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Tax changes sink PNM earnings in 2017

PNM Resources reported a 32 percent decline in net earnings in 2017, reflecting a $57.5 million write-off in the fourth quarter related to federal tax reform.

The company will gain about $48 million from the lowering of the corporate income tax rate from 35 percent to 21 percent. It will pass those gains onto consumers starting this year as part of Public Service Co. of New Mexico’s latest rate case that concluded in December, allowing PNM to lower its newest rate hike to just 1.4 percent.

But the tax reform also had a negative impact on parent company PNM Resources’ net deferred tax liabilities. That refers to company write-offs of various expenses, such as the decision by state regulators to deny PNM any profit on $148 million in investments it made at the coal-fired Four Corners Power Plant.

PNM Resources and its subsidiaries must report all losses on its books every year. By recording those losses at the new 21 percent tax rate rather than the previous 35 percent, the value of tax deductions on the company’s liabilities declined, leading to the $57.5 million total write-off in the fourth quarter.

That reflects a $20 million loss by the parent company, a $29.6 million net loss at New Mexico subsidiary PNM, and $7.9 million at PNM Resources’ other utility, Texas New Mexico Power.

Those write-offs lowered PNM Resources’ fourth quarter earnings from a $24.8 million gain in 2016 to a $54.3 million loss in 2017. Full-year 2017 earnings fell to $79.9 million, down from $116.8 million in 2016.

Performance issues at the New Mexico utility also contributed to lower earnings. That included higher outage costs at both Four Corners and the natural gas-fired Afton Generating Station, higher operations and maintenance costs, and depreciation expense from new capital investments.

In addition, PNM still faces sluggish electric demand. It’s residential and commercial load declined by 1.3 percent in the fourth quarter, contributing to a 0.9 percent decline in PNM’s total retail load for the year.

“Economic conditions in Albuquerque are stable, but employment growth is still lower than at the nation level,” Chief Financial Officer Chuck Eldred told investors Tuesday morning. “In addition, consumer growth at PNM continues to be offset by energy efficiency and private solar systems.”

TNMP also faced higher operation and maintenance costs in the fourth quarter, plus increased depreciation and property tax expenses from new capital investments. Unlike PNM, however, TNMP is enjoying robust load growth, thanks in good part to the boom in Permian Basin oil production, said PNM Resources, Chairman, President and CEO Pat Vincent-Collawn.

“The Permian Basin is just on fire,” she told investors.

Despite the drop in net earnings, PNM Resources’ ongoing earnings — which exclude one-time gains and charges like impacts from the tax reform — rose 18 percent in 2017, from $132.4 million in 2016 to $155.3 million.

The company revised its earnings guidance last week to a range of $1.82 to $1.92 per share for 2018, up from a previous range of $1.70 to $1.80.

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