10-K: TXNM Energy Reports Strong 2024 Earnings, Driven by Regulatory Relief and Load Growth

TXNM Energy's 2024 10-K filing reveals a significant increase in net earnings, fueled by regulatory approvals, higher transmission rates, and increased customer load in both New Mexico and Texas.

Summary

• TXNM Energy, Inc., formerly PNM Resources, Inc., reported net earnings attributable to TXNM of $242.2 million, or $2.67 per diluted share, for the year ended December 31, 2024, compared to $87.8 million, or $1.02 per diluted share, in 2023.
• The increase in earnings was primarily 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 Nuclear Decommissioning Trusts (NDT), coal mine reclamation, and San Juan Generating Station (SJGS) decommissioning investment securities.
• These increases were partially offset by regulatory disallowances related to San Juan and Four Corners Coal mine reclamation remeasurements in 2024, lower demand-based load at TNMP, lower transmission margin at PNM, higher employee related expenses at PNM and TNMP, increased depreciation and amortization approved in PNMs 2024 Rate Change and increased plant in service at PNM and TNMP, capacity arrangements at PNM, milder weather at TNMP and PNM, and higher interest charges at PNM, TNMP and Corporate and Other.
• PNM filed an application with the NMPRC for a general increase in retail electric rates in June 2024, proposing an increase of $174.3 million in retail revenues.
• TNMP filed its first System Resiliency Plan (SRP) with the PUCT in August 2024, designed to benefit customers through enhanced resiliency of its distribution system, including approximately $600 million of capital investments and approximately $151 million of other related costs over three years.
• The company is projecting total construction expenditures for the years 2025-2029 to be $7.8 billion.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook, driven by strong earnings growth and strategic investments. However, it also acknowledges risks and challenges, such as regulatory uncertainties and economic factors, preventing a higher sentiment score.

Positives

• PNM's weather-normalized residential load increased by 1.5% and industrial load increased by 12.5% in 2024.
• TNMP experienced a 1.8% increase in weather-normalized retail load and a 13.7% increase in data center load in 2024.
• PNM's grid modernization investments include approximately $344 million for the first six years of a broader 11-year strategy.
• PNM plans to join the Extended Day Ahead Market (EDAM) as early as 2027.
• The NMPRC approved PNMs Grid Modernization Plan in October 2024.
• TNMP filed an unopposed settlement with the PUCT that includes $565.8 million of capital investments over 2025 through 2027, reflecting 94% of TNMPs proposed plan investments.

Negatives

• Regulatory disallowances related to San Juan and Four Corners Coal mine reclamation remeasurements in 2024.
• Lower demand-based load at TNMP.
• Lower transmission margin at PNM.
• Higher employee related expenses at PNM and TNMP.
• Increased depreciation and amortization approved in PNMs 2024 Rate Change and increased plant in service at PNM and TNMP.
• Capacity arrangements at PNM.
• Milder weather at TNMP and PNM.
• Higher interest charges at PNM, TNMP and Corporate and Other.

Risks

• Uncertainty surrounding the status of PNMs participation in jointly-owned generation projects.
• Uncertainty regarding the requirements and related costs of decommissioning power plants and reclamation of coal mines.
• The impacts on the electricity usage of customers and consumers due to performance of state, regional, and national economies, energy efficiency measures, weather, seasonality, alternative sources of power, advances in technology, and other changes in supply and demand.
• The Companys ability to maintain its debt, including convertible debt, and access the financial markets.
• The risks associated with the cost and completion of generation, transmission, distribution, and other projects.
• The potential unavailability of cash from TXNMs subsidiaries due to regulatory, statutory, or contractual restrictions or subsidiary earnings or cash flows.
• The performance of generating units, transmission systems, and distribution systems, which could be negatively affected by operational issues, fuel quality and supply chain issues (disruptions), unplanned outages, extreme weather conditions, wildfires, storms, terrorism, cybersecurity breaches, and other catastrophic events.
• State and federal regulation or legislation relating to environmental matters and renewable energy requirements, the resultant costs of compliance, and other impacts on the operations and economic viability of PNMs generating plants.
• 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, including the impacts of the ETA.
• Information security breaches and risks of unauthorized access to their information and operational technology systems as well as physical threats to assets.

Future Outlook

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.

Industry Context

The document highlights the increasing stakeholder scrutiny related to sustainability in the utility industry, with investors, customers, employees, and lenders placing greater importance on climate change impacts. The company is navigating an uncertain regulatory and policy environment with respect to environmental and climate change programs.

Comparison to Industry Standards

• The document mentions that TXNM aims to deliver at or above industry-average long-term earnings growth.
• The document mentions that TXNM measures reliability and benchmark performance of PNM and TNMP against other utilities using industry-standard metrics, including System Average Interruption Duration Index (SAIDI) and System Average Interruption Frequency Index (SAIFI).
• The document mentions that TNMP was announced as an Edison Electric Institute (EEI), an association representing all US investor-owned electric companies, Emergency Response Award recipient.

Related Party Transactions

• PNM purchases renewable energy from certain NMRD-owned facilities at a fixed price per MWh of energy produced.
• PNMR Services Company provides corporate services to TXNM and its subsidiaries in accordance with shared services agreements, billed at cost on a monthly basis.

Stakeholder Impact

• The company works closely with its stakeholders to ensure that resource plans and infrastructure investments benefit from robust public dialogue and balance the diverse needs of our communities.
• Equally important is the focus of TXNMs utilities on customer satisfaction and community engagement.

Next Steps

• TNMP will submit filings for investments and recovery in accordance with the new rules in addition to the existing rate recovery mechanisms.
• 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 move to withdraw from the Paris Agreement and other parties involvement in these types of international accords.
• PNM will continue to assess the impacts of climate change legislation and regulation on its business.

Key Dates

Keywords

TXNM Energy, PNM, TNMP, Earnings, Regulatory, Renewable Energy, Transmission, Distribution, Rate Case, System Resiliency Plan, Debt, Capital Expenditures, Climate Change, Cybersecurity, Financial Results, Energy Transition Act