Business context and reporting period
The supplied filing is PNM Resources, Inc. (PNMR), together with subsidiary utilities Public Service Company of New Mexico (PNM) and Texas-New Mexico Power Company (TNMP), for the fiscal year ended December 31, 2015. The metadata names TXNM Energy Inc.; that name does not match the registrants identified in this filing.
PNMR is a holding company for regulated electric utilities serving New Mexico and Texas. PNM generates, transmits, and distributes electricity; TNMP provides regulated transmission and distribution services in Texas. This is an annual report, not a standalone fourth-quarter filing.
Financial and operating performance
| Metric | 2015 | 2014 |
|---|---|---|
| PNMR operating revenue | $1,439.1 million | $1,435.9 million |
| PNMR operating income | $124.4 million | $299.7 million |
| PNMR net earnings | $31.1 million | $130.9 million |
| Net earnings attributable to PNMR | $15.6 million; $0.20 diluted EPS | $116.3 million; $1.45 diluted EPS |
| Operating margin | 8.6% | 20.9% |
| Net cash from operating activities | $386.9 million | $414.9 million |
| Net cash used in investing activities | $544.5 million | $485.3 million |
| Total assets | $6,009.3 million | $5,790.2 million |
| Long-term debt, including current installments | $2,091.9 million | $1,962.4 million |
PNMR operating revenue was nearly flat, while earnings fell sharply, principally because of a $165.7 million pre-tax charge related to San Juan Generating Station (SJGS) regulatory disallowances, ownership restructuring, and mine reclamation costs. PNMR’s reported net earnings include Valencia non-controlling interest; earnings attributable to PNMR were $15.6 million.
PNM revenue declined 1.5% to $1,131.2 million and its segment reported a $15.8 million loss, compared with $86.8 million earnings in 2014. TNMP revenue increased 6.9% to $307.9 million and earnings rose 11.1% to $42.0 million. Weather-normalized PNM retail sales declined 1.4%; TNMP weather-normalized sales increased 2.6%.
PNMR’s total construction expenditures were $558.6 million in 2015. PNMR declared common dividends of $0.82 per share, up from $0.755. Its year-end capitalization comprised 44.0% common equity and 55.7% long-term debt, with subsidiary preferred stock making up the remainder.
Material changes, outlook, and significant items
- Regulatory recovery: PNM’s August 2015 New Mexico rate-case application seeks a $123.5 million annual revenue increase, including base fuel revenues, with a proposed 10.5% ROE. New rates were expected in the third quarter of 2016; the outcome was uncertain at filing.
- SJGS restructuring: The NMPRC approved retirement of SJGS Units 2 and 3 at the end of 2017. PNM expects to recover 50% of their estimated remaining book value over 20 years. It recorded a $127.6 million disallowance for the unrecoverable portion, plus $21.6 million for other costs and a $16.5 million increase in mine-reclamation liability.
- Coal and financing exposure: A new SJGS coal-supply agreement became effective January 31, 2016, with PNMR subsidiary NM Capital providing a $125 million loan to support the mine purchase. PNMR also provided a $40 million letter of credit for reclamation bonds and could be required to provide further collateral.
- Capital and growth: Management projected $2.037 billion of construction expenditures for 2016–2020 and total capital requirements, including dividends, of $2.390 billion. It anticipated needing additional long-term financing, potentially including debt and/or equity, while stating existing liquidity, operating cash generation, and capital-market access were expected to be sufficient.
- Management targets: PNMR’s target was 7%–9% growth in ongoing earnings through 2019, a non-GAAP measure excluding certain items. The company targeted a long-term dividend payout ratio of 50%–60% of ongoing earnings.
- Wholesale contract change: A FERC-approved settlement with PNM’s largest wholesale generation customer, NEC, reduced rates in 2016 and ended the main power-supply agreement at year-end 2016; PNM expected a negative earnings effect in 2016–2017, partly offset by other actions.
- Environmental and legal uncertainty: SJGS’s approved plan and related proceedings faced appeal and reconsideration challenges. The Clean Power Plan was stayed by the U.S. Supreme Court in February 2016 pending judicial review. Compliance costs, operating requirements, water availability, coal supply, and spent nuclear fuel disposal remain risks.
- Liquidity and ratings: Consolidated credit-facility availability was $598.2 million as of February 19, 2016. The filing reported investment-grade debt ratings from Moody’s and S&P; debt covenants generally limit debt-to-capital ratios to 65%.
Most important facts for investors to verify
- Confirm the intended issuer: the filing is for PNM Resources, Inc., PNM, and TNMP, not an entity identified as TXNM Energy Inc.
- Track the outcome and timing of PNM’s $123.5 million rate request, including recovery of capital investment and SJGS-related costs.
- Assess whether SJGS retirement, restructuring, coal supply, and reclamation arrangements proceed as planned, and whether appeals or collateral demands change the economics.
- Review funding needs against the $2.037 billion five-year construction plan, near-term debt maturities, and available credit capacity.
- Distinguish GAAP earnings from management’s ongoing-earnings growth target, and evaluate the sustainability of the dividend amid reduced 2015 earnings and substantial investment needs.