10-Q: PNM Resources Reports Mixed Second Quarter Results Amid Regulatory Changes and Strategic Shifts

PNM Resources' second quarter results reflect a complex landscape of regulatory changes, strategic shifts in generation, and ongoing efforts to modernize its grid and meet renewable energy standards.

Summary

• PNM Resources (PNMR) reported net earnings attributable to PNMR of $95.2 million, or $1.05 per diluted share, for the six months ended June 30, 2024, compared to $100.3 million, or $1.16 per diluted share, for the same period in 2023.
• The results were influenced by rate relief from PNM's 2024 Rate Change, higher transmission and distribution rates at TNMP, increased volumetric load at TNMP, and improved performance of investment securities.
• These gains were offset by increased operational expenses, higher depreciation and amortization, a regulatory disallowance related to San Juan Coal Mine reclamation, lower transmission margin at PNM, capacity arrangement costs, and increased interest charges.
• PNM filed an application with the NMPRC for a general increase in retail electric rates, seeking a $174.3 million increase in retail revenues.
• TNMP's volumetric weather-normalized retail load decreased slightly, while demand-based load also saw a decrease.
• PNM's weather-normalized residential load increased, commercial load saw a slight increase, and industrial load increased significantly.
• PNM is actively pursuing a transition to a carbon-free generating portfolio by 2040, with ongoing efforts to meet renewable energy standards and reduce GHG emissions.
• The company is also focused on grid modernization, wildfire mitigation, and community engagement initiatives.

Sentiment

Score: 6

Explanation: The document presents a mixed picture, with some positive developments offset by increased costs and regulatory challenges. The company is making progress on its clean energy transition, but faces headwinds in terms of earnings growth and regulatory outcomes.

Positives

• PNM secured rate relief from its 2024 Rate Change.
• TNMP experienced higher transmission and distribution rates.
• TNMP saw increased volumetric load.
• PNM's weather-normalized residential load increased.
• PNM and TNMP experienced warmer weather, boosting energy demand.
• PNM's NDT, coal mine reclamation, and SJGS decommissioning investment securities performed well.
• PNM is actively pursuing a transition to a carbon-free generating portfolio by 2040, with ongoing efforts to meet renewable energy standards and reduce GHG emissions.

Negatives

• PNM experienced a regulatory disallowance related to San Juan Coal Mine reclamation.
• PNM saw lower transmission margin.
• PNM incurred costs related to capacity arrangements.
• PNM, TNMP, and Corporate and Other experienced higher interest charges.
• TNMP's volumetric weather-normalized retail load decreased 0.7% and increased 0.9% in the three and six months ended June 30, 2024, respectively.
• PNM's weather-normalized commercial load decreased 1.1% and increased 0.2% in the three and six months ended June 30, 2024, respectively.

Risks

• The ability of PNM and TNMP to recover costs and earn allowed returns in regulated jurisdictions is uncertain.
• The Company faces risks related to the cost and completion of generation, transmission, and distribution projects.
• The Company is exposed to credit risk from its retail and wholesale customers, as well as counterparties to derivative instruments.
• The Company is subject to risks related to climate change, including potential financial and reputational risks resulting from increased stakeholder scrutiny and legislative and regulatory efforts to limit GHG emissions.
• The Company is exposed to risks related to the performance of generating units, transmission systems, and distribution systems, which could be negatively affected by operational issues, fuel quality and supply chain issues, unplanned outages, extreme weather conditions, wildfires, storms, terrorism, cybersecurity breaches, and other catastrophic events.
• The Company is exposed to risks related to the potential unavailability of cash from PNMRs subsidiaries due to regulatory, statutory, or contractual restrictions or subsidiary earnings or cash flows.

Future Outlook

PNM is focused on a carbon-free energy system by 2040 and is planning for significant resource additions over the next two decades.

Industry Context

The announcement reflects the ongoing industry trends of transitioning to renewable energy, modernizing grid infrastructure, and adapting to evolving regulatory landscapes.

Comparison to Industry Standards

• The report mentions benchmarking reliability against industry-standard metrics like SAIDI and SAIFI, indicating an awareness of industry performance benchmarks.
• The report mentions that PNM joined the Western Resource Adequacy Program (WRAP) in April 2023 to bolster PNMs preparations for times of critical need.
• The report mentions that TNMP has been honored by the Edison Electric Institute eight times since 2012 for its assistance to out-of-state utilities affected by hurricanes.

Related Party Transactions

• PNMR, PNM, TNMP, and NMRD are considered related parties, as is PNMR Services Company, a wholly-owned subsidiary of PNMR that provides corporate services to PNMR and its subsidiaries in accordance with shared services agreements.
• These services are billed at cost on a monthly basis to the business units.
• In addition, PNM purchases renewable energy from certain NMRD-owned facilities at a fixed price per MWh of energy produced.

Stakeholder Impact

• Customers will see changes in rates due to the 2024 Rate Change and potential future rate adjustments.
• Employees may be affected by changes in operations and workforce planning related to the transition to renewable energy.
• Communities will benefit from investments in grid modernization and renewable energy projects.
• Shareholders will be impacted by the company's financial performance and dividend policy.

Next Steps

• PNM will continue to work with the other Four Corners owners to update the necessary project agreements to reflect its continued participation.
• PNM will continue to procure renewable resources while balancing the impact to customers electricity costs in order to meet New Mexicos escalating RPS and carbon-free resource requirements.
• PNM will continue to monitor the United States participation in the Paris Agreement and other parties involvement in these types of international accords.
• TNMP will submit filings for investments and recovery in accordance with these new rules in addition to the existing rate recovery mechanisms.
• TNMP will file its first resiliency plan under the new rules implementing the legislation passed in 2023.

Key Dates

Keywords

PNM Resources, PNM, TNMP, earnings, renewable energy, regulation, transmission, distribution, coal, carbon-free, rate case, financial results, utility, energy, Texas, New Mexico