PNM Resources, Inc. (PNMR) — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019; filed November 1, 2019. This is a combined, unaudited filing for PNMR, Public Service Company of New Mexico (PNM), and Texas-New Mexico Power Company (TNMP). PNMR is the holding company for the two regulated electric utilities, serving about 787,000 customers and end-users in New Mexico and Texas. The supplied filing identifies the registrant as PNM Resources, Inc., not TXNM Energy Inc.
Financial results and position
| PNMR consolidated | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Electric operating revenue | $433.6 million | $422.7 million | $1,113.5 million | $1,092.9 million |
| Utility margin | $324.9 million | $309.1 million | $799.3 million | $799.1 million |
| Operating income | $140.5 million | $128.0 million | $83.6 million | $253.5 million |
| Net earnings attributable to PNMR | $102.8 million | $87.5 million | $45.6 million | $140.7 million |
| Diluted EPS attributable to PNMR | $1.28 | $1.09 | $0.57 | $1.76 |
- Cash flow: For the nine months, operating cash flow was $351.3 million, versus $316.9 million a year earlier. Utility-plant additions were $444.9 million, versus $365.5 million. Cash and equivalents were $20.1 million at September 30.
- Debt and liquidity: PNMR reported $289.6 million of short-term debt, $385.2 million of current long-term debt installments, and $2,467.0 million of long-term debt at September 30. Credit-facility availability was $714.1 million on October 25. The company reported compliance with debt covenants; debt ratings were investment grade.
- Margins and dividends: Utility margin is a company-defined non-GAAP measure (electric revenue less cost of energy). PNMR declared dividends of $0.290 per common share in Q3 2019, compared with $0.265 in Q3 2018.
Material changes versus the prior period
- Q3 PNMR-attributable earnings increased $15.3 million year over year, while nine-month earnings fell $95.1 million. The principal YTD factor was a $150.6 million pretax impairment recorded after a New Mexico Supreme Court decision in PNM’s 2015 rate case; the related tax benefit was $45.7 million.
- Excluding that unusual regulatory impairment, operating comparisons also reflect higher depreciation and operating costs, rate changes, weather, and investment-security gains. PNMR’s nine-month gains on investment securities were $20.3 million, compared with $1.1 million in 2018.
- TNMP issued $305 million of first-mortgage bonds in 2019, including fixed-rate tranches of 3.60%–4.06%, and used proceeds in part to refinance 9.50% bonds and repay revolving borrowings. PNM entered a $250 million variable-rate term loan maturing in July 2020.
- Adoption of lease accounting in January 2019 added material right-of-use assets and lease liabilities to the balance sheet; management said it did not materially affect earnings or cash flows.
Outlook, commentary, and risks
- Management’s target is 5%–6% growth in ongoing earnings and dividends for 2019–2023, with a target dividend payout ratio of 50%–60% of ongoing earnings. These are targets, not guarantees; ongoing earnings is non-GAAP.
- PNM applied to retire its share of the San Juan Generating Station (SJGS) in 2022 and sought approval for replacement resources and about $361 million of energy-transition bonds under New Mexico’s Energy Transition Act. Its recommended resource plan includes a 280 MW gas peaking plant, 70 MW of utility-owned battery storage, and PPAs for 350 MW of solar and 60 MW of battery storage. Regulatory approval and the applicability of the Act remained unresolved.
- PNMR projected total capital requirements of $4.38 billion for 2019–2023, including construction, dividends, and NMRD contributions. It anticipated needing additional long-term financing and possible equity issuance, while stating available cash generation, credit facilities, and capital-market access should cover requirements for at least 12 months.
- Management cited regulatory recovery and allowed returns, SJGS retirement and replacement approvals, coal-mine reclamation costs, environmental rules, water availability, weather and operating disruptions, financing access, and interest rates among key uncertainties. The filing notes that utility results are seasonal and not necessarily representative of a full year.
Important facts for investors to verify
- Track NMPRC decisions on the SJGS abandonment, replacement-resource plan, and requested energy-transition financing, including the legal applicability of the Energy Transition Act.
- Assess the sustainability of earnings by separating the $150.6 million regulatory impairment and investment-security gains from recurring operating performance.
- Review upcoming maturities and refinancing needs, particularly the $150 million PNMR one-year term loan due December 2019 and the PNM and TNMP term loans due in 2020.
- Monitor reclamation obligations, cost-recovery determinations, and capital spending against the multiyear plan.
- Confirm dividend-growth and earnings targets against ongoing results, regulatory outcomes, and any planned equity financing.