TXNM ENERGY INC annual report, FY2020

Business context and reporting period

This is a combined Form 10-K for PNM Resources, Inc. (PNMR), Public Service Company of New Mexico (PNM), and Texas-New Mexico Power Company (TNMP), for the fiscal year ended December 31, 2020. The filing identifies the registrant as PNM Resources, Inc.; it does not identify TXNM Energy Inc. as the filer. PNMR is a holding company for regulated electric utilities serving New Mexico and Texas. TNMP provides transmission and distribution services and does not sell electricity.

Financial performance and position

Revenue rose about 4.5%; operating income and attributable earnings increased substantially. Calculated operating margin was about 18.7% in 2020 versus 9.9% in 2019. PNMR’s non-GAAP utility margin was $1.076 billion, up from $1.045 billion. The filing does not provide a single consolidated GAAP gross-margin measure.

PNMR’s net cash from operations declined about 3.5%. Utility and non-utility plant additions were $679.0 million. At year-end, debt represented 61.5% of PNMR capitalization, compared with 64.0% a year earlier. Current assets of $377.5 million were below current liabilities of $977.7 million. As of February 19, 2021, consolidated remaining credit-facility availability was $773.1 million, subject to a $100.3 million PNM reserve supporting floating-rate pollution-control bonds.

Changes versus prior year

• 2020 earnings benefited from higher PNM residential load, higher TNMP volumetric load, warmer weather at PNM, increased transmission and distribution rates, lower PNM maintenance costs, and lower PNM interest expense.
• The largest year-over-year earnings comparison was the $150.6 million pre-tax regulatory impairment recorded by PNM in 2019 following the New Mexico Supreme Court’s 2015 rate-case decision. The 2020 earnings increase should therefore not be read as solely reflecting recurring operating growth.
• Partly offsetting 2020 gains were higher operating and maintenance expenses, depreciation, PNM commercial-load weakness, lower TNMP demand-based load, a $2.0 million COVID customer-relief donation, and lower gains on PNM trust investments.
• PNMR issued 6.2 million shares in December 2020, generating $283.1 million of net proceeds. Consolidated long-term debt increased by approximately $287 million year over year.

Outlook, risks and unusual items

• PNMR projected $4.526 billion of total capital requirements for 2021–2025, including $3.961 billion of construction expenditures and dividends. Estimated 2021 construction expenditures were $1.016 billion. Management expected internal cash generation, credit facilities, and capital-market access to meet requirements for at least the next 12 months, while anticipating additional long-term financing during the five-year period.
• PNM’s transition plan includes retiring its share of San Juan Generating Station (SJGS) in 2022, subject to ongoing proceedings, and seeking approval to exit its Four Corners interest by the end of 2024. The Four Corners application seeks approximately $300 million of energy-transition bonds; its review remained pending, with the hearing examiner requiring an amended application and prudence testimony. The SJGS securitization approval was under appeal.
• PNM’s 2020 IRP targets a carbon-free portfolio by 2040. New Mexico law requires renewable portfolios of 40% by 2025, 80% by 2040, and 100% zero-carbon energy by 2045. Execution, replacement-resource reliability and cost, and regulatory cost recovery are material uncertainties.
• The proposed Avangrid acquisition would pay $50.30 in cash per PNMR share. Shareholders approved it in February 2021; required regulatory approvals and other closing conditions remained outstanding. Management expected closing in the second half of 2021. The filing also describes merger-related litigation and potential termination fees.
• PNMR reported $17.0 million of merger costs in 2020. PNM recorded $8.8 million of deferred COVID-19 costs as a regulatory asset; PNM’s allowance for uncollectible accounts rose to $8.3 million from $1.2 million. The filing discusses the February 2021 Texas winter storm and says the company did not then expect significant financial impacts, while noting potential REP credit and bad-debt exposure.
• Other significant exposures include environmental compliance and coal-mine reclamation costs, recovery of PVNGS decommissioning costs, nuclear spent-fuel disposal, drought and water availability, extreme weather, wildfire, cybersecurity, and access to financing. All debt ratings were reported as investment grade; TNMP’s Moody’s outlook was negative and S&P’s outlooks had moved to positive after the merger announcement.

No specific 2021 earnings or EPS guidance is provided in the supplied filing text.

Important facts for investors to verify

1. Confirm the intended issuer: this filing is for PNM Resources, Inc., PNM, and TNMP, rather than an entity named TXNM Energy Inc.
2. Track the Avangrid transaction’s remaining regulatory approvals, closing conditions, and merger-related litigation.
3. Check regulatory outcomes, cost recovery, and financing for SJGS retirement and the proposed Four Corners exit and securitization.
4. Assess funding and refinancing needs against the 2021–2025 capital program, near-term maturities, and available liquidity.
5. Separate recurring earnings performance from the 2019 impairment comparison, investment gains, weather effects, and other non-recurring items.
6. Monitor Texas winter-storm-related REP credit exposure and the ultimate recovery of pandemic-related costs and receivables.