PNM Resources, Inc. — 2012 Form 10-K Summary
Filing identity: The supplied filing is a combined annual report for PNM Resources, Inc. (PNMR), Public Service Company of New Mexico (PNM), and Texas-New Mexico Power Company (TNMP), for the year ended December 31, 2012. The source does not identify the registrant as TXNM Energy Inc.; confirm the company and filing match before relying on this summary.
Business context and reporting period
PNMR is a holding company whose principal businesses are regulated electric utilities: PNM, which generates, transmits, and distributes electricity in New Mexico, and TNMP, which provides transmission and distribution service in Texas. PNMR had exited its competitive retail electricity business, First Choice, in November 2011 and reduced its Optim Energy ownership to zero in January 2012. The financial comparisons therefore include First Choice results for ten months of 2011 but none for 2012.
Financial performance and position
| PNMR consolidated | 2012 | 2011 |
|---|---|---|
| Operating revenues | $1,342.4 million | $1,700.6 million |
| Operating income | $273.7 million | $257.3 million |
| Net earnings attributable to PNMR | $105.5 million | $176.4 million |
| Diluted earnings per share | $1.31 | $1.96 |
| Net cash from operating activities | $281.3 million | $292.2 million |
| Net cash from investing activities | ($285.9 million) | $19.8 million |
| Long-term debt, including current installments | $1,672.3 million | $1,674.0 million |
| Cash and cash equivalents at year-end | $9.0 million | $15.1 million |
- Operating revenues fell about 21%, primarily because First Choice was sold and no longer contributed revenue in 2012. Operating income rose about 6%, while attributable earnings declined about 40%.
- 2011 earnings included a $174.9 million pretax gain on the First Choice sale. In 2012, PNMR recorded a further $1.0 million pretax gain from the sale’s working-capital adjustment.
- Consolidated margin—revenue less cost of energy—was $942.6 million, compared with $1,007.7 million in 2011; the comparison is affected by First Choice’s sale.
- PNM’s 2012 revenue was $1,092.3 million and segment earnings attributable to PNMR were $91.0 million, versus $1,057.3 million and $54.0 million in 2011. Retail rate increases and riders supported results; weather-normalized retail load declined 0.7%.
- TNMP’s 2012 revenue was $250.1 million and earnings were $26.7 million, versus $237.9 million and $22.3 million in 2011. Weather-normalized retail load increased 3.7%.
- PNMR’s current assets were $442.2 million and current liabilities $434.1 million at year-end. At February 22, 2013, reported consolidated availability under revolving credit facilities was $603.0 million. A separate $100 million PNMR term loan borrowed in December 2012 was due by December 27, 2013.
- PNMR declared $0.58 per common share in 2012, up from $0.50 in 2011. The Board raised the quarterly dividend to $0.165 per share in February 2013; management stated a long-term target payout ratio of 50%–60% of ongoing earnings.
Material changes, outlook, risks, and unusual items
- Strategic focus: Management described PNMR as repositioned around regulated utilities, with priorities of earning authorized returns, improving credit ratings, and investor returns. These priorities depend substantially on regulatory approval and timely recovery of costs.
- Capital program: Projected construction expenditures for 2013–2017 were $1,781.9 million; total capital requirements, including dividends, were $2,047.4 million. Management anticipated additional long-term financing. The construction estimate excludes potential SJGS environmental-control costs and replacement capacity if units are retired.
- San Juan Generating Station (SJGS): A February 2013 non-binding agreement among PNM, New Mexico Environment Department, and EPA contemplated retiring Units 2 and 3 by the end of 2017 and installing SNCR controls on Units 1 and 4, subject to multiple approvals. PNM had not completed its cost estimate and could not assure implementation. The existing EPA plan called for SCRs on all four units; estimated total station costs were $824–$910 million. Any final plan, replacement-generation costs, timing, and rate recovery remain important uncertainties.
- Other environmental exposure: PNM estimated its share of Four Corners post-combustion controls could be up to $75.4 million. Environmental regulation, coal combustion byproduct rules, air-quality requirements, and possible climate regulation could add costs or affect plant viability.
- Rates and recovery: PNM was reassessing the timing of its next New Mexico retail rate case. FERC had approved a $2.9 million annual transmission-revenue increase in January 2013; a further $3.2 million formula-rate increase remained pending. A settlement for a $5.3 million annual increase for PNM’s largest firm-requirements wholesale customer was pending FERC approval. TNMP’s further transmission-rate filing for a $2.9 million annual increase was pending.
- Asset and operating matters: PNM agreed to pursue purchase of the 132 MW Delta peaking plant for an initially stated $23.0 million cash payment, subject to working-capital and debt adjustments and regulatory and other conditions. FERC approved the purchase in February 2013; NMPRC approval remained pending in the filing. PNM also recorded a $6.2 million lease-abandonment charge and TNMP a $1.2 million charge in 2012.
- Other risks: Key exposures include fuel and water availability, weather and load variability, generation and grid reliability, nuclear safety and spent-fuel disposal, regulatory lag, credit-market access, pension funding, and litigation. The filing reported $41.0 million of estimated PNM FPPAC costs deferred for future recovery at June 30, 2014 under the applicable rate-case caps; recovery timing and amounts warrant monitoring.
- Controls and audit: Management reported effective internal control over financial reporting for PNMR, PNM, and TNMP. Deloitte issued unqualified opinions on the financial statements; PNMR’s internal-control audit opinion was also unqualified.
Important facts for investors to verify
- Confirm the registrant identity and whether this PNM Resources filing is the intended TXNM Energy filing.
- Track SJGS plan approvals, retirement and control schedules, replacement-power plans, total costs, and recovery from customers; compare with the excluded costs in the capital forecast.
- Review outcomes of pending PNM and TNMP rate proceedings and the extent to which authorized returns and deferred costs are recoverable.
- Assess the 2013 maturity of PNMR’s $100 million term loan alongside planned capital spending, refinancing needs, and available credit capacity.
- Separate recurring utility earnings from the First Choice sale gain when comparing 2011 and 2012 results, and assess whether improved PNM and TNMP segment earnings are sustainable.
- Monitor TNMP customer concentration: the former First Choice acquirer represented 19% of TNMP revenue in 2012, and two other unaffiliated customers represented 17% and 10%.