Jefferies Sees PNM Resources (PNM) Responding 'Yes' to NMPRC; Affirms at 'Hold'
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Jefferies affirms PNM Resources (NYSE: PNM) with a Hold rating and $35 price target following a recent NMPRC meeting.
The firm commented,
At a strange NMPRC meeting the regulators voted to delay the rate decision another 30 days, which was expected, and issued an order for the company to provide a cost-benefit analysis on its Palo Verde sale-leaseback transaction, recoverable lease expense, and the San Juan balanced draft fans. While PNM has until Monday to respond we believe regulation like this could set a bad precedent questioning prudency on an asset in service.
The NMPRC voted to extend the rate schedule by an additional 30 days delaying new rates until October 1. Following this incremental delay a final NMPRC order would be expected at the end of September. This is the last delay the NMPRC could issue, without PNM's approval, given the proceeding has gone on for 13 months.
More importantly at Wednesday's meeting the NMPRC voted 5-0 to ask the utility if they would prefer to provide a cost benefit analysis on Palo Verde saleleaseback transactions, Palo Verde lease expense, and the San Juan balanced draft fans. The NMPRC felt that the utility can resolve the Palo Verde issues in the next several months versus delaying it until the next rate filing. (The balanced draft fans are part of the San Juan coal plant and were an amendment to the original order.) The NMPRC originally suggested this cost-benefit proceeding would be resolved by December 15, 2016 but also mentioned November 15, 2016. The utility has until Monday August 29 to respond.
On Monday the utility can respond Yes, No or make some other recommendation. The NMPRC will then issue an order on Wednesday, September 1 and we believe the date of a final decision would be specified in the order.
Jefferies believes that PNM will respond Yes but will ask that all the other issues in the rate case be resolved for October 1 implementation. Also we would hope the NMPRC would provide retro-active rate making back to October 1 if the utility is successful in its cost-benefit analysis for the three issues raised on Wednesday.
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