Executive Summary / Key Takeaways

• Strategic Transformation and Growth: TXNM Energy is undergoing a significant transformation, marked by its recent rebranding and a pending acquisition by Blackstone Infrastructure, positioning the company for substantial capital deployment to support robust load growth in Texas and a clean energy transition in New Mexico.
• Accelerated Capital Investment: The company projects $8.60 billion in capital requirements through 2029, with a strong focus on grid modernization, system resiliency, and new generation resources, particularly in high-growth Texas markets and for New Mexico's carbon-free mandates.
• Strong Earnings Growth Outlook: Management has affirmed a 2025 ongoing EPS guidance of $2.74 to $2.84 and an ambitious long-term EPS growth target of 7% to 9% through 2029, driven by timely regulatory recovery and strategic investments.
• Technological Edge for Reliability: TXNM is leveraging advanced technologies, including smart meters, distribution-sided batteries, and AI-powered grid management, to enhance reliability, integrate renewables, and empower customers, creating a competitive advantage in operational efficiency and service quality.
• Favorable Regulatory Environment: Recent regulatory approvals in both New Mexico (unopposed rate stipulation, grid modernization) and Texas (system resiliency plan, cost recovery mechanisms) provide a supportive framework for investment recovery and predictable earnings.

A Dual-Engine Utility: Powering the Southwest's Future

TXNM Energy, Inc. (NYSE:TXNM) stands at a pivotal juncture, transforming from a regional utility into a dynamic energy holding company poised for significant growth and a sustainable future. Recently rebranded from PNM Resources, Inc. in August 2024, the company now more accurately reflects its dual-state operations through its regulated subsidiaries: Public Service Company of New Mexico (PNM) and Texas-New Mexico Power Company (TNMP). This strategic evolution is further underscored by a pending acquisition by Blackstone Infrastructure, announced in May 2025, which promises long-term capital to fuel the company's ambitious investment plans.

TXNM's overarching strategy is built on safely providing reliable, affordable, and environmentally responsible power. This commitment is particularly critical in the rapidly evolving energy landscape of the Southwest, characterized by increasing demand, the imperative for clean energy, and the growing threat of extreme weather events. The company's historical journey, rooted in PNM's founding in 1917, expanded significantly with the 2005 acquisition of TNMP, establishing a strong foothold in Texas. This history now informs a forward-looking strategy that balances traditional utility service with innovative solutions for the 21st century.

The competitive landscape for TXNM is shaped by its position as a regulated electric utility, operating within defined service territories but influenced by broader industry trends and the strategies of larger, diversified peers. Key direct competitors include Southern Company (SO), Duke Energy (DUK), NextEra Energy (NEE), and American Electric Power (AEP). While TXNM's regional focus in New Mexico and Texas offers tailored service and deep local regulatory expertise, it operates at a smaller scale than these national players. For instance, TXNM's P/E ratio of 29.76 and P/B ratio of 1.54 indicate a valuation that reflects its growth prospects and regulated stability, positioning it competitively against peers like Duke Energy (P/E 20.24, P/B 1.89) and AEP (P/E 17.49, P/B 2.11), though NextEra Energy (P/E 26.02, P/B 3.12) often commands a premium due to its aggressive renewable energy expansion.

Technological Differentiation and Innovation: Building a Smarter, More Resilient Grid

TXNM is strategically investing in advanced technologies to enhance its operational efficiency, grid resilience, and customer experience, forming a crucial competitive moat. The company's Grid Modernization Plan for PNM, approved by the NMPRC in October 2024, is a cornerstone of this effort, involving approximately $367 million in investments over the first six years of an 11-year strategy. This plan includes the integration of smart meters and distribution upgrades, which are designed to empower customers with real-time energy usage information, enabling them to better manage their monthly bills and customize their energy consumption. A key benefit is improved energy equity, with smart meters and upgrades prioritized for low-income areas.

Beyond smart metering, TXNM is actively deploying and researching cutting-edge solutions. PNM has successfully brought two 6-megawatt distribution-sided batteries online, a novel approach to reducing constraints on its feeders. Plans are underway to install another 30 megawatts of these battery units over the next few years, significantly enhancing grid stability and supporting peak season demand. The company's Virtual Power Plant (VPP) project, which received funding from the Department of Energy, aims to further integrate smart grid technology with these distribution-sided batteries and other distributed energy resources, with the stated goal of enhancing overall grid stability and customer benefits.

In a forward-looking move, TXNM is also engaged in a joint research and development project with New Mexico State and the National Renewable Energy Lab, focusing on AI-powered technology to improve the reliability and resiliency of the grid, particularly in managing variable renewable resources. This initiative seeks to optimize the integration of intermittent solar and wind power, a critical capability for New Mexico's clean energy transition. Furthermore, the company demonstrates environmental leadership through innovative air-cooling technology and cooling water recycling at its generating stations, contributing to a 45% improvement in fresh water usage efficiency since 2005, with targets for 80% reduction by 2035 and 90% by 2040.

For investors, these technological differentiators are vital. They contribute to TXNM's competitive moat by enhancing service reliability and operational efficiency, potentially leading to lower long-term costs and improved customer satisfaction. The ability to integrate a high percentage of renewables while maintaining grid stability, supported by advanced battery and AI solutions, positions TXNM favorably against competitors who may struggle with the complexities of grid decarbonization. This technological roadmap directly supports the company's financial performance through optimized asset utilization and a stronger market position in an evolving energy landscape.

Financial Performance and Operational Momentum

TXNM's financial performance in the nine months ended September 30, 2025, reflects a period of strategic investment and regulatory adjustments. Net earnings attributable to TXNM decreased to $161.20 million, or $1.63 per diluted share, from $226.40 million, or $2.50 per diluted share, in the same period of 2024. This decline was primarily driven by higher operating expenses and depreciation at both PNM and TNMP due to increased plant in service, new capacity arrangements at PNM, milder weather impacts, and higher interest charges across the utilities. These factors more than offset positive contributions from higher transmission and distribution rates at TNMP, increased demand-based load in Texas, and revenue increases at PNM from its 2025 Rate Change.

TNMP, the Texas utility, continues to be a significant growth engine. Its utility margin increased by $39.50 million for the nine months ended September 30, 2025, fueled by transmission and distribution rate relief and robust growth in volumetric and demand-based consumer usage. The segment's electric operating revenues reached $496.90 million for the nine months ended September 30, 2025, up from $445.93 million in the prior year period. TNMP has consistently set new system peak records, including a 22% higher system peak in Q1 2025 compared to Q1 2024, and a remarkable 91.90% increase in data center load for the three months ended September 30, 2025. This growth is supported by a supportive regulatory environment in Texas, which allows for timely recovery of infrastructure investments through mechanisms like Transmission Cost of Service (TCOS) and Distribution Cost Recovery Factor (DCRF) filings.

PNM, the New Mexico utility, saw its utility margin decrease by $7.30 million for the nine months ended September 30, 2025, largely due to milder weather and the Leap Year impact, despite gains from retail customer usage and rate relief. PNM's electric operating revenues for the nine months ended September 30, 2025, were $1.14 billion. The segment is actively pursuing its clean energy transition, with significant additions of solar and storage capacity. In 2024, PNM added 500 megawatts of solar and storage, nearly doubling its carbon-free resource capacity and bringing its portfolio to 75% carbon-free for 2026.

The Corporate and Other segment, which includes holding company activities and corporate debt, recorded a loss of $(50.91) million for the nine months ended September 30, 2025. This was influenced by the sale of the NMRD equity method investment in 2024 and higher allocated charitable contributions.

Capital Investment and Liquidity: Fueling Future Growth

TXNM has outlined an ambitious capital plan, projecting total capital requirements of $8.60 billion for 2025-2029, with $7.83 billion allocated to construction expenditures. This significant investment is strategically directed towards supporting TNMP's high growth, enhancing grid reliability and resilience across both states, and advancing PNM's clean energy transition. TNMP's investments are projected to grow from $600 million in 2025 to over $1 billion starting in 2028, with its rate base expanding by 17% over the period. A substantial portion of this includes approximately $750 million by 2030 for common projects identified in ERCOT's Permian Basin Reliability Study.

Liquidity remains robust, with TXNM, PNM, and TNMP maintaining revolving credit facilities totaling $940 million in capacity as of October 24, 2025, and consolidated availability of $614 million. The company has been proactive in its financing strategy, including the issuance of $550 million in junior subordinated convertible notes in 2024, which provided a debt-for-debt exchange with equity credit. In 2025, TXNM issued $200 million and $198 million in common stock through private placements and an ATM program, respectively, to repay debt and for general corporate purposes. PNM and TNMP also issued substantial long-term debt in 2025 to fund capital expenditures and refinance existing obligations. The company's credit ratings remain investment grade, with S&P viewing the Blackstone Infrastructure transaction as "credit supportive" and Moody's not expecting an adverse impact on ratings.

Outlook, Guidance, and Strategic Initiatives

TXNM has affirmed its 2025 ongoing EPS guidance in the range of $2.74 to $2.84 per share, alongside a long-term EPS growth target of 7% to 9% through 2029. This optimistic outlook is underpinned by several strategic initiatives and favorable regulatory outcomes. In New Mexico, PNM's 2025 Rate Change, approved in May 2025 with an unopposed stipulation, includes a phased-in rate increase and an improved Return on Equity (ROE) of 9.45% on a 51% equity capitalization structure. This is expected to enhance future earnings potential. PNM is also actively pursuing its 2029-2032 Resource Plan, with an RFP outstanding for 900 MW to 2,900 MW of new capacity to replace its Four Corners coal plant exit by 2031.

In Texas, TNMP is set to file its general rate review in Q4 2025, targeting new rate implementation in Q2 2026, focusing on rate design and capital structure adjustments. The recently approved System Resiliency Plan, with $545.80 million in capital investments and $86.10 million in operating and maintenance costs over 2025-2027, will enhance grid resilience against extreme weather events. Texas House Bill 5247 further supports TNMP's investments by allowing the deferral of costs for qualifying transmission and distribution projects to a regulatory asset, effectively reducing regulatory lag.

The pending acquisition by Blackstone Infrastructure is a transformative event, expected to close in the second half of 2026. This partnership is anticipated to provide long-term, patient capital and a commitment to strong investment-grade credit metrics, aligning with TXNM's financing strategy and supporting its substantial capital expenditure program.

Risks and Challenges

Despite a compelling growth narrative, TXNM faces several pertinent risks. The Merger with Blackstone Infrastructure carries inherent uncertainties, including the timing and receipt of regulatory approvals (PUCT, NMPRC, FERC, NRC). Delays or the imposition of burdensome conditions could impact the transaction's anticipated benefits or even lead to its abandonment, potentially triggering a $210 million termination fee payable to Blackstone. The pendency of the merger also poses risks of business disruption and challenges in retaining key personnel.

Climate change and environmental regulation present ongoing challenges. While PNM is committed to a 100% carbon-free portfolio by 2040, the costs of compliance with evolving GHG emission standards and the impacts of severe weather events, such as wildfires and hurricanes, could be significant. PNM's operations in the arid Southwest also face risks related to water availability for cooling its facilities. Although the company expects to recover these costs through rates, the timing and certainty of such recovery remain subject to regulatory processes.

Regulatory uncertainty is a constant factor in the utility sector. While TXNM has achieved favorable outcomes recently, future rate cases and regulatory proceedings could impact cost recovery and allowed returns. For instance, PNM cannot predict the full impact of the ETA on its Four Corners operations or the outcome of future resource abandonment and replacement filings. Similarly, the outcome of site investigations and potential corrective actions for groundwater and soil contamination at SJGS are uncertain.

Finally, equity market risk affects PNM's investments held in trusts for decommissioning and reclamation. A hypothetical 10% decrease in equity prices could reduce the fair value of these funds by $42 million, potentially leading to funding shortfalls not fully recoverable through rates.

Conclusion

TXNM Energy is strategically positioned for a future defined by robust infrastructure investment and a dedicated transition to clean energy. The company's dual-utility model, with TNMP capitalizing on significant load growth in Texas and PNM leading New Mexico's decarbonization efforts, forms a powerful investment thesis. Supported by a substantial $8.60 billion capital plan through 2029 and a supportive regulatory environment, TXNM is poised to deliver on its 7% to 9% long-term EPS growth target. The pending acquisition by Blackstone Infrastructure further strengthens this outlook by providing patient, long-term capital, de-risking the execution of its ambitious investment program.

Technological advancements, including smart grid deployment, battery storage, and AI integration, are not merely operational improvements but fundamental drivers of TXNM's competitive edge, ensuring reliability and efficiency in a rapidly changing energy landscape. While regulatory uncertainties and climate-related risks persist, TXNM's proactive strategic responses, coupled with its commitment to stakeholder engagement and customer affordability, underscore its resilience. For discerning investors, TXNM Energy offers a compelling narrative of growth, sustainability, and strategic execution in the evolving Southwest utility market, with its technological leadership playing a crucial role in securing future value.