PNM RESOURCES, INC.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations for PNMR is presented on a combined basis, including
certain information applicable to PNM and TNMP. The MD&A for PNM and TNMP is
presented as permitted by Form 10-Q General Instruction H(2). This report uses
the term "Company" when discussing matters of common applicability to PNMR, PNM,
and TNMP. A reference to a "Note" in this Item 2 refers to the accompanying
Notes to Condensed Consolidated Financial Statements (Unaudited) included in
Item 1, unless otherwise specified. Certain of the tables below may not appear
visually accurate due to rounding.
MD&A FOR PNMR
EXECUTIVE SUMMARY
Overview and Strategy
PNMR is a holding company with two regulated utilities serving approximately
805,000 residential, commercial, and industrial customers and end-users of
electricity in New Mexico and Texas . PNMR's electric utilities are PNM and TNMP.
PNMR strives to create a clean and bright energy future for customers,
communities, and shareholders. PNMR's strategy and decision-making are focused
on safely providing reliable, affordable, and environmentally responsible power
built on a foundation of Environmental, Social and Governance (ESG) principles.
Recent Developments
Merger
On
Pursuant to the Merger Agreement, each issued and outstanding share of the common stock of PNMR (other than (i) the issued shares of PNMR common stock that are owned by Avangrid, Merger Sub, PNMR or any wholly-owned subsidiary of Avangrid or PNMR, which will be automatically cancelled at the Effective Time and (ii) shares of PNMR common stock outstanding immediately prior to the Effective Time and held by a holderwho has not voted in favor of, or consented in writing to, the Mergerwho is entitled to, andwho has demanded, payment for fair value of such shares) at the Effective Time will be converted into the right to receive$50.30 in cash. The proposed Merger has been unanimously approved by the Boards of Directors of PNMR, Avangrid and Merger Sub and approved by PNMR shareholders at the Special Meeting of Shareholders held onFebruary 12, 2021 . OnJanuary 20, 2021 , theFTC notified PNMR and Avangrid that early termination of the waiting period under the HSR Act in connection with the Merger was granted. CFIUS completed its review of the Merger onFebruary 2, 2021 , and has concluded that there are no unresolved national security concerns with respect to the Merger. OnMarch 10, 2021 , PNMR and Avangrid received FCC approval of the transfer of operating licenses related to the Merger. OnApril 20, 2021 ,FERC issued an order authorizing the Merger. OnMay 6, 2021 the PUCT issued an order authorizing the Merger and onMay 25, 2021 the NRC approved the Merger. Consummation of the Merger remains subject to the satisfaction or waiver of certain customary closing conditions, including, without limitation, the absence of any material adverse effect on PNMR, the receipt of required regulatory approval from the NMPRC, and the agreements relating to the divestiture of Four Corners being in full force and effect and all applicable regulatory filings associated therewith being made. The agreement relating to the divestiture of Four Corners has been entered into and related filings have been made with the NMPRC. The Merger is currently expected to close in the fourth quarter of 2021. OnApril 20, 2021 , the Joint Applicants, the NMAG, WRA, theInternational Brotherhood of Electrical Workers Local 611 , Dine,Nava Education Project , theSan Juan Citizens Alliance and To Nizhoni Ani, entered into a stipulation and agreement in the Joint Application for approval of Merger pending before the NMPRC. Subsequently, CCAE, Onward Energy, Walmart,Interwest Energy Alliance ,M-S-R Power and the Incorporated County ofLos Alamos have joined an amended stipulation. An evidentiary hearing was held fromAugust 11 - 19, 2021 . Post hearing briefs were filed onSeptember 21, 2021 . Response briefs were filed onSeptember 28, 2021 . EIM OnApril 1, 2021 , PNM joined and began participating in the EIM. The EIM is a real-time wholesale energy trading market operated by theCalifornia Independent System Operator (CAISO) that enables participating electric utilities to buy and sell energy. The EIM aggregates the variability of electricity generation and load for multiple balancing authority areas and utility jurisdictions. In addition, the EIM facilitates greater integration of renewable resources through the aggregation of 83 -------------------------------------------------------------------------------- Table of Contents flexible resources by capturing diversity benefits from the expanding geographic footprint and the expanded potential uses for those resources. PNM completed a cost-benefit analysis, which indicated participation in the EIM would provide substantial benefits to retail customers. In 2018, PNM filed an application with the NMPRC requesting, among other things, to recover initial capital investments and authorization to establish a regulatory asset to recover other expenses that would be incurred in order to join the EIM. The NMPRC approved the establishment of a regulatory asset but deferred certain rate making issues, including but not limited to issues related to implementation and ongoing EIM costs and savings, the prudence and reasonableness of costs to be included in the regulatory asset, and the period over which costs would be charged to customers until PNM's next general rate case filing. Texas Winter Storm Inmid-February 2021 ,Texas experienced a severe winter storm delivering the coldest temperatures in 100 years for many parts of the state. As a result, theERCOT market was not able to deliver sufficient generation load to the grid resulting in significant, statewide outages asERCOT directed transmission operators to curtail thousands of firm load megawatts. TNMP complied withERCOT directives to curtail the delivery of electricity in its service territory and did not experience significant outages on its system outside of theERCOT directed curtailments. TNMP has deferred bad debt expense from defaulting REPs to a regulatory asset totaling$0.8 million atSeptember 30, 2021 , and will seek recovery in a general rate case. At this time, the Company does not expect significant financial impacts related to this event. For additional information on theTexas winter storm see Note 11. Financial and Business Objectives PNMR is focused on achieving three key financial objectives:
•Earning authorized returns on regulated businesses •Delivering at or above industry-average earnings and dividend growth •Maintaining investment grade credit ratings
In conjunction with these objectives, PNM and TNMP are dedicated to:
•Maintaining strong employee safety, plant performance, and system reliability •Delivering a superior customer experience •Demonstrating environmental stewardship in business operations, including transitioning to an emissions-free generating portfolio by 2040 •Supporting the communities in their service territories
Earning Authorized Returns on Regulated Businesses
PNMR's success in accomplishing its financial objectives is highly dependent on two key factors: fair and timely regulatory treatment for its utilities and the utilities' strong operating performance. The Company has multiple strategies to achieve favorable regulatory treatment, all of which have as their foundation a focus on the basics: safety, operational excellence, and customer satisfaction, while engaging stakeholders to build productive relationships. Both PNM and TNMP seek cost recovery for their investments through general rate cases, periodic cost of service filings, and various rate riders. Fair and timely rate treatment from regulators is crucial to PNM and TNMP in earning their allowed returns and critical for PNMR to achieve its financial objectives. PNMR 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.
Additional information about rate filings is provided in Note 17 of the Notes to Consolidated Financial Statements in the 2020 Annual Reports on Form 10-K.
State Regulation
The rates PNM and TNMP charge customers are subject to traditional rate
regulation by the NMPRC,
New Mexico 2016 Rate Case - InJanuary 2018 , the NMPRC approved a settlement agreement that authorized PNM to implement an increase in base non-fuel rates of$10.3 million , which includes a reduction to reflect the impact of the decrease in the federal corporate income tax rate and updates to PNM's cost of debt (aggregating$47.6 million annually). This order was on PNM's application for a general increase in retail electric rates filed inDecember 2016 (the "NM 2016 Rate Case"). 84
-------------------------------------------------------------------------------- Table of Contents The key terms of the order include: •A ROE of 9.575% •A requirement to return to customers over a three-year period the benefit of the reduction in theNew Mexico corporate income tax rate to the extent attributable to PNM's retail operations (Note 14) •A disallowance of PNM's ability to collect an equity return on certain investments aggregating$148.1 million at Four Corners, but allowing recovery of a debt-only return •An agreement to not implement non-fuel base rate changes, other than changes related to PNM's rate riders, with an effective date prior toJanuary 1, 2020 •A requirement to consider the prudency of PNM's decision to continue its participation in Four Corners in PNM's next general rate case filing
PNM implemented 50% of the approved increase for service rendered beginning
OnDecember 29, 2020 ,Sierra Club filed a motion to re-open the NM 2016 Rate Case. The motion requests that the NMPRC re-open the NM 2016 Rate Case for the limited purpose of conducting a prudence review of certain Four Corners capital expenditures that the NMPRC deferred in its order approving the settlement agreement. Alternatively,Sierra Club requested that the deferred prudence review be conducted, and given weight as appropriate, in the Four Corners Abandonment Application. OnFebruary 10, 2021 , the NMPRC rejectedSierra Club's motion to re-open the NM 2016 Rate Case and stated that issues on whether the terms of the ETA provide an opportunity for consideration of prudence for Four Corners undepreciated investments included in a financing order or what effects the rates approved in the NM 2016 Rate Case may have on determining energy transition cost should be considered in the Four Corners Abandonment Application. For additional information on the Four Corners Abandonment Application see Note 12. 2020 Decoupling Petition - OnMay 28, 2020 , PNM filed a petition for approval of a rate adjustment mechanism that would decouple the rates of its residential and small power rate classes. Decoupling is a rate design principle that severs the link between the recovery of fixed costs of the utility through volumetric charges. If approved, customer bills would not be impacted untilJanuary 1, 2022 . OnOctober 2, 2020 , PNM requested an order to vacate the public hearing and stay the proceeding until the NMPRC decides whether to entertain a petition to issue a declaratory order resolving the issues raised in the motions to dismiss. OnOctober 7, 2020 , the hearing examiner approved PNM's request to stay the proceeding and vacate the public hearing and onOctober 30, 2020 PNM filed a petition for declaratory order asking the NMPRC to issue an order finding that full revenue decoupling is authorized by the EUEA. OnMarch 17, 2021 , the NMPRC issued an order granting PNM's petition for declaratory order which commences a proceeding to address petitions. Oral arguments were made onJuly 15, 2021 . See Note 12. PNM cannot predict the outcome of this matter. PVNGS Leased Interest Abandonment Application - OnApril 2, 2021 , PNM filed the PVNGS Leased Interest Abandonment Application. In the application PNM requested NMPRC authorization to decertify and abandon its Leased Interest and to create regulatory assets for the associated remaining undepreciated investments with consideration of cost recovery of the undepreciated investments in a future rate case. PNM also sought NMPRC approval to sell and transfer the PNM-owned assets and nuclear fuel supply associated with the Leased Interest to SRP, which will be acquiring the Leased Interest from the lessors upon termination of the existing leases. In addition, PNM sought NMPRC approval for a 150 MW solar PPA combined with a 40 MW battery storage agreement, and a stand-alone 100 MW battery storage agreement to replace the Leased Interest. To ensure system reliability and load needs are met in 2023, when a majority of the leases expire, PNM also requested NMPRC approval for a 300 MW solar PPA combined with a 150 MW battery storage agreement. OnAugust 25, 2021 , the NMPRC issued an order confirming PNM requires no further NMPRC authority to abandon the PVNGS Leased Interest and to sell and transfer the PNM-owned assets and nuclear fuel supply associated with the Leased Interest to SRP. The order bifurcated the issue of approval of the two PPAs and three battery storage agreements into a separate docket so it may proceed expeditiously and deferred a ruling on the other issues. For additional information on PNM's Leased Interest and the associated abandonment application see Note 12 and Note 13. Advanced Metering - Currently, TNMP has approximately 262,000 advanced meters across its service territory. Beginning in 2019, the majority of costs associated with TNMP's AMS program are being recovered through base rates. OnJuly 14, 2021 , TNMP filed a request with the PUCT to consider and approve its final reconciliation of the costs spent on the deployment of AMS fromApril 1, 2018 throughDecember 31, 2018 of$9.0 million , and approve appropriate carrying charges until full collection. OnSeptember 13, 2021 the PUCT Staff filed a recommendation for approval of TNMP's application for substantially all costs. OnOctober 2, 2020 , TNMP filed an application with the PUCT for authorization to implement necessary technological upgrades of approximately$46 million to its AMS program byNovember 2022 . OnJanuary 14, 2021 , the PUCT approved TNMP's application. TNMP will seek recovery of the investment associated with the upgrade in a future general rate proceeding or distribution cost recovery factor filing.
In
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PNM's 2020 filing for energy efficiency programs to be offered in 2021, 2022,
and 2023 included a proposal for an AMI pilot project, although PNM did not
recommend the proposal due to the limited benefits that are cost-effective under
a pilot structure. On September 17, 2020 , the hearing examiner in the energy
efficiency case issued a recommended decision recommending that PNM's proposed
2021 energy efficiency and load management program be approved, with the
exception of the proposed AMI pilot program. On October 28, 2020 , the NMPRC
approved the recommended decision.
Rate Riders and Interim Rate Relief - The PUCT has approved mechanisms that
allow TNMP to recover capital invested in transmission and distribution projects
without having to file a general rate case. The NMPRC has approved PNM
recovering fuel costs through the FPPAC, as well as rate riders for renewable
energy and energy efficiency. These mechanisms allow for more timely recovery of
investments.
On April 5, 2021 , TNMP filed its 2021 DCOS that requested an increase in annual
distribution revenues of $14.0 million . TNMP requested a procedural schedule
that would result in rates being effective in September 2021 . On July 1, 2021 ,
TNMP reached a unanimous settlement agreement with parties that would authorize
TNMP to collect an increase in annual distribution revenues of $13.5 million
beginning in September 2021 . On September 23, 2021 the PUCT approved
substantially all costs in the unanimous settlement. See Note 12.
FERC Regulation
Rates PNM charges wholesale transmission customers are subject to traditional rate regulation byFERC . Rates charged to wholesale electric transmission customers are based on a formula rate mechanism pursuant to which rates for wholesale transmission service are calculated annually in accordance with an approved formula. The formula includes updating cost of service components, including investment in plant and operating expenses, based on information contained in PNM's annual financial report filed withFERC , as well as including projected transmission capital projects to be placed into service in the following year. The projections included are subject to true-up. Certain items, including changes to return on equity and depreciation rates, require a separate filing to be made withFERC before being included in the formula rate. InMay 2019 , PNM filed an application withFERC requesting approval to purchase a new 153-mile long 345-kV transmission line and related facilities (the "Western Spirit Line"). Under related agreements, PNM will provide transmission service to approximately 800 MW of new wind generation to be located in easternNew Mexico beginning in 2021 using an incremental rate. All necessary regulatory approvals for PNM to purchase and provide transmission service from the Western Spirit Line have been obtained. OnMarch 12, 2021 , PNM filed four unexecuted TSAs withFERC totaling 145 MW with Leeward Energy. The unexecuted TSAs provide long-term firm, point-to-point transmission service on PNM's transmission system. The unexecuted TSAs are based on the pro-forma transmission service agreements with certain non-conforming provisions under Attachment A of PNM's OATT and include PNM's OATT rate. PNM filed the unexecuted TSAs at the request of Leeward because the parties were unable to reach an agreement on the terms and conditions for transmission service. OnMay 11, 2021 FERC issued an order accepting PNM's four unexecuted TSAs based on PNM's proposed pricing scheme included in its OATT rate. OnJune 10, 2021 , Pattern and Leeward both filed a request for rehearing of theFERC Order. OnSeptember 10, 2021 , Leeward filed a petition in theUnited States District Court for the District of Columbia for review ofFERC's order accepting PNM's four unexecuted TSAs. See Note 12.
Delivering At or Above Industry-Average Earnings and Dividend Growth
PNMR's financial objective to deliver at or above industry-average earnings and dividend growth enables investors to realize the value of their investment in the Company's business. Earnings growth is based on ongoing earnings, which is a non-GAAP financial measure that excludes from GAAP earnings certain non-recurring, infrequent, and other items that are not indicative of fundamental changes in the earnings capacity of the Company's operations. PNMR uses ongoing earnings to evaluate the operations of the Company and to establish goals, including those used for certain aspects of incentive compensation, for management and employees. PNMR targets a dividend payout ratio in the 50% to 60% range of its ongoing earnings. PNMR expects to provide at or above industry-average dividend growth in the near-term. The Board will continue to evaluate the dividend on an annual basis, considering sustainability and growth, capital planning, and industry standards. Under the terms of the Merger Agreement, PNMR has agreed not to declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its equity securities, or make any other actual, constructive or deemed distribution in respect of any equity securities (except (i) PNMR may continue the declaration and payment of planned regular quarterly cash dividends on PNMR common stock for each quarterly period ended after the date of the Merger Agreement, in an amount not to exceed$0.3275 for any fiscal quarters in 2021 and 2022, with usual record and payment dates in accordance with past dividend practice, and (ii) for any cash dividend or cash distribution by a wholly-owned subsidiary of PNMR to PNMR or another wholly-owned subsidiary of PNMR). 86
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The Board approved the following increases in the indicated annual common stock
dividend:
Approval Date Percent Increase
December 2019 6.0%
December 2020 6.5%
Maintaining Investment Grade Credit Ratings
The Company is committed to maintaining investment grade credit ratings in order to reduce the cost of debt financing and to help ensure access to credit markets, when required. See the subheading Liquidity included in the full discussion of Liquidity and Capital Resources below for the specific credit ratings for PNMR, PNM, and TNMP. All of the credit ratings issued by both Moody's and S&P on the Company's debt continue to be investment grade.
Business Focus
To achieve its business objectives, focus is directed in key areas: Safe,Reliable and Affordable Power ; Utility Plant and Strategic Investments;Environmentally Responsible Power ; and Customer, Stakeholders, and Community Engagement. 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 PNMR's utilities on customer satisfaction and community engagement.
Safe, Reliable, and
Safety is the first priority of our business and a core value of the Company.
PNMR utilizes a Safety Management System to provide clear direction, objectives
and targets for managing safety performance and minimizing risks and empowers
employees to "Be the Reason Everyone Goes Home Safe".
PNMR 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"). PNM's and TNMP's investment plans include projects designed to
support reliability and reduce the amount of time customers are without power.
PNMR and its utilities are aware of the important roles they play in enhancing
economic vitality in their service territories. Management believes that
maintaining strong and modern electric infrastructure is critical to ensuring
reliability and supporting economic growth. When contemplating expanding or
relocating their operations, businesses consider energy affordability and
reliability to be important factors. PNM and TNMP strive to balance service
affordability with infrastructure investment to maintain a high level of
electric reliability and to deliver a safe and superior customer experience.
Investing in PNM's and TNMP's infrastructure is critical to ensuring reliability
and meeting future energy needs. Both utilities have long-established records of
providing customers with safe and reliable electric service.
In March 2020 , the World Health Organization declared COVID-19 a global pandemic
and President Trump declared the COVID-19 pandemic a national emergency in the
U.S. The Company continues to closely monitor developments and has taken and
continues to take steps to mitigate the potential risks related to the COVID-19
pandemic. The Company has assessed and updated its existing business continuity
plans in response to the impacts of the pandemic through crisis team meetings
and working with other utilities and operators. It has identified its critical
workforce, staged backups and limited access to control rooms and critical
assets. The Company has worked to protect the safety of its employees using a
number of measures, including minimizing exposure to other employees and the
public and supporting flexible arrangements for all applicable job functions.
The Company is also working with its suppliers to manage the impacts to its
supply chain and remains focused on the integrity of its information systems and
other technology systems used to run its business. However, the Company cannot
predict the extent or duration of the ongoing COVID-19 pandemic, its effects on
the global, national or local economy, or on the Company's financial position,
results of operations, and cash flows. The Company will continue to monitor
developments related to COVID-19 and will remain focused on protecting the
health and safety of its customers, employees, contractors, and other
stakeholders, and on its objective to provide safe, reliable, affordable and
environmentally responsible power. As discussed in Note 12, both PNM and TNMP
suspended disconnecting certain customers for past due bills, waived late fees
during the pandemic, and have been provided regulatory mechanisms to recover
these and other costs resulting from COVID-19.
Utility Plant and Strategic Investments
Utility Plant Investments - During the 2019 and 2020 periods, PNM and TNMP together invested$1.3 billion in utility plant, including substations, power plants, nuclear fuel, and transmission and distribution systems.New Mexico's clean energy 87 -------------------------------------------------------------------------------- Table of Contents future depends on a reliable, resilient, secure grid to deliver an evolving mix of energy resources to customers. PNM has launched the Wired for the Future capital initiative, which emphasizes new investments in its transmission and distribution infrastructure with three primary objectives: delivering clean energy, enhancing customer satisfaction and increasing grid resilience. Projects are aimed at advancing the infrastructure beyond its original architecture to a more flexible and redundant system accommodating growing amounts of intermittent and distributed generation resources and integrating evolving technologies that provide long-term customer value. See the subheading Capital Requirements included in the full discussion of Liquidity and Capital Resources below for additional discussion of the Company's projected capital requirements. Strategic Investments - In 2017,PNMR Development and AEP OnSite Partners created NMRD to pursue the acquisition, development, and ownership of renewable energy generation projects, primarily in the state ofNew Mexico . Abundant renewable resources, large tracts of affordable land, and strong government and community support makeNew Mexico a favorable location for renewable generation.New Mexico ranks third in the Nation for energy potential from solar power according to theNebraska Department of Energy & Energy Sun Index and ranks third in the Nation for land-based wind capacity according to theU.S. Office of Energy Efficiency and Renewable Energy .PNMR Development and AEP OnSite Partners each have a 50% ownership interest in NMRD. Through NMRD, PNMR anticipates being able to provide additional renewable generation solutions to customers within and surrounding its regulated jurisdictions through partnering with a subsidiary of one ofthe United States' largest electric utilities. As ofSeptember 30, 2021 , NMRD's renewable energy capacity in operation was 135.1 MW, which includes 130 MW of solar-PV facilities to supply energy to the Facebook data center located within PNM's service territory, 1.9 MW to supply energy toColumbus Electric Cooperative located in southwestNew Mexico , 2.0 MW to supply energy to theCentral New Mexico Electric Cooperative , and 1.2 MW of solar-PV facilities to supply energy to theCity of Rio Rancho, New Mexico . In addition, PNM'sFebruary 8, 2021 application with the NMPRC for approval to service the Facebook data center includes construction of a 50 MW solar facility owned by NMRD, which is expected to be operational in 2023. See Note 12. NMRD actively explores opportunities for additional renewable projects, including large-scale projects to serve future data centers and other customer needs.
Integrated Resource Plan
NMPRC rules require that investor-owned utilities file an IRP every three years. The IRP is required to cover a 20-year planning period and contain an action plan covering the first four years of that period. NMPRC rules required PNM to file its 2020 IRP inJuly 2020 . InApril 2020 , the NMPRC approved PNM's request to extend the deadline to file its 2020 IRP until six months after the NMPRC issues a final order approving replacement resources in PNM's SJGS Abandonment Application. OnJanuary 29, 2021 , PNM filed its 2020 IRP. The plan focuses on a carbon-free electricity portfolio by 2040 that would eliminate coal at the end of 2024. This includes replacing the power fromSan Juan with a mix of approved carbon-free resources and the plan to exit Four Corners at the end of 2024. The plan highlights the need for additional investments in a diverse set of resources, including renewables to supply carbon-free power, energy storage to balance supply and demand, and efficiency and other demand-side resources to mitigate load growth.
Environmentally Responsible Power PNMR has a long-standing record of environmental stewardship. PNM's environmental focus is in three key areas:
•Developing strategies to provide reliable and affordable power while
transitioning to a 100% emissions-free generating portfolio by 2040
•Preparing PNM's system to meet
PNMR's corporate website (www.pnmresources.com) includes a dedicated section providing key environmental and other sustainability information related to PNM's and TNMP's operations and other information that collectively demonstrates the Company's commitment to ESG principles. This information highlights plans for PNM to be coal-free by 2024 (subject to regulatory approval) and to achieve an emissions-free generating portfolio by 2040. OnSeptember 21, 2020 , PNM announced an agreement to partner withSandia National Laboratories in research and development projects focused on energy resiliency, clean energy, and national security. The partnership demonstrates PNMR's commitment to ESG principles and its support of projects that further its emissions-free generation goals and plans for a reliable, resilient, and secure grid to deliverNew Mexico's clean energy future.
The Energy Transition Act ("ETA")
OnJune 14, 2019 , Senate Bill 489, known as the ETA, became effective. The ETA amends the REA and requires utilities operating inNew Mexico to have renewable portfolios equal to 20% by 2020, 40% by 2025, 50% by 2030, 80% by 2040, and 100% zero-carbon energy by 2045. The ETA also amends sections of the REA to allow for the recovery of 88 -------------------------------------------------------------------------------- Table of Contents undepreciated investments and decommissioning costs related to qualifying EGUs that the NMPRC has required be removed from retail jurisdictional rates, provided replacement resources to be included in retail rates have lower or zero-carbon emissions. The ETA provides for a transition from fossil-fueled generating resources to renewable and other carbon-free resources by allowing utilities to issue securitized bonds, or "energy transition bonds," related to the retirement of certain coal-fired generating facilities to qualified investors. See additional discussion of the ETA in Note 11 and in Note 16 of the Notes to Consolidated Financial Statements in the 2020 Annual Reports on Form 10-K. PNM expects the ETA will have a significant impact on PNM's future generation portfolio, including PNM's planned retirement of SJGS in 2022 and the planned Four Corners exit in 2024. PNM cannot predict the full impact of the ETA on potential future generating resource abandonment and replacement filings with the NMPRC. SJGS Abandonment Application - As discussed in Note 12, onJuly 1, 2019 , PNM filed a Consolidated Application for the Abandonment and Replacement of SJGS and Related Securitized Financing Pursuant to the ETA (the "SJGS Abandonment Application"). The SJGS Abandonment Application sought NMPRC approval to retire PNM's share of SJGS in mid-2022, and for approval of replacement resources and the issuance of approximately$361 million of Securitized Bonds as provided by the ETA. The NMPRC issued an order requiring the SJGS Abandonment Application be considered in two proceedings: one addressing SJGS abandonment and related financing and the other addressing replacement resources but did not definitively indicate if the abandonment and financing proceedings would be evaluated under the requirements of the ETA. After several requests for clarification and legal challenges, inJanuary 2020 , theNM Supreme Court ruled the NMPRC is required to apply the ETA to all aspects of PNM's SJGS Abandonment Application, and that any previous NMPRC orders inconsistent with their ruling should be vacated. InFebruary 2020 , the hearing examiners issued two recommended decisions recommending approval of PNM's proposed abandonment of SJGS, subject to approval of the separate replacement resources proceeding, and approval of PNM's proposed financing order to issue Securitized Bonds. The hearing examiners recommended, among other things, that PNM be authorized to abandon SJGS byJune 30, 2022 , to issue Securitized Bonds of up to$361 million , and to establish the Energy Transition Charge. The hearing examiners recommended an interim rate rider adjustment upon the start date of the Energy Transition Charge to provide immediate credits to customers for the full value of PNM's revenue requirement related to SJGS until those reductions are reflected in base rates. In addition, the hearing examiners recommended PNM be granted authority to establish regulatory assets to recover costs that PNM will pay prior to the issuance of the Securitized Bonds, including costs associated with the bond issuances as well as for severances, job training, and economic development funds. OnApril 1, 2020 , the NMPRC unanimously approved the hearing examiners' recommended decisions regarding the abandonment of SJGS and the Securitized Bonds. OnJune 24, 2020 , the hearing examiners issued a second recommended decision on PNM's request for approval of replacement resources that addressed the entire portfolio of replacement resources. OnJuly 29, 2020 , the NMPRC issued an order approving resource selection criteria identified in the ETA that include PPA's for 650 MW of solar and 300 MW of battery storage. See additional discussion of the ETA and PNM's San Juan Abandonment Application in Notes 11 and 12. Four Corners Abandonment Application - OnJanuary 8, 2021 , PNM filed the Four Corners Abandonment Application, which seeks NMPRC approval to exit PNM's 13% share of Four Corners as ofDecember 31, 2024 , and issuance of approximately$300 million of energy transition bonds as provided by the ETA. As ordered by the hearing examiner in the case, PNM filed an amended application and testimony onMarch 15, 2021 . The amended application provided additional information to support PNM's request, provided background on the NMPRC's consideration of the prudence of PNM's investment in Four Corners in the NM 2016 Rate Case and explained how the proposed sale and abandonment provides a net public benefit. If approved, PNM would exit its 200 MW ownership interest in Four Corners seven years earlier than planned and accelerate its exit of coal to 2024. See additional discussion of the ETA and PNM's Four Corners Abandonment Application in Notes 11 and 12. PNM enhanced its plan to exit Four Corners and emphasized its ESG strategy to reduce carbon emissions onMarch 12, 2021 with an announcement for additional plans for seasonal operations at Four Corners beginning in the fall of 2023. The solution for seasonal operations ensures the plant will be available to serve each owners' customer needs during times of peak energy use while minimizing operations during periods of low demand. This approach results in an estimated annual 20 to 25 percent reduction in carbon emissions at the plant and retains jobs and royalty payments for theNavajo Nation .
The Community Solar Act
OnJune 18, 2021 , Senate Bill 84, known as the Community Solar Act, became effective. The Community Solar Act establishes a program that allows for the development of community solar facilities and provides customers of a qualifying utility with the option of accessing solar energy produced by a community solar facility in accordance with the Community Solar Act. The NMPRC is charged with administering the Community Solar Act program, establishing a total maximum 89 -------------------------------------------------------------------------------- Table of Contents capacity of 200 MW community solar (applicable untilNovember 2024 ) facilities and allocating proportionally to theNew Mexico electric investor-owned utilities and participating cooperatives. As required under the Community Solar Act, the NMPRC opened a docket onMay 12, 2021 , to adopt rules to establish a community solar program no later thanApril 1, 2022 . See Note 12. Other Environmental Matters - Four Corners may be required to comply with environmental rules that affect coal-fired generating units, including regional haze rules and the ETA. OnJune 19, 2019 ,EPA repealed the Clean Power Plan, promulgated the ACE Rule, and revised the implementing regulations for all emission guidelines issued under the CAA Section 111(d).EPA set the Best System of Emissions Reduction ("BSER") for existing coal-fired power plants as heat rate efficiency improvements based on a range of "candidate technologies" that can be applied inside the fence-line. Rather than setting a specific numerical standard of performance,EPA 's rule directs states to determine which of the candidate technologies to apply to each coal-fired unit and establish standards of performance based on the degree of emission reduction achievable based on the application of BSER. However, onJanuary 19, 2021 , the DC Circuit issued an opinion vacating and remanding the rule, holding that it was based on a misconstruction of Section 111(d) of the Clean Air Act. In addition, onJanuary 27, 2021 ,President Biden signed an executive order requiring a review of environmental regulations issued under theTrump Administration , which will include a review of the ACE rule.The Biden Administration has made clear that it will seek greater authority in regulating greenhouse gas emissions to address climate change. PNMR is building upon its ESG goal of 100% emissions-free generation by 2040 with plans for additional emissions reductions through the electrification of its vehicle fleet. Growing the number of electric vehicles within the Company's fleet will benefit the environment and lower fuel costs furthering the commitment to ESG principles. Under the commitment, existing fleet vehicles will be replaced as they are retired with an increasing percentage of electric vehicles. The new goals call for 25% of all light duty fleet purchases to be electric by 2025 and 50% to be electric by 2030. To demonstrate PNMR's commitment to increase the electrification of vehicles in its service territory, PNM filed a Transportation Electrification Program ("TEP") with the NMPRC onDecember 18, 2020 . The TEP supports customer adoption of electric vehicles by focusing on addressing the barriers to electric vehicle adoption and encourage use. PNM's proposed program budget will be dedicated to low and moderate income customers by providing rebates to both residential and non-residential customers towards the purchase of chargers and/or behind-the-meter infrastructure. See Note 12.
Renewable Energy
PNM's renewable procurement strategy includes utility-owned solar capacity, as well as solar, wind and geothermal energy purchased under PPAs. As ofSeptember 30, 2021 , PNM has 158 MW of utility-owned solar capacity in operation. In addition, PNM purchases power from a customer-owned distributed solar generation program that had an installed capacity of 190.8 MW atSeptember 30, 2021 . PNM also owns the 500KW PNM Prosperity Energy Storage Project . The project was one of the first combinations of battery storage and solar-PV energy in the nation and involved extensive research and development of advanced grid concepts. The facility also was the nation's first solar storage facility fully integrated into a utility's power grid. PNM also purchases the output from New Mexico Wind, a 200 MW wind facility, and the output of Red Mesa Wind, an existing 102 MW wind energy center. PNM's 2020 renewable energy procurement plan was approved by the NMPRC inJanuary 2020 and includes a PPA to procure 140 MW of renewable energy and RECs from La Joya Wind II that began inJune 2021 . The NMPRC's approved portfolio to replace the planned retirement of SJGS will result in PNM executing solar PPAs of 650 MW combined with 300 MW of battery storage facilities. The majority of these renewable resources are key means for PNM to meet the RPS and related regulations that require PNM to achieve prescribed levels of energy sales from renewable sources, including those set by the recently enacted ETA, without exceeding cost requirements. As discussed in Strategic Investments above, PNM is currently purchasing the output of 130 MW of solar capacity from NMRD that is used to serve the Facebook data center which includes two 25-year PPAs to purchase renewable energy and RECs from an aggregate of approximately 100 MW of capacity from two solar-PV facilities constructed by NMRD to supply power to Facebook, Inc. The first 50 MW of these facilities began commercial operations inNovember 2019 and the second 50 MW facility began commercial operations inJuly 2020 . Additionally, PNM has entered into three separate 25-year PPAs to purchase renewable energy and RECs to be used by PNM to supply additional renewable power to the Facebook data center. These PPAs include the purchase of power and RECs from a 50 MW wind project, which was placed in commercial operation inNovember 2018 , a 166 MW wind project which became operational inFebruary 2021 , and a 50 MW solar-PV project to be operational in the first quarter of 2022. OnFebruary 8, 2021 , PNM filed an application with the NMPRC for approval to service the Facebook data center for an additional 190 MW of solar PPA combined with 100 MW of battery storage and a 50 MW solar PPA expected to be operational in 2023. See Note 12. InMarch 2020 , the NMPRC approved the PNM Solar Direct program under which qualified governmental and large commercial customers could participate in a voluntary renewable energy procurement program. The costs of the program would be recovered directly from subscribing customers through a rate rider, including the costs to procure renewable energy from 50 MW of solar-PV facilities under a 15-year PPA. These facilities are expected to be placed in commercial operation in the first quarter of 2022. 90
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PNM will continue to procure renewable resources while balancing the impact to customers' electricity costs in order to meetNew Mexico's escalating RPS and carbon-free resource requirements.
Energy Efficiency
Energy efficiency plays a significant role in helping to keep customers' electricity costs low while meeting their energy needs and is one of the Company's approaches to supporting environmentally responsible power. PNM's and TNMP's energy efficiency and load management portfolios continue to achieve robust results. In 2020, incremental energy saved as a result of new participation in PNM's portfolio of energy efficiency programs exceeded 87 GWh, which was the maximum level of profit incentive allowed under the NMPRC approved program. This is equivalent to the annual consumption of approximately 12,155 homes in PNM's service territory. PNM's load management and annual energy efficiency programs also help lower peak demand requirements. In 2020, TNMP's incremental energy saved as a result of new participation in TNMP's energy efficiency programs is estimated to be approximately 17 GWh. This is equivalent to the annual consumption of approximately 2,011 homes in TNMP's service territory.TNMP's High-Performance Homes residential new construction energy efficiency program was honored for the 6th year in a row by ENERGY STAR. This recognition includes the program's 4th straight Partner of the Year Sustained Excellence Award. For information on PNM's and TNMP's energy efficiency filing with the NMPRC and PUCT see Note 12.
Water Conservation and Solid Waste Reduction
PNM continues its efforts to reduce the amount of fresh water used to make electricity (about 35% more efficient than in 2007). Continued growth in PNM's fleet of solar and wind energy sources, energy efficiency programs, and innovative uses of gray water and air-cooling technology have contributed to this reduction. Water usage has continued to decline as PNM has substituted less fresh-water-intensive generation resources to replace SJGS Units 2 and 3 starting in 2018, as water consumption at that plant has been reduced by approximately 50%. As the Company moves forward with its mission to achieve 100% carbon-free generation by 2040, it expects that more significant water savings will be gained. PNM has set a goal to reduce freshwater use 80% by 2035 and 90% by 2040 from 2005 levels. Focusing on responsible stewardship ofNew Mexico's scarce water resources improves PNM's water-resilience in the face of persistent drought and ever-increasing demands for water to spur the growth ofNew Mexico's economy. In addition to the above areas of focus, the Company is working to reduce the amount of solid waste going to landfills through increased recycling and reduction of waste. In 2020, 18 of the Company's 23 facilities met the solid waste diversion goal of a 65% diversion rate. The Company expects to continue to do well in this area in the future.
Customer, Stakeholder, and Community Engagement
Another key element of the Company's commitment to ESG principles is fostering relationships with its customers, stakeholders and communities. The Company strives to deliver a superior customer experience. Through outreach, collaboration, and various community-oriented programs, the Company has demonstrated a commitment to building productive relationships with stakeholders, including customers, community partners, regulators, intervenors, legislators, and shareholders. PNM continues to focus its efforts to enhance the customer experience through customer service improvements, including enhanced customer service engagement options, strategic customer outreach, and improved communications. These efforts are supported by market research to understand the varying needs of customers, identifying and establishing valued services and programs, and proactively communicating and engaging with customers. As a result, PNM has seen significant gains in customer satisfaction in recent years in both the JD Power Electric Utility Residential Customer Satisfaction StudySM and its own proprietary relationship surveys. InSeptember 2020 ,J.D, Power also ranked PNM as one of the top performers in the industry for improved impression of the Company based on PNM's response to the COVID-19 pandemic. The Company has leveraged a number of communications channels and strategic content to better serve and engage its many stakeholders. PNM's website www.pnm.com, provides the details of major regulatory filings, including general rate requests, as well as the background on PNM's efforts to maintain reliability, keep prices affordable, and protect the environment. The Company's website is also a resource for information about PNM's operations and community outreach efforts, including plans for building a sustainable energy future forNew Mexico and to transition to an emissions-free generating portfolio by 2040. PNM has also leveraged social media in communications with customers on various topics such as education, outage alerts, safety, customer service, and PNM's community partnerships in philanthropic projects. As discussed above, PNMR's corporate website, www.pnmresources.com, includes a dedicated section providing additional information regarding the Company's commitment to ESG principles and other sustainability efforts. With reliability being the primary role of a transmission and distribution service provider inTexas' deregulated market, TNMP continues to focus on keeping end-users updated about interruptions and to encourage consumer preparation when severe weather is forecasted. This quarter, TNMP provided a 30-person team in support of another utility that experienced significant damage to their transmission and distribution system as a result of Hurricane Ida. TNMP has been honored by the 91 -------------------------------------------------------------------------------- Table of ContentsEdison Electric Institute four times since 2012 for its assistance to out-of-state utilities affected by hurricanes. TNMP has also been honored twice for hurricane response in its own territory. Local relationships and one-on-one communications remain two of the most valuable ways both PNM and TNMP connect with their stakeholders. Both companies maintain long-standing relationships with governmental representatives and key electricity consumers to ensure that these stakeholders are updated on Company investments and initiatives. Key electricity consumers also have dedicated Company contacts that support their important service needs. Another demonstration of the Company's commitment to ESG principles is the Company's tradition of supporting the communities it serves inNew Mexico andTexas . This support extends beyond corporate giving and financial donations from thePNM Resources Foundation to also include collaborations on community projects, customer low-income assistance programs, and employee volunteerism. In response to COVID-19, additional efforts were made in each of these areas and exhibit the Company's core value of caring for its customers and communities. During the three years endingDecember 31, 2020 , corporate giving contributed$7.7 million to civic, educational, environmental, low income, and economic development organizations. PNMR recognizes its responsibility to support programs and organizations that enrich the quality of life across its service territories and seeks opportunities to further demonstrate its commitment in these areas as needs arise. In response to COVID-19 community needs, PNMR donated to anEmergency Action Fund in partnership with key local agencies to benefit approximately ninety nonprofits and small businesses facing challenges due to lack of technology, shifting service needs, and cancelled fundraising events. Additionally, employee teams have supported first responders and other front-line workers through the delivery of food and other supplies often procured from local businesses struggling during stay-at-home orders. PNM also donated to thePueblo Relief Fund and delivered personal protective supplies to pueblo areas and tribal nations throughoutNew Mexico . While its service territory does not include theNavajo Nation , PNM's operations include generating facilities and employees in this region that has been disproportionately affected by the pandemic. In response, employee teams focused efforts to this region and also provided available supplies of personal protective equipment. PNM has also collaborated with theNavajo Tribal Utility Authority Wireless ("NTUAW") to set up wireless "hot spots" throughout theNavajo Nation in areas without internet access to assist first responders and support continued education opportunities amidst school closures. These actions supplement PNM's continued support for theNavajo Nation . The PNM Navajo Nation Workforce Training Scholarship Program provides support for Navajo tribal members and encourages the pursuit of education and training in existing and emerging jobs in the communities in which they live. In 2019, PNM invested an additional$500,000 into this scholarship program to further assist in the development and education of theNavajo Nation workforce. PNM has invested in paid summer college engineering internship programs for American Indian students available in the greaterAlbuquerque area. PNM also continues to partner in the Light up Navajo project, piloted in 2019 and modeled after mutual aid to connect homes without electricity to the power grid. In 2020, PNM also partnered with key local organizations to initiate funding for programs focused on diversity, equity, and inclusion. Another important outreach program is tailored for low-income customers and includes thePNM Good Neighbor Fund to provide customer assistance with their electric utility bills. COVID-19 has increased the needs of these customers along with customerswho may not otherwise need to seek assistance. In addition to the suspension of customer disconnections and expansion of customer payment plans, PNM responded with increased communications through media outlets and customer outreach to connect customers with nonprofit community service providers offering financial assistance, food, clothing, medical programs, and services for seniors. As a result of these communication efforts, 3,487 families in need received emergency assistance through thePNM Good Neighbor Fund during 2020. Additionally, as a part of corporate giving, onOctober 1, 2020 , PNM introduced$2.0 million in funding for new COVID Customer Relief Programs to support income-qualified residential customers and small business customerswho have been impacted by the financial challenges created by COVID-19 and have past due electric bills. Qualified customers that pay a portion of their past-due balance can receive assistance toward their remaining balance. Volunteerism is also an important facet of employee culture, keeping our communities safer, stronger, smarter and more vibrant. In 2020, PNM and TNMP employees and retirees contributed over 6,200 virtual and in-person volunteer hours serving local communities by supporting at least 250 organizations. Volunteers also participate in a company-wide annual Day of Service at nonprofits acrossNew Mexico andTexas along with participation on a variety of nonprofit boards and independent volunteer activities throughout the year. In addition to the extensive engagement both PNM and TNMP have with nonprofit organizations in their communities, thePNM Resources Foundation provides more than$1 million in grant funding each year acrossNew Mexico andTexas . These grants help nonprofits innovate or sustain programs to grow and develop business, develop and implement environmental programs, and provide educational opportunities. Beginning in 2020, thePNM Resources Foundation is funding grants with a three-year focus on decreasing homelessness, increasing access to affordable housing, reducing carbon emissions, and community safety with an emphasis on COVID-19 programs. As part of this emphasis,$0.5 million has been awarded to nonprofits inNew Mexico to assist with work being done on the front lines of the pandemic for community safety, with a focus on helping senior citizens and people currently experiencing homelessness during the shelter-in-place directives. In 2020, the 92 -------------------------------------------------------------------------------- Table of ContentsPNM Resources Foundation expanded its matching donation program to offer 2-to-1 matching on employee donations made to social justice nonprofits and increased the annual amount of matching donations available to each of its employees.PNM Resources Foundation awarded$0.3 million of additional grants to non-profits supporting TNMP communities following the winter storm inFebruary 2021 .
Economic Factors
PNM - In the three and nine months endedSeptember 30, 2021 , PNM experienced increases of 2.2% and 0.8% in weather normalized retail load compared to 2020, reflecting signs of recovery fromNew Mexico state restrictions related to COVID-19. TNMP - In the three and nine months endedSeptember 30, 2021 , TNMP experienced a decrease in volumetric weather normalized retail load of 2.2% and 1.0% compared to 2020. Weather normalized demand-based load, excluding retail transmission customers increased 2.8% and 2.4% in the three and nine months endedSeptember 30, 2021 compared to 2020. TNMP has experienced increased demand-based load offset by decreases in its volumetric weather normalized retail load asTexas recovers from state restriction related to COVID-19. Although the Company has begun to experience signs of recovery from state restrictions related to COVID-19, it is unable to determine the duration or final impacts from COVID-19 as discussed in more detail in Item 1A Risk Factors of the 2020 Annual Report on Form 10-K. The Company has not experienced, nor does it expect significant negative impacts to customer usage at PNM and TNMP resulting from the economic impacts of COVID-19. However, if current economic conditions worsen, the Company may be required to implement additional measures such as reducing or delaying operating and maintenance expenses and planned capital expenditures.
Results of Operations
Net earnings attributable to PNMR were$184.6 million , or$2.14 per diluted share in the nine months endedSeptember 30, 2021 compared to$164.0 million , or$2.05 per diluted share, in 2020. Among other things, earnings in the nine months endedSeptember 30, 2021 , benefited from higher weather normalized retail load at PNM, higher demand-based load at TNMP, higher transmission rates at PNM and TNMP, higher distribution rates at TNMP, lower surface mine reclamation expense and lower accretion expense at PNM, lower interest expense at PNM, improved performance on PNM's NDT investment securities and higher equity AFUDC at PNM. These increases were partially offset by milder summer weather at PNM, higher operational and maintenance expense, including higher plant maintenance and administrative costs at PNM, higher employee related, outside service and vegetation management expense at PNM and TNMP, increased depreciation and higher property taxes at PNM and TNMP due to increased plant in service, and higher interest charges at TNMP. Additional information on factors impacting results of operations for each segment is discussed below under Results of Operations.
Liquidity and Capital Resources
PNMR and PNM have revolving credit facilities with capacities of$300.0 million and$400.0 million that currently expire inOctober 2023 . Both facilities provide for short-term borrowings and letters of credit and can be extended throughOctober 2024 , subject to approval by a majority of the lenders. In addition, PNM has a$40.0 million revolving credit facility with banks having a significant presence inNew Mexico that expires inDecember 2022 , and TNMP has a$75.0 million revolving credit facility, which expires inSeptember 2022 and contains two one-year extension options, subject to approval by a majority of the lenders. Total availability for PNMR on a consolidated basis was$798.8 million atOctober 22, 2021 . The Company utilizes these credit facilities and cash flows from operations to provide funds for both construction and operational expenditures. PNMR also has intercompany loan agreements with each of its subsidiaries. PNMR projects that its consolidated capital requirements, consisting of construction expenditures and dividends, will total$4.6 billion for 2021 - 2025, including amounts expended throughSeptember 30, 2021 . The construction expenditures include estimated amounts for an anticipated expansion of PNM's transmission system, including the planned purchase of the Western Spirit Line, and expenditures for PNM's Wired for the Future capital initiative.
To fund capital spending requirements to meet growth that balances earnings goals, credit metrics and liquidity needs, the Company has entered into new financing arrangements in 2021. A complete listing of current financing arrangements is contained in Note 9 and Note 7 of the Notes to Consolidated Financial Statements in the 2020 Annual Reports on Form 10-K.
See discussion of the NMPRC'sApril 1, 2020 approval of PNM's request to issue approximately$361 million of Securitized Bonds upon the retirement of SJGS in 2022, and the related appeal of that order to theNM Supreme Court in Note 12. After considering the effects of these financings and the Company's short-term liquidity position as ofOctober 22, 2021 , the Company has consolidated maturities of long-term and short-term debt aggregating approximately$115.1 million 93 -------------------------------------------------------------------------------- Table of Contents throughOctober 2022 . In addition to internal cash generation, the Company anticipates that it will be necessary 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 2021-2025 period. 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. The Company is in compliance with its debt covenants. RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto. Trends and contingencies of a material nature are discussed to the extent known. Refer also to Disclosure Regarding Forward Looking Statements and to Part II, Item 1A. Risk Factors.
A summary of net earnings attributable to PNMR is as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 Change 2021 2020 Change
(In millions, except per share amounts)
Net earnings attributable to PNMR $ 113.3 $ 121.8
86.1 79.9 6.2 86.1 80.0 6.1
Net earnings attributable to PNMR per
diluted share $ 1.32 $ 1.52 $ (0.20) $ 2.14 $ 2.05 $ 0.09 The components of the change in net earnings attributable to PNMR are:
Three Months Ended Nine Months Ended
September 30, 2021 September 30, 2021
(In millions)
PNM $ (12.4) $ 18.0
TNMP 4.0 5.1
Corporate and Other - (2.5)
Net change $ (8.5) $ 20.6
Information regarding the factors impacting PNMR's operating results by segment are set forth below.
Segment Information
The following discussion is based on the segment methodology that PNMR's
management uses for making operating decisions and assessing performance of its
various business activities. See Note 2 for more information on PNMR's operating
segments.
PNM
PNM defines utility margin as electric operating revenues less cost of energy,
which consists primarily of fuel and purchase power costs. PNM believes that
utility margin provides a more meaningful basis for evaluating operations than
electric operating revenues since substantially all fuel and purchase power
costs are offset in revenues as those costs are passed through to customers
under PNM's FPPAC. Utility margin is not a financial measure required to be
presented and is considered a non-GAAP measure.
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The following table summarizes the operating results for PNM:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 Change 2021 2020 Change
(In millions)
Electric operating revenues $ 435.5 $ 364.5 $ 71.0 $ 1,030.7 $ 873.4 $ 157.3
Cost of energy 170.9 108.3 62.6 383.6 250.7 132.9
Utility margin 264.6 256.2 8.4 647.1 622.7 24.4
Operating expenses 107.4 99.2 8.2 320.6 299.3 21.3
Depreciation and amortization 42.7 40.5 2.2 127.1 123.7 3.4
Operating income 114.6 116.5 (1.9) 199.4 199.7 (0.3)
Other income 4.7 14.8 (10.1) 24.1 8.4 15.7
Interest charges (12.5) (14.7) 2.2 (38.4) (51.6) 13.2
Segment earnings before income
taxes 106.8 116.6 (9.8) 185.0 156.5 28.5
Income (taxes) (15.5) (13.6) (1.9) (26.2) (16.1) (10.1)
Valencia non-controlling interest (4.2) (3.6) (0.6) (11.6) (11.2) (0.4)
Preferred stock dividend requirements (0.1) (0.1) - (0.4) (0.4) -
Segment earnings $ 86.9 $ 99.3 $ (12.4) $ 146.8 $ 128.8 $ 18.0 The following table shows total GWh sales, including the impacts of weather, by customer class and average number of customers:
Three Months Ended September 30, Nine Months Ended September 30,
Percentage Percentage
2021 2020 Change 2021 2020 Change
(Gigawatt hours, except customers)
Residential 994.9 1,050.8 (5.3) % 2,577.1 2,628.1 (1.9) %
Commercial 1,048.1 987.8 6.1 2,701.8 2,640.0 2.3
Industrial 413.5 370.4 11.6 1,189.5 1,042.0 14.2
Public authority 67.9 74.5 (8.9) 172.6 182.7 (5.5)
Economy energy service (1) 123.4 93.1 32.5 365.5 354.4 3.1
Other sales for resale 1,592.5 734.5 116.8 3,958.4 1,994.7 98.4
4,240.3 3,311.1 28.1 % 10,964.9 8,841.9 24.0 %
Average retail customers
(thousands) 540.6 535.8 0.9 % 539.8 534.4 1.0 %
(1) PNM purchases energy for a large customer on the customer's behalf and
delivers the energy to the customer's location through PNM's transmission
system. PNM charges the customer for the cost of the energy as a direct pass
through to the customer with only a minor impact in utility margin resulting
from providing ancillary services.
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Operating Results - Three Months Ended September 30, 2021 compared to 2020
The following table summarizes the significant changes to utility margin:
Three Months
Ended
September 30, 2021
Change
Utility margin: (In millions)
Retail customer usage/load - Weather normalized KWh sales increased
8.9% for commercial customers partially offset by decreased sales to
residential customers of 1.6% $ 4.8
Weather - Milder weather in 2021; cooling degree days were 11.7% lower
in 2021 (6.9)
Transmission - Higher revenues under formula transmission rates, the
addition of a new customer, and higher volumes 7.7
Rate riders - Includes renewable energy, fuel clause, and energy
efficiency riders which are mostly offset in operating expense 1.6
Coal mine reclamation - Lower expense on surface minereclamation in
2021 and the 2020 remeasurement of PNM's obligation for Four Corners
and SJGS coal mine reclamation (Note 11) 1.4
Other (0.2)
Net Change $ 8.4
The following tables summarize the primary drivers for changes in operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:
Three Months
Ended
September 30, 2021
Change
Operating expenses: (In millions)
Higher plant maintenance and administrative costs at SJGS, Four
Corners, and gas-fired plants, partially offset by lower costs at
PVNGS $ 1.8
Higher property taxes due to increases in utility plant in
service and timing of property value settlements in 2020 1.0
Higher employee related, outside services, and vegetation
management expenses 2.1
Higher energy efficiency and renewable rider expenses, offset in
utility margin 1.5
2021 non-retail credit loss reserve 0.8
2021 regulatory disallowance resulting from the PVNGS Leased
Interest Abandonment Application (Note 12) 1.3
Regulatory disallowance due to change in estimated write-offs
associated with the SJGS BART determination and ownership
restructuring (0.8)
Other 0.5
Net Change $ 8.2
Depreciation and amortization:
Increased utility plant in service $ 1.9
Other 0.3
Net Change $ 2.2
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Three Months
Ended
September 30,
2021
Change
Other income (deductions): (In millions)
Decreased performance on investment securities in the NDT and
coal mine reclamation trusts $ (12.5)
Higher equity AFUDC 0.5
Lower trust expenses and higher interest income related to
investment securities in the NDT and coal mine reclamation
trusts 0.3
Decrease in donations including the 2020 COVID Customer Relief
Program 1.8
Other (0.2)
Net Change $ (10.1)
Interest charges:
Lower interest on term loans $ 0.9
Lower debt AFUDC (0.4)
Refinancing of $160 million SUNs in July 2021 0.8
Lower interest on PCRBs remarketed in 2020 0.8
Other 0.1
Net Change $ 2.2
Income (taxes) benefits:
Lower segment earnings before income taxes $ 2.7
Changes in the anticipated effective tax rate, including
amortization of excess deferred income taxes (Note 14) (5.8)
Other 1.2
Net Change $ (1.9) Operating Results - Nine Months Ended
The following table summarizes the significant changes to utility margin:
Nine Months
Ended
September 30, 2021
Change
Utility margin: (In millions)
Retail customer usage/load - Weather normalized KWh sales increased 3.8%
for commercial customers and decreased 0.5% for residential customers $ 6.4
Weather - Milder weather in the second and third quarters was partially
offset by colder weather in the first quarter (5.9)
Leap Year - Decrease in revenue due to additional day in 2020 (1.8)
Transmission - Higher revenues under formula transmissionrates, the
addition of a new customer, and higher volumes 13.9
Rate riders - Includes renewable energy, fuel clause, and energy
efficiency riders which are partially offset in operating expense 6.5
Coal mine decommissioning - Lower expense on surface minereclamation in
2021 and 2020 remeasurement of PNM's obligation for Four Corners and SJGS
coal mine reclamation (Note 11) 5.1
Other 0.2
Net Change $ 24.4
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The following tables summarize the primary drivers for changes in operating
expenses, depreciation and amortization, other income (deductions), interest
charges, and income taxes:
Nine Months
Ended
September 30, 2021
Change
Operating expenses: (In millions)
Higher plant maintenance and administrative costs at SJGS, Four
Corners, and gas-fired plants, partially offset by lower costs at
PVNGS $ 5.9
Higher property taxes due to increases in utility plant in
service, partially offset by favorable settlement of property
values 0.4
Higher employee related, outside services, and vegetation
management expenses 8.8
Higher energy efficiency and renewable rider expenses offset in
utility margin 4.0
2021 non-retail credit loss reserve 0.8
2021 Regulatory disallowance resulting from the PVNGS Leased
Interest Abandonment Application (Note 12) 1.3
Regulatory disallowance due to change in estimated write-offs
associated with the SJGS BART determination and ownership
restructuring (0.8)
Other 0.9
Net Change $ 21.3
Depreciation and amortization:
Increased utility plant in service $ 5.3
Lower accretion expense for PVNGS plant decommissioning ARO
resulting from 2020 study (2.2)
Other 0.3
Net Change $ 3.4
Other income (deductions):
Increased performance on investment securities in the NDT
partially offset by decreased performance in the coal mine
reclamation trusts $ 12.9
Higher equity AFUDC 2.4
Higher trust expenses partially offset by higher interest income
related to investment securities in the NDT and coal mine
reclamation trusts (0.9)
Decrease in donations including the 2020 COVID Customer Relief
Program 1.4
Other (0.1)
Net Change $ 15.7
Interest charges:
Lower interest on term loans $ 3.7
Refinancing of $160 million of SUNs in July 2021 0.8
Issuance of $200.0 million of SUNs in April 2020 (2.3)
Higher debt AFUDC resulting from FERC audit in 2020 1.9
Lower interest on PCRBs remarketed in 2020 9.0
Other 0.1
Net Change $ 13.2
Income (taxes) benefits:
Higher segment earnings before income taxes $ (7.1)
Changes in the anticipated effective tax rate, including
amortization of excess deferred income taxes (Note 14) (5.3)
Other 2.3
Net Change $ (10.1)
98-------------------------------------------------------------------------------- Table of Contents TNMP TNMP defines utility margin as electric operating revenues less cost of energy, which consists of costs charged by third-party transmission providers. TNMP believes that utility margin provides a more meaningful basis for evaluating operations than electric operating revenues since all third-party transmission costs are passed on to consumers through a transmission cost recovery factor. Utility margin is not a financial measure required to be presented and is considered a non-GAAP measure.
The following table summarizes the operating results for TNMP:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 Change 2021 2020 Change
(In millions)
Electric operating revenues $ 119.0 $ 108.0 $ 11.0 $ 315.1 $ 290.3 $ 24.8
Cost of energy 28.5 25.7 2.8 83.9 75.9 8.0
Utility margin 90.6 82.3 8.3 231.2 214.4 16.8
Operating expenses 28.7 28.0 0.7 83.0 78.4 4.6
Depreciation and amortization 23.0 22.5 0.5 67.7 66.7 1.0
Operating income 38.8 31.8 7.0 80.6 69.3 11.3
Other income 1.1 2.3 (1.2) 3.3 4.8 (1.5)
Interest charges (8.4) (7.9) (0.5) (25.2) (22.5) (2.7)
Segment earnings before income
taxes 31.6 26.1 5.5 58.7 51.6 7.1
Income (taxes) (3.6) (2.2) (1.4) (6.3) (4.4) (1.9)
Segment earnings $ 27.9 $ 23.9 $ 4.0 $ 52.3 $ 47.2 $ 5.1 The following table shows total sales, including the impacts of weather, by retail tariff consumer class and average number of consumers:
Three Months Ended September 30, Nine Months Ended September 30,
Percentage Percentage
2021 2020 Change 2021 2020 Change
Volumetric load (1) (GWh) 1,024.4 1,077.7 (4.9) % 2,439.9 2,473.4 (1.4) %
Demand-based load (2) (MW) 5,475.8 5,126.0 6.8 % 15,896.2 14,905.3 6.6 %
Average retail consumers
(thousands) (3) 264.1 259.3 1.9 % 262.9 258.3 1.8 %
(1) Volumetric load consumers are billed on KWh usage.
(2) Demand-based load includes consumers billed on monthly KW peak and also
includes retail transmission customers that are primarily billed under TNMP's
rate riders.
(3) TNMP provides transmission and distribution services to REPs that provide
electric service to their customers in TNMP's service territories. The number of
consumers above represents the customers of these REPs. Under TECA, consumers in
Texas have the ability to choose any REP to provide energy.
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Operating Results - Three Months Ended September 30, 2021 compared to 2020
The following table summarizes the significant changes to utility margin:
Three Months
Ended
September 30, 2021
Change
Utility margin: (In millions)
Transmission rate relief/load - Transmission cost of service rate
increases in October 2020 , March 2021 , and September 2021 partially offset
by lower wholesale transmission demand-based sales $ 4.2
Distribution rate relief - Distribution cost of service rate established
in September 2020 and increased in September 2021 4.2
Volumetric-based consumer usage/load - Weather normalized KWh sales
decreased 2.2%; the number of volumetric consumers increased 3.4% (0.4)
Demand-based consumer usage/load - Weather normalizeddemand-based MW
sales for large commercial and industrial consumersexcluding retail
transmission consumers increased 2.8% 1.0
Weather - Milder weather in 2021; cooling degree days were 2.9% lower in
2021 (0.9)
Rate Riders and other- Impacts of rate riders, including the CTC surcharge
which ended in August 2020 , energy efficiency rider, rate case expense
rider, and transmission cost recovery factor, which are offset in
depreciation and amortization 0.2
Net Change $ 8.3
The following tables summarize the primary drivers for changes in operating
expenses, depreciation and amortization, other income (deductions), interest
charges, and income taxes:
Three Months
Ended
September 30, 2021
Change
Operating expenses: (In millions)
Lower employee related, outside services, and vegetation
management expenses $ (0.7)
Higher property taxes due to increased utility plant in service 0.5
Lower capitalization of administrative and general and other
expenses due to lower construction expenditures 0.7
Other 0.2
Net Change $ 0.7
Depreciation and amortization:
Increased utility plant in service $ 2.7
Decreased amortization of CTC, partially offset in utility
margin (2.2)
Net Change $ 0.5
Other income (deductions):
Lower equity AFUDC $ (0.5)
Lower CIAC (0.6)
Other (0.1)
Net Change $ (1.2)
Interest charges:
Issuance of $65.0 million first mortgage bonds in 2021 $ (0.2)
Other (0.3)
Net Change $ (0.5)
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Three Months
Ended
September 30, 2021
Change
Income (taxes) benefits: (In millions)
Higher segment earnings before income taxes $ (1.1)
Changes in the anticipated effective tax rate, including
amortization of excess deferred income taxes. (Note 14) (0.3)
Net Change $ (1.4)
Operating Results - Nine Months Ended
The following table summarizes the significant changes to utility margin:
Nine Months
Ended
September 30, 2021
Change
Utility margin: (In millions)
Transmission rate relief/load - Transmission cost of service rate
increases in March 2020 , October 2020 , March 2021 , and
partially offset by lower wholesale transmission demand-based sales $ 10.7
Distribution rate relief - Distribution cost of service rate established
in September 2020 and increased in September 2021 11.0
Volumetric-based consumer usage/load - Weather normalized KWh sales
decreased 1.0% in addition to the leap-year impact; the number of
volumetric consumers increased 2.5% (0.6)
Demand-based consumer usage/load - Weather normalizeddemand-based MW
sales for large commercial and industrial consumersexcluding retail
transmission consumers increased 2.4% 1.4
Weather - Colder weather in the first quarter was partially offset by
milder weather in the second and third quarters 0.2
Rate Riders and other - Impacts of rate riders, including the CTC
surcharge which ended in August 2020 , energy efficiencyrider, rate case
expense rider, and transmission cost recovery factor, which are partially
offset in operating expense and depreciation and amortization (5.9)
Net Change $ 16.8
The following tables summarize the primary drivers for changes in operating
expenses, depreciation and amortization, other income (deductions), interest
charges, and income taxes:
Nine Months
Ended
September 30, 2021
Change
Operating expenses: (In millions)
Higher employee related, outside services, and vegetation
management expenses $ 2.9
Higher property taxes due to increased utility plant in service 1.5
Higher capitalization of administrative and general and other
expenses due to higher construction expenditures (0.5)
Higher energy efficiency costs and amortization of rate expenses
offset in utility margin 0.2
Other 0.5
Net Change $ 4.6
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Nine Months
Ended
September 30, 2021
Change
Depreciation and amortization: (In millions)
Increased utility plant in service $ 7.7
Decreased amortization of CTC offset in utility margin (6.8)
Other 0.1
Net Change $ 1.0
Other income (deductions):
Lower equity AFUDC $ (0.3)
Lower CIAC (1.1)
Other (0.1)
Net Change $ (1.5)
Interest charges:
Issuance of $185.0 million first mortgage bonds in 2020 $ (2.4)
Issuance of $65.0 million first mortgage bonds in 2021 (0.2)
Other (0.1)
Net Change $ (2.7)
Income (taxes) benefits:
Higher segment earnings before income taxes $ (1.5)
Changes in the anticipated effective tax rate, including
amortization of excess deferred income taxes. (Note 14) (0.4)
Net Change $ (1.9)
Corporate and Other
The table below summarizes the operating results for Corporate and Other:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 Change 2021 2020 Change
(In millions)
Electric operating revenues $ - $ - $ - $ - $ - $ -
Cost of energy - - - - - -
Utility margin - - - - - -
Operating expenses (4.1) (4.9) 0.8 (6.4) (14.6) 8.2
Depreciation and amortization 5.7 5.4 0.3 17.2 17.0 0.2
Operating income (loss) (1.7) (0.5) (1.2) (10.9) (2.3) (8.6)
Other income (deductions) - 0.2 (0.2) - (0.8) 0.8
Interest charges (2.3) (4.6) 2.3 (9.7) (14.8) 5.1
Segment earnings (loss) before
income taxes (4.0) (4.9) 0.9 (20.5) (17.8) (2.7)
Income (taxes) benefit 2.5 3.5 (1.0) 6.0 5.8 0.2
Segment earnings (loss) $ (1.5) $ (1.5) $ - $ (14.5) $ (12.0) $ (2.5)
Corporate and Other operating expenses shown above are net of amounts allocated
to PNM and TNMP under shared services agreements. The amounts allocated include
certain expenses shown as depreciation and amortization and other income
(deductions) in the table above. The change in operating expense for the three
and nine months ended September 30, 2021 include an increase of $1.0 million and
$8.2 million of costs related to the Merger that were not allocated to PNM or
TNMP.
102-------------------------------------------------------------------------------- Table of Contents Operating Results - Three Months EndedSeptember 30, 2021 compared to 2020 The following tables summarize the primary drivers for changes in other income (deductions), interest charges, and income taxes: Three Months Ended September 30, 2021 Change Other income (deductions): (In millions) Lower equity method investment income from NMRD $ (0.1) Decrease in donations and other contributions 0.1 Other (0.2) Net Change $ (0.2) Interest charges: Lower interest on short-term borrowings$ 0.4 Repayment of PNMR 2018 SUNs 2.6 Higher interest on term loans (0.8) Other 0.1 Net Change$ 2.3
Income (taxes) benefits:
Impact of difference in effective tax rates used by PNMR and its
subsidiaries in the calculation of income taxes in interim
periods $ (0.6)
Lower segment loss before income taxes (0.2)
Non-deductible merger related costs (0.1)
Other (0.1)
Net Change $ (1.0) Operating Results - Nine Months Ended
Nine Months
Ended
September 30, 2021
Change
Other income (deductions): (In millions)
Higher equity method investment income from NMRD $ 0.1
Decrease in donations and other contributions 0.8
Other (0.1)
Net Change $ 0.8
Interest charges:
Higher interest on term loans $ (2.3)
Lower interest on short-term borrowings 1.6
Repayment of PNMR 2018 SUNs 5.9
Other (0.1)
Net Change $ 5.1
Income (taxes) benefits:
Impact of difference in effective tax rates used by PNMR and its
subsidiaries in the calculation of income taxes in interim
periods $ 0.4
Higher segment loss before income taxes 0.7
Non-deductible merger related costs (0.8)
Other (0.1)
Net Change $ 0.2
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