PNM earnings are up, but still recovering from 2022 market downturn

Public Service Co. of New Mexico reported $31.2 million in net earnings for the second quarter of 2023, marking a complete turnaround from the same period last year, when the utility recorded a $6.1 million loss.

The reversal reflects a sharp improvement in market conditions compared with second-quarter 2022, when rising interest rates and crashing stock markets battered the economy. That caused significant losses on PNM’s investment securities — most of which are drawn from the utility’s decommissioning and reclamation trust accounts — leading to $64 million in total PNM investment losses for all of last year.

But with market conditions improving in 2023, PNM is earning back a lot of those losses. And, this year, lower operational costs after shutting down the coal-fired San Juan Generating Station last fall reduced gas plant outages this year, and an increase in earnings from third-party use of PNM’s transmission system are all helping to push company earnings back up near 2021 levels.

At $31.2 million, PNM’s second-quarter net earnings are still about $10 million less than the $41.4 million in earnings it reported in the second quarter of 2021. But, when combined with robust income at the beginning of 2023, total net earnings for the six-month period from January-June reached $85.8 million.

That’s up from a $1.9 million loss in the same period last year. And it’s 43% higher than the $59.9 million in earnings the company reported during the first half of 2021.

As a result, earnings for PNM’s parent company, PNM Resources, climbed from just $15.4 million in second-quarter 2022 to $45.3 million in the April-June period this year, driven by both PNM’s gains and a healthy performance at PNM Resources’ other utility, Texas New Mexico Power.

TNMP reported $24.6 million in net earnings in the second quarter, slightly below the $26.1 million it earned in the same period last year.

Hardy growth in electric demand by industrial consumers in Texas, and by residential and commercial customers there, has boosted TNMP earnings, foreshadowing a lot more TNMP growth going forward, said PNM Resources President and Chief Operating Officer Don Tarry.

“TNMP hit a new system peak again this year at the end of June, with even higher peaks reached in July,” Tarry told investors in an Aug. 4 earnings conference call. “Temperatures are definitely a factor, but each year’s peak also reflects continued growth across our (Texas) service territory. TNMP system peak has grown 25% over the last five years.”

At PNM, mild temperatures during the spring lowered customer consumption during the April-June period. But that changed heading into July, said PNM Resources Chief Financial Officer and Treasurer Lisa Eden.

“The end of June brought a significant change in temperatures, which quickly rose to the record highs seen in July and led to multiple new system peaks,” Eden told investors.

In fact, for two days in a row on July 17 and 18, consumer demand on PNM’s grid reached a record 2,131 megawatts of consumption, although the impact from that on PNM earnings won’t show up until the company’s third-quarter report.

With heatwaves becoming a regular summer phenomenon throughout the West, PNM plans to expand potential generation resources in coming years, especially as the company continues to transition the grid from fossil fuels to renewable resources. It currently has a request for proposals out for new resources to come online starting from 2026-2028, Tarry said.

It’s also working to modernize the grid to improve reliability and to efficiently manage the massive addition of renewable generation like wind, solar and backup battery storage systems. That modernization plan is now under review at the state Public Regulation Commission.

For now, the company is squarely focused on building out the solar and battery systems already approved by the PRC to replace electricity previously supplied by the San Juan Generating Station, plus power from the Palo Verde Nuclear Generating Station in Arizona that PNM lost this year after two of its Palo Verde energy leases were terminated.

The company expects 410 MW of new solar and battery storage to come online by the fall, converting 60% of PNM’s generating capacity to carbon-free resources, Tarry said.

“We also expect another 1,300 MW of solar and storage resources that were previously approved to come online by the end of 2024, which will take us above 70% carbon-free (generation),” Tarry told investors.