10-Q: TXNM Energy Q3 2025: Merger Progress & Earnings Dip

TXNM Energy reports a decline in nine-month earnings amidst progress on its Blackstone Infrastructure merger and significant utility plant investments.

Summary

• TXNM Energy's net earnings attributable to TXNM decreased to $161.2 million for the nine months ended September 30, 2025, compared to $226.4 million in the prior year period.
• Diluted earnings per share for TXNM were $1.63 for the nine months ended September 30, 2025, down from $2.50 in the same period of 2024.
• The proposed merger with Blackstone Infrastructure received shareholder approval on August 28, 2025, and is expected to close in the second half of 2026, pending regulatory approvals.
• Consolidated capital requirements for 2025-2029 are projected at $8.6 billion, with $7.83 billion allocated to construction expenditures.
• Public Service Company of New Mexico (PNM) secured NMPRC approval on May 15, 2025, for its 2025 Rate Request, authorizing a $105.0 million overall revenue increase.
• Texas-New Mexico Power Company (TNMP) experienced robust load growth, with weather-normalized retail load increasing 3.3% and demand-based load rising 26.2% for the nine months ended September 30, 2025.
• PNM's Grid Modernization Plan investments increased to $367 million for the first six years, with projected operations and maintenance costs decreasing by 18%.
• TNMP's System Resiliency Plan (SRP), including $545.8 million in capital investments, was approved by the PUCT on March 26, 2025.
• PNM withdrew from the Western Resource Adequacy Program (WRAP) to align resource adequacy coordination with the Extended Day Ahead Market (EDAM).
• The One Big Beautiful Bill Act of 2025 (OBBBA), enacted in July 2025, accelerates the phase-out of certain Inflation Reduction Act (IRA) energy tax credits, potentially increasing future renewable energy development costs.

Sentiment

Score: 4

Explanation: While the company is making strategic progress on its clean energy transition and has secured regulatory approvals for rate increases and investments, the significant decline in net earnings and diluted EPS for the nine-month period, coupled with increased operating expenses and interest charges, indicates a challenging financial performance. The ongoing merger process introduces both opportunities and risks, and federal policy changes create regulatory uncertainty.

Positives

• TXNM shareholders approved the Blackstone Infrastructure merger on August 28, 2025, a key step towards closing.
• PNM's 2025 Rate Request was approved by the NMPRC on May 15, 2025, authorizing a $105.0 million overall revenue requirement increase.
• TNMP saw strong load growth, with weather-normalized retail load increasing 3.5% (Q3) and 3.3% (9M 2025), and demand-based load rising 36.3% (Q3) and 26.2% (9M 2025).
• TNMP's System Resiliency Plan (SRP), with $545.8 million in capital investments, was approved by the PUCT.
• PNM's Grid Modernization Plan investments increased to $367 million for the first six years, with projected O&M costs decreasing by 18%.
• TNMP received a $34.6 million sales and use tax refund, with $24.7 million applied to 2025 capital projects.
• PNM's Transportation Electrification Program (TEP) budget provides financial support for EV charger purchases and site make-ready costs, with over 25% dedicated to lowand moderate-income customers.
• The company maintains investment-grade credit ratings from Moody's and S&P, with S&P viewing the merger as credit supportive.
• PNM's 2023 Integrated Resource Plan (IRP), focusing on a carbon-free energy system by 2040, was accepted by the NMPRC.
• PNM's 2028 Resource Application, including Energy Storage Agreements (ESAs), a Power Purchase Agreement (PPA) for Valencia, and a Certificate of Convenience and Necessity (CCN) for solar/battery, was approved by the NMPRC.
• New Mexico's Strategic Economic Development Site Readiness Bill and Power Readiness Bill support economic development and utility infrastructure investments.
• TXNM's corporate giving and Foundation grants continue to support communities, including $9.0 million to tribal communities and other organizations over three years.

Negatives

• TXNM's net earnings attributable to TXNM decreased to $161.2 million for the nine months ended September 30, 2025, from $226.4 million in the prior year period.
• Diluted earnings per share decreased to $1.63 for the nine months ended September 30, 2025, from $2.50 in the prior year period.
• PNM's segment earnings decreased by $53.7 million for the nine months ended September 30, 2025, compared to 2024.
• Higher operating expenses and interest charges across both PNM and TNMP contributed to the decline in overall earnings.
• Milder weather in Q3 2025 negatively impacted PNM's utility margin by $6.3 million.
• Capacity arrangements at PNM negatively impacted utility margin by $10.8 million (Q3) and $30.9 million (9M 2025).
• Unrecoverable portions of coal mine reclamation remeasurements resulted in regulatory disallowances for PNM ($0.9 million in Q3 2025 for Four Corners, $5.9 million in Q3 2024 for San Juan, $10.4 million in 9M 2024 for San Juan).
• The OBBBA accelerates the phase-out of certain IRA energy tax credits and restricts credits for foreign entities of concern, potentially leading to higher costs for future renewable energy development.
• PNM's decision to withdraw from WRAP, though aiming for EDAM alignment, represents a change in strategy for regional resource adequacy.
• The U.S. is withdrawing from the Paris Agreement under the Trump Administration, which could impact climate change initiatives.
• EPA is reconsidering Greenhouse Gas (GHG) emission standards and the 2009 Endangerment Finding, creating regulatory uncertainty.

Risks

• The completion of the proposed merger with Blackstone Infrastructure is uncertain and subject to various regulatory approvals (PUCT, NMPRC, FERC, NRC, HSR) and other customary closing conditions.
• Regulatory approvals for the merger may impose requirements, limitations, or costs, or cause delays, potentially leading to the abandonment of the transaction.
• The merger process could disrupt management time and resources, diverting focus from ongoing business operations.
• Uncertainty surrounding the merger may adversely affect TXNM's ability to retain and hire key personnel and maintain relationships with customers and suppliers.
• Operating restrictions during the merger pendency may prevent TXNM from pursuing otherwise attractive business opportunities or capital structure alternatives.
• TXNM will incur substantial transaction fees and costs in connection with the proposed merger, even if it is not completed.
• The termination of the Merger Agreement could negatively impact TXNM, including potential stock price decline and payment of termination fees.
• Litigation may be instituted against TXNM and its directors challenging the proposed merger, potentially delaying or preventing its effectiveness.
• Provisions in the Merger Agreement, such as no-shop clauses and termination fees, could discourage potential alternative acquirers.
• The ability of PNM and TNMP to recover costs and earn allowed returns in regulated jurisdictions is subject to regulatory and judicial actions.
• Uncertainty surrounds the requirements and related costs of decommissioning power plants and reclaiming coal mines, as well as the ability to recover these costs from customers.
• Electricity usage by customers and consumers can be impacted by economic conditions, energy efficiency measures, weather, seasonality, alternative power sources, and technological advances.
• There is potential for regulatory orders, legislation, or rulemakings that could lead to municipalization or public ownership of utility assets.
• The company's ability to maintain its debt and access financial markets for repayment, refinancing, and capital expenditures is subject to market disruptions, ratings agency actions, interest rate fluctuations, geopolitical activity, and natural disasters.
• Risks are associated with the cost and completion of generation, transmission, distribution, and other projects, including regulatory approvals, counterparty obligations, and supply chain disruptions.
• Cash from TXNM's subsidiaries may be unavailable due to regulatory, statutory, or contractual restrictions or subsidiary earnings/cash flow limitations.
• Performance of generating units, transmission systems, and distribution systems could be negatively affected by operational issues, fuel quality/supply chain disruptions, unplanned outages, extreme weather, wildfires, storms, terrorism, and cybersecurity breaches.
• State and federal regulation or legislation related to environmental matters and renewable energy requirements could result in significant compliance costs and impact the economic viability of PNM's generating plants.
• State and federal regulatory, legislative, executive, and judicial decisions on ratemaking, tariffs, and taxes, including new legislation like the OBBBA and potential government shutdowns, pose risks.
• Climate change presents potential financial and reputational risks from increased stakeholder scrutiny, litigation, and legislative/regulatory efforts to limit GHGs.
• Employee workforce factors, including cost control efforts and issues from collective bargaining agreements, could impact operations.
• Variability of prices, volatility, and liquidity in wholesale power and natural gas markets can impact transmission margins.
• Changes in price and availability of fuel and water supplies, including the ability of coal and nuclear fuel suppliers to provide adequate quantities, are risks.
• Regulatory, financial, and operational risks are inherent in nuclear facilities, including spent fuel disposal uncertainties.
• Uncertainty surrounds counterparty performance and credit risk, particularly for fuel supply, reclamation activities, and financial support for SJGS decommissioning.
• The effectiveness of risk management regarding commodity transactions and counterparty risk is crucial.
• The outcome of legal proceedings, including the extent of insurance coverage, is uncertain.
• Changes in applicable accounting principles or policies could materially affect financial reporting.
• PNM is unable to predict the outcome of the NMED's requirement for a Stage 1 Abatement Plan proposal for SJGS for groundwater and soil contamination.
• PNM cannot predict whether EPA's analysis under the Four Corners NPDES permit settlement will result in further changes or material impact.
• PNM is unable to predict the outcome of EPA's rulemaking activity regarding CCR regulation or OSM's proposed rulemaking on mine placement of CCRs, or their material impact.
• PNM cannot predict the ultimate cost to reclaim the San Juan mine and could be exposed to additional loss related to surface mine reclamation beyond the $100.0 million cap.
• PNM is unable to predict the outcome of the Meta Platforms Inc. Data Center Phase IV application.
• PNM is unable to predict the outcome of the BESS Project application.
• TNMP's second 2025 DCRF filing is pending review by the PUCT.
• TNMP's request to adjust the EECRF for 2026 is pending review by the PUCT.
• PNM is at risk for shortfalls in funding of decommissioning, reclamation, pension, and OPEB obligations due to investment losses.

Future Outlook

The merger with Blackstone Infrastructure is expected to close in the second half of 2026, contingent on obtaining all required regulatory approvals. The company projects $8.6 billion in consolidated capital requirements for 2025-2029, primarily for utility plant investments, including grid modernization and system resiliency. PNM aims for a 100% carbon-free generating portfolio by 2040 and plans to align resource adequacy coordination with the Extended Day Ahead Market (EDAM) regional market. The recently enacted OBBBA may lead to higher costs for future renewable energy development due to changes in energy tax credits.

Management Comments

• TXNM strives to create a clean and bright energy future for customers, communities, and shareholders.
• TXNM's 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.
• The Company is committed to fostering relationships with its customers, stakeholders, and communities.
• TXNM believes that earning allowed returns is viewed positively by credit rating agencies and that improvements in the Company's ratings could lower costs to utility customers.
• 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 Company's capital requirements for at least the next twelve months.

Industry Context

The company operates within a rapidly evolving utility industry, driven by the transition to clean energy, grid modernization, and increasing demand in high-growth regions like Texas. Regulatory frameworks in New Mexico (Energy Transition Act) and Texas (HB 5247, DCRF) are adapting to support these transitions and infrastructure investments. The company's focus on carbon-free generation by 2040 aligns with broader industry trends and national/state-level climate goals, though federal policy changes (OBBBA, EPA reconsiderations) introduce regulatory uncertainty. Participation in regional energy markets (EIM, planned EDAM) reflects a move towards more integrated and efficient grid operations.

Comparison to Industry Standards

• PNM's ranking in customer satisfaction, as measured by J.D. Power, remains stable despite industry-wide declines.
• TNMP's high-performance homes residential new construction energy efficiency program has earned the Energy Star Partner of the Year award for 8 years, including 6 Sustained Excellence Awards.
• PNM's goal of 100% carbon-free generation by 2040 compares favorably to New Mexico's ETA requirement of 100% zero-carbon energy by 2045 and the U.S. Intended Nationally Determined Contribution (INDC) of 50-52% carbon emissions reduction by 2030.
• PNM's carbon emissions reduction pathway tracks within the ranges of climate scenario pathways consistent with limiting global warming to less than 2 degrees Celsius.
• PNM's water usage efficiency (about 45% more efficient than in 2005) and goals (80% reduction by 2035, 90% by 2040 from 2005 levels) demonstrate strong environmental stewardship.
• The company's solid waste diversion rate (21 of 22 facilities met or exceeded 65% in 2024) indicates strong performance in waste reduction.
• PNM's participation in the National Electric Highway Coalition aligns with industry efforts to build EV fast-charging infrastructure.
• PNM's tribal relations office is noted as a distinguishing feature among investor-owned utilities.

Management Changes

Corporate Governance

Legal Proceedings

• Merger-Related Litigation: Demand letters and draft complaints from purported TXNM shareholders alleging omitted/misrepresented material information in the preliminary proxy statement, seeking injunctive relief and other remedies. TXNM believes these are without merit and will defend vigorously.
• Regional Haze SIP: NMED is preparing its SIP for the second compliance period; NM Environmental Improvement Board held a public hearing and is expected to deliver a final rule on November 21, 2025. EPA is also reconsidering the Regional Haze Program.
• Carbon Dioxide Emissions: Litigation over Carbon Pollution Standards held in abeyance. EPA adopted new regulatory actions under CAA Sections 111(b) and (d) in 2024, which were challenged. President Trump's executive orders in January 2025 directed review/suspension of regulations. EPA published a proposed rule on June 17, 2025, to repeal or revise GHG emission standards for EGUs, with comments due September 15, 2025. EPA also proposed to rescind the 2009 Endangerment Finding on August 1, 2025, with comments due September 15, 2025.
• NAAQS (Ozone): EPA filed a motion for voluntary remand of its ozone interstate transport FIP for the 2015 ozone NAAQS to reconsider the rule, anticipating completion by Fall 2026.
• NAAQS (PM Standard): The 2024 rule lowering the primary annual PM 2.5 NAAQS to 9 ug/m3 is listed for reconsideration under EPA's March 2025 deregulatory actions.
• Cooling Water Intake Structures (Four Corners NPDES permit): Environmental groups filed a petition for review of the EAB's decision with the U.S. Court of Appeals for the Ninth Circuit, which was administratively closed through September 6, 2023, under a settlement. EPA issued a modification to the permit on December 1, 2023. PNM cannot predict further changes or material impact.
• Effluent Limitation Guidelines (ELG): The 2024 rule revising ELG was challenged in the U.S. Court of Appeals for the Eighth Circuit, but motions for a stay were denied. EPA announced reconsideration on March 12, 2025, and published proposed/direct final rules for extension of deadlines on October 2, 2025.
• Santa Fe Generating Station: PNM is working with NMED on an abatement plan proposal for groundwater and soil contamination, with S1AP submission delayed to November 26, 2025. PNM has stopped remediation activities due to the City of Santa Fe stopping well operations.
• Coal Combustion Residuals (CCR) Waste Disposal: Six petitions for review of the Legacy Rule were filed and consolidated by the DC Circuit, which agreed to hold the case in abeyance until December 15, 2025. EPA published a final rule and companion proposal revising CCRMU compliance deadlines on July 22, 2025, but withdrew it in September 2025, anticipating new rules in 2026. PNM is evaluating financial impacts for Four Corners and conducting site investigation reports for SJGS.
• SJGS Decommissioning: NMED designated PNM as a responsible party for groundwater and soil contamination at SJGS, requiring a Stage 1 Abatement Plan proposal by November 26, 2025.

Related Party Transactions

• Services billings from TXNM to PNM: $98.270 million (9M 2025) vs. $99.525 million (9M 2024).
• Services billings from TXNM to TNMP: $39.621 million (9M 2025) vs. $40.314 million (9M 2024).
• Services billings from PNM to TNMP: $0.247 million (9M 2025) vs. $0.368 million (9M 2024).
• Services billings from TNMP to TXNM: $0.078 million (9M 2025) vs. $0.085 million (9M 2024).
• Services billings from TNMP to PNM: $0.497 million (9M 2025) vs. $0.497 million (9M 2024).
• Services billings from TXNM to NMRD: $0.066 million (9M 2024).
• Renewable energy purchases from PNM to NMRD: $1.523 million (9M 2024).
• Interest billings from TXNM to PNM: $0.133 million (9M 2025) vs. $0.116 million (9M 2024).
• Interest billings from PNM to TXNM: $0.398 million (9M 2025) vs. $0.465 million (9M 2024).
• Interest billings from TXNM to TNMP: $0.210 million (9M 2025) vs. $0.202 million (9M 2024).

Stakeholder Impact

• Shareholders: Impacted by the pending merger consideration of $61.25 per share, potential stock price fluctuations, and termination fees. Also affected by decreased net earnings and EPS.
• Customers (PNM & TNMP): Benefit from rate credits and economic development funding proposed as part of merger conditions. Affected by rate increases from regulatory approvals (2025 Rate Change, TCOS, DCRF). Benefit from grid modernization, system resiliency, energy efficiency programs, and clean energy transition efforts.
• Employees: Uncertainty regarding roles after the merger, potential for retention/recruitment challenges. Benefit from stock-based compensation plans and employee crisis management fund.
• Communities: Benefit from economic development funding, additional contributions to the PNM Good Neighbor Fund, and increased community support as part of merger conditions. Impacted by wildfire safety initiatives and Public Safety Power Shutoff (PSPS) processes.
• Regulators: Involved in approving the merger, rate cases, resource plans, and environmental compliance.
• Suppliers/Vendors/Partners: Potential disruption or changes in business relationships due to merger uncertainty.
• Creditors: Impacted by debt refinancing, new issuances, and compliance with debt covenants, especially change-of-control provisions related to the merger.

Next Steps

• The merger with Blackstone Infrastructure is expected to close in the second half of 2026, pending regulatory approvals.
• PNM expects to seek recovery of Extended Day Ahead Market (EDAM) costs in a future rate case.
• The NMPRC is expected to rule on the Meta data center contract application during a future open meeting.
• TNMP expects to make its first comprehensive filing under PURA 36.216 in 2026 to recover costs for eligible transmission and distribution investments.
• The PUCT is pending review of TNMP's second 2025 DCRF filing.
• The PUCT is pending review of TNMP's request to adjust the EECRF for 2026.
• PNM expects to host similar wildfire safety community events in 2026.
• PNM anticipates contributing $6.5 million to its mine reclamation trust in 2025 and $0.5 million per year for 2025, 2026, and 2027 to the Four Corners escrow account.
• PNM anticipates contributing $7.9 million to its pension plan in 2029.
• PNM expects to make OPEB plan payments totaling $2.0 million in 2025 and $11.1 million for 2026-2029.
• PNM expects executive retirement program disbursements totaling $1.2 million during 2025 and $4.2 million for 2026-2029.
• PNM will continue monitoring the U.S. withdrawal from the Paris Agreement and other international accords.
• PNM will continue to monitor EPA's rulemaking activity regarding Coal Combustion Residuals (CCR) regulation and OSM's proposed rulemaking on mine placement of CCRs.
• PNM will conduct requisite site investigation reports for the SJGS CCR Management Unit (CCRMU).
• PNM will continue monitoring and abatement activities at the former Santa Fe Generating Station site.
• PNM will continue to seek approval to procure renewable resources.
• PNM will continue to monitor developments regarding California's climate-related disclosure laws.
• PNM will continue to monitor FERC notices of inquiry and rulemaking dockets related to transmission issues.
• EPA intends to finalize the proposed rule to repeal or revise GHG emission standards by the end of 2025.
• EPA anticipates a proposed rule in January 2026 with a final rule expected in October 2026 for CCRMU deadlines.
• EPA anticipates a proposed rule in July 2025 with a final rule in January 2026 for PM standard reconsideration.
• EPA anticipates a final rule in December 2026 for a federal permitting program for CCR handling on Native American reservations.
• The NM Environmental Improvement Board is expected to deliver a final rule on the regional haze SIP on November 21, 2025.
• Comments on EPA's advanced notice of proposed rulemaking for the Regional Haze Rule are due December 1, 2025.
• Comments on EPA's proposed and direct final rules for extension of CCRMU deadlines are due November 3, 2025.
• PNM's S1AP proposal for SJGS is due to NMED on November 26, 2025.
• PNM's evaluation of 2029-2032 RFP bids is due by January 9, 2026, with the IM report by February 9, 2026.
• EPA will designate attainment/nonattainment areas for the new PM 2.5 NAAQS by March 6, 2026.
• States will submit a SIP to EPA for the new PM 2.5 NAAQS by September 6, 2027.
• PNM's 2026 IRP filing date is September 1, 2026.

Key Dates

Recommendation

The pending merger with Blackstone Infrastructure, while approved by shareholders, still faces significant regulatory hurdles and associated risks, creating uncertainty. While the company is making strategic investments in grid modernization and clean energy, and has secured some favorable rate adjustments, the decline in net earnings and diluted EPS for the nine-month period indicates underlying financial challenges. The federal policy shifts regarding climate change and energy tax credits also introduce a degree of unpredictability. Given the current financial performance and the ongoing merger-related uncertainties, a 'hold' recommendation is appropriate, advising investors to await further clarity on the merger's completion and its long-term financial implications before making significant investment decisions.

Keywords

Utility, Electric Power, Energy, Renewable Energy, Grid Modernization, SEC Filing, Quarterly Report, Financial Performance, Merger, Blackstone Infrastructure, New Mexico, Texas, PNM, TNMP, ESG, Climate Change, Regulatory Approval, Capital Expenditures, Debt, Earnings