10-Q: TXNM Energy Reports Q3 2024 Results, Cites Strong Performance and Strategic Investments

TXNM Energy, along with its subsidiaries, Public Service Company of New Mexico and Texas-New Mexico Power Company, released its third quarter 2024 results, highlighting increased earnings and strategic investments.

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, in 2023.
• The increase in earnings was driven by rate relief approved in PNMs 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 PNMs NDT, coal mine reclamation and SJGS decommissioning investment securities.
• These increases were partially offset by increased operational and maintenance expense, including higher employee related, outside services and vegetation management expenses at PNM, increased depreciation and amortization approved in PNMs 2024 Rate Change and increased plant in service at PNM and TNMP, 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 at PNM, TNMP and Corporate and Other.
• The company's capital requirements, including construction expenditures and dividends, are projected to total $6.9 billion for 2024-2028.
• The company has a number of financing arrangements in place, including revolving credit facilities, term loans, and other debt agreements, and expects to obtain additional long-term financing in the form of debt refinancing, new debt issuances, and/or new equity in order to fund its capital requirements during the 2024-2028 period.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results and strategic investments. While there are some challenges and risks, the overall tone is optimistic and forward-looking.

Positives

• The company experienced increased earnings due to rate relief, higher transmission and distribution rates, and increased load.
• The company is making strategic investments in transmission and distribution infrastructure to support growing demand and grid reliability.
• The company is actively pursuing a transition to a carbon-free generating portfolio by 2040.
• The company is implementing programs to reduce GHG emissions and promote energy efficiency.
• The company is committed to maintaining investment grade credit ratings.

Negatives

• The company experienced increased operational and maintenance expenses, including higher employee related, outside services and vegetation management expenses at PNM.
• The company experienced increased depreciation and amortization approved in PNMs 2024 Rate Change and increased plant in service at PNM and TNMP.
• The company experienced a regulatory disallowance at PNM related to San Juan Coal Mine reclamation remeasurement.
• The company experienced lower transmission margin at PNM, capacity arrangements at PNM, milder weather at TNMP and PNM, and higher interest charges at PNM, TNMP and Corporate and Other.

Risks

• The company is exposed to risks related to regulatory proceedings, including the ability to recover costs and earn allowed returns.
• 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 climate change, including potential financial and reputational risks resulting from increased stakeholder scrutiny related to climate change, litigation, legislative and regulatory efforts to limit GHG.
• The company is exposed to risks related to the availability of cash from its subsidiaries due to regulatory, statutory, or contractual restrictions or subsidiary earnings or cash flows.
• The company is exposed to risks related to the volatility of prices and liquidity in the wholesale power and natural gas markets.
• The company is exposed to risks related to the availability of fuel and water supplies, including the ability of the mine supplying coal to Four Corners and the companies involved in supplying nuclear fuel to provide adequate quantities of fuel.
• The company is exposed to risks related to the performance of its investment securities in the NDT, SJGS decommissioning trust, and coal mine reclamation trusts.
• The company is exposed to risks related to the creditworthiness of its counterparties.
• The company is exposed to risks related to interest rate fluctuations.

Future Outlook

The company expects to continue to invest in its infrastructure and transition to a carbon-free generating portfolio by 2040. The company also expects to continue to monitor and manage the impacts of climate change, regulatory changes, and economic conditions on its business.

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.
• The company is dedicated to achieving four key business objectives: maintaining strong employee safety, plant performance, and system reliability; delivering a superior customer experience; demonstrating environmental stewardship in business operations; and supporting the communities in their service territories.

Industry Context

The announcement reflects the ongoing trend in the utility industry towards renewable energy and grid modernization. The company's focus on sustainability and carbon-free generation aligns with broader industry goals and regulatory requirements. The company's investments in transmission and distribution infrastructure also reflect the need to modernize the grid to support the integration of renewable energy resources and to meet growing demand.

Comparison to Industry Standards

• The company's focus on renewable energy and carbon-free generation aligns with the goals of many other utilities in the U.S. and globally.
• The company's investments in grid modernization are consistent with industry trends to improve reliability and resilience.
• The company's financial performance is comparable to other utilities in the U.S., with a focus on earning authorized returns and maintaining investment grade credit ratings.
• The company's commitment to community engagement and customer satisfaction is also consistent with industry best practices.

Management Changes

Legal Proceedings

• PNM filed an appeal with the NM Supreme Court of the NMPRC decision to deny the Four Corners Abandonment Application.
• PNM filed an appeal with the NM Supreme Court regarding the NMPRCs order in the 2024 Rate Change.
• PNM filed an appeal with the NM Supreme Court regarding the NMPRCs amended IRP Rule.
• The NM Supreme Court held oral arguments on May 13, 2024, regarding the NMPRCs order on decoupling.
• The DC Circuit has scheduled oral argument for December 6, 2024, regarding the EPA final rule on GHG emissions.

Related Party Transactions

• PNM purchases renewable energy from certain NMRD-owned facilities at a fixed price per MWh of energy produced.
• PNMR Services Company expenses are charged to the business segments at cost.

Stakeholder Impact

• Customers will benefit from increased reliability and resilience of the electric grid.
• Customers will benefit from the transition to cleaner energy resources.
• Customers may experience rate increases as a result of investments in infrastructure and renewable energy.
• Shareholders will benefit from the company's strong financial performance and commitment to dividend growth.
• Employees will benefit from the company's commitment to safety and its focus on employee engagement.
• Communities will benefit from the company's commitment to economic development and environmental stewardship.

Next Steps

• The company will continue to monitor and manage the impacts of climate change, regulatory changes, and economic conditions on its business.
• The company will continue to invest in its infrastructure and transition to a carbon-free generating portfolio by 2040.
• The company will continue to pursue regulatory approvals for its rate cases and other filings.
• The company will continue to engage with stakeholders and communities to ensure that its plans and investments meet their needs.

Key Dates

Keywords

renewable energy, carbon-free, rate case, transmission, distribution, energy efficiency, regulatory, financial results, capital expenditures, debt, electricity, power generation, sustainability