Filing summary
Entity and period: This is a combined, unaudited Form 10-Q for PNM Resources, Inc. (PNMR), Public Service Company of New Mexico (PNM), and Texas-New Mexico Power Company (TNMP), for the quarter and nine months ended September 30, 2023. The filing names PNM Resources, not TXNM Energy, as the registrant.
Key financial metrics
PNMR is a holding company for regulated electric utilities serving New Mexico and Texas. Unless noted otherwise, figures below are PNMR consolidated and in millions of dollars; comparisons are with 2022.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Electric operating revenue | $505.9 | $729.9 | $1,527.1 | $1,673.7 |
| Operating income | $86.7 | $182.8 | $278.1 | $337.2 |
| Net earnings attributable to PNMR | $37.7 | $122.4 | $138.0 | $153.8 |
| Diluted earnings per share | $0.44 | $1.42 | $1.60 | $1.78 |
| Utility margin, a non-GAAP measure | $295.5 | $395.5 | $902.6 | $975.4 |
PNMR generated $412.6 million in operating cash flow in the first nine months, versus $427.5 million a year earlier. Investing cash outflow was $811.9 million, chiefly reflecting utility-plant additions; financing cash inflow was $403.0 million. Cash at September 30 was $7.8 million.
At September 30, PNMR reported $405.5 million of short-term debt, $502.4 million of current long-term debt installments, and $3,902.7 million of long-term debt, or approximately $4.81 billion combined. This compares with approximately $4.31 billion at December 31, 2022. Current assets were $489.2 million and current liabilities $1,478.6 million. As of October 20, the company reported $438.2 million of consolidated remaining availability under credit facilities and stated it was in compliance with debt covenants.
Changes and drivers
- PNMR’s Q3 revenue and earnings fell sharply year over year. A principal driver was the $115 million customer rate-credit obligation from the SJGS retirement settlement, recorded as a reduction to electric revenue in Q3. Lower PNM wholesale energy sales also reduced revenue; the company says those sales-related changes were largely passed through to customers and did not affect earnings.
- For the first nine months, the $115 million SJGS settlement credit was the largest adverse margin item. Higher transmission margin, warmer weather at PNM, higher TNMP distribution rates and demand-based load, and improved returns on trust investments partly offset the decline. Higher interest costs and increased employee, service, and vegetation-management expenses weighed on results.
- TNMP’s nine-month revenue rose to $408.3 million from $360.9 million and net earnings to $74.2 million from $72.5 million, supported by rate increases and higher demand-based load. PNM’s nine-month net earnings available for common stock were $93.8 million versus $95.6 million in 2022.
- Investment-security results were volatile: PNMR recorded a $1.8 million gain for the first nine months of 2023, compared with an $84.1 million loss in the comparable 2022 period.
Outlook, financing, and material risks
- PNMR estimates capital requirements, including construction and dividends, of approximately $6.5 billion for 2023–2027. Management expects internal cash generation, credit arrangements, and capital-market access to be sufficient for at least the next 12 months, while anticipating additional long-term financing during 2023–2027.
- PNM’s pending 2024 rate case seeks a $63.8 million increase in annual retail non-fuel revenue, based on a 10.25% requested return on equity and a 2024 future test year. The outcome was not yet determined.
- PNM expects a special-purpose subsidiary to issue $343.2 million of energy-transition bonds in Q4 2023. Under the SJGS settlement, customers are protected if the bonds’ weighted-average coupon exceeds 5.5%; bond premiums or discounts are not recoverable through rates. Higher-than-allowed financing costs could adversely affect results and liquidity.
- The proposed PNMR acquisition by Avangrid remained pending NMPRC approval. The merger agreement provides $50.30 in cash per PNMR share and had an end date of December 31, 2023, subject to a possible extension under specified conditions.
- The New Mexico Supreme Court upheld the denial of PNM’s application to exit its Four Corners ownership interest early. PNM was evaluating next steps; recovery of investments and related costs remains subject to regulatory proceedings. The 2024 rate case also includes unresolved PVNGS leased-capacity ratemaking issues.
- PNM reported that generation resources met demand during the 2023 summer peak, but replacement-resource project delays and future peak needs remain relevant. Management also cited exposure to interest rates, refinancing, capital-market access, environmental rules, severe weather, wildfire, fuel and water availability, and recovery of decommissioning and reclamation costs.
- PNMR targets a 50%–60% dividend payout ratio based on ongoing earnings, a non-GAAP measure. The merger agreement limits regular 2023 quarterly dividends to $0.3675 per share.
Important facts for investors to verify
- Confirm the reported $115 million SJGS rate credit, its timing and customer-credit schedule, and the resulting impact on recurring earnings.
- Track the 2024 PNM rate-case decision, including requested revenue, return on equity, and PVNGS-related ratemaking determinations.
- Verify completion and final pricing of the planned $343.2 million securitized-bond issuance, especially the settlement’s 5.5% coupon-rate protection.
- Assess upcoming debt maturities, refinancing needs, borrowing costs, and actual available liquidity; management identified approximately $901.7 million of aggregated long- and short-term debt maturities through August 2024.
- Monitor the merger’s regulatory status and contractual end date, plus developments affecting Four Corners and replacement-resource reliability.