Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q


(Mark One)
 [X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended March 31, 20192020



Commission File
Name of Registrants, Registrant, State of Incorporation
I.R.S. Employer
 Number, Address Of Principal Executive Offices and , Telephone NumbersNumber, Commission File No., IRS Employer Identification No.
PNM Resources, Inc.
(A New Mexico Corporation)
414 Silver Ave. SW
Albuquerque, New Mexico 87102-3289
Telephone Number - (505) 241-2700
Commission File No. - 001-32462
IRS Employer Identification No. - 85-0468296

Public Service Company of New Mexico
(A New Mexico Corporation)
414 Silver Ave. SW
Albuquerque, New Mexico 87102-3289
Telephone Number - (505) 241-2700
Commission File No. - 001-06986
IRS Employer Identification No. - 85-0019030

Texas-New Mexico Power Company
(A Texas Corporation)
577 N. Garden Ridge Blvd.
Lewisville, Texas 75067
Telephone Number - (972) 420-4189
Commission File No. - 002-97230
IRS Employer Identification No. - 75-0204070

001-32462

Securities registered pursuant to Section 12(b) of the Act:
RegistrantTitle of each classTrading Symbol(s)Name of exchange on which registered
PNM Resources, Inc.Common Stock, no par value85-0468296
PNM(A New Mexico Corporation)
414 Silver Ave. SW
Albuquerque, New Mexico 87102-3289
(505) 241-2700
001-06986Public Service Company of New Mexico85-0019030
(A New Mexico Corporation)
414 Silver Ave. SW
Albuquerque, New Mexico 87102-3289
(505) 241-2700
002-97230Texas-New Mexico Power Company75-0204070
(A Texas Corporation)
577 N. Garden Ridge Blvd.
Lewisville, Texas 75067
(972) 420-4189York Stock Exchange


Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
PNM Resources, Inc. (“PNMR”)YESYesüNONo
Public Service Company of New Mexico (“PNM”)YESYesüNONo
Texas-New Mexico Power Company (“TNMP”)YESYesNONoü


(NOTE: As a voluntary filer, not subject to the filing requirements, TNMP filed all reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months.)






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Indicate by check mark whether each registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

PNMRYESYesüNONo
PNMYESYesü

NONo
TNMPYESYesüNONo




Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer
Accelerated
filer
Non-accelerated
filer
Smaller reporting companyEmerging growth company
PNMR
Large accelerated
filer

Accelerated
filer
Non-accelerated filerSmaller reporting companyEmerging growth company
PNM
Large accelerated
filer
Accelerated
filer
Non-accelerated
filer
Non-accelerated filerSmaller reporting companyEmerging growth company
PNMRü
PNMü
TNMPü


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. £


Indicate by check mark whether any of the registrants is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES   NO üYes   No


Securities registered pursuant to Section 12(b) of the Act:
RegistrantTitle of each classTrading Symbol(s)Name of exchange on which registered
PNM Resources, Inc.Common Stock, no par valuePNMNew York Stock Exchange

As of May 3, 2019, 1, 2020, 79,653,624 shares of common stock, no par value per share, of PNMR were outstanding.


The total number of shares of common stock of PNM, no par value per share, outstanding as of May 3, 20191, 2020 was 39,117,799 all held by PNMR (and none held by non-affiliates).


The total number of shares of common stock of TNMP, $10 par value per share, outstanding as of May 3, 20191, 2020 was 6,358 all held indirectly by PNMR (and none held by non-affiliates).


PNM AND TNMP MEET THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS (H) (1) (a) AND (b) OF FORM 10-Q AND ARE THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION (H) (2).


This combined Form 10-Q is separately filed by PNMR, PNM, and TNMP.  Information contained herein relating to any individual registrant is filed by such registrant on its own behalf.  Each registrant makes no representation as to information relating to the other registrants.  When this Form 10-Q is incorporated by reference into any filing with the SEC made by PNMR, PNM, or TNMP, as a registrant, the portions of this Form 10-Q that relate to each other registrant are not incorporated by reference therein.





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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES


INDEX


Page No.
(Loss)



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Table of Contents
GLOSSARY
Definitions:
Definitions:
2014 IRPPNM’s 2014 IRP
2017 IRPPNM’s 2017 IRP
ABCWUAAlbuquerque Bernalillo County Water Utility Authority
AEP OnSite PartnersAEP OnSite Partners, LLC, a subsidiary of American Electric Power, Inc.
AftonAfton Generating Station
AFUDCAllowance for Funds Used During Construction
AMI
AMIAdvanced Metering Infrastructure
AMSAdvanced Meter System
AOCI
AOCIAccumulated Other Comprehensive Income
APS
APSArizona Public Service Company, the operator and a co-owner of PVNGS and Four Corners
ASU
ASUAccounting Standards Update
August 2016 RDRecommended Decision in PNM’s NM 2015 Rate Case issued by the Hearing Examiner on August 4, 2016
BARTBest Available Retrofit Technology
BDTBalanced Draft Technology
Board
BoardBoard of Directors of PNMR
BSERBest systemSystem of emission reduction technologyEmissions Reduction Technology
BTMUMUFG Bank Ltd., formerly the Bank of Tokyo-Mitsubishi UFJ, Ltd.
BTMU Term LoanNM Capital’s $125.0 Million Unsecured Term Loan
CAA
CAAClean Air Act
CARES ActCoronavirus Aid, Relief, and Economic Security Act
Casa Mesa WindCasa Mesa Wind Energy Center
CCNCertificate of Convenience and Necessity
CCRCoal Combustion Residuals
CIACCFRECitizens for Fair Rates and the Environment
CIACContributions in Aid of Construction
CO2
Carbon Dioxide
CSACoal Supply Agreement
CTCCompetition Transition Charge
DC CircuitUnited States Court of Appeals for the District of Columbia Circuit
December 2018 Compliance FilingPNM’s December 31, 2018 filing with the NMPRC regarding SJGS
DOEUnited States Department of Energy
DOIUnited States Department of Interior
EGUElectric Generating Unit
EIMCalifornia Independent System Operator Western Energy Imbalance Market
EISEnvironmental Impact Study
EPAUnited States Environmental Protection Agency
ESA
ERCOTElectric Reliability Council of Texas
ESAEndangered Species Act
ETAThe New Mexico Energy Transition Act
Exchange ActSecurities Exchange Act of 1934
FarmingtonThe City of Farmington, New Mexico
FASBFinancial Accounting Standards Board
FERCFederal Energy Regulatory Commission
Four CornersFour Corners Power Plant
FPPAC
FPPACFuel and Purchased Power Adjustment Clause
FTYFuture Test Year
GAAPGenerally Accepted Accounting Principles in the United States of America
GHGGreenhouse Gas Emissions
GWhGigawatt hours
IRPIntegrated Resource Plan

IRSIRCInternal Revenue Code
IRPIntegrated Resource Plan
IRSInternal Revenue Service
ISFSIIndependent Spent Fuel Storage Installation
KWkVKilovolt
KWKilowatt
KWhKilowatt Hour
La LuzLa Luz Generating Station
LIBORLondon Interbank Offered Rate
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Lightning Dock GeothermalLightning Dock geothermal power facility, also known as the Dale Burgett Geothermal Plant
LordsburgLordsburg Generating Station
Los AlamosThe Incorporated County of Los Alamos, New Mexico
LunaLuna Energy Facility
MD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations
MMBTUMillion BTUsBritish Thermal Units
Moody’sMoody’s Investor Services, Inc.
MWMegawatt
MWhMWMegawatt HourMegawatts
NAAQSMWhMegawatt Hour
NAAQSNational Ambient Air Quality Standards
Navajo ActsNavajo Nation Air Pollution Prevention and Control Act, Navajo Nation Safe Drinking Water Act, and Navajo Nation Pesticide Act
NDTNuclear Decommissioning Trusts for PVNGS
NEE
NEENew Energy Economy
NEPANational Environmental Policy Act
NERCNorth American Electric Reliability Corporation
New Mexico WindNew Mexico Wind Energy Center
NM 2015 Rate CaseRequest for a General Increase in Electric Rates Filed by PNM on August 27, 2015
NM 2016 Rate CaseRequest for a General Increase in Electric Rates Filed by PNM on December 7, 2016
NM AREANew Mexico Affordable Reliable Energy Alliance, formerly New Mexico Industrial Energy Consumers Inc.
NM CapitalNM Capital Utility Corporation, an unregulated wholly-owned subsidiary of PNMR, now known as New Mexico PPA Corporation
NM District CourtUnited States District Court for the District of New Mexico
NM Supreme CourtNew Mexico Supreme Court
NMED
NMEDNew Mexico Environment Department
NMIECNew Mexico Industrial Energy Consumers Inc.
NMMMDThe Mining and Minerals Division of the New Mexico Energy, Minerals and Natural Resources Department
NMPRCNew Mexico Public Regulation Commission
NMRDNM Renewable Development, LLC, owned 50% each by PNMR Development and AEP OnSite Partners, LLC
NOxNitrogen Oxides
NOPRNotice of Proposed Rulemaking
NPDESNational Pollutant Discharge Elimination System
NRCUnited States Nuclear Regulatory Commission
NSPSNew Source Performance Standards
NSRNew Source Review
NTECNavajo Transitional Energy Company, LLC, an entity owned by the Navajo Nation
OCIOther Comprehensive Income
OPEBOther Post-Employment Benefits
OSMUnited States Office of Surface Mining Reclamation and Enforcement
PCRBsPollution Control Revenue Bonds
PNMPublic Service Company of New Mexico and Subsidiaries
PNM 2017 New Mexico Credit FacilityPNM’s $40.0 Million Unsecured Revolving Credit Facility
PNM 2017 Term LoanPNM’s $200.0 Million Unsecured Term Loan
PNM 2019 $40.0 Million Term LoanPNM's $40.0 Million Unsecured Term Loan
PNM 2019 $250.0 Million Term LoanPNM’s $250.0 Million Unsecured Term Loan, which was repaid on April 15, 2020
PNM 2020 Note Purchase AgreementPNM's Agreement for the sale of PNM 2020 SUNs
PNM 2020 SUNsPNM's $200.0 million Senior Unsecured Notes issued on April 30, 2020
PNM 2020 Term LoanPNM’s $250.0 million Unsecured Term Loan issued on April 15, 2020, of which $100.0 million was repaid on April 30, 2020

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PNM Revolving Credit FacilityPNM’s $400.0 Million Unsecured Revolving Credit Facility
PNMRPNM Resources, Inc. and Subsidiaries
PNMR 2015 Term
Loan
PNMR’s $150.0 Million Three-Year Unsecured Term Loan that matured on March 9, 2018
PNMR 2016 One-Year Term LoanPNMR’s $100.0 Million One-Year Unsecured Term Loan that matured on December 14, 2018
PNMR 2016 Two-Year Term LoanPNMR’s $100.0 Million Two-Year Unsecured Term Loan that matured on December 21, 2018
PNMR 2018 One-Year Term LoanPNMR’s $150.0 Million One-Year Unsecured Term Loan
PNMR 2018 SUNSPNMR’s $300.0 Million Senior Unsecured Notes issued on March 9, 2018
PNMR 2018 Two-Year Term LoanPNMR’s $50.0 Million Two-Year Unsecured Term Loan
PNMR 2019 Term LoanPNMR's $150.0 Million Two-Year Unsecured Term Loan
PNMR 2020 Forward Equity Sale AgreementsPNMR's Block Equity Sale of 6.2 million Shares of PNMR Common Stock with Forward Equity Sales Agreements
PNMR DevelopmentPNMR Development and Management Company, an unregulated wholly-owned subsidiary of PNMR
PNMR Development Revolving Credit FacilityPNMR Development’s $25.0 million$40.0 Million Unsecured Revolving Credit Facility
PNMR Development Term LoanPNMR Development’s $90.0 Million Unsecured Term Loan
PNMR Revolving Credit FacilityPNMR’s $300.0 Million Unsecured Revolving Credit Facility
PNMR Term LoanPNMR’s $150.0 Million One-Year Unsecured Term Loan that matured on December 21, 2016
PPAPower Purchase Agreement
PSD
PSDPrevention of Significant Deterioration
PUCTPublic Utility Commission of Texas
PVPhotovoltaic
PVNGSPalo Verde Nuclear Generating Station
RCRAResource Conservation and Recovery Act
RCTReasonable Cost Threshold
REANew Mexico’s Renewable Energy Act, of 2004as amended by the ETA
RECRenewable Energy Certificates
Red Mesa WindRed Mesa Wind Energy Center
REPRetail Electricity Provider
RFPRequest For Proposal
Rio BravoRio Bravo Generating Station formerly known as Delta
RMCRisk Management Committee
ROEReturn on Equity
RPSRenewable Energy Portfolio Standard
S&PStandard and Poor’s Ratings Services
SEC
SECUnited States Securities and Exchange Commission
SIPState Implementation Plan
SJCCSan Juan Coal Company
SJGSSan Juan Generating Station
SJGS Abandonment ApplicationPNM’s July 1, 2019 consolidated application seeking NMPRC approval to retire PNM’s share of SJGS in 2022, for related replacement generating resources, and for the issuance of securitized bonds under the ETA
SJGS CSASan Juan Generating Station Coal Supply Agreement
SJGS RASan Juan Project Restructuring Agreement
SJPPASan Juan Project Participation Agreement
SNCRSelective Non-Catalytic Reduction
SO2
Sulfur Dioxide
Tax ActFederal tax reform legislation enacted on December 22, 2017, commonly referred to as the Tax Cuts and Jobs Act
TECA
TECATexas Electric Choice Act
Tenth CircuitUnited States Court of Appeals for the Tenth Circuit
TNMPTexas-New Mexico Power Company and Subsidiaries
TNMP 2018 Term LoanRate CaseTNMP’s $35.0 Million Unsecured Term Loan
TNMP 2019 BondsTNMP’s First Mortgage Bonds issuable under the TNMP 2019 Bond Purchase Agreement

General Rate Case Application Filed May 30, 2018
TNMP 2019 BondsTNMP’s First Mortgage Bonds issued under the TNMP 2019 Bond Purchase Agreement
TNMP 2020 Bond Purchase AgreementTNMP’s AgreementAn agreement under which TNMP agreed to Issueissue an Aggregateaggregate of $305.0$185.0 Million inof First Mortgage Bonds in 20192020
TNMP 2020 BondsTNMP's First Mortgage Bonds issued under the TNMP 2020 Bond Purchase Agreement
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TNMP Revolving Credit FacilityTNMP’s $75.0 Million Secured Revolving Credit Facility
Tri-State
Tri-StateTri-State Generation and Transmission Association, Inc.
TucsonTucson Electric Power Company
UAMPSUtah Associated Municipal Power Systems
U.SThe United States of America
US Supreme CourtUnited States Supreme Court
ValenciaValencia Energy Facility
VIE
VIEVariable Interest Entity
WEGWildEarth Guardians
Westmoreland
Western Spirit LineA 165-mile 345-kV transmission line that PNM has agreed to purchase, subject to certain conditions being met prior to closing
WestmorelandWestmoreland Coal Company
Westmoreland Loan$125.0 Million of funding provided by NM Capital to WSJ
WSJWestmoreland San Juan, LLC, formerly an indirect wholly-owned subsidiary of Westmoreland, and former owner of SJCC
WSJ LLC

Westmoreland San Juan Mining, LLC, a subsidiary of Westmoreland Mining Holdings, LLC, and
successor entity to current owner of SJCC


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PART I. FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS




PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(Unaudited)
Three Months Ended March 31,
20202019
(In thousands, except per share amounts)
Electric Operating Revenues:
Contracts with customers$322,983  $315,698  
Alternative revenue programs426  636  
Other electric operating revenue10,213  33,311  
Total electric operating revenues333,622  349,645  
Operating Expenses:
Cost of energy98,710  121,626  
Administrative and general46,032  52,336  
Energy production costs33,618  35,072  
Regulatory disallowances and restructuring costs—  1,345  
Depreciation and amortization68,973  65,356  
Transmission and distribution costs17,286  16,678  
Taxes other than income taxes21,265  20,509  
Total operating expenses285,884  312,922  
Operating income47,738  36,723  
Other Income and Deductions:
Interest income3,423  3,588  
Gains (losses) on investment securities(32,849) 14,014  
Other income2,316  3,446  
Other (deductions)(3,473) (3,252) 
Net other income and deductions(30,583) 17,796  
Interest Charges30,434  31,634  
Earnings (Loss) before Income Taxes(13,279) 22,885  
Income Taxes (Benefits)(1,880) 1,223  
Net Earnings (Loss)(11,399) 21,662  
(Earnings) Attributable to Valencia Non-controlling Interest(3,729) (2,830) 
Preferred Stock Dividend Requirements of Subsidiary(132) (132) 
Net Earnings (Loss) Attributable to PNMR$(15,260) $18,700  
Net Earnings (Loss) Attributable to PNMR per Common Share:
Basic$(0.19) $0.23  
Diluted$(0.19) $0.23  
Dividends Declared per Common Share$0.3075  $0.2900  
 Three Months Ended March 31,
 2019 2018
 (In thousands, except per share amounts)
Electric Operating Revenues: 
   
Contracts with customers$315,698
 $303,351
Alternative revenue programs636
 924
Other electric operating revenue33,311
 13,603
Total electric operating revenues349,645
 317,878
Operating Expenses:
  
Cost of energy121,626
 92,556
Administrative and general52,336
 48,283
Energy production costs35,072
 35,350
Regulatory disallowances and restructuring costs1,345
 
Depreciation and amortization65,356
 58,722
Transmission and distribution costs16,678
 16,955
Taxes other than income taxes20,509
 19,880
Total operating expenses312,922
 271,746
Operating income36,723
 46,132
Other Income and Deductions:   
Interest income3,619
 4,124
Gains on investment securities14,014
 288
Other income3,415
 3,469
Other (deductions)(3,252) (1,376)
Net other income and deductions17,796
 6,505
Interest Charges31,634
 33,055
Earnings before Income Taxes22,885
 19,582
Income Taxes1,223
 783
Net Earnings21,662
 18,799
(Earnings) Attributable to Valencia Non-controlling Interest(2,830) (3,677)
Preferred Stock Dividend Requirements of Subsidiary(132) (132)
Net Earnings Attributable to PNMR$18,700
 $14,990
Net Earnings Attributable to PNMR per Common Share:   
Basic$0.23
 $0.19
Diluted$0.23
 $0.19
Dividends Declared per Common Share$0.290
 $0.265


The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.





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PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)


Three Months Ended March 31,
20202019
(In thousands)
Net Earnings (Loss)$(11,399) $21,662  
Other Comprehensive Income:
Unrealized Gains on Available-for-Sale Debt Securities:
Net change in unrealized holding gains arising during the period, net of income tax (expense) benefit of $1,088 and $(1,798)(3,195) 5,280  
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $301 and $172(884) (504) 
Pension Liability Adjustment:
Reclassification adjustment for amortization of experience (gains) losses recognized as net periodic benefit cost, net of income tax expense (benefit) of $(527) and $(470)1,548  1,381  
Fair Value Adjustment for Cash Flow Hedges:
Change in fair market value, net of income tax benefit of $507 and $311(1,491) (914) 
Reclassification adjustment for (gains) losses included in net earnings, net of income tax expense (benefit) of $10 and $(68)(28) 202  
Total Other Comprehensive Income (Loss)(4,050) 5,445  
Comprehensive Income (Loss)(15,449) 27,107  
Comprehensive (Income) Attributable to Valencia Non-controlling Interest(3,729) (2,830) 
Preferred Stock Dividend Requirements of Subsidiary(132) (132) 
Comprehensive Income (Loss) Attributable to PNMR$(19,310) $24,145  
 Three Months Ended March 31,
 2019 2018
 (In thousands)
Net Earnings$21,662
 $18,799
Other Comprehensive Income:   
Unrealized Gains on Available-for-Sale Securities:
   
Unrealized holding gains arising during the period, net of income tax (expense) of $(1,798) and $(283)5,280
 832
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $172 and $668(504) (1,961)
Pension Liability Adjustment:   
Reclassification adjustment for amortization of experience (gains) losses recognized as net periodic benefit cost, net of income tax expense (benefit) of $(470) and $(480)1,381
 1,411
Fair Value Adjustment for Cash Flow Hedges:   
Change in fair market value, net of income tax (expense) benefit of $311 and $(472)(914) 1,386
Reclassification adjustment for (gains) losses included in net earnings, net of income tax expense (benefit) of $(68) and $13202
 (40)
Total Other Comprehensive Income5,445
 1,628
Comprehensive Income27,107
 20,427
Comprehensive (Income) Attributable to Valencia Non-controlling Interest(2,830) (3,677)
Preferred Stock Dividend Requirements of Subsidiary(132) (132)
Comprehensive Income Attributable to PNMR$24,145
 $16,618


The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.



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PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
20202019
(In thousands)
Cash Flows From Operating Activities:
Net earnings (loss)$(11,399) $21,662  
Adjustments to reconcile net earnings (loss) to net cash flows from operating activities:
Depreciation and amortization77,535  73,946  
Deferred income tax expense (benefit)(1,826) 1,122  
(Gains) losses on investment securities32,849  (14,014) 
Stock based compensation expense3,801  3,257  
Regulatory disallowances and restructuring costs—  1,345  
Allowance for equity funds used during construction(1,195) (2,049) 
Other, net776  444  
Changes in certain assets and liabilities:
Accounts receivable and unbilled revenues14,027  15,842  
Materials, supplies, and fuel stock3,806  3,826  
Other current assets105  (1,778) 
Other assets7,429  13,463  
Accounts payable(1,224) (7,642) 
Accrued interest and taxes(10,830) 6,443  
Other current liabilities(3,570) 2,060  
Other liabilities(16,485) (13,243) 
Net cash flows from operating activities93,799  104,684  
Cash Flows From Investing Activities:
Additions to utility plant and non-utility plant(140,208) (141,986) 
Proceeds from sales of investment securities149,355  74,460  
Purchases of investment securities(152,108) (77,363) 
Investments in NMRD(10,000) (7,000) 
Other, net122 ��(13) 
Net cash flows from investing activities(152,839) (151,902) 
 Three Months Ended March 31,
 2019 2018
 (In thousands)
Cash Flows From Operating Activities:   
Net earnings$21,662
 $18,799
Adjustments to reconcile net earnings to net cash flows from operating activities:   
Depreciation and amortization73,946
 67,748
Deferred income tax expense1,122
 767
(Gains) on investment securities(14,014) (288)
Stock based compensation expense3,257
 2,894
Regulatory disallowances and restructuring costs1,345
 
Allowance for equity funds used during construction(2,049) (2,487)
Other, net444
 729
Changes in certain assets and liabilities:   
Accounts receivable and unbilled revenues15,842
 18,215
Materials, supplies, and fuel stock3,826
 (2,976)
Other current assets(1,778) 2,345
Other assets13,463
 (443)
Accounts payable(7,642) (26,953)
Accrued interest and taxes6,443
 13,370
Other current liabilities2,060
 (9,397)
Other liabilities(13,243) (3,397)
Net cash flows from operating activities104,684
 78,926
    
Cash Flows From Investing Activities:   
Additions to utility plant(141,986) (117,691)
Proceeds from sales of investment securities74,460
 626,729
Purchases of investment securities(77,363) (628,999)
Principal repayments on Westmoreland Loan
 5,649
Investments in NMRD(7,000) (5,000)
Other, net(13) 128
Net cash flows from investing activities(151,902) (119,184)


The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.

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PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


Three Months Ended March 31,
20202019
(In thousands)
Cash Flows From Financing Activities:
Revolving credit facilities borrowings (repayments), net115,500  (12,100) 
Long-term borrowings—  475,000  
Repayment of long-term debt—  (200,000) 
Proceeds from stock option exercise24  930  
Awards of common stock(11,498) (8,936) 
Dividends paid(24,625) (23,232) 
Valencia’s transactions with its owner(6,434) (4,263) 
Transmission interconnection and security deposit arrangements
370  —  
Refunds paid under transmission interconnection arrangements(1,744) —  
Debt issuance costs and other, net(137) (2,215) 
Net cash flows from financing activities71,456  225,184  
Change in Cash, Restricted Cash, and Equivalents12,416  177,966  
Cash, Restricted Cash, and Equivalents at Beginning of Period3,833  2,122  
Cash, Restricted Cash, and Equivalents at End of Period$16,249  $180,088  
Supplemental Cash Flow Disclosures:
Interest paid, net of amounts capitalized$26,658  $20,518  
Income taxes paid (refunded), net$(131) $(235) 
Supplemental schedule of noncash investing activities:
(Increase) decrease in accrued plant additions$6,699  $26,636  
 Three Months Ended March 31,
 2019 2018
 (In thousands)
Cash Flows From Financing Activities:   
Revolving credit facilities borrowings (repayments), net(12,100) (66,700)
Long-term borrowings475,000
 299,652
Repayment of long-term debt(200,000) (155,026)
Proceeds from stock option exercise930
 802
Awards of common stock(8,936) (10,845)
Dividends paid(23,232) (21,240)
Valencia’s transactions with its owner(4,263) (4,472)
Debt issuance costs and other, net(2,215) (2,104)
Net cash flows from financing activities225,184
 40,067
    
Change in Cash, Restricted Cash, and Equivalents177,966
 (191)
Cash, Restricted Cash, and Equivalents at Beginning of Period2,122
 3,974
Cash, Restricted Cash, and Equivalents at End of Period$180,088
 $3,783
    
Supplemental Cash Flow Disclosures:   
Interest paid, net of amounts capitalized$20,518
 $15,305
Income taxes paid (refunded), net$(235) $(8)
    
Supplemental schedule of noncash investing activities:   
(Increase) decrease in accrued plant additions$26,636
 $16,003


The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.



11


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PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31,
2020
December 31,
2019
(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents$16,249  $3,833  
Accounts receivable, net of allowance for credit losses of $1,414 and $1,16383,089  85,889  
Unbilled revenues45,379  57,416  
Other receivables13,954  12,165  
Materials, supplies, and fuel stock74,124  77,929  
Regulatory assets7,355  7,373  
Income taxes receivable4,856  4,933  
Other current assets42,956  44,472  
Total current assets287,962  294,010  
Other Property and Investments:
Investment securities353,268  388,832  
Equity investment in NMRD75,203  65,159  
Other investments234  356  
Non-utility property, net16,177  12,459  
Total other property and investments444,882  466,806  
Utility Plant:
Plant in service, held for future use, and to be abandoned7,957,079  7,918,601  
Less accumulated depreciation and amortization2,755,566  2,713,503  
5,201,513  5,205,098  
Construction work in progress240,002  161,106  
Nuclear fuel, net of accumulated amortization of $48,278 and $42,354102,768  99,805  
Net utility plant5,544,283  5,466,009  
Deferred Charges and Other Assets:
Regulatory assets590,330  556,930  
Goodwill278,297  278,297  
Operating lease right-of-use assets, net of accumulated amortization124,717  131,212  
Other deferred charges104,648  105,510  
Total deferred charges and other assets1,097,992  1,071,949  
$7,375,119  $7,298,774  
 March 31,
2019
 December 31,
2018
 (In thousands)
ASSETS   
Current Assets:   
Cash and cash equivalents$180,088
 $2,122
Accounts receivable, net of allowance for uncollectible accounts of $1,151 and $1,40694,624
 92,800
Unbilled revenues39,011
 57,092
Other receivables13,849
 11,369
Materials, supplies, and fuel stock68,008
 71,834
Regulatory assets
 4,534
Income taxes receivable7,630
 7,965
Other current assets53,863
 54,808
Total current assets457,073
 302,524
Other Property and Investments:   
Investment securities351,563
 328,242
Equity investment in NMRD33,528
 26,564
Other investments299
 297
Non-utility property, net6,229
 3,404
Total other property and investments391,619
 358,507
Utility Plant:   
Plant in service and held for future use7,610,093
 7,548,581
Less accumulated depreciation and amortization2,641,320
 2,604,177
 4,968,773
 4,944,404
Construction work in progress225,485
 194,427
Nuclear fuel, net of accumulated amortization of $48,675 and $42,51195,713
 95,798
Net utility plant5,289,971
 5,234,629
Deferred Charges and Other Assets:   
Regulatory assets588,266
 598,930
Goodwill278,297
 278,297
Operating lease right-of-use assets, net of accumulated amortization150,426
 
Other deferred charges95,106
 92,664
Total deferred charges and other assets1,112,095
 969,891
 $7,250,758
 $6,865,551


The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.



12


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PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31,
2020
December 31,
2019
(In thousands, except share information)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term debt$300,600  $185,100  
Current installments of long-term debt539,555  490,268  
Accounts payable95,194  103,118  
Customer deposits10,470  10,585  
Accrued interest and taxes65,908  76,815  
Regulatory liabilities2,916  505  
Operating lease liabilities29,693  29,068  
Dividends declared24,625  24,625  
Other current liabilities45,959  47,397  
Total current liabilities1,114,920  967,481  
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs2,468,720  2,517,449  
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes630,844  626,058  
Regulatory liabilities867,803  866,243  
Asset retirement obligations184,951  181,962  
Accrued pension liability and postretirement benefit cost91,146  95,037  
Operating lease liabilities95,573  105,512  
Other deferred credits222,064  185,753  
Total deferred credits and other liabilities2,092,381  2,060,565  
Total liabilities5,676,021  5,545,495  
Commitments and Contingencies (Note 11)
Cumulative Preferred Stock of Subsidiary
without mandatory redemption requirements ($100 stated value; 10,000,000 shares authorized; issued and outstanding 115,293 shares)11,529  11,529  
Equity:
PNMR common stockholders’ equity:
Common stock (0 par value; 120,000,000 shares authorized; issued and outstanding 79,653,624 shares)1,142,879  1,150,552  
Accumulated other comprehensive income (loss), net of income taxes(103,427) (99,377) 
Retained earnings587,770  627,523  
Total PNMR common stockholders’ equity1,627,222  1,678,698  
Non-controlling interest in Valencia60,347  63,052  
Total equity1,687,569  1,741,750  
$7,375,119  $7,298,774  
 March 31,
2019
 December 31,
2018
 (In thousands, except share information)
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current Liabilities:   
Short-term debt$223,800
 $235,900
Current installments of long-term debt172,302
 
Accounts payable77,893
 112,170
Customer deposits10,749
 10,695
Accrued interest and taxes71,264
 65,156
Regulatory liabilities19,245
 9,446
Operating lease liabilities26,197
 
Dividends declared23,231
 23,231
Other current liabilities39,452
 55,855
Total current liabilities664,133
 512,453
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs2,771,939
 2,670,111
Deferred Credits and Other Liabilities:   
Accumulated deferred income taxes613,989
 600,719
Regulatory liabilities889,342
 891,428
Asset retirement obligations161,685
 158,674
Accrued pension liability and postretirement benefit cost96,374
 100,375
Operating lease liabilities124,937
 
Other deferred credits169,372
 167,668
Total deferred credits and other liabilities2,055,699
 1,918,864
Total liabilities5,491,771
 5,101,428
Commitments and Contingencies (Note 11)

 

Cumulative Preferred Stock of Subsidiary   
without mandatory redemption requirements ($100 stated value; 10,000,000 shares authorized; issued and outstanding 115,293 shares)11,529
 11,529
Equity:   
PNMR common stockholders' equity:   
Common stock (no par value; 120,000,000 shares authorized; issued and outstanding 79,653,624 shares)1,148,364
 1,153,113
Accumulated other comprehensive income (loss), net of income taxes(103,239) (108,684)
Retained earnings639,554
 643,953
Total PNMR common stockholders’ equity1,684,679
 1,688,382
Non-controlling interest in Valencia62,779
 64,212
Total equity1,747,458
 1,752,594
 $7,250,758
 $6,865,551
    


The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.



13

Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN EQUITY
(Unaudited)

Attributable to PNMRNon-
controlling
Interest
in Valencia
Common
Stock
AOCIRetained
Earnings
Total PNMR Common Stockholders’ EquityTotal
Equity
(In thousands)
Balance at December 31, 2019$1,150,552  $(99,377) $627,523  $1,678,698  $63,052  $1,741,750  
Net earnings (loss) before subsidiary preferred stock dividends—  —  (15,128) (15,128) 3,729  (11,399) 
Total other comprehensive income (loss)—  (4,050) —  (4,050) —  (4,050) 
Subsidiary preferred stock dividends—  —  (132) (132) —  (132) 
Dividends declared on common stock—  —  (24,493) (24,493) —  (24,493) 
Proceeds from stock option exercise24  —  —  24  —  24  
Awards of common stock(11,498) —  —  (11,498) —  (11,498) 
Stock based compensation expense3,801  —  —  3,801  —  3,801  
Valencia’s transactions with its owner—  —  —  —  (6,434) (6,434) 
Balance at March 31, 2020$1,142,879  $(103,427) $587,770  $1,627,222  $60,347  $1,687,569  

 Attributable to PNMR 
Non-
controlling
Interest
in Valencia
  
 
Common
Stock
 AOCI 
Retained
Earnings
 Total PNMR Common Stockholders’ Equity  
Total
Equity
 (In thousands)
Balance at December 31, 2018$1,153,113
 $(108,684) $643,953
 $1,688,382
 $64,212
 $1,752,594
Net earnings before subsidiary preferred stock dividends
 
 18,832
 18,832
 2,830
 21,662
Total other comprehensive income
 5,445
 
 5,445
 
 5,445
Subsidiary preferred stock dividends
 
 (132) (132) 
 (132)
Dividends declared on common stock
 
 (23,099) (23,099) 
 (23,099)
Proceeds from stock option exercise930
 
 
 930
 
 930
Awards of common stock(8,936) 
 
 (8,936) 
 (8,936)
Stock based compensation expense3,257
 
 
 3,257
 
 3,257
Valencia’s transactions with its owner
 
 
 
 (4,263) (4,263)
Balance at March 31, 2019$1,148,364
 $(103,239) $639,554
 $1,684,679
 $62,779
 $1,747,458


Balance at December 31, 2018$1,153,113  $(108,684) $643,953  $1,688,382  $64,212  $1,752,594  
Net earnings before subsidiary preferred stock dividends—  —  18,832  18,832  2,830  21,662  
Total other comprehensive income—  5,445  —  5,445  —  5,445  
Subsidiary preferred stock dividends—  —  (132) (132) —  (132) 
Dividends declared on common stock—  —  (23,099) (23,099) —  (23,099) 
Proceeds from stock option exercise930  —  —  930  —  930  
Awards of common stock(8,936) —  —  (8,936) —  (8,936) 
Stock based compensation expense3,257  —  —  3,257  —  3,257  
Valencia’s transactions with its owner—  —  —  —  (4,263) (4,263) 
Balance at March 31, 2019$1,148,364  $(103,239) $639,554  $1,684,679  $62,779  $1,747,458  
Balance at December 31, 2017, as originally reported$1,157,665
 $(95,940) $633,528
 $1,695,253
 $66,195
 $1,761,448
Cumulative effect adjustment (Note 7)
 (11,208) 11,208
 
 
 
Balance at January 1, 2018, as adjusted1,157,665
 (107,148) 644,736
 1,695,253
 66,195
 1,761,448
Net earnings before subsidiary preferred stock dividends
 
 15,122
 15,122
 3,677
 18,799
Total other comprehensive income
 1,628
 
 1,628
 
 1,628
Subsidiary preferred stock dividends
 
 (132) (132) 
 (132)
Dividends declared on common stock
 
 (21,108) (21,108) 
 (21,108)
Proceeds from stock option exercise802
 
 
 802
 
 802
Awards of common stock(10,845) 
 
 (10,845) 
 (10,845)
Stock based compensation expense2,894
 
 
 2,894
 
 2,894
Valencia’s transactions with its owner
 
 
 
 (4,472) (4,472)
Balance at March 31, 2018$1,150,516
 $(105,520) $638,618
 $1,683,614
 $65,400
 $1,749,014




The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.

14


Table of Contents


PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(Unaudited)


Three Months Ended March 31,
20202019
(In thousands)
Electric Operating Revenues:
Contracts with customers$235,759  $235,941  
Alternative revenue programs2,161  66  
Other electric operating revenue10,213  33,311  
Total electric operating revenues248,133  269,318  
Operating Expenses:
Cost of energy74,524  99,339  
Administrative and general41,668  47,402  
Energy production costs33,618  35,072  
Regulatory disallowances and restructuring costs—  1,345  
Depreciation and amortization41,449  39,224  
Transmission and distribution costs10,915  10,633  
Taxes other than income taxes12,354  12,010  
Total operating expenses214,528  245,025  
Operating income33,605  24,293  
Other Income and Deductions:
Interest income3,496  3,656  
Gains (losses) on investment securities(32,849) 14,014  
Other income1,509  2,632  
Other (deductions)(2,687) (2,288) 
Net other income and deductions(30,531) 18,014  
Interest Charges17,629  18,360  
Earnings (Loss) before Income Taxes(14,555) 23,947  
Income Taxes (Benefits)(2,359) 1,973  
Net Earnings (Loss)(12,196) 21,974  
(Earnings) Attributable to Valencia Non-controlling Interest(3,729) (2,830) 
Net Earnings (Loss) Attributable to PNM(15,925) 19,144  
Preferred Stock Dividends Requirements(132) (132) 
Net Earnings (Loss) Available for PNM Common Stock$(16,057) $19,012  
 Three Months Ended March 31,
 2019 2018
 (In thousands)
Electric Operating Revenues: 
   
Contracts with customers$235,941
 $222,564
Alternative revenue programs66
 65
Other electric operating revenue33,311
 13,603
Total electric operating revenues269,318
 236,232
Operating Expenses:   
Cost of energy99,339
 70,802
Administrative and general47,402
 43,726
Energy production costs35,072
 35,350
Regulatory disallowances and restructuring costs1,345
 
Depreciation and amortization39,224
 36,627
Transmission and distribution costs10,633
 9,827
Taxes other than income taxes12,010
 11,608
Total operating expenses245,025
 207,940
Operating income24,293
 28,292
Other Income and Deductions:   
Interest income3,656
 2,487
Gains on investment securities14,014
 288
Other income2,632
 2,391
Other (deductions)(2,288) (1,462)
Net other income and deductions18,014
 3,704
Interest Charges18,360
 20,830
Earnings before Income Taxes23,947
 11,166
Income Taxes1,973
 (348)
Net Earnings21,974
 11,514
(Earnings) Attributable to Valencia Non-controlling Interest(2,830) (3,677)
Net Earnings Attributable to PNM19,144
 7,837
Preferred Stock Dividends Requirements(132) (132)
Net Earnings Available for PNM Common Stock$19,012
 $7,705


The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.



15

Table of Contents
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended March 31,
20202019
(In thousands)
Net Earnings (Loss)$(12,196) $21,974  
Other Comprehensive Income:
Unrealized Gains on Available-for-Sale Debt Securities:
Net change in unrealized holding gains arising during the period, net of income tax (expense) benefit of $1,088 and $(1,798)(3,195) 5,280  
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $301 and $172(884) (504) 
Pension Liability Adjustment:
Reclassification adjustment for amortization of experience (gains) losses recognized as net periodic benefit cost, net of income tax expense (benefit) of $(527), and $(470)1,548  1,381  
Total Other Comprehensive Income (Loss)(2,531) 6,157  
Comprehensive Income (Loss)(14,727) 28,131  
Comprehensive (Income) Attributable to Valencia Non-controlling Interest(3,729) (2,830) 
Comprehensive Income (Loss) Attributable to PNM$(18,456) $25,301  
 Three Months Ended March 31,
 2019 2018
 (In thousands)
Net Earnings$21,974
 $11,514
Other Comprehensive Income:   
Unrealized Gains on Available-for-Sale Securities:
   
Unrealized holding gains arising during the period, net of income tax (expense) of $(1,798) and $(283)5,280
 832
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $172 and $668(504) (1,961)
Pension Liability Adjustment:   
Reclassification adjustment for amortization of experience (gains) losses recognized as net periodic benefit cost, net of income tax expense (benefit) of $(470) and $(480)1,381
 1,411
Total Other Comprehensive Income6,157
 282
Comprehensive Income28,131
 11,796
Comprehensive (Income) Attributable to Valencia Non-controlling Interest(2,830) (3,677)
Comprehensive Income Attributable to PNM$25,301
 $8,119


The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.



16


Table of Contents


PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
20202019
(In thousands)
Cash Flows From Operating Activities:
Net earnings (loss)$(12,196) $21,974  
Adjustments to reconcile net earnings (loss) to net cash flows from operating activities:
Depreciation and amortization49,422  47,218  
Deferred income tax expense (benefit)(2,141) 2,063  
(Gains) losses on investment securities32,849  (14,014) 
Regulatory disallowances and restructuring costs—  1,345  
Allowance for equity funds used during construction(1,044) (1,807) 
Other, net811  432  
Changes in certain assets and liabilities:
Accounts receivable and unbilled revenues11,927  15,212  
Materials, supplies, and fuel stock4,340  3,671  
Other current assets(393) (4,098) 
Other assets4,612  10,399  
Accounts payable(260) (8,257) 
Accrued interest and taxes5,917  14,764  
Other current liabilities746  32,683  
Other liabilities(12,588) (13,524) 
Net cash flows from operating activities82,002  108,061  
Cash Flows From Investing Activities:
Utility plant additions(70,586) (75,876) 
Proceeds from sales of investment securities149,355  74,460  
Purchases of investment securities(152,108) (77,363) 
Other, net122  (48) 
Net cash flows from investing activities(73,217) (78,827) 
 Three Months Ended March 31,
 2019 2018
 (In thousands)
Cash Flows From Operating Activities:   
Net earnings$21,974
 $11,514
Adjustments to reconcile net earnings to net cash flows from operating activities:   
Depreciation and amortization47,218
 45,165
Deferred income tax expense2,063
 (253)
(Gains) on investment securities(14,014) (288)
Regulatory disallowances and restructuring costs1,345
 
Allowance for equity funds used during construction(1,807) (2,031)
Other, net432
 729
Changes in certain assets and liabilities:   
Accounts receivable and unbilled revenues15,212
 15,100
Materials, supplies, and fuel stock3,671
 (2,247)
Other current assets(4,098) (248)
Other assets10,399
 3,999
Accounts payable(8,257) (18,014)
Accrued interest and taxes14,764
 17,984
Other current liabilities32,683
 (13,868)
Other liabilities(13,524) (4,381)
Net cash flows from operating activities108,061
 53,161
    
Cash Flows From Investing Activities:   
Additions to utility plant(75,876) (61,720)
Proceeds from sales of investment securities74,460
 626,729
Purchases of investment securities(77,363) (628,999)
Other, net(48) 128
Net cash flows from investing activities(78,827) (63,862)


The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.



17


Table of Contents


PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


Three Months Ended March 31,
20202019
(In thousands)
Cash Flows From Financing Activities:
Revolving credit facilities borrowings (repayments), net2,000  (42,400) 
Short-term borrowings (repayments) – affiliate, net—  (19,800) 
Long-term borrowings—  250,000  
Repayment of long-term debt—  (200,000) 
Dividends paid(132) (132) 
Valencia’s transactions with its owner(6,434) (4,263) 
Transmission interconnection and security deposit arrangements370  —  
Refunds paid under transmission interconnection arrangements(1,744) —  
Debt issuance costs and other, net(81) (635) 
Net cash flows from financing activities(6,021) (17,230) 
Change in Cash, Restricted Cash, and Equivalents2,764  12,004  
Cash, Restricted Cash, and Equivalents at Beginning of Period1,001  85  
Cash, Restricted Cash, and Equivalents at End of Period$3,765  $12,089  
Supplemental Cash Flow Disclosures:
Interest paid, net of amounts capitalized$9,397  $9,070  
Income taxes paid (refunded), net$—  $—  
Supplemental schedule of noncash investing activities:
(Increase) decrease in accrued plant additions$(2,366) $11,407  
 Three Months Ended March 31,
 2019 2018
 (In thousands)
Cash Flows From Financing Activities:   
Revolving credit facilities borrowings (repayments), net(42,400) (39,800)
Short-term borrowings (repayments) – affiliate, net(19,800) 54,600
Long-term borrowings250,000
 
Repayment of long-term debt(200,000) 
Dividends paid(132) (132)
Valencia’s transactions with its owner(4,263) (4,472)
Debt issuance costs and other, net(635) (584)
Net cash flows from financing activities(17,230) 9,612
    
Change in Cash, Restricted Cash, and Equivalents12,004
 (1,089)
Cash, Restricted Cash, and Equivalents at Beginning of Period85
 1,108
Cash, Restricted Cash, and Equivalents at End of Period$12,089
 $19
    
Supplemental Cash Flow Disclosures:   
Interest paid, net of amounts capitalized$9,070
 $9,560
Income taxes paid (refunded), net$
 $
    
Supplemental schedule of noncash investing activities:   
(Increase) decrease in accrued plant additions$11,407
 $2,682


The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.



18


Table of Contents


PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31,
2020
December 31,
2019
(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents$3,765  $1,001  
Accounts receivable, net of allowance for credit losses of $1,414 and $1,16358,360  60,447  
Unbilled revenues35,951  46,602  
Other receivables13,001  11,039  
Affiliate receivables8,819  8,825  
Materials, supplies, and fuel stock67,886  72,225  
Regulatory assets7,331  7,373  
Income taxes receivable15,340  15,122  
Other current assets35,302  36,561  
Total current assets245,755  259,195  
Other Property and Investments:
Investment securities353,268  388,832  
Other investments56  178  
Non-utility property, net5,687  4,470  
Total other property and investments359,011  393,480  
Utility Plant:
Plant in service, held for future use, and to be abandoned5,767,449  5,753,267  
Less accumulated depreciation and amortization2,103,398  2,076,291  
3,664,051  3,676,976  
Construction work in progress152,488  108,787  
Nuclear fuel, net of accumulated amortization of $48,278 and $42,354102,768  99,805  
Net utility plant3,919,307  3,885,568  
Deferred Charges and Other Assets:
Regulatory assets474,152  435,467  
Goodwill51,632  51,632  
Operating lease right-of-use assets, net of accumulated amortization114,829  120,585  
Other deferred charges95,842  97,064  
Total deferred charges and other assets736,455  704,748  
$5,260,528  $5,242,991  
 March 31,
2019
 December 31,
2018
 (In thousands)
ASSETS   
Current Assets:   
Cash and cash equivalents$12,089
 $85
Accounts receivable, net of allowance for uncollectible accounts of $1,151 and $1,40668,724
 68,603
Unbilled revenues31,366
 47,113
Other receivables14,370
 10,650
Affiliate receivables8,854
 15,871
Materials, supplies, and fuel stock63,426
 67,097
Regulatory assets
 4,534
Income taxes receivable12,940
 12,850
Other current assets43,650
 43,516
Total current assets255,419
 270,319
Other Property and Investments:   
Investment securities351,563
 328,242
Other investments93
 91
Non-utility property, net1,693
 96
Total other property and investments353,349
 328,429
Utility Plant:   
Plant in service and held for future use5,664,174
 5,623,520
Less accumulated depreciation and amortization2,033,511
 2,006,266
 3,630,663
 3,617,254
Construction work in progress143,673
 134,221
Nuclear fuel, net of accumulated amortization of $48,675 and $42,51195,713
 95,798
Net utility plant3,870,049
 3,847,273
Deferred Charges and Other Assets:   
Regulatory assets454,987
 460,903
Goodwill51,632
 51,632
Operating lease right-of-use assets, net of accumulated amortization137,756
 
Other deferred charges78,847
 77,327
Total deferred charges and other assets723,222
 589,862
 $5,202,039
 $5,035,883
    


The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.



19


Table of Contents


PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31,
2020
December 31,
2019
(In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities:
Short-term debt$60,000  $58,000  
Current installments of long-term debt100,308  350,268  
Accounts payable68,852  66,746  
Affiliate payables10,202  12,524  
Customer deposits10,470  10,585  
Accrued interest and taxes49,753  43,617  
Regulatory liabilities2,451  371  
Operating lease liabilities26,727  25,927  
Dividends declared40,785  132  
Other current liabilities26,776  25,066  
Total current liabilities396,324  593,236  
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs1,648,093  1,397,752  
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes525,590  521,990  
Regulatory liabilities679,743  683,398  
Asset retirement obligations184,052  181,081  
Accrued pension liability and postretirement benefit cost84,293  87,838  
Operating lease liabilities88,686  97,992  
Other deferred credits191,734  155,744  
Total deferred credits and liabilities1,754,098  1,728,043  
Total liabilities3,798,515  3,719,031  
Commitments and Contingencies (Note 11)
Cumulative Preferred Stock
without mandatory redemption requirements ($100 stated value; 10,000,000 shares authorized; issued and outstanding 115,293 shares)11,529  11,529  
Equity:
PNM common stockholder’s equity:
Common stock (0 par value; 40,000,000 shares authorized; issued and outstanding 39,117,799 shares)1,264,918  1,264,918  
Accumulated other comprehensive income (loss), net of income taxes(101,586) (99,055) 
Retained earnings226,805  283,516  
Total PNM common stockholder’s equity1,390,137  1,449,379  
Non-controlling interest in Valencia60,347  63,052  
Total equity1,450,484  1,512,431  
$5,260,528  $5,242,991  
 March 31,
2019
 December 31,
2018
 (In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY   
Current Liabilities:   
Short-term debt$
 $42,400
Short-term debt - affiliate
 19,800
Accounts payable55,449
 75,114
Affiliate payables12,627
 164
Customer deposits10,749
 10,695
Accrued interest and taxes50,621
 35,767
Regulatory liabilities16,895
 5,975
Operating lease liabilities22,762
 
Dividends declared132
 132
Other current liabilities26,432
 32,976
Total current liabilities195,667
 223,023
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs1,706,873
 1,656,490
Deferred Credits and Other Liabilities:   
Accumulated deferred income taxes513,783
 502,767
Regulatory liabilities708,295
 713,971
Asset retirement obligations160,807
 157,814
Accrued pension liability and postretirement benefit cost89,338
 92,981
Operating lease liabilities115,436
 
Other deferred credits215,004
 215,737
Total deferred credits and liabilities1,802,663
 1,683,270
Total liabilities3,705,203
 3,562,783
Commitments and Contingencies (Note 11)

 

Cumulative Preferred Stock   
without mandatory redemption requirements ($100 stated value; 10,000,000 shares authorized; issued and outstanding 115,293 shares)11,529
 11,529
Equity:   
PNM common stockholder’s equity:   
Common stock (no par value; 40,000,000 shares authorized; issued and outstanding 39,117,799 shares)1,264,918
 1,264,918
Accumulated other comprehensive income (loss), net of income taxes(104,265) (110,422)
Retained earnings261,875
 242,863
Total PNM common stockholder’s equity1,422,528
 1,397,359
Non-controlling interest in Valencia62,779
 64,212
Total equity1,485,307
 1,461,571
 $5,202,039
 $5,035,883


The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.

20

Table of Contents
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN EQUITY
(Unaudited)
Attributable to PNM
Total PNM
Common
Stockholder’s
Equity
Non-
controlling
Interest in Valencia
Common
Stock
AOCIRetained
Earnings
Total
Equity
(In thousands)
Balance at December 31, 2019$1,264,918  $(99,055) $283,516  $1,449,379  $63,052  $1,512,431  
Net earnings (loss)—  —  (15,925) (15,925) 3,729  (12,196) 
Total other comprehensive income (loss)—  (2,531) —  (2,531) —  (2,531) 
Dividends declared on preferred stock—  —  (132) (132) —  (132) 
Dividends declared on common stock—  —  (40,654) (40,654) —  (40,654) 
Valencia’s transactions with its owner—  —  —  —  (6,434) (6,434) 
Balance at March 31, 2020$1,264,918  $(101,586) $226,805  $1,390,137  $60,347  $1,450,484  
 Attributable to PNM    
     
Total PNM
Common
Stockholder’s
Equity
 
Non-
controlling
 Interest in Valencia
  
        
 
Common
Stock
 AOCI 
Retained
Earnings
   
Total
Equity
      
 (In thousands)
Balance at December 31, 2018$1,264,918
 $(110,422) $242,863
 $1,397,359
 $64,212
 $1,461,571
Net earnings
 
 19,144
 19,144
 2,830
 21,974
Total other comprehensive income
 6,157
 
 6,157
 
 6,157
Dividends declared on preferred stock
 
 (132) (132) 
 (132)
Valencia’s transactions with its owner
 
 
 
 (4,263) (4,263)
Balance at March 31, 2019$1,264,918
 $(104,265) $261,875
 $1,422,528
 $62,779
 $1,485,307


Balance at December 31, 2018$1,264,918  $(110,422) $242,863  $1,397,359  $64,212  $1,461,571  
Net earnings—  —  19,144  19,144  2,830  21,974  
Total other comprehensive income—  6,157  —  6,157  —  6,157  
Dividends declared on preferred stock—  —  (132) (132) —  (132) 
Valencia’s transactions with its owner—  —  —  —  (4,263) (4,263) 
Balance at March 31, 2019$1,264,918  $(104,265) $261,875  $1,422,528  $62,779  $1,485,307  

Balance at December 31, 2017, as originally reported$1,264,918
 $(97,093) $254,349
 $1,422,174
 $66,195
 $1,488,369
Cumulative effect adjustment (Note 7)
 (11,208) 11,208
 
 
 
Balance at January 1, 2018, as adjusted1,264,918
 (108,301) 265,557
 1,422,174
 66,195
 1,488,369
Net earnings
 
 7,837
 7,837
 3,677
 11,514
Total other comprehensive income
 282
 
 282
 
 282
Dividends declared on preferred stock
 
 (132) (132) 
 (132)
Valencia’s transactions with its owner
 
 
 
 (4,472) (4,472)
Balance at March 31, 2018$1,264,918
 $(108,019) $273,262
 $1,430,161
 $65,400
 $1,495,561



The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.

21

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended March 31,
20202019
(In thousands)
Electric Operating Revenues:
Contracts with customers$87,224  $79,757  
Alternative revenue programs(1,735) 570  
Total electric operating revenues85,489  80,327  
Operating Expenses:
Cost of energy24,186  22,287  
Administrative and general10,773  11,558  
Depreciation and amortization21,836  20,214  
Transmission and distribution costs6,371  6,045  
Taxes other than income taxes7,978  7,638  
Total operating expenses71,144  67,742  
Operating income14,345  12,585  
Other Income and Deductions:
Other income670  748  
Other (deductions)(109) (163) 
Net other income and deductions561  585  
Interest Charges7,172  8,800  
Earnings before Income Taxes7,734  4,370  
Income Taxes642  272  
Net Earnings$7,092  $4,098  
 Three Months Ended March 31,
 2019 2018
 (In thousands)
Electric Operating Revenues: 
   
Contracts with customers$79,757
 $80,787
Alternative revenue programs570
 859
Total Electric Operating Revenues 
80,327
 81,646
Operating Expenses:   
Cost of energy22,287
 21,754
Administrative and general11,558
 10,709
Depreciation and amortization20,214
 16,387
Transmission and distribution costs6,045
 7,128
Taxes other than income taxes7,638
 7,136
Total operating expenses67,742
 63,114
Operating income12,585
 18,532
Other Income and Deductions:   
Interest income31
 
Other income717
 754
Other (deductions)(163) 331
Net other income and deductions585
 1,085
Interest Charges8,800
 7,729
Earnings before Income Taxes4,370
 11,888
Income Taxes272
 2,475
Net Earnings$4,098
 $9,413


The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.





22


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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
20202019
(In thousands)
Cash Flows From Operating Activities:
Net earnings$7,092  $4,098  
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization22,117  20,514  
Deferred income tax expense (benefit)(2,090) (4,343) 
Other, net(141) (231) 
Changes in certain assets and liabilities:
Accounts receivable and unbilled revenues2,099  630  
Materials and supplies(534) 155  
Other current assets939  581  
Other assets2,310  2,712  
Accounts payable(1,828) 1,075  
Accrued interest and taxes(11,376) (990) 
Other current liabilities(2,681) 3,190  
Other liabilities(700) (1,536) 
Net cash flows from operating activities15,207  25,855  
Cash Flows From Investing Activities:
Utility plant additions(60,419) (58,624) 
Net cash flows from investing activities(60,419) (58,624) 
Cash Flows From Financing Activities:
Revolving credit facilities borrowings (repayments), net55,000  (17,500) 
Short-term borrowings (repayments) – affiliate, net—  (100) 
Long-term borrowings—  225,000  
Dividends paid—  (10,713) 
Debt issuance costs and other, net(53) (1,561) 
Net cash flows from financing activities54,947  195,126  
Change in Cash and Cash Equivalents9,735  162,357  
Cash and Cash Equivalents at Beginning of Period1,000  —  
Cash and Cash Equivalents at End of Period$10,735  $162,357  
Supplemental Cash Flow Disclosures:
Interest paid, net of amounts capitalized$9,452  $3,829  
Income taxes paid (refunded), net$(131) $(235) 
Supplemental schedule of noncash investing activities:
(Increase) decrease in accrued plant additions$2,839  $10,646  
 Three Months Ended March 31,
 2019 2018
 (In thousands)
Cash Flows From Operating Activities:   
Net earnings$4,098
 $9,413
Adjustments to reconcile net earnings to net cash flows from operating activities:   
Depreciation and amortization20,514
 16,836
Deferred income tax expense (benefit)(4,343) (953)
Allowance for equity funds used during construction and other, net(231) (456)
Changes in certain assets and liabilities:   
Accounts receivable and unbilled revenues630
 3,115
Materials and supplies155
 (729)
Other current assets581
 331
Other assets2,712
 (3,055)
Accounts payable1,075
 (4,400)
Accrued interest and taxes(990) (1,952)
Other current liabilities3,190
 5,874
Other liabilities(1,536) 1,456
Net cash flows from operating activities25,855
 25,480
Cash Flows From Investing Activities:   
Additions to utility plant(58,624) (49,956)
Net cash flows from investing activities(58,624) (49,956)
Cash Flow From Financing Activities:   
Revolving credit facilities borrowings (repayments), net(17,500) 21,200
Short-term borrowings (repayments) – affiliate, net(100) 2,600
Long-term borrowings225,000
 
Dividends paid(10,713) (1,024)
Debt issuance costs and other, net(1,561) 
Net cash flows from financing activities195,126
 22,776
    
Change in Cash and Cash Equivalents162,357
 (1,700)
Cash and Cash Equivalents at Beginning of Period
 1700
Cash and Cash Equivalents at End of Period$162,357
 $
    
Supplemental Cash Flow Disclosures:   
Interest paid, net of amounts capitalized$3,829
 $1,830
Income taxes paid (refunded), net$(235) $(8)
    
Supplemental schedule of noncash investing activities:   
(Increase) decrease in accrued plant additions$10,646
 $9,868


The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.

23




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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31,
2020
December 31,
2019
(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents$10,735  $1,000  
Accounts receivable24,729  25,442  
Unbilled revenues9,428  10,814  
Other receivables2,553  2,713  
Affiliate receivables846  —  
Materials and supplies6,238  5,704  
Regulatory assets24  —  
Other current assets564  1,280  
Total current assets55,117  46,953  
Other Property and Investments:
Other investments178  178  
Non-utility property, net9,196  6,684  
Total other property and investments9,374  6,862  
Utility Plant:
Plant in service and plant held for future use1,939,935  1,919,256  
Less accumulated depreciation and amortization526,060  516,795  
1,413,875  1,402,461  
Construction work in progress78,390  42,554  
Net utility plant1,492,265  1,445,015  
Deferred Charges and Other Assets:
Regulatory assets116,178  121,463  
Goodwill226,665  226,665  
Operating lease right-of-use assets, net of accumulated amortization9,271  9,954  
Other deferred charges4,400  3,527  
Total deferred charges and other assets356,514  361,609  
$1,913,270  $1,860,439  
 March 31,
2019
 December 31,
2018
 (In thousands)
ASSETS   
Current Assets:   
Cash and cash equivalents$162,357
 $
Accounts receivable25,900
 24,196
Unbilled revenues7,645
 9,979
Other receivables881
 1,721
Affiliate receivables
 164
Materials and supplies4,582
 4,737
Other current assets1,373
 1,114
Total current assets202,738
 41,911
Other Property and Investments:   
Other investments206
 206
Non-utility property, net3,468
 2,240
Total other property and investments3,674
 2,446
Utility Plant:   
Plant in service and plant held for future use1,702,427
 1,686,119
Less accumulated depreciation and amortization491,776
 487,734
 1,210,651
 1,198,385
Construction work in progress75,332
 51,459
Net utility plant1,285,983
 1,249,844
Deferred Charges and Other Assets:   
Regulatory assets133,279
 138,027
Goodwill226,665
 226,665
Operating lease right-of-use assets, net of accumulated amortization12,160
 
Other deferred charges7,281
 6,284
Total deferred charges and other assets379,385
 370,976
 $1,871,780
 $1,665,177


The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.

24


Table of Contents


TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31,
2020
December 31,
2019
(In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities:
Short-term debt$70,000  $15,000  
Accounts payable15,931  20,598  
Affiliate payables3,013  5,419  
Accrued interest and taxes30,692  42,068  
Dividends declared11,347  —  
Regulatory liabilities465  134  
 Operating lease liabilities2,624  2,753  
Other current liabilities6,903  3,565  
Total current liabilities140,975  89,537  
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs670,626  670,691  
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes139,449  140,151  
Regulatory liabilities188,060  182,845  
Asset retirement obligations899  881  
Accrued pension liability and postretirement benefit cost6,853  7,199  
Operating lease liabilities6,459  7,039  
Other deferred credits9,577  7,469  
Total deferred credits and other liabilities351,297  345,584  
Total liabilities1,162,898  1,105,812  
Commitments and Contingencies (Note 11)
Common Stockholder’s Equity:
Common stock ($10 par value; 12,000,000 shares authorized; issued and outstanding 6,358 shares)64  64  
Paid-in-capital614,166  614,166  
Retained earnings136,142  140,397  
Total common stockholder’s equity750,372  754,627  
$1,913,270  $1,860,439  
 March 31,
2019
 December 31,
2018
 (In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY   
Current Liabilities:   
Short-term debt$
 $17,500
Short-term debt – affiliate
 100
Current installments of long-term debt172,302
 
Accounts payable14,234
 23,804
Affiliate payables4,771
 1,210
Accrued interest and taxes40,892
 41,882
Regulatory liabilities2,350
 3,471
 Operating lease liabilities3,023
 
Other current liabilities3,556
 2,861
Total current liabilities241,128
 90,828
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs626,639
 575,398
Deferred Credits and Other Liabilities:   
Accumulated deferred income taxes134,757
 136,238
Regulatory liabilities181,047
 177,458
Asset retirement obligations878
 860
Accrued pension liability and postretirement benefit cost7,036
 7,394
Operating lease liabilities9,088
 
Other deferred credits3,729
 2,908
Total deferred credits and other liabilities336,535
 324,858
Total liabilities1,204,302
 991,084
Commitments and Contingencies (Note 11)

 

Common Stockholder's Equity:   
Common stock ($10 par value; 12,000,000 shares authorized; issued and outstanding 6,358 shares)64
 64
Paid-in-capital534,166
 534,166
Retained earnings133,248
 139,863
Total common stockholder’s equity667,478
 674,093
 $1,871,780
 $1,665,177


The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.



25

Table of Contents
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN COMMON STOCKHOLDER’S EQUITY
(Unaudited)
Common StockPaid-in CapitalRetained EarningsTotal Common Stockholder’s Equity
(In thousands)
Balance at December 31, 2019$64  $614,166  $140,397  $754,627  
Net earnings—  —  7,092  7,092  
Dividends declared on common stock—  —  (11,347) (11,347) 
Balance at March 31, 2020$64  $614,166  $136,142  $750,372  
 Common Stock Paid-in Capital Retained Earnings Total Common Stockholder’s Equity
 (In thousands)
Balance at December 31, 2018$64
 $534,166
 $139,863
 $674,093
Net earnings
 
 4,098
 4,098
Dividends declared on common stock
 
 (10,713) (10,713)
Balance at March 31, 2019$64
 $534,166
 $133,248
 $667,478


Balance at December 31, 2018$64  $534,166  $139,863  $674,093  
Net earnings—  —  4,098  4,098  
Dividends declared on common stock—  —  (10,713) (10,713) 
Balance at March 31, 2019$64  $534,166  $133,248  $667,478  

Balance at December 31, 2017$64
 $504,166
 $130,175
 $634,405
Net earnings
 
 9,413
 9,413
Dividends declared on common stock
 
 (1,024) (1,024)
Balance at March 31, 2018$64
 $504,166
 $138,564
 $642,794



The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.

26


Table of Contents


PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)





(1)    Significant Accounting Policies and Responsibility for Financial Statements
(1)Significant Accounting Policies and Responsibility for Financial Statements


Financial Statement Preparation


In the opinion of management, the accompanying unaudited interim Condensed Consolidated Financial Statements reflect all normal and recurring accruals and adjustments that are necessary to present fairly the consolidated financial position at March 31, 20192020 and December 31, 2018,2019, and the consolidated results of operations, comprehensive income, and cash flows for the three months ended March 31, 20192020 and 2018.2019. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could ultimately differ from those estimated. Weather causes the Company’s results of operations to be seasonal in nature and the results of operations presented in the accompanying Condensed Consolidated Financial Statements are not necessarily representative of operations for an entire year.


The Notes to Condensed Consolidated Financial Statements include disclosures for PNMR, PNM, and TNMP. This report uses the term “Company” when discussing matters of common applicability to PNMR, PNM, and TNMP. Discussions regarding only PNMR, PNM, or TNMP are so indicated. Certain amounts in the 20182019 Condensed Consolidated Financial Statements and Notes thereto have been reclassified to conform to the 20192020 financial statement presentation.


These Condensed Consolidated Financial Statements are unaudited. Certain information and note disclosures normally included in the annual audited Consolidated Financial Statements have been condensed or omitted, as permitted under the applicable rules and regulations. Readers of these financial statements should refer to PNMR’s, PNM’s, and TNMP’s audited Consolidated Financial Statements and Notes thereto that are included in their respective 20182019 Annual Reports on Form 10-K.


GAAP defines subsequent events as events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. Based on their nature, magnitude, and timing, certain subsequent events may be required to be reflected at the balance sheet date and/or required to be disclosed in the financial statements. The Company has evaluated subsequent events as required by GAAP.


Principles of Consolidation

The Condensed Consolidated Financial Statements of each of PNMR, PNM, and TNMP include their accounts and those of subsidiaries in which that entity owns a majority voting interest. PNM also consolidates Valencia (Note 6).Valencia. See Note 6. PNM owns undivided interests in several jointly-owned power plants and records its pro-rata share of the assets, liabilities, and expenses for those plants. The agreements for the jointly-owned plants provide that if an owner were to default on its payment obligations, the non-defaulting owners would be responsible for their proportionate share of the obligations of the defaulting owner. In exchange, the non-defaulting owners would be entitled to their proportionate share of the generating capacity of the defaulting owner. There have been no0 such payment defaults under any of the agreements for the jointly-owned plants.


PNMR shared services’ expenses, which represent costs that are primarily driven by corporate level activities, are charged to the business segments. These services are billed at cost and are reflected as general and administrative expenses in the business segments. Other significant intercompany transactions between PNMR, PNM, and TNMP include interest and income tax sharing payments, as well as equity transactions, and interconnection billings (Note 15).billings. See Note 15. All intercompany transactions and balances have been eliminated.


Dividends on Common Stock


Dividends on PNMR’s common stock are declared by the Board. The timing of the declaration of dividends is dependent on the timing of meetings and other actions of the Board. The Board declared dividends on common stock of $0.29 per share in February 2019 and $0.3075 per share in February 2020, which are reflected as "Dividends Declared per Common Share" on the PNMR Condensed Consolidated Statements of Earnings.


PNM declared cash dividends on its common stock to PNMR of $40.7 million in the three months ended March 31, 2020 that were subsequently paid on April 6, 2020. TNMP declared and paid cash dividends on common stock to PNMR of $10.7 million and $1.0 million in the three months ended March 31, 2019 and 2018.$11.3

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




Investmentmillion in NM Renewable Development, LLC

As discussed in Note 1 of the 2018 Annual Reports on Form 10-K, PNMR Development and AEP OnSite Partners created NMRD in September 2017 to pursue the acquisition, development, and ownership of renewable energy generation projects, primarily in the state of New Mexico. NMRD’s current renewable energy capacity in operation is 33.9 MW. PNMR Development and AEP OnSite Partners each have a 50% ownership interest in NMRD. The investment in NMRD is accounted for using the equity method of accounting because PNMR’s ownership interest results in significant influence, but not control, over NMRD and its operations.

In the three months ended March 31, 20192020 that were subsequently paid on April 1, 2020. TNMP declared and 2018,paid cash dividends on its common stock to PNMR Development made cash contributions of $7.0$10.7 million and $5.0 million to NMRD to be used primarily for its construction activities. Forin the three months ended March 31, 2019 and 2018, NMRD had revenues of $0.7 million and $0.4 million and net earnings (losses) of $(0.1) million and $0.1 million. At March 31, 2019 and December 31, 2018, NMRD had $8.0 million and $2.6 million of current assets, $65.2 million and $50.8 million of property, plant, and equipment and other assets, $6.1 million and $0.2 million of current liabilities, and $67.1 million and $53.2 million of owners’ equity.2019.


New Accounting Pronouncements


Information concerning recently issued accounting pronouncements that have not been adopted by the Company is presented below. The Company does not expect difficulty in adopting these standards by their required effective dates.

Accounting Standards Update 2016-13 Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13, which changes the way entities recognize impairment of many financial assets, including accounts receivable and investments in certain debt securities, by requiring immediate recognition of estimated credit losses expected to occur over the remaining lives of the assets. In November 2018, the FASB clarified that receivables arising from operating leases are not within the scope of Topic 326 for assets measured at amortized costs. Instead, impairments of receivables arising from operating leases should be accounted for in accordance with Topic 842. The Company anticipates adopting ASU 2016-13 as of January 1, 2020, its required effective date. The Company is in the process of analyzing the impacts of this new standard, but does not anticipate it will have a significant impact on its financial statements.

Accounting Standards Update 2017-04 Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04 to simplify the annual goodwill impairment assessment process. Currently, the first step of a quantitative impairment test requires an entity to compare the fair value of each reporting unit containing goodwill with its carrying value (including goodwill). If as a result of this analysis, the entity concludes there is an indication of impairment in a reporting unit having goodwill, the entity is required to perform the second step of the impairment analysis, determining the amount of goodwill impairment to be recorded. The amount is calculated by comparing the implied fair value of the goodwill to its carrying amount. This exercise requires the entity to allocate the fair value determined in step one to the individual assets and liabilities of the reporting unit. Any remaining fair value would be the implied fair value of goodwill on the testing date. To the extent the recorded amount of goodwill of a reporting unit exceeds the implied fair value determined in step two, an impairment loss would be reflected in results of operations. ASU 2017-04 eliminates the second step of the impairment analysis. Accordingly, if the first step of a quantitative goodwill impairment analysis performed after adoption of ASU 2017-04 indicates that the fair value of a reporting unit is less than its carrying value, the goodwill of that reporting unit would be impaired to the extent of that difference. The Company anticipates it will adopt ASU 2017-04 for impairment testing after January 1, 2020, its required effective date, although early adoption is permitted. However, if there is an indication of potential impairment of goodwill as a result of an impairment assessment prior to 2020, the Company will evaluate the impact of ASU 2017-04 and could elect to early adopt this standard.



PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Accounting Standards Update 2018-13 – Fair Value Measurements (Topic 820) Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurements

In August 2018, the FASB issued ASU 2018-13 to improve fair value disclosures. ASU 2018-13 eliminates certain disclosure requirements related to transfers between Levels 1 and 2 of the fair value hierarchy and the requirement to disclose the valuation process for Level 3 fair value measurements. ASU 2018-13 also amends certain disclosure requirements for investments measured at net asset value and requires new disclosures for Level 3 investments, including a new requirement to disclose changes in unrealized gains or losses recorded in OCI related to Level 3 fair value measurements. ASU 2018-13 is effective for the Company beginning on January 1, 2020, and permits entities to adopt all or certain elements of the new guidance prior to its effective date. ASU 2018-13 requires retrospective application, except for the new disclosures related to Level 3 investments which are to be applied prospectively. As discussed in Note 9 of the Notes to the Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K and in Note 7, PNM and TNMP have investment securities in trusts for decommissioning, reclamation, pension benefits, and other postretirement benefits, which are measured at fair value. Certain investments in these trusts are measured at net asset value per share. These trusts also hold Level 3 investments. The Company is evaluating the requirements of ASU 2018-13, but does not anticipate it will have a significant impact on the Company’s fair value disclosures.


Accounting Standards Update 2018-14 – Compensation - Retirement Benefits - Defined Benefit Plans (Topic 715) Disclosure Framework: Changes to the Disclosure Requirements for Defined Benefit Plans


In August 2018, the FASB issued ASU 2018-14 to improve benefit plan sponsors’ disclosures for defined benefit pension and other post-employment benefit plans. ASU 2018-14 removes the requirement to disclose the amounts in other comprehensive income expected to be recognized as benefit cost over the next fiscal year and the requirement to disclose the impact of a one-percentage-point change in the assumed health care cost trend rate; clarifies the disclosure requirements for plans with assets that are less than their projected benefit, or accumulated benefit obligation; and requires significant gains and losses affecting benefit obligations during the period be disclosed. ASU 2018-14 is effective for the Company on December 31, 2020, although early adoption is permitted, and requires retrospective application. As discussed in Note 11 of the Notes to the Consolidated Financial Statements in the 20182019 Annual Reports on Form 10-K and in Note 10, PNM and TNMP maintain qualified defined benefit, other postretirement benefit plans providing medical and dental benefits, and executive retirement programs. The Company is in the process of evaluating the requirements of ASU 2018-14 but does not anticipate these changes will have a significant impact on the Company’s defined benefit and other postretirement benefit plan disclosures.


Accounting Standards Update 2018-152019-12Intangibles - Goodwill and Other - Internal Use SoftwareIncome Taxes (Topic 350)740): Customer’sSimplifying the Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service ContractIncome Taxes


In August 2018,December 2019, the FASB issued ASU 2018-152019-12 as part of its initiative to align thereduce complexity in accounting standards. The amendments in ASU 2019-12 simplify accounting for income taxes by removing several accounting exceptions to accounting for income taxes. ASU 2019-12 also eliminates or simplifies other income tax accounting requirements, for capitalizing implementation costs incurred inincluding a hosting arrangementrequirement that entities recognize franchise tax (or similar tax) that is a service contract with the requirements for implementation costs incurred to develop or obtain internal-use software. Underpartially based on income as an income-based tax. ASU 2018-15, entities are required to capitalize implementation costs for hosting arrangements if those costs meet the capitalization requirements for internal-use software arrangements. ASU 2018-15 requires entities to present cash flows, capitalized costs, and amortization expense in the same financial statement line items as other costs incurred for such hosting arrangements. ASU 2018-152019-12 is effective for the Company beginning on January 1, 2020, although early adoption is permitted,2021 and allows entitiesfor early adoption. ASU 2019-12 is to applybe applied prospectively or retrospectively in the new requirements retrospectively or prospectively.period of adoption depending on the type of amendment. The Company is in the process of analyzing the impacts of this new standard.


Accounting Standards Update 2018-18 - Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606
In November 2018, the FASB issued ASU 2018-18 to clarify transactions between collaborative arrangement participants that should be recognized as revenue under Topic 606. ASU 2018-18 is effective for the Company on January 1, 2020, although early adoption is permitted, and requires retrospective application. The Company has collaborative arrangements related to its interests in SJGS, Four Corners, PVNGS, and Luna. The Company believes its current accounting practices comply with the requirements of ASU 2018-18 but is in the process of analyzing the impacts of the new standard.(2)     Segment Information

(2)Segment Information


The following segment presentation is based on the methodology that management uses for making operating decisions and assessing performance of its various business activities. A reconciliation of the segment presentation to the GAAP financial statements is provided.


PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



PNM
PNM includes the retail electric utility operations of PNM that are subject to traditional rate regulation by the NMPRC. PNM provides integrated electricity services that include the generation, transmission, and distribution of electricity for retail electric customers in New Mexico. PNM also includes the generation and sale of electricity into the wholesale market, as well as providing transmission services to third parties. The sale of electricity includes the asset optimization of PNM’s jurisdictional capacity, as well as the capacity excluded from retail rates. FERC has jurisdiction over wholesale power and transmission rates.


TNMP


TNMP is an electric utility providing services in Texas under the TECA. TNMP’s operations are subject to traditional rate regulation by the PUCT. TNMP provides transmission and distribution services at regulated rates to various REPs that, in turn, provide retail electric service to consumers within TNMP’s service area. TNMP also provides transmission services at regulated rates to other utilities that interconnect with TNMP’s facilities.



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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Corporate and Other


The Corporate and Other segment includes PNMR holding company activities, primarily related to corporate level debt and PNMR Services Company. The activities of PNMR Development, NM Capital, and the equity method investment in NMRD are also included in Corporate and Other. Eliminations of intercompany income and expense transactions are reflected in the Corporate and Other segment.


The following tables present summarized financial information for PNMR by segment. PNM and TNMP each operate in only one1 segment. Therefore, tabular segment information is not presented for PNM and TNMP.


PNMR SEGMENT INFORMATION
PNMTNMPCorporate
and Other
PNMR Consolidated
(In thousands)
Three Months Ended March 31, 2020
Electric operating revenues$248,133  $85,489  $—  $333,622  
Cost of energy74,524  24,186  —  98,710  
Utility margin173,609  61,303  —  234,912  
Other operating expenses98,555  25,122  (5,476) 118,201  
Depreciation and amortization41,449  21,836  5,688  68,973  
Operating income (loss)33,605  14,345  (212) 47,738  
Interest income3,496  —  (73) 3,423  
Other income (deductions)(34,027) 561  (540) (34,006) 
Interest charges(17,629) (7,172) (5,633) (30,434) 
Segment earnings (loss) before income taxes(14,555) 7,734  (6,458) (13,279) 
Income taxes (benefit)(2,359) 642  (163) (1,880) 
Segment earnings (loss)(12,196) 7,092  (6,295) (11,399) 
Valencia non-controlling interest(3,729) —  —  (3,729) 
Subsidiary preferred stock dividends(132) —  —  (132) 
Segment earnings (loss) attributable to PNMR$(16,057) $7,092  $(6,295) $(15,260) 
At March 31, 2020:
Total Assets$5,260,528  $1,913,270  $201,321  $7,375,119  
Goodwill$51,632  $226,665  $—  $278,297  

29

 PNM TNMP 
Corporate
and Other
 PNMR Consolidated
 (In thousands)
Three Months Ended March 31, 2019 
Electric operating revenues$269,318
 $80,327
 $
 $349,645
Cost of energy99,339
 22,287
 
 121,626
Utility margin169,979
 58,040
 
 228,019
Other operating expenses106,462
 25,241
 (5,763) 125,940
Depreciation and amortization39,224
 20,214
 5,918
 65,356
Operating income (loss)24,293
 12,585
 (155) 36,723
Interest income3,656
 31
 (68) 3,619
Other income (deductions)14,358
 554
 (735) 14,177
Interest charges(18,360) (8,800) (4,474) (31,634)
Segment earnings (loss) before income taxes23,947
 4,370
 (5,432) 22,885
Income taxes (benefit)1,973
 272
 (1,022) 1,223
Segment earnings (loss)21,974
 4,098
 (4,410) 21,662
Valencia non-controlling interest(2,830) 
 
 (2,830)
Subsidiary preferred stock dividends(132) 
 
 (132)
Segment earnings (loss) attributable to PNMR$19,012
 $4,098
 $(4,410) $18,700
        
At March 31, 2019:       
Total Assets$5,202,039
 $1,871,780
 $176,939
 $7,250,758
Goodwill$51,632
 $226,665
 $
 $278,297
Table of Contents


PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



PNMTNMPCorporate
and Other
PNMR Consolidated
(In thousands)
Three Months Ended March 31, 2019
Electric operating revenues$269,318  $80,327  $—  $349,645  
Cost of energy99,339  22,287  —  121,626  
Utility margin169,979  58,040  —  228,019  
Other operating expenses106,462  25,241  (5,763) 125,940  
Depreciation and amortization39,224  20,214  5,918  65,356  
Operating income (loss)24,293  12,585  (155) 36,723  
Interest income3,656  —  (68) 3,588  
Other income (deductions)14,358  585  (735) 14,208  
Interest charges(18,360) (8,800) (4,474) (31,634) 
Segment earnings (loss) before income taxes23,947  4,370  (5,432) 22,885  
Income taxes (benefit)1,973  272  (1,022) 1,223  
Segment earnings (loss)21,974  4,098  (4,410) 21,662  
Valencia non-controlling interest(2,830) —  —  (2,830) 
Subsidiary preferred stock dividends(132) —  —  (132) 
Segment earnings (loss) attributable to PNMR$19,012  $4,098  $(4,410) $18,700  
At March 31, 2019:
Total Assets$5,202,039  $1,871,780  $176,939  $7,250,758  
Goodwill$51,632  $226,665  $—  $278,297  
 PNM TNMP 
Corporate
and Other
 PNMR Consolidated
 (In thousands)
Three Months Ended March 31, 2018       
Electric operating revenues$236,232
 $81,646
 $
 $317,878
Cost of energy70,802
 21,754
 
 92,556
Utility margin165,430
 59,892
 
 225,322
Other operating expenses100,511
 24,973
 (5,016) 120,468
Depreciation and amortization36,627
 16,387
 5,708
 58,722
Operating income (loss)28,292
 18,532
 (692) 46,132
Interest income2,487
 
 1,637
 4,124
Other income (deductions)1,217
 1,085
 79
 2,381
Interest charges(20,830) (7,729) (4,496) (33,055)
Segment earnings (loss) before income taxes11,166
 11,888
 (3,472) 19,582
Income taxes (benefit)(348) 2,475
 (1,344) 783
Segment earnings (loss)11,514
 9,413
 (2,128) 18,799
Valencia non-controlling interest(3,677) 
 
 (3,677)
Subsidiary preferred stock dividends(132) 
 
 (132)
Segment earnings (loss) attributable to PNMR$7,705
 $9,413
 $(2,128) $14,990
        
At March 31, 2018:       
Total Assets$4,925,741
 $1,526,434
 $224,218
 $6,676,393
Goodwill$51,632
 $226,665
 $
 $278,297


The Company defines utility margin as electric operating revenues less cost of energy. Cost of energy consists primarily of fuel and purchase power costs for PNM and costs charged by third-party transmission providers for TNMP. The Company believes that utility margin provides a more meaningful basis for evaluating operations than electric operating revenues since substantially all such costs are offset in revenues as fuel and purchase power costs are passed through to customers under PNM’s FPPAC and third-party transmission costs are passed on to customers through TNMP’s transmission cost recovery factor. Utility margin is not a financial measure required to be presented under GAAP and is considered a non-GAAP measure.




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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



(3)(3)   Accumulated Other Comprehensive Income (Loss)


Information regarding accumulated other comprehensive income (loss) for the three months ended March 31, 20192020 and 20182019 is as follows:
Accumulated Other Comprehensive Income (Loss)
PNMPNMR
UnrealizedFair Value
Gains onAdjustment
Available-for-Pensionfor Cash
Sale DebtLiabilityFlow
SecuritiesAdjustmentTotalHedgesTotal
(In thousands)
Balance at December 31, 2019$10,638  $(109,693) $(99,055) $(322) $(99,377) 
Amounts reclassified from AOCI (pre-tax)(1,185) 2,075  890  (38) 852  
Income tax impact of amounts reclassified301  (527) (226) 10  (216) 
Other OCI changes (pre-tax)(4,283) —  (4,283) (1,998) (6,281) 
Income tax impact of other OCI changes1,088  —  1,088  507  1,595  
Net after-tax change(4,079) 1,548  (2,531) (1,519) (4,050) 
Balance at March 31, 2020$6,559  $(108,145) $(101,586) $(1,841) $(103,427) 
 Accumulated Other Comprehensive Income (Loss)
 PNM PNMR
 Unrealized     Fair Value  
 Gains on     Adjustment  
 Available-for- Pension   for Cash  
 Sale Liability   Flow  
 Securities Adjustment Total Hedges Total
 (In thousands)
Balance at December 31, 2018$1,939
 $(112,361) $(110,422) $1,738
 $(108,684)
Amounts reclassified from AOCI (pre-tax)(676) 1,851
 1,175
 270
 1,445
Income tax impact of amounts reclassified172
 (470) (298) (68) (366)
 Other OCI changes (pre-tax)7,078
 
 7,078
 (1,225) 5,853
Income tax impact of other OCI changes(1,798) 
 (1,798) 311
 (1,487)
Net after-tax change4,776
 1,381
 6,157
 (712) 5,445
Balance at March 31, 2019$6,715
 $(110,980) $(104,265) $1,026
 $(103,239)

Balance at December 31, 2018$1,939  $(112,361) $(110,422) $1,738  $(108,684) 
 Amounts reclassified from AOCI (pre-tax)(676) 1,851  1,175  270  1,445  
Income tax impact of amounts reclassified172  (470) (298) (68) (366) 
 Other OCI changes (pre-tax)7,078  —  7,078  (1,225) 5,853  
Income tax impact of other OCI changes(1,798) —  (1,798) 311  (1,487) 
Net after-tax change4,776  1,381  6,157  (712) 5,445  
Balance at March 31, 2019$6,715  $(110,980) $(104,265) $1,026  $(103,239) 
Balance at December 31, 2017, as originally reported$13,169
 $(110,262) $(97,093) $1,153
 $(95,940)
Cumulative effect adjustment (Note 7)(11,208) 
 (11,208) 
 (11,208)
Balance at January 1, 2018, as adjusted1,961
 (110,262) (108,301) 1,153
 (107,148)
 Amounts reclassified from AOCI (pre-tax)(2,629) 1,891
 (738) (53) (791)
Income tax impact of amounts reclassified668
 (480) 188
 13
 201
 Other OCI changes (pre-tax)1,115
 
 1,115
 1,858
 2,973
Income tax impact of other OCI changes(283) 
 (283) (472) (755)
Net after-tax change(1,129) 1,411
 282
 1,346
 1,628
Balance at March 31, 2018$832
 $(108,851) $(108,019) $2,499
 $(105,520)


The Condensed Consolidated Statements of Earnings include pre-tax amounts reclassified from AOCI related to Unrealized Gains on Available-for-Sale Debt Securities in gains (losses) on investment securities, related to Pension Liability Adjustment in other (deductions), and related to Fair Value Adjustment for Cash Flow Hedges in interest charges. The income tax impacts of all amounts reclassified from AOCI are included in income taxes in the Condensed Consolidated Statements of Earnings.

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



(4)    Earnings Per Share
(4)Earnings Per Share


In accordance with GAAP, dual presentation of basic and diluted earnings per share is presented in the Condensed Consolidated Statements of Earnings of PNMR. PNMR’s potentially dilutive shares consist of restricted stock and PNMR common stock issuable under the PNMR 2020 Forward Equity Sale Agreements, which are calculated under the treasury stock method. See Notes 8 and 9. Information regarding the computation of earnings per share is as follows:

Three Months Ended
March 31,
20202019
(In thousands, except per share amounts)
Net Earnings (Loss) Attributable to PNMR$(15,260) $18,700  
Average Number of Common Shares:
Outstanding during period79,654  79,654  
    Vested awards of restricted stock
217  239  
Average Shares – Basic79,871  79,893  
Dilutive Effect of Common Stock Equivalents:
Restricted stock—  78  
Average Shares – Diluted(1)
79,871  79,971  
Net Earnings (Loss) Per Share of Common Stock:
Basic$(0.19) $0.23  
Diluted$(0.19) $0.23  
(1) No potentially dilutive restricted stock or PNMR common stock under the PNMR 2020 Forward Equity Sale Agreements have been included in the computation of Average Shares – Diluted for the three months ended March 31, 2020 since the effect would be anti-dilutive.

(5)   Electric Operating Revenues
 Three Months Ended
 March 31,
 2019 2018
 (In thousands, except per share amounts)
Net Earnings Attributable to PNMR$18,700
 $14,990
Average Number of Common Shares:   
Outstanding during period79,654
 79,654
    Vested awards of restricted stock
239
 205
Average Shares – Basic79,893
 79,859
Dilutive Effect of Common Stock Equivalents:   
Stock options and restricted stock78
 154
Average Shares – Diluted79,971
 80,013
Net Earnings Per Share of Common Stock:   
Basic$0.23
 $0.19
Diluted$0.23
 $0.19

(5)Electric Operating Revenues


PNMR is an investor-owned holding company with two2 regulated utilities providing electricity and electric services in New Mexico and Texas. PNMR’s electric utilities are PNM and TNMP.


Additional information concerning electric operating revenue is contained in Note 4 of the Notes to Consolidated Financial Statements in the 20182019 Annual Reports on Form 10-K.


Accounts Receivable and Allowance for Credit Losses

Accounts receivable consists primarily of trade receivables from customers. In the normal course of business, credit is extended to customers on a short-term basis. The Company estimates the allowance for credit losses on trade receivables based on historical experience and estimated default rates. Accounts receivable balances are reviewed monthly and adjustments to the allowance for credit losses are made as necessary and amounts that are deemed uncollectible are written off. On January 1, 2020, the Company adopted Accounting Standards Update 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. As a result of the adoption of the new standard, PNM updated its allowance for accounts receivable balances and recorded incremental credit losses of $0.3 million in the three months ended March 31, 2020. See additional discussion of ASU 2016-13 in Note 7.
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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Disaggregation of Revenues


A disaggregation of revenues from contracts with customers by the type of customer is presented in the table below. The table also reflects alternative revenue program revenues (“ARP”("ARP") and other revenues.
PNMTNMPPNMR Consolidated
Three Months Ended March 31, 2020(In thousands)
Electric Operating Revenues:
Contracts with customers:
Retail electric revenue
Residential$102,809  $31,898  $134,707  
Commercial86,349  28,685  115,034  
Industrial19,466  6,533  25,999  
Public authority4,347  1,423  5,770  
Economy energy service5,253  —  5,253  
Transmission14,167  18,012  32,179  
Miscellaneous3,368  673  4,041  
Total revenues from contracts with customers235,759  87,224  322,983  
Alternative revenue programs2,161  (1,735) 426  
Other electric operating revenues10,213  —  10,213  
Total Electric Operating Revenues$248,133  $85,489  $333,622  
  PNM TNMP PNMR Consolidated
Three Months Ended March 31, 2019 (In thousands)
Electric Operating Revenues:      
Contracts with customers:      
Retail electric revenue      
Residential $107,302
 $30,432
 $137,734
Commercial 85,233
 27,429
 112,662
Industrial 14,747
 5,616
 20,363
Public authority 4,711
 1,374
 6,085
Economy energy service 6,922
 
 6,922
Transmission 13,385
 14,003
 27,388
Miscellaneous 3,641
 903
 4,544
Total revenues from contracts with customers 235,941
 79,757
 315,698
Alternative revenue programs 66
 570
 636
Other electric operating revenues 33,311
 
 33,311
Total Electric Operating Revenues $269,318
 $80,327
 $349,645


Three Months Ended March 31, 2019
Electric Operating Revenues:
Contracts with customers:
Retail electric revenue
Residential$107,302  $30,432  $137,734  
Commercial85,233  27,429  112,662  
Industrial14,747  5,616  20,363  
Public authority4,711  1,374  6,085  
Economy energy service6,922  —  6,922  
Transmission13,385  14,003  27,388  
Miscellaneous3,641  903  4,544  
Total revenues from contracts with customers235,941  79,757  315,698  
Alternative revenue programs66  570  636  
Other electric operating revenues33,311  —  33,311  
Total Electric Operating Revenues$269,318  $80,327  $349,645  
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


  PNM TNMP PNMR Consolidated
Three Months Ended March 31, 2018 (In thousands)
Electric Operating Revenues:      
Contracts with customers:      
Retail electric revenue      
Residential $97,169
 $29,266
 $126,435
Commercial 82,849
 27,152
 110,001
Industrial 13,459
 4,305
 17,764
Public authority 4,635
 1,416
 6,051
Economy energy service 7,288
 
 7,288
Transmission 12,482
 16,508
 28,990
Miscellaneous 4,682
 2,140
 6,822
Total revenues from contracts with customers 222,564
 80,787
 303,351
Alternative revenue programs 65
 859
 924
Other electric operating revenues 13,603
 
 13,603
Total Electric Operating Revenues $236,232
 $81,646
 $317,878


Contract balancesBalances


Performance obligations related to contracts with customers are typically satisfied when the energy is delivered and the customer or end-user utilizes the energy. Accounts receivable from customers represent amounts billed, to the customer or end-user, including amounts under ARP programs.ARPs. For PNM, accounts receivable reflected on the Condensed Consolidated Balance Sheets, net of allowance for uncollectible accounts,credit losses, includes $65.2$56.7 million at March 31, 20192020 and $61.7$59.3 million at December 31, 20182019 resulting from contracts with customers. All of TNMP’s accounts receivable results from contracts with customers.


Contract assets are an entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time (for example, the entity’s future performance). The Company has no0 contract assets as of March 31, 20192020 or December 31, 2018.2019. Contract liabilities arise when consideration is received in advance from a customer before satisfying the performance obligations. Therefore, revenue
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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

is deferred and not recognized until the obligation is satisfied. Under its Open Access Transmission Tariff,OATT, PNM accepts upfront consideration for capacity reservations requested by transmission customers, which requires PNM to defer the customer’s transmission capacity rights for a specific period of time. PNM recognizes the revenue of these capacity reservations over the period it defers the customer's capacity rights have been reserved, which is generally over one year.rights. Other utilities pay PNM and TNMP in advance for the joint-use of their utility poles. These revenues are recognized over the period of time specified in the joint-use contract, typically for one calendar year. Deferred revenues on these arrangements are recorded as contract liabilities. PNMR's, PNM's, and TNMP's contract liabilities and related revenues are insignificant for all periods presented. The Company has no other arrangements with remaining performance obligations to which a portion of the transaction price would be required to be allocated.


Changes during the period in the balances of contract liabilities, which are included in other current liabilities on the Condensed Consolidated Balance Sheets, are as follows:
(6)     Variable Interest Entities
  PNM TNMP PNMR Consolidated
  (In thousands)
Balance at December 31, 2018 $349
 $
 $349
Consideration received in advance of service to be provided 3,981
 1,389
 5,370
Deferred revenue earned (1,349) (371) (1,720)
Balance at March 31, 2019 $2,981
 $1,018
 $3,999


PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


(6)Variable Interest Entities

GAAP determines how an enterprise evaluates and accounts for its involvement with variable interest entities, focusing primarily on whether the enterprise has the power to direct the activities that most significantly impact the economic performance of a variable interest entity (“VIE”). GAAP also requires continual reassessment of the primary beneficiary of a VIE. Additional information concerning PNM’s VIEs is contained in Note 10 of the Notes to Consolidated Financial Statements in the 20182019 Annual Reports on Form 10-K.


Valencia


PNM has a PPA to purchase all of the electric capacity and energy from Valencia, a 158 MW natural gas-fired power plant near Belen, New Mexico, through May 2028. A third party built, owns, and operates the facility while PNM is the sole purchaser of the electricity generated. PNM is obligated to pay fixed operation and maintenance and capacity charges in addition to variable operation and maintenance charges under this PPA. For the three months ended March 31, 20192020 and 2018,2019, PNM paid $4.9$5.0 million and $4.9 million for fixed charges and $0.4 million and less than $0.1 million and $0.3 million for variable charges. PNM does not have any other financial obligations related to Valencia. The assets of Valencia can only be used to satisfy its obligations and creditors of Valencia do not have any recourse against PNM’s assets. During the term of the PPA, PNM has the option, under certain conditions, to purchase and own up to 50% of the plant or the VIE. The PPA specifies that the purchase price would be the greater of 50% of book value reduced by related indebtedness or 50% of fair market value.


PNM sources fuel for the plant, controls when the facility operates through its dispatch, and receives the entire output of the plant, which factors directly and significantly impact the economic performance of Valencia. Therefore, PNM has concluded that the third-party entity that owns Valencia is a VIE and that PNM is the primary beneficiary of the entity under GAAP since PNM has the power to direct the activities that most significantly impact the economic performance of Valencia and will absorb the majority of the variability in the cash flows of the plant. As the primary beneficiary, PNM consolidates Valencia in its financial statements. Accordingly, the assets, liabilities, operating expenses, and cash flows of Valencia are included in the Condensed Consolidated Financial Statements of PNM although PNM has no legal ownership interest or voting control of the VIE. The assets and liabilities of Valencia set forth below are immaterial to PNM and, therefore, not shown separately on the Condensed Consolidated Balance Sheets. The owner’s equity and net income of Valencia are considered attributable to non-controlling interest.


Summarized financial information for Valencia is as follows:
Results of Operations
Three Months Ended March 31,
20202019
(In thousands)
Operating revenues$5,353  $4,952  
Operating expenses1,624  2,122  
Earnings attributable to non-controlling interest$3,729  $2,830  
 
Results of Operations

 Three Months Ended March 31,
 2019 2018
 (In thousands)
Operating revenues$4,952
 $4,768
Operating expenses(2,122) (1,091)
Earnings attributable to non-controlling interest$2,830
 $3,677


34

 
Financial Position

 March 31, December 31,
 2019 2018
 (In thousands)
Current assets$2,918
 $2,684
Net property, plant, and equipment60,712
 62,066
Total assets63,630
 64,750
Current liabilities851
 538
Owners’ equity – non-controlling interest$62,779
 $64,212
Table of Contents



PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Financial Position

March 31,December 31,
20202019
(In thousands)
Current assets$3,297  $5,094  
Net property, plant, and equipment57,871  58,581  
Total assets61,168  63,675  
Current liabilities821  623  
Owners’ equity – non-controlling interest$60,347  $63,052  

Westmoreland San Juan Mining, LLC


As discussed in the subheading Coal Supply in Note 11, PNM purchases coal for SJGS under a coal supply agreement (“the SJGS CSA”). That section includes information on the acquisition of SJCC by WSJ, a subsidiary of Westmoreland Coal Company (“Westmoreland”), on January 31, 2016, as well as the $125.0 million loan (the “Westmoreland Loan”) from NM Capital, a subsidiary of PNMR, to WSJ, which loan provided substantially all of the funds required for the purchase of SJCC. On May 22, 2018, the full principal outstanding under the Westmoreland Loan of $50.1 million was repaid. NM Capital used a portion of the proceeds to repay all remaining amounts owed under the BTMU Term Loan. These payments effectively terminated the loan agreements and PNMR’s guarantee of NM Capital’s obligations under the BTMU Term Loan. Prior to its repayment, the Westmoreland Loan resulted in PNMR being considered to have a variable interest in WSJ, including its subsidiary, SJCC, since PNMR and NM Capital were subject to possible loss in the event of default of WSJ.

CSA. On October 9, 2018, Westmoreland filed a Current Report on Form 8-K with the SEC announcing it had filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code. On March 15, 2019, Westmoreland emerged from Chapter 11 bankruptcy as a privately held company owned and operated by a group of its former creditors. Under the reorganization, the assets of SJCC were sold to Westmoreland San Juan Mining, LLC (“WSJ LLC”), a subsidiary of Westmoreland Mining Holdings, LLC. The March 15, 2019 announcement indicated that mining operations will continue in the normal course of business. As successor entity to SJCC, WSJ LLC assumed all rights and obligations of WSJ including obligations to PNM under the SJGS CSA and to PNMR for the lettersunder letter of credit support agreement. See (Note 11).agreements.


PNMR issued $30.3 million in letters of credit to facilitate the issuance of reclamation bonds required in order for SJCC to mine coal to be supplied to SJGS. As discussed above, WSJ LLC assumed the rights and obligations of SJCC, including obligations to PNMR for the letters of credit. The letters of credit support results in PNMR being considered to havehaving a variable interest in WSJ LLC since PNMR is subject to possible loss in the event performance by PNMR is required under the letters of credit support. PNMR considers the possibility of loss under the letters of credit support to be remote since the purpose of posting the bonds is to provide assurance that WSJ LLC performs the required reclamation of the mine site in accordance with applicable regulations and all reclamation costs are reimbursable under the SJGS CSA. Also, much of the mine reclamation activities will not be performed until after the expiration of the SJGS CSA. In addition, each of the SJGS participants has established and funds a trustactively fund trusts to meet its future reclamation obligations.
WSJ LLC is considered to be a VIE.  PNMR’s analysis of its arrangements with WSJ LLC concluded that WSJ LLC has the ability to direct its mining operations, which is the factor that most significantly impacts the economic performance of WSJ LLC.  Other than PNM being able to ensure that coal is supplied in adequate quantities and of sufficient quality to provide the fuel necessary to operate SJGS in a normal manner, the mining operations are solely under the control of WSJ LLC, including developing mining plans, hiring of personnel, and incurring operating and maintenance expenses. Neither PNMR nor PNM has any ability to direct or influence the mining operation.  PNM’s involvement through the SJGS CSA which was assumed by WSJ LLC pursuant to the March 15, 2019 purchase of the assets owned by SJCC by WSJ LLC, is a protective right rather than a participating right and WSJ LLC has the power to direct the activities that most significantly impact the economic performance of WSJ LLC.  The SJGS CSA requires WSJ LLC to deliver coal required to fuel SJGS in exchange for payment of a set price per ton, which is escalated over time for inflation.  If WSJ LLC is able to mine more efficiently than anticipated, its economic performance will be improved.  Conversely, if WSJ LLC cannot mine as efficiently as anticipated, its economic performance will be negatively impacted.  Accordingly, PNMR believes WSJ LLC is the primary beneficiary and, therefore, WSJ LLC is not consolidated by either PNMR or PNM. The amounts outstanding under the letterletters of credit support constitute PNMR’s maximum exposure to loss from the VIE at March 31, 2019.2020.



PNM RESOURCES, INC. AND SUBSIDIARIES(7)    Fair Value of Derivative and Other Financial Instruments
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


(7)Fair Value of Derivative and Other Financial Instruments


Additional information concerning energy related derivative contracts and other financial instruments is contained in Note 9 of the Notes to Consolidated Financial Statements in the 20182019 Annual Reports on Form 10-K.


Fair value is defined under GAAP as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value is based on current market quotes as available and is supplemented by
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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

modeling techniques and assumptions made by the Company to the extent quoted market prices or volatilities are not available. External pricing input availability varies based on commodity location, market liquidity, and term of the agreement. Valuations of derivative assets and liabilities take into account nonperformance risk, including the effect of counterparties’ and the Company’s credit risk. The Company regularly assesses the validity and availability of pricing data for its derivative transactions. Although the Company uses its best judgment in estimating the fair value of these instruments, there are inherent limitations in any estimation technique.


Energy Related Derivative Contracts
Overview


The primary objective for the use of commodity derivative instruments, including energy contracts, options, swaps, and futures, is to manage price risk associated with forecasted purchases of energy and fuel used to generate electricity, as well as managing anticipated generation capacity in excess of forecasted demand from existing customers. PNM’s energy related derivative contracts manage commodity risk. PNM is required to meet the demand and energy needs of its customers. PNM is exposed to market risk for the needs of its customers not covered under a FPPAC.


Beginning January 1, 2018, PNM is exposed to market risk for its 65 MW interest in SJGS Unit 4, which is held as merchant plant as ordered by the NMPRC. PNM has entered into agreements to sell power from 36 MW of that capacity to a third party at a fixed price for the period January 1, 2018 through June 30,May 31, 2022, subject to certain conditions. Under these agreements, PNM is obligated to deliver 36 MW of power only when SJGS Unit 4 is operating.  These agreements are not considered derivatives because there is no notional amount due to the unit-contingent nature of the transactions.


PNM and Tri-State have a hazard sharing agreement whichthat expires onin May 31, 2022. Under this agreement, each party sells the other party 100 MW of capacity and energy from a designated generation resource on a unit contingent basis, subject to certain performance guarantees.  Both the purchases and sales are made at the same market index price.  This agreement serves to reduce the magnitude of each party’s single largest generating hazard and assists in enhancing the reliability and efficiency of their respective operations. PNM passes the sales and purchases through to customers under PNM’s FPPAC.


PNM’s operations are managed primarily through a net asset-backed strategy, whereby PNM’s aggregate net open forward contract position is covered by its forecasted excess generation capabilities or market purchases. PNM could be exposed to market risk if its generation capabilities were to be disrupted or if its load requirements were to be greater than anticipated. If all or a portion of load requirements were required to be covered as a result of such unexpected situations, commitments would have to be met through market purchases. TNMP does not enter into energy related derivative contracts.

Commodity Risk

Marketing and procurement of energy often involve market risks associated with managing energy commodities and establishing positions in the energy markets, primarily on a short-term basis. PNM routinely enters into various derivative instruments such as forward contracts, option agreements, and price basis swap agreements to economically hedge price and volume risk on power commitments and fuel requirements and to minimize the effect of market fluctuations. PNM monitors the market risk of its commodity contracts in accordance with approved risk and credit policies.


Accounting for Derivatives


Under derivative accounting and related rules for energy contracts, PNM accounts for its various instruments for the purchase and sale of energy, which meet the definition of a derivative, based on PNM’s intent. During the three months ended March 31, 20192020 and the year ended December 31, 2018,2019, PNM was not hedging its exposure to the variability in future cash flows

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


from commodity derivatives through designated cash flows hedges. The derivative contracts recorded at fair value that do not qualify or are not designated for cash flow hedge accounting are classified as economic hedges. Economic hedges are defined as derivative instruments, including long-term power agreements, used to economically hedge generation assets, purchased power and fuel costs, and customer load requirements. Changes in the fair value of economic hedges are reflected in results of operations and are classified between operating revenues and cost of energy according to the intent of the hedge. PNM has no trading transactions.


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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Commodity Derivatives


PNM’s commodity derivative instruments that are recorded at fair value, all of which are accounted for as economic hedges and considered Level 2 fair value measurements, are summarized as follows:presented in the following line items on the Condensed Consolidated Balance Sheets:
Economic Hedges
March 31,
2020
December 31,
2019
(In thousands)
Other current assets$1,095  $1,089  
Other deferred charges1,275  1,507  
2,370  2,596  
Other current liabilities(1,095) (1,089) 
Other deferred credits(1,275) (1,507) 
(2,370) (2,596) 
Net$—  $—  
 Economic Hedges
 March 31,
2019
 December 31,
2018
 (In thousands)
Current assets$1,086
 $1,083
Deferred charges2,265
 2,511
 3,351
 3,594
Current liabilities(1,150) (1,177)
Long-term liabilities(2,265) (2,511)
 (3,415) (3,688)
Net$(64) $(94)
Certain of PNM’s commodity derivative instruments in the above table are subject to master netting agreements whereby assets and liabilities could be offset in the settlement process. PNM does not offset fair value and cash collateral for derivative instruments under master netting arrangements and the above table reflects the gross amounts of fair value assets and liabilities for commodity derivatives. Included inAll of the above table are equal amounts of assets and liabilities aggregating $3.3 millionin the table above at March 31, 20192020 and $3.6 million at December 31, 2018 resulting2019 result from PNM’s hazard sharing arrangements with Tri-State. The hazard sharing arrangements are net-settled upon delivery. Other amounts that could be offset under master netting agreements were immaterial.


At March 31, 20192020 and December 31, 2018,2019, PNM had no0 amounts recognized for the legal right to reclaim cash collateral. However, at March 31, 20192020 and December 31, 2018,2019, amounts posted as cash collateral under margin arrangements were $1.0 million and $1.0$0.5 million. At March 31, 20192020 and December 31, 2018,2019, obligations to return cash collateral were $0.9 million and $1.0 million. Cash collateral amounts are included in other current assets and other current liabilities on the Condensed Consolidated Balance Sheets.


PNM has a NMPRC-approved hedging plan to manage fuel and purchased power costs related to customers covered by its FPPAC. There were insignificant0 amounts hedged under this plan as of March 31, 2019 and no amounts were hedged under this plan as of2020 or December 31, 2018.2019.
The following table presents the effecteffects of mark-to-market commodity derivative instruments on PNM’s earnings, excluding income tax effects.revenues and cost of energy during the three months ended March 31, 2020 and 2019 were less than $0.1 million. Commodity derivatives had no impact on OCI for the periods presented.

 Economic Hedges
 Three Months Ended
 March 31,
 2019 2018
 (In thousands)
Electric operating revenues$28
 $(10)
Cost of energy(28) 12
   Total gain$
 $2

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Commodity contractPNM's energy and gas commodity volume positions are presented in MMBTU for gas related contractsat March 31, 2020 and in MWh for power related contracts. The table below presents PNM’sDecember 31, 2019 net buy (sell) volume positions:to 0.
  Economic Hedges
  MMBTU MWh
March 31, 2019 100,000
 (400)
December 31, 2018 100,000
 

PNM has contingent requirements to provide collateral under commodity contracts having an objectively determinable collateral provision that are in net liability positions and are not fully collateralized with cash. In connection with managing its commodity risks, PNM enters into master agreements with certain counterparties. If PNM is in a net liability position under an agreement, some agreements provide that the counterparties can request collateral if PNM’s credit rating is downgraded; other agreements provide that the counterparty may request collateral to provide it with “adequate assurance” that PNM will perform; and others have no provision for collateral. At March 31, 20192020 and December 31, 2018,2019, PNM had no0 such contracts in a net liability position.


Non-Derivative Financial Instruments


The carrying amounts reflected on the Condensed Consolidated Balance Sheets approximate fair value for cash, receivables, and payables due to the short period of maturity. Investment securities are carried at fair value. Investment securities consist of PNM assets held in the NDT for its share of decommissioning costs of PVNGS and trusts for PNM’s share of final reclamation costs related to the coal mines serving SJGS and Four Corners (Note 11).Corners. See Note 11. At March 31, 20192020 and December 31, 2018,2019, the fair value of investment securities included $308.0$299.9 million and $287.1$336.0 million for the NDT and $43.6$53.4 million and $41.1$52.8 million for the mine reclamation trusts.

37

Table of Contents
As discussed in Note 9 of the Notes to Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K, on January 1, 2018 the Company adopted Accounting Standards Update 2016-01 Financial Instruments (Subtopic 825-10). Accordingly, on January 1, 2018 PNM recorded an after-tax cumulative effect adjustment of $11.2 million to reclassify unrealized holding gains on equity securities held in the NDT and coal mine reclamation trusts from AOCI to retained earnings on the Condensed Consolidated Balance Sheets. After January 1, 2018, all gains and losses resulting from sales and changes in the fair value of equity securities are recognized in earnings. Under ASU 2016-01, the accounting for available-for-sale debt securities remains essentially unchanged.

Gains and losses recognized on the Condensed Consolidated Statements of Earnings related to investment securities in the NDT and reclamation trusts are presented in the following table.
  Three Months Ended March 31,
  2019 2018
  (In thousands)
Equity securities:    
Net gains from equity securities sold $1,387
 $2,828
Net gains from equity securities still held 9,602
 136
Total net gains on equity securities 10,989
 2,964
Available-for-sale debt securities:    
Net gains (losses) on debt securities 3,025
 (2,676)
Net gains on investment securities $14,014
 $288



PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




In June 2016, the FASB issued Accounting Standards Update 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the way entities recognize impairments of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over the remaining lives of the assets. The majority of the amendments made by the new standard are required to be applied using a modified retrospective approach. The amendments in ASU 2016-13 also require entities to separately measure and realize an impairment for credit losses on available-for-sale debt securities for which carrying value exceeds fair value, unless such securities have been determined to be other than temporarily impaired and the entire decrease in value has been realized as an impairment. The amendments relating to available-for-sale debt securities are required to be applied prospectively on the date of adoption. PNM records a realized loss as an impairment for any available-for-sale debt security that has a fair value that is less than its carrying value. As a result, the Company has 0 available-for-sale debt securities for which carrying value exceeds fair value and there are 0 impairments considered to be “other than temporary” that are included in AOCI and not recognized in earnings. The Company adopted ASU 2016-13 on January 1, 2020, its required effective date. Adoption of the standard did not result in the Company recording a cumulative effect adjustment or impact the Company's accounting for its available-for-sale debt securities. All gains and losses resulting from sales and changes in the fair value of equity securities are recognized immediately in earnings.

Gains and losses recognized on the Condensed Consolidated Statements of Earnings related to investment securities in the NDT and reclamation trusts are presented in the following table:
Three Months Ended
March 31,
20202019
(In thousands)
Equity securities:
Net gains (losses) from equity securities sold$(1,315) $1,387  
Net gains (losses) from equity securities still held(18,931) 9,602  
Total net gains (losses) on equity securities(20,246) 10,989  
Available-for-sale debt securities:
Net gains (losses) on debt securities(12,603) 3,025  
Net gains (losses) on investment securities$(32,849) $14,014  

The proceeds and gross realized gains and losses on the disposition of securities held in the NDT and coal mine reclamation trusts are shown in the following table. Realized gains and losses are determined by specific identification of costs of securities sold. Gross realized losses shown below exclude the (increase)/decrease in realized impairment losses of $3.4$(12.7) million and $(1.2)$3.4 million for the three months ended March 31, 20192020 and 2018.2019.

Three Months Ended
March 31,
20202019
(In thousands)
Proceeds from sales$149,355  $74,460  
Gross realized gains$5,825  $4,189  
Gross realized (losses)$(7,035) $(3,170) 


38

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 Three Months Ended
 March 31,
 2019 2018
 (In thousands)
Proceeds from sales$74,460
 $626,729
Gross realized gains$4,189
 $6,021
Gross realized (losses)$(3,170) $(4,677)

The Company has no available-for-sale debt securities for which carrying value exceeds fair value. There are no impairments considered to be “other than temporary” that are included in AOCI and not recognized in earnings.
At March 31, 2019,2020, the available-for-sale debt securities held by PNM, had the following final maturities:
Fair Value
(In thousands)
Within 1 year$22,001 
After 1 year through 5 years71,816 
After 5 years through 10 years75,923 
After 10 years through 15 years12,345 
After 15 years through 20 years12,220 
After 20 years39,047 
$233,352 
 Fair Value
 (In thousands)
Within 1 year$13,996
After 1 year through 5 years68,108
After 5 years through 10 years68,904
After 10 years through 15 years9,485
After 15 years through 20 years12,174
After 20 years45,695
 $218,362


Fair Value Disclosures


The Company determines the fair values of its derivative and other financial instruments based on the hierarchy established in GAAP, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. GAAP describes three levels of inputs that may be used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. The Company records any transfers between fair value hierarchy levels as of the end of each calendar quarter. There were no transfers between levels during the three months ended March 31, 2019 or the year ended December 31, 2018.


For investment securities, Level 2 and Level 3 fair values are provided by fund managers utilizing a pricing service. For Level 2 fair values, the pricing provider predominantly uses the market approach using bid side market value based upon a hierarchy of information for specific securities or securities with similar characteristics. Fair values of Level 2 investments in mutual funds are equal to net asset value. Level 3 investments are comprised of corporate term loans. For commodity derivatives, Level 2 fair values are determined based on market observable inputs, which are validated using multiple broker quotes, including forward price, volatility, and interest rate curves to establish expectations of future prices. Credit valuation adjustments are made for estimated credit losses based on the overall exposure to each counterparty. For the Company’s long-term debt, Level 2 fair values are provided by an external pricing service. The pricing service primarily utilizes quoted prices for similar debt in active markets when determining fair value. The valuation of Level 3 investments, when applicable, requires significant judgment by the pricing provider due to the absence of quoted market values, changes in market conditions, and the long-term nature of the assets. The significant unobservable inputs include the trading multiplesCompany has no Level 3 investments as of public companies that are considered comparable to the company being valued, company specific issues, estimates of liquidation value, current operating performanceMarch 31, 2020 and future expectations of performance, changes in market outlook and the financing environment, capitalization rates, discount rates, and cash flows.December 31, 2019. Management of the Company independently verifies the information provided by pricing services.



In August 2018, the FASB issued Accounting Standards Update 2018-13 – Fair Value Measurements (Topic 820) Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurements, to improve fair value disclosures. ASU 2018-13 eliminates certain disclosure requirements related to transfers between Levels 1 and 2 of the fair value hierarchy and the requirement to disclose the valuation process for Level 3 fair value measurements. ASU 2018-13 also amends certain disclosure requirements for investments measured at net asset value and requires new disclosures for Level 3 investments, including a new requirement to disclose changes in unrealized gains or losses recorded in OCI related to Level 3 fair value measurements. The Company adopted ASU 2018-13 on January 1, 2020, its required effective date. The Company applied the requirements of the new standard using retrospective application, except for the new disclosures related to Level 3 investments, which are to be applied prospectively. Adoption of the standard did not have a material impact on the Company's disclosures.


39

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Items recorded at fair value by PNM on the Condensed Consolidated Balance Sheets are presented below by level of the fair value hierarchy along with gross unrealized gains on investments in available-for-sale debt securities.securities:
GAAP Fair Value Hierarchy
TotalQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)Unrealized Gains
(In thousands)
March 31, 2020
Cash and cash equivalents$17,252  $17,252  $—  
Equity securities:
Corporate stocks, common49,838  49,838  —  
Corporate stocks, preferred7,974  2,365  5,609  
Mutual funds and other44,852  44,852  —  
Available-for-sale debt securities:
     U.S. government46,450  30,630  15,820  $2,636  
     International government12,802  —  12,802  236  
     Municipals45,115  —  45,115  1,518  
     Corporate and other128,985  403  128,582  4,420  
          $353,268  $145,340  $207,928  $8,810  
December 31, 2019
Cash and cash equivalents$15,606  $15,606  $—  
Equity securities:
Corporate stocks, common64,527  64,527  —  
Corporate stocks, preferred9,033  2,212  6,821  
Mutual funds and other49,848  49,786  62  
Available-for-sale debt securities:
     U.S. government48,439  31,389  17,050  $535  
     International government15,292  —  15,292  1,193  
     Municipals46,642  —  46,642  1,768  
     Corporate and other139,445  187  139,258  10,801  
          $388,832  $163,707  $225,125  $14,297  

The carrying amounts and fair values of long-term debt, all of which are considered Level 2 fair value measurements and are not recorded at fair value on the Condensed Consolidated Balance Sheets, are presented below:
Carrying AmountFair Value
March 31, 2020(In thousands)
PNMR$3,008,275  $3,060,098  
PNM$1,748,401  $1,763,727  
TNMP$670,626  $727,222  
December 31, 2019
PNMR$3,007,717  $3,142,704  
PNM$1,748,020  $1,795,149  
TNMP$670,691  $753,317  

The carrying amount and fair value of the Company’s other investments presented on the Condensed Consolidated Balance Sheets are not material and not shown in the above table.
40

   GAAP Fair Value Hierarchy  
 Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) 
Significant Unobservable Inputs
(Level 3)
 Unrealized Gains
 (In thousands)
March 31, 2019         
Cash and cash equivalents$10,339
 $10,339
 $
 $
  
Equity securities:         
Corporate stocks, common36,025
 36,025
 
 
  
Corporate stocks, preferred8,138
 1,854
 6,284
 
  
Mutual funds and other78,699
 78,688
 11
 
  
Available-for-sale debt securities:         
     U.S. Government36,153
 25,074
 11,079
 
 $1,489
     International Government11,577
 46
 11,531
 
 345
     Municipals49,160
 
 49,160
 
 1,337
     Corporate and other121,472
 842
 118,543
 2,087
 5,831
          $351,563
 $152,868
 $196,608
 $2,087
 $9,002
          
Commodity derivative assets$3,351
 $
 $3,351
 $
  
Commodity derivative liabilities(3,415) 
 (3,415) 
  
          Net$(64) $
 $(64) $
  
December 31, 2018         
Cash and cash equivalents$11,472
 $11,472
 $
 $
  
Equity securities:
        
Corporate stocks, common32,997
 32,997
 
 
 
Corporate stocks, preferred7,258
 1,654
 5,604
 
 
Mutual funds and other70,777
 70,777
 
 
 
Available-for-sale debt securities:         
     U.S. Government29,503
 18,662
 10,841
 
 $1,098
     International Government8,435
 
 8,435
 
 90
     Municipals53,642
 
 53,642
 
 489
     Corporate and other114,158
 588
 111,414
 2,156
 923
          $328,242
 $136,150
 $189,936
 $2,156
 $2,600
Commodity derivative assets$3,594
 $
 $3,594
 $
  
Commodity derivative liabilities(3,688) 
 (3,688) 
  
          Net$(94) $
 $(94) $
  
Table of Contents



PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




A reconciliation of the changes in Level 3 fair value measurements is as follows:
(8)    Stock-Based Compensation
 Corporate Debt
 (In thousands)
Balance at December 31, 2018$2,156
Actual return on assets sold during the period(49)
Actual return on assets still held at period end54
Purchases414
Sales(488)
Balance at March 31, 2019$2,087
  
Balance at December 31, 2017$
Actual return on assets sold during the period(3)
Actual return on assets still held at period end(11)
Purchases2,724
Sales(359)
Balance at March 31, 2018$2,351


The carrying amounts and fair values of other investments and long-term debt, which are not recorded at fair value on the Condensed Consolidated Balance Sheets, are presented below:
     GAAP Fair Value Hierarchy
 Carrying Amount Fair Value Level 1 Level 2 Level 3
March 31, 2019(In thousands)
PNMR         
Long-term debt$2,944,241
 $3,023,159
 $
 $3,023,159
 $
Other investments$299
 $299
 $299
 $
 $
PNM         
Long-term debt$1,706,873
 $1,744,864
 $
 $1,744,864
 $
Other investments$93
 $93
 $93
 $
 $
TNMP         
Long-term debt$798,941
 $838,705
 $
 $838,705
 $
Other investments$206
 $206
 $206
 $
 $
          
December 31, 2018         
PNMR         
Long-term debt$2,670,111
 $2,703,810
 $
 $2,703,810
 $
Other investments$297
 $297
 $297
 $
 $
PNM         
Long-term debt$1,656,490
 $1,668,736
 $
 $1,668,736
 $
Other investments$91
 $91
 $91
 $
 $
TNMP         
Long-term debt$575,398
 $597,236
 $
 $597,236
 $
Other investments$206
 $206
 $206
 $
 $


PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


(8)Stock-Based Compensation

PNMR has various stock-based compensation programs, including stock options, restricted stock, and performance shares granted under the Performance Equity Plan (“PEP”). Although certain PNM and TNMP employees participate in the PNMR plans, PNM and TNMP do not have separate employee stock-based compensation plans. The Company has not0t awarded stock options since 2010.2010 and all employee stock options expired or were exercised in February 2020. Certain restricted stock awards are subject to achieving performance or market targets. Other awards of restricted stock are only subject to time vesting requirements. Additional information concerning stock-based compensation under the PEP is contained in Note 12 of the Notes to Consolidated Financial Statements in the 20182019 Annual Reports on Form 10-K.


Restricted stock under the PEP refers to awards of stock subject to vesting, performance, or market conditions rather than to shares with contractual post-vesting restrictions. Generally, the awards to employees vest ratably over three years from the grant date of the award. However, awards with performance or market conditions vest upon satisfaction of those conditions. In addition, plan provisions provide that upon retirement, participants become 100% vested in certain stock awards. AwardsThe vesting period for awards of restricted stock to non-employee members of the Board are expensed over a one-year vesting period.is one-year.


The stock-based compensation expense related to restricted stock awards without performance or market conditions to participants that are retirement eligible on the grant date is recognized immediately at the grant date and is not amortized. Compensation expense for other such awards is amortized to compensation expense over the shorter of the requisite vesting period or the period until the participant becomes retirement eligible. Compensation expense for performance-based shares is recognized ratably over the performance period as required service is provided and is adjusted periodically to reflect the level of achievement expected to be attained. Compensation expense related to market-based shares is recognized ratably over the measurement period, regardless of the actual level of achievement, provided the employees meet their service requirements. At March 31, 2019,2020, PNMR had unrecognized expense related to stock awards of $6.5 million, which is expected to be recognized over an average of 1.742.1 years.


PNMR receives a tax deduction for certain stock option exercises during the period the options are exercised, generally for the excess of the price at which the options are sold over the exercise prices of the options, and a tax deduction for the value of restricted stock at the vesting date. GAAP requires that all excess tax benefits and deficiencies be recorded to tax expense and classified as operating cash flows when used to reduce income taxes payable. See Note 14.


The grant date fair value for restricted stock and stock awards with Company internal performance targets is determined based on the market price of PNMR common stock on the date of the agreements reduced by the present value of future dividends whichthat will not be received prior to vesting,vesting. The grant date fair value is applied to the total number of shares that are anticipated to vest, although the number of performance shares that ultimately vest cannot be determined until after the performance periods end. The grant date fair value of stock awards with market targets is determined using Monte Carlo simulation models, which provide grant date fair values that include an expectation of the number of shares to vest at the end of the measurement period.


The following table summarizes the weighted-average assumptions used to determine the awards grant date fair value:

Three Months Ended March 31,
Restricted Shares and Performance Based Shares20202019
Expected quarterly dividends per share$0.3075  $0.2900  
Risk-free interest rate0.72 %2.50 %
Market-Based Shares
Dividend yield2.51 %2.59 %
Expected volatility19.41 %19.55 %
Risk-free interest rate0.72 %2.51 %
41

  Three Months Ended March 31,
Restricted Shares and Performance Based Shares 2019 2018
Expected quarterly dividends per share $0.2900
 $0.2650
Risk-free interest rate 2.50% 2.39%
     
Market-Based Shares    
Dividend yield 2.59% 2.96%
Expected volatility 19.55% 19.12%
Risk-free interest rate 2.51% 2.36%
Table of Contents



PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




The following table summarizes activity in restricted stock awards, including performance-based and market-based shares, and stock options, for the three months endedMarch 31, 2019:2020:

 Restricted Stock Stock Options
 Shares 
Weighted-
Average
Grant Date Fair Value
 Shares 
Weighted-
Average
Exercise Price
Outstanding at December 31, 2018166,651
 $32.93
 81,000
 $11.94
Granted114,611
 $36.48
 
 $
Exercised(118,427) $30.97
 (78,000) $11.92
Forfeited
 $
 
 $
Expired
 $
 
 $
Outstanding at March 31, 2019162,835
 $36.86
 3,000
 $12.38
Restricted StockStock Options
SharesWeighted-
Average
Grant Date Fair Value
SharesWeighted-
Average
Exercise Price
Outstanding at December 31, 2019161,542  $38.21  2,000  $12.22  
Granted217,913  36.88  —  —  
Exercised(225,925) 34.28  (2,000) 12.22  
Outstanding at March 31, 2020153,530  $42.10  —  $—  


PNMR’s current stock-based compensation program provides for performance and market targets through 2021. In February 2019, the Board approved amendments to exclude certain impacts of the Tax Act on performance metrics for the performance periods ending in 2018 and 2019. These amendments did not impact the Company’s calculation of grant date fair values under the plans, but did increase actual achievement levels for the performance period ending in 2018 from below “threshold” levels to below “target” levels and anticipated achievement levels for the performance period ending in 2019 from below “target” levels to the “maximum” level.2022. Included as granted and exercised in the above table above are 47,279122,277 previously awarded shares that were earned for the 2016 through 20182017-2019 performance measurement period and ratified by the Board in February 20192020 (based upon achieving market targets at below “threshold” levels, weighted at 40%, and performance targets at above “target” levels, together weighted at 60%)near "maximum" levels). Excluded from the table above are maximums of 130,302, 146,941,150,543, 142,080 and 135,678142,047 shares for the three-yearthree-year performance periods ending in 2019, 2020, 2021 and 20212022 that wouldwill be awarded if all performance and market criteria are achieved at maximum levels and all executives remain eligible.


In March 2015, the Company entered into a retention award agreement with its Chairman, President, and Chief Executive Officer under which she would receive a total of 53,859 shares of PNMR’s common stock if PNMR meets certain performance targets at the end of 2017 and 2019 and she remainsremained an employee of the Company. The retention award was made under the PEP and was approved by the Board on February 26, 2015. Under the agreement, she was to receive 17,953 of the total shares if PNMR achieved specific performance targets at the end of 2017. The specified performance target was achieved at the end of 2017 and the Board ratified her receiving 17,953 shares in February 2018. The retention awardsecond portion of the agreement of 35,906 shares was made underachieved at the PEPend of 2019 and was approved by the Board onratified her receiving the shares in February 26, 2015. The2020 and such shares are included in the above table does not include the restricted stock shares that remain unvested under this retention award agreement.
At March 31, 2019, the aggregate intrinsic value of stock options outstanding, all of which are exercisable, was $0.1 million with a weighted-average remaining contract life of 1.0 years. At March 31, 2019, no outstanding stock options had an exercise price greater than the closing price of PNMR common stock on that date.

table.
The following table provides additional information concerning restricted stock activity, including performance-based and market-based shares, and stock options:
Three Months Ended March 31,
Restricted Stock20202019
Weighted-average grant date fair value$36.88  $36.48  
Total fair value of restricted shares that vested (in thousands)$11,269  $5,314  
Stock Options
Total intrinsic value of options exercised (in thousands)$84  $2,582  

(9)   Financing
  Three Months Ended March 31,
Restricted Stock 2019 2018
Weighted-average grant date fair value $36.48
 $29.03
Total fair value of restricted shares that vested (in thousands) $5,314
 $7,162
     
Stock Options    
Weighted-average grant date fair value of options granted $
 $
Total fair value of options that vested (in thousands) $
 $
Total intrinsic value of options exercised (in thousands) $2,582
 $2,711


PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


(9)Financing

The Company’s financing strategy includes both short-term and long-term borrowings. The Company utilizes short-term revolving credit facilities, as well as cash flows from operations, to provide funds for both construction and operating expenditures. Depending on market and other conditions, the Company will periodically sell long-term debt or enter into term loan arrangements and use the proceeds to reduce borrowings under the revolving credit facilities or refinance other debt. Each of the Company’s revolving credit facilities and term loans contain a single financial covenant that requires the maintenance of a debt-to-capitalization ratio. For the PNMR and PNMR Development agreements this ratio must be maintained at less than or equal to 70%, and for the PNM and TNMP agreements this ratio must be maintained at less than or equal to 65%. The Company’s revolving credit facilities and term loans generally also contain customary covenants, events of default, cross-default provisions, and change-of-control provisions. PNM must obtain NMPRC approval for any financing transaction having
42

Table of Contents

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

a maturity of more than 18 months. In addition, PNM files its annual short-term financing plan with the NMPRC. Additional information concerning financing activities is contained in Note 7 of the Notes to Consolidated Financial Statements in the 20182019 Annual Reports on Form 10-K.


Financing Activities


OnIn October 21, 2016, PNMR entered into letter of credit arrangements with JPMorgan Chase Bank N.A. (the “JPM"JPM LOC Facility”Facility") under which letters of credit aggregating $30.3 million were issued to facilitate the posting of reclamation bonds, which SJCC was required to post in connection with permits relating to the operation of the San Juan mine. On March 15, 2019, WSJ LLC acquired the assets of SJCC following the bankruptcy of Westmoreland. WSJ LLC assumed theall obligations to PNMRof SJCC, including under the lettersletter of credit support (Note 11).arrangements. See Note 10.


On January 7, 2020, PNMR entered into forward sale agreements with each of Citibank N.A., and Bank of America N.A., as forward purchasers and an underwriting agreement with Citigroup Global Markets Inc., and BofA Securities, Inc. as representatives of the underwriters named therein, relating to an aggregate of approximately 6.2 million shares of PNMR common stock (including 0.8 million shares of PNMR common stock pursuant to the underwriters’ option to purchase additional shares) with each of Citibank N.A., and Bank of America N.A., as forward purchasers (the “PNMR 2020 Forward Equity Sale Agreements”). On January 8, 2020, the underwriters exercised in full their option to purchase the additional 0.8 million shares of PNMR common stock and PNMR entered into separate forward sales agreements with respect to the additional shares. The initial forward sale price of $47.21 per share is subject to adjustments based on a net interest rate factor and by expected future dividends paid on PNMR common stock as specified in the forward sale agreements. PNMR did not initially receive any proceeds upon the execution of these agreements and, except in certain specified circumstances, has the option to elect physical, cash, or net share settlement on or before the date that is 12 months from their effective dates.

PNMR expects to physically settle all shares under the PNMR 2020 Forward Equity Sale Agreements by delivering newly issued shares to the forward purchasers on or before January 7, 2021 in exchange for cash at the then applicable forward sales price. PNMR also has the option to net settle the agreement in cash or shares of PNMR common stock. Under a net cash settlement, under which no PNMR common stock would be issued, PNMR would receive net proceeds for a decrease in the market value of PNMR's common stock relative to the then applicable forward sales price per share, or would owe cash in the event of an increase in the market value of PNMR common stock. Under a net share settlement, PNMR would not receive any cash proceeds and may be required to deliver a sufficient number of shares of PNMR common stock to satisfy its obligation to the forward purchasers. The number of shares to be delivered to the forward purchasers would be based on the increase in the PNMR's common stock price relative to the then applicable forward sales price per share. The forward sale agreements meet the derivative scope exception requirements for contracts involving an entity’s own equity. Until settlement of the forward sale agreements, PNMR’s EPS dilution resulting from the agreements, if any, will be determined using the treasury stock method, which will result in dilution during periods when the average market price of PNMR stock during the reporting period is higher than the applicable forward sales price as of the end of that period. See Note 4.

On April 9, 2018, PNMR Development deposited $68.2 million with PNM related to potential transmission network interconnections, which was classified as a cash inflow from financing activities on PNM’s Condensed Consolidated Statements of Cash Flows in the second quarter of 2018. PNM used the deposit to repay intercompany borrowings. PNM is required to pay interest to PNMR Development to the extent work under the interconnections has not been performed. During the three months ended March 31, 2019, PNM recognized $0.9 million of interest expense under the agreement. At March 31, 2019, PNM’s remaining obligation under the interconnection agreement with PNMR Development of $68.2 million, excluding unpaid interest, is reflected in other deferred credits on PNM’s Condensed Consolidated Balance Sheets. As required by GAAP, all intercompany transactions related to this deposit have been eliminated on PNMR’s Condensed Consolidated Financial Statements.

On January 18, 2019, PNM entered into a $250.0 million term loan agreement (the “PNM 2019 Term Loan”) among PNM, the lenders identified therein, and U.S. Bank N.A., as administrative agent. PNM used the proceeds of the PNM 2019 Term Loan to repay the PNM 2017 Term Loan, to reduce short-term borrowings under the PNM Revolving Credit Facility, and for general corporate purposes. The PNM 2019 Term Loan bears interest at a variable rate and must be repaid on or before July 17, 2020.

On February 26, 2019,24, 2020, TNMP entered into the TNMP 20192020 Bond Purchase Agreement with institutional investors for the sale of $305.0$185.0 million aggregate principal amount of four4 series of TNMP first mortgage bonds (the “TNMP 2019 Bonds”"TNMP 2020 Bonds") offered in private placement transactions. TNMP issued $225.0$110.0 million of TNMP 20192020 Bonds on March 29, 2019April 24, 2020 and used the proceeds to repay TNMP’s $172.3 million 9.50% first mortgage bonds at their maturity on April 1, 2019, as well as to repay borrowings under the TNMP Revolving Credit Facility and for other general corporate purposes. TNMP will issue the remaining $80.0$75.0 million of TNMP 20192020 Bonds on or before July 1, 201915, 2020 and will use the proceeds from that issuance to repay borrowings under the TNMP Revolving Credit Facilityfacility and for other general corporate purposes. The issuance of the remaining TNMP 20192020 Bonds is subject to the satisfaction of customary conditions, and the TNMP 20192020 Bonds are subject to continuing compliance with the representations, warranties and covenants of the TNMP 20192020 Bond Purchase Agreement. The terms of the TNMP 20192020 Bond Purchase Agreement include customary covenants, including a covenant that requires TNMP to maintain a debt-to-capitalization ratio of less than or equal to 65%, customary events of default, a cross-default provision, and a change-of-control provision. TNMP will have the right to redeem any or all of the TNMP 20192020 Bonds prior to their respective maturities, subject to payment of a customary make-whole premium. In accordance with GAAP, borrowings under the $172.3 million 9.50% TNMP first mortgage bonds are reflected as being long-term in the Condensed Consolidated Balance Sheets at December 31, 2018 since TNMP demonstrated its intent and ability to re-finance the agreement on a long-term basis. These bonds are reflected in current maturities


43

Table of long-term debt on the Condensed Consolidated Balance Sheets at March 31, 2019 since the proceeds from the issuance of $225.0 million of TNMP 2019 Bonds, net of amounts used to repay short-term debt, are reflected in cash and cash equivalents.Contents



PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Information concerning the funding dates, maturities and interest rates on the TNMP 20192020 Bonds issued in March 2019April 2020 and to be issued on or before July 1, 201915, 2020 is as follows:


Funding DateMaturity DatePrincipal AmountInterest Rate
(In millions)
April 24, 2020April 24, 2030$85.0  2.73 %
April 24, 2020April 24, 205025.0  3.36 %
110.0  
July 15, 2020July 15, 203525.0  2.93 %
July 15, 2020July 15, 205050.0  3.36 %
$185.0  
Funding Date Maturity Date Principal Amount Interest Rate
    (In millions)  
March 29, 2019 March 29, 2034 $75.0
 3.79%
March 29, 2019 March 29, 2039 75.0 3.92%
March 29, 2019 March 29, 2044 75.0 4.06%
    225.0
  
July 1, 2019 July 1, 2029 80.0
 3.60%
    $305.0
  


On April 15, 2020, PNM entered into a $250.0 million term loan agreement (the "PNM 2020 Term Loan"), between PNM, the lenders party thereto, and U.S. Bank, as administrative agent. Proceeds from the PNM 2020 Term Loan were used to prepay the PNM 2019 $250.0 million Term Loan due July 2020, without penalty. The PNM 2020 Term Loan bears interest at a variable rate, which was 2.70% at May 1, 2020, and matures on June 15, 2021. In accordance with GAAP, borrowings under the PNM 2019 $250.0 million Term Loan are reflected as long-term in the Condensed Consolidated Balance Sheets at March 31, 2020 since PNM demonstrated its intent and ability to refinance this agreement on a long-term basis. As discussed below, on April 30, 2020, PNM used $100.0 million of proceeds from the PNM 2020 SUNs to prepay without penalty an equal amount of the PNM 2020 Term Loan.

On April 30, 2020, PNM entered into an agreement (the "PNM 2020 Note Purchase Agreement") with institutional investors for the sale of $200.0 million aggregate principal amount of senior unsecured notes offered in private placement transactions. Under the agreement, PNM issued $150.0 million aggregate principal amount of its 3.21% senior unsecured notes, Series A, due April 30, 2030, and $50.0 million of its aggregate principal amount of its 3.57% senior unsecured notes, Series B, due April 29, 2039 (the "PNM 2020 SUNs"). The PNM 2020 SUNs were issued on April 30, 2020. PNM used $100.0 million of proceeds from the PNM 2020 SUNs to repay an equal amount of the PNM 2020 Term Loan. The remaining $100.0 million of the PNM 2020 SUNs were used to repay borrowings on the PNM Revolving Credit Facility and for other corporate purposes. The PNM 2020 SUNs agreement includes customary covenants, including a covenant that requires PNM to maintain a debt-to-capitalization ratio of less than or equal to 65%, customary events of default, including a cross-default provision, and covenants regarding parity of financial covenants, liens and guarantees with respect to PNM’s material credit facilities. In the event of a change of control, PNM will be required to offer to prepay the PNM 2020 SUNs at par. PNM has the right to redeem any or all of the PNM 2020 SUNs prior to their maturities, subject to payment of a customary make-whole premium.

At March 31, 2019,2020, variable interest rates were 3.29%1.79% on the $50.0 million PNMR 2018 Two-YearTwo-Year Term Loan whichthat matures in December 2020, 3.13%1.75% on the $250.0 million PNMPNMR 2019 Term Loan whichthat matures in July 2020, 3.20%June 2021, 1.59% on the $35.0PNM 2019 $250.0 million TNMP 2018 Term Loan, which was repaid on April 15, 2020, 1.26% on the PNM 2019 $40.0 million Term Loan that matures in JulyJune 2020, and 3.30%1.79% on the $90.0 million PNMR Development Term Loan whichthat matures in November 2020.


On April 1, 2020, the NMPRC approved PNM’s request to issue approximately $361 million of Securitized Bonds upon the retirement of SJGS in 2022. The NMPRC's approval of the issuance of these Securitized Bonds is currently being appealed to the NM Supreme Court. See SJGS Abandonment Application in Note 12.

Short-term Debt and Liquidity


TheCurrently, the PNMR Revolving Credit Facility has a financing capacity of $300.0 million and the PNM Revolving Credit Facility has a financing capacity of $400.0 million. Both facilities currently expire on October 22,31, 2023 butand contain options to be extended through October 2024, subject to approval by a majority of the lenders. One lender whose commitment was $10.0 million under the PNMR Revolving Credit Facility and $40.0 million under the PNM Revolving Credit Facility did not agree to extend its commitments beyond October 31, 2020. On April 25, 2019, a new lender assumed the commitments of the non-extending lender under the PNMR and PNM Revolving Credit Facilities. PNM also has the $40.0 million PNM 2017 New Mexico Credit Facility that expires on December 12, 2022. The TNMP Revolving Credit Facility is a $75.0 million revolving credit facility secured by $75.0 million aggregate principal amount of TNMP first mortgage bonds and matures on September 23, 2022.

On February 22, 2019, PNMR Development amended its $24.5has a $40.0 million revolving credit facility that expires on February 23,
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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2021. PNMR Development has the option to further increase the capacity of this facility to $25.0$50.0 million and to extend the term until February 24, 2020.upon 15-days advance notice. The PNMR Development Revolving Credit Facility bears interest at a variable rate and contains terms similar to the PNMR Revolving Credit Facility. PNMR has guaranteed the obligations of PNMR Development under the facility. PNMR Development uses the facility to finance its participation in NMRD and for other activities. Variable interest rates under these facilities are based on LIBOR but contain provisions which allow for the replacement of LIBOR with other widely accepted interest rates.


Short-term debt outstanding consistedconsists of:
March 31,December 31,
Short-term Debt20202019
(In thousands)
PNM:
PNM Revolving Credit Facility$30,000  $48,000  
PNM 2017 New Mexico Credit Facility30,000  10,000  
60,000  58,000  
TNMP Revolving Credit Facility70,000  15,000  
PNMR Revolving Credit Facility170,600  112,100  
$300,600  $185,100  
  March 31, December 31,
Short-term Debt 2019 2018
  (In thousands)
PNM:    
PNM Revolving Credit Facility $
 $32,400
PNM 2017 New Mexico Credit Facility 
 10,000
  
 42,400
TNMP Revolving Credit Facility 
 17,500
PNMR:    
PNMR Revolving Credit Facility 62,200
 20,000
PNMR 2018 One-Year Term Loan 150,000
 150,000
     PNMR Development Revolving Credit Facility 11,600
 6,000
  $223,800
 $235,900


PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



At March 31, 2019,2020, the weighted average interest rate was 3.74%2.15% for the PNMR Revolving Credit Facility, 3.24%2.35% for the PNMR 2018 One-Year Term Loan,PNM Revolving Credit Facility, 2.12% for the PNM 2017 New Mexico Credit Facility, and 3.49%1.74% for the TNMP Revolving Credit Facility. There were 0 borrowings outstanding under the PNMR Development Revolving Credit Facility.Facility at March 31, 2020.


In addition to the above borrowings, PNMR, PNM, and TNMP had letters of credit outstanding of $4.7 million, $2.5 million, and $0.7$0.1 million at March 31, 20192020 that reduce the available capacity under their respective revolving credit facilities. The above table excludes intercompany debt. As of March 31, 20192020, and December 31, 2018,2019, each of PNM, TNMP, had zero and $0.1 million of intercompany borrowings from PNMR, PNM had zero and $19.8 million of intercompany borrowings from PNMR, and PNMR Development had $3.1 million and zero of intercompany borrowings from PNMR.


In 2017, PNMR entered into three3 separate four-yearfour-year hedging agreements whereby it effectively established fixed interest rates of 1.926%, 1.823%, and 1.629%, plus customary spreads over LIBOR for three3 separate tranches, each of $50.0 million, of its variable rate debt. These hedge agreements are accounted for as cash flow hedges. These hedge agreementshedges and had fair values aggregating $1.4of $2.5 million and $0.4 million at March 31, 2020 and December 31, 2019 that is included in other deferred charges and $1.0 million at December 31, 2018 that isare included in other current assetsliabilities on the Condensed Consolidated Balance Sheets. As discussed in Note 3, changes in the fair value of the cash flow hedgehedges are deferred in AOCI and amounts reclassified to the Condensed Consolidated Statement of Earnings are recorded in interest charges. The fair values were determined using Level 2 inputs under GAAP, including using forward LIBOR curves under the mid-market convention to discount cash flows over the remaining term of the agreement. On January 1, 2019, the Company adopted Accounting Standards Update 2017-12 Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. Adoption of the updated standard did not have a significant impact on these cash flow hedges.


At May 3, 2019,1, 2020, PNMR, PNM, TNMP, and PNMR Development had availability of $239.4$162.6 million,, $397.5 $382.5 million,, $45.7 $74.9 million,, and $9.9$40.0 million under their respective revolving credit facilities, including reductions of availability due to outstanding letters of credit, and PNM also had $40.0$10.0 million of availability under the PNM 2017 New Mexico Credit Facility. Total availability at May 3, 2019,1, 2020, on a consolidated basis, was $732.5$670.0 million for PNMR. As of May 3, 2019,1, 2020, PNM, TNMP, and TNMPPNMR Development had no borrowings from PNMR under their intercompany loan agreements. At May 3, 2019,1, 2020, PNMR, PNM, and TNMP had invested cash of $0.9$0.9 million,, $9.0 $1.9 million, and none.$21.9 million.


The Company’s debt arrangements have various maturities and expiration dates. As discussed above, on February 26, 2019 TNMP entered into the TNMP 2019 Bond Purchase Agreement providing for the issuance of an aggregate of $305.0PNM has $100.3 million of TNMP 2019 Bonds. TNMP issued $225.0 million of the TNMP 2019 Bonds on March 29, 2019 and used a portion of the proceeds fromlong-term debt that issuance to repay TNMP’s $172.3 million 9.50% first mortgage bonds at their maturity on April 1, 2019. TNMP will issue the remaining $80.0 million of TNMP 2019 Bonds on or before July 1, 2019 and will use the proceeds from that issuance to repay borrowings under the TNMP Revolving Credit Facility and for other general corporate purposes.must be repriced by June 2020. In addition, the $150.0$90.0 million PNMR Development Term Loan matures in November 2020, the $50.0 million PNMR 2018 One-Year term loan will matureTwo-Year Term Loan matures in December 2019. The Company has no other long-term debt due through2020, and the $300.0 million PNMR 2018 SUNs mature on March 31, 2020.9, 2021. Additional information on debt maturities is contained in Note 7 of the Notes to Consolidated Financial Statements in the 20182019 Annual Reports on Form 10-K.

(10)Pension and Other Postretirement Benefit Plans


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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(10)   Pension and Other Postretirement Benefit Plans

PNMR and its subsidiaries maintain qualified defined benefit pension plans, postretirement benefit plans providing medical and dental benefits, and executive retirement programs (collectively, the “PNM Plans” and “TNMP Plans”). PNMR maintains the legal obligation for the benefits owed to participants under these plans. The periodic costs or income of the PNM Plans and TNMP Plans are included in regulated rates to the extent attributable to regulated operations. In accordance with GAAP, the Company presents the service cost component of its net periodic benefit costs in administrative and general expenses and the non-service costs components in other income (deductions), net of amounts capitalized or deferred to regulatory assets and liabilities, on the Condensed Consolidated Statements of Earnings. PNM and TNMP receive a regulated return on the amounts funded for pension and OPEB plans in excess of accumulated periodic cost or income to the extent included in retail rates (a “prepaid pension asset”).


Additional information concerning pension and OPEB plans is contained in Note 11 of the Notes to Consolidated Financial Statements in the 20182019 Annual Reports on Form 10-K. Annual net periodic benefit cost for the plans is actuarially determined using the methods and assumptions set forth in that note and is recognized ratably throughout the year.


PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



PNM Plans


The following table presents the components of the PNM Plans’ net periodic benefit cost:
Three Months Ended March 31,
Pension PlanOPEB PlanExecutive Retirement Program
202020192020201920202019
(In thousands)
Components of Net Periodic Benefit Cost
Service cost$—  $—  $10  $13  $—  $—  
Interest cost4,985  6,294  613  829  122  162  
Expected return on plan assets(7,363) (8,527) (1,387) (1,318) —  —  
Amortization of net (gain) loss4,465  3,880  87  169  101  79  
Amortization of prior service cost(138) (241) —  (99) —  —  
Net Periodic Benefit Cost (Income)$1,949  $1,406  $(677) $(406) $223  $241  
 Three Months Ended March 31,
 Pension Plan OPEB Plan Executive Retirement Program
 2019 2018 2019 2018 2019 2018
 (In thousands)
Components of Net Periodic Benefit Cost           
Service cost$
 $
 $13
 $21
 $
 $
Interest cost6,294
 6,068
 829
 860
 162
 155
Expected return on plan assets(8,527) (8,672) (1,318) (1,353) 
 
Amortization of net (gain) loss3,880
 4,087
 169
 588
 79
 90
Amortization of prior service cost(241) (241) (99) (416) 
 
Net periodic benefit cost$1,406
 $1,242
 $(406) $(300) $241
 $245


PNM did not0t make any contributions to its pension plan trust in the three months ended March 31, 2020 and 2019 and 2018 and does not0t anticipate making any contributions to the pension plan in 2019-2021,2020 or 2021, but expects to contribute $1.3$4.6 million in 2022 and $22.9$19.1 million in 2023, and $19.0 million in 2024 based on current law, including recent amendments to funding requirements, and estimates of portfolio performance. The fundingFunding assumptions were developed using discount rates of 4.2%3.4% to 4.6%3.5%. Actual amounts to be funded in the future will be dependent on the actuarial assumptions at that time, including the appropriate discount rate. PNM may make additional contributions at its discretion. PNM made no0 cash contributions to the OPEB trust in the three months ended March 31, 2020 and 2019, however, a portion of the disbursements attributable to the OPEB trust are paid by PNM and 2018. PNM does not expectare therefore considered to make anybe contributions to the OPEB trustplan. Payments by PNM on behalf of the PNM OPEB plan were $1.1 million and $0.8 million in 2019-2023.the three months ended March 31, 2020 and 2019 and are expected to total $3.7 million in 2020 and $13.5 million for 2021-2024. Disbursements under the executive retirement program, which are funded by PNM and considered to be contributions to the plan, were $0.4$0.3 million and $0.5$0.4 million in the three months ended March 31, 20192020 and 20182019 and are expected to total $1.5$1.5 million during 20192020 and $5.6$5.4 million for 2020-2023.2021-2024.



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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

TNMP Plans


The following table presents the components of the TNMP Plans’ net periodic benefit cost:
Three Months Ended March 31,
Pension PlanOPEB PlanExecutive Retirement Program
202020192020201920202019
(In thousands)
Components of Net Periodic Benefit Cost
Service cost$—  $—  $12  $13  $—  $—  
Interest cost544  672  93  113    
Expected return on plan assets(821) (967) (134) (129) —  —  
Amortization of net (gain) loss315  235  (81) (110)   
Net Periodic Benefit Cost (Income)$38  $(60) $(110) $(113) $12  $12  
 Three Months Ended March 31,
 Pension Plan OPEB Plan Executive Retirement Program
 2019 2018 2019 2018 2019 2018
 (In thousands)
Components of Net Periodic Benefit Cost           
Service cost$
 $
 $13
 $33
 $
 $
Interest cost672
 656
 113
 119
 8
 7
Expected return on plan assets(967) (991) (129) (135) 
 
Amortization of net (gain) loss235
 272
 (110) (56) 4
 4
Amortization of prior service cost
 
 
 
 
 
Net Periodic Benefit Cost$(60) $(63) $(113) $(39) $12
 $11


TNMP did not0t make any contributions to its pension plan trust in the three months ended March 31, 2020 and 2019 and 2018 and does not0t anticipate making any contributions to the pension plan in 2019-2023,2020 - 2022, but expects to contribute $1.1 million in 2023 and $2.8 million in 2024, based on current law, including recent amendments to funding requirements, and estimates of portfolio performance. The fundingFunding assumptions were developed using discount rates of 4.2%3.4% to 4.6%3.5%. Actual amounts to be funded in the future will depend on the actuarial assumptions at that time, including the appropriate discount rate. TNMP may make additional contributions at its discretion. TNMP made 0 contributions of zero and $0.3 million to the OPEB trust in the three months ended March 31, 2020 and 2019 and 2018. TNMP does not0t expect to make contributions to the OPEB

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


trust during the period 2019-2023.2020-2024. Disbursements under the executive retirement program, which are funded by TNMP and considered to be contributions to the plan, were 0 and less than $0.1$0.1 million in the three months ended March 31, 20192020 and 20182019 and are expected to total $0.1$0.1 million during 20192020 and $0.3 million in 2020-2023.2021-2024.


(11)Commitments and Contingencies

(11)   Commitments and Contingencies

Overview
There are various claims and lawsuits pending against the Company. In addition, the Company is subject to federal, state, and local environmental laws and regulations and periodically participates in the investigation and remediation of various sites. In addition, the Company periodically enters into financial commitments in connection with its business operations. Also, the Company is involved in various legal and regulatory (Note 12) proceedings in the normal course of its business. See Note 12. It is not possible at this time for the Company to determine fully the effect of all litigation and other legal and regulatory proceedings on its financial position, results of operations, or cash flows.
With respect to some of the items listed below, the Company has determined that a loss is not probable or that, to the extent probable, cannot be reasonably estimated. In some cases, the Company is not able to predict with any degree of certainty the range of possible loss that could be incurred. The Company assesses legal and regulatory matters based on current information and makes judgments concerning their potential outcome, giving due consideration to the nature of the claim, the amount and nature of any damages sought, and the probability of success. Such judgments are made with the understanding that the outcome of any litigation, investigation, or other legal proceeding is inherently uncertain. In accordance with GAAP, the Company records liabilities for matters where it is probable a loss has been incurred and the amount of loss is reasonably estimable. The actual outcomes of the items listed below could ultimately differ from the judgments made and the differences could be material. The Company cannot make any assurances that the amount of reserves or potential insurance coverage will be sufficient to cover the cash obligations that might be incurred as a result of litigation or regulatory proceedings. Except as otherwise disclosed, the Company does not expect that any known lawsuits, environmental costs, and commitments will have a material effect on its financial condition, results of operations, or cash flows.
Additional information concerning commitments and contingencies is contained in Note 16 of the Notes to Consolidated Financial Statements in the 20182019 Annual Reports on Form 10-K.


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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Commitments and Contingencies Related to the Environment


Nuclear Spent Fuel and Waste Disposal


Nuclear power plant operators are required to enter into spent fuel disposal contracts with the DOE that require the DOE to accept and dispose of all spent nuclear fuel and other high-level radioactive wastes generated by domestic power reactors. Although the Nuclear Waste Policy Act required the DOE to develop a permanent repository for the storage and disposal of spent nuclear fuel by 1998, the DOE announced that it would not be able to open the repository by 1998 and sought to excuse its performance of these requirements. In November 1997, the DC Circuit issued a decision preventing the DOE from excusing its own delay but refused to order the DOE to begin accepting spent nuclear fuel. Based on this decision and the DOE’s delay, a number of utilities, including APS (on behalf of itself and the other PVNGS owners, including PNM), filed damages actions against the DOE in the Court of Federal Claims. The lawsuits filed by APS alleged that damages were incurred due to DOE’s continuing failure to remove spent nuclear fuel and high-level waste from PVNGS. In August 2014, APS and the DOE entered into a settlement agreement that establishes a process for the payment of claims for costs incurred through December 31, 2019. Under the settlement agreement, APS must submit claims annually for payment of allowable costs. PNM records estimated claims on a quarterly basis. The benefit from the claims is passed through to customers under the FPPAC to the extent applicable to NMPRC regulated operations. The DOE is reviewing a possible three year extension of the settlement agreement. PNM cannot predict the timing of the DOE's decision on the extension.


PNM estimates that it will incur approximately $57.7$57.7 million (in 2016 dollars) for its share of the costs related to the on-site interim storage of spent nuclear fuel at PVNGS during the term of the operating licenses. PNM accrues these costs as a component of fuel expense as the nuclear fuel is consumed. At March 31, 20192020 and December 31, 2018,2019, PNM had a liability for interim storage costs of $12.5$12.8 million and $12.4$12.7 million,, which is included in other deferred credits.


PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



PVNGS has sufficient capacity at its on-site ISFSIIndependent Spent Fuel Storage Installation (“ISFSI”) to store all of the nuclear fuel that will be irradiated during the initial operating license period, which ends in December 2027.  Additionally, PVNGS has sufficient capacity at its on-site ISFSI to store a portion of the fuel that will be irradiated during the period of extended operation, which ends in November 2047.  If uncertainties regarding the United StatesU.S. government’s obligation to accept and store spent fuel are not favorably resolved, APS will evaluate alternative storage solutions that may obviate the need to expand the ISFSI to accommodate all of the fuel that will be irradiated during the period of extended operation.

The Energy Transition Act

On March 22, 2019, the Governor signed into New Mexico state law Senate Bill 489, known as the Energy Transition Act (“ETA”). The ETA becomes effective as of June 14, 2019 and sets a statewide standard that requires investor-owned electric utilities to have specified percentages of their electric-generating portfolios be provided from renewable and zero-carbon generating resources. Prior to the enactment of the ETA, the REA established a mandatory RPS requiring utilities to acquire a renewable energy portfolio equal to 10% of retail electric sales by 2011, 15% by 2015, and 20% by 2020. The ETA amends the REA and requires utilities operating in New Mexico to have renewable portfolios equal to 20% by 2020, 40% by 2025, 50% by 2030, 80% by 2040, and 100% zero-carbon energy by 2045. The ETA also amends sections of the REA to allow for the recovery of undepreciated investments and decommissioning costs related to qualifying EGUs that the NMPRC has required be removed from retail jurisdictional rates, provided replacement resources to be included in retail rates have lower or zero-carbon emissions. The ETA requires the NMPRC to review and approve utilities’ annual renewable portfolio plans to ensure compliance with the RPS. The ETA also directs the New Mexico Environmental Improvement Board to adopt standards of performance that limit CO2 emissions to no more than 1,100 lbs. per MWh beginning January 1, 2023 for new or existing coal-fired EGUs with original installed capacities exceeding 300 MWs.

The ETA provides for a transition from fossil-fuel generation resources to renewable and other carbon-free resources through certain provisions relating to the abandonment of coal-fired generating facilities. These provisions include the use of “energy transition bonds,” which are designed to be highly rated bonds that can be issued by qualifying utilities to finance certain costs of abandoning coal-fired facilities that are retired prior to January 1, 2023, for facilities operated by a “qualifying utility,” or prior to January 1, 2032 for facilities that are not operated by the qualifying utility. The amount of energy transition bonds that can be issued to recover abandonment costs is limited to the lesser of $375.0 million or 150% of the undepreciated investment of the facility as of the abandonment date. Proceeds provided by energy transition bonds must be used only for purposes related to providing utility service to customers and to pay “financing costs” (as defined by the ETA). These costs may include plant decommissioning and coal mine reclamation costs provided those costs have not previously been recovered from customers or disallowed by the NMPRC or by a court order. Proceeds from energy transition bonds may also be used to fund severances for employees of the retired facility and related coal mine and to promote economic development, education and job training in areas impacted by the retirement of the coal-fired facilities. Energy transition bonds must be issued under an NMPRC approved financing order, are secured by “energy transition property,” are non-recourse to the issuing utility, and must be repaid by a non-bypassable charge paid by all customers of the issuing utility. These customer charges are subject to an adjustment mechanism designed to provide for timely and complete payment of principal and interest due under the energy transition bonds.

The ETA also provides that utilities must obtain NMPRC approval of competitively procured replacement resources. In determining whether to approve replacement resources, the NMPRC must give preference to resources with the least environmental impacts, those with higher ratios of capital costs to fuel costs, and those able to reduce the cost of reclamation and use for lands previously mined within the county of the EGU to be abandoned. Replacement resources will be subject to local taxes or equivalent payments in lieu of taxes and are defined to mean up to 450 MW of nameplate capacity, provided such resources are located in the same school district as the abandoned facility, are necessary to maintain reliable service, and are in the public interest as determined by the NMPRC. The ETA also provides for the procurement of energy storage facilities and gives utilities discretion to maintain and control these systems to ensure reliable and efficient service.

The effectiveness of the ETA will have a significant impact on PNM’s future generation portfolio, including PNM’s planned retirement of SJGS in 2022. See December 2018 Compliance Filing below. PNM cannot predict the full impact of the ETA or the outcome of its potential future financing and generating resource abandonment and replacement resource filings with the NMPRC.


PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



The Clean Air Act


Regional Haze


In 1999, EPA developed a regional haze program and regional haze rules under the CAA. The rule directs each of the 50 states to address regional haze. Pursuant to the CAA, states have the primary role to regulate visibility requirements by promulgating SIPs. States are required to establish goals for improving visibility in national parks and wilderness areas (also known as Class I areas) and to develop long-term strategies for reducing emissions of air pollutants that cause visibility impairment in their own states and for preventing degradation in other states. States must establish a series of interim goals to ensure continued progress by adopting a new SIP every ten years. In the first SIP planning period, states were required to conduct BART determinations for certain covered facilities, including utility boilers, built between 1962 and 1977 that have the potential to emit more than 250 tons per year of visibility impairing pollution. If it was demonstrated that the emissions from these sources caused or contributed to visibility impairment in any Class I area, then BART must have been installed by the beginning of 2018. For all future SIP planning periods, states must evaluate whether additional emissions reduction measures may be needed to continue making reasonable progress toward natural visibility conditions.


On January 10, 2017, EPA published in the Federal Register revisions to the regional haze rule. EPA also provided a companion draft guidance document for public comment. The new rule delayed the due date for the next cycle of SIPs from 2019 to 2021, altered the planning process that states must employ in determining whether to impose “reasonable progress” emission reduction measures, and gave new authority to federal land managers to seek additional emission reduction measures outside of the states’ planning process. Finally, the rule made several procedural changes to the regional haze program, including changes to the schedule and process for states to file 5-year progress reports. EPA’s new rule was challenged by numerous parties. On January 19, 2018, EPA filed a motion to hold the case in abeyance in light of several letters issued by
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EPA on January 17, 2018 to grant various petitions for reconsideration of the 2017 rule revisions. EPA’s decision to revisit the 2017 rule is not a determination on the merits of the issues raised in the petitions.

On December 20, 2018, EPA released a new guidance document on tracking visibility progress for the second planning period. EPA is allowing states discretion to develop SIPs that may differ from EPA’s guidance as long as they are consistent with the CAA and other applicable regulations. On August 20, 2019, EPA finalized the draft guidance that was released in 2016 as a companion to the regional haze rule revisions. The final guidance differs from the draft in several ways. For example, the final guidance recognizes that sources already subject to BART may not need to be re-evaluated under the full four-factor analysis whereas the draft guidance encouraged states to evaluate all sources regardless of whether they were previously subject to BART. In addition, the final guidance recognizes that states may consider both visibility benefits and the cost of different control options when applying the four-factor analysis whereas the draft guidance recommended states require any control measures identified to be reasonable after considering the four-factor analysis alone. SIPs for the second compliance period are due in July 2021. EPA’s decision to revisitNMED is currently preparing its SIP for the 2017 rule issecond compliance period and has notified PNM that it will not require a determination on the merits of the issues raised in the petitions. PNM is evaluating the potential impacts of these matters.

SJGS

December 2018 Compliance Filing As discussed in Note 16 of the Notes to the Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K, in December 2015 PNM received NMPRC approval for a plan to comply with the EPA regional haze rule at SJGS. Among other things, the NMPRC’s December 2015 order required that, no later than December 31, 2018,four-factor analysis for SJGS since PNM make a filing with the NMRPC to determine the extent to which SJGS should continue serving PNM’s customers’ needs after June 30, 2022, including PNM’s recommendation and supporting testimony and exhibits (the “December 2018 Compliance Filing”). The December 2018 Compliance Filing was required to be made before PNM entered into a binding commitment for post-2022 coal supply but after PNM received firm pricing and other terms for the supply of coal at SJGS, unless PNM did not intend to pursue an agreement for post-2022 coal supply at SJGS. The NMPRC’s December 2015 order also indicated that, if SJGS Unit 4 is abandoned with undepreciated investment on PNM’s books, PNM is prohibited from recovering the undepreciated investment ofwill retire its 132 MW interest and required that PNM’s 65 MW interest in SJGS Unit 4 be treated as excluded merchant plant. PNM is currently depreciating all its investments in SJGS through 2053, which reflects the period of time over which the NMPRC has authorized PNM to recover its investment in SJGS from New Mexico retail customers.

PNM submitted the December 2018 Compliance Filing to the NMPRC on December 31, 2018 indicating that, consistent with the conclusions reached in PNM’s 2017 IRP (Note 12), PNM’s customers would benefit from the retirement of PNM’s share of SJGS after the current SJGS CSA expires in mid-2022. The December 2018 Compliance Filing also indicates that, pursuant to the terms of the agreements governing SJGS, all of the SJGS owners except for Farmington have provided written notice that they do not intend to extend the SJGS operating agreements beyond their June 30, 2022 expiration dates, and that PNM has provided written notice to SJCC that PNM does not intend to extend the SJGS CSA beyond June 30, 2022 or to negotiate a new coal supply agreement on behalf of the other SJGS participants. The December 2018 Compliance Filing also requested the NMPRC accept the filing as compliant with the December 2015 order and indicated that PNM anticipates it will have sufficient information by the end of the second quarter of 2019 to support a consolidated application seeking NMPRC approval to retire PNM’s share of

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SJGS in 2022 and for approval of CCNs, PPAs, or other applicable approvals, for replacement capacity resources. On January 10, 2019, the NMPRC opened a docket to determine whether the NMPRC should grant PNM’s request to accept the December 2018 Compliance Filing and take no further action pending PNM submitting a formal consolidated abandonment and replacement resources application, or whether the NMPRC should immediately establish a formal procedural schedule regarding the abandonment of SJGS. The NMPRC received responses from parties regarding the initial order and, on January 30, 2019, approved an order initiating a proceeding and requiring PNM to submit an application for the abandonment of PNM’s share of SJGS by March 1, 2019. On February 7, 2019, PNM filed a motion requesting the NMPRC vacate the January 30, 2019 order and extend the deadline for PNM’s abandonment filing until the end of the second quarter of 2019, which was deemed denied. On February 27, 2019, PNM filed a petition with the NM Supreme Court stating that the requirements of the January 30, 2019 order exceed the NMPRC’s authority by, among other things, mandating PNM to make a filing that is legally voluntary, and that the order is contrary to NMPRC precedent which requires abandonment applications to also include identified replacement resources and other information that would not be available to PNM by March 1, 2019. PNM’s petition also requested the NM Supreme Court stay the January 30, 2019 order until after June 14, 2019. On March 1, 2019, the NM Supreme Court granted a temporary stay of the NMPRC’s order to consider the merits of PNM’s petition after receiving responses.  On March 19, 2019, the NMPRC and NEE filed responses supporting the NMPRC’s authority to order PNM to initiate a proceeding. Other parties to the case filed responses supporting a stay of the NMPRC’s order and indicating that the abandonment filing should be subject to recently enacted changes in New Mexico state law. See additional discussion of the ETA above. PNM cannot predict the outcome of this matter.

GAAP requires that long-lived assets be tested for impairment when events or changes in circumstances indicate that their carrying value may not be recoverable. The test must consider only those cash flows that are directly associated with the long-lived asset, or group of assets, and requires the evaluation be performed at the lowest level for which identifiable cash flows are largely independent of other cash flows within the asset group. As of December 31, 2018, PNM evaluated the events surrounding its future participation in SJGS and determined that it is more likely than not that PNM’s share of SJGS will be retired in 2022. As a result, PNM performed an impairment analysis that assumed SJGS would not continue to operate through 2053, as previously approved by the NMPRC. PNM’s impairment analysis indicated that, pursuant to the NMPRC’s December 16, 2015 order, PNM’s undepreciated 132 MW interest in SJGS Unit 4 at June 30, 2022 will not be recovered from customers; that the estimated future cash flows expected to result from the operation of SJGS Unit 4 through June 30, 2022 are not sufficient to provide for recovery of PNM’s 65 MW merchant interest in the facility; and that it is unlikely PNM will be able to sell or transfer its interests in SJGS to third parties at amounts sufficient to provide for their recovery. As a result, as of December 31, 2018, PNM recorded a pre-tax impairment of its investment in SJGS of approximately $35.0 million, which is reflected as regulatory disallowances and restructuring costs on the Consolidated Statements of Earnings in the 2018 Annual Reports on Form 10-K. This amount includes the entire $11.9 million carrying value of PNM’s 65 MW interest in SJGS Unit 4 as of December 31, 2018 and $23.1 million of estimated undepreciated investments in PNM’s 132 MW jurisdictional interest as of June 30, 2022 that will not be recovered from customers. The carrying value of PNM’s remaining undepreciated investments in SJGS, which PNM will seek to recover from customers in the event of an early retirement of the facility, is $371.6 million as of March 31, 2019. See additional discussion regarding the increase in PNM’s estimated liability for coal mine reclamation below.

The December 2018 Compliance Filing and the 2017 IRP are not final determinations of PNM’s future generation portfolio.  Retiring PNM’s share of SJGS will require future NMPRC approval. PNM will also be required to obtain NMPRC approval of replacement power resources through CCN, PPA, or other applicable filings. The financial impact of an early retirement of SJGS and the NMPRC approval process are influenced by many factors outside of PNM’s control, including the economic impact of a potential SJGS abandonment filing on the area surrounding that plant and the related mine, as well as the overall political and economic conditions of New Mexico. Other items that impact the economic viability of SJGS include the financial impact of climate change regulation or legislation, other environmental regulations, the result of litigation, and other business considerations or the ability or willingness of individual participants to continue participation in the plant. Furthermore, PNM’s application for the abandonment of SJGS, related financing, and for associated replacement resources would be significantly influenced by the requirements of the ETA. PNM will seek full recovery of its remaining undepreciated investments and other costs necessary to retire the facility and for replacement resources in that filing.

NEE Complaint – On March 31, 2016, NEE filed a complaint with the NMPRC against PNM regarding the financing provided by NM Capital to facilitate the sale of SJCC. See Coal Supply below. The complaint alleges that PNM failed to comply with its discovery obligation in the SJGS abandonment case and requests the NMPRC investigate whether the financing transactions could adversely affect PNM’s ability to provide electric service to its retail customers. On January 31, 2018, NEE filed a motion

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asking the NMPRC to investigate whether PNM’s relationship with WSJ, in light of Westmoreland’s financial condition, could be harmful to PNM’s customers. PNM responded requesting the NMPRC deny the motion and that NEE’s prior complaint be dismissed. On May 23, 2018, PNM filed its response to the NMPRC staff’s comments requesting additional information about the financing and noting that the Westmoreland Loan was paid in full on May 22, 2018. On October 11, 2018, PNM filed a supplemental response notifying the NMPRC that Westmoreland had filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code on October 9, 2018. PNM’s supplemental response indicated Westmoreland had agreed to terms with its secured creditors that allowed it to continue to fund normal-course operations and to continue to serve its customers during the course of the bankruptcy case. As discussed in Note 6, on March 15, 2019, Westmoreland announced that it had emerged from Chapter 11 bankruptcy as a privately held company owned and operated by a group of its former creditors. Under the reorganization, all the assets of SJCC were sold to WSJ LLC. The March 15, 2019 announcement indicated that mining operations will continue in the normal course of business. As successor entity to SJCC, WSJ LLC assumed all rights and obligations of Westmoreland including obligations to PNM under the SJGS CSA. The NMPRC has taken no further action on NEE’s complaints. PNM cannot predict the outcome of these matters.matters with respect to Four Corners.


Four Corners


Four Corners Federal Agency Lawsuit – On April 20, 2016, several environmental groups filed a lawsuit against OSM and other federal agencies in the United StatesU.S. District Court for the District of Arizona in connection with their issuance of the approvals that extended the life of Four Corners and the adjacent mine. The lawsuit alleges that these federal agencies violated both the ESA and NEPA in providing the federal approvals necessary to extend operations at Four Corners and the adjacent mine past July 6, 2016.  The court granted an APS motion to intervene in the litigation on August 3, 2016. On September 15, 2016,litigation. NTEC, the current owner of the mine providing coal to Four Corners, filed a motion to intervene for the limited purpose of seeking dismissal of the lawsuit based on NTEC’s tribal sovereign immunity. On September 11, 2017, theThe court granted NTEC’s motion and dismissed the case with prejudice, terminating the proceedings. TheIn November 2017, the environmental group plaintiffs filed a Notice of Appeal of the dismissal in the United StatesU.S. Court of Appeals for the Ninth Circuit, on November 9, 2017, and the court granted their subsequent motion to expedite the appeal. Oral argumentsThe Ninth Circuit issued a decision affirming the District Court’s dismissal of the case. In September 2019, the environmental groups filed a motion for reconsideration, which was denied in December 2019. On March 24, 2020, the appeal were held on March 7, 2019.environmental groups filed a petition for writ of certiorari in the U.S. Supreme Court seeking review of the Ninth Circuit's decision. PNM cannot predict if such appeal will be successful and, if it is successful, the outcome of further district court proceedings.this matter.


Carbon Dioxide Emissions

On August 3, 2015, EPA established final standards to limit CO2 emissions from power plants. EPA took three separate but related actions in which it: (1) established the final carbon pollution standardsCarbon Pollution Standards for new, modified, and reconstructed power plants; (2) established the final Clean Power Plan to set standards for carbon emission reductions from existing power plants; and (3) released a proposed federal plan associated with the final Clean Power Plan. The Clean Power Plan was published on October 23, 2015.


Multiple states, utilities, and trade groups filed petitions for review in the DC Circuit to challenge both the Carbon Pollution Standards for new sources and the Clean Power Plan for existing sources. Numerous parties also simultaneously filed motions to stay the Clean Power Plan during the litigation. On January 21, 2016, the DC Circuit denied petitions to stay the Clean Power Plan, but 29 states and state agencies successfully petitioned the US Supreme Court for a stay, which was granted on February 9, 2016. The decision meansmeant that the Clean Power Plan iswas not in effect and neither states nor sources arewere obliged to comply with its requirements. With the US Supreme Court stay in place, the DC Circuit heard oral arguments on the merits of the Clean Power Plan on September 27, 2016 in front of a ten judge en banc panel. However, before the DC Circuit could issue an opinion, the Trump Administration asked that the case be held in abeyance while the rule iswas being re-evaluated, which was granted. In addition, the DC Circuit issued a similar order in connection with a motion filed by EPA to hold cases challenging the NSPS in abeyance. On September 17, 2019, the DC Circuit issued an order that granted motions by various petitioners, including industry groups and EPA, to dismiss cases challenging the Clean Power Plan as moot due to EPA's issuance of the Affordable Clean Energy rule, which repealed the Clean Power Plan.


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On March 28, 2017, President Trump issued an Executive Order on Energy Independence. The order putsput forth two general policies: promote clean and safe development of energy resources, while avoiding regulatory burdens, and ensure electricity is affordable, reliable, safe, secure, and clean.  The order directsdirected the EPA Administrator to immediately review and, if appropriate and consistent with law, suspend, revise, or rescind (1) the Clean Power Plan, (2) the NSPSNew Source Performance Standards (“NSPS”) for GHG from new, reconstructed, or modified electric generating units, (3) the Proposed Clean Power Plan Model Trading Rules, and (4) the Legal Memorandum supporting the Clean Power Plan. It also directs the EPA Administrator to notify the US Attorney General of his intent to review rules subject to pending litigation so that the US Attorney General may notify the court and, in his discretion, request that the court delay further litigation pending completion of the reviews. In response to the Executive Order, EPA filed a petition with the DC

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Circuit requesting the cases challenging the Clean Power Plan be held in abeyance until 30 days after the conclusion of EPA’s review and any subsequent rulemaking, which was granted. In addition, the DC Circuit issued a similar order in connection with a motion filed by EPA to hold cases challenging the NSPS in abeyance. On September 17, 2019, the DC Circuit issued an order that granted motions by various petitioners, including industry groups and EPA, to dismiss the cases challenging the Clean Power Plan as moot due to EPA’s issuance of the Affordable Clean Energy rule.


OnEPA’s efforts to replace the Clean Power Plan with the Affordable Clean Energy rule began on October 10, 2017, when EPA issued a NOPR proposing to repeal the Clean Power Plan and filed its status report with the court requesting the case be held in abeyance until the completion of the rulemaking on the proposed repeal. The NOPR proposesproposed a legal interpretation concluding that the Clean Power Plan exceedsexceeded EPA’s statutory authority. Under the proposed interpretation, Section 111(d) limits EPA’s authority to adopt performance standards to only those physical and operational changes that can be implemented within an individual source. Therefore, measures in the Clean Power Plan that would require power generators to change their energy portfolios by shifting generation from coal to gas and from fossil fuel to renewable energy exceed EPA’s statutory authority. In a separate but related action, on December 18, 2017, EPA released an advanced NOPR addressing GHG guidelines for existing electric utility generating units. On August 31, 2018, EPA published a proposed rule, which is informally known as the Affordable Clean Energy rule, to replace the Clean Power Plan. The proposedOn June 19, 2019, EPA released the final version of the Affordable Clean Energy rule,rule. EPA takes three actions in the final rule: (1) repealing of the Clean Power Plan; (2) promulgating the Affordable Clean Energy rule; and (3) revising the implementing regulations for all emission guidelines issued under Clean Air Act Section 111(d), which, among other things, would establish guidelines that replaceextends the “outside-the-fenceline” control measuresdeadline for state plans and specific numerical emission ratesthe timing for EPA's approval process. The final rule is very similar to the August 2018 proposed rule. EPA set the Best System of Emissions Reduction (“BSER”) for existing EGUs. These measures are replaced withcoal-fired power plants as heat rate efficiency improvements based on a listrange of “candidate technologies” for heat rate improvement measures, which include both technologies and operational changes that EPA has identified as Best Systemcan be applied inside the fence-line. Rather than setting a specific numerical standard of Emission Reduction (“BSER”). States wouldperformance, EPA’s rule directs states to determine which of the candidate technologies to apply to each coal-fired unit and establish standards of performance based on the degree of emission reduction achievable throughbased on the application of the selected BSER. States will have three years from when theThe final rule is finalizedrequires states to submit a plan to EPA. EPA willby July 8, 2022 and then haveEPA has one year to determine if each proposed plan is acceptable.approve the plan. If states do not submit a plan or if a state’stheir submitted plan is not acceptable, EPA will have two years to develop a federal plan for the state to implement.  EPA is also proposing revisions to the NSR program that would provide coal-fired power plants more latitude to make efficiency improvements consistent with BSER without triggering NSR permit requirements. Comments on the proposedplan. The Affordable Clean Energy rule were dueis not expected to EPA by October 31, 2018.impact SJGS since EPA’s final approval of a state SIP would occur after PNM retires its share of SJGS in 2022.


The proposed Affordable Clean Energy rule and the proposed 2015 federal plan released concurrently with the Clean Power Plan are important to Four Corners and the Navajo Nation. Since the Navajo Nation does not have primacy over its air quality program, EPA would be the regulatory authority responsible for implementing the proposed Affordable Clean Energy rule or the Clean Power Plan, should it ultimately be sustained, on the Navajo Nation. In addition, in the proposed 2015 federal plan, EPA included a finding “that it is necessary or appropriate” to implement a section 111(d) federal plan for affected EGUs located in Native American lands. APS and PNM filed separate comments with EPA on EPA’s draft 2015 federal plan advocating that such a federal plan is neither necessary nor appropriate to protect air quality on the Navajo Nation. PNM is unable to predict the potential financial or operational impacts on Four Corners ifCorners.

While corresponding NSR reform regulations were proposed as part of the proposed Affordable Clean Energy rule, the final rule did not include such reform measures. EPA has indicated that it plans to finalize the proposed NSR reform in 2020. Unrelated to the Affordable Clean Energy rule, EPA issued a proposed rule on August 1, 2019 to clarify one aspect of the Clean Power Plan, or other future GHG reduction rulemakingpre-construction review process for evaluating whether the NSR permitting program would apply to a proposed project at an existing source of emissions. The proposed rule clarifies that both emissions increases and decreases resulting from a project are ultimately implemented and EPA determines that a federal plan is necessary or appropriate forto be considered in determining whether the Navajo Nation.proposed project will result in an increase in air emissions.

On December 20, 2018, EPA published in the Federal Register a proposed rule that would revise the carbon pollution standardsCarbon Pollution Standards rule published in October 2015 for fossil fueled power plants.new, reconstructed, or modified coal-fired EGUs. The proposed rule would revise the standards for new coal-fired EGUs based on athe revised BSER determination that wouldas the most efficient demonstrated steam cycle (e.g., supercritical steam conditions for large units and subcritical steam conditions for small units), instead of partial carbon capture and sequestration. As a result, inthe proposed rule contains less stringent CO2 emission performance standards for new units. EPA has also proposed revisions to the standards for reconstructed and modified fossil-fueled power plants.plants to align with the proposed standards for new units. EPA is not proposing any changes nor reopening the standards of performance for newly constructed or reconstructed stationary combustion turbines. Comments on the proposal were due on March 18, 2019.

A final rule is expected in 2020.
PNM’s review of the GHG emission reductions standards under the proposed Affordable Clean Energy rule, the revised proposed Carbon Pollution Standards rule, and the Clean Power Plan is ongoing and the assessment of its impacts will depend on the proposed repeal of the Clean Power Plan, promulgation of the Affordable Clean Energy rule and the revised proposed Carbon Pollution Standards rule other future GHG reduction rulemaking, litigationis ongoing. The Affordable Clean Energy rule has been challenged by several parties
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Table of any final rule, and other actions the Trump Administration is taking through judicial and regulatory proceedings. As discussed above, SJGS and Four Corners may also be required to comply with additional GHG restrictions issued by the New Mexico Environmental Improvement Board pursuant to the recently enacted ETA. PNM cannot predict the impact these standards may have on its operations or a range of the potential costs of compliance, if any.Contents



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and may be impacted by further litigation. PNM cannot predict the impact these standards may have on its operations or a range of the potential costs of compliance, if any.

National Ambient Air Quality Standards (“NAAQS”)

The CAA requires EPA to set NAAQS for pollutants reasonably anticipated to endanger public health or welfare. EPA has set NAAQS for certain pollutants, including NOx, SO2, ozone, and particulate matter. In 2010, EPA updated the primary NOx and SO2 NAAQS to include a 1-hour standard while retaining the annual standards for NOx and SO2 and the 24-hour SO2 standard. EPA also updated the final particulate matter standard in 2012 and updated the ozone standard in 2015.


NOx Standard – On April 18, 2018, EPA published the final rule to retain the current primary health-based NOx standards of which NO2 is the constituent of greatest concern and is the indicator for the primary NAAQS. EPA concluded that the current 1-hour and annual primary NO2 standards are requisite to protect public health with an adequate margin of safety. The rule became effective on May 18, 2018.


SO2 Standard – On May 13, 2014, EPA released the draft data requirements rule for the 1-hour SO2 NAAQS, which directs state and tribal air agencies to characterize current air quality in areas with large SO2 sources to identify maximum 1-hour SO2 concentrations. This characterization would result in theserequires areas beingbe designated as attainment, nonattainment, or unclassifiable for compliance with the 1-hour SO2 NAAQS. On March 2, 2015, the United States District Court for the Northern District of California approved a settlement that imposed deadlines for EPA to identify areas that violate the NAAQS standards for 1-hour SO2 emissions. The settlement resulted from a lawsuit brought by Earthjustice on behalf of the Sierra Club and the Natural Resources Defense Council under the CAA. The consent decree required, among other things, that EPA must issue designations for areas for which states have adopted a new monitoring network under the proposed data requirements rule by December 2020.  EPA regions sent letters to state environmental agencies explaining how EPA plans to implement the consent decree.  The letters outline the schedule that EPA expects states to follow in moving forward with new SO2 non-attainment designations. NMED did not receive a letter.


On August 11, 2015, EPA released the Data Requirements Rule for SO2, telling states how to model or monitor to determine attainment or nonattainment with the new 1-hour SO2 NAAQS.  On June 3, 2016, NMED notified PNM that air quality modeling results indicated that SJGS was in compliance with the standard. In January 2017, NMED submitted its formal modeling report regarding attainment status to EPA. The modeling indicated that no area in New Mexico exceeds the 1-hour SO2 standard. On June 27, 2018, NMED submitted the first annual report for SJGS as required by the Data Requirements Rule. TheRule in June 2018. That report recommendsrecommended that no further modeling was warranted due to decreased SO2 emissions. NMED submitted the second annual modeling report to EPA in July 2019. That report retained the recommendation that no further modeling is warrantedneeded at this time dueand is subject to decreased SO2 emissions.EPA review.


On February 25, 2019, EPA announced its final decision to retain without changes the primary health-based NAAQS for SOx. Specifically, EPA will retain the current 1-hour standard for SO2, which is 75 parts per billion, (“ppb”), based on the 3-year average of the 99th percentile of daily maximum 1-hour SO2 concentrations.  SO2 is the most prevalent SOx compound and is used as the indicator for the primary SOx NAAQS.


On May 14, 2015, PNM received an amendment to its NSR air permit for SJGS, which reflects the revised state implementation plan for regional haze BART and required the installation of SNCRs. The revised permit also requiresrequired the reduction of SO2 emissions to 0.10 pound per MMBTU on SJGS Units 1 and 4 and the installation of BDT equipment modifications for the purpose of reducing fugitive emissions, including NOx, SO2, and particulate matter. These reductions help SJGS meet the NAAQS for these constituents. The BDT equipment modifications were installed at the same time as the SNCRs, in order to most efficiently and cost effectively conduct construction activities at SJGS. See a discussion of the regulatory treatment of BDT in Note 12.


Ozone Standard – On October 1, 2015, EPA finalized the new ozone NAAQS and lowered both the primary and secondary 8-hour standard from 75 to 70 ppb.parts per billion. With ozone standards becoming more stringent, fossil-fueled generation units will come under increasing pressure to reduce emissions of NOx and volatile organic compounds and to generate emission offsets for new projects or facility expansions located in nonattainment areas.since these are the pollutants that form ground-level ozone.


On November 10, 2015, EPA proposed a rule revising its Exceptional Events Rule, which outlines the requirements for excluding air quality data (including ozone data) from regulatory decisions if the data is affected by events outside an area’s control. The proposed rule is important in light of the new more stringent ozone NAAQS final rule since western states like New Mexico and Arizona are particularly subject to elevated background ozone transport from natural local sources, such as wildfires and stratospheric inversions, and transported via winds from distant sources such asin other regions or countries. EPA finalized the stratosphere or another region or country.rule on October 3, 2016 and released related guidance in 2018 and 2019 to help implement its new exceptional events policy.

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On February 25, 2016,During 2017 and 2018, EPA released guidance onrules establishing area designations for ozone, which states used to determine their initial designation recommendations by October 1, 2016. NMED published its 2015 Ozone NAAQS Designation Recommendation Report on September 2, 2016.ozone. In New Mexico, EPA is designating only a small area in southern Dona Ana County as non-attainment for ozone. NMED will have responsibility for bringing this non-attainment area into compliance and will look at all sources of NOx and volatile organic compounds since these are the pollutants that form ground-level ozone. According to NMED’s website, “If emissions from Mexico keep New Mexico from meeting the standards, the New Mexico area could remain non-attainment but would not face more stringent requirements over time.”

On November 6, 2017, EPA released a final rule establishing some, but not all, initial area designations.  In that final rule,those rules, San Juan County, New Mexico, where SJGS and Four Corners are located, is designated as attainment/unclassifiable. EPA designatedunclassifiable and only a small area in DonaDoña Ana County, New Mexico is designated as marginal non-attainment.  On April 30, 2018, EPA completed additional area designations for the 2015 ozone standards. In a related matter, EPA published a final rule on March 9, 2018 establishing air quality thresholds that define the classifications assigned to all non-attainment areas for ozone NAAQS. The final rule also establishes the timing of attainment dates for each non-attainment area classification, which are marginal, moderate, serious, severe, or extreme. The rule became effective May 8, 2018. Attainment plans for nonattainment areas are due in August 2021.


NMED is requiredhas responsibility for bringing the small area in Doña Ana County designated as marginal/non-attainment for ozone into compliance and will look at all sources of NOx and volatile organic compounds. On November 22, 2019, EPA issued findings that several states, including New Mexico, had failed to submit an infrastructure and transportSIPs for the 8-hour ozone NAAQS. In response, in December 2019, NMED published the Public Review Draft of the New Mexico 2013 NAAQS Good Neighbor SIP that providesoutlines the basicstrategies and emissions control measures that are expected to improve air quality management programin the area by May 8, 2021. These strategies and measures would aim to implementreduce the revised ozone standard. This plan is generally due within 36 months from the date the NAAQS is promulgated. The NMED has published a proposed certification that New Mexico currently has an adequate, federally-approved SIP that addresses elementsamount of the CAA Section 110(a)(2) infrastructure SIP, as applicableNOx and volatile organic compounds emitted to the 2015 ozone NAAQS. The purpose of the proposed certification is to confirm to EPA that New Mexico has theatmosphere and will rely upon current or upcoming federal rules, new or revised state rules, and other programs. Comments or requests for a public hearing were required “infrastructure” in place under the current SIP to implement, maintain, and enforce the revised 2015 ozone NAAQS. Comments on the proposed certification were due by October 29, 2018. State ozone attainment plans are generally due within five to six years from the date of the ozone NAAQS promulgation and are planned for submittal in 2020 and 2021.January 21, 2020.


PNM does not believe there will be material impacts to its facilities as a result of NMED’s non-attainment designation of the small area within DonaDoña Ana County. Until EPA approves attainment designations for the Navajo Nation and releases a proposal to implement the revised ozone NAAQS, PNM is unable to predict what impact the adoption of these standards may have on Four Corners.PNM cannot predict the outcome of this matter.


WEG v. OSM NEPA Lawsuit

In February 2013, WEG filed a Petition for Review in the United States District Court of Colorado against OSM challenging federal administrative decisions affecting seven different mines in four states issued at various times from 2007 through 2012.  In its petition, WEG challenged several unrelated mining plan modification approvals, which were each separately approved by OSM.  WEG alleged various NEPA violations against OSM, including, but not limited to, OSM’s alleged failure to provide requisite public notice and participation, alleged failure to analyze certain environmental impacts, and alleged reliance on outdated and insufficient documents.  WEG’s petition sought various forms of relief, including a finding that the federal defendants violated NEPA by approving the mine plans; voiding, reversing, and remanding the various mining modification approvals; enjoining the federal defendants from re-issuing the mining plan approvals for the mines until compliance with NEPA has been demonstrated; and enjoining operations at the seven mines.

Of the fifteen claims for relief in the WEG Petition, two concerned SJCC’s San Juan mine. WEG’s allegations concerning the San Juan mine arise from OSM administrative actions in 2008. SJCC intervened in this matter. The court granted SJCC’s motion to sever its claims from the lawsuit and transfer venue to the NM District Court. In July 2016, OSM filed a Motion for Voluntary Remand to allow the agency to conduct a new environmental analysis.PM Standard On August 31, 2016, the court entered an order remanding the matter to OSM for the completion of an EIS by August 31, 2019. The court ruled that mining operations may continue in the interim and the litigation is administratively closed. If OSM does not complete the EIS within the time frame provided, the court will order immediate vacatur of the mining plan at issue absent a further court order based on good cause shown. On March 22, 2017, OSM issued its Notice of Intent to initiate the public scoping process and prepare an EIS for the project. The Notice of Intent provided that, in addition to analyzing the environmental effects of the mining project, the EIS will also analyze the indirect effects of coal combustion at SJGS. The public comment period ended on May 8, 2017 and the EIS

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resource data submittal phase was completed in November 2017. The draft EIS was made available in May 2018 and was subject to a public comment period that ended on July 9, 2018. The Notice of Availability for the final EIS wasJanuary 30, 2020, EPA published in the Federal Register a notice announcing the availability of its final Policy Assessment for the Review of the National Ambient Air Quality Standards for Particulate Matter (the "Final PA"). The final assessment was prepared as part of the review of the primary and became availablesecondary PM NAAQS.In the assessment, EPA recommend lowering the primary annual PM2.5 standard to between 8 µg/m3 and 10 µg/m3. However, EPA signed a proposed rule on April 14, 2020 to retain the OSM website on March 15, 2019. NEPA requires OSMcurrent standards for PM due to identify a preferred alternativeuncertainties in the final EIS and prepare a recommendation to the Assistant Secretary of Land and Minerals Management. OSM has selected a plan that would allow for continued mining that would extend beyond 2022 as the preferred alternative based on the impact analysisdata relied upon in the EIS. On May 1, 2019, OSMFinal PA. Once the proposed rule is published its Record of Decision, which would allow for continued mining in the underground mineFederal Register, EPA will accept comments for 60 days and anticipates issuing a final rulemaking in annual quantities similar to those being currently being provided.  The OSM’s Record of Decision is subject to additional review and approval.late 2020. PNM cannot predict the outcome of this matter.matter or whether it will have a material impact on its financial position, results of operations, or cash flows.

Navajo Nation Environmental Issues
Four Corners is located on the Navajo Nation and is held under easements granted by the federal government, as well as agreements with the Navajo Nation which grant each of the owners the right to operate on the site. The Navajo Acts purport to give the Navajo Nation Environmental Protection Agency authority to promulgate regulations covering air quality, drinking water, and pesticide activities, including those activities that occur at Four Corners. In October 1995, the Four Corners participants filed a lawsuit in the District Court of the Navajo Nation challenging the applicability of the Navajo Acts to Four Corners. In May 2005, APS and the Navajo Nation signed an agreement resolving the dispute regarding the Navajo Nation’s authority to adopt operating permit regulations under the Navajo Nation Air Pollution Prevention and Control Act. As a result of this agreement, APS sought, and the court granted, dismissal of the pending litigation in the Navajo Nation Supreme Court and the Navajo Nation District Court, to the extent the claims relate to the CAA. The agreement does not address or resolve any dispute relating to other aspects of the Navajo Acts. PNM cannot currently predict the outcome of these matters or the range of their potential impacts.

Cooling Water Intake Structures
In 2014, EPA signed its final cooling water intake structuresissued a rule on May 16, 2014, which establishesestablishing national standards for certain cooling water intake structures at existing power plants and other facilities under the Clean Water Act to protect fish and other aquatic organisms by minimizing impingement mortality (the capture of aquatic wildlife on intake structures or against screens) and entrainment mortality (the capture of fish or shellfish in water flow entering and passing through intake structures). The final rule became effective October 14, 2014.
The final rule allows multiple compliance options and considerations for site specific conditions and the permit writer is granted a significant amount of discretion in determining permit requirements, schedules, and conditions. To minimize impingement mortality, the rule provides operators of facilities, such as SJGS and Four Corners, seven7 options for meeting Best Technology Available (“BTA”) standards for reducing impingement. SJGS has a closed-cycle recirculating cooling system, which is a listed BTA and may also qualify for the “de minimis rate of impingement” based on the
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design of the intake structure. To minimize entrainment mortality, theThe permitting authority must establish the BTA for entrainment on a site-specific basis, taking into consideration an array of factors, including endangered species and social costs and benefits. Affected sources must submit source water baseline characterization data to the permitting authority to assist in the determination. Compliance deadlines under the rule are tied to permit renewal and will be subject to a schedule of compliance established by the permitting authority.
The rule is not clear as to how it applies and what the compliance timelines are for facilities like SJGS that have a cooling water intake structure and only a multi-sector general stormwater permit. However, EPA has indicated that it is contemplating a December 31, 2023 compliance deadline. PNM is working with EPA regarding this issue. However, PNMissue and does not expect material changes as a result of any requirements that may be imposed upon SJGS.SJGS, particularly given the NMPRC's April 1, 2020 approval for PNM to retire its share of SJGS by June 2022.
On May 23, 2018, several environmental groups sued EPA Region IX in the United StatesU.S. Court of Appeals for the Ninth Circuit Court over EPA’s failure to timely reissue the Four Corners NPDES permit. The petitioners asked the court to issue a writ of mandamus compelling EPA Region IX to take final action on the pending NPDES permit by a reasonable date. EPA subsequently reissued the NPDES permit on June 12, 2018. The permit did not contain conditions related to the cooling water intake structure rule as EPA determined that the facility has achieved BTA for both impingement and entrainment by operating a closed-cycle recirculation system and no additional conditions are necessary.system. On July 16, 2018, several environmental groups filed a petition for review with the EPA’s Environmental Appeals Board concerning the reissued permit. The environmental groups alleged that the permit was reissued in contravention of several requirements under the Clean Water Act and did not contain required provisions concerning certain revised effluent limitation guidelines, existing-source regulations governing cooling-water intake structures, and effluent limits for surface seepage and subsurface discharges from coal-ash disposal facilities. On December 19, 2018, EPA

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withdrew the Four Corners NPDES permit in order to examine issues raised by the environmental groups. Withdrawal of the permit moots the appeal pending before the Environmental Appeals Board. The EPA’s Environmental Appeals Board thereafter dismissed the environmental groups’ appeal. EPA has indicated that, depending on the amount of public comments received concerning the permit proposal, it anticipates taking final action on a newissued an updated NPDES permit on September 30, 2019. The permit has been stayed pending an appeal filed by August 2019. Four Corners will continueseveral environmental groups on November 1, 2019 to operate under the 2001 NPDES permit.EPA's Environmental Appeals Board. PNM cannot predict the outcome of this matter or whether reconsiderationit will have a material impact on PNM’s financial position, results of operations or cash flows.


Effluent Limitation Guidelines


On June 7, 2013, EPA published proposed revised wastewater effluent limitation guidelines establishing technology-based wastewater discharge limitations for fossil fuel-fired electric power plants.  EPA’s proposal offered numerous options that target metals and other pollutants in wastewater streams originating from fly ash and bottom ash handling activities, scrubber activities, and non-chemical metal cleaning waste operations.  All proposed alternatives establish a “zero discharge” effluent limit for all pollutants in fly ash transport water. Requirements governing bottom ash transport water differ depending on which alternative EPA ultimately chooses and could range from effluent limits based on Best Available Technology Economically Achievable to “zero discharge” effluent limits.


EPA signed the final Steam Electric Effluent Guidelines rule on September 30, 2015. The final rule, which became effective on January 4, 2016, phases in the new, more stringent requirements in the form of effluent limits for arsenic, mercury, selenium, and nitrogen for wastewater discharged from wet scrubber systems and zero discharge of pollutants in ash transport water that must be incorporated into plants’ NPDES permits. Each plant must comply between 2018 and 2023 depending on when it needs a new or revised NPDES permit.

On September 18, 2017, EPA published a final rule for postponement of certain compliance dates, which have not yet passed for the Effluent Limitations Guidelines rule, consistent with the EPA’s decision to grant reconsideration of that rule. The rule postponed the earliest date on which compliance with the effluent limitation guidelines for these waste streams would be required from November 1, 2018 until November 1, 2020, although the new deadlines have been challenged in court.


The Effluent Limitations Guidelines rule was challenged in the U.S. Court of Appeals for the Fifth Circuit by numerous parties. On April 12, 2017, EPA signed a notice indicating its intent to reconsider portions of the rule, and on August 22, 2017, the Fifth Circuit issued an order severing the issues under reconsideration and holding the case in abeyance as to those issues. However, the court allowed challenges to other portions of the rule to proceed. On April 12, 2019, the Fifth Circuit granted those challenges and issued an opinion vacating several portions of the rule, specifically those related to legacy wastewater and leachate, for which the court deemed the standards selected by the EPA arbitrary and capricious.


On September 18, 2017, EPA published a final rule for postponement of certain compliance dates. The rule postponed the earliest date on which compliance with the effluent limitation guidelines for these waste streams would be required from
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November 1, 2018 until November 1, 2020. Although the new deadlines were challenged in court, the Fifth Circuit rejected those challenges on August 28, 2019. On November 22, 2019, EPA published a proposed rule revising the original Effluent Limitation Guidelines while maintaining the compliance dates. Comments were due January 21, 2020.

Because SJGS is zero discharge for wastewater and is not required to hold a NPDES permit, it is expected that minimal to no requirements will be imposed. Reeves Station, a PNM-owned gas-fired generating station, discharges cooling tower blowdown to a publicly owned treatment plant and holds an NPDES permit. It is expected that minimal to no requirements will be imposed at Reeves Station.


EPA reissued an NPDES permit for Four Corners on June 12, 2018. EPA had determinedSince that time, the guidelines in the 2015 rule are not applicable to thisNPDES permit because the effective dates of the 2015 effluent guidelines rule were extended. On December 19, 2018, EPA withdrew theat Four Corners NPDES permit in orderhas been subject to examine issues raisedvarious challenges by several environmental groups. Four Corners will continue to operate under the 2001 NPDES permit. See Cooling Water Intake Structures above.above for additional discussion of Four Corners' current NPDES permit. Four Corners may be required to change equipment and operating practices affecting boilers and ash handling systems, as well as change its waste disposal techniques during the next NPDES permit renewal for Four Corners, which will be in 2023. PNM is unable to predict the outcome of these matters or a range of the potential costs of compliance.

Santa Fe Generating Station
PNM and the NMED are parties to agreements under which PNM has installed a remediation system to treat water from a City of Santa Fe municipal supply well and an extraction well and monitoring wells to address gasoline contamination in the groundwater at the site of PNM’s former Santa Fe Generating Station and service center. PNM believes the observed groundwater contamination

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originated from off-site sources but agreed to operate the remediation facilities until the groundwater meets applicable federal and state standards or until the NMED determines that additional remediation is not required, whichever is earlier. The City of Santa Fe has indicated that since the City no longer needs the water from the well, the City would prefer to discontinue its operation and maintain it only as a backup water source. However, for PNM’s groundwater remediation system to operate, the water well must be in service. Currently, PNM is not able to assess the duration of this project or estimate the impact on its obligations if the City of Santa Fe ceases to operate the water well.

The Superfund Oversight Section of the NMED also has conducted multiple investigations into the chlorinated solvent plume in the vicinity of the site of the former Santa Fe Generating Station. In FebruaryA 2008 a NMED site inspection report was submitted to EPA, which states that neither the source nor extent of contamination at the site has been determined and that the source may not be the former Santa Fe Generating Station. Results of tests conducted byDuring 2013 and 2014, PNM and NMED in April 2012 and April 2013collected additional samples that showed elevated concentrations of nitrate and volatile organic compounds in threesome of the monitoring wells and an increase inat the site. In addition, one monitoring well contained free-phase hydrocarbons in another well.hydrocarbon products. PNM conducted similar site-wide sampling activities in April 2014 and obtained results similar to the 2013 data. As part of this effort, PNM also collected a sample of hydrocarbonthe product for “fingerprint” analysis from a monitoring well located on the northeastern corneranalysis. The results of the property.  Thisthis analysis indicated that the hydrocarbon product was a mixture of older and newer and olderfuels. The presence of newer fuels andin the location of the monitoring wellsample suggests that the hydrocarbon product is likely originated from offsiteoff-site sources. PNM does not believe the former generating station is the source of the increased levels of free-phase hydrocarbons, but no conclusive determinations have been made. However, it is possible that PNM’s prior activities to remediate hydrocarbon contamination, as conducted under an NMED-approved plan, may have resulted in increased nitrate levels.  Therefore, PNM has agreed to monitor nitrate levels in a limited number of wells under the terms of the renewed discharge permit for the former generating station.  However, the renewed discharge permit requires that PNM conduct more frequent monitoring than originally anticipated, which resulted in an insignificant increase to the project cost estimate as ofIn December 31, 2018.

Effective December 22, 2015, PNM and NMED entered into a memorandum of understanding to address changing groundwater quality conditions at the site. Under the memorandum,site under which PNM willagreed to continue hydrocarbon investigation of the site under the supervision of NMED and qualifiedNMED. Qualified costs of the work will beare eligible for payment through the New Mexico Corrective Action Fund (“CAF”), which is administered by the NMED Petroleum Storage Tank Bureau. Among other things, money in the CAF is available to NMED to make payments to or on behalf of owners and operators for corrective action taken in accordance with statutory and regulatory requirements to investigate, minimize, eliminate, or clean up a release. PNM’s work plan and cost estimates for specific groundwater investigation tasks were approved by the Petroleum Storage Tank Bureau. PNM submitted a monitoring plan consisting of a compilation of the data associated with monitoring activities conducted under the CAF to NMED on October 3, 2016. PNM completed all CAF-related work associated with the monitoring plan and received NMED’s approval. PNM’s contractor prepared a scope of work, which PNM and NMED approved, for the installation of additional monitoring wells and additional sampling of certain existing monitoring wells at the site. These activities were completed in June 2018. PNM’s contractor has commenced the next phase of work which includes the installation of up to 38 additional monitoring wells. Work is expected to be completed in mid-2019. Qualified costs of this work are eligible for payment through the CAF.

OnIn March 28, 2019, PNM received notice from NMED that an abatement plan for the site is required with respect to the site to address concentrations of previously identified compounds, unrelated to those discussed above, found in the groundwater. TheNMED approved PNM’s abatement plan would include anproposal, which covers field work and reporting.

Field work related to the investigation to define site conditionsunder both the CAF and provide data necessary to select and design an abatement option. PNM must submit its abatement plan requirements was completed in October 2019. Activities and findings associated with the field work will be presented in two separate reports, which were released to stakeholders in early 2020. The reports’ conclusions support PNM’s contention that off-site sources have impacted, and are continuing to impact, the local groundwater in the vicinity of the former Santa Fe Generating Station.

The City of Santa Fe has stopped operating its well at the site, which is needed for PNM’s groundwater remediation system to operate. As a result, PNM has stopped performing remediation activities at the site. However, PNM’s monitoring and other abatement activities at the site are ongoing and will continue until the groundwater meets applicable federal and state standards or until the NMED by May 27, 2019 but has requested an extensiondetermines remediation is not required, whichever is earlier. PNM is not able to June 25, 2019. Under NMED regulations, NMED andassess the duration of this project or estimate the impact on its obligations if PNM areis required to publish information summarizingresume groundwater remediation activities at the source and magnitude of the pollution. NMED may also hold a public hearing if there is sufficient public interest.

site. PNM is unable to predict the outcome of these matters.

Coal Combustion Residuals Waste Disposal

CCRs consisting of fly ash, bottom ash, and gypsum generated from coal combustion and emission control equipment at SJGS are currently disposed of in the surface mine pits adjacent to the plant. SJGS does not operate any CCR impoundments or landfills. The NMMMD currently regulates mine reclamation activities at the San Juan mine, including placement of CCRs in the surface mine pits, with federal oversight by the OSM. APS disposes of CCRs in ponds and dry storage areas at Four Corners.  Ash management at Four Corners is regulated by EPA and the New Mexico State Engineer’s Office.

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EPA’s final coal ash rule, which became effective on October 19, 2015, included a non-hazardous waste determination for coal ash. The rule was promulgated under Subtitle D of RCRA and sets minimum criteria for existing and new CCR landfills and existing and new CCR surface impoundments and all lateral expansions consisting of location restrictions, design and operating criteria; groundwater monitoring and corrective action; closure requirements and post closure care; and recordkeeping, notification, and internet posting requirements.

Because the rule is promulgated under Subtitle D of RCRA, it does not require regulated facilities to obtain permits, does not require the states to adopt and implement the rules, and is not within EPA’s enforcement jurisdiction. Instead, the rule’s compliance mechanism is for a state or citizen group to bring a RCRA citizen suit in federal district court against any facility that is alleged to be in non-compliance with the requirements.

impoundments. On December 16, 2016, the Water Infrastructure Improvements for the Nation Act (the “WIIN Act”) was signed into law to address critical water infrastructure needs in the United States. The WIIN ActU.S. and contains a number of provisions requiring EPArelated to modify the self-implementing provisions of the current CCR rules under Subtitle D.rules. Among other things, the WIIN Act provides for the establishment of stateallows, but does not require, states to develop and EPAsubmit CCR permit programs for CCRs,EPA approval, provides flexibility for states to incorporate the EPAEPA’s final rule for CCRs or develop other criteria that are at least as protective as the EPA’s final rule, and requires EPA to approve state permit programs within 180 days of submission by the state for approval. As a result, thestate. Because states are not required to implement their own CCR rule is no longer self-implementing and there will either be a state or federal permit program. Subject to Congressional appropriated funding,programs, EPA will implement the permit program in states that choose not to implement a program.program, subject to Congressional funding. Until permit programs are in effect, EPA has authority to directly enforce the self-implementing CCR rule. For facilities located within the boundaries of Native American tribal reservations, such as the Navajo Nation where Four Corners is located, EPA is required to develop a federal permit program regardless of appropriated funds. EPA has yet to undertake rulemaking proceedings to implement the CCR provisions of the WIIN Act. There is no timeline for establishing either state or federal permitting programs. APS has sought clarification as to when and how EPA would be initiating permit proceedings for facilities on tribal reservations, including Four Corners. PNM is unable to predict when EPA will be issuing permits for Four Corners.


On September 13, 2017, EPA agreed to evaluate whether to revise the CCR regulations based upon utility industry petitions for EPA to reconsider the RCRA Subtitle D regulations for CCRs, which were premised in part on the provisions of the WIIN Act. In light of the WIIN Act and the petitions for rulemaking, EPA is considering making additional changes to the CCR rule to provide flexibility to state programs consistent with the WIIN Act. With respect to ongoing litigation initiated by industry and environmental groups challenging the legality of the CCR regulations and pursuant to an order issued by the DC Circuit, EPA and the industry groups argued the court should postpone adjudication until EPA completes the reconsideration process for the affected provision.

Pursuant to a June 24, 2016 order by the DC Circuit in litigation by industry and environmental groups challenging EPA’s CCR regulations, EPA is required to complete a rulemaking proceeding by June 2019 to address specific technical issues. On March 15, 2018, EPA proposed its Phase I Remand Rule that includes potential revisions to provide site-specific, risk-based tailoring of groundwater monitoring, corrective action and location restriction requirements of the CCR rule. EPA published the final rule on July 30, 2018. According to EPA, the July 30, 2018, EPA published a rule that constitutes “Phase One, Part One” of its ongoing reconsideration and revision of the April 17, 2015 coal ash rule. The final rule includes two types of revisions. The first revision extendsextended the deadline to allow EGUs with unlined impoundments or that fail to meet the uppermost aquifer requirement to continue to receive coal ash until October 31, 2020. The second revision authorizesrule also authorized a “Participating State Director” or EPA in lieu of a professional engineer, to approve suspension of groundwater monitoring and to issue certifications related to the location restrictions, design criteria, groundwater monitoring, remedy selection and implementation. The revisions also modify groundwater protection standards for certain constituents, which include cobalt, molybdenum, lithium, and lead without a maximum contamination level. EPA indicatedintends to issue multiple proposed rulemakings with a final rule expected in 2020 that provisionswill include the following: (1) deadlines for unlined surface impoundments to cease receiving waste; (2) a “Phase Two” rule to address amendments to the national minimum criteria; and (3) rulemaking for alternative demonstration for unlined surface impoundments with a request for comment on inclusion of legacy units. On August 14, 2019, the “Phase Two” proposed rule was published in the March 2018Federal Register with comments due on October 15, 2019. This rule that are not addressed inproposes revisions to reporting and accessibility to public information, the July 2018definition of CCR piles, the definition of beneficial use, and the requirements for management of CCR piles. A final rule will be addressedis expected in mid to late 2020. On November 4, 2019, EPA proposed a subsequent rulemaking.

On August 21, 2018, the DC Circuit Court of Appeals issued its decision in the CCR litigation. The court denied EPA’s request to hold the case in abeyance; remanded the industry group’s challenges to the regulation of certain on-site CCR piles; denied relief for the remaining industry group’s claims, including the challenge to EPA’s authority to regulate inactive surface impoundments; and found for the environmental groups on their challenges to the ability of unlined impoundments to continue operating, the classification of certain unlined impoundments as “lined” units, and EPA’s failure to regulate legacy ponds. It

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remains unclear how the DC Circuit Court of Appeals decision will impact Four Corners as EPA has not yet taken regulatory action on remand to revise its CCR regulations consistent with the court’s order.

Based on this decision, on December 17, 2018, certain environmental groups filed an emergency motion with the D.C. Circuit to stay or summarily vacate EPA’s July 17, 2018 final rule extending the closure-initiation deadline for certain unlined CCR surface impoundments until October 2020. In response, EPA filed a motion to remand but not vacate that deadline extension regulation. On March 13, 2019, the court granted EPA’s motion for a voluntary remand without vacatur. As a result, the “Phase One, Part One” rule will remain in place while EPA reconsiders the rule on remand and continues its ongoing revisionschange to the CCR rule. This meansrule that, subject to EPA authorization for each facility, would allow facilities that have committed to cease burning coal in the Octobernear-term to qualify for alternative closure. CCR disposal units at such plants could continue operating even though they would otherwise have been subject to forced closure. On December 2, 2019, EPA published the proposed Part A CCR rule requiring a new date of August 31, 2020 deadlinefor companies to initiate closure forof unlined CCR impoundments and changing the classification of compacted soil-lined or clay-lined surface impoundments that failfrom “lined” to “unlined”. On February 20, 2020, EPA published a proposed rule establishing a federal permitting program for the aquifer location restriction will remainhandling of CCR within the boundaries of Native American reservations and in place while EPA completes a new rulemakingstates without their own federally authorized state programs. Permits for units within the boundaries of Native American reservations would be due 18 months after the effective date of the rule. Comments are due on May 20, 2020. The final rule is expected in mid to reaffirm or establish a new deadline for initiating closure.late 2020. PNM cannot predict the outcome of EPA’s rule making activity or the D.C. Circuit’s considerationoutcome of these competing motions,any related litigation, and whether or how such a ruling would affect operations at Four Corners.


The CCR rule does not cover mine placement of coal ash. OSM is expected to publish a proposed rule covering mine placement in the future and will likely be influenced by EPA’s rule and the determination by EPA that CCRs are non-hazardous. PNM cannot predict the outcome of OSM’s proposed rulemaking regarding CCR regulation, including mine placement of CCRs, or whether OSM’s actions will have a material impact on PNM’s operations, financial position, or cash flows. Based upon the requirements of the final rule, PNM conducted a CCR assessment at SJGS and made minor modifications at the plant to ensure that there are no facilities whichthat would be considered impoundments or landfills under the rule. PNM would seek recovery from its ratepayers of all CCR costs for retail jurisdictional assets that are ultimately incurred. PNM does not expect the rule to have a material impact on operations, financial position, or cash flows.


As indicated above, CCRs at Four Corners are currently disposed of in ash ponds and dry storage areas. The CCR rule requires ongoing, phased groundwater monitoring. Utilities that own or operate CCR disposal units, such as those at Four Corners were required to collect sufficient groundwater sampling data to initiate a detection monitoring program.  To the extent that certain threshold constituents are identified through this initial detection monitoring at levels above the CCR rule’s standards, the rule required the initiation of an assessment monitoring program by April 15, 2018.  If this assessment monitoring program reveals concentrations of certain constituents above the CCR rule standards that trigger remedial obligations, a corrective measures evaluation must be completed. Four Corners completed anthe analysis that determined several offor its CCR disposal units, which identified several units that will need corrective action or will need to cease operations and initiate closure by October 2020.31, 2020 under current regulations. As part of this assessment, Four Corners anticipates it
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will complete its evaluation of these matters, including gatheringcontinue to gather additional groundwater data soliciting public comment, and selecting potential actions, by the summer of 2019.perform remedial evaluations. At this time, PNM does not anticipate its share of the cost to complete these corrective actions, or to close the CCR disposal units, or to gather and perform remedial evaluations on groundwater at Four Corners will have a significant impact on its operations, financial position, or cash flows.
Other Commitments and Contingencies
Coal Supply

SJGS
The coal requirements for SJGS are supplied by SJCC. SJCCWSJ LLC. WSJ LLC holds certain federal, state, and private coal leases. In addition to coal delivered to meet the current needs of SJGS, PNM has prepaid SJCCthe current San Juan mine owner and operator, WSJ LLC, for certain coal mined but not yet delivered to the plant site. At both March 31, 20192020 and December 31, 2018,2019, prepayments for coal, which are included in other current assets, amounted to $26.3 million.$26.3 million. Additional information concerning the coal supply for SJGS is contained in Note 16 of the Notes to Consolidated Financial Statements in the 20182019 Annual Reports on Form 10-K.
In conjunction with the activities undertaken to comply with the CAA for SJGS, PNM and the other owners of SJGS evaluated alternatives for the supply of coal to SJGS. On July 1, 2015, PNM and Westmoreland entered into a new coal supply agreement (the “SJGS CSA”), pursuant to which Westmoreland, through its indirectly wholly-owned subsidiary SJCC, agreed to supply all of the coal requirements of SJGS through June 30, 2022. PNM and Westmoreland also entered into agreements under which Westmoreland agreed to provide CCR disposal and mine reclamation services for SJGS. Contemporaneous with the entry into the coal-related agreements, Westmoreland entered into a stock purchase agreement (the “Stock Purchase Agreement”) on July 1, 2015 to acquire all of the capital stock of SJCC.


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The SJGS CSA became effective as of 11:59 PM on January 31, 2016, upon the closing under the Stock Purchase Agreement. Upon closing under the Stock Purchase Agreement, Westmoreland’s rights and obligations under the SJGS CSA and the agreements for CCR disposal and mine reclamation services were assigned to SJCC.would be provided. As discussed in Note 6, with the closing of the sale of the assets of SJCC on March 15, 2019, WSJ LLC assumed the rights and obligations of SJCC under the SJGS CSA and the agreements for CCR disposal and mine reclamation services. Pricing under the SJGS CSA is primarily fixed, with adjustments to reflect changes in general inflation. The pricing structure takes into account that WSJ LLC has been paid for coal mined but not delivered.


PNM had the option to extend the SJGS CSA, subject to negotiation of the term of the extension and compensation to the miner. In order to extend, the SJGS CSA provides that PNM must have given written notice of that intent by July 1, 2018 and the parties must have agreed to the terms of the extension by January 1, 2019. In addition, the SJPPA obligates each SJGS participant to provide notice to the other participants whether they wish to extend the terms of the SJPPA and the SJGS CSA beyond June 30, 2022. In 2018, PNM, Los Alamos, UAMPS, and Tucson provided notice of their intent to exit SJGS in 2022 and Farmington gave notice that it wishes to continue SJGS operations and to extend the terms of both agreements. On November 30, 2018, PNM provided notice to Westmoreland that PNM does not intend to extend the term of the SJGS CSA or to negotiate a new coal supply agreement for SJGS, which will result in the current agreement expiring on its own terms on June 30, 2022. See December 2018 Compliance Filing above.additional discussion of PNM’s SJGS Abandonment Application in Note 12.


In connection with certain mining permits relating to the operation of the San Juan mine, SJCCthe San Juan mine owner was required to post reclamation bonds of $118.7 million with the NMMMD. In order to facilitate the posting of reclamation bonds by sureties on behalf of SJCC,the San Juan mine owner, PNMR entered into letter of credit arrangements with a bank under which letters of credit aggregating $30.3 million have been issued. As discussed in Note 6, on March 15, 2019, the assets owned by SJCC were sold to WSJ LLC, a subsidiary of Westmoreland Mining Holdings, LLC. Under the sale agreement, WSJ LLC assumed the rights and obligations of SJCC, including obligations to PNMR under the outstanding letters of credit.


Four Corners
APS purchases all of Four Corners’ coal requirements from NTEC, an entity owned by the Navajo Nation, under a coal supply contract (the “Four Corners CSA”) that expires in 2031. The coal comes from reserves located within the Navajo Nation. NTEC has contracted with Bisti Fuels Company, LLC, a subsidiary of The North American Coal Corporation, for management and operation of the mine. The contract provides for pricing adjustments over its term based on economic indices. PNM's share of the coal costs is being recovered through the FPPAC. See additional discussion of the Four Corners CSA in Note 17 of the Notes to Consolidated Financial Statements in the 20182019 Annual Reports on Form 10-K.

Coal Mine Reclamation

As indicated under Coal Combustion Residuals Waste Disposal above, SJGS currently disposes of CCRs in the surface mine pits adjacent to the plant and Four Corners disposes of CCRs in ponds and dry storage areas. As discussed in Note 16 of
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(Unaudited)

the Notes to Consolidated Financial Statements in the 20182019 Annual Reports on Form 10-K, in conjunction with the proposed shutdown of SJGS Units 2 and 3 to comply with the BART requirements of the CAA, the SJGS participants requested thatperiodic updates to the coal mine reclamation study forwere requested by the SJGS be updated periodically. The SJGS RA required PNMparticipants. These updates have generally increased PNM's share of the estimated cost of mine reclamation and have included adjustments to complete an update toreflect the reclamation cost estimate after the December 31, 2017 shutdown of SJGS Units 2 and 3. This3, the terms of the reclamation cost estimate was completed in October 2018services agreement with WSJ LLC, and assumed continuationchanges to reflect the requirements of mining operations through 2053. The 2018 study indicated a decrease in reclamation costs primarily driven by lower inflationary factors used to determine the estimated future cost of reclamation activities. PNM recorded its $2.5 million share of this decrease as of September 30, 2018 as regulatory disallowances and restructuring costs in the Condensed Consolidated Statements of Earnings.2015 San Juan mine permit plan.
As discussed above, on December 31, 2018, PNM submitted the
In December 2018, Compliance Filing to the NMPRC indicating that, consistent with the conclusions reached in PNM’s 2017 IRP (Note 12), PNM expects to retire its share of SJGS after the current SJGS CSA expires in mid-2022. PNM determined that recent events and circumstances regarding SJGS, including the December 2018 Compliance Filing, indicate that it is more likely than not that PNM’s share of SJGS will be retired in 2022. As a result, in December 2018 PNM again remeasured its liability for coal mine reclamation for the mine that serves SJGS to reflect that reclamation activities may occur beginning in 2022, rather than in 2053 as previously anticipated. This estimate resulted in an increase in overall reclamation costs of $39.2 million due to an increase in the amount of fill dirt required to remediate the mine areas and

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the timing of activities necessary to reclaim the mine that serves SJGS. This remeasurement increased PNM’s liability for coal mine reclamation as of December 31, 2018 by $39.2 million, which reflects theThe increase in PNM’s obligationincludes costs for both the underground and surface mines that serve SJGS. PNM recovers from retail customers reclamation costs associated with the underground mine. However, the NMPRC has capped the amount that can be collected from retail customers for final reclamation of the surface mines at $100.0 million. As a result, PNM recorded $9.4 million of the increase in the liability at December 31, 2018 related to the underground mine in regulatory assets on the Condensed Consolidated Balance Sheets and recorded the remaining $29.8 million associated with the surface mine as regulatory disallowances and restructuringreceived recovery for such costs on the Consolidated Statements of Earnings.in its SJGS Abandonment Application. See Note 12. PNM’s estimate of the costs necessary to reclaim the mine that serves SJGS is subject to many assumptions, including the timing of reclamation, generally accepted practices at the time reclamation activities occur, and then current inflation and discount rates. In addition, PNM maycannot predict the ultimate cost to reclaim the mine that serves SJGS and would seek to recover all costs related to reclaiming the underground mine from its customers but could be exposed to additional loss if the cost ofrelated to surface mine reclamation.
A draft coal mine reclamation activities are not approved by the NMPRC in connection with the NMPRC approvals indicated above.
The current estimatestudy for decommissioning the mine servingthat serves Four Corners reflects thewas issued in July 2019. The study reflected operation of the mine through 2031, the term of the Four Corners CSA. In June 2019, the draft study resulted in a net decrease in PNM’s share of the coal mine reclamation obligation of $0.3 million, which was primarily driven by lower overhead costs offset by an increase driven by a reduction in the discount rate used by PNM to measure the liability. In September 2019, the study was finalized and included the same assumptions used in the draft study with limited modifications. PNM updated its liability using the final study and to reflect the appropriate discount rates, which had decreased since PNM’s prior measurement. These updates resulted in an increase to PNM’s share of the coal mine reclamation obligation for the mine that serves Four Corners of $1.1 million during the three months ended September 30, 2019.
Based on the 2018most recent estimates and PNM’s ownership share of SJGS, PNM’s remaining payments as of March 31, 20192020 for mine reclamation, in future dollars, are estimated to be $102.6$91.6 million for the surface mines at both SJGS and Four Corners and $40.0$40.0 million for the underground mine at SJGS. At March 31, 20192020 and December 31, 2018,2019, liabilities, in current dollars, of $70.4$70.1 million and $70.1$70.3 million for surface mine reclamation and $23.8$25.8 million and $23.2$25.3 million for underground mine reclamation were recorded in other deferred credits.


Under the terms of the SJGS CSA, PNM and the other SJGS owners are obligated to compensate WSJ LLC for all reclamation costs associated with the supply of coal from the San Juan mine. The SJGS owners entered into a reclamation trust funds agreement to provide funding to compensate WSJ LLC for post-term reclamation obligations. As discussed in Note 16 of the Notes to the Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K, as part of the restructuring of SJGS ownership the SJGS owners negotiated the terms of an amended agreement to fund post-term reclamation obligations under the CSA. The trust funds agreement requires each owner to enter into an individual trust agreement with a financial institution as trustee, create an irrevocable reclamation trust, and periodically deposit funds into the reclamation trust for the owner’s share of the mine reclamation obligation. Deposits, which are based on funding curves, must be made on an annual basis. As part of the restructuring of SJGS ownership discussed above, the SJGS participants agreed to adjusted interim trust funding levels. PNM funded $10.0$5.5 million in December 2018.2019. Based on PNM’s reclamation trust fund balance at March 31, 2019,2020, the current funding curves indicate PNM’s required contributions to its reclamation trust fund would be $6.5 million in 2019, $10.2$10.0 million in 2020, and $10.9 million in 2021.2021, and $11.7 million in 2022.
Under the Four Corners CSA, which became effective on July 7, 2016, PNM is required to fund its ownership share of estimated final reclamation costs in thirteen annual installments beginning on August 1, 2016, into an irrevocable escrow account solely dedicated to the final reclamation cost of the surface mine at Four Corners. PNM contributed $2.3 million in 2018July 2019 and anticipates providing additional funding of $2.3$1.9 million in each of the years from 20192020 through 2021.2024.
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PNM collects a provision for surface and underground mine reclamation costs in its rates. The NMPRC has capped the amount that can be collected from retail customers for final reclamation of the surface mines at $100.0 million. Previously, PNM recorded a regulatory asset for the $100.0 million and recovers the amortization of this regulatory asset in rates. RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

If future estimates increase the liability for surface mine reclamation, the excess would be expensed at that time. The impacts of changes in New Mexico state law as a result of the enactment of the ETA and regulatory determinations made by the NMPRC may also affect PNM’s financial position, results of operations, and cash flows. See additional discussion regarding PNM’s SJGS Abandonment Application in Note 12. PNM is currently unable to determine the outcome of these matters or the range of possible impacts.


Continuous Highwall Mining Royalty Rate


In August 2013, the DOI Bureau of Land Management (“BLM”) issued a proposed rulemaking that would retroactively apply the surface mining royalty rate of 12.5% to continuous highwall mining (“CHM”).  Comments regarding the rulemaking were due on October 11, 2013 and PNM submitted comments in opposition to the proposed rule. There is no legal deadline for adoption of the final rule.



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SJCC, as former owner and operator of San Juan mine, utilized the CHM technique from 2000 to 2003, and with the approval of the Farmington, New Mexico Field Office of BLM to reclassify the final highwall as underground reserves, applied the 8.0% underground mining royalty rate to coal mined using CHM and sold to SJGS.  In March 2001, SJCC learned that the DOI Minerals Management Service (“MMS”) disagreed with the application of the underground royalty rate to CHM.  In August 2006, SJCC and MMS entered into an agreement tolling the statute of limitations on any administrative action to recover unpaid royalties until BLM issued a final, non-appealable determination as to the proper rate for CHM-mined coal.  The proposed BLM rulemaking has the potential to terminate the tolling provision of the settlement agreement. Underpaid royalties of approximately $5$5 million for SJGS would become due if the proposed BLM rule is adopted as proposed.  PNM’s share of any amount that is ultimately paid would be approximately 46.3%, none of which would be passed through PNM’s FPPAC. PNM is unable to predict the outcome of this matter.


PVNGS Liability and Insurance Matters

Public liability for incidents at nuclear power plants is governed by the Price-Anderson Nuclear Industries Indemnity Act, which limits the liability of nuclear reactor owners to the amount of insurance available from both commercial sources and an industry-wide retrospective payment plan. In accordance with this act, the PVNGS participants are insured against public liability exposure for a nuclear incident up to $14.1$13.9 billion per occurrence. PVNGS maintains the maximum available nuclear liability insurance in the amount of $450$450 million,, which is provided by American Nuclear Insurers. The remaining $13.6$13.5 billion is provided through a mandatory industry-wide retrospective assessment program. If losses at any nuclear power plant covered by the program exceed the accumulated funds, PNM could be assessed retrospective premium adjustments. Based on PNM’s 10.2% interest in each of the three3 PVNGS units, PNM’s maximum potential retrospective premium assessment per incident for all three3 units is $41.6$42.1 million,, with a maximum annual payment limitation of $6.2$6.2 million,, to be adjusted periodically for inflation.


The PVNGS participants maintain insurance for damage to, and decontamination of, property at PVNGS in the aggregate amount of $2.75$2.8 billion,, a substantial portion of which must first be applied to stabilization and decontamination. These coverages are provided by Nuclear Electric Insurance Limited (“NEIL”). The primary policy offered by NEIL contains a sublimit of $2.25 billion for non-nuclear property damage. If NEIL’s losses in any policy year exceed accumulated funds, PNM is subject to retrospective premium adjustments of $5.4$5.4 million for each retrospective premium assessment declared by NEIL’s Board of Directors due to losses. The insurance coverages discussed in this and the previous paragraph are subject to certain policy conditions, sublimits, and exclusions.
Water Supply
Because of New Mexico’s arid climate and periodic drought conditions, there is concern in New Mexico about the use of water, including that used for power generation. Although PNM does not believe that its operations will be materially affected by drought conditions at this time, it cannot forecast long-term weather patterns. Public policy, local, state and federal regulations, and litigation regarding water could also impact PNM operations. To help mitigate these risks, PNM has secured permanent groundwater rights for the existing plants at Reeves Station, Rio Bravo, Afton, Luna, Lordsburg, and La Luz. Water availability is not an issue for these plants at this time. However, prolonged drought, ESA activities, and a federal lawsuit by
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the State of Texas (suing the State of New Mexico over water deliveries) could pose a threat of reduced water availability for these plants.
For SJGS and Four Corners, PNM and APS have negotiated an agreement with the more senior water rights holders (tribes, municipalities, and agricultural interests) in the San Juan basin to mutually share the impacts of water shortages with tribes and other water users in the San Juan basin. The agreement to share shortages in 2018 through 2021 has been endorsed by the parties and is being reviewed by the New Mexico Office of the State Engineer.2021.
In April 2010, APS signed an agreement on behalf of the PVNGS participants with five5 cities to provide cooling water essential to power production at PVNGS for 40 years.

PVNGS Water Supply Litigation
In 1986, an action commenced regarding the rights of APS and the other PVNGS participants to the use of groundwater and effluent at PVNGS. APS filed claims that dispute the court’s jurisdiction over PVNGS’ groundwater rights and their contractual rights to effluent relating to PVNGS and, alternatively, seek confirmation of those rights. In 1999, the Arizona Supreme Court issued a decision finding that certain groundwater rights may be available to the federal government and IndianNative American tribes. In addition,

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the Arizona Supreme Court issued a decision in 2000 affirming the lower court’s criteria for resolving groundwater claims. Litigation on these issues has continued in the trial court. No trial dates have been set in these matters. PNM does not expect that this litigation will have a material impact on its results of operation, financial position, or cash flows.

San Juan River Adjudication
In 1975, the State of New Mexico filed an action in NM District Court to adjudicate all water rights in the San Juan River Stream System, including water used at Four Corners and SJGS. PNM was made a defendant in the litigation in 1976. In March 2009, then President Obama signed legislation confirming a 2005 settlement with the Navajo Nation. Under the terms of the settlement agreement, the Navajo Nation’s water rights would be settled and finally determined by entry by the court of two proposed adjudication decrees.  The court issued an order in August 2013 finding that no evidentiary hearing was warranted in the Navajo Nation proceeding and, on November 1, 2013, issued a Partial Final Judgment and Decree of the Water Rights of the Navajo Nation approving the proposed settlement with the Navajo Nation. A number of parties subsequently appealed to the New Mexico Court of Appeals. PNM entered its appearance in the appellate case and supported the settlement agreement in the NM District Court. On April 3, 2018, the New Mexico Court of Appeals issued an order affirming the decision of the NM District Court. Several parties filed motions requesting a rehearing with the New Mexico Court of Appeals seeking clarification of the order, which were denied. The State of New Mexico and various other appellants filed a Writwrit of Certioraricertiorari with the NM Supreme Court. The NM Supreme Court granted the State of New Mexico’s petition and denied the other parties’ requests. The issues regarding the Navajo Nation settlement have been briefed and are awaiting a decision by the NM Supreme Court. Adjudication of non-Indian water rights is ongoing.
PNM is participating in this proceeding since PNM’s water rights in the San Juan Basin may be affected by the rights recognized in the settlement agreement and adjudicated to the Navajo Nation, which comprise a significant portion of water available from sources on the San Juan River and in the San Juan Basin and which have priority in times of shortages. PNM is unable to predict the ultimate outcome of this matter or estimate the amount or range of potential loss and cannot determine the effect, if any, of any water rights adjudication on the present arrangements for water at SJGS and Four Corners. Final resolution of the case cannot be expected for several years. An agreement reached with the Navajo Nation in 1985, however, provides that if Four Corners loses a portion of its rights in the adjudication, the Navajo Nation will provide, for an agreed upon cost, sufficient water from its allocation to offset the loss.

Rights-of-Way Matter


On January 28, 2014, the County Commission of Bernalillo County, New Mexico passed an ordinance requiring utilities to enter into a use agreement and pay a yet-to-be-determined fee as a condition to installing, maintaining, and operating facilities on county rights-of-way. The fee is purported to compensate the county for costs of administering and maintaining the rights-of-way, as well as for capital improvements. On February 27, 2014, PNM and other utilities filed a Complaint for Declaratory and Injunctive Relief in the United States District Court for the District of New Mexico challengingAfter extensive challenges to the validity of the ordinance. The court denied the utilities’ motion for judgment. The court further granted the County’s motion to dismiss the state law claims. The utilities filed an amended complaint reflecting the two federal claims remaining before the federal court. The utilities also filed a complaint in Bernalillo County, New Mexico District Court reflecting the state law matters dismissed by the federal court. In subsequent briefing in federal court, the county filed a motion for judgment on one of the utilities’ claims, which was granted by the court, leaving a claim regarding telecommunications service as the remaining federal claim. On January 4, 2016, the utilities filed an Application for Interlocutory Appeal from the state court, which was denied. On March 28, 2017,ordinance, the utilities filed a Writwrit of Certiorari certiorari with the NM Supreme Court, which was denied. The matter is proceeding in NM District Court.denied. The utilities and Bernalillo County had reached a standstill agreement whereby the Countycounty would not take any enforcement action against the utilities pursuant to the ordinance during the
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(Unaudited)

pendency of thethen pending litigation, but not including any period for appeal of a judgment, or upon 30 days written notice by either the county or the utilities of their intention to terminate the agreement. Mediation was held on January 23, 2019. Discussions are continuing butAfter court-ordered settlement discussions, PNM and Bernalillo County executed a franchise fee agreement with a term of 15 years. Under the matter remains unresolved. If the challengesagreement, PNM will pay franchise fees to the ordinance are unsuccessful,county at an amount similar to those paid by PNM believes any fees paid pursuant toin other jurisdictions. PNM will recover the ordinance would be consideredcost of the franchise fees and would be recoverable from customers.as a direct pass-through to customers located in Bernalillo County. The agreement is subject to approval by the New Mexico Second District Court in Bernalillo County. PNM is unable tocannot predict the outcome of this matter or its impact on PNM’s operations.matter.

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Navajo Nation Allottee Matters


In September 2012, 43 landowners filed a notice of appeal with the Bureau of Indian Affairs (“BIA”) appealing a March 2011 decision of the BIA Regional Director regarding renewal of a right-of-way for a PNM transmission line. The landowners claim to be allottees, members of the Navajo Nation, who pursuant to the Dawes Act of 1887, were allotted ownership in land carved out of the Navajo Nation and allege that PNM is a rights-of-way grantee with rights-of-way across the allotted lands and are either in trespass or have paid insufficient fees for the grant of rights-of-way or both.  The allottees generally allege that they were not paid fair market value for the right-of-way, that they were denied the opportunity to make a showing as to their view of fair market value, and thus denied due process. The allottees filed a motion to dismiss their appeal with prejudice, which was granted in April 2014. Subsequent to the dismissal, PNM received a letter from counsel on behalf of what appears to be a subset of the 43 landowner allottees involved in the appeal, notifying PNM that the specified allottees were revoking their consents for renewal of right of way on six specific allotments.  On January 22, 2015, PNM received a letter from the BIA Regional Director identifying ten10 allotments with rights-of-way renewals that were previously contested. The letter indicated that the renewals were not approved by the BIA because the previous consent obtained by PNM was later revoked, prior to BIA approval, by the majority owners of the allotments. It is the BIA Regional Director’s position that PNM must re-obtain consent from these landowners. On July 13, 2015, PNM filed a condemnation action in the NM District Court regarding the approximately 15.49 acres of land at issue. On September 18, 2015, the allottees filed a separate complaint against PNM for federal trespass. On December 1, 2015, the court ruled that PNM could not condemn two2 of the five5 allotments at issue based on the Navajo Nation’s fractional interest in the land. PNM filed a motion for reconsideration of this ruling, which was denied. On March 31, 2016, the Tenth Circuit granted PNM’s petition to appeal the December 1, 2015 ruling. On September 18, 2015, the allottees filed a separate complaint against PNM for federal trespass. Both matters have been consolidated. Oral argument before the Tenth Circuit was heard on January 17, 2017. On May 26, 2017, the Tenth Circuit affirmed the district court. On July 8, 2017, PNM filed a Motion for Reconsideration en banc with the Tenth Circuit, which was denied. The NM District Court stayed the case based on the Navajo Nation’s acquisition of interests in two2 additional allotments and the unresolved ownership of the fifth allotment due to the owner’s death. On November 20, 2017, PNM filed its Petitionpetition for Writwrit of Certioraricertiorari with the US Supreme Court. On December 22, 2017, amicus briefs supporting PNM’s Petition for Writ of Certiorari were filed with the US Supreme Court. On April 30, 2018, the US Supreme Court, declined to hear PNM’s Petition for Writ of Certiorari.which was denied. The underlying litigation continues in the NM District Court. The NM District Court has not issued an updated scheduling order in the case due to the unresolved ownership of the fifth allotment. On March 27, 2019, several individual allottees filed a motion for partial summary judgment on the issue of trespass. BriefingThe Court held a hearing on the motion on June 18, 2019 and took the motion under advisement. Mediation on the matter is underway.ongoing and parties are continuing to discuss a potential settlement. PNM cannot predict the outcome of these matters.


(12)Regulatory and Rate Matters

(12)   Regulatory and Rate Matters

The Company is involved in various regulatory matters, some of which contain contingencies that are subject to the same uncertainties as those described in Note 11. Additional information concerning regulatory and rate matters is contained in Note 17 of the Notes to Consolidated Financial Statements in the 20182019 Annual Reports on Form 10-K.
PNM


New Mexico General Rate Cases


New Mexico 2015 General Rate Case (“NM 2015 Rate Case”)


On August 27, 2015, PNM filed an application with the NMPRC for a general increase in retail electric rates. The application proposed a revenue increase of $123.5 million, including base non-fuel revenues of $121.7 million. PNM’s application was based on a future test year (“FTY”) period beginning October 1, 2015million, and proposed a ROE of 10.5%. The primary drivers of PNM’s identified revenue deficiency were the cost of infrastructure investments, including depreciation expense based on an updated depreciation study, and a decline in energy sales as a result of PNM’s successful energy efficiency programs and other economic factors. The application included several proposed changes in rate design to establish fair and equitable pricing across rate classes and to better align cost recovery with cost causation. Specific rate design proposals included higher customer and demand charges, a revenue decoupling pilot program applicable to residential and small commercial customers, a re-allocation of revenue among PNM’s customer classes, a new economic development rate, and continuation of PNM’s renewable energy rider. PNM requested that the proposed new rates become effective beginning in July 2016. A public hearing on the proposed new rates was held in April 2016. Subsequent to this hearing, theThe NMPRC ordered PNM to file additional testimony regarding PNM’s interests in PVNGS, including the 64.1 MW
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(Unaudited)



sales-leaseback transactions (Note 13). A subsequent public hearing was heldPNM’s interests in June 2016. AfterPVNGS, including the June hearing, PNM and other parties were ordered to file supplemental briefs and to provide final recommended revenue requirements that incorporated fuel savings64.1 MW of PVNGS Unit 2 that PNM implemented effectiverepurchased in January 1, 2016 from PNM’s SJGS CSA (Note 11).  PNM’s filing indicated that recovery for fuel related costs would be reduced by approximately $42.9 million reflectingpursuant to the current SJGS CSA, which also reducedterms of the request for base non-fuel related revenues by $0.2 million to $121.5 million.initial sales-leaseback transactions.


OnIn August 4, 2016, the Hearing Examiner in the case issued a recommended decision (the “August 2016 RD”).  The August 2016 RD, proposed an increase in non-fuel revenues of $41.3 million compared to the $121.5 million increase requested by PNM. Major components of the difference in the increase in non-fuel revenues proposed in the August 2016 RD, included:

A ROE of 9.575% compared to the 10.5% requested by PNM
Disallowing recovery of the entire $163.3 million purchase price for the January 15, 2016 purchases of the assets underlying three leases of portions of PVNGS Unit 2 (Note 13); the August 2016 RD proposed that power from the previously leased assets, aggregating 64.1 MW of capacity, be dedicated to serving New Mexico retail customers with those customers being charged for the costs of fuel and operating and maintenance expenses (other than property taxes, which were $0.8 million per year when the August 2016 RD was issued), but the customers would not bear any capital or depreciation costsamong other than those related to improvements made after the date of the original leases
Disallowing recovery from retail customers of the rent expense, which aggregates $18.1 million per year, under the four leases of capacity in PVNGS Unit 1 that were extended for eight years beginning January 15, 2015 and the one lease of capacity in PVNGS Unit 2 that was extended for eight years beginning January 15, 2016 (Note 13) and related property taxes, which were $1.5 million per year when the August 2016 RD was issued; the August 2016 RD proposed that power from the leased assets, aggregating 114.6 MW of capacity, be dedicated to serving New Mexico retail customers with those customers being charged for the costs of fuel and operating and maintenance expense, except that customers would not bear rental costs or property taxes
Disallowing recovery of the costs of converting SJGS Units 1 and 4 to BDT, which is required by the NSR permit for SJGS, (Note 11); PNM’s share of the costs of installing the BDT equipment was $52.3 million of which $40.0 million was included in rate base in PNM’s rate request
Disallowing recovery of $4.5 million of amounts recorded as regulatory assets and deferred charges

The August 2016 RDthings, recommended that the NMPRC find PNM was imprudent in the actions taken to purchase the previously leased 64.1 MW of capacity in PVNGS Unit 2, extending the leases for 114.6 MW of capacity of PVNGS Units 1 and 2, and installing the BDT equipment on SJGS Units 1 and 4. The August 2016 RD also proposed that all fuel costs be removed from base rates and be recovered through the FPPAC. In addition,As a result, the August 2016 RD would removerecommended the NMPRC disallow recovery of the entire $163.3 million purchase price for the January 15, 2016 purchases of the assets underlying 3 leases aggregating 64.1 MW of PVNGS Unit 2, the undepreciated capital improvements made during the period the 64.1 MW of purchased capacity was leased, rent expense aggregating $18.1 million annually for leases aggregating 114.6 MW of capacity that were extended through January 2023 and 2024 (Note 13), and recovery of the costs of power obtained from New Mexico Wind from the FPPACconverting SJGS Units 1 and include recovery of those costs through PNM’s renewable energy rider discussed below. The August 2016 RD recommended continuation of the renewable energy rider and certain aspects of PNM’s proposals regarding rate design but would not approve certain other rate design proposals or PNM’s request for a revenue decoupling pilot program. The August 2016 RD proposed approving PNM’s proposals for revised depreciation rates (except for requiring depreciation on Four Corners be calculated based on a 2041 life rather than the 2031 life proposed by PNM), the inclusion of construction work in progress in rate base, and ratemaking treatment of the “prepaid pension asset.” The August 2016 RD proposed retail customers receive 100% of the New Mexico jurisdictional portion of revenues from “refined coal” (a third-party pre-treatment process) at SJGS. The August 2016 RD did not preclude PNM from supporting the prudence of the PVNGS purchases and lease renewals in its next general rate case and seeking recovery of those costs. PNM disagreed with many of the key conclusions reached by the Hearing Examiner in the August 2016 RD and filed exceptions4 to defend its prudent utility investments. Other parties also filed exceptions to the August 2016 RD.  BDT.   


On September 28, 2016, the NMPRC issued an order that authorized PNM to implement an increase in non-fuel rates of $61.2 million, effective for bills sent to customers after September 30, 2016. The order generally approved the August 2016 RD, but with certain significant modifications. The modifications to the August 2016 RD included:


Inclusion of the January 2016 purchase of the assets underlying three3 leases of capacity, aggregating 64.1 MW, of PVNGS Unit 2 at an initial rate base value of $83.7 million; and disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the 64.1 MW was being leased by PNM, which aggregated $43.8 million when the order was issued

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
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(Unaudited)


Allowing full recoveryRecovery of theannual rent expense and property taxesexpenses associated with the extended leases for capacity, aggregating 114.6 MW in Palo Verde Units 1 and 2of capacity under the extended leases
Disallowance of the recovery of any future contributions for PVNGS decommissioning costs related to the 64.1 MW of capacity purchased in January 2016 and the 114.6 MW of capacity under the extended leases


On September 30, 2016, PNM filed a notice of appeal with the NM Supreme Court regarding the order in the NM 2015 Rate Case. Subsequently, NEE, NMIEC, and ABCWUA filed notices of cross-appeal to PNM’s appeal. On October 26, 2016,Specifically, PNM filed a statement of issues related to its appeal with the NM Supreme Court, which stated PNM is appealingappealed the NMPRC’s determination that PNM was imprudent in certain matters in the actions taken to purchase the previously leased 64.1 MW of capacity in PVNGS Unit 2, extending the leases for 114.6 MW of capacity of PVNGS Units 1 and 2, and installing BDT equipment on SJGS Units 1 and 4. In addition, PNM’s statement indicated it is appealing the following specific elements ofcase, including the NMPRC’s order:

Disallowance of recoverydisallowance of the full purchase price representing fair market value, of the 64.1 MW of capacity in PVNGS Unit 2, purchased in January 2016
Disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the 64.1 MW of capacity was leased by PNM,
Disallowance the cost of recovery ofconverting SJGS Units 1 and 4 to BDT, and future contributions for PVNGS decommissioning attributable to the 64.1 MW of purchased capacity and the 114.6 MW of capacity under the extended leases
Disallowanceleases. NEE, NM AREA, and ABCWUA filed notices of recovery of the costs of converting SJGS Units 1 and 4cross-appeal to BDT

PNM’s appeal. The issues that are being appealed by the various cross-appellants include:

Theincluded, among other things, the NMPRC allowing PNM to recover any of the costs of the lease extensions for the 114.6 MW of PVNGS Units 1 and 2 and any of the purchase price for the 64.1 MW in PVNGS Unit 2,
The NMPRC allowing PNM to recover the costs incurred under the new Four Corners CSA,
The revised method to collect PNM’s fuel and purchased power costs under the FPPAC
The final rate design
The NMPRC allowing PNM to includeinclusion of the “prepaid pension asset” in rate basebase.


The NM Supreme Court orally stated thatDuring the court’s intent was to request that PNM reimburse ratepayers for any amount overcharged should the cross-appellants prevail on the merits.

On February 17, 2017, PNM filed its Brief in Chief, and pursuant to the court’s rules, the briefing schedule was completed on July 21, 2017. Oral argument at the NM Supreme Court was held on October 30, 2017. Although appeals of regulatory actionspendency of the NMPRC have a priority at the NM Supreme Court under New Mexico law, there is no required time frame for the court to act on the appeals.

GAAP requires a loss be recognized when it is probable that a loss has been incurred and the amount of loss can be reasonably estimated. When there is a range of the amount of the probable loss, the minimum amount of the range is to be accrued unless an amount within the range is a better estimate than any other amount. As of September 30, 2016,appeal, PNM evaluated the accounting consequences of the order in the NM 2015 Rate Case and the likelihood of being successful on the issues it is appealing inrelated appeals to the NM Supreme Court as required under GAAP. The evaluationThese evaluations indicated that it iswas reasonably possible that PNM willwould be successful on the issues it is appealing. Ifwas appealing but would not be provided capital costs recovery until the NMPRC acted on a decision of the NM Supreme Court rules in PNM’s favor on some or allCourt. PNM also evaluated the accounting consequences of the issues thosebeing appealed by the cross-appellants and concluded that the issues would be remanded back toraised in the NMPRC for further action. Ascross-appeals did not have substantial merit.

In accordance with GAAP, PNM periodically updated its estimate of September 30, 2016, PNM estimated it would take a minimumthe amount of 15 months from the date PNM filed its appealtime necessary for the NM Supreme Court to render a decision and for the NMPRC to take action on any remanded issues. As a result of those evaluations, through March 31, 2019, PNM concludedhad recorded accumulated pre-tax impairments of its capital investments subject to the appeal in the amount of $19.7 million.

On May 16, 2019, the NM Supreme Court issued its decision on the matters that a range of probable loss resulted from the NMPRC orderhad been appealed in the NM 2015 Rate Case;Case. The NM Supreme Court rejected the matters appealed by the cross-appellants and affirmed the NMPRC’s disallowance of a portion of the purchase price of the 64.1 MW of capacity in PVNGS Unit 2; the undepreciated costs of capital improvements made during the time the 64.1 MW capacity was leased by PNM; and the costs to install BDT at SJGS Units 1 and 4. The NM Supreme Court also ruled that the minimum amountNMPRC’s decision to permanently disallow recovery of loss was 15 monthsfuture decommissioning costs related to the 64.1 MW of capital cost recovery that the order disallowed for PNM’s investments in the PVNGS Unit 2 purchases,and the 114.6 MW of PVNGS UnitUnits 1 and 2 capitalized improvements,deprived PNM of its rights to due process of law and BDT; and that no amount withinremanded the rangecase to the NMPRC for further proceedings consistent with the court’s
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Table of possible loss was a better estimate than any other amount. Accordingly, PNM recorded a pre-tax regulatory disallowance of $6.8 million at September 30, 2016 for the capital costs that would not be recovered during that 15-month appeal period. In addition, PNM recorded a pre-tax regulatory disallowance for $4.5 million of costs recorded as regulatory assets and deferred charges (which the order disallowed and which PNM did not challenge in its appeal) since PNM could no longer assert that those assets were probable of being recovered through the ratemaking process.Contents


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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
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(Unaudited)




PNM also evaluatedfindings. On January 8, 2020, the accounting consequencesNMPRC issued its order on remand, which reaffirmed its September 2016 order except for the decision to permanently disallow recovery of the issues that are being appealed by the cross-appellants. PNM does not believe the issues raised in the cross-appeals have substantial merit. Accordingly, PNM does not believe that the likelihood of the cross-appeals being successful is probable and, therefore, no loss has been recordedcertain future decommissioning costs related to the issues subjectPVNGS Units 1 and 2. The NMPRC indicated that PNM’s ability to the cross-appeals.

The NM Supreme Court did not issuerecover these costs will be addressed in a decision on the appeals related tofuture proceeding and closed the NM 2015 Rate Case by December 31, 2017, which was 15 months from the date of the NMPRC’s order in that case. docket.

As a result PNM reevaluated the accounting consequences of the order in the NM 2015 Rate Case resulting in an additional pre-tax loss of $3.1 million, which represented seven months of capital cost recovery that the order disallowed and was not expected to be recovered through July 31, 2018.

During the second half of 2018, PNM updated its evaluation of the estimated time frame it would take for resolution of the matter resulting in additional pre-tax losses of $4.0 million, representing capital cost recovery that the order disallowed and that PNM estimated would not be recovered through April 30, 2019.

Since the NM Supreme Court did not issue a decision onCourt’s ruling, as of June 30, 2019, PNM recorded pre-tax impairments of $150.6 million, which included $1.3 million recorded in the appeals bythree months ended March 31, 2019, PNM again reevaluatedand is reflected as regulatory disallowances and restructuring costs on the accounting consequencesCondensed Consolidated Statements of Earnings. The impairment includes $73.2 million for a portion of the order in the NM 2015 Rate Case. As of March 31, 2019, PNM estimates the most likely periodpurchase price for the NM Supreme Court to issue a decision in the case and for the NMPRC to take any on any remanded issues is four months. As a result, PNM recorded an additional pre-tax loss of $1.3 million as of March 31, 2019, representing capital cost recovery that the order disallowed and will not be recovered through July 31, 2019. Further losses will be recorded if the currently estimated time frame for the NM Supreme Court to render a decision and for the NMPRC to take action on any remanded issues is extended.

PNM continues to believe that the disallowed investments, which are the subject of PNM’s appeal, were prudent and that PNM is entitled to full recovery of those investments through the ratemaking process. Although PNM believes it is reasonably possible that its appeals will be successful, it cannot predict what decision the NM Supreme Court will reach or what further actions the NMPRC will take on any issues remanded to it by the court. If PNM’s appeal is unsuccessful, PNM would record further pre-tax losses related to the capitalized costs for any unsuccessful issues. The impacts of not recovering future contributions for decommissioning would be recognized in future periods reflecting that rates charged to customers would not recover those costs as they are incurred. The amounts of any such losses to be recorded would depend on the ultimate outcome of the appeal and NMPRC process, as well as the actual amounts reflected on PNM books at the time of the resolution. However, based on the book values recorded by PNM as of March 31, 2019, such losses could include:

The remaining costs to acquire the assets previously leased under three leases aggregating 64.1 MW ofin PVNGS Unit 2, capacity in excess$39.7 million of the recovery permitted under the NMPRC’s order; the net book value of such excess amount was $72.6 million, after considering the losses recorded to date
The undepreciated costs of capitalized improvements made during the period the 64.1 MW of capacity in PVNGS Unit 2 purchased by PNM in January 2016 was being leased by PNM; the net book value of these improvements was $37.6PNM, and $37.7 million after considering the losses recorded to date
The remaining costs to convertfor BDT on SJGS Units 1 and 4 to BDT; the net book value of these assets4. The impairment was $49.7 million, after considering the losses recorded to date

Although PNM does not believe that the likelihood of the cross-appeals being successful is probable, it is unable to predict what decision the NM Supreme Court will reach. If the NM Supreme Court were to overturn all of the issues subject to the cross-appeals and, upon remand, the NMPRC did not provide any cost recovery of those items, PNM would write-off all of the costs to acquire the assets previously leased under three leases, aggregating 64.1 MW of PVNGS Unit 2 capacity, totaling $144.7 million (which amount includes $72.6 million that is the subject of PNM’s appeal discussed above) at March 31, 2019, after considering the losses recorded to date. Theoffset by tax impacts of not recovering costs for the lease extensions, new coal supply contract for Four Corners, and “prepaid pension asset” in rate base would be recognized in future periods reflecting that rates charged to customers would not recover those costs as they are incurred. The outcomes of the cross-appeals regarding the FPPAC and rate design should not have a financial impact to PNM.$45.7 million.


PNM is unable to predict the outcome of this matter.


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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
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(Unaudited)


New Mexico 2016 General Rate Case (“NM 2016 Rate Case”)


On December 7, 2016, PNM filed an application with the NMPRC for a general increase in retail electric rates. PNM did not include any of the costs disallowed in the NM 2015 Rate Case that arewere at issue in its then pending appeal to the NM Supreme Court. PNM’s original application used a FTY beginning January 1, 2018 and requested an increase in base non-fuel revenues of $99.2 million based on ana ROE of 10.125%. The primary drivers of PNM’s revenue deficiency included implementation of modifications to PNM’s resource portfolio, which were approved by the NMPRC in December 2015 as part of the SJGS regional haze compliance plan, infrastructure investments, including environmental upgrades at Four Corners, declines in forecasted energy sales due to successful energy efficiency programs and other economic factors, and updates to FERC/retail jurisdictional allocations.


After extensive settlement negotiations and public proceedings, the NMPRC issued a Revised Order Partially Adopting Certification of Stipulation dated January 10, 2018 (the “Revised Order”). The key terms of the Revised Order include:


An increase in base non-fuel revenues totaling $10.3 million, which includes a reduction to reflect the impact of the decrease in the federal corporate income tax rate and updates to PNM’s cost of debt (aggregating an estimated $47.6 million annually)
A ROE of 9.575%
Returning to customers over a three-yearthree-year period the benefit of the reduction in the New Mexico corporate income tax rate (Note 14) to the extent attributable to PNM’s retail operations (Note 14)
Disallowing PNM’s ability to collect an equity return on its $90.1certain investments aggregating $148.1 million investment in SCRs at Four Corners, and on $58.0 million of then projected capital improvements during the period July 1, 2016 through December 31, 2018, but allowing recovery of the total $148.1 million of investments with a debt-only return
An agreement to not implement non-fuel base rate changes, other than changes related to PNM’s rate riders, with an effective date prior to January 1, 2020
A requirement to consider the prudency of PNM’s decision to continue its participation in Four Corners in a future proceedingPNM's next general rate case filing


In accordance with the settlement agreement and the NMPRC’s final order, PNM implemented 50% of the approved increase for service rendered beginning February 1, 2018 and implemented the rest of the increase for service rendered beginning January 1, 2019.


Investigation/Rulemaking Concerning NMPRC Ratemaking Policies

On March 22, 2017, the NMPRC issued an order opening an investigation and rulemaking to simplify and increase “the transparency of NMPRC rate cases by reducing the number of issues litigated in rate cases,” and provide a “more level playing field among intervenors and NMPRC staff on the one hand, and the utilities on the other.” The order posed the following questions: whether a standardized method should be established for determining ROE; should the ROE be subject to reward or penalty based on utilities meeting or failing to meet certain metrics, which could include customer complaints, outages, peak demand reductions, and RPS and energy efficiency compliance; whether recovery of utility rate case expenses should be limited to 50% unless the case is settled; whether intervenors should be allowed to recover their expenses if the NMPRC accepts their position; whether parties should have access to software used by utilities to support their positions; and how regulatory assets should be authorized and recovered. Initial comments were filed in July 2017 and several public workshops have been held. To date, no agreement has been reached. PNM cannot predict the outcome of this proceeding.

Renewable Portfolio Standard
As discussed in Note 16 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K, the ETA was enacted in June 2019. Prior to the enactment of the ETA, the REA established a mandatory RPS requiring a utility to acquire a renewable energy portfolio equal to 10% of retail electric sales by 2011, 15% by 2015, and 20% by 2020. As discussed in Note 11, the ETA was signed into law on March 22, 2019. The ETA amends the REA and requires utilities operating in New Mexico to have renewable portfolios equal to 20% by 2020, 40% by 2025, 50% by 2030, 80% by 2040, and 100% zero-carbon energy by 2045. The ETA also removes diversity requirements and certain customer caps and exemptions relating to the application of the RPS under the REA.



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(Unaudited)



The REA provides for streamlined proceedings for approval of utilities’ renewable energy procurement plans, assures that utilities recover costs incurred consistent with approved procurement plans, and requires the NMPRC to establish a RCT for the procurement of renewable resources to prevent excessive costs being added to rates. Currently, the RCT is set at 3% of customers’ annual electric charges. The ETA sets a new threshold based onRCT of $60 per MWh using an average annual levelized resource cost basis. PNM makes renewable procurements consistent with the NMPRC approved plans. PNM recovers certain renewable procurement costs from customers through a rate rider. See Renewable Energy Riderbelow.


Included in PNM’s approved procurement plans are the following renewable energy resources:
157 MW of PNM-owned solar-PV facilities including 50 MW of PNM-owned solar-PV facilities approved by the NMPRC in PNM’s 2018 renewable energy procurement plan and are expected to be placed in commercial operation by the end of 2019
A PPA through 2044 for the output of New Mexico Wind, having a current aggregate capacity of 204 MW, and a PPA through 2035 for the output of Red Mesa Wind, having an aggregate capacity of 102 MW
A PPA through 2040 for 140 MW of output from La Joya Wind, which is expected to be operational by December 31, 2020
A PPA through 2042 for the output of the Lightning Dock Geothermal facility; the geothermal facility began providing power to PNM in January 2014; thewith a current capacity of the facility is 15 MW
Solar distributed generation, aggregating 106.8133.0 MW at March 31, 2019,2020, owned by customers or third parties from whom PNM purchases any net excess output and RECs
Solar and wind RECs as needed to meet the RPS requirements

On June 1, 2017, PNM filed its 2018 renewable energy procurement plan. PNM requested approval to procure an additional 80 GWh in 2019 and 105 GWh in 2020 from a re-powering of New Mexico Wind; approval to procure an additional 55 GWh in 2019 and 77 GWh in 2020 from a re-powering of Lightning Dock Geothermal; approval to procure 50 MW of new solar facilities to be constructed beginning in 2018, and continuation of customer REC purchase programs and other purchases of RECs to ensure annual compliance with the RPS. The plan also sought a variance from the “other” diversity category in 2018 due to a revised production forecast of the Lightning Dock Geothermal facility in 2018. A public hearing on the application was held in September 2017. On October 17, 2017, the Hearing Examiner issued a recommended decision that PNM’s 2018 renewable energy procurement plan be approved by the NMPRC, except for the re-powering of Lightning Dock Geothermal and PNM’s request to procure 50 MW of new solar facilities. The Hearing Examiner recommended that the PPA for the output of energy from Lightning Dock Geothermal be terminated effective January 1, 2018. The Hearing Examiner also recommended that PNM be required to issue another all-renewables RFP allowing developers to utilize PNM-owned sites to construct facilities, the output from which facilities would be sold to PNM through PPAs. PNM filed exceptions contesting the Hearing Examiner’s proposals. On November 15, 2017, the NMPRC issued an order approving PNM’s plan and rejecting the Hearing Examiner’s recommendations. On November 29, 2017, NMIEC filed an appeal with the NM Supreme Court objecting to the fuel allocation methodology. On December 14, 2017, NEE filed a motion to intervene and cross-appeal objecting to the approval of the 50 MW of new solar facilities. On December 18, 2017, PNM filed a motion to intervene, which was granted. NMIEC filed a motion for a partial stay of the NMPRC order, which was denied. Briefing on NMIEC’s appeal of the fuel allocation methodology is complete. On June 20, 2018, NEE filed its Brief in Chief with the NM Supreme Court stating, among other things, that PNM’s process favored ownership of the 50 MW solar facilities compared to PPAs. PNM and the NMPRC each filed Answer Briefs on September 4, 2018 stating there is substantial evidence in the case record to support the NMPRC’s decision and that PNM’s RFP process was reasonable, complied with RPS requirements, and consistent with industry standards. NEE’s Reply Brief was filed on October 15, 2018. On May 6, 2019, the NM Supreme Court heard oral arguments on the issues of the fuel allocation methodology and the reasonableness of the RFP process. PNM cannot predict the outcome of this matter.

On June 1, 2018, PNM filed its 2019 renewable energy procurement plan. The plan meets RPS and diversity requirements for 2019 and 2020 using resources already approved by the NMPRC and did not propose any significant new procurements. PNM projects that the plan will be within the RCT in 2019 and will slightly exceed the current RCT in 2020. Public hearings were held on the case in September and October 2018. The NMPRC approved PNM’s 2019 renewable energy procurement plan on November 28, 2018.
As discussed above, the ETA removes certain customer caps and exemptions relating to the application of the RPS under the REA. As a result of these changes, PNM will be required to procure additional energy from renewable resources to meet the 20% by 2020 requirement under the RPS. PNM expects to request NMPRC approval of a PPA for wind generation capacity, which

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(Unaudited)


would utilize the BB2 Line to deliver the power, to meet this requirement. See additional discussion below under Application For a New 345 KV Transmission Line. PNM cannot predict the outcome of this matter.
Renewable Energy Rider

The NMPRC has authorized PNM to recover certain renewable procurement costs through a rate rider billed on a per KWh basis. In PNM’s NM 2015 Rate Case, the NMPRC authorized continuation of the renewable rider. In its 2019 renewable energy procurement plan case, which was approved by the NMPRC on November 28, 2018, PNM proposed to collect $49.6 million for the year. The 2019 renewable energy procurement plan became effective on January 1, 2019. PNM recorded revenues from the rider of $12.7$15.1 million and $10.9$12.7 million in the three months ended March 31, 20192020 and 2018.2019. In its 2020 renewable energy procurement plan case, PNM proposed to collect $58.9 million through a revised rate rider beginning in 2020. In addition, PNM proposed that its FPPAC be reset from a July 1 through June 30 fiscal year to a calendar year. The NMPRC approved PNM's 2020 renewable energy procurement plan on January 29, 2020. The revised rate rider became effective on February 1, 2020.
Under the renewable rider, if PNM’s earned rate of return on jurisdictional equity in a calendar year, adjusted for weather and other items not representative of normal operations, exceeds the NMPRC-approved rate by 0.5%, PNM is required to refund the excess to customers during May through December of the following year. PNM did not exceed such limitation in 2018.2019.


Energy Efficiency and Load Management


Petition forProgram Costs and Incentives/Disincentives

The New Mexico Efficient Use of Energy Efficiency Disincentive

PNM’s application in the NM 2016 Rate Case had requested a “lost contributionAct (“EUEA”) requires public utilities to fixed cost” mechanismachieve specified levels of energy savings and to address the disincentives associated with PNM’sobtain NMPRC approval to implement energy efficiency and load management programs. InThe EUEA requires the revised stipulationNMPRC to that case, PNM agreedremove utility disincentives to withdraw its proposalimplementing energy efficiency and load management programs and to provide incentives for such programs. The NMPRC has adopted a mechanismrule to implement this act. PNM’s costs to implement approved programs and to address energy efficiency disincentives inincentives are recovered through a future docket. On March 2, 2018, PNM filed a petition proposing a “lost contribution to fixed cost mechanism” with substantially the same terms as those proposed in the NM 2016 Rate Case application. The Hearing Examiner issued a procedural order that included a public hearing to begin on October 30, 2018. Subsequently, the Hearing Examiner extended the deadline to file response testimony until December 19, 2018 and vacated the hearing schedule. On December 19, 2018, the Hearing Examiner approved a joint motion filed by PNM and other parties in the case to hold the proceedings in abeyance until mid-March 2019.rate rider. During the 2019 New Mexico legislative session, the EUEA was amended to, among other things, include a decoupling mechanism for disincentives, preclude a reduction to a utility’s ROE based on approval of disincentive or incentive mechanisms, and to establish energy savings targets for the period 2021 through 2025. On May 6,2025, and require that annual program funding be 3% to 5% of an electric utility's annual customer bills excluding gross receipt taxes, franchise and right-of-way access fees, provided that a customer's annual cost not exceed seventy-five thousand dollars.

In 2019, PNM submitted a request to the NMPRC to dismiss this matter and indicating that PNM will propose a mechanismfiling to address disincentivesincentives to be earned in accordance2020. PNM’s proposed incentive mechanism is similar to that approved for 2018 and 2019 with minor modifications to reflect input from interested parties. The proposed incentive mechanism includes a base incentive of 7.1% of program costs, or approximately $1.8 million, based on savings of 59 GWh in 2020 with a sliding scale that provides for additional incentive if savings exceed 68 GWh. No hearings were considered necessary and PNM’s 2020 energy efficiency rider reflecting the amended EUEA2020 incentive became effective beginning December 30, 2019.

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On April 15, 2020, PNM filed an application for energy efficiency and load management programs to be offered in 2021, 2022, and 2023. The proposed program portfolio consists of twelve programs with a total annual budget of $31.4 million in 2021, $31.0 million in 2022, and $29.6 million in 2023. The application also seeks approval of an annual base incentive of 7.1% of the portfolio budget if PNM achieves energy savings of at least 80 GWh in a future general rate case filing.year. The proposed incentive would increase if PNM is able to achieve savings greater than 80 GWh in a year. The application also proposes an advanced metering infrastructure (“AMI”) pilot program, which includes the installation of 5,000 AMI meters at a cost of $2.9 million. PNM is proposing the pilot program to comply with an NMPRC order denying PNM’s February 2016 application to replace its existing customer metering equipment with AMI. PNM cannot predict the outcome of this matter.


Integrated Resource Plans
NMPRC rules require that investor owned utilities file an IRP every three years. The IRP is required to cover a 20-year20-year planning period and contain an action plan covering the first four years of that period.
2014 IRP
PNM filed its 2014 IRP on July 1, 2014. On July 31, 2014, several parties requested the NMPRC to not accept the 2014 IRP as compliant with NMPRC rule because to do so could affect the then pending proceeding on PNM’s application to abandon SJGS Units 2 and 3 and for CCNs for certain replacement resources and because they asserted that the 2014 IRP did not conform to the NMPRC’s IRP rule. The NMPRC issued an order in August 2014 that docketed a case to determine whether the 2014 IRP complied with applicable NMPRC rules. The order also held the case in abeyance pending the issuance of final, non-appealable orders in PNM’s 2015 renewable energy procurement plan case and its application to retire SJGS Units 2 and 3. On May 4, 2016, the NMPRC issued a Notice of Proposed Dismissal, stating that the docket would be closed with prejudice within thirty days unless good cause was shown why the docket should remain open. On May 31, 2016, NEE filed a request to hold the protests filed against PNM’s 2014 IRP in abeyance or to dismiss those protests without prejudice. PNM responded on June 13, 2016 and requested that the NMPRC dismiss the case with prejudice. The NMPRC has not yet acted on its Notice of Proposed Dismissal or the request filed on May 31, 2016. PNM cannot predict the outcome of this matter.


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(Unaudited)


2017 IRP


PNM filed its 2017 IRP on July 3, 2017. The 2017 IRP addresses the 20-year planning period from 2017 through 2036 and includes an action plan describing PNM’s plan to implement the 2017 IRP in the four-yearfour-year period following its filing. The 2017 IRP analyzed several scenarios utilizing assumptions that PNM continues service from its SJGS capacity beyond mid-2022 and that PNM retires its capacity after mid-2022. Key findings of the 2017 IRP include:

Retiringincluded, among other things, that retiring PNM’s share of SJGS in 2022 after the expiration of the current operating and coal supply agreementsexisting ownership in Four Corners in 2031 would provide long-term cost savings for PNM’s customers
PNM exiting its ownership interest in Four Corners after its current coal supply agreement expires in 2031 would also save customers money
The and that the best mix of new resources to replace the retired coal generation would include solar energy and flexible natural gas-fired peaking capacity; the mix could includecapacity as well as energy storage, if the economics support it, and wind energy provided additional transmission capacity becomes available
Significant increases in future wind energy supplies will likely require new transmission capacity to be built from eastern New Mexico to PNM’s service territory
available. The 2017 IRP also indicated that PNM should retain the currently leased capacity in PVNGS. See additional discussion of PNM’s leased capacity in PVNGS which would avoid replacement with carbon-emitting generation
PNM should continue to developbelow and implement energy efficiency and demand management programs
PNM should assess the costs and benefits of participating in the California Independent System Operator Western Energy Imbalance Market
PNM should analyze its current Reeves Station to consider possible technology improvements to phase out the older generators and replace them with new, more flexible supplies or energy storage

Protests to theNote 13. PNM's 2017 IRP were filed by several parties. The issues addressed in the protests included the future of PNM’s interests in SJGS, Four Corners,was subject to extensive hearings and PVNGSlegal challenges and the timing of future procurement of renewable resources. On January 16, 2018, the Hearing Examiner issued an order setting the scope of the proceedings as the 2017 IRP’s compliance with the applicable statute and NMPRC rules. Hearings were held in June 2018. On October 26, 2018, the Hearing Examiner issued a recommended decision recommending that the NMPRC accept PNM’s 2017 IRPwas accepted as compliant with the applicable statute and rules by the NMPRC rules. Onon December 19, 2018, with further consideration being denied.

As discussed below, on July 1, 2019, PNM submitted its SJGS Abandonment Application with the NMPRC issued a final order acceptingrequesting approval to retire SJGS in 2022, for replacement resources, and for issuance of Securitized Bonds under the Hearing Examiner’s recommended decision. On January 18, 2019, the BoardETA. Many of the County of Commissioners for San Juan County, New Mexico, the City of Farmington, New Mexico,assumptions and other parties filed a Notice of Appealfindings included in PNM’s July 1, 2019 filing were consistent with the NM Supreme Court regarding the NMPRC’s final orderthose identified in PNM’s 2017 IRP. The due date for Statements of Issues in the appeal has been extended to May 10, 2019 at the request of appellants in the case. On January 18, 2019, NEE submitted a motion requesting the NMPRC reconsider its acceptance of PNM’s 2017 IRP and alleging informational inadequacy and deficiencies in PNM’s filing. On January 29, 2019, PNM submitted a filing to the NMPRC in response to NEE’s motion for reconsideration. In its response, PNM stated that the issues raised by NEE had already been considered and rejected by the NMPRC in its December 19, 2018 final order and that the NMPRC lacks jurisdiction over the matters because the NMPRC’s final order has been appealed to the NM Supreme Court. The NMPRC did not take action on NEE’s motion for reconsideration. On February 19, 2019, NEE filed a motion with the NM Supreme Court to intervene in the appeal and to seek remand of the matter to the NMPRC. On March 11, 2019, PNM filed its response with the NM Supreme Court stating that the NMPRC has already considered and, by operation of law, denied NEE’s motion for reconsideration. PNM cannot predict the outcome of this matter.

The NMPRC’s order concerning SJGS’ compliance with the BART requirements of the CAA required PNM to make a filing in 2018 to determine the extent to which SJGS Units 1 and 4 should continue serving PNM’s retail customers’ needs after June 30, 2022. PNM submitted its December 2018 Compliance Filing to the NMPRC on December 31, 2018 indicating that, consistent with the conclusions reached in the 2017 IRP, PNM’s customers would benefit from the retirement of PNM’s share of SJGS in 2022. The December 2018 Compliance FilingAbandonment Application and the 2017 IRP are not a final determinations of PNM’s future generation portfolio. Retiring PNM’s share of SJGS capacity will require future NMPRC approval. PNM will also be required to obtain NMPRC approval of an exit from Four Corners, which PNM will seek at an appropriate time in the future. Likewise, NMPRC approval of new generation resources through CCNs, PPAs, or other applicable filings wouldwill be required.

2020 IRP

In the third quarter of 2019, PNM initiated its 2020 IRP process which will cover the 20-year planning period from 2019 through 2039. Consistent with historical practice, PNM has provided notice to various interested parties and has hosted a series of public advisory presentations. PNM will continue to seek input from interested parties as a part of this process. NMPRC rules require PNM to file its 2020 IRP in July 2020. On March 16, 2020, PNM filed a motion to extend the deadline to file its 2020 IRP to six months after the NMPRC issues a final order approving a replacement resource portfolio and closes the docket in the bifurcated SJGS Abandonment Application and replacement resource proceedings. On April 8, 2020, the NMPRC approved PNM's motion to extend the deadline to file its 2020 IRP as requested.
SJGS Abandonment Application

As discussed in Note 16 of the Notes to the Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K, on March 22, 2019, the Governor signed into New Mexico state law Senate Bill 489, known as the Energy Transition Act (“ETA”). The outcomeETA became effective as of these future abandonment filingsJune 14, 2019 and the related impact on PNM’s generation portfolio will alsosets a statewide standard that requires investor-owned electric utilities to have specified percentages of their electric-generating portfolios be significantly influenced byfrom renewable and zero-carbon generating resources. Prior to the recent enactment of the ETA. See Note 11. PNM cannot predictETA, the outcomeREA established a mandatory RPS requiring utilities to acquire a renewable energy portfolio equal to 10% of these matters.retail electric sales by 2011, 15% by 2015, and 20% by 2020. The ETA amends the REA and

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



requires utilities operating in New Mexico to have renewable portfolios equal to 20% by 2020, 40% by 2025, 50% by 2030, 80% by 2040, and 100% zero-carbon energy by 2045. The ETA also provides for a transition from fossil-fuel generation resources to renewable and other carbon-free resources through certain provisions relating to the abandonment of coal-fired generating facilities. These provisions include the use of “energy transition bonds,” which are designed to be highly rated bonds that can be issued to finance certain costs of abandoning coal-fired facilities that are retired prior to January 1, 2023 for facilities operated by a “qualifying utility,” or prior to January 1, 2032 for facilities that are not operated by the qualifying utility.
Cost Recovery
On July 1, 2019, PNM filed a Consolidated Application for the Abandonment and Replacement of SJGS and Related Securitized Financing Pursuant to Joining the EIM

ETA (the “SJGS Abandonment Application”). The California Independent System Operator (“CAISO”) developedSJGS Abandonment Application seeks NMPRC approval to retire PNM’s share of SJGS after the Western Energy Imbalance Market (“EIM”)existing coal supply and participation agreements end in June 2022, for approval of replacement resources, and for the issuance of “energy transition bonds,” as provided by the ETA. PNM’s application proposes several replacement resource scenarios including PNM’s recommended replacement scenario, which would provide cost savings to customers compared to continued operation of SJGS, preserves system reliability, and is consistent with PNM’s plan to have an emissions-free generation portfolio by 2040. This plan would provide PNM authority to construct and own a real-time wholesale energy trading market that enables participating electric utilities280 MW natural gas-fired peaking plant to buybe located on the existing SJGS facility site, and sell energy. The EIM aggregates the variability70 MW of electricity generation and load for multiple balancing authority areas and utility jurisdictions.battery storage facilities. In addition, PNM’s recommended replacement resource scenario would allow PNM to execute PPAs to procure renewable energy from a total of 350 MW of solar-PV generating facilities and for energy from a total of 60 MW of battery storage facilities. PNM’s application included 3 other replacement resource scenarios that would place a greater amount of resources in the EIM facilitates greater integrationSan Juan area, or result in no new fossil-fueled generating facilities, or no battery storage facilities being added to PNM’s portfolio. When compared to PNM's recommended replacement resource scenario, the three alternative resource scenarios are expected to result in increased costs to customers and the two alternative resource scenarios that result in no new fossil-fueled generating facilities are expected to not provide adequate system reliability. The SJGS Abandonment Application also includes a request to issue approximately $361 million of renewable resources throughenergy transition bonds (the “Securitized Bonds”). PNM’s request for the aggregationissuance of flexible resources by capturing diversity benefitsSecuritized Bonds includes approximately $283 million of forecasted undepreciated investments in SJGS at June 30, 2020, an estimated $28.6 million for plant decommissioning and coal mine reclamation costs, approximately $9.6 million in upfront financing costs, and approximately $20.0 million for job training and severance costs for affected employees. Proceeds from the expanded geographic footprint and the expanded potential usesSecuritization Bonds would also be used to fund approximately $19.8 million for those resources.

In 2018, PNM completed a cost-benefit analysis of participatingeconomic development in the EIM. PNM’s analysis indicated participation in the EIM would provide substantial benefits to retail customers. four corners area.

On August 22, 2018, PNM filed an application with the NMPRC requesting, among other things, to recover an estimated $20.9 million of initial capital investments and authorization to establish a regulatory asset to recover an estimated $7.4 million of other expenses that would be incurred in order to join the EIM. PNM’s application proposed the regulatory asset be adjusted to provide for full recovery of such costs, including carrying charges, until the effective date of new rates in PNM’s next general rate case. PNM’s application also proposed the benefits of participating in the EIM be credited to retail customers through PNM’s existing FPPAC and that PNM would seek recovery of its costs in a future proceeding. A public hearing was held on December 12, 2018. On December 19, 2018, the NMPRC issued an order approving the establishment of a regulatory asset to recover PNM’s cost of joining the EIM. On January 17, 2019, ABCWUA filed a motion to reopen the case and to reconsider the NMPRC’s order approving the establishment of a regulatory asset. PNM submitted its response opposing reconsideration of the case on January 28, 2019. On February 6,July 10, 2019, the NMPRC issued an order granting rehearingrequiring the SJGS Abandonment Application be considered in two proceedings: one addressing SJGS abandonment and vacatingrelated financing, and the other addressing replacement resources. The NMPRC indicated that PNM’s July 1, 2019 filing is responsive to the January 30, 2019 order but did not definitively indicate if the abandonment and financing proceedings will be evaluated under the requirements of the ETA. The NMPRC’s July 10, 2019 order also extended the deadline to issue the abandonment and financing order to nine months and to issue the replacement resources order to 15 months.

After several requests for clarification and legal challenges and following oral argument on January 29, 2020, the NM Supreme Court issued a ruling requiring the NMPRC to apply the ETA to all aspects of PNM’s SJGS Abandonment Application, indicating any previous NMPRC orders inconsistent with the ruling should be vacated, and denying parties’ request for stay. Hearings on the abandonment and securitized financing proceedings were held in December 19, 2018 order. 2019 and hearings on replacement resources were held in January 2020.

On February 27, 2019, the NMPRC issued a procedural order appointing a Hearing Examiner and requiring21, 2020, the Hearing Examiner to report to the NMPRC on whether the matter should be reopened. On March 18, 2019, the Hearing ExaminerExaminers issued atwo recommended decisiondecisions recommending approval of PNM’s proposed abandonment of SJGS, subject to approval of replacement resources, and approval of PNM’s proposed financing order to issue Securitized Bonds.  The Hearing Examiners recommended that PNM be authorized to abandon SJGS by June 30, 2022, and to record regulatory assets for certain other abandonment costs that are not specifically addressed under the establishmentprovisions of the ETA. The Hearing Examiners also recommended PNM be authorized to issue Securitized Bonds of up to $361 million and establish a regulatory asset but deferring certain rate making issues, including but not limitedrider to issuescollect non-bypassable customer charges for repayment of the bonds and be subject to bi-annual adjustments (the “Energy Transition Charge”). The Hearing Examiners recommended an interim rate rider adjustment upon the start date of the Energy Transition Charge to provide immediate credits to customers for the full value of PNM’s revenue requirement related to implementation and ongoing EIMSJGS until those reductions are reflected in base rates. In addition, the Hearing Examiners recommended PNM be granted authority to establish regulatory assets to recover costs and savings, the prudence and reasonableness of costs to be included in the regulatory asset, and the period over which costs would be charged to customers.that PNM filed limited exceptionswill pay prior to the recommended decision related toissuance of the deferral of certain reasonableness findings. The NMPRC issued a final order adoptingSecuritized Bonds, including costs associated with the Hearing Examiner’s recommended decision on March 27, 2019. On April 12, 2019, PNM and other parties filed a joint motion requesting the NMPRC clarify that the quarterly benefits reports prepared by CAISO be used to determine the benefits of participating in the EIM,bond issuances as well as to support the prudencefor severances, job training,
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Table of costs incurred to join the EIM. On April 24, 2019, the NMPRC issued an order granting the joint motion for clarification and indicating the CAISO quarterly benefits reports may be used in a future rate case. PNM anticipates it will begin participating in the EIM in April 2021.Contents

Facebook, Inc. Data Center Project

As discussed in Note 17 of the Notes to Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K, in 2016, the NMPRC approved a PNM application for arrangements in connection with services to be provided to Facebook, Inc. for a data center being constructed in PNM’s service area. Facebook’s service requirements include the acquisition by PNM of a sufficient amount of new renewable energy resources and RECs to match the energy and capacity requirements of the data center. The cost of renewable energy procured is passed through to Facebook under a rate rider. A special service rate is applied to Facebook’s energy consumption in those hours of the month when their consumption exceeds the energy production from the renewable resources. In late 2017, PNM’s executed its initial procurement for the energy production from 30 MW of solar-PV capacity from NMRD, a 50% equity method of investee PNMR Development. Of this capacity, 10 MW began commercial operation in each of January 2018, March 2018, and May 2018.

PNM obtained NMPRC approval to enter into additional 25-year PPAs to purchase renewable energy and RECs to be used by PNM to supply renewable energy to Facebook. These PPAs include the purchase of the power and RECs from:

Casa Mesa Wind, LLC, a subsidiary of NextEra Energy Resources, LLC, which is located near House, New Mexico, has a total capacity of 50 MW, and became operational in November 2018
A 166 MW portion of the La Joya Wind Project, owned by Avangrid Renewables, LLC, which is expected to be located near Estancia, New Mexico and be operational in November 2020
Route 66 Solar Energy Center, LLC, a subsidiary of NextEra Energy Resources, LLC., which is expected to be located west of Albuquerque, New Mexico, have a total capacity of 50 MW, and be operational in December 2021
Two PPAs to purchase renewable energy and RECs from an aggregate of approximately 100 MW of capacity from two solar-PV facilities to be owned and operated by NMRD. NMRD is required to obtain FERC approval of the PPAs. Subject


PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



economic development, and workforce training. On April 1, 2020, the NMPRC unanimously approved the Hearing Examiners' recommended decisions regarding the abandonment of SJGS and the related securitized financing under the ETA. On April 10, 2020, CFRE and NEE filed a notice of appeal with the NM Supreme Court of the NMPRC's approval of PNM's request to issue securitized financing under the ETA. Pursuant to NM Supreme Court rules, CFRE and NEE must file their statement of issues by May 10, 2020.
to FERC
On March 27, 2020, the Hearing Examiners issued a partial recommended decision on PNM’s request for approval of replacement resources recommending that the firstNMPRC bifurcate consideration of PNM’s requested replacement resources.The Hearing Examiners recommend that the NMPRC approve two of PNM’s requested replacement resources, including the 300 MW solar PPA combined with a 40 MW battery storage agreement and the 50 MW solar PPA combined with a 20 MW battery storage agreement.The Hearing Examiners recommended that the two solar and battery procurements be approved first because they are the most cost-effective resources proposed in the case, are supported by the majority of parties, and the economics of the projects will be in jeopardy if approval is delayed past April 30, 2020.The Hearing Examiners recommended that PNM be permitted to recover the energy costs of these facilitiesPPAs through its FPPAC, and that PNM should recover the demand cost of the energy storage agreements in base rates in a future general rate case.The Hearing Examiners indicated they will issue a separate order addressing the remainder of PNM’s requested replacement resource approvals. On April 29, 2020, the NMPRC issued an order declining to bifurcate a determination on replacement resources and deferring final consideration until the issuance of a comprehensive recommended decision addressing the entire portfolio of replacement resources. The NMPRC is expectedrequired to begin commercial operation in December 2019issue an order on the SJGS replacement resources by September 2020.

PNM evaluated the consequences of the NMPRC's April 1, 2020 orders approving the abandonment of SJGS and the remaining capacityrelated issuance of Securitized Bonds under GAAP. This evaluation indicated that it is expectedprobable that PNM will be required to begin commercial operationfund severances for PNM employees at the facility upon its retirement in June 2020.

On March 15, 2019,2022 and for PNMR shared services employees providing administrative and other support services to SJGS. In addition, the evaluation indicated that it is probable PNM participated with NMRD in an application requesting FERC approvalwill be obligated to fund severances and other costs for the WSJ LLC employees and to fund certain state agencies for economic development and workforce training upon the issuance of the two PPAs aggregating approximately 100 MWSecuritized Bonds. PNM believes these obligations can be reasonably estimated as of capacity.March 31, 2020 and, pursuant to the NMPRC's April 1, 2020 orders and the requirements of the ETA, are recoverable from New Mexico retail customers. As a result, as of March 31, 2020, PNMR and PNM recorded obligations of $9.4 million and $8.1 million for estimated severances, $8.9 million for obligations to fund severances and other costs of WSJ LLC employees, and to fund $19.8 million to state agencies for economic development and workforce training upon the issuance of the Securitized Bonds. The total amount recorded for these estimates of $38.1 million and $36.8 million is reflected in other deferred credits and as a corresponding deferred regulatory asset on PNMR's and PNM's Condensed Consolidated Balance Sheets as of March 31, 2020. These estimates may be adjusted in future periods as the Company refines its expectations. In addition, as discussed above these costs may be challenged by parties pursuant to the notices of appeal filed with the NM Supreme Court on April 10, 2020.

The financial impact of an early retirement of SJGS and the NMPRC approval process are influenced by many factors outside of PNM’s control, including the economic impact of the SJGS abandonment on the area surrounding the plant and the related mine, as well as the overall political and economic conditions of New Mexico. See additional discussion of the ETA and SJGS Abandonment Application in Note 16 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K. PNM cannot predict if the FERC will approve this filing.outcome of these matters.


Application For a New 345 KV Transmission LineJoint Petition to Investigate PNM’s Option to Purchase Assets Underlying Certain Leases in PVNGS


On AugustApril 22, 2019, NEE and other parties, which consist primarily of environmental not-for-profit organizations, filed a joint petition for expedited investigation with the NMPRC. The joint petition requested the NMPRC open an investigation regarding PNM’s option to purchase the assets underlying the PVNGS Unit 1 and 2 leases that will expire in January 2023 and 2024. Various parties filed to participate in the request. On May 8, 2019, the NMPRC issued an order requiring a response from both PNM and NMPRC staff. PNM filed responses indicating, among other things, that the joint petition should be denied, and that PNM has not yet made a decision to purchase or return the assets underlying the leases that expire in January 2023 and 2024. On September 16, 2019, NEE and the other parties filed a motion reiterating their initial petition and seeking the appointment of a hearing examiner to preside over the requested proceeding. On September 30, 2019, PNM filed its response in opposition stating that PNM had previously refuted NEE’s arguments and that there is no need for a hearing examiner to be assigned to this matter. The NMPRC subsequently issued an order denying the petition for investigation. On January 3, 2020, PNM filed notice with the NMPRC of 60-day waivers of the deadline to provide notice to purchase or return
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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

the assets underlying the PVNGS Unit 1 leases. On April 10, 2018,2020, PNM filed additional notices of waivers. The deadline for PNM to provide irrevocable notice of its intent to purchase or return the PVNGS Unit 1 lease interests is now June 15, 2020. PNM has committed to provide the NMPRC with timely updates on any decisions related to these interests and will file any necessary requests for approval associated with its decision.

PNM Solar Direct

On May 31, 2019, PNM filed an application seekingwith the NMPRC for approval of a CCNprogram under which qualified governmental and large commercial customers could participate in a voluntary renewable energy procurement program. PNM proposed to construct and operaterecover costs of the program directly from subscribing customers through a 345 KV transmission line and associatedrate rider. Under the rider, PNM would procure renewable energy from 50 MW of solar-PV facilities (the “BB2 Line”), and to determineunder a 15-year PPA. PNM had fully subscribed the rate making treatment to apply toentire output of the BB2 line and related rights-of-way. In50 MW facilities at the time of the filing. Hearings on the application PNM states that the BB2 line would run adjacent to one of PNM’s existing transmission lines and is necessary to serve additional renewable generating resources to be located in eastern New Mexico. PNM’s use of the BB2 line would benefit all customers and would include delivery of approximately 166 MW of renewable energy and RECs under a PPA, which had previously been approved by the NMPRC, from La Joya Wind. The energy and RECs from the La Joya Wind PPA would be used to a serve the needs of a data center being constructed in PNM’s service territory and the capacity and energy from the PPA will also be used to meet the system needs of all PNM customers. See additional discussion in Facebook, Inc. Data Center Project above. PNM’s application requested that the NMPRC apply standard ratemaking treatment to the estimated $85 million cost of the project resulting in a jurisdictional allocation of costs to all of PNM’s transmission and retail customers. NMPRC staff supported PNM’s proposed ratemaking treatment of the BB2 project and indicated that the capacity and energy of the La Joya PPA and related network upgrades to PNM’s transmission system would benefit all of PNM’s customers.concluded on January 9, 2020. On March 11, 2019,2020, the Hearing Examiner assigned to the applicationhearing examiner issued a recommended decision recommending approval of the CCN and related rights-of-way but recommendingPNM's application. The hearing examiner's recommended decision was approved by the NMPRC deny PNM’s requeston March 25, 2020. These facilities are expected to allocate a portion of cost of the BB2 Line to retail customers. The Hearing Examiner’s recommendation indicated the costs not recovered from retail customers be directly reimbursed to PNM by Facebook, Inc. As a result, Facebook, Inc. would be responsible for approximately 46 percent, or $39.0 million, of the estimated cost of the project. Onbegin commercial operations on March 20, 2019, PNM filed exceptions to the recommended decision and requested oral argument. 31, 2021. This matter is now concluded.

COVID-19 Regulatory Matters

In its filing, PNM refuted the proposed finding that the BB2 Line is not part of PNM’s overall transmission system, opposed the recommendation that approximately 46 percent of the estimated cost of the project be directly assigned to Facebook, Inc. and presented legal arguments in support of PNM’s originally proposed ratemaking treatment. On April 16, 2019, the NMPRC issued an order approving the Hearing Examiner’s recommended decision, including the requirement that PNM be directly reimbursed by Facebook, Inc. In late April 2019,March 2020, PNM and other parties submitted filingsutilities voluntarily implemented a temporary suspension of disconnections and late payment fees for non-payment of utility bills in response to the impacts of COVID-19.On March 18, 2020, the NMPRC conducted an emergency open meeting for the purpose of adopting emergency amendments to its rules governing service to residential customers.The NMPRC’s emergency order is applicable during the duration of the Governor of New Mexico's emergency executive order and allows for the closure of payment centers, prohibits the discontinuance of a residential customer’s service for non-payment, and suspends the expiration of medical certificates for certain customers. On April 27, 2020, PNM, El Paso Electric Company, New Mexico Gas Company, and Southwestern Public Service Company filed a joint motion with the NMPRC requesting rehearingauthorization to track costs resulting from each utility's response to the COVID-19 outbreak. The utilities propose these incremental costs and seeking reconsiderationuncollected customer accounts receivable resulting from COVID-19 during the period March 11, 2020 through December 31, 2020 be recorded as a regulatory asset. If approved by the NMPRC, the utilities would seek recovery of the NMPRC’s decision to deny standard ratemaking treatment of the cost of the BB2 Line and associated facilities.regulatory asset in a future rate case. PNM cannot predict the outcome of this matter.


TNMP


TNMP 2018 Rate Case


On May 30, 2018, TNMP filed a general rate proceeding with the PUCT (the “TNMP 2018 Rate Case”) requesting an annual increase to base rates of $25.9 million based on a requested ROE of 10.5%, a cost of debt of 7.2%, and a capital structure comprised of 50% debt and 50% equity. TNMP’sAs part of the application, included a request to establish new rate riders to recover Hurricane Harvey restoration, rate case, and additional vegetation management costs. The application also included the integration of revenues previously recorded under the AMS rider and collection of other unrecovered AMS investments into base rates. In 2018, TNMP recorded revenues of $20.2 million under the AMS rider. The TNMP 2018 Rate Case application also proposed to return the regulatory liability recorded at December 31, 2017 related to federal tax reform to customers and to reduce the federal corporate income tax rate to 21%.

On December 20, 2018, the PUCT approved an unopposed settlement agreement in the case. The PUCT’s final order results in a $10.0 million annual increase to base rates. The key elements of the approved settlement include a ROE of 9.65%, a cost of debt of 6.44%, and a capital structure comprised of 55% debt and 45% equity. As stated by the settlement agreement, the PUCT’s final order excludes certain items from rate base that were requested in TNMP’s original filing, including approximately $10.6 million of transmission investments that TNMP included in its January 2019 transmission cost of service filing, which was approved by the PUCT in March 2019. In addition, the PUCT’s final order requires TNMP to reflect the lower federal income tax rate of 21% in rates and refund approximately $37.8 million of the regulatory liability recorded at December 31, 2017 related to federal tax reform to customers over a period of five years and the remaining amount over the estimated useful lives of plant in service as of December 31, 2017; approves TNMP’s request to integrate revenues historically recorded under TNMP’s AMS rider, as well as other unrecovered AMS investments, into base rates;

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


approves TNMP’s request for new depreciation rates; and approves a new rider to recover Hurricane Harvey restoration costs, net of amounts to be refunded to customers resulting from the reduction in the federal income tax rate in 2018. See Note 14. The TNMP 2018 Rate Case also resulted innew rider is being charged to customers over a reallocationperiod of costs between TNMP’s transmission and retail customers and other rate design changes that reallocated costs between certain demand-based customers and customers billedapproximately three years beginning on a volumetric basis.the effective date of new base rates. New rates under the TNMP 2018 Rate Case were effective beginning on January 1, 2019.



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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Recovery of TNMP Rate Case Costs

Recovery of the cost of TNMP’s rate case was moved into separate proceedings to begin after the conclusion of TNMP 2018 Rate Case. TNMP sought recovery of costs incurred through August 2019 in the amount of $3.8 million and proposed these costs be collected from customers over a three-year period. In October 2019, TNMP and other parties to the proceedings filed an unopposed settlement stipulation that reduced TNMP’s cost recovery to $3.3 million and provide for recovery over a period not to exceed three-years beginning on March 1, 2020. On January 16, 2020, the PUCT approved the settlement. As a result of the PUCT's order, TNMP recorded a pre-tax write-off of $0.5 million in December 2019.

Transmission Cost of Service Rates

TNMP can update its transmission cost of service (“TCOS”) rates twice per year to reflect changes in its invested capital although updates are not allowed while a general rate case is in process. Updated rates reflect the addition and retirement of transmission facilities, including appropriate depreciation, federal income tax and other associated taxes, and the approved rate of return on such facilities.

The following sets forth TNMP’s recent interim transmission cost rate increases:
Effective DateApproved Increase in Rate BaseAnnual Increase in Revenue
(In millions)
March 21, 2019$111.8  $14.3  
September 19, 201921.9  3.3  
March 27, 202059.2  7.8  
Effective Date Approved Increase in Rate Base Annual Increase in Revenue
  (In millions)
September 8, 2016 $9.5
 $1.8
March 14, 2017 30.2
 4.8
September 13, 2017 27.5
 4.7
March 27, 2018 32.0
 0.6
March 21, 2019 111.8
 14.3


Periodic Distribution Rate Adjustment
Order Related
PUCT rules permit interim rate adjustments to Changesreflect changes in Federal Income Tax Ratesinvestments in distribution assets. Distribution utilities may file for a periodic rate adjustment between April 1 and April 8 of each year as long as the electric utility is not earning more than its authorized rate of return using weather-normalized data.


On January 25, 2018, the PUCT issuedApril 6, 2020, TNMP filed its first application for a distribution cost recovery factor (the "2020 DCOS"). The 2020 DCOS application requests an accounting order that addresses the changeincrease in the federal corporate income tax ratesTNMP's annual distribution revenue requirement of $14.7 million based on investor-owned utilities in the statenet capital incremental distribution investments of Texas. The order required investor-owned utilities to record$149.2 million. TNMP requested a regulatory liability equal to the reduction in accumulated federal deferred income tax balances at the end of 2017 due to the change in the federal corporate income tax rate.

In addition, the order required that a regulatory liability be recorded to reflect the difference between revenues collected under existing rates and thoseprocedural schedule that would have been collected had thoseresult in rates been set reflecting federal income tax reform beginning onbeing effective in September 2020. TNMP cannot predict the dateoutcome of the order (Note 14). In compliance with the PUCT order, during the three months ended March 31, 2018, TNMP reduced revenues by $1.5 million to reflect the impact of the reduction in the federal corporate income tax rate beginning January 25, 2018. As discussed above, the total amount owed for the year ended 2018 of $5.4 million was offset against TNMP’s Hurricane Harvey restoration costs as of December 31, 2018 and is being refunded to customers as a component of a new rate rider over a period of no more than five years beginning on January 1, 2019.this matter.


Energy Efficiency


TNMP recovers the costs of its energy efficiency programs through an energy efficiency cost recovery factor (“EECRF”), which includes projected program costs, under and over collected costs from prior years, rate case expenses, and performance bonuses (if programs exceed mandated savings goals). TNMP’s 2018 EECRF filing requested an adjustment of $5.6 million, including a performance bonus of $0.8 million, and became effective on March 1, 2019. On May 30, 2018,2019, TNMP filed its request to adjust the EECRF to reflect changes in costs for 2019. The total amount2020. On August 30, 2019, a unanimous settlement stipulation was filed with the PUCT that would allow TNMP to recover its requested was $5.7$5.9 million of program costs in 2020, which includedincludes a performance bonus of $0.9$0.8 million based on TNMP’s energy efficiency achievements in the 20172018 plan year. On June 21, 2018, the PUCT issued a declaratory order announcing the PUCT’s interpretation of the bonus calculation in its rule. The order does not affect cost recovery but reduces the bonus calculation as filed by utilities in their current EECRF proceedings. Accordingly, in June of 2018, TNMP reduced its estimated performance bonus for the 2017 plan year to $0.8 million. On August 6, 2018, TNMP and other parties to the case reached a unanimous settlement stipulation to provide $5.6 million of EECRF recovery, which includes a performance bonus of $0.8 million. On October 12, 2018, the PUCT approved the settlement stipulation with rateson December 13, 2019 to become effective on March 1, 2019.2020.


(13)Lease Commitments

COVID-19 Electricity Relief Program

On March 26, 2020, the PUCT issued an order establishing an electricity relief program for electric utilities, REPs, and customers impacted by COVID-19. The Company enters into various lease agreementsprogram allows providers to meet its business needsimplement a rider to collect unpaid residential retail customer bills and to satisfyensure these customers continue to have electric service. In addition, the needsprogram provides transmission and distribution providers access to zero-interest loans from ERCOT. Collectively, ERCOT’s loans may not exceed $15 million. The program has a term of its customers. Historically,six months unless extended by the Company’s leases were classified as operating leases which included leasesPUCT. In a separate order, the PUCT authorized electric utilities to establish a regulatory asset for generating capacity from PVNGS Units 1 and 2, certain rights-of-way agreements for transmission lines and facilities, vehicle and equipment leases necessarycosts related to COVID-19. These costs may include but are not limited to costs related to unpaid accounts.

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




constructTNMP filed its rider on March 30, 2020. The rider was effective immediately and maintainestablishes a charge of $0.33 per MWh in accordance with the Company’s assetsPUCT's order. On April 14, 2020, TNMP executed an interest-free loan agreement to borrow $0.5 million from ERCOT. The loan must be repaid upon completion of the electricity relief program.

(13)     Lease Commitments

The Company leases office buildings, vehicles, and buildingother equipment. In addition, PNM leases interests in PVNGS Units 1 and office equipment2 and certain rights-of-way agreements are classified as leases. In February 2016,All of the FASB issued ASU 2016-02 - Leases (Topic 842) to provide guidance on the recognition, measurement, presentation, and disclosureCompany's leases with terms in excess of leases. Among other things, ASU 2016-02 requires that all leases beone year are recorded on the balance sheetssheet by recognizingrecording a present value liability for future cash flows of the lease agreementliability and a corresponding right-of-use asset. The Company adopted Topic 842 on January 1, 2019, its required effective date. The Company elected to use many of the practical expedients available upon adoption of the standard. As a result, the Company will continue to classify its leases existing as of December 31, 2018 as operating leases until they expire or are modified. In addition, the Company elected the practical expedient to not reevaluate the accounting for land easements and rights-of-way agreements existing at December 31, 2018. The Company also elected the use of the practical expedient to apply the requirements of the new standard on its effective date and has not restated prior periods to conform to the new guidance. Adoption of the lease standard has a material impact on the Company’s Condensed Consolidated Balance Sheets but does not have a material impact on the Condensed Consolidated Statements of Earnings or the Condensed Consolidated Statements of Cash Flows.

Effective January 1, 2019, the Company accounts for contracts that convey the use and control of identified assets for a period of time as leases. The Company classifies leases as operating or financing by evaluating the terms of the lease agreement. Agreements under which the Company is likely to utilize substantially all of the economic value or life of the asset or which the Company is likely to own at the end of the lease term, either through purchase or transfer of ownership, are classified as financing leases. Leases not meeting these criteria are accounted for as operating leases. Agreements under which the Company is a lessor are insignificant. Leases with terms that are expected to exceed one year are recognized on the Company’s Condensed Consolidated Balance sheet by recording a lease liability and corresponding right-of-use asset. PNMR, PNM, and TNMP determine present value for their leases using their incremental borrowing rates at the commencement date of the lease or, when readily available, the rate implicit in the agreement. However, in most cases the implicit interest rate is not available in the Company’s lease agreements. Operating lease expense is recognized within operating expenses according to the use of the asset on a straight-line basis. Financing lease costs, which are comprised primarily of fleet and office equipment leases commencing after January 1, 2019, are recognized by amortizing the right-of-use asset on a straight-line basis and by recording interest expense on the lease liability. Financing lease right-of-use assets amortization is reflected in depreciation and amortization and interest on financing lease liabilities is reflected as interest charges on the Company’s Condensed Consolidated Statements of Earnings.


See additional discussion of the Company's leasing activities in Note 8 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K.

PVNGS


PNM leases interests in Units 1 and 2 of PVNGS. The PVNGS leases were entered into in 1985 and 1986 and initially were scheduled to expire on January 15, 2015 for the four4 Unit 1 leases and January 15, 2016 for the four4 Unit 2 leases. Following procedures set forth in the PVNGS leases, PNM notified four4 of the lessors under the Unit 1 leases and one1 lessor under the Unit 2 lease that it would elect to renew those leases on the expiration date of the original leases. The four4 Unit 1 leases now expire on January 15, 2023 and the one1 Unit 2 lease now expires on January 15, 2024. The annual lease payments during the renewal periods aggregate $16.5 million for PVNGS Unit 1 and $1.6 million for Unit 2.


The terms of each of the extended leases do not provide for additional renewal options beyond their currently scheduled expiration dates. PNM has the option to purchase the assets underlying each of the extended leases at their fair market value or to return the lease interests to the lessors on the expiration dates. Under the terms of the extended leases, PNM hashad until January 15, 2020 for the Unit 1 leases and has until January 15, 2021 for the Unit 2 lease to provide notices to the lessors of PNM’s intent to exercise the purchase options or to return the leased assets to the lessors. On January 3, 2020, PNM filed notice with the NMPRC of 60-day waivers of the deadline to provide notice to purchase or return the assets underlying the PVNGS Unit 1 leases. On March 3, 2020, and April 10, 2020, PNM filed additional notices of waivers of the deadlines. The deadline for PNM to provide irrevocable notice of its intent to purchase or return the assets underlying the PVNGS Unit 1 lease interests is now June 15, 2020. The waivers did not impact the PVNGS Unit 1 leases’ current January 15, 2023 expiration dates. PNM’s elections are independent for each lease and are irrevocable. In the proceeding addressing PNM’s 2017 IRP, (Note 12), PNM agreed to promptly notify the NMPRC of a decision to extend the Unit 1 or 2 leases, or to exercise its option to purchase the leased assets at fair market value upon the expiration of leases. See Note 12. If PNM elects to exercise its purchase option under any of the leases, the leases provide an appraisal process to determine fair market value. If PNM elects to return the assets underlying the extended leases, PNM will retain certain obligations related to PNVGS,PVNGS, including costs to decommission the facility. PNM would seekis depreciating its capital improvements related to recover its undepreciated investments atthe extended leases using NMPRC approved rates through the end of the PVNGS leases as well as any future obligations related to PNM’s leased capacity from NM retail customers.NRC license period for each unit, which expire in June 2045 for Unit 1 and in June 2046 for Unit 2. Any transfer of the assets underlying the leases will be required to comply with NRC licensing requirements.

On April 22, 2019, NEE For example, the NRC could limit the transfer of ownership should PNM decide to return the assets underlying all or a portion of its current leased interests in PVNGS. In the event PNM decides to return these interests to the lessors, and a qualified buyer cannot be identified, PNM may be required to retain all of a portion of its existing leased capacity in PVNGS or be exposed to other parties, which consist primarily of environmental not-for-profit organizations, filed a joint petitionclaims for expedited investigation withdamages by the NMPRC. The joint petition requestslessors. Whether PNM retains or returns the NMPRC open an investigation regarding PNM’s optionassets underlying the extended leases, PNM will seek to recover its undepreciated investments, and any amounts paid to purchase the assets, underlying theas well as any other obligations related to PVNGS Unit 1 and 2 leases that will expire in January 2023 and 2024. PNM cannot predict the outcome of this matter.from NM retail customers.


PNM elected to purchase the assets underlying the other three PVNGS Unit 2 leases at the end of their original lease terms. PNM and the lessors under those leases entered into agreements that established the purchase price, representing the fair market value, to be paid by PNM. On January 15, 2016, PNM paid $78.1 million to the lessor under one lease for 31.25 MW of the

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


entitlement from PVNGS Unit 2 and $85.2 million to the lessors under the other two leases for 32.76 MW of the entitlement from PVNGS Unit 2. See Note 12 for information concerning the NMPRC’s treatment of the purchased assets and extended leases in PNM’s NM 2015 Rate Case, including PNM’s pending appeal to the NM Supreme Court of certain matters in the NM 2015 Rate Case.

Covenants in PNM’s PVNGS Units 1 and 2 lease agreements limit PNM’s ability, without consent of the owner participants in the lease transactions, (i) to enter into any merger or consolidation, or (ii) except in connection with normal dividend policy, to convey, transfer, lease or dividend more than 5% of its assets in any single transaction or series of related transactions. PNM is exposed to lossesloss under the PVNGS lease arrangements upon the occurrence of certain events that PNM does not consider to be reasonably likely to occur. Under certain circumstances (for example, the NRC issuing specified violation orders with respect to PVNGS or the occurrence of specified nuclear events), PNM would be required to make specified payments to the lessors, and take title to the leased interests. If such an event had occurred as of March 31, 2019,2020, amounts due to the lessors under the circumstances described above would be up to $161.2$154.5 million, payable on July 15, 20192020 in addition to the scheduled lease payments due on July 15, 2019. In such event, that date.
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PNM would record the acquired assets at the lower of their fair value or the amount paid.RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Land Easements and Rights-of-Ways


Many of PNM’s electric transmission and distribution facilities are located on lands that require the grant of rights-of-way from governmental entities, Native American tribes, or private parties. PNM has completed several renewals of rights-of-way, the largest of which is a renewal with the Navajo Nation. PNM is obligated to pay the Navajo Nation annual payments of $6.0 million, subject to adjustment each year based on the Consumer Price Index, through 2029. PNM’s April 20182020 payment for the amount due under the Navajo Nation right-of-way lease was $6.9$7.1 million, which included amounts due under the Consumer Price Index adjustment, and was used to determine PNM’s operating lease liability as of January 1, 2019 and is included in the table of future lease payments shown below.adjustment. Changes in the Consumer Price Index subsequent to January 1, 2019 are considered variable lease payments.


PNM has other prepaid rights-of-way agreements that are not accounted for as leases or recognized as a component of plant in service. PNM reflects the unamortized balance of these prepayments in other deferred charges on the Condensed Consolidated Balance Sheets and recognizes amortization expense associated with these agreements in the Condensed Consolidated Statement of Earnings over their term. As of March 31, 2020 and December 31, 2019, the unamortized balance of these rights-of-ways was $59.5 million and $60.2 million. During the three months ended March 31, 2020 and 2019, PNM recognized amortization expense associated with these agreements of $0.9 million and $0.9 million.

Fleet Vehicles and Equipment


As of December 31, 2018, all of the Company’s leases of fleet vehicles and equipment are classified as operating leases. Historically, the Company has utilized substantially all of the economic value of its fleet and equipment leases by the end of the lease term. The Company generally has the contractual ability to return its fleet vehicle and equipment leases to the lessor after one-year provided the lessor can recover remaining amounts owed under the agreement from third-parties or through make-whole provisions in the contract but does not typically exercise this right. As a result, fleetFleet vehicle and equipment leases commencing on or after January 1, 2019 are classified as financing leases. Fleet vehicle and equipment leases existing as of December 31, 2018 are classified as operating leases. The Company’s fleet vehicle and equipment lease agreements include non-lease components for insignificant administrative and other costs that are billed over the life of the agreement. The Company has elected to combine these fees with the lease components of the agreement. Certain of the Company’s fleet vehicle and equipment leases contain residual value guarantees. At March 31, 2019,2020, residual value guarantees on fleet vehicle and equipment leases are $0.5$0.7 million, $1.1$1.3 million, and $1.6$2.0 million for PNM, TNMP, and PNMR.

Other

The Company holds a number of office space and office equipment leases. The Company’s current office space leases, all of which existed as of December 31, 2018, are classified as operating leases. These agreements include non-lease components for costs such as common area maintenance fees, which the Company has elected to combine with the lease component of the agreements. Certain of the Company’s office space leases are held between the Company’s consolidated subsidiaries and have been eliminated on consolidation. See Note 15. The Company’s office equipment leases are primarily for copiers and other graphics equipment. The Company classifies its office equipment leases existing as of December 31, 2018 as operating leases. Office equipment leases commencing on or after January 1, 2019 are classified as financing leases.


PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Information related to the Company’s operating leases recorded on the Condensed Consolidated Balance Sheets including amounts recognized upon adoption of ASU 2016-02, is presented below:

March 31, 2019 January 1, 2019March 31, 2020December 31, 2019
PNM TNMP PNMR Consolidated PNM TNMP PNMR ConsolidatedPNMTNMPPNMR ConsolidatedPNMTNMPPNMR Consolidated
(In thousands)(In thousands)
Operating leases:           Operating leases:
Operating lease assets, net of amortization$137,756
 $12,160
 $150,426
 $143,816
 $12,942
 $157,440
Operating lease assets, net of amortization$114,829  $9,271  $124,717  $120,585  $9,954  $131,212  
Current portion of operating lease liabilities22,762
 3,023
 26,197
 21,589
 3,132
 25,189
Current portion of operating lease liabilities26,727  2,624  29,693  25,927  2,753  29,068  
Long-term portion of operating lease liabilities115,436
 9,088
 124,937
 124,891
 9,787
 135,174
Long-term portion of operating lease liabilities88,686  6,459  95,573  97,992  7,039  105,512  


As discussed above, the Company classifies its fleet vehicle and equipment leases and its office equipment leases commencing on or after January 1, 2019 as financing leases. Information related to the Company’s financing leases recorded on the Condensed Consolidated Balance Sheets is presented below:

 March 31, 2019
 PNM TNMP PNMR Consolidated
 (In thousands)
Financing leases:     
Non-utility property$1,635
 $1,268
 $2,904
Accumulated depreciation(37) (40) (78)
Non-utility property, net$1,598
 $1,228
 $2,826
      
Other current liabilities$233
 $217
 $450
Other deferred credits1,083
 1,006
 2,089

Information concerning the weighted average remaining lease terms and the weighted average discount rates used to determine the Company’s lease liabilities is presented below:
March 31, 2020December 31, 2019
PNMTNMPPNMR ConsolidatedPNMTNMPPNMR Consolidated
(In thousands)
Financing leases:
Non-utility property$6,320  $7,712  $14,299  $4,857  $4,910  $10,028  
Accumulated depreciation(729) (756) (1,527) (482) (466) (973) 
Non-utility property, net5,591  6,956  12,772  4,375  4,444  9,055  
Other current liabilities975  1,255  2,298  722  850  1,637  
Other deferred credits4,316  5,706  10,182  3,333  3,597  7,102  
70

 March 31, 2019
 PNM TNMP PNMR Consolidated
Weighted average remaining lease term (In years):     
Operating leases7.18
 4.67
 6.95
Financing leases5.72
 5.75
 5.74
      
Weighted average discount rate:     
Operating leases3.88% 3.88% 3.88%
Financing leases4.34% 4.55% 4.43%
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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




Information concerning the weighted average remaining lease terms and the weighted average discount rates used to determine the Company’s lease liabilities as of March 31, 2020 is presented below:

PNMTNMPPNMR Consolidated
Weighted average remaining lease term (years):
Operating leases6.553.986.35
Financing leases5.535.685.57
Weighted average discount rate:
Operating leases3.92 %3.97 %3.92 %
Financing leases3.57 %3.52 %3.52 %

Information for the components of lease expense is as follows:
Three Months Ended March 31, 2020
PNMTNMPPNMR Consolidated
(In thousands)
Operating lease cost:$6,893  $774  $7,735  
Less: amounts capitalized(291) (634) (925) 
Total operating lease expense6,602  140  6,810  
Financing lease cost:
Amortization of right-of-use assets247  289  553  
Interest on lease liabilities45  56  103  
Less: amounts capitalized(175) (283) (458) 
Total financing lease expense117  62  198  
Variable lease expense32  —  32  
Short-term lease expense85   86  
Total lease expense for the period$6,836  $203  $7,126  
 Three Months Ended March 31, 2019
 PNM TNMP PNMR Consolidated
 (In thousands)
Total operating lease expense$7,231
 $241
 $7,611
      
Financing lease expense:     
Amortization of right-of-use assets66
 58
 125
Interest on lease liabilities16
 17
 32
Total financing lease expense82
 75
 157
      
Variable lease expense
 
 
Short-term lease expense74
 3
 94
Total lease expense for the period$7,387
 $319
 $7,862


Supplemental cash flow information related to the Company’s leases is as follows:
Three Months Ended March 31, 2019
PNMTNMPPNMR Consolidated
(In thousands)
Operating lease cost:$7,583  $898  $8,620  
Less: amounts capitalized(352) (657) (1,009) 
Total operating lease expense7,231  241  7,611  
Financing lease cost:
Amortization of right-of-use assets104  98  203  
Interest on lease liabilities16  17  32  
Less: amounts capitalized(38) (40) (78) 
Total financing lease expense82  75  157  
Variable lease expense—  —  —  
Short-term lease expense74   94  
Total lease expense for the period$7,387  $319  $7,862  
71

 Three Months Ending March 31, 2019
 PNM TNMP PNMR Consolidated
 (In thousands)
Cash paid for amounts included in the measurement of lease liabilities:     
Operating cash flows from operating leases$9,452
 $284
 $9,891
Operating cash flows from financing leases16
 17
 32
Finance cash flows from financing leases25
 33
 58
      
Non-cash information related to right-of-use assets obtained in exchange for lease obligations:     
Operating leases$143,816
 $12,942
 $157,440
Financing leases1,635
 1,268
 2,904
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Excluded from the lease expense and cash flow information tables above are $0.4 million, $0.7 million, and $1.1 million of capitalized operating lease costs, and less than $0.1 million of capitalized financing lease costs at PNM, TNMP, and PNMR. These capitalized costs are reflected as investing activities on the Company’s Condensed Consolidated Statements of Cash Flows.

Future expected lease payments as of March 31, 2019 and December 31, 2018 are shown below:
 As of March 31, 2019
 PNM TNMP PNMR Consolidated
 Financing Operating Financing Operating Financing Operating
 (In thousands)
Remainder of 2019$266
 $17,917
 $209
 $2,622
 $475
 $20,980
2020344
 27,045
 269
 2,993
 613
 30,555
2021332
 26,505
 259
 2,398
 591
 29,158
2022319
 26,235
 249
 1,846
 568
 28,255
2023307
 17,457
 181
 1,281
 488
 18,879
Later years224
 42,328
 214
 1,151
 438
 43,490
Total minimum lease payments1,792
 157,487
 1,381
 12,291
 3,173
 171,317
Less: Imputed interest476
 19,289
 158
 180
 634
 20,183
Lease liabilities as of March 31, 2019$1,316
 $138,198
 $1,223
 $12,111
 $2,539
 $151,134


PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)





Supplemental cash flow information related to the Company’s leases is as follows:

 As of December 31, 2018
 Operating leases
 PNM TNMP PNMR Consolidated
 (In thousands)
Remainder of 2019$27,691
 $3,664
 $31,772
202027,000
 3,102
 30,404
202126,462
 2,324
 29,012
202226,217
 1,795
 28,175
202317,447
 1,279
 18,868
Later years42,329
 1,150
 43,489
Total minimum lease payments167,146
 13,314
 181,720
Three Months Ended March 31,Three Months Ended March 31,
20202019
PNMTNMPPNMR ConsolidatedPNMTNMPPNMR Consolidated
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$9,351  $166  $9,658  $9,452  $284  $9,891  
Operating cash flows from financing leases16   27  16  17  32  
Finance cash flows from financing leases80  51  147  25  33  58  
Non-cash information related to right-of-use assets obtained in exchange for lease obligations:
Operating leases$—  $—  $—  $143,816  $12,942  $157,440  
Financing leases1,463  2,802  4,272  1,635  1,268  2,904  


Excluded from the operating and financing cash paid for leases above are $0.3 million and $0.2 million at PNM, $0.6 million and $0.3 million at TNMP, and $0.9 million and $0.5 million at PNMR. These capitalized costs are reflected as investing activities on the Company’s Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019.

Future expected lease payments are shown below:
As of March 31, 2020
PNMTNMPPNMR Consolidated
FinancingOperatingFinancingOperatingFinancingOperating
(In thousands)
Remainder of 2020$861  $17,386  $1,111  $2,279  $2,027  $20,076  
20211,117  26,576  1,441  2,448  2,631  29,316  
20221,082  26,266  1,396  1,996  2,551  28,473  
20231,038  17,735  1,269  1,508  2,345  19,423  
2024712  7,908  1,074  877  1,786  8,833  
Later years1,008  34,466  1,367  765  2,375  35,488  
Total minimum lease payments5,818  130,337  7,658  9,873  13,715  141,609  
Less: Imputed interest527  14,924  697  790  1,235  16,343  
Lease liabilities as of March 31, 2020$5,291  $115,413  $6,961  $9,083  $12,480  $125,266  

The above tables include $9.9 million, $12.2$15.1 million, and $22.1$25.0 million for PNM, TNMP, and PNMR at March 31, 2019 and $7.5 million, $11.0 million, and $18.5 million for PNM, TNMP, and PNMR at December 31, 20182020 for expected future payments on fleet vehicle and equipment leases that could be avoided if the leasesleased assets were returned and the lessor is able to recover estimated market value for the equipment from third parties. The Company’s contractual commitments for leases that have not yet commenced are insignificant.


(14)Income Taxes

On(14)   Income Taxes

In December 22, 2017, comprehensive changes in United States federal income taxes were enacted through legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made many significant modifications to the tax laws, including reducing the federal corporate income tax rate from 35% to 21% effective January 1, 2018. The Tax Act also eliminated federal bonus depreciation for utilities, limited interest deductibility for non-utility businesses and limited the deductibility of officer compensation. During 2018,2019, the IRS issued additional guidanceproposed regulations related to certain officer compensation as well asand proposed regulations on interest deductibility that provide a 10% “de minimis” exception that allows entities with
72

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

predominantly regulated activities to fully deduct interest expenses. In addition, the IRS issued proposed regulations interpreting Tax Act amendments to depreciation provisions of the Internal Revenue CodeIRC that allow the Company to claim a bonus depreciation deduction on certain construction projects placed in service subsequent to the third quarter of 2017. See additional discussion of the impacts of the Tax Act in Note 18 of the Notes to Consolidated Financial Statements in the 20182019 Annual Reports on Form 10-K. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted. Among other things, the CARES Act includes tax provisions that generally loosen restrictions on NOL utilization and business interest deductions, and accelerate refunds of previously generated alternative minimum tax credits. In addition, the CARES Act includes a temporary provision allowing businesses to defer payments to the government for some payroll taxes. The CARES Act provisions related to NOL utilization and business interest deductions are not applicable for the Company, but the Company is evaluating its ability to accelerate refunds of previously generated alternative minimum tax credits and is deferring payments of certain payroll taxes.


Beginning February 2018, PNM’s NM 2016 Rate Case reflects the reduction in the federal corporate income tax rate, including amortization of excess deferred federal and state income taxes. In accordance with the order in that case, PNM is returning the protected portion of excess deferred federal income taxes that are being returnedto customers over the average remaining life of plant in service as of December 31, 2017, the unprotected portion of excess deferred federal income taxes to customers over a twenty-one year period;period of approximately twenty-three years, and reductions in the New Mexico corporate tax rate, including amortization of excess deferred state income taxes that are being returned to customers over a three-year period. On January 25, 2018, the PUCT issued an order requiring Texas utilities, including TNMP, to begin recording regulatory liabilities for the effectsperiod of the Tax Act with the stated purpose of reflecting those effects in the utility bills of Texas ratepayers. During the three months ended March 31, 2018, TNMP reduced revenue and recorded a regulatory liability of $1.5 million in accordance with the PUCT’s order.years. The approved settlement in the TNMP 2018 Rate Case includes a reduction in customer rates to reflect the impacts of the Tax Act beginning on January 1, 2019. PNMR, PNM, and TNMP will amortize federal and state excess deferred income taxes of $30.3 million, $21.2 million, and $9.1 million in 2020. See additional discussion of PNM’s NM 2016 Rate Case and TNMP’s 2018 Rate Case in Note 12.


As required under GAAP, the Company makes an estimate of its anticipated effective tax rate for the year as of the end of each quarterly period within its fiscal year. In interim periods, income tax expense is calculated by applying the anticipated annual effective tax rate to year-to-date earnings before income taxes, which includes the earnings attributable to the Valencia non-controlling interest.taxes. GAAP also provides that certain unusual or infrequently occurring items, including excess tax benefits related to stock awards, be excluded from the estimated annual effective tax rate calculation. At March 31, 2019,2020, PNMR, PNM, and TNMP estimated their effective income tax rates for the year ended December 31, 20192020 would be 9.42%8.63%, 11.89%11.28%, and 8.41%9.79%. The primary permanent difference between the statutory income tax rates and the effective tax rates is the effect of the reduction in income tax expense resulting from the amortization of excess deferred federal and state income taxes ordered by the NMPRC in PNM’s NM 2016 Rate Case and the amortization of excess deferred federal income taxes as ordered by the PUCT in TNMP’s 2018 Rate Case. During the three months ended March 31, 2019,2020, income tax expense calculated by applying the expected annual effective income tax rate to earnings before income taxes was further reduced

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


by excess tax benefits related to stock awards of $0.7$0.4 million for PNMR, of which $0.5$0.3 million was allocated to PNM and $0.2$0.1 million was allocated to TNMP.


(15)Related Party Transactions

(15)   Related Party Transactions

PNMR, PNM, TNMP, and NMRD are considered related parties as defined under GAAP, as is PNMR Services Company, a wholly-owned subsidiary of PNMR that provides corporate services to PNMR and its subsidiaries in accordance with shared services agreements. These services are billed at cost on a monthly basis to the business units. In addition, PNMR provides construction and operations and maintenance services to NMRD, a 50% owned subsidiary of PNMR Development (Note 1), andDevelopment. PNM purchases renewable energy from certain NMRD-owned facilities at a fixed price per MWh of energy produced. PNM also provides interconnection services to PNMR Development (Note 9) and NMRD. See Note 16 for additional discussion of NMRD.



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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The table below summarizes the nature and amount of related party transactions of PNMR, PNM, TNMP, and NMRD:

Three Months Ended
March 31,
20202019
(In thousands)
Services billings:
PNMR to PNM$22,123  $26,826  
PNMR to TNMP8,727  10,058  
PNM to TNMP76  75  
TNMP to PNMR35  35  
PNMR to NMRD76  41  
Renewable energy purchases:
PNM from NMRD1,519  625  
Interconnection billings:
PNM to NMRD220  —  
PNM to PNMR—  —  
Interest billings:
PNMR to PNM—  933  
PNM to PNMR81  72  
PNMR to TNMP 32  
Income tax sharing payments:
PNMR to PNM—  —  
TNMP to PNMR—  —  

(16)   Equity Method Investment

As discussed in Note 1 of the Company's 2019 Annual Reports on Form 10-K, PNMR Development and AEP OnSite Partners created NMRD in September 2017 to pursue the acquisition, development, and ownership of renewable energy generation projects, primarily in the state of New Mexico. As of March 31, 2020, NMRD’s renewable energy capacity in operation was 85.1 MW. PNMR Development and AEP OnSite Partners each have a 50% ownership interest in NMRD. The investment in NMRD is accounted for using the equity method of accounting because PNMR’s ownership interest results in significant influence, but not control, over NMRD and its operations.

In the three months ended March 31, 2020 and 2019, PNMR Development made cash contributions of $10.0 million and $7.0 million to NMRD to be used primarily for its construction activities.

PNMR presents its share of net earnings from NMRD in other income on the Condensed Consolidated Statements of Earnings. Summarized financial information for NMRD is as follows:

Results of Operations
Three Months Ended March 31,
20202019
(In thousands)
Operating revenues$1,667  $725  
Operating expenses1,580  796  
Net earnings (loss)$87  $(71) 

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 Three Months Ended
 March 31,
 2019 2018
 (In thousands)
Services billings:   
PNMR to PNM$26,826
 $23,679
PNMR to TNMP10,058
 8,365
PNM to TNMP75
 86
TNMP to PNMR35
 35
PNMR to NMRD41
 78
Renewable energy purchases:   
PNM from NMRD625
 370
Interconnection billings:   
PNM to NMRD
 
PNM to PNMR
 
Interest billings:   
PNMR to PNM933
 62
PNM to PNMR72
 66
PNMR to TNMP32
 8
Income tax sharing payments:   
PNMR to PNM
 
TNMP to PNMR
 
Financial Position

March 31,December 31,
20202019
(In thousands)
Current assets$12,848  $7,187  
Net property, plant, and equipment137,763  132,772  
Non-current assets1,548  —  
Total assets152,159  139,959  
Current liabilities1,392  9,640  
Non-current liabilities362  —  
Owners’ equity$150,405  $130,319  



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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The following Management’s Discussion and Analysis of Financial Condition and Results of Operations for PNMR is presented on a combined basis, including certain information applicable to PNM and TNMP. The MD&A for PNM and TNMP is presented as permitted by Form 10-Q General Instruction H(2). This report uses the term “Company” when discussing matters of common applicability to PNMR, PNM, and TNMP. A reference to a “Note” in this Item 2 refers to the accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) included in Item 1, unless otherwise specified. Certain of the tables below may not appear visually accurate due to rounding.


MD&A FOR PNMR


EXECUTIVE SUMMARY
Overview and Strategy


PNMR is a holding company with two regulated utilities serving approximately 784,000791,000 residential, commercial, and industrial customers and end-users of electricity in New Mexico and Texas. PNMR’s electric utilities are PNM and TNMP.
Strategic Goals
PNMR is focused on achieving three key strategic goals:


Earning authorized returns on regulated businesses
Delivering at or above industry-average earnings and dividend growth
Maintaining solid investment grade credit ratings


In conjunction with these goals, PNM and TNMP are dedicated to:


Maintaining strong employee safety, plant performance, and system reliability
Delivering a superior customer experience
Demonstrating environmental stewardship in business operations, including transitioning to an emissions-free generating portfolio by 2040
Supporting the communities in their service territories


Earning Authorized Returns on Regulated Businesses


PNMR’s success in accomplishing its strategic goals is highly dependent on two key factors: fair and timely regulatory treatment for its utilities and the utilities’ strong operating performance. The Company has multiple strategies to achieve favorable regulatory treatment, all of which have as their foundation a focus on the basics: safety, operational excellence, and customer satisfaction, while engaging stakeholders to build productive relationships. Both PNM and TNMP seek cost recovery for their investments through general rate cases, interim cost of service filings, and various rate riders.


Fair and timely rate treatment from regulators is crucial to PNM and TNMP in earning their allowed returns and critical for PNMR to achieve its strategic goals. PNMR believes that earning allowed returns is viewed positively by credit rating agencies and that improvements in the Company’s ratings could lower costs to utility customers.


Additional information about rate filings is provided in Note 17 of the Notes to Consolidated Financial Statements in the 20182019 Annual Reports on Form 10-K and in Note 12.


State Regulation


The rates PNM and TNMP charge retail customers are subject to traditional rate regulation by the NMPRC, FERC, and the PUCT.

New Mexico 2015 Rate Case – On September 28, 2016, the NMPRC issued an order that authorized PNM to implement an increase in base non-fuel rates of $61.2 million for New Mexico retail customers, effective for bills sent after September 30, 2016. This order was on PNM’s application for a general increase in retail electric rates (the “NM 2015 Rate Case”) filed in August 2015. PNM’s application requested an increase in base non-fuel revenues of $121.5 million based on a future test year

(“FTY”) beginning October 1, 2015. The primary drivers of the revenue deficiency were infrastructure investments and declines in forecasted energy sales due to successful energy efficiency programs and other economic factors.

The NMPRC’s September 28, 2016NMPRC's order included a determination that PNM was imprudent in purchasing 64.1 MW of previouslycertain leased capacity in PVNGS Unit 2, extending the leases for 114.6 MW ofother PVNGS leased capacity, of PVNGS Units 1 and 2, and installing BDT environmental controls equipment on SJGS Units 1 and 4. Major componentsSJGS.
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PNM appealed the difference between the increase in non-fuel revenues approved in the order and PNM’s request, include:

A ROE of 9.575%, comparedNMPRC's imprudence findings to the 10.5% requested by PNM
Inclusion of the January 2016 purchase of the assets underlying three leases of capacity, totaling 64.1 MW of PVNGS Unit 2 (Note 13) at an initial rate base value of $83.7 million, compared to PNM’s request for recovery of the fair market value purchase price of $163.3 million; and disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the 64.1 MW was being leased by PNM, which costs totaled $43.8 million when the order was issued
Disallowance of the recovery of any future contributions for PVNGS decommissioning costs related to the 64.1 MW of capacity in PVNGS Unit 2 purchased in January 2016 and the 114.6 MW of the leased capacity in PVNGS Units 1 and 2 that were extended for eight years beginning January 15, 2015 and 2016 (Note 13)
Disallowance of recovery of the costs associated with converting SJGS Units 1 and 4 to BDT, which is required by the NSR permit for SJGS; PNM’s share of the costs of installing the BDT equipment was $52.3 million, $40.0 million of which PNM requested be included in rate base in the NM 2015 Rate Case

On September 30, 2016, PNM filed a notice of appeal with the NM Supreme Court regarding the order in the NM 2015 Rate Case.Court. Specifically, PNM is appealingappealed the NMPRC’s determination that PNM was imprudent in certain matters in the actions taken tocase, including the disallowance of the full purchase the previously leasedprice of 64.1 MW of capacity in PVNGS Unit 2, extending the leases for 114.6 MW of capacity of PVNGS Units 1 and 2, and installing BDT equipment on SJGS Units 1 and 4. PNM’s appeal includes the following specific elements of the NMPRC’s order:

Disallowance of recovery of the full fair market value purchase price of the 64.1 MW of capacity in PVNGS Unit 2 purchased in January 2016
Disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the 64.1 MW of capacity was leased by PNM,
Disallowance the costs of recovery ofconverting SJGS Units 1 and 4 to BDT, and future contributions for PVNGS decommissioning attributable to 64.1 MW of purchased capacity and the 114.6 MW of capacity under the extended leasesleases.
Disallowance
In May 2019, the NM Supreme Court issued its decision on the matters that had been appealed in the NM 2015 Rate Case. The NM Supreme Court upheld all of the decisions in the NMPRC's order except for their decision to permanently disallow recovery of future decommissioning costs related to the costspurchased and extended leases because PNM was deprived of converting SJGS Units 1its rights to due process of law and 4remanded the case to BDT

NEE, NMIEC, and ABCWUA filed notices of cross appealthe NMPRC for further proceedings. In January 2020, the NMPRC issued its order in response to PNM’s appeal. The issuesthe NM Supreme Court’s remand that are being appealed by the various cross-appellants are:

The NMPRC allowing PNM to recover the costs of the lease extensionsreaffirmed its September 2016 order except for the 114.6 MWdecision to permanently disallow recovery of certain future decommissioning costs related to PVNGS Units 1 and 22. The NMPRC indicated that PNM’s ability to recover these costs will be addressed in a future proceeding and anyclosed the NM 2015 Rate Case docket.

As a result of the NM Supreme Court’s ruling, PNM recorded a pre-tax impairment of $149.3 million as of June 30, 2019 which is reflected as regulatory disallowances and restructuring costs in the Condensed Consolidated Statements of Earnings. This amount reflects capital costs not previously impaired during the pendency of the appeal related to PNM's purchase price for theof 64.1 MW, in PVNGS Unit 2
1, undepreciated capital improvements made during the period such interests had been leased, and investments in BDT environmental controls equipment on SJGS Units 1 and 4. The NMPRC allowing PNM to recover the costs incurred under the new coal supply contract for Four Corners
The revised method to collect PNM’s fuel and purchased power costs under the FPPAC
The final rate design
The NMPRC allowing PNM to include the “prepaid pension asset” in rate base

The NM Supreme Court has orally stated that the court’s intent would be to request that PNM reimburse ratepayers for any amount overcharged should the cross-appellants prevailimpairment was offset by tax impacts of $45.7 million which are reflected as income taxes on the merits. Oral argument at the NM Supreme Court was held on October 30, 2017. Although appealsCondensed Consolidated Statements of regulatory actions of the NMPRC have a priority at the NM Supreme Court under New Mexico law, there is no required time frame for the court to act on the appeals.Earnings.


PNM evaluated the accounting consequences of the order in the NM 2015 Rate Case and the likelihood of being successful on the issues it is appealing in the NM Supreme Court as required under GAAP. The evaluation indicated it is reasonably possible that PNM will be successful on the issues it is appealing. If the NM Supreme Court rules in PNM’s favor on some or all of the issues, those issues would be remanded back to the NMPRC for further action. PNM originally estimated that it would take a minimum of 15 months from September 30, 2016 for the NM Supreme Court to render a decision and for the NMPRC to take action on any remanded issues. Accordingly, PNM recorded pre-tax regulatory disallowances of $11.3 million representing capital cost recovery for the period October 1, 2016 through December 31, 2017 on its investments that the order disallowed, as well as

amounts recorded as regulatory assets and deferred charges that the order disallowed, and which PNM did not challenge in its appeal. PNM has periodically updated its estimate of the time frame necessary to resolve these matters resulting in additional pre-tax disallowances of $3.1 million and $4.0 million being recorded in December 2017 and in the second half of 2018. Since the NM Supreme Court did not issue a decision by March 31, 2019, PNM again reevaluated its estimate of the time frame necessary to resolve the matter. As of March 31, 2019, PNM recorded additional pre-tax disallowances of $1.3 million representing additional cost recovery the order disallowed and will not be recovered from customers. PNM’s aggregate pre-tax losses of $19.7 million assumes the NM Supreme Court will issue a decision and that any remanded issues will be addressed by the NMPRC by July 31, 2019. Additional losses will be recorded if the currently estimated time frame for the NM Supreme Court to render a decision and for the NMPRC to take action on any remanded issues is further extended.

PNM continues to believe that the disallowed investments, which are the subject of PNM’s appeal, were prudently incurred and that PNM is entitled to full recovery of those investments through the ratemaking process. If PNM’s appeal is unsuccessful, PNM would record additional pre-tax losses related to any unsuccessful issues. The March 31, 2019 book values of PNM’s investments that the order disallowed, after considering the losses recorded to date, were $72.6 million for the 64.1 MW of purchased capacity in PVNGS Unit 2, $37.6 million for the PVNGS Unit 2 disallowed capital improvements, and $49.7 million for the BDT equipment.

PNM does not believe that the likelihood of the cross-appeals being successful is probable. However, if the NM Supreme Court were to overturn all of the issues subject to the cross-appeals and, upon remand, the NMPRC did not provide any cost recovery of those items, PNM would write-off all of the costs to acquire the assets previously leased under three leases aggregating 64.1 MW of PVNGS Unit 2 capacity, totaling $144.7 million at March 31, 2019 (which includes $72.6 million that is the subject of PNM’s appeal discussed above) after considering the losses recorded to date. The impacts of not recovering costs for the lease extensions, new coal supply contract for Four Corners, and “prepaid pension asset” in rate base would be recognized in future periods reflecting that rates charged to customers would not recover those costs as they are incurred. The outcomes of the cross-appeals regarding the FPPAC and rate design should not have a financial impact to PNM.

New Mexico 2016 Rate Case OnIn January 16, 2018, the NMPRC issued an orderapproved a settlement agreement that authorized PNM to implement an increase in base non-fuel rates of $10.3 million. PNM implemented 50% of the approved increase for service rendered, rather than bills sent, beginning February 1, 2018 and implemented the rest of the increase for service rendered beginning January 1, 2019. This order was on PNM’s application for a general increase in retail electric rates (the “NM 2016 Rate Case”) filed in December 2016. PNM’s December 2016 application requested an increase in base non-fuel revenues of $99.2 million based on a FTY beginning January 1, 2018 and an ROE of 10.125%. PNM’s December 2016 application did not include a request to recover any of the costs disallowed in the NM 2015 Rate Case that are at issue in PNM’s pending appeal to the NM Supreme Court. The primary drivers of PNM’s revenue deficiency included implementation of modifications to PNM’s resource portfolio, which were approved by the NMPRC in December 2015 as part of the SJGS regional haze compliance plan, infrastructure investments, including environmental upgrades at Four Corners, declines in forecasted energy sales due to successful energy efficiency programs and other economic factors, and updates to FERC/retail jurisdictional allocations.

After extensive settlement negotiations and public proceedings, the NMPRC issued a Revised Order Partially Adopting Certification of Stipulation dated January 10, 2018 (the “Revised Order”). The key terms of the Revised Order include:

A revenue increase totaling $10.3 million, which includes a reduction to reflect the impact of the decrease in the federal corporate income tax rate and updates to PNM’s cost of debt (aggregating an estimated $47.6 million annually). This order was on PNM's application for a general increase in retail electric rates filed in December 2016 (the "NM 2016 Rate Case"). The key terms of the order include:

A ROE of 9.575%
ReturningA requirement to return to customers over a three-year period the benefit of the reduction in the New Mexico corporate income tax rate (Note 14) to the extent attributable to PNM’s retail operations (Note 14)
DisallowingA disallowance of PNM’s ability to collect an equity return on its $90.1certain investments aggregating $148.1 million investment in SCRs at Four Corners, and on $58.0 million of projected capital improvements during the period July 1, 2016 through December 31, 2018, but allowing recovery of the total $148.1 million of investments with a debt-only return
An agreement to not implement non-fuel base rate changes, other than changes related to PNM’s rate riders, with an effective date prior to January 1, 2020
A decisionrequirement to defer future consideration regardingconsider the prudency of PNM’s decision to continue its participation in Four Corners to a future proceedingin PNM's next general rate case filing


PNM implemented 50% of the approved increase for service rendered beginning February 1, 2018 and implemented the rest of the increase for service rendered beginning January 1, 2019. This matter is now concluded.


TNMP 2018 Rate Case – On December 20, 2018, the PUCT approved a settlement stipulation allowing TNMP to increase annual base rates by $10.0 million based on a ROE of 9.65%, a cost of debt of 6.44%, and a capital structure comprised of 55% debt and 45% equity. Under the approved settlement stipulation TNMP was granted authority to integrate revenues previously recorded under the AMS rider, as well as other unrecorded AMS costs, into base rates; establish a new rider to recover Hurricane Harvey restoration costs, net of amounts owed to customers as a result of the reduction in the federal corporate income tax rate in 2018; and to update depreciation rates. In addition, the approved settlement stipulation allows TNMP to refund the regulatory liability recorded at December 31, 2017 related to federal tax reform to customers and reflects the reduction in the federal corporate income tax rate to 21%. New rates under the TNMP 2018 Rate Case became effective January 1, 2019.


TNMP’s original application, which was filed with the PUCT on May 30, 2018 (the “TNMP 2018 Rate Case”), requested an annual increase to base rates of $25.9 million based on a ROE of 10.5%, a cost of debt of 7.2%, and a capital structure comprised of 50% debt and 50% equity.

Advanced Metering TNMP completed its mass deployment of advanced meters across its service territory in 2016 and has installed more than 242,000 advanced meters. As discussed above, beginningBeginning in 2019 the majority of costs associated with TNMP’s AMS program are being recovered through base rates.


In February 2016, PNM filed an application with the NMPRC requesting approval of a project to replace its existing customer metering equipment with Advanced Metering Infrastructure (“AMI”), which was denied. As ordered by the NMPRC, PNM’s next2020 filing for energy efficiency plan filing will includeprograms to be offered in 2021, 2022, and 2023 includes a proposal for an AMI pilot project.


Rate Riders and Interim Rate Relief The PUCT has approved mechanisms that allow TNMP to recover capital invested in transmission and distribution projects without having to file a general rate case. This permits more timely recovery of investments. The NMPRC has approved PNM recovering fuel costs through the FPPAC, as well as rate riders for renewable energy and energy efficiency that efficiency. These mechanisms
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allow for more timely recovery of investmentsinvestments.

On April 6, 2020, TNMP filed its first application for a periodic distribution rate adjustment (the "2020 DCOS"). TNMP's 2020 DCOS application requests an increase in annual distribution revenues of $14.7 million and improve PNM’s ability to earn its authorized return.

Cost Recovery Related to Joining the EIM – In 2018, PNM completed a cost-benefit analysis that indicated PNM’s participation in the California Independent System Operator (“CAISO”) Western Energy Imbalance Market (“EIM”) would provide substantial benefits to retail customers. In August 2018, PNM filed an application with the NMPRC requesting, among other things, to recover the cost of initial capital investments and authorization to establish a regulatory asset to recover other expenses that would be incurred in order to join the EIM. PNM’s application proposes recovery of the costs incurred to join the EIM would be recovered beginning on the effective date of new rates go into effect beginning in PNM’s next general rate case and thatSeptember 2020. See Note 12. TNMP cannot predict the benefitsoutcome of participating in the EIM be credited to retail customers through PNM’s existing FPPAC. A public hearing was held on December 12, 2018. On December 19, 2018, the NMPRC issued an order approving the establishment of a regulatory asset to recover PNM’s cost of joining the EIM. On January 17, 2019, ABCWUA filed a motion to reopen the case and to reconsider the NMPRC’s order approving the establishment of a regulatory asset. On February 6, 2019, the NMPRC issued an order granting rehearing and vacating the December 19, 2018 order. On February 24, 2019, Western Resource Advocates, and the Coalition for Clean and Affordable Energy filed a motion for an expedited final order, which was supported by PNM and other parties and opposed by ABCWUA.  On February 27, 2019, the NMPRC issued a procedural order requiring the Hearing Examiner to report to the NMPRC whether the matter should be reopened. On March 18, 2019, the Hearing Examiner recommended that all rate making issues, including but not limited to implementation and ongoing EIM costs and savings, the prudence and reasonableness of costs included in a regulatory asset, and the period over which costs would be charged to customers be deferred until a future case. PNM filed limited exceptions to the recommended decision. The NMPRC issued a final order adopting the Hearing Examiner’s recommended decision on March 27, 2019. On April 12, 2019, PNM and other parties filed a joint motion requesting the NMPRC clarify that the quarterly benefits reports prepared by CAISO be used to determine the benefits of participating in the EIM, as well as to support the prudence of costs incurred to join the EIM. On April 24, 2019, the NMPRC issued an order granting the joint motion for clarification and indicating the CAISO quarterly benefits reports may be used in a future rate case. PNM anticipates it will begin participating in the EIM in April 2021.this matter.


FERC Regulation


Rates PNM charges wholesale transmission customers and wholesale generation customers are subject to traditional rate regulation by FERC. Rates charged to wholesale electric transmission customers are based on a formula rate mechanism pursuant to which rates for wholesale transmission service are calculated annually in accordance with an approved formula. The formula includes updating cost of service components, including investment in plant and operating expenses, based on information contained in PNM’s annual financial report filed with FERC, as well as including projected transmission capital projects to be placed into service in the following year. The projections included are subject to true-up. Certain items, including changes to return on equity

and depreciation rates, require a separate filing to be made with FERC before being included in the formula rate.


The low natural gas price environment resultedIn May 2019, PNM filed an application with FERC requesting approval to purchase a new 165-mile long 345-kV transmission line and related facilities (the “Western Spirit Line”). Under related agreements, PNM will provide transmission service to approximately 800 MW of new wind generation to be located in market priceseastern New Mexico beginning in 2021 using an incremental rate. All necessary regulatory approvals for power being substantially lower than what PNM is able to offer wholesale generation customers under the cost of service model that FERC requires PNM to use.  Consequently, PNM decided to stop pursuing wholesale generation contractspurchase and currentlyprovide transmission service from the Western Spirit Line have been obtained.

PNM has no full-requirements wholesale generation customers.
Delivering At or Above Industry-Average Earnings and Dividend Growth
PNMR’s strategic goal to deliver at or above industry-average earnings and dividend growth enables investors to realize the value of their investment in the Company’s business. PNMR’s current target is 5% to 6% earnings and dividend growth for the period 20192020 through 2022.2023. Earnings growth is based on ongoing earnings, which is a non-GAAP financial measure that excludes from GAAP earnings certain non-recurring, infrequent, and other items that are not indicative of fundamental changes in the earnings capacity of the Company’s operations. PNMR uses ongoing earnings to evaluate the operations of the Company and to establish goals, including those used for certain aspects of incentive compensation, for management and employees.
PNMR targets a dividend payout ratio in the 50% to 60% range of its ongoing earnings. PNMR expects to provide at or above industry-average dividend growth in the near-term and to manage the payout ratio to meet its long-term target. The Board will continue to evaluate the dividend on an annual basis, considering sustainability and growth, capital planning, and industry standards. The Board approved the following increases in the indicated annual common stock dividend:

Approval DatePercent Increase
December 201510%
December 201610%
December 20179%
December 20179%
December 201899%
December 2019%6%


Maintaining Solid Investment Grade Credit Ratings
The Company is committed to maintaining solid investment grade credit ratings in order to reduce the cost of debt financing and to help ensure access to credit markets, when required. See the subheading Liquidity included in the full discussion of Liquidity and Capital Resources below for the specific credit ratings for PNMR, PNM, and TNMP. Currently, allOn April 6, 2020, S&P downgraded the ratings for PNMR, PNM, and TNMP one notch and affirmed TNMP's first mortgage bond rating. All of the credit ratings issued by both Moody’s and S&P on the Company’s debt arecontinue to be investment grade. In January 2018, S&P changed the outlook for PNMR, PNM, and TNMP from stable to negative. In June 2018, Moody’s changed the outlook for PNMR and PNM from positive to stable and maintained a stable outlook for TNMP.


Business and Strategic Focus


PNMR strives to create enduring value for customers, communities, and shareholders. PNMR’s strategy and decision-making are focused on safely providing reliable, affordable, and environmentally responsible power. The Company works closely with customers,its stakeholders legislators, and regulators to ensure that resource plans and infrastructure investments benefit from robust public dialogue and balance the diverse needs of our communities. Equally important is the focus of PNMR’s utilities on customer satisfaction and community engagement.

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Safe, Reliable, and Affordable Power
PNMR and its utilities are aware of the important roles they play in enhancing economic vitality in their service territories. Management believes that maintaining strong and modern electric infrastructure is critical to ensuring reliability and supporting economic growth. When contemplating expanding or relocating their operations, businesses consider energy affordability and reliability to be important factors. PNM and TNMP strive to balance service affordability with infrastructure investment to maintain a high level of electric reliability and to deliver a safe and superior customer experience. Investing in PNM’s and TNMP’s infrastructure is critical to ensuring reliability and meeting future energy needs. Both utilities have long-established records of providing customers with safe and reliable electric service.



In early 2020, the novel coronavirus ("COVID-19"), resulted in President Trump declaring a pandemic in the U.S. The Company is closely monitoring developments and is taking steps to mitigate the potential risks related to the COVID-19 pandemic. The Company has assessed and updated its existing business continuity plans in response to the impacts of the pandemic through crisis team meetings and working with other utilities and operators. It has identified its critical workforce, staged backups and limited access to control rooms and critical assets. The Company has worked to protect the safety of its employees using a number of measures, including minimizing exposure to other employees and the public and mandating work-from-home and flexible arrangements for all applicable job functions. The Company is also working with its suppliers to understand the potential impacts to its supply chain and remains focused on the integrity of its information systems and other technology systems used to run its business. However, the Company cannot predict the extent or duration of the outbreak, its effects on the global, national or local economy, or on the Company's financial position, results of operations, and cash flows. The Company will continue to monitor developments related to COVID-19 and will remain focused on protecting the health and safety of its customers, employees, contractors, and other stakeholders, and on its objective to provide safe, reliable, affordable and environmentally responsible power. As discussed in Note 12, both PNM and TNMP have suspended disconnecting certain customers for past due bills and waived late fees during the pandemic and are seeking or have been provided regulatory mechanisms to recover these and other costs resulting from COVID-19. See additional discussion below regarding the Company's customer, community, and stakeholder engagement in response to COVID-19 and in Item 1A. Risk Factors.

Utility Plant and Strategic Investments


Utility Plant Investments – During the 20162017 to 20182019 period, PNM and TNMP together invested $1,501.7 million$1.5 billion in utility plant, including substations, power plants, nuclear fuel, and transmission and distribution systems. PNM completed installation of SNCR and BDT equipment on SJGS Units 1 and 4 in early 2016. On January 15, 2016, PNM completed the $163.3 million acquisition of 64.1 MW of capacity in PVNGS Unit 2 that had previously been leased to PNM. During 2018 and 2019, PNM will constructconstructed an additional 50 MW of PNM-owned PVsolar-PV facilities, which were approved by the NMPRC in PNM’s 2018 renewable energy procurement plan. The 50 MW PV facilities are expected to be placed in commercial operations by December 2019 at a cost not to exceed $73.0 million. In late 2018, PNM became the first utility to install a new type of protective relay on its high-voltage transmission lines, which help to ensure the reliability of PNM’s electrical system. On May 1, 2019, PNM executed an agreement to purchase a 165-mile 345 kV transmission line and to construct associated facilities (the “Western Spirit Line”), subject to NMPRC and FERC approval. PNM anticipates the Western Spirit lineLine, which has been approved by FERC and the NMPRC. Under the agreement, subject to certain conditions being met prior to closing, PNM will purchase the Western Spirit Line upon its expected commercial operation date in 2021 at a net cost of approximately $285 million, including customer reimbursements. PNM’s SJGS Abandonment Application requests NMPRC approval of a replacement resource scenario that would result in PNM investing approximately $298 million to construct and own a new 280 MW gas-fired generation facility to be used to serve approximately 800located at the existing SJGS site, 70 MW of new wind generationbattery storage facilities, and other transmission upgrades to replace PNM’s capacity in eastern New Mexico beginning in 2021.SJGS. See the subheading Capital Requirements included in the full discussion of Liquidity and Capital Resources below for additional discussion of the Company’s projected capital requirements.


Strategic Investments – In 2017, PNMR Development and AEP OnSite Partners created NMRD to pursue the acquisition, development, and ownership of renewable energy generation projects, primarily in the state of New Mexico. Abundant renewable resources, large tracts of affordable land, and strong government and community support make New Mexico a favorable location for renewable generation. New Mexico hasranks 3rd in the 2nd highest technicalnation for energy potential from solar power according to the Nebraska Department of Energy & Energy Sun Index and ranks 3rd in the 48 contiguous states for utility scale solar photovoltaics as noted in 2015 by the National Renewable Energy Laboratory, while New Mexico is 6th for technical potentialnation for land-based wind.wind capacity according to the U.S. Office of Energy Efficiency and Renewable Energy. PNMR Development and AEP OnSite Partners each have a 50% ownership interest in NMRD. Through NMRD, PNMR anticipates being able to provide additional renewable generation solutions to customers within and surrounding its regulated jurisdictions through partnering with a subsidiary of one of the United States’ largest electric utilities. The formationAs of this joint venture provides a more efficient use of PNMR’s capital to support new renewable investment opportunities while maintaining the necessary capital to support investments required by regulated jurisdictions.March 31, 2020, NMRD’s current renewable energy capacity in operation is 33.9was 85.1 MW, which includes 3080 MW of solar-PV facilities required to supply energy to the Facebook data center located within PNM’s service territory, 1.9 MW to supply energy to Columbus Electric Cooperative located in southwest New Mexico, and 2.0 MW to supply energy to the Central New Mexico Electric Cooperative. In August 2018,Cooperative, and 1.2 MW of solar-PV facilities to supply energy to the City of Rio Rancho, New Mexico. The NMPRC has approved PNM’s request to enter into twoan additional 25-year PPAsPPA to purchase renewable energy and RECs from an aggregate of approximately 10050 MW of capacity from two solar-PV facilities to be constructed by NMRD to supply power to Facebook. NMRD is required to obtain FERC approval of the PPAs. Subject to FERC approval, theseFacebook data center. These facilities are expected to be inbegin commercial operation by June 2020.See Note 12. NMRD actively explores opportunities for additional renewable projects, including large-scale projects to serve future data centers and other customer needs.

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Integrated Resource Plan


NMPRC rules require that investor-owned utilities file an IRP every three years. The IRP is required to cover a 20-year20-year planning period and contain an action plan covering the first four years of that period.


PNM filed its 2017 IRP on July 3, 2017. The 2017 IRP analyzed several scenarios utilizing assumptions that PNM continues service from its SJGS capacity beyond mid-2022 and that PNM retires its capacity after mid-2022. Key findings of the 2017 IRP include:

Retiringincluded, among other things, that retiring PNM’s share of SJGS in 2022 after the expiration of the current operating and coal supply agreementsexiting ownership in Four Corners in 2031 would provide long-term cost savings for PNM’s customers
PNM exiting its ownership interest in Four Corners after its current coal supply agreement expires in 2031 would also provide long-term cost savings for customers
The and that the best mix of new resources to replace the retired coal generation would include solar energy and flexible natural gas-fired peaking capacity; the mix could includecapacity as well as energy storage, if the economics support it, and wind energy provided additional transmission capacity becomes available
Significant increases in future wind energy supplies will likely require new transmission capacity to be built from eastern New Mexico to PNM’s service territory
available. The 2017 IRP also indicated that PNM should retain the currently leased capacity in PVNGS. See additional discussion regarding PNM’s leased capacity in PVNGS which would avoid replacement with carbon-emitting generation
PNM should continuein Note 13, including PNM's June 15, 2020 deadline to developprovide irrevocable notice of its intent to purchase or return the assets underlying the extended PVNGS Units 1 and implement energy efficiency and demand management programs

PNM should assess the costs and benefits of participating in the California Independent System Operator Western Energy Imbalance Market
PNM should analyze its current Reeves Station to consider possible technology improvements to phase out the older generators and replace them with new, more flexible supplies or energy storage

On October 26, 2018, the Hearing Examiner issued a recommended decision recommending that the NMPRC accept2 leases, as well as PNM’s 2017 IRP as compliantand the SJGS Abandonment Application in Note 12.

In the third quarter of 2019, PNM initiated its 2020 IRP process which will cover the 20-year planning period from 2019 through 2039. Consistent with historical practice, PNM has provided notice to various interested parties and has hosted a series of public advisory presentations. NMPRC rules require PNM to file its 2020 IRP in July 2020. In March 2020, PNM filed a request to extend the applicable statute and NMPRC rules. On December 19, 2018,deadline to file its 2020 IRP until six months after the NMPRC issuedissues a final order accepting the Hearing Examiner’s recommended decision. On January 18, 2019, The Board of the County of Commissioners for San Juan County, New Mexico, the City of Farmington, New Mexico, and other parties filed a Notice of Appeal with the NM Supreme Court regarding the NMPRC’s final order in PNM’s 2017 IRP. The due date for Statements of Issues in the appeal has been extended to May 10, 2019 at the request of appellants in the case. On January 18, 2019, NEE submitted a motion requestingapproving replacement resources PNM's SJGS Abandonment Application. In April 2020, the NMPRC reconsider its acceptance of PNM’s 2017 IRP filing alleging informational inadequacy and deficiencies in PNM’s filing. On January 29, 2019,approved PNM's request for extension. PNM submitted a filing to the NMPRC in response to NEE’s motion for reconsideration. In its response, PNM stated that the issues raised by NEE had already been considered and rejected by the NMPRC in its December 19, 2018 final order and that the NMPRC lacks jurisdiction over the matters because the NMPRC’s final order has been appealed to the NM Supreme Court. The NMPRC did not take action on NEE’s motion for reconsideration. On February 19, 2019, NEE filed a motion with the NM Supreme Court to intervene in the appeal andwill continue to seek remandinput from interested parties as a part of the matter to the NMPRC. On March 11, 2019, PNM filed its response to the NM Supreme Court stating that the NMPRC had already considered and, by operation of law, denied NEE’s motion for reconsideration.this process. PNM cannot predict the outcome of this matter.

See additional discussion of PNM’s 2017 IRP and PNM’s December 2018 Compliance Filing regarding SJGS below and in Notes 11 and 12.
Environmentally Responsible Power
PNMR has a long-standing record of environmental stewardship. PNM’s environmental focus is in three key areas:


Developing strategies to provide reliable and affordable power while transitioning to a 100% emissions-free generating portfolio by 2040
Preparing PNM’s system to meet New Mexico’s increasing renewable energy requirements as cost-effectively as possible
Increasing energy efficiency participation


PNMR’s Sustainability Portal provides key environmental and sustainability information related to PNM’s and TNMP’s operations and is available at http://www.pnmresources.com/about-us/sustainability-portal.aspx. The portal also contains a Climate Change Report, which outlines plans for PNM to be coal-free by 2031 (subject to regulatory approval). This would further PNM’s goal and to achieve a 100%have an emissions-free generating portfolio by 2040.


The Energy Transition Act (“ETA”)


On March 22,June 14, 2019, Senate Bill 489, known as the ETA, was signed into New Mexico state law and becomes effective on June 14, 2019.became effective. Prior to the enactment of the ETA, the REA established a mandatory RPS requiring utilities to acquire a renewable energy portfolio equal to 10% of retail electric sales by 2011, 15% by 2015, and 20% by 2020. The ETA amends the REA and requires utilities operating in New Mexico to have renewable portfolios equal to 20% by 2020, 40% by 2025, 50% by 2030, 80% by 2040, and 100% zero-carbon energy by 2045. The ETA also amends sections of the REA to allow for the recovery of undepreciated investments and decommissioning costs related to qualifying EGUs that the NMPRC has required be removed from retail jurisdictional rates, provided replacement resources to be included in retail rates have lower or zero-carbon emissions. The ETA provides for a transition from fossil-fueled generating resources to renewable and other carbon-free resources by allowing utilities to issue securitized bonds, or “energy transition bonds,” related to the retirement of certain coal-fired generating facilities to qualified investors. Proceeds from the energy transition bonds must be used for purposes related to providing utility service to customers and to pay “financing costs” (as defined by the ETA). These costs may include coal mine decommissioning, plant decommissioning, and other costs that have not yet been charged to customers. Proceeds from energy transition bonds may also be used to fund severances for employees of the retired facility and related coal mine, and to promote economic development, education and job training in areas impacted by the retirement of the coal-fired facilities. The ETA requires the NMPRC to prioritize replacement resources in a manner intended to mitigate the economic impact to communities affected by these plant retirements. See additional discussion of the ETA in Note 11.16 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K and below in PNM’s SJGS Abandonment Application.



ThePNM expects the ETA will have a significant impact on PNM’s future generation portfolio, including PNM’s planned retirement of SJGS in 2022. PNM cannot predict the full impact of the ETA or the outcome of its pending and potential future generating resource abandonment and replacement filings with the NMPRC.


SJGS


December 2018 Compliance Filing SJGS Abandonment Application As discussed in Note 1612, on July 1, 2019, PNM filed a Consolidated Application for the Abandonment and Replacement of the NotesSJGS and Related Securitized Financing Pursuant to the Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K, the NMPRC’s December 2015 approval for a plan to comply with the EPA’s regional haze rule at SJGS required PNM to make a filing setting forth PNM’s recommendation, along with supporting testimony and exhibits, to determine the extent to which SJGS should continue serving PNM’s retail customers’ needs after June 30, 2022ETA (the “December 2018 Compliance Filing”“SJGS Abandonment
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Application”). The December 2018 Compliance Filing was required to be made before PNM entered into a binding commitment for post-2022 coal supply, but after PNM had received firm pricing and other terms for the supply of coal, unless PNM did not intend to pursue an agreement for post-2022 coal supply at SJGS.

PNM submitted the December 2018 Compliance Filing to the NMPRC on December 31, 2018 indicating that, consistent with the conclusions reached in PNM’s 2017 IRP, PNM’s customers would benefit from the retirement of PNM’s share of SJGS (subject to future NMPRC approval) after the current SJGS CSA expires in mid-2022. The December 2018 Compliance Filing also indicates that all of the SJGS owners except for Farmington have provided written notice that they do not intend to extend the SJGS operating agreements beyond their June 30, 2022 expiration dates and that PNM has provided written notice that PNM does not intend to extend the SJGS CSA beyond June 30, 2022. The December 2018 Compliance Filing also requested the NMPRC’s December 2015 order remain closed, and that PNM anticipates it will have sufficient information by the end of the second quarter of 2019 to support a consolidated application seekingAbandonment Application seeks NMPRC approval to retire PNM’s share of SJGS in 2022mid-2022, and for approval of CCNs, PPAs,replacement resources and the issuance of approximately $361 million of energy transition bonds as provided by the ETA. The application includes several replacement resource scenarios including PNM’s recommended replacement scenario, which is consistent with PNM’s goal of having a 100% emissions-free generating portfolio by 2040 and would provide cost savings to customers while preserving system reliability. The application includes three other replacement resource scenarios that would place a greater amount of resources in the San Juan area, or other applicable approvals, for resourcesresult in no new fossil-fueled generating facilities, or no battery storage facilities being added to replace PNM’s capacityportfolio. When compared to PNM's recommended replacement resource scenario, the three alternative resource scenarios are expected to result in SJGS. On January 30, 2019,increased costs to customers and the two alternative resource scenarios that result in no new fossil-fueled generating facilities are expected to not provide adequate system reliability.

The NMPRC approvedissued an order initiating a proceedingrequiring the SJGS Abandonment Application be considered in two proceedings: one addressing SJGS abandonment and requiring PNM to submit an application forrelated financing and the other addressing replacement resources but did not definitively indicate if the abandonment and financing proceedings would be evaluated under the requirements of PNM’s share of SJGS in 2022 by March 1, 2019. On February 7, 2019, PNM filed a motion requesting the NMPRC vacate the January 30,ETA. The NMPRC’s July 10, 2019 order and extendalso extended the deadline to issue the abandonment and financing order to nine months and to issue the replacement resources order to 15 months. After several requests for PNM’s abandonment filing until the end of the second quarter of 2019, which was deemed denied. On February 27, 2019, PNM filed a petition withclarification and legal challenges, in January 2020, the NM Supreme Court statingruled the NMPRC is required to apply the ETA to all aspects of PNM’s SJGS Abandonment Application, and that any previous NMPRC orders inconsistent with their ruling should be vacated. Hearings on the requirementsabandonment and securitized financing proceedings were held in December 2019 and hearings on replacement resources were held in January 2020.

In February 2020, the Hearing Examiners issued two recommended decisions recommending approval of PNM’s proposed abandonment of SJGS, subject to approval of the January 30, 2019separate replacement resources proceeding, and approval of PNM’s proposed financing order exceeded the NMPRC’s authority by,to issue Securitized Bonds.  The Hearing Examiners recommended, among other things, mandatingthat PNM be authorized to makeabandon SJGS by June 30, 2022, to issue Securitized Bonds of up to $361 million, and to establish a filingrate rider to collect non-bypassable customer charges for repayment of the bonds (the “Energy Transition Charge”). The Hearing Examiners recommended an interim rate rider adjustment upon the start date of the Energy Transition Charge to provide immediate credits to customers for the full value of PNM’s revenue requirement related to SJGS until those reductions are reflected in base rates. In addition, the Hearing Examiners recommended PNM be granted authority to establish regulatory assets to recover costs that is legally voluntary,PNM will pay prior to the issuance of the Securitized Bonds, including costs associated with the bond issuances as well as for severances, job training, and thateconomic development funds.

On February 21, 2020, the order is contraryHearing Examiners recommended the NMPRC approve PNM's proposed abandonment of SJGS, subject to NMPRC precedent which requires abandonment applications to also include identifiedapproval of the replacement resources and other information that would not be availablefinancing orders to PNM by March 1, 2019. PNM’s petition also requested the NM Supreme Court stay the January 30, 2019 order until after June 14, 2019.issue Securitized Bonds. On March 27, 2020, the Hearing Examiners issued a partial recommended decision related to PNM's requested replacement resources. The Hearing Examiners recommended the NMPRC approve PNM's requested PPA replacement resources related to 350 MW of solar-PV facilities and 60 MW of battery storage facilities. On April 1, 2019,2020, the NM Supreme Court grantedNMPRC unanimously approved the Hearing Examiners' recommended decisions regarding the abandonment of SJGS and the Securitized Bonds. On April 29, 2020, the NMPRC issued an order declining to bifurcate a temporary staydetermination on replacement resources and deferring final consideration until the issuance of a comprehensive recommended decision addressing the NMPRC’s order to consider the meritsentire portfolio of PNM’s petition after receiving responses.replacement resources. The NMPRC and NEE filed responses supportingis required to issue an order on the NMPRC’s authority to order PNM to initiate a proceeding. Other parties to the case filed responses supporting a stay of the NMPRC’s order and indicating that the abandonment filing should be subject to recently enacted changes in New Mexico state law. See additional discussion of the ETA above, and PNM’s December 2018 Compliance Filing in Note 11.SJGS replacement resources by September 2020. PNM cannot predict the outcome of this matter.

The December 2018 Compliance Filing and the 2017 IRP are not final determinations of PNM’s future generation portfolio.  Retiring PNM’s share of SJGS would require future NMPRC approval.  PNM will also be required to obtainits request for NMPRC approval of replacement power resources through CCN, PPA, or other applicable filings. The financial impact of an early retirement of SJGS andresources.

Pursuant to the NMPRC approval process are influenced by many factors outside of PNM’s control, including the economic impact of a potential SJGS abandonment on the area surrounding the plant and related mine, as well as overall political and economic conditions in New Mexico. Furthermore, PNM’s application forNMPRC's April 1, 2020 order approving the abandonment of SJGS and the related issuance of Securitized Bonds, PNMR recorded obligations totaling $38.1 million for associated replacement resources would be significantly influenced by the requirements of the ETA. PNM will seek full recovery of its remaining undepreciated investmentsestimated severances and other costs necessary to retireresulting from the planned retirement of SJGS in 2022, and for replacement resources but, dueexpected funding to state agencies for economic development and workforce training upon the uncertaintyissuance of the Securitized Bonds. This obligation is reflected in obtainingother deferred credits and as a corresponding deferred regulatory asset on PNMR's Condensed Consolidated Balance Sheets as of March 31, 2020. These estimates may be adjusted in future periods as the required approvals, PNM is unable to predictCompany refines its expectations. See additional discussion of PNM's SJGS Abandonment Application and the outcome of this matter.related challenges filed with the NM Supreme Court in Note 12.

Other Environmental Matters In addition to the regional haze rule and the ETA, SJGS isand Four Corners may be required to comply with other rules currently being developed or implemented that affect coal-fired generating units. Implementation of the Clean Power Plan, which was published by EPA in October 2015, is currently stayed by order of the US Supreme Court pending further proceedings before the DC Circuit. Oral argument was heard by the DC Circuit in September 2016, but the court has taken no action. OnIn March 28, 2017, President Trump issued an Executive Order on Energy Independence.  The order sets out two general policies: promote clean and safe development of energy resources, while avoiding regulatory burdens, and ensure electricity is affordable, reliable, safe, secure, and clean.  The order rescinds variousOn June 19, 2019, EPA released the final Affordable Clean Energy rule. EPA is taking three separate actions undertaken byin the previous administration and directs the EPA Administrator to review and if appropriate suspend, revise, or rescindfinal rule: (1) repealing the Clean Power Plan, as well as other environmental regulations. On October 10, 2017, EPA issued a proposal to repeal the Clean Power Plan based on a legal interpretation of the

CAA under which the Clean Power Plan exceeds EPA’s statutory authority. EPA published the proposed repeal rule on October 16, 2017 and accepted public comments through April 26, 2018. On August 31, 2018, EPA published a proposed rule, informally known asPlan; (2) promulgating the Affordable Clean Energy rule, to replacerule; and (3) revising the implementing regulations for all emission guidelines issued under Clean Power Plan. The Affordable Clean Energy rule proposes GHG reductions be achieved through heat-rate improvement technologies identified asAir Act Section 111(d) which, among other things, extends the deadline for state plans and the timing of EPA's approval process. EPA set the Best System of EmissionEmissions Reduction (“BSER”). Under for existing coal-fired power plants as heat rate efficiency improvements based on a range of “candidate technologies” that can be applied inside the proposedfence-line. Rather than setting a specific numerical standard of performance, EPA’s rule directs states wouldto determine and propose to EPA which of
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the candidate technologies to apply to each coal-fired EGUunit and establish standards of performance standards based on the degree of emission reduction achievable throughbased on the application of BSER. The final rule requires states to submit a plan to EPA by July 8, 2022 and then EPA has one year to approve the selected BSER (Note 11)plan. If states do not submit a plan or their submitted plan is not acceptable, EPA will have two years to develop a federal plan. The rule is not expected to impact SJGS since EPA’s final approval of a state SIP would occur after the planned shutdown of SJGS in 2022 (subject to NMPRC approval). Also, onThe Company is reviewing the rule with respect to impacts to Four Corners. See Note 11.
On December 20, 2018, EPA published in the Federal Register a proposed rule that would revise the carbon pollution standardsCarbon Pollution Standards rule issued in October 2015 for certain fossil fueledfossil-fueled power plants. The proposal would revise the emissions standards for new, reconstructed, or modified coal-fired EGUs to make them less stringent. PNM estimates that implementation of the BART plan at SJGS, along with potentially exiting ownership in the remaining units at SJGS (as well as Four Corners), as discussed above, should provide significant steps for New Mexico to meet its ultimate compliance with Section 111(d) under the Clean Power Plan, the proposed Affordable Clean Energy rule, or any similar rule. PNM does not expect SJGS or Four Corners will be subject to the carbon pollution standardsCarbon Pollution Standards rule that EPA has proposed to revise.

PNM’s review of the GHG emission reductions standards under the Affordable Clean Energy rule and the revised proposed Carbon Pollution Standards rule is ongoing. The Affordable Clean Energy rule has been challenged by several parties and may be impacted by further litigation. As discussed above, and in Note 11, recent changes inSJGS may also be required to comply with additional CO2 emissions restrictions issued by the New Mexico state law relatedEnvironmental Improvement Board pursuant to GHG emissions under the ETA may have significant impacts on SJGS and Four Corners as well as PNM’s other fossil-fueled generating resources.recently enacted ETA. PNM is unable tocannot predict the impact of these mattersstandards may have on its generation portfolio.
Major environmental upgrades on eachoperations or a range of the units at SJGS have significantly reduced emissionspotential costs of NOx, SO2, particulate matter, and mercury. Because of environmental upgrades completed in 2009, SJGS has a mercury removal efficiency of 98% and mercury emissions are well below the mercury limit imposed by EPA in the 2012 Mercury and Air Toxics Standards. Although EPA published a proposal on February 7, 2019 to reconsider some of the determinations underlying those standards, EPA has not proposed to alter the standards themselves. On the contrary, EPA determined that no more stringent standards are warranted because any residual risk remaining is acceptable within the margin of safety. Therefore, EPA’s 2019 proposal should not impact SJGS. Between 2006 and 2018, SJGS has reduced emissions of NOx by 77%, SO2 by 92%, particulate matter by 88%, and mercury by 99%.compliance, if any.
Renewable Energy
PNM’s renewable procurement strategy includes utility-owned solar capacity, as well as wind and geothermal energy purchased under PPAs. As discussed above, PNM is also considering the use of additional energy storage capacity in the event of an early retirement of SJGS. As of March 31, 2019,2020, PNM has 117157 MW of utility-owned solar capacity.capacity in operation. In addition, PNM purchases power from a customer-owned distributed solar generation program that had an installed capacity of 106.8133.0 MW at March 31, 2019.2020. PNM also owns the 500 KW PNM Prosperity Energy Storage Project, which uses advanced batteries to store solar power and dispatch the energy either during high-use periods or when solar production is limited.Project. The project was one of the first combinations of battery storage and PVsolar-PV energy in the nation and involved extensive research and development of advanced grid concepts. The facility also was the nation’s first solar storage facility fully integrated into a utility’s power grid. Since 2003, PNM has purchasedalso purchases the output from New Mexico Wind, a 204 MW wind facility, and began purchasing the output of Red Mesa Wind, an existing 102 MW wind energy center, oncenter. PNM's 2020 renewable energy procurement plan was approved by the NMPRC in January 1, 2015. PNM has2020 and includes a 20-year agreementPPA to purchaseprocure 140 MW of renewable energy and RECs from the Lightning Dock Geothermal facility built near Lordsburg, New Mexico, which has a current capacity of 15 MW. PNM also purchases RECs as necessary to meet the RPS.
La Joya Wind beginning in 2021. The majority of these renewable resources are key means for PNM to meet the RPS and related regulations that require PNM to achieve prescribed levels of energy sales from renewable sources, including those set by the recently enacted ETA, without exceeding cost requirements. PNM makes renewable procurements consistent with the plansIf approved by the NMPRC.NMPRC, PNM’s 2018recommended resource scenario to replace the planned retirement of SJGS would result in PNM executing PPAs to purchase renewable energy procurement plan meets RPS and diversity requirements for 2018RECs from a total of 350 MW of solar-PV facilities and 2019 and includes additional procurements of wind, geothermal, and solar-PV capacity. PNM’s 2019 renewable energy procurement plan meets RPS and diversity requirements for 2019 and 2020 and does not include any significant new procurements. As discussed in Note 12, the ETA removes diversity requirements and certain customer caps and exemptions relating to the application of the RPS. As a result, PNM will be required to procure additional renewable resources to meet the 20% by 2020 requirement under the RPS, which would likely be obtained through PPAs with third-parties.

energy from and construct a total of 130 MW of battery storage facilities.
As discussed in Strategic Investments above, PNM is currently purchasing the output of 3080 MW of solar capacity from NMRD that is used to serve the Facebook data center. PNM has entered into three separate 25-year PPAs to purchase renewable energy and RECs to be used by PNM to supply additional renewable power to the Facebook data center. These PPAs include the purchase of the power and RECs from a 50 MW wind project, which was placed in commercial operation in November 2018, a 166 MW wind project to be operational in November 2020, and a 50 MW solarsolar-PV project to be operational in December 2021. In August 2018, the NMPRC approved PNM’s request to enter into two additional 25-year PPAs to purchase renewable energy and

RECs from an aggregate of approximately 100 MW of capacity from two solar-PV facilities to be constructed by NMRD to supply power to Facebook. NMRD is required to obtain FERC approvalFacebook, Inc. The first 50 MW of the PPAs. Subject to FERC approval, these facilities arebegan commercial operations in November 2019 and the remaining capacity is expected to begin commercial operation by June 2020. See Note 12.
The ETA removes certain customer caps and exemptions relating toOn May 31, 2019, PNM filed an application with the application of the RPS. As a result of these changes, PNM will be required to procure additional energy from renewable resources to meet the 20% by 2020 requirement under the RPS. PNM expects to request NMPRC for approval of a PPA for wind generation capacity,program under which qualified governmental and large commercial customers could participate in a voluntary renewable energy procurement program ("PNM Solar Direct"). The costs of the program would utilizebe recovered directly from subscribing customers through a rate rider, including the BB2 Linecosts to deliverprocure renewable energy from 50 MW of solar-PV facilities under a 15-year PPA. These facilities are expected to be placed in commercial operation by March 31, 2021. In March 2020, the power, to meet this requirement. See additional discussion of these matters in Note 12.NMPRC approved PNM's application, including the rate rider and PPA.
PNM will continue to procure renewable resources while balancing the impact to customers’ electricity costs in order to meet New Mexico’s escalating RPS and carbon-free resource requirements.
Energy Efficiency
Energy efficiency plays a significant role in helping to keep customers’ electricity costs low while meeting their energy needs and is one of the Company’s approaches to supporting environmentally responsible power. PNM’s and TNMP’s energy efficiency and load management portfolios continue to achieve robust results. In 2018,2019, incremental energy saved as a result of new participation in PNM’s portfolio of energy efficiency programs wasis estimated to be approximately 7265 GWh. This is equivalent to the annual consumption of approximately 10,3009,500 homes in PNM’s service territory. PNM’s load management and
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annual energy efficiency programs also help lower peak demand requirements. In 2018,2019, TNMP’s incremental energy saved as a result of new participation in TNMP’s energy efficiency programs wasis estimated to be approximately 1716 GWh. This is equivalent to the annual consumption of approximately 1,5001,285 homes in TNMP’s service territory. In April 2018, TNMP received the “Partner of the Year Energy Efficiency Delivery Award” for its High-Performance Homes Program. As discussed above, in April 2020, PNM filed an application for energy efficiency and load management programs to be offered in 2021, 2022, and 2023. The proposed program also requests an AMI pilot program. PNM cannot predict the outcome of this matter.
Water Conservation and Solid Waste Reduction
PNM continues its efforts to reduce the amount of fresh water used to make electricity (about 20%35% more efficient than in 2007). Continued growth in PNM’s fleet of solar and wind energy sources, energy efficiency programs, and innovative uses of gray water and air-cooling technology have contributed to this reduction. Water usage has continued to decline as PNM has substituted less fresh-water-intensive generation resources to replace SJGS Units 2 and 3 starting in 2018, as water consumption at that plant has been reduced by approximately 50%. Focusing on responsible stewardship of New Mexico’s scarce water resources improves PNM’s water-resilience in the face of persistent drought and ever-increasing demands for water to spur the growth of New Mexico’s economy.
In addition to the above areas of focus, the Company is working to reduce the amount of solid waste going to landfills through increased recycling and reduction of waste. In 2018, 192019, 16 of the Company’s 23 facilities met the solid waste diversion goal of a 65% diversion rate. The Company expects to continue to do well in this area in the future.


Customer, Stakeholder, and Community Engagement


The Company strives to deliver a superior customer experience. Through outreach, collaboration, and various community-oriented programs, the Company has demonstrated a demonstrated commitment to building productive relationships with stakeholders, including customers, community partners, regulators, intervenors, legislators, and shareholders. PNM continues to focus its efforts to enhance the customer experience through customer service improvements, including enhanced customer service engagement options, strategic customer engagement,outreach, and improved communications. These efforts are supported by market research to understand the varying needs of customers, identifying and establishing valued services and programs, and proactively communicating and engaging with customers.
The Company has leveraged a number of communications channels and strategic content to better serve and engage its many stakeholders. PNM’s website www.pnm.com, provides the details of major regulatory filings, including general rate requests, as well as the background on PNM’s efforts to maintain reliability, keep prices affordable, and protect the environment. The Company’s website is also a resource for information about PNM’s operations and community outreach efforts, including plans for building a sustainable energy future for New Mexico.Mexico and to transition to an emissions-free generating portfolio by 2040. PNM has also leveraged social media in communications with customers on various topics such as education, outage alerts, safety, customer service, and PNM’s community partnerships in philanthropic projects. In May 2017, a chat function was added to PNM’s website to provide customers options when communicating with customer service representatives and an online management system was launched to expedite applications for solar interconnections. In 2018, a program was implemented to increase communication and collaboration with large commercial and industrial customers.

As discussed above, PNMR also has a dedicated Sustainability Portal on its corporate website, www.pnmresources.com,to provide additional information regarding the Company’s environmental and other sustainability efforts. The site provides the key corporate governance and sustainability information related to the operations of PNM and TNMP. In January 2018, PNM added a Climate Change Report to this portal. The portal also includes information presented under the additional headings: Environment, Generation Portfolio, Social, Economic, and Governance.
With reliability being the primary role of a transmission and distribution service provider in Texas’ deregulated market, TNMP continues to focus on keeping end-users updated about interruptions and to encourage consumer preparation when severe weather is forecasted. In August 2017, Hurricane Harvey made landfall in the gulf coast region and TNMP employees worked to restore power safely and efficiently for affected customers. In addition, PNMR made donations to support relief and restoration efforts in the gulf coast region. TNMP employees who were impacted by Hurricane Harvey were provided emergency crisis funds supported by the PNM Resources Foundation and other employee donations.
Local relationships and one-on-one communications remain two of the most valuable ways both PNM and TNMP connect with their stakeholders. Both companies maintain long-standing relationships with governmental representatives and key electricity consumers to ensure that these stakeholders are updated on companyCompany investments and initiatives. Key electricity consumers also have dedicated Company contacts that support their important service needs.


PNMR has a long tradition of supporting the communities it serves in New Mexico and Texas. The Company demonstrates its core value of caring through the PNM Resources Foundation, corporate giving, employee volunteerism, and PNM’s low-income assistance programs. In addition to the extensive engagement both PNM and TNMP have with nonprofit organizations in their communities, the PNM Resources Foundation provides more than $1 million in grant funding each year across New Mexico and Texas. These grants help nonprofits innovate or sustain programs to grow and develop business, develop and implement environmental programs, and provide educational opportunities. PNMR also provides employee matching and volunteer grants for various purposes. In early 2018,Beginning in 2020, the PNM Resources Foundation awarded fivewill fund grants of $0.2 million each,with a three-year focus on decreasing homelessness, increasing access to be paid over twoaffordable housing, reducing carbon emissions, and community safety with an emphasis on COVID-19 programs in 2020.

During the three years to a number of not-for-profit organizations to support their efforts in areas such as assisting businesses, supporting education, and other economic development efforts. Recipients included the New Mexico State University College of Engineering, to support education for professional surveyors, Central New Mexico Community College, and other local economic organizations to support workforce and small business education programs.

Over the past six years,ending December 2019, the Company has contributed a total of more than $7.0approximately $6.2 million to civic, educational, environmental, low income, and economic development organizations. PNMR is proud to support programs and organizations that enrich the quality of life for the people in its service territories and communities. One of PNM’s most
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important outreach programs is tailored for low-income customers. In 2018,2019, PNM hosted 5046 community events throughout its service territory to connect low-income customers with nonprofit community service providers offering support and help with such needs as water and gas utility bills, food, clothing, medical programs, and services for seniors. Additionally, through its Good Neighbor Fund, PNM provided $0.5$0.4 million of assistance with electric bills to 3,8113,734 families in 20182019 and offered financial literacy training to further support customers. In response to the recent COVID-19 crisis, in early 2020 the PNM Resources Foundation awarded $0.4 million to nonprofits in New Mexico and Texas to assist with work being done on the front lines of the pandemic, with a focus on helping people currently experiencing homelessness during the shelter-in-place directives and seniors.


Volunteerism is an important facet of the PNMR culture. The mission of the PNMR Corporate Volunteer Group is to help make the communities in which PNMR serves safer, stronger, smarter, and more vibrant. In 2018,2019, PNM and TNMP employees and retirees contributed approximately 11,500over 13,300 volunteer hours serving their local communities.communities by supporting at least 250 organizations. Company volunteers participate in an annual Day of Service at nonprofits across New Mexico and Texas. Employees and retirees also actively participate on a variety of nonprofit boards in educational, economic, and environmental forums, as well as safety seminars.independent volunteer activities throughout the year. PNMR employees are,want to make the Company the best place to work by connecting and growing with others to realize their objectives. By doing this the Company hopes to increase customer satisfaction. To assist with COVID-19 efforts, PNMR donated to the Emergency Action Fund in large part, responsible forpartnership with Albuquerque Community Foundation and United Way of Central New Mexico to benefit approximately twenty nonprofits and small businesses facing challenges due to cancelled fundraising events. In addition, PNM and TNMP Community Crews have assisted in efforts to safely deliver food and other supplies to assist teachers and others providing continued education at home, especially to those without access to computers and the success of the Company’s customer, stakeholder, and community outreach.internet.
Economic Factors
PNM In the three months ended March 31, 2019,2020, PNM experienced an increase in weather-normalized retail load of 1.2%1.1% compared to 2018. Economic conditions2019. PNM did not experience significant impacts in Albuquerque have continued to improve incustomer usage during the first quarter of 2019 and2020 as a result of COVID-19. PNM continuesexpects to experience load growth in its service areas, particularlysee increased residential customer usage offset by a decrease in the industrialcommercial customer class. In 2018, Netflix, Inc., announced plansclass when compared to make significant investments in production in2019 as a result of New Mexico and activitiesstate restrictions related to the construction of a data center by Facebook, Inc., are continuingCOVID-19 and does not currently expect significant impacts to progress.its other customer classes.
TNMP In the three months ended March 31, 2019,2020, TNMP experienced a decrease in volumetric weather-normalized retail load of 1.9%0.2% compared to 2018. Demand-based2019. Weather-normalized demand-based load, excluding retail transmission customers, increased 4.7%2.7% in the three months ended March 31, 20192020 compared to 2018. Revised rates implemented2019. TNMP expects to see increased volumetric usage related to residential consumers offset by decreases in January 2019 re-balance charges between wholesale transmission and retail distribution customers and other changesits demand based commercial consumer class as a result of impacts related to rate design allocateCOVID-19.
The Company is unable to determine the duration or final impacts from COVID-19 as discussed in more revenuesdetail in Item 1A. Risk Factors. The Company expects that some of the negative impacts to customers billed on a volumetric basis, resulting in lower earnings in the first quarter 2019 when compared to 2018. The Texas economy continues to growcustomer usage at PNM and TNMP continueswill be offset by reduced operations and maintenance expenses resulting from the Company's efforts to see new requestsmaintain social distancing and that these costs could be further reduced if the economic impacts of COVID-19 persist into the summer. However, if current economic conditions extend through the summer and beyond, the Company may be required to interconnect to its system.

implement additional measures such as further reducing or delaying operating and maintenance expenses and planned capital expenditures.
Results of Operations
Net earnings (loss) attributable to PNMR were $18.7$(15.3) million, or $0.23$(0.19) per diluted share in the three months ended March 31, 20192020 compared to $15.0$18.7 million, or $0.19$0.23 per diluted share in 2018.2019. Among other things, earnings in the three months ended March 31, 20192020 benefited from additional revenues due tohigher earnings on PNM's renewable rate rider, higher customer usage at PNM, including the rate increases approved in PNM’s NM 2016 Rate Case and TNMP’s 2018 Rate Case,leap-year impact, higher revenues under FERC formula transmission rates and new transmission customersdemand-based usage at TNMP, lower operational and maintenance expenses, including lower employee related expense at PNM increased weather and loadTNMP, and lower plant maintenance costs at PNM, higher income from investment securities held in the NDT and coal mine reclamation trusts, and lower interest expensecharges at PNM.TNMP. These increases were more than offset by additional regulatory disallowances related to PNM’s appeal of the NMPRC’s decisions in the NM 2015 Rate Case, reduced revenues at PNM under its rate riders, lower transmission cost of service revenues as a result of a reallocation of costs in TNMP’s 2018 Rate Case, higher employee related expensesmilder weather conditions at PNM and TNMP, increased depreciation and property taxes due to increased plant in service at PNM and TNMP, as well as increased depreciation rates resulting from TNMP’s 2018 Rate Case, higher interest expense at TNMP as a result of debt issued in the second half of 2018, and lower interest incomelosses on the Westmoreland Loan at PNMR.PNM's PVNGS and coal mine reclamation investment securities. Additional information on factors impacting results of operationoperations for each segment is discussed below under Results of Operations.
Liquidity and Capital Resources


PNMR and PNM have revolving credit facilities with capacities of $300.0 million and $400.0 million andthat currently expire in October 2023. Both facilities provide for short-term borrowings and letters of credit and can be extended through October 2024, subject to approval by a majority of the lenders. In addition, PNM has a $40.0 million revolving credit facility which expires in December 2022, with banks having a significant presence in New Mexico, which expires in December 2022, and TNMP has a $75.0 million revolving credit facility, which expires in September 2022. On February 22, 2019, PNMR Development amended itshas a revolving credit facility with a capacity of $40.0 million, with the option to further increase the capacity up to $25.0$50.0 million and to extend its expiration date toupon 15-days advance notice, that expires in February 24, 2020.2021. The PNMR Development Revolving Credit Facility bears interest at a variable rate and contains terms similar to the PNMR Revolving Credit Facility. Total availability for PNMR on a consolidated basis was $732.5$670.0 million at
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May 3, 2019.1, 2020. The Company utilizes these credit facilities and cash flows from operations to provide funds for both construction and operational expenditures. PNMR also has intercompany loan agreements with each of its subsidiaries.


PNMR projects that its consolidated capital requirements, consisting of construction expenditures, capital contributions for PNMR Development’s 50% ownership interest in NMRD, and dividends, will total $3,627.7 million$4.4 billion for 2019-2023,2020 - 2024, including amounts expended through March 31, 2019.2020. The construction expenditures include estimated amounts for environmental upgrades at Four Corners, 50 MW of new solar facilities included in PNM’s 2018 renewable energy procurement plan, and an anticipated expansion of PNM’s transmission system.system, including the planned purchase of the Western Spirit Line, and proposed replacement generation resources included in PNM’s SJGS Abandonment Application.


In January 2020, PNMR entered into agreements to sell approximately 6.2 million shares of PNMR common stock under forward purchase arrangements (the “PNMR 2020 Forward Equity Sale Agreements”). Under the PNMR 2020 Forward Equity Sale Agreements, PNMR has the option to physically deliver, cash settle, or net share settle all or a portion of PNMR common stock on or before a date that is 12 months from their effective dates. PNMR did not initially receive any proceeds upon execution of these agreements. The initial forward sales price of $47.21 per share is subject to adjustments based on net interest rate factor and by expected future dividends on PNMR’s common stock. PNMR expects to physically settle all shares under the agreements on or before January 7, 2021. See Note 9.

On January 18, 2019,April 15, 2020, PNM entered into the PNM 2020 Term Loan and used the proceeds to prepay the PNM 2019 $250.0 million PNM 2019 Term Loan, which bears interest at a variable rate and must be repaidwithout penalty. As discussed below, on or before July 17, 2020. ProceedsApril 30, 2020, PNM used $100.0 million of proceeds from this issuance were used to repay the PNM 2017 Term Loan, short-term borrowings under2020 SUNs to prepay without penalty an equal amount of the PNM Revolving Credit Facility, and for other general corporate purposes. 2020 Term Loan.

On February 26, 2019,April 24, 2020, TNMP entered into the TNMP 20192020 Bond Purchase Agreement which provideswith institutional investors for the sale of $305.0$185.0 million aggregate principal amount of four series of TNMP 2019 Bonds.first mortgage bonds (the "TNMP 2020 Bonds") offered in private placement transactions. TNMP issued $225.0$110.0 million of TNMP 20192020 Bonds on March 29, 2019 (at fixed annual interest rates ranging from 3.79% to 4.06% for terms ranging from 15 to 25 years)April 24, 2020 and used a portion of the proceeds to repay TNMP’s $172.3 million 9.50% first mortgage bonds at their maturity on April 1, 2019. TNMP will issue the remaining $80.0 million of TNMP 2019 Bonds on or before July 1, 2019 (at a fixed annual interest rate of 3.60% for a term of ten years) and will use the proceeds to repay borrowings under the TNMP Revolving Credit Facility and for other generalcorporate purposes. TNMP will issue the remaining $75.0 million of TNMP 2020 Bonds on or before July 15, 2020 and will use the proceeds from that issuance to repay borrowings under the TNMP Revolving Credit Facility and for other corporate purposes.


On April 30, 2020, PNM issued $200.0 million aggregate principal amount of PNM 2020 SUNs offered in private placement transactions. PNM used $100.0 million of proceeds from the PNM 2020 SUNs to repay an equal amount of the PNM 2020 Term Loan. The remaining $100.0 million of the PNM 2020 SUNs were used to repay borrowings on the PNM Revolving Credit Facility and for other corporate purposes.

See discussion of the NMPRC's April 1, 2020 approval of PNM's request to issue approximately $361 million of Securitized Bonds upon the retirement of SJGS in 2022, and the related appeal of that order to the NM Supreme Court in Note 12.

After considering the effects of these financings PNMRand the Company's short-term liquidity position as of May 1, 2020, the Company has consolidated maturities of long-term and other repayments of short-term and long-term debt aggregating $150.0approximately $718 million in the period from April 1, 2019 through MarchMay 31, 2020, and an additional $525.3 million that will mature by December 31, 2020.2021. In addition to internal cash generation, the Company anticipates that it will be necessary to obtain additional long-term financing in the form of debt refinancing, new debt issuances, and/or new equity in order to fund its capital requirements during the 2019-20232020-2024 period. The Company currently believes that its internal cash generation, existing credit arrangements, and access to public and private capital markets will provide sufficient resources to meet the Company’s capital requirements for at least the next twelve months. The Company is in compliance with its debt covenants.



RESULTS OF OPERATIONS


The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto. Trends and contingencies of a material nature are discussed to the extent known. Refer also to Disclosure Regarding Forward Looking Statements and to Part II, Item 1A. Risk Factors.





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A summary of net earnings attributable to PNMR is as follows:
 Three Months Ended March 31,
 2020 2019 Change
 (In millions, except per share amounts)
Net earnings (loss) attributable to PNMR$(15.3)    $18.7     $(34.0) 
Average diluted common and common equivalent shares(1)
79.9     80.0     (0.1) 
Net earnings attributable to PNMR per diluted share$(0.19)    $0.23     $(0.42) 
 Three Months Ended March 31,
 2019 2018 Change
 (In millions, except per share amounts)
Net earnings attributable to PNMR$18.7
 $15.0
 $3.7
Average diluted common and common equivalent shares80.0
 80.0
 
Net earnings attributable to PNMR per diluted share$0.23
 $0.19
 $0.04
(1) Excludes anti-dilutive shares for the three months ending March 31, 2020.



The components of the change in net earnings attributable to PNMR are:
Three Months Ended
March 31, 2020
(In millions)
PNM$(35.1)
TNMP3.0 
Corporate and Other(1.9)
Net change$(34.0)
 Three Months Ended
 March 31, 2019
 (In millions)
PNM$11.3
TNMP(5.3)
Corporate and Other(2.3)
Net change$3.7


Information regarding the factors impacting PNMR’s operating results by segment are set forth below.


Segment Information


The following discussion is based on the segment methodology that PNMR’s management uses for making operating decisions and assessing performance of its various business activities. See Note 2 for more information on PNMR’s operating segments.


PNM


PNM defines utility margin as electric operating revenues less cost of energy, which consists primarily of fuel and purchase power costs. PNM believes that utility margin provides a more meaningful basis for evaluating operations than electric operating revenues since substantially all fuel and purchase power costs are offset in revenues as those costs are passed through to customers under PNM’s FPPAC. Utility margin is not a financial measure required to be presented under GAAP and is considered a non-GAAP measure.


The following table summarizes the operating results for PNM:

Three Months Ended March 31,
20202019Change
(In millions)
Electric operating revenues$248.1  $269.3  $(21.2) 
Cost of energy74.5  99.3  (24.8) 
     Utility margin173.6  170.0  3.6  
Operating expenses98.6  106.5  (7.9) 
Depreciation and amortization41.4  39.2  2.2  
     Operating income33.6  24.3  9.3  
Other income (deductions)(30.5) 18.0  (48.5) 
Interest charges(17.6) (18.4) 0.8  
     Segment earnings (loss) before income taxes(14.6) 23.9  (38.5) 
Income (taxes) benefit2.4  (2.0) 4.3  
Valencia non-controlling interest(3.7) (2.8) (0.9) 
Preferred stock dividend requirements(0.1) (0.1) —  
Segment earnings$(16.1) $19.0  $(35.1) 

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 Three Months Ended March 31,
 2019 2018 Change
 (In millions)
Electric operating revenues$269.3
 $236.2
 $33.1
Cost of energy99.3
 70.8
 28.5
     Utility margin170.0
 165.4
 4.6
Operating expenses106.5
 100.5
 6.0
Depreciation and amortization39.2
 36.6
 2.6
     Operating income24.3
 28.3
 (4.0)
Other income (deductions)18.0
 3.7
 14.3
Interest charges(18.4) (20.8) 2.4
     Segment earnings before income taxes23.9
 11.2
 12.7
Income (taxes) benefit(2.0) 0.3
 (2.3)
Valencia non-controlling interest(2.8) (3.7) 0.9
Preferred stock dividend requirements(0.1) (0.1) 
Segment earnings$19.0
 $7.7
 $11.3
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The following table shows total GWh sales, including the impacts of weather, by customer class and average number of customers:
Three Months Ended March 31,
Percentage
20202019Change
(Gigawatt hours, except customers)
Residential768.2  795.5  (3.4)%
Commercial838.7  828.2  1.3  
Industrial334.3  250.0  33.7  
Public authority48.5  49.6  (2.2) 
Economy energy service (1)
166.5  156.9  6.1  
Other sales for resale605.2  874.7  (30.8) 
2,761.4  2,954.9  (6.5)%
Average retail customers (thousands)533.0  529.1  0.8 %
 Three Months Ended March 31,
     Percentage
 2019 2018 Change
 (Gigawatt hours, except customers)
Residential795.5
 751.7
 5.8 %
Commercial828.2
 834.4
 (0.7)
Industrial250.0
 205.7
 21.5
Public authority49.6
 50.3
 (1.4)
Economy energy service (1)
156.9
 170.7
 (8.1)
Other sales for resale874.7
 681.0
 28.4
 2,954.9
 2,693.8
 9.7 %
Average retail customers (thousands)529.1
 524.7
 0.8 %


(1) PNM purchases energy for a large customer on the customer’s behalf and delivers the energy to the customer’s location through PNM’s transmission system. PNM charges the customer for the cost of the energy as a direct pass through to the customer with only a minor impact in utility margin resulting from providing ancillary services.


Operating ResultsThree months endedMonths Ended March 31, 20192020 compared to 20182019


The following table summarizes the significant changes to utility margin:
Three Months Ended March 31, 2020
Change
Utility margin:(In millions)
Retail customer usage/load Weather normalized KWh sales increased 1.1%, due to increased sales to industrial customers
$0.6 
Weather – Colder weather in 2019; heating degree days were 10.8% lower in 2020
(2.2)
Leap Year Increase in revenue due to additional day in 2020
1.8 
Transmission Increase primarily due to the addition of new customers
0.8 
Rate riders Includes energy efficiency and the renewable energy rider, which is partially offset in depreciation and amortization below
2.1 
Other0.5 
Net Change$3.6 
   Three Months Ended
March 31, 2019
   Change
Utility margin: (In millions)
    
 
Rate relief – Additional revenue due to rate increase approved by the NMPRC effective February 1, 2018 (Note 12)
 $1.7
 
Retail customer usage/load  Weather normalized KWh sales increased 1.2% due to increased sales to residential and industrial customers
 1.6
 
Weather – Colder weather in 2019; heating degree days were 23.8% higher
 2.8
 
Transmission  Increase primarily due to the addition of new customers
 1.1
 
Rate riders  Includes renewable energy, fuel clause and energy efficiency riders
 (2.8)
 Other 0.2
 Net Change $4.6



The following tables summarize the primary drivers for changes in operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:
Three Months Ended March 31, 2020
Change
Operating expenses:(In millions)
Lower plant maintenance costs at SJGS, PVNGS, and gas-fired plants, partially offset by higher costs at Four Corners$(1.6)
Regulatory disallowance resulting from the NMPRC’s September 28, 2016 order in PNM’s NM 2015 Rate Case (Note 12)(1.3)
Lower employee related, and outside service expenses(4.5)
Other(0.5)
Net Change$(7.9)

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   Three Months Ended
March 31, 2019
   Change
Operating expenses: (In millions)
   
 Lower plant maintenance costs at Four Corners and PVNGS, offset by higher costs at SJGS and gas-fired plants $(0.3)
 Accelerated recovery of SNCR technology on SJGS Units 1 and 4��0.3
 Regulatory disallowance resulting from the NMPRC’s September 28, 2016 order in PNM’s NM 2015 Rate Case (Note 12) 1.3
 Higher property taxes due to increases in utility plant in service 0.4
 Higher employee related, outside service, and vegetation management expenses 3.9
 Other 0.4
 Net Change $6.0
Three Months Ended March 31, 2020
Change
Depreciation and amortization:(In millions)
Increased utility plant in service, including solar facilities under the renewable rider$2.0 
Other0.2 
Net Change$2.2 

Other income (deductions):
Lower gains on investment securities in the NDT and coal mine reclamation trusts$(46.9)
Lower equity AFUDC(0.8)
Lower interest income related to investment securities in the NDT and coal mine reclamation trusts(0.1)
Higher pension and OPEB non-service cost expense(0.7)
Net Change$(48.5)

Interest charges:
Lower interest on term loan agreements$0.2 
Interest on deposit by PNMR Development for transmission interconnections, which is offset in Corporate and Other0.9 
Other(0.3)
Net Change$0.8 

Income (taxes) benefits:
Lower segment earnings before income taxes$10.0 
Changes in the anticipated effective tax rate, including amortization of excess deferred income taxes (Note 14)(5.8)
Other0.1 
Net Change$4.3 



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Depreciation and amortization:  
   
 Increased utility plant in service $1.7
 Higher depreciation resulting from amortization of stranded costs associated with the retirement of SJGS Units 2 and 3 0.5
 Other 0.4
 Net Change $2.6

Other income (deductions):  
   
 Higher gains in 2019 compared to 2018 on investment securities in the NDT and coal mine reclamation trusts $13.7
 Lower equity AFUDC (0.2)
 Higher interest income related to investment securities in the NDT and coal mine reclamation trusts, partially offset by higher trust expenses 0.6
 Other 0.2
 Net Change $14.3
Interest charges:  
   
 Lower interest on $350.0 million of SUNs refinanced in May 2018 $3.9
 Lower interest on $100.0 million of SUNs refinanced in August 2018 0.8
 Lower debt AFUDC (0.7)
 Higher interest on term loan agreements (0.7)
 Interest on deposit by PNMR Development for potential transmission interconnections, which is offset in Corporate and Other (Note 9) (0.9)
 Net Change $2.4
Income taxes:  
   
 Increase due to higher segment earnings before income taxes $(3.6)
 Decrease due to higher amortization of excess deferred income taxes due to higher pre-tax earnings 1.9
 Increase due to lower excess tax benefits related to stock compensation awards (Note 8) (0.5)
 Other (0.1)
 Net Change $(2.3)


TNMP


TNMP defines utility margin as electric operating revenues less cost of energy, which consists of costs charged by third-party transmission providers. TNMP believes that utility margin provides a more meaningful basis for evaluating operations than electric operating revenues since all third-party transmission costs are passed on to consumers through a transmission cost recovery factor. Utility margin is not a financial measure required to be presented under GAAP and is considered a non-GAAP measure.



The following table summarizes the operating results for TNMP:
Three Months Ended March 31,
20202019Change
(In millions)
Electric operating revenues$85.5  $80.3  $5.2  
Cost of energy24.2  22.3  1.9  
Utility margin61.3  58.0  3.3  
Operating expenses25.1  25.2  (0.1) 
Depreciation and amortization21.8  20.2  1.6  
Operating income14.3  12.6  1.7  
Other income (deductions)0.6  0.6  —  
Interest charges(7.2) (8.8) 1.6  
Segment earnings before income taxes7.7  4.4  3.3  
Income (taxes)(0.6) (0.3) (0.3) 
Segment earnings$7.1  $4.1  $3.0  
 Three Months Ended March 31,
 2019 2018 Change
 (In millions)
Electric operating revenues$80.3
 $81.6
 $(1.3)
Cost of energy22.3
 21.8
 0.5
Utility margin58.0
 59.9
 (1.9)
Operating expenses25.2
 25.0
 0.2
Depreciation and amortization20.2
 16.4
 3.8
Operating income12.6
 18.5
 (5.9)
Other income (deductions)0.6
 1.1
 (0.5)
Interest charges(8.8) (7.7) (1.1)
Segment earnings before income taxes4.4
 11.9
 (7.5)
Income (taxes)(0.3) (2.5) 2.2
Segment earnings$4.1
 $9.4
 $(5.3)


The following table shows total sales, including the impacts of weather, by retail tariff consumer class and average number of consumers:
Three Months Ended
March 31,
Percentage
20202019Change
Volumetric load (1) (GWh)
Residential598.7  618.7  (3.2)%
Commercial and other8.0  7.9  1.3 %
Total volumetric load606.7  626.6  (3.2)%
Demand-based load (2) (MW)
4,896.5  4,721.9  3.7 %
Average retail consumers (thousands) (3)
257.1  253.8  1.3 %
 Three Months Ended March 31,
     Percentage
 2019 2018 Change
Volumetric load (1) (GWh)
 
Residential618.7
 656.8
 (5.8)%
Commercial and other7.9
 8.0
 (1.3)
Total volumetric load626.6
 664.8
 (5.7)%
Demand-based load (2) (MW)
4,721.9
 4,310.2
 9.6 %
Average retail consumers (thousands) (3)
253.8
 250.1
 1.5 %


(1) Volumetric load consumers are billed on KWh usage.
(2) Demand-based load includes consumers billed on monthly KW peak and also includes retail transmission customers that are primarily billed under TNMP’s rate riders.
(3) TNMP provides transmission and distribution services to REPs that provide electric service to their customers in TNMP’s service territories. The number of consumers above represents the customers of these REPs. Under TECA, consumers in Texas have the ability to choose any REP to provide energy.




89

Operating ResultsThree months endedMonths Ended March 31, 20192020 compared to 20182019


The following table summarizes the significant changes to utility margin:
Three Months Ended March 31, 2020
Change
Utility margin:(In millions)
Rate relief – Transmission cost of service rate increases in March 2019, September 2019, and March 2020
$4.0 
Retail customer usage/load Weather normalized KWh sales decreased 0.2%, offset by an increase of 1.3% in the average number of retail consumers and the leap-year impact
— 
Demand-based customer usage/load – Higher demand-based revenues for large commercial and industrial customers; weather normalized billed demand excluding retail transmission customers increased 2.7%
0.7 
Weather – Milder weather in 2020; heating degree days were 23.4% lower in 2020
(1.0)
Rate Riders – Impacts of rate riders, including the CTC surcharge, energy efficiency rider, rate case expense rider, and transmission cost recovery factor
(0.2)
Other(0.2)
Net Change$3.3 
   Three Months Ended
March 31, 2019
   Change
Utility margin: (In millions)
    
 
Retail rate relief – TNMP 2018 Rate Case retail rate increase effective January 1, 2019, including integration of amounts previously recovered in the AMS rate rider and the impact of rate design changes between customer classes (Note 12)
 $1.2
 
Transmission rate relief - Decrease in transmission cost of service rates primarily resulting from the TNMP 2018 Rate Case
 (2.5)
 
Retail customer usage/load  Weather normalized KWh sales decreased 1.9%; the average number of retail consumers increased 1.5%
 (0.4)
 
Demand-based customer usage/load - Higher demand-based revenues for large commercial and industrial customers; billed demand excluding retail transmission customers increased 4.7%.
 0.7
 
Weather – Milder weather in 2019; heating degree days were 18.6% lower in January 2019 resulting from unusually cold weather in January 2018
 (0.9)
 Net Change $(1.9)


The following tables summarize the primary drivers for changes in operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:
Three Months Ended March 31, 2020
Change
Operating expenses:(In millions)
Lower employee related expenses$(0.9)
Higher vegetation management expenses0.2 
Lower capitalization of administrative and general and other expenses due to lower construction expenditures0.1 
Higher property taxes due to increased utility plant in service0.5 
Net Change$(0.1)

Depreciation and amortization:
Increased utility plant in service$1.7 
Net Change$1.7 

Other income (deductions):
Lower equity AFUDC$(0.1)
Other0.1 
Net Change$— 

90

   Three Months Ended
March 31, 2019
   Change
Operating expenses: (In millions)
   
 Higher employee related expenses $0.9
 Higher capitalization of administrative and general expenses due to higher construction expenditures (0.7)
 Higher property taxes due to increased utility plant in service 0.4
 Lower vegetation management expenses (0.3)
 Other (0.1)
 Net Change $0.2
Three Months Ended March 31, 2020
Change
Interest charges:(In millions)
Repayment of $172.3 million 9.50% first mortgage bonds in April 2019$4.3 
Issuance of $225.0 million first mortgage bonds in March 2019(2.2)
Issuance of $80.0 million first mortgage bonds in July 2019(0.7)
Repayment of $35.0 million term loan in December 20190.3 
Lower debt AFUDC(0.1)
Net Change$1.6 

Depreciation and amortization:  
   
 Increased utility plant in service $1.1
 Higher depreciation rates approved in the TNMP 2018 Rate Case 2.3
 Higher amortization of AMS and Hurricane Harvey regulatory assets approved in the TNMP 2018 Rate Case (Note 12) 0.5
 Other (0.1)
 Net Change $3.8
Income (taxes) benefits:
Higher segment earnings before income taxes$(0.6)
Other0.3 
Net Change$(0.3)

Other income (deductions):  
   
 Lower equity AFUDC $(0.2)
 Lower CIAC (0.1)
 Other (0.2)
 Net Change $(0.5)

   Three Months Ended
March 31, 2019
   Change
Interest charges: (In millions)
   
 Increase due to issuance of $60.0 million of long-term debt in June 2018 $(0.6)
 Increase due to issuance of $20.0 million term loan in July 2018 and $15.0 million in December 2018 (0.3)
 Other (0.2)
 Net Change $(1.1)
Income taxes:  
   
 Decrease due to lower segment earnings before income taxes $1.6
 Decrease due to amortization of excess deferred federal income taxes (Note 14) 0.7
 Increase due to lower excess tax benefits related to stock compensation awards (0.1)
 Net Change $2.2


Corporate and Other


The table below summarizes the operating results for Corporate and Other:
Three Months Ended March 31,
20202019Change
(In millions)
Electric operating revenues$—  $—  $—  
Cost of energy—  —  —  
   Utility margin—  —  —  
Operating expenses(5.5) (5.8) 0.3  
Depreciation and amortization5.7  5.9  (0.2) 
   Operating income (loss)(0.2) (0.2) —  
Other income (deductions)(0.6) (0.8) 0.2  
Interest charges(5.6) (4.5) (1.1) 
Segment earnings (loss) before income taxes(6.5) (5.4) (1.1) 
Income (taxes) benefit0.2  1.0  (0.8) 
Segment earnings (loss)$(6.3) $(4.4) $(1.9) 
 Three Months Ended March 31,
 2019 2018 Change
 (In millions)
Electric operating revenues$
 $
 $
Cost of energy
 
 
   Utility margin
 
 
Operating expenses(5.8) (5.0) (0.8)
Depreciation and amortization5.9
 5.7
 0.2
   Operating income (loss)(0.2) (0.7) 0.5
Other income (deductions)(0.8) 1.7
 (2.5)
Interest charges(4.5) (4.5) 
Segment earnings (loss) before income taxes(5.4) (3.5) (1.9)
Income (taxes) benefit1.0
 1.3
 (0.3)
Segment earnings (loss)$(4.4) $(2.1) $(2.3)


Corporate and Other operating expenses shown above are net of amounts allocated to PNM and TNMP under shared services agreements. The change in depreciation and amortization expense primarily relates to additions to computer software. Substantially all depreciation and amortization expense and other income (deductions) are offset in operating expenses as a result of allocation of these costs to other business segments.



Operating ResultsThree months endedMonths Ended March 31, 20192020 compared to 20182019
The following tables summarize the primary drivers for changes in other income (deductions), interest charges, and income taxes:
Three Months Ended March 31, 2020
Change
Other income (deductions):(In millions)
Higher equity method investment income from NMRD$0.1 
Other0.1 
Net Change$0.2 

91

   Three Months Ended
March 31, 2019
   Change
Other income (deductions): (In millions)
   
 Decrease in interest income on the Westmoreland Loan $(1.7)
 Increase in donations and other contributions (0.5)
 Other (0.3)
 Net Change $(2.5)
Three Months Ended March 31, 2020
Change
Interest charges:(In millions)
Lower interest on term loans$0.5 
Higher short-term borrowings(0.7)
Elimination of intercompany interest(0.9)
Net Change$(1.1)

Interest charges:  
   
 Issuance of $300.0 million PNMR 2018 SUNs in March 2018 $(1.8)
 Issuance of $90.0 million PNMR Development Term Loan in November 2018 (0.8)
 Lower short-term borrowings 0.5
 Repayment of $150.0 million PNMR 2015 Term Loan in March 2018 0.7
 Repayment of the BTMU Term Loan in May 2018 0.6
 Elimination of intercompany interest (Note 9) 0.9
 Other (0.1)
 Net Change $
Income (taxes) benefits:
Impact of difference in effective tax rates used by PNMR and its subsidiaries in the calculation of income taxes in interim periods$(1.3)
Higher segment loss before income taxes0.3 
Other0.2 
Net Change$(0.8)

Income taxes:  
   
 Impact of difference in effective tax rates used by PNMR and its subsidiaries in the calculation of income taxes in interim periods $(1.0)
 Decrease due to larger segment loss before income taxes 0.5
 Other 0.2
 Net Change $(0.3)

LIQUIDITY AND CAPITAL RESOURCES


Statements of Cash Flows


The changes in PNMR’s cash flows for the three months ended March 31, 20192020 compared to March 31, 20182019 are summarized as follows:
Three Months Ended March 31,Three Months Ended March 31,
2019 2018 Change20202019Change
(In millions)(In millions)
Net cash flows from:     Net cash flows from:
Operating activities$104.7
 $78.9
 $25.8
Operating activities$93.8  $104.7  $(10.9) 
Investing activities(151.9) (119.2) (32.7) Investing activities(152.8) (151.9) (0.9) 
Financing activities225.2
 40.1
 185.1
Financing activities71.5  225.2  (153.7) 
Net change in cash and cash equivalents$178.0
 $(0.2) $178.2
Net change in cash and cash equivalents$12.4  $178.0  $(165.6) 
Cash Flows from Operating Activities
Changes in PNMR’s cash flow from operating activities result from net earnings, adjusted for items impacting earnings that do not provide or use cash. See Results of Operations above. Certain changes in assets and liabilities resulting from normal operations, including the effects of the seasonal nature of the Company’s operations, also impact operating cash flows.

Cash Flows from Investing Activities

The changes in PNMR’s cash flows from investing activities relate primarily to changes in utility plant additions. Cash flows from investing activities also include purchases and sales of investment securities in the NDT and coal mine reclamation trusts including activity to rebalance the investment portfolio in early 2018. In addition, cash flows from investing activities includeas well as activity related to the Westmoreland Loan, which was paid in full in May 2018, and NMRD. Major components of PNMR’s cash inflows and (outflows) from investing activities are shown below:
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Three Months Ended March 31,Three Months Ended March 31,
2019 2018 Change20202019Change
Cash (Outflows) for Utility Plant Additions(In millions)Cash (Outflows) for Utility Plant Additions(In millions)
PNM:     PNM:
Generation$(40.6) $(18.0) $(22.6)Generation$(11.5) $(22.1) $10.6  
RenewablesRenewables—  (18.5) 18.5  
Transmission and distribution(29.2) (33.0) 3.8
Transmission and distribution(50.2) (29.2) (21.0) 
Four Corners SCRs
 (3.8) 3.8
Nuclear fuel(6.1) (6.9) 0.8
Nuclear fuel(8.9) (6.1) (2.8) 
(70.6) (75.9) 5.3  
(75.9) (61.7) (14.2)
TNMP:     TNMP:
Transmission(27.5) (23.2) (4.3)Transmission(16.3) (27.5) 11.2  
Distribution(31.1) (26.8) (4.3)Distribution(44.1) (31.1) (13.0) 
(58.6) (50.0) (8.6)
(60.4) (58.6) (1.8) 
Corporate and Other:     Corporate and Other:
Computer hardware and software(7.4) (6.0) (1.4)Computer hardware and software(9.2) (7.4) (1.8) 
(7.4) (6.0) (1.4)
Total cash (outflows) for additions to utility plant$(141.9) $(117.7) $(24.2)Total cash (outflows) for additions to utility plant$(140.2) $(141.9) $1.7  
     
Other Cash Flows from Investing Activities     Other Cash Flows from Investing Activities
Proceeds from sales of investment securities$74.5
 $626.7
 $(552.2)Proceeds from sales of investment securities$149.4  $74.5  $74.9  
Purchases of investment securities(77.4) (628.9) 551.5
Purchases of investment securities(152.1) (77.4) (74.7) 
Principal payments on the Westmoreland Loan
 5.6
 (5.6)
Investments in NMRD(7.0) (5.0) (2.0)Investments in NMRD(10.0) (7.0) (3.0) 
Other, net(0.1) 0.1
 (0.2)Other, net0.1  (0.1) 0.2  
Total cash (outflows) from investing activities$(151.9) $(119.2) $(32.7)Total cash (outflows) from investing activities$(152.8) $(151.9) $(0.9) 


Cash Flow from Financing Activities
The changes in PNMR’s cash flows from financing activities include:
Short-term borrowings decreased $12.1increased $115.5 million in 20192020 compared to a decrease of $66.7$12.1 million in 2018,2019, resulting in a net increase in cash flows from financing activities of $54.6$127.6 million
In 2019, PNM borrowed $250.0 million under the PNM 2019 Term Loan and used the proceeds to repay the $200.0 million PNM 2017 Term Loan
In 2019, TNMP issued $225.0 million of TNMP 2019 Bonds


Financing Activities


See Note 7 of the Notes to Consolidated Financial Statements in the 20182019 Annual Reports on Form 10-K and Note 9 for additional information concerning the Company’s financing activities. PNM must obtain NMPRC approval for any financing transaction having a maturity of more than 18 months. In addition, PNM files its annual short-term financing plan with the NMPRC. The Company’s ability to access the credit and capital markets at a reasonable cost is largely dependent upon its:

Ability to earn a fair return on equity
Results of operations
Ability to obtain required regulatory approvals
Conditions in the financial markets
Credit ratings



The Company is closely monitoring developments and is taking steps to mitigate the potential risks related to COVID-19. The Company currently believes it has adequate liquidity but cannot predict the extent or duration of the outbreak, its effects on the global, national or local economy, including the Company's ability to access capital in the financial markets, or on the Company's financial position, results of operations, and cash flows.

Each of the Company’s revolving credit facilities and term loans contain a single financial covenant that requires the maintenance of a debt-to-capitalization ratio. For the PNMR and PNMR Development agreements, this ratio must be maintained at less than or equal to 70%, and for the PNM and TNMP agreements this ratio must be maintained at less than or equal to 65%. The Company’s revolving credit facilities and term loans generally also contain customary covenants, events of default, cross-default provisions, and change-of-control provisions. The Company is in compliance with its debt covenants.


On October 21, 2016, PNMR entered into letter of credit arrangements with JPMorgan Chase Bank, N.A. (the “JPM LOC Facility”) under which letters of credit aggregating $30.3 million were issued to facilitate the posting of reclamation
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bonds, which WSJ LLC is required to post in connection with permits relating to the operation of the San Juan mine (Note 11).mine. See Notes 10 and 11.


OnAs discussed in Note 9, in January 18, 2019,2020, PNMR entered into forward sale agreements to sell approximately 6.2 million shares of PNMR common stock. The initial forward sale price of $47.21 per share is subject to adjustments based on a net interest rate factor and by expected future dividends paid on PNMR common stock as specified in the forward sale agreements. PNMR did not initially receive any proceeds upon the execution of these agreements and, except in certain specified circumstances, has the option to elect physical, cash, or net share settlement on or before the date that is 12 months from their effective dates. PNMR expects to physically settle all shares under the agreements on or before January 7, 2021.

In April 2020, PNM entered into athe $250.0 million term loan agreement (the “PNM 2019PNM 2020 Term Loan”) among PNM, the lenders identified therein,Loan and U.S. Bank N.A., as administrative agent. PNM used the proceeds to prepay the PNM 2019 $250.0 million Term Loan, without penalty. As discussed below, on April 30, 2020, PNM used $100.0 million of proceeds from the PNM 2020 SUNs to prepay without penalty an equal amount of the PNM 20192020 Term Loan to repay the PNM 2017 Term Loan, to reduce short-term borrowings under the PNM Revolving Credit Facility, and for general corporate purposes. The PNM 2019 Term Loan bears interest at a variable rate and must be repaid on or before July 17, 2020.Loan.


On February 26, 2019,April 24, 2020, TNMP entered into the TNMP 20192020 Bond Purchase Agreement with institutional investors for the sale of $305.0$185.0 million aggregate principal amount of four series of TNMP first mortgage bonds (the “TNMP 2019 Bonds”"TNMP 2020 Bonds") offered in private placement transactions. Under the TNMP 2019 Bond Purchase Agreement, TNMP issued $225.0$110.0 million of the TNMP 20192020 Bonds on March 29, 2019 (at fixed annual interest rates ranging from 3.79% to 4.06% for terms ranging from 15 to 25 years)April 24, 2020 and used the proceeds to repay TNMP’s $172.3 million 9.50% first mortgage bonds at their maturity on April 1, 2019, as well as to repay borrowings under the TNMP Revolving Credit Facility and for general corporate purposes. TNMP will issue the remaining $80.0 million of the TNMP 2019 Bonds on or before July 1, 2019 (at a fixed annual interest rate of 3.60% for a term of ten years) and will use the proceeds to repay borrowings under the TNMP Revolving Credit Facility and for other generalcorporate purposes. TNMP will issue the remaining $75.0 million of TNMP 2020 Bonds on or before July 15, 2020 and will use the proceeds from that issuance to repay borrowings under the TNMP Revolving Credit Facility and for other corporate purposes. The issuance of the remaining TNMP 20192020 Bonds is subject to the satisfaction of customary conditions, and the TNMP 20192020 Bonds are subject to continuing compliance with the representations, warranties and covenants of the TNMP 20192020 Bond Purchase Agreement. The terms of the TNMP 2019 Bonds contain2020 Bond Purchase Agreement include customary covenants, including a covenant that requires TNMP to maintain a debt-to-capitalization ratio of less than or equal to 65%, customary events of default, a cross-default provision, and a change-of-control provision. TNMP will have the right to redeem any or all of the TNMP 20192020 Bonds prior to their respective maturities, subject to payment of a customary make-whole premium. In accordance with GAAP, borrowings under the $172.3

On April 30, 2020, PNM issued $200.0 million 9.50% TNMP first mortgage bonds are reflected as being long-termaggregate principal amount of PNM 2020 SUNs offered in the Condensed Consolidated Balance Sheets at December 31, 2018 since TNMP demonstrated its intent and ability to re-finance the agreement on a long-term basis. These bonds are reflected in current maturitiesprivate placement transactions. PNM used $100.0 million of long-term debt on the Condensed Consolidated Balance Sheets at March 31, 2019 since the proceeds from the issuancePNM 2020 SUNs to repay an equal amount of $225.0the PNM 2020 Term Loan. The remaining $100.0 million of TNMP 2019 Bonds, net of amountsthe PNM 2020 SUNs was used to repay short-term debt, are reflectedborrowings on the PNM Revolving Credit Facility and for other corporate purposes. The PNM 2020 Note Purchase Agreement includes customary covenants, including a covenant that requires PNM to maintain a debt-to-capitalization ratio of less than or equal to 65%, customary events of default, including a cross-default provision, and covenants regarding parity of financial covenants, liens and guarantees with respect to PNM’s material credit facilities. In the event of a change of control, PNM will be required to offer to prepay the PNM 2020 SUNs at par. PNM has the right to redeem any or all of the PNM 2020 SUNs prior to their maturities, subject to payment of a customary make-whole premium.

See discussion of the NMPRC's April 1, 2020 approval of PNM’s request to issue up to $361 million of Securitized Bonds in cashthe SJGS Abandonment Application, and cash equivalents.the related appeal to the NM Supreme Court in Note 12.


In 2017, PNMR entered into three separate four-year hedging agreements whereby it effectively established fixed interest rates on three separate tranches, each of $50.0 million, of its variable rate debt. The hedging agreements effectively fix interest rates on the aggregate $150.0 million of short-term debt at rates of 1.926%, 1.823%, and 1.629%, plus customary spreads over LIBOR, and are subject to changes if there is a change in PNMR’s credit rating.


Capital Requirements


PNMR’s total capital requirements consist of construction expenditures, cash dividend requirements for PNMR common stock and PNM preferred stock, and capital contributions for PNMR Development’s 50% ownership interest in NMRD. Key activities in PNMR’s current construction program include:


Upgrading and replacing generation resources including expenditures for compliance with environmental requirements and for renewable energy resources
Expanding the electric transmission and distribution systems
Purchasing nuclear fuel

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Projected capital requirements, including amounts expended through March 31, 2019,2020, are:
 20202021-2024Total
 (In millions)
Construction expenditures$826.4  $3,004.6  $3,831.0  
Capital contributions to NMRD27.0  —  27.0  
Dividends on PNMR common stock98.0  422.3  520.3  
Dividends on PNM preferred stock0.5  2.1  2.6  
Total capital requirements$951.9  $3,429.0  $4,380.9  
 2019 2020-2023 Total
 (In millions)
Construction expenditures$604.5
 $2,495.1
 $3,099.6
Capital contributions to NMRD29.9
 33.6
 63.5
Dividends on PNMR common stock92.4
 369.6
 462.0
Dividends on PNM preferred stock0.5
 2.1
 2.6
Total capital requirements$727.3
 $2,900.4
 $3,627.7

The construction expenditure estimates are under continuing review and subject to ongoing adjustment, as well as to Board review and approval. The construction expenditures above include $60.0 million for 50 MW of new solar facilities included in PNM’s 2018 renewable energy procurement plan, and approximately $125.0$91.8 million in 2019-20202020-2021 for anticipated expansions of PNM’s transmission system.system and a net investment of approximately $285 million resulting from PNM’s agreement to purchase the Western Spirit Line, subject to certain conditions being met prior to closing. Also included in the table above is a net amount ofare approximately $285$298 million in 20212020-2022 for PNM’s May 1, 2019 agreement to purchase a 165-mile 345 kV transmission line and to construct associated facilities (the “Western Spirit Line”), subject to NMPRC and FERC approval. PNM anticipatesPNM's recommended SJGS replacement resource scenario included in the Western Spirit line will be used to serve approximately 800 MW of new wind generation facilitiesSJGS Abandonment Application as discussed in eastern New Mexico.Note 12. Not included in the table above are potential incremental expenditures for replacement resources related to the planned shutdown of SJGS Units 1new customer growth in New Mexico and 4Texas, and other transmission and renewable energy expansion in 2022. PNM will be required to file CCN applications or submit other filings with the NMPRC for approval to shut down SJGS and for related replacement resources. See Note 11 and 12.New Mexico. The ability of PNMR to pay dividends on its common stock is dependent upon the ability of PNM and TNMP to be able to pay dividends to PNMR. Note 56 of the Notes to Consolidated Financial Statements in the 20182019 Annual Reports on Form 10-K describes regulatory and contractual restrictions on the payment of dividends by PNM and TNMP.

During the three months ended March 31, 2019,2020, PNMR met its capital requirements and construction expenditures through cash generated from operations, as well as its liquidity arrangements and the borrowings discussed in Financing Activities above.
In addition to the capital requirements for construction expenditures and dividends, the Company has long-term debt and term loans that must be paid or refinanced at maturity. As discussed above, on February 26, 2019 TNMP entered into the TNMP 2019 Bond Purchase Agreement providing for the issuance of an aggregate of $305.0PNM has $100.3 million of TNMP 2019 Bonds. TNMP issued $225.0 million of the TNMP 2019 Bonds on March 29, 2019 and used a portion of the proceeds fromlong-term debt that issuance to repay TNMP’s $172.3 million 9.50% first mortgage bonds at their maturity on April 1, 2019. TNMP will issue the remaining $80.0 million of TNMP 2019 Bonds on or before July 1, 2019 and will use the proceeds from that issuance to repay borrowings under the TNMP Revolving Credit Facility and for other general corporate purposes.must be repriced by June 2020. In addition, the $150.0$90.0 million PNMR Development Term Loan matures in November 2020, the $50.0 million PNMR 2018 One-Year term loan will matureTwo-Year Term Loan matures in December 2019.2020, and the $300.0 million PNMR 2018 SUNs mature on March 9, 2021. Note 7 of the Notes to Consolidated Financial Statements in the 20182019 Annual Reports on Form 10-K contains additional information about the maturities of long-term debt. The Company anticipates that funds to repay long-term debt maturities and term loans will come from entering into new arrangements similar to the existing agreements, borrowing under the revolving credit facilities, issuance of new long-term debt or equity in the public or private capital markets, or a combination of these sources. The Company has from time to time refinanced or repurchased portions of its outstanding debt before scheduled maturity. PNM has $36.0 million of PCRBs that became callable at par on January 1, 2020 and an additional $266.5 million of PCRBs that will become callable at par on June 1, 2020. Depending on market conditions, the Company may refinance otherthese debt issuances or make additional debt repurchases in the future.

Liquidity

PNMR’s liquidity arrangements include the PNMR Revolving Credit Facility, the PNM Revolving Credit Facility, and the TNMP Revolving Credit Facility. The PNMR and PNM facilities currently expire onin October 22, 2023 but can be extended through October 2024, subject to approval by a majority of the lenders. The $75.0 million TNMP Revolving Credit Facility matures in September 2022. PNM also has the $40.0 million PNM 2017 New Mexico Credit Facility that expires onin December 12, 2022. The Company believes the terms and conditions of these facilities are consistent with those of other investment grade revolving credit facilities in the utility industry.  The Company expects that it will be able to extend or replace these credit facilities under similar terms and conditions prior to their expirations.

On February 22, 2019 PNMR Development amended itshas a $40.0 million revolving credit facility that expires on February 23, 2021. PNMR Development has the option to further increase the capacity of this facility to $25.0$50.0 million and to extend the term until February 24, 2020.upon 15-days advanced notice. The facilityPNMR Development Revolving Credit Facility bears interest at a variable rate and contains terms similar to the PNMR Revolving Credit Facility. PNMR has guaranteed the obligations of PNMR Development under the facility. PNMR Development uses the facility to finance its participation in NMRD and for other activities (Note 1).activities. See Note 16. The Company believes the terms and conditions of these facilities are consistent with those of other investment grade revolving credit facilities in the utility industry.  Variable interest rates under these facilities are based on LIBOR but contain provisions which allow for the replacement of LIBOR with other widely accepted interest rates. The Company expects that it will be able to extend or replace these credit facilities under similar terms and conditions prior to their expirations.


The revolving credit facilities and the PNM 2017 New Mexico Credit Facility provide short-term borrowing capacity. The revolving credit facilities also allow letters of credit to be issued. Letters of credit reduce the available capacity under the facilities. The Company utilizes these credit facilities and cash flows from operations to provide funds for both construction and operational expenditures. The Company’s business is seasonal with more revenues and cash flows from operations being generated in the summer months. In general, the Company relies on the credit facilities to be the initial funding source for
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construction expenditures. Accordingly, borrowings under the facilities may increase over time. Depending on market and other conditions, the Company will periodically sell long-term debt and use the proceeds to reduce the borrowings under the credit facilities.

Information regarding the range of borrowings for each facility is as follows:
 Three Months Ended March 31, 2019Three Months Ended March 31, 2020
Range of Borrowings Low HighRange of BorrowingsLowHigh
 (In millions)(In millions)
PNM:    PNM:
PNM Revolving Credit Facility $
 $40.0
PNM Revolving Credit Facility$30.0  $63.2  
PNM 2017 New Mexico Credit Facility 
 10.0
PNM 2017 New Mexico Credit Facility10.0  30.0  
TNMP Revolving Credit Facility 
 45.5
TNMP Revolving Credit Facility16.6  70.0  
PNMR Revolving Credit Facility 20.0
 71.1
PNMR Revolving Credit Facility110.5  188.6  
PNMR Development Revolving Credit Facility 6.0
 11.6
At March 31, 2019,2020, the average interest rates were 3.74%2.15% for the PNMR Revolving Credit Facility, 3.24%2.35% for the PNMR 2018 One-Year Term Loan,PNM Revolving Credit Facility, 2.12% for the PNM 2017 New Mexico Credit Facility, and 3.49%1.74% for the TNMP Revolving Credit Facility. There were no borrowings outstanding under the PNMR Development Revolving Credit Facility.Facility at March 31, 2020.

The Company currently believes that its capital requirements for at least the next twelve months can be met through internal cash generation, existing, extended, or new credit arrangements, and access to public and private capital markets. As discussed above and in Note 9, in January 2020, PNMR entered into the PNMR 2020 Equity Forward Sale Agreements for 6.2 million shares of PNMR common stock. In April 2020, PNM executed the $250.0 million PNM 2020 Term Loan and used the proceeds to pay off the PNM 2019 $250.0 Million Term Loan, and issued $200.0 million of PNM 2020 SUNs and used a portion of the proceeds to repay $100.0 million under the PNM 2020 Term Loan without penalty. In addition, in April 2020, TNMP entered into the TNMP 2020 Bond Purchase Agreement, under which TNMP agreed to issue a total of $185.0 million of first mortgage bonds. Under that agreement, TNMP issued $110.0 million of first mortgage bonds on April 24, 2020 and will issue the remaining $75.0 million on or before July 15, 2020. The Company anticipates that it will be necessary to obtain additional long-term financing to fund its capital requirements and to balance its capital structure during the 2019-2023 period.2020-2024 period, including interim financing to fund construction of replacement resources prior to the issuance of the energy transition bonds included in PNM’s SJGS Abandonment Application. See Note 12. This could include new debt and/or equity issuances. The Company anticipates utilizing an at-the-market equity issuance program, or other programissuances, including instruments such as mandatory convertible securities to raise equity beginning in 2020 to partially fund capital requirements. The Company also expects to issue new debt periodically to fund capital investments.2021. To cover the difference in the amounts and timing of internal cash generation and cash requirements, the Company intends to use short-term borrowings under its current and future liquidity arrangements.arrangements or other short-term loans. However, if difficult market conditions return,persist or worsen, the Company may not be able to access the capital markets or renew credit facilities when they expire.expire or the cost of these facilities and debt issuances may increase. Should that occur, the Company would seek to improve cash flows by reducing capital expenditures and exploring other available alternatives.
Information concerning the credit ratings for PNMR, PNM, and TNMP was set forth under the heading Liquidity in the MD&A contained in the 2018 Annual Reports on Form 10-K.
As of May 3, 2019,1, 2020, ratings on the Company’s securities were as follows:

PNMRPNMTNMP
S&P
CorporateIssuer ratingBBB+BBBBBB+BBBBBB+
Senior secured debt**A
Senior unsecured debtBBBBBB-BBB+BBB*
Preferred stock*BBB-BB+*
Moody’s
Issuer ratingBaa3Baa2A3
Senior secured debt**A1
Senior unsecured debtBaa3Baa2*
* Not applicable


Currently, all of the credit ratings issued by both Moody’s and S&P on the Company’s debt are investment grade. On January 16, 2018, S&P changed the outlook for PNMR, PNM, and TNMP from stable to negative while affirming the ratings above for all the entities. On June 29, 2018, Moody’s changed the ratings outlook for PNMR and PNM from positive to stable, maintained the stable outlook for TNMP, and affirmed the long-term credit ratings of each entity. The ultimate outcomes from PNM’s NM 2015 Rate Case, includingIn August 2019, Moody’s affirmed the pending appeal beforecredit rating and stable outlook for PNMR, PNM and TNMP. On April 6, 2020, S&P reduced the NM Supreme Court, as discussed in Note 12, could affect bothissuer credit ratings for PNMR, PNM, and
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TNMP by one notch, reduced the senior unsecured debt ratings for PNMR and PNM by one notch, affirmed TNMP's senior secured debt rating, and issued a stable outlook and credit ratings.for each entity. In addition, S&P reduced PNM's preferred stock rating to BB+. Investors are cautioned that a security rating is not a recommendation to buy, sell, or hold

securities, that each rating is subject to revision or withdrawal at any time by the rating organization, and that each rating should be evaluated independently of any other rating.


A summary of liquidity arrangements as of May 3, 20191, 2020 is as follows:
PNMTNMP
PNMR
Separate
PNMR
Development
PNMR Consolidated
(In millions)
Financing capacity:
Revolving credit facility$400.0  $75.0  $300.0  $40.0  $815.0  
PNM 2017 New Mexico Credit Facility40.0  —  —  —  40.0  
Total financing capacity$440.0  $75.0  $300.0  $40.0  $855.0  
Amounts outstanding as of May 1, 2020:
Revolving credit facility$15.0  $—  $132.7  $—  $147.7  
PNM 2017 New Mexico Credit Facility30.0  —  —  —  30.0  
Letters of credit2.5  0.1  4.7  —  7.3  
Total short-term debt and letters of credit47.5  0.1  137.4  —  185.0  
Remaining availability as of May 1, 2020$392.5  $74.9  $162.6  $40.0  $670.0  
Invested cash as of May 1, 2020$1.9  $21.9  $0.9  $—  $24.7  
 PNM TNMP 
PNMR
Separate
 
PNMR
Development
 PNMR Consolidated
 (In millions)
Financing capacity:         
Revolving credit facility$400.0
 $75.0
 $300.0
 $25.0
 $800.0
PNM 2017 New Mexico Credit Facility40.0
 
 
 
 40.0
Total financing capacity$440.0
 $75.0
 $300.0
 $25.0
 $840.0
          
Amounts outstanding as of May 3, 2019:         
Revolving credit facility$
 $29.2
 $55.9
 $15.1
 $100.2
PNM 2017 New Mexico Credit Facility
 
 
 
 
Letters of credit2.5
 0.1
 4.7
 
 7.3
Total short-term debt and letters of credit2.5
 29.3
 60.6
 15.1
 107.5
          
Remaining availability as of May 3, 2019$437.5
 $45.7
 $239.4
 $9.9
 $732.5
Invested cash as of May 3, 2019$9.0
 $
 $0.9
 $
 $9.9

In addition to the above, PNMR has $30.3 million of letters of credit outstanding under the JPM LOC Facility. The above table excludes intercompany debt. As of May 3, 2019,1, 2020, neither PNM, and TNMP, nor PNMR Development had noany intercompany borrowings from PNMR. The remaining availability under the revolving credit facilities at any point in time varies based on a number of factors, including the timing of collections of accounts receivables and payments for construction and operating expenditures.


PNMR has an automatic shelf registration that provides for the issuance of various types of debt and equity securities that expires in March 2021. PNM has a shelf registration statement for up to $475.0 million of senior unsecured notes that expires inon May 17, 2020.
Off-Balance Sheet Arrangements
PNMR’s
PNMR has no off-balance sheet arrangements include PNM’s operating leases for portionsthat have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of PVNGS Units 1 and 2. These arrangements help ensure PNM the availability of lower-cost generation neededoperations, liquidity, capital expenditures or capital resources that are material to serve customers. See MD&A – Off-Balance Sheet Arrangements and Notes 7 and 9 of the Notes to Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K, as well as Note 13.investors.
Commitments and Contractual Obligations
PNMR, PNM, and TNMP have contractual obligations for long-term debt, operating leases, construction expenditures, purchase obligations, and certain other long-term obligations. See MD&A – Commitments and Contractual Obligations in the 20182019 Annual Reports on Form 10-K.


Contingent Provisions of Certain Obligations
As discussed in the 20182019 Annual Reports on Form 10-K,PNMR, PNM, and TNMP have a number of debt obligations and other contractual commitments that contain contingent provisions. Some of these, if triggered, could affect the liquidity of the Company. In the unlikely event that the contingent requirements were to be triggered, PNMR, PNM, or TNMP could be required to provide security, immediately pay outstanding obligations, or be prevented from drawing on unused capacity under certain credit agreements. The contingent provisions also include contractual increases in the interest rate charged on certain of the Company’s short-term debt obligations in the event of a downgrade in credit ratings. The Company believes its financing arrangements are sufficient to meet the requirements of the contingent provisions. As discussed above, in April 2020, S&P downgraded PNMR's and PNM's senior unsecured debt ratings which triggered pricing changes in the PNMR and PNM Revolving Credit Facilities. No other conditions have occurred that would result in any of the above contingent provisions being implemented.



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Capital Structure
The capitalization tables below include the current maturities of long-term debt, but do not include short-term debt and do not include operating lease obligations as debt.
March 31,
2020
December 31,
2019
PNMR
PNMR common equity35.0 %35.8 %
Preferred stock of subsidiary0.2  0.2  
Long-term debt64.8  64.0  
Total capitalization100.0 %100.0 %
PNM
PNM common equity44.1 %45.2 %
Preferred stock0.4  0.4  
Long-term debt55.5  54.4  
Total capitalization100.0 %100.0 %
TNMP
Common equity52.8 %52.9 %
Long-term debt47.2  47.1  
Total capitalization100.0 %100.0 %

 March 31,
2019
 December 31,
2018
PNMR   
PNMR common equity36.3% 38.6%
Preferred stock of subsidiary0.2
 0.3
Long-term debt63.5
 61.1
Total capitalization100.0% 100.0%
PNM   
PNM common equity45.3% 45.6%
Preferred stock0.4
 0.4
Long-term debt54.3
 54.0
Total capitalization100.0% 100.0%
TNMP   
Common equity45.5% 53.9%
Long-term debt54.5
 46.1
Total capitalization100.0% 100.0%


OTHER ISSUES FACING THE COMPANY
Climate Change Issues


Background
For the past several years, management has identified multiple risks and opportunities related to climate change, including potential environmental regulation, technological innovation, and availability of fuel and water for operations, as among the most significant risks facing the Company. Accordingly, these risks are overseen by the full Board in order to facilitate more integrated risk and strategy oversight and planning. Board oversight includes understanding the various challenges and opportunities presented by these risks, including the financial consequences that might result from enacted and potential federal and/or state regulation of GHG; plans to mitigate these risks; and the impacts these risks may have on the Company’s strategy. In addition, the Board approves certain procurements of environmental equipment, grid modernization technologies, and replacement generation resources.
Management is also responsible for assessing significant risks, developing and executing appropriate responses, and reporting to the Board on the status of risk activities. For example, management periodically updates the Board on the implementation of corporate environmental policy, and the Company’s environmental management systems, including the promotion of energy efficiency programs, and the use of renewable resources.  The Board is also informed of the Company’s practices and procedures to assess the impacts of operations on the environment. The Board considers issues associated with climate change, the Company’s GHG exposures, and the financial consequences that might result from enacted and potential federal and/or state regulation of GHG. Management has published, with Board oversight, a Climate Change Report available at http://www.pnmresources.com/about-us/sustainability-portal.aspx, that details PNM’sthe Company’s efforts to transition to an emissions-free generating portfolio by 2040.


As part of management’s continuing effort to monitor climate-related risks and assess opportunities, the Company is evaluating differenthas advanced its understanding of climate change disclosure frameworks, includingby participating in the framework created“2 Degree Scenario” planning by participating in the Electric Power Research Institute (“EPRI”) Understanding Climate Scenarios & Goal Setting Activities program. The program is focused on characterizing and analyzing the relationship of individual electric utility company’s carbon emissions and global temperature goals. Activities include analyzing the current scientific understanding of global emissions pathways that are consistent with limiting global warming and providing insight to assist companies in developing approaches to climate scenario planning. As PNM expands its sustainability efforts, EPRI’s program has also been useful in gaining a better understanding of the Task Force on Climate-relatedClimate-Related Financial DisclosuresDisclosures’ (“TCFD”) recommendations for sustainability reporting. On November 19, 2019, TCFD announced the formation of the TCFD Advisory Group on Climate-Related Guidance. EPRI was
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invited to participate as one of seven members of the group that will provide guidance on implementing scenario analysis at the utility company level and a framework created by Edison Electric Institute. The Company is also participatingto assist in an Electric Power Research Institute project that is analyzing climate change scenarios and GHG goal setting.understanding how climate-related issues affect business strategies.


The Company cannot anticipate or predict the potential long-term effects of climate change or climate change related regulation on its assets and operations.

results of operations, financial position, or cash flows.
Greenhouse Gas Emissions Exposures


In 2018,2019, GHG associated with PNM’s interests in its fossil-fueled generating plants included approximately 5.15.7 million metric tons of CO2, which comprises the vast majority of PNM’s GHG.


As of December 31, 2018,2019, approximately 66%63% of PNM’s generating capacity, including resources owned, leased, and under PPAs, all of which is located within the United States,U.S., consisted of coal or gas-fired generation that produces GHG. This reflects the retirement of SJGS Units 2 and 3 that occurred in December 2017 and the restructuring of ownership in SJGS Unit 4. These events reduced PNM’s entitlement in SJGS from 783 MW to 562 MW and caused the Company’s output of GHG to decrease when compared to 2017. Many factors affect the amount of GHG emitted, including total electricity sales, plant performance, economic dispatch, and the availability of renewable resources. For example, between 2007 and 2018, production from PNM’s largest single renewable energy resource, New Mexico Wind, has varied from a high of 580 GWh in 2011 to a low of 405 GWh in 2014.2015. Variations are primarily due to how much and how often the wind blows. In addition, if PVNGS experienced prolonged outages or if PNM’s entitlement from PVNGS were reduced, PNM might be required to utilize other power supply resources such as gas-fired generation, which could increase GHG.
PNM has several programs underway to reduce or offset GHG from its generation resource portfolio, thereby reducing its exposure to climate change regulation. See Note 12. As described in Note 16 of the Notes to Consolidated Financial Statements in the 20182019 Annual Reports on Form 10-K, PNM received approval for the December 31, 2017 shutdown of SJGS Units 2 and 3 as part of its strategy to address the regional haze requirements of the CAA. The shutdown of SJGS Units 2 and 3 resulted in a reduction of GHG for the entire station of approximately 54%, for 2018, reflecting a reduction of 41%32% of GHG from the Company’s owned interests in SJGS, below 2005 levels. On December 31, 2018, PNM submitted a compliance filing notifying the NMPRC that, consistent with the conclusions reached in thePNM’s 2017 IRP indicates that retiring PNM’s customers would benefit from the retirementshare of SJGS in 2022. In addition, as discussed in Note 12, PNM’s 2017 IRP also indicates2022 and exiting ownership in Four Corners in 2031 would provide long-term cost savings to its customers. See additional discussion of PNM’s 2017 IRP and the SJGS Abandonment Application in Note 12. If approved by the NMPRC, retiring PNM’s share of SJGS and exiting participation in Four Corners would further reduce PNM’s GHG.
As of December 31, 2019, PNM owns utility-scale solaror procures power under PPAs from 608 MW of capacity from renewable generation in commercial operation with a total generation capacity of 117 MW as of March 31, 2019. Since 2003, PNM has purchased the entire output of New Mexico Wind,resources, which has a contract capacity of 204 MW,include solar-PV, wind, and since January 2015, has purchased the full output of Red Mesa Wind, which has an aggregate capacity of 102 MW. PNM has a 20-year PPA for the output of Lightning Dock Geothermal, which began providing power to PNM in January 2014. The current capacity of the geothermal facility is 15 MW. On November 15, 2017 the NMPRC approved PNM’s 2018 renewable energy procurement plan. As a result, PNM will acquire an additional 80 GWh in 2019 and 105 GWh in 2020 from a re-powering of New Mexico Wind; an additional 55 GWh in 2019 and 77 GWh in 2020 from a re-powering of Lightning Dock Geothermal; and PNM will constructfacilities including 50 MW of new solar facilities in 2018solar-PV capacity to serve retail customers and 2019. Additionally, PNM began purchasing renewable energy from 3050 MW of new solar-PV facilities owned by NMRD in 2018 and, subjectcapacity to FERC approval, will purchase an additional 100 MW of capacity from solar-PV facilities to be owned by NMRD in 2019 and 2020 to supply power toserve a data center being constructedlocated in PNM’sPNM's service territory (Note 12).territory. In December 2018,addition, the NMPRC has granted PNM began purchasing 50authority to procure an aggregate of 316 MW of additional renewable energy and RECs from Casa Mesa Wind, which is also being usedsolar-PV and wind facilities to support theserve a data center located in PNM’s service territory. PNM’s 2020 renewable energy procurement plan, which was approved by the NMPRC in January 2020, includes a PPA for an additional 140 MW of wind energy to serve retail customers beginning in 2021 and PNM’s SJGS Abandonment Application, which was filed with the NMPRC on July 1, 2019, includes a request to replace SJGS capacity with 350 MW of solar-PV, 130 MW of battery storage facilities, and 280 MW of new gas-fired peaking capacity. If approved, these resources would result in PNM owning, leasing, or procuring through PPAs capacity from renewable resources and battery storage facilities totaling 1,544 MW and capacity from emissions-free resources totaling 1,946 MW.
PNM also has a customer distributed solar generation program that represented 106.8133.0 MW at March 31, 2019.2020. PNM’s distributed solar programs will reduce PNM’s annual production from fossil-fueled electricity generation by about 213.6266.0 GWh. PNM has offered its customers a comprehensive portfolio of energy efficiency and load management programs since 2007. PNM’s cumulative annual savings from these programs werewas approximately 6534,504 GWh of electricity in 2018.through 2019. Over the next 20 years, PNM projects energy efficiency and load management programs will provide the equivalent of approximately 7,7008,756 GWh of electricity, which will avoid at least 4.24.7 million metric tons of CO2 based upon projected emissions from PNM’s system-wide resources. These estimates are subject to change because of the uncertainty of many of the underlying variables, including changes in PNM’s generation portfolio, demand for electricity, energy efficiency, and complex relationships between those variables.
Because of PNM’s dependence on fossil-fueled generation, legislation or regulation that imposes a limit or cost on GHG could impact the cost at which electricity is produced. While PNM expects to recover any such costs through rates, the timing and outcome of proceedings for cost recovery are uncertain. In addition, to the extent that any additional costs are recovered through rates, customers may reduce their usage, relocate facilities to other areas with lower energy costs, or take other actions that ultimately could adversely impact PNM.


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Other Climate Change Risks


PNM’s generating stations are located in the arid southwest. Access to water for cooling for some of these facilities is critical to continued operations. Forecasts for the impacts of climate change on water supply in the southwest range from reduced precipitation to changes in the timing of precipitation. In either case, PNM’s generating facilities requiring water for cooling will

need to mitigate the impacts of climate change through adaptive measures. Current measures employed by PNM generating stations such as air cooling, use of grey water, improved reservoir operations, and shortage sharing arrangements with other water users will continue to be important to sustain operations.

PNM’s service areas occasionally experience periodic high winds forest fires, and severe thunderstorms. TNMP has operations in the Gulf Coast area of Texas, which experiences periodic hurricanes and other extreme weather conditions. In addition to potentially causing physical damage to Company-owned facilities, which disrupts the ability to transmit and/or distribute energy, weather and other events of nature can temporarily reduce customers’ usage and demand for energy. In addition, other events influenced by climate change, such as wildfires, could disrupt Company operations or result in third-party claims against the Company.

EPA Regulation


In April 2007, the US Supreme Court held that EPA has the authority to regulate GHG under the CAA.  This decision heightened the importance of this issue for the energy industry.  In December 2009, EPA released its endangerment finding for GHG from new motor vehicles, stating that the atmospheric concentrations of six key greenhouse gases (CO2, methane, nitrous oxides, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride) endanger the public health and welfare of current and future generations. In May 2010, EPA released the final PSDPrevention of Significant Deterioration (“PSD”) and Title V Greenhouse Gas Tailoring Rule to address GHG from stationary sources under the CAA permitting programs. The purpose of the rule was to “tailor” the applicability of two programs, the PSD construction permit and Title V operating permit programs, to avoid impacting millions of small GHG emitters. On June 23, 2014, the US Supreme Court found EPA lacked authority to “tailor” the CAA’s unambiguous numerical thresholds of 100 or 250 tons per year, and thus held EPA may not require a source to obtain a PSD permit solely on the basis of its potential GHG. However, the court upheld EPA’s authority to apply the PSD program for GHG to “anyway” sources - those sources that have to comply with the PSD program for other non-GHG pollutants.

On June 25, 2013, then President Obama announced his Climate Action Plan, which outlined how his administration planned to cut GHG in the United States,U.S., prepare the country for the impacts of climate change, and lead international efforts to combat and prepare for global warming. The plan proposed actions that would lead to the reduction of GHG by 17% below 2005 levels by 2020.

On August 3, 2015, EPA responded to the Climate Action Plan by issuing three separate but related actions, which were published in October 2015: (1) the final Carbon Pollution Standards for new, modified, and reconstructed power plants (under Section 111(b)); (2) the final Clean Power Plan for existing power plants (under Section 111(d)); and (3) a proposed federal plan associated with the final Clean Power Plan.

EPA’s Carbon Pollution Standards for new sources (those constructed after January 8, 2014) established separate standards for gas and coal-fired units. The standards reflect the degree of emission limitation achievable through the application of what EPA determined to be the BSER demonstrated for each type of unit. For newly constructed and reconstructed base load natural gas-fired stationary combustion turbines, EPA finalized a standard based on efficient natural gas combined cycle technology. The final standards for coal-fired power plants vary depending on whether the unit is new, modified, or reconstructed, but the new unit standards were based on EPA’s determination that the BSER for new units was partial carbon recapturecapture and sequestration. The final Clean Power Plan established numeric “emission standards” for existing electric generating units - one for “fossil-steam” units (coal and oil-fired units) and one for natural gas-fired units (combined cycle only). The emission standards arewere based on emission reduction opportunities that EPA deemed achievable using technical assumptions for three “building blocks”: efficiency improvements at coal-fired EGUs, displacement of affected EGUs with renewable energy, and displacement of coal-fired generation with natural gas-fired generation.

Multiple states, utilities, and trade groups filed petitions for review in the DC Circuit to challenge both the Carbon Pollution Standards for new sources and the Clean Power Plan for existing sources. Numerous parties also simultaneously filed motions to stay the Clean Power Plan during the litigation. The DC Circuit refused to stay the rule, but 29 states and state agencies successfully petitioned the US Supreme Court for a stay, which was granted on February 9, 2016. As a result,2016, thus halting implementation of the Clean Power Plan is not in effect and neither states nor sources are obliged to comply with its requirements.Plan. With the US Supreme Court stay in place, the DC Circuit heard oral arguments on the merits of the Clean Power Plan on September 27, 2016 in front of a 10-judge en banc panel. However, before the DC Circuit could issue an opinion, President Trump took office and his administration asked the court to hold the case in abeyance while the rule iswas re-evaluated, which the court granted. In addition, the DC Circuit issued a similar order in connection with a

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motion filed by EPA to hold cases challenging the NSPS in abeyance. On September 17, 2019, the DC Circuit issued an order that granted motions by various petitioners, including industry groups and EPA, to dismiss the cases challenging the Clean Power Plan as moot due to EPA’s issuance of the Affordable Clean Energy rule, which repeals the Clean Power Plan.

On March 28, 2017, President Trump issued an Executive Order titled “Promoting Energy Independence and Economic Growth.” Among its goals are to “promote clean and safe development of our Nation’s vast energy resources, while at the same time avoiding regulatory burdens that unnecessarily encumber energy production, constrain economic growth, and prevent job creation.” The order rescinds several key pieces of the Obama Administration’s climate agenda, including the Climate Action Plan and the Final Guidance on Consideration of Climate Change in NEPA Reviews. It directs agencies to review and suspend, revise or rescind any regulations or agency actions that potentially burden the development or use of domestically produced energy resources. Most notably, the order directsdirected EPA to immediately review and, if appropriate and consistent with law, suspend, revise, or rescind (1) the Carbon Pollution Standards for new, reconstructed or modified electric utilities, (2) the Clean Power Plan, (3) the Proposed Clean Power Plan Model Trading Rules, and (4) the Legal Memorandum supporting the Clean Power Plan. In response, the EPA signed a NOPR to repeal the Clean Power Plan on October 10, 2017. The notice proposesproposed a legal interpretation concluding that the Clean Power Plan exceedsexceeded EPA’s statutory authority. EPA accepted comments on that proposed interpretation through April 26, 2018. Any final rule will likely be subject to judicial review. On December 18, 2017,June 19, 2019, EPA released an advanced NOPR addressing GHG guidelines for existing electric utility generating units. On August 31, 2018, EPA published a proposed rule, which is informally known asthe final version of the Affordable Clean Energy rule, to replacerule. EPA takes three actions in the final rule: (1) repealing the Clean Power Plan. The proposedPlan; (2) promulgating the Affordable Clean Energy rule,rule; and (3) revising the implementing regulations for all emission guidelines issued under CAA Section 111(d) which, among other things, would establish guidelines that replaceextends the “outside-the-fenceline” control measuresdeadline for state plans and specific numerical emission ratesextends the timing of EPA's approval process. EPA set the BSER for existing EGUs withcoal-fired power plants as heat rate efficiency improvements based on a listrange of “candidate technologies” for heat rate improvement measures that EPA has identified as BSER. States wouldcan be applied inside the fence-line. Rather than setting a specific numerical standard of performance, EPA’s rule directs states to determine which of the candidate technologies to apply to each coal-fired unit and establish standards of performance based on the degree of emission reduction achievable once BSER is applied. States will have three years from whenbased on the application of BSER. The final rule is finalizedrequires states to submit a plan to EPA by July 8, 2022 and then EPA will havehas one year to determine if each proposed plan is acceptable.approve the plan. If states do not submit a plan or if their submitted plan is not acceptable, EPA will have two years to develop a federal plan. EPAThe Affordable Clean Energy rule is also proposing revisionsnot expected to impact SJGS since EPA’s final approval of a state SIP would occur after the planned shutdown of SJGS in 2022 (subject to NMPRC approval).
While corresponding NSR program that would provide coal-fired power plants more latitude to make efficiency improvements consistent with BSER without triggering NSR permit requirements. Comments onreform regulations were proposed as part of the proposed Affordable Clean Energy rule, were duethe final rule did not include such reform measures. EPA has indicated that it plans to finalize the proposed NSR reform in 2020. Unrelated to the Affordable Clean Energy rule, EPA by October 31, 2018.issued a proposed rule on August 1, 2019 to clarify one aspect of the pre-construction review process for evaluating whether the NSR permitting program would apply to a proposed project at an existing source of emissions. The proposed rule clarifies that both emissions increases and decreases resulting from projects are to be considered in determining whether the proposed project will result in an increase in air emissions.
On December 20, 2018, EPA published in the Federal Register a proposed rule that would revise the Carbon Pollution Standards rule published in October 2015 for new, reconstructed, or modified coal-fired EGUs. The proposed rule would revise the standards for new coal-fired EGUs based on the revised BSER as the most efficient demonstrated steam cycle (e.g., supercritical steam conditions for large units and subcritical steam conditions for small units), instead of partial carbon recapturecapture and sequestration, which results insequestration. As a result, the proposed rule contains less stringent CO2 emission performance standards for new units. EPA has also proposed revisions to the standards for reconstructed and modified fossil-fueled power plants to align with the proposed standards for new units. EPA is not proposing any changes nor reopening the standards of performance for newly constructed or reconstructed stationary combustion turbines. Comments on the proposal were due on March 18, 2019.
PNM is unable to predict the impact to the Company of these proposed rulemakings. If a future regulation limiting or otherwise reducing GHG from fossil-fueled EGUs is adopted, such regulations could impact PNM’s existing and future fossil-fueled EGUs. The 2018 proposed Carbon Pollution Standards rule could also impact PNM’s generation fleet to the extent any EGUs qualify as new, reconstructed, or modified, although that rule remains under review by EPAEPA. Comments on the proposal were due on March 18, 2019 and a final rule is expected in 2020.
The Affordable Clean Energy rule has been challenged by several parties and may be impacted by further litigation. The results of additional judicial review and the DC Circuit.outcome of those proceedings cannot be predicted.

Federal Legislation


Prospects for enactment in Congress of legislation imposing a new or enhanced regulatory program to address climate change are highly unlikely in 2019.2020.  Although the new democratic leadership in the U.S. House of Representatives may soon begin to reconsider proposals for legislation aimed at addressing climate change, such legislation is unlikely to pass the republican controlled U.S. Senate or be signed by the President.
State and Regional Activity


Pursuant to New Mexico law, each utility must submit an IRP to the NMPRC every three years to evaluate renewable energy, energy efficiency, load management, distributed generation, and conventional supply-side resources on a consistent and
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comparable basis.  The IRP is required to take into consideration risk and uncertainty of fuel supply, price volatility, and costs of anticipated environmental regulations when evaluating resource options to meet supply needs of the utility’s customers.  The NMPRC requires that New Mexico utilities factor a standardized cost of carbon emissions into their IRPs using prices ranging between $8 and $40 per metric ton of CO2 emitted and escalating these costs by 2.5% per year.  Under the NMPRC order, each utility must analyze these standardized prices as projected operating costs.  Reflecting the developingevolving nature of this issue, the NMPRC order states that these prices may be changed in the future to account for additional information or changed circumstances.  Although these prices may not reflect the costs that ultimately will be incurred, PNM is required to use these prices for purposes of its IRP.  In its 2017 IRP, PNM analyzed resource portfolio plans for scenarios that assumed SJGS will operate

beyond the end of the current coal supply agreement that runs through June 30, 2022 and for scenarios that assumed SJGS will cease operations by the end of 2022 as discussed in Note 12. The key findings of the 2017 IRP include that exiting SJGS in 2022 would provide long-term economic benefits to PNM’s customers and that PNM exiting its ownership interest in Four Corners in 2031 would also save customers money. The materials presented in the IRP process are available at www.pnm.com\irp. See additional discussion of PNM’s December 2018 Compliance filing in Note 11, which indicates PNM plans to retire SJGS after the SJGS CSA expires in mid-2022.
On March 22, 2019, Senate Bill 489, known as the Energy Transition Act (“ETA”) was signed into New Mexico state law and becomesbecame effective on June 14, 2019. The ETA, among other things, requires that investor-owned utilities obtain specified percentages of their energy from renewable and carbon-free resources. Prior to the enactment of the ETA, the REA established a mandatory RPS requiring utilities to acquire a renewable energy portfolio equal to 10% of retail electric sales by 2011, 15% by 2015, and 20% by 2020. The ETA amends the REA and requires utilities operating in New Mexico to have renewable portfolios equal to 20% by 2020, 40% by 2025, 50% by 2030, 80% by 2040, and 100% zero-carbon energy by 2045. The ETA provides for a transition from coal-fired generating resources to carbon-free resources by allowing investor-owned utilities to issue securitized bonds, or “energy transition bonds,” related to the retirement of coal-fired generating facilities to qualified investors. Proceeds from the energy transition bonds must be used only for purposes related to providing utility service to customers and to pay “financing costs” (as defined by the ETA). These costs may include coal mine decommissioning, plant decommissioning, and other costs that have not yet been charged to customers or disallowed by the NMPRC or by a court order. Proceeds provided by energy transition bonds may also be used to pay for severances for employees of the retired coal-fired generating facility and related coal mine, as well as to pay for job training, education, and economic development. Energy transition bonds must be issued under an NMPRC financing order and are paid by a non-bypassable charge paid by all customers of the issuing utility. The ETA also amends sections of the REA to allow for the recovery of undepreciated investments and decommissioning costs related to qualifying EGUs that the NMPRC has required be removed from retail jurisdictional rates, provided replacement resourceresources to be included in retail rates have lower or zero-carbon emissions. The ETA requires the NMPRC to prioritize replacement resources in a manner intended to mitigate the economic impact to communities affected by these plant retirements. See additional discussion of the ETA in Note 11. The effectiveness ofPNM expects the ETA will have a significant impact on PNM’s future generation portfolio, including PNM’s planned retirement of SJGS in 2022. The NMPRC had not definitively indicated its intent to apply the requirements of the ETA to PNM’s SJGS Abandonment Application and several parties to that case questioned whether the ETA violated the New Mexico State constitution. In December 2019, the Governor of the State of New Mexico, the President of the Navajo Nation and other parties filed a writ of mandamus requesting the NM Supreme Court require the NMPRC to apply the ETA to PNM’s application. On January 29, 2020, the NM Supreme Court ruled that the NMPRC is required to apply the ETA to all of PNM’s SJGS Abandonment Application and denied petitions for a stay. In February 2020, the Hearing Examiners assigned to the SJGS abandonment and financing proceedings issued recommended decisions recommending approval of PNM’s abandonment application and for the issuance of Securitized Bonds consistent with the requirements of the ETA. On April 1, 2020, the NMPRC approved the Hearing Examiners' recommendation to approve PNM's application to retire its share of SJGS in 2022 and for the issuances of Securitized Bonds. See additional discussion of PNM’s SJGS Abandonment Application in Note 12. PNM cannot predict the full impact of the ETA or the outcome of its existing and potential future generating resource abandonment filings with the NMPRC.
International Accords


The United Nations Framework Convention on Climate Change (“UNFCCC”) is an international environmental treaty that was negotiated at the 1992 United Nations Conference on Environment and Development (informally known as the Earth Summit) and entered into force in March 1994. The objective of the treaty is to “stabilize greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.”  Parties to the UNFCCC, including the United States,U.S., have been meeting annually in Conferences of the Parties (“COP”) to assess progress in meeting the objectives of the UNFCCC. 
On December 12, 2015, the Paris Agreement was finalized during the 2015 COP. The aim of the Paris Agreement is to limit global temperature rise to two degrees Celsius above pre-industrial levels. The agreement, which was agreed to by 197approximately 200 parties, requires that countries submit Intended Nationally Determined Contributions (“INDCs”). INDCs reflect national targets and actions that arise out of national policies and elements relating to oversight, guidance and
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coordination of actions to reduce emissions by all countries. In November 2014, then President Obama announced the United States’ commitment to reduce GHG, on an economy-wide basis, by 26%-28% from 2005 levels by the year 2025. The United StatesU.S. INDC iswas part of an overall effort by the former administration to have the United StatesU.S. achieve economy-wide reductions of around 80% by 2050.  The former administration’s GHG reduction target for the electric utility industry iswas a key element of its INDC and iswas based on EPA’s final GHG regulations for new, existing, and modified and reconstructed sources. The United States is one of several nationssources at that offered INDCs.time. Thresholds for the number of countries necessary to ratify or accede to the Paris Agreement and total global GHG percentage were achieved on October 5, 2016 and the Paris Agreement entered into force on November 4, 2016.  On June 1, 2017, President Trump announced that the United StatesU.S. would withdraw from the Paris Agreement. In his public statement, he indicated that the United StatesU.S. would “begin negotiations to reenter either the Paris Accord or a .... new transaction on terms that are fair to the United States,U.S., its businesses, its workers, its people, its taxpayers.” TheOn November 4, 2019, President Trump announced that the U.S. has officially notified the United States continues to holdNations that the position that itU.S. will withdraw from the Paris Agreement. The rules of the Paris Agreement unless it can negotiate better terms. The earliest date thatimpose a one-year waiting period after official notice of withdrawal. As a result of the President’s notice to the United States could give formal notification of its withdrawal isNations, the U.S. will officially be able to withdraw from the Paris Agreement on November 4, 2020. InA future administration would have an opportunity to rejoin the interim, the United States continues to participate in international climate negotiations.Agreement. It is uncertain if the United StatesU.S. will ultimately choose to pursue a transition to a low-carbon economy using a pathway that aligns with the Paris Agreement to keep global temperature rise to below two degrees Celsius (the “2 Degree Scenario”) above pre-industrial levels or in connection with other regulation or legislation. PNM has not conducted a 2 Degree Scenario analysis

but is participating in the Electric Power Research Institute program, “Understanding Climate Change Scenarios and Goal-setting Activities”. PNM has also calculated GHG reductions that would result from implementation of the 2017 IRP scenarios that assume PNM would retire its share of the SJGS in 2022 and would exit from Four Corners in 2031.2031 and PNM has set a goal to have a 100% emissions-free generating portfolio by 2040. While the Company has not conducted an independent 2 Degree Scenario analysis, our commitment to becoming 100% emissions-free by 2040 produces a carbon emissions reduction pathway that tracks within the ranges of climate scenario pathways that are consistent with limiting the global warming average to less than 2 degrees Celsius. In addition, as an investor-owned utility operating in the state of New Mexico, PNM will beis required to comply with the recently enacted ETA, which requires utilities’ generating portfolio be 100% carbon-free by 2045. As discussed above, PNM has set a goal to have a 100% emissions-free generating portfolio by 2040. The requirements of the ETA and the Company’s goal compare favorably to the 26% - 28% by 2025 United StatesU.S. INDC and the former administration’s effort to achieve an 80% reduction in carbon emissions by 2050. As discussed in Note 16, retiring PNM’s12, on April 1, 2020, the NMPRC approved PNM's application to retire its share of SJGS capacity and exitingin 2022. PNM will file for abandonment of Four Corners would require NMPRC approval of abandonment filings, which PNM would make at an appropriate timestime in the future.
PNM will continue to monitor the United States’ and other parties’ involvement in international accords, but the potential impact that such accords may have on the Company cannot be determined at this time.


Assessment of Legislative/Regulatory Impacts


The Company has assessed, and continues to assess, the impacts of climate change legislation and regulation on its business.  This assessment is ongoing and future changes arising out of the legislative or regulatory process could impact the assessment significantly.  PNM’s assessment includes assumptions regarding specific GHG limits; the timing of implementation of these limits; the possibility of a market-based trading program, including the associated costs and the availability of emission credits or allowances; the development of emission reduction and/or renewable energy technologies; and provisions for cost containment. Moreover, the assessment assumes various market reactions such as the price of coal and gas and regional plant economics.  These assumptions are, at best, preliminary and speculative. However, based upon these assumptions, the enactment of climate change legislation or regulation could, among other things, result in significant compliance costs, including large capital expenditures by PNM, and could jeopardize the economic viability of certain generating facilities. See Note 11.Notes 11 and 12.  While PNM currently expects the planned retirement of SJGS in 2022 (subject to NMPRC approval) will provide savings to customers, the ultimate consequences of climate change and environmental regulation could lead to increased costs to customers and affect results of operations, cash flows, and financial condition if the incurred costs are not fully recovered through regulated rates. Higher rates could also contribute to reduced usage of electricity.  PNM’s assessment process is evolving and is too preliminary and speculative at this time for a meaningful prediction of the long-term financial impact.
Transmission Issues

At any given time, FERC has various notices of inquiry and rulemaking dockets related to transmission issues pending. Such actions may lead to changes in FERC administrative rules or ratemaking policy but have no time frame in which action must be taken or a docket closed with no further action. Further, such notices and rulemaking dockets do not apply strictly to PNM but will have industry-wide effects in that they will apply to all FERC-regulated entities. PNM monitors and often submits comments taking a position in such notices and rulemaking dockets or may join in larger group responses. PNM often cannot determine the full impact of a proposed rule and policy change until the final determination is made by FERC and PNM is unable to predict the outcome of these matters.

On November 24, 2009, FERC issued Order 729 approving two Modeling, Data, and Analysis Reliability Standards (“Reliability Standards”) submitted by NERC – MOD-001-1 (Available Transmission System Capability) and MOD-029-1 (Rated System Path Methodology). Both MOD-001-1 and MOD-029-1 require a consistent approach, provided for in the Reliability Standards, to measuring the total transmission capability (“TTC”) of a transmission path. The TTC level established using the two Reliability Standards could result in a reduction in the available transmission capacity currently used by PNM to deliver generation resources necessary for its jurisdictional load and for fulfilling its obligations to third-party users of the PNM transmission system.

During the first quarter of 2011, at the request of PNM and other southwestern utilities, NERC advised all transmission owners and transmission service providers that the implementation of portions of the MOD-029 methodology for “Flow Limited” paths has been delayed until such time as a modification to the standard can be developed that will mitigate the technical concerns identified by the transmission owners and transmission service providers. PNM and other western utilities filed a Standards Action Request with NERC in the second quarter of 2012.


NERC initiated an informal development process to address directives in Order 729 to modify certain aspects of the MOD standards, including MOD-001 and MOD-029. The modifications to this standard would retire MOD-029 and require each transmission operator to determine and develop methodology for TTC values for MOD-001.

A final ballot for MOD-001-2 concluded on December 20, 2013 and received sufficient affirmative votes for approval. On February 10, 2014, NERC filed with FERC a petition for approval of MOD-001-2 and retirement of reliability standards MOD-001-1a, MOD-004-1, MOD-008-1, MOD-028-2, MOD-029-1a, and MOD-030-2. On June 19, 2014, FERC issued a NOPR to approve a new reliability standard. The MOD-001-2 standard will become effective on the first day of the calendar quarter that is 18 months after the date the standard is approved by FERC. MOD-001-2 will replace multiple existing reliability standards and will remove the risk of reduced TTC for PNM and other western utilities.

Financial Reform Legislation


The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Reform Act”), enacted in July 2010, includes provisions that will require certain over-the-counter derivatives, or swaps, to be centrally cleared and executed through an exchange or other approved trading facility. It also includes provisions related to swap transaction reporting and record keeping and may impose margin requirements on swaps that are not centrally cleared. The United StatesU.S. Commodity Futures Trading Commission (“CFTC”) has published final rules defining several key terms related to the act and has set compliance dates for various types of market participants. The Dodd-Frank Reform Act provides exemptions from certain requirements, including an exception to the mandatory clearing and swap facility execution requirements for commercial end-users that use swaps to hedge or mitigate commercial risk.  PNM has elected the end-user exception to the mandatory clearing requirement. PNM expects to be in compliance with the Dodd-Frank Reform Act and related rules within the time frames required by the CFTC.
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However, as a result of implementing and complying with the Dodd-Frank Reform Act and related rules, PNM’s swap activities could be subject to increased costs, including from higher margin requirements. The Trump Administration has indicated that the provisions of the Dodd-Frank Reform Act will be reviewed and certain regulations may be rolled back, but no formal action has been taken yet. At this time, PNM cannot predict the ultimate impact the Dodd-Frank Reform Act may have on PNM’s financial condition, results of operations, cash flows, or liquidity.


Other Matters


See Notes 11 and 12 herein and Notes 16 and 17 of the Notes to Consolidated Financial Statements in the 20182019 Annual Reports on Form 10-K for a discussion of commitments and contingencies and rate and regulatory matters. See Note 1 for a discussion of accounting pronouncements that have been issued but are not yet effective and have not been adopted by the Company.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES


The preparation of financial statements in accordance with GAAP requires Company management to select and apply accounting policies that best provide the framework to report the results of operations and financial position for PNMR, PNM, and TNMP. The selection and application of those policies requires management to make difficult, subjective, and/or complex judgments concerning reported amounts of revenue and expenses during the reporting period and the reported amounts of assets and liabilities at the date of the financial statements. As a result, there exists the likelihood that materially different amounts would be reported under different conditions or using different assumptions.


As of March 31, 2019,2020, there have been no significant changes with regard to the critical accounting policies disclosed in PNMR’s, PNM’s, and TNMP’s 20182019 Annual Reports on Forms 10-K. The policies disclosed included regulatory accounting, impairments, decommissioning and reclamation costs, pension and other postretirement benefits, accounting for contingencies, and income taxes.


MD&A FOR PNM


RESULTS OF OPERATIONS


PNM operates in only one reportable segment, as presented above in Results of Operations for PNMR.


MD&A FOR TNMP


RESULTS OF OPERATIONS


TNMP operates in only one reportable segment, as presented above in Results of Operations for PNMR.


DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS


Statements made in this filing that relate to future events or PNMR’s, PNM’s, or TNMP’s expectations, projections, estimates, intentions, goals, targets, and strategies are made pursuant to the Private Securities Litigation Reform Act of 1995. Readers are cautioned that all forward-looking statements are based upon current expectations and estimates. PNMR, PNM, and TNMP assume no obligation to update this information.
Because actual results may differ materially from those expressed or implied by these forward-looking statements, PNMR, PNM, and TNMP caution readers not to place undue reliance on these statements. PNMR’s, PNM’s, and TNMP’s business, financial condition, cash flows, and operating results are influenced by many factors, which are often beyond their control, that can cause actual results to differ from those expressed or implied by the forward-looking statements. These factors include:


The ability of PNM and TNMP to recover costs and earn allowed returns in regulated jurisdictions, including the impacts of the NMPRC orders in PNM’s NM 2015 Rate Case, the NM Supreme Court’s decisions in the appeal of that order, the NM 2016 Rate Case and related deferral of the issue of the prudence of PNM’s decision to continue participation in Four Corners to PNM’s next general rate case and recovery of PNM’s investments inand other costs associated with that plant, and any actions resulting from PNM’s December 2018 Compliance Filing, which indicates PNM intends to retire its share of SJGS in 2022 (subject to future NMPRC approval), including the impactspending appeal of the recently signed ETA, and/orNMPRC's approval of PNM' request to issue Securitized Bonds and the conclusions reachedNMPRC's future actions regarding replacement resources in PNM’s 2017 IRPSJGS Abandonment Application (collectively, the “Regulatory Proceedings”) and the impact on service levels for PNM customers if the ultimate outcomes do not provide for the recovery of costs ofand operating and capital expenditures, as well as other impacts of federal or state regulatory and judicial actions
The ability of the Company to successfully forecast and manage its operating and capital expenditures, including aligning expenditures with the revenue levels resulting from the ultimate outcomes of the Regulatory Proceedings, or
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resulting from potential mid-term or long-term impacts related to COVID-19, and supporting forecasts utilized in future test yearFTY rate proceedings
Uncertainty regarding what actions PNM may take with respect to the generating capacity in PVNGS Units 1 and 2 that is under lease at the expiration of the lease terms in 2023 and 2024, including PNM's decisions related to purchasing or returning the assets underlying the leases, or upon the occurrence of certain specific events, as well as the related treatment for ratemaking purposes by the NMPRC
Uncertainty surrounding the status of PNM’s participation in jointly-owned generation projects, including the 2022 scheduled expiration of the operational and fuel supply agreements for SJGS, the outcome of PNM’s December 2018 Compliance Filing, including the impacts of the recently signed ETA, the results of PNM’s 2017 IRP filing, which indicates that PNM’s customers would benefit from PNM’s exit from Four Corners in 2031, including regulatory recovery of undepreciated investments and other costs in the event the NMPRC orders generating facilities be retired, and the impacts of the ETA
Uncertainty regarding the requirements and related costs of decommissioning power plants and reclamation of coal mines supplying certain power plants, as well as the ability to recover those costs from customers, including the potential impacts of the ultimate outcomes of the Regulatory Proceedings
The impacts on the electricity usage of customers and consumers due to performance of state, regional, and national economies, energy efficiency measures, weather, seasonality, alternative sources of power, advances in technology, the impacts of COVID-19 on customer usage, and other changes in supply and demand
The Company’s ability to access the financial markets in order to provide financing to repay or refinance debt as it comes due, as well as for ongoing operations and construction expenditures, including disruptions in the capital or credit markets, actions by ratings agencies, and fluctuations in interest rates, including any negative impacts that could result from the ultimate outcomes of the Regulatory Proceedings or from the economic impacts of COVID-19
The risks associated with completion of generation, transmission, distribution, and other projects, including uncertainty related to regulatory approvals and cost recovery, and the ability of counterparties to meet their obligations under certain arrangements, and supply chain or other outside support services that may be disrupted by the impacts of COVID-19
The potential unavailability of cash from PNMR’s subsidiaries due to regulatory, statutory, or contractual restrictions or subsidiary earnings or cash flows
The performance of generating units, transmission systems, and distribution systems, which could be negatively affected by operational issues, fuel quality and supply issues, unplanned outages, extreme weather conditions, wildfires, terrorism, cybersecurity breaches, and other catastrophic events, including the impacts of COVID-19, as well the costs the Company may incur to repair its facilities and/or the liabilities the Company may incur to third parties in connection with such issues
State and federal regulation or legislation relating to environmental matters and renewable energy requirements, the resultant costs of compliance, and other impacts on the operations and economic viability of PNM’s generating plants
State and federal regulatory, legislative, executive, and judicial decisions and actions on ratemaking, and taxes, including pending guidance related to the Tax Act, and other matters
Risks related to climate change, including potential financial risks resulting from climate change litigation and legislative and regulatory efforts to limit GHG, including the impacts of the recently signedenacted ETA
Employee workforce factors, including cost control efforts and issues arising out of collective bargaining agreements and labor negotiations with union employees
Variability of prices and volatility and liquidity in the wholesale power and natural gas markets
Changes in price and availability of fuel and water supplies, including the ability of the mines supplying coal to PNM’s coal-fired generating units and the companies involved in supplying nuclear fuel to provide adequate quantities of fuel
Regulatory, financial, and operational risks inherent in the operation of nuclear facilities, including spent fuel disposal uncertainties

The risk that FERC rulemakings or lack of additional capacity during peak hours may negatively impact the operation of PNM’s transmission system
The impacts of decreases in the values of marketable securities maintained in trusts to provide for decommissioning, reclamation, pension benefits, and other postretirement benefits, including potential increased volatility resulting from international developments and the impacts of COVID-19, as well as PNM's ability to recover future decommissioning and reclamation costs from customers
Uncertainty surrounding counterparty performance and credit risk, including the ability of counterparties to supply fuel and perform reclamation activities and impacts to financial support provided to facilitate the coal supply at SJGS
The effectiveness of risk management regarding commodity transactions and counterparty risk
The outcome of legal proceedings, including the extent of insurance coverage
Changes in applicable accounting principles or policies


Any material changes to risk factors occurring after the filing of PNMR’s, PNM’s, and TNMP’s 20182019 Annual Reports on Form 10-K are disclosed in Item 1A, Risk Factors, in Part II of this Form 10-Q.


For information about the risks associated with the use of derivative financial instruments, see Item 3. “Quantitative and Qualitative Disclosures About Market Risk.”

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SECURITIES ACT DISCLAIMER


Certain securities described or cross-referenced in this report have not been registered under the Securities Act of 1933, as amended, or any state securities laws and may not be reoffered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act of 1933 and applicable state securities laws. This Form 10-Q does not constitute an offer to sell or the solicitation of an offer to buy any securities.


WEBSITES
The PNMR website, www.pnmresources.com, is an important source of Company information. New or updated information for public access is routinely posted.  PNMR encourages analysts, investors, and other interested parties to register on the website to automatically receive Company information by e-mail. This information includes news releases, notices of webcasts, and filings with the SEC. Participants will not receive information that was not requested and can unsubscribe at any time.
Our corporate internet addresses are:
PNMR: www.pnmresources.com
PNM: www.pnm.com
TNMP: www.tnmp.com
 
The PNMR website includes a link to PNMR’s Sustainability Portal, www.pnmresources.com/about-us/sustainability-portal.aspx. This portal provides access to key sustainability information, including a Climate Change Report, related to the operations of PNM and TNMP and reflects PNMR’s commitment to do business in an ethical, open, and transparent manner, and outlines PNM’s plans (subject to NMPRC approval) to exit all coal-fired generation by 2031 reach 70%(subject to regulatory approval) and to have an emissions-free generationgenerating portfolio by 2032, and reach 100% emissions-free generation by 2040.


The contents of these websites are not a part of this Form 10-Q. The SEC filings of PNMR, PNM, and TNMP, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are accessible free of charge on the PNMR website as soon as reasonably practicable after they are filed with, or furnished to, the SEC. Reports filed with the SEC are available on its website, www.sec.gov. These reports are also available in print upon request from PNMR free of charge.
Also available on the Company’s website at http://www.pnmresources.com/corporate-governance.aspx and in print upon request from any shareholder are PNMR’s:
Corporate Governance Principles
Code of Ethics (Do the Right Thing Principles of Business Conduct)
Charters of the Audit and Ethics Committee, Nominating and Governance Committee, Compensation and Human Resources Committee, and Finance Committee
Restated Articles of Incorporation and Bylaws
 
The Company will post amendments to or waivers from its code of ethics (to the extent applicable to the Company’s executive officers and directors) on its website.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


The Company manages the scope of its various forms of market risk through a comprehensive set of policies and procedures with oversight by senior level management through the Risk Management Committee (“RMC”). The Board’s Finance Committee sets the risk limit parameters. The RMC has oversight over the risk control organization. The RMC is assigned responsibility for establishing and enforcing the policies, procedures, and limits and evaluating the risks inherent in proposed transactions on an enterprise-wide basis. The RMC’s responsibilities include:


Establishing policies regarding risk exposure levels and activities in each of the business segments
Approving the types of derivatives entered into for hedging
Reviewing and approving hedging risk activities
Establishing policies regarding counterparty exposure and limits
Authorizing and delegating transaction limits
Reviewing and approving controls and procedures for derivative activities
Reviewing and approving models and assumptions used to calculate mark-to-market and market risk exposure
Proposing risk limits to the Board’s Finance Committee for its approval
Reporting to the Board’s Audit and Finance Committees on these activities


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To the extent an open position exists, fluctuating commodity prices, interest rates, equity prices, and economic conditions can impact financial results and financial position, either favorably or unfavorably. As a result, the Company cannot predict with certainty the impact that its risk management decisions may have on its businesses, operating results, or financial position.

Commodity Risk
Information concerning accounting for derivatives and the risks associated with commodity contracts is set forth in Note 7, including a summary of the fair values of mark-to-market energy related derivative contracts included in the Condensed Consolidated Balance Sheets. During the three months ended March 31, 20192020 and the year ended December 31, 2018,2019, the Company had no commodity derivative instruments designated as cash flow hedging instruments.
Commodity contracts other than those that do not meet the definition of a derivative under GAAP, are recorded at fair value on the Condensed Consolidated Balance Sheets. The following table details the changes in the net asset or liability balance sheet position forimpact of commodity derivative mark-to-market energy transactions.
 Three Months Ended
 March 31,
 2019 2018
Economic Hedges(In thousands)
Sources of fair value gain (loss):   
Net fair value at beginning of period$(94) $(94)
Amount realized on contracts delivered during period28
 26
Changes in fair value
 2
Net mark-to-market change recorded in earnings28
 28
Net change recorded as regulatory assets and liabilities2
 (175)
          Net fair value at end of period$(64) $(241)
transactions were not material to the Company's financial position, results of operations, or cash flows as of and for the three months ended March 31, 2020 and 2019.
All of the fair values as of March 31, 20192020 were determined based on prices provided by external sources other than actively quoted market prices. The net mark-to-market amounts will settle in 2019.2020.


PNM is exposed to changes in the market prices of electricity and natural gas for the positions in its wholesale portfolio not covered by the FPPAC. The Company manages risks associated with these market fluctuations by utilizing various commodity instruments that may qualify as derivatives, including futures, forwards, options, and swaps. PNM uses such instruments to hedge its exposure to changes in the market prices of electricity and natural gas. PNM also uses such instruments under an NMPRC approved hedging plan to manage fuel and purchased power costs related to customers covered by its FPPAC.


Credit Risk


The Company is exposed to credit risk from its retail and wholesale customers, as well as the counterparties to derivative instruments. The Company conducts counterparty risk analysis across business segments and uses a credit management process to assess the financial conditions of counterparties. The following table provides information related to credit exposure by the credit worthiness (credit rating) and concentration of credit risk for wholesale counterparties, all of which will mature in less than two years.

Schedule of Credit Risk Exposure
March 31, 2020
Rating (1)
Credit Risk Exposure(2)
Number of Counter-parties >10%Net Exposure of Counter-parties >10%
(Dollars in thousands)
External ratings:
Investment grade$1,566  1$1,002  
Non-investment grade—  —  
Split ratings—  —  
Internal ratings:
Investment grade861  1683  
Non-investment grade—  —  
Total$2,427  $1,685  
(1)The rating “Investment Grade” is for counterparties, or a guarantor, with a minimum S&P rating of BBB- or Moody’s rating of Baa3. The category “Internal Ratings – Investment Grade” includes those counterparties that are internally rated as investment grade in accordance with the guidelines established in the Company’s credit policy.
Schedule of Credit Risk Exposure
March 31, 2019
Rating (1)
Credit Risk Exposure(2)
 Number of Counter-parties >10% Net Exposure of Counter-parties >10%
 (Dollars in thousands)
External ratings:     
Investment grade$2,644
 1 $773
Non-investment grade
  
Split ratings
  
Internal ratings:     
Investment grade2,100
 3 1,755
Non-investment grade
  
Total$4,744
   $2,528

(1)
The rating “Investment Grade” is for counterparties, or a guarantor, with a minimum S&P rating of BBB- or Moody’s rating of Baa3. The category “Internal Ratings – Investment Grade” includes those counterparties that are internally rated as investment grade in accordance with the guidelines established in the Company’s credit policy.

(2)The Credit Risk Exposure is the gross credit exposure, including long-term contracts (other than the Tri-State hazard sharing agreement), forward sales, and short-term sales. The gross exposure captures the amounts from receivables/payables for realized transactions, delivered and unbilled revenues, and mark-to-market gains/losses. Gross exposures can be offset according to legally enforceable netting arrangements but are not reduced by posted credit collateral. At March 31, 2020, PNMR held $0.9 million of cash collateral to offset its credit exposure.
(2)
The Credit Risk Exposure is the gross credit exposure, including long-term contracts (other than the Tri-State hazard sharing agreement), forward sales, and short-term sales. The gross exposure captures the amounts from receivables/payables for realized transactions, delivered and unbilled revenues, and mark-to-market gains/losses. Gross exposures can be offset according to legally enforceable netting arrangements but are not reduced by posted credit collateral. At March 31, 2019, PNMR held $0.9 million of cash collateral to offset its credit exposure.

Net credit risk for the Company’s largest counterparty as of March 31, 20192020 was $0.8$1.0 million.


Other investments have no significant counterparty credit risk.



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Interest Rate Risk


The majority of the Company’s long-term debt is fixed-rate debt and does not expose earnings to a major risk of loss due to adverse changes in market interest rates. However, the fair value of PNMR’s consolidated long-term debt instruments would increase by 2.4%2.1%, or $72.6$64.7 million if interest rates were to decline by 50 basis points from their levels at March 31, 2019.2020. In general, an increase in fair value would impact earnings and cash flows to the extent not recoverable in rates if all or a portion of debt instruments were acquired in the open market prior to their maturity. At May 3, 2019, PNMR, PNM, TNMP, and PNMR Development had short-term debt outstanding of $55.9 million, zero, $29.2 million, and $15.1 million under their revolving credit facilities, which allow for a maximum aggregate borrowing capacity of $300.0 million for PNMR, $400.0 million for PNM, $75.0 million for TNMP, and $25.0 million for PNMR Development. PNM had no borrowings under the $40.0 million PNM 2017 New Mexico Credit Facility at May 3, 2019. The revolving credit facilities, the PNM 2017 New Mexico Credit Facility, the $150.0 million PNMR 2018 One-Year Term Loan, the $50.0 million PNMR 2018 Two-Year Term Loan, the $90.0 million PNMR Development Term Loan, the $250.0 million PNM 2019 Term Loan, and the $35.0 million TNMP 2018 Term Loan bear interest at variable rates. On May 3, 2019, interest rates on borrowings averaged 3.73% for the PNMR Revolving Credit Facility, 3.23% for the PNMR 2018 One-Year Term Loan, 3.29% for the PNMR 2018 Two-Year Term Loan, 3.28% for the PNMR Development Term Loan, 3.14% for the PNM 2019 Term Loan, 3.23% for the TNMP Revolving Credit Facility, 3.18% for the TNMP 2018 Term Loan, and 3.48% for the PNMR Development Revolving Credit Facility. The Company is exposed to interest rate risk to the extent of future increases in variable interest rates. However, as discussed in Note 9, PNMR has entered into hedging arrangements to effectively establish fixed interest rates on $150.0 million of variable rate debt. Variable interest rates under these facilities are based on LIBOR but contain provisions which allow for the replacement of LIBOR with other widely accepted interest rates. The Company expects that it will be able to extend or replace these credit facilities under similar terms and conditions prior to their expirations.


At May 1, 2020, variable rate debt balances and weighted average interest rates were as follows:


Variable Rate DebtWeighted Average Interest RateBalance OutstandingCapacity
(In thousands)
Short-term Debt:
PNMR Revolving Credit Facility2.15 %$132,700  $300,000  
PNM Revolving Credit Facility2.27  15,000  400,000  
PNM 2017 New Mexico Credit Facility2.10  30,000  40,000  
TNMP Revolving Credit Facility—  —  75,000  
PNMR-D Revolving Credit Facility—  —  40,000  
$177,700  $855,000  
Long-term Debt:
PNMR 2018 Two-Year Term Loan1.79 %$50,000  
PNMR 2019 Term Loan1.78  150,000  
PNM 2019 $40.0 Million Term Loan1.37  40,000  
PNM 2020 Term Loan2.70  150,000  
PNMR Development Term Loan1.79  90,000  
$480,000  

The investments held by PNM in trusts for decommissioning and reclamation had an estimated fair value of $351.6$353.3 million at March 31, 2019,2020, of which 62.1%66.1% were fixed-rate debt securities that subject PNM to risk of loss of fair value with increases in market interest rates. If interest rates were to increase by 50 basis points from their levels at March 31, 2019,2020, the decrease in the fair value of the fixed-rate securities would be 2.9%2.4%, or $6.3$5.6 million.


PNM does not directly recover or return through rates any losses or gains on the securities, including equity investments discussed below, in the trusts for decommissioning and reclamation. However, the overall performance of these trusts does enter into the periodic determinations of expense and funding levels, which are factored into the rate making process to the extent applicable to regulated operations. However, as describedThe NMPRC ruled in Note 12, the NMPRC has ruledNM 2015 Rate Case that PNM would not be able to include future contributions made by PNM for decommissioning of PVNGS to the extent applicable to certain capacity previouslypurchased and leased by PNM in rates charged to retail customers. PNM has appealedThe NM Supreme Court ruled that the NMPRC’s rulingdecision to disallow recovery of such future contributions for decommissioning denied PNM due process and remanded the matter back to the NM Supreme Court.NMPRC for further proceedings. See Note 12. PNM is at risk for shortfalls in funding of obligations due to investment losses, including those from the equity market risks discussed below, to the extent not ultimately recovered through rates charged to customers.


Equity Market Risk


The investments held by PNM in trusts for decommissioning and reclamation include certain equity securities at March 31, 2019.2020. These equity securities expose PNM to losses in fair value should the market values of the underlying securities decline. Equity securities comprised 34.9%29.1% of the securities held by the trusts as of March 31, 2019.2020. A hypothetical 10% decrease in equity prices would reduce the fair values of these funds by $12.3$10.3 million.


ITEM 4. CONTROLS AND PROCEDURES


Evaluation of disclosure controls and procedures


As of the end of the period covered by this quarterly report, each of PNMR, PNM, and TNMP conducted an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial
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Officer, of the effectiveness of the design and operation of the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer of each of PNMR, PNM, and TNMP concluded that the disclosure controls and procedures are effective.


Changes in internal controls over financial reporting


There have been no changes in each of PNMR’s, PNM’s, and TNMP’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended March 31, 20192020 that have materially affected, or are reasonably likely to materially affect, each of PNMR’s, PNM’s, and TNMP’s internal control over financial reporting. PNMR, PNM, and TNMP adopted ASU 2016-02 – Leases (“ASC 842”) effective January 1, 2019. The Company updated certain policies and procedures and implemented a new software system related to the adoption of the new standard. However, the adoption of this standard did not result in significant changes to PNMR’s, PNM’s, and TNMP’s internal control over financial reporting.


PART II –II. OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS


See Notes 11 and 12 for information related to the following matters, for PNMR, PNM, and TNMP, incorporated in this item by reference.
Note 11


The Energy Transition Act
The Clean Air Act – Regional Haze – NEE Complaint
The Clean Air Act – Regional Haze – Four Corners – Four Corners Federal Agency Lawsuit
Navajo Nation Environmental Issues
Santa Fe Generating Station
Continuous Highwall Mining Royalty Rate
PVNGS Water Supply Litigation
San Juan River Adjudication
Rights-of-Way Matter
Navajo Nations Allottee Matters
Note 12


PNM - New Mexico General Rate Cases
PNM – Renewable Portfolio Standard
PNM – Energy Efficiency and Load Management
PNMPetition for Energy Efficiency DisincentivesCOVID-19 Regulatory Matters
PNM – Integrated Resource Plans
PNM – San Juan Generating Station Unit 1 OutageSJGS Abandonment Application
PNM – Cost Recovery Related to Joining the EIM
PNM – Facebook, Inc. Data Center Project
PNM – Application For a New 345 KV Transmission Line
TNMP – TNMP 2018Periodic Distribution Rate CaseAdjustment
TNMP – Order Related to Changes in Federal Income Tax Rates
TNMP – Energy Efficiency



ITEM 1A. RISK FACTORS


AsThe outbreak of COVID-19 and its impact on business and economic conditions could negatively affect the Company's business, results of operations, financial condition, cash flows, and the trading value of PNMR's common stock and the Company's debt securities.

The scale and scope of the daterecent COVID-19 outbreak, the resulting pandemic, and the impact on the economy and financial markets could adversely affect the Company’s business, results of this report, there have been no material changesoperations, financial condition, cash flows, and access to the capital markets. The Company provides critical electricity and electric service and has implemented business continuity and emergency response plans to continue to provide these services to its customers and to support the Company’s operations. The Company is also working to ensure the health and safety of its employees is not compromised. These measures include precautions with regard to employee and facility hygiene, travel limitations, directing our employees to work remotely whenever possible, and protocols for required work within customer premises to protect our employees, customers and the Risk Factors disclosedpublic. We are also working with our suppliers to understand the potential impacts to our supply chain and have taken steps to ensure the integrity of our information systems.

However, there is no assurance that the continued spread of COVID-19 and efforts to contain the virus will not adversely impact our business, results of operations, financial condition, cash flows, ability to access the capital markets, and the trading value of the Company's common stock and debt securities. The continued spread of COVID-19 and related efforts to contain the virus could adversely impact the Company by:

reducing usage and/or demand for electricity by our customers in PNMR’s, PNM’s,New Mexico and TNMP’sTexas;
reducing the availability and productivity of our employees;
increasing costs as a result of our emergency measures, including costs to ensure the security of our information systems and delayed payments from our customers and uncollectable accounts;
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causing delays and disruptions in the availability of and timely delivery of materials and components used in our operations;
causing delays and disruptions in the supply chain resulting in disruptions in the commercial operation dates of certain projects;
causing a deterioration in the credit quality of our counterparties, including power purchase agreement providers, contractors or retail customers, that could result in credit losses;
causing impairments of goodwill or long-lived assets and adversely impacting the Company’s ability to develop, construct and operate facilities;
impacting the Company’s ability to meet the requirements of the covenants in our existing credit facilities, including covenants regarding debt to capitalization;
causing a deterioration in our financial metrics or the business environment that impacts our credit ratings;
decreasing the value of our investment securities held in trusts for pension and other postretirement benefits, and for nuclear and coal mine decommissioning, which could lead to increased funding requirements;
impacting our liquidity position and cost of and ability to access funds from financial institutions and capital markets;
causing other risks to impact us, such as the risks described in the “Risk Factors” section of the Company’s Annual Reports on Form 10-K filed on March 2, 2020; and
causing other unpredictable events

This continues to be a rapidly evolving situation and the Company cannot predict the extent or duration of the outbreak, the effects of it on the global, national or local economy, including the impacts on the Company’s ability to access capital, or its effects on the Company’s financial position, results of operations, cash flows, ability to access the capital markets, and value of the Company's stock and debt securities.

ITEM 5. OTHER INFORMATION

April 2020 Offering of PNM Senior Unsecured Notes

On April 30, 2020, PNM entered into the PNM 2020 Note Purchase Agreement with institutional investors for the sale of $200.0 million aggregate principal amount of senior unsecured notes in the following series and denominations: (i) $150.0 million aggregate principal amount of its 3.21% Senior Unsecured Notes, Series A, due April 30, 2030 and (ii) $50.0 million aggregate principal amount of its 3.57% Senior Unsecured Notes, Series B, due April 29, 2039 (the "PNM 2020 SUNs"). The PNM 2020 SUNs were issued on April 30, 2020 in a private placement transaction in reliance on an exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"). Interest on the PNM 2020 SUNs is payable semiannually on April 30 and October 30 of each year, ended December 31, 2018.commencing on October 30, 2020.


PNM used $100.0 million of proceeds from the PNM 2020 SUNs to prepay without penalty an equal amount of the $250.0 million PNM 2020 Term Loan. The remaining $100.0 million of the PNM 2020 SUNs were used to repay borrowings on the PNM Revolving Credit Facility and for other corporate purposes

The terms of the PNM 2020 Note Purchase Agreement, which continue to apply so long as any of the PNM 2020 SUNs are outstanding, include customary covenants, including a covenant that requires PNM to maintain a debt-to-capitalization ratio of less than or equal to 65%, customary events of default, including a cross-default provision, and covenants regarding parity of financial covenants, liens and guarantees with respect to PNM’s material credit facilities. In the event of a change of control, PNM will be required to offer to prepay the PNM 2020 SUNs at par. PNM has the right to redeem any or all of the PNM 2020 SUNs prior to their maturities, subject to payment of a customary make-whole premium

The above description of the PNM 2020 Note Purchase Agreement and the PNM 2020 SUNs does not purport to be a complete statement of the parties' rights and obligations thereunder.

ITEM 6. EXHIBITS
3.1PNMR
3.2PNM
3.3TNMP
3.4PNMR
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Table of Contents
3.5PNM
3.6TNMP
4.110.1 TNMPPNM
10.110.2 PNMRPNM
10.210.3 PNMRPNM
10.310.4 PNMR
10.4PNMR
10.5PNMR
10.6TNMP
10.7PNMR
10.8PNM
10.910.5 TNMPPNMR
31.110.6 PNMR
10.7 PNMR
10.8 PNMR
10.9 PNMR
10.10 PNMR
31.1PNMR
31.2PNMR
31.3PNM
31.4PNM
31.5TNMP
31.6TNMP
32.1PNMR
32.2PNM

32.3TNMP
101.INSPNMR, PNM, and TNMPXBRL Instance Document - The instance document does not appear in the interactive data file because XBRL tags are embedded within the Inline XBRL document
101.SCHPNMR, PNM, and TNMPInline XBRL Taxonomy Extension Schema Document
101.CALPNMR, PNM, and TNMPInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFPNMR, PNM, and TNMPInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABPNMR, PNM, and TNMPInline XBRL Taxonomy Extension Label Linkbase Document
101.PREPNMR, PNM, and TNMPInline XBRL Taxonomy Extension Presentation Linkbase Document
104PNMR, PNM, and TNMPCover Page Inline XBRL File (included in Exhibits 101)


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SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
PNM RESOURCES, INC.
PUBLIC SERVICE COMPANY OF NEW MEXICO
TEXAS-NEW MEXICO POWER COMPANY
(Registrants)
Date:May 1, 2020
PNM RESOURCES, INC.
PUBLIC SERVICE COMPANY OF NEW MEXICO
TEXAS-NEW MEXICO POWER COMPANY
/s/ Henry E. Monroy
(Registrants)Henry E. Monroy
Vice President and Corporate Controller
Date:May 7, 2019/s/ Joseph D. Tarry
Joseph D. Tarry
Vice President, Controller and Treasurer
(Officer duly authorized to sign this report)


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