ratings remained investment grade.
• Weather and market events: Texas’s February 2021 winter storm caused ERCOT-directed outages. TNMP reported no significant system outages outside those curtailments, deferred $0.8 million of bad-debt expense for recovery, and said it did not expect a significant financial impact, while noting litigation and investigations. PNM estimated the cold weather added about $20 million of gas costs and $8 million of purchased-power costs, passed through to customers.
• Environmental and operational risks: The company targets an emissions-free generating portfolio by 2040; New Mexico law requires 100% zero-carbon energy by 2045. Regulatory uncertainty, drought and water availability, fuel supply, nuclear decommissioning and spent-fuel disposal, wildfire, cybersecurity, and permitting remain risks.
• Other notable matters: PNM’s SJGS unit outage followed a cooling-tower failure in June 2021; insurance was expected to cover damage subject to a deductible. PNMR disclosed $30.3 million of letters of credit supporting San Juan mine reclamation bonds. The filing does not quantify a clear total potential loss for the principal contested regulatory and legal matters.

Important facts for investors to verify

• Progress and final outcome of the New Mexico merger appeal, remaining approvals, and the agreement’s termination provisions.
• Whether delayed renewable and storage projects enter service on schedule, and whether PNM can maintain reliable supply and recover replacement-power costs.
• Outcome of the Four Corners appeal, including treatment of undepreciated investment, securitization, and the proposed $75 million coal-contract relief payment.
• Actual capital spending, financing needs, debt maturities, available liquidity, and the effect of TNMP’s lower credit rating.
• Whether Texas winter-storm claims, environmental obligations, reclamation and decommissioning estimates, or other contingencies produce material costs beyond amounts reflected in the filing.