NMPRC Issues Decision in PNM Rate Review

Rhea-AI Summary

PNM Resources (PNM) experienced a 9.26% return on equity and a 50% equity capitalization structure, resulting in a $15.3 million estimated increase in base rates. This is lower than the $63.8 million increase requested by PNM. The company's CEO expressed disappointment and mentioned the need for grid upgrades to maintain reliability during the transition to clean energy. The final order also included disallowance of net rate base investments in the Four Corners coal plant, no return on rate base associated with the Palo Verde leasehold improvements regulatory asset, and postponement of recovery of rate base investments. PNM plans to evaluate the final order and consider potential appeals, as well as filing its next rate case in 2024.

Positive

• PNM experienced a 9.26% return on equity and a 50% equity capitalization structure.
• The estimated increase in base rates was $15.3 million, lower than the $63.8 million increase requested by PNM.
• The company serves more than 800,000 homes and businesses in New Mexico and Texas.
• PNM plans to evaluate the final order and consider potential appeals, as well as filing its next rate case in 2024.

Negative

• The order included disallowance of net rate base investments in the Four Corners coal plant and no return on rate base associated with the Palo Verde leasehold improvements regulatory asset.

Insights

Energy Regulatory Analyst

An adjustment in base rates by a public utility such as PNM can have a significant impact on the utility's revenue and, by extension, the financial performance of its parent company, PNM Resources. The decision by the New Mexico Public Regulation Commission (NMPRC) to allow a smaller increase than requested indicates a regulatory environment that is cautious about rate increases. This could signal a trend where regulators are balancing the need for utilities to invest in infrastructure against the economic impact on consumers.

The 9.26% return on equity granted is lower than PNM's requested rate, which may constrain the company's ability to fund investments or affect its creditworthiness. The disallowance of certain rate base investments, particularly in coal plants, aligns with broader industry trends towards cleaner energy sources and can affect the valuation of legacy assets. The equity capitalization structure, set at 50%, is a critical factor for understanding the company's financial leverage and risk profile.

For stakeholders, the immediate impact is an increase in customer rates, which could influence consumer behavior and demand. In the long term, the company's commitment to a transition to clean energy could be seen as a positive move, but it requires significant capital expenditure, which may be challenging given the lower-than-requested rate increase.

Financial Analyst

From a financial perspective, the rate increase of $15.3 million is substantially lower than PNM's request for $63.8 million, which could lead to a reassessment of the company's long-term earnings growth target. Although PNM maintains a 5% long-term earnings growth target, the reduced rate increase may necessitate operational adjustments to align with the new financial reality.

The disallowance of investments in the Four Corners coal plant and the lack of return on the Palo Verde leasehold improvements are indicative of the shifting landscape in energy generation, with a clear move away from coal and towards renewable sources. This transition may affect the company's asset base and depreciation schedules, with potential impacts on future earnings.

Investors and analysts should closely monitor PNM's next steps, including any potential appeals and the forthcoming rate case. The company's ability to navigate regulatory challenges and secure favorable rates will be crucial for its financial health and stock performance.

Market Research Analyst

The energy sector is increasingly influenced by regulatory decisions, as seen with PNM's rate case. The NMPRC's decision reflects a broader market trend towards regulatory bodies scrutinizing utility rate increases, especially in the context of transitioning to clean energy. This scrutiny often results in lower authorized returns on equity, impacting utilities' profitability and investment capacity.

Market perception of PNM and PNM Resources may be affected by the regulatory outcome. While the commitment to clean energy is generally viewed positively by the market, the ability to fund this transition is equally important. Investors may be concerned about the company's future revenue streams and its capacity to maintain a stable dividend, which is often a key consideration for utility stockholders.

Understanding the implications of regulatory decisions like this one is crucial for stakeholders who need to anticipate the market's response to such news. The market's reaction can provide insights into investor sentiment regarding the balance between regulatory constraints and the financial needs of utilities.

ALBUQUERQUE, N.M., Jan. 4, 2024 /PRNewswire/ -- The New Mexico Public Regulation Commission (NMPRC) issued an order in the application for a 2024 change in customer base rates by Public Service Company of New Mexico (PNM), a wholly-owned subsidiary of PNM Resources (NYSE: PNM).

The order modified the recommended decision in the case and equates to an estimated increase in base rates of $15.3 million, based on a 9.26% return on equity and a 50% equity capitalization structure on $2,557 million of rate base. PNM had requested a $63.8 million increase to base rates. PNM's current authorized rates are based on a 9.575% return on equity with a 50% equity capitalization ratio.

"We are disappointed with this outcome after holding rates steady for the past six years," said Pat Vincent-Collawn, Chairman and CEO of PNM Resources. "The transition to clean energy means our system is changing rapidly, requiring investments to upgrade the grid to maintain reliability while bringing solutions to customers at affordable prices. As we move forward it will require collaboration by stakeholders to achieve the clean energy transition while preserving the financial health of the utility." 

In addition to the changes made to the return on equity and equity capitalization structure, the final order also includes adjustments related to traditional legacy power sources:

• Disallowance of $64 million net rate base investments in the Four Corners coal plant,
• No return on $39 million of rate base associated with the Palo Verde leasehold improvements regulatory asset, as well as a
• Separate rate rider to refund $38 million associated with expiration of Palo Verde leases over two years.

The order also postpones recovery of $55 million of rate base investments that may be requested again in PNM's next filing and $9 million of adjustments to forecasted annual costs.

PNM will evaluate the final order and consider its next steps, including the potential appeal of certain issues.  Additionally, PNM plans to file its next rate case during 2024 with rates requested to be implemented during 2025.

ADDITIONAL DETAILS ON WEBSITE
Additional information detailing the estimated ongoing earnings impacts of the order, including continuation of the 5% long-term earnings growth target, are available at https://www.pnmresources.com/investors/events-and-presentations.aspx.

Customer rates under the order are expected to take effect in January 2024.  The order and additional materials pertaining to the filings are available at https://www.pnmresources.com/investors/rates-and-filings.aspx.

Background:

PNM Resources (NYSE: PNM) is an energy holding company based in Albuquerque, N.M., with 2022 consolidated operating revenues of $2.2 billion. Through its regulated utilities, PNM and TNMP, PNM Resources provides electricity to more than 800,000 homes and businesses in New Mexico and Texas. PNM serves its customers with a diverse mix of generation and purchased power resources totaling 2.7 gigawatts of capacity, with a goal to achieve 100% emissions-free energy by 2040. For more information, visit the company's website at www.PNMResources.com.

Contacts:

Analysts	Media
Lisa Goodman	Ray Sandoval
(505) 241-2160	(505) 241-2782

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Statements made in this news release for PNM Resources, Inc. ("PNMR"), Public Service Company of New Mexico ("PNM"), or Texas-New Mexico Power Company ("TNMP") (collectively, the "Company") that relate to future events or expectations, projections, estimates, intentions, goals, targets, and strategies, including the unaudited financial results and earnings guidance, are made pursuant to the Private Securities Litigation Reform Act of 1995. Readers are cautioned that all forward-looking statements are based upon current expectations and estimates and apply only as of the date of this report. PNMR, PNM, and TNMP assume no obligation to update this information. Because actual results may differ materially from those expressed or implied by these forward-looking statements, PNMR, PNM, and TNMP caution readers not to place undue reliance on these statements. PNMR's, PNM's, and TNMP's business, financial condition, cash flow, and operating results are influenced by many factors, which are often beyond their control, that can cause actual results to differ from those expressed or implied by the forward-looking statements. For a discussion of risk factors and other important factors affecting forward-looking statements, please see the Company's Form 10-K, Form 10-Q filings and the information included in the Company's Forms 8-K with the Securities and Exchange Commission, which factors are specifically incorporated by reference herein.           

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SOURCE PNM Resources, Inc.

FAQ

What was the estimated increase in base rates for PNM (PNM Resources) as per the recent order issued by NMPRC?

The estimated increase in base rates for PNM (PNM Resources) was $15.3 million, based on a 9.26% return on equity and a 50% equity capitalization structure.

What were the major changes made in the final order issued by NMPRC?

The final order included disallowance of net rate base investments in the Four Corners coal plant, no return on rate base associated with the Palo Verde leasehold improvements regulatory asset, and postponement of recovery of rate base investments.

What are PNM's plans following the final order issued by NMPRC?

PNM plans to evaluate the final order and consider potential appeals, as well as filing its next rate case in 2024.

How many homes and businesses does PNM (PNM Resources) provide electricity to?

PNM (PNM Resources) provides electricity to more than 800,000 homes and businesses in New Mexico and Texas.