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
791,000 residential, commercial, and industrial customers and end-users of
electricity in New Mexico and Texas . PNMR's electric utilities are PNM and TNMP.
Strategic Goals
PNMR is focused on achieving three key strategic goals:
•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 goals, 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 strategic goals 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, interim 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 strategic goals. 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 2019 Annual Reports on Form 10-K and in Note 12. State Regulation
The rates PNM and TNMP charge retail customers are subject to traditional rate
regulation by the NMPRC,
New Mexico 2015 Rate Case - OnSeptember 28, 2016 , the NMPRC issued an order that authorized PNM to implement an increase in base non-fuel rates of$61.2 million forNew Mexico retail customers, effective for bills sent afterSeptember 30, 2016 . This order was on PNM's application for a general increase in retail electric rates (the "NM 2015 Rate Case") filed inAugust 2015 . The NMPRC's order included a determination that PNM was imprudent in purchasing certain leased capacity in PVNGS Unit 2, extending other PVNGS leased capacity, and installing BDT environmental controls equipment on SJGS. 76 -------------------------------------------------------------------------------- Table of Contents PNM appealed the NMPRC's imprudence findings to theNM Supreme Court . Specifically, PNM appealed the NMPRC's determination that PNM was imprudent in certain matters in the case, including the disallowance of the full purchase price of 64.1 MW of capacity in PVNGS Unit 2, the undepreciated costs of capitalized improvements made during the period the 64.1 MW of capacity was leased by PNM, the costs of converting SJGS Units 1 and 4 to BDT, and future contributions for PVNGS decommissioning attributable to 64.1 MW of purchased capacity and the 114.6 MW of capacity under the extended leases. InMay 2019 , theNM Supreme Court issued its decision on the matters that had been appealed in the NM 2015 Rate Case.The NM Supreme Court upheld all of the decisions in the NMPRC's order except for their decision to permanently disallow recovery of future decommissioning costs related to the purchased and extended leases because PNM was deprived of its rights to due process of law and remanded the case to the NMPRC for further proceedings. InJanuary 2020 , the NMPRC issued its order in response to theNM Supreme Court's remand that reaffirmed itsSeptember 2016 order except for the decision to permanently disallow recovery of certain future decommissioning costs related to PVNGS Units 1 and 2. The NMPRC indicated that PNM's ability to recover these costs will be addressed in a future proceeding and closed the NM 2015 Rate Case docket. As a result of theNM Supreme Court's ruling, PNM recorded a pre-tax impairment of$149.3 million as ofJune 30, 2019 which is reflected as regulatory disallowances and restructuring costs in the Condensed Consolidated Statements of Earnings. This amount reflects capital costs not previously impaired during the pendency of the appeal related to PNM's purchase of 64.1 MW, in PVNGS Unit 1, undepreciated capital improvements made during the period such interests had been leased, and investments in BDT environmental controls equipment on SJGS Units 1 and 4. The impairment was offset by tax impacts of$45.7 million which are reflected as income taxes on the Condensed Consolidated Statements of Earnings.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"). 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
TNMP 2018 Rate Case - OnDecember 20, 2018 , the PUCT approved a settlement stipulation allowing TNMP to increase annual base rates by$10.0 million based on a ROE of 9.65%, a cost of debt of 6.44%, and a capital structure comprised of 55% debt and 45% equity. In addition, the approved settlement stipulation allows TNMP to refund the regulatory liability recorded atDecember 31, 2017 related to federal tax reform to customers and reflects the reduction in the federal corporate income tax rate to 21%. New rates under the TNMP 2018 Rate Case became effectiveJanuary 1, 2019 .
Advanced Metering - TNMP completed its mass deployment of advanced meters across its service territory in 2016 and has installed more than 242,000 advanced meters. Beginning in 2019 the majority of costs associated with TNMP's AMS program are being recovered through base rates.
InFebruary 2016 , PNM filed an application with the NMPRC requesting approval of a project to replace its existing customer metering equipment with Advanced Metering Infrastructure ("AMI"), which was denied. As ordered by the NMPRC, PNM's 2020 filing for energy efficiency programs to be offered in 2021, 2022, and 2023 includes a proposal for an AMI pilot project. 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 77 -------------------------------------------------------------------------------- Table of Contents allow for more timely recovery of investments. OnApril 6, 2020 , TNMP filed its first application for a periodic distribution rate adjustment (the "2020 DCOS"). TNMP's 2020 DCOS application requests an increase in annual distribution revenues of$14.7 million and that new rates go into effect beginning inSeptember 2020 . See Note 12. TNMP cannot predict the outcome of this matter. FERC Regulation Rates PNM charges wholesale transmission customers and wholesale generation 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 165-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. PNM has no full-requirements wholesale generation customers. Delivering At or Above Industry-Average Earnings and Dividend Growth PNMR's strategic goal 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. PNMR's current target is 5% to 6% earnings and dividend growth for the period 2020 through 2023. 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 and to manage the payout ratio to meet its long-term target. The Board will continue to evaluate the dividend on an annual basis, considering sustainability and growth, capital planning, and industry standards. The Board approved the following increases in the indicated annual common stock dividend: Approval Date Percent IncreaseDecember 2017 9%December 2018 9%December 2019 6% 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. OnApril 6, 2020 , S&P downgraded the ratings for PNMR, PNM, and TNMP one notch and affirmed TNMP's first mortgage bond rating. All of the credit ratings issued by both Moody's and S&P on the Company's debt continue to be investment grade.
Business and Strategic Focus
PNMR strives to create enduring value for customers, communities, and
shareholders. PNMR's strategy and decision-making are focused on safely
providing reliable, affordable, and environmentally responsible power. 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.
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Safe, Reliable, andAffordable 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 early 2020, the novel coronavirus ("COVID-19"), resulted inPresident Trump declaring a pandemic in theU.S. The Company is closely monitoring developments and is taking 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 mandating work-from-home and flexible arrangements for all applicable job functions. The Company is also working with its suppliers to understand the potential 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 outbreak, 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 have suspended disconnecting certain customers for past due bills and waived late fees during the pandemic and are seeking or have been provided regulatory mechanisms to recover these and other costs resulting from COVID-19. See additional discussion below regarding the Company's customer, community, and stakeholder engagement in response to COVID-19 and in Item 1A. Risk Factors.
Utility Plant and Strategic Investments
Utility Plant Investments - During the 2017 to 2019 period, PNM and TNMP together invested$1.5 billion in utility plant, including substations, power plants, nuclear fuel, and transmission and distribution systems. During 2018 and 2019, PNM constructed an additional 50 MW of PNM-owned solar-PV facilities, which were approved by the NMPRC in PNM's 2018 renewable energy procurement plan. OnMay 1, 2019 , PNM executed an agreement to purchase the Western Spirit Line, which has been approved byFERC and the NMPRC. Under the agreement, subject to certain conditions being met prior to closing, PNM will purchase the Western Spirit Line upon its expected commercial operation date in 2021 at a net cost of approximately$285 million , including customer reimbursements. PNM's SJGS Abandonment Application requests NMPRC approval of a replacement resource scenario that would result in PNM investing approximately$298 million to construct and own a new 280 MW gas-fired generation facility to be located at the existing SJGS site, 70 MW of battery storage facilities, and other transmission upgrades to replace PNM's capacity in SJGS. 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 3rd in the nation for energy potential from solar power according to theNebraska Department of Energy & Energy Sun Index and ranks 3rd 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 ofMarch 31, 2020 , NMRD's renewable energy capacity in operation was 85.1 MW, which includes 80 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 . The NMPRC has approved PNM's request to enter into an additional 25-year PPA to purchase renewable energy and RECs from an aggregate of approximately 50 MW of capacity from solar-PV facilities to be constructed by NMRD to supply power to the Facebook data center. These facilities are expected to begin commercial operation byJune 2020 . NMRD actively explores opportunities for additional renewable projects, including large-scale projects to serve future data centers and other customer needs. 79 -------------------------------------------------------------------------------- Table of Contents 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. PNM filed its 2017 IRP onJuly 3, 2017 . The 2017 IRP analyzed several scenarios utilizing assumptions that PNM continues service from its SJGS capacity beyond mid-2022 and that PNM retires its capacity after mid-2022. Key findings of the 2017 IRP included, among other things, that retiring PNM's share of SJGS in 2022 and exiting ownership in Four Corners in 2031 would provide long-term cost savings for PNM's customers and that the best mix of new resources to replace the retired coal generation would include solar energy and flexible natural gas-fired peaking capacity as well as energy storage, if the economics support it, and wind energy provided additional transmission capacity becomes available. The 2017 IRP also indicated that PNM should retain the currently leased capacity in PVNGS. See additional discussion regarding PNM's leased capacity in PVNGS in Note 13, including PNM'sJune 15, 2020 deadline to provide irrevocable notice of its intent to purchase or return the assets underlying the extended PVNGS Units 1 and 2 leases, as well as PNM's 2017 IRP and the SJGS Abandonment Application in Note 12. In the third quarter of 2019, PNM initiated its 2020 IRP process which will cover the 20-year planning period from 2019 through 2039. Consistent with historical practice, PNM has provided notice to various interested parties and has hosted a series of public advisory presentations. NMPRC rules require PNM to file its 2020 IRP inJuly 2020 . InMarch 2020 , PNM filed a request to extend the deadline to file its 2020 IRP until six months after the NMPRC issues a final order approving replacement resources PNM's SJGS Abandonment Application. InApril 2020 , the NMPRC approved PNM's request for extension. PNM will continue to seek input from interested parties as a part of this process. PNM cannot predict the outcome of this matter.
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 Sustainability Portal provides key environmental and sustainability
information related to PNM's and TNMP's operations and is available at
http://www.pnmresources.com/about-us/sustainability-portal.aspx. The portal also
contains a Climate Change Report, which outlines plans for PNM to be coal-free
by 2031 (subject to regulatory approval) and to have an emissions-free
generating portfolio by 2040.
The Energy Transition Act ("ETA")
OnJune 14, 2019 , Senate Bill 489, known as the ETA, became effective. Prior to the enactment of the ETA, the REA established a mandatory RPS requiring utilities to acquire a renewable energy portfolio equal to 10% of retail electric sales by 2011, 15% by 2015, and 20% by 2020. 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 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 16 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K and below in PNM's SJGS Abandonment Application. PNM expects the ETA will have a significant impact on PNM's future generation portfolio, including PNM's planned retirement of SJGS in 2022. PNM cannot predict the full impact of the ETA or the outcome of its pending and potential future generating resource abandonment and replacement filings with the NMPRC.
SJGS
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 80 -------------------------------------------------------------------------------- Table of Contents Application"). The SJGS Abandonment Application seeks 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 energy transition bonds as provided by the ETA. The application includes several replacement resource scenarios including PNM's recommended replacement scenario, which is consistent with PNM's goal of having a 100% emissions-free generating portfolio by 2040 and would provide cost savings to customers while preserving system reliability. The application includes three other replacement resource scenarios that would place a greater amount of resources in theSan Juan area, or result in no new fossil-fueled generating facilities, or no battery storage facilities being added to PNM's portfolio. When compared to PNM's recommended replacement resource scenario, the three alternative resource scenarios are expected to result in increased costs to customers and the two alternative resource scenarios that result in no new fossil-fueled generating facilities are expected to not provide adequate system reliability. 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. The NMPRC'sJuly 10, 2019 order also extended the deadline to issue the abandonment and financing order to nine months and to issue the replacement resources order to 15 months. 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. Hearings on the abandonment and securitized financing proceedings were held inDecember 2019 and hearings on replacement resources were held inJanuary 2020 . 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 a rate rider to collect non-bypassable customer charges for repayment of the bonds (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. OnFebruary 21, 2020 , the Hearing Examiners recommended the NMPRC approve PNM's proposed abandonment of SJGS, subject to approval of the replacement resources and financing orders to issue Securitized Bonds. OnMarch 27, 2020 , the Hearing Examiners issued a partial recommended decision related to PNM's requested replacement resources. The Hearing Examiners recommended the NMPRC approve PNM's requested PPA replacement resources related to 350 MW of solar-PV facilities and 60 MW of battery storage facilities. OnApril 1, 2020 , the NMPRC unanimously approved the Hearing Examiners' recommended decisions regarding the abandonment of SJGS and the Securitized Bonds. OnApril 29, 2020 , the NMPRC issued an order declining to bifurcate a determination on replacement resources and deferring final consideration until the issuance of a comprehensive recommended decision addressing the entire portfolio of replacement resources. The NMPRC is required to issue an order on the SJGS replacement resources bySeptember 2020 . PNM cannot predict the outcome of its request for NMPRC approval of replacement resources. Pursuant to the NMPRC'sApril 1, 2020 order approving the abandonment of SJGS and the related issuance of Securitized Bonds, PNMR recorded obligations totaling$38.1 million for estimated severances and other costs resulting from the planned retirement of SJGS in 2022, and for expected funding to state agencies for economic development and workforce training upon the issuance of the Securitized Bonds. This obligation is reflected in other deferred credits and as a corresponding deferred regulatory asset on PNMR's Condensed Consolidated Balance Sheets as ofMarch 31, 2020 . These estimates may be adjusted in future periods as the Company refines its expectations. See additional discussion of PNM's SJGS Abandonment Application and the related challenges filed with theNM Supreme Court in Note 12. Other Environmental Matters - In addition to the regional haze rule and the ETA, SJGS and Four Corners may be required to comply with other rules that affect coal-fired generating units. InMarch 2017 ,President Trump issued an Executive Order on Energy Independence. The order sets out two general policies: promote clean and safe development of energy resources, while avoiding regulatory burdens, and ensure electricity is affordable, reliable, safe, secure, and clean. OnJune 19, 2019 ,EPA released the final Affordable Clean Energy rule.EPA is taking three separate actions in the final rule: (1) repealing the Clean Power Plan; (2) promulgating the Affordable Clean Energy rule; and (3) revising the implementing regulations for all emission guidelines issued underClean Air Act Section 111(d) which, among other things, extends the deadline for state plans and the timing ofEPA 's approval process.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 81 -------------------------------------------------------------------------------- Table of Contents 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. The final rule requires states to submit a plan toEPA byJuly 8, 2022 and thenEPA has one year to approve the plan. If states do not submit a plan or their submitted plan is not acceptable,EPA will have two years to develop a federal plan. The rule is not expected to impact SJGS sinceEPA 's final approval of a state SIP would occur after the planned shutdown of SJGS in 2022 (subject to NMPRC approval). The Company is reviewing the rule with respect to impacts to Four Corners. See Note 11. OnDecember 20, 2018 ,EPA published in theFederal Register a proposed rule that would revise the Carbon Pollution Standards rule issued inOctober 2015 for certain fossil-fueled power plants. The proposal would revise the emissions standards for new, reconstructed, or modified coal-fired EGUs to make them less stringent. PNM does not expect SJGS or Four Corners will be subject to the Carbon Pollution Standards rule thatEPA has proposed to revise. PNM's review of the GHG emission reductions standards under the Affordable Clean Energy rule and the revised proposed Carbon Pollution Standards rule is ongoing. The Affordable Clean Energy rule has been challenged by several parties and may be impacted by further litigation. As discussed above, SJGS may also be required to comply with additional CO2 emissions restrictions issued by theNew Mexico Environmental Improvement Board pursuant to the recently enacted ETA. PNM cannot predict the impact these standards may have on its operations or a range of the potential costs of compliance, if any. Renewable Energy PNM's renewable procurement strategy includes utility-owned solar capacity, as well as wind and geothermal energy purchased under PPAs. As ofMarch 31, 2020 , PNM has 157 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 133.0 MW atMarch 31, 2020 . 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 204 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 LaJoya Wind beginning in 2021. 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. If approved by the NMPRC, PNM's recommended resource scenario to replace the planned retirement of SJGS would result in PNM executing PPAs to purchase renewable energy and RECs from a total of 350 MW of solar-PV facilities and to procure energy from and construct a total of 130 MW of battery storage facilities. As discussed in Strategic Investments above, PNM is currently purchasing the output of 80 MW of solar capacity from NMRD that is used to serve the Facebook data center. 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 to be operational inNovember 2020 , and a 50 MW solar-PV project to be operational inDecember 2021 . InAugust 2018 , the NMPRC approved PNM's request to enter into two additional 25-year PPAs to purchase renewable energy and RECs from an aggregate of approximately 100 MW of capacity from two solar-PV facilities to be constructed by NMRD to supply power to Facebook, Inc. The first 50 MW of these facilities began commercial operations inNovember 2019 and the remaining capacity is expected to begin commercial operation byJune 2020 . OnMay 31, 2019 , PNM filed an application with the NMPRC for approval of a program under which qualified governmental and large commercial customers could participate in a voluntary renewable energy procurement program ("PNM Solar Direct"). 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 byMarch 31, 2021 . InMarch 2020 , the NMPRC approved PNM's application, including the rate rider and PPA. 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 2019, incremental energy saved as a result of new participation in PNM's portfolio of energy efficiency programs is estimated to be approximately 65 GWh. This is equivalent to the annual consumption of approximately 9,500 homes in PNM's service territory. PNM's load management and 82 -------------------------------------------------------------------------------- Table of Contents annual energy efficiency programs also help lower peak demand requirements. In 2019, TNMP's incremental energy saved as a result of new participation in TNMP's energy efficiency programs is estimated to be approximately 16 GWh. This is equivalent to the annual consumption of approximately 1,285 homes in TNMP's service territory. InApril 2018 , TNMP received the "Partner of the Year Energy Efficiency Delivery Award" for its High-Performance Homes Program. As discussed above, inApril 2020 , PNM filed an application for energy efficiency and load management programs to be offered in 2021, 2022, and 2023. The proposed program also requests an AMI pilot program. PNM cannot predict the outcome of this matter. 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%. 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 2019, 16 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
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. 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 also has a dedicated Sustainability Portal on its corporate website, www.pnmresources.com, to provide additional information regarding the Company's environmental 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. 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. PNMR has a long tradition of supporting the communities it serves inNew Mexico andTexas . The Company demonstrates its core value of caring through thePNM Resources Foundation , corporate giving, employee volunteerism, and PNM's low-income assistance programs. 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 will fund 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 in 2020.
During the three years ending
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important outreach programs is tailored for low-income customers. In 2019, PNM
hosted 46 community events throughout its service territory to connect
low-income customers with nonprofit community service providers offering support
and help with such needs as water and gas utility bills, food, clothing, medical
programs, and services for seniors. Additionally, through its Good Neighbor
Fund , PNM provided $0.4 million of assistance with electric bills to 3,734
families in 2019 and offered financial literacy training to further support
customers. In response to the recent COVID-19 crisis, in early 2020 the PNM
Resources Foundation awarded $0.4 million to nonprofits in New Mexico and Texas
to assist with work being done on the front lines of the pandemic, with a focus
on helping people currently experiencing homelessness during the
shelter-in-place directives and seniors.
Volunteerism is an important facet of the PNMR culture. The mission of the PNMR
Corporate Volunteer Group is to help make the communities PNMR serves safer,
stronger, smarter, and more vibrant. In 2019, PNM and TNMP employees and
retirees contributed over 13,300 volunteer hours serving their local communities
by supporting at least 250 organizations. Company volunteers participate in an
annual Day of Service at nonprofits across New Mexico and Texas . Employees and
retirees also participate on a variety of nonprofit boards and independent
volunteer activities throughout the year. PNMR employees want to make the
Company the best place to work by connecting and growing with others to realize
their objectives. By doing this the Company hopes to increase customer
satisfaction. To assist with COVID-19 efforts, PNMR donated to the Emergency
Action Fund in partnership with Albuquerque Community Foundation and United Way
of Central New Mexico to benefit approximately twenty nonprofits and small
businesses facing challenges due to cancelled fundraising events. In addition,
PNM and TNMP Community Crews have assisted in efforts to safely deliver food and
other supplies to assist teachers and others providing continued education at
home, especially to those without access to computers and the internet.
Economic Factors
PNM - In the three months ended March 31, 2020 , PNM experienced an increase in
weather-normalized retail load of 1.1% compared to 2019. PNM did not experience
significant impacts in customer usage during the first quarter of 2020 as a
result of COVID-19. PNM expects to see increased residential customer usage
offset by a decrease in the commercial customer class when compared to 2019 as a
result of New Mexico state restrictions related to COVID-19 and does not
currently expect significant impacts to its other customer classes.
TNMP - In the three months ended March 31, 2020 , TNMP experienced a decrease in
volumetric weather-normalized retail load of 0.2% compared to 2019.
Weather-normalized demand-based load, excluding retail transmission customers,
increased 2.7% in the three months ended March 31, 2020 compared to 2019. TNMP
expects to see increased volumetric usage related to residential consumers
offset by decreases in its demand based commercial consumer class as a result of
impacts related to COVID-19.
The Company is unable to determine the duration or final impacts from COVID-19
as discussed in more detail in Item 1A. Risk Factors. The Company expects that
some of the negative impacts to customer usage at PNM and TNMP will be offset by
reduced operations and maintenance expenses resulting from the Company's efforts
to maintain social distancing and that these costs could be further reduced if
the economic impacts of COVID-19 persist into the summer. However, if current
economic conditions extend through the summer and beyond, the Company may be
required to implement additional measures such as further reducing or delaying
operating and maintenance expenses and planned capital expenditures.
Results of Operations
Net earnings (loss) attributable to PNMR were $(15.3) million , or $(0.19) per
diluted share in the three months ended March 31, 2020 compared to $18.7
million , or $0.23 per diluted share in 2019. Among other things, earnings in the
three months ended March 31, 2020 benefited from higher earnings on PNM's
renewable rate rider, higher customer usage at PNM, including the leap-year
impact, higher transmission rates and demand-based usage at TNMP, lower
operational and maintenance expenses, including lower employee related expense
at PNM and TNMP, and lower plant maintenance costs at PNM, and lower interest
charges at TNMP. These increases were more than offset by milder weather
conditions at PNM and TNMP, increased depreciation and property taxes due to
increased plant in service at PNM and TNMP, and losses on PNM's PVNGS and coal
mine reclamation investment securities. 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 in October 2023 . Both facilities
provide for short-term borrowings and letters of credit and can be extended
through October 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 in New Mexico , which expires in December 2022 , and TNMP has
a $75.0 million revolving credit facility, which expires in September 2022 . PNMR
Development has a revolving credit facility with a capacity of $40.0 million ,
with the option to further increase the capacity up to $50.0 million upon
15-days advance notice, that expires in February 2021 . The PNMR Development
Revolving Credit Facility bears interest at a variable rate and contains terms
similar to the PNMR Revolving Credit Facility. Total availability for PNMR on a
consolidated basis was $670.0 million at
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May 1, 2020 . 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, capital contributions for PNMR Development's 50%
ownership interest in NMRD, and dividends, will total $4.4 billion for 2020 -
2024, including amounts expended through March 31, 2020 . 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 proposed replacement generation resources included in PNM's SJGS Abandonment
Application.
In January 2020 , PNMR entered into agreements to sell approximately 6.2 million
shares of PNMR common stock under forward purchase arrangements (the "PNMR 2020
Forward Equity Sale Agreements"). Under the PNMR 2020 Forward Equity Sale
Agreements, PNMR has the option to physically deliver, cash settle, or net share
settle all or a portion of PNMR common stock on or before a date that is 12
months from their effective dates. PNMR did not initially receive any proceeds
upon execution of these agreements. The initial forward sales price of $47.21
per share is subject to adjustments based on net interest rate factor and by
expected future dividends on PNMR's common stock. PNMR expects to physically
settle all shares under the agreements on or before January 7, 2021 . See Note 9.
On April 15, 2020 , PNM entered into the PNM 2020 Term Loan and used the proceeds
to prepay the PNM 2019 $250.0 million Term Loan, without penalty. As discussed
below, on April 30, 2020 , PNM used $100.0 million of proceeds from the PNM 2020
SUNs to prepay without penalty an equal amount of the PNM 2020 Term Loan.
On April 24, 2020 , TNMP entered into the TNMP 2020 Bond Purchase Agreement with
institutional investors for the sale of $185.0 million aggregate principal
amount of four series of TNMP first mortgage bonds (the "TNMP 2020 Bonds")
offered in private placement transactions. TNMP issued $110.0 million of TNMP
2020 Bonds on April 24, 2020 and used the proceeds to repay borrowings under the
TNMP Revolving Credit Facility and for other corporate purposes. TNMP will issue
the remaining $75.0 million of TNMP 2020 Bonds on or before July 15, 2020 and
will use the proceeds from that issuance to repay borrowings under the TNMP
Revolving Credit Facility and for other corporate purposes.
On April 30, 2020 , PNM issued $200.0 million aggregate principal amount of PNM
2020 SUNs offered in private placement transactions. PNM used $100.0 million of
proceeds from the PNM 2020 SUNs to repay an equal amount of the PNM 2020 Term
Loan. The remaining $100.0 million of the PNM 2020 SUNs were used to repay
borrowings on the PNM Revolving Credit Facility and for other corporate
purposes.
See discussion of the NMPRC's April 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 the NM Supreme Court in Note 12.
After considering the effects of these financings and the Company's short-term
liquidity position as of May 1, 2020 , the Company has consolidated maturities of
long-term and short-term debt aggregating approximately $718 million through May
31, 2021 . 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 2020-2024 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.
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A summary of net earnings attributable to PNMR is as follows:
Three Months Ended March 31,
2020 2019 Change
(In millions, except per share amounts)
Net earnings (loss) attributable to PNMR $ (15.3) $ 18.7 $ (34.0)
Average diluted common and common equivalent
shares(1) 79.9 80.0 (0.1)
Net earnings attributable to PNMR per diluted share $ (0.19) $ 0.23 $ (0.42) (1) Excludes anti-dilutive shares for the three months ending
The components of the change in net earnings attributable to PNMR are:
Three Months Ended
March 31, 2020
(In millions)
PNM $ (35.1)
TNMP 3.0
Corporate and Other (1.9)
Net change $ (34.0)
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 under GAAP and is considered a non-GAAP measure.
The following table summarizes the operating results for PNM:
Three Months Ended
2020 2019 Change
(In millions)
Electric operating revenues $ 248.1 $ 269.3 $ (21.2)
Cost of energy 74.5 99.3 (24.8)
Utility margin 173.6 170.0 3.6
Operating expenses 98.6 106.5 (7.9)
Depreciation and amortization 41.4 39.2 2.2
Operating income 33.6 24.3 9.3
Other income (deductions) (30.5) 18.0 (48.5)
Interest charges (17.6) (18.4) 0.8
Segment earnings (loss) before income taxes (14.6) 23.9 (38.5)
Income (taxes) benefit 2.4 (2.0) 4.3
Valencia non-controlling interest (3.7) (2.8) (0.9)
Preferred stock dividend requirements (0.1) (0.1) -
Segment earnings $ (16.1) $ 19.0 $ (35.1)
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The following table shows total GWh sales, including the impacts of weather, by
customer class and average number of customers:
Three Months Ended March 31,
Percentage
2020 2019 Change
(Gigawatt hours, except customers)
Residential 768.2 795.5 (3.4) %
Commercial 838.7 828.2 1.3
Industrial 334.3 250.0 33.7
Public authority 48.5 49.6 (2.2)
Economy energy service (1) 166.5 156.9 6.1
Other sales for resale 605.2 874.7 (30.8)
2,761.4 2,954.9 (6.5) %
Average retail customers (thousands) 533.0 529.1 0.8 %
(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.
Operating Results - Three Months Ended
The following table summarizes the significant changes to utility margin:
Three Months Ended
March 31, 2020
Change
Utility margin: (In millions)
Retail customer usage/load - Weather normalized KWh sales
increased 1.1%, due to increased sales to industrial customers $ 0.6
Weather - Colder weather in 2019; heating degree days were 10.8%
lower in 2020 (2.2)
Leap Year - Increase in revenue due to additional day in 2020 1.8
Transmission - Increase primarily due to the addition of new
customers 0.8
Rate riders - Includes energy efficiency and the renewable energy
rider, which is partially offset in depreciation and
amortization
below 2.1
Other 0.5
Net Change $ 3.6
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
March 31, 2020
Change
Operating expenses: (In millions)
Lower plant maintenance costs at SJGS, PVNGS, and gas-fired
plants, partially offset by higher costs at Four Corners $ (1.6)
Regulatory disallowance resulting from the NMPRC's September
28, 2016 order in PNM's NM 2015 Rate Case (Note 12) (1.3)
Lower employee related, and outside service expenses (4.5)
Other (0.5)
Net Change $ (7.9)
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Three Months Ended
March 31, 2020
Change
Depreciation and amortization: (In millions)
Increased utility plant in service, including solar
facilities under the renewable rider $ 2.0
Other 0.2
Net Change $ 2.2
Other income (deductions):
Lower gains on investment securities in the NDT and coal mine
reclamation trusts $ (46.9)
Lower equity AFUDC (0.8)
Lower interest income related to investment securities in the NDT
and coal mine reclamation trusts (0.1)
Higher pension and OPEB non-service cost expense (0.7)
Net Change $ (48.5)
Interest charges:
Lower interest on term loan agreements $ 0.2
Interest on deposit by PNMR Development for transmission interconnections,
which is offset in Corporate and Other 0.9
Other (0.3)
Net Change $ 0.8
Income (taxes) benefits:
Lower segment earnings before income taxes $ 10.0
Changes in the anticipated effective tax rate, including
amortization of excess deferred income taxes (Note 14) (5.8)
Other 0.1
Net Change $ 4.3
88-------------------------------------------------------------------------------- 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 under GAAP and is considered a non-GAAP measure.
The following table summarizes the operating results for TNMP:
Three
Months Ended
2020 2019 Change
(In millions)
Electric operating revenues $ 85.5 $ 80.3 $ 5.2
Cost of energy 24.2 22.3 1.9
Utility margin 61.3 58.0 3.3
Operating expenses 25.1 25.2 (0.1)
Depreciation and amortization 21.8 20.2 1.6
Operating income 14.3 12.6 1.7
Other income (deductions) 0.6 0.6 -
Interest charges (7.2) (8.8) 1.6
Segment earnings before income taxes 7.7 4.4 3.3
Income (taxes) (0.6) (0.3) (0.3)
Segment earnings $ 7.1 $ 4.1 $ 3.0 The following table shows total sales, including the impacts of weather, by retail tariff consumer class and average number of consumers:
Three Months Ended
March 31,
Percentage
2020 2019 ChangeVolumetric load (1) (GWh) Residential 598.7 618.7 (3.2) % Commercial and other 8.0 7.9 1.3 % Total volumetric load 606.7 626.6 (3.2) % Demand-based load (2) (MW) 4,896.5 4,721.9 3.7 % Average retail consumers (thousands) (3) 257.1 253.8 1.3 % (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 inTexas have the ability to choose any REP to provide energy. 89 -------------------------------------------------------------------------------- Table of Contents Operating Results - Three Months EndedMarch 31, 2020 compared to 2019
The following table summarizes the significant changes to utility margin:
Three Months Ended
March 31, 2020
Change
Utility margin: (In millions)
Rate relief - Transmission cost of service rate increases in March
2019, September 2019, and March 2020 $ 4.0
Retail customer usage/load - Weather normalized KWh sales
decreased 0.2%, offset by an increase of 1.3% in the average
number of retail consumers and the leap-year impact -
Demand-based customer usage/load - Higher demand-based revenues
for large commercial and industrial customers; weathernormalized
billed demand excluding retail transmission customersincreased
2.7% 0.7
Weather - Milder weather in 2020; heating degree days were 23.4%
lower in 2020 (1.0)
Rate Riders - Impacts of rate riders, including the CTCsurcharge,
energy efficiency rider, rate case expense rider, andtransmission
cost recovery factor (0.2)
Other (0.2)
Net Change $ 3.3
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
March 31, 2020
Change
Operating expenses: (In millions)
Lower employee related expenses $ (0.9)
Higher vegetation management expenses 0.2
Lower capitalization of administrative and general and other
expenses due to lower construction expenditures 0.1
Higher property taxes due to increased utility plant in service 0.5
Net Change $ (0.1)
Depreciation and amortization:
Increased utility plant in service $ 1.7
Net Change $ 1.7
Other income (deductions):
Lower equity AFUDC $ (0.1)
Other 0.1
Net Change $ -
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Three Months Ended
March 31, 2020
Change
Interest charges: (In millions)
Repayment of $172.3 million 9.50% first mortgage bonds in April
2019 $ 4.3
Issuance of $225.0 million first mortgage bonds in March 2019 (2.2)
Issuance of $80.0 million first mortgage bonds in July 2019 (0.7)
Repayment of $35.0 million term loan in December 2019 0.3
Lower debt AFUDC (0.1)
Net Change $ 1.6
Income (taxes) benefits:
Higher segment earnings before income taxes $ (0.6)
Other 0.3
Net Change $ (0.3)
Corporate and Other
The table below summarizes the operating results for Corporate and Other:
Three Months Ended
2020 2019 Change
(In millions)
Electric operating revenues $ - $ - $ -
Cost of energy - - -
Utility margin - - -
Operating expenses (5.5) (5.8) 0.3
Depreciation and amortization 5.7 5.9 (0.2)
Operating income (loss) (0.2) (0.2) -
Other income (deductions) (0.6) (0.8) 0.2
Interest charges (5.6) (4.5) (1.1)
Segment earnings (loss) before income taxes (6.5) (5.4) (1.1)
Income (taxes) benefit 0.2 1.0 (0.8)
Segment earnings (loss) $ (6.3) $ (4.4) $ (1.9)
Corporate and Other operating expenses shown above are net of amounts allocated
to PNM and TNMP under shared services agreements. Substantially all depreciation
and amortization expense and other income (deductions) are offset in operating
expenses as a result of allocation of these costs to other business segments.
Operating Results - Three Months Ended
Three Months Ended
March 31, 2020
Change
Other income (deductions): (In millions)
Higher equity method investment income from NMRD $ 0.1
Other 0.1
Net Change $ 0.2
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Three Months Ended
March 31, 2020
Change
Interest charges: (In millions)
Lower interest on term loans $ 0.5
Higher short-term borrowings (0.7)
Elimination of intercompany interest (0.9)
Net Change $ (1.1)
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 $ (1.3)
Higher segment loss before income taxes 0.3
Other 0.2
Net Change $ (0.8) © Edgar Online, source
