Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2024, for PNM Resources, Inc. (PNMR) and its subsidiaries: Public Service Company of New Mexico (PNM) and Texas-New Mexico Power Company (TNMP). PNMR is an investor-owned holding company operating regulated electric utilities in New Mexico and Texas. The filing includes unaudited condensed consolidated financial statements for the three and six months ended June 30, 2024, and 2023.
Key Financial Metrics (Six Months Ended June 30, 2024)
| Metric | 2024 (YTD) | 2023 (YTD) |
|---|---|---|
| Electric Operating Revenues | $924.98 million | $1,021.23 million |
| Operating Income | $186.27 million | $191.42 million |
| Net Earnings Attributable to PNMR | $95.24 million | $100.32 million |
| Diluted EPS | $1.05 | $1.16 |
| Operating Cash Flow | $169.52 million | $242.44 million |
| Investing Cash Flow | ($479.50 million) | ($530.26 million) |
| Financing Cash Flow | $326.35 million | $291.38 million |
| Total Debt (Long-term + Current) | $5.16 billion | $4.78 billion |
| Utility Margin (Non-GAAP) | $637.97 million | $607.10 million |
Material Changes vs. Prior Period
- Revenue Decline: Consolidated electric operating revenues decreased by approximately $96.25 million (9.4%) year-over-year, primarily driven by a significant decrease in wholesale energy sales at PNM and lower transmission margins.
- Earnings Pressure: Net earnings attributable to PNMR decreased by $5.08 million (5.1%). This was driven by increased depreciation and amortization (approved in PNM's 2024 Rate Change), higher interest charges, and a regulatory disallowance related to San Juan Coal Mine reclamation remeasurement.
- Segment Performance:
- TNMP: Reported a $9.8 million increase in segment earnings, driven by higher transmission and distribution rates and increased volumetric load.
- PNM: Reported a $13.1 million decrease in segment earnings due to lower transmission margins, higher interest costs, and regulatory disallowances.
- Corporate: Reported a $1.9 million decrease in segment loss, partially offset by a $4.4 million gain on the sale of its equity method investment in NMRD.
- Capital Expenditures: Utility plant additions totaled $581.82 million for the six months ended June 30, 2024, an increase of $44.8 million compared to the prior year period.
Guidance, Outlook, and Management Commentary
- Regulatory Filings: PNM filed a 2025 Rate Request on June 14, 2024, seeking a $174.3 million increase in retail revenues to fund infrastructure investments and wildfire mitigation. The NMPRC has suspended the advice notice until July 15, 2025.
- Capital Requirements: PNMR projects consolidated capital requirements (construction and dividends) of $6.8 billion for the 2024-2028 period. The company expects to fund these through internal cash generation, existing credit facilities, and new debt/equity issuances.
- Financing Activity:
- Issued $550 million in 5.75% Junior Subordinated Convertible Notes due 2054 in June 2024.
- Entered into a $200 million term loan (PNM) and a $285 million bond issuance (TNMP) to refinance debt and fund capital projects.
- Established a $100 million "at-the-market" (ATM) equity program.
- Strategic Focus: Continued transition to a 100% carbon-free generating portfolio by 2040. PNM plans to be coal-free by 2031. The company is actively pursuing grid modernization investments and renewable resource procurement.
- Risks: Key risks include regulatory outcomes regarding cost recovery (specifically the Four Corners abandonment and PVNGS leased interest), climate change regulations (EPA rules), wildfire liability, and the ability to access capital markets at favorable rates.
Investor Verification Checklist
- Regulatory Outcomes: Monitor the NMPRC's final decision on the 2025 Rate Request and the ongoing appeals regarding the 2024 Rate Change (specifically the Four Corners disallowance and PVNGS cost recovery).
- Debt Refinancing: Verify the company's ability to refinance approximately $455 million in debt maturing through July 2025, including the $104 million SUNs due in May 2025.
- Reclamation Costs: Review the impact of the $4.5 million regulatory disallowance related to the capped surface mine reclamation liability at San Juan Generating Station (SJGS) and future funding requirements for the reclamation trust.
- Convertible Notes: Assess the dilution impact and liquidity implications of the $550 million Convertible Notes issued in June 2024, particularly regarding the conditional conversion feature.
- Wholesale Market Exposure: Evaluate the volatility in PNM's wholesale energy sales and transmission margins, which significantly impacted YTD revenue.