Business context and reporting period
The supplied filing is a joint, 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, 2012. It is not titled TXNM Energy Inc.; verify the entity mapping before relying on this summary. PNMR describes itself as a holding company focused on its two regulated electric utilities, serving approximately 739,000 customers. First Choice, its Texas retail-electric business, was sold in November 2011.
Financial results and liquidity
Amounts below are in millions of dollars except per-share data. PNMR’s reported revenue fell largely because First Choice was no longer included in 2012; earnings improved despite that lower reported scale.
| PNMR metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Electric operating revenue | $390.4 | $549.5 | $1,019.6 | $1,352.7 |
| Operating income | $118.2 | $108.3 | $237.0 | $193.4 |
| Net earnings attributable to PNMR | $57.9 | $43.7 | $96.5 | $64.4 |
| Diluted EPS | $0.72 | $0.48 | $1.20 | $0.70 |
| Declared dividends per common share | $0.145 | $0.125 | $0.435 | $0.375 |
| Operating cash flow | Not presented by quarter | $205.0 | $198.5 |
PNMR’s nine-month electric margin (revenue less cost of energy) was $722.3 million versus $769.9 million. Lower revenue and margin reflect the absence of First Choice; utility rate increases and reduced energy costs supported earnings. Nine-month results also compare against a $17.5 million PNM regulatory disallowance recorded in 2011. The 2012 nine-month net earnings include a $21.6 million governmental grant receipt in operating cash flows; the filing does not characterize it as recurring earnings.
At September 30, PNMR reported $5.4 million cash, $113.4 million short-term debt, and $1,672.1 million long-term debt. Current assets were $472.4 million and current liabilities $393.0 million. Operating cash flow less utility and non-utility plant additions was approximately negative $9.7 million for the nine months. As of October 26, revolving credit availability was $653.5 million consolidated, with $6.6 million invested cash. PNMR’s long-term debt carrying amount, including current installments, was approximately $1.675 billion; reported debt figures do not include operating lease obligations.
PNM’s nine-month revenue was $832.2 million and net earnings attributable to PNM were $85.6 million, versus $797.2 million and $40.9 million in 2011. TNMP’s revenue was $187.4 million and net earnings $20.1 million, versus $180.8 million and $17.1 million. PNMR’s nine-month operating cash flow increased by $6.5 million year over year; pension and postretirement contributions were $86.9 million versus $38.6 million.
Material changes and outlook
- PNMR’s nine-month diluted EPS rose to $1.20 from $0.70, while average diluted shares fell to 80.4 million from 92.0 million, primarily reflecting the prior repurchase of equity and the end of the convertible preferred stock’s inclusion in share counts.
- PNM’s 2011 retail rate increase contributed $40.3 million to nine-month revenue and margin; its renewable-energy rider began in August 2012. TNMP’s advanced-meter surcharge contributed $5.4 million to nine-month revenue and margin, and its updated transmission rates were implemented in September.
- Management projected total 2012–2016 capital requirements of $1.527 billion, including construction and dividends, before possible environmental upgrades, additional renewables, or peaking resources. The estimate included approximately $120 million for potential renewable resources and $80 million for peaking resources during 2013–2016, subject to approvals and other conditions. Management expected to require additional long-term financing and said existing credit facilities, internal cash generation, and capital-market access were expected to be sufficient.
- Management expected PNM rate-base growth of 2% annually through 2013, potentially 7% over 2011–2016 with additional investment; TNMP’s projected growth was 8% through 2013. PNM moved its anticipated New Mexico retail rate-case filing from late 2012 to mid-2013, citing uncertainty about San Juan Generating Station (SJGS) environmental capital requirements. The filing provides no specific earnings or EPS guidance.
Risks, contingencies, and unusual items
- SJGS regional haze requirements: The EPA federal implementation plan required SCR controls on all four units by September 21, 2016; litigation and discussions over alternatives remained unresolved. PNM estimated SCR installation at $824–$910 million for the entire station, with its share about 46.3%. A New Mexico proposal instead contemplated retiring Units 1 and 2, installing SNCR controls on Units 3 and 4, and replacing capacity with gas generation. PNM had contracted to proceed with SCR preparations, subject to termination provisions, while pursuing alternatives. PNM estimated its project expenditures at up to $3 million in 2012 and $102 million in 2013.
- Separate estimates for SNCR installation and related NAAQS equipment were $85–$90 million and $105–$110 million, respectively, for the full station. PNM’s share and the final compliance solution remained uncertain. Potential Four Corners controls could cost PNM up to $69 million for Units 4 and 5.
- Other material uncertainties include environmental rulemaking and litigation, nuclear spent-fuel disposal, water availability and water-rights proceedings, coal supply and mine reclamation, and regulatory recovery of costs. The 2011 SJGS mine fire had increased PNM’s FPPAC deferral by a preliminary $17.3 million through April 2012; management did not expect a material effect on PNM’s financial condition, results, or cash flows.
- PNMR recorded an additional $1.0 million pretax gain in Q3 2012 from the First Choice sale-price adjustment. PNM’s 2012–2016 capital plan excludes potentially substantial environmental spending. Credit access, regulatory cost recovery, plant performance, fuel and water supply, weather, and interest rates remain key risks.
Most important facts for investors to verify
- Confirm the relationship between the requested company name, TXNM Energy Inc., and the filing’s named registrants, PNMR, PNM, and TNMP.
- Track the final SJGS emissions requirements, litigation and agency decisions, project cost updates, PNM’s ownership-share obligations, and regulator approval for recovery from customers.
- Reconcile earnings growth with the First Choice divestiture, lower share count, rate changes, 2011 regulatory disallowance, and NDT investment performance.
- Monitor capital spending, pension funding, short-term borrowing, credit availability, and the timing and terms of future financing.
- Check the status of PNM’s planned 2013 rate case and pending renewable-energy, wholesale transmission, and TNMP rate proceedings.