Business Context and Reporting Period
Company: PNM Resources, Inc. (Parent of Public Service Company of New Mexico)
Filing Type: Form 8-K (Current Report)
Reporting Period: Three months ended March 31, 2003 (First Quarter 2003)
Date of Report: April 30, 2003
Business Overview: PNM Resources is an energy holding company serving approximately 452,000 natural gas customers and 392,000 electric customers in New Mexico. It also engages in wholesale power sales in the Western U.S. The filing reports unaudited results of operations and includes significant regulatory and operational updates.
Key Financial Metrics
| Metric | Q1 2003 | Q1 2002 | Variance |
|---|---|---|---|
| Total Operating Revenues | $387.7 million | $301.8 million | +$85.9 million (28.5%) |
| Net Earnings (GAAP) | $48.2 million | $24.8 million | +$23.4 million |
| Earnings Per Share (Diluted, GAAP) | $1.22 | $0.63 | +$0.59 |
| Ongoing Earnings Per Share (Non-GAAP) | $0.53 | $0.63 | -$0.10 |
| Operating Income | $33.4 million | $32.7 million | +$0.7 million |
| Wholesale Power Revenues | $107.8 million | $73.0 million | +$34.8 million (47.6%) |
| Wholesale Power Prices (Avg) | $42/MWh | $24/MWh | +$18/MWh |
Liquidity and Debt Actions: The company eliminated $45 million in off-balance sheet lease obligations and secured a new $90 million, three-year liquidity facility backed by accounts receivable.
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased 28.5% driven by higher gas costs passed to customers and a 47.6% surge in wholesale revenues due to a new long-term contract with the U.S. Navy and higher market prices.
- Earnings Volatility: GAAP EPS more than doubled to $1.22, but this was primarily due to a one-time non-cash gain of $0.95 per share from adopting FASB Statement 143 (Asset Retirement Obligations). Excluding this and a $0.26 per share charge for regulatory asset write-offs, ongoing earnings declined to $0.53 per share from $0.63 in the prior year.
- Operational Constraints: Despite higher wholesale prices, the company's ability to capture margin was limited by forced outages at the San Juan Generating Station, which added approximately $5.5 million to purchased power expenses.
- Regulatory Shift: New Mexico legislation repealed the 1999 law mandating retail electric competition, allowing PNM to continue as a regulated utility.
Guidance, Outlook, and Risks
- 2003 Guidance: Management reaffirmed its full-year 2003 ongoing earnings guidance of $1.80 to $2.05 per diluted share (excluding one-time items).
- Dividend: The Board approved a 4.5% increase in the quarterly dividend to $0.23 per share, payable May 16, 2003.
- Key Risks and Contingencies:
- Weather Sensitivity: The warmest January on record negatively impacted gas business margins.
- Generation Availability: Continued reliance on the San Juan Generating Station creates risk if forced outages persist, increasing purchased power costs.
- Market Factors: Future results depend on interest rates, fuel costs, wholesale power prices, and regulatory decisions.
- Non-GAAP Measures: The company utilizes non-GAAP measures to exclude litigation settlements, regulatory changes, and restructuring costs to show fundamental earnings capacity. These should not be viewed as a substitute for GAAP measures.
Investor Verification Checklist
- Verify the sustainability of the $42/MWh wholesale power price average versus historical norms.
- Confirm the status and repair timeline of the San Juan Generating Station units to assess future purchased power costs.
- Review the specific terms of the new long-term power sales contract with the U.S. Navy.
- Monitor the impact of the repealed retail competition law on future regulatory rate cases.
- Assess the company's ability to meet the lower end of the $1.80-$2.05 ongoing earnings guidance given the Q1 ongoing EPS decline.