Business context and reporting period
This unaudited combined Form 10-Q covers the three months ended March 31, 2015, for PNM Resources, Inc. (PNMR), Public Service Company of New Mexico (PNM), and Texas-New Mexico Power Company (TNMP). The filing describes two regulated electric utilities serving New Mexico and Texas. The request metadata names TXNM Energy, but the filing is identified as PNMR, PNM, and TNMP.
Key financial results
Amounts below are in millions of dollars unless noted. Results compare Q1 2015 with Q1 2014.
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| PNMR electric operating revenue | $332.9 | $328.9 |
| PNMR operating income | $49.6 | $48.8 |
| PNMR net earnings attributable to PNMR | $14.3 | $12.5 |
| PNMR diluted EPS | $0.18 | $0.16 |
| PNMR operating cash flow | $66.7 | $76.4 |
| PNMR investing cash flow | $(86.7) | $(74.4) |
| PNMR financing cash flow | $114.1 | $22.6 |
- PNMR’s reported segment margin, revenue less cost of energy, was $217.2 million, versus $216.3 million. PNM margin fell to $164.1 million from $166.1 million; TNMP margin rose to $53.1 million from $50.2 million.
- PNM net earnings available for common stock increased to $10.0 million from $7.5 million. TNMP net earnings increased to $7.7 million from $6.8 million.
- PNMR declared a common dividend of $0.20 per share, up from $0.185.
- At March 31, PNMR had $122.4 million cash, $100.0 million short-term debt, $333.1 million current installments of long-term debt, and $1,791.9 million long-term debt. Total current liabilities were $693.0 million.
- PNMR operating cash flow declined year over year; the filing cites, among other items, pension and postretirement contributions that were $30.1 million higher. Utility-plant additions were $100.2 million, compared with $83.8 million.
Material changes and unusual items
- PNMR attributable earnings rose by about $1.9 million. Segment changes were PNM +$2.5 million, TNMP +$0.9 million, and Corporate and Other $(1.4) million.
- PNM’s revenue was slightly lower, with weaker retail load and reduced wholesale and off-system sales among the pressures; higher other income, including gains on available-for-sale securities, supported earnings. TNMP benefited from transmission rate increases, customer growth, and its advanced-meter surcharge.
- PNMR recorded $4.0 million in gains on available-for-sale securities and a $0.2 million regulatory disallowance. A further $1.0 million after-tax impairment of New Mexico net operating loss carryforwards was recorded in Q1.
- PNM’s July 2014 acquisition of the Rio Bravo generating facility changed its cost and margin profile compared with the prior-year period, when the facility’s output was covered by a power-purchase agreement.
Outlook, risks and contingencies
- Capital and liquidity: Management projected $2.54 billion of construction expenditures and dividends for 2015–2019 and expected to use operating cash, credit facilities, and additional financing. At April 24, 2015, consolidated credit-facility availability was $814.0 million. The company expected to use proceeds from a new $150 million PNMR term loan to repay $118.8 million of notes due May 15, 2015. Other 2015 maturities included PNM debt and a $100 million PNMR term loan. Ratings were investment grade with positive outlooks at the reporting date disclosed.
- San Juan Generating Station (SJGS): PNM’s proposed retirement of Units 2 and 3 by year-end 2017, ownership restructuring, replacement resources, and coal-supply arrangements remained subject to regulatory and other approvals. A hearing examiner recommended substantial changes to the proposed settlement; PNM estimated a net pretax regulatory disallowance of $60–$70 million under the filed stipulation, or $145–$155 million if the examiner’s recommended modifications were adopted. The NMPRC had not yet decided. The filing also describes uncertainty around final restructuring and coal agreements and environmental compliance costs.
- PNM rate case: PNM sought a $107.4 million revenue increase, effective January 1, 2016, and a 10.5% ROE. A hearing examiner recommended rejecting the application as incomplete; PNM filed exceptions. Approval, timing, and the eventual rate outcome were unresolved.
- Environmental and operating exposure: The filing discusses potential costs and uncertainty involving air-quality rules, greenhouse-gas regulation, coal supply and mine reclamation, nuclear spent-fuel storage, water availability, and litigation. PNM estimated its share of Four Corners post-combustion controls at up to $83.9 million. Certain legal and regulatory losses could be material, and management said some outcomes or loss ranges could not be estimated.
- Other outlook: PNM weather-normalized retail load fell 1.3% year over year, while TNMP’s rose 1.7%. Management cited seasonality and noted that results for the quarter may not represent a full year. No specific consolidated earnings guidance for the year is provided in the text.
Important facts for investors to verify
- Final NMPRC decisions on PNM’s electric rate case and the SJGS retirement, replacement-resource, and cost-recovery proposals.
- Whether SJGS restructuring and coal-supply agreements receive required regulatory, participant, and other approvals, and the resulting costs or disallowances.
- Repayment or refinancing of near-term debt maturities and continued access to credit and capital markets.
- Actual construction spending and recoverability of environmental, replacement-generation, and renewable-resource costs through rates.
- Developments in material legal, environmental, water, coal-mine reclamation, and nuclear-waste matters, including any change in estimated exposure.