PNMXO.OTC.PinkPublic Service CO of New Mexico
10-Q: TXNM Energy Reports Q3 2024 Results: Earnings Surge Amid Regulatory and Strategic Shifts
Sentiment:
Quarterly Report
TXNM Energy's Q3 2024 results reveal a significant increase in net earnings, driven by regulatory relief, strategic investments, and favorable market conditions, despite challenges from increased expenses and weather impacts.
Capital raiseTXNM entered into a distribution agreement with BofA Securities, Inc., Citigroup Global Markets Inc., MUFG Securities Americas Inc., RBC Capital Markets, LLC, Scotia Capital, Bank of America, N.A., Citibank, N.A., MUFG Securities EMEA plc, Royal Bank of Canada, The Bank of Nova Scotia, Wells Fargo Bank, N..A., and the Company (incorporated by reference to Exhibit 10.2 to TXNMs Current Report on Form 8-K filed August 5, 2024).
Better than expectedNet earnings attributable to TXNM increased significantly to $226.4 million for the nine months ended September 30, 2024 compared to $138.0 million for the same period in 2023.PNM's 2024 Rate Change contributed to higher earnings through approved rate relief.TNMP's higher transmission and distribution rates and increased volumetric load positively impacted earnings.PNM's NDT, coal mine reclamation, and SJGS decommissioning investment securities performed well.
Summary
- TXNM Energy reported net earnings attributable to TXNM of $226.4 million, or $2.50 per diluted share, for the nine months ended September 30, 2024, compared to $138.0 million, or $1.60 per diluted share, for the same period in 2023.
- The increase in earnings was primarily due to rate relief approved in PNM's 2024 Rate Change, higher transmission and distribution rates at TNMP, higher volumetric load at TNMP, higher weather normalized retail load at PNM, and increased performance on PNM's NDT, coal mine reclamation and SJGS decommissioning investment securities.
- These gains were partially offset by increased operational and maintenance expenses, higher depreciation and amortization, a regulatory disallowance at PNM related to San Juan Coal Mine reclamation remeasurement, lower transmission margin at PNM, capacity arrangements at PNM, milder weather at TNMP and PNM, and higher interest charges.
- PNM's 2025 Rate Request, filed on June 14, 2024, proposes a $174.3 million increase in retail revenues, with a first phase effective July 1, 2025, and a second phase effective January 1, 2026.
- TNMP filed its first System Resiliency Plan (SRP) with the PUCT on August 28, 2024, which includes approximately $600 million of capital investments and approximately $151 million of other related costs over three years.
- The Company is committed to a carbon-free generating portfolio by 2040 and is actively pursuing renewable energy procurements and energy efficiency programs.
- The Company is closely monitoring the impacts on the capital markets of other macroeconomic conditions, including actions by the Federal Reserve to address inflationary concerns or other market conditions, and geopolitical activity.
Sentiment
Score: 7
Explanation: The document presents a generally positive outlook, with strong earnings growth and strategic initiatives underway. However, there are also challenges and risks, such as increased expenses, regulatory uncertainties, and climate change impacts, which temper the overall sentiment.
Positives
- PNM's 2024 Rate Change contributed to higher earnings through approved rate relief.
- TNMP's higher transmission and distribution rates and increased volumetric load positively impacted earnings.
- PNM's NDT, coal mine reclamation, and SJGS decommissioning investment securities performed well.
- PNM is pursuing a carbon-free generating portfolio by 2040, with significant renewable energy procurements and energy efficiency programs.
Negatives
- Increased operational and maintenance expenses at PNM partially offset earnings gains.
- Higher depreciation and amortization expenses impacted earnings.
- A regulatory disallowance at PNM related to San Juan Coal Mine reclamation remeasurement negatively affected earnings.
- Milder weather at TNMP and PNM reduced volumetric load and earnings.
- Higher interest charges at PNM, TNMP, and Corporate and Other segments decreased earnings.
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 risks related to climate change, including potential financial and reputational risks.
- The Company is subject 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 credit risk from its retail and wholesale customers, as well as the counterparties to derivative instruments.
- The Company is exposed to interest rate risk to the extent variable interest rates continue to rise.
Future Outlook
The Company is committed to a carbon-free generating portfolio by 2040 and is actively pursuing renewable energy procurements and energy efficiency programs. The Company is closely monitoring the impacts on the capital markets of other macroeconomic conditions, including actions by the Federal Reserve to address inflationary concerns or other market conditions, and geopolitical activity.
Industry Context
The announcement reflects the ongoing trend in the utility industry towards renewable energy transition and grid modernization, driven by environmental regulations and technological advancements. The company's focus on renewable energy and grid modernization aligns with broader industry trends.
Comparison to Industry Standards
- The company's commitment to a carbon-free generating portfolio by 2040 is more aggressive than some industry peers, but aligns with leading utilities in states with strong renewable energy mandates.
- The company's focus on grid modernization and system resiliency is consistent with industry efforts to improve grid reliability and resilience in the face of extreme weather events and cybersecurity threats.
- The company's financial performance is comparable to other regulated utilities, with a focus on earning authorized returns and maintaining investment grade credit ratings.
- Comparatively, NextEra Energy (NEE) and Xcel Energy (XEL) are also pursuing aggressive renewable energy targets and grid modernization initiatives.
- Southern Company (SO) and Duke Energy (DUK) are also investing in grid modernization and renewable energy, but may have a more diversified energy mix including nuclear and natural gas.
Related Party Transactions
- Service billings between TXNM, PNM, TNMP, and NMRD are considered related party transactions.
- PNM purchases renewable energy from certain NMRD-owned facilities at a fixed price per MWh of energy produced.
Stakeholder Impact
- Customers will benefit from increased grid reliability and resilience through investments in transmission and distribution infrastructure.
- Customers may experience higher electricity rates due to increased capital investments and operating expenses, but these costs are subject to regulatory approval.
- Shareholders will benefit from the Company's focus on earning authorized returns and delivering industry-average earnings and dividend growth.
- Employees will be affected by changes in workforce planning and training related to the transition to renewable energy and grid modernization.
- Communities will benefit from the Company's commitment to environmental stewardship and community engagement.
Next Steps
- PNM will implement the approved resources from the 2026 Resource Application.
- TNMP will continue to implement its System Resiliency Plan (SRP).
- PNM will continue to pursue its 2025 Rate Request with the NMPRC.
- The Company will continue to monitor and respond to regulatory and legislative developments related to climate change and energy policy.
Key Dates
| Date | Description |
|---|---|
| 2022-12-05 | PNM filed an application with the NMPRC for a general increase in electric rates using a calendar year 2024 FTY. |
| 2023-08-25 | ETBC I, a special purpose entity that is wholly-owned by PNM, was formed. |
| 2024-01-03 | The NMPRC issued a final order authorizing PNM to implement an increase in non-fuel base rates of $15.3 million, effective for service beginning January 15, 2024. |
| 2024-02-27 | PNMR Development and AEP OnSite Partners sold their respective interests in NMRD. |
| 2024-03-28 | TNMP entered into an agreement (the TNMP 2024 Bond Purchase Agreement) with institutional investors for the sale of $285.0 million aggregate principal amount of four series of TNMP first mortgage bonds (the TNMP 2024 Bonds) offered in private placement transactions. |
| 2024-04-01 | TXNM and PNM amended their respective revolving credit facilities, extending their maturity to March 30, 2029. |
| 2024-04-08 | The Board elected to convert the unvested portion of the retention bonus of $0.8 million into restricted stock rights. |
| 2024-05-03 | 19,851 restricted stock rights were awarded that will vest in accordance with the original terms of the retention agreement. |
| 2024-05-06 | TXNM entered into a distribution agreement with BofA Securities, Inc., Citigroup Global Markets, Inc., MUFG Securities Americas Inc., RBC Capital Markets, LLC, Scotia Capital (USA) Inc., and Wells Fargo Securities, LLC, as sales agents and Bank of America, N.A., Citibank, N.A., MUFG Securities EMEA plc, Royal Bank of Canada, The Bank of Nova Scotia, and Wells Fargo Bank, N.A., as forward purchasers, pursuant to which the Company may sell, from time to time, up to an aggregate sales amount of $100.0 million of its common stock, no par value, through the sales agents (the TXNM 2024 ATM Program). |
| 2024-05-10 | PNM entered into a $200.0 million term loan agreement (the PNM 2024 Term Loan), among PNM, the lenders party thereto and U.S. Bank National Association, as administrative agent. |
| 2024-06-03 | PNM remarketed these PCRBs aggregating $198.0 million to new investors at 3.875% with a mandatory tender date of June 1, 2029. |
| 2024-06-10 | TXNM issued $500.0 million aggregate principal amount of junior subordinated convertible notes due 2054 (the Convertible Notes) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act. |
| 2024-06-14 | PNM filed an application with the NMPRC for a general increase in retail electric rates using a FTY beginning July 1, 2025. |
| 2024-06-21 | TXNM issued an additional $50.0 million aggregate principal amount of the Convertible Notes, pursuant to an overallotment option granted by TXNM to the initial purchasers of the $500.0 million Convertible Notes. |
| 2024-07-08 | Hurricane Beryl made landfall in the Texas Gulf Coast leaving approximately 116,000 customers in the TNMP service area without power. |
| 2024-07-28 | TNMP issued the third and fourth series of TNMP 2024 Bonds, consisting of $40.0 million at a 5.65% interest rate, due July 1, 2039, and $128.0 million at a 5.79% interest rate, due July 1, 2054. |
| 2024-08-02 | PNM Resources, Inc. (PNMR) amended its Articles of Incorporation to change its name to TXNM Energy, Inc. (TXNM) and increase the number of authorized shares of the Companys common stock from 120,000,000 to 200,000,000. |
| 2024-08-05 | The Company amended the distribution agreement increasing the aggregate sales amount from $100.0 million to $300.0 million of its common stock, no par value, that may be sold under the TXNM 2024 ATM Program. |
| 2024-08-28 | TNMP filed its first SRP with the PUCT. |
| 2024-09-16 | The Companys newly appointed General Counsel, Senior Vice President Regulatory and Public Policy, and Corporate Secretary was awarded 9,300 shares of restricted stock, of which 50% vested immediately and the remaining 50% will vest on the first anniversary of his start date, subject to continued employment through the vesting date. |
| 2024-10-16 | The US Supreme Court denied the petitioners request for stay. |
| 2024-10-17 | The NMPRC issued a final order adopting the RD but removed the accelerated deployment schedule. |
Keywords
net earnings, rate relief, renewable energy, regulatory, transmission, distribution, coal, PNM, TNMP, TXNM, energy
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