TXNM Energy Inc. (filing identifies registrants as PNM Resources, Inc., PNM, and TNMP) — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015. The unaudited combined filing covers PNM Resources, Inc. (PNMR), Public Service Company of New Mexico (PNM), and Texas-New Mexico Power Company (TNMP). Unless noted otherwise, consolidated figures below are PNMR’s; dollar amounts are in millions.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Electric operating revenue | $417.4 | $414.0 | $1,103.2 | $1,089.0 |
| Operating income | $121.5 | $116.8 | $243.5 | $236.8 |
| Net earnings attributable to PNMR | $61.0 | $55.7 | $107.1 | $97.3 |
| Diluted earnings per share | $0.76 | $0.69 | $1.34 | $1.21 |
| Operating cash flow | Not presented separately for the quarter | Not presented separately for the quarter | $335.6 | $326.2 |
| Utility and non-utility plant additions | Not presented separately for the quarter | Not presented separately for the quarter | $411.6 | $293.4 |
- PNMR’s electric margin (revenue less cost of energy) was $293.2 million in Q3 versus $281.5 million, and $749.2 million for the nine months versus $734.5 million.
- Nine-month cash flow after plant additions was negative $76.0 million, compared with positive $32.9 million in 2014. This is a simple cash-flow-minus-additions comparison, not a reported GAAP measure.
- At September 30, PNMR had $26.9 million cash, $102.6 million short-term debt, $125.0 million current installments of long-term debt, and $1,980.4 million long-term debt. The balance sheet reports total liabilities of $4,205.7 million and equity of $1,835.7 million.
- PNMR declared common dividends of $0.20 per share for Q3; nine-month dividends declared were $0.60 per share. Nine-month cash dividends paid were $48.2 million.
- PNM reported nine-month net earnings available for common stock of $80.6 million, up from $73.0 million. TNMP reported net earnings of $33.2 million, up from $28.7 million.
Changes versus the comparable period
- PNMR revenue rose 0.8% in Q3 and 1.3% year to date; nine-month operating income increased 2.8%, while PNMR-attributable earnings increased 10.1%.
- PNM’s nine-month revenue declined $2.6 million, but margin rose $2.4 million as cost of energy fell. Drivers included lower retail usage and the end of the Gallup wholesale contract, partly offset by rate riders, lower PVNGS lease costs, and a $4.2 million gas-transportation refund.
- TNMP’s nine-month revenue increased $16.8 million and margin increased $12.3 million, reflecting transmission rate increases, customer growth, higher usage, and the advanced-meter surcharge. Higher depreciation and operating costs partly offset the gains.
- PNMR’s higher plant spending significantly increased investing cash outflows. Financing included PNM’s $250 million 3.85% notes due 2025 and a $150 million PNMR term loan; PNM also repaid its $175 million term loan and PNMR repaid $118.8 million of 9.25% notes at maturity.
Outlook, management commentary, risks, and unusual items
- Management’s stated target was 7%–9% growth in ongoing earnings through 2019, a non-GAAP measure, and a dividend payout ratio of 50%–60% of ongoing earnings. The filing does not provide a specific 2015 earnings-per-share forecast.
- PNMR projected $2.604 billion of 2015–2019 capital requirements, including construction spending and dividends. Management expected internal cash generation, credit facilities, and access to debt and equity markets to provide adequate funding, while anticipating additional long-term financing needs.
- PNM’s August 2015 New Mexico rate application requested a $123.5 million revenue increase, including base fuel revenues, with a proposed 10.5% ROE. PNM expected new rates to begin in Q3 2016; approval and timing remained uncertain.
- The proposed San Juan Generating Station (SJGS) settlement would retire Units 2 and 3 at year-end 2017 and allow specified recovery of undepreciated investment. Approval remained unresolved, and PNM estimated a potential pre-tax regulatory disallowance of $145–$155 million if the settlement were adopted. The filing also describes a New Mexico Supreme Court proceeding that stayed NMPRC action pending review.
- SJGS restructuring and a new coal supply agreement depended on regulatory approvals and completion of the mine sale. Failure or delay could affect coal costs, plant operations, and compliance plans. PNM also disclosed environmental compliance exposure at SJGS and Four Corners, including uncertain future Clean Power Plan costs.
- PNM’s proposed settlement with wholesale customer Navopache Electric Cooperative would reduce rates and end the long-term power agreement after 2016, subject to FERC approval; management expected negative earnings effects in 2016–2017, partly mitigated by other sales and cost reductions.
- PNM’s weather-normalized retail load declined 1.4% year to date, while TNMP’s increased 2.7%. Management cited slow New Mexico economic growth and continued sensitivity to weather, power prices, fuel, regulatory decisions, and plant performance.
- PNMR and PNM had $795.5 million of consolidated credit-facility availability at October 23, 2015. Management reported investment-grade ratings; it cautioned that adverse SJGS regulatory outcomes could affect outlooks or ratings.
Most important facts for investors to verify
- Confirm the issuer identity: the supplied filing names PNMR, PNM, and TNMP, whereas the request metadata names TXNM Energy Inc.
- Check the final NMPRC and court outcomes for the SJGS retirement, restructuring, recovery terms, and potential $145–$155 million disallowance.
- Verify FERC approval and financial effects of the NEC settlement, and progress on the SJGS coal-mine sale and new supply agreement.
- Track the PNM rate case, requested revenue increase, effective date, and resulting authorized return and customer-rate treatment.
- Assess actual capital spending, funding and refinancing needs, load trends, and environmental compliance costs against management’s projections.