PUBLIC SERVICE CO OF NEW MEXICO: Your Annual Investor Snapshot

This summary cuts through the complexity of PUBLIC SERVICE CO OF NEW MEXICO's (PNM) latest annual report, offering a clear, concise overview of its performance and strategic direction. Designed for retail investors, it highlights key facts in plain English, helping you understand PNM's year and what it means for your investment.

Here's a comprehensive overview:

1. Business Overview (what the company does)

PNM operates as a regulated electric utility, primarily through two key subsidiaries:

• Public Service Company of New Mexico (PNM): Serves over 530,000 retail and wholesale electricity customers across New Mexico, generating and delivering power.
• Texas New Mexico Power Company (TNMP): Serves approximately 270,000 customers in various parts of Texas, primarily focusing on electricity transmission and distribution, purchasing power for its customers.

Operational Highlights (2024 vs. 2023):

• Total Electricity Sales: PNM's total electricity sales rose to 22,767 GWh (Gigawatt-hours) in 2024, a 1.2% increase from 22,491 GWh in 2023, reflecting consistent demand for its services.
• Electricity Generation (PNM only): PNM generated 14,600 GWh in 2024, up 1.4% from 14,400 GWh in 2023, demonstrating its commitment to self-sufficiency in New Mexico.
• Electricity Purchased (TNMP only): TNMP purchased 8,167 GWh in 2024, a 0.9% increase from 8,091 GWh in 2023, to meet its Texas customers' needs.

2. Financial Performance (revenue, profit, year-over-year changes)

PNM achieved strong financial results in 2024, showing growth in both revenue and profitability:

• Total Revenue: The company's total operating revenue reached $2.55 billion in 2024, a healthy 6.3% increase from $2.40 billion in 2023. Increased sales volumes and successful rate adjustments drove this growth.
• Net Income: PNM's net income reached $265 million in 2024, up 10.4% from $240 million in 2023. This reflects effective cost management and operational efficiencies.
• Earnings Per Share (EPS): Diluted EPS stood at $3.10 for 2024, compared to $2.85 in 2023, providing a positive return for shareholders.

3. Risk Factors (key risks)

Investors should be aware of several key risks:

• Customer Concentration: PNM's revenue significantly relies on a few large customers. For the entire company, one customer ("Customer One") accounted for 10% of total sales revenue in both 2023 and 2024, with similar projections for 2025. For TNMP specifically, two separate unaffiliated customers each represented 10% of its sales revenue during the same periods. A reduction in usage or loss of any of these key customers could significantly affect revenue.
• Regulatory Risk: State and federal regulatory bodies oversee PNM's rates and operations. Unfavorable rate case outcomes, new environmental regulations, or changes in energy policy could impact profitability and investment recovery.
• Operational Risks: The nature of utility operations exposes PNM to risks from severe weather, equipment failures, cyberattacks, and fuel price volatility, which can lead to service disruptions and increased costs.
• Interest Rate Risk: With substantial debt, rising interest rates could increase borrowing costs, impacting financial performance.

4. Management's Discussion and Analysis (MD&A) Highlights

Management's discussion highlighted the company's operational performance, strategic direction, and the market trends influencing its business.

Operational Performance & Key Developments:

• Major Wins: PNM advanced its decarbonization efforts, securing regulatory approvals for key renewable energy projects and successfully issuing Energy Transition Bonds to fund coal-fired generation retirement. The company also modernized its grid infrastructure, enhancing reliability and resilience, and achieved favorable outcomes in recent New Mexico rate cases.
• Challenges: Rising operating costs due to inflationary pressures and supply chain disruptions led to increased expenses for materials, labor, and fuel. PNM also faced operational challenges from severe weather events, impacting service and increasing restoration costs.

Strategic Direction & Leadership: PNM's leadership pursues a clear strategic path focused on:

• Decarbonization: Pursuing its goal of 100% emissions-free generation by 2040 in New Mexico, aligning with the state's Energy Transition Act. This involves significant investments in renewable energy (solar, wind) and battery storage.
• Grid Modernization: Investing in smart grid technologies, transmission upgrades, and distribution system hardening to enhance reliability, integrate renewables, and improve resilience against extreme weather.
• Customer Focus: Enhancing customer experience through digital tools, energy efficiency programs, and reliable service delivery.
• Prudent Capital Allocation: Balancing infrastructure investments with financial discipline to ensure stable shareholder returns. No significant executive leadership changes occurred during the past year, providing continuity in strategy execution.

Market Trends and Regulatory Environment: PNM operates within a dynamic energy landscape influenced by:

• Energy Transition Policies: State-level mandates, particularly New Mexico's Energy Transition Act, are driving the shift away from fossil fuels towards renewable energy, presenting both opportunities and challenges.
• Federal Incentives: Federal policies and tax credits (e.g., from the Inflation Reduction Act) are supporting renewable energy development and grid modernization, which PNM aims to leverage.
• Growing Demand for Reliability: Extreme weather patterns increase regulatory and customer pressure for utilities to invest in grid resilience and reliability.
• Technological Advancements: The rapid evolution of renewable energy technologies, battery storage, and smart grid solutions continues to shape PNM's investment strategies and operational planning.

5. Financial Health (debt, cash, liquidity)

PNM maintains a stable financial position, crucial for a capital-intensive utility:

• Cash and Equivalents: The company held $160 million in cash and cash equivalents at the end of 2024, providing operational flexibility.
• Total Debt: PNM's total long-term debt, including $495 million in "Senior Secured Energy Transition Bonds Series A," totaled approximately $5.6 billion at year-end 2024. PNM strategically manages this debt to fund long-term infrastructure projects.
• Liquidity: PNM's cash position and access to $750 million in revolving credit facilities provide strong liquidity, ensuring its ability to meet short-term obligations and fund ongoing operations.

6. Future Outlook (guidance, strategy)

PNM projects continued stable growth and strategic execution for 2025:

• Operational Growth:
  • Overall Electricity Sales: Projected to reach 23,200 GWh, an increase of about 1.9% from 2024.
  • Electricity Generation: Expected to be 14,900 GWh, up about 2.05% from 2024.
  • Electricity Purchased: Anticipated to be 8,300 GWh, an increase of about 1.6% from 2024.
• Financial Guidance: The company anticipates 2025 EPS in the range of $3.25 to $3.45, reflecting continued operational improvements and strategic investments.
• Capital Expenditures: PNM plans significant capital expenditures, estimated at $1.2 billion for 2025, primarily directed towards renewable energy projects, transmission and distribution upgrades, and environmental compliance.

7. Competitive Position

As a regulated electric utility, PNM operates within defined service territories in New Mexico and Texas, where it generally holds a monopoly for electricity delivery. Competition primarily arises from:

• Alternative Energy Sources: Customers exploring rooftop solar or other distributed generation options.
• Efficiency and Reliability: PNM competes through high reliability, efficient operations, and competitive rates within its regulatory framework, benchmarking itself against other utilities.
• Service Quality: Maintaining strong customer satisfaction and service quality is key to its standing.