PNM Resources, Inc. (PNMR) — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; unaudited. The filing is a combined report for PNM Resources, Inc. (PNMR), Public Service Company of New Mexico (PNM), and Texas-New Mexico Power Company (TNMP). Although the request identifies TXNM Energy, the filing registrant is named PNM Resources, Inc.
Business context: PNMR is a holding company for regulated electric utilities serving customers in New Mexico and Texas. PNM operates an integrated electric utility; TNMP provides regulated transmission and distribution services.
Financial performance
Amounts below are PNMR consolidated, in millions except per-share data. Utility margin is a company-defined non-GAAP measure: electric revenue less cost of energy.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Electric operating revenue | $554.6 | $472.5 | $1,345.8 | $1,163.7 |
| Utility margin | $355.2 | $338.5 | $878.3 | $837.2 |
| Operating income | $151.7 | $147.8 | $269.1 | $266.7 |
| Net earnings attributable to PNMR | $113.3 | $121.8 | $184.6 | $164.0 |
| Diluted EPS | $1.32 | $1.52 | $2.14 | $2.05 |
| Operating cash flow | — | — | $408.5 | $368.0 |
- Quarterly revenue rose about 17%, while operating income increased about 3%; earnings attributable to PNMR fell about 7%. The quarter’s utility margin increased $16.7 million, but weaker investment-securities performance and higher operating costs weighed on earnings.
- For the nine-month period, revenue increased about 16%, operating income was nearly flat, and attributable earnings rose about 13%. Higher utility margins, lower interest expense at PNM, and improved investment performance contributed to the earnings increase.
- PNMR’s nine-month net cash used in investing was $503.8 million, including $496.2 million of plant additions. Financing provided $96.8 million. Cash, restricted cash, and equivalents ended the period at $49.5 million.
- At September 30, PNMR reported $3.396 billion of long-term debt, $104.3 million of current long-term debt installments, and $13.9 million of short-term debt. Long-term debt plus current installments was approximately $3.500 billion, compared with $3.295 billion at December 31, 2020. Debt represented 61.9% of capitalization, versus 61.5% at year-end.
- At October 22, 2021, consolidated credit-facility availability was $798.8 million. Management stated that liquidity and expected access to financing were sufficient for at least the next 12 months; the company was in compliance with debt covenants and its debt ratings remained investment grade.
- PNMR declared common dividends of $0.3275 per share for Q3 2021, versus $0.3075 a year earlier.
Material changes and operating drivers
- PNM’s nine-month utility margin increased $24.4 million, supported by higher transmission revenue, customer usage, and rate riders, partly offset by milder weather and the prior-year leap day. PNM’s quarterly earnings attributable to the utility fell to $86.9 million from $99.3 million; nine-month earnings rose to $146.8 million from $128.8 million.
- TNMP’s nine-month utility margin increased $16.8 million, principally reflecting transmission and distribution rate increases. TNMP earnings rose to $27.9 million from $23.9 million for Q3 and to $52.3 million from $47.2 million for nine months.
- PNMR consolidated other electric operating revenue was $82.2 million in Q3 2021 versus $29.7 million in Q3 2020. The filing provides the reported amounts but does not clearly attribute this entire change to a specific cause.
- PNM’s investment-security gains were $16.1 million for the first nine months, versus $3.2 million in 2020; Q3 gains were $1.9 million versus $14.4 million. Investment performance can be volatile.
Outlook, risks, contingencies, and unusual items
- Merger: Avangrid agreed to acquire PNMR for $50.30 per share in cash. The transaction had received several regulatory approvals, but NMPRC approval and other closing conditions remained outstanding. Management expected closing in Q4 2021. Certain existing TNMP bonds may be subject to a post-closing offer to prepay at par; holders are not required to tender.
- Capital and transition plans: Projected 2021–2025 capital requirements, including construction spending and dividends, were $4.55 billion. PNMR’s stated strategy includes a carbon-free generating portfolio by 2040; PNM’s plans include retiring its share of San Juan Generating Station (SJGS) in 2022 and seeking to exit Four Corners by 2024, subject to regulatory processes.
- Resource and supply uncertainty: Delays to approved replacement solar and battery resources could affect 2022 summer reliability. PNM entered into three power-purchase agreements to cover expected peak-period needs. The San Juan mine operator reported unfavorable geology and force majeure affecting coal inventory; PNM could not determine whether reduced inventory would continue or affect full-load operations.
- Regulatory and environmental exposure: PNM’s Four Corners exit and proposed approximately $300 million of energy-transition bonds remained under review. The proposed transaction includes a $75 million payment to NTEC for relief from coal-supply obligations after 2024. The outcome of regulatory proceedings, environmental rules, decommissioning and mine-reclamation costs, and recovery of costs from customers remain uncertain.
- Other unusual items and contingencies: PNMR recorded $0.436 million of regulatory disallowances and restructuring costs in the nine-month period. PNM estimated that February 2021 cold weather added approximately $20 million of natural-gas costs and $8 million of purchased-power costs, which were being passed through to customers under the fuel adjustment clause. TNMP recorded $0.8 million of bad-debt expense related to defaulting retail electric providers after the Texas winter storm and planned to seek recovery in a rate case; lawsuits and investigations related to the event continued.
- Guidance: The provided filing text does not state a specific earnings or EPS forecast. Management cited uncertainty around regulatory outcomes, capital-market access, weather, fuel and power costs, project timing, COVID-19, and environmental requirements.
Most important facts for investors to verify
- Whether the Avangrid merger and required New Mexico approvals closed on the expected terms and timeline.
- Regulatory outcomes for the Four Corners exit, SJGS securitization, and recovery of transition, decommissioning, and reclamation costs.
- Whether replacement generation and storage projects meet their schedules and provide adequate 2022–2023 reliability.
- Coal supply conditions at SJGS, related operating impacts, and any further consequences of the Texas winter storm for TNMP.
- Debt refinancing needs, revolving-credit availability, covenant compliance, and the effect of variable rates and investment-trust performance on earnings and liquidity.