Business context and reporting period
The filing is a combined Form 10-K for PNM Resources, Inc. (PNMR), Public Service Company of New Mexico (PNM), and Texas-New Mexico Power Company (TNMP), for the fiscal year ended December 31, 2014. The supplied filing identifies PNM Resources—not TXNM Energy—as the registrant; verify the issuer identity if this summary is being matched to a TXNM Energy filing record.
PNMR is a holding company whose principal businesses are regulated electric utility operations in New Mexico and Texas. PNM generates, transmits, and distributes electricity; TNMP provides regulated transmission and distribution services. Unless otherwise noted, financial figures below are consolidated PNMR amounts.
Financial and operating performance
| Metric | 2014 | 2013 |
|---|---|---|
| Operating revenues | $1.436 billion | $1.388 billion |
| Operating income | $299.7 million | $286.8 million |
| Net earnings | $130.9 million | $115.6 million |
| Net earnings attributable to PNMR | $116.3 million | $100.5 million |
| Diluted earnings per share | $1.45 | $1.25 |
| Operating cash flow | $414.9 million | $386.6 million |
| Investing cash flow | $(485.3) million | $(331.4) million |
| Financing cash flow | $96.2 million | $(61.6) million |
| Total assets | $5.829 billion | $5.500 billion |
| Long-term debt, including current installments | $1.975 billion | $1.745 billion |
- Consolidated margin, defined in the filing as revenue less cost of energy, was $964.3 million, up from $955.6 million. Operating margin was approximately 20.9% of revenue versus 20.7% in 2013.
- PNM segment earnings attributable to PNMR were $86.8 million, down $0.8 million; TNMP earnings were $37.8 million, up $8.7 million. Corporate and Other recorded an $8.4 million loss, improving $7.8 million.
- PNMR declared $0.755 per common share in 2014, compared with $0.680 in 2013. Its stated long-term dividend payout target is 50%–60% of consolidated earnings.
- At December 31, PNMR had $28.3 million of cash and $105.6 million of short-term debt. Consolidated long-term debt was 53.3% of capitalization and common equity was 46.4%. At February 20, 2015, reported remaining credit-facility availability was $768.2 million; this excludes $25 million of remaining PNM multi-draw term-loan capacity.
Material changes versus the prior year
- Revenue rose 3.5% and earnings attributable to PNMR increased 15.7%; diluted EPS increased from $1.25 to $1.45. The filing attributes performance to rate increases, improved TNMP results, higher PVNGS Unit 3 wholesale prices, and other factors, partly offset by lower PNM retail load and milder weather.
- PNM weather-normalized retail sales declined 1.7%, following a 1.8% decline in 2013. TNMP weather-normalized sales increased 3.2%.
- PNMR operating cash flow improved, while investing outflows increased largely with higher plant additions and the $36.2 million Rio Bravo acquisition. The company reported $460.7 million of 2014 additions to utility plant.
- Debt increased, including new PNM term borrowing and $80 million of TNMP first-mortgage bonds. PNMR’s $118.8 million 9.25% notes, PNM’s $175 million term loan, and other debt obligations were due or subject to refinancing in 2015.
Outlook, management commentary, and risks
- PNM’s December 2014 New Mexico rate-case application seeks a $107.4 million annual revenue increase effective January 1, 2016, using a 10.5% requested ROE. The request is pending; it is not approved guidance.
- Management forecasts $2.207 billion of construction expenditures for 2015–2019 and total capital requirements of $2.529 billion including dividends. Management expects to use operating cash, credit facilities, and additional long-term financing, potentially including new debt or equity.
- PNM’s proposed San Juan Generating Station plan would retire Units 2 and 3 by the end of 2017, add capacity and environmental controls, and bring PVNGS Unit 3 into retail rates beginning in 2018, subject to regulatory approvals and binding agreements among plant owners. If the proposed stipulation were approved as filed, PNM estimated a net pretax regulatory disallowance of $60–$70 million.
- Key uncertainties include San Juan ownership restructuring and coal supply after 2017; environmental compliance costs and plant viability; regulatory recovery of significant capital spending; declining PNM sales; fuel, water, weather, and wholesale-market exposure; and access to capital and refinancing. The filing also identifies cyber and physical security, nuclear operations and spent-fuel storage, pension funding, and pending legal or regulatory proceedings as risks.
- PNMR’s stated strategic aims include earning authorized returns, improving credit ratings, and achieving top-quartile total investor returns over 2012–2016. Management describes the target return as an annual average of 10%–13%, based on five-year ongoing EPS growth plus dividend yield; ongoing earnings is a non-GAAP measure.
- The financial statements received unqualified audit opinions, and management and the auditor reported effective internal control over financial reporting as of year-end.
Important facts for investors to verify
- Whether the filing belongs to the intended TXNM Energy issuer record or to PNM Resources, Inc., as named in this 2014 report.
- Current status and final economics of the PNM rate case and the San Juan retirements, restructuring, coal-supply arrangements, and potential $60–$70 million disallowance.
- How the $2.207 billion construction program and near-term maturities will be funded, and whether new financing affects leverage, credit ratings, or dividends.
- Whether PNM retail load declines persist and whether TNMP’s sales growth and rate-recovery mechanisms continue.
- Final environmental compliance costs, including at San Juan and Four Corners, and the extent and timing of recovery from customers.