Business context and reporting period
The supplied filing 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, 2019, filed March 2, 2020. PNMR is a holding company with regulated electric utility operations in New Mexico and Texas. Its NYSE ticker is PNM. The filing does not identify “TXNM Energy Inc.” as a registrant; verify that the filing matches the intended issuer.
Key financial metrics
| PNMR consolidated | 2019 | 2018 |
|---|---|---|
| Operating revenue | $1.458 billion | $1.437 billion |
| Operating income | $144.2 million | $236.0 million |
| Net earnings | $92.1 million | $101.3 million |
| Net earnings attributable to PNMR | $77.4 million | $85.6 million |
| Diluted EPS | $0.97 | $1.07 |
| Operating cash flow | $503.2 million | $428.2 million |
| Investing cash flow | ($673.9 million) | ($475.7 million) |
| Financing cash flow | $172.4 million | $45.6 million |
| Total assets at year-end | $7.299 billion | $6.866 billion |
| Long-term debt, including current installments | $3.008 billion | $2.670 billion |
Cash and cash equivalents were $3.8 million at year-end. PNMR’s capitalization was 64.0% long-term debt and 35.8% common equity, versus 61.1% and 38.6%, respectively, in 2018. The filing defines utility margin as revenue less energy costs, a non-GAAP measure: PNM’s margin was $776.1 million versus $777.9 million; TNMP’s was $268.7 million versus $259.0 million.
Material changes versus the prior comparable period
- PNMR-attributable earnings fell $8.3 million and diluted EPS declined $0.10. PNM segment earnings decreased $14.0 million; TNMP segment earnings increased $4.2 million.
- PNM recorded a $150.6 million pretax impairment after the New Mexico Supreme Court largely upheld disallowances in PNM’s 2015 rate case. The related tax benefit was $45.7 million. PNM’s 2019 operating income fell to $61.1 million from $145.0 million.
- PNM’s higher trust investment gains and lower maintenance and interest costs partly offset the impairment and milder weather. TNMP’s margin rose, but higher depreciation— including rates set in its 2018 rate case—reduced operating income.
- Operating cash flow increased by $75.0 million, while investing outflow increased by $198.2 million, primarily reflecting higher utility-plant additions. Consolidated capital spending was $616.3 million, compared with $501.1 million.
- Debt increased and current maturities rose substantially: $490.3 million of long-term debt was classified as current at year-end 2019, versus none at year-end 2018.
Outlook, commentary, risks, and unusual items
- Management targeted 5%–6% earnings and dividend growth for 2020–2023, measured using ongoing earnings, a non-GAAP measure. PNMR’s long-term dividend payout target is 50%–60% of ongoing earnings. The Board declared a 2020 quarterly dividend of $0.3075 per share.
- Projected 2020–2024 capital requirements total approximately $4.37 billion, including $3.82 billion of construction expenditures. Major planned investments include transmission expansion and the Western Spirit Line, expected to cost PNM about $285 million net, subject to conditions and closing.
- PNM sought approval to retire its remaining San Juan Generating Station (SJGS) interest in 2022, approve replacement resources, and issue up to approximately $361 million of energy-transition bonds. On February 21, 2020, hearing examiners recommended approval of abandonment and financing, but the recommendations were not final Commission orders; replacement resources required separate approval.
- New Mexico’s Energy Transition Act sets rising renewable portfolio requirements, reaching 100% zero-carbon energy by 2045. PNM’s stated goal is an emissions-free generating portfolio by 2040. Regulatory recovery, replacement-resource cost and reliability, and the planned coal-plant transition remain material uncertainties.
- PNMR said it expected available cash generation, credit arrangements, and market access to meet needs for at least 12 months and reported compliance with debt covenants. It anticipated $675.4 million of consolidated debt maturities during 2020 and a further $300 million by March 31, 2021. Consolidated available credit was $595.4 million as of February 21, 2020. The company expected additional financing and planned to physically settle forward equity agreements covering about 6.2 million shares by January 2021.
- Other key risks include regulatory cost recovery and allowed returns; PNM’s pending generating-resource and PVNGS lease decisions; environmental and climate rules; fuel, water, outage, extreme-weather, wildfire, and cybersecurity risks; pension and decommissioning estimates; and reliance on capital markets. All reported Moody’s and S&P debt ratings were investment grade, though TNMP’s S&P outlook was negative.
Most important facts for investors to verify
- Confirm the issuer and security: this filing identifies PNMR/PNM, not TXNM Energy Inc.; PNMR common stock traded as PNM.
- Review the final regulatory decisions and actual customer and financial effects of the SJGS retirement, replacement resources, and proposed securitized financing.
- Assess the recurring earnings impact of the $150.6 million PNM disallowance and distinguish GAAP earnings from management’s ongoing-earnings measure.
- Verify refinancing and funding plans for near-term maturities, the forward equity settlement, and the substantial 2020–2024 investment program.
- Track PNM’s PVNGS lease elections and future decommissioning-cost recovery, plus the outcome of PNM’s and TNMP’s rate and transmission filings.