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PNM warns COVID-19 effects could drag EPS

PNM Resources Inc. is warning of material earnings impacts if government-imposed restrictions responding to the coronavirus pandemic extend through midsummer.

If New Mexico and Texas keep nonessential businesses closed until August, PNM's earnings are at risk of falling below its 2020 guidance range of $2.16 to $2.26 per diluted share "as load declines at summer rates can only be partially offset by cost control management," according to an April 7 investor presentation.

In the presentation, PNM outlined three scenarios, under which restrictions on nonessential businesses are lifted by the end of May, at the beginning of August, or continue through the end of 2020.

The company expects to manage impacts under the shortest scenario through cost controls to offset load declines and stay within its earnings guidance range. PNM said March and April are not heavy usage months in New Mexico due to mild weather, and the Electric Reliability Council Of Texas Inc. has not seen major declines in load as other power markets have reported. The company expects to complete anticipated financings and maintain adequate capacity at its revolver facility under the first scenario.

Under the second scenario, where restrictions extend until August, PNM said its $3.3 billion investment plan through 2023 would be slightly impacted, potentially requiring that about 5% of its $839 million in capital investments for 2020 be pushed to 2021 due to temporary supply chain or workforce disruptions, delaying certain projects by up to two months.

If restrictions continue through the rest of 2020, the utility said it "cannot manage within ongoing earnings guidance range" because both residential and commercial loads would decline beyond what can be offset through cost control management.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

Under the third scenario, where restrictions extend through the year, PNM said it would experience an "inability to meet near-term current investment plans due to supply chain delays and workforce disruptions" and would prioritize the most essential projects for reliability. The utility would also not be able to pursue certain financing measures due to market conditions, though its revolver debt capacity would remain adequate.

New Mexico makes up nearly three-fourths of PNM's customer nonfuel revenues. Residential customers account for 36% of subsidiary Public Service Co. of New Mexico's sales volume and 46% of sales revenue, while commercial and industrial make up a combined 61% of sales volume and 52% of revenue. PNM subsidiary Texas-New Mexico Power Co. operates as a transmission and distribution utility in Texas with its customer nonfuel revenues spread across the state.

S&P lowers ratings due to financial metrics

Separately, S&P Global Ratings on April 6 lowered its issuer credit rating on PNM and Public Service Co. of New Mexico to BBB from BBB+ and on Texas-New Mexico Power to BBB+ from A-. S&P Global Ratings still maintains a stable outlook on PNM under the expectation that the utility will be able to securitize costs related to closing the San Juan coal-fired power plant.

The credit agency anticipates that PNM's "weak historical financial measures" will stay below its downside threshold over the next two years, noting that the utility's funds from operations-to-debt ratio was 15.8% in 2018 and 15.5% in 2019. Meanwhile, the company needs to spend more capital in New Mexico to integrate more renewables and battery storage on the grid and in Texas to upgrade and maintain its transmission infrastructure to guarantee reliability.

"Furthermore, in the near term, the negative revenue impact from pandemic fallout may create additional stress to the company's financial metrics," S&P Global Ratings said.

This S&P Global Market Intelligence news article contains information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.