Business context and reporting period
PNM Resources, Inc. (PNMR) filed this combined, unaudited Form 10-Q for the quarter and nine months ended September 30, 2020. The filing covers PNMR and its regulated utilities: Public Service Company of New Mexico (PNM) and Texas-New Mexico Power Company (TNMP). The requested company name, TXNM Energy Inc., is not the registrant name used in this filing.
PNMR is an electric-utility holding company serving approximately 796,000 customers and end-users in New Mexico and Texas. Amounts below are in millions of dollars unless stated otherwise.
Financial results and position
| PNMR consolidated metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Electric operating revenue | $472.5 | $433.6 | $1,163.7 | $1,113.5 |
| Operating income | $147.8 | $140.5 | $266.7 | $83.6 |
| Net earnings attributable to PNMR | $121.8 | $102.8 | $164.0 | $45.6 |
| Diluted EPS | $1.52 | $1.28 | $2.05 | $0.57 |
| Dividends declared per common share | $0.3075 | $0.2900 | $0.9225 | $0.8700 |
- Q3 utility margin, a company-defined non-GAAP measure (revenue less cost of energy), was $338.5 million versus $324.9 million. As a share of revenue, that was approximately 71.6% versus 74.9%.
- For the first nine months, operating cash flow was $368.0 million versus $351.3 million. Utility and non-utility plant additions were $495.3 million; operating cash flow less those additions was negative $127.4 million.
- At September 30, PNMR had $30.9 million cash, $184.3 million short-term debt, $779.6 million current installments of long-term debt, and $2,509.8 million long-term debt. Current assets were $378.0 million and current liabilities were $1,251.6 million.
- PNMR total assets were $7,742.1 million and total equity was $1,832.6 million. Long-term debt carrying amount was $3,289.3 million, including current installments; its fair value was $3,333.7 million.
- At October 27, consolidated revolving-credit and other facility availability was $722.4 million, including a $50.0 million undrawn merger backstop term loan. The disclosed availability excludes $100.3 million reserved to support PNM floating-rate bonds. The company reported compliance with debt covenants and investment-grade debt ratings.
Material changes versus comparable periods
- PNMR Q3 net earnings attributable to the parent increased $19.0 million year over year; nine-month earnings increased $118.4 million. The nine-month comparison was substantially affected by a $150.6 million regulatory impairment recorded in 2019 after a New Mexico Supreme Court decision in PNM’s 2015 rate case.
- Q3 revenue rose 9.0%, while operating income rose 5.2%. The quarter included $14.4 million of investment-security gains, compared with $1.7 million a year earlier; nine-month gains were $3.2 million versus $20.3 million.
- PNM nine-month utility margin increased $27.2 million, reflecting higher residential usage, warmer weather, transmission revenue and rate riders; lower commercial load partly offset gains. TNMP nine-month utility margin increased $10.6 million, mainly from transmission and distribution rate relief and volumetric usage.
- PNMR plant additions increased to $495.3 million from $444.9 million. The larger construction program contributed to investing cash outflow increasing to $527.4 million from $484.3 million.
Outlook, management commentary, risks and unusual items
- Management projected consolidated capital requirements of approximately $4.6 billion for 2020–2024, including construction, NMRD contributions and dividends. It expected internal cash generation, credit facilities and capital-market access to cover requirements for at least the next 12 months, while anticipating a need for additional long-term financing during 2020–2024. The filing does not provide earnings guidance.
- PNM’s planned retirement of its share of San Juan Generating Station (SJGS) by June 2022 was approved by the New Mexico Public Regulation Commission (NMPRC), along with authority to issue up to approximately $361 million of energy-transition bonds. Appeals remain pending. The NMPRC approved a replacement-resource portfolio; PNM filed for approval of final contracts, including proposed alternatives, in September 2020.
- PNMR recorded $38.1 million of estimated severance, employee-related, economic-development and workforce-training obligations associated with SJGS retirement, with a corresponding regulatory asset. Estimates may change and recovery is subject to the relevant regulatory framework and challenges.
- On October 20, 2020, after quarter-end, PNMR agreed to be acquired by Avangrid for $50.30 cash per share, subject to shareholder, regulatory and other conditions. The companies expected closing in Q4 2021. Certain debt agreements were amended or waived after the merger agreement to address change-of-control provisions. TNMP was required to offer to prepay $750 million of outstanding first mortgage bonds at par plus accrued interest; holders may accept or reject. Management believed liquidity was adequate to meet any resulting purchases.
- COVID-19 caused customer-protection measures, including suspended disconnections and late fees. PNM recorded $3.6 million of deferred COVID-related costs as a regulatory asset; TNMP recorded $0.5 million of such costs and a $0.5 million net regulatory asset for unpaid bills. Management said the pandemic’s duration and financial effects remained uncertain.
- Other notable exposures include regulatory recovery and environmental compliance at Four Corners, mine reclamation and decommissioning costs, water availability, spent nuclear fuel storage, and legal matters. The company said it could not fully determine the outcomes or potential impacts of certain proceedings. PNM also reported a $1.9 million pre-tax interest charge adjustment following a FERC audit.
- PNM notified lessors that it will return leased capacity in Palo Verde Nuclear Generating Station Units 1 and 2 when the leases expire in 2023 and 2024. Transfer restrictions or inability to identify a qualified buyer could affect this plan; PNM intends to seek recovery of undepreciated investments and related obligations from customers.
Important facts for investors to verify
- Track shareholder and regulatory approvals, Four Corners divestiture conditions, financing arrangements, and any changes to the proposed Avangrid merger or its $50.30-per-share consideration.
- Confirm the outcome and timing of TNMP’s $750 million bond prepayment offer and the effect of any tenders on liquidity and refinancing needs.
- Monitor appeals and final regulatory decisions on SJGS securitization, replacement-resource contracts, related customer cost recovery, and the estimated $38.1 million obligations.
- Assess near-term maturities, planned capital spending, and access to debt and equity markets alongside the company’s stated liquidity and covenant position.
- Separate recurring operating performance from investment-security gains and the prior-year $150.6 million regulatory impairment when comparing earnings.