10-Q: TXNM Energy Q1 2026 Earnings Decline Amid Higher Costs, Merger Delays

TXNM Energy reports a significant drop in Q1 2026 net earnings attributable to TXNM, primarily due to increased operating expenses and investment losses, while its merger with Blackstone Infrastructure faces regulatory delays.

Summary

• Net earnings attributable to TXNM decreased to $3.7 million ($0.03 per diluted share) for the three months ended March 31, 2026, compared to $8.9 million ($0.10 per diluted share) in the prior year period.
• The PNM segment reported a net loss of $(15.9) million in Q1 2026, a significant decline from $0.9 million in earnings in Q1 2025.
• The TNMP segment showed strong performance with net earnings of $30.7 million in Q1 2026, up from $22.3 million in Q1 2025.
• Consolidated operating income increased to $77.011 million in Q1 2026 from $71.889 million in Q1 2025, despite total operating expenses rising to $427.971 million from $410.903 million.
• The proposed merger with Blackstone Infrastructure has received approvals from the PUCT and FERC, but the NMPRC application faces a formal investigation and a stay of its procedural schedule due to allegations of a Public Utility Act violation regarding a $400 million stock purchase.
• Projected consolidated capital requirements for 2026-2030 total $11.1 billion, including $10.2 billion for construction expenditures and $920.4 million for TXNM common stock dividends.
• New commercial paper programs were established for TXNM, PNM, and TNMP, allowing for the issuance of short-term notes up to $300 million, $400 million, and $300 million, respectively.
• TXNM successfully sold 1,785,901 shares of common stock under its 2026 ATM Program, generating net cash proceeds of $104.0 million.
• PNM's Grid Modernization Plan investments have been updated to approximately $367 million for the first six years, an increase from the initial $344 million.
• PNM's 30 MW Battery Energy Storage System (BESS) Project, estimated to cost $78.7 million, received NMPRC approval.
• TNMP's Base Rate Review, requesting recovery of $2.8 billion in rate base and a 10.4% ROE, is ongoing with settlement discussions.
• The company continues to monitor and respond to evolving environmental regulations, including EPA's reconsideration of GHG emission standards and the CCR Legacy Rule, and the potential impacts of the OBBBA on renewable energy tax credits.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this as a mixed report with significant negative financial performance for the parent company and its largest subsidiary (PNM), coupled with regulatory delays for the critical merger. While TNMP shows strength and strategic initiatives are progressing, the overall financial decline and merger uncertainty weigh heavily on sentiment.

Positives

• TNMP segment demonstrated strong earnings growth, increasing by $8.4 million to $30.7 million in Q1 2026.
• TNMP's utility margin saw a significant increase of $20.3 million, driven by transmission and distribution rate relief and the positive impacts of revenues recorded under HB 5247.
• PNM's utility margin increased by $4.5 million, benefiting from rate relief and higher transmission margin.
• The Public Utility Commission of Texas (PUCT) and the Federal Energy Regulatory Commission (FERC) have approved the proposed merger with Blackstone Infrastructure.
• PNM's first annual Grid Modernization Plan review and the updated year two revenue requirement were approved by the New Mexico Public Regulation Commission (NMPRC).
• The NMPRC approved PNM's 30 MW Battery Energy Storage System (BESS) Project, estimated to cost $78.7 million.
• PNM received approval to defer costs of two economic development projects (Westpointe and Mesa Del Sol Substations) under the Power Readiness Bill.
• New commercial paper programs established for TXNM, PNM, and TNMP provide additional short-term liquidity, with capacities of $300 million, $400 million, and $300 million respectively.
• TXNM successfully raised $104.0 million through the sale of 1,785,901 shares of common stock under its 2026 ATM Program.
• The company maintains investment-grade credit ratings from both S&P and Moody's, indicating financial stability.
• TNMP was recognized with an Emergency Response Award by the Edison Electric Institute (EEI), highlighting strong operational performance in critical situations.
• The company demonstrates a strong commitment to environmental stewardship, with PNM aiming for a 100% carbon-free generating portfolio by 2040.

Negatives

• Net earnings attributable to TXNM decreased significantly to $3.7 million in Q1 2026 from $8.9 million in Q1 2025, representing a 58% decline.
• The PNM segment reported a net loss of $(15.9) million in Q1 2026, a substantial negative swing from $0.9 million in earnings in Q1 2025.
• Losses on investment securities increased substantially to $(8.944) million in Q1 2026 from $(1.241) million in Q1 2025, negatively impacting other income and deductions.
• Higher operating expenses at PNM and TNMP, coupled with increased depreciation, property taxes, and interest expense due to increased plant in service, contributed to the earnings decline.
• Milder weather in Q1 2026 negatively impacted volumetric retail load for both PNM (residential -2.9%, commercial -3.0%) and TNMP (-2.0%).
• The NMPRC has stayed the procedural schedule for the merger application and initiated a formal investigation into a $400 million TXNM stock purchase, potentially delaying the merger's completion.
• Capacity arrangements at PNM resulted in a $(6.4) million negative impact on utility margin.
• PNM's Rio Puerco-Pajarito-Prosperity CCN application, with an estimated cost of $247 million, was initially dismissed and refiled, indicating potential delays or complexities in infrastructure development.
• The One Big Beautiful Bill Act of 2025 (OBBBA) accelerated the phase-out of certain Inflation Reduction Act (IRA) energy tax credits and restricted availability for foreign entities, which TXNM anticipates could lead to higher costs for future renewable energy development.
• PNM faces significant debt maturities in the near term, including a $195.0 million term loan due in July 2026 and $100.3 million in Pollution Control Revenue Bonds (PCRBs) due October 1, 2026, requiring refinancing or repayment.

Risks

• The pending merger with Blackstone Infrastructure faces significant regulatory uncertainty and potential delays due to a formal investigation by the NMPRC into a $400 million stock purchase and a request for rehearing filed with FERC.
• Merger-related litigation, including demand letters and complaints alleging disclosure violations, could result in injunctive relief or other remedies, impacting the merger's timeline and costs.
• Uncertainty surrounding EPA's reconsideration of Greenhouse Gas (GHG) emission standards, ozone standards, and the Coal Combustion Residuals (CCR) Legacy Rule could lead to significant compliance costs and capital expenditures for the company's generating facilities.
• The company is exposed to the long-term effects of climate change, including severe weather events (hurricanes, wildfires), reduced water supply in arid regions, and physical damage to infrastructure, which could disrupt operations and increase costs.
• There is uncertainty in the ability to fully recover environmental compliance costs, decommissioning, and reclamation costs from customers through regulated rates, potentially impacting financial position and cash flows.
• Macroeconomic conditions, such as inflation, Federal Reserve actions, and geopolitical activity (e.g., tariffs), could impact capital markets, raising borrowing costs and affecting the company's ability to access financing.
• Decreases in the fair values of marketable securities held in trusts for decommissioning, reclamation, pension, and other postretirement benefits could lead to funding shortfalls, requiring additional contributions.
• Counterparty performance and credit risk, particularly concerning fuel supply and reclamation activities, pose a risk to operations and financial stability.
• Potential for regulatory orders, legislation, or rulemakings that could lead to municipalization or public ownership of utility assets, or delay timely procurement of necessary resources.
• Operational issues, fuel quality and supply chain disruptions, unplanned outages, extreme weather, terrorism, and cybersecurity breaches could negatively affect the performance of generating units, transmission, and distribution systems.
• Changes in tax laws, including the OBBBA's impact on IRA energy tax credits, could result in higher costs for future renewable energy development.
• The application of goodwill impairment tests requires significant judgment, and changes in estimates and assumptions could materially affect the determination of fair value and lead to impairment losses.

Future Outlook

The merger with Blackstone Infrastructure is currently expected to close in the second half of 2026, pending resolution of NMPRC regulatory hurdles and a pending FERC rehearing request. PNM plans to join the Extended Day Ahead Market (EDAM) as early as 2027 and expects to file its 2026 Integrated Resource Plan (IRP) by September 1, 2026, and its 2027-2029 Transportation Electrification Program (TEP) by June 1, 2026. PNM anticipates making further contributions to mine reclamation trusts in 2026, 2027, and 2028. TNMP expects new rates from its Base Rate Review to become effective in mid-2026 and plans to make its first comprehensive filing under PURA 36.216 to recover costs for eligible transmission and distribution investments. TXNM anticipates potentially higher costs for future renewable energy development due to the OBBBA. The company believes its internal cash generation, existing credit arrangements, and access to capital markets will provide sufficient resources for the next twelve months, but additional long-term financing will be necessary for 2026-2030 capital requirements. PNM is committed to being coal-free by 2031 and achieving a 100% carbon-free generating portfolio by 2040, with significant projected electricity savings from energy efficiency programs over the next two decades.

Management Comments

• "TXNM strives to create a clean and bright energy future for customers, communities, and shareholders."
• "TXNMs strategy and decision-making are focused on safely providing reliable, affordable, and environmentally responsible power built on a foundation of sustainability."
• "Management believes that maintaining strong and modern electric infrastructure is critical to ensuring reliability and supporting economic growth."
• "PNM, as a vertically integrated utility in New Mexico, is focused on providing customers reliable, affordable and clean energy."
• "TNMP made significant strides in improving customer satisfaction related to power outages by providing a more user-friendly experience on TNMPs outage map information system, making it easier for customers to access real-time outage information."
• "Achieving our goal of carbon-free by 2040 is dependent on balancing reliability, cost considerations, and maturity of emerging technologies."
• "The Company currently believes that its internal cash generation, existing credit arrangements, and access to public and private capital markets will provide sufficient resources to meet the Companys capital requirements for at least the next twelve months."
• "The Company is in compliance with its debt covenants."

Industry Context

StockSavvy.ai notes that TXNM's strategic focus on grid modernization, renewable energy procurement, and energy efficiency aligns with broader utility industry trends driven by climate change concerns and evolving regulatory mandates like New Mexico's Energy Transition Act (ETA). The company's significant projected capital expenditure plans reflect the industry-wide need for substantial infrastructure upgrades to support decarbonization and enhance grid resilience. The ongoing merger process with Blackstone Infrastructure highlights the increasing interest of private equity in regulated utilities, seeking stable, long-term returns, though regulatory hurdles remain a key challenge across the sector. The reported decline in customer satisfaction across the electric utility industry, as measured by J.D. Power, indicates a sector-wide challenge that TXNM is actively addressing through improved communication and digital services.

Comparison to Industry Standards

• PNM's goal of achieving a 100% carbon-free generating portfolio by 2040 and New Mexico's ETA requirement of 100% zero-carbon energy by 2045 compare favorably to the U.S. Intended Nationally Determined Contribution (INDC) of 50%-52% carbon emissions reduction by 2030, positioning PNM ahead of many peers in decarbonization efforts.
• TNMP's recognition with an Emergency Response Award by the Edison Electric Institute (EEI) indicates strong performance in a critical area for utilities, especially in regions prone to extreme weather, comparing well against industry peers in disaster response and customer communication during outages.
• The company's commitment to maintaining investment-grade credit ratings (S&P: BBB/BBB/BBB+, Moody's: Baa3/Baa2/Baa1 for TXNM/PNM/TNMP respectively) is consistent with industry standards for regulated utilities, which typically seek stable credit profiles to ensure access to capital markets at favorable rates.
• PNM's participation in the Western Energy Imbalance Market (EIM) and plans to join the Extended Day Ahead Market (EDAM) align with industry trends towards regional energy markets to optimize resource dispatch and integrate renewables more efficiently, similar to actions taken by utilities like PacifiCorp and Arizona Public Service to enhance grid flexibility and cost-effectiveness.

Corporate Governance

Legal Proceedings

• Merger-Related Litigation: Demand letters and complaints have been filed in New York state court by purported TXNM shareholders, alleging disclosure violations and seeking injunctive relief regarding the merger. TXNM believes these allegations are without merit and will defend vigorously.
• NMPRC Merger Application Investigation: The NMPRC has initiated a formal investigation into a $400 million TXNM common stock purchase, alleging a violation of Section 62-6-12 of the Public Utility Act. This has led to a stay of the merger application's procedural schedule.
• FERC Merger Approval Rehearing Request: A request for rehearing was filed concerning FERC's February 20, 2026 approval of the proposed merger, citing the procedural uncertainty at the NMPRC.
• Santa Fe Generating Station Contamination: PNM is involved in an ongoing investigation and abatement plan with the NMED for groundwater and soil contamination at its former Santa Fe Generating Station site. Remediation activities are currently paused as the City of Santa Fe has stopped operating its well at the site.
• CCR Legacy Rule Litigation: Six petitions for review of EPA's Legacy Rule were filed and consolidated in the DC Circuit. The court agreed to hold the case in abeyance pending EPA's reconsideration of the rule.

Related Party Transactions

• TXNM, PNM, and TNMP are considered related parties, along with PNMR Services Company, a wholly-owned subsidiary of TXNM that provides corporate services.
• Service billings from TXNM to PNM were $33.678 million and to TNMP were $14.525 million for the three months ended March 31, 2026.
• Service billings from PNM to TNMP were $62k and from TNMP to TXNM were $21k for the three months ended March 31, 2026.
• Interest billings from TXNM to PNM were $39k and to TNMP were $15k for the three months ended March 31, 2026.
• Interest billings from PNM to TXNM were $115k for the three months ended March 31, 2026.
• TXNM made cash equity contributions to PNM of $105.0 million in the three months ended March 31, 2026.
• Neither PNM nor TNMP declared or paid any cash dividends on their common stock to TXNM in the three months ended March 31, 2026, or 2025.
• As of March 31, 2026, neither PNM nor TNMP had any intercompany borrowings from TXNM.

Stakeholder Impact

• Shareholders: The significant decrease in net earnings attributable to TXNM and the ongoing regulatory delays and investigation surrounding the Blackstone merger could negatively impact shareholder value. The proposed merger offers $61.25 in cash per share.
• Customers: Proposed merger benefits include rate credits ($105.0 million for PNM, $45.5 million for TNMP) and economic development funding. PNM's Grid Modernization Plan aims to improve service and affordability, particularly for low-income customers, while TNMP's System Resiliency Plan (SRP) seeks to enhance distribution system resilience.
• Employees: The Energy Transition Act (ETA) provides for severance funding for employees of retired coal facilities. The merger settlement includes corporate governance and regulatory protections that favor the current workforce. Stock-based compensation plans are in place for officers.
• Communities: The merger proposal includes additional contributions to the PNM Good Neighbor Fund ($10.0 million) and economic development funding ($35.0 million for PNM, $10.0 million for TNMP). The company maintains strong community involvement and charitable giving. Wildfire prevention efforts and public safety power shutoff plans impact communities in high-risk areas.
• Regulators: Ongoing regulatory proceedings with the NMPRC, PUCT, FERC, and NRC are critical for rate approvals, merger consummation, and environmental compliance, requiring significant engagement and potentially influencing regulatory outcomes.
• Creditors: The company's commitment to maintaining investment-grade credit ratings and compliance with debt covenants is crucial for ensuring continued access to debt financing and managing borrowing costs. Upcoming debt maturities for PNM require careful management.

Next Steps

• NMPRC scheduling conference for merger application on May 6, 2026.
• PNM expects to file a modified supplemental RFP on May 1, 2026.
• PNM expects to file its 2027-2029 TEP on or before June 1, 2026.
• The comment period for EPA's Legacy Rule proposal to rescind CCRMU requirements ends June 12, 2026.
• A public hearing for PNM's Rio Puerco-Pajarito-Prosperity CCN is scheduled for August 26, 2026.
• PNM expects to file its 2026 IRP with the NMPRC on or before September 1, 2026.
• PNM is directed to file a one-time distribution system plan by October 1, 2026.
• An NMPRC final order is expected no later than October 15, 2026, for PNM's second annual Grid Modernization Plan review.
• SJGS Facility Evaluation Report Part 1 is due February 9, 2027, and Part 2 is due February 8, 2028.
• EPA intends to finalize a proposed rule regarding GHG emission standards in 2026, and a proposed rule reconsidering ELG is also expected to be published in 2026.
• TNMP continues to confer regarding a settlement in its Base Rate Review.
• TXNM will continue to amend or file new FCC transfer of control applications for any new FCC licenses acquired.
• The company will monitor developments regarding California's climate-related disclosure laws.

Key Dates

Recommendation

The significant decline in TXNM's Q1 2026 net earnings and the ongoing regulatory hurdles for the Blackstone merger introduce considerable uncertainty. While TNMP shows strong performance and the company has strategic initiatives for clean energy and grid modernization, the immediate financial underperformance and merger delays warrant a cautious 'Hold' stance. Investors should await clearer resolution on the merger and evidence of improved financial trajectory for PNM before considering further investment.

Keywords

Utility, Electric Power, Energy Transition, SEC Filing, Quarterly Report, Financial Performance, Regulatory Approval, Merger, Blackstone Infrastructure, New Mexico, Texas, PNM, TNMP, Grid Modernization, Renewable Energy, Carbon-Free, ESG, Climate Change, Capital Expenditures, Debt, Earnings, Cash Flow, Environmental Regulation, Rate Case, Utility Margin, Stock-Based Compensation, Commercial Paper