PNM Resources(US:PNM)2023-02-28 13:00Part I Item 1. Business PNMR is a utility holding company serving 815,000 customers, pursuing an emissions-free portfolio by 2040 and a merger with Avangrid - PNMR is an investor-owned holding company with two regulated utilities, PNM and TNMP, serving approximately 815,000 customers in New Mexico and Texas24 - The company is pursuing a merger with Avangrid, Inc., pending approval from the New Mexico Public Regulation Commission (NMPRC) with an extended agreement end date of April 20, 20232931 - PNMR's strategy aims for an emissions-free generating portfolio by 2040 and being coal-free by 2024, subject to regulatory approval2434 Operations and Regulation PNM's retail electric service is regulated by NMPRC, with a pending $63.8 million rate increase filed in 2022 - PNM's retail electric service is regulated by the NMPRC, with a $63.8 million rate increase filed in December 2022 to recover infrastructure investments3945 - PNM is investing approximately $344 million over six years in grid modernization to enhance system efficiency and reliability46 - TNMP operates as a transmission and distribution utility in Texas, receiving interim rate adjustments to recover capital investments without full rate cases5361 PNM Retail Customer System Peak Demands (Megawatts) | Season | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Summer | 2,139 | 1,968 | 1,974 | | Winter | 1,526 | 1,518 | 1,460 | Sources of Power PNM is transitioning its power sources by retiring coal plants and increasing its renewable energy portfolio PNM Generation Capacity by Type (as of Dec 31, 2022) | Type | Capacity (MW) | Percent of Total | | :--- | :--- | :--- | | Coal | 200 | 7.5% | | Gas-fired | 1,001 | 37.6% | | Nuclear | 402 | 15.1% | | Renewable | 1,057 | 39.8% | | Total | 2,660 | 100.0% | - PNM is transitioning by retiring coal plants, with San Juan Generating Station (SJGS) fully retired in September 2022, and an appeal pending to exit Four Corners Power Plant by end of 2024656650 - PNM is increasing its renewable energy portfolio, with NMPRC approval to procure an additional 1,090 MW from solar-PV and 620 MW from battery storage7064 - PNM's leased capacity in Palo Verde Nuclear Generating Station (PVNGS) Unit 1 expired in January 2023, with Unit 2's lease expiring in January 20246964 Fuel Supply PNM manages fuel supply, with coal contracts expiring and nuclear fuel stored on-site, facing DOE non-compliance PNM Generation Fuel Mix and Cost (2022 vs. 2021) | Fuel | 2022 % of Generation | 2022 Avg. Cost ($/MMBTU) | 2021 % of Generation | 2021 Avg. Cost ($/MMBTU) | | :--- | :--- | :--- | :--- | :--- | | Coal | 36.7% | $2.97 | 44.3% | $3.02 | | Nuclear | 35.4% | $0.73 | 34.8% | $0.68 | | Gas | 23.9% | $7.61 | 16.8% | $6.02 | - The coal supply contract for SJGS expired in September 2022, while the Four Corners contract runs through July 2031, pending PNM's appeal to exit by end of 202480 - All spent nuclear fuel from PVNGS is stored on-site with capacity until 2027, but the DOE has failed to accept spent fuel, leading to legal actions8684 Human Capital Resources PNMR's workforce of 1,537 employees includes 34% unionized, 28% women, and 53% minorities Employee Count as of December 31, 2022 | Entity | Employee Count | | :--- | :--- | | PNMR (Consolidated) | 1,537 | | PNM | 751 | | TNMP | 367 | - As of December 31, 2022, PNMR's workforce of 1,537 employees includes 34% represented by a bargaining unit, 28% women, and 53% minorities96 - Collective bargaining agreements are in place with the IBEW for 325 PNM and 193 TNMP employees98 Item 1A. Risk Factors The company faces significant regulatory, operational, and financial risks, including merger uncertainties and environmental compliance costs - Profitability is highly dependent on recovering costs and earning fair returns through regulated rates, with adverse NMPRC decisions on Four Corners and PVNGS investments posing financial risk106113 - The proposed merger with Avangrid is not assured, subject to NMPRC approval, and its pendency could disrupt business and restrict strategic opportunities164167 - The company faces significant environmental and climate change compliance costs, particularly for fossil-fueled generation, which constitutes 45.1% of PNM's electricity120121 - The company faces risks of physical and cybersecurity attacks on critical infrastructure, potentially disrupting power, causing data loss, and incurring significant costs139142 Item 2. Properties PNM and TNMP own extensive electric transmission and distribution infrastructure, including thousands of miles of lines and hundreds of substations - As of December 31, 2022, PNM owned 3,428 miles of transmission lines, 11,824 miles of distribution lines, and 250 substations187 - As of December 31, 2022, TNMP owned 992 miles of transmission lines, 8,752 miles of distribution lines, and 128 substations188 Item 3. Legal Proceedings Legal proceedings information is incorporated by reference from Notes 16 and 17 of the financial statements - Information regarding legal proceedings is incorporated by reference from Note 16 and Note 17 of the financial statements189 Part II Item 5. Market for PNMR's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities PNMR's common stock trades on the NYSE, with the Board increasing the quarterly dividend twice in 2022 - PNMR's common stock is traded on the NYSE under the symbol "PNM", with 7,232 holders of record as of February 17, 2023194196 - The Board increased the quarterly dividend twice in 2022, from $0.3275 to $0.3475 per share in February, and to $0.3675 per share in December195 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations PNMR's 2022 net earnings decreased to $169.5 million due to investment performance and higher expenses, offset by transmission margins and customer load PNMR Net Earnings Summary (2022 vs. 2021) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Earnings Attributable to PNMR | $169.5 million | $195.8 million | | Diluted EPS | $1.97 | $2.27 | - The 2022 earnings decrease was driven by poor investment securities performance in NDT, FERC-ordered refunds, and increased operating, depreciation, and interest expenses279 - The company projects consolidated capital requirements of $5.2 billion for 2023-2027, primarily for construction expenditures and dividends281318 - As of February 17, 2023, PNMR had total consolidated liquidity of $522.4 million available under its revolving credit facilities280333 Results of Operations PNM's segment earnings decreased by $52.1 million, while TNMP's increased by $28.4 million Change in Net Earnings by Segment (2022 vs 2021) | Segment | Change (in millions) | | :--- | :--- | | PNM | $(52.1) | | TNMP | $28.4 | | Corporate and Other | $(2.5) | | Net Change | $(26.3) | - PNM's segment earnings decreased by $52.1 million, primarily due to a $95.2 million decline in investment securities performance, partially offset by a $65.2 million increase in transmission margin293294295 - TNMP's segment earnings increased by $28.4 million, driven by rate relief, higher customer demand, and warmer weather298299 Liquidity and Capital Resources The company maintains strong liquidity and investment-grade credit ratings, supporting projected $5.2 billion in capital requirements Consolidated Cash Flow Summary (in millions) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $567.3 | $547.9 | | Net Cash used in Investing Activities | $(950.3) | $(952.3) | | Net Cash from Financing Activities | $386.0 | $357.6 | Projected Capital Requirements (2023-2027, in millions) | Category | Amount | | :--- | :--- | | Construction expenditures | $4,602.1 | | Dividends on PNMR common stock | $630.9 | | Dividends on PNM preferred stock | $2.6 | | Total capital requirements | $5,235.6 | - The company maintains investment-grade credit ratings from both Moody's and S&P for PNMR, PNM, and TNMP330331 Other Issues Facing the Company The company actively manages climate change risks, aiming for a 100% emissions-free portfolio by 2040 - The company actively manages climate change risks, aiming for a 100% emissions-free generating portfolio by 2040, aligning with a "2 Degree Scenario" pathway346370 - The retirement of SJGS in 2022 resulted in a 67% reduction in GHG emissions from 2021 levels, with a potential 88% total reduction upon Four Corners exit350 - The New Mexico Energy Transition Act (ETA) mandates an 80% renewable portfolio by 2040 and 100% zero-carbon energy by 2045, significantly impacting PNM's generation portfolio366 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company manages market risk, including commodity, credit, and interest rate risks, with $1.2 billion in variable-rate debt - The company is exposed to interest rate risk on its variable rate debt, totaling approximately $1.2 billion as of February 17, 2023407 - PNM is exposed to credit risk from wholesale counterparties, with a total net exposure of $53.9 million as of December 31, 2022, and a largest single counterparty exposure of $44.9 million404 - The company faces equity market risk from trust investments, where a hypothetical 10% decrease in equity prices would reduce fair value by $35.6 million for PNM and $2.3 million for TNMP410 Item 8. Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for PNMR, PNM, and TNMP, along with management's and auditor's reports on internal controls - This item includes the audited consolidated financial statements for PNMR, PNM, and TNMP, covering balance sheets, earnings, cash flows, and equity changes414 - Management concluded internal controls were effective as of December 31, 2022, a conclusion concurred by independent auditor KPMG LLP416417 Item 9A. Controls and Procedures Management concluded disclosure controls and procedures were effective as of December 31, 2022, with no material changes in internal control - Management for PNMR, PNM, and TNMP concluded their disclosure controls and procedures were effective as of December 31, 2022105810621066 - No material changes in internal control over financial reporting occurred during the fourth quarter of 2022106010641068 Part III Item 10. Directors, Executive Officers, and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement - This section incorporates information by reference from the company's 2023 Proxy Statement1072 Item 11. Executive Compensation Information on director and executive compensation is incorporated by reference from the 2023 Proxy Statement - This section incorporates information by reference from the company's 2023 Proxy Statement1073 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and equity compensation plans is incorporated by reference from the 2023 Proxy Statement - This section incorporates information by reference from the company's 2023 Proxy Statement1074 Item 13. Certain Relationships and Related Transactions and Director Independence Information on related person transactions and director independence is incorporated by reference from the 2023 Proxy Statement - This section incorporates information by reference from the company's 2023 Proxy Statement1075 Item 14. Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2023 Proxy Statement - This section incorporates information by reference from the company's 2023 Proxy Statement1076 Part IV Item 15. Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K report - This section provides an index of all financial statements, schedules, and exhibits included in or incorporated by reference into the Form 10-K filing10791080