Business context and reporting period
This is the unaudited combined Form 10-Q of PNM Resources, Inc. (PNMR), Public Service Company of New Mexico (PNM), and Texas-New Mexico Power Company (TNMP), for the quarter and six months ended June 30, 2023. The filing identifies the registrant as PNM Resources, Inc.; it does not use “TXNM Energy Inc.” PNMR is a holding company whose two regulated utilities serve approximately 820,000 customers and end-users in New Mexico and Texas.
Financial performance and position
Amounts below are in millions of dollars unless noted.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| PNMR electric operating revenue | $477.2 | $499.7 | $1,021.2 | $943.8 |
| PNMR operating income | $92.3 | $86.4 | $191.4 | $154.5 |
| Net earnings attributable to PNMR | $45.3 | $15.4 | $100.3 | $31.4 |
| Diluted earnings per share | $0.53 | $0.18 | $1.16 | $0.36 |
| Utility margin (non-GAAP) | $304.7 | $304.1 | $607.1 | $579.8 |
PNM’s Q2 revenue declined to $338.2 million from $376.8 million, while TNMP revenue rose to $138.9 million from $123.0 million. For the first half, PNM revenue was $768.4 million and TNMP revenue was $252.8 million. Utility margin is management’s non-GAAP measure, calculated as electric revenue less cost of energy.
- Cash flow: First-half operating cash flow was $242.4 million, investing cash outflow was $530.3 million, and financing cash inflow was $291.4 million. Capital additions were $537.0 million. Cash and cash equivalents were $7.6 million at June 30.
- Debt and liquidity: At June 30, PNMR reported $326.5 million of short-term debt, $422.3 million of current long-term debt installments, and $3,927.6 million of long-term debt. Revolving facilities and the PNM New Mexico facility had $840 million of total capacity; remaining availability was $527.5 million as of July 28. The companies reported compliance with debt covenants.
- Interest: First-half interest charges increased to $86.8 million from $55.4 million. Management cited higher borrowing costs and new debt.
- Capital needs: Projected 2023–2027 capital requirements are $5.24 billion, including $4.60 billion of construction expenditures. Management expects additional long-term financing during that period and believes available resources will meet needs for at least the next 12 months.
- PNMR declared a quarterly dividend of $0.3675 per share, compared with $0.3475 in the prior-year quarter.
Material changes versus the prior comparable period
- PNMR’s Q2 attributable earnings and diluted EPS improved despite lower revenue. A key swing factor was investment-security performance: a $3.8 million gain in Q2 2023 versus a $41.8 million loss in Q2 2022. First-half investment gains were $10.2 million versus losses of $68.4 million.
- First-half PNMR operating income increased by $37.0 million. Management cited higher transmission margin, lower PNM operating and depreciation costs following the SJGS retirement and PVNGS Unit 1 leased-interest disposition, and improved investment-security performance. Higher interest costs, employee-related expenses, and milder weather partly offset those benefits.
- TNMP first-half earnings decreased to $34.7 million from $41.1 million. Rate relief and stronger demand-based load, including new cryptocurrency load, supported utility margin; higher depreciation, operating expenses, and interest costs weighed on earnings.
- PNM’s Q2 utility margin declined by $8.2 million, mainly reflecting weaker weather-normalized residential and commercial usage, milder weather, and rate-rider impacts. First-half margin increased by $12.2 million, including higher transmission revenues.
Outlook, commentary, risks, contingencies, and unusual items
- Rates and investment: PNM’s pending 2024 rate case requests $63.8 million of additional annual non-fuel revenue, a 10.25% ROE, and a 2024 future test year. The request reflects infrastructure investment and operating-cost increases, partly offset by lower costs from cleaner replacement resources. PNM also seeks approval for approximately $344 million of grid-modernization investment over the first six years of a broader 11-year plan; the regulator required a supplemental cost-benefit analysis.
- Merger: The proposed Avangrid acquisition would pay $50.30 in cash per PNMR share. Required New Mexico regulatory approval remained outstanding; the agreement’s end date was extended to December 31, 2023, subject to a possible further extension by mutual consent under stated conditions.
- Four Corners: On July 6, 2023, after quarter-end, the New Mexico Supreme Court upheld the denial of PNM’s application to exit its 13% ownership interest and obtain securitized financing. PNM recorded a $3.7 million disallowance for application costs in Q2. PNM stated it was reviewing the decision and evaluating next steps. The contemplated exit included a $75 million payment to NTEC for relief from future coal-supply obligations.
- SJGS: The coal plant retired in 2022. The appeal concerning required customer rate credits remains a material uncertainty. PNM had not recorded a loss or regulatory liability at June 30, but estimated a potential loss of $77.8 million, subject to the appeal’s outcome.
- PVNGS leases: PNM estimated a potential $18.7 million exposure related to lease costs currently collected in rates, pending treatment in the 2024 rate case; no loss or regulatory liability was recorded. PNM also reclassified $88.2 million of undepreciated leasehold improvements to a regulatory asset.
- Resource adequacy and environment: Some replacement-resource projects were delayed or terminated. PNM reported adequate resources during the 2023 summer peak and expects most replacement resources before the 2024 peak, while noting it may need additional market purchases. Pending environmental rules, including EPA’s proposed greenhouse-gas standards, may affect fossil generation and compliance costs; impacts were not yet determinable.
- Other risks: Management highlighted regulatory cost recovery, merger approval, capital-market access and rising interest rates, weather and load variability, resource and project delays, environmental requirements, fuel and water availability, wildfire and severe-weather exposure, and decommissioning and reclamation obligations. The filing provides no specific earnings guidance.
Investor facts to verify
- Track the New Mexico rate case and the treatment of SJGS-related customer credits, including the appeal and the potential $77.8 million exposure.
- Verify the next steps and regulatory consequences of the Four Corners decision, including cost recovery and coal-supply obligations.
- Monitor approval and timing of the Avangrid merger, whose stated cash consideration is $50.30 per share and whose end date was extended to December 31, 2023.
- Assess whether PNM’s replacement generation and storage projects will be completed in time to support 2024 peak demand, and whether further power purchases are needed.
- Review financing needs, debt maturities, variable-rate exposure, and execution of the projected $5.24 billion 2023–2027 capital program.