PNM 4Q2016 Earnings Note

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Market Price (2/28/2017): $36.30/share; ST-Target: $45/share; NIV: $79/share

Continues to perform with regulatory matters taking center stage

2016 GRC final decision (FD) was better than the preliminary decision, but still puzzlingly disappointing. Implementation began Oct. 1 2016. The FD was appealed to NM Supreme Court on Sept. 30, 2016 with final adjudication expected in 1Q2018. We’re particularly puzzled by disallowance of balance draft technology at San Juan, which we believe is necessary part of keeping San Juan operational, and book-value transfer-pricing for PV 2. In view of more modest demographic growth assumptions going forward, PNM reduced expectations for its CAGR in rate base for 2016-2019 to about 5%-6% (was 5%-7%) and lowered its expectations for CAGR in earnings for 2016-2019 to roughly 7%-8% (was 7%-9%). Regardless, we maintain our outlook for CAGR in AEPS through 2019 of about 8.6%. Total capital spending estimate is some $1.7B (some $1,013MM of depreciation) through 2020. The next important development is the IRP to be file mid-2017. We expect surprises, particularly on the renewable energy front. Other regulatory decisions include PNM 2018 GRC filed 12/7/2016 with settlement agreement expected to be filed by March 27, 2017, AMI installation final decision in May 2017, TNMP TCOS decision in March 2017, and TNMP GRC to be filed no later than September 2018.

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