Business Context and Reporting Period
This Form 8-K is filed by PNM Resources, Inc. and its wholly-owned subsidiary, Public Service Company of New Mexico (PNM), on November 1, 2017. The report addresses a regulatory event concerning a general rate increase case filed with the New Mexico Public Regulation Commission (the Commission) in December 2016.
Key Financial Metrics and Material Changes
The filing details a Recommended Decision (RD) issued by Hearing Examiners on October 31, 2017, regarding a revised settlement stipulation filed on May 23, 2017.
- Revenue Requirement: The RD recommends approval of a total revenue increase of $62.3 million to be implemented over two years ($32.3 million in 2018 and the remainder in 2019).
- Return on Equity: The RD upholds the previously agreed-upon 9.575% Return on Equity.
- Investment Disallowance: The RD temporarily disallows approximately $36 million of investments related to improvements at the San Juan Generating Station, though recovery may be requested in future rate cases.
- Four Corners Power Plant (FCPP): The RD identifies the continuation of FCPP as imprudent and recommends against PNM collecting a debt or equity return on future investments in the facility.
- Rate Implementation: New rates are recommended for services rendered after January 1, 2018, with a pro-rata allocation across all rate classes.
Management Commentary, Risks, and Contingencies
PNM strongly disagrees with the RD's finding that the continuation of FCPP was imprudent, asserting that its investments were prudent. The filing highlights a significant financial contingency: if the Commission approves the RD as recommended, PNM would be required to record a pre-tax write-off of approximately $62 million on certain FCPP investments.
PNM is currently evaluating its options for formal objections. Exceptions to the Certification of Stipulation are due by November 10, 2017. The Commission must issue a final order by January 6, 2018, or extend the suspension period until no later than March 6, 2018.
Investor Verification Checklist
- Verify the final order issued by the New Mexico Public Regulation Commission regarding the FCPP imprudence finding.
- Monitor the potential $62 million pre-tax write-off impact on PNM's financial statements if the RD is approved.
- Confirm the timeline for the final Commission order (deadline January 6, 2018, or extended to March 6, 2018).
- Review the status of the $36 million temporarily disallowed investment at the San Juan Generating Station.