PNM 2Q2017 Earnings Note: PNM performed as expected; now it’s up to regulatory matters

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Market Price (7/28/2017): $39.25; ST-Target: $50/share; NIV: $83/share

Management has negotiated well through a maze of complications, but now PNM’s future depends regulatory matters, in our opinion. 2018 GRC settlement agreement was reached and waiting NMPRC final decision (FD); we’d estimate by March 2018. PNM 2018 RPS plan with FD by YE2017. Final IRP looks to close coal plants, which is most cost effective and renewable plan; decision expected 4Q2017. PNM AMI installation supplemental hearings in Oct. 2017, and TNMP GRC to be filed no later than May 2018. NMPRC rulemaking on utility ratemaking policy has public workshop scheduled September 14, 2017 – this is NOT about rate structure but more procedural matters and developing framework for consistent rulemaking in such matters as cost of capital and limiting litigation in certain ratemaking processes. No changes to demographic assumptions. Regardless, we raise our outlook for CAGR in AEPS through 2019 to about 10.3% from 8.6% based on strong 2Q17 and pending regulatory matters. Total capital spending estimate is some $1.76B (some $960MM of depreciation) through 2020. PNM maintaining 2017 AEPS guidance of $1.77-$1.87, which we view as conservative given 1H2017 results.

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