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Texas New Mexico Power

Filed: 28 Feb 21, 7:00pm
0001108426us-gaap:AccountingStandardsUpdate201609Memberpnm:PublicServiceCompanyOfNewMexicoMember2018-01-012018-12-31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
Name of Registrant, State of Incorporation, Address Of Principal Executive Offices, Telephone Number, 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 Right Blvd.
Lewisville, Texas 75067
Telephone Number - (972) 420-4189
Commission File No. - 002-97230
IRS Employer Identification No. - 75-0204070
Securities registered pursuant to Section 12(b) of the Act:
RegistrantTitle of each classTrading Symbol(s)Name of each exchange on which registered
PNM Resources, Inc.Common Stock, no par valuePNMNew York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
RegistrantTitle of each class
Public Service Company of New Mexico1965 Series, 4.58% Cumulative Preferred Stock
($100 stated value without sinking fund)
Indicate by check mark whether each registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
PNM Resources, Inc. (“PNMR”)YesNo
Public Service Company of New Mexico (“PNM”)YesNo
Texas-New Mexico Power Company (“TNMP”)YesNo
Indicate by check mark if each registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
PNMRYesNo
PNMYesNo
TNMPYesNo


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.
PNMRYesNo
PNMYesNo
TNMPYesNo
(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.)

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).
PNMRYesNo
PNMYesNo
TNMPYesNo
Indicate by check mark whether each 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 filerSmaller reporting companyEmerging growth company
TNMP
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 the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
PNMRYesNo
PNMYesNo
TNMPYesNo

Indicate by check mark whether the registrants are a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No

As of February 19, 2021, shares of common stock outstanding were:
 
PNMR85,834,874 
PNM39,117,799 
TNMP6,358 

On June 30, 2020, the aggregate market value of the voting common stock held by non-affiliates of PNMR as computed by reference to the New York Stock Exchange composite transaction closing price of $38.44 per share reported by The Wall Street Journal, was $3,061,885,307. PNM and TNMP have no common stock held by non-affiliates.

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

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following document are incorporated by reference into Part III of this report:

Proxy Statement to be filed by PNMR with the SEC pursuant to Regulation 14A relating to the annual meeting of shareholders of PNMR to be held on May 11, 2021.

This combined Form 10-K 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-K 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-K that relate to each other registrant are not incorporated by reference therein.
ii

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
INDEX 
   Page
 
PART I
ITEM 1. BUSINESS
A - 1
A - 1
A - 2
OPERATIONS AND REGULATION
A - 2
REGULATED OPERATIONS
A - 2
A - 4
A - 5
A - 5
A - 8
A - 9
A - 9
EMPLOYEES
A - 10
A - 10
A - 12
ITEM 1A. RISK FACTORS
A - 12
ITEM 1B. UNRESOLVED STAFF COMMENTS
A - 24
ITEM 2. PROPERTIES
A - 24
ITEM 3. LEGAL PROCEEDINGS
A - 25
ITEM 4. MINE SAFETY DISCLOSURES
A - 25
A - 25
PART II
ITEM 5. MARKET FOR PNMR’S COMMON EQUITY, RELATED STOCKHOLDER 
 MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
A - 26
ITEM 6. SELECTED FINANCIAL DATA
A - 27
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A - 29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
A - 63
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
B - 1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
C - 1
AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
C - 1
ITEM 9B. OTHER INFORMATION
C - 2
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
C - 2
ITEM 11. EXECUTIVE COMPENSATION
C - 2
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
C - 2
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
C - 2
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
C - 2
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
D - 1
ITEM 16. FORM 10-K SUMMARY
D - 14
E - 1
 
iii

GLOSSARY
Definitions:  
2017 IRPPNM’s 2017 IRP
2020 IRPPNM’s 2020 IRP
2020 DCOSTNMP’s application for a distribution cost recovery factor filed on April 6, 2020
ABCWUAAlbuquerque Bernalillo County Water Utility Authority
ABO  Accumulated Benefit Obligation
ACE RuleAffordable Clean Energy Rule
AEP OnSite PartnersAEP OnSite Partners, LLC, a subsidiary of American Electric Power, Inc.
Afton  Afton Generating Station
AFUDCAllowance for Funds Used During Construction
ALJ  Administrative Law Judge
AMIAdvanced Metering Infrastructure
AMSAdvanced Meter System
AnaheimCity of Anaheim, California
AOCI  Accumulated Other Comprehensive Income
APBO  Accumulated Postretirement Benefit Obligation
APS  Arizona Public Service Company, the operator and a co-owner of PVNGS and Four Corners
ARO  Asset Retirement Obligation
ARPAlternative Revenue Program
ASUAccounting Standards Update
August 2016 RDRecommended Decision in PNM’s NM 2015 Rate Case issued by the Hearing Examiner on August 4, 2016
AvangridAvangrid, Inc., a New York corporation
BART  Best Available Retrofit Technology
BDTBalanced Draft Technology
Board  Board of Directors of PNMR
BSERBest system of emission reduction technology
BTMUMUFG Bank Ltd., formerly the Bank of Tokyo-Mitsubishi UFJ, Ltd.
BTMU Term LoanNM Capital’s $125.0 Million Unsecured Term Loan
BTU  British Thermal Unit
CAAClean Air Act
CARES ActCoronavirus Aid, Relief, and Economic Security Act
Casa Mesa WindCasa Mesa Wind Energy Center
CCAECoalition for Clean Affordable Energy
CCNCertificate of Convenience and Necessity
CCRCoal Combustion Residuals
CFIUSCommittee on Foreign Investment in the United States
CFRECitizens for Fair Rates and the Environment
CIACContributions in Aid of Construction
CO2
  Carbon Dioxide
COVID-19Novel coronavirus global pandemic
CSACoal Supply Agreement
CTC  Competition 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
DOE  United States Department of Energy
DOI  United States Department of Interior
EGUElectric Generating Unit
EIM  California Independent System Operator Western Energy Imbalance Market
EPA  United States Environmental Protection Agency
EPE  El Paso Electric Company
ERCOT  Electric Reliability Council of Texas
ESAEndangered Species Act
ESGEnvironmental, Social, and Governance principles
ETAThe New Mexico Energy Transition Act
EUEAThe New Mexico Efficient Use of Energy Act
Exchange ActSecurities Exchange Act of 1934
iv

FarmingtonThe City of Farmington, New Mexico
FASB  Financial Accounting Standards Board
FCCFederal Communications Commission
FERC  Federal Energy Regulatory Commission
FIP  Federal Implementation Plan
Four Corners  Four Corners Power Plant
Four Corners Abandonment ApplicationPNM’s January 8, 2021 application for approval for the abandonment of Four Corners and issuance of a securitized financing order
Four Corners CSAFour Corners’ coal supply contract with NTEC
Four Corners Purchase and Sale AgreementPNM’s pending sale of its 13% ownership interest in Four Corners to NTEC
FPPAC  Fuel and Purchased Power Adjustment Clause
FTCFederal Trade Commission
FTYFuture Test Year
GAAP  Generally Accepted Accounting Principles in the United States of America
GHG  Greenhouse Gas Emissions
GWh  Gigawatt hours
HSRHart-Scott Rodino Antitrust Improvement Act of 1976
IBEW  International Brotherhood of Electrical Workers
IberdrolaIberdrola, S.A., a corporation organized under the laws of the Kingdom of Spain, and 81.5% owner of Avangrid
IRCInternal Revenue Code
IRPIntegrated Resource Plan
IRS  Internal Revenue Service
ISFSIIndependent Spent Fuel Storage Installation
kVKilovolt
KW  Kilowatt
KWh  Kilowatt Hour
La Joya Wind ILa Joya Wind Facility generating 166 MW of output that became operational in February 2021
La Joya Wind IILa Joya Wind Facility generating 140 MW of output that is expected to be operational in March 2021
La Luz  La Luz Generating Station
LIBOR  London Interbank Offered Rate
Lightning Dock GeothermalLightning Dock geothermal power facility, also known as the Dale Burgett Geothermal Plant
Lordsburg  Lordsburg Generating Station
Los AlamosThe Incorporated County of Los Alamos, New Mexico
Luna  Luna Energy Facility
MD&A  Management’s Discussion and Analysis of Financial Condition and Results of Operations
MergerThe merger of Merger Sub with and into PNMR pursuant to the Merger Agreement, with PNMR surviving the Merger as a direct, wholly-owned subsidiary of Avangrid
Merger AgreementThe Agreement and Plan of Merger, dated October 20, 2020, between PNMR, Avangrid and Merger Sub
Merger Backstop Revolving Facility$300.0 million 364-day revolving credit facility
Merger Backstop Term Loan$50.0 million 364-day delayed-draw term loan credit facility
Merger SubNM Green Holdings, Inc., a New Mexico corporation and wholly-owned subsidiary of Avangrid which will merge with and into PNMR at the effective time of the Merger (defined below)
MMBTU  Million BTUs
Moody’s  Moody’s Investor Services, Inc.
MSRM-S-R Public Power Agency
MW  Megawatt
MWh  Megawatt Hour
NAAQSNational Ambient Air Quality Standards
Navajo Acts  Navajo Nation Air Pollution Prevention and Control Act, Navajo Nation Safe Drinking Water Act, and Navajo Nation Pesticide Act
NDT  Nuclear Decommissioning Trusts for PVNGS
NECNavopache Electric Cooperative, Inc.
NEENew Energy Economy
v

NEPANational Environmental Policy Act
NERC  North 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
NMAG  New Mexico Attorney General
NMED  New Mexico Environment Department
NMMMDThe Mining and Minerals Division of the New Mexico Energy, Minerals and Natural Resources Department
NMPRC  New Mexico Public Regulation Commission
NMRDNM Renewable Development, LLC, owned 50% each by PNMR Development and AEP OnSite Partners, LLC
NOx  Nitrogen Oxides
NOPRNotice of Proposed Rulemaking
NPDESNational Pollutant Discharge Elimination System
NRC  United States Nuclear Regulatory Commission
NSPS  New Source Performance Standards
NSR  New Source Review
NTEC  Navajo Transitional Energy Company, LLC, an entity owned by the Navajo Nation
OATTOpen Access Transmission Tariff
OCI  Other Comprehensive Income
OPEB  Other Post-Employment Benefits
OSMUnited States Office of Surface Mining Reclamation and Enforcement
PBO  Projected Benefit Obligation
PCRBs  Pollution Control Revenue Bonds
PMParticulate Matter
PNM  Public Service Company of New Mexico and Subsidiaries
PNM 2017 New Mexico Credit FacilityPNM’s $40.0 Million Unsecured Revolving Credit Facility
PNM 2017 Senior Unsecured Note AgreementPNM’s Agreement for the sale of Senior Unsecured Notes, aggregating $450.0 million
PNM 2017 Term LoanPNM’s $200.0 Million Unsecured Term Loan
PNM 2018 SUNsPNM’s Senior Unsecured Notes issued under the PNM 2017 Senior Unsecured Note Agreement
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
PNM 2020 Fixed Rate PCRBsPNM's $302.5 million PCRBs remarketed on July 22, 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
PNM Floating Rate PCRBsPNM's $100.3 million PCRBs remarketed on July 1, 2020
PNM Revolving Credit FacilityPNM’s $400.0 Million Unsecured Revolving Credit Facility
PNMR  PNM 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
vi

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 that matured on December 13, 2019
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 Unsecured Term Loan
PNMR 2020 Forward Equity Sale AgreementsPNMR’s Block Equity Sale of 6.2 million Shares of PNMR Common Stock with Forward Sales Agreement
PNMR 2020 Term LoanPNMR’s $150.0 million Unsecured Term Loan that matures on January 31, 2022
PNMR 2020 Delayed-Draw Term LoanPNMR’s $300.0 million Unsecured Delayed-Draw Term Loan that matures on January 31, 2022
PNMR DevelopmentPNMR Development and Management Company, an unregulated wholly-owned subsidiary of PNMR
PNMR Development Revolving Credit FacilityPNMR Development’s $40.0 million Unsecured Revolving Credit Facility
PNMR Development Term LoanPNMR Development’s $65.0 Million Unsecured Term Loan that matures on January 31, 2022
PNMR Revolving Credit FacilityPNMR’s $300.0 Million Unsecured Revolving Credit Facility
PPA  Power Purchase Agreement
PSD  Prevention of Significant Deterioration
PUCT  Public Utility Commission of Texas
PV  Photovoltaic
PVNGS  Palo Verde Nuclear Generating Station
RCT  Reasonable Cost Threshold
REANew Mexico’s Renewable Energy Act of 2004
REC  Renewable Energy Certificates
Red Mesa WindRed Mesa Wind Energy Center
REP  Retail Electricity Provider
RFPRequest For Proposal
Rio BravoRio Bravo Generating Station, formerly known as Delta
RMC  Risk Management Committee
ROEReturn on Equity
RPS  Renewable Energy Portfolio Standard
S&P  Standard and Poor’s Ratings Services
SCE  Southern California Edison Company
SCPPA  Southern California Public Power Authority
SCRSelective Catalytic Reduction
SEC  United States Securities and Exchange Commission
SIP  State Implementation Plan
SJCC  San Juan Coal Company
SJGS  San 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
SNCRSelective Non-Catalytic Reduction
SO2
  Sulfur Dioxide
SRP  Salt River Project
SUNsSenior Unsecured Notes
Tax ActFederal tax reform legislation enacted on December 22, 2017, commonly referred to as the Tax Cuts and Jobs Act
TCEQ  Texas Commission on Environmental Quality
TECA  Texas Electric Choice Act
vii

Tenth CircuitUnited States Court of Appeals for the Tenth Circuit
TEPTransportation Electrification Program
TNMP  Texas-New Mexico Power Company and Subsidiaries
TNMP 2018 Rate CaseTNMP’s General Rate Case Application Filed May 30, 2018
TNMP 2018 Term LoanTNMP’s $35.0 Million Unsecured Term Loan
TNMP 2019 BondsTNMP’s First Mortgage Bonds to be issued under the TNMP 2019 Bond Purchase Agreement
TNMP 2019 Bond Purchase AgreementTNMP’s Agreement to Issue an Aggregate of $305.0 Million in First Mortgage Bonds in 2019
TNMP Revolving Credit Facility  TNMP’s $75.0 Million Secured Revolving Credit Facility
TNP  TNP Enterprises, Inc. and Subsidiaries
Tri-State  Tri-State Generation and Transmission Association, Inc.
Tucson  Tucson Electric Power Company
UAMPS  Utah Associated Municipal Power Systems
U.S.The Unites States of America
US Supreme CourtUnited States Supreme Court
Valencia  Valencia Energy Facility
VIEVariable Interest Entity
WACC  Weighted Average Cost of Capital
WEGWildEarth Guardians
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
WFB LOCLetter of credit arrangements with Wells Fargo Bank, N.A., entered into in August 2020
WRAWestern Resource Advocates
WSJWestmoreland San Juan, LLC, an indirect wholly-owned subsidiary of Westmoreland
WSJ LLCWestmoreland San Juan, LLC, a subsidiary of Westmoreland Mining Holdings, LLC, and current owner of SJCC
WSPP  Western Systems Power Pool
viii

PART I
 
ITEM 1.BUSINESS

THE COMPANY
Overview
PNMR is an investor-owned holding company with two regulated utilities providing electricity and electric services in New Mexico and Texas. PNMR’s electric utilities are PNM and TNMP. PNMR is focused on achieving three key financial objectives:
Earning authorized returns on regulated businesses
Delivering at or above industry-average earnings and dividend growth
Maintaining investment grade credit ratings

In conjunction with these objectives, 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

PNMR’s success in accomplishing its financial objectives is highly dependent on two key factors: fair and timely regulatory treatment for its utilities and the utilities’ strong operating performance. Both PNM and TNMP seek cost recovery for their investments through general rate cases, periodic cost of service filings, and various rate riders. PNM filed general rate cases with the NMPRC in August 2015 and December 2016. The NMPRC issued rate orders in those cases in September 2016 and January 2018. TNMP filed a general rate case in May 2018 and the PUCT issued an order in that case in December 2018. Additional information about rate filings is provided in Operations and Regulation below and in Note 17.

PNMR’s common stock trades on the New York Stock Exchange under the symbol PNM. PNMR was incorporated in the State of New Mexico in 2000.

Other Information

These filings for PNMR, PNM, and TNMP include disclosures for each entity. For discussion purposes, 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. A reference to “MD&A” in this report refers to Part II, Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations. A reference to a “Note” refers to the accompanying Notes to Consolidated Financial Statements.

Financial information relating to amounts of revenue, net earnings, and total assets of reportable segments is contained in MD&A and Note 2.

Proposed Transaction with Avangrid

On October 20, 2020, PNMR, Avangrid and Merger Sub entered into the Merger Agreement pursuant to which Merger Sub will merge with and into PNMR, with PNMR surviving the Merger as a wholly-owned subsidiary of Avangrid.

Pursuant to the Merger Agreement, each issued and outstanding share of the common stock of PNMR (other than (i) the issued shares of PNMR common stock that are owned by Avangrid, Merger Sub, PNMR or any wholly-owned subsidiary of Avangrid or PNMR, which will be automatically cancelled at the Effective Time and (ii) shares of PNMR common stock outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of, or consented in writing to, the Merger who is entitled to, and who has demanded, payment for fair value of such shares) at the Effective Time will be converted into the right to receive $50.30 in cash.

The proposed Merger has been unanimously approved by the Boards of Directors of PNMR, Avangrid and Merger Sub and approved by PNMR shareholders at the Special Meeting of Shareholders held on February 12, 2021. On January 20, 2021, the FTC notified PNMR and Avangrid that early termination of the waiting period under the HSR Act in connection with the Merger was granted. CFIUS completed its review of the Merger on February 2, 2021, and has concluded that there are no unresolved national security concerns with respect to the Merger. The early termination of the waiting period under the HSR Act and clearance by CFIUS satisfies two of the conditions to the closing of the transactions contemplated by the Merger Agreement. Consummation of the Merger remains subject to the satisfaction or waiver of certain customary closing conditions,
A - 1

including, without limitation, the absence of any material adverse effect on PNMR, the receipt of required regulatory approvals (including the PUCT, the NMPRC, FERC, FCC, and the NRC), and the agreements relating to the divestiture of Four Corners being in full force and effect and all applicable regulatory filings associated therewith being made. The Merger is currently expected to close in the second half of 2021.

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 websites are:

PNMR: www.pnmresources.com
PNM: www.pnm.com
TNMP: www.tnmp.com

PNMR’s corporate website (www.pnmresources.com) includes a dedicated section providing key environmental and other sustainability information related to PNM’s and TNMP’s operations and other information that collectively demonstrates the Company’s commitment to ESG principles. This information highlights plans for PNM to be coal-free by 2024 (subject to regulatory approval) and to have an emissions-free generating portfolio by 2040.

The contents of these websites are not a part of this Form 10-K. 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 https://www.pnmresources.com/esg-commitment/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.

OPERATIONS AND REGULATION

Regulated Operations

PNM
Operational Information

PNM is an electric utility that provides electric generation, transmission, and distribution service to its rate-regulated customers. PNM was incorporated in the State of New Mexico in 1917. PNM’s retail electric service territory covers a large area of north-central New Mexico, including the cities of Albuquerque, Rio Rancho, and Santa Fe, and certain areas of southern New Mexico. Service to retail electric customers is subject to the jurisdiction of the NMPRC. The largest retail electric customer served by PNM accounted for 2.5% of its revenues for the year ended December 31, 2020. Other services provided by PNM include wholesale transmission services to third parties. PNM owns transmission lines that are interconnected with other utilities in New Mexico, Texas, Arizona, Colorado, and Utah. Regulation encompasses the utility’s electric rates, service, accounting, issuances of securities, construction of major new generation, abandonment of existing generation, types of generation resources, transmission and distribution facilities, and other matters. See Notes 16 and 17 for additional information on rate cases and other regulatory matters.


A - 2

Weather-normalized retail electric KWh sales decreased by 0.8% in 2020 and increased by 0.3% in 2019. The system peak demands for retail and firm-requirements customers were as follows:

System Peak Demands
202020192018
(Megawatts)
Summer1,974 1,937 1,885 
Winter1,460 1,440 1,351 
PNM holds long-term, non-exclusive franchise agreements for its electric retail operations, with varying expiration dates. These franchise agreements allow the utility to access public rights-of-way for placement of its electric facilities. Franchise agreements have expired in some areas PNM serves. Because PNM remains obligated under New Mexico state law to provide service to customers in these areas, the expirations should not have a material adverse impact. The Albuquerque, Rio Rancho, and Santa Fe metropolitan areas accounted for 41.4%, 8.1%, and 6.6% of PNM’s 2020 revenues and no other franchise area represents more than 5%. PNM also earns revenues from its electric retail operations in its service areas that do not require franchise agreements.

PNM owns 3,389 miles of electric transmission lines that interconnect with other utilities in New Mexico, Arizona, Colorado, Texas, and Utah. New Mexico ranks third in the Nation for energy potential from solar power according to the Nebraska Department of Energy & Energy Sun Index and ranks third in the Nation for land-based wind capacity according to the U.S. Office of Energy Efficiency and Renewable Energy. PNM owns transmission capacity in an area of eastern New Mexico with large wind generation potential and in recent years there has been substantial interest by developers of wind generation to interconnect to PNM’s transmission system in this area. PNM plans to invest approximately $277 million for anticipated expansions of PNM’s transmission system in 2021 to provide additional service to transmit power from these generation resources to customers in New Mexico and California.

PNM plans to begin participating in the EIM beginning in April 2021. PNM expects participation in the EIM will provide substantial cost savings to customers. The NMPRC has granted PNM authority to seek recovery of costs associated with joining the EIM in a future general rate case and to pass the benefits of participating in EIM to customers through the FPPAC. See Note 16 and Note 17. PNM also engages in activities to optimize its existing jurisdictional assets and long-term power agreements through spot market, hour-ahead, day-ahead, week-ahead, and other sales of excess generation not required to fulfill retail load and contractual commitments. These activities are credited to customers through PNM’s FPPAC.

Regulatory Activities

NMPRC Regulated Retail Rate Proceedings

Customer rates for retail electric service are set by the NMPRC. On October 1, 2016, PNM implemented a NMPRC order in PNM’s NM 2015 Rate Case that approved an increase in non-fuel base rates of $61.2 million annually. PNM appealed certain aspects of the NMPRC’s order to the NM Supreme Court and other parties in that rate case filed cross-appeals contesting other aspects of the NMPRC ruling. On May 16, 2019, the NM Supreme Court affirmed all but one of the NMPRC’s decisions in the NM 2015 Rate Case and remanded the case to the NMPRC for further proceedings consistent with the court’s findings. As a result, during the second quarter of 2019 PNM recorded a pre-tax regulatory disallowance related to certain matters it had appealed in the case. On January 8, 2020, the NMPRC issued its order in response to the NM Supreme Court’s remand. The NMPRC order reaffirmed its September 2016 order except for the decision to permanently disallow recovery of certain future decommissioning costs related to PVNGS Units 1 and 2. The NMPRC indicated that PNM’s ability to recover these costs will be addressed in a future proceeding and closed the NM 2015 Rate Case docket.

In December 2016, PNM filed the NM 2016 Rate Case with the NMPRC. After extensive settlement negotiations and public proceedings, the NMPRC issued a Revised Order Partially Adopting Certification of Stipulation dated January 17, 2018. The key terms of that order include an increase in base non-fuel revenues of $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%, a requirement to return to customers over a three-year period the benefit of the reduction in the New Mexico Corporate income tax rate, a disallowance of PNM’s ability to collect an equity return on certain investments aggregating $148.1 million at Four Corners, and a requirement to consider the prudency of PNM’s decision to continue its participation in Four Corners in PNM’s next general rate case filing. In accordance with the NMPRC’s final order, PNM implemented 50% of the approved rate increase for service rendered beginning February 1, 2018 and the rest of the increase for service rendered on January 1, 2019.

PNM has a NMPRC-approved rate rider to collect costs for renewable energy procurements that are not otherwise being collected in rates. If PNM’s earned return on jurisdictional equity in a calendar year, adjusted for weather and other items not representative of normal operation, exceeds the NMPRC-approved rate by 0.5%, the rider provides that PNM would refund the excess to customers during the following year. PNM did not exceed the limitation in 2019 and does not expect to exceed the
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limitation in 2020. The NMPRC has also approved riders designed to allow PNM to bill and collect substantially all of fuel and purchased power costs and costs of approved energy efficiency initiatives.

FERC Regulated Wholesale Transmission

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 in the formula rate for the following year. 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.

In May 2019, PNM filed an application with FERC requesting approval to purchase and provide transmission service on a new 165-mile 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 eastern New Mexico beginning in 2021 using an incremental rate. All necessary approvals for PNM to purchase and provide transmission service from the Western Spirit line have been obtained. See Note 17.

The Energy Transition Act (“ETA”)

The ETA became effective on June 14, 2019. As discussed below, the ETA amends the REA and requires utilities operating in New Mexico to provide 100% zero-carbon energy by 2045. The ETA also provides for a transition from fossil-fueled generating resources to renewable and other carbon-free resources by allowing utilities to issue to qualified investors securitized bonds, or “energy transition bonds,” related to the retirement of certain coal-fired generating facilities. Proceeds from the energy transition bonds must be used to provide utility service to customers and for other costs as defined by the ETA. On January 29, 2020, the NM Supreme Court issued a ruling requiring the NMPRC apply the ETA to all aspects of PNM’s SJGS Abandonment Application. 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 January 8, 2021, PNM filed the Four Corners Abandonment Application, which seeks NMPRC approval to exit PNM’s 13% share of Four Corners as of December 31, 2024, and issuance of approximately $300 million of energy transition bonds as provided by the ETA.

PNM expects the ETA will have a significant impact on PNM’s future generation portfolio, including PNM’s planned retirements of SJGS in 2022 and the Four Corners exit in 2024. PNM cannot predict the full impact of the ETA or the outcome of its pending and potential future generating resource abandonment and replacement resource filings with the NMPRC. See additional discussion of the ETA and PNM’s SJGS and Four Corners Abandonment Applications in Notes 16 and 17.

Renewable Energy

The REA was enacted to encourage the development of renewable energy in New Mexico. The ETA amended 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 REA provides for streamlined proceedings for approval of utilities’ renewable energy procurement plans, provides utilities recovery of costs incurred consistent with approved procurement plans, and sets a RCT for the procurement of renewable resources to prevent excessive costs being added to rates. PNM files required renewable energy plans with the NMPRC annually and makes procurements consistent with the plans approved by the NMPRC. See Note 17.

TNMP

Operational Information

TNMP is a regulated utility operating and incorporated in the State of Texas. TNMP’s predecessor was organized in 1925. TNMP provides transmission and distribution services in Texas under the provisions of TECA and the Texas Public Utility Regulatory Act. TNMP is subject to traditional cost-of-service regulation with respect to rates and service under the jurisdiction of the PUCT and certain municipalities. TNMP’s transmission and distribution activities are solely within ERCOT, which is the independent system operator responsible for maintaining reliable operations for the bulk electric power supply system in most of Texas. Therefore, TNMP is not subject to traditional rate regulation by FERC. TNMP serves a market of small to medium sized communities, most of which have populations of less than 50,000. TNMP is the exclusive provider of transmission and distribution services in most areas it serves.

TNMP’s service territory consists of three non-contiguous areas. One portion of this territory extends from Lewisville, which is approximately 10 miles north of the Dallas-Fort Worth International Airport, eastward to municipalities near the Red
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River, and to communities north, west, and south of Fort Worth. The second portion of its service territory includes the area along the Texas Gulf Coast between Houston and Galveston, and the third portion includes areas of far west Texas between Midland and El Paso.

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. See Notes 16 and 17 for additional information on rate cases and other regulatory matters.

For its volumetric load consumers billed on KWh usage, TNMP experienced an increase in weather normalized retail KWh sales of 2.9% in 2020 and an decrease of 2.0% in 2019. For its weather normalized demand-based load, excluding retail transmission consumers, TNMP experienced a decrease of 1.3% in 2020 and an increase of 4.9% in 2019. As of December 31, 2020, 110 active REPs receive transmission and distribution services from TNMP. In 2020, the three largest REPs accounted for 21%, 18%, and 11% of TNMP’s operating revenues. No other consumer accounted for more than 10% of revenues.

Regulatory Activities

On January 1, 2019, TNMP implemented a PUCT order in TNMP’s 2018 Rate Case 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. The increase reflects the reduction in the federal corporate income tax rate to 21%. Under the approved settlement stipulation TNMP was granted authority to update depreciation rates and refund the regulatory liability related to federal tax reform to customers.

The PUCT approved interim adjustments to TNMP’s transmission rates of $14.3 million in March 2019, $3.3 million in September 2019, $7.8 million in March 2020, and $2.0 million in October 2020. On January 22, 2021, TNMP filed an application to further update its transmission rates, which would increase revenues by $14.1 million annually. The application is pending before the PUCT.

On April 6, 2020, TNMP filed its 2020 DCOS that requested an increase in TNMP's annual distribution revenue requirement of $14.7 million based on net capital incremental distribution investments of $149.2 million. On June 26, 2020, the parties filed a unanimous settlement for a $14.3 million annual distribution revenue requirement and on August 13, 2020, the PUCT approved the unanimous settlement with rates effective September 1, 2020.

Franchise Agreements

TNMP holds long-term, non-exclusive franchise agreements for its electric transmission and distribution services. These agreements have varying expiration dates and some have expired. TNMP intends to negotiate and execute new or amended franchise agreements with municipalities where the agreements have expired or will be expiring. Since TNMP is the exclusive provider of transmission and distribution services in most areas that it serves, the need to renew or renegotiate franchise agreements should not have a material adverse impact. TNMP also earns revenues from service provided to facilities in its service area that lie outside the territorial jurisdiction of the municipalities with which TNMP has franchise agreements.

Corporate and Other

The Corporate and Other segment includes PNMR holding company activities, primarily related to corporate level debt and the activities of PNMR Services Company. PNMR Services Company provides corporate services through shared services agreements to PNMR and all of PNMR’s business units, including PNM and TNMP. These services are charged and billed at cost on a monthly basis to the business units. The activities of PNMR Development, NM Capital, and NMRD are also included in Corporate and Other.
SOURCES OF POWER
PNM
Generation Capacity

As of December 31, 2020, the total net generation capacity of facilities owned or leased by PNM was 2,168 MW. PNM also obtains power under long-term PPAs for the power produced by Valencia, New Mexico Wind, Red Mesa Wind, Casa Mesa Wind, the Lightning Dock Geothermal facility, and the NMRD-owned solar facilities.


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PNM’s capacity in electric generating facilities, which are owned, leased, or under PPAs, in commercial operation as of December 31, 2020 is:
GenerationPercent of
CapacityGeneration
TypeNameLocation(MW)Capacity
CoalSJGSWaterflow, New Mexico562 20.0 %
CoalFour CornersFruitland, New Mexico200 7.1 %
    Coal-fired resources762 27.1 %
GasReeves StationAlbuquerque, New Mexico146 5.2 %
GasAfton (combined cycle)La Mesa, New Mexico235 8.3 %
GasLordsburgLordsburg, New Mexico85 3.0 %
GasLuna (combined cycle)Deming, New Mexico190 6.7 %
Gas/OilRio BravoAlbuquerque, New Mexico149 5.3 %
GasValenciaBelen, New Mexico155 5.5 %
GasLa LuzBelen, New Mexico41 1.5 %
Gas-fired resources1,001 35.5 %
NuclearPVNGSWintersburg, Arizona402 14.3 %
SolarPNM-owned solarTwenty-four sites in New Mexico158 5.6 %
SolarNMRD-owned solarLos Lunas, New Mexico130 4.6 %
WindNew Mexico WindHouse, New Mexico200 7.1 %
WindRed Mesa WindSeboyeta, New Mexico102 3.6 %
WindCasa Mesa WindHouse, New Mexico50 1.8 %
GeothermalLightning Dock GeothermalLordsburg, New Mexico11 0.4 %
Renewable resources651 23.1 %
2,816 100.0 %

The NMPRC has approved plans for PNM to procure energy and RECs from additional wind and solar-PV renewable resources totaling 1,056 MW to serve retail customers and a data center located in PNM’s service territory, including the portfolio to replace the planned retirement of SJGS for solar PPAs of 650 MW combined with 300 MW of battery storage facilities. 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. If adjusted for these plans, the table above would reflect the percentage of generation capacity from fossil-fueled resources of 33.3%, from nuclear resources of 11.1%, and from renewable and battery storage resources of 55.6%. In addition, PNM also has a customer distributed solar generation program that represented 161.0 MW at December 31, 2020.

Fossil‑Fueled Plants

SJGS is operated by PNM and, until December 2017, consisted of four units. SJGS Units 2 and 3 were retired in December 2017 and the ownership interests in SJGS Unit 4 were restructured. PNM has received NMPRC approval to retire its remaining ownership in SJGS in 2022. See Note 17.

The table below presents the rated capacities and ownership interests of each participant in each unit of SJGS at December 31, 2020:
Unit 1Unit 4
Capacity (MW)340 507 
PNM (1)
50.000 %77.297 %
Tucson50.000 — 
Farmington— 8.475 
Los Alamos— 7.200 
UAMPS— 7.028 
Total100.000 %100.000 %
(1) Includes a 12.8% interest held in SJGS Unit 4 as a merchant plant.

Four Corners Units 4 and 5 are 13% owned by PNM. These units are jointly owned with APS, SRP, Tucson, and NTEC, and are operated by APS. The Four Corners plant site is located on land within the Navajo Nation and is subject to an easement from the federal government. APS, on behalf of the Four Corners participants, negotiated amendments to extend the owners’ right to operate the plant on the site to July 2041. PNM filed the Four Corners Abandonment Application, which seeks NMPRC approval to exit PNM’s 13% share of Four Corners as of December 31, 2024. See Note 17.
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PNM owns 100% of Reeves, Afton, Rio Bravo, Lordsburg, and La Luz and one-third of Luna. The remaining interests in Luna are owned equally by Tucson and Samchully Power & Utilities 1, LLC. PNM is also entitled to the entire output of Valencia under a PPA. Reeves, Lordsburg, Rio Bravo, La Luz, and Valencia are used primarily for peaking power and transmission support. As discussed in Note 10, Valencia is a variable interest entity and is consolidated by PNM.

Nuclear Plant

PNM is participating in the three units of PVNGS with APS (the operating agent), SRP, EPE, SCE, SCPPA, and the Department of Water and Power of the City of Los Angeles. PNM is entitled to 10.2%, including portions that are leased to PNM, of the power and energy generated by PVNGS. Currently, PNM has ownership interests of 2.3% in Unit 1, 9.4% in Unit 2, and 10.2% in Unit 3 and has leasehold interests of 7.9% in Unit 1 and 0.8% in Unit 2. The lease payments for the leased portions of PVNGS are recovered through retail rates approved by the NMPRC. See Notes 16 and 17 for information on other PVNGS matters and Note 8 for additional information concerning the PVNGS leases.

Solar

At December 31, 2020, PNM owns a total of 158 MW of solar facilities in commercial operation. PNM is also entitled to the entire output from 130 MW of NMRD-owned solar facilities. As discussed in Note 21, NMRD is a 50% equity method investee of PNMR Development.

Plant Operating Statistics

Equivalent availability of PNM’s major base-load generating stations was:
PlantOperator20202019
SJGSPNM73.3%73.1%
Four CornersAPS63.9%78.2%
PVNGSAPS89.5%90.8%
Joint Projects

SJGS, PVNGS, Four Corners, and Luna are joint projects each owned or leased by several different entities. Some participants in the joint projects are investor-owned entities, while others are privately, municipally, or co-operatively owned. Furthermore, participants in SJGS have varying percentage interests in different generating units within the project. The primary operating or participation agreements for the joint projects expire in July 2022 for SJGS, July 2041 for Four Corners, December 2046 for Luna, and November 2047 for PVNGS. SJGS and Four Corners are coal-fired generating plants that obtain their coal requirements from mines near the plants. An agreement for coal supply for SJGS, which expires on June 30, 2022, became effective on January 31, 2016. At that same time, an agreement to restructure the ownership in SJGS became effective. The restructuring agreement provided for certain participants in SJGS to exit ownership at December 31, 2017, by which time SJGS Units 2 and 3 were required to be permanently shut down. On April 1, 2020, the NMPRC approved the abandonment of PNM’s remaining interest in SJGS. In December 2013, a coal supply arrangement for Four Corners that runs through July 6, 2031 was executed. As described above, Four Corners is located on land within the Navajo Nation and is subject to an easement from the federal government. On January 8, 2021, PNM filed the Four Corners Abandonment Application, which seeks NMPRC approval to exit PNM’s 13% share of Four Corners as of December 31, 2024. Portions of PNM’s interests in PVNGS Units 1 and 2 are held under leases. See Nuclear Plant above and Note 8 regarding PNM’s actions related to these leases. See Notes 16 and 17 for additional information about PNM’s coal supply, PNM’s SJGS Abandonment Application, and PNM’s Four Corners Abandonment Application.

It is possible that other participants in the joint projects have circumstances and objectives that have changed from those existing at the time of becoming participants. The status of these joint projects is further complicated by the uncertainty surrounding the form of potential legislation and/or regulation of GHG, other air emissions, and CCRs, as well as the impacts of the costs of compliance and operational viability of all or certain units within the joint projects. It is unclear how these factors will enter into discussions and negotiations concerning the status of the joint projects as the expiration of basic operational agreements approaches. PNM can provide no assurance that its participation in the joint projects will continue in the manner that currently exists.

PPAs

In addition to generating its own power, PNM purchases power under long-term PPAs. PNM also purchases power in the forward, day-ahead, and real-time markets.

PNM has agreements to purchase renewable energy and RECs to serve New Mexico retail customers, including a data center located in PNM’s service territory. At December 31, 2020, renewable energy procured under these agreements from wind, solar-PV, and geothermal facilities aggregated to 352 MW, 130 MW, and 11 MW. These agreements currently have
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expiration dates beginning in January 2035 and extending through June 2045. The NMPRC has approved PNM’s request to enter into additional PPAs for renewable energy and RECs for an additional 166 MW of energy from La Joya Wind I, and for an additional 100 MW of energy from solar-PV facilities that are expected to be operational by December 2021. PNM’s 2020 renewable energy procurement plan, which was approved by the NMPRC in January 2020, also includes a PPA for an additional 140 MW of wind energy from La Joya Wind II to serve retail customers. The entire portfolio of replacement resources approved by the NMPRC in PNM’s SJGS Abandonment Application, includes replacement of SJGS capacity with the procurement of 650 MW of solar PPAs combined with 300 MW of battery storage agreements. In addition, on February 8, 2021 PNM filed an application with the NMPRC for approval to service the Facebook data center for an additional 190 MW of solar PPA combined with 100 MW of battery storage and a 50 MW solar PPA expected to be operational in 2023. See Note 17.

A summary of purchased power, excluding Valencia, is as follows:
 Year Ended December 31,
 20202019
Purchased under long-term PPAs
MWh2,207,238 1,853,225 
Cost per MWh$34.00 $31.62 
Other purchased power
Total MWh318,061 333,137 
Cost per MWh$51.18 $43.74 
TNMP

TNMP provides only transmission and distribution services and does not sell power.

FUEL
PNM
The percentages (on the basis of KWh) of PNM’s generation of electricity, including Valencia, fueled by coal, nuclear fuel, and gas and oil, and the average costs to PNM of those fuels per MMBTU were as follows:
 CoalNuclearGas and Oil
 Percent of
Generation
Average
Cost
Percent of
Generation
Average
Cost
Percent of
Generation
Average
Cost
202043.6 %$3.04 34.7 %$0.70 17.6 %$1.63 
201944.2 %$2.80 33.7 %$0.66 19.1 %$1.35 

In 2020 and 2019, 4.1% and 3.0% of PNM’s generation was from utility-owned solar, which has no fuel cost. The generation mix for 2021, including power procured under PPAs, is expected to be 38.5% coal, 30.2% nuclear, 13.1% gas and oil, and 18.2% from renewable resources, including solar, wind, and geothermal. Due to locally available natural gas and oil supplies, the utilization of locally available coal deposits, and the generally adequate supply of nuclear fuel, PNM believes that adequate sources of fuel are available for its generating stations into the foreseeable future. See Sources of Power – PNM – PPAs for information concerning the cost of purchased power. PNM recovers substantially all of its fuel and purchased power costs through the FPPAC.

Coal

A coal supply contract for SJGS, which expires on June 30, 2022, became effective on January 31, 2016. Coal supply has not been arranged for periods after the existing contract expires. Substantially all of the benefits of lower coal pricing under the new contract are being passed through to PNM’s customers under the FPPAC. PNM believes there is adequate availability of coal resources to continue to operate SJGS through mid-2022.

In late December 2013, a fifteen-year coal supply contract for Four Corners, which began in July 2016, was executed. Since that time, certain amendments have been made to the contract including amendments to reduce annual take-or-pay minimums and to change the annual contract period to end in May rather than in July of each year. The contract provides for pricing adjustments over its term based on economic indices. In connection with the exit of Four Corners, PNM would make payments of $75.0 million to NTEC for relief from PNM’s obligations under the coal supply agreement for Four Corners after December 31, 2024.

See Notes 16 and 17 for additional information about PNM’s December 2018 Compliance Filing, PNM’s SJGS Abandonment Application, PNM’s Four Corners Abandonment Application, and the 2020 IRP, which all focus on a carbon-free electricity portfolio by 2040 that would eliminate coal at the end of 2024.
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Natural Gas
The natural gas used as fuel for the electric generating plants is procured on the open market and delivered by third-party transportation providers. The supply of natural gas can be subject to disruptions due to extreme weather events and/or pipeline or facility outages. PNM has contracted for firm gas transmission capacity to minimize the potential for disruptions due to extreme weather events. Certain of PNM’s natural gas plants are generally used as peaking resources that are highly relied upon during seasonally high load periods and/or during periods of extreme weather, which also may be the times natural gas has the highest demand from other users. Substantially all of PNM’s natural gas costs are recovered through the FPPAC.
Nuclear Fuel and Waste

PNM is one of several participants in PVNGS. The PVNGS participants are continually identifying their future nuclear fuel resource needs and negotiating arrangements to fill those needs. The PVNGS participants have contracted for 100% of PVNGS’s requirements for uranium concentrates through 2025 and 55% through 2028. Additional needed supplies are covered through existing inventories or spot market transactions. For conversion services, 100% are contracted through 2025 and 70% through 2030. Additional needed conversion services are covered through existing inventories or spot market transactions. For enrichment services 100% is contracted through 2022 and 80% through 2026. For fuel assembly fabrication 100% is contracted through 2027.
The Nuclear Waste Policy Act of 1982 required the DOE to begin to accept, transport, and dispose of spent nuclear fuel and high-level waste generated by the nation’s nuclear power plants by 1998. The DOE’s obligations are reflected in a contract with each nuclear power plant. The DOE failed to begin accepting spent nuclear fuel by 1998. APS (on behalf of itself and the other PVNGS participants) pursued legal actions for which settlements were reached. See Note 16 for information concerning these actions.
The DOE had planned to meet its disposal obligations by designing, licensing, constructing, and operating a permanent geologic repository at Yucca Mountain, Nevada. In March 2010, the DOE filed a motion to dismiss with prejudice its Yucca Mountain construction authorization application that was pending before the NRC. Several legal proceedings followed challenging DOE’s withdrawal of its Yucca Mountain construction authorization application. None of these lawsuits have been conclusively decided. However, the DC Circuit ordered the NRC to resume its review of the application. The results of the NRC’s review publications do not signal whether or when the NRC might authorize construction of the repository.
All spent nuclear fuel from PVNGS is being stored on-site. PVNGS has sufficient capacity at its on-site ISFSI to store all of the nuclear fuel that will be irradiated during the initial operating license periods, which end 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 extended license periods, which end in November 2047. If uncertainties regarding the United States government’s obligation to accept and store spent fuel are not favorably resolved, the PVNGS participants will evaluate alternative storage solutions. These may obviate the need to expand the ISFSI to accommodate all of the fuel that will be irradiated during the extended license periods.

ENVIRONMENTAL MATTERS

Electric utilities are subject to stringent laws and regulations for protection of the environment by local, state, federal, and tribal authorities. In addition, PVNGS is subject to the jurisdiction of the NRC, which has the authority to issue permits and licenses and to regulate nuclear facilities in order to protect the health and safety of the public from radioactive hazards and to conduct environmental reviews. The liabilities under these laws and regulations can be material. In some instances, liabilities may be imposed without regard to fault, or may be imposed for past acts, whether or not such acts were lawful at the time they occurred. See MD&A – Other Issues Facing the Company – Climate Change Issues for information on GHG. In addition, Note 16 contains information related to the following matters, incorporated in this item by reference:

PVNGS Decommissioning Funding
Nuclear Spent Fuel and Waste Disposal
The Energy Transition Act
Environmental Matters under the caption “The Clean Air Act”
Navajo Nation Environmental Issues
Cooling Water Intake Structures
Effluent Limitation Guidelines
Santa Fe Generating Station
Environmental Matters under the caption “Coal Combustion Residuals Waste Disposal”


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COMPETITION

Regulated utilities are generally not subject to competition from other utilities in areas that are under the jurisdiction of state regulatory commissions. In New Mexico, PNM does not have direct competition for services provided to its retail electric customers. In Texas, TNMP is not currently in any direct retail competition with any other regulated electric utility. However, PNM and TNMP are subject to customer conservation and energy efficiency activities, as well as initiatives to utilize alternative energy sources, including self-generation, or otherwise bypass the PNM and TNMP systems.

PNM is subject to varying degrees of competition in certain territories adjacent to or within the areas it serves. This competition comes from other utilities in its region as well as rural electric cooperatives and municipal utilities.  PNM is involved in the generation and sale of electricity into the wholesale market to serve its New Mexico retail customers.  PNM is subject to competition from regional utilities and merchant power suppliers with similar opportunities to generate and sell energy at market-based prices and larger trading entities that do not own or operate generating assets.

HUMAN CAPITAL RESOURCES

PNM Resources employees make the Company successful through our core values of safety, caring, and integrity. PNM Resources seeks to attract and retain its employees by offering competitive compensation and benefits as well as opportunities for career advancement. Total compensation packages are reviewed periodically to ensure competitiveness within the industry and consistency with performance levels. The Company has implemented an enterprise-wide leadership development program focused on ensuring our leaders’ success. In addition, the Company has embarked on a company-wide culture alignment that creates a shift in behavior and mindset to accentuate shared purpose, transparency and collaboration creating both individual and organizational accountability for achieving key results. The Company values also drive a culture committed to diversity and inclusion. Our diverse workforce enables the Company to provide exceptional value to our customers and stakeholders. Our 1,708 employees include 39%, represented by a bargaining unit, 26% women, and 50% minorities. Annually, the Company performs a robust succession planning process evaluating our plans for diversity and inclusion. The Company’s value of safety has been evident in our response to COVID-19. In order to keep our employees safe throughout the year, we have leveraged flexible and remote work policies, enhanced cleaning protocols, adjusted attendance policies, provided regular employee communications, created new physical safety and travel policies, provided personal protective equipment, and implemented procedures to address actual and suspected COVID-19 cases and potential exposure.

The Board agrees that human capital management is an important component of PNM Resources’ continued growth and success, and is essential for its ability to attract, retain and develop talented and skilled employees. Management regularly reports to the Compensation Committee of the Board on human capital management topics, including corporate culture, diversity and inclusion, employee development and compensation and benefits. The Compensation Committee has oversight of talent retention and development and succession planning, and the Board provides input on important decisions in each of these areas.
The following table sets forth the number of employees of PNMR, PNM, and TNMP as of December 31, 2020:
PNMRPNMTNMP
Corporate (1)
409 — — 
PNM917 917 — 
TNMP382 — 382 
   Total1,708 917 382 
(1) Represents employees of PNMR Services Company.

As of December 31, 2020, PNM had 461 employees in its power plant and operations areas that are currently covered by a collective bargaining agreement with the IBEW Local 611 that is in effect through April 30, 2023. As of December 31, 2020, TNMP had 204 employees represented by IBEW Local 66 covered by a collective bargaining agreement that is in effect through August 31, 2021. The wages and benefits for PNM and TNMP employees who are members of the IBEW are typically included in the rates charged to electric customers and consumers, subject to approval of the NMPRC and PUCT.

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
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control, that can cause actual results to differ from those expressed or implied by the forward-looking statements. These factors include:

The expected timing and likelihood of completion of the pending Merger, including the timing, receipt and terms and conditions of any required governmental and regulatory approvals of the pending Merger that could reduce anticipated benefits or cause the parties to abandon the transaction
The failure by Avangrid to obtain the necessary financing arrangement set forth in commitment letter received in connection with the Merger
The occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement
The risk that the parties may not be able to satisfy the conditions to the proposed Merger in a timely manner or at all
The risk that the proposed Merger could have an adverse effect on the ability of PNMR to retain and hire key personnel and maintain relationships with its customers and suppliers, and on its operating results and businesses generally
The ability of PNM and TNMP to recover costs and earn allowed returns in regulated jurisdictions, including the prudence of PNM’s decision to continue participation in Four Corners and recovery of PNM’s investments and other costs associated with that plant, and any actions resulting from the pending appeal of the NMPRC's approval of PNM' request to issue Securitized Bonds in PNM’s SJGS 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 and 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 resulting from potential mid-term or long-term impacts related to COVID-19, and supporting forecasts utilized in FTY rate proceedings
Uncertainty relating to PNM’s recent decision to return the currently leased generating capacity in PVNGS Units 1 and 2 at the expiration of their lease terms in 2023 and 2024, including future regulatory requests relating to the ratemaking treatment and replacement resources for the leased assets and the NRC’s actions related to transfer of ownership
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 proposed exit of Four Corners in 2024, 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, from the economic impacts of COVID-19 or from the entry into the Merger Agreement
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 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 enacted 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
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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 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

For information about the risks associated with the use of derivative financial instruments see Part II, Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.”

SECURITIES ACT DISCLAIMER

Certain securities described 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-K does not constitute an offer to sell or the solicitation of an offer to buy any securities. 

ITEM 1A.    RISK FACTORS
 
The business and financial results of PNMR, PNM, and TNMP are subject to a number of risks and uncertainties, many of which are beyond their control, including those set forth below and in MD&A, Note 16, and Note 17. For other factors that may cause actual results to differ materially from those indicated in any forward-looking statement contained in this report, see Disclosure Regarding Forward Looking Statements in Item 1. Business. TNMP provides transmission and distribution services to REPs that provide electric service to consumers in TNMP’s service territories. References to customers in the risk factors discussed below also encompass the customers of these REPs who are the ultimate consumers of electricity transmitted and distributed through TNMP’s facilities.
Regulatory Factors
The profitability of PNMR’s utilities depends on being able to recover their costs through regulated rates and earn a fair return on invested capital, including investments in its generating plants. Without timely cost recovery, including recovery of undepreciated investments and other costs associated with abandoning generation facilities, and the opportunity to earn a fair return on capital investments, PNMR’s liquidity and results of operations could be negatively impacted. Further, PNM and TNMP are in a period of significant capital expenditures. While increased capital investments and other costs are placing upward pressure on rates charged to customers, energy efficiency initiatives and other factors are placing downward pressure on customer usage. The combination of these matters could adversely affect the Company’s results of operations and cash flows.
The rates PNM charges its customers are regulated by the NMPRC and FERC. TNMP is regulated by the PUCT. The Company is in a period requiring significant capital investment and is projecting total construction expenditures for the years 2021-2025 to be $4.0 billion. See Note 14. PNM and TNMP anticipate a trend toward increasing costs, for which they will have to seek regulatory recovery. These costs include or are related to costs of asset construction for generation, transmission, and distribution systems necessary to provide electric service, including new transmission resources, as well as the cost to remove and retire existing assets, environmental compliance expenditures, regulatory mandates to acquire power from renewable resources, increased regulation related to nuclear safety, increased costs related to cybersecurity, increased interest costs to finance capital investments, and depreciation.
 
At the same time costs are increasing, there are factors placing downward pressure on the demand for power, thereby reducing customer usage. These factors include changing customer behaviors, including increased emphasis on energy efficiency measures and utilization of alternative sources of power, rate design that is not driven by economics, which could influence customer behavior, unfavorable economic conditions, reduced new sources of demand, and unpredictable weather patterns.

The combination of costs increasing relatively rapidly and the technologies and behaviors that are reducing energy consumption places upward pressure on the per unit prices that must be charged to recover costs. This upward pressure on unit prices could result in additional efforts by customers to reduce consumption through alternative measures. Without timely cost
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recovery and the authorization to earn a reasonable return on invested capital, the Company’s liquidity and results of operations could be negatively impacted.
Under New Mexico law, utilities may propose the use of a FTY in establishing rates. As with any forward-looking financial information, a FTY presents challenges that are inherent in the forecasting process. Forecasts of both operating and capital expenditures necessitate reliance on many assumptions concerning future conditions and operating results. Accordingly, if rate requests based on a FTY cannot be successfully supported, cash flows and results of operations may be negatively impacted. This could result from not being able to withstand challenges from regulators and intervenors regarding the utility’s capability to make reasonable forecasts.

As discussed in Note 17, in August 2015, PNM filed an application (the “NM 2015 Rate Case”) with the NMPRC for a general rate increase, which included a request to recover certain costs related to environmental upgrades at SJGS and for the purchase of certain interests in PVNGS. The NMPRC disallowed recovery of certain capital investments made by PNM in SJGS and PVNGS. PNM filed an appeal of these disallowances at the NM Supreme Court which were ultimately unsuccessful and remanded to the NMPRC. On January 8, 2020, the NMPRC issued its order in response to the NM Supreme Court’s remand. The NMPRC reaffirmed its decisions in the NM 2015 Rate Case except for the decision to permanently disallow recovery of certain future decommissioning costs related to PVNGS. The NMPRC indicated that PNM’s ability to recover these costs will be addressed in a future proceeding and closed the NM 2015 Rate Case docket.

In December 2016, PNM filed a request for a general increase in rates of $99.2 million (the “NM 2016 Rate Case”). In January 2018, the NMPRC issued an order approving a comprehensive settlement stipulation allowing for an increase in annual non-fuel retail rates of $10.3 million. The NMPRC’s order also included a partial disallowance of PNM’s share of certain environmental upgrades and other investments in Four Corners and deferred further consideration of the prudency of PNM’s continued participation in Four Corners to PNM’s next general rate case filing. On December 29, 2020, Sierra Club filed a motion asking the NMPRC to re-open the NM 2016 Rate Case for the limited purpose of conducting a prudence review of certain Four Corners investments that were deferred at the conclusion of the case. On February 10, 2021, the NMPRC rejected Sierra Club’s motion to re-open the NM 2016 Rate Case and stated that issues on whether the terms of the ETA provide an opportunity for consideration of prudence for Four Corners undepreciated investments included in a financing order or what effects the rates approved in the NM 2016 Rate Case may have on determining energy transition cost should be considered in the Four Corners Abandonment Application.

On January 8, 2021, PNM filed the Four Corners Abandonment Application, which seeks NMPRC approval to exit PNM’s 13% share of Four Corners as of December 31, 2024, and issuance of approximately $300 million of energy transition bonds as provided by the ETA. On January 26, 2021, Sierra Club filed a motion in the Four Corners Abandonment Application requesting that the NMPRC order PNM to file supplemental testimony addressing the prudence of Four Corners investments or alternatively that the NMPRC dismiss the Four Corners Application and that PNM may refile after the prudence issue is resolved. In addition, on January 28, 2021, NEE and CFRE filed a motion requesting that the NMPRC dismiss the application, stating that PNM is requesting the NMPRC act contrary to the ETA by using the NTEC transaction as a means of complying with the RPS, that the sale of 200 MW to NTEC is a net detriment to public interest and that none of the costs incurred by PNM in connection with the application or the proposed sale were reasonable or prudent for purpose of recovery. On February 26, 2021, the Hearing Examiner issued an order on the sufficiency of the Four Corners Application requiring PNM to file an amended application with supplemental testimony addressing the prudence of its investment in Four Corners by March 15, 2021. The order also established that the nine-month period for review of the amended application shall start on the date of PNM’s filing of the amended application and run through December 15, 2021. See additional discussion of the ETA and PNM’s Four Corners Abandonment Application in Notes 16 and 17.

As discussed in Note 16, on July 1, 2019, PNM filed the SJGS Abandonment Application seeking approval to retire PNM’s share of SJGS after the 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 proposed several replacement resource scenarios including PNM’s recommended replacement scenario as well as three other replacement resource scenarios that would place a greater amount of resources in the San Juan area, or result in no new fossil-fueled generating facilities, or no battery storage facilities being added to PNM’s portfolio. The SJGS Abandonment Application included a request to issue up to $361 million of energy transition bonds (the “Securitized Bonds”).

On July 10, 2019, the NMPRC issued an order requiring the SJGS Abandonment Application be considered in two proceedings: one addressing SJGS abandonment and related financing, and the other addressing replacement resources. As discussed in Note 17, after multiple filings and proceedings, in January 2020, the NM Supreme Court issued an order requiring the NMPRC to apply the ETA to all aspects of PNM’s SJGS Abandonment Application and indicating that any previous NMPRC orders inconsistent with the Court’s ruling should be vacated.

As discussed in Note 17, 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. The NM Supreme Court granted motions to intervene filed by PNM, WRA, CCAE, and the Sierra
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Club. On May 8, 2020, CFRE and NEE filed a joint statement of issues with the NM Supreme Court which asserts that the NMPRC improperly applied the ETA and that the ETA violates the New Mexico Constitution. On June 19, 2020, WRA filed a motion to dismiss CFRE and NEE’s constitutional challenges to the ETA on the ground that the New Mexico Constitution provides that only New Mexico district courts have original jurisdiction over the claims. On July 24, 2020, the NM Supreme Court issued an order denying WRA’s motion to dismiss. On August 17, 2020, the appellants filed a Brief in Chief and on October 5, 2020, PNM, WRA, CCAE, and Sierra Club filed Answer Briefs. PNM cannot predict the outcome of this matter.

On January 29, 2021 PNM filed its 2020 IRP addressing the 20-year planning period, from 2020 through 2040. The plan focuses on a carbon-free electricity portfolio by 2040 that would eliminate coal at the end of 2024. This includes replacing the power from San Juan with a mix of approved carbon-free resources and the plan to exit Four Corners at the end of 2024. The plan highlights the need for additional investments in a diverse set of resources, including renewables to supply carbon-free power, energy storage to balance supply and demand, and efficiency and other demand-side resources to mitigate load growth.

On June 11, 2020. PNM provided notices to the lessors and the NMPRC that PNM will return the leased assets under both its PVNGS Unit 1 and Unit 2 leases upon expiration of the leases in January 2023 and 2024. PNM issued an RFP for replacement power resources on June 25, 2020. PNM intends to file for the abandonment and approval of replacement resources for its share of PVNGS leased capacity with the NMPRC in 2021.

An adverse decision of the NMPRC regarding PNM’s ability to recover certain PVNGS decommissioning costs, PNM’s Four Corners Abandonment Application, or the decision made by PNM to return certain leased interests in PVNGS could negatively impact PNM’s financial position, results of operation, and cash flows. Likewise, if the NMPRC does not authorize appropriate recovery of any undepreciated generating resources at the time those resources cease to be used to provide service to New Mexico ratepayers, including required future investments, and does not authorize recovery of the costs of obtaining power to replace those resources, PNM’s financial position, results of operation, and cash flows could be negatively impacted.
The inability to operate generation resources prior to their planned retirement dates, or the NMPRC’s denial, modification or delay of PNM’s applications for replacement resources, would require PNM to obtain power from other sources in order to serve the needs of its customers. There can be no assurance the NMPRC will allow PNM to recover undepreciated investments in retired facilities through rates charged to customers, that adequate sources of replacement power would be available, that adequate transmission capabilities would be available to bring that power into PNM’s service territory, or whether the cost of obtaining those resources would be economical. Any such events would negatively impact PNM’s financial position, results of operation, and cash flows unless the NMPRC authorized the collection from customers of any un-recovered costs related to the retired facilities, as well as costs of obtaining replacement power.

It is also possible that unsatisfactory outcomes of these matters, the financial impact of climate change regulation or legislation, other environmental regulations, the result of litigation, the adequacy and timeliness of cost recovery mechanisms, and other business considerations, could jeopardize the economic viability of certain generating facilities or the ability or willingness of individual participants to continue their participation through the periods currently contemplated in the agreements governing those facilities.

PNM currently recovers the cost of fuel for its generation facilities through its FPPAC. A coal supply contract for SJGS, which expires on June 30, 2022, became effective on January 31, 2016. In December 2013, a new fifteen-year coal supply contract for Four Corners beginning in July 2016 was executed. In connection with its exit from Four Corners discussed, and subject to approval of its Four Corners Abandonment Application discussed in Note 17, PNM will be relieved of its obligations under the coal supply agreement after December 31, 2024. The contracts provide for pricing adjustments over their terms based on economic indices. Although PNM believes substantially all costs under coal supply arrangements would continue to be recovered through the FPPAC, there can be no assurance that full recovery will continue to be allowed.

PNMR has counterparty credit risk in connection with financial support that was provided to facilitate the coal supply arrangement for SJGS. Adverse developments from these factors could have a negative impact on the business, financial condition, results of operations, and cash flows of PNM and PNMR.

PNMR has an arrangement with a bank under which the bank has issued $30.3 million of letters of credit in favor of sureties in order for the sureties to post reclamation bonds that are required under the miner’s operating permit. The Company’s financial position, results of operation, and cash flows could be negatively impacted in the event the current mine operator were to not provide sufficient quantities of coal at sufficient quality for PNM to operate SJGS, or if the current mine operator were to default on its obligations to reclaim the San Juan mine and PNMR is required to perform under the letter of credit support agreement.


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PNMR’s utilities are subject to numerous comprehensive federal, state, tribal, and local environmental laws and regulations, including those related to climate change, which may impose significant compliance costs and may significantly limit or affect their operations and financial results.

Compliance with federal, state, tribal, and local environmental laws and regulations, including those addressing climate change, air quality, CCRs, discharges of wastewater originating from fly ash and bottom ash handling facilities, cooling water, effluent, and other matters, may result in increased capital, operating, and other costs, particularly with regard to enforcement efforts focused on power plant emission control obligations. These costs could include remediation, containment, civil liability, and monitoring expenses. The Company cannot predict how it would be affected if existing environmental laws and regulations were to be repealed, revised, or reinterpreted, or if new environmental laws or regulations were to be adopted. See Note 16 and the Climate Change Issues subsection of the Other Issues Facing the Company section of MD&A.

Under the Obama Administration, EPA’s Clean Power Plan required states to develop and implement plans to ensure compliance with emissions guidelines that would limit GHG from existing power plants. Individual states would develop and implement plans to ensure compliance with the proposed standards. The Trump Administration repealed the Clean Power Plan and promulgated the ACE Rule, which required states to set performance standards consistent with the EPA’s determination of “best system of emission reduction” technology. On January 19, 2021, the U.S. Court of Appeals for the District of Columbia vacated and remanded the ACE Rule. EPA will now act on remand, and it is unclear what next steps the agency will take. In November 2020, the Trump Administration officially withdrew from the Paris Agreement on climate change. On January 20, 2021, President Biden signed an executive order to rejoin the Paris Agreement and will develop new nationally determined contributions to GHG reductions. That same day, President Biden also signed an executive order requiring a review of environmental regulations issued under the Trump Administration. Also, on January 19, 2021, the day before inauguration of President Biden, the U.S. Court of Appeals for the D.C. Circuit issued an opinion vacating and remanding the ACE Rule. Therefore, PNMR is dealing with an uncertain regulatory and policy environment. Under the Biden Administration, EPA and other federal agencies will seek to expand climate change regulations and work to aggressively reduce GHG emissions. Many state agencies, environmental advocacy groups, and other organizations will continue to focus on decarbonization with enhanced attention on GHG from fossil-fueled generation facilities. See discussion above and Note 17, regarding PNM’s abandonment applications and the ETA. PNM currently depends on fossil-fueled generation for a significant portion of its electricity. As discussed under Climate Change Issues, this type of generation could be subject to future EPA or state regulations requiring GHG reductions. The anticipated expansion of federal and state regulations could result in additional operating restrictions on facilities and increased generation and compliance costs.

CCRs from the operation of SJGS are currently being used in the reclamation of a surface coal mine. These CCRs consist of fly ash, bottom ash, and gypsum. Any new regulation that would affect the reclamation process, including any future decision regarding classification of CCRs as hazardous waste, could significantly increase the costs of the disposal of CCRs and the costs of mine reclamation. In addition, PNM would incur additional costs to the extent the rule requires the closure or modification of CCR units at Four Corners or the construction of new CCR units beyond those already anticipated or requires corrective action to address releases from CCR disposal units at the site. See Note 16.

A regulatory body may identify a site requiring environmental cleanup, including cleanup related to catastrophic events such as hurricanes or wildfires, and designate PNM or TNMP as a responsible party. There is also uncertainty in quantifying exposure under environmental laws that impose joint and several liability on all potentially responsible parties. Failure to comply with environmental laws and regulations, even if such non-compliance is caused by factors beyond PNM’s or TNMP’s control, may result in the assessment of civil or criminal penalties and fines.

BART determinations have been made for both SJGS and Four Corners under the program to address regional haze in the “four corners” area. Those determinations require facilities to reduce the levels of visibility-impairing emissions, including NOx. Significant capital expenditures have been made at SJGS and at Four Corners for the installation of control technology, resulting in operating cost increases. The final guidance document for how states are to address the second implementation period (“2nd Planning Period”) of the Regional Haze rule was issued on August 20, 2019. In accordance with that guidance and EPA’s revised regional haze rule, states must submit Regional Haze SIPs by July 2021. NMED is currently preparing its next regional haze SIP and has notified PNM that it will not be required to submit a regional haze four-factor analysis for SJGS since PNM will retire its share of SJGS in 2022. The agency may ask for some documentation of PNM’s plans as the state moves closer to filing their SIP and setting the schedule for hearings on regional haze.

If PNM fails to timely obtain, maintain or comply with any required environmental regulatory approval, operations at affected facilities could be suspended or could subject PNM to additional expenses and potential penalties. Failure to comply with applicable environmental laws and regulations also could result in civil liability arising out of government enforcement actions or private claims. In addition, PNMR and its operating subsidiaries may underestimate the costs of environmental compliance, liabilities, and litigation due to the uncertainty inherent in these matters. Although there is uncertainty about the timing and form of the implementation of EPA’s regulations regarding climate change, CCRs, power plant emissions, changes to the ambient air quality standards, and other environmental issues, the promulgation and implementation of such regulations could have a material impact on operations. The Company is unable to estimate these costs due to the many uncertainties
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associated with, among other things, the nature and extent of future regulations and changes in existing regulations, including the changes in regulatory policy under the Biden Administration. Timely regulatory recovery of costs associated with any environmental-related regulations would be needed to maintain a strong financial and operational profile. The above factors could adversely affect the Company’s business, financial position, results of operations, and liquidity.

PNMR, PNM, and TNMP are subject to complex government regulation unrelated to the environment, which may have a negative impact on their businesses, financial position and results of operations.
To operate their businesses, PNMR, PNM, and TNMP are required to have numerous permits and approvals from a variety of regulatory agencies. Regulatory bodies with jurisdiction over the utilities include the NMPRC, NMED, PUCT, TCEQ, ERCOT, FERC, NRC, EPA, and NERC. Oversight by these agencies covers many aspects of the Company’s utility operations including, but not limited to: location, construction, and operation of facilities; the purchase of power under long-term contracts; conditions of service; the issuance of securities; and rates charged to customers. FERC has issued a number of rules pertaining to preventing undue discrimination in transmission services and electric reliability standards. The significant level of regulation imposes restrictions on the operations of the Company and causes the incurrence of substantial compliance costs. PNMR and its subsidiaries are unable to predict the impact on their business and operating results from future actions of any agency regulating the Company. Changes in existing regulations or the adoption of new ones could result in additional expenses and/or changes in business operations. Failure to comply with any applicable rules, regulations or decisions may lead to customer refunds, fines, penalties, and other payments, which could materially and adversely affect the results of operations and financial condition of PNMR and its subsidiaries. 
Operational Factors
Customer electricity usage could be reduced by increases in prices charged and other factors.  This could result in underutilization of PNM’s generating capacity, as well as underutilization of the capacities of PNM’s and TNMP’s transmission and distribution systems.  Should this occur, operating and capital costs might not be fully recovered, and financial performance could be negatively impacted.

A number of factors influence customers’ electricity usage.  These factors include but are not limited to rates charged by PNM and TNMP, rates charged by REPs utilizing TNMP’s facilities to deliver power, energy efficiency initiatives, availability and cost of alternative sources of power, and national, regional, or local economic conditions.

These factors and others may prompt customers to institute additional energy efficiency measures or take other actions that would result in lower energy consumption. If customers bypass or underutilize PNM’s and TNMP’s facilities through self-generation, renewable, or other energy resources, technological change, or other measures, revenues would be negatively impacted.

PNM’s and TNMP’s service territories include several military bases and federally funded national laboratories, as well as large industrial customers that have significant direct and indirect impacts on the local economies where they operate.  The Company does not directly provide service to any of the military bases or national laboratories but does provide service to large industrial customers. The Company’s business could be hurt from the impacts on the local economies associated with these customer groups as well as directly from the large industrial customers for a number of reasons including federally-mandated base closures, significant curtailment of the activities at the bases or national laboratories, and closure of industrial facilities or significant curtailment of their activities.
 
Another factor that could negatively impact the Company is that proposals are periodically advanced in various localities to municipalize, or otherwise take over PNM’s facilities, which PNM believes would require state legislative action to implement, or to establish new municipal utilities in areas currently served by PNM.  If any such initiative is successful, the result could be a material reduction in the usage of the facilities, a reduction in rate base, and reduced earnings.

Should any of the above factors result in facilities being underutilized, the Company’s financial position, operational results, and cash flows could be significantly impacted.

Advances in technology could make electric generating facilities less competitive.

Research and development activities are ongoing for new technologies that produce power or reduce power consumption. These technologies include renewable energy, customer-oriented generation, energy storage, and energy efficiency. PNM generates power at central station power plants to achieve economies of scale and produce power at a cost that is competitive with rates established through the regulatory process. There are distributed generation technologies that produce power, including fuel cells, microturbines, wind turbines, and solar cells, which have become increasingly cost competitive. These advances in technology have reduced the costs of these alternative methods of producing power to a level that is competitive with that of central station power production. In addition, advances made in the capabilities of energy storage have further decreased power production and peak usage through the dispatch of more battery systems. These technological advances have resulted in demand reduction that negatively impact revenue and/or result in underutilized assets that have been
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built to serve peak usage. In addition, certain federal, state, or local requirements that regulated utilities such as PNM are required to follow could result in third parties being able to provide electricity from similar generation technologies to consumers at prices lower than PNM is able to offer. As these technologies become more cost competitive or can be used by third-parties to supply power at lower prices than PNM is able to offer, PNM’s energy sales and/or regulated returns could be eroded, and the value of its generating facilities could be reduced. Advances in technology could also change the channels through which electric customers purchase or use power, which could reduce the Company’s sales and revenues or increase expenses. These advances can also create more uncertainty in load shapes and forecasts, which could have implications for generation and system planning.

Costs of decommissioning, remediation, and restoration of nuclear and fossil-fueled power plants, as well as reclamation of related coal mines, could exceed the estimates of PNMR and PNM as well as the amounts PNM recovers from its ratepayers, which could negatively impact results of operations and liquidity.

PNM has interests in a nuclear power plant, two coal-fired power plants, and several natural gas-fired power plants and is obligated to pay its share of the costs to decommission these facilities. PNM is also obligated to pay for its share of the costs of reclamation of the mines that supply coal to the coal-fired power plants. Likewise, other owners or participants are responsible for their shares of the decommissioning and reclamation obligations and it is important to PNM that those parties fulfill their obligations. Rates charged by PNM to its customers, as approved by the NMPRC, include a provision for recovery of certain costs of decommissioning, remediation, reclamation, and restoration. The NMPRC has established a cap on the amount of costs for the final reclamation of the surface coal mines that may be recovered from customers. PNM records estimated liabilities for its share of the legal obligations for decommissioning and reclamation. These estimates include many assumptions about future events and are inherently imprecise. In the event the costs to decommission the facilities or to reclaim the mines serving the plants exceed current estimates, or if amounts are not approved for recovery by the NMPRC, results of operations could be negatively impacted.

The costs of decommissioning any nuclear power plant are substantial. PNM is responsible for all decommissioning obligations related to its entire interest in PVNGS, including portions under lease both during and after termination of the leases. PNM maintains trust funds designed to provide adequate financial resources for decommissioning PVNGS and for reclamation of the coal mines serving SJGS and Four Corners at the end of their expected lives. However, if the PVNGS units are decommissioned before their planned date or the coal mines are shut down sooner than expected, these funds may prove to be insufficient.

The financial performance of PNMR, PNM, and TNMP may be adversely affected if power plants and transmission and distribution systems do not operate reliably and efficiently.
The Company’s financial performance depends on the successful operation of PNM’s generation assets, as well as the transmission and distribution systems of PNM and TNMP. PNM’s recent abandonment applications for SJGS and Four Corners will increase PNM’s dependency on other generation resources, including renewable resources, gas-fired facilities, and PVNGS, and will reduce PNM’s flexibility in managing those resources. Unscheduled or longer than expected maintenance outages, breakdown or failure of equipment or processes due to aging infrastructure, temporary or permanent shutdowns to achieve environmental compliance, other performance problems with the generation assets, severe weather conditions, accidents and other catastrophic events, acts of war or terrorism, cybersecurity attacks, wildfires, disruptions in the supply, quality, and delivery of fuel and water supplies, and other factors could result in PNM’s load requirements being larger than available system generation capacity. Unplanned outages of generating units and extensions of scheduled outages occur from time to time and are an inherent risk of the Company’s business. If these were to occur, PNM would be required to purchase electricity in either the wholesale market or spot market at the then-current market price. There can be no assurance that sufficient electricity would be available at reasonable prices, or available at all. The failure of transmission or distribution facilities may also affect PNM’s and TNMP’s ability to deliver power. These potential generation, distribution, and transmission problems, and any service interruptions related to them, could result in lost revenues and additional costs.

PNMR, PNM, and TNMP are subject to information security breaches and risks of unauthorized access to their information and operational technology systems as well as physical threats to assets.
The Company faces the risk of physical and cybersecurity attacks, both threatened and actual, against generation facilities, transmission and distribution infrastructure, information technology systems, and network infrastructure, which could negatively impact the ability of the Company to generate, transport, and deliver power, or otherwise operate facilities in the most efficient manner or at all.

The utility industry in which the Company operates is a highly regulated industry that requires the continued operation of sophisticated information technology systems and network infrastructure, some of which are deemed to be critical infrastructure under NERC guidelines. Certain of the Company’s systems are interconnected with external networks. In the regular course of business, the utilities handle a range of sensitive security and customer information. PNM and TNMP are subject to the rules of various agencies concerning safeguarding and maintaining the confidentiality of this information. Despite steps the Company may take to detect, mitigate and/or eliminate threats and respond to security incidents, the
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techniques used by those who wish to obtain unauthorized access, and possibly disable or sabotage systems and/or abscond with information and data, change frequently and the Company may not be able to protect against all such actions.

In the event a capable party attempts to disrupt the generation, transmission, or distribution systems in the U.S., the Company’s computer and operating systems could be subject to physical or cybersecurity attack. Further, the Company’s use of technologies manufactured by third parties may be subject to espionage activities, and cyber attack of the third party resulting in losses outside of the control of the company. Although the Company has implemented security measures to identify, prevent, detect, respond to, and recover from cyber and physical security events and supply chain disruptions, critical infrastructure, including information and operational technology systems, are vulnerable to disability, failures, or unauthorized access, which could occur as a result of malicious compromise, employee error, and/or employee misconduct or supply compromise.  A successful physical or cybersecurity attack or other similar failure of the systems could impact the reliability of PNM’s generation and PNM’s and TNMP’s transmission and distribution systems, including the possible unauthorized shutdown of facilities. Such an event could lead to disruptions of business operations, including the Company’s ability to generate, transport, and deliver power to serve customers, to bill customers, and to process other financial information. A breach of the Company’s information systems could also lead to the loss and destruction of confidential and proprietary data, personally identifiable information, trade secrets, intellectual property and supplier data, and could disrupt business operations which could harm the Company’s reputation and financial results, as well as potential increased regulatory oversight, litigation, fines, and other remedial action. The costs incurred to investigate and remediate a physical or cybersecurity attack could be significant. A significant physical or cybersecurity attack on the Company’s critical infrastructure could have an adverse impact on the operations, reputation and financial condition of PNMR, PNM, and TNMP.
There are inherent risks in the ownership and operation of nuclear facilities.
PNM has a 10.2% undivided interest in PVNGS, including interests in Units 1 and 2 held under leases. PVNGS represents 14.3% of PNM’s total generating capacity as of December 31, 2020. PVNGS is subject to environmental, health, and financial risks including but not limited to the ability to obtain adequate supplies of nuclear fuel and water, the ability to dispose of spent nuclear fuel, decommissioning of the plant (see above), securing the facilities against possible terrorist attacks, and unscheduled outages due to equipment failures.
 
The NRC has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generation facilities. Events at nuclear facilities of other operators or which impact the industry generally may lead the NRC to impose additional requirements and regulations on all nuclear generation facilities, including PVNGS. A major incident at a nuclear facility anywhere in the world could cause the NRC to limit or prohibit the operation or licensing of any domestic nuclear unit and to promulgate new regulations that could require significant capital expenditures and/or increase operating costs.
In the event of noncompliance with its requirements, the NRC has the authority to impose a progressively increasing inspection regime that could ultimately result in the shutdown of a unit, civil penalties, or both, depending upon the NRC’s assessment of the severity of the situation, until compliance is achieved. Increased costs resulting from penalties, a heightened level of scrutiny, and/or implementation of plans to achieve compliance with NRC requirements could adversely affect the financial condition, results of operations, and cash flows of PNMR and PNM. Although PNM has no reason to anticipate a serious nuclear incident at PVNGS, if an incident did occur, it could materially and adversely affect PNM’s results of operations and financial condition. 
PNM has external insurance coverage to minimize its financial exposure to some risks. However, it is possible that liabilities associated with nuclear operations could exceed the amount of insurance coverage. See Note 16.

Peak demand for power could exceed forecasted supply capacity, resulting in increased costs for purchasing capacity in the market or building additional generation facilities and/or battery storage facilities.

PNM is obligated to supply power to retail customers. As PNM continues to complete the significant transition in generation resources necessary to achieve 100% carbon emission-free generation by 2040, there are certain potential deliverability and cost risks associated with this transition. These risks are in three main areas, including 1) risk of completion of replacement resources prior to planned generation unit retirements, 2) increasing levels of renewable generation presenting risks of uncertainty and variability that will be further compounded as neighboring systems transition towards increasing levels of renewable resources, and 3) risks for mitigating possible resource volatility through a shrinking energy market.

At peak times, power demand could exceed PNM’s forecasted available generation capacity, particularly if PNM’s power plants are not performing as anticipated and additional resources are not approved as PNM transitions its system. Competitive market forces or adverse regulatory actions may require PNM to purchase capacity and energy from the market or build additional resources to meet customers’ energy needs in an expedited manner. If that occurs, PNM may see opposition to recovery of these additional costs and could experience a lag between when costs are incurred and when regulators permit recovery in customers’ rates. These situations could have negative impacts on results of operations and cash flows.

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The impact of wildfires could negatively affect PNM’s and TNMP’s results of operations.

PNM and TNMP have large networks of electric transmission and distribution facilities. Weather conditions in the U.S. Southwest region and Texas vary and could contribute to wildfires in or near PNM’s and TNMP’s service territories. PNM and TNMP take proactive steps to mitigate wildfire risk. However, wildfire risk is always present and PNM and TNMP could be held liable for damages incurred as a result of wildfires caused, or allegedly caused, by their transmission and distribution systems. In addition, wildfires could cause damage to PNM’s and TNMP’s assets that could result in loss of service to customers or make it difficult to supply power in sufficient quantities to meet customer needs. These events could have negative impacts on the Company’s financial position, results of operations, and cash flows.

Difficulties in obtaining permits and rights-of-way could negatively impact PNM’s results of operations

PNM’s ability to execute planned operational activities and projects may be inhibited by difficulties in obtaining permits and rights-of-way and other delays. Many of PNM’s transmission and distribution lines cross federal, state, and tribal lands. The Company can experience significant delays in obtaining approvals for new infrastructure, as well as renewals of existing rights-of-way and access for critical maintenance, including vegetation management on these lands. The environmental regulations governing siting and permitting on federal, state, and tribal lands are complex, involve multiple agencies, and include a public process. Any of these risk factors could result in higher costs, delays, or the inability to complete planned projects.

General Economic and Weather Factors
The 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 ongoing COVID-19 outbreak, the resulting global pandemic, and the impact on the economy and financial markets could adversely affect the Company’s business, results of operations, financial condition, cash flows, and access to the capital markets. The Company provides critical electric services 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 public. We are also working with our suppliers to understand and mitigate 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 New Mexico and Texas;
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;
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;
receiving unfavorable regulatory treatment in recovery of deferred costs including bad debt expense incurred during the Governor of New Mexico’s emergency executive order; and
causing other unpredictable events.

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General economic conditions of the nation and/or specific areas can affect the Company’s customers and suppliers. Economic recession or downturn may result in decreased consumption by customers and increased bad debt expense, and could also negatively impact suppliers, all of which could negatively affect the Company.

Economic activity in the service territories of PNMR subsidiaries is a key factor in their performance. Decreased economic activity can lead to declines in energy consumption, which could adversely affect future revenues, earnings, and growth.  Higher unemployment rates, both in the Company’s service territories and nationwide, could result in commercial customers ceasing operations and lower levels of income for residential customers. These customers might then be unable to pay their bills on time, which could increase bad debt expense and negatively impact results of operations and cash flows. Economic conditions also impact the supply and/or cost of commodities and materials needed to construct or acquire utility assets or make necessary repairs.
The operating results of PNMR and its operating subsidiaries are seasonal and are affected by weather conditions, including regional drought.
Electric generation, transmission, and distribution are generally seasonal businesses that vary with the demand for power. With power consumption typically peaking during the hot summer months, revenues traditionally peak during that period. As a result, quarterly operating results of PNMR and its operating subsidiaries vary throughout the year. In addition, PNMR and its operating subsidiaries have historically had lower revenues resulting in lower earnings when weather conditions are milder. Unusually mild weather in the future could reduce the revenues, net earnings, and cash flows of the Company.
Drought conditions in New Mexico, especially in the “four corners” region, where SJGS and Four Corners are located, may affect the water supply for PNM’s generating plants.  If inadequate precipitation occurs in the watershed that supplies that region, PNM may have to decrease generation at these plants. This would require PNM to purchase power to serve customers and/or reduce the ability to sell excess power on the wholesale market and reduce revenues. Drought conditions or actions taken by the court system, regulators, or legislators could limit PNM’s supply of water, which would adversely impact PNM’s business. Although SJGS and Four Corners participate in voluntary shortage sharing agreements with tribes and other water users in the “four corners” region, PNM cannot be certain these contracts will be enforceable in the event of a major drought or that it will be able to renew these contracts in the future.
TNMP’s service areas are exposed to extreme weather, including high winds, drought, flooding, ice storms, and periodic hurricanes. Extreme weather conditions, particularly high winds and severe thunderstorms, also occur periodically in PNM’s service areas. These severe weather events can physically damage facilities owned by TNMP and PNM. Any such occurrence both disrupts the ability to deliver energy and increases costs. Extreme weather can also reduce customers’ usage and demand for energy or could result in the Company incurring obligations to third parties related to such events. These factors could negatively impact results of operations and cash flows.
In mid-February 2021, Texas experienced a severe winter storm delivering the coldest temperatures in 100 years for many parts of the state. On February 15, 2021, ERCOT declared its highest state of emergency, an Emergency Energy Alert Level 3 (EEA3), due to exceptionally high electric demand exceeding supply amid the arctic temperatures. Ultimately, the ERCOT market was not able to deliver sufficient generation load to the grid resulting in significant, statewide outages as ERCOT directed transmission operators to curtail thousands of firm load megawatts. TNMP complied with ERCOT directives to curtail the delivery of electricity in its service territory and did not experience significant outages on its system outside of the ERCOT directed curtailments. Additionally, the PUCT issued an order directing ERCOT to ensure that firm load that is being shed in EEA3 is accounted for in ERCOT’s scarcity pricing signals. Energy prices across the ERCOT system eventually were cleared at the system-wide offer cap of $9,000 per MWh. In response to the severe winter weather, the Governor of Texas issued a Declaration of a State of Disaster for all counties in Texas. In addition, to assist in the recovery from the emergency conditions, the PUCT issued an order that placed a temporary moratorium on customer disconnections due to non-payment for transmission and distribution utilities. The moratorium remains in effect until otherwise ordered by the PUCT. Consequently, the duration of the severe winter storm and high energy costs potentially pose a financial hardship to REPs in the ERCOT region. TNMP has regulatory authorization to defer bad debt expense from REPs to a regulatory asset and seek recovery in a general rate case. On February 19, 2021 the Texas Attorney General issued civil investigation demands to ERCOT and 11 power companies in Texas related to power outages, emergency plans, energy pricing and other factors associated with the severe weather storm. TNMP intends to fully cooperate with all regulatory directives and inquiries with the PUCT, the Texas Attorney General and any other regulatory agencies.
Risks relating to the proposed Merger with Avangrid

There is no assurance when or if the proposed Merger will be completed.

Completion of the proposed Merger is subject to the satisfaction or waiver of a number of conditions as set forth in the Merger Agreement, including regulatory approval and other customary closing conditions. There can be no assurance that the conditions to completion of the proposed Merger will be satisfied or waived or that other events will not intervene to delay or result in the failure to close the proposed Merger. In addition, each of Avangrid and PNMR may unilaterally terminate the
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Merger Agreement under certain circumstances, and Avangrid and PNMR may agree at any time to terminate the Merger Agreement, even if PNMR shareholders have already approved the Merger Agreement.

Avangrid and PNMR may be unable to obtain the regulatory approvals required to complete the proposed Merger.

In addition to other conditions set forth in the Merger Agreement, completion of the proposed Merger remains conditioned upon the receipt of various state and U.S. federal regulatory approvals, including, but not limited to, approval by NMPRC, PUCT, FERC, NRC and the FCC. Avangrid and PNMR have made various filings and submissions and will pursue all required consents, orders and approvals in accordance with the Merger Agreement. These consents, orders and approvals may impose requirements, limitations or costs or place restrictions, and if such consents, orders and approvals require an extended period of time to be obtained, such extended period of time could increase the chance that an event occurs that constitutes a material adverse effect with respect to PNMR and thereby may allow Avangrid not to complete the proposed Merger. Such extended period of time also may increase the chance that other adverse effects with respect to PNMR could occur, such as the loss of key personnel. Further, no assurance can be given that the required consents, orders and approvals will be obtained or that the required conditions to closing will be satisfied.

The announcement and pendency of the proposed Merger, during which PNMR is subject to certain operating restrictions, could have an adverse effect on PNMR’s businesses, results of operations, financial condition or cash flows.

The announcement and pendency of the proposed Merger could disrupt PNMR’s businesses, and uncertainty about the effect of the Merger may have an adverse effect on PNMR. These uncertainties could disrupt the business of PNMR and cause suppliers, vendors, partners and others that deal with PNMR to defer entering into contracts with PNMR or making other decisions concerning PNMR or seek to change or cancel existing business relationships with PNMR. In addition, PNMR’s employees may experience uncertainty regarding their roles after the Merger. For example, employees may depart either before the completion of the Merger because of such uncertainty and issues relating to the difficulty of coordination or a desire not to remain following the Merger; and the pendency of the Merger may adversely affect PNMR’s ability to retain, recruit and motivate key personnel. Additionally, the Merger requires PNMR to obtain Avangrid’s consent prior to taking certain specified actions while the Merger is pending. These restrictions may prevent PNMR from pursuing otherwise attractive business opportunities or other capital structure alternatives and making other changes to its business or executing certain of its business strategies prior to the completion of the Merger. Further, the Merger may give rise to potential liabilities, including as a result of pending and future shareholder lawsuits relating to the Merger. Any of these matters could adversely affect the businesses of, or harm the results of operations, financial condition or cash flows of PNMR.

PNMR will incur substantial transaction fees and costs in connection with the proposed Merger.

PNMR has incurred and expects to incur additional material non-recurring expenses in connection with the proposed Merger and completion of the transactions contemplated by the Merger Agreement. Further, even if the proposed Merger is not completed, PNMR will need to pay certain costs relating to the proposed Merger incurred prior to the date the proposed Merger was abandoned, such as legal, accounting, financial advisory, filing and printing fees.

The termination of the Merger Agreement could negatively impact PNMR.

If the Merger is not completed for any reason, the ongoing businesses of PNMR may be adversely affected and, without realizing any of the anticipated benefits of having completed the Merger, PNMR would be subject to a number of risks, including the following:

PNMR may experience negative reactions from the financial markets, including a decline of its stock price (which may reflect a market assumption that the Merger will be completed);
PNMR may experience negative reactions from its customers, regulators and employees;
PNMR may be required to pay certain costs relating to the Merger, whether or not the Merger is completed; and
Matters relating to the Merger will have required substantial commitments of time and resources by PNMR management, which would otherwise have been devoted to day-to-day operations and other opportunities that may have been beneficial to PNMR as an independent company.

If the Merger Agreement is terminated and the Board seeks another merger, business combination or other transaction, PNMR shareholders cannot be certain that PNMR will be able to find a party willing to offer equivalent or more attractive consideration than the consideration PNMR shareholders would receive in the Merger. If the Merger Agreement is terminated under certain circumstances specified in the Merger Agreement, PNMR may be required to pay Avangrid a termination fee of $130.0 million, depending on the circumstances surrounding the termination. Additionally, PNMR may be required to reimburse Avangrid for its reasonable and documented out-of-pocket transaction fees and expenses, up to an amount of $10.0 million, with any such reimbursable expenses previously paid by PNMR to Avangrid credited and offset against PNMR’s payment of the termination fee.

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Litigation instituted against PNMR and members of the Board challenging the proposed Merger, and adverse judgments in these lawsuits may prevent the proposed Merger from becoming effective within the expected timeframe or at all.

PNMR and members of the Board have been named as defendants in proceedings challenging the proposed Merger. If the plaintiffs in any of these actions seek a preliminary or permanent injunction and are successful in obtaining one, the parties may be prevented from completing the proposed Merger in the expected timeframe, if at all. Even if the plaintiffs in these actions are not successful in obtaining an injunction, they may nevertheless continue the action and seek damages after the transaction has closed. In addition, the costs of defending against such claims could adversely affect the financial condition of PNMR and such actions could adversely affect the reputation of PNMR and members of its boards of directors or management. See Note 16.

The Merger Agreement contains provisions that could discourage a potential alternative acquirer that might be willing to pay more to acquire PNMR.

The Merger Agreement contains customary “no shop” provisions which state that we will not solicit or facilitate proposals regarding a merger or similar transaction with another party except in certain limited circumstances. While the Board may withdraw or change its recommendation regarding the Merger Agreement in response to an unsolicited third-party proposal to acquire PNMR that the Board determines to be superior to the Merger, there are restrictions on its ability to do so, and in certain circumstances, PNM may also be required to pay Avangrid a termination fee. These provisions could discourage a potential third-party acquirer from considering or proposing an alternative acquisition, even if it were prepared to pay consideration with a higher value than that proposed to be paid in the Merger.
Financial Factors
PNMR may be unable to meet its ongoing and future financial obligations and to pay dividends on its common stock if its subsidiaries are unable to pay dividends or distributions to PNMR.
PNMR is a holding company and has no operations of its own. PNMR’s ability to meet its financial obligations and to pay dividends on its common stock primarily depends on the net earnings and cash flows of PNM and TNMP and their capacity to pay upstream dividends or distributions. Prior to providing funds to PNMR, PNM and TNMP have financial and regulatory obligations that must be satisfied, including among others, debt service and, in the case of PNM, preferred stock dividends.
The NMPRC has placed certain restrictions on the ability of PNM to pay dividends to PNMR, including that PNM cannot pay dividends that cause its debt rating to fall below investment grade. The NMPRC has also restricted PNM from paying dividends in any year, as determined on a rolling four-quarter basis, in excess of net earnings without prior NMPRC approval. PNM is permitted to pay dividends to PNMR from prior equity contributions made by PNMR. Additionally, PNMR’s financing agreements generally include a covenant to maintain a debt-to-capitalization ratio that does not exceed 70%, and PNM and TNMP’s financing arrangements generally include a covenant to maintain debt-to-capitalization ratios that do not exceed 65%. PNM also has various financial covenants that limit the transfer of assets, through dividends or other means and the Federal Power Act imposes certain restrictions on dividends paid by public utilities, including that dividends cannot be paid from paid-in capital.
Further, the ability of PNMR to declare dividends depends upon the extent to which cash flows will support dividends, the Company’s financial circumstances and performance, economic conditions in the U.S. and in the Company’s service areas, future growth plans and the related capital requirements, and other business considerations. Declaration of dividends may also be affected by decisions of the NMPRC, FERC, and PUCT in various regulatory cases currently pending or that may be docketed in the future, including the outcome of appeals of those decisions, conditions imposed by the NMPRC, PUCT, or Federal Power Act, and the effect of federal regulatory decisions and legislative acts.

Disruption in the credit and capital markets may impact the Company’s strategy and ability to raise capital.
As discussed in MD&A – Liquidity and Capital Resources, PNMR and its subsidiaries rely on access to both short-term and longer-term capital markets as sources of liquidity for any capital requirements not satisfied by cash flow from operations. In general, the Company relies on its short-term credit facilities as the initial source to finance construction expenditures. This results in increased borrowings under the facilities over time. The Company is currently projecting total construction expenditures for the years 2021-2025 to be $4.0 billion. If PNMR or its operating subsidiaries are not able to access capital at competitive rates, or at all, PNMR’s ability to finance capital requirements and implement its strategy will be limited. Disruptions in the credit markets, which could negatively impact the Company’s access to capital, could be caused by an economic recession, declines in the health of the banking sector generally or the failure of specific banks who are parties to the Company’s credit facilities, deterioration in the overall health of the utility industry, the bankruptcy of an unrelated energy company, war, terrorist attacks, cybersecurity attacks, or threatened attacks.
 
If the Company’s cash flow and credit and capital resources are insufficient to fund capital expenditure plans, the Company may be forced to delay important capital investments, sell assets, seek additional equity or debt capital, or restructure
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debt. In addition, insufficient cash flows and capital resources may result in reductions of credit ratings. This could negatively impact the Company’s ability to incur additional indebtedness on acceptable terms and would result in an increase in the interest rates applicable under the Company’s credit facilities. The Company’s cash flow and capital resources may be insufficient to pay interest and principal on debt in the future. If that should occur, the Company’s capital raising or debt restructuring measures may be unsuccessful or inadequate to meet scheduled debt service obligations. This could cause the Company to default on its obligations and further impair liquidity.
Reduction in credit ratings or changing rating agency requirements could materially and adversely affect the Company’s growth, strategy, business, financial position, results of operations, and liquidity.
PNMR, PNM, and TNMP cannot be sure that any of their current credit ratings will remain in effect for any given period of time or that a rating will not be put under review for a downgrade, lowered, or withdrawn entirely by a rating agency. As discussed in MD&A - Liquidity and Capital Resources, all of PNMR, PNM, and TNMP debt ratings are investments grade. Downgrades or changing requirements could result in increased borrowing costs due to higher interest rates on current borrowings or future financings, a smaller potential pool of investors, and decreased funding sources. Such conditions also could require the provision of additional support in the form of letters of credit and cash or other collateral to various counterparties.

Declines in values of marketable securities held in trust funds for pension and other postretirement benefits and in the NDT and mine reclamation trusts could result in sustained increases in costs and funding requirements for those obligations, which may affect operational results.

The pension plans’ targeted asset allocation is 50% liability matching fixed and 50% return generating income, which includes alternative income. The Company uses a strategy, known as Liability Driven Investing, which seeks to select investments that match the liabilities of the pension plans. The OPEB plans generally use the same pension fixed income and equity investment managers and utilize the same overall investment strategy as the pension plans, except there is no allocation to alternative investments and the OPEB plans have a target asset allocation of 30% equities and 70% fixed income.

The NDT investment portfolio maintains a target of 80% fixed income and 20% equity securities. The current asset allocation exposes the NDT investment portfolio to market and macroeconomic factors. Declines in market values could result in increased funding of the trusts, the recognition of losses as impairments for the NDT and mine reclamation trusts, and additional expense for the benefit plans. In addition, a change in GAAP required that all changes in the fair value of equity securities recorded on the Company’s balance sheet be reflected in earnings, which results in increased volatility in earnings.

Impairments of goodwill and long-lived assets of PNMR, PNM, and TNMP could adversely affect the Company’s business, financial position, liquidity, and results of operations.
The Company annually evaluates recorded goodwill for impairment. See Note 1 and the Critical Accounting Policies and Estimates section of MD&A. Long-lived assets are also assessed whenever indicators of impairment exist. Factors that affect the long-term value of these assets, including treatment by regulators in ratemaking proceedings, as well as other economic and market conditions, could result in impairments. Significant impairments could adversely affect the Company’s business, financial position, liquidity, and results of operations.

PNM’s PVNGS leases describe certain events, including “Events of Loss” and “Deemed Loss Events”, the occurrence of which could require PNM to take ownership of the underlying assets and pay the lessors for the assets.
The “Events of Loss” generally relate to casualties, accidents, and other events at PVNGS, including the occurrence of specified nuclear events, which would severely adversely affect the ability of the operating agent, APS, to operate, and the ability of PNM to earn a return on its interests in PVNGS.  The “Deemed Loss Events” consist primarily of legal and regulatory changes (such as issuance by the NRC of specified violation orders, changes in law making the sale and leaseback transactions illegal, or changes in law making the lessors liable for nuclear decommissioning obligations). PNM believes that the probability of such “Events of Loss” or “Deemed Loss Events” occurring is remote for the following reasons: (1) to a large extent, prevention of “Events of Loss” and some “Deemed Loss Events” is within the control of the PVNGS participants through the general PVNGS operational and safety oversight process; and (2) other “Deemed Loss Events” would involve a significant change in current law and policy. PNM is unaware of any proposals pending or being considered for introduction in Congress, or in any state legislative or regulatory body that, if adopted, would cause any of those events. Furthermore, the NRC places restrictions on the ownership of nuclear generating facilities. These restrictions 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 claims for damages by the lessors. See Note 8. If these events were to occur, there is no assurance PNM would be provided cost recovery from customers.


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The impacts and implementation of U.S. tax reform legislation may negatively impact PNMR’s, PNM’s, and TNMP’s businesses, financial position, results of operations, and cash flows.

On December 22, 2017, comprehensive changes in U.S. federal income taxes were enacted through legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Act”). Among other things, the Tax Act reduces the federal corporate income tax rate from 35% to 21% effective January 1, 2018, eliminates federal bonus depreciation for utilities, and limits interest deductibility for non-utility business activities and the deductibility of certain officer compensation. During 2018, the IRS issued additional guidance related to certain officer compensation and proposed regulations on interest deductibility that provide a 10% “de minimis” exception that allows entities with predominantly regulated activities to fully deduct interest expenses. In addition, the IRS issued proposed regulations interpreting Tax Act amendments to depreciation provisions of the IRC that allow the Company to claim a bonus depreciation deduction on certain construction projects placed in service subsequent to the third quarter of 2017.

The Company believes that the impacts of the Tax Act will not significantly impact the future earnings of regulated activities due to the ratemaking process. However, cash flows will be reduced in the near term due to less cash being received from customer billings as the benefits of the reduced corporate income tax are passed on to ratepayers, but without a corresponding reduction in income taxes paid due to the Company having a net operating loss carryforward for income taxes purposes. In addition, the income tax benefit of net losses for the unregulated activities of PNMR will be negatively impacted by the reduced rate.

It is possible that the Biden administration will make changes to some, or all, provisions of the Tax Act. In addition, further changes to U.S. Treasury regulations, IRS interpretations of the current provisions of the Tax Act, and actions by the NMPRC, PUCT, and FERC could cause the Company’s expectations of the impacts of the Tax Act to change. Any such changes could adversely affect the Company’s financial position, results of operations, and cash flows.

Governance Factors
Provisions of PNMR’s organizational documents, as well as several other statutory and regulatory factors, will limit another party’s ability to acquire PNMR and could deprive PNMR’s shareholders of the opportunity to receive a takeover premium for shares of PNMR’s common stock.
PNMR’s restated articles of incorporation and by-laws include a number of provisions that may have the effect of discouraging persons from acquiring large blocks of PNMR’s common stock or delaying or preventing a change in control of PNMR. The material provisions that may have such an effect include:
Authorization for the Board to issue PNMR’s preferred stock in series and to fix rights and preferences of the series (including, among other things, voting rights and preferences with respect to dividends and other matters)
Advance notice procedures with respect to any proposal other than those adopted or recommended by the Board
Provisions specifying that only a majority of the Board, the chairman of the Board, the chief executive officer, or holders of at least one-tenth of all of PNMR’s shares entitled to vote may call a special meeting of shareholders
 
Under the New Mexico Public Utility Act, NMPRC approval is required for certain transactions that may result in PNMR’s change in control or exercise of control, including ownership of 10% or more of PNMR’s voting stock. PUCT approval is required for changes to the ownership of TNMP or its parent and certain other transactions relating to TNMP. Certain acquisitions of PNMR’s outstanding voting securities also require FERC approval.

ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

ITEM 2.PROPERTIES

PNMR

The significant properties owned by PNMR include those owned by PNM and TNMP and are disclosed below.

PNM

See Sources of Power in Part I, Item. 1 Business above for information on PNM’s owned and leased capacity in electric generating stations. As of December 31, 2020, PNM owned, or jointly owned, 3,389 miles of electric transmission lines, 6,077 miles of distribution overhead lines, 5,962 miles of underground distribution lines (excluding street lighting), and 255 substations. PNM’s electric transmission and distribution lines are generally located within easements and rights-of-way on public, private, and Native American lands. PNM owns and leases interests in PVNGS Units 1 and 2 and related property,
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communication, office and other equipment, office space, vehicles, and real estate. PNM also owns service and office facilities throughout its service territory. See Note 8 for additional information concerning leases.

TNMP

TNMP’s facilities consist primarily of transmission and distribution facilities located in its service areas. TNMP also owns and leases vehicles, service facilities, and office locations throughout its service territory. As of December 31, 2020, TNMP owned 983 miles of overhead electric transmission lines, 7,282 miles of overhead distribution lines, 1,348 miles of underground distribution lines, and 110 substations. Substantially all of TNMP’s property is pledged to secure its first mortgage bonds. See Note 7.

ITEM 3.LEGAL PROCEEDINGS

See Note 16 and Note 17 for information related to the following matters for PNMR, PNM, and TNMP, incorporated in this item by reference.

Note 16

•    Navajo Nation Environmental Issues
Cooling Water Intake Structures
•    Santa Fe Generating Station
Continuous Highwall Mining Royalty Rate
•    PVNGS Water Supply Litigation
•    San Juan River Adjudication
Rights-of-Way Matter
•    Navajo Nation Allottee Matters
Merger Related Litigation

Note 17

PNM – Renewable Portfolio Standard
•    PNM – Energy Efficiency and Load Management
PNM – 2020 Decoupling
PNM – Integrated Resource Plans
PNM – SJGS Abandonment Application
PNM – Four Corners Abandonment Application
PNM – COVID-19 Regulatory Matters
TNMP – Transmission Cost of Service Rates

ITEM 4.MINE SAFETY DISCLOSURES

Not Applicable.

SUPPLEMENTAL ITEM – EXECUTIVE OFFICERS OF PNM RESOURCES, INC.
All officers are elected annually by the Board of PNMR. Executive officers, their ages as of February 19, 2021 and offices held with PNMR for the past five years are as follows:
NameAgeOfficeInitial Effective Date
P. K. Collawn62Chairman, President, and Chief Executive OfficerJanuary 2012
J. D. Tarry50Senior Vice President and Chief Financial OfficerJanuary 2020
 Vice President, Controller and TreasurerSeptember 2018
Vice President, Finance and ControllerFebruary 2017
Vice President, Corporate Controller, and Chief Information OfficerApril 2015
C. N. Eldred
67Executive Vice President, Corporate Development and FinanceJanuary 2020
Executive Vice President and Chief Financial OfficerJuly 2007
P. V. Apodaca69Senior Vice President, General Counsel, and SecretaryJanuary 2010
R. N. Darnell63Senior Vice President, Public PolicyJanuary 2012
C. M. Olson63Senior Vice President, Utility OperationsFebruary 2018
Vice President, Utility OperationsDecember 2016
Vice President, Generation – PNMNovember 2012


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PART II
 
ITEM 5.MARKET FOR PNMR’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

PNMR’s common stock is traded on the New York Stock Exchange under the symbol “PNM”.
Dividends on PNMR’s common stock are declared by its Board. The timing of the declaration of dividends is dependent on the timing of meetings and other actions of the Board. This has historically resulted in dividends considered to be attributable to the second quarter of each year being declared through actions of the Board during the third quarter of the year. The Board declared dividends on common stock considered to be for the second quarter of $0.2900 per share in July 2019 and $0.3075 per share in July 2020, which are reflected as being in the second quarter. The Board declared dividends on common stock considered to be for the third quarter of $0.2900 per share in September 2019 and $0.3075 per share in September 2020, which are reflected as being in the third quarter above. In December 2019, the Board increased the quarterly dividend from $0.2900 to $0.3075 per share and in December 2020 the Board increased the quarterly dividend from $0.3075 to $0.3275 per share. PNMR targets a long-term dividend payout ratio of 50% to 60% of 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.
On February 19, 2021, there were 7,902 holders of record of PNMR’s common stock. All of the outstanding common stock of PNM and TNMP is held by PNMR.

As discussed below and in Note 7, in January 2020, PNMR completed an equity offering of approximately 6.2 million shares of common stock. In lieu of issuing equity at the time of the offering, PNMR entered into forward sale agreements with certain forward counterparties. On December 15, 2020 PNMR physically settled all shares under the PNMR 2020 Forward Equity Sale Agreements by issuing 6.2 million shares to the forward purchasers at a price of $45.805 per share, aggregating net proceeds of $283.1 million.

All of PNM’s and TNMP’s common stock is owned by PNMR and is not listed for trading on any stock exchange. See Note 6 for a discussion on limitations on the payments of dividends and the payment of future dividends, as well as dividends paid by PNM and TNMP.

See Part III, Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Preferred Stock

As of December 31, 2020, PNM has 115,293 shares of cumulative preferred stock outstanding. PNM is not aware of any active trading market for its cumulative preferred stock. Quarterly cash dividends were paid on PNM’s outstanding cumulative preferred stock at the stated rates during 2020 and 2019. PNMR and TNMP do not have any preferred stock outstanding.

Sales of Unregistered Securities

None.

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ITEM 6.SELECTED FINANCIAL DATA
The selected financial data and comparative operating statistics for PNMR should be read in conjunction with the Consolidated Financial Statements and Notes thereto and MD&A.
PNM RESOURCES, INC. AND SUBSIDIARIES
20202019201820172016
 (In thousands except per share amounts and ratios)
Total Operating Revenues$1,523,012 $1,457,603 $1,436,613 $1,445,003 $1,362,951 
Net Earnings$187,316 $92,131 $101,282 $95,419 $131,896 
Net Earnings Attributable to PNMR$172,775 $77,362 $85,642 $79,874 $116,849 
Net Earnings Attributable to PNMR per Common Share
Basic$2.16 $0.97 $1.07 $1.00 $1.47 
Diluted$2.15 $0.97 $1.07 $1.00 $1.46 
Cash Flow Data
Net cash flows from operating activities$485,700 $503,163 $428,226 $523,462 $408,283 
Net cash flows from investing activities$(733,799)$(673,898)$(475,724)$(466,163)$(699,375)
Net cash flows from financing activities$292,194 $172,446 $45,646 $(58,847)$242,392 
Total Assets$7,939,854 $7,298,774 $6,865,551 $6,646,103 $6,471,080 
Long-Term Debt, including current installments$3,295,150 $3,007,717 $2,670,111 $2,437,645 $2,392,712 
Financing Leases(1)
$20,442 $8,739 $— $— $— 
Common Stock Data
Market price per common share at year end$48.53 $50.71 $41.09 $40.45 $34.30 
Book value per common share at year end$25.64 $21.07 $21.20 $21.28 $21.04 
Tangible book value per share at year end$22.16 $17.58 $17.70 $17.79 $17.55 
Average number of common shares outstanding – diluted80,303 79,990 80,012 80,141 80,132 
Dividends declared per common share$1.2500 $1.1775 $1.0850 $0.9925 $0.9025 
Capitalization
PNMR common stockholders’ equity38.3 %35.8 %38.6 %40.9 %41.1 %
Preferred stock of subsidiary, without mandatory redemption requirements0.2 0.2 0.3 0.3 0.3 
Long-term debt61.5 64.0 61.1 58.8 58.6 
100.0 %100.0 %100.0 %100.0 %100.0 %
(1) Upon adoption of ASU 2016-02 – Leases (Topic 842) on January 1, 2019, the Company classifies its fleet vehicle and equipment leases and its office equipment leases that commenced on or after January 1, 2019 as financing leases. See Note 8.
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PNM RESOURCES, INC. AND SUBSIDIARIES
COMPARATIVE OPERATING STATISTICS
20202019201820172016
 (In thousands)
PNM Revenues
Residential$482,852 $427,883 $433,009 $419,105 $395,490 
Commercial392,257 396,987 408,333 408,354 394,150 
Industrial90,845 69,601 61,119 58,851 56,650 
Public authority23,126 20,322 21,688 23,604 23,174 
Economy service15,911 25,757 26,764 30,645 31,121 
Transmission59,856 57,214 54,280 45,932 34,267 
Firm-requirements wholesale— — — 4,468 22,497 
Other sales for resale (1)
66,253 81,934 76,168 101,897 70,375 
Mark-to-market activity(1,046)(997)(1,051)1,317 (1,645)
Other miscellaneous (2)
13,311 13,134 14,098 10,057 9,834 
Alternative revenue programs (3)
(3,531)1,987 (2,443)— — 
Total PNM Revenues$1,139,834 $1,093,822 $1,091,965 $1,104,230 $1,035,913 
TNMP Revenues
Residential$158,066 $150,742 $130,288 $126,587 $124,462 
Commercial118,243 116,953 111,261 106,503 103,174 
Industrial27,367 22,405 17,317 18,140 17,427 
Other miscellaneous87,966 76,210 81,583 89,543 81,975 
Alternative revenue programs (3)
(8,464)(2,529)4,199 — — 
Total TNMP Revenues$383,178 $363,781 $344,648 $340,773 $327,038 

(1) Includes sales to Tri-State under hazard sharing agreement.
(2) For the years ended December 31, 2020 and 2019, $7.9 million and $6.8 million of sales related to the SJGS 65 MW are classified as other miscellaneous revenue from contracts with customers (Note 4).
(3) Beginning in 2018, alternative revenue programs include recovery or refund provisions under PNM’s renewable energy rider; true-ups to PNM’s formula transmission rates, and TNMP’s AMS surcharge, and transmission cost recovery factor; and the energy efficiency incentive bonuses at PNM and TNMP. Beginning in 2018, alternative revenue programs also include the impacts of the PUCT’s January 25, 2018 order regarding the change in the federal corporate income tax rate in 2018 at TNMP. See Notes 4 and 17.

20202019201820172016
PNM MWh Sales
Residential3,438,381 3,227,338 3,250,560 3,136,066 3,189,527 
Commercial3,404,595 3,732,099 3,814,659 3,774,417 3,831,295 
Industrial1,412,619 1,152,536 879,308 850,914 875,109 
Public authority245,386 231,538 241,238 250,500 249,860 
Economy service(1)
444,903 670,128 667,288 722,501 805,733 
Firm-requirements wholesale (2)
— — — 87,600 429,345 
Other sales for resale (3)
2,556,184 2,842,759 2,525,220 3,632,137 2,899,322 
Total PNM MWh Sales11,502,068 11,856,398 11,378,273 12,454,135 12,280,191 
TNMP MWh Sales
Residential3,090,482 3,044,760 3,094,965 2,936,291 2,933,938 
Commercial3,302,589 3,401,288 3,186,788 2,793,263 2,742,366 
Industrial4,952,121 4,281,962 3,681,480 3,202,528 2,976,800 
Other98,775 99,863 100,300 94,767 98,596 
Total TNMP MWh Sales11,443,967 10,827,873 10,063,533 9,026,849 8,751,700 

(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.
(2) Decrease beginning in 2017 reflects the loss of NEC as a wholesale generation customer (Note 17).
(3) Includes sales to Tri-State under hazard sharing agreement.    

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PNM RESOURCES, INC. AND SUBSIDIARIES
COMPARATIVE OPERATING STATISTICS
20202019201820172016
PNM Customers
Residential479,112 473,803 470,192 465,950 462,921 
Commercial57,669 57,369 57,000 56,655 56,357 
Industrial194 201 236 239 247 
Economy service
Other sales for resale19 26 39 36 36 
Other935 930 932 931 887 
Total PNM Customers537,930 532,330 528,400 523,812 520,449 
TNMP Consumers
Residential217,511 213,435 210,696 207,788 204,744 
Commercial41,267 41,054 40,508 39,814 39,817 
Industrial97 96 88 82 66 
Other1,901 1,911 1,924 1,948 1,993 
Total TNMP Consumers260,776 256,496 253,216 249,632 246,620 
PNM Generation Statistics
Net Capability – MW, including PPAs (1)
2,816 2,761 2,661 2,580 2,791 
Coincidental Peak Demand – MW1,974 1,937 1,885 1,843 1,908 
Average Fuel Cost per MMBTU$1.851 $1.716 $1.808 $1.704 $1.821 
BTU per KWh of Net Generation10,147 10,055 10,193 10,396 9,975 
(1) Amounts are reflective of the shutdown of SJGS Units 2 and 3 in December 2017 and restructured ownership of SJGS Unit 4 as of December 31, 2017.

ITEM 7.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. This report uses the term “Company” when discussing matters of common applicability to PNMR, PNM, and TNMP. The MD&A for PNM and TNMP is presented as permitted by Form 10-K General Instruction I (2) as amended by the FAST Act. For additional information related to the earliest of the two years presented please refer to the Company’s 2019 Annual Report on Form 10-K. A reference to a “Note” in this Item 7 refers to the accompanying Notes to Consolidated Financial Statements included in Part II, Item 8, 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 799,000 residential, commercial, and industrial customers and end-users of electricity in New Mexico and Texas. PNMR’s electric utilities are PNM and TNMP. PNMR strives to create a clean and bright energy future for customers, communities, and shareholders. PNMR’s strategy and decision-making are focused on safely providing reliable, affordable, and environmentally responsible power built on a foundation of Environmental, Social and Governance (ESG) principles.

Recent Developments

Merger

On October 20, 2020, PNMR, Avangrid and Merger Sub entered into the Merger Agreement pursuant to which Merger Sub will merge with and into PNMR, with PNMR surviving the Merger as a wholly-owned subsidiary of Avangrid.

Pursuant to the Merger Agreement, each issued and outstanding share of the common stock of PNMR (other than (i) the issued shares of PNMR common stock that are owned by Avangrid, Merger Sub, PNMR or any wholly-owned subsidiary of Avangrid or PNMR, which will be automatically cancelled at the Effective Time and (ii) shares of PNMR common stock outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of, or consented in writing to, the Merger who is entitled to, and who has demanded, payment for fair value of such shares) at the Effective Time will be converted into the right to receive $50.30 in cash.
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The proposed Merger has been unanimously approved by the Boards of Directors of PNMR, Avangrid and Merger Sub and approved by PNMR shareholders at the Special Meeting of Shareholders held on February 12, 2021. On January 20, 2021, the FTC notified PNMR and Avangrid that early termination of the waiting period under the HSR Act in connection with the Merger was granted. CFIUS completed its review of the Merger on February 2, 2021, and has concluded that there are no unresolved national security concerns with respect to the Merger. The early termination of the waiting period under the HSR Act and clearance by CFIUS satisfies two of the conditions to the closing of the transactions contemplated by the Merger Agreement. Consummation of the Merger remains subject to the satisfaction or waiver of certain customary closing conditions, including, without limitation, the absence of any material adverse effect on PNMR, the receipt of required regulatory approvals (including the PUCT, the NMPRC, FERC, FCC, and the NRC), and the agreements relating to the divestiture of Four Corners being in full force and effect and all applicable regulatory filings associated therewith being made. The Merger is currently expected to close in the second half of 2021.

Texas Winter Storm

In mid-February 2021, Texas experienced a severe winter storm delivering the coldest temperatures in 100 years for many parts of the state. As a result, the ERCOT market was not able to deliver sufficient generation load to the grid resulting in significant, statewide outages as ERCOT directed transmission operators to curtail thousands of firm load megawatts. TNMP complied with ERCOT directives to curtail the delivery of electricity in its service territory and did not experience significant outages on its system outside of the ERCOT directed curtailments. In the event a REP files for bankruptcy, TNMP has regulatory authorization to defer bad debt expense from REPs to a regulatory asset and seek recovery in a general rate case. At this time, the Company does not expect significant financial impacts related to this event.


Financial and Business Objectives
PNMR is focused on achieving three key financial objectives:

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

In conjunction with these objectives, 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 financial objectives 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, periodic 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 financial objectives. 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.

State Regulation

The rates PNM and TNMP charge 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.

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The NMPRC’s order included a determination that PNM was imprudent in purchasing certain leased capacity in PVNGS Unit 2, extending other PVNGS leased capacity, and installing BDT environmental controls equipment on SJGS. PNM appealed the NMPRC’s imprudence findings to the NM Supreme Court. Specifically, PNM appealed the NMPRC’s determination that PNM was imprudent in certain matters in the case, including the disallowance of the full purchase price of 64.1 MW of capacity in PVNGS Unit 2, the undepreciated costs of capitalized improvements made during the period the 64.1 MW of capacity was leased by PNM, the costs of converting 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 leases.

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 purchased and extended leases because PNM was deprived of its rights to due process of law and remanded the case to the NMPRC for further proceedings. In January 2020, the NMPRC issued its order in response to the NM Supreme Court’s remand that reaffirmed its September 2016 order except for the decision to permanently disallow recovery of certain future decommissioning costs related to PVNGS Units 1 and 2. The NMPRC indicated that PNM’s ability to recover these costs will be addressed in a future proceeding and closed the NM 2015 Rate Case docket.

As a result of the NM Supreme Court’s ruling, PNM recorded a pre-tax impairment of $150.6 million which is reflected as regulatory disallowances and restructuring costs in the Consolidated Statements of Earnings for the year ended December 31, 2019. This amount reflects capital costs not previously impaired during the pendency of the appeal related to PNM’s purchase of 64.1 MW, undepreciated capital improvements made in PVNGS Unit 1 during the period such interests had been leased, and investments in BDT environmental controls equipment on SJGS Units 1 and 4. The impairment was offset by tax impacts of $45.7 million which are reflected as income taxes on the Consolidated Statements of Earnings.

New Mexico 2016 Rate Case – In January 2018, the NMPRC approved a settlement agreement that authorized PNM to implement an increase in base non-fuel rates of $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 $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%
A requirement to return to customers over a three-year period the benefit of the reduction in the New Mexico corporate income tax rate to the extent attributable to PNM’s retail operations (Note 18)
A disallowance of PNM’s ability to collect an equity return on certain investments aggregating $148.1 million at Four Corners, but allowing recovery of 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 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.

On December 29, 2020, Sierra Club filed a motion to re-open the 2016 rate case. The motion requests that the NMPRC re-open the 2016 rate case for the limited purpose of conducting a prudence review of certain Four Corners capital expenditures that the NMPRC deferred in its order approving the settlement agreement. Alternatively, Sierra Club requested that the deferred prudence review be conducted, and given weight as appropriate, in the Four Corners Abandonment Application. On February 10, 2021, the NMPRC rejected Sierra Club’s motion to re-open the NM 2016 Rate Case and stated that issues on whether the terms of the ETA provide an opportunity for consideration of prudence for Four Corners undepreciated investments included in a financing order or what effects the rates approved in the NM 2016 Rate Case may have on determining energy transition cost should be considered in the Four Corners Abandonment Application. See Note 17.

2020 Decoupling Petition – On May 28, 2020, PNM filed a petition for approval of a rate adjustment mechanism that would decouple the rates of its residential and small power rate classes. Decoupling is a rate design principle that severs the link between the recovery of fixed costs of the utility through volumetric charges. If approved, customer bills would not be impacted until January 1, 2022. On October 2, 2020, PNM requested an order to vacate the public hearing, scheduled to begin October 13, 2020, and stay the proceeding until the NMPRC decides whether to entertain a petition to issue a declaratory order resolving the issues raised in the motions to dismiss. On October 7, 2020, the Hearing Examiner approved PNM's request to stay the proceeding and vacate the public hearing and on October 30, 2020 PNM filed a petition for declaratory order asking the NMPRC to issue an order finding that full revenue decoupling is authorized by the EUEA. See Note 17. PNM cannot predict the outcome of this matter.

Advanced Metering Currently, TNMP has more than 242,000 advanced meters across its service territory. Beginning in 2019, the majority of costs associated with TNMP’s AMS program are being recovered through base rates. On October 2,
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2020, TNMP filed an application with the PUCT for authorization to implement necessary technological upgrades of approximately $46 million to its AMS program by November 2022. On January 14, 2021, the PUCT approved TNMP’s application. TNMP will seek recovery of the investment associated with the upgrade in a future general rate proceeding or distribution cost recovery factor filing.

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 2020 filing for energy efficiency programs to be offered in 2021, 2022, and 2023 included a proposal for an AMI pilot project, although PNM did not recommend the proposal due to the limited benefits that are cost-effective under a pilot structure. On September 17, 2020 the Hearing Examiner in the energy efficiency case issued a recommended decision recommending that PNM's proposed 2021 energy efficiency and load management program be approved, with the exception of the proposed AMI pilot program. On October 28, 2020 the NMPRC approved the recommended decision.

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. The NMPRC has approved PNM recovering fuel costs through the FPPAC, as well as rate riders for renewable energy and energy efficiency. These mechanisms allow for more timely recovery of investments.

On April 6, 2020, TNMP filed its 2020 DCOS that requested an increase in annual distribution revenues of $14.7 million and that new rates go into effect beginning in September 2020. On June 26, 2020, TNMP reached a unanimous settlement agreement with parties that would authorize TNMP to collect a $14.3 million annual distribution revenue requirement beginning in September 2020. On August 13, 2020, the PUCT approved the unanimous settlement. See Note 17.

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 proposed recovery of the costs incurred to join the EIM beginning on the effective date of new rates in PNM’s next general rate case and that the benefits of participating in the EIM be credited to retail customers through PNM’s existing FPPAC. In December 2018, the NMPRC issued an order approving the establishment of a regulatory asset to recover PNM’s cost of joining the EIM. The order was subsequently vacated based on challenges by certain parties. In March 2019, the NMPRC issued a revised order approving the Hearing Examiner’s recommendation to defer certain 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 until PNM’s next general rate case filing. In April 2019, the NMPRC issued an order clarifying that the CAISO quarterly benefits reports may be used to support the benefits of participating in the EIM. PNM anticipates it will begin participating in the EIM in April 2021.

FERC Regulation

Rates PNM charges wholesale transmission 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.

In 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 eastern New Mexico beginning in 2021 using an incremental rate. All necessary regulatory approvals for PNM to purchase and provide transmission service from the Western Spirit Line have been obtained.
Delivering At or Above Industry-Average Earnings and Dividend Growth
PNMR’s financial objective 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. 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.

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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. The Board will continue to evaluate the dividend on an annual basis, considering sustainability and growth, capital planning, and industry standards.

Under the terms of the Merger Agreement, PNMR has agreed not to declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its equity securities, or make any other actual, constructive or deemed distribution in respect of any equity securities (except (i) PNMR may continue the declaration and payment of planned regular quarterly cash dividends on PNMR common stock for each quarterly period ended after the date of the Merger Agreement, in an amount not to exceed $0.3275 for any fiscal quarters in 2021 and 2022, with usual record and payment dates in accordance with past dividend practice, and (ii) for any cash dividend or cash distribution by a wholly-owned subsidiary of PNMR to PNMR or another wholly-owned subsidiary of PNMR).

The Board approved the following increases in the indicated annual common stock dividend:
Approval DatePercent Increase
December 20196.0 %
December 20206.5 %

Maintaining Investment Grade Credit Ratings

The Company is committed to maintaining 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. On April 6, 2020, S&P downgraded the ratings for PNMR, PNM, and TNMP one notch and affirmed TNMP’s first mortgage bond rating. On September 1, 2020, Moody's affirmed the credit rating and stable outlook for PNM. On September 4, 2020, Moody's affirmed the credit rating for PNMR and TNMP, affirmed the stable outlook for PNMR, and changed TNMP's rating outlook from stable to negative. Upon the announcement of the Merger on October 21, 2020, S&P revised its ratings outlook from stable to positive for PNMR, PNM, and TNMP and affirmed each of the ratings. All of the credit ratings issued by both Moody’s and S&P on the Company’s debt continue to be investment grade.

Business Focus

To achieve its business objectives, focus is directed in key areas: Safe, Reliable and Affordable Power; Utility Plant and Strategic Investments; Environmentally Responsible Power; and Customer, Stakeholders, and Community Engagement. The Company works closely with its stakeholders 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.

Safe, Reliable, and Affordable Power

Safety is the first priority of our business and core value of the Company. PNMR utilizes a Safety Management System to provide clear direction, objectives and targets for managing safety performance and minimizing risks and empowers employees to "Be the Reason Everyone Goes Home Safe".

PNMR measures reliability and benchmark performance of PNM and TNMP against other utilities using industry-standard metrics, including System Average Interruption Duration Index ("SAIDI"), System Average Interruption Frequency Index ("SAIFI") and Customer Average Interruption Duration Index ("CAIDI"). PNM's and TNMP's investment plans include projects designed to support reliability and reduce the amount of time customers are without 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 March 2020, the World Health Organization declared COVID-19 a global pandemic and then President Trump declared the COVID-19 pandemic a national emergency in the U.S. The Company continues to closely monitor developments and has taken and continues to take 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
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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 ongoing COVID-19 pandemic, 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 17, both PNM and TNMP suspended disconnecting certain customers for past due bills, waived late fees during the pandemic, and 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 2019 and 2020 period, PNM and TNMP together invested approximately $1.3 billion in utility plant, including substations, power plants, nuclear fuel, and transmission and distribution systems. During 2018 and 2019 PNM constructed 50 MW of PNM-owned solar-PV facilities, which were approved by the NMPRC in PNM’s 2018 renewable energy procurement plan. On May 1, 2019, PNM executed an agreement to purchase the Western Spirit Line, 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.

New Mexico’s clean energy future depends on a reliable, resilient, secure grid to deliver an evolving mix of energy resources to customers. PNM has launched the Wired for the Future capital initiative, which emphasizes new investments in its transmission and distribution infrastructure with three primary objectives: delivering clean energy, enhancing customer satisfaction and increasing grid resilience. Projects are aimed at advancing the infrastructure beyond its original architecture to a more flexible and redundant system accommodating growing amounts of intermittent and distributed generation resources and integrating evolving technologies that provide long-term customer value. 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 ranks third in the Nation for energy potential from solar power according to the Nebraska Department of Energy & Energy Sun Index and ranks third in the Nation for land-based 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. As of December 31, 2020, NMRD’s renewable energy capacity in operation was 135.1 MW, which includes 130 MW of solar-PV facilities 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, 2.0 MW to supply energy to the Central New Mexico Electric Cooperative, and 1.2 MW of solar-PV facilities to supply energy to the City of Rio Rancho, New Mexico. NMRD actively explores opportunities for additional renewable projects, including large-scale projects to serve future data centers and other customer needs.

Integrated Resource Plan

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

NMPRC rules required PNM to file its 2020 IRP in July 2020. In April 2020, the NMPRC approved PNM ‘s request to extend the deadline to file its 2020 IRP until six months after the NMPRC issues a final order approving replacement resources in PNM’s SJGS Abandonment Application. On January 29, 2021 PNM filed its 2020 IRP. The plan focuses on a carbon-free electricity portfolio by 2040 that would eliminate coal at the end of 2024. This includes replacing the power from San Juan with a mix of approved carbon-free resources and the plan to exit Four Corners at the end of 2024. The plan highlights the need for additional investments in a diverse set of resources, including renewables to supply carbon-free power, energy storage to balance supply and demand, and efficiency and other demand-side resources to mitigate load growth.
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
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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 corporate website (www.pnmresources.com) includes a dedicated section providing key environmental and other sustainability information related to PNM’s and TNMP’s operations and other information that collectively demonstrates the Company’s commitment to ESG principles. This information highlights plans for PNM to be coal-free by 2024 (subject to regulatory approval) and to achieve an emissions-free generating portfolio by 2040.

On September 21, 2020, PNM announced an agreement to partner with Sandia National Laboratories in research and development projects focused on energy resiliency, clean energy, and national security. The partnership demonstrates PNMR's commitment to ESG principles and its support of projects that further its emissions-free generation goals and plans for a reliable, resilient, and secure grid to deliver New Mexico's clean energy future.

The Energy Transition Act (“ETA”)

On June 14, 2019, Senate Bill 489, known as the ETA, became effective. 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. PNM expects the ETA will have a significant impact on PNM’s future generation portfolio, including PNM’s planned retirement of SJGS in 2022 and the planned Four Corners exit in 2024. PNM cannot predict the full impact of the ETA on potential future generating resource abandonment and replacement filings with the NMPRC.

SJGS Abandonment Application – As discussed in Note 16, 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. In January 2019, the NMPRC issued an order initiating a proceeding and requiring PNM to submit an application for the abandonment of PNM’s share of SJGS in 2022 and for replacement resources by March 1, 2019. The NMPRC’s January 2019 order was subsequently stayed by the NM Supreme Court pending review of PNM’s petition in the matter. On June 26, 2019, the NM Supreme Court lifted the stay and denied PNM’s petition without discussion. See additional discussion of PNM’s December 2018 Compliance Filing in Note 16.

On July 1, 2019, PNM filed a Consolidated Application for the Abandonment and Replacement of SJGS and Related Securitized Financing Pursuant to the ETA (the “SJGS Abandonment Application”). The SJGS Abandonment Application sought NMPRC approval to retire PNM’s share of SJGS in mid-2022, and for approval of replacement resources and the issuance of approximately $361 million of Securitized Bonds as provided by the ETA. The application included 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 have provided cost savings to customers while preserving system reliability. The application included three other replacement resource scenarios that would have placed a greater amount of resources in the San Juan area, or resulted 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 were expected to result in increased costs to customers and the two alternative resource scenarios that resulted in no new fossil-fueled generating facilities were expected to not provide adequate system reliability.

The NMPRC issued an order requiring the SJGS Abandonment Application be considered in two proceedings: one addressing SJGS abandonment and related 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 the ETA. After several requests for clarification and legal challenges, in January 2020, the NM Supreme Court ruled 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.

In February 2020, the Hearing Examiners issued two recommended decisions recommending approval of PNM’s proposed abandonment of SJGS, subject to approval of the separate replacement resources proceeding, and approval of PNM’s proposed financing order to issue Securitized Bonds.  The Hearing Examiners recommended, among other things, that PNM be authorized to abandon SJGS by June 30, 2022, to issue Securitized Bonds of up to $361 million, and to establish a rate 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
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reflected in base rates. In addition, the Hearing Examiners recommended PNM be granted authority to establish regulatory assets to recover costs that 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 economic development funds. On April 1, 2020, the NMPRC unanimously approved the Hearing Examiners' recommended decisions regarding the abandonment of SJGS and the Securitized Bonds.

On June 24, 2020, the Hearing Examiners issued a second recommended decision on PNM's request for approval of replacement resources that addressed the entire portfolio of replacement resources. On July 29, 2020 the NMPRC issued an order approving resource selection criteria identified in the ETA and would include PPA's for 650 MW of solar and 300 MW of battery storage. See additional discussion of the ETA and PNM’s San Juan Abandonment Application in Notes 16 and 17.

Four Corners Abandonment Application - On January 8, 2021, PNM filed the Four Corners Abandonment Application, which seeks NMPRC approval to exit PNM’s 13% share of Four Corners as of December 31, 2024, and issuance of approximately $300 million of energy transition bonds as provided by the ETA. If approved, PNM would exit its 200 MW ownership interest in Four Corners seven years earlier than planned and accelerate its exit of coal to 2024. See additional discussion of the ETA and PNM’s Four Corners Abandonment Application in Notes 16 and 17.

Other Environmental Matters SJGS and Four Corners may be required to comply with environmental rules that affect coal-fired generating units, including regional haze rules and the ETA. On June 19, 2019, EPA repealed the Clean Power Plan, promulgated the ACE Rule, and revised the implementing regulations for all emission guidelines issued under the CAA Section 111(d). EPA set the Best System of Emissions Reduction (“BSER”) for existing coal-fired power plants as heat rate efficiency improvements based on a range of “candidate technologies” that can 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 based on the application of BSER. However, on January 19, 2021, the U.S. Court of Appeals for the D.C. Circuit issued an opinion vacating and remanding the rule, holding that it was based on a misconstruction of Section 111(d) of the Clean Air Act. In addition, on January 27, 2021, President Biden signed an executive order requiring a review of environmental regulations issued under the Trump Administration, which will include a review of the ACE rule. The Biden Administration has made clear that it will seek greater authority in regulating greenhouse gas emissions to address climate change.

SJGS may also be required to comply with additional CO2 emissions 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.

PNMR is building upon its ESG goal of 100% emissions-free generation by 2040 with plans for additional emissions reductions through the electrification of its vehicle fleet. Growing the number of electric vehicles within the Company's fleet will benefit the environment and lower fuel costs furthering the commitment to ESG principles. Under the commitment, existing fleet vehicles will be replaced as they are retired with an increasing percentage of electric vehicles. The new goals call for 25% of all light duty fleet purchases to be electric by 2025 and 50% to be electric by 2030.

To demonstrate PNMR’s commitment to increase the electrification of vehicles in its service territory, PNM filed a Transportation Electrification Program (“TEP”) with the NMPRC on December 18, 2020. The TEP supports customer adoption of electric vehicles by focusing on addressing the barriers to electric vehicle adoption and encourage use. PNM’s proposed program budget will be dedicated to low and moderate income customers by providing rebates to both residential and non-residential customers towards the purchase of chargers and/or behind-the-meter infrastructure. See Note 17.

Renewable Energy
PNM’s renewable procurement strategy includes utility-owned solar capacity, as well as solar, wind, and geothermal energy purchased under PPAs. As of December 31, 2020, PNM has 158 MW of utility-owned solar capacity in operation. In addition, PNM purchases power from a customer-owned distributed solar generation program that had an installed capacity of 161.0 MW at December 31, 2020. PNM also owns the 500 KW PNM Prosperity Energy Storage Project. The project was one of the first combinations of battery storage and solar-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. PNM also purchases the output from New Mexico Wind, a 200 MW wind facility, and the output of Red Mesa Wind, an existing 102 MW wind energy center. PNM’s 2020 renewable energy procurement plan was approved by the NMPRC in January 2020 and includes a PPA to procure 140 MW of renewable energy and RECs from La Joya Wind II beginning in March 2021. The NMPRC’s approved portfolio to replace the planned retirement of SJGS will result in PNM executing solar PPAs of 650 MW combined with 300 MW of battery storage facilities. 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.
As discussed in Strategic Investments above, PNM is currently purchasing the output of 130 MW of solar capacity from NMRD that is used to serve the Facebook data center which includes two 25-year PPAs to purchase renewable energy and
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RECs from an aggregate of approximately 100 MW of capacity from two solar-PV facilities constructed by NMRD to supply power to Facebook, Inc. The first 50 MW of these facilities began commercial operations in November 2019 and the second 50 MW facility began commercial operations in July 2020. Additionally, 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 power and RECs from a 50 MW wind project, which was placed in commercial operation in November 2018, a 166 MW wind project which became operational in February 2021, and a 50 MW solar-PV project to be operational in December 2021. On February 8, 2021 PNM filed an application with the NMPRC for approval to service the Facebook data center for an additional 190 MW of solar PPA combined with 100 MW of battery storage and a 50 MW solar PPA expected to be operational in 2023. See Note 17.
On May 31, 2019, PNM filed an application with the NMPRC for approval of a 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 be recovered directly from subscribing customers through a rate rider, including the costs to procure renewable energy from 50 MW of solar-PV facilities under a 15-year PPA. These facilities are expected to be placed in commercial operation in September 2021. In March 2020, the 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 2020, incremental energy saved as a result of new participation in PNM’s portfolio of energy efficiency programs is estimated to be approximately 72 GWh. This is equivalent to the annual consumption of approximately 10,600 homes in PNM’s service territory. PNM’s load management and annual energy efficiency programs also help lower peak demand requirements. In 2020, TNMP’s incremental energy saved as a result of new participation in TNMP’s energy efficiency programs is estimated to be approximately 17 GWh. This is equivalent to the annual consumption of approximately 2,011 homes in TNMP’s service territory. 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 included an AMI pilot program that PNM did not recommend due to the limited benefits that are cost-effective under a pilot structure. On September 17, 2020 the Hearing Examiner in the case issued a recommended decision recommending that PNM's proposed 2021 energy efficiency and load management program be approved, with the exception of the proposed AMI pilot program. On October 28, 2020 the NMPRC issued an order adopting the recommended decision in its entirety.

Water Conservation and Solid Waste Reduction

PNM continues its efforts to reduce the amount of fresh water used to make electricity (about 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%.  As the Company moves forward with its mission to achieve 100% carbon‐free generation by 2040, it expects that more significant water savings will be gained. PNM has set a goal to reduce freshwater use 80% by 2035 and 90% by 2040 from 2005 levels. 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 2020, 18 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

Another key element of the Company’s commitment to ESG principles is fostering relationships with its customers, stakeholders, and communities. The Company strives to deliver a superior customer experience. Through outreach, collaboration, and various community-oriented programs, the Company has demonstrated a 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 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. As a result, PNM has seen significant gains in customer satisfaction in recent years in both the JD Power Electric Utility Residential Customer Satisfaction StudySM and its
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own proprietary relationship surveys. In September 2020, J.D. Power also ranked PNM as one of the top performers in the industry for improved impression of the company based on PNM’s response to the COVID-19 pandemic.

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 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. As discussed above, PNMR’s corporate website, www.pnmresources.com, includes a dedicated section providing additional information regarding the Company’s commitment to ESG principles and other sustainability efforts.

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. This summer, TNMP provided a 33-person team for two weeks in support of another utility that experienced significant damage to their transmission and distribution system as a result of Hurricane Laura.

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 Company investments and initiatives. Key electricity consumers also have dedicated Company contacts that support their important service needs.

Another demonstration of the Company’s commitment to ESG principles is the Company’s tradition of supporting the communities it serves in New Mexico and Texas. This support extends beyond corporate giving and financial donations from the PNM Resources Foundation to also include collaborations on community projects, customer low-income assistance programs, and employee volunteerism. In response to COVID-19, additional efforts were made in each of these areas and exhibit the Company’s core value of caring for its customers and communities.

During the three years ending December 31, 2020, corporate giving contributed $7.7 million to civic, educational, environmental, low income, and economic development organizations. PNMR recognizes its responsibility to support programs and organizations that enrich the quality of life across its service territories and seeks opportunities to further demonstrate its commitment in these areas as needs arise. In response to COVID-19 community needs, PNMR donated to an Emergency Action Fund in partnership with key local agencies to benefit approximately ninety nonprofits and small businesses facing challenges due to lack of technology, shifting service needs, and cancelled fundraising events. Additionally, employee teams have supported first responders and other front-line workers through the delivery of food and other supplies often procured from local businesses struggling during stay-at-home orders. PNM also donated to the Pueblo Relief Fund and delivered personal protective supplies to pueblo areas and tribal nations throughout New Mexico. While its service territory does not include the Navajo Nation, PNM’s operations include generating facilities and employees in this region that has been disproportionately affected by the pandemic. In response, employee teams focused efforts to this region and also provided available supplies of personal protective equipment. PNM has also collaborated with the Navajo Tribal Utility Authority Wireless (“NTUAW”) to set up wireless “hot spots” throughout the Navajo Nation in areas without internet access to assist first responders and support continued education opportunities amidst school closures. These actions supplement PNM’s continued support for the Navajo Nation. The PNM Navajo Nation Workforce Training Scholarship Program provides support for Navajo tribal members and encourages the pursuit of education and training in existing and emerging jobs in the communities in which they live. In 2019, PNM invested an additional $500,000 into this scholarship program to further assist in the development and education of the Navajo Nation workforce. PNM has invested in paid summer college engineering internship programs for American Indian students available in the greater Albuquerque area. PNM also continues to partner in the Light up Navajo project, piloted in 2019 and modeled after mutual aid to connect homes without electricity to the power grid. In 2020, PNM also partnered with key local organizations to initiate funding for programs focused on diversity, equity and inclusion.

Another important outreach program is tailored for low-income customers and includes the PNM Good Neighbor Fund to provide customer assistance with their electric utility bills. COVID-19 has increased the needs of these customers along with customers who may not otherwise need to seek assistance. In addition to the suspension of customer disconnections and expansion of customer payment plans, PNM responded with increased communications through media outlets and customer outreach to connect customers with nonprofit community service providers offering financial assistance, food, clothing, medical programs, and services for seniors. As a result of these communication efforts, 3,487 families in need have received emergency assistance through the PNM Good Neighbor Fund during 2020.

Additionally as part of corporate giving, on October 1, 2020, PNM introduced $2.0 million in funding for new COVID Customer Relief Programs to support income-qualified residential customers and small business customers who have been impacted by the financial challenges created by COVID-19 and have past due electric bills. Qualified customers that pay a portion of their past-due balance can receive assistance toward their remaining balance.

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Volunteerism is also an important facet of employee culture keeping our communities safer, stronger, smarter and more vibrant. In 2020, PNM and TNMP employees and retirees contributed over 6,200 virtual and in-person volunteer hours serving local communities by supporting at least 250 organizations. Volunteers also participate in a company-wide annual Day of Service at nonprofits across New Mexico and Texas along with participation on a variety of nonprofit boards and independent volunteer activities throughout the year.

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. Beginning in 2020, the PNM Resources Foundation is funding grants with a three-year focus on decreasing homelessness, increasing access to affordable housing, reducing carbon emissions, and community safety, with an emphasis on COVID-19 programs. As part of this emphasis, $0.4 million has been awarded to nonprofits in New Mexico and Texas to assist with work being done on the front lines of the pandemic for community safety, with a focus on helping senior citizens and people currently experiencing homelessness during the shelter-in-place directives. In 2020, the PNM Resources Foundation expanded its matching donation program to offer 2-to-1 matching on employee donations made to social justice nonprofits and increased the annual amount of matching donations available to each of its employees.

Economic Factors
    
PNM – In 2020, PNM experienced an increase in weather normalized residential load of 5.8%, partially offset by a decrease in weather normalized commercial load of 9.9% compared to 2019, primarily due to New Mexico state restrictions related to COVID-19. PNM did not experience significant impacts to its other customer classes.

TNMP – In 2020, TNMP experienced an increase in volumetric weather normalized retail load of 2.9% compared to 2019. Weather normalized demand-based load, excluding retail transmission consumers, decreased 1.3% in 2020 compared to 2019. TNMP has experienced increased volumetric usage related to residential consumers offset by decreases in its demand based load as a result of impacts related to COVID-19.

The Company is unable to determine the duration or final impacts from COVID-19 as discussed in more detail in Item 1A. Risk Factors. The Company does not currently expect significant negative impacts to customer usage at PNM and TNMP resulting from the economic impacts of COVID-19. However, if current economic conditions worsen, the Company may be required to implement additional measures such as reducing or delaying operating and maintenance expenses and planned capital expenditures.

Results of Operations

Net earnings attributable to PNMR were $172.8 million, or $2.15 per diluted share in the year ended December 31, 2020 compared to $77.4 million, or $0.97 per diluted share in 2019. Among other things, earnings in 2020 benefited from higher weather normalized residential load at PNM, higher volumetric load at TNMP, warmer weather at PNM, higher earnings on PNM's renewable rate rider, higher transmission rates at PNM and TNMP, higher distribution rates at TNMP, lower plant maintenance costs at PNM, and lower interest expense at PNM. In addition, a regulatory disallowance recorded in 2019 resulting from the NM Supreme Court's opinion in PNM's appeal of the NMPRC's decisions in the NM 2015 Rate Case decreased earnings in 2019 compared to 2020. These increases were partially offset by lower weather normalized commercial load at PNM, lower demand-based load at TNMP, milder weather conditions at TNMP, higher operational and maintenance expense, including higher employee related, outside service and vegetation management expenses at PNM and TNMP, increased depreciation at PNM and TNMP, a donation to COVID Customer Relief Programs at PNM, and lower gains on PNM's PVNGS and coal mine reclamation investment securities. Additional information on factors impacting results of operations 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 that 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 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 and contains two one-year extension options, subject to approval by a majority of the lenders. PNMR Development has a revolving credit facility with a capacity of $40.0 million, with the option, subject to lender approval, to further increase the capacity up to $50.0 million upon 15-days advance notice, that expires in January 2022. 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 $773.1 million at February 19, 2021. Total availability at PNMR, on a consolidated basis, does not reflect a reduction of $100.3 million that PNM has reserved to provide liquidity support for the PNM Floating Rate PCRBs. The Company utilizes these credit facilities and cash
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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 and dividends, will total $4.5 billion for 2021-2025. The construction expenditures include estimated amounts for an anticipated expansion of PNM’s transmission system, including the planned purchase of the Western Spirit Line, and expenditures for PNM’s Wired for the Future capital initiative.

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 had 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. On December 15, 2020 PNMR physically settled all shares under the PNMR 2020 Forward Equity Sale Agreements by issuing 6.2 million shares to the forward purchasers at a price of $45.805 per share aggregating net proceeds of $283.1 million. Following this settlement, no shares of PNMR’s common stock remain subject to future settlement under the PNMR 2020 Forward Equity Sale Agreements. See Note 7.

To fund capital spending requirements to meet growth that balances earnings goals, credits metrics and liquidity needs, the Company has entered into a number of other financing arrangements in 2020, including the TNMP 2020 Bond Purchase Agreements, the PNM 2020 Term Loan, the PNM 2020 Note Purchase Agreement, the PNMR 2020 Term Loan, and the PNMR 2020 Delayed-Draw Term Loan. For further discussion on these financing arrangements see Liquidity and Capital Resources discussion below as well as Note 7.

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 17.

After considering the effects of these financings and the Company’s short-term liquidity position as of February 19, 2021, the Company has consolidated maturities of long-term and short-term debt aggregating $872.3 million in the period from January 1, 2021 through December 31, 2021, and an additional $295.0 million that will mature by February 28, 2022. 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 2021-2025 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 Consolidated Financial Statements and Notes thereto. Trends and contingencies of a material nature are discussed to the extent known. Also, refer to Disclosure Regarding Forward Looking Statements in Part I, Item 1 and to Risk Factors in Part I, Item 1A.

A summary of net earnings attributable to PNMR is as follows:
Year Ended December 31,Change
202020192020/2019
(In millions, except per share amounts)
Net earnings attributable to PNMR$172.8 $77.4 $95.4 
Average diluted common and common equivalent shares80.3 80.0 0.3 
Net earnings attributable to PNMR per diluted share$2.15 $0.97 $1.18 

The components of the changes in net earnings attributable to PNMR by segment are:
Change
2020/2019
(In millions)
PNM$104.8 
TNMP2.8 
Corporate and Other(12.2)
  Net change$95.4 

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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:
 Year Ended December 31,Change
 202020192020/2019
 (In millions)
Electric operating revenues$1,139.8 $1,093.8 $46.0 
Cost of energy345.2 317.7 27.5 
Utility margin794.7 776.1 18.6 
Operating expenses414.4 554.7 (140.3)
Depreciation and amortization165.3 160.4 4.9 
Operating income214.9 61.1 153.8 
Other income (deductions)31.6 41.3 (9.7)
Interest charges(64.6)(72.9)8.3 
Segment earnings (loss) before income taxes181.9 29.5 152.4 
Income (taxes) benefit(21.9)26.0 (47.9)
Valencia non-controlling interest(14.0)(14.2)0.2 
Preferred stock dividend requirements(0.5)(0.5)— 
Segment earnings$145.5 $40.7 $104.8 

The following table shows GWh sales, including the impacts of weather, by customer class and average number of customers:
 Year Ended December 31,Percent Change
 202020192020/2019
 (Gigawatt hours, except customers)
Residential3,438.4 3,227.3 6.5 %
Commercial3,404.6 3,732.1 (8.8)
Industrial1,412.6 1,152.5 22.6 
Public authority245.4 231.5 6.0 
Economy service (1)
444.9 670.1 (33.6)
Other sales for resale2,556.2 2,842.8 (10.1)
11,502.1 11,856.3 (3.0)%
Average retail customer (thousands)535.2 530.3 0.9 %
(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.


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Operating results – 2020 compared to 2019

The following table summarizes the significant changes to utility margin:
Year Ended December 31, 2020
Change
Utility margin:(In millions)
Retail customer usage/load – Weather normalized retail KWh sales increased 5.8%, for residential customers, partially offset by decreased sales to commercial customers of 9.9%
0.2 
Weather – Warmer weather in 2020; cooling degree days were 16.1% higher
4.8 
Leap Year – Increase in revenue due to additional day in 2020
1.8 
Transmission Increase primarily due to higher revenue under formula transmission rates, the addition of new customers, and higher volumes
4.9 
Rate riders Includes renewable energy, fuel clause, and energy efficiency riders which are partially offset in operating expense and depreciation and amortization
5.4 
Coal mine reclamation – Increase primarily due to lower expense on surface mine reclamation in 2020 and the remeasurement of PNM’s obligation for Four Corners coal mine reclamation in 2019
3.1 
Late/disconnect fees Suspension of late/disconnect fees due to COVID-19
(0.9)
Other(0.7)
Net Change$18.6 

The following tables summarize the primary drivers for operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:
Year Ended December 31, 2020
Change
Operating expenses:(In millions)
Lower plant maintenance and administrative costs at SJGS, partially offset with higher costs at Four Corners, PVNGS and gas-fired plants$(5.6)
Regulatory disallowance resulting from the NM Supreme Court’s May 2019 decision on PNM’s appeal of the NM 2015 Rate Case (Note 17)(150.6)
2020 increase in estimated coal mine reclamation costs associated with ownership restructuring of SJGS and Four Corners (Note 16)1.1 
Higher employee related and outside service expenses8.0 
Reclassification of upfront and quarterly commitment fees, offset in interest charges1.3 
Higher vegetation management expenses2.0 
Higher bad debt expense0.7 
Higher costs associated with rate riders, which are offset in utility margin2.4 
Other0.4 
Net Change$(140.3)
Depreciation and amortization:
Increased utility plant in service, including solar facilities under the renewable rider$6.7 
Lower accretion expense for PVNGS plant decommissioning AROs resulting from new 2020 study (Note 16)(1.6)
Other(0.2)
Net Change$4.9 
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Year Ended December 31, 2020
Change
Other income (deductions):(In millions)
Lower gains on investment securities in the NDT and coal mine reclamation trusts$(8.0)
Higher equity AFUDC0.3 
Higher trust expenses partially offset by higher interest income related to investment securities in the NDT and coal mine reclamation trusts(0.3)
COVID Customer Relief Programs donation(2.0)
Other0.3 
Net Change$(9.7)
Interest charges:
Issuance of $200.0 million of SUNs entered into in April 2020$(4.5)
Reclassification of upfront and quarterly commitment fees, offset in operating expenses1.3 
Lower interest on term loans2.3 
Lower interest on PCRBs remarketed in 20207.9 
Lower debt AFUDC resulting from FERC audit(1.9)
Interest on deposit by PNMR Development for potential transmission interconnections in 2019, which is offset in Corporate and Other3.3 
Other(0.1)
Net Change$8.3 
Income (taxes) benefits:
Higher segment earnings before income taxes$(38.8)
Non-deductible compensation(1.2)
Reversal of excess deferred income taxes resulting from regulatory disallowances in the NM 2015 Rate Case (Note 17)(7.5)
Other(0.4)
Net Change$(47.9)
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 customers 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:
 Year Ended December 31,Change
 202020192020/2019
 (In millions)
Electric operating revenues$383.2 $363.8 $19.4 
Cost of energy102.1 95.1 7.0 
Utility margin281.1 268.7 12.4 
Operating expenses104.9 98.6 6.3 
Depreciation and amortization87.8 84.3 3.5 
Operating income88.5 85.8 2.7 
Other income (deductions)6.8 4.1 2.7 
Interest charges(30.4)(29.1)(1.3)
Segment earnings before income taxes64.9 60.8 4.1 
Income (taxes)(6.3)(5.0)(1.3)
Segment earnings$58.6 $55.8 $2.8 
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The following table shows total GWh sales, including the impacts of weather, by retail tariff consumer class and average number of consumers:
 Year Ended December 31,Percentage Change
 202020192020/2019
Volumetric load (1) (GWh)
Residential3,069.6 3,044.8 0.8 %
Commercial and other31.5 31.5 — %
Total volumetric load3,101.1 3,076.3 0.8 %
Demand-based load (2) (MW)
20,061.5 19,386.7 3.5 %
Average retail consumers (thousands) (3)
258.8 255.2 1.4 %
(1)Volumetric load consumers are billed on KWh usage.
(2)Demand-based load includes consumers billed on a monthly KW peak and retail transmission customers that are primarily billed under rate riders.
(3)TNMP provides transmission and distribution services to REPs that provide electric service to 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.

Operating results – 2020 compared to 2019

The following table summarizes the significant changes to utility margin:
Year Ended December 31, 2020
Change
Utility margin:(In millions)
Transmission rate relief/load Transmission cost of service rate increases in March 2019, September 2019, March 2020, and October 2020, and higher wholesale transmission demand-based sales
$11.3 
Distribution rate relief Distribution cost of service rate established in September 2020
5.3 
Volumetric-based customer usage/load Weather normalized KWh sales increased 2.9% in addition to the leap-year impact; the average number of retail consumers increased 1.4%
2.6 
Demand based customer usage/load Demand-based sales for large commercial and industrial customers excluding retail transmission customers decreased 1.3%
(0.7)
Weather – Milder weather in 2020; heating degree days were 19.8% lower in 2020
(2.4)
Rate riders and other – Impacts of rate riders, including the CTC surcharge, energy efficiency rider, rate case expense rider and transmission cost recovery factor, which are offset in operating expense and depreciation and amortization
(3.7)
Net Change$12.4 

The following tables summarize the primary drivers for operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:
Year Ended December 31, 2020
Change
Operating expenses:(In millions)
Higher employee related and outside service expenses$3.4 
Higher vegetation management expenses1.6 
Higher property tax due to increased utility plant in service partially offset by lower assessed property values0.5 
Higher amortization of rate expenses offset in utility margin1.0 
Other(0.2)
Net Change$6.3 
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Year Ended December 31, 2020
Change
Depreciation and amortization:(In millions)
Increased utility plant in service$6.6 
Decreased amortization of CTC (Note 17)(3.3)
Other$0.2 
Net Change$3.5 
Other income (deductions):
Higher equity AFUDC$1.5 
Higher CIAC0.9 
Other0.3 
Net Change$2.7 
Interest charges:
Repayment of $172.3 million 9.5% first mortgage bonds in April 2019$4.3 
Issuance of $305.0 million first mortgage bonds in 2019(3.6)
Repayment of $35.0 million term loan in December 20191.1 
Issuance of $185.0 million of first mortgage bonds in 2020(3.4)
Other0.3 
Net Change$(1.3)
Income (taxes) benefits:
Higher segment earnings before income taxes$(0.9)
Other(0.4)
Net Change$(1.3)

Corporate and Other
The table below summarizes the operating results for Corporate and Other:
 Year Ended December 31,Change
 202020192020/2019
 (In millions)
Total revenues$— $— $— 
Cost of energy— — — 
Utility margin— — — 
Operating expenses(4.4)(20.5)16.1 
Depreciation and amortization22.5 23.2 (0.7)
Operating income (loss)(18.1)(2.7)(15.4)
Other income (deductions)(1.4)(1.8)0.4 
Interest charges(19.4)(19.0)(0.4)
Segment earnings (loss) before income taxes(38.8)(23.5)(15.3)
Income (taxes) benefit7.5 4.4 3.1 
Segment earnings (loss)$(31.3)$(19.1)$(12.2)

Corporate and Other operating expenses shown above are net of amounts allocated to PNM and TNMP under shared services agreements. The amounts allocated include certain expenses shown as depreciation and amortization and other income (deductions) in the table above. The change in operating expenses includes an increase for the reclassification of $0.7 million in upfront and quarterly commitment fees, previously recorded as interest charges that were not allocated to PNM and TNMP. In addition, operating expenses include $17.0 million in costs related to the Merger in 2020 and $1.6 million in cost to review strategic growth opportunities in 2019 that were not allocated to PNM or TNMP. Substantially all depreciation and amortization expense is offset in operating expenses as a result of allocation of these costs to other business segments.


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Operating results – 2020 compared to 2019

The following tables summarize the primary drivers for other income (deductions), interest charges, and income taxes:
Year Ended December 31, 2020
Change
Other income (deductions):(In millions)
Higher equity method investment income from NMRD$1.1 
Increase in donations and other contributions(0.8)
Other0.1 
Net Change$0.4 
Interest charges:
Lower interest on term loans$2.0 
Reclassification of upfront and quarterly commitment fees, primarily offset in operating expense0.9 
Elimination of intercompany interest (Note 7)(3.3)
Net Change$(0.4)
Income (taxes) benefits:
Higher segment loss before income taxes$3.9 
Other impairments, valuation allowances, and non-deductible expenses0.5 
Non-deductible merger related costs(1.2)
Other(0.1)
Net Change$3.1 

LIQUIDITY AND CAPITAL RESOURCES
Statements of Cash Flows
The information concerning PNMR’s cash flows is summarized as follows:
 Year Ended December 31,Change
 202020192020/2019
 (In millions)
Net cash flows from:
Operating activities$485.7 $503.2 $(17.5)
Investing activities(733.8)(673.9)(59.9)
Financing activities292.2 172.4 119.8 
Net change in cash and cash equivalents$44.1 $1.7 $42.4 

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.

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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 activity related to the Four Corners Purchase and Sale Agreement and NMRD. Major components of PNMR’s cash inflows and (outflows) from investing activities are shown below:
Year Ended December 31,Change
202020192020/2019
Cash (Outflows) for Utility Plant Additions(In millions)
PNM:
Generation$(35.0)$(72.1)$37.1 
Renewables— (62.7)62.7 
Transmission and distribution(276.1)(180.1)(96.0)
Nuclear fuel(24.0)(26.9)2.9 
(335.1)(341.8)6.7 
TNMP:
Transmission(122.9)(73.9)(49.0)
Distribution(198.6)(180.1)(18.5)
(321.5)(254.0)(67.5)
Corporate and Other:
Computer hardware and software(22.4)(20.5)(1.9)
(679.0)(616.3)(62.7)
Other Cash Flows from Investing Activities
Proceeds from sales of investment securities591.0 494.5 96.5 
Purchases of investment securities(607.6)(513.8)(93.8)
Investments in NMRD(23.3)(38.3)15.0 
Other, net(14.9)— (14.9)
(54.8)(57.6)2.8 
Net cash flows from investing activities$(733.8)$(673.9)$(59.9)
Cash Flow from Financing Activities
The changes in PNMR’s cash flows from financing activities include:

Short-term borrowings decreased $153.1 million in 2020 compared to a decrease of $50.8 million in 2019, resulting in a net decrease in cash flows from financing activities of $102.3 million in 2020
In 2020, PNMR had net amounts received under transmission interconnection arrangements of $5.5 million compared to $5.7 million in 2019
In 2019, PNM borrowed $290.0 million under the PNM 2019 $250.0 Million Term Loan and the PNM 2019 $40.0 Million Term Loan and used the proceeds to repay the remaining amount of the PNM 2017 Term Loan, reduce short-term borrowings and for general corporate purposes
In 2019, TNMP issued four series of first mortgage bonds aggregating $305.0 million and used a portion of the proceeds to repay TNMP’s $172.3 million 9.50% first mortgage bonds and to repay borrowings under the TNMP Revolving Credit Facility
In 2019, PNMR extended the PNMR 2018 One-Year Term Loan (as extended, the “PNMR 2019 Term Loan”)
In 2020, PNM borrowed $250.0 million under the PNM 2020 Term Loan and used the proceeds to repay the PNM 2019 $250.0 million Term Loan
In 2020, PNM issued $200.0 million of PNM 2020 SUNs and used $100.0 million of proceeds to pay $100.0 million of the PNM 2020 Term Loan. The remaining $100.0 million of proceeds from the PNM 2020 SUNs were used to repay borrowings on the PNM Revolving Credit Facility and for other corporate purposes.
In 2020, PNM prepaid without penalty the remaining $150.0 million balance of the PNM 2020 Term Loan
In 2020, PNM purchased PCRBs totaling $100.3 million that were subject to mandatory tender on June 1, 2020, utilizing borrowings under the PNM Revolving Credit Facility. On July 1, 2020, these bonds were remarketed to investors in the weekly mode
In 2020, PNM notified bondholders that it was calling PCRBs aggregating $302.5 million, purchased the bonds in lieu of redemption, and remarketed them to new investors
In 2020, TNMP issued $185.0 million of TNMP 2020 Bonds and used the proceeds to reduce short-term debt and for other corporate purposes
In 2020, PNMR physically settled all shares under the PNMR 2020 Forward Equity Sale Agreements by issuing 6.2 million shares to the forward purchasers at a price of $45.805 per share, aggregating net proceeds of $283.1 million
In 2020, PNMR borrowed $150.0 million under the PNMR 2020 Term Loan and used the proceeds to repay the $50.0 million PNMR 2018 Two-Year Term Loan and for other corporate purposes
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In 2020, PNMR executed a $300.0 million delayed-draw term loan (the “PNMR 2020 Delayed-Draw Term Loan”) and drew $80.0 million under its terms
In 2020, the PNMR Development Term Loan was amended to reduce the balance by $25.0 million

Financing Activities
See Note 7 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 informational financing filing and 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
Prior to July 2018, each of the Company’s revolving credit facilities and term loans contained a single financial covenant, which required the maintenance of a debt-to-capitalization ratio of less than or equal to 65%. In July 2018, the PNMR Revolving Credit Facility, PNMR’s term loans, and the PNMR Development Revolving Credit Facility were each amended such that PNMR is now required to maintain a debt-to-capitalization ratio of less than or equal to 70%. The debt-to-capitalization ratio requirement remains at less than or equal to 65% for the PNM and TNMP agreements. 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.

PNMR had outstanding letters 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 bonds, which SJCC is 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 all obligations of SJCC, including those under the letter of credit support agreements. See Note 16. In May 2020, JPMorgan Chase Bank N.A. gave notice that it would not extend the letters of credit beyond their October 21, 2020 expiration. In August 2020, PNMR entered into replacement letter of credit arrangements with Wells Fargo Bank, N.A. (the "WFB LOC Facility") to replace the JPM LOC Facility. Letters of credit were issued under the WFB LOC Facility and exchanged for the letters of credit outstanding under the JPM LOC Facility prior to the expiration of the JPM LOC Facility. On October 21, 2020, the JPM LOC Facility expired according to its terms.

As discussed in Note 7 at December 31, 2020, PNMR had $300.0 million outstanding of PNMR 2018 SUNs that are expected to mature on March 9, 2021. PNMR intends to utilize the remaining $220.0 million of capacity under the PNMR 2020 Delayed-Draw Term Loan to repay an equivalent amount of the PNMR 2018 SUNs.

As discussed in Note 7 at December 31, 2020, PNMR Development had $10.0 million outstanding under the PNMR Development Revolving Credit Facility that was expected to mature on February 23, 2021. On February 22, 2021, PNMR Development extended the facility to January 31, 2022.

On November 26, 2018, PNMR Development entered into a $90.0 million term loan agreement (the “PNMR Development Term Loan”), among PNMR Development and KeyBank, N.A., as administrative agent and sole lender. Proceeds from the PNMR Development Term Loan were used to repay intercompany borrowings from PNMR and for general corporate purposes. On November 25, 2020, the PNMR Development Term Loan was amended to reduce the balance from $90.0 million to $65.0 million and the maturity was subsequently extended to January 31, 2022. The PNMR Development Term Loan bears interest at a variable rate, which was 1.52% on December 31, 2020. PNMR, as parent company of PNMR Development, has guaranteed PNMR Development’s obligations under the loan.

As discussed above and in Note 7, in January 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 was 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, had the option to elect physical, cash, or net share settlement on or before the date that is 12 months from their effective dates. On December 15, 2020, PNMR physically settled all shares under the PNMR 2020 Forward Equity Sale Agreements by issuing 6.2 million shares to the forward purchasers at a price of $45.805 per share aggregating net proceeds of $283.1 million. In addition, PNMR recorded a net $0.1 million for equity issuance costs reimbursed by the lead underwriter. Following the settlement, no shares of PNMR’s common stock remain subject to future settlement under the PNMR 2020 Forward Equity Sale Agreements.

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In April 2020, PNM entered into the $250.0 million PNM 2020 Term Loan and 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 2020 Term Loan. On December 21, 2020, PNM prepaid without penalty the remaining $150.0 million balance of the PNM 2020 Term Loan.

On April 24, 2020, TNMP entered into the TNMP 2020 Bond Purchase Agreement with institutional investors for the sale of $185.0 million aggregate principal amount of four series of TNMP first mortgage bonds (the "TNMP 2020 Bonds") offered in private placement transactions. TNMP issued $110.0 million of TNMP 2020 Bonds on April 24, 2020 and used the proceeds to repay borrowings under the TNMP Revolving Credit Facility and for other corporate purposes. TNMP issued the remaining $75.0 million of TNMP 2020 Bonds on July 15, 2020 and used the proceeds from that issuance to repay borrowings under the TNMP Revolving Credit Facility and for other corporate purposes. The TNMP 2020 Bonds are subject to continuing compliance with the covenants set forth in the indenture governing the TNMP 2020 Bonds. The terms of the indenture governing the TNMP 2020 Bonds 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 2020 Bonds prior to their respective maturities, subject to payment of a customary make-whole premium.

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 proceeds from the PNM 2020 SUNs were used to repay borrowings 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. As discussed below, the change of control provisions in the PNM debt agreements, including the PNM 2020 Note Purchase Agreement, are not triggered by the close of the Merger. 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 December 31, 2019, PNM had $40.0 million of outstanding PCRBs, which have a final maturity of June 1, 2040 and two series of outstanding PCRBs of $39.3 million and $21.0 million, which have a final maturity of June 1, 2043. These PCRBs, aggregating $100.3 million, were subject to mandatory tender on June 1, 2020. On June 1, 2020, PNM purchased these PCRBs utilizing borrowings under the PNM Revolving Credit Facility and converted the PCRBs to the weekly mode. PNM held these PCRBs (without legally canceling them) until July 1, 2020, when they were remarketed in the weekly mode and PNM used the remarketing proceeds to repay the revolver borrowings. PNM Floating Rate PCRBs in the weekly mode bear interest at rates that are reset weekly, giving investors the option to return the bonds for remarketing to new investors upon 7 days' notice. A corresponding portion of the borrowing capacity under the PNM Revolving Credit Facility is reserved to support the investors' option to return the PNM Floating Rate PCRBs upon 7 days' notice.

At December 31, 2019, PNM had PCRBs outstanding of $36.0 million at 6.25% issued by the Maricopa County, Arizona Pollution Control Corporation as well as $255.0 million at 5.90% and $11.5 million at 6.25% issued by the City of Farmington, New Mexico. On June 22, 2020, PNM provided notice to the bondholders that it was calling the PCRBs aggregating $302.5 million. On July 22, 2020, PNM purchased the PCRBs in lieu of redemption and remarketed them to new investors. For information concerning the funding dates, mandatory tender dates, and interest rates on the PNM 2020 Fixed Rate PCRBs. See Note 7.

On October 20, 2020, the execution of the Merger Agreement constituted a “Change of Control” under certain PNMR, TNMP and PNMR Development debt agreements. Under each of the specified debt agreements, a “Change of Control” constitutes an “Event of Default,” pursuant to which the lender parties thereto had the right to accelerate the indebtedness under the debt agreements. The definition of Change of Control under the PNM debt agreements and PNM note purchase agreements is not triggered by the execution of the Merger Agreement.

To ensure sufficient liquidity pending lender consent to the signing of the Merger Agreement, on October 20, 2020, PNMR entered into backstop credit facilities related to the Merger between PNMR, the lenders party thereto, and MUFG Bank, Ltd., as administrative agent. The $300.0 million 364-day revolving credit facility ("Merger Backstop Revolving Facility") was available to provide liquidity to refinance the PNMR Revolving Credit Facility, if needed, and the $50.0 million, 364-day delayed-draw term loan ("Merger Backstop Term Loan") was available to provide liquidity to refinance any of the applicable PNMR term loan or TNMP and PNMR Development credit facilities, if needed, and to fund other corporate purposes.

The Merger Backstop Revolving Facility expired upon the execution of the necessary waiver amendments (discussed below). Had PNMR made borrowings under the Merger Backstop Term Loan, those borrowings would have matured on the earliest of the closing of the Merger or October 19, 2021 and would have borne interest at a variable rate based on a pricing grid. As PNMR did not make any borrowings under the Merger Backstop Term Loan by the commitment termination date of December 18, 2020, the Merger Backstop Term Loan expired according to its terms.
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On October 26, 2020, PNMR, TNMP and PNMR Development entered into amendment agreements with the lender parties thereto to amend the definition of "Change of Control" such that the entry into the Merger Agreement would not constitute a Change of Control and to waive the Event of Default arising from entry into the Merger Agreement. The amended Change of Control definition under the PNMR, TNMP, and PNMR Development debt agreements will however be triggered again upon the closing of the Merger. Prior to the closing of the Merger, the Company intends to coordinate with the lenders and Avangrid to either amend the definition of Change of Control permitting Avangrid ownership of the Company; or to refinance or enter into new debt agreements that would include Avangrid as owners of the Company. The Change of Control provisions in the PNM debt agreements are not triggered by the close of the Merger.

The documents governing TNMP's aggregate $750.0 million of outstanding First Mortgage Bonds ("TNMP FMBs") obligated TNMP to offer, within 30 business days following the signing of the Merger Agreement, to prepay all $750.0 million outstanding TNMP FMBs at 100% of the principal amount, plus accrued and unpaid interest thereon, but without any make-whole amount or other premium. TNMP made such offer to prepay the TNMP FMBs in accordance with the terms of the TNMP FMBs, and none of the holders of the TNMP FMBs accepted TNMP’s offer. The documents governing the TNMP FMBs require TNMP to make another offer, within 30 business days of closing of the Merger, to prepay all outstanding TNMP FMBs at par. TNMP will make such offer to prepay the TNMP FMBs in accordance with the terms of the TNMP FMBs; however, holders of the TNMP FMBs are not required to tender their TNMP FMBs and may accept or reject such offer to prepay.

The information in this Annual Report on Form 10-K is for informational purposes only and is neither an offer to purchase, nor a solicitation of an offer to sell, subscribe for or buy any securities in any jurisdiction pursuant to the proposed transactions or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. Similar to the offer to prepay made after signing the Merger Agreement, the post-Merger closing offer to prepay the TNMP FMBs will be made only pursuant to an offer to prepay, which will set forth the terms and conditions of the offer to prepay.

On December 21, 2020, PNMR entered into a $150.0 million term loan agreement (the “PNMR 2020 Term Loan”), between PNMR and U.S. Bank National Association, as sole lender. Proceeds from the PNMR 2020 Term Loan were used to repay the $50.0 million PNMR 2018 Two-Year Term Loan and for other corporate purposes. The PNMR 2020 Term Loan bears interest at a variable rate, which was 1.25% at December 31, 2020, and matures on January 31, 2022.

On December 22, 2020, PNMR entered into the $300.0 million PNMR 2020 Delayed-Draw Term Loan, among PNMR, the lenders party thereto, and MUFG Bank, Ltd., as administrative agent. Initially PNMR drew $80.0 million to refinance existing indebtedness and for other corporate purposes. Draws on the PNMR 2020 Delayed-Draw Term Loan, bear interest at a variable rate, which was 1.40% at December 31, 2020, and mature on January 31, 2022. PNMR expects to use the remaining $220.0 million of capacity from the PNMR 2020 Delayed-Draw Term Loan to repay an equivalent amount of the PNMR 2018 SUNs.

At December 31, 2019, PNMR had a $50.0 million term loan agreement (the “PNMR 2018 Two-Year Term Loan”). On December 21, 2020, the PNMR 2018 Two-Year Term Loan was repaid and terminated in accordance with its terms.

At January 1, 2019, PNM had outstanding the $200.0 million PNM 2017 Term Loan which was repaid on January 18, 2019.

On January 18, 2019, PNM entered into a $250.0 million term loan agreement (the “PNM 2019 $250.0 Million 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 $250.0 Million 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 $250.0 Million Term Loan was prepaid in April 2020 without penalty.

On December 18, 2019, PNM entered into a $40.0 million term loan agreement (the “PNM 2019 $40.0 Million Term Loan”), between PNMR and Bank of America, N.A. as sole lender and administrative agent. PNM used the proceeds of the PNM 2019 $40.0 Million Term Loan to reduce short-term borrowings under the PNM Revolving Credit Facility and for general corporate purposes. The PNM 2019 $40.0 Million Term Loan bears interest at a variable rate, which was 0.80% at December 31, 2020, and must be repaid on or before June 18, 2021.

At January 1, 2019 TNMP had $35.0 million under the TNMP 2018 Term Loan. TNMP used the proceeds from these issuances to repay short-term borrowings and for TNMP’s general corporate purposes. The TNMP 2018 Term Loan was repaid on December 30, 2019.

On February 26, 2019, TNMP entered into the TNMP 2019 Bond Purchase Agreement with institutional investors for the sale of $305.0 million aggregate principal amount of four series of TNMP First Mortgage Bonds (the “TNMP 2019 Bonds”) offered in private placement transactions. TNMP issued $225.0 million of TNMP 2019 Bonds on March 29, 2019 and used the
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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 issued the remaining $80.0 million of TNMP 2019 Bonds on July 1, 2019 and used the proceeds to repay borrowings under the TNMP Revolving Credit Facility and for general corporate purposes. The terms of the indenture governing the TNMP 2019 Bonds 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 has the right to redeem any or all of the TNMP 2019 Bonds prior to their respective maturities, subject to payment of a customary make-whole premium.

PNMR had a hedging agreement that effectively established a fixed interest rate of 1.927%, subject to change if there is a change in PNMR’s credit rating, for borrowings under the $150.0 million PNMR 2015 Term Loan through its maturity on March 9, 2018. In 2017, PNMR entered into three separate four-year hedging agreements that effectively established fixed interest rates of 1.926%, 1.823%, and 1.629%, plus customary spreads over LIBOR, subject to change if there is a change in PNMR’s credit rating, for three separate tranches, each of $50.0 million, of its variable rate debt.
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 and for renewable energy resources
Expanding the electric transmission and distribution systems
Purchasing nuclear fuel

Projected capital requirements for 2021-2025 are:    
 20212022-2025Total
 (In millions)
Construction expenditures$1,016.5 $2,944.7 $3,961.2 
Dividends on PNMR common stock112.4 449.8 562.2 
Dividends on PNM preferred stock0.5 2.1 2.6 
Total capital requirements$1,129.4 $3,396.6 $4,526.0 

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 net investments of $277.2 million in 2021 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 are expenditures for PNM’s Wired for the Future capital initiative that includes investments in transmission and distribution infrastructure to deliver clean energy, enhance customer satisfaction, and increase grid resilience. Not included in the table above are potential future contribution to NMRD and incremental expenditures for new customer growth in New Mexico and Texas, and other transmission and renewable energy expansion in 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. See Note 6 for a discussion of regulatory and contractual restrictions on the payment of dividends by PNM and TNMP.
During the year ended December 31, 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. The PNM 2019 $40.0 million Term Loan matures in June 2021. In addition, PNM has $146.0 million of PCRBs that must be repriced and $160.0 million of SUNs that mature in October 2021. PNMR has $300.0 million of PNMR 2018 SUNs that mature in March 2021. PNMR intends to utilize the remaining capacity of $220.0 million under the PNMR 2020 Delayed-Draw Term Loan to repay an equivalent amount of the PNMR 2018 SUNs. The $150.0 million PNMR 2019 Term Loan matures in June 2021. The $150.0 million PNMR 2020 Term Loan, borrowings under the $300.0 million PNMR Delayed-Draw Term Loan, and the $65.0 million PNMR Development Term Loan all mature in January 2022. See Note 7 for additional information about the Company’s long-term debt and equity arrangements. Funds received from the issuance of approximately 6.2 million shares of PNMR common stock in December 2020 under the PNMR 2020 Forward Equity Sale Agreements were used to repay existing indebtedness and for other corporate purposes. The Company may also enter into new arrangements similar to the existing agreements, borrow under the revolving credit facilities, or issue 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. Depending on market conditions, the Company may refinance other debt issuances or make additional debt repurchases in the future.

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Liquidity
PNMR’s liquidity arrangements include the $300.0 million PNMR Revolving Credit Facility, the $400.0 million PNM Revolving Credit Facility, and the $75.0 million TNMP Revolving Credit Facility. The PNMR and PNM facilities currently expire in October 2023 but can be extended through October 2024, subject to approval by a majority of the lenders. The TNMP Revolving Credit Facility matures in September 2022 and contains two one-year extension options, subject to approval by a majority of the lenders. PNM also has a $40.0 million revolving credit facility with banks having a significant presence in New Mexico that expires in December 2022. PNMR Development has a $40.0 million revolving credit facility that expires in January 2022. PNMR Development has the option, subject to lender approval, to further increase the capacity of this facility to $50.0 million upon 15-days advanced notice. 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. See Note 21. 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 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 EndedYear Ended December 31
December 31, 202020202019
Range of BorrowingsLowHighLowHighLowHigh
(In millions)
PNM:
PNM Revolving Credit Facility$— $35.5 $— $147.9 $— $53.4 
PNM 2017 New Mexico Credit Facility— 20.0 — 40.0 — 40.0 
TNMP Revolving Credit Facility— 25.0 — 74.9 — 55.0 
PNMR Revolving Credit Facility10.0 203.5 10.0 203.5 20.0 112.1 
PNMR Development Revolving Credit Facility— 17.0 — 17.0 — 38.9 
At December 31, 2020, the average interest rates were 1.66% for the PNMR Revolving Credit Facility, 1.41% for the PNM 2017 New Mexico Credit Facility, and 1.15% for the PNMR Development Revolving Credit Facility. There were no borrowings outstanding under the PNM and TNMP Revolving Credit Facilities at December 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 7, in January 2020 PNMR entered into the PNMR 2020 Equity Forward Sale Agreements for 6.2 million shares of PNMR common stock and physically settled all the shares for an aggregate of $283.1 million in net proceeds. 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 2021 - 2025 period, including interim financing to fund construction of replacement resources prior to the issuance of the Securitized Bonds included in PNM’s SJGS Abandonment Application. This could include new debt and/or equity issuances, including instruments such as mandatory convertible securities. 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 or other short-term loans. However, if market conditions worsen, the Company may not be able to access the capital markets or renew credit facilities when they expire. Should that occur, the Company would seek to improve cash flows by reducing capital expenditures and exploring other available alternatives.
    Currently, all of the credit ratings issued by both Moody’s and S&P on the Company’s debt are investment grade. In August 2019, Moody’s affirmed the credit rating and stable outlook for PNMR, PNM and TNMP. On December 18, 2019, S&P upgraded the issuer rating of TNMP to A- from BBB+, maintained the senior secured debt rating of TNMP at A, and maintained the outlook for TNMP as negative. On June 25, 2020, Moody's assigned PNM a short-term issuer rating of P-2. On June 22, 2020, S&P assigned PNM a short-term issuer rating of A-2. 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. On April 6, 2020, S&P reduced the issuer credit ratings for PNMR, PNM, and 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
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stable outlook for each entity. In addition, S&P reduced PNM's preferred stock rating to BB+. On September 1, 2020, Moody's affirmed the credit rating and stable outlook for PNM. On September 4, 2020, Moody's affirmed the credit rating for PNMR and TNMP, affirmed the stable outlook for PNMR, and changed TNMP's rating outlook from stable to negative. Upon the announcement of the Merger on October 21, 2020, S&P revised its ratings outlook from stable to positive for PNMR, PNM, and TNMP and affirmed each of the ratings. Moody's published an Issuer Comment stating that PNMR's acquisition by Avangrid would be credit positive for PNMR.
As of February 19, 2021, ratings on the Company’s securities were as follows:
 PNMRPNMTNMP
S&P
Issuer ratingBBBBBBBBB+
Senior secured debt**A
Senior unsecured debtBBB-BBB*
Short-term issuer rating*A-2*
Preferred stock*BB+*
Moody’s
Issuer ratingBaa3Baa2A3
Senior secured debt**A1
Senior unsecured debtBaa3Baa2*
Short-term issuer rating*P-2*
* Not applicable
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 February 19, 2021, is as follows:
PNMTNMPPNMR
Separate
PNMR DevelopmentPNMR
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 $855.0 
Amounts outstanding as of February 19, 2021:
Revolving Credit Facility$— $27.4 $38.9 $10.0 $76.3 
PNM 2017 New Mexico Credit Facility— — — — — 
Letters of credit2.2 — 3.4 — 5.6 
Total short-term debt and letters of credit2.2 27.4 42.3 10.0 81.9 
Remaining availability as of February 19, 2021$437.8 $47.6 $257.7 $30.0 $773.1 
Invested cash as of February 19, 2021$32.6 $— $0.9 $— $33.5 
(1) Availability for the PNM Revolving Credit Facility does not reflect a reduction of $100.3 million that PNM has reserved to provide liquidity support for the PNM Floating Rate PCRBs.
In addition to the above, PNMR has $30.3 million of letters of credit outstanding under the WFB LOC Facility. The above table excludes intercompany debt. As of February 19, 2021, PNM, and TNMP had no intercompany borrowings from PNMR. PNMR Development had $0.4 million in 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 $650.0 million of Senior Unsecured Notes that expires in May 2023.
Off-Balance Sheet Arrangements
PNMR has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.


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Commitments and Contractual Obligations
The following table sets forth PNMR’s long-term contractual obligations as of December 31, 2020. See Note 8 for further details about the Company’s significant leases.
 Payments Due
Contractual Obligations20212022-20232024-20252026 and ThereafterTotal
(In thousands)
Long-term debt (a)
$576,000 $904,845 $559,000 $1,254,198 $3,294,043 
Interest on long-term debt (b)
71,329 121,377 106,822 445,852 745,380 
Leases (c)
34,260 57,167 21,893 29,977 143,297 
Transmission service arrangements17,293 29,044 7,475 4,009 57,821 
Coal contracts (d)
100,296 75,799 73,628 217,555 467,278 
Coal mine reclamation (e) (f)
4,916 20,098 44,646 45,510 115,170 
Nuclear decommissioning funding requirements (f) (i)
1,300 2,600 2,600 — 6,500 
SJGS plant decommissioning funding requirements— 14,670 — — 14,670 
Information technology outsourcing6,879 12,324 3,402 — 22,605 
Pension and retiree medical (g)
1,434 2,737 2,519 — 6,690 
Construction expenditures (h)
1,016,473 1,526,442 1,418,327 — 3,961,242 
Total (j)
$1,830,180 $2,767,103 $2,240,312 $1,997,101 $8,834,696 
(a)Represents total long-term debt, excluding unamortized discounts, premiums, and issuance costs (Note 7)
(b)Represents interest payments during the period
(c)Amounts exclude expected future payments of $26.7 million that could be avoided if certain leases were returned and the lessor is able to recover the estimated market value of the equipment from third parties and includes payments under the PVNGS leases through their expiration dates (Note 8)
(d)Represents certain minimum payments that may be required under the coal contracts in effect on December 31, 2020 if no deliveries are taken for SJGS and Four Corners. See Note 17 for information related to the Four Corners Abandonment Application
(e)Includes funding of trusts for post-term reclamation related to the mines serving SJGS and Four Corners (Note 16)
(f)These obligations represent funding based on the current rate of return on investments
(g)The Company only forecasts funding for its pension and retiree medical plans for the next five years
(h)Represents forecasted construction expenditures, including nuclear fuel, under which substantial commitments have been made; the Company only forecasts capital expenditures for the next five years; see Capital Requirements above and Note 14
(i)PNM currently collects $1.3 million per year from retail jurisdictional customers for nuclear decommissioning funding related to PVNGS Unit 3. These amounts will be contributed to the trust for nuclear decommissioning so long as they are collected in customer rates. See Note 17 for a discussion of the NMPRC’s treatment of certain future decommissioning costs related to PVNGS Units 1 and 2
(j)PNMR is unable to reasonably estimate the timing of liability for uncertain income tax positions (Note 18) in individual years due to uncertainties in the timing of the effective settlement of tax positions and, therefore, PNMR’s liability of $13.2 million is not reflected in this table; amounts PNM is obligated to pay Valencia are not included above since Valencia is consolidated by PNM, as discussed in Note 10; no amounts are included above for the New Mexico Wind, Lightning Dock Geothermal, Red Mesa Wind, Casa Mesa Wind, La Joya Wind I, La Joya Wind II, and NMRD Solar and Wind PPAs, and the Tri-State hazard sharing agreement since there are no minimum payments required under those agreements

Contingent Provisions of Certain Obligations
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 most significant consequences resulting from these contingent requirements are detailed in the discussion below.
The PNMR Revolving Credit Facility, PNM Revolving Credit Facility, PNM 2017 New Mexico Credit Facility, and the TNMP Revolving Credit Facility contain “ratings triggers,” for pricing purposes only. If PNMR, PNM, or TNMP is downgraded or upgraded by the ratings agencies, the result would be an increase or decrease in interest cost. 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, Prior to July 2018, these facilities, as well as the Company’s other term loans, each
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contained a covenant requiring the maintenance of debt-to-capitalization ratio of less than or equal to 65%. In July 2018, PNMR’s facilities were amended such that PNMR is now required to maintain a debt-to-capitalization ratio of less than or equal to 70%. The debt-to-capitalization ratio requirement remains at less than or equal to 65% for the PNM and TNMP facilities. If these ratios were exceeded, the entity could be required to repay all borrowings under its facility, be prevented from borrowing on the unused capacity under the facility and be required to provide collateral for all outstanding letters of credit issued under the facility.
If a contingent requirement were to be triggered under the PNM facilities resulting in an acceleration of the repayment of outstanding loans, a cross-default provision in the PVNGS leases could occur if the accelerated amount is not paid. If a cross-default provision is triggered, the PVNGS lessors have the ability to accelerate their rights under the leases, including acceleration of all future lease payments. The Company’s revolving credit facilities and term loan agreements also include cross-default provisions (Note 8).
PNM’s standard purchase agreement for the procurement of natural gas for its fuel needs contains a contingent requirement that could require PNM to provide collateral for its gas purchase obligations if the seller were to reasonably believe that PNM was unable to fulfill its payment obligations under the agreement.
The master agreement for the sale of electricity in the WSPP contains a contingent requirement that could require PNM to provide collateral if the credit ratings on its debt falls below investment grade. The WSPP agreement also contains a contingent requirement, commonly called a “material adverse change” provision, which could require PNM to provide collateral if a material adverse change in its financial condition or operations were to occur. Additionally, PNM utilizes standard derivative contracts to financially hedge and trade energy. These agreements contain contingent requirements that require PNM to provide security if the credit rating on its debt falls below investment grade. The Company believes its financing arrangements are sufficient to meet the requirements of the contingent provisions.

No conditions have occurred that would result in any of the above contingent provisions being implemented.

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.
 December 31,
PNMR20202019
PNMR common equity38.3 %35.8 %
Preferred stock of subsidiary0.2 0.2 
Long-term debt61.5 64.0 
Total capitalization100.0 %100.0 %
PNM 
PNM common equity51.4 %45.2 %
Preferred stock0.3 0.4 
Long-term debt48.3 54.4 
Total capitalization100.0 %100.0 %
TNMP
Common equity49.2 %52.9 %
Long-term debt50.8 47.1 
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 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
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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 the 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 has advanced its understanding of climate change by participating in the “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-Related Financial Disclosures’ (“TCFD”) recommendations for sustainability reporting. On November 19, 2019, TCFD announced the formation of the TCFD Advisory Group on Climate-Related Guidance. EPRI was 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 to assist in 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 results of operations, financial position, or cash flows.

Greenhouse Gas Emissions Exposures

In 2019, GHG associated with PNM’s interests in its fossil-fueled generating plants included approximately 5.6 million metric tons of CO2, which comprises the vast majority of PNM’s GHG.

As of December 31, 2020, approximately 63% of PNM’s generating capacity, including resources owned, leased, and under PPAs, all of which is located within the 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 2015. Variations are primarily due to how much and how often the wind blows. Similarly, 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 Note 8.

PNM has several programs underway to reduce or offset GHG from its generation resource portfolio, thereby reducing its exposure to climate change regulation. As described in Note 16, 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 32% of GHG from the Company’s owned interests in SJGS, below 2005 levels. In 2020, PNM received authorization for a June 2022 abandonment of SJGS Units 1 and 4. In addition, PNM has filed a request with the NMPRC for approval to sell its ownership interest in Four Corners by the end of 2024. See additional discussion of the SJGS and Four Corners Abandonment in Note 17. If approved by the NMPRC, retiring PNM’s share of SJGS and exiting participation in Four Corners would further reduce PNM’s GHG as those two coal-fired stations represent approximately 84% of PNM’s 2019 GHG emissions from generation.

As of December 31, 2020, PNM owns or procures power under PPAs from 651 MW of capacity from renewable generation resources. This is comprised of solar-PV, wind, and geothermal facilities including 158 MW of PNM owned solar and 130 MW of solar-PV capacity to serve a data center located in PNM’s service territory. This amount will increase to 1,057 MW in 2021, as 306 MW of wind and 100 MW of solar-PV are anticipated to begin commercial operation to serve retail customers and the data center located in PNM’s service territory. Finally, the entire portfolio of replacement resources approved by the NMPRC on July 29, 2020, in PNM’s SJGS Abandonment Application, includes replacement of SJGS capacity with procurement of 650 MW of solar PPAs combined with 300 MW of battery storage agreements. These resources will result in PNM owning, leasing, or procuring through PPAs, capacity from renewable resources and battery storage facilities totaling 2,007 MW plus the capacity from PVNGS resources totaling 402 MW for a total of 2,409 MW from emissions-free resources. See additional discussion of these resources in Notes 16 and 17.

PNM also has a customer distributed solar generation program that represented 161.0 MW at December 31, 2020. PNM’s distributed solar programs will make an estimated 322.0 GWh of emission-free solar energy available this year to offset PNM’s annual production from fossil-fueled electricity generation. PNM has offered its customers a comprehensive portfolio
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of energy efficiency and load management programs since 2007. PNM’s cumulative savings from these programs was approximately 5,194 GWh of electricity through 2020. Over the next 20 years, PNM projects energy efficiency and load management programs will provide the equivalent of approximately 9,500 GWh of electricity savings, which will avoid at least 1.0 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. Moreover, the effects of COVID-19 are still undetermined and will likely impact the energy efficiency savings for 2020. However, PNM is unable to quantify these impacts at this time.

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.

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 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 Prevention 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 are required 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 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 Carbon Pollution Standards for new, modified, and reconstructed power plants (under Section 111(b)); (2) the Clean Power Plan for existing power plants (under Section 111(d)); and (3) a proposed federal plan associated with the 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 capture and sequestration. The 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
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only). The emission standards were 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, and the challenges successfully petitioned the US Supreme Court for a stay of the Clean Power Plan. However, before the DC Circuit could issue an opinion regarding either the Carbon Pollution Standards or the Clean Power Plan, President Trump took office and his administration asked the court to hold both cases in abeyance while the rules were re-evaluated, which the court granted.

On June 19, 2019, EPA repealed the Clean Power Plan, promulgated the ACE Rule, and revised the implementing regulations for all emission guidelines issued under CAA Section 111(d). EPA set the BSER for existing coal-fired power plants as heat rate efficiency improvements based on a range of “candidate technologies” to be applied inside the fence-line. Rather than setting a specific numerical standard of performance, EPA’s rule directed states to determine which of the candidate technologies to apply to each coal-fired unit and to establish standards of performance based on the degree of emission reduction achievable based on the application of BSER.

While corresponding NSR reform regulations were proposed as part of the proposed ACE Rule, the final rule did not include such reform measures. Unrelated to the ACE Rule, EPA 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 final rule on NSR Project Emissions Accounting became effective on December 24, 2020 clarifying that both emissions increases and decreases resulting from a project are to be considered in determining whether the proposed project will result in an increase in air emissions, but the rule may be reconsidered by the Biden Administration.

On January 19, 2021, the U.S. Court of Appeals for the District of Columbia Circuit issued an opinion in American Lung Association and American Public Health Association v. EPA, et al. regarding challenges to the EPA’s ACE Rule regulating emissions of carbon dioxide from EGUs under section 111(d) of the Clean Air Act. The D.C. Circuit vacated the ACE Rule and remanded the record to EPA for further consideration consistent with the court’s opinion, finding that EPA misinterpreted the Clean Air Act when it determined that the language of section 111 unambiguously barred consideration of emissions reductions options that were not applied at the source. Unless the court issues a stay of its mandate, the mandate for its decision will issue in March 2021 after the deadline passes for petitions for rehearing or rehearing en banc, although an appeal via petitions for certiorari to the US Supreme Court will remain available until June 2021. EPA has filed a motion seeking a partial stay of the mandate as to the repeal of the Clean Power Plan, to ensure the court’s order will not render effective the now out-of-date Clean Power Plan, but the court has not yet acted on that motion. The litigation over the Carbon Pollution Standards remains held in abeyance, but could be reactivated by the parties upon a determination by the court that the Biden Administration is unlikely to finalize the revisions proposed in 2018 and that reconsideration of the rule has concluded.

On January 20, 2021, President Biden signed an executive order “Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis,” which instructs agency heads to review all Trump Administration actions for inconsistency with the Biden Administration’s policy “to listen to the science; to improve public health and protect our environment; to ensure access to clean air and water; to limit exposure to dangerous chemicals and pesticides; to hold polluters accountable, including those who disproportionately harm communities of color and low-income communities; to reduce greenhouse gas emissions; to bolster resilience to the impacts of climate change; to restore and expand our national treasures and monuments; and to prioritize both environmental justice and the creation of the well-paying union jobs necessary to deliver on these goals.” Agency heads are directed to consider suspending, revising or rescinding any action that is inconsistent with the stated policy. Within 30 days of the executive order, agency heads must submit to OMB a preliminary list of those actions being considered for suspension, revision or rescission that would be completed by December 31, 2021, and would be subject to OMB review. Within 90 days of the executive order, agency heads must submit to OMB an updated list of such actions that would be completed by December 31, 2025. EPA is expected to review the ACE Rule pursuant to this executive order.

Federal Legislation

Prospects for enactment in Congress of legislation imposing a new or enhanced regulatory program to address climate change remain highly likely in 2021.  President Biden has indicated that climate change is a top priority for his administration. A number of legislative proposals to address climate change are already being considered in the Democratic-led U.S. House of Representatives, but the thin majority held by the Democrats in the Senate may make enactment of new laws to address climate change difficult.

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 comparable basis.  The IRP is required to take into consideration risk and uncertainty of fuel supply, price volatility, and costs
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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 evolving 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 2020 filing for Four Corners Abandonment, PNM analyzed resource portfolio plans for scenarios that assumed Four Corners will operate through 2031 and for scenarios that assumed PNM will exit Four Corners at the end of 2024. The key findings of the analysis include that exiting Four Corners in 2024 would provide long-term economic benefits to PNM’s customers. See Note 17.

Senate Bill 489, known as the Energy Transition Act (“ETA”) was signed into New Mexico state law and became 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 “energy transition 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 a 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 resources 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 16. PNM expects the ETA will have a significant impact on PNM’s future generation portfolio, including PNM’s scheduled 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. The NM Supreme Court issued a subsequent opinion, on July 23, 2020, more fully explaining the legal rationale for the January 29, 2020 ruling. 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 issuance of Securitized Bonds. See additional discussion of PNM’s SJGS Abandonment Application in Note 17. PNM has also requested approval of energy transition bonds for the Four Corners Abandonment costs of that transition away from coal-fired generation. PNM cannot predict the full impact of the ETA or the outcome of 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 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 approximately 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 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 U.S. INDC was part of an overall effort by the former administration to have the U.S. achieve economy-wide reductions of around 80% by 2050.  The former administration’s GHG reduction target for the electric utility industry was a key element of its INDC and was based on EPA’s GHG regulations for new, existing, and modified and reconstructed sources at that time. Thresholds
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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 U.S. would withdraw from the Paris Agreement. As a result of the President’s notice to the United Nations, the U.S. officially withdrew from the Paris Agreement on November 4, 2020. On January 20, 2021, President Biden signed an instrument that will allow the United States to rejoin the Paris Agreement on Climate Change. The instrument was deposited with the United Nations on January 21, 2021, and the United States officially became a party to the Agreement on February 19, 2021.

PNM has calculated GHG reductions that would result from scenarios that assume PNM’s scheduled retirement of its share of the SJGS in 2022 and would exit from Four Corners in either 2024 or 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 is required to comply with the recently enacted ETA, which requires utilities’ generating portfolio be 100% carbon-free by 2045. The requirements of the ETA and the Company’s goal compare favorably to the 26% - 28% by 2025 U.S. INDC and the former administration’s effort to achieve an 80% reduction in carbon emissions by 2050. On April 1, 2020, the NMPRC approved PNM’s application to retire its share of SJGS in 2022. PNM filed for abandonment of Four Corners on January 8, 2021. See Note 17.

PNM will continue to monitor the United States’ re-entry into the Paris Agreement and other parties’ involvement in these types of 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 Notes 16 and 17.  While PNM currently expects the retirement of SJGS in 2022 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 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.

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 U.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. 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
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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 16 and 17 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 management to apply accounting policies and to make estimates and judgments that best provide the framework to report the results of operations and financial position for PNMR, PNM, and TNMP. As a result, there exists the likelihood that materially different amounts would be reported under different conditions or using different assumptions. Management has identified the following accounting policies that it deems critical to the portrayal of the financial condition and results of operations and that involve significant subjectivity. The following discussion provides information on the processes utilized by management in making judgments and assumptions as they apply to its critical accounting policies.

Regulatory Accounting

The Company is subject to the provisions of GAAP for rate-regulated enterprises and records assets and liabilities resulting from the effects of the ratemaking process, which would not be recorded under GAAP for non-regulated entities. Additional information concerning regulatory assets and liabilities is contained in Note 13.

The Company continually evaluates the probability that regulatory assets and liabilities will impact future rates and makes various assumptions in those analyses. The expectations of future rate impacts are generally based on orders issued by regulatory commissions or historical experience, as well as discussions with applicable regulatory authorities. If future recovery or refund ceases to be probable, the Company would be required to write-off the portion that is not recoverable or refundable in current period earnings.

The Company has made adjustments to regulatory assets and liabilities that affected its results of operations in the past due to changes in various factors and conditions impacting future cost recovery. Based on its current evaluation, the Company believes that future recovery of its regulatory assets is probable.

Impairments

Tangible long-lived assets are evaluated for impairment when events and circumstances indicate that the assets might be impaired. These potential impairment indicators include management’s assessment of fluctuating market conditions as a result of planned and scheduled customer purchase commitments; future market penetration; changing environmental requirements; fluctuating market prices resulting from factors including changing fuel costs and other economic conditions; long-term weather patterns; and other market trends. The amount of impairment recognized, if any, is the difference between the fair value of the asset and the carrying value of the asset and would reduce both the asset and current period earnings. Variations in the assessment of potential impairment or in the assumptions used to calculate an impairment could result in different outcomes, which could lead to significant effects on the Consolidated Financial Statements. See Notes 16 and 17.

Goodwill is evaluated for impairment at least annually, or more frequently if events and circumstances indicate that the goodwill might be impaired. Impairment testing may be performed based on either a qualitative analysis or quantitative analysis. Note 19 contains information on the impairment testing performed by the Company on goodwill. For 2020, the Company utilized a qualitative analysis for the PNM reporting unit and a quantitative analysis for the TNMP reporting unit. No impairments were indicated in the Company’s annual goodwill testing, which was performed as of April 1, 2020. Since the annual evaluation, there have been no indications that the fair values of the reporting units with recorded goodwill have decreased below the carrying values. The annual testing was based on certain critical estimates and assumptions. Changes in the estimates or the use of different assumptions could affect the determination of fair value and the conclusion of impairment for each reporting unit.

Application of the qualitative goodwill impairment test requires evaluating various events and circumstances to determine whether it is not more likely than not that the fair value of a reporting unit is less than its carrying amount. As a part of the Company’s goodwill qualitative testing process for a reporting unit, various factors that are specific to the reporting unit as well as industry and macroeconomic factors are evaluated in order to determine whether these factors are reasonably likely to have a material impact on the fair value of the reporting unit. Examples of the factors that were considered in the qualitative testing of the goodwill include the results of the most recent quantitative impairment test, current and long-term forecasted financial results, regulatory environment, credit rating, changes in the interest rate environment, and operating strategy for the reporting unit.

Based on the analysis performed for the PNM and TNMP reporting units in 2020, the Company concluded that there were no changes that were reasonably likely to cause the fair value of the reporting units to be less than their carrying value and
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determined that there was no impairment of goodwill. Although the Company believes all relevant factors were considered in the qualitative impairment analysis to reach the conclusion that goodwill is not impaired, significant changes in any one of the assumptions could produce a significantly different result potentially leading to the recording of an impairment that could have significant impacts on the results of operations and financial position of the Company.

Decommissioning and Reclamation Costs

PNM is only required to recognize and measure decommissioning liabilities for tangible long-lived assets for which a legal obligation exists. Accounting for decommissioning costs for nuclear and fossil-fuel generation involves significant estimates related to costs to be incurred many years in the future after plant closure. Decommissioning costs are based on site-specific estimates, which are updated periodically and involve numerous judgments and assumptions, including estimates of future decommissioning costs at current price levels, inflation rates, and discount rates. Changes in these estimates could significantly impact PNMR’s and PNM’s financial position, results of operations, and cash flows. Nuclear decommissioning costs are based on estimates of the costs for removing all radioactive and other structures at PVNGS. AROs, including nuclear decommissioning costs, are discussed in Note 15. Nuclear decommissioning costs represent approximately 76% of PNM’s ARO liability. A 10% increase in the estimates of future decommissioning costs at current price levels would have increased the ARO liability by $10.0 million at December 31, 2020. PVNGS Units 1 and 2 are included in PNM’s retail rates while PVNGS Unit 3 was excluded through 2017 but is included beginning in 2018. PNM recognizes an expense and a corresponding liability for ultimate decommissioning of PVNGS. See Note 17 for information concerning NMPRC’s order to address the recovery of decommissioning costs in a future proceeding.

In connection with both the SJGS coal agreement and the Four Corners fuel agreement, the owners are required to reimburse the mining companies for the cost of contemporaneous reclamation, as well as the costs for final reclamation of the coal mines.  The reclamation costs are based on periodic site-specific studies that estimate the costs to be incurred in the future and are dependent upon numerous assumptions, including estimates of future reclamation costs at current price levels, inflation rates, and discount rates. A 10% increase in the estimates of future reclamation costs at current price levels would have increased the mine reclamation liability by $9.8 million at December 31, 2020. PNM considers the contemporaneous reclamation costs part of the cost of its delivered coal costs.  The NMPRC has capped the amount that can be collected from ratepayers for final reclamation of the surface mines. If future estimates increase the liability for surface mine reclamation, the excess would be expensed at that time. See Note 16 for discussion of reclamation costs.

Pension and Other Postretirement Benefits

The Company maintains qualified defined benefit pension plans, postretirement benefit plans providing medical and dental benefits, and executive retirement programs. The net periodic benefit cost or income and the calculation of the projected benefit obligations are recognized in the Company’s financial statements and depend on expected investment performance, the level of contributions made to the plans, and employee demographics. These calculations require the use of a number of actuarial assumptions and estimates. The most critical of the actuarial assumptions are the expected long-term rate of return, the discount rate, and projected health care cost trend rates. The Company reviews and evaluates its actuarial assumptions annually and adjusts them as necessary. Changes in the pension and OPEB assets and liabilities associated with these factors are not immediately recognized as net periodic benefit cost or income in results of operations, but are recognized in future years, generally, over the remaining life of the plan. However, these factors could have a significant impact on the financial position of the Company. Note 11 contains additional information about pension and OPEB obligations, including assumptions utilized in the calculations and impacts of changes in certain of those assumptions.

Accounting for Contingencies

The financial results of the Company may be affected by judgments and estimates related to loss contingencies. Contingencies related to litigation and claims, as well as environmental and regulatory matters, also require the use of significant judgment and estimation. The Company attempts to take into account all known factors regarding the future outcome of contingent events and records an accrual for any contingent loss events that are both probable of occurring and can be reasonably estimated based upon current available information. However, the actual outcomes can vary from any amounts accrued which could have a material effect on the results of operations and financial position of the Company. See Note 16 and Note 17.

Income Taxes

The Company’s income tax expense and related balance sheet amounts involve significant judgment and use of estimates. Amounts of deferred income tax assets and liabilities, current and noncurrent accruals, and determination of uncertain tax positions involve judgment and estimates related to timing and probability of the recognition of income and deductions by taxing authorities. In addition, some temporary differences are accorded flow-through treatment by the Company’s regulators and impact the Company’s effective tax rate. In assessing the likelihood of the realization of deferred tax assets, management considers the estimated amount and character of future taxable income. Significant changes in these judgments and estimates could have a material impact on the results of operations and financial position of the Company. Actual income taxes could vary from estimated amounts due to the future impacts of various items, including changes in income tax laws, the Company’s forecasted financial condition and results of operations in future periods, and the final review from taxing authorities. See Note 18.
A - 62


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.

ITEM 7A.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 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

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 9, including a summary of the fair values of mark-to-market energy related derivative contracts included in the Consolidated Balance Sheets. During the years ended December 31, 2020 and 2019, the Company had no commodity derivative instruments designated as cash flow hedging instruments.

Commodity contracts that meet the definition of a derivative, are recorded at fair value on the Consolidated Balance Sheets. The impact of commodity derivative mark-to-market energy transactions were not material to the Company’s financial position, results of operations, or cash flows as of and for the years ended December 31, 2020 and 2019.

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.
A - 63


Schedule of Credit Risk Exposure
December 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$1,131 $1,115 
Non-investment grade— — — 
Split ratings— — — 
Internal ratings:
Investment grade889 860 
Non-investment grade— — — 
Total$2,020 $1,975 
(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 December 31, 2020, PNMR held $0.9 million of cash collateral to offset its credit exposure.

Net credit risk for the Company’s largest counterparty as of December 31, 2020 was $1.1 million.

Other investments have no significant counterparty credit risk.

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 long-term debt instruments for PNMR, PNM, and TNMP would increase by 9.1%, 15.7%, and 5.4%, if interest rates were to decline by 50 basis points from their levels at December 31, 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. The Company is exposed to interest rate risk to the extent of future increases in variable interest rates. However, as discussed in Note 7, 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 February 19, 2021, 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 Facility1.62 %38,900 $300,000 
PNM Revolving Credit Facility— — 400,000 
PNM 2017 New Mexico Credit Facility— — 40,000 
TNMP Revolving Credit Facility0.86 27,400 75,000 
PNMR-D Revolving Credit Facility1.13 10,000 40,000 
76,300 $855,000 
Long-term Debt:
PNM 2019 $40.0 Million Term Loan0.77 %$40,000 
PNMR 2019 Term Loan1.23 150,000 
PNMR 2020 Term Loan1.08 150,000 
PNMR 2020 Delayed-Draw Term Loan1.38 80,000 
PNMR Development Term Loan1.50 65,000 
$485,000 
A - 64


The investments held by PNM in trusts for decommissioning, reclamation, pension benefits, and other post-employment benefits had an estimated fair value of $1.1 billion at December 31, 2020, of which 44.5% 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 December 31, 2020, the decrease in the fair value of the fixed-rate securities would be 3.9%, or $12.5 million. The securities held by TNMP in trusts for pension and other post-employment benefits had an estimated fair value of $79.1 million at December 31, 2020, of which 32.3% were fixed-rate debt securities that subject TNMP to risk of loss of fair value with movements in market interest rates. If interest rates were to increase by 50 basis points from their levels at December 31, 2020, the decrease in the fair value of the fixed-rate securities would be 6.4%, or $0.6 million.

PNM and TNMP do not directly recover or return through rates any losses or gains on the securities, including equity and alternative investments discussed below, in the trusts for decommissioning, reclamation, pension benefits, and other post-employment benefits. 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. The NMPRC ruled in the NM 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 purchased and leased by PNM in rates charged to retail customers. The NM Supreme Court ruled that the NMPRC’s decision to disallow recovery of such future contributions for decommissioning denied PNM due process and remanded the matter back to the NMPRC for further proceedings. See Note 17. PNM and TNMP are at risk for shortfalls in funding of obligations due to investment losses, including those from the equity market and alternatives investment 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 and trusts established for PNM’s and TNMP’s pension and post-employment benefits plans include certain equity securities at December 31, 2020. These equity securities expose PNM and TNMP to losses in fair value should the market values of the underlying securities decline. Equity securities comprised 45.3% and 52.6% of the securities held by the various PNM and TNMP trusts as of December 31, 2020. A hypothetical 10% decrease in equity prices would reduce the fair values of these funds by $50.8 million for PNM and $4.2 million for TNMP.

Alternatives Investment Risk

As of December 31, 2020, PNM and TNMP had 19.6% of its combined pension assets invested in the alternative asset class. The Company’s target for this class is 15%. Alternative investments include investments in hedge funds, real estate funds, and private equity funds. The hedge funds and private equity funds are limited partner structures that are structured as multi-manager multi-strategy fund of funds to achieve a diversified position in these asset classes. The general partner oversees the selection and monitoring of the underlying managers. The hedge funds pursue various absolute return strategies such as relative value, long-short equity, and event driven. Private equity fund strategies include mezzanine financing, buy-outs, and venture capital. The real estate investments are commingled real estate portfolios that invest in a diversified portfolio of assets including commercial property and multi-family housing. The Company’s Corporate Investment Committee, assisted by its investment consultants, monitors the performance of the funds and general partner’s investments process. There is risk associated with these funds due to the nature of the strategies and techniques and the use of investments that do not have readily determinable fair values. A hypothetical 10% decrease in equity prices would reduce the fair values of these funds by $9.8 million.
A - 65

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
INDEX
 
B - 1

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of PNM Resources, Inc. and subsidiaries (“PNMR”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended.
Management assessed the effectiveness of PNMR’s internal control over financial reporting based on the Internal Control – Integrated Framework (2013) set forth by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment performed, management concludes that PNMR’s internal control over financial reporting was effective as of December 31, 2020.
The effectiveness of our internal control over financial reporting as of and for the year ended December 31, 2020 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their audit report which is included herein.
/s/ Patricia K. Collawn
Patricia K. Collawn,
Chairman, President, and Chief Executive Officer
/s/ Joseph D. Tarry
Joseph D. Tarry
Senior Vice President and Chief Financial Officer
B - 2

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
Management of Public Service Company of New Mexico and subsidiaries (“PNM”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended.
Management assessed the effectiveness of PNM’s internal control over financial reporting based on the Internal Control – Integrated Framework (2013) set forth by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment performed, management concludes that PNM’s internal control over financial reporting was effective as of December 31, 2020.
/s/ Patricia K. Collawn
Patricia K. Collawn,
President and Chief Executive Officer
/s/ Joseph D. Tarry
Joseph D. Tarry
Senior Vice President and Chief Financial Officer
B - 3

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
Management of Texas-New Mexico Power Company and subsidiaries (“TNMP”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended.
Management assessed the effectiveness of TNMP’s internal control over financial reporting based on the Internal Control – Integrated Framework (2013) set forth by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment performed, management concludes that TNMP’s internal control over financial reporting was effective as of December 31, 2020.
/s/ Patricia K. Collawn
Patricia K. Collawn,
Chief Executive Officer
/s/ Joseph D. Tarry
Joseph D. Tarry
Senior Vice President and Chief Financial Officer
B - 4


Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
PNM Resources, Inc.:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of PNM Resources, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of earnings, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement Schedules I - Condensed Financial Information of Parent Company and Schedule II - Valuation and Qualifying Accounts (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
B - 5

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Pension and other postretirement benefit obligations
As discussed in Note 11 to the consolidated financial statements, the Company maintains qualified defined benefit pension plans and postretirement benefit plans providing medical and dental benefits. The Company’s total estimated pension plans’ projected benefit obligation and postretirement benefit plans’ accumulated postretirement benefit obligation were $800.3 million as of December 31, 2020.
We identified the evaluation of the pension and other postretirement benefit obligations as a critical audit matter. This was due to the specialized skills and knowledge required to understand the Company’s actuarial models and evaluate the assumptions related to the determination of the discount rates utilized in the measurement of the pension and other postretirement benefit obligations. In addition, there was subjectivity in performing procedures due to the sensitivity of the actuarial models to changes in the discount rates used to determine the present value of the projected benefit obligation and accumulated postretirement benefit obligation.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the pension and other postretirement benefit obligations process, including controls related to the development of the discount rates used and the evaluation of the actuarial models. We involved actuarial professionals with specialized skills and knowledge, who assisted in:
understanding the actuarial models used by the Company to calculate its projected benefit obligation and accumulated postretirement benefit obligation, for consistency with generally accepted actuarial standards,

evaluating the Company’s discount rates, by understanding the methodology used to develop them, and

comparing the changes in the discount rates from the prior year against changes in published indices.

Palo Verde Nuclear Generating Station asset retirement obligation
As discussed in Notes 1 and 15 to the consolidated financial statements, the Company recorded an asset retirement obligation (ARO) liability of $138.4 million as of December 31, 2020 for the estimated future cost of nuclear decommissioning and other asset retirement activities at the Palo Verde Nuclear Generating Station (PVNGS).

We identified the evaluation of the PVNGS ARO liability for nuclear decommissioning costs as a critical audit matter. This was due to the specialized skills and knowledge needed to evaluate the Company’s selection of planned decommissioning activities to satisfy their legal obligation and determine the associated estimates of decommissioning costs of those selected activities. In addition, there was subjectivity in performing procedures due to the sensitivity of the PVNGS ARO liability to changes in the estimates of decommissioning costs.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the PVNGS ARO, including controls related to the selection of planned decommissioning activities and the estimated decommissioning costs associated with those activities. We involved professionals with specialized skills and knowledge, who assisted in:

Assessing (1) the professional qualifications of the Company’s third-party engineering specialists and engineering firm, (2) the knowledge, skill, and ability of the Company’s third-party engineering specialists, and (3) the relationship of the third-party engineering specialists and the engineering firm to the Company.

B - 6

Evaluating the Company’s planned decommissioning activities and estimates of decommissioning costs for those activities. This included evaluating the third-party engineering specialist’s reports, which are based on the engineering specialist’s observations of the physical characteristics of PVNGS, and comparing the planned activities to third-party information such as guidance obtained from the United States Nuclear Regulatory Commission, which specifies acceptable decommissioning plans.

Assessing the Company’s rationale for changes in the estimate of decommissioning costs from the prior year and evaluating the changes.

/s/ KPMG LLP

We have served as the Company’s auditor since 2013.
Albuquerque, New Mexico
March 1, 2021

B - 7


Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Public Service Company of New Mexico:

Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Public Service Company of New Mexico and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of earnings, comprehensive income, changes in equity, and cash flows for each of the years in the three‑year period ended December 31, 2020, and the related notes and financial statement Schedule II – Valuation and Qualifying Accounts (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Pension and other postretirement benefit obligations
As discussed in Note 11 to the consolidated financial statements, the Company maintains qualified defined benefit pension plans and postretirement benefit plans providing medical and dental benefits. The Company’s total estimated pension plans’ projected benefit obligation and postretirement benefit plans’ accumulated postretirement benefit obligation were $720.3 million as of December 31, 2020.
We identified the evaluation of the pension and other postretirement benefit obligations as a critical audit matter. This was due to the specialized skills and knowledge required to understand the Company’s actuarial models and evaluate the assumptions related to the determination of the discount rates utilized in the measurement of the pension and other postretirement benefit obligations. In addition, there was subjectivity in performing procedures due to the sensitivity of the actuarial models to changes in the discount rates used to determine the present value of the projected benefit obligation and accumulated postretirement benefit obligation.
B - 8

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the pension and other postretirement benefit obligations process, including controls related to the development of the discount rates used and the evaluation of the actuarial models. We involved actuarial professionals with specialized skills and knowledge, who assisted in:
understanding the actuarial models used by the Company to calculate its projected benefit obligation and accumulated postretirement benefit obligation, for consistency with generally accepted actuarial standards,

evaluating the Company’s discount rates, by understanding the methodology used to develop them, and

comparing the changes in the discount rates from the prior year against changes in published indices.

Palo Verde Nuclear Generating Station asset retirement obligation
As discussed in Notes 1 and 15 to the consolidated financial statements, the Company recorded an asset retirement obligation (ARO) liability of $138.4 million as of December 31, 2020 for the estimated future cost of nuclear decommissioning and other asset retirement activities at the Palo Verde Nuclear Generating Station (PVNGS).

We identified the evaluation of the PVNGS ARO liability for nuclear decommissioning costs as a critical audit matter. This was due to the specialized skills and knowledge needed to evaluate the Company’s selection of planned decommissioning activities to satisfy their legal obligation and determine the associated estimates of decommissioning costs of those selected activities. In addition, there was subjectivity in performing procedures due to the sensitivity of the PVNGS ARO liability to changes in the estimates of decommissioning costs.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the PVNGS ARO, including controls related to the selection of planned decommissioning activities and the estimated decommissioning costs associated with those activities. We involved professionals with specialized skills and knowledge, who assisted in:

Assessing (1) the professional qualifications of the Company’s third-party engineering specialists and engineering firm, (2) the knowledge, skill, and ability of the Company’s third-party engineering specialists, and (3) the relationship of the third-party engineering specialists and the engineering firm to the Company.

Evaluating the Company’s planned decommissioning activities and estimates of decommissioning costs for those activities. This included evaluating the third-party engineering specialist’s reports, which are based on the engineering specialist’s observations of the physical characteristics of PVNGS, and comparing the planned activities to third-party information such as guidance obtained from the United States Nuclear Regulatory Commission, which specifies acceptable decommissioning plans.

Assessing the Company’s rationale for changes in the estimate of decommissioning costs from the prior year and evaluating the changes.

/s/ KPMG LLP

We have served as the Company’s auditor since 2013.
Albuquerque, New Mexico
March 1, 2021



B - 9


Report of Independent Registered Public Accounting Firm
To the Stockholder and Board of Directors
TexasNew Mexico Power Company:

Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of TexasNew Mexico Power Company and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of earnings, changes in common stockholder’s equity, and cash flows for each of the years in the three‑year period ended December 31, 2020, and the related notes and Schedules II – Valuation and Qualifying Accounts (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Pension and other postretirement benefit obligations
As discussed in Note 11 to the consolidated financial statements, the Company maintains qualified defined benefit pension plans and postretirement benefit plans providing medical and dental benefits. The Company’s total estimated pension plans’ projected benefit obligation and postretirement benefit plans’ accumulated postretirement benefit obligation were $80.0 million as of December 31, 2020.
We identified the evaluation of the pension and other postretirement benefit obligations as a critical audit matter. This was due to the specialized skills and knowledge required to understand the Company’s actuarial models and evaluate the assumptions related to the determination of the discount rates utilized in the measurement of the pension and other postretirement benefit obligations. In addition, there was subjectivity in performing procedures due to the sensitivity of the actuarial models to changes in the discount rates used to determine the present value of the projected benefit obligation and accumulated postretirement benefit obligation.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the pension and other postretirement benefit
B - 10

obligations process, including controls related to the development of the discount rates used and the evaluation of the actuarial models. We involved actuarial professionals with specialized skills and knowledge, who assisted in:
understanding the actuarial models used by the Company to calculate its projected benefit obligation and accumulated postretirement benefit obligation, for consistency with generally accepted actuarial standards,

evaluating the Company’s discount rates, by understanding the methodology used to develop them, and

comparing the changes in the discount rates from the prior year against changes in published indices.

/s/ KPMG LLP

We have served as the Company’s auditor since 2013.
Albuquerque, New Mexico
March 1, 2021

B - 11


PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
 
 Year Ended December 31,
 202020192018
 (In thousands, except per share amounts)
Electric Operating Revenues
Contracts with customers$1,469,799 $1,377,208 $1,359,740 
Alternative revenue programs(11,994)(542)1,756 
Other electric operating revenue65,207 80,937 75,117 
Total electric operating revenues1,523,012 1,457,603 1,436,613 
Operating Expenses:
Cost of energy447,241 412,812 399,726 
Administrative and general216,334 189,227 188,470 
Energy production costs137,977 142,545 149,477 
Regulatory disallowances and restructuring costs1,098 151,095 65,598 
Depreciation and amortization275,612 267,808 241,188 
Transmission and distribution costs77,943 69,862 76,434 
Taxes other than income taxes81,526 80,054 79,673 
Total operating expenses1,237,731 1,313,403 1,200,566 
Operating income285,281 144,200 236,047 
Other Income and Deductions:
Interest income14,223 14,022 15,540 
Gains (losses) on investment securities21,599 29,589 (17,176)
Other income19,973 15,382 17,586 
Other (deductions)(18,732)(15,328)(15,696)
Net other income and (deductions)37,063 43,665 254 
Interest Charges114,392 121,016 127,244 
Earnings before Income Taxes207,952 66,849 109,057 
Income Taxes (Benefits)20,636 (25,282)7,775 
Net Earnings187,316 92,131 101,282 
(Earnings) Attributable to Valencia Non-controlling Interest(14,013)(14,241)(15,112)
Preferred Stock Dividend Requirements of Subsidiary(528)(528)(528)
Net Earnings Attributable to PNMR$172,775 $77,362 $85,642 
Net Earnings Attributable to PNMR per Common Share:
Basic$2.16 $0.97 $1.07 
Diluted$2.15 $0.97 $1.07 
The accompanying notes, as they relate to PNMR, are an integral part of these consolidated financial statements.
B - 12


PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 Year Ended December 31,
 202020192018
 (In thousands)
Net Earnings$187,316 $92,131 $101,282 
Other Comprehensive Income (Loss):
Unrealized Gains on Available-for-Sale Securities:
Unrealized holding gains arising during the period, net of income tax (expense) of $(5,736), $(6,534), and $(963)16,850 19,190 2,827 
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $2,412, $3,572, and $970(7,085)(10,491)(2,849)
Pension Liability Adjustment:
Experience gains (losses), net of income tax (expense) benefit of $(1,562), $973, and $2,6374,587 (2,856)(7,745)
Reclassification adjustment for amortization of experience losses recognized as net periodic benefit cost, net of income tax (benefit) of $(2,108), $(1,880), and $(1,922)6,192 5,524 5,646 
Fair Value Adjustment for Cash Flow Hedges:
Change in fair market value, net of income tax (expense) benefit of $(323), $888, and $(145)948 (2,607)425 
Reclassification adjustment for losses included in net earnings, net of income tax (benefit) of $442, $(186), and $(56)(1,298)547 160 
Total Other Comprehensive Income (Loss)20,194 9,307 (1,536)
Comprehensive Income207,510 101,438 99,746 
Comprehensive (Income) Attributable to Valencia Non-controlling Interest(14,013)(14,241)(15,112)
Preferred Stock Dividend Requirements of Subsidiary(528)(528)(528)
Comprehensive Income Attributable to PNMR$192,969 $86,669 $84,106 
The accompanying notes, as they relate to PNMR, are an integral part of these consolidated financial statements.
B - 13


PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 31,
 202020192018
 (In thousands)
Cash Flows From Operating Activities:
Net earnings$187,316 $92,131 $101,282 
Adjustments to reconcile net earnings to net cash flows from operating activities:
 Depreciation and amortization
314,668 301,068 275,641 
Deferred income tax expense (benefit)20,405 (25,385)8,019 
(Gains) losses on investment securities(21,599)(29,589)17,176 
Stock based compensation expense8,141 6,414 7,120 
Regulatory disallowances and restructuring costs1,098 151,095 65,598 
Allowance for equity funds used during construction(11,254)(9,478)(10,404)
Other, net3,497 2,395 3,529 
Changes in certain assets and liabilities:
Accounts receivable and unbilled revenues(42,035)3,796 (8,702)
Materials, supplies, and fuel stock11,512 (6,095)(5,331)
Other current assets(8,135)1,872 2,491 
Other assets29,923 42,803 (840)
Accounts payable7,403 (272)(20,714)
Accrued interest and taxes(9,347)14,691 1,713 
Other current liabilities23,740 (7,212)2,614 
Other liabilities(29,633)(35,071)(10,966)
Net cash flows from operating activities485,700 503,163 428,226 
Cash Flows From Investing Activities:
Additions to utility and non-utility plant(679,028)(616,273)(501,213)
Proceeds from sales of investment securities590,998 494,528 984,533 
Purchases of investment securities(607,591)(513,866)(1,007,022)
Investments in NMRD(23,250)(38,250)(9,000)
Principal repayments on Westmoreland Loan56,640 
Other, net(14,928)(37)338 
Net cash flows from investing activities(733,799)(673,898)(475,724)
The accompanying notes, as they relate to PNMR, are an integral part of these consolidated financial statements.
B - 14


PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 31,
 202020192018
 (In thousands)
Cash Flows From Financing Activities:
Short-term loan borrowings (repayments)(150,000)50,000 
Revolving credit facilities borrowings (repayments), net(153,100)99,200 (119,500)
Long-term borrowings1,267,845 745,000 984,652 
Repayment of long-term debt(977,845)(407,302)(750,162)
Issuance of common stock283,208 
Proceeds from stock option exercise24 943 963 
Awards of common stock(11,984)(9,918)(12,635)
Dividends paid(98,502)(92,926)(84,961)
Valencia’s transactions with its owner(18,056)(15,401)(17,095)
Amounts received under transmission interconnection arrangements11,452 10,015 4,060 
Refunds paid under transmission interconnection arrangements(5,905)(4,325)(2,830)
  Other, net(4,943)(2,840)(6,846)
Net cash flows from financing activities292,194 172,446 45,646 
Change in Cash and Cash Equivalents44,095 1,711 (1,852)
Cash and Cash Equivalents at Beginning of Year3,833 2,122 3,974 
Cash and Cash Equivalents at End of Year$47,928 $3,833 $2,122 
Supplemental Cash Flow Disclosures:
Interest paid, net of amounts capitalized$106,575 $115,476 $119,308 
Income taxes paid (refunded), net$969 $(2,929)$842 
Supplemental schedule of noncash investing and financing activities:
(Increase) decrease in accrued plant additions$(58,796)$8,781 $(11,502)
Contribution of utility plant to NMRD$801 $$578 
The accompanying notes, as they relate to PNMR, are an integral part of these consolidated financial statements.



B - 15


PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 December 31,
 20202019
 (In thousands)
ASSETS
Current Assets:
Cash and cash equivalents$47,928 $3,833 
Accounts receivable, net of allowance for uncollectible accounts of $8,333 and $1,163113,410 85,889 
Unbilled revenues55,504 57,416 
Other receivables23,797 12,165 
Materials, supplies, and fuel stock66,417 77,929 
Regulatory assets202 7,373 
Income taxes receivable5,672 4,933 
Other current assets64,549 44,472 
Total current assets377,479 294,010 
Other Property and Investments:
Investment securities440,115 388,832 
Equity investment in NMRD90,655 65,159 
Other investments284 356 
Non-utility property, including financing leases24,075 12,459 
Total other property and investments555,129 466,806 
Utility Plant:
Plant in service, held for future use, and to be abandoned8,480,799 7,918,601 
Less accumulated depreciation and amortization2,835,170 2,713,503 
5,645,629 5,205,098 
Construction work in progress218,719 161,106 
Nuclear fuel, net of accumulated amortization of $41,367 and $42,354100,801 99,805 
Net utility plant5,965,149 5,466,009 
Deferred Charges and Other Assets:
Regulatory assets557,790 556,930 
Goodwill278,297 278,297 
Operating lease right-of-use assets, net of accumulated amortization105,133 131,212 
Other deferred charges100,877 105,510 
Total deferred charges and other assets1,042,097 1,071,949 
$7,939,854 $7,298,774 
The accompanying notes, as they relate to PNMR, are an integral part of these consolidated financial statements.







B - 16


PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 December 31,
 20202019
 (In thousands, except share
information)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term debt$32,000 $185,100 
Current installments of long-term debt575,518 490,268 
Accounts payable169,317 103,118 
Customer deposits6,606 10,585 
Accrued interest and taxes68,206 76,815 
Regulatory liabilities7,471 505 
Operating lease liabilities27,460 29,068 
Dividends declared28,243 24,625 
Other current liabilities62,841 47,397 
Total current liabilities977,662 967,481 
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs2,719,632 2,517,449 
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes694,512 626,058 
Regulatory liabilities850,228 866,243 
Asset retirement obligations183,421 181,962 
Accrued pension liability and postretirement benefit cost58,101 95,037 
Operating lease liabilities81,065 105,512 
Other deferred credits255,230 185,753 
Total deferred credits and other liabilities2,122,557 2,060,565 
Total liabilities5,819,851 5,545,495 
Commitments and Contingencies (See Note 16)00
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 85,834,874 and 79,653,624 shares)1,429,941 1,150,552 
Accumulated other comprehensive income (loss), net of income taxes(79,183)(99,377)
Retained earnings698,707 627,523 
Total PNMR common stockholders’ equity2,049,465 1,678,698 
Non-controlling interest in Valencia59,009 63,052 
Total equity2,108,474 1,741,750 
$7,939,854 $7,298,774 
The accompanying notes, as they relate to PNMR, are an integral part of these consolidated financial statements.

B - 17


PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 Attributable to PNMR
Non-
controlling
Interest
in Valencia
 
 Total PNMR Common Stockholder’s Equity 
Common
Stock
AOCIRetained
Earnings
Total
Equity
 (In thousands)
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 9)— (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— — 86,170 86,170 15,112 101,282 
Total other comprehensive income (loss)— (1,536)— (1,536)— (1,536)
Subsidiary preferred stock dividends— — (528)(528)— (528)
Dividends declared on common stock— — (86,425)(86,425)— (86,425)
Proceeds from stock option exercise963 — — 963 — 963 
Awards of common stock(12,635)— — (12,635)— (12,635)
Stock based compensation expense7,120 — — 7,120 — 7,120 
Valencia’s transactions with its owner— — — — (17,095)(17,095)
Balance at December 31, 20181,153,113 (108,684)643,953 1,688,382 64,212 1,752,594 
Net earnings before subsidiary preferred stock dividends— — 77,890 77,890 14,241 92,131 
Total other comprehensive income— 9,307 — 9,307 — 9,307 
Subsidiary preferred stock dividends— — (528)(528)— (528)
Dividends declared on common stock— — (93,792)(93,792)— (93,792)
Proceeds from stock option exercise943 — — 943 — 943 
Awards of common stock(9,918)— — (9,918)— (9,918)