Business Context and Reporting Period
PNM Resources, Inc. (PNMR), the parent of regulated utilities Public Service Company of New Mexico (PNM) and Texas-New Mexico Power Company (TNMP), filed this unaudited combined Form 10-Q for the quarter and six months ended June 30, 2021. The filing also contains separate financial statements for PNM and TNMP. Amounts below are U.S. dollars; financial figures are generally in millions unless noted.
Key Financial Metrics
| PNMR consolidated | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Electric operating revenue | $426.5 | $357.6 | $791.2 | $691.3 |
| Operating income | $74.2 | $71.2 | $117.4 | $118.9 |
| Net earnings attributable to PNMR | $53.7 | $57.5 | $71.3 | $42.2 |
| Diluted earnings per share | $0.62 | $0.72 | $0.83 | $0.53 |
| Utility margin, non-GAAP | $273.9 | $263.8 | $523.2 | $498.7 |
PNMR’s utility margin is electric operating revenue less cost of energy; management says it better reflects utility operations because many fuel, purchased-power, and transmission costs are passed through to customers. It increased 3% in Q2 and 5% for the first half. Q2 net earnings attributable to PNMR declined about 7%, while first-half earnings rose about 69% and diluted EPS increased from $0.53 to $0.83.
For the six months, operating cash flow was $174.6 million, investing cash outflow was $338.4 million, and financing cash flow was $134.4 million. Utility-plant additions were $335.0 million, resulting in a $29.5 million decrease in cash, restricted cash, and equivalents to $18.5 million. At June 30, cash and equivalents were $18.5 million; short-term debt was $91.5 million, current long-term debt $250.1 million, and long-term debt $3,186.1 million. Current assets of $391.9 million were below current liabilities of $636.5 million.
PNM reported first-half revenue of $595.2 million and net earnings available for common stock of $59.9 million, compared with $508.9 million and $29.5 million in 2020. TNMP reported revenue of $196.1 million and net earnings of $24.4 million, compared with $182.4 million and $23.3 million.
Material Changes Versus the Prior Comparable Period
- First-half PNMR revenue increased 14%, but operating income was slightly lower. Revenue included $69.4 million of other electric operating revenue, versus $20.3 million in the first half of 2020; the filing does not provide a clear breakdown of this increase in the summarized statements.
- Higher first-half PNMR earnings reflected improved performance of PNM’s investment securities, higher utility margin, lower interest expense at PNM, and increased load and rates. These benefits were partly offset by higher operating and maintenance expenses, depreciation, and TNMP interest charges.
- Q2 earnings declined despite higher operating income. Management attributed PNM’s year-over-year segment earnings decrease principally to weaker investment-security performance; TNMP earnings also decreased in the quarter.
- PNMR’s utility plant grew to $6.13 billion from $5.97 billion at year-end 2020. Total reported debt, including short-term and current maturities, was approximately $3.53 billion, up from approximately $3.33 billion at year-end.
Outlook, Management Commentary, Risks, and Unusual Items
- Merger: PNMR agreed to be acquired by Avangrid for $50.30 in cash per PNMR share. The merger was expected to close in the second half of 2021, subject to remaining conditions, notably New Mexico Public Regulation Commission approval and related Four Corners requirements. A failed transaction could trigger termination fees under specified circumstances.
- Capital and liquidity: Estimated 2021–2025 capital requirements total $4.55 billion, including $3.99 billion of construction expenditures and dividends. Management said resources were expected to cover requirements for at least 12 months and debt covenants were met. Consolidated revolving-credit availability was $715.2 million as of July 23, 2021, including the filing’s stated reserve for PNM floating-rate bonds. Additional long-term financing may be needed over 2021–2025.
- Financing after quarter-end: PNM issued $160 million of notes in July at 2.59% and 3.14%, using proceeds to repay $160 million of 5.35% notes. TNMP announced a $65 million bond issue at 2.44%, expected in August. In May, PNMR drew $850 million under a variable-rate delayed-draw term loan, at 0.93% on June 30, primarily to refinance existing obligations.
- Winter weather: February’s unusually cold weather added an estimated $20 million of natural-gas costs and $8 million of purchased-power costs at PNM; these costs were being passed through to customers under the fuel clause over the remainder of 2021. TNMP deferred $1.0 million of bad-debt expense associated with defaulting retail providers as a regulatory asset after the Texas storm; it plans to seek recovery in a rate case.
- Generation transition and reliability: PNM’s approved plan calls for retiring its share of San Juan Generating Station (SJGS) in 2022; a proposed Four Corners exit in 2024 and associated financing remain subject to regulatory review. Supply-chain delays meant approved replacement resources might not be fully available for the 2022 summer peak, and PNM said existing resources and reserves might be insufficient; it was evaluating alternatives. A June SJGS Unit 1 cooling-tower failure caused an outage until July 25; PNM estimated its repair exposure at $1.0 million, subject to insurance, and the regulator opened an inquiry.
- Other regulatory and environmental uncertainty: Pending matters include the Four Corners sale and securitization application, challenges to SJGS securitization, PNM’s proposed return of leased Palo Verde capacity, rate mechanisms, and environmental rules. The company cites potential cost recovery, generation replacement, decommissioning, reclamation, water, and climate-regulation risks. It targets an emissions-free generating portfolio by 2040; New Mexico law requires 100% zero-carbon energy by 2045.
- Investment and accounting volatility: First-half results included $14.2 million of gains on investment securities, versus an $11.2 million loss in the prior-year period. These securities support nuclear decommissioning and mine-reclamation trusts, so results may vary with markets. The company reported no material changes to its risk factors and stated disclosure controls were effective.
Important Facts for Investors to Verify
- Whether the Avangrid merger received all required approvals and closed, and whether any transaction-related conditions or termination fees arose.
- Actual timing, cost, and regulatory recovery of replacement generation, particularly readiness for the 2022 summer peak and PNM’s SJGS and Four Corners plans.
- PNMR’s debt maturities, refinancing needs, available credit capacity, and compliance with debt covenants as capital spending proceeds.
- Whether deferred storm, COVID-19, fuel, and other regulatory-asset costs are approved for recovery from customers, and on what schedule.
- How investment-trust performance, environmental obligations, and pending legal or regulatory matters affect future earnings, cash flow, and customer rates.