Business context and reporting period
This unaudited combined Form 10-Q covers the three months ended March 31, 2022, and was filed by PNM Resources, Inc. (PNMR), Public Service Company of New Mexico (PNM), and Texas-New Mexico Power Company (TNMP). The supplied filing identifies the parent as PNM Resources, not TXNM Energy. PNMR is a holding company whose two regulated utilities served approximately 809,000 customers and end-users in New Mexico and Texas. Dollar figures below are in millions unless otherwise stated.
Key financial results
| PNMR consolidated | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Electric operating revenue | $444.1 | $364.7 | +$79.4 |
| Operating income | $68.1 | $43.2 | +$24.9 |
| Net earnings attributable to PNMR | $16.0 | $17.6 | −$1.6 |
| Diluted EPS | $0.19 | $0.20 | −$0.01 |
| Operating cash flow | $116.6 | $86.5 | +$30.1 |
| Utility plant additions | $209.9 | $172.2 | +$37.7 |
PNMR’s non-GAAP utility margin increased to $275.7 from $249.3, up $26.4 (10.6%). Revenue growth included increased other electric revenue, principally from PNM’s participation in the Western Energy Imbalance Market (EIM), which began in April 2021. Much of fuel and purchased-power cost is passed through to customers, so revenue growth is not equivalent to margin growth.
Operating income improved, but net earnings attributable to PNMR declined mainly because investment securities in the nuclear decommissioning and coal-mine reclamation trusts recorded a $26.6 loss, compared with a $1.0 gain a year earlier. Those investment results are a significant unusual source of quarter-to-quarter earnings volatility.
PNM segment earnings attributable to PNMR were $4.3, down from $18.5, including the investment-security loss. PNM utility margin rose $17.6, primarily from transmission revenue, including the Western Spirit Line, partly offset by rate-rider effects. TNMP earnings increased to $15.1 from $8.7, reflecting transmission and distribution rate increases and higher load. Corporate and Other losses narrowed to $3.4 from $9.7, helped by lower merger costs and interest expense.
Cash flow, debt and liquidity
PNMR generated $116.6 of operating cash and used $211.9 in investing activities, including $209.9 of utility and non-utility plant additions; financing activities provided $98.5. Cash and cash equivalents were $4.4 at March 31, 2022. At that date, PNMR reported $86.0 of short-term debt, $179.4 of current long-term debt installments, and $3,620.0 of long-term debt, net. Its long-term debt was 64.1% of capitalization, excluding short-term debt and lease obligations.
At April 21, 2022, consolidated revolving-facility and New Mexico facility availability was $705.5, after outstanding borrowings and letters of credit. Management said it expected internal cash generation, credit arrangements, and capital-market access to meet requirements for at least 12 months, while anticipating additional long-term financing during 2022–2026. PNMR projected total capital requirements of approximately $4.8 billion over 2022–2026, including construction spending and dividends. The companies reported compliance with debt covenants.
PNMR drew the remaining $100.0 under its delayed-draw term loan in January 2022; the $1.0 billion facility matures in May 2023. PNM had $104.5 of pollution-control bonds due for refinancing or repricing in June 2022 and a $75.0 term loan maturing in December 2022. After quarter-end, TNMP agreed to issue $160.0 of first mortgage bonds, with proceeds intended partly to repay revolver borrowings. Moody’s downgraded TNMP’s issuer rating to Baa1 in February; the filing states all debt ratings remained investment grade.
Material developments, outlook and risks
- Merger: PNMR’s proposed acquisition by Avangrid would pay $50.30 per share in cash. The New Mexico Public Regulation Commission (NMPRC) rejected a merger stipulation; PNMR and Avangrid appealed. The merger agreement end date was extended to April 20, 2023. NMPRC approval remained outstanding, and closing was not assured.
- San Juan Generating Station (SJGS): Replacement projects were delayed, creating a risk to meeting 2022 peak demand. PNM arranged supplemental power and extended SJGS Unit 4 operation through September 30, 2022. PNM reported projected summer reserve margins of 20.7% to 12.5% after its updated resource assumptions, but noted uncertainty from a coal-mine force majeure notice and potentially reduced inventory. A proceeding also concerned whether customer rates should be reduced when SJGS is abandoned.
- Four Corners: The NMPRC denied PNM’s application to exit its 13% ownership interest and issue approximately $300 million of energy-transition bonds. PNM appealed. The proposed sale to NTEC, targeted for 2024, includes a $75.0 payment for relief from future coal-supply obligations; the filing says PNM is not proposing to recover that payment from ratepayers. PNM recorded no loss, judging recovery of its undepreciated investment reasonably possible.
- Resource transition: Management’s stated plan is an emissions-free generation portfolio by 2040; New Mexico law requires 100% zero-carbon energy by 2045. Delays in approved renewable and storage projects, regulatory decisions, environmental rules, fuel supply, water availability, and system reliability could affect costs and operations.
- Rate and regulatory exposure: Outcomes of PNM’s abandonment, rate, and recovery proceedings remain uncertain. TNMP filed for a 2022 distribution cost-of-service increase of $9.7 annually. FERC opened a show-cause proceeding in April 2022 on PNM’s transmission formula-rate protocols. The filing says litigation and regulatory matters could have material outcomes that cannot currently be estimated clearly.
- Market and operating risks: Trust investment values, rising interest rates, capital-market access, severe weather, outages, cybersecurity, and supply-chain or coal-supply disruption may affect earnings, cash flow, or financing costs. The quarter’s $26.6 investment-security loss illustrates market exposure.
Important facts for investors to verify
- Progress and final outcome of the NMPRC appeal and other approvals for the Avangrid merger, including whether the $50.30-per-share transaction closes by the extended deadline.
- Summer reliability and reserve margins, SJGS Unit 4 operating status, coal availability, and timing and performance of delayed replacement resources.
- Resolution of the Four Corners appeal, treatment of undepreciated investment, and the proposed $75.0 coal-contract settlement payment.
- Debt refinancing and issuance plans, including the PNM 2022 maturities, TNMP’s $160.0 bond issuance, and liquidity after planned capital spending.
- Whether PNM and TNMP receive regulatory recovery for capital investments, transition costs, and other deferred costs, and the effect of pending rate and FERC proceedings.